THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES SCHOOL OF LAW /tol^^2^^ SELECTION OF CASES ON PEIVATE CORPORATIONS. BY JEREMIAH gMITH, STORY PROFESSOR OF LAW IN HARVARD UKIVERSITT. SECOND EDITION, m TWO VOLUMES. Vol. I. CAMBRIDGE: THE HARVARD LAW REVIEW PUBLISHING ASSOCIATION. 1902. Copyright, 1901 and 190S^ By Jebemiah Smith T PRINTED DY H. O. HOUGHTON & CO. CAMBRIDGE, MASS. U. S. A. in PREFACE TO SECOND EDITION. This edition differs from the first in the following respects : — 1. The order of the topics has been changed. 2. Some new topics have been added, 3. New cases have been added : not only under new topics, but also under many of the old topics. 4. Some cases which were inserted in the former edition have been omitted, and some others have been abridged. J. S. April, 1902. 73538G PREFACE TO FIRST EDITION. When Professor Gumming was preparing his " Cases on Private Corporations," in 1892, the list of cases then in use on that subject at the Harvard Law School was placed at his service, with the under- standing that the same list was liable to be used by me, at any time after one year, in preparing a selection of cases on the same subject. Such use has now been made of that list. This explains the similar- ity between Professor Cumming's book and the present work, in re- gard to the cases selected on some topics. JEREMIAH SMITH. April, 1897. TABLE OF CONTENTS. VOLUME I. Paob Table of Selected Cases xi CHAPTER I. Defikition of Corporation 1 CHAPTER II. Distinction between Corporation and Stockholder 32 Section I. The Distinction applied Generally 32 Section II. The Distinction as applied to Questions of Taxation . 68 Section III. The Distinction as applied to Jurisdiction of U. S. Court on the Ground of Diversity of Citizenship 94 CHAPTER III. Creation of Corporation 103 Section I. By what Authority, and in what Method 103 Section II. Acceptance of Charter 109 Section III. Conditions Precedent to Incorporation Z>e /«re. "One Man Company " 118 CHAPTER IV. Corporations de Facto 149 CHAPTER V. AcQxnsrriON of Membership — Subscriptions for Stock 212 CHAPTER VI. Promoters 232 CHAPTER VII. Interpretation of Charters •••• 262 Vi TABLE OF CONTENTS. CHAPTER Vin. Paoe Powers usually Implied 295 Section I. Power to acquire Property by Purchase 295 Section II. Power to acquire Property by Devise 301 Section III. Power to alienate. Power to mortgage 305 Section IV. Power to borrow Money. Power to issue Negotiable Notes 317 Section V. Power to make By-Laws 327 CHAPTER IX. Mode of Contracting and of Appointing Agents 328 CHAPTER X. Directors 344 Section I. Powers of Directors 344 Section II. Duty of Care due from the Directors to the Corpora- tion 358 Section III. Special Interest of Director, — how affecting Action taken by Board. Dealings between Director and Corporation 386 CHAPTER XI. Voting Rights of Stockholders 407 CHAPTER XII. Power of Majority of Stockholders 446 CHAPTER XIII. Stockholder's Right to inspect Corporate Records and Papers 483 CHAPTER XIV. Stockholder's Right to bring Suit in Reference to Corporate Management, or to protect Corporate Interests 494 CHAPTER XV. Dividends. Preferred Stock 581 CHAPTER XVI. Transfer of Shares 612 CHAPTER XVII. Forfeiturk ok Charter — now enforced. Suit by State, or by Citizen, to restrain ultha vires Acts, or to compel Perform- ance OF Corporate Duties 687 TABLE OF CONTENTS. Vll VOLUME II. CHAPTER XVIII. Paor Liability of Corporation for Torts. Right of a Corporation to SUE for a Tort 733 CHAPTER XIX. Liability of Corporation for Crimes and Contempts 791 Effect of Ultra Section I. Section II. Section III. Section IV. Section V. Section VI. Section VII. Section VIII. Section IX. Section X. CHAPTER XX. Vires Transactions 806 Transaction within the Apparent Authority of the Cor- poration, and rendered Ultra Vires only by Reason of the Purpose entertained by the Corporation, or by other Extrinsic Facts 807 Executed Transfers to or from Corporation in Excess of Charter Authority . . . . • 810 Ultra Vires Lease. Remedies in Case of Repudiation by either Party before the Expiration of the Term 822 Bequest to Corporation in Excess of Charter Author- ity .. . 833 Suits for Specific Performance of Contracts which are in Excess of Charter Authority ; or for Declara- tions of Trust for Purposes in Excess of Charter Authority 851 Ultra Vires Contract remaining wholly Executory on both Sides, or executed only in Part by either Side. Action for Breach, or for Cancellation .... 855 Suit by Corporation on an Ultra Vires Contract which has been fully performed on its Part . . . 866 Suit against Corporation on an Ultra Vires Contract which has been fully performed on the Plaintiff's Part 877 Obligation to restore what was received under a Contract which has subsequently been repudiated on the ground of Ultra Vires 927 Liability of Corporator where there is Crime, Tort, or Ultra Vires Contract on the Part of the Corpora- tion 944 CHAPTER XXI, Rights and Remedies of Creditors against Property of Corpo- ^ RATION 96g Section I. GeneraUy qqq Section II. Effect of Dissolution upon respective Rights of Cred- itors and Stockholders ; and upon the Enforcement of Corporate Contracts 978 Section III. Rights and Remedies of Creditors in Cases of Con-^ solidation, Merger, or Transfer of Assets to another Corporation 1006 viii TABLE OF CONTENTS. CHAPTER XXII. Paob Power of Insolvent Corporation to prefer Particular Credi- tors 1016 CHAPTER XXIII. Creditor's Suit to correct or restrain Corporate Manage- ment. Creditor's Suit against Directors 1029 CHAPTER XXIV. Right of Corporate Creditor to compel Shareholder to pay the Full Par Value of his Stock. Rights of Shareholders inter sese to compel such payments 1038 CHAPTER XXV. Statutory Liability of Stockholder to Creditor of Corporation, OVER AND above STOCKHOLDER'S LIABILITY TO PAY IN FuLL THE Amount subscribed by him for Stock 1087 CHAPTER XXVI. Power of Corporation to become a Member of a Copartnership OR Trust. Corporation formed for the Purpose of establish- ing A Monopoly 1096 CHAPTER XXVII. Power of Corporation to own Shares in another Corporation 1125 CHAPTER XXVIII. Power of Corporation to purchase its own Shares 1137 CHAPTER XXIX. Modes of Dissolution other than by Forfeiture or by Reserved Legislative Power of Repeal 1153 CHAPTER XXX. Corporate Receivership 1157 Section I. Grounds for the Appointment of a Receiver .... 1157 Section II. Rights and Liabilities of Receivers 1178 CHAPTER XXXI. Foreign Corporations 1202 TABLE OF CONTENTS. IZ CHAPTER XXXII. Paob Legislative Control 1246 Section Section II. Section Section in. IV. How far Repeal, Change of Charter, or Confiscation is prohibited by the tJ. S. Constitution, or by State Constitutions 1246 Extent of Police Power, where Charter does not con- tain any Express Reservation of Power .... 1306 Reserved Power in Legislature to repeal Charter . 1331 Reserved Power in Legislature to alter or amend Charter 1363 TABLE OF SELECTED CASES. Paob Aberdeen R. R. v. Blaikie 386 Ambrose Lake, &c. Co., In re 563 American Nat. Bank v. American Wood Paper Co 339 American Union Telegraph Co. v. Union Pacific R. Co 826 Andover, Trustees of Free Schools in v. Flint 1088 Andrews Bros. Co. v. Youngstown Coke Co 22 Anonymous (12 Modern, 559) 791 Ashbury Railway &c. Co. v. Riche 903 Ashton V. Burbank 451 Ashuelot R. R. v. Elliott 1391 Aspen, &c. Co. v. City of Aspen 126 Atchison, &c. R. R. v. Campbell 1442 Athol Music Hall Co. v. Carey • . 216 Attorney General v. Tudor Ice Co 709 Attorney General, Ex parte 999 Atwool V. Merryweather 516 Augusta, Bank of v. Earle 1202 Aurora &c. Society v. Paddock 305 Bacon v. Robertson 995 Bahia & San Francisco R. Co., In re 640 Baltimore, &c. Association v. Alderson 1198 Baltimore, Mayor of v. B. & O. R. R 85 Bank, American Nat. v. American Wood Paper Co 339 Bank, California Nat. v. Kennedy 1132 Bank, Continental Nat. v. Eliot Nat. Bank 680 Bank, First Nat. of Deadwood v. Gustin, &c. Mining Co 1057 Bank, Monroe Savings v. Rochester 81 Bank, Monument Nat. v. Globe Works 807 Bank, Narragansett v. Atlantic Silk Co 202 Bank, Nassau v. Jones 855 Bank, National, of JeflPerson v. Texas, &c. Co 126 Bank, Pacific Nat. v. Eaton 230 Bank, Royal, of Liverpool v. Grand Junction R. & D. Co 337 Bank, Stockton Savings v. Staples 295 Bank, Union v, Jacobs 321 Bank of Augusta v. Earle 1202 Bank of Columbia v. Patterson 331 Bank of Michigan v. Niles 851 xii TABLE OF SELECTED CASES. FAea Bftnk of U. S. V. Dandridge 329 Bank of U. S. v. Deveaux 94 Baroness Wenlock v. River Dee Co 928 Bartholomew v. Derby, &c. Co 470 Bateman v. Mid- Wales R. Co 318 Bates V. Coronado Beach Co 1102 Bath Gas Light Co. v. Claffy 870 Beatty v. N. W. Transportation Co 437 Beer Co., Boston v. Massachusetts 1314 Bent V. Priest 390 Binghamton Bridge 286 Bissell V. Michigan, &c. R. Cos 877 Black V. Delaware, &c. Co 477 Boatman's Ins. & T. Co. v. Able 618 Bolander v. Stevens 9 Booth V. Robinson 1125 Boston Beer Co. v. Massachusetts 1314 Boston C. & M. R. R. V. Gilmore 970 Boston Glass Manufactory v. Langdon 1153 Boston Music Hall Association v. Cory 663 Boyce v. Trustees of Towsontown, &c 210 Boyd I'. Am. Carbon Black Co 1104 Bradbury v. Boston Canoe Club 317 Bradley v. Reppell 191 Brewer v. Boston Theatre 514 Bridge, Charles River v. Warren Bridge 273 Bridge, The Binghamton 286 Bridge Co., Chenango v. Binghamton Bridge Co 286 Bridge Co., Franklin v. Wood 103 Bridge Co., N. Y. & L. I. v. Smith 696 Bright V. Lord 604 Brightman v. Bates 434 Broderip v. Salomon 131 Brooklyn Steam Transit Co. v. City of Brooklyn 694 Brundred v. Rice 944 Brunswick, &c. Co. v. United &c. Co 870 Bryant's Pond, &c. Co. v. Felt 219 Buffalo & N. Y. C. R. Co. v. Dudley 1365 Bundy V. Ophir Iron Co 42 Burges & Stock's Case 927 Burrill V. Nahant Bank 353 Burt V. British &c. Association 558 Bushnell v. Consolidated, &c. Co 177 Button V. Hoffman 44 California Nat. Bank v. Kennedy 1132 Callender v. Painesville, &c. R. R .208 Catnden, &c. R. R. v. Mays, &c. R. R 806 Campbell's Case 403 Carr w. Iglehart 1087 Case V. Kelley 853 TABLE OF SELECTED CASES. xiu Paob Cash Register Co., National v. Leland 955 Catlin V. Eagle Bank 1016 Central R. R. & Banking Co. v. Smith 778 Central Transportation Co. v. Pullman Car Co 269 Chadwick t;. Old Colony R. R 312 Charles River Bridge v. Warren Bridge 273 Chenango Bridge Co. v. Biughamton Bridge Co 286 Cheraw & Chester R. Co. v. White 123 Chestnut Hill &c. Turnpike Co. v. Rutter 738 Chicago, Burlington & Quincy R. R. v. Iowa 1316 Chicago City R. R. v. Allerton 355 Childs V. Bank of State of Missouri 747 Cincinnati, &c. Co. v. Hoffmeister 490 City of Detroit v. Detroit & Howell Plank Road Co 1414 Clapp V. Peterson 1149 Cleveland City Forge Iron Co. v. Taylor, &c. Co 1030 Coit V. Gold Amalgamating Co 1061 Columbia, Bank of v. Patterson 331 Columbus Ins. Co. v. Walsh 1225 Commonwealth v. Bringhurst 407 Commonwealth v. Crompton 620 Commonwealth v. Essex Co 1368 Commonwealth v. Smith 308 Commonwealth v. Union, &c. Ins. Co 698 Compagnie, &c., De Bellegarde, In re 403 Comstock, In re 1226 Continental Nat. Bank v. Eliot Nat. Bank 680 Cook V. City of Burlington 74 Covington Drawbridge Co. v. Shepherd 973 Cumberland Coal Co. v. Sherman 391 Currie's Case . . 1043 Curtin V. Salmon River Co 394 Dartmouth College, Trustees of v. Woodward 1246 Davenport v. Dows 523 Davidson College, Trustees of v. Chambers' Executors 833 Davis V. Old Colony R. R 909 Davis V. Smith Amer. Organ Co 909 Davis V. Stevens 156 Davis V. U. S. Electric, &c. Co 1130, 1167 De Bellegarde, In re Compagnie, &c 403 Deaderick v. Bank 1032 Deadwood, First Nat. Bank of v. Gustin, &c. Mining Co 1057 Delaware L. & W. R. R. v. Erie R. R 1170 Denver Fire Ins. Co. v. McClelland 912 Detroit, City of v. Detroit & Howell Plank Road Co 1414 Distillery, &c. Feeding Co. v. People 1117 Dodge V. Woolsey 498 Dovey v. Corey 378 Dow V. Northern R. R 479, 1418 Downing v. Mt. Washington R. Co 262 Xiy TABLE OF SELECTED CASES. Pass Dudley v. Kentucky High School 446 Duncuft V. Albrecht i . . . . 612 Dunphy v. Traveller, &c. Association 529 Dupee V. Boston Water Power Co 1137 Durfee v. Old Colony, &c. R. R 1373 Eagle Ins. Co. v. Ohio 1320 East Birmingham Land Co. v. Dennis 626 Eastern Counties R. Co. v. Broom 749 Edwards v. Standard R. S. Syndicate 1157 Ellerman v. Chicago, &c. R. R 348 Ellis V. Marshall 114 Elyton Land Co. v. Dowdell 466 Empress Engineering Co., In re 253 Erie & North-East R. Co. v. Casey 1334 Erlanger v. New Sombrero, &c. Co 232 Ewing V. Composite Brake Shoe Co 1008 Ex parte The Attorney-General 999 Ex parte Williamson 933 Fairfield County Turnpike v. Thorp 64 Falk V. Curtis Pub. Co 799 Farmers' Loan, &c. Co. r. N. Y. & N. R. R 534 Farrington v. Putnam 844 Fayette Land Co. v. Louisville, &c. R. R 816 Finnegan v. Noerenberg 149 First Nat. Bank of Deadwood v. Gustin, &c. Mining Co 1057 Fiske, Estate oi, hi re 838 Fitzwater v. Bank of Seneca 521 Ford V. Easthampton, &c. Co 588 Forrest v. Manchester, &c. R. Co 552 Fort Madison Lumber Co. v. Batavian Bank 673 Fosdick V. Schall 1194 Foss V. Ilarbottle 507 Foster v. Commissioners Inland Revenue 51 Franklin Bridge Co. v. Wood 103 Free Schools in Andover, Trustees of v. Flint 1088 Gallagher v. Germania Brewing Co 48 Gashwiler v. Willis 344 Giljbons V. Anderson 372 Gifford V. Livingston 20 Goodspeed v. East Haddam Bank 758 Graham v. Boston II. & E. R. R o 1220 Gray v. Coffin 1095 Great Nortlicrn, &c. Coal Co., In re 1043 Groat Southern, &c. Hotel Co. v. Jones 30 Green v. London General Omnibus Co 755 Greenwood v. Leather, &c. Co 237 Greenwood v. Union Freight Co 1343 Guernaey v. Cook 444 TABLE OF SELECTED CASES. XV Paob H. & M. Tin and Copper Mining Co., In re 1063 Hanchett v. Blair 101 Handley v. Stutz 1066 Hartford & N. H. R. Co. v. Croswell 452 Harvey v. Linville Co 423 Hawes v. Oakland 524 Heard v. Talbot 687 Higginson & Dean, In re 999 Hollins V. Brierfield, &c. Co 1159 Home V. Ivy 328 Hospes u. N. & M. Co 1048 Hotchkiss and Upson Co. v. Union Nat. Bank 670 Hoyt V. Thompson 349 Huddersfield Canal Co. v. Buckley 1079 Hun V. Cary 363 Hurd V. City of Elizabeth 1199 Hurd V. New York, &c. Co 1006 Hutchinson v. American Palace Car Co 1172 Hutchinson v. Green 354 In re. [See Re.'\ Indianapolis C. & L. R. R. v. Jones 1011 Indianapolis Furnace Co. v. Herkimer 162 Ireland v. Palestine, &c. Turnpike Co 1091 Janney v. Minneapolis &c. Exposition 401 Jefferson, Nat. Bank of v. Texas Investment Co 126 Jemison v. Citizens' Saving Bank 858 Jesup V. Illinois Central R. R 392 Johnson v. Corser 165 Johnson v. Goodyear Mining Co 1323 Johnson v. Kessler 125 Joint Stock Discount Co. v. Brown 1129 Jones V. Aspen, &c. Co 151 Jones j;. Cincinnati Type Foundry Co 204 Journal Printing Co. v. MacLean 787 Junkius r. Union School District 400 Justices, Opinion of 1426 Kelner v. Baxter 244 Killen v. Barnes 1036 King, The, i;. Westwood Ill Lancaster v. Amsterdam Improvement Co 1213 Lake Shore, &c. R. Co. v. Prentice 766 Land, &c. Co. v. Mclntyre 506 Land Grant Railway v. Com'rs of Coffey County 1210 Landman v. Entwistle 249 Le Roy v. Globe Ins. Co 584 Leazure v. Hillegas 810 Lincoln Shoe Mfg. Co. v. Sheldon , . 220 Sid TABLE OF SELECTED CASES. Pagb Liverpool Ins. Co. v. Massachusetts 1 London Trust Co. v. Mackenzie 577 Long V. Georgia Pacific R. Co 814 Louisville, &c. R. R. v. Letson 97 Love ]Mfg. Co. V. Queen City Mfg. Co 1026 Lowe V. Pioneer Threshing Co. 1139 McArthur v. Times Printing Co 251 McColgan v. Baltimore Belt R. R 968 McCutcheon v. Merz Capsule Co 861 McDonald v. Williams 598 McElheuny's Appeal 242 McGraw, Estate oi, In re 838 McLennan v. Hopkins 156 McNab V. McNab & Harlin Mfg. Co 591 McNeil V. Tenth Nat. Bank 630 Mack V. DeBardeleben Coal & Iron Co 410 Madden v. Penn E. L. Co 1241 Marble Co. v. Harvey 866 Marsliall v. Baltimore & Ohio R. R. Co 99 Matthews v. Hoagland 622 Maund v. Monmouthshire Canal Co 736 Mayor, &c. of Baltimore u. B. & O. R. R 85 Mayor of Norwich v. Norfolk R. Co 338 Melvin v. Lamar Ins. Co 1074 Menier v. Hooper's Telegraph Works 531 Mercantile Trading Co., In re 593 Mercantile Trust Co. v. M. K. & T. R. R 1161 Metropolitan, &c. Co. v. Hawkins 784 Michigan, Bank of v. Niles 851 Mill V. Hawker 949 Miller u. Ewer 1219 Minneapolis Threshing, &c. Co. v. Davis 226 Mobile & Ohio R. R. Co. v. Nicholas 418 Monroe Savings Bank v. Rochester 81 Montgomery v. Forbes 158 Monument Nat. Bank v. Globe Works 807 Moore & Handley Hardware Co. v. Towers Hardware Co 56 Morisette v. Howard 306 Morris v. Elyton Land Co 468 Morrison v. Wilder Gas Co 332 Morville v. Amer. Tract Society 939 Mumma v. Potomac Co 978 Narragansett Bank v. Atlantic Silk Co 202 Nassau Bank v. Jones ^ . . . 855 National Bank of Jefferson v. Texas Investment Co 126 National Huilding Society, In re 933 National Casli Rogiater Co. v. Leland 955 National Home &c. Association v. Home Savings Bank 916 Natusch V. Irving 448 TABLE OF SELECTED CASES. XVU Pasb New Bedford R. R. v. Old Colony R. R 1009 New Orleans, &c. Association 966 New York & Long Island Bridge Co. v. Smith 696 New York & New Haven R. R. v. Schuyler 653 Newcomb v. Reed 121 NicoU V. New York & Erie R. R 297 Ninis V. Mount Hermon Boys' School 773 Norris v. Staps 327 Northern Pacific R. R. v. Townsend 316 Northern Pacific R. R. v. Washington Territory 724 Northwestern Transportation Co. v. Beatty 437 Northwestern Union Packet Co. v. Shaw 941 Norwich, Mayor of v. Norfolk R. Co 338 Oakland R. Co. v. Oakland, Brooklyn, &c. R. Co 693 O'Herron v. Gray 636 Ohio, ex rel. v. Neff 1428 Ohio & Miss. R. R. v. Wheeler 1220 Opinion of the Justices 1426 Oregon, &c. Co. v. Oregonian R. Co 270 Ottumwa Screen Co. v. Stodghill 678 Pacific Nat. Bank v. Eaton 230 Palmer v. Lawrence 128 Panhard, &c.. La Soci^t^, &c. v. Panhard, &c. Motor Co 945 Parker v. Bethel Hotel Co 36 Parrott v. Lawrence 291 Parsons v. Hayes 569 Parsons r. Joseph 560 Parsons v. Tacoma, &c. Co 474 Paul V. Virginia 1221 Peabody v. Flint 502 Pearson v. Concord R. R 1126 Pender v. Lushington 441 People V. Assessors of Watertown 18 People V. Chambers . . o 130 People V. England 948 People V. Globe M. L. I. Co 986 People V. Kankakee River Impr. Co 704 People V. Montecito Water Co 118 People V. New York Central R. R 713 People V. North River Sugar Refining Co 1108 People t;. O'Brien 1351 People, ex rel. Union Trust Co. v. Coleman 68 Perun, Society v. Cleveland 183 Philadelphia, &c. B. C. R. Co.'s Appeal 975 Philadelphia W. & B. R. R. v. Quigley 753 Phillips V. Providence, &c. Co 463 Phoenix Life Assurance Co., In re 927 Pittsburgh, &c. R. R. v. Stickley 315 Pond V. Framingham & Lowell R. R 1029 xviii TABLE OF SELECTED CASES. Pagb Porter v. Sabin 1178 Price V. Holcomb 443 Proprietors of Charles River Bridge v. Proprietors of Warren Bridge . . 273 Proprietors of Stourbridge Canal v. Wheeley 266 Queen v. Birmingham & Gloucester R. R 791 Queen v. Great North of England R. R 794 R. R., Aberdeen v. Blaikie 386 R. R., Ashuelot v. Elliot 1391 R. R., Atchison, &c. v. Campbell 1442 R. R., Bahia & San Francisco, In re 640 R. R., Boston C. & M. v. Gilmore 970 R. R., Buffalo, &c. v. Dudley 1365 R. R., Camden &c. v. Mays, &c. R. R 806 R. R., Central, and Banking Co. v. Smith 778 R. R., Cheraw & Chester v. White 123 R. R., Chicago, Burlington & Quincy v. Iowa 1316 R. R., Chicago City v. Allerton 355 R. R., Delaware L. & W. v. Erie R. R 1170 R. R., Eastern Counties v. Broom 749 R. R., Erie & North-East v. Casey 1334 R. R., Hartford & N. H. v. Croswell 452 R. R., Indianapolis C. & L. r. Jones 1011 R. R., Lake Shore, &c. v. Prentice 766 R. R., Louisville, &c. v. Letson 97 R. R., Mobile & Ohio v. Nicholas 418 R. R., New Bedford v. Old Colony R. R 1009 R. R., New York & New Haven u. Schuyler 653 R. R., Northern Pacific v. Townsend 316 R. R., Northern Pacific v. Washington Territory 724 R. R., Oakland v. Oakland, Brooklyn, &c. R. Co. 693 R. R., Ohio & Miss. v. Wheeler 1220 R. R., Philadelphia, &c. r. Quigley 753 R. R., Philadelphia & B. C, Appeal 975 R. R., Pittsburgh, &c. v. Stickley 315 R. R., St. Louis, &c. V. James 99 R. R., St. Louis, &c. V. Paul 1438 R. R., St. Louis, &c. V. Terre Haute, &c. R. R 829 R. R., Severn & Wye and Severn Bridge, In re 581 R. R., Union Pacific v. Hall 721 R. R., Union Pacific v.V.S 1400 R. R., Weatherford v. Granger 255 R. R., Wrexham, In re 936 Railway Land Grant v. Com'rs Coffey County 1210 Railway, &c. Co., Ashbury v. Riche » 903 Railway, &c. Co., Oregon v. Oregonian Railway Co 270 He Ambrose Lake, &c. Co <, o « .... c ... . 563 He Bahia & San Francisco R. Co. . . o » . 640 Re Conipagnie, &c. De Bellegarde . » . o 403 Re Comstock ....c..o« ..o.. 1226 TABLE OF SELECTED CASES. x« Paoi Re Empress Engineering Co 253 Re Estate of Fiske 838 Re Estate of McGraw 838 Re Great Northern, &c. Coal Co 1043 Re H. & M. Tin & Copper Mining Co 1063 Re Higginson'& Dean 999 Re Mercantile Trading Co 593 Re National Building Society 933 Re Phcenix Life Assurance Co 927 Re Severn & Wye and Severn Bridge R. Co 581 Re Steinway's Petition 483 Re Wrexham R. R 936 Read v. Frankfort Bank 1331 Reg. V. Birmingham & Gloucester R. Co 791 Reg. V. Great North of England R. Co 794 Rex V. Westwood Ill Roberts v. P. A. Deming &c. Co 336 Rogers V. Simmons 1233 Rosenbaum v. U. S. Credit Co 990 Ross V. Ross 34 Rouse V. Merch£(nts' Nat. Bank 1021 Royal Bank of Liverpool v. Grand Junction R. & D. Co 337 Russell V. Temple "^ . . . . 32 Russell V. Wakefield Waterworks Co 539 Rutherford v. Hill 173 St. Clair u. Cox 1234 St. Louis, &c. R. Co. V. James 99 St. Louis, &c. R. Co. V. Paul 1438 St. Louis, &c. R. Co. V. Terre Haute, &c. R. Co 829 Sabine Tram Co. v. Bancroft 1106 Sager Mfg. Co. v. Smith , 1181 Salomon v. Salomon & Co., Limited 131 Sanford v. McArthur = 957 Sawyer v. Hoag = =. 1038 Schufeldtv. Smith 1023 Scovill V. Thayer » o » 1044 Scripture v. Francestown Soapstone Co 665 Seaton v. Grant 555 Seeberger v. McCormick 960 Severn and Wye and Severn Bridge Co., In re 581 Seymour v. Spring Association 405 Shayne v. Evening Post Co 981 Shelby County v. Union, &c. Bank 86 Shepaug Voting Trust Cases 415 Sherman v. Fitch 335 Singer Mfg. Co. v. Heppenheimer 86 Sinking-Fund Case 1400 Slocum V. Providence, &c. Co 198 Slocum V. Warren 198 Smith V. Hurd 494 XX TABLE OF SELECTED CASES. Pa« Smith V. San Francisco & N. P. R. Co 426 Snider's Sons Co. v. Troy 169 Snyder v. Studebaker 180 Soci^t^ Anonyme, &c. v. Panhard, &c. Motor Co 945 Society Perun v. Cleveland 183 Spargo's Case 1063 Spering's Appeal 358 State V. Boogher 789 State V. BuU 116 State V. Commercial State Bank 994 State V. Dawson 109 State V. Fourth N. H. Turnpike Co 699 State V. L. & W. Turnpike Co 1330 State V. Oberlin, &c. Association 702 State, ex rel. Jackson v. Newman 1131 Steacy v. Little Rock, &c. R. Co 1081 Stearns v. Minnesota 1431 Steinway's Petition, In re 483 Stewart v. Lehigh Valley R. R 397 Stevens v. Rutland, &c. R. Co 455 Stockton Savings Bank v. Staples 295 Stokes V. Hoffman House 1187 Stourbridge Canal Co. v. Wheeley 266 Stoutimore i;. Clark 206 Stringer's Case 593 Swentzel v. Penn Bank 368 Taft V. Hartford, &c. R. Co 607 Telegram Newspaper Co. v. Commonwealth • 802 Thacher v. Dartmouth Bridge Co 782 Thomas v. Dakin 4 Thomas v. West Jersey R. Co 822 Thorpe v. Rutland, &c. R. Co 1306 Thrasher v. Pike County 212 Tisdale v. Harris 613 Tomkinson v. Southeastern R. Co 548 Tomlinson v. Jessup 1363 Trenton Potteries Co. v. Oliphant 1119 Trevor v. Whitworth 1140 Trustees of Dartmouth College v. Woodward 1246 Trustees of Davidson College v. Chambers' Executors 833 Trustees of Free Schools in Andover v. Flint 1088 U. S., Bank of v. Dandridge 329 U. S., Bank of v. Deveaux 94 U. S. V. John Kelso Co 796 U. S. V. Wolters 91 Union Hank v. Jacobs 321 Union M. L. L Co. v. McMillen 1225 Union Pacific R. R. v. Hall 721 Union Pacific R. R. v. United States 1400 Union Trust Co., People ex rel. v. Coleman 68 TABLE OF SELECTED CASES. xxi Paob Van Allen v. Assessors 77 Vanderbilt v. Bennett 412 Vilas V. Milwaukee, &c. R. R 1012 Voting Trust Cases, Shepaug 415 Wallamet, &c. Co. v. Kittridge 691 Waring v. Catawba Co . 50 Warner v. Beers 9 Warren v. Davenport Fire Ins. Co 59 Washburn Mill Co. r. Bartlett 874 Washington Ins. Co. v. Price 66 Weatherford, &c. R. R. v. Granger 255 Wenlock, Baroness v. River Dee Co 928 Wheeler v. Pullman Iron & Steel Co 706 Whitaker v. Delaware & Hudson Canal Co 271 White V. Howard 301 White V. Salisbury 616 Whitechurch v. Cavanaugh 648 Whittenton Mills v. Upton 1096 Williams v. Nail 1449 Williamson, Ex parte 933 Williamson v. Smoot 34 Willoughby v. Chicago Junction, &c. Co 642 Windsor, &c. Electric Co. v. Tandy 214 Winsor v. Bailey 559 Wrexham R. R., Jn re 936 Yarborough v. Bank of England 733 Yeaton t;. Bank of Old Dominion 1446 Zabriskie v. Hackensack & N. Y. R. Co 1383 Ziegler v. Lake Street El. Co 530 SELECT CASES ON PRIVATE CORPORATIONS. CHAPTER I. DEFINITIOX OF CORPORATION. LIVERPOOL, &c. INSURANCE CO. v. MASSACHUSETTS. 1870. 10 Wallace, U. S. 566.1 Error to the Supreme Court of Massachusetts. Bill in equity by State of Massachusetts to collect a tax, and to restrain company from doing further business till the tax was paid. One question raised in this case was, whether the above Insurance Company is a corporation within the meaning of the Massachusetts Statute imposing upon each fire, &c. insurance company " incorporated or associated under the laws of any government or State other than one of the United States, a tax of 4 per cent upon all premiums charged or received on contracts made in this Commonwealth for insurance of property." The facts as to the nature of the company are sufRcientlj' stated in the opinion. The Supreme Court of Massachusetts decided that the company was liable to the tax. 100 Mass. 531 [_OJiv€r\. Liverpool, &c. Ins. Co.l. B. R. Curtis and J. G. Abbott, for insurance company. Charles Allen, Attorne3--General of Massachusetts, for State. Mr. Justice Miller These propositions dispose of the case before us, if plaintiff is a foreign corporation, and was, as such, conducting business in the State of Massachusetts, and we proceed to inquire into its character in this regard. 1 Statement abridged. Arguments aud part of opinion omitted. — Ed 1 LIVERPOOL, ETC. INS. CO. V. MASSACHUSETTS. r^:^ The institution now known as the Liverpool and London Life and Fire Insurance Company, doing an immense business in England and in this country, was first organized at Liverpool by what is there called a deed of settlement, and would here be called articles of association. It will be seen by reference to the powers of the association, as or- ganized under the deed of settlement, legalized and enlarged by the acts of Parliament, that it possesses many, if not all, the attributes generally found in corporations for pecuniary profit, which are deemed essential to their corporate character. 1. It has a distinctive and artificial name by which it can make contracts. 2. It has a statutory provision by which it can sue and be sued in the name of one of its oflScers as the representative of the whole bod}-, .which is bound by the judgment rendered in such suit. 3. It has provision for perpetual succession bj' the transfer and trans- '> mission of the shares of its capital stock, whereby new members are introduced in place of those who die or sell out. 4. Its existence as an entity apart from the shareholders is recog- nized by the act of Parliament, which enables it to sue its shareholders and be sued by them. \ The subject of the powers, duties, rights, and liabilities of corpora- tions, their essential nature and character, and their relation to the business transactions of the community, have undergone a change in this country within the last half-century, the importance of which can hardly be overestimated. They have entered so extensivel}' into the business of the country', the most important part of which is carried on by them, as banking companies, railroad companies, express companies, telegraph com- panies, insurance companies, &c., and the demand for the use of cor- porate powers in combining the capital and the energy required to conduct these large operations is so imperative, that both b^' statute, and b}' the tendencj* of the courts to meet the requirements of these public necessities, the law of corporations has been so modified, liberal- ized, and enlarged, as to constitute a branch of jurisprudence with a code of its own, due mainly to very recent times. To attempt, there- fore, to define a corporation, or limit its powers by the rules which pre- vailed when they were rarely created for any other than municipal purposes, and generally by royal charter, is impossible in this country and at this time. Most of the States of the Union have general laws by which persons associating themselves together, as the shareholders in this company- have done, become a corporation. The banking business of the States of the Union is now conducted chiefly by corporations organized under a general law of Congress, and it is believed that in all the States the articles of association of this company would, if adopted with the usual formalities, constitute it a cor- poration under their general laws, or it would become so by such legis* LIVERPOOL, ETC. INS. CO. V. MASSACHUSETTS. 3 lative ratification as is given by the acts of Parliament we liave mentioned. To this view it is objected that the association is nothing but a part- | nership, because its members are liable individually for the debts of the / company. But however the law on this subject may be held in Eng- land, it is quite certain that the principle of personal liability of the shareholders attaches to a very large proportion of the corporations of this countr}', and it is a principle which Las warm advocates for its universal application when the organization is for pecuniary gain. So also it is said that the fact that there is no provision either in the deed of settlement or the act of Parliament for the company suing or being sued in its artificial name forbids the corporate idea. But we see no real distinction in this respect between an act of Parliament, which authorized suits in the name of the Liverpool and London Fire and Life Insurance Compan}', and that which authorized suit against that company in the name of its principal officer. If it can contract in thef artificial name and sue and be sued in the name of its officers on those | contracts, it is in effect the same, for process. would have to be served I on some such officer even if the suit were in the artificial name. ' It is also urged that the several acts of Parliament we have men- tioned expressly declare that they shall not be held to constitute the body a corporation. But whatever may be the effect of such a declaration in the courts of that country, it cannot alter the essential nature of a corporation or prevent the courts of another jurisdiction from inquiring into its true character, whenever that may come in issue. It appears to have been the polic}' of the English law to attach certain consequences to incor- porated bodies, which rendered it desirable that such associations as these should not become technically corporations. Among these, it would seem from the provisions of these acts, is the exemption from individual liability of the shareholder for the contracts of the corpora- tion. Such local policy can have no place here in deter mining whether jjL-association, wliose powers are ascertained, and^ its privileges e on, ferred b^lawj ig a.U i ncorporated body. The question before us is whether an association, such as the one we are considering, in attempting to carry on its business in a manner which requires corporate powers under legislative sanction, can claim, in a jurisdiction foreign to the one which gave those powers, that it is onl}' a partnership of individuals. We have no hesitation in holding that, as the law of corporations is understood in this country, the association is a corporation, and that the law of Massachusetts, which only permits it to exercise its corpo- rate function in that State on the condition of payment of a specific tax, is no violation of the Federal Constitution or of any treaty protected by said Constitution. Mr. Justice Bradley. "Whilst I agree in the result which the court has reached, I differ from it on the question whether the company is a 4 THOMAS V. DAKIN. corporation. I think it is one of those special partnerships which are called joint-stock companies, well known in England for nearly a cen- tury, and cannot maintain an action or be sued as a corporation in this countr}' without legislative aid. But as it is a company associated un- der the laws of a foreign countrj-, it comes within the scope of the Massachusetts statute, and cannot claim exemption from its operation for the causes alleged in that behalf. It could not have been the intent of the treaty of 1815 to prevent the States from imposing taxes or license laws upon either British corporations or joint-stock companies desiring to establish banking or insurance business therein. And cer- tainly these companies cannot be exempted from such laws on the ground that citizens of other States have chosen to take some of their shares. Judgment affirmed. THOMAS V. DAKIN. 1839. 22 Wendell, 9.1 N^ the Supreme Court of New York. Action brought by plaintiff Thomas as president of Bank of Central New York, an association formed under the General Banking Act of April 18, 1838, to recover several demands alleged to be due to the institution. The declaration alleged the indebtedness to be to the bank, and the promises to have been made to the bank ; concluding to the damage of the bank of $10,000 ; and, therefore, the said plaintiff, as president of the Bank of Central New York, brings suit, &c. Demurrer to declaration ; assigning, in substance, the following special causes : — 1. Plaintiff Thomas has no cause of action. 2. No authority exists in law for plaintiff to sue on behalf of the bank, or upon promises made to the bank. 3. No association of persons not incorporated are entitled by law to bring an action in the name of their president, but only in their indi- vidual names. 4. The General Banking Act of 1838, so far as it purports to authorize this suit, is unconstitutional ; and also is void because it did not receive the assent of two-thirds of all the members of the legislature. The Constitution of New York, article 7, section 9, is as follows : " The assent of two-thirds of the members elected to each branch of tlie legislature shall be requisite to every bill . . . creating, continuing, altering, or renewing any body politic or corporate." * Statement abridged from facts stated by reporter and from facts stated in the opinions. The arguments arc omitted ; also the greater part of the opinions. — Ed THOMAS V. DAKIN. 5 The provisions of the General Banking Act of 1838 are suflSciently stated in the opinion of Nelson, C. J. C. P. ICirkland, and S. A. Foote^ for plaintiffs. Ward Hunt, for defendant. Nelson, C. J. . . . Are these associations corporations? In order to determine this question, we must first ascertain the properties essen- tial to constitute a corporate body, and compare them with those conferred upon the associations ; for if they exist in common, or sub- stantially correspond, the answer will be in the affirmative. A corpo- rate body is known to the law b}' the powers and faculties bestowed upon it, expressly or impliedly, by the charter ; the use of the term corpo- ration in its creation is of itself unimportant, except as it will imply the possession of these. They may be expressl}^ conferred, and then they denote this legal being as unerringly as if created in general terms. It has been well said by learned expounders that a corporation aggre- gate is an artificial body of men, composed of divers individuals, the ligaments ofiohich body are the franchises and liberties bestowed upon it, which bind and unite all into one, and in which consists the whole frame and essence of the corporation. The "franchises and liberties," or, in more modern language, and as more strictly applicable to private corporations, the powers and faculties, which are usuall}* specified as creating corporate existence, are : 1. The capacity of perpetual succes- sion ; 2. The power to sue and be sued, and to grant and receive in its corporate name ; 3. To purchase and hold real and personal estate ; 4. To have a common seal; and 5. To make b3'-laws. These indicia were given by judges and elementar}'' writers at a very early day : since which time the institutions have greatly multiplied, their practical operation and use have been thoroughly tested, and their peculiar and essential properties much better understood. Any one comprehending the scope and purpose of them at this da}' will not fail to perceive that some of the powers above specified are of trifling importance, while others are wholly unessential. For instance, the power to purchase and hold real estate is no otherwise essential than to afford a place of business ; and the right to use a common seal, or to make by-laws, may be dispensed with altogether. For as to the one, it is now well settled that corporations may contract by resolution, or through agents, without seal ; and as to the other, the power is unnecessar}-, in all cases where the charter sufficiently provides for the government of the body. The distinguishing feature, far above all others, is the capacity conferred, by which a perpetual succession of different persons shall be regarded in the late as one and the same body^ and may at all tim,es act in fuJfilm.ent of tne objects of the association as a single individual. In this way a legal existence, a body corporate, an artificial being, is constituted ; the creation of wliich enables any number of persons to be concerned in accomplishing a particular object, as one man. "While the aggregate means and influence of all are wielded in affecting it, the operation is conducted with the simplicit}' and individualitj- of a natural THOMAS V. DAKIN. person. In this consists the essence and great value of these institu< tions. Hen ce it is apparent that the only properties that ca n be re-' garded strictly as essential, are those which are indispensabl e to mould tide dilierent persons into this artificial being, and thereby enable i t to act in the way above stated. When once constituted, this legal being created, the powers and faculties that ina}^ be conferred are various, — limited or enlarged at the discretion of the legislature, and will depend upon the nature and object of the institution, which is as competent as a natural person to receive and enjoy them. We may, in short, con- t elude by saying, with the most approved authorities at this day, that the essence of a corporation consists in a capacity : 1. To have a per- petual succession under a special name, and in an artificial form ; 2. To take and grant property, contract obligations, sue and be sued by its corporate name as an individual ; and 3. To receive and enjoy in com- mon, grants of privileges and immunities. We will now endeavor to ascertain with exactness the powers and attributes conferred upon these associations by virtue of the statute. The first fourteen sections (1 to 14) prescribe the duties of the comp- troller in furnishing notes for circulation, taking the required securities, &c. The 15th provides that an}' number of persons ma}' associate to establish offices of discount, deposit, and circulation. The 16th, that they shall make and file a certificate, specifying : 1. The nmne to be used in the business ; 2. The place where the business shall be carried on ; 3. The amount of capital stock, and number of shares into which divided ; 4. The names of the shareholders ; 5. The duration of the association. The 18th confers upon the persons thus associating the most ample powers for carrying on banking operations, together with the right " to exercise such incidental powers as shall be necessary to carry on such business ; " also to choose a president, vice-president, cashier, and such other oflficers and agents as may be necessary. By the 21st and 22d sections, contracts, notes, bills, &c., shall be signed by the president and cashier; and all suits, actions, &c., are to be brought in the name of, and also against the president for the time being ; and not to abate by his death, resignation, or removal, but to be continued in the name of the successor. 24th section : The associ- ation may purchase and hold real estate, &c., the conveyance to be made to the president, or such other officer as shall be designated, who may sell and convey the same free from any claim against share- holders. 19th section : The shares of capital stock to be deemed per- sonal property, transferable on the books of the association ; and every person becoming a shareholder by such transfer, shall succeed to all the rights and liabilities of the prior holder. 23d section : No share- holder to be personally liable ; and the association is not to be dis- solved by the death or insanity of any sliareholder. 1. Upon a perusal of these provisions, it will appear that the associa- tion acquires the power to raise and hold for common use any given nmount of capital stock for l)ankitig purposes, whicli, when subscribed, THOMAS V. DAKIX. 7 Is made personal property, and the several shares transferable the same and with like eflfeet as in case of corporate stock ; to assume a common name under which to manage all the affairs of the associa- tion ; to choose all officers and agents that may be necessary for the purpose, and remove and appoint them at pleasure. It will hence be seen, that although the association may be composed of a number of diflferent persons, holding an interest in the capital stock, its operations are so arranged that they do not appear in conducting its affairs ; all are so bound together, so moulded into one, as to constitute but a single body, represented by a common name, or names (the knot of the combination), and in which all the business of the institution is con- ducted by common agents.- In this way it purchases and holds real and personal property, contracts obligations, discounts bills, notes, and other evidences of debt, receives deposits, buys gold and silver bullion, bills of exchange, &c., loans money, sues and is sued, &c. It. is true some portion of the business is conducted in the assumed nameJ and some in the name of the president for the time being ; but this inl no manner changes the character of the bod}'. A co rporation m a y have more than one name ; it may have on e in wh ich to contract, gi'ant, &cv a nd another in which to sue and b e sued ; so it ma}' be known by two different names, and may sue and be sued in either ; and the name of_ the president, his official name, or any ot her, w ill answ er every_Piir- pose. 2 Bacon's Abr. 5; 2 Salk. 451; 2 Id. 237; Ld. Raym. 153, ^fSUr The only material circumstance is, a name, or names, of some kind, in which all the affairs of the company may be conducted. So much, and no more, is essential to give simplicity and effect to the operation. An artificial being is thus plainly created, capable of receiving all the ample powers and privileges conferred upon the asso- ciations, and of managing their diversified concerns in an individual capacity. All business is to be conducted in a common or proper name. 2. This artificial being possesses the powers of perpetual succession. Neither sale of shares or death of shareholders affect it ; if one should sell his interest, or die, the purchaser or representative, by operation of law, immediately takes his place. § 19. Nor can the insanity of a member work a dissolution. Id. Officers and agents for conducting the business of the association are secured. In case of vacancy, by death or otherwise, the place may at once be filled. § 18. For the entire duration, therefore, of the association, and which may be with- out limit, § 16, sub. 5, the whole body of shareholders, though perpet- ually shifting, constitute the same uniform, artificial being which is to be engaged through the instrumentality of officers and agents in con- ducting the business of the concern, and no member is personally liable. § 23. Then, as to the powers conferred, without again specially recurring to them, it will be seen at once that the associations possess all that are deemed essential, according to the most approved author- ities, to constitute a corporate body. They have a capacity : 1. To have perpetual succession under a common name, and in an artificial 8 . THOMAS V. DAKIN. form ; 2. To take and grant property, contract obligations, to sue and be sued by its corporate name, in the same manner as an individual ; 3- To receive grants of privileges and immunities, and to enjoy them in common. All these are expressly granted, and many more, besides the general sweeping clause, " ^o exercise such incidental powers as shall be necessary to carry on such business " (meaning the business of banking), under which even the seal and right to make by-laws are clearly embraced, if essential in conducting the affairs of the institution. [After considering other questions, the learned judge concludes as follows : — ] Upon the whole, I am of opinion: 1. That these associations are corporations ; 2. That the legislature possesses no power to pass a general law like the one under consideration by a majority bill; and 3. That the}' may pass it by two-thirds of the members elected. The plaintiff is therefore entitled to judgment on the demurrer, with leave to amend on the usual terms. [CowEN, J., gave an elaborate opinion, concurring with Nelson, C. J., on points 1 and 2. As to point 3, he inclined to agree with Nelson, C. J. His opinion concludes as follows : — ] But this branch of the argument need not be pursued ; for it was agreed on both sides, at the bar, that we must, on this record, pre- sume the general banking law to have been passed by two-thirds of all the members elected to both houses. We must clearl}' do so until the fact is denied bj' plea. The requisite constitutional solemnities in passing an act which has been published in the statute book, must always be presumed to have taken place until the contrary shall be clearly shown. Should the defendant withdraw his demurrer, and plead specially that the law in question did not receive the assent of two-thirds, as required b}' the Constitution, it will then be in order to pass upon the validity of such an objection. Being clear that the plaintiffs declaration is sufficient in substance, and that he has technically and aptly set forth his cause of action according to the statute, I think there should be judgment for him with leave to withdraw the demurrer, and plead on payment of costs. Bronson, J. I concur fully in the opinions expressed by my brethren, that associations formed under the general banking law are corporations, and that the assent of two-thirds of all the members elected to each branch of the legislature was necessary to the passing of the act. But, as at present advised, I cannot concur in the opinion that the legislature has the constitutional power, although two-thirds may assent, to provide bj' a general law for the creation of an indefinite number of corporations at the pleasure of any persons who may associ- ate for that purpose. It was conceded on the argument, that the demurrer does not rcacli the objection that the act was not passed by a two-thirds vote ; and 1 have not, therefore, considered the question whether we can look beyond the statute book. A plea may render it necessary for us to pass upon that question. Judyment for 'plaintiff. WARNER V. BEERS. WARNER V. BEERS, President of the North American Trust AND Banking Co. BOLANDER v. STEVENS, President of the Bank of Commerce IN New York. 1840. 23 Wendell, 103.1 In the Court of Errors of the State of New York. Demurrers to declarations, raising substantially the same questions as in Thomas v. Dakin, 22 Wendell, 9 [ante, p. 4]. The Supreme Court gave judg- ment in both cases for the original plaintiffs. Beers and Stevens; refer- ring for reasons to the opinions delivered in Thomas v. Dakin. Both causes were removed by writs of error to the Court for the Correction of Errors. L. Sanford and J. A. Spencer, for plaintiffs in error. W. G. Noyes and S. A. Foote, for Beers. W. Kent and D. B. Ogden, for Stevens. [Opinions, which are reported in full, were delivered by Bradish, President of the Senate, Walworth, Chancellor, Root, Senator, and Verplanck, Senator. " A brief analysis" of these opinions may be found in a prefatory note by the reporter, 23 Wendell, p. 103. Por- tions of the opinion of Verplanck, Senator, are as follows] : — Verplanck, Senator. [The learned Senator dissented from the view of the Supreme Court, that the Court were bound, until the fact is denied b}' plea, to presume that the General Banking Law was passed by a two-thirds vote. He was of opinion that the Court, in deciding upon the demurrer, should ascertain whether the Act received a two-thirds vote ; and that, if it were found that the Act received less than a two- thirds vote, it would then be the duty of the Court to inquire whether the provisions of the Act were such in themselves as to bring the case within the constitutional requirement. After some discussion of other topics, the opinion proceeds as follows] : — . . . What, then, is a bod}' corporate? What is its necessary and essential meaning? "It is called a body corporate," says Lord Coke, " because the persons composing it are made into one body." " It is only in abstracto, and rests only in contemplation of law." 10 R. 50. So again, he says, 1 Inst. 202, 250, "Persons capable of purchasing are of two sorts, — jiersons natural created of God, and persons created by the policy of man, as persons incorporated into a bod}' politic." If, leaving the quaint scholastic teaching of the father of English law, we come to the clearer and directer sense of our own Marshall, we find the same prevailing idea. " A body corporate is an artificial being , cnvi^- tbte, intangible, existing only in contemplation of law. Bein^ the * Statement abridged. Arguments omitted ; also part of opinions. — Ed. 10 WARNER V. BEERS. crea ture of law, it possesses only the properties conferred upon it by its cEarter. Among the most important of these are immortality, and, if the expression may be allowed, individuality.'" 4 Wh. R. 636 ; 1 Peters R. 46. Again: "It is precisely what the act of incorporatior makes it ; derives all its powers from that act, and is capable of exf /ting its faculties only in the manner which that act authorizes." " Within the limits of the properties conferred by its charter, it can," says Black- stone, " do all acts as natural persons may," " In corporations," says Professor Woodeson, " individuals are invested b}- the law with a politi- cal character and personality wholly distinct from their natural capa- cit}'." " A corporation," saj's Kyd on Corporations, 13, "is not a mere capacity, but a political person in which many capacities reside." Thus, then, the essential legal definition that covers the whole ground, and expresses the ver}^ essence of the being of a body corporate, is this : "It is an artificial legal person, a succession of individuals, or an aggregate body considered by the law as a single continuous per- son, limited to one peculiar mode of action, and having power only of the kind and degree prescribed by the law which confers them." buch is the established notion of our common law. . . . So far was this principle of corporate personality carried in our old common law, that reasons were expressl}' assigned why a corporation could not be excommunicated or punished for crime. " Because it has no soul," said Lord Coke, which, however ludicrously it may now sound, was but saying quaintly, and in the style of that day, what in modern times would be expressed by saying that a corporation, being an arti- ficial and not a moral person, must be incapable of guilt. The very able argument in the celebrated historical case of the charter of Lon- don in 1G82 went a good deal into these refinements, and it was held on one side that a political person had a mind and reason, according to Lord Chief Justice Hobart, and that its reason was expressed by its b3'-laws ; whilst the attorney-general, whom Bishop Burnet has egre- giously wronged in calling him " a hot, dull man," argued most acutely, as well as very learnedly, in support of the capacity of a corporation to incur political, if not moral, guilt and punishment. All these, it is true, are refinements of technical reasoning, in a taste and fashion of thought which have passed away ; but they prove con- clusively how strong and undoubted was that legal principle of per- sonality upon which these mere inferences and nice distinctions were founded. In order to continue the existence of such an artificial oerson, per- petual succession is ordinarily necessary, though it was not strictly essential, for it may be confined to any given number of lives in being, holding in a sort of corporate joint tenancy, of which I think examples may be found. As a legal person, it has only the powers and proper- ties specifically conferred upon it ; and can possess and exercise no others, except such as are absolutely necessary to the exercise of the powers expressly given. This is the enactment of our revised statutes, WARNER V. BEERS. 11 which, as our revisers rightly said in their report on that title of the law, is " declaratory of a principle of law frequently recognized by our courts, and which it was deemed useful to confirm by legislative authority." To these are added certain legal incidents by the common law, also declared in our statute, and common to all corporations, as to sue and be sued, hold and conve}' real and personal property, to appoint olficers for its services, and to make by-laws for the management of its affairs. To these more important rights the law adds the external evi- dence of a name and a common seal. This last, though apparently a matter of form, is not without effect, any more than the legal conse- quences of seals to instruments in England and this state, so widely different from those of other legal systems, where the distinction be- tween sealed and unsealed instruments is unknown. It is only through a common seal and name that any grant of lands, or covenant touching them, can be made bj^ a corporation. ihere are several very useful and beneficial accessary powers, or attributes very often accompanying corporate privileges, especially in moneyed corporations, which, in the existing state of our law, as modi- fied b}' statutes, are more prominent in the public eye, and perhaps sometimes in the view of our courts and legislatures, than those which are essential to the being of a corporation. Such added powers, how- ever valuable, are merely accessary-. The}^ do not in themselves alone confer a corporate character, and may be enjoyed by unincorporated individuals. Such a power is the transferabilUi/ of shares, whereby investments ma}' be made, without the owner losing the future control of his funds under changes of circumstances. Such, too, is the limited responsibility hy which the stockholder, having once fairl}' paid up his share of the capital, is exempted from further personal liabilit}'. So, too, the convenie'nce of holding real estate for the common purposes, ex» erupt from the legal inconveniences of joint tenancy or tenancy in com- man. Again : there is the continuance of the joint property for the benefit and preservation of the common fund, indissoluble by the death or legal disability of any partner. Every one of these attributes or powers, though commonly falling within our notions of a moneyed cor- poration, is quite unessential to the legality of a corporation, may be found where there is no pretence of a body corporate, nor will they make one if all were combined, without the presence of the essential quality of iCgal individuality. This distinction has been observed and marked by Mr. Kyd, Kyd on Corporations, 13, with logical acute- ness and precision : " A corporation is a political person, capable, like a natural person, of enjoying a variety of franchises. It is to a fran- chise as the substance to its attribute. It is something to which many attributes belong, but it is itself something distinct from those attributes.'^ Thus, the transferability of shares is not essential to a corporation. For instance, it does not enter into the constitution of our chartered colleges, academies, hospitals, and other corporate institutions founded 12 WARNER V. BEERS. b}- public endowment, or private beneficence. It does not enter into the charters of incorporated scientific and literary societies for mutual benefit or charity, in the funds of which the members have a beneficial interest. On the other hand, such a right of transfer ma}' be incor- poi'ated into partnership articles, and become a fundamental condition of them. Tlie general rule, in absence of any express stipulation, is indeed the reverse of this, and in practice it is comparative!}' rare amongst us. Hence it has become common to consider such trans- ferabilit}' as a clear indication of a corporate character. [After referring to the joint stock companies authorized by statutes in England, the opinion proceeds.] But, on this head of transfera- bility, we need not rely upon English authority in our own usages and decisions. In the articles of the Merchants' Bank Association, before our re- straining act, a similar transferability of shares was provided, and these articles have the authority of Alexander Hamilton for their validit}'. I shall have occasion to refer to them more full}' hereafter. So again, in the case of the Albany Exchange, before it received its present charter, the validity of the partnership or joint stock company for a public enterprise, with transferable shares, was expressly recog- nized. Jji/ tJie Court., — CowEN, J. "The objection taken on the argument, that this association was illegal, as being in the nature of a corporation, issuing scrip and providing for a transfer of stock, is not well founded. The act of associating in this way is, we think, prop- erly characterized by the exception taken at the trial. It constitutes a partnership valid, as being formed for the purposes of a lawful, honest enterprise." Toxmsend v. Goeicey, 19 Wendell, 427. The learned judge then refers to and adopts the authority of CoUyer on Partner- ships, p. 624, and the cases he cites. Again, this transferability may be found in many sorts of trusts. A well-known instance of this may be seen in the Tontine of New York, originally built for the purposes of a Merchants' Exchange. It is a trust of real estate, with transferable shares as personal property ; it was originally settled by the most eminent counsel of this state, and its validity has been attested by nearly fifty }ears' experience, during which above two hundred shares have passed through courts, assign- ments, insolvencies, bankrupt commissions, distributions of estates, &c., without their legal transferability having ever been impeached. See printed articles of the Tontine, N. Y., 1793. In both of these last examples, as in other instances of trusts and partnerships, lands were held exempt by operation of law from the legal incidents of joint tenancy, or tenancy in common, and the estate con- tinued for the common purposes. This has been noted as a mark of corporate character ; yet most corporations arc limited in the extent of its exercise, some are expressly excluded from the privilege, and very many exist legally without its actual exercise or enjoyment. The non-dissolution by death or by legal disability is also noted in WARNER V. BEERS. 13 the opinion of the supreme court in these cases as a mark of a corpo- rate bod}'. But that also may be found in the trusts just mentioned, and others of a similar nature, and it may be adopted as an article of ordinarj' partnership. It is the settled law of England that it may be stipulated that death shall not dissolve the partnership, and further, that the executors of the deceased shall become partners. Collyer on Part., p. 5, 648; Pease v. Chamberlain, 2 Vesey R. 33; Saggerman V. Spears^ 7 Pick. R. 235 ; Wrexham v. Huddleton^ 1 Swanst. 514. Again : a common name has been regarded as a corporate criterion. To this Lord Ellenl)orough gives a full answer in Rex v. Wehh. " As to the fourth point, that the subscribers have presumed to act as if they ■were a body corporate, — how is this made out? It was urged that they assumed a common name, that they have a committee, &c. But are these the unequivocal evidence and characteristics of a corpora- tion? How many unincorporated assurance companies and other de- scriptions of persons are there that use a common name, and have their committees, general meetings, and by-laws? Are these all illegal? or which of these particulars can be stated as being of itself the distinc- tive and peculiar criterion of a corporation?" Thence he infers that '' these subscribers have not acted peculiarly as a body corporate." Rex v. Wehh, 14 East's R. 406. But perhaps, in the general and popular understanding, the most familiar distinction between corporate bodies and common partnerships, or other joint undertakings, is the exemption of the associates from personal liability beyond the actual amount of their respective propor- tions of the capital. The regarding this very frequent and important incident of a corporation as an essential characteristic seems not to be confined to popular opinion. Judge Cowen says, in the decision of the cases now before us : " Among other peculiar privileges conferred on these associations, and not enjoyed by natural persons, I allude to that of the exemption of members from personal liability for debt. This is mentioned by Angell & Ames, in their treatise, as peculiar to a private corporation ; they notice it as a striking characteristic between a cor- poration and a partnership." Yet our own statute of limited partner-' ships affords sufficient evidence that an alteration of the existing law may be made by statute, so as to exempt from personal liability beyond the stipulated share in the joint funds, for the debts of a firm, without the remotest thought of converting such firms into bodies corporate. Besides, the right of making a contract, wherel)y those who tender it stipulate not to be bound beyond the amount of some specific pledged fund, must be a natural right growing out of the very nature of con- tracts. If a company or association, or an individual, offers to contract to make certain payments only to the amount of certain specific funds, and others choose to acce[)t that contract on those conditions, there can be nothing to prevent the validity of such a contract, except some positive rule of law founded on policy or an arbitrary enactment. la the absence of such a restriction, it is and must be good. Such a limi» J'^^ 14 WAENER V. BEERS. tation, then, must be binding on all who accept the conditions. The policy of our law and the usages of business have, indeed, rightly fixed the presumption the other wa}', so that the stipulation and the burden of proof of the limited indebtedness are thrown upon those who ex- pect to be benefited by them. This right has been substantially admitted by the highest tribunal in Great Britain, in the case of Jlinnet v. WJiinnei'y^ 3 Brown's Pari. Cas., 323, and it was held to be good b}' Lord EUenborough, in Alderson v. Clay, 1 Camp. 404. The doctrine has been received as settled law b}- one of the best ele- mentary writers of the day, often cited by our own supreme court. "When a creditor," saj-s Collyer on Partnership, 214, "has notice, that by an arrangement between partners, one of them, though appear^ ing to the world as a partner, shall not participate in the loss, and shall not be liable for it, the creditor will be bound by the arrangement." The original articles of the Merchants* Bank in the city of New York, as an unincorporated association, with limited llahiliti/, as well as transferable shares, which were read in argument by Mr. Kent, have the great professional authority of Alexander Hamilton, who prepared them, and of the man}- eminent men who joined in them, and whose professional distinction gives to their approbation the character of a sort of judicial sanction ; whilst the restraining act passed soon after proves, as was unanswerably argued, that the legislature and its legal advisers considered such a voluntar}' association, thus restraining its own liability, not as a violation of common law, but merel}' as contra- dicting the financial policy of the State. A similar analysis of such of the customary accessary powers of specially chartered moneyed corporations as, from being most condu- cive to ends of profit or convenience, are ordinaril}- considered as the essential qualities constituting corporations, will show, that all such powers or incidents are merely convenient and desirable authorities or modes of action, added to and engrafted upon the creation of a body politic ; not the legal attributes absolutely essential to a corporation, and denoting its existence as such. Amongst us, as in England, bodies politic or corporate maj' exist where the ultimate personal liability is still retained. The personal liability is indeed suspended in such cases, and for a time merged in that of the artificial corporate person ; but there may be an ulterior i-e- course to the corporators when the former fails. Many corporate banks in other states are so constituted, and with us some chartered com- panies for insurance, &c., some for an indefinite, others to a limited extent beyond the capital. Corporate bodies may exist also without transferability of the rights of the corporators ; for a large mujorit}- of our literary and charitable, as well as all our municipal corporations, are so. On the other hand, by our own common law as it would exist now, independently of statutory restrictions, associations might be formed and trusts created, having every one of the above enumer- uted characteristics, which have been insisted upon as essential to a WARNEE V. BEERS. 15 corporation, except that personality which I before stated as forming its strict and necessary essential legal definition. The present joint- stock companies of England afford pregnant examples, showing how many of these attributes ma}' be embodied in voluntary associations which are confessedly not corporations. In fact the line may be ver}- faint, and depending wholly upon the purel}' legal and technical character conferred, whether a joint stock association or a trust, freed b}' law from certain positive restraints im- posed by our modern statutes, be a corporation or not. The Tontine trust, before mentioned, is managed by directors annually elected by stockholders ; its real estate is held by trustees, continuing their trust from hand to hand during the lives of the original nominees and the survivors of them, with transferable shares, and wholly without per- sonal liability. For the reasons already stated, the eminence of the counsel (the late R. Harrison) who prepared the trust, and the fre- quency with which its legal character must have passed in review be- fore lawyers and courts, and always without objection, it ma}^ well be regarded as sanctioned judicially'. It is a valid trust. Add to it a legislative charter, making the associates a body corporate and no more, what then is the effect? Simply to give a different technical character, an artificial individuality, in Chief Justice Marshall's phrase, a different mode of standing in courts. Such was the actual history of the Albany' Exchange. It was a joint stock company, formall}' decided to be valid. 19 Wendell's R. 427. A year or two after (1837) it appears by our statute book to have been incorporated. But there is probably but little difference, besides the greater convenience of the corporate body, between the former organization and the present. The trusts speciallj' permitted b}' an act of last year. Statutes of 1839, chap. 174, for the benefit of that singular people called Shakers^ were nothing more than exemptions from the recent restrictions of trusts. They were authorized to continue, enlarge and manage their property, by trusts, as they had done before the change in that title of our law effected by the revised statutes. Had the law, in addition to this, made every Shakers' United Society a body corporate, without otherwise varying the original trust, the only change would have been the conversion of a trust into an artificial legal person, with the same effect substantially as to the interests of those beneficially interested. Our act for general religious incorporations regulates the incorpora- tion of churches of all religious denominations (other than those pro- vided for in the first and second sections) by trustees, who are to be a body corporate. Those who have had occasion to look into the mode in which dissent- ing religious trusts are held in England, as I presume they were, in the same manner, in New York, when a colony, will, I think, perceive that our statute adds little more than a convenient corporate character to powers elsewhere, and formerly here, exercised under trusts. 16 WARNER V. BEERS. All these considerations lead me to the conviction that, for the pur- pose of constitutional interpretation, we must look to the strict legal meaning of the phrase body politic or corporate, and not to those cir- cumstances or adjuncts which amount only to descriptions of the man- ner in whicii such bodies are very frequently constituted when used for purposes of profit. If this be regarded as a very strict rule of inter- pretation, let it also be remembered that it is applied where such strictness is most appropriate, in the interpretation of a provision restraining the general sovereign power of the state expressing the public will through a majority of the people's representatives. . . . The most peculiar, and the strictl}^ essential characteristic of a cor- porate body, which makes it to be such, and not some other thing in legal contemplation, is the merging of the individuals composing the aggregate body into one distinct, artificial individual existence. Now this is not found in the associations under the act. A corporation can sue and be sued only by its corporate name. It can act only according to the letter of the law creating it. " It derives all its powers from that act," says Chief Justice Marshall, " and is capable of exercising its faculties only in the manner which that act authorizes." It has no natural powers which, in its discretion, it may exercise or not. It can exercise none of those other powers, and possesses none of those other rights which the individuals composing it could possess and exercise, were it a mere society or partnership. Not so as to these associations. Bv this act, suits on behalf of such associations may be brought in tlie name of tlie president. Persons having claims against the company 'may maintain tlieir actions against the president. But there is no rea- son, except that of mere convenience, why the association may not also sue and be sued under their several real names, as other partners may. This reason of convenience, it is obvious, would not apply where the company was composed of a few persons, as if, for example, one of our great banking firms were to come under the law. It was indeed argued that the teclinical construction which gives to may the meaning of must or shall, applies here. But that construction holds only when there is a previous dut}', to which the statute adds some new power or authorit}-, as in the case of a public officer ; or where from other reasons it is manifest tliat (to use Judge Story's words) " tlie legislature meant to impose an absolute dut}-, not to give a discretionary power;" otherwise, as he says, "the ordinar}' use of language must be presumed to be intended, unless it would defeat the tlie provisions of the act." 1 Peters R. 64. The ordinary popular discretionary sense of the word may is also the ordinary legal one. The other is the exception. In our revised statutes the words may and ^laill are so used and distinguished. So they are in our annual legis- lation, as when it is said of a company that it may hold real estate, m^ay take a certain rate of tolls, may borrow money. Moreover, here the right to sue and be sued, as other partners, is « common-law right, and cannot Ije taken away by me*"** implication. WARXEE V. BEERS. 17 »' A statute made in the affirmative, witliout negative words," say the highest authorities, *' does not take away the common law." 2 Inst. 200. See also Dwarris on Statutes, 637, and the authorities there referred to. . . . Again : these associations do not act by a corporate name and seal, but by another mode familiar to our law. They can contract tlirough their president, as a limited partnership must through its general part- ner. They are authorized to sue and be sued through him ; as Judge Co WEN observes, " The power of the legislature to give a right of action to one man in his own name for a debt due to another has always l)een exercised from our earliest legal history, and it is now too late to call it in question." I refer to the several legislative and judicial authori- ties wliich he has collected in his opinion on these cases. They can- not hold real estate as a corporation does, or contract concerning it by their own name and common seal ; but, like partnerships, they can have an equitable and beneficial interest in land. Collyer, 70, 76. Their president takes as a trustee, and the associates are but beneficiaries. . . . How then are these associations to be regarded in legal contem- plation ? I assent fully to the conclusive reasoning of the counsel, who chiefly pressed this part of the argument (Mr. Kent), that they are copartner- ships relieved from the inhibitions of the restraining act, and thus allowed to carry on banking business under certain conditions. The polic}' of the state has prohibited its citizens from issuing paper for circulation as money, or from associating together for certain banking purposes. 1 R. S. 711. It reserved those privileges for corporate banks. The act to authorize the business of banking repealed that prohibition jrro tanto, as to all individuals or companies who would comply with its conditions. The associations in question are partner- ships complying with those conditions, and thus exempted, as an}' other citizens may be on the same terms, from the operation of a statutory re- straint of general right, which is still binding on all who will not com- ply with the conditions. This is so far in close analogy to the law of special partnership, where exemption from the general liabilit}' imposed by the law is tendered to all who comply strictly with the provisions of the statute. The articles and certificate in this act correspond to the certificate setting forth the names of partners, amount of capital, time of termination and nature of business, required b}- tlie title of " Limited Partnerships," 1 R. S. 764, and with the articles which every such co- partnership must have. The general partner there is authorized to transact business and contract for the rest ; so, though with less author- ity, is the president here. The mode of suing and being sued is pre- cisely the same in both cases. ... On the question being put. Shall these judgments be reversed? all »ce members of the court, with but a single exception {tv:enty-three 18 PEOPLE V. ASSESSORS OF WATERTOWN. being present), voted in the negative. Whereupon the judgments of the supreme court were affirmed. The court thereupon adopted the following resolutions : — 1. " Resolved, That the law entitled ' An act to authorize the busi- ness of banking,' passed 18th April, 1838, is valid, and was con- stitutionally enacted, although it raa}' not have received the assent of two-thirds of the members elected to each branch of the legisla- ture." This resolution was adopted by a vote of 23 to 1. 2, " Resolved, That the associations organized in conformity with the provisions of the act entitled ' An act to authorize the business of banking,' passed April 1st, 1838, are not bodies politic or corporate, within the spirit and meaning of the constitution." This resolution was adopted by a vote of 22 to 3.^ Bronson, J., IN PEOPLE v. ASSESSORS OF WATERTOWN. 1841. 1 Hill, New York, 620-623. / A CORPORATION aggregate is a collection of individuals united in one / body, under such a grant of privileges as secures a succession of mem- I bers without changing the identity of the bod}-, and constitutes the I members for the time being one artificial person, or legal being, capa- ble of transacting some kind of business like a natural person. It * does not occur to my mind that anything else can be essential to the definition. Such a union as I have mentioned can only be efi'ected under a grant of privileges from the sovereign power of the state. A corporation is therefore said to be a legal being, or the mere creature of law. It is convenient, though not absolutely necessary, that thig artificial person, like a natural one, should have a name b}- which it may be known and designated in the transaction of business. And when the doctrine was that a corporation could only contract by its seal, a seal was said to be an indispensable requisite. So immortality was once thought to be an attribute of all corporations ; but that now means no more than a continued succession of members for such period, whether long or short, as ma}' be allotted to this legal entity by its creator. Now, a banking association, formed under the law of 1838, not only may, but it must have a name ; and a seal, though far from being essential to the existence of a corporation, is nevertheless an incident to the grant of corporate privileges, though not mentioned in the grant This is not only so at the common law, but by the statute also. 1 R. S. 1 Ab to the reasons for adopting these " resolutions," and as to the effect of th« lame, see the elaborate exi)laiiation of Wai,woi{th, Chancellor, iu 2 Deuio, pp. 382 U 886. But compare Bkonson, J., in 1 Hill, i)p. 618 to 620. — Ei.'. PEOPLE V. ASSESSORS OF WATERTOWN. 19 599, § 1. The right to sue and be sued is expressly conferred on these associations ; and whether the suit is brought in the name by which the company transacts its other business, or with the addition of the name of its president, cannot be material. A co rporation may have one name for one purpo se, and another name for another purpose. A nd besides, ihe general ba nking law only prnvidftH that antions may — n ot that- tiiev s/iau — be . brou°: ht in the name of, or against the presidentj ^ ^ and The right to sue and be sued, like that of having a common seal, is not onl}' a common-law incident to the grant of corporate powers, but the legislature has expressly provided that this power shall vest in every corporation, although not specified in the act under which it shall be incorporated. 1 R. S. 599, §§ 1, 2. We have already held, more than once, that these associations maj' sue or be sued in the same corporate name by which their other business is transacted. The individuals composing these associations are united in one bod}', and the members lost in the corporate existence. It is not the indi- vidual members, but the legal being which acts and transacts business. A continued succession of members, without changing the identit}' of the body, is also as completely secured to these institutions as it ever was to an}' other corporation. As to the period or duration of this con- tinued succession, the}' surely have scope and verge enough. I observe from the articles on file, that one of these associations has agreed to live about five thousand years, and there is nothing in the general bank law to prevent the associates from writing eternity, instead of time, as the period of corporate existence. It is true that the association may come to an end somewhat short of the mark, and the one to which I allude has, I believe, alreadj' expired, but that was no fault of the charter. What I had specially in view in adding anything to what has already been said upon this question, was to bring the matter to a single and very plain test. Take one of these associations when formed pursu- ant to law, — say the Bank of Commerce in the city of New York, — and compare it with its neighbor, the Bank of America, which has a special charter from the legislature ; and then I have yet to learn what corporate capacity the one wants which the other has. No man can, I think, point out a substantial difference in the nature or essential attributes of the two institutions. The individual members are as com- pletely merged in the legal body, and a succession of members is as effectually secured in the one case as in the other. In both cases it is the body, by means of its officers and agents, and not the individual members, which acts and transacts business. If the one is not a cor- poration, the other is not a corporation. We must not examine the charter of these associations in detached parcels, and say that neither this power nor that makes a corporation. It is quite easy when the parts of a time-piece have been separated, to place the finger upon each wheel in succession and say. This is not a ft clock ; but let the parts be again combined, and the machine be set 20 GIFFORD V. LIVINGSTON. r y in motion, and it will then require some hardiliood to deny tliat it is a clock. We must look at these associations as they appear when formed and in action, and then they fall nothing short of that legal entity which has hitherto been called a corporation. Others may doubt this. I cannot. The principal difference between a safety fund and a free bank con- sists in the fact tliat the latter has larger privileges than the former. But whether a corporation or not, does not depend upon the number or magnitude of its powers, nor the manner in which the}' were conferred. An association under our general laws for a village library-, or to tan hides, possesses all the essential attributes of a corporation in as great perfection as the Bank of England or the East India Company. Nor is it important in what mode, or by what name or particular agency, this artificial being transacts its business. It is enough that it has a capacity to act in some form as a legal being. It may be true, as has been argued, that the legislature intended to make a legal being, and give it all the essential attributes of a corporate body, and yet that it should not be a corporation. That, the legislature could not do. I do not refer to any written constitution. The con- stitutiou of things — the order of nature — forbids it. Human powers are jifSt equal to the task of changing a thing by merely changing its Hand, Senator, in GIFFORD v. LIVINGSTON. V \| 1845. 2 Z)e7j/o, iVew ro?i-, 395-398. . "iTAcoupoRATiON, according to my understanding, is a franchise granted ^J^hy goveiiimcnt, by which the members merge their individual charae- acters into one artificial legal existence. I t seems t o mp t|]i!vt but two re ouisites. are necessary, — that it should be au thorize d l)y govern- ment, and that""£Tie'lTiembers should be combinecl into n.n nrltifi£hil-Umty. AVe are sometimes told that corporations must liave perpetual succes- sion, a riglit to sue and be sued and to liold property ; that they must have a common seal and power to make by-laws. Blackstone says these are inseparably incident to corporations ; and our statute is to tlie same effect. 1 Bl. Com. 475 ; 1 R. S. 599. But these attributes are merely incidental to a corporation as such. It is not essential to the existence of a corporation that it sliould possess tliem all. Even as to succession, why would not an authority to particular individuals named in the act to assume a corporate name and act as a corporation in certain business during their joint lives, be a corporation? As to the right to sue and be sued, have a seal, and make by-laws, it was decided more than two centuries ago that these, if in the charter, were GIFFORD V. LIVINGSTON. 21 merely declaratory, and were not necessary to create a corporation. 10 Rep. 32 ; 1 Roll. Abr. 513, b. 10 ; 3 Rep. 73 ; JSforris v. Sinps, Hob. 211 ; Damnaut v. Hurdis, Moor, 564 ; 2 Bac. Abr. Corp. D. ; 1 Bl. Com. 475. Clearly no particular form of words is necessary to create a corporation, 10 Rep. 32; 3 Id. 73; 2 Danv. Abr. 214; 1 Roll. Abr. 513, b. 10. The case in 10 Rep. 30b, 31a, certainly seems to decide that a corporation may exist without all of theee inci- dents. See also Allen v. jSewall, 2 Wend. 327 ; 6 Id. 348, s. c. in error, per Walworth, Chan. I suppose that at the present day there can be no dispute in this country but that the grant of a franchise must emanate from the government. Blackstone says that among the Romans a corporation could be formed by voluntary association ; but this is denied in 1 Brown's Civil Law, 99. However this may be, it is now settled that all voluntary associations are no mo re than partner- ships. Our law knows but two classes of such associations ; corpora- tions' and partnerships. Even authorized joint stock companies in England are nothing more than partnerships. The King v. Dodd, 9 East, 516 ; 3 Ves. & B. 180 ; Wordsworth on Joint Stock Co. 110; 9 Barn. & Cress. 401 ; 1 Id. 74 ; Keasley v. Codd, 2 Carr. & P. 408, note ; Mcmdslan v. Le Blanc, Id. 409, note ; Coll. on Part. 626, 651 ; McCullock's Com. Die. Companies. I have no doubt but that a corporation may be shorn of some of the incidents, by the power giving it existence. Indeed, we have made the members of manufacturing corporations personall}' liable to a certain extent. And on the other hand, in England at least, powers can be given to partnerships which are similar to some of those said to be inci- dental to corporations. Steward v. Greaves, 10 Mees. & Welsb. 711; Beech v. Eyre., 5 Mann. & Gr. 415. The criterion is not, whether there are not certain p owers and rights that are common to both : but *\ the great distinctive feature of a corporaj,ion i s. that it is a iiihorlzed b^' - a law or g rant to ac t as an artificial being, the sevei'al m embers qL. which constitute one person in law, ami have but a single wjll. Having discussed the nature of eorporalions, we are led next to, inquire whether associations under the general banking law are cor poration^^^^^his court has at least once, and the supreme court has repeatedlu declared that they are ; and even the case of Warner v. Beers doei not decide the contrary. Indeed, I understand that the learned chancellor could not in tliat case vote for the second resolution as first proposed, because it declared unqualifiedh' that they were not corporations. Do they possess the attributes of corporations within the settled definitions of that term ? To determine tliis requires an examina- tion of the nature and powers of these institutions. Tliey have their ex- istence by an act of the government ; the members are so combined as to lose their individual character, and the}- act solel}- as an artificial being ; they have power to sue and be sued by an artificial name, and ma}- use a common seal ; they may appoint and remove officers, and can only act by those officers. The individuals cannot, as such, do any act to 22 ANDREWS BROS. CO. V. YOUNGSTOWN COKE CO. bind the association. A member may be sued at law by the associa- tion : the individual members are not liable for the debts of the association, and they hold their interest by transferable shares. There is perpetual succession, and immortality, by which I understand that the association is not affected by a change of members or the death of any number of them less than the whole. In short, every quality and power, express and incidental, that has ever been attributed to corpora- tions, appear to be given by the legislature to these associations. One or two of these powers are not expressly mentioned in the statute, but we have seen that they are always implied. If, then, they come into existence as corporations do, and have all the powers and qualities of corporations, can they be denied that character because the legislature has not called them corporations ? The act does not declare that they shall not be corporations ; and if it had, the essence of the thing could not be altered by an arbitrary change of name. EWS BEOS. CO. V. YOUNGSTfpJfN COKE CO., Limited. 1898. 58 U. S. Appeals, UiS Error to the U. S. Circuit Court for the Eastern Division of the orthern District of Ohio. -.Before Taft and LuRT0^^, Circuit Judges, and Clark, District Action by Youngstown Coke Co., Limited, against Andrews Bros. 0., an Ohio corporation. Judgment below for the original plaintiffs. Thomas W. Sanderson, for plaintiff in error. Johyi G. White {Homer E. Stewart, James W. Stewart, and White, Jfihnson, McCaslin & Cannon were on the brief), for defendant in or. jLuRTON, Circuit Judge. The first and principal question is whether the circuit court had jurisdiction. The plaintiff is described in its original petition as " a limited partnership association, duly organized and existing under and by virtue of the laws of the state of Pennsyl- vania, of which state it is a citizen." This was perhaps an insufficient statement of its corporate character, under Chapman v. Barney, 129 U. S. 677, 9 Sup. Ct. 42G, and Carnegie, Phipps & Co. v. Hulhert, 3 C. C. A. 391, 53 Fed. 10. To meet tliis difficulty, an amended petition was filed, in which it was averred that the plaintiff was a corporation under the laws of Pennsylvania and a citizen of that state. The de- fendant in an amended answer, and by way of abatement, admits that the plaintiff company was created and organized under the Pennsyl- vania act of June 2, 1874, but denies that it thereby became either a 1 Statement abridged. Portions of opinion omitted. So much uf tliu opiuiou as is given ig reprinted from 80 Federal Reporter, 586 tt seg. — Ed. ¥ ANDREWS BKO^ CO. "v. " YOXmOSTOWN VOKE corporation or a citizen of said statp, within the meaning and effegfef^ of the statutes of the United States, requiring diversity of citizenship to give jurisdiction to a United States court. ^ . ^. The act of June 2, 1874 [as amended], under which the defendant' . in error was organized, is in 17 sections. The first provides that three or more persons desiring to organize under the act may do so by preparing, signing, and acknowledging a statement in writing which shall set forth the amount of capital subscribed for by each ; the total amount of capital, and when and how to be paid ; the char- acter of the business and location of same ; the name of the associa- tion, with the word " Limited " added thereto as part of same ; the duration of the association, which shall not exceed 20 years ; and the names of the officers selected in conformity with the act. The second section provides that the members of the association shall not be lia- ble for the debts or engagements of the company beyond their unpaid subscriptions to the capital. The fourth section provides that inter- ests in such associations shall be personal estates, and may be trans- ferred, given, bequeathed, distributed, sold, or assigned under such rules and regulations as shall be adopted from time to time — " by a vote of a majority of the members in number and value of their interests ; and in the absence of such rules and regulations the trans- feree of any interest in any such association shall not be entitled to any participation in the subsequent business of such association, unless elected to membership therein, by a vote of a majority of the members in number and value of their interests. And any change of ownership, whether by sale, death, bankruptcy or otherwise, which occurs in the absence of any rules and regulations of such association regulating such transfer, and which is not followed by election to mem- bership in such associations, shall entitle the owner or transferee only to the value of the interest so acquired at the date of acquiring such interest, at a price and upon terms to be mutually agreed upon, and in default of such agreement, at a price and upon terms to be fixed by an appraiser to be appointed by the court of common pleas of the proper county, on the petition of either party, which appraisement shall be subject to the approval of said court.'* The fifth section provides for a board of managers, who shall be not less than three nor more than five, one of whom shall be chair- man, one the treasurer, and one the secretary. This section also pro- vides that " No debt shall be contracted or liability incurred for such association, except by one or more of the managers, and no liability greater than five hundred dollars, except against the person incurring it, shall bind the association, unless reduced to writing and signed by at least two managers." The sixth and seventh sections provide for distribution of profits through dividends, such dividends not to impair capital, and that it shall be unlawful to lend its credit, name, or capital to any member, 24 ANDREWS BROS. CO. V. YOUNGSTOWN COKE CO, or to any other person, without consent of a majority in number and value of members in writing. The eight, ninth, and tenth sections provide how such companies may be dissolved, and how the property shall be distributed. The remaining parts of the act provide — First, that the association may sue and be sued in its associate name, ser- vice of process to be made upon one of its officers, or on any agent, clerk, or manager in counties where it may maintain an office ; second, that such associations may acquire, hold, and convey real estate in its associated name. This act does not declare these associations to be " corporations," nor are they styled " corporations." They are called " partnership associations." Neither does the act disclaim a purpose to create corpo- rations, as was the case under the English and New York joint-stock acts mentioned and construed in Liverpool Ins. Co. v. Massachusetts, 10 Wall. 566, and People v. Coleman, 133 N. Y. 279, 31 N. E. 96. But the fact of corporation or no corporation must depend upon the exist- ence or nonexistence of those faculties which are of the essence of corporate existence. We need not be too attentive to mere names. The inquiry must go deeper, and a solution be reached upon principle. [The learned judge here quoted from the opinions in Thomas v. DaJcln, 22 Wendell, 9, 70, 103, and Liverpool Ins. Co. v. Massachusetts, 10 Wallace, 566, 576.] Definitions are dangerous. They are most often too narrow, but not infrequently too broad. Many definitions of a corporation have been attempted. Most of them include one or more faculties which in this country are clearly not essential, or are included within more general powers already catalogued. , It is not essential to the idea of a corporation that it shall have perpetual existence, for limited corporations are a matter of most common occurrence, whether organized under special or general laws. Neither is it essential that it shall have capacity to sue and be sued u nder its corporate nam e, for it may be authorized only to sue in the name oi one of its officers, as was the case under the New York bank- ing law. That it shall have capacity to sue and be sued under some name standing for the collective body is all that is necessary. Thomas V. Dakin, 22 Wend. 9 ; Liverpool Ins. Co. v. 3Iassachu.setts, 10 Wall. 566. In the la"St analysis, the only absolutely essential attribute of a corporation is the capacity to exist and act within the powers granted, as a legal entity, apart from the individual or individuals who consti- tute its members. But these associations authorized by the Pennsylvania act of 1874 possess every attribute deemed essential to the existence of a corpora- tion under any authoritative definition of a corporation. They come into being only by the creative power of the sovereign will, as ex- pressed in the statute which authorizes their organization. That act ANDREWS BROS. CO. V. YOUNGSTOWN COKE CO. 25 constitutes at once the authority for their existence and the measure of their powers. When organized, they constitute a new artificial person, endowed with the power of suing and being sued, and of ac- quiring, holding, and conveying property in its artificial character. Created by compliance with the constating law, they can be dissolved only in the way pointed out by that law. Individual liability for cor- porate debts, bey ond unpa id subscription to the capital stock, does not exist.' Coal Co. v. Rogers, 108 Pa. St. 147-150 ; Stevens v. Ball Club, 142 Pa. St. 52-61, 21 Atl. 797. The members do not act as in- dividuals, or as partners, but titironpfh n.nd in f.lip na^iiP nf the collective or corporate bod ^ y . Hill v. Stetler, 127 Pa. St. 145-162, 13 Atl. 306, and 17 Atl. 887. The members are not liable individually for the torts of the association, unless they personally participate. Whitneij v. Backus, 149 Pa. St. 29, 24 Atl. 51. In all these respects it would be difficult to distinguish these companies from the ordinary business corporations authorized under general acts in most, if not all, of the states of the Union. In other respects they are somewhat peculiar, and it is these peculiar features which distinguish them from the ordinary business corporations provided for by other Pennsylvania legislation, and which have led to some confusion in defining their character. Thus, the managers alone may create a debt, and no lia- bility in excess of $500 is valid, unless the contract be in writing, and signed by two, at least, of the managers. This is a mere limita4 tion upon the usual powers of officers and agents to bind the artificial] body, and in no way affects the corporate character of that bodyJ But the most marked peculiarity is found in the provisions of tha fourth section of the constituting act, whereby, in the absence or some other regulation, adopted by the members, the assignee of the interest of a member in the capital stock, by operation of law or otherwise, does not become a member until elected. In default of election, the association must pay the value of the interest as ascer- tained by agreement, or, in default thereof, by an appraiser, provided for in the statute. This dUectus j^ersonai'um is a most inviting in- ducement to the formation of small business corporations, where the personnel of the members is a matter of some importance, and is the only feature which particularly distinguishes these associations from ordinary corporations. This power of selection is similar to that be- _ longing to ordina ry co-partne.rships>. A member may sell his interest, but such sale dissolves the partnership. If the remaining members assent to the admission of the new member, the legal result is a new firm. Under this provision of the act of 1874, the sale of an inter- est does not operate as a dissolution, but requires that the company shall buy the interest unless the transferee is acceptable. The prin- ciple is not new in partnerships where the partners give a preference to the firm or its members by contract in event of sale or other devo- lution of title. [After stating, and quoting from, Carter v. Producers' Oil Co., Lim- ited, 182 Pa. State, 551.] ,.fc 26 ANDREWS BROS. CO. V. YOUNGSTOWN COKE CO. The most that can loe said of this decision is that the court de- clined to classify these companies with ordinary corporations, and contented itself with giving it its statutory designation. We have already seen by the Pennsylvania cases cited that that court had time and again held these companies to have the very attributes which enable us to distinguish a corporation from a mere partnership. The fact that these companies were not called corporations in the act of 1874, and that they possessed this dilectus 2>&i'so7iarum, has led to some confusion of terminology in the effort to describe them. [After quoting from various Pennsylvania decisions.] These decisions are not overruled or criticised in Carter v. Oil Co., heretofore cited. We do not therefore agree with counsel for plain- tiff in error that the Supreme Court of Pennsylvania has determined that such associations are not corporations ; on the contrary, the cor- porate character of the organization is most distinctly recognized, though distinguished from the ordinary corporation provided for by other general statutes. " A new artificial person," organized under a statute, and empowered thereby to contract, hold, and convey pro- perty, sue and be sued, as such, is a corporation, and can be nothing else. In addition to the recognition of these associations as corpora- tions of a peculiar character by the Pennsylvania court, we may add the pregnant circumstance that section 13 of article 16 of the state constitution provides as follows : — " The term ' corporations,' as used in this article, shall be construed to include all joint-stock companies or associations having any of the powers or privileges of corporations not possessed by individuals or partnerships." Article 16 is devoted to the subject of private corporations and their regulation. But does the existence of the dilectus personarum take from the body possessing it the character of a corporation, if it possesses those attributes which, by general consent, distinguish a corporation from a mere voluntary association ? The general and well-settled rule is that, in the absence of statutory authority, a corporation may not make the transfer of shares dependent upon the discretion of the corporation, its officers or agents. They may by reasonable rule regu- late such transfer, but they cannot prohibit. Mor. Priv. Corp. §§ 164, 165. But that this power may be conferred by the charter is equally well settled. Id., and authorities cited ; Lowell, Stocks, § 31. This privilege of the dilectus personarum, while unusual in corporations for profit, is a very common provision in the charters of companies not for profits, such as clubs, boards of trade, fraternal societies, edu- cational and charitable associations. Joint-stock companies have no invariable character. Sometimes they are incorporated, and some- times they are not. The test is the attributes conferred by the stat- ute under which they are organized. Mor. Priv. Corp. § 6. Certain express companies, widely known in this country as joint-stock com- ANDKEWS BROS. CO. V. YOUNGSTOWN COKE CO. 27 panies, have been held not to be corporations, within the meaning of local taxing laws. The case of People v. Coleman, 133 N". Y. 279, 31 N. E. 96, is inter- esting as showing the history and legislative origin of certain of these companies. The case only involved the question as to whether there was a legislative or practical distinction between joint-stock associ- ations and corporations organized under the law of New York, and whether the capital of a joint-stock company was taxable under a New York statute, taxing the capital stock of corporations. The court refers to Feoj^le v. Wemjjle, 111 N. Y. 136, 22 N. E. 1046, and says that case " shows very forcibly how almost the full measure of corporate attributes has, by legislative enactment, been bestowed upon joint-stock associations until the difference, if there be one, is ob- scure, elusive, and difficult to see and describe J^ (The italics are ours.) In endeavoring to discover whether any difference remained, the New York court, speaking through Finch, J., said : — " But I think there was an original and inherent difference between the corporate and joint-stock companies known to our law which legis- lation has somewhat obscured, but has not destroyed, and that differ- ence is the one pointed out by the learned counsel for the respondent and which impresses me as logical and well supported by authority It is that the creation of the corporation merges in the artificial body and drowns in it the individual rights and liabilities of the members while the organization of a joint-stock company leaves the individual rights and liabilities unimpaired and in full force. The idea was ex pressed in Supervisors of Niagara v. People, 7 Hill, 512, and in Gif ford V. Livingston, 2 Denio, 380, by the statement that the corpora- tors lost their individuality, and merged their individual characters into one artificial existence ; and upon these authorities a corporation is defined on behalf of the respondents to be an ' artificial person, created by the sovereign from natural persons, and in which artificial person the natural persons of which it is composed become merged and nonexistent.' I am conscious that legal definitions invite an(r provoke criticism, because the instances are rare in which they prove to be perfectly accurate ; and yet this one offered to us may^De ac- cepted if it successfully bears some sufficient test. In putting it on trial, we may take the nature of the individual liability of the cor- porators on the one hand, and of the associates on the other, for the debts contracted by their respective organizations, as a sufficient test of the difference between them, and contrast their nature and char- acter. It is an essential and inherent characteristic of a corporation that it alone is primarily liable for its debts, because it alone contracts them, except as that natural and necessary consequence of its crea- tion is modified in the act of its creation by some explicit command of the statute which either imposes an express liability upon the corpo- rators in the nature of a penalty, or affirmatively retains and pre- serves what would have been the common-law liability of the mem- 28 ANDREWS BKOS. CO. V. YOUNGSTOWN COKE CO. bers from the destruction involved in the corporate creation. In other words, the individual liability of the members, as it would have existed at common law, is lost by their creation into a corporation, and exists thereafter only by force of the statute, upon some new and modifying conditions, to some partial or changed extent, and so far I'jreventing, by the intervention of an express command, the total dc: struction of individual liabilities which otherwise would flow from ithe inherent effect of the corporate creation. . . . Exactl3^ the oppo- site is true of joint-stock companies. Their formation destroys no part or portion of their common-law liability for the debts contracted. Permission to sue their president or treasurer is only a convenient Imode of enforcing that liability, but in no manner creates or saves it. I . . We may thus see upon what the legislative intent to preserve them as separate and distinct is founded, and what distinguishing characteristics remain. The formation of the one involves the merg- ing and destruction of the common-law liability of the members for the debts, and requires the substitution of a new or retention of the old liability by an affirmative enactment, which avoids the inherent effect of the corporate creation. In the other the common-law liabil- ity remains unchanged and unimpaired, and needing no statutory intervention to preserve or restore it. The debt of the corporation is its_d e bt, and not that of its member s. The d ebt of the joint-stock compan y is the debt of the associates, however enforced. Tlie crea^ tfen of the'^orporatioirmerges and drowns tne liability of its corpora- tors. The creation of the stock company leaves unharmed and un- changed the liability of the associates. The one derives its existenc e from the con tract o f individuals ; the o'Elie r f rom the sovereignty of tlie state. Ine two are alike, but not the same. More or less, they crowd upon and overlap each other, but Avithout losing their identity ; and so, while we cannot say that the joint-stock company is a corpo- ration, we can say, as we did say in Van Aermayi v. Bleistein, 102 N. Y. 3G0, 7 N. E. 537, that a joint-stock company is a partnership, with some of the powers of a corporation. Beyond that we do not think it is our duty to go." If the nonliability of the members for the collection of debts be in fact a test of a corporation, then these Pennsylvania companies are clearly corporations under this authority. But we cannot be sup- posed to concede this. In Liverpool Ins. Co. v. Massachusetts, 10 Wall. 566-575, the fact of the liability for company debts of the members of the Liverpool Insurance Company was held to be no suffi- cient test of the corporate character of that joint-stock association. Justice Miller, as to this, said : " To this view it is objected that the association is nothing but a partnership, because its members are liable individually for the debts of the company. But, however the law on this subject may be in England, it is quite certain that the principle of personal liability of the shareholders attaches to a very large proportion of the corpora- ANDKEWS BROS. CO. V. YOUNGSTOWN COKE CO. 29 tions of this country, and it is a principle which has warm advocates for its universal application when the organization is for pecuniary gain." The Massachusetts court is cited as holding that these Pennsylva- nia associations are not corporations, and could not, therefore, be sued in Massachusetts as such. Edivards v. Gasoline Works, 168 INIass. 564, 47 N. E. 502. The case does so hold. But the decision is expressly rested upon the earlier Massachusetts cases holding that joint-stock companies organized under the law of that State were mere partner- ships. Tappan v. Bailey, 4 Mete. (INIass.) 529 ; Tyrrell v. Washburn, 6 Allen, 466. " If," says Lathrop, J., delivering the opinion of the court, " the question were an open one in this commonwealth, it might well be held that such an association could be considered to have so many of the characteristics of a corporation that it might be treated as one." The court in that case express their unwilling- ness to adopt the views of the Supreme Court of the United States in Liverpool Lis. Co. v. Massachusetts, 10 Wall. bQ>Q>, and say that their own decision, reported in Oliver v. Insurance Co., 100 Mass. 531, and affirmed in that opinion, was rested upon the ground stated by Jus- tice Bradley in his dissenting opinion. "VVe have neither the disposi- tion nor the freedom of the Massachusetts court in respect to the opinion of the Supreme Court in Liverpool Ins. Co. v. Massachusetts. The Youngstown Coke Company presents many more of the charac-f C teristic features of a corporation than did the Liverpool Insurancel ^ Company, and that case is an authority most strongly supporting our conclusion that it is a corporation. The same conclusion was reached] in regard to another one of these Pennsylvania associations by Judge Lacombe, in Bushnell v. Park Bros. & Co., 46 Fed. 209. That case was subsequently affirmed by the Court of Appeals, in 9 C. C. A. 138, 60 Fed. 583, though this question seems to have been abandoned by the plaintiff in error, against whose protest the case had been re- moved from the state court. Our conclusion, therefore, is that the Youngstown Coke Company is a corporation and a citizen of Pennsyl- vania, within the meaning of the jurisdictional requirement in respect to diversity of citizenship. Judgment affirmed. ^' 30 GREAT SOUTHERN FIRE PROOF HOTEL CO. V. JONES. GREAT SOUTHERN FIRE PROOF HOTEL CO. v. JONES. 1900. 177 U. S. 449.1 Jones & Co. brought a bill in the U. S. Circuit Court for Ohio, against an Ohio corporation and various other defendants. The bill describes the plaintiffs as " members of the limited partnership associa- tion doing business under the firm name and style of Jones & Laugh- lins, Limited, which said association is a limited partnership associa- tion, organized under an act of the General Assembly of Pennsylvania, , approved June 23d [2d], 1874, entitled ' An act authorizing the for- ^ ^ ^,-^ / mation of partnership associations in which the capital subscribed shall alone be responsible for the debts of the association, except under ( certain circumstances,' "... and which association is " a citizen of i the State of Pennsylvania." The claim of Jones & Co. was founded on the mechanics' lien statute of Ohio. The Hotel Company demurred to the bill ; contending that the said statute was unconstitutional. After a decision in favor of Jones & Co. in the U. S. Circuit Court of Appeals, the Hotel Com- pany brought the case to the U. S. Supreme Court on a writ of certiorari. Upon the argument in the Supreme Court, that court suggested the question (not raised by counsel, nor argued in the court below), whether the case as presented by the record was one of which the U. S. Circuit Court could take cognizance by reason of diversity of citi- zenship. (Tohii E. Sater and D. F. Pngh, for petitioner. Talfourd P. Linn and Louis G. Addison, for respondents. Harlan, J. . . . We are of opinion that the plaintiff as a limited partnership association was not entitled to invoke the juris- diction of the Circuit Court. It was not alleged to be, nor could it have alleged that it was, a corporation in virtue of the statute ot Pennsylvania under which, according to the averments of the bill, it was organized. It has been suggested that the plaintiffs are entitled to sue, and may be sued, by their association name. . . . But the capacity to sue and be sued by the name of the association does not make the plaintiffs a corporation within the rule that a suit by or against a corporation in its corporate name in a court of the United States is conclusively pre- sumed to be one by or against citizens of the State creating the cor- poration. [As to Const. Pa. Art. XVI. Sect. 13.] The only effect of that clause is to place the joint-stock companies or associations referred to under 1 Statement abridged. Portions of opinion omitted. — Ed. GREAT SOUTHERN FIRE PROOF HOTEL CO. V. JONES. 31 the restrictions imposed by that article upon corporations ; and not to invest them with all the attributes of corporations. We have not been referred to any case in the Supreme Court of Pennsylvania which distinctly places limited partnership associations, created under the statutes of that State, on the basis of corporations. That a limited partnership association created under the Pennsyl- vania statute may be described as a " quasi corporation," having some of the characteristics of a corporation, or as a " new artificial person," is not a sufficient reason for regarding it as a corporation within the jurisdictional rule heretofore adverted to. That rule must not be extended. We are unwilling to extend it so as to embrace partnership associations. We have not overlooked the case of Andrews Bros. Co. v. Touiiffstotvn Coke Co., 58 U. S. App. 444, in which the Circuit Court of Appeals for the Sixth Circuit, speaking by Judge Lurton, held that limited partnership associations organized under the Pennsylvania statute were corporations within the jurisdictional requirement of diverse citizenship. For the reasons stated, we are unable to concur in the view taken by that court. We therefore adjudge that ... it was necessary to set out the citizenship of the individual members of the partnership association of Jones & Laughlins, Limited, which brought this suit. Without considering the merits of the case, we are constrained to reverse the judgments of the Circuit Court of Appeals and of the Circuit Court, and remand the cause for further proceedings consistent with this opinion. Under the circumstances, the plaintiffs should be allowed, upon application, to amend the bill upon the subject of the citizenship of the parties. 32 RUSSELL V, TEMPLE. CHAPTER II. DISTINCTION BETWEEN CORPOKATION AND STOCK- HOLDERS.i SECTION I. /\,y\ The Distinction applied Generally. USSELL ET ALS., Appellants v. TEMPLE et al., Appellees. 1798. Supreme Court of Massachusetts. 3 Dane's Abridgment, 108. [Probate Appeal.] In this case the heirs of Thomas Russell con- ded that his shares in Maiden, Charles-river, Haverhill, Andover, nd Merrimack bridges, in Middlesex canal, &c., ought to be considered as real estate, and his widow, afterwards married to Temple, ought to have only her dower for life in them. On the other hand. Temple and «jsyife contended they were personal estate, and ought to be distributed asvsuch, and she have one-third part forever. The strongest case 'ong these, in favor of real estate, was the Middlesex canal, in which fhe corporation had a fee simple estate, or an estate forever, and a per- petual toll. By the statutes passed respecting this canal and real estate, the property therein was divided into 800 shares, and the shares in the canal, including the towing paths and wharves thereon, were made transferable and taxable as personal estate. This corporation also had power to hold real estate to the amount of £30,000, over and above the canal itself, and this appendant real estate was made taxable as real estate of the corporation in the several towns in which it la}'. It was argued (for the widow) that these shares were personal estate for two reasons : — 1st. Because these estates can only exist in the corporation, which alone can acquire it, alone be seized or possessed of it, alone pass it away, manage or repair it, and so must hold it entire ; and that the corporation is a moral person to all the purposes of propert}'. Its tenure is to their successors, or to their successors and assigns ; these estates never can vest in or be divided among the individual members, to hold as tenants in common &c., in their private capacities. Only the corporation can forfeit the estate, and that onl^' by forfeiting 1 The distinction is also (liscu8se/-*^^ -^ rata payment of the others. Most of the creditors of Frierson who had\ -^ loaned him money on the stock of the Bethel Hotel Co. were not proC^ ,^ vided for in the deed of trust. Parker et als., creditors of Frierson andj^T' pledgees of said stock, filed a bill in equity, praying (^mter alia) to annul W^ jw^ ' the trust deed to "Webster. The cause was heard before the Chancellor ,^r'^''''''^ A^ c£ 3Iarks, and John T. Williamson^ for Parker. iN f\\ r 'v "^ J^\ -^ G. T. Hughes, Fussell \J^'^^'^ V instrument, in the Bethel Hotel Company, where it had been, unques-l ] ^ JL^^^ tioned and undisturbed, since 1880, the year of its incornoration anfti- . «_ ft tioned and undisturbed, since 1880, the year of its incorporation an6l> , V 1\ organization. Defendants insist that, although Frierson ma}' not have Vj^^ i Ay* "^ (^J? been invested with the legal title, he, nevertheless, had such an equi-i^^ AV '^^ table estate and interest as entitled him to sell and dispose of the propvr '^ Ojy'^ f^ erty. In other words, that he was the real owner of the property, and,4/l>75 >- 1^ • l^^ as such, had the absolute right to use or dispose of it. I'!^ ') (^ • * I This alleged equitable estate was not the creation of any deed 0X\\ y^ ^ \ written contract, executed by the Bethel Hotel Compan}', or of anyV^ j'^^ ^)}f^^ corporate act or resolution adopted by the stockholders or directors,) a 6^*"^^ i^ which in terms referred to or defined it, but is rather the result and-j i ""^ t\ y consequence of certain facts and conditions, the existence of which ia #- Kr affirmed by the defendants. > /jJK^ ■ It is said that the Bethel Hotel Company, by the alienation of that.^, '^^ i ? "^-^.o^ ' part of its property built for and adapted to the uses and purposes ofi i^^ v a hotel, deprived itself of the means of conducting a hotel businesSjV^^ IlA^ dj and that, since 1885, the date of the sale to Ma3'es & Dodson, it hadij^^ *^^*^ ceased to exercise its corporate franchises; that the stockholders, at^ /t/0^'i C a) the meeting held in September, 1885, passed a resolution, or agreedyViA H among themselves, that the corporation should go into liquidation, ^^^.-^ujJ (I rtx/^ > tliat Lucius Frierson, being then the owner of all the capital stock 0^^-'%^ a Ar\ ^y, the corporation, became, in consequence, the equitable owner of all ^^^-jJiLm/ liy ^ property, with full power to use it or dispose of it in such manner asr -a ""^^ dxr'^ > he might choose to do. The position of the defendants seems to ba^ o^ « v^v^ that all rights of the corporation in the property were extinguished, - C*"^ ^ that it had ceased to be affected with any corporate uses, and that if- Jj^^'"'^^ belonged absolutely to Frierson. 'WC^ ^ The facts affirmed by defendants are not all of them exactl}' as' ^ ^^"^ lAt-^ found by the Court of Chancery Appeals. It is true that the corporjfc^ ^ ^ i 58 PARKER V. BETHEL HOTEL CO. tion sold and convej-ed the hotel part of its building to Mayes & Dodson, retaining only the stores and opera house, and never after- wards engaged in the business of owning and operating a hotel. Lucius Frierson was not the sole stockholder in 1885, when the hotel was sold, and did not become such until August 28, 1886, when he purchased the Bethel stock. His stock, or a large part of it, at that time and subsequently, was held as collateral security by other parties. It is not true that a resolution was ever adopted by the stockholders directing the liquidation or winding up of the afifairs of the corporation, or that they were ever wound up. The facts, as found by the Court of Chancery Appeals on this point, are stated in its opinion in the follow- ing words : "It maybe fairly inferred, though it does not distinctl}' appear in terms in the proof, that when the deed was made to Mayes &, Dodson it was then understood between W. D. Bethel and Lucius Frierson, they then owning practically all, or nearly all, of the stock, that Bethel should take the proceeds of the sale to Mayes & Dodson, amounting to $22,500, and a sufficient amount, in addition, from Lu- cius Frierson, personally, to make $30,000, and for this he would transfer his stock, $61,000, to Frierson, and that this arrangement was consummated, so far as it could be done without direct corporate action of the corporation itself, by the paper of August 28, 1886, made by Bethel to Frierson, and this is what they understood by the resolu- tion to go into liquidation, there being no debts due by the corporation, and, following out this idea, from the date of the sale to Mayes & Dodson, Lucius Frierson proceeded to treat the property as his own, on the idea that he himself constituted the corporation. We do not think that he entertained the idea that the corporation was defunct, but simply that he was, himself, the corporation, and could do what he wished with the assets." In considering the position of the defendants, that Frierson became the equitable owner of the assets of the corporation, we must, there- fore, leave out of view the idea that there was an}' corporate action looking to a dissolution of the corporation and winding up of its affairs. Frierson's estate or interest in the property, if he had any, rests on the postulate that, in consequence of the nonuser of its franchises and his sole proprietorship of all its capital stock, the corporation was dis- solved, and he became the equitable owner of all its propert3\ A corporation can be dissolved, and its existence wholly terminated, only by the extinguishment of the corporate franchises conferred by the Slate. An ordinary business corporation, where its charter speci- fies no definite time for its continuance, may sell its property and wind up its affairs whenever a majority of the stockholders va^y deem it ad- visable {Treadv:ell v. Salisbury Mfcj. Co.^ 7 Gray, 393; Black v. Delaxonre & C. Canal Co., 22 N. J. Eq., 416) ; but the franchises conferred upon the stockholders by the State are not extinguished by >he cessation from business thus brought about. 2 Morawetz on Corp., § 1004. PARKER V. BETHEL HOTEL CO. 39 It is claimed by the defendants that the dissolution of the corpora- k tion was effected by the fact that Lucius Frierson became the sole owner of all its capital stock. Admitting it to be true that he was the owner of all the stock of the corporation, it by no means follows that the corporation was thereby dissolved and forfeited its franchises. On this question the latest text writer on corporation law has this to say, viz. : "Contrary to early opinion, it is now generally held that the fact that all the shares in a joint stock company have passed into the hands of two members, or even into the hands of a single person, does not, ijysofacto^ work a dissolution of the corporation, since such sole owner may so dispose of the shares, as, by the election of the neces- sary directors and officers, to continue the corporate existence." 5 Thompson's Commentaries on the Law of Corporations, Sec. 6653. And, in 2 Morawetz on Corporations, Sec. 1009, it is said: "It is well settled that all the shares of a corporation may be held by a single person, and yet the corporation continue to exist, and, if the charter or by-laws should require certain acts to be done by more than one shareholder, the sole owner may transfer a portion of his shares to other persons, so as to conform to the letter of the rule." It has been held that a corporation which has sold all its assets, with the intention of putting an end to its business, whose officers had all resigned, and whose stockholders had all transferred their shares to a single person, was, nevertheless, not dissolved, and that its existence could be ter- minated only by judgment of forfeiture or by surrender accepted by the State. Russell \. McLellan, 14 Pick. (Mass.), 69, 70; Newton Mfg. Co. v. White, 42 Ga., 148 ; Bahhoin v. Canjield, 26 Minn., 43. /The dissolution of a pecuniary or business corporation is effected in ^ne of the following ways, viz. :'(1) bj' the expiration of its charter; ^ (2) b}- Act of the Legislature, where power is reserved for that pur- pose, or there is no constitutional inhibition V (3) by sui'render of charter which is accepted r (4) by forfeiture of the franchises and judgment of dissolution pronounced b}^ a Court having jurisdiction. 2 Morawetz, Sec. 1004 ; Taylor on Private Corporations, Sec. 430. It is not pretended that the Bethel Hotel Conipau}' was dissolved in either of the wa3-s indicated. The charter of the corporation has not expired, neither has it been repealed bj' the Legislature, or been sur- rendered to the State by its members or stockholders. It maj' be true that there was a nonuser of its franchises by the corporation for a period of seven A'ears or more, occasioned b}- the sale of the only propert}' it owned which could have been used for hotel purposes.l Undoubtedly the nonuser of its franchises b}' a corporation is ground! for dissolution and forfeiture of its charter, at the instance of the State ; | but until sentence of dissolution has been pronounced by a Court/ of competent jurisdiction, in a proper proceeding instituted for the/ purpose, the corporation will continue to exist, notwithstanding itsj failure to use its franchises. And forfeiture can only be decreed in a proceeding directl}- instituted for the purpose, by the State granting it. Code (M. & v.) § 1712; State v. Butler, 15 Lea, 104, 110; Jersey t 40 PAEKER V. BETHEL HOTEL CO. City Gaslight Co. v. Consumers^ Gas Co., 40 N. J. Eq.^ 427; Broad* tcellx. Merritt, 87 Mo. 95. UntiRlissolution has been thus j udicjallj^ pronounced, neither the exi stence of t he corporation o r its jit le to its "We are bound to conclude, therefore, that the Bethel Hotel Company was not dissolved, or its franchises extinguished for any of the reasons alleoed by the defendants, and that it is now a corporation endued with life, with authority' to own property and exercise all the powers conferred on it by its charter. Defendants insist that the alleged equitable estate of Lucius Frier- son in the property of the Bethel Hotel Company, did not depend alone upon the dissolution of the corporation, but resulted also from the fact that he was the sole owner of all its capital stock. The pro- position is, that if one person owns all the shares of stock of a corpo- ration which owes no debts, he, in virtue of such ownership, becomes the equitable owner of all its property, or, at least, may sell and dispose of it by deed, if he choose to do so. This proposition is argued by counsel for defendant with force and ability, and is supported by some authority. It has found favor with the Supreme Court of Mar^'land {Swift V. Smith, 65 Md., 428, 433); but the decision of that learned Court is opposed b}' the current of authority, and seems to us to over- look and ignore certain principles that are fundamental. A corporation and its shareholders are distinct legal entiti es. In Keith V. Clark, 4 Lea, 718, this Court held that, notwithstanding the State owned all the stock in the Bank of Tennessee, "the bank and the State are entirel}' different legal entities," and, in Lillard v. Porter, 2 Head, 175, it was said, " stockholders are totally distinct from the cor- poration." Important consequences result from _tbis thIp^ , ^\\^ s hare- holders are neitlier responsible for the debts . nor for the torts of th corporation. Tnthe absence of special circumstances, the shareholders cannot be parties, either plaintiffs or defendants, in actions respecting corporate rights, nor have the}' an}- title or direct interest in the prop- >y^ BUNDY V, OPHIR IRON CO. 1882. 38 Ohio State, 300.1 HE Ophir Iron Company was a corporation consisting of ten stock- Iders, including the plaintiff, Bundy. Bundy indorsed notes of the Company upon an agreement that he should be protected by a mortgage upon the Company's real estate. The mortgage, instead of being executed in the name of the Com- pany as grantor, was, b^' mistake, e xecuted j, n the name of the other nine stockholders , thus : — " Know all men by these presents, that Robert Hoop" [and eight others then named], "the grantors in this instrument, and who together with H. S. Bundy are the sole members and stockholders in the Ophir Iron Compan}', a corporation duly organized, ... in consideration of ten thousand dollars paid by said H. S. Bundy to said Ophir Iron Company, ... do hereby grant ... to the said H. S. Bund}', . . . all the right, title, interest and estate, legal and equitable, of the afore- said grantors in and to the following lands and tenements of the said Ophir Iron Compan}', . . ." - [Then follows the condition that the deed shall be void if the Com- pany shall pa}' the notes indorsed by Bundy, and shall save Bundy harmless,] This mortgage deed is signed with the individual names and sealed with the individual seals of the nine persons named as grantors, by whom, as grantors, it is also acknowledged as their voluntary act and deed. It was recorded Dec. 5, 1874. On April 17, 1875, a second mortgage, on the same premises, was duly executed b y the corporatj [, on . through its president, to secure all its creditors except Bundy. The latter mortgage recites that it is made " subject, however, to a mortgage in favor of Hezekiah S. Bimdy, for the sum of §10,000, of record in said County," &c. * Statement abridged. Arguments and part of opinion omitted, - Ed. /V, us creditors of thcf-corpomtion (^who were alkfC) \ y- obtained judgments against it;^P* L^\ \^ ' I) s described in the mortgages. ^ V », —J , ', 4S75,-Tar .r In May, -TSys, 'v'anoil mortgagees in tlie second mortgage which took effect as liens upon the land In August, 1875, Bund}-, having paid the notes which he ha indorsed, commenced an action to foreclose his mortgage, making, various creditors of the corporation parties. The District Court foun^ W that the mortgage of Bundy was invalid as against the subsequetir creditors of the Company. Bundy brought error. W. W. Johnson, with whom were Jo/m T. Moore, Porter Hadicay^ and J. B. Forctker^ for plaintiff in error, Wilby & Wall, and C. A. Atkinson, for certain creditors. ^ J~ r White, J. The controversy in this case is between Bund}', claiming (^ as first mortgagee, subsequent judgment creditors, and creditors claim- ing under the second mortgage. ^ Two questions arise for consideration : (1) Whether the executio\^ i and record of the mortgage of December 5, 1874, to Bund}-, give him U^ ' priority'? and, (2) If not, does the recognition of the first mortgage,^ *^ the second, of April 17, 1875, have that effect? f\9^-oA^4 As to the first question : The consideration upon which Bundy v\ *M^^^^^ indorsed the notes as surety of the corporation, was that the lattsVft^h ^ \ should give him a mortgage upon its property, conditioned that it would^ vjJ' pay the notes at maturity, and save him harmless on account of his \ V *•^ indorsements. The execution b}' the stockholders of the first mort-AM.\* r ^ gage was the attempted fulfilment of the agreement on the part of the\ ^ "^iK corporation. \}^\V' V^ The Ophir Iron Company was incorporated under the act of April I'WM^ t ^ ^{ 1858, providing for the creation and regulation of manufacturing coob' ' , . i^Oi ^ panics. S. & C. 301, 304o Under that act the directors of the com/Pp T. |k [Jq. pan}' are required to be stockholders; and while it is declared " th^ k^^ \\t^ directors shall have the general management of the affairs of the comjl'V< ' .1. pany," yet they are made " subject always to the control of the stock- ^jff^ JLji - fT holders " in reference to such management. iy\ A^.L, i^ v The mortgage to Bundy now in question, not being made in the namef{jp^ /J^^l ) of the corporation, cannot, as against it, be regarded as a legal mor^^ \^\ \ ^"^ gage; but it is a good, equitable mortgage against the corporatioii^ vf~jr^ "/^^ And if such direction were necessary, it might be considered as equivaTC^ ^v *H>1<^ ,y^ lent to a direction by the stockholders to the proper officers to make H . SL^ ^' mortgage in the name of the corporation to Bundy. But such direc^jC*" ^ *"* partnership property was conveyed to the Limited Compau}-. ^P Ah a I i The Commissioners assessed an ad valoretn dut}- upon the deed, j{s >) t^ \b-^^ coming under the head of a '• conveyance or transfer on sale." \r^^ 4/<^A "^ a In the Queen's Bench Division, Cave, J. held that the assessmenft^ ''^ . *^^ ^(Li' was erroneous, and Wright, J. took the opposite view. Wright, J., j^ ^^^^ ^H^ withdrew his judgment, and the appeal from the Commissioners wg^ t^ allowed. yy , ^"^ U From this decision of the Divisional Court, the defendants appeVrejT/rjjy | *" to the Court of Appeal. A*/ ^^ y^^'^v Sir Charles Russell, A. G., and Danckwerts {Sir John Bif/hiX fjj/^ a S. G., with them), for appellants. ^nM Firday, Q. C, and A. R. Kh-hy, for respondents. [Argume condensed in C9 L. T. x. s. p. 817.] <3 In order to constitute a sale there must be two different parties capa , , - ^ ble of making an agreement, and there must be two different things,',/ "^ the property sold and the price given for it. In the present case there '^ . Y^ yjS has merely been a re-arrangement of ownersliip. The parties remained \^^^ W *'^\. the same, and nothing was parted with, and nothing was given. It^ tM.^ Q/'^ "^ 1 Statement abridged. Opinion? in Queen's Bench Division, and part of argument^ J^ i emitted. — Ed. If (^- .>^ #- ^^-M^^^y^r^ ik^^f e^' FOSTER V. COMMISSIONERS OF INLAND REVENUE. \yj w^s like a conveyance of property to trustees upon trust to carry on IjLUie business, and divide tlie proceeds arising from it amongst the conveying persons. LiNDLEY, L. J. I confess tliat, with great deference to Cave, J., I cannot see the difficulty in this case. The material sections of the Act of 1870 must first be considered. [The Lord Justice then read ss. 70 and 71 of the Stamp Act, 1870, and continued] : The importance of s. 71, to ray mind, is this: it shews that there may be a convej'ance on sale, although the consideration for it is not cash or mone}', but ma}- include or consist of stock or market- able securities. The definition of " stock " and " marketable securities " will be found in s. 2. Then s. 78 imposes a stamp duty on conveyances not otherwise charged, and the schedule shews what the stamps are that are imposed upon convej'ances that are charged. First we have '"conveyance or transfer whether on sale or otherwise," of certain^ stocks and dividends. The present case does not come within that head. Then we have "conveyance or transfer on sale, of any prop- erty" . . . "where the amount or value of the consideration for the sale does not exceed £5." That fits in with ss. 70 and 71. Then we come to " Conveyance or transfer b}' way of security of any property or of any security';" and then we have "Conveyance or transfer of any kind not hereinbefore described." We must accordingl}' consider under which of these heads the particular deed in this case comes. It certainlj' does not come under the first, nor under " conve3'ance or transfer by way of securit}' of an}' property," and the alternative is between " conveyance or transfer on sale " and " conveyance or transfer of any kind not hereinbefore described." Now, the document in this case is an indenture made between eight gentlemen of the first eight parts, and "John Foster & Sons Limited (hereinafter called ' the compan}' '), of the 9th part." Pausing there for a moment : although the persons of the first eight parts may be, and were members, and the only members, of John Foster & Co. Limited, John Foster & Co. Limited is not those eight individuals ; John Foster & Co. Limited, is a corporation. We have accordingly two parties, one party consisting of several individuals, and the other party consist- ing of a corporation. Whether they are or are not the members, or the only members of the corporation, is wholly immaterial. The corpora- tion is a total!}' different person from them in any capacity j'ou choose to assign to them except a corporate one. [Tlie Lord Justice then stated the recitals in and the operative part of the conveyances, and continued] : — Then the parties of the first eight i)arts put their seals to the instru- ment, and the comi)any puts its seal to it. Now, what is that instrument? It is certainly a conveyance of proi)ert3' ; that is obvious. In order to amount to a conveyance of property there must be a person conveying and a person taking, and 3'ou have them both here. The persons con- voying are the i)ersons named in the first eight parts, and the persons taking arc the corporation named in the ninth part. FOSTER l\ COMMISSIONERS OF INLAND REVENUE, 53 Now, what is the consideration ? The consideration for the transfer of this propert}' is, I agree, not money, but it is stocks and securities, which for this purpose are to be regarded as equivalent to money b}' reason of s. 71 of the Act to wliich I have already alluded. Then what have we got? To sum it up shortl}', it is a conveyance of property from one person to another, for monej', or what is, according to the provisions of the statute, equivalent to mone}-. What is that except a conveyance on sale ? What else can j'ou call it ? It is certainly not a gift ; it is not an exchange; it is not a partition ; it is not a mortgage. I do not know what it is unless it is a conveyance on sale. I do not know what is necessary to constitute a sale, except a transfer of prop- ert}- from one person to another for money, or for the purposes of the Stamp Act, for stock or marketable securities. But then it is argued that it is only a redistribution of propert}'. I do not consider it a redistribution at all. It is an entire transfer of propert}' from one set of people to another person altogether, and whether there are, as there ma}' well be hereafter, additional persons taking shares in this company, is perfecti}' immaterial. Again it is argued on behalf of the appellants that this instrument is in substance nothing more than a conveyance to a trustee to carry on the business in trust for the grantor. Just tr}' that. Supposing there is a conveyance by half-a-dozen people, transferring their property to a trustee on trust to carry on the business for them, can 3'ou in any sense of the word, legal or business-like, or otherwise, call that trustee a buyer? There is no buying, there is no sale to him at all, nor is there any money, or stock, or securities, or anything else parted with b}' him. Then it was urged that these shares can derive EO value unless the company gets this propert}' transferred to them. That is possible enough. That is to say, in other words, that the shares in the com- pany would be valueless unless the compan}- had assets. Of course they would be, but that does not affect the question whether there is a sale or a conve3'ance or not. I think myself that Cave, J., has attached too little importance to the fact that you have here a distinct seller, and a distinct buyer, and that in point of law it is immaterial that in the present case the buyer is a corporation which consists of the eight persons who formed, and who are, the partners. The appeal must be allowed . Kat, L. J. I am of the same opinion. With deference to Cave, J., it seems to me impossible to hold that this transaction was anything else than a conveyance on sale. As pointed out on the face of the statute, the consideration ma}' be money or money's worth. Money's worth certainly is sufficiently expressed by a number of shares and debentures of an existing corporation, which, in effect, constituted the consideration for the particular transfer in this case. Now, that there was a conveyance is beyond all question. The persons who are named as vendors in the deed have divested themselves of their property in the subject of that conveyance; and all that property is vested in an entirely 54 FOSTER V. COMMISSIONERS OF INLAND REVENUE. independent and separate body, — namely, a corpo'^ation. Suppose that corporation liad consisted of altogether different persons, no one for a moment would doubt that this was a conveyance on sale. Suppose there had been one person in it different, there is nothing that I have heard in the argument which induces me to suppose that even in that case it could have been doubted that this was a conve^'ance on sale. But the argument, as I understand it, is this, — that the individual cor- porators who composed that coi-poration were, in fact, the ver}' identical persons who were conveying this property to the corporation, and the corporation had no other property except this which it took under its conveyance ; and that, as the onl}- value of the shares and debentures was derived from this verj' property which the individual corporators were conveying to the corporation, the conveying partners either got no consideration for that which the}' conveyed other than part of the property actually conveyed, or the}- got no consideration at all. Now, I do not follow that argument in the least. I think it is a fallacy from beginning to end. In the first place, a corporation is a different thing from the individuals who compose it ; and, secondly, the shares and debentures of a corporation are not the same thing as the property which that corporation owns. You may say, in one sense, that the property is a security for the value of those shares. The value of those shares in the market, which observe are immediately transferable, may depend upon the solvency of the company, the amount of property it possesses, and its chance of carrying on a profitable business. To say that the shares and debentures are part of that property seems to me to be a complete confusion of terms. Suppose the case, which I put during the argument, of a sale of real estate, and the whole of the purchase-money not to be paid at once in cash, but to be secured on mortgage on that real estate ; and, if you like, in order to make the analogy perfect, suppose the purchaser had no other property than that property, would the transaction be the less a sale for that reason? Still the consideration given would be a certain amount of cash which would be left on the security of the estate ; but I have never yet heard tliat because the whole of the purchase-money upon a sale of real estate was left on mortgage of the real estate, that for that reason the trans- action ceased to be, or was prevented from being, a sale. Yet, really, that is what the argument in this case comes to. I confess I am not able to agree with it. Nothing else was suggested which should pre- vent this transaction from being a sale, and it seems to me clearly to De, under the words of this statute, " a conveyance on sale" for a con- aidcration, which, if not money, at least is money's worth. I, therefore, -rt'ith all deference to Cave, J., think that his decision must be reversed, und the appeal allowed. A. L. Smith, L. J. The question in this case is whether the instru- •ncnt of November 27, 1891, is a conveyance or transfer on sale of any of the property mentioned under the second head — " conveyance oi transfer" — in the schedule to the Stami) Act of 1870. FOSTER V. COMMISSIONERS OF INLAND REVENUE. 55 Now, in order to find out what is, or is not, a conveyance or transfer on sale of any property in tlaat second head of the schedule, 1 must refer to ss. 70 and 71 of the Act. And, reading both these sections together, it seems to me that the term " conveyance on sale" includes every instrument whereby any property, upon the sale thereof, is trans- ferred to or vested in the purchaser in consideration of any stock or marketable security. That is the definition. First of all, then, is this an instrument whereby any property is transferred to or vested in the purchaser ? I beg to say. Yes. It is an instrument upon the face of which the actual land of the vendors, and the trade-marks which are their property, are transferred to a limited company. I do not think that this is disputed, and it does not appear to me to be disputed so far, in the judgment of my brother Cave ; but what he says is that this is not an instrument whereb\' any property-, upon the sale thereof, is transferred. The real pith of his judgment is that the vendors and vendees are the same persons — that the agree- ment as regards the sale was carried out b}' the members of the old firm before an}- company limited came into existence, and that inas- much as they are the same persons now as then, there is no sale at all ; and, therefore, there is no instrument whereby any property upon the sale thereof is transferred. I must here respectfully differ with my brother Cave. It seems to me that the compan}' limited are not the same persons as the eight members of the old firm — they are different altogether. It was admitted by Mr. Finlay in argument, though he entirelj' took away the ground from under m^' brother Cave's feet when he said so, that the company limited could maintain a suit for specific performance against the old partners. If that is so, how can the}- be the same persons? This really shews that they are not the same persons. It is here that I disagree with my brother Cave. The respondents also contend that there was no consideration. "We must read the two sections together. Sect. 70 enacts that : " The term ' conveyance on sale ' includes every instrument whereby any property, upon the sale thereof, is transferred to or vested in the purchaser." Then s. 71 implies that it may be in consideration of any stock or marketable security. The land and the trade-marks are transferred by this instrument from the eight partners who were the old firm to the new company limited. The land and trade-marks are transferred by this instrument in consideration of what? In consideration of stock or marketable securities, which, undoubtedly, are not the same things as the land and trade-marks themselves, though they may be charges upon the land and trade-marks which are conveyed. It seems to me that it is untrue to say that in this transaction there has been no con- sideration passing from the vendee to the vendor. Although charges upon the land and the trade-marks, the consideration comes within the very terms of s. 71 itself, — •' any stock or marketable security." For these reasons, I prefer the judgment of my brother Wright to that of my brother Cave. Ajyj^eal allowed. LEY MRDWARE CO. V. TOWERS HARDWARE CO. OBE/& HANDLEY HARDWARE V HARDWARE CO. 1888. 87 Alabama, 206.1 CO. V. TOWERS a private corpora* Appeal from the Chancery Court of Jefferson. 11 filed Dec. 3, 1888, by Towers Hardware Co. against Moore & Handle}" Hardware Co. , another private corpo- ration, seeking to enjoin defendant company from selling " plow-stocks plow-blades" in violation of a contract made between plaintiff compan}' and a partnership doing business under the name of Moore, •e & Handle}", which was composed of James D. Moore, Benj. F. ^"^loore, and William A. Handle}", who, as the bill alleged, afterwards y formed the defendant corporation. The allegations of the bill were, in substance, as follows : Said partnership, Ma}' 27, 1887, sold out to plain- tiff their entire stock of plow-stocks and plow-blades ; signing an agree- ent — " we agree not to handle any more plow-stocks or plow-blades, except railroad plows." On March 12, 1888, the defendant company was incorporated under the general statutes. The said partners each subscribed one-fourth of the capital stock, and one Wimberly one- fourth. If Wimberly ever had any interest in the corporation, he had not had it since Aug. 8, 1888. Said Moores and Handley are now the sole owners. The defendant corporation was organized for the purpose of carrying on the same business which the partnership had carried on. Its capital stock was paid for wholly in the assets of said partnership. It succeeded to all the property rights and assets of said partnership, as well as all the liabilities thereof. Said defendant cor- poration is none other than said Jm. IVIoore, B. F. Moore, and Wm. A. Handley, who constituted said partnership, and now constitute said corporation. "Your orator cannot say whether or not said Moores and Handley organized said corporation for the purpose of evading the force and effect of their said agreement with your orator, but does say and charge that the effect of their doing so would be to perpetrate a fraud on your orator, if they should be allowed to handle plow-blades and plow-stocks ; that the defendant's business, as now conducted, is iden- tically the same as that conducted by said Moores and Handley, is con- ducted by the same persons, and in substantially the same manner as before, and that the only change in fact has been in the name of the concern. The defendant corporation answered the bill ; denying that it as- sumed, or became liable for, the obligations of said partnership, or of its individual partners, or that it acquired any interest in the outstand- ing notes and accounts due to said partnership, or tlie real estate owned by the partners, wliich was more than sufficient to pay all their out' Statement abridged. Arguments, and part of oijiuioii, omitted. — Ed. MOOEE M' ...1^7 Y ^^ ^f BtarM^'ng debts 1^ and liabiKties ;'allegihg thdt Wimberlj^own^ a one^ \ n fourth interest in the corporation at its organization, \and ibr some^V time acted as its treasurer, but admitting that the Moores and Handley had since bought out his interest ; and demurring to the bill for want ^ of equit}'. After answer filed, defendant moved to dissolve the temporary in-mj^ junction and to dismiss the bill ; and this appeal is taken from they fj V decree of the Chancellor refusing these motions. Smith <& Z/Oice, for appellant. Cabaniss & Weahley^ contra. ft McClellan, J. The equity of the bill, so far as the injunction isT concerned, and the sufficiency of those of its allegations which are not' denied by the answer to sustain the injunction depend, primarily, o two questions. First, whether the contract relied on is void, as beingij' in unreasonable restraint of trade ; and, second, whether a negative un- dertaking entered into bv persons who subsequently organize, and fort/^ the time constitute a corporation for the prosecution of the business, with respect to which the contract was made, can be enforced by injunc-y tion against the corporation. /L/0 • n t 1. [The learned Judge held that the contract was not void, as being in unreasonable restraint of trade.] 2. The gener al doctrine is well established, and ob tains b ot h at law and in equity, that a corporatio n is a^dlstinct entity, to be co nsidered,;^,, separate and a part from the individuals jwho^compose it, and is not to \ - be affected by the personal rights and obligations and transactions of its '" stockholders, and this whe ther said rights accrued or obligations w^re incurred before or subseque nt to incorpo ration ^ 1 Mor. Priv. Corp. §§ 227-234, 547-549 ; 3Iorrison v. Mining Co., 52 Cal. 309 ; Jlaickins A s. V. Mining Co., Id. 515 ; Gent v. Insurance Co., 107 111. 658 ; Railroad' Co. V. Helensburgh, 2 Macq. 391 ; Match Co. v. Hapgood, 141 Mass../W 145, 7 N. E. Rep. 22. There is a class of contracts, however, which are entered into between the promoters or projectors of a contemplated cor-.'- poration and third persons on the faith of the corporation, intended to inure to its benefit, and which in point of fact do inure to its benefit, on which the corporation will be charged, even in the absence of an express promise to perform, or ratification on the part of the company' after it is in esse, on " the familiar principle that one who adopts the benefit of a contract which another volunteers to perform in his name and on his behalf is bound to take the burden with the benefit." 1 Redf R. R. (5th ed.) 18 ; Edwards v. Railroad Co., 1 Mylne & C. 650 ; Stanley v. Railway Co., 9 Sim. 264; Little Rock & F. S. R. Co. v.,, Perry, 37 Ark. 164 : Ferry v. Little Rock & F. S. R. Co., 44 Ark. ' ^ 383 ; Bornmer v. Manufacturing Co., 81 N. Y. 468. An d in those Uo ^^ casgsjyhere assoc iates comb ine to gether to create a^_pa]2 er corpor ation to cover a partnership or joint venture, and where the stockholders are^ partners in iiitentiun, and have resorted to the fiction o f separate cor- porate entity to free thems elYeiJiflinlin dividual o bligations. JiMcIl-bad ^ <\ I.A/^ .t>^ 58 MOORE AND HANDLEY HARDWARE CO. V. TOWERS HARDWARE CO. 4 attached to them, with respect to the business they pi^osejQj3arry_oni^ prior to the organization of the company, coui'ts of egiiit}^, whe n the ends of ju stice requii'e~rt, will disregardand look bey ond t he fiction of corporate entify, and hold the^ corporation to a discharge of the liabili- ties resting on its me mbers ; and this may be done although senile ofthe sTiai'eholdersnhadjiot jHuginallyJncurred^ tjie_obligation f light to be enforced, provided_ they had notice oj^ it Ijefore ^entgrin g the co rpora- tion and participated in the effort to av oid it. Wheel Co. v. Wagon C^ 20 FedrUep.~lWOi~Beal\. Chase, 31 Mich. 490, 495, 532. The contract of Moore, Moore & Handley, sought to be enforced ^against the Moore & Handley Hardware Compan}', was not an under- I taking between promoters of the company and third parties, nor made on the faith of the corporation, nor intended to inure to its benefit, nor I did it inure, in point of fact, to the benefit of the corporation. It is I not of that class of contracts which courts enforce against corporations on tlie grounds that they were made in the corporate name by antici- pation, and that thfi corporatio ipifecfcived and accej^ ted the ben efits result- i ing from theno^J There is no allegation of fraud made agamstthe cor-\ rpofatiorT or its shareholders, and the implication of the fraudulent eff'ect of the corporate action complained of is denied. It is not shown that tills is a mere " paper corporation " to cover a joint venture in which the corporators are partners in intention, and have resorted to this form for the purpose of evading and avoiding obligations which they had taken upon themselves as. ind ividuals, or for the purp ose of evading the 4a:oiui se relied o n here^If these things had appeared in the case we should not hesitateTSnold the corporation answerable for the individual obligation. But in the absence of fraud " no authorities have gone the length of holding that any contract made with individuals exclusively upon individual credit will become the contract of any future corpora- tion that may form for the more convenient management and use of the benefits of it." Zittle Hock S F. S. R. Co. Cases, supra. If the case of Heal v. Chase, supra, goes beyond this doctrine, we cannot indorse it. We do not think it does. In that case the corporation had been formed for the purpose of violating a contract not to engage in a certain business. All the corporators were held to have participated in this purpose. The business was to be conducted by the corporation in connection with the promisor in his individual capacity. He had an interest in it, both individually and as the principal shareholder of the con)pany ; and the court enjoined the corporation, not generally, but from carrying on the business with or for the individual contracting party. To put the case at bar in line with that case it would have to ippear, not only that the corporation organized for the purpose and with the intention of evading their contract through the separate entity of corporate existence, but also that the}' reserved an interest in the business distinct from their interests as stockholders. None of these facts are shown. The effect of allowing the injunction in this case to continue would necessarily be to hold all future shareholders in the cor- WAEREN V. DAVENPORT FIEE INSURANCE CO. 59 poration to the performance of a contract which neither they nor tbe corporation had ever entered into, and of which they ma}' not even have had notice. Such a result could only be justified on the ground of bad faith in the creation of the compan}-. To thus hamper a bona fide corporation would be inequitable, and have the effect of establish- ing a doctrine fraught with much danger to corporate rights, powers, and propert}'. The allegations going to show a ratification b}' the corporation of this contract of Moore, Moore & Handley are denied by the answer, and hence cannot be considered in passing on the decree overruling the motion to dissolve the injunction. Those allegations of the bill which are not denied were not sufficient to authorize a continuance of the injunction, and the decree on that point was erroneous, and is reversed* The contract relied on here is such a one as the respondent corpora- tion could have made under its charter. It is therefore one which, being already in existence between complainant and the individuals compos- ing the defendant company, the corporation had the power to ratify and adopt. The bill, in our judgment, sufficiently avers such ratifica- tion or adoption. These allegations give equit}- to the bill, and the decree overruling the demurrer is affirmed. The cause will be re- manded, with instructions to the chancellor to dissolve the injunction, unless the complainant^mends its bill so as to entitle it to a continu- ance of the writ, un(3er the principles we have announced. (/ , > Beversed and remanded. RREN V. DAVENPORT FIRE INSURANCE CO. : 1871. 31 loiva, 464.1 ^^ j^^ Action on a policy of insurance, issued b}' defendant on alleged ropert}- of Goodale & Hosford, payable, in case of loss, to plain- tiffs, who are creditors of G. & H. Petition averred that defendant insured Goodale & Hosford against loss by fire, to the amount of $2,500, " on their priA'ate stock contained in a one stor}' frame saw-mill, machiner}', fixed and movable, engine and boilers therein, and known as that of the Dubuque Lumber Com- pany " — loss, if any, payable to the plaintiffs. Petition also averred that Dubuque Lumber Co. was and still is a corporation ,■ that by the ''private stock" before mentioned was meant the capital stock which G. & H. then had and still have in the corporation, all of which was known to defendant's agent at time of insurance ; that by means of such stock said G. & H. had, and continued to have, an interest in 1^ 1 Statement abrid_£;ed. — Ed. \J^ ^ y M WARREN V. DAVENPORT FIRE INSURANCE CO. saw-mill, machineiy, «&;c., to an above so much of their interest of f^ the insured property, viz. in said amount exceeding $2,500 over and therein as was covered bj- an insurance of $15,000, effected by the corporation in its corporate name ; that plaintiffs are creditors of G. & H. to a large amount, and hold the certificates for a considerable amount of the stock of said corporation as securit}' ; and that the in- surance was effected with the full knowledge and consent of the lumber company. Attached to the petition was a cop}' of the polic\', stipulating that "the loss or damage is to be estimated according to the true and actual cash value of the pi'operty at the time the same shall happen and be paid." To this petition defendant demurred : Jirst, because it does not show that plaintiffs have any interest in the property destroyed or in the policy ; second, because it does not show that Goodale & Hosford had any insurable interest in the property insured at the time the insurance was effected by them. The demurrer was sustained in the District Court. Plaintiffs appealed. Cotton & Cross, for appellants. W. E. Le-Qingimll, for appellee. Miller, J. The question raised b\' the demurrer is, whether the parties effecting the insurance in this case had an insurable interest in the property insured at the time the risk was taken and at the time of loss by fire. Policies of insurance founded upon mere hope and expectation, and loithout some interest, are said to be objectionable as a species of gaming^ and so have been called vxiger policies. These policies were expressl}' prohibited in England by statute of George II., ch. 37, and they have been adjudged illegal and void in this countr}' upon the principles of that statute, Angell on P'ire & Life Ins., §§ 18, 55. It is not that wager policies are without consideration ,or unequal be- tween the parties that they are held void, but because they are con- trary to public policy. Policies of fire insurance, without interest, are peculiarly and extremely hazardous by reason of the temptation they hold out to the commission of arson by the party assured, which is necessarily attended with peril of the most deplorable kind to a whole neighborhood. In King v. State Mutual Ti" ire Ins. Co., 7 Cush. (Mass.) 10, Mr. Chief Justice Shaw sa3's : "If an insurance were made on a subject in which the assured has no pecuniary interest — although in other respects he ma}' be deeply concerned, in it and on that ground be willing to pay a fair premium — made with full knowledge of all the circumstances, by both parties, without coercion or fraud, we cannot perceive why it would not be valid as between the parties. But upon the strong objections, on grounds of public i)olic3', to all gaming con- tracts, and especially to contracts which would create a temptation to destroy life or pro[)crty, such policies without interest are justly held WAEREN V. DAVENPORT FIKE INSURANCE CO. 61 void." (Jpon the ground of public polic}', therefore, if the assured have no interest in the thing insured, the policy must be held void. This is well settled. Oryiiej)th^r hand it_2s_eg[u^^ that not on ly the ahsolute_QSLi:i§ij__ bu^ a^y_oneJiaving_ a q ual i fied interest in thejjroperty ins ured, or even aii^' re asonable expe ctation^ of profit or advantage to be derived fr om it, may be the subje ct of insurance and ^speciall y if it b e, founded in some lega,l or equitable title. Id. § 56. And the general doctrine that anyinterest in the subject-matter in- sured is sufficient to sustain an insurance upon real property is one which has been fully sustained. Id. § 57, and notes. Several persons owning different interests in the same property maj' insure their several interests. And it is not material whether the interest assured be legal or equitable. Any interest which would be recognized b}- a court of law or equity is an insurable interest. The interest of a cestui que trust, mortgagor, mortgagee, of a lender or borrower on bottomry, so far as regards the surplus value, or of a captor, or of one entitled to freight or commission, is insurable. So where a lessor on ground rent has entered for the arrears, under a cov- enant that he may hold until the arrears are paid, &c., has an insurable interest. So also in case of one in possession of land by disseisin. Angell on Fire and Life Ins., §§ 57, 58, 59 ; 2 Parsons on Cont, § 2 of ch. 14, commencing on p. 438, and cases cited ; 2 Greenlf. on Ev., § 379. The term in terest, as used in applicatioii to the right to insure, d oes not, necessaxjlj imply property (Hancock \. Fishin g I nsurayice Co^, 3^umner!s_C. C. 1124_AngelLon Life^nd Fire Ins. ^ J 56), and as the contract of insurance is one of indemnity', against losses and disad^ van tages, an insurable interest may be proved in the assured, without the evidence of any legal or eq^uitable^ title in the property. Putnam V, Mercantile Insurance Co., 5 Mete. 386; Lazarus v. The Common- wealth Insurance Co., 19 Pick. 81, 98. An "insurable interest" is 9ui generis, and peculiar in its texture and operation. It sometimes exists where there is not any present property-, or jus in re, or jus ad rem. Yet such a connection must be established between the subject- matter insured, and the part}' in whose behalf the insurance has been effected, as may be sufficient for the purpose of deducing the existence of a loss to him from the occurrence of the injur}- to it. Huck v. Chesapeake Insurance Co., 1 Pet. 163. In the case under consideration the assured were stockholders in the Dubuque Lumber Co., a corporation for pecuniar}' profit. The prop- erty destroyed belonged to the corporation. The insurance was upon the interest which the assured had in that property by virtue of the capital stock therein owned by them. The object of the insurance was to indemnify the assured against loss to them in the event of a destruction of the property by fire. Could or would they sustain loss in such event? How would their in- terest be affected? It seems to us to be beyond controversy, that, in 62 WAKKEN V. DAVENPOKT FIRE INSURANCE CO. case of the destruction of the corporate property by fire, the stock- holders sustain loss to a greater or less extent, dependent on the par- ticular circumstances. Suppose the case of a grain elevator upon some of our numerous railroad lines, built, owned and managed by a joint-stock corporation ; that this is the only property of the corpora- tion ; tliat the entire capital stock is represented in and bj' this proi> ert\' ; that, in consequence of the profitable nature of the business, large dividends are realized bj' the stockholders, and the stock is above par in the market. The destruction of this property' by fire would at once result in the loss of dividends to the stockholders and a destruc- tion of the value of the stock, or at least to its reduction to a nominal value. The entire propertv, representing the whole capital of the cor- poration, being destroyed, it is difficult to perceive what would give any value to the stock. It is true that, primaril}', the loss is that of the corporation, and hence it ma}' insure, but the corpora- tion may refuse to insure, and then the real and actual loss falls on the stockholders. The appellee argues that shares of stock in a corporation are choses in action, and are not considered to be an interest in the real property of the company, and cites numerous authorities to sustain this posi- tion. This ma}' be admitted without denying the shareholders' "in- surable interest" in the property of the corporation. A mortgage^ also, is but a chose in action. The mortgagee acquir es no^right_tgLthe mortgaged p roperty w hich can be attached, levi£djQn_mideiLa_g£ncra> execution ^ or tliat can_be inh erited. It is a^mei:e^ secu rity for a de bt Eaton v. Whiting, 3 Pick. 484 ; Smith v. People's Bank. 11 Shep. (Me.) 185; Abbott v. Mutual Fire Ins. Co., 17 id. 414; Middleton Savings Bankw. Dubuque, 15 Iowa, 394 ; Newman v. De Lorimer^ 19 id. 244 ; Baldwin v. Thompson., 15 id. 504 ; Burton v. JECintrager, 18 id. 34a; HilHard on Mort. 215. And yet the cases are uniform to the efi'ect that a mortgagee of real property has an insurable interest therein which he may insure on his own account, but that when he does so it is but an insurance of his debt. Eaton v. Whiting, supra. And in case of damage by fire to the premises before payment of the mortgage, his loss, if any, is that his security has been impaired or lost. His interest is but a chose in action in the nature of a security, which he may insure, so that in case of destruction of or damage to the property upon which his security rests, he will be indemnified for the loss he actually sustains. So, also, it seems to us that the owner of stock in a corporation for pecuniary profit has a like interest in the corporate property. A mortgagee of" leal i)ro|)erty has an insural)le interest in the mortgaged premises, based upon the interest he has in the preservation of the same as security for a dol)t. He has a legal right to contract for indemnity against in- jin-y to the value of his security. Ujoon^ precisely the same principle a stockholder may c ontract for .nd cmnity against injury to the value of his stock, for he a lso has ao WAREEN V. DAVENPORT FIRE INSURANCE CO. 63 Interes^in the preservation of the corporate property from destruction by fire ; and in its destruction he sustains l oss in so far as the value of his st ock is depreciated in cons equence there of, o r his div idends cut ofl!*. The argument that, if this is allowed, owners of stock worth not more than ten per cent upon its nominal value may be insured at its par value, and in case of loss by fire such par value of the stock re- covered from the insurer seems to us to be unsound. Without entering mto a discussion in detail of what would be the exact measure of re- covery in such case, we simply answer that no more than the actual loss sustained is in any case recoverable. This rule is well established, and rests upon just principles. See Angell on Fire and Life Ins., ch. 11, and cases cited in notes. The question under consideration has not received direct judicial determination in any of the States, so far as we have been able to discover. The case of Phillips v. Knox County Ins. Co., 20 Ohio, 174, is cited and claimed as an authority against the right of a stock- holder to insure. The decision in that case, as a careful examination of the same fully shows, was made entirely upon a construction of the charter of the insurance company', which gave a lie>i on the insured property, including the land on which the buildings stand. By the charter a sale of the insured property rendered the policj' void, and the ninth section declared, that if the insured have a less estate than an unincumbered title in fee simple to the buildings insured and the lands covered b}' the same, the policy shall be void, unless the true title of the insured and the incumbrances be expressed in the policy and the application therefor. The plaintiff insured as owner of the property, which in fact belonged to a corporation of which he was a stockholder, and the court held that, '• where a building and the land on which it stands is the property of an incorporated compan}', the stockholders could not, under the provisions of the defendant's charter, insure such propert}^ as their individual property' in the defendant's company." Under the charter of that compan}', a mortgagee even, insuring the propert}' as his oion, would likewise be defeated in a recovery. So the owner in fee simple could not recover if the propert}' was incumbered and the incumbrance not set forth in the polic}'. And of course the same result must follow where a stockholder insures corporate property as his own individual propert}'. The decision in that case goes no further than this, and is no authority in support of the proposition, that a stockholder has no insurable interest in the property of the com' pany, and, hence, has no bearing upon the question before us. The jadgment of the district court is Keversed. .V ^ fe \y. lELD COUNTY TURNPIKE CO. V. THORP. FIELD COUNTY TURNPIKE CO. v. THORP- 1839. 13 Conn. 173.1 ^ Assumpsit on stock subscription. Defendant offered to prove an admission made by one Hickolc, a stockliolder in the plaintiff corpo- ration. The evidence was excluded. Verdict for plaintiff. Motion for a new trial. Dutton, for defendant. Bissell and Booth., for plaintiff. Williams, C. J. ... It is claimed, that lEcJcoJc being a stockholder in the company, his declarations are admissible as the confessions of a party. Tllgl-ill-^-^ C^"^'^'^^'"!!^ of the party on th e record may be given_ in evidence, is ecitainly true^ Testimony oT this kind proceeds upon" the ground that it is not to be presumed that persons will admit anything against their interests. There are cases, however, where the party on the record has really no interest, or at most a mere nominal interest ; as {.where a person has assigned a note without recourse ; where a p'artnership is dissolved, and one is to discharge the debts, &c. ; in which cases, this evidence is admitted, but with reluctance. In New- York it has been held, that the admissions of partners after a dissolu- tion, cannot be given in evidence against a co-partner, except to pre- vent the operation of the statute of limitations. Ilophins v. Banh^ 7 Cow. 650, 653 ; Gleason & al. v. Clark, admr. 9 Cow. 57 ; HacMey v. Patrick & al. 3 Johns. Rep. 536. We have adhered to the English rule in admitting the evidence, although in certain cases holding that it was entitled to no weight. Coit v. Tracy^ 9 Conn. Rep. 1, 8 Conn. Rep. 268, 277. It becomes important to inquire, in this case, whether Jlickok is a party upon the record. It he is, then any single share- holder in a bank of any amount of capital is a party to any suit brouglit by the bank, and his declarations are admissible. AVhatever may be said as to the sha reholder s in co rporations bein^ parties in fact or pa rties in intgre st^ it i s cert ain they a re^nqt parti es upon th e reco rd. The rec ord ^)eaks_only of the_artificial, intangible, being cr eated by the act of in corporation. In corporations of this character, it speaks of and knows no individual. There are cases, however, in which courts have drawn aside the veil and looked at the character of the individual corporators ; particularly when the question arises as to the jurisdic- tion of the court. Tliis has been done by the supreme court of the United States the better to carry into effect tlie spirit of the constitu- tion, giving the courts of the United States jurisdiction in suits between inhabitants. Bank of the United States v. Dereaiix, 5 Cranch, 91, 2. But this is confined to the question of jurisdiction, and has never been ' Statement abriilf^ed. Arguments omitted, (^ivcn as relates to one point. — Eu. Only so much of the opinion is FAIRFIELD COUNTY TURNPIKE CO. V. THORP. 65 extended further. Bank of Augusta v. Earle, 13 Pet. 586. So, too, this court has holden, that a judge shall not sit who is within the pro- hibited degrees of relationship to a member of a corporation ; and this to carry into effect the spirit of the act and to prevent any suspicion of partialit}'. These cases, however, rather form exceptions to the rule than create a new one. We see nothing in the case before us which ought to induce the court to extend the rule of law beyond its letter. On the other hand, there are strong objections to this evidence. The first results from the nature of the evidence itself For although the declarations of the party in interest against his interest, if fairly repre- sented, are strong evidence against him ; 3'et there is so much suspicion often attached to it from tlie misapprehension of the hearer and the treachery of memory in the reporter, to sa}- nothing of the danger arising from a prejudiced mind, that it is often to be received with man}- grains of allowance. In cases of this kind the interest is frequently so minute as to create no presumption, or a ver}' slight one, that the per-, son would not make such a declaration because against his interest. On the contrary, many circumstances too minute for explanation, might lead to a bias much stronger than such pecuniary, interest. Ever}' day's experience will shew us tliat the prejudices and alienations which arise in the intercourse of business, entirel}' overpower the slight interest of small shareholders ; and although this would be no reasoij for excluding evidence clearly admissible, 3'et it may be proper, in considering whether evidence excluded by the letter of the rule i$ within its spirit. Besides, tlie knowledge of individual stockholders is generally so limited as to make it of no importance. It is said, however, that all these are proper considerations for the jury to weigh. But when we consider the surprise upon the real party . from testimony of this kind from unexpected quarters, which must fre- quentl}' happen, and the embarrassments occasioned thereb}', the mul-^ titude of collateral inquiries which might often arise in investigating the real connexion of the persons whose admissions are offered in evidence, and the delay attending such inquiries, it seems to us that such evidence would more often mislead than guide to truth. It seem& to be supposed, that because the individual stockholder cannot be com- pelled to testify, his declarations therefore are admissible ; but it does not follow that the declarations of any person who cannot be compellecj to testif)- on account of his interest are admissible as evidence. Take the case of bail, of a feme covert, of a person who, by his answer, might subject himself to a penalt}- or a debt ; their declarations are not admissible as a matter of course. In such cases, perhaps a court of chancery, upon proper application, might compel a disclosure. Then there would be no surprise ; and such terms might be imposed as would render it safe. We know that in England it has been decided by the court of Kinffs Bench^ that the admissions of a rated parishioner may be evidence in a suit by the iniiabitants of the parish. It seems to have been thus first decided upon the ground that it was in fact a suit 66 ■ WASHINGTON INS. CO. V. PRICE. against the inhabitants themselves. The King v. Inhabitants of Hardicick, 11 East, 578, 586. There the suit is, in name as well as in fact, against the inhabitants ; and the property of the individuals is liable to be taken in execution. McLoud v. Selby, 10 Conn. Rep. 395. An d in a case but two years b efore, Lord Ellenhorough held, that in an action by a corporation, what any individual said [referring to indiv id- ual corporators] could not be given in evidence, although he did n ot extend the rule to the declarations of a public officer of the corporation . The Mayor of London \. Long, 1 Campb. 22. Before either of tbese cases, our superior court had decided that the declara t ions of an indi- vidual memt:) er_of acorporation , even although he was an officer in it, could not be given in evidence. Hartford Bank v. Hart, 3 Da}', 494. That^Hecision has ever since been acquiesced in ; and it is by the supreme court of New York favourably contrasted with the English decisions. Osgood \. Manhattan Bank, 3 Cowen, 623. And upon a careful review, we are not disposed to question the propriet}' of what has long been considered our settled practice. In the state of Maine, too, a similar decision has been made. Polleys v. Ocean Insurance Company, 2 Shep. 141. New trial not to he granted. ^ WASHINGTON INSURANCE CO. v. PRICE. 1823. 1 Hopkins, N. Y. Chancery Reports, 1. [Before Sanford, Chancellor.] This cause being noticed for hearing, the chancellor informed the counsel of the parties that he was a stockholder in the "Washington Insurance Company, and that according to the opinion which he then entertained, he could not hear the cause : but he expressed a desir^ that the question, whether he ought to act as judge in the cause or not, should be argued.- The counsel declined to argue the question, and the chancellor this day gave his opinion. The sole judge of this court, being a stockholder in the incorporated . '^ company which institutes this siut, can he proceed or act as judge in V^ the cause? ^to \ ^i-^^^^-^U^^^y^ "h It is a maxim of ever}' code, in every countiy, that no man should be judge in his own cause. . . . But it has been said, that where a court consisting of a single judge, has exclusive jurisdiction of the subject of a suit, a failure of justice would take place if the judge should not act in his own cause. A failure of justice may take place if he should not act ; as it also may occur if he should decide his own cause : but it belongs to the power WASHINGTON INS. CO. V. PKICE. 67 which created such a court to provide another in which this judge may be a part}' ; and whether another tribunal is established or not, he at least is not entrusted with authority to determine his own rights or his own wrongs. By the third section of the act concerning the court of chancer}-, it is provided, " That where tlie chancellor shall be a party to a suit in chancer}', the bill shall be filed before the chief Justice of the state, who shall thereupon proceed, in like manner, as the chancellor could of right do, as a court of chancery in other cases, and the court of chan- cery shall be thereupon held in that case before the chief Justice, and shall proceed to hear and determine the same, according to the course and usage of the said court." In this case, an incorporated company sues by its corporate name. The company consists of persons who are joint proprietors of a com- mon fund in various amounts ; the suit is the act of these persons or their officers ; and the gain or loss which may result from it will be the gain or loss of each stockholder, according to the extent of his inter- est in the fund. The corporation is the party in form ; the stockhold- ers are the parties in substance. When a corporation is thus a party to a suit, it is regarded as one sole partj, so long as it is not necessary to the ends of justice that the persons who use the corporate name should be disclosed, ''^ut whenever the ends of justice require that the persons who use the name of a corporation should be known, the in- " quiryTs^ made, and the stockholders and their officers are considered _' a nd treated as they are in fac t, the real litigants in the suit^ '' [The learned Chancellor then discusses the meaning of the term "party" in the statute, and concludes that the provision] extends to all cases in which the chancellor is a party to a suit, and, as I con- ceive, to all cases in which, though neither complainant nor defendant, he is a real party to the subject of litigation.- Such is my own view of this question ; but it appears that my im- mediate predecessor, and the late chief Justice, held a different opin- ion. Their opinion is found in the case of Stewart v. The Mechanics and Farmers' Bank, 19 John. 501. In that case, the chancellor was a stockholder in the bank ; and this fact appearing, the parties con- sented that the hearing of the cause should proceed, Upon a consul- tation between the chancellor and the chief Justice, they were both of .opinion that the chancellor was not a party to the suit within the pro- vision of the statute ; and the chancellor proceeded to determine the cause. The same cause was removed to the court of errors ; but this question was not raised or considered in that court. It is a question which has not been determined by the court of errors ; but it has been decided by the opinions of two of our most eminent judges. I have the highest respect for the late chancellor, and the late chief Jus- tice. I delight to honor them for the ability, intelligence, and in- tegrity with which they discharged their respective trusts ; and I feel that I have strong authority, when I am able to produce their opin- 68 PEOPLE EX KEL. UNION TRUST CO. V. COLEMAN. ions in support of my own decisions. But where my own judgment is clear and undoubtiug, I cannot surrender it to any opinion except that of a superior tribunal. My opinion is, that the chancellor is a party to a suit in this court by or against a corporate company, in which he is a stockholder ; that such a suit is his own cause, to the extent of his interest as a stock- holder ; and that he cannot determine such a suit. I am also of opin- ion, that the chief Justice has jurisdiction of such suits ; and the circuit courts are now also open as courts of equity. This suit having been instituted before I was chancellor, I merely direct at present, that all proceedings in it before me cease. If the suit shall proceed before the chief Justice, it will be determined, as if it had been commenced before him, according to the statute. SECTION II. e Distinction as ap^Med to Questions of Taxation. JPEOPLE EX REL. UNION TRUST CO. v. COLEMAN. 1891. 126 Neio York, 433.1 A.PPEAL from judgment of the General Term of the Supreme Court in the first judicial department, entered upon an order made the first ]\[onday of October, 1890, which affirmed an order of Special Term dismissing a writ of certiorari to review an assessment of the rela- tor's capital for the year 1889. The relator is a corporation organized under a special act of the legislature of 1864 (Chap. 316, Laws of 1864), doing business as a trust company in the city of New York. On the second Monday in January, 1889, it furnished to the commissioners of taxes and assess- ment a detailed statement of its assets and liabilities which was duly sworn to, and claimed that all its capital stock and surplus, being invested in United States securities, was exempt. The commissioners held that the capital stock, the actual value of which they were to assess, was the shares and they ascertained such value by multiplying the nominal capital by the market price of the shares and deducted therefrom ten per cent of the nominal capital, the assessed value of the real estate and the investments in United States securities. Wheeler JL Peckham, for appellant. D. J. Dean, for respondents. FixcH, J. The relator has been assessed upon an " actual value " of its capital stock derived entirely from tlie market value of its shares. These are selling at the large premium of something over 1 Arguments and part of opinion omitted. — Ed. PEOPLE EX REL. UNION TRUST CO. V. COLEMAN. 69 five hundred dollars for each share of one hundred dollars, and the assessors have concededly taken that valuation, or the principal part thereof, as the " actual value " of the company's stock liable to tax- ation, instead of its own proved and established value. The relator challenges the assessment, and through all the proceeding has per- sistently raised and pressed the inquiry, not so much as to the mode or manner of ascertaining value, but rather as to what is thej)recise_ thing to be valued, whether th e capit al stock of the compan y or the "ca pital stock held in shares by the corp o rators. If these are the same, or, in any just sense, equivalents, either might be valued without sub- stantial error, but if they are not such, we must determine which is to be valued before we can solve the problem of how to value it. Now, it is certain that the two things are neither identical nor equivalents. The capital stock of a company is one thing ; that of the shareholders is anothe r and a different things That of the company is simply its capital, existing in money or property, or both ; while that of the shareholders is representative, not merely of that existing and tangible capital, but also of surplus, of dividend earning power, of franchise and the good will of an established and prosperous busi- ness. The capital stock of the company is owned and held by the company in its corporate character ; the capital stock of the share- holders they own and hold in different proportions as individuals. The one belongs to the corporation ; the other to the corporators. The franchise of the company, which may be deemed its business opportunity and capacity, is the property of the corporation, but con- stitutes no part or element of its capital stock ; while the same fran- chise does enter into and form part, and a very essential part, of the shareholder's capital stock. While the nominal or par value of the capital stock and of the share stock are the same, the actual value is often widely different. The capital stock of the company may be wholly in cash or in property, or both, which may be counted and valued. It ma y have in addition a s urp lus, consistmg of som e accu- mulat ed and reserved fundjj)r of undivided profits, j)r both, butthat. surplus i s~iio pa rt of the company's capital stock, and, therefore, i^ not itself capital st ock The c a pita l cannot be divided and d is tri- J2uted j the s urplus^ may be. But~tEat surplus does enter into and form part oFThe share stock, for that represents and absorbs into its own value surplus as well as capital, and the franchise in addition. So that the property of every company may consist of three separate and distinct things, which are its^capital^^stock^ its suzp his, its fran- chise ; but these three things, several in the ownership of the com- pany, are united in the ownership of the shareholders. The share stock covers, embraces, represents all three in their totality, for it is a business photograph of all the corporate possessions and possibili- ties. A company also may have no surplus, but, on the contrary, a deficiency which works an impairment of its c'apital stock* Its actual value is then less than its nominal or par value, while yet the share 70 PEOPLE EX REL. UNION TRUST CO. V. COLEMAN. stock, strengthened by hope of the future and the support of earnings, may be worth its par, or even more. And thus the two things — the company's capital stock and the sharehokler's capital ^o^k — are essentially and^n e very mat erial respect different. They diffe r in their ch aracter^ in their elem ents, iij_their ojvvnership and in their values . How impo rtant and vital the differen ce is, becam e evident in the effort _Ey_ib£_state authorities to tax the property of thejiational banks^ T he effort failed, and yet the share sto ck in the_ownership of individuals was he ld to be taxable as against them. The corpo- ration and its property were shiel ded, but the s harehold ers_and their p roperty were taxe d. Now some degree of confusion and trouble have come in because these two different things are denominated alike capital stock, mak- ing the expression sometimes ambiguous. It is the important and decisive phrase in the law of 1857, under which the assessment here resisted was made, and requires of us to determine at the outset in which sense it was used. The section reads thus : " The capital stock of every company liable to taxation, except such part of it as shall have been excepted in the assessment-roll, or shall have been ex- empted by law, together with its surplus profits or reserve funds exceeding ten per cent of its capital, after deducting the assessed value of its real estate, and all shares of stock in other corporations actu- ally owned by such company which are taxable upon their capital stock under the laws of this state, shall be assessed at its actual value and taxed in the same manner as the other real and personal estate of the county." There are reasons in abundance for the conclusion that by the phrase " capital stock " the statute means not the share stock, but the capital owned by the corporation ; the fund required to be paid in and kept intact as the basis of the business enterprise, and the chief factor in its safety. One ample reason is derived from the fact that the tax is assessed against the corporation and upon its property, and not against the shareholders, and so upon their property. In theory every tax is charged against some person, natural or artificial, resi- dent or non-resident, known or unknown. It is assessed not upon property irrespective of ownership but against persons in respect to their property (23 N. Y. 215), and affects not merely a lien, but also a personal liability. On the assessment-rolls in this case appeared the name of the relator as the person assessed, and the amount of the » tax became a charge against it. Of course it could only be assessed / and taxed in respect to its own property, that which in its corporate ( character it owned and possessed, and so it follows inevitably that the \ statute concerns the company's capital stock, that is its real and actual \ capital, and not in any respect the share stock which it does not own \and whose possessors have not been assessed. Another reason is found in those terms of the statute which include and exclude respectively specific kinds or classes of property in the PEOPLE EX KEL. UNION TRUST CO. V. COLEMAN. 71 corporate ownership. Thus the assessment is to be laid not merely upon the capital stock of the corporation, but also upon its surplus. 1^0 such explicit direction was necessary, except upon the assumption that by the words " capital stock " was meant simply " capital," which would not include surplus, and so required that it be subjected by name to the valuation. If the share stock was meant its value would include surplus and make its specification not only needless but confusing. But while the statute includes surplus by specific mention, it excludes franchise by omitting it. The omission of franchise is emphasized by the careful inclusion of surplus. It is fullj^ and definitely settled^ that the tax imposed bv the statute is not upon franchise . (Peojde v. Comrs. of Taxes, 2 Black, 620.) Ba lif that be so, it is not upon the share stock, fo r that repre sents_ the value of the corporate franchise as a part o f t he total of the corporate p ropeity. And so, both by what it speciScally includes and silently excludes, the statute itself informs us that by " capital stock " it means and intends the com- pany's actual capital paid in and possessed, and not at all or in any sense the share stock. The same thing becomes apparent from a study of the whole line of legislation which culminated in the law of 1857. It was traced in de- tail upon the argument with great industry and wealth of illustration. We have verified it by travelling over the same track, and without taking pains to reproduce it, may assert the general result which it discloses and select out one or more illustrations. The investigation shows that the word " capital " and the phrase " capital stock '' are used interchangeably and synonymously, and where the latter phrase occurs there is almost always something in the statute which stamps and labels it as referring to the actual capital of the company. Thus the law of 1825 (Chap. 262), after providing for the taxation of all persons owning or possessing property, proceeds to declare that cor- porations shall be deemed persons for the purposes of the act, and requires them to furnish a statement of the amount of " capital " actually paid in ; and then, referring to turnpike and bridge companies, requires them to state " the amount of capital stock actually paid in or secured to be paid in." Both clauses refer to the same assets or fund, naming it indiscriminately "capital" and "capital stock." Again, in the law of 1825 (Chap. 254) the assessors, after putting the corporation by name on the assessment-roll, are required to add the amount " of its capital stock paid in or secured to be paid in," and to designate how much of it is in real and how much in personal property, and so no doubt is left that by '•' capital stock " was meant simply the " capital " possessed in cash or invested in securities or real estate. The illustrations might be multiplied and fortified by reference to numerous acts relating to the formation or management of maniifac- turing, railroad, business and telegraph comj>anies in which the two forms of expression are used indiscriminately and as convertible 72 PEOPLE EX EEL. UNION TRUST CO. V. COLEMAN. terms ; but I think quite enough has been said to require unhesitat- ing assent to the proposition that, under the law of 1857, the thing to be taxed is the capital of the company and not the shares of the stockholders. Indeed, I should feel bound to apologize for arguing what seems to me so simple and plain a proposition, were it not for the fact that it has been largely ignored by assessors and not always clearly kept in mind by the courts, and but for the further fact that the right to adopt as the taxable valuation the value of the shares, totally disre- garding the value of the company's capital, has been asserted in this case, maintained by the courts below, and claimed to be fully justified by very much which we ourselves have decided or said. Before examining the cases in detail to see whether they hamper our freedom of judgment upon the question presented, I think it safe and also prudent to assert three things as applicable generally-'and to all the cases alike. First, this court has never decided, either by a direct determination or by necessary implication, that the law of 1857 authorizes the imposition of a tax upon anything else than the actual capital of the corporations, together with their surplus ; second, that the precise question whether the capital of the companies or the share stock of the shareholders forms the basis of valuation and the thing to be assessed, has not been heretofore formally and distinctly pre- sented ; and third, that all seemingly erroneous expressions of opinion are corrected at once when they are referred to the permissible con- ditions under which the value of the share stock in the market may be referred to, not as the thing to be valued and assessed, but as an aid or help in discovering the value of the other and different thing which is to be valued and assessed. Keeping these general propositions in mind we now recur to the cases. [After commenting upon various New York cases, the opinion con- tinues.] And sq ^I thin^_th e authorities eith er fairly permit or fully justify the_cQnclusion s which I have reacEeci and which may be stated witlj. reasonabl e accuracy thus : First, the subject of valuation and ass ess- ment isneyer the_share. stock, but always the cfljnpa py's cap ital aiid. surplus! Second, ^uchca pital an ,dLaiL£ plus must be asse sse d at its own ^lueT and when. tliat Js^cgrrectl y known _an d ascer ta.jup-d, no othe r value can be substitut ed for it. Third, where its amount and value are undis cl£ senr"aScruiikno\o i jthe assifiss^'s may_£onsid^r_Jiie_iiiarket renLeial-caaditiouof the company as v alue of the sh i ndicative of surpluSL^r , deficiency ,And of th e probable am mint_of §ither ^ Foui-^tTi, t hey mayj urther resQi't to ^ s\ich means of informa - ti on wheg ^JJie ~amo u.nt of ^npitfil n.nd sur plus is ^disclosed, but tlie assessors have sufficient reason to disbelievejhe_.statemenj:^^ i^as onisfounded i^x>B-ia,cts estaBTislied b y competent proof. If these conclusions arecormyTTT will oTlow that The assessment complained of should be cancelled. The corporation presented to the PEOPLE EX REL. UNION TRUST CO. V. COLEMAN. 73 assessors a sworn statement of its assets and liabilities. If it be true, there was nothing subject to assessment. But its truth is not questioned, and there is not the least reason to doubt it. The asses- sors did not doubt it : they merely deemed it immaterial, and so tes- tified when examined. In other words, knowing with certainty the value of one thing, they claimed the right to affix to it the larger value of a different thing. Authorized only to tax against the com- pany its capital and surplus, they assumed the right practically to tax it for the share stock held by individuals. They have not in terms claimed that the share stock is the subject of taxation, nor has the counsel who represented them on the argument, but both have maintained and defended what is the exact and complete equivalent. The right asserted is a discretion in the assessors at their free will to assess corporations upon and at the value of their capital and sur- plus, or upon and at the value of the share stock independently of established facts and whenever they please. The law gives them no such discretion. How it has been exercised and how destructively to the rights of taxpayers may be seen by comparing the action in this case with that in one of the cases which we have reviewed. "Where the share stock was selling at ninety, and so below par, the assessors refused to take that value and went to the company's books in search ^of a larger one, which they found and adopted. Here, where the actual value of capital and surplus is established so that they frankly admit the fact, they calmly disregard it and fly to the larger value of the share stock. The statute has given them no such right. They are not lawless rovers, wandering among corporations at Avill, but regular officers bound by discipline and controlled by the law, and whose discretion exists within fixed and definite limits. It is said, and it is true, that large masses of personal property escape taxation, and the owners are persistent and artful and not over nice in their efforts to avoid a just share of the public burdens, and so we should uphold faithful assessors in every attempt to do their full duty. I think this court will not be unmindful of the situation, but before all we must first ascertain and then obey the law. If in that process evils result or are disclosed, the remedy must be sought else- where. It follows that the judgment and order of the General and of the Special Term should be reversed and the assessment against the rela- tor vacated and cancelled, without costs. All concur, except Peckham, J., not voting. Judgment reversed. ^..^■■' l^l'^Ajr COOK V. CITY OF BURLINGTOK ^'/\ IX ^' l^ COOK V. CITY OF BUKLINGTON. 1882. 59 Iowa, 251. The plaintiffs are the executors of the estate of James W. Grimes, deceased. They are residents of the city of Burlington, where the estate is situated. Part of the estate consists of shares of stock in the Dunleith and Dubuque Bridge Co., which is a corporation of that name, incorporated under the general incorporation laws of the State of Iowa, and having its principal place of business in Dubuque county. The corporation owns a bridge across the Mississippi River, from the city of Dubuque, Iowa, to the eastern shore of the river in the State of Illinois, and said bridge is all the tangible property owned by the corporation. The bridge was assessed for taxation at Dubuque, and the taxes were paid. The shares of stock in the bridge company held and owned by the estate of Grimes were also assessed for taxation for the same year at the city of Burlington. The plaintiffs claimed that the stock was not liable to taxation, and appealed from the board of equalization of the city of Burlington to the Circuit Court. Upon a trial in the Circuit Court it was held that the assessment of the stock was authorized by law, and plaintiffs appeal. Heclf/c and Blijthe, Shiras, Van Duzeesiiid Henderson, iov appellants. C. L. Poor, for appellee. RoTHROCK, J. — The assessment of the bridge as the property of the corporation was authorized by law. Ajypeal of The Des Moines Water Gompamj, 48 Iowa, 324. Whether the shares of stock can be legally assessed and taxed as the property of the stockholders for the same year for which the property of the corporation is assessed and taxed was not determined in that case. It was said, however, that "the statute provides that the stock of such corporations shall be assessed at its cash value. When assessed and taxed under the statute, stock must be taxed as the property of the respective owners, and there is no provision making the corporation liable therefor." We hay^jthenJ;he_questionJn^ stock may be taxedjn addition_^CLthejbajcati^^ the cor- poration. _ And we may say, once for all, at the outset, that our views, as ex- pressed in the case just cited, that the statute provides that the stock shall be assessed and taxed, remains unchanged. This conclu- sion is not founded upon any doubtful construction of the statute, but upon its j)lain, certain and unecpiivocal language and meaning. The statute imposing this burden upon the stock is found in section 813 of the Code, and is as follows : " Depreciated bank notes and the stock of corporations and companies shall be assessed at their cash value,* * * *." COOK V. CITY OF BUKLINGTON. 75 It is idle to contend in the face of this plain and explicit language that the legislature has not required that stock in corporations shall be assessed, and the only question now for determination is, does the legislature have the power to determine that the property of a cor- poration and the stock shall both be taxed. Counsel for appellants contend that no such power exists, because it is duplicate or double taxation of the same property, and it is in- sisted that " this court has over and over again declared that double taxation is forbidden by our Constitution." If this statement were correct, and we should concede that the question here presented were one of duplicate taxation, the case could easily and speedily be disposed of by a prompt reversal. But, while it is true that this court in Tall/nan V. Butler County, 12 Iowa, 534, said that it " is neither the policy nor the justice of the law to tolerate double taxation," and in U. S. Ex- press Co. V. Ellyson, 28 Id., 378, that " double taxation would be so unjust as to excite disfavor of both courts and legislature," and in McGregor^ s Executors v. Vanpel, 24 Id., 436, that mortgages upon real estate should be held to be taxable " unless this will lead to double taxation," yet it never has been held in this State, that what is de- nominated duplicate taxation is in excess of the legislative power. The most that can be said of these utterances of this court is, that it should be held in disfavor by courts and legislatures. In Cooley on Taxation, 165, it is said : " It has properly and justly been held that a construction of the laws was not to be adopted that would subject the same property to be twice charged for the same tax, unless it was required by the express words of the statute or by neces- sary implication." Upon the question as to whether the imposition of taxes upon the property of a corporation and upon the shares of stock in the hands of stockholders, the general observations upon the subject of duplicate taxation found in Cooley on Taxation, page 159, seem to us to be ap- propriate to be here quoted. It is there said : " A system of indirect taxes, combined with a system of general taxation by value, must often have the effect to duplicate the burden upon some species of property or upon some persons, and the taxation of stockholders of a corporation and also of the corporation itself, must sometimes produce a like result. There is also, sometimes, what seems to be double tax- ation of the same property to two individuals, as where the purchaser of property on credit is taxed on its full value while the seller is taxed to tiie same amount on the debt * * * *. Now, whether there is in- justice in the taxation, in every instance in which it can be shown that one individual, who has been directly taxed his due proportion, is also compelled indirectly to contribute, is a question we have no occasion to discuss. It is sufficient for our purposes to show that the decisions are nearly, if not quite, unanimous in holding that taxation is not invalid because of any such unequal results." I t mu st be^conceded^ that the taxation of the propert y of the_cor- 76 COOK V. CITY OF BURLINGTON. po ration and als o of the stock bears no resemblance to taxing tlie_ same tract of land twice to the same person, no r^once to A. a nd again toTB. That would be a double taxation, which we suppose would not be" allowable in any State in the Union. It would be a direct discrimi- nation and inequality in the exercise of the taxing power, which would impose a greater burden upon one citizen than upon another upon the same kind of property. But the case at _bar_isjc[uit e different. T he corporation is a person distinct f roni_the stockholder. It is true, it is what is denominated an artificial person, and may be said to be ideal and intangible. But that it is a person in law is the first principle learned by the student in opening any book on corporations. Its stockholders are distinct and different persons. They are usually not liable for its debts, and have no right to the enjoyment or possession of its property during the period of its duration or until it be dissolved by some procedure known to the law. The stockholder is entitled to dividends upon his stock, if there be any dividends, and the value of his stock depends upon prosp ective dividend s, and the dividends de- pend upon the net earnings~orthe corporation. If the bridge in this case be taxed, the tax must be paid from the income, and this reduces the value of the stock, so that there is no duplicate taxation, so far at least as the tax upon the bridge reduces the value of the stock. In McGregor's ExecWs v. Vanpel, supra, this court held that a mortgage given to secure the payment of the purchase-money of the premises mortgaged is not exempt from taxation. In that case it is said that "a system of assessments operating with entire equality and with absolute justice is a desideratam in government yet unattained, and perhaps unattainable." And in Finley v. Philadelphia, 32 Pa. St., 381, it is said : " There is nothing poetical about tax laws, when- ever they find property they claim contribution for its protection without any special respect to the owner or his occupation." The best devised system of taxation based upon the values of pro- perty must, of necessity, produce unequal results, so long as the at- tempt is made to tax all property including real estate, personal chattels, and moneys and credits. One person will be taxed upon the real estate bought upon credit, and another upon the obligation which he holds for the purchase-money. And this must necessarily be so or there would be but little taxation upon credits, because, for the most part, they are either the representative of money or property of some kind held by another. If as is said in Cooley on Taxation, p. 100, "all the pro[)erty in a town is sold on credit and the property is taxed to the purchasers, and the debts to sellers, it is manifest that the town taxes twice as much wealth as lies within its borders." And yet under the system of taxation adopted by the State of Iowa, it cannot be claimed that the assessor must inquire of the owner of promissory notes, or mortgages, whether they are credits for taxable property which has been sold by the holder of these credits. In the case at bar the stockholders jxiid to the corporation a certain VAN ALLEN V. THE ASSESSORS. 77 sum of money. The corporation used this money in the construction of a toll-bridge from which the corporation derived an income. The agreement between the contracting parties is that the corporation is to manage and control the bridge, make the necessary repairs, and pay the taxes assessed against the bridge, and after deducting these legiti- mate and necessary expenses pay to the stockholder his proportionate share of the net earnings, and upon the dissolution of the corporation the stockholder is to be repaid his money advanced from the property belonging to the dead corporation. Now, suppose this very contract were made with a natural person instead of a corporation, and the stockholder or creditor should make a claim that the obligation held by him was not taxable. There would be no more grounds for such claim under our system of taxation than there would be for the claim that if A loans B $100, which is invested in merchandise, the debt is not taxable because the merchandise is taxable. These illustrations, it appears to us, demonstrate that if we were to determine that the legislature has no constitutional power to impose this tax upon the stockholder, it would open a door into a sea of trouble in the administration of the revenue laws of the State. In disposing of this important question we have not reviewed the authorities cited by the respective counsel of the parties. It is suf- ficient to say that these views are supported by the very great majority of adjudged cases upon this subject. We think the Circuit Court cor- rectly determined that the shares of stock are taxable. And if the public interests of this State require that either the property of a cor- poration of this character, or the stock therein be exempt from taxa- tion, that relief must come from the law-making power. It will be understood that the decision in this case will have no application to capital stock in manufacturing companies. By chapter 57 of the laws of 1880 such stock is exempt from assessment and taxation. Ajffii'med. [Adams, J., delivered an opinion, concurring in the result but not , upon the foregoing grounds.] f^^. .i^'^V (^ VAN ALLEN v. THE ASSESSOKS. . ^ y ^' i/t j/i f^ 1865. 3 Wallace U. S. 573.1 'mm Error to the New York Court of Appeals. ^ y^ ' rr iN' This was a suit involving the question of right, on the part of States^ i w .^ to tax shares in the national banking associations created under theJ^ l act of Congress of June 3, 1864 (amending the act of Feb. 25, 1863). -)(/ By the U. S. Laws, at least one third of the capital is required to be invested in interest-bearing bonds of the United States. The capital 1 Statement abridged. Only portions of the opinions are given. — Ed. 78 VAN ALLEN V. THE ASSESSORS. stock is to be divided into shares of $100 each, and is to be deemed personal property. By the 40th section of the act of 1864 it is enacted — the act of 1863 containing no such provision — '• That the president and cashier of every such association shall cause to be kept, at all times, a full and correct list of the names and resi- dences of all the shareholders in the association, and the number of sliares held by each, in the office where its business is transacted, and such list shall be subject to the inspection of all shareholders and creditors of the association, and the officers atcthorised to assess taxes under State authority, during business hours of each day," &c. The 41st section, of the same act of i864, provides by one part of it for taxation hy the United States. It imposes a tax of one per cent, annually on circulation ; one half of one per cent, on deposits, and then one half of one per cent, on the capital beyond the amount invested in United States bonds ; and after prescribing how the duty is to be col- lected, and the penalty for default, &c., the section proceeds : (1.) " Provided, that nothing in this act shall be construed to pre- ivent all the shares in any of said associations, held by any person or body corporate, from being inchided in the valuation of the personal \property of such person or corporation in the assessment of taxes imposed Iby or under State authority, at the place where such bank is located, and jnot elsewhere, but not at a greater rate than is assessed upon other (moneyed capital in the hands of individual citizens of such State. (2.) Frovided further, that the tax so imposed under the laws of any State upon the shares of any of the associations authorized by this act shall not exceed the rate imposed upon the shares in any of the banks organized under authority of the State where such association is lo- cated. (3.) Provided, also, that nothing in this act shall exempt the real estate of associations from either State, county, or municipal taxes to the same extent, according to its value, as other real estate is taxed." With this statute of the Federal Government, authorizing banking associations, in force, the legislature of New York, on the 9th March, 1865, passed " an act, enabling the banks of this State to become as- sociations for the purposes of banking, under the laws of the United States." 1 The act, frequently called " The Enabling Act," imposed a tax upon all shares in national banks, in the hands of their holders. The Assessors of Albany assessed Van Allen for shares, owned by him, of a National Bank in that city. At the time of assessment the whole capital of the bank was invested in various obligations of the Federal Government ; in regard to all of which Congress had enacted that, "whether held by individuals, corporations, or associations," they should be " exempt from taxation by or under State authority." A previous N. Y. statute, of 1857, enacted that the capital stock of the banks of the State should be assessed at its actual value. The U. S. Supreme Court held that a tax under this statute could not legally 1 Session Acts of 18G5; chap. 97. VAN ALLEN V. THE ASSESSGKS, 79 be imposed on sucli part of the capital stock as was invested in U. S. securities. {Bank of Comvierce v. New York City, 2 Black, 620, de- cided in March, 1863.) In April, 1863, the N. Y. legislature passed another statute, enacting that all banks shall be liable to taxation on a valuation equal to the amount of their capital stock paid in or secured to be paid in, and their surplus earnings, &c. The U. S. Su. pre me Court held that the tax thus provided for could not legally be imposed upon such property of the banks as was invested in U. S. securities. {The Bank Tax Case, 2 Wallace, U. S. 200, decided in 1865.) It was within a few days after that decision that the statute under which the present case arose was enacted. The New York Court of Appeals held that the tax was legal. The case having been carried, on error, to the U. S. Supreme Court, the Judges of that Court were unanimously of opinion that the enabling act of New York did not conform to the second proviso in the 41st section of the act of Congress ; and that hence, even if the State had power, by a properly framed statute, to tax the shares, yet the State had not legally exercised that power. Consequently the decree of the Court of Appeals, affirming the legality of the tax in question, was reversed. But, as the defect in the N. Y. statute was one which might be easily remedied by the State legislature, the Court expressed its opinion on the main question which had been fully argued. jSTelson, J. . . . The main and important question involved, and the one which has been argued at great length and with eminent ability, is, whether the State possesses the power to authorize the taxation of the shares of these national banks in the hands of stockholders, whose capital is wholly vested in stock and bonds of the United States ? Via. The court are of opinion that this power is possessed by the State, )j^ f)Loju^i>^ €l^) and that it is due to the several cases which have been so fully andv./H. /t^ivCW satisfactorily argued before us at this term, as well as to the publi^ C^vb.v/ <^j interest involved, that the question should be finally disposed of. il^ ^^yvp .-i/^ • • ^^. k^ ^^^ But, in addition to this view, the tax on the shares is not a tax on ' w the capital of the bank. The corporation is the legal owner of all the property of the bank, real and personal ; and within the powers con- ferred upon it by the charter, and for the purposes for which it was created, can deal with the corporate property as absolutely as a private individual can deal with his own. This is familiar law, and will be found in every work that may be opened on the subject of corpora- tions. A striking exemplification may be seen in the case of The Queen v. Arnoud} The question related to the registry of a ship owned by a corporation. Lord Denman observed : " It appears to me that the British corporation is, as such, the sole owner of the ship. The individual members of the corporation are no doubt interested in one sense in the property of the corporation, as they may derive indi- 1 9 Adolphus & Ellis, New Series, 806. yWj2^ J> ■ \r^V (C ^^ 1896. 161 U. S. 149.1 V- N^ ' ^^ Appeal from U. S. Circuit Court for Western District of Tennessee. A^ ^ ^- ^- ^'"^^^^^ (^- W. Metcalf ^\\i}i F. T. Edmondson, with him), \'-\ for Shelby County. Wm. IL Carroll (Isham G. Harris Avith him), for Union and Plant- ers' Bank. Peckham, J. This is an appeal from the decree . . . granting an injunction at the suit of the Union and Planters' liank to restrain the municipal authorities from collecting any tax laid upon the surplus of the bank, on the ground that such surplus is exempt under a clause 1 Citations of counsel omitted ; also portions of opinion.— Ed. V SHELBY COUNTY V. UNION, &c. BANK. 87 in the charter of theijank similar to the one discussed in the above cases of the Bank of Coymnerce, ante, 134.^ There are two grounds, either of which, if decided in favor of ap- pellants in this case, would result in upholding the validity of the tax upon the surplus : First, if it should be held that by the true inter- pretation of the charter the exemption, while applying to the shares of stock in the hands of the shareholders, does not extend to the cor- poration itself, the tax woidd be valid ; second, even if the tax on the capital stock were void, that upon the surplus might still be upheld on the authority of the case of the Bank of Commerce, ante, 134. We have already held in that case that a tax on the surplus was valid, but the question whether a tax on the capital stock of the bank was valid could not be raised there, because the case was before us on a writ of error taken to a state court, and the question in the state court was decided in favor of the exemption claimed by the bank. This being an appeal from a judgment of the United States Circuit Court, both questions are open for our decision. We think it, there- fore, proper to here decide the question first above stated. We stated in the Bank of Commerce case, ante, 134, that the tax provided in this charter is laid upon the shares of stock in the hands of the shareholders, and they are exempt from any further taxation on account of their ownership of such shares. In that respect we followed the case of Farrington v. Tennessee, 95 U. S. 679, and we re- fused in the Bank of Commerce case to overrule or distinguish it ; but it is claimed on the part of the appellee herein that the Farrinr/ton case also decided that the charter tax is in lieu of all other taxes, not only upon the shares in the hands of the shareholders, but that it ex- empts the corporation and all its property from any further taxation. We cannot give so broad an effect to the decision in the Farrington case. The question of the exemption of the corporation and its pro- perty from taxation did not arise in that case, and there was no adjudication of that question by its decision. There are undoubtedly some expressions in the opinion of Mr. Justice Swayne which lend color to the idea that, in his belief, not only were the shares in the hands of the shareholders exempt from any further taxation than that imposed by the charter, but that the property of the corporation was itself exempt from any taxation other than that provided for in that section ; the latter question, however, was not before the court and was not decided by it, and we are of opin- ion that, assuming that the charter tax was laid upon the shares of 1 " Said institution shall have a lien on the stock for debts due it by the stockholders before and in preference to other creditors, except the State for taxes ; and shall pav to the State an annual tax of one half of one per cent on each share of capital stock, which shall be in lieu of all other taxes."' — Ed. 88 SHELBY COUNTY V. UNION, &c. BANK. stock in the hands of the shareholders, the exemption from furthei taxation applies to the subject which was taxed under the charter, and is not of any greater scope, and that it would not, therefore, include the exemption from taxation of either the capital stock or the surplus, which is the property of the corporation itself. We come to this conclusion because of the fact, well established by the decisions cf this as well as many state courts, tliat there is a clear distinction between the capital stock of a corporation and the shares of stock of such corporation in the hands of its individual shareholderSr- So separate are these properties, and so distinct in their nature, that the taxation of the one property is not the taxation of the other. This is no new doctrine, and the distinction between the two properties was recognized by the Supreme Court of Tennessee as long ago as in the case of the Union Bank v. State, 9 Yerger, 490, decided in 1836. It was held that, under the clause of the charter there under considera- tion, any furtlier tax on the capital stock than that which was pro- vided for in the charter itself was void, but that the State might tax the shares of stock in the hands of individuals notwithstanding the exemption from further taxation on the capital stock. [After commenting upon various cases, including Gordon v. Appeal Tax Court, 3 Howard, U. S. 133.] Long after that case was decided this court in many cases, notably that of Va7i Allen v. Assessors, 3 Wallace, 573, and People v. Commissioners, 4 Wallace, 244, recognized the separate and distinct character of the two properties, the capital stock and the shares thereof in the hands of individual shareholders, and such separate property in our opinion is strong proof of the limi- tation of the exemption to the property which is taxed. We have found no case in this court which is authority for the proposition, that language, such as is under consideration in this case, exempts from further taxation both the capital stock of the corpora- tion and the shares of stock in the hands of individual shareholders. As the Farrington case decides that this language does import that the charter tax is laid upon the shares in the hands of individual shareholders, and that those shares are exempt from further taxation, that question is set at rest, and there being nothing in any case which extends that language to both properties, we hold that when it is made applicable to the separate shares in the hands of individual share- holders, it does not apply to or cover the case of the capital stock of the corporation, and that such stock is liable to be taxed, as the State may determine. This determines the liability of the capital stock of the Union and Planters' Bank to taxation, and of course it overrules any claim on the part of that bank for exemption from taxation of its surplus or accumulated profits. The question whether such surplus could be taxed if the capital stock itself were to be regarded as exempt has SHELBY COUNTY V, UNION, &c. BANK. 89 also been decided in the preceding case of the Bank of Commerce. The decree of the Circuit Court must, therefore, be Reversed, and tlie cause remanded to that court xvith directions to dismiss the bill with costs. Mr. Justice White dissented. The question -^vhethe r the surplus could_b£__taX£d_if ^ the capital stockitself were to be regarded as exempt was j^sw ered affirmatively in the preceding ca se. B ank of Commerce v - Tp.nnp.s^^.p,^ 1 .61 U. S. 134. While a similar exemption clause was in force, the legislature enacted, " that the surplus and undivided profits in such bank . . . shall be assessable to said bank . . . and the same shall not be considered in the assessment of the stock therein." The case came up on error to the Supreme Court of Tennessee. That court had held that the capital stock was exempt from taxation ; and the U. S. Supreme Court held that it had not power to review the decision of the State court on this point. (See, however, a decision on rehearing, 163 U. S. 416.) The Tennessee Court had also held, that the surplus was taxable; and the correctness of that decision was open to review in the U. S. Supreme Court. The opinion of the Court upon this branch of the case was as follows : Peckham, J. The corporation, plaintiff in error, demands the same exemption from taxation on its surplus that has been accorded it for its capital stock, and it bases its contention upon the same clause of exemption in its charter. We think it cannot be ^a^tained ^as to_t he surplus, which we believe is taxabla under th e law abov e quoted. This whole demand oi exemption from taxation made by the bank and its shareholders must be considered with reference to the general rule governing claims of that nature. It is well known, has long existed, and is undoubted. Neu- Orleans City & Lake Railroad v. Neio Orleans, 143 U. S. 192, 195 ; Vicksburrj & Pacific Railroad v. Dennis, 116 U. S. 665, and many cases there cited : Farrinr/ton v. Tennessee, 95 U. S. 679, 686 ; West Wisconsin Railway v. Supervisors, 93 U. S. 595 ; Tucker v. Ferguson, 22 Wall. 527. These cases show the principle upon which is founded the rule that a claim for exemption from taxation must be clearly made out. Taxes being the sole means by which sovereignties can maintain their exist- ence, any claim on the part of any one to be exempt from the full payment of his share of taxes on any portion of his property must on that account be clearly defined and founded upon plain language. There must be no doubt or ambiguity in the language used upon which the claim to the exemption is founded. It has been said that a well founded doubt is fatal to the claim ; no implication will be in- dulged in for the purpose of construing the language used as giving the claim for exemption, where such claim is not founded upon the plain and clearly expressed intention of the taxing power. W^ 90 SHELBY COUNTY V. UNION, &c. BANK. The capital stock of a corporation and the shares into which such stocky may be divided and held by individual shareholders are two dis- tinct jsieces of property. The capital stock and the shares of stock in the hands of the sluy^eb^ldersjnayjjothjje tax ed, and i t^is_not double ta^atiQiLZ_ Va7i Allen v. Assessors, 3 Wall. 573 ; People v. Commission- ers, 4 Wall. 244, cited in Farrington v. Tennessee, 95 U. S. 687. This statement has been reiterated many times in various decisions by this court, and is not now disputed by any one. In the case last cited, Mr. Justice Swayne, in delivering the opinion of the court, enumerated many objects liable to be taxed other than the capital / stock of a corporation, and among them he instanced, (1.) the fran- chise to be a corporation ; (2.) the accumulated earnings ; (3.) profits and dividends ; (4.) real estate belonging to the corporation and necessary for its business^; and he adds that " this enumeration shows the searching and comprehensive taxation to which such institutions are subjected where there is no protection by previous compact." *'And in Tennessee v. Whiticorth, 117 U. S. 129, at page 136, Mr. Chief Justice Waite, in delivering the opinion of the court, says : . " That in corporations four elements of taxable value are sometimes / found. First, the franchise ; second, the capital stock in the hands / of the corporation ; third, the corporate property ; and, fourth, the I shares of capital stock in the hands of the individual stockholders." * The surplus belonging to this bank is " corporate property," and is distinct from the capital stock in the hands of the corporation. The exemption, in terms, is upon the payment of an annual tax of one lialf of one per cent upon each share of the capital stock, which shall be in lieu of all other taxes. The exemption is not, in our judgment, greater in its scope than the subject of the tax. Recognizing, as we do, that there is a different property in that which is described as capital stock from that which is described as corporate property other than capital stock, and remembering the necessity there is for a clear expression of the intention to exempt before the exemption will be granted, we must hold that the surplus has not been granted exemp- tion by the clause contained in the charter under discussion. The very name of surplus implies a difference. There is capital stock and there is a sur})lus over, above and beyond the capital stock, which surplus is the property of the bank until it is divided among stock- holders. The case of Bank v. Tennessee, 104 U. S. 493, does not hold to the contrary of this doctrine. This question was not therein discussed or decided. Tlie question which was decided related only to the taxation of real property not used by the bank in its business, and it was held liable to taxation. The case is no authority for the proposition contended for here, namely, that the whole surplus of this bank is exempt from taxation. No individual sliareholder has any legal right to claim any portion of this surplus ; until divided by the board of directors it remains the UNITED STATES V. WOLTERS. 91 property of the corporation itself, and in the sense in which the words " capital stock " are used in the exemption clause the surplus does not form any part thereof. It is said that the purpose of incorporating a bank is to enable the institution to accumulate profits and to make dividends out of them, and that the dividends cannot be made until the profits have been accumulated, and that under this ruling profits would come under the description of surplus to be taxed before dis- tribution in a dividend. It is true that dividends cannot rightfully be made until profits have accumulated ; but it is one thing to accu- mulate profits each six months or annually and then divide them among the stockholders by way of dividends, and quite another thing to ac- cumulate profits year after year, and, while still declaring dividends, accumulate a surplus which is not so divided. The sums accumulated by way of profit between the regularly recurring dividend days might not be regarded as surplus, provided those profits were regularly dis- tributed in dividends. The surplus in this case is clearly not of that kind which has been saved for the purpose of being distributed by dividends. It may be true that the general effect of a tax on this sur- plus might indirectly operate upon the shareholder by possibly lessen- in g the jv^alue of his shares to some^xtejit, but that is not the same as if a tax had b een laid upon those shares. In levying the charter tax it was conceded that the tax has always been measured by the par value of the shares of stock, while the actual value of such shares, because of the large surplus owned by the bank, may have been very much greater, and the statute under which the surplus is taxed pro- vides that such surplus must not be considered in the assessment upon the stock ; so that provision is made whereby a tax upon the surplus and the charter tax upon the shares of stock will neither be double nor unjust taxation. Although a surplus may be required by the national banking act, and also by the laws of good and safe banking, yet we do not perceive that this fact has any material effect upon the question. We are, therefore, of opinion that the surplus was properly taxed, and that the bank's claim of exemption as to such surplus is^jvithout . p v foundation in law. tv \ 'J^ f^ UNITED STATES v. WOLTEKS. f V ^ \.^ ^ 1891. iC, Federal Reporter, f)09. P\ ^ J^ e^f^J^ A'}^ ^ Ross, J. This is a suit to recover of the holders of the stock of a'" A,^^ corporation organized under the laws of California to engage in, and^ r j/ which did engage in, the business of distilling, a tax amounting toA^ $20,124.40 on spirits distilled by it, and of which tax, it is alleged, the distiller defrauded the government. The action is based on that clause of section 3251 of the Revised Statutes which declares that /'y 92 UNITED STATES V. WOLTERS. " every proprietor and possessor of, and every person in any manner interested in the use of, any still, distillery, or distilling apparatus, shall be jointly and severally liable for the taxes imposed by law on i the distilled spirits produced therefrom." Demurrers to the complaint have been filed by some of the defendants, and in their support it is urged that the language of the statute in question is not broad enough to include the stockholders of a corporation engaged in the business of distilling ; that stockholders are neither proprietors nor possessors of the corporate property ; and that the words " interested in the use of " were inserted " to designate a class who might be using, or inter- ested in using," such distillery, although not interested in the pro- perty itself. The language of the act does not admit of such limitation. Revenue laws are not, like penal laws, to be strictly construed, nor are they, like remedial statutes, to be construed with extraordinary liberality; but they should be so construed " as most effectually to accomplish the intention of the legislature in j)assing them." Taylor v. U. S., 3 How. 197. The provisions of the law are rigid, and in some instances perhaps arbitrary, in their operation. But they were designed to pre- vent frauds upon the government, and whoever engages in business by virtue of their provisions must be governed by them. The holder of stock in a corporation organized for and engaged in the business of distilling spirits, if not the proprietor or possessor of the distillery within the meaning of the statute, is certainly " interested in the use of " the distillery operated by the corporation of which he is a stock- holder. He has a direct, pecuniary interest in the business of distill- ing, — the purpose for which the distillery is used, — as well as in the property itself. The amount of such interest, whether large or small, is of no consequence. The statute declares that every person so interested shall be jointly and severally liable for the taxes im- posed by law on the distilled spirits produced therefrom. It is obvi- oiis that the state statute regulating the liability of stockholders of corporations organized under its laws has no application here. The liability of the defendants is to be measured by the provisions of the statute under which, and by virtue of which only, the distilling was done. Demurrers overruled, with leave to defendants to ansicer within the usual time. A similar result was reached by the Supreme Court of California in Richter v. Henninr/san, 110 California, 530, decided in 1895. Tlie Court said, in part : A stockholder in a private corporation for profit is not in any proper sense the owner of the property of the corporation as such. He has, how^yexj^a direct i,yt(^rost i \i thf; p orporntinn. In Plimpton v. Bir/elow, 03 N. Y. 502, it was said : " The right wliich a shareholder in a corpora- tion has, by reason of his ownership of shares, is a right to partici- UNITED STATES V. WOLTERS. 93 pate according to the amount of his stock in the surplus profits of the corporation on a division, and ultimately on its dissolution, in the assets remaining after payment of its debts." Gibbons v. Mahon, 136 U. S. 549, and Kohl v. Lilienthal, 81 Cal. 378, are to like effect. A stockholder has an insurable interest in the property of the cor- poration. (Rif/gs V. Commercial Miit. Ins. Co., 125 N. Y. 7 ; 21 Am. St. Rep. 716; Warren v. Davenport etc. Ins. Co., 31 Iowa, 464; 7 Am. Rep. 160.) At common law a stockholder in a corporation, on account of his interest, was not a competent witness for the corporation in an action against it, or to serve as a jvidge or juror where the corporation was a party. We must not confound the liability of a stockholder in a corpora- tion, under the law of its creation, with that imposed upon him by the act of Congress. His liability under the latter is quite independ- ent of the former, and is just what the act of Congress has imposed upon him. That liability under the law applies not only to every proprietor and possessor of a still, but also to " ev&ryjjierso n in any _ manner intere sted in the use of any still, distillery, etc.," and makes them all jointly ahd^ severally liable for the tax. ^ [The court refer to opinions of the Attorneys General ; vol. 15, p. 559 ; vol. 16, p. 10.^] 1 In Regina v. Arnaud, 9 Queen's Bench, 806, the Court decided that a British corpora- tion, whose shareholders were in part foreigners, was entitled to have a vessel owned by it registered under a statute limiting the right of registry to such vessels as "shall wholly belong and continue wholly to belong to her Majesty's subjects; " and further providing that no foreigner should be " the owner, in whole or in part, directly or indirectly," of any vessel entitled to be registered. Lord Denman said: " It appears to us that the British corporation is, as such, the sole owner of the ship, and a British subject within the meaning of the fifth section, as far as such term can be applicable to a corporation, notwithstanding some foreigners may individually have shares in the company; and that such individual members of the corporation are not entitled, in whole or in part, directly or indirectly, te be owners of the vessel." [The above is quoted from 2 Morawetz on Corporations, s. 1091.] r 'K OF UNITED STATES V. DEVEAUX. V ^^ 'Jf /T', , SECTION III. .oy A I^^r^ \r TM Distinction as applied to Jurisdiction ofll. S. Court on the Ground ^ of Diversiti/ of Citizenship. BANK OF UNITED STATES v. DEVEAUX et al. 1809. 5 Cranch, U. S. 61.1 Error to the U. S. Circuit Court for the District of Georgia. The declaration describes the plaintiffs as " The President, Direc- tors and Company, of the Bank of the United States, . . . estab- lished under an act of congress. . . ." At the close of the declaration is the following allegation : " And your petitioners aver that they are citizens of the State of Pennsylvania, and the said Peter Deveaux and Thomas Robertson are citizens of the State of Georgia." Plea in abatement, denying the jurisdiction of the U. S. Circuit Court. Demurrer. Judgment for defendants upon the demurrer. Blnyiey and Harper, for plaintiffs in error. P. B. Key, and Jones, contra. Marshall, C. J. Two points have been made in this cause. 1. That a corporation composed of citizens of one State may sue a • '*' citizen of another State in the federal courts. 2. That a right to sue in those courts is conferred on this bank by the law which incorporates it. y> The last point will be first considered. . . [The court holds, that no right is conferred on the bank, by the act of incorporation, to sue in the federal courts.] 2. The other point is one of much more difficulty. The jurisdiction of this court being limited, so far as respects the character of the parties in this particular case, '' to controversies be- ".ween citizens of different States," both parties must be citizens to_ come within the description. ~ That invisible, intangible, and artificial being, that mere legal entity, a corporation aggregate, is certainly not a citizen ; and, conse- quently, cannot sue or be sued in the courts of the United States, unless the rights of the members, in this respect, can be exercised m their corporate name. If the corporation bs considered as a mere" faculty, and not as a company of individuals, who, in transacting their joint concerns, may use a legal name, they must be excluded from the courts of the Union. 'J'he duties of this court, to exercise jurisdiction where it is conferred, and not to usurp it where it is not conferred, are of equal obligation. The constitution, therefore, and the law, are to be expounded, without a loaning the one way or the other, according to those general principles which usually govern in the construction of fundamental or other laws. 1 Stfitomcnt ahridf^ed. Arguments and part of opinion omitted. — Ed. BANK OF UNITED STATES V. DEVEAUX. 95 A constitution, from its nature, deals in generals, not in detail. Its framers cannot perceive minute distinctions which arise in the pro- gress of the nation, and therefore confine it to the establishment of broad and general principles. The judicial department was introduced into the American constitu- tion under impressions, and with views, which are too apparent not to be perceived by all. However true the fact may be, that the tribunals of the States will administer justice as impartiall}' as those of the nation, to parties of every description, it is not less true that the con- stitution itself either entertains apprehensions on this subject, or views with such indulgence the possible fears and apprehensions of suitors, that it has established national tribunals for the decision of controversies between aliens and a citizen, or between citizens of dif- ferent States. Aliens, or citizens of different States, are not less sus- ceptible of these apprehensions, nor can they be supposed to be less the objects of constitutional provisions, because they are allowed to sue by a corporate name. That name, indeed, cannot be an alien or a citizen ; but the persons whom it represents may be the one or the other; and the controversy is, in fact and in law, betweeu those per- sons suing in their corporate character, by their corporate name, for a corporate right, and the individual against whom the suit may be instituted. Substantially and essentially, the parties in such a case, where the members of the corporation are aliens, or citizens of a differ- ent State from the opposite party, come within the spirit and terms of the jurisdiction conferred by the constitution on the national tribunals. Such has been the universal understanding on the subject. Repeat- edly has this court decided causes between a corporation and an indi- vidual without feeling a doubt respecting its jurisdiction. Those decisions are not cited as authority ; for they were made without con- sidering this particular point ; but they have much weight, as they show that this point neither occurred to the bar or the bench ; and that the common understanding of intelligent men is in favor of the right of incorporated aliens, or citizens of a different State from the defendant to sue in the national courts. It is by a course of acute metaphysical and abstruse reasoning, which has been most ably em- ployed on this occasion, that this opinion is shaken. As our ideas of a corporation, its privileges and its disabilities, are derived entirely from the English books, we resort to them for aid, in ascertaining its character. It is defined as a mere creature of the law, invisible, intangible, and incorporeal. Yet, when we examine the subject further, we find that corporations have been included within terms of description appropriated to real persons. There is a case, however, reported in 12 Mod. 669, which is thought precisely in point. The corporation of London brought a suit against Wood, by their corporate name, in the mayor's court. The suit was brought by the mayor and commonalty, and was tried before the 96 BANK OF UNITED STATES V. DEVEAUX. mayor and aldermen. The judgment rendei'ed in this cause was brought before the court of king's bench and reversed, because the court was deprived of its jurisdiction by the character of the indi- viduals who were members of the corporation. In that case the objection that a corporation was an invisible, intan- gible thing, a mere incorporeal legal entity, in which the characters of the individuals who composed it were completely merged, was urged, and was considered. The judges unanimously declared that they could look beyond the corporate name, and notice the character of the indi- vidual. In the opinions, which were delivered seriatim, several cases are put which serve to illustrate the principle and fortify the decision. The case of The Mayor and Commonalty v. Wood is the stronger because it is on the point of jurisdiction. It appears to the court to be a full authority for the case now under consideration. It seems not possible to distinguish them from each other. If, then, the congress of the United States had in terms enacted 'that incorporated aliens might sue a citizen, or that the incorporated citizens of one State might sue a citizen of another State, in the fed- eral courts, by its corporate name, this court would not have felt itself justified in declaring that such a law transcended the constitution. The controversy is substantially between aliens, suing by a corpo- rate name, and a citizen, or between citizens of one State, suing by a corporate name, and those of another State. When these are said to be substantially the parties to the controversy, the court does not mean to liken it to the case of a trustee. A trustee is a real person capable of being a citizen or an alien, who has the whole legal estate in himself. At law, he is the real proprietor, and he represents him- self and sues in his own right. But in' this case the corporate name represents persons who are members of the corporation. If the constitution would authorize congress to give the courts of the Union jurisdiction in this case, in consequence of the character of the members of the corporation, then the Judicial Act ought to be construed to give it. For the term citizen ought to be understood as it is used in the constitution, and as it is used in other laws. That is, to describe the real persons who come into court, in this case, under their corporate name. That corporations composed of citizens are considered by the legis- lature as citizens, under certain circumstances, is to be strongly in- ferred from the Registering Act. It never could be intended that an American registered vessel, abandoned to an insurance company com- posed of citizens, should lose her character as an American vessel ; and yet this would be the consequence of declaring that the members of the corporation were, to every intent and purpose, out of view, and merged in the corporation. T he co urt feels Jiself^ authorized j)y^he_case_in_12JVIod. (on a ques- tion of jurisdiction), to l ook to the charac ter of the individuals who compose the cqr])oratio]i, and they think that the precedents of tlii^ LOUISVILLE, &c. R. R. CO. V. LETSON. 97 court, though they were not decisions on argument, ought not to be absolutely disregarded. If a corporation may sue in the courts of the Union, the court is of opinion that the averment in this case is sufficient. Being_authorized to sue in their corporate name, they could make_ the averment; and it must apply to the_ plaintiffs as individualSj_ because it could not be true as applied to the corporation. Judgment reversed; plea in abatement overruled, and cause remanded. [In 1806, the Supreme Court, in Straivhridge v. Curtiss, 3 Cranch (U. S.), 267, decided that, where there are two or more joint plaintiffs and two or more joint defendants, each of the plaintiffs must be / capable of suing each of the defendants in the U. S. courts, in order / to support the jurisdiction. Strawbridge was a citizen of Massachu- ( C' setts. One of the defendants was a citizen of Vermont ; the other defendants were citizens of Massachusetts. Held, that the U. S. court had not jurisdiction. A logical application of the combined principles of Straivhridge v. Curtiss and Bank v. Deveaux was made in Commercial, &c., Bank of Vicksburg v. Slocomb (a. d. 1840), 14 Peters, 60. The plaintiffs, citi- zens of Louisiana, brought an action in the U. S. Circuit Court for the Southern District of Mississippi against a Mississippi corporation. The defendant pleaded that two of the members of the corporation were citizens of Louisiana. It was held, that, up on the facts thus_ pleaded, the court had not ju ris diction ; the c ourt savi ng (in effect) that all the corporators mus t be citi zens of a dif ferent State f rom the opposite party.] ^ LOUISVILLE, CINCINNATI AND CHARLESTON RyR (Plaintiffs in Error) v. LETS0I^y5f\" "^ .^ 1844. 2 toward (Cr.S.) 497.1 K) V^j^V .a Action in the U. S. Circuit Court for the District of South Caro-' lina, by Letson, a citizen of New York, against a railroad corporation chartered by South Carolina. A plea to the jurisdiction alleged {inter alia) that, although some of the members of the corporation were citizens of South Carolina, there were two members who were citizens of North Carolina. A demurrer to this plea was sustained. Defendant then pleaded the general issue. After trial and verdict for plaintiff, the defendant brought a writ of error. 1 Statement abridged. Arguments omitted. Onlv a small part of the opinion is given- - Ed. l^ h 98 LOUISVILLE, &c. R. E. CO. V. LETSON. Mazyck, for plaintiffs in error. Pettigru, Lesestie, and Legare (Attorney General), for defendant in error. Wayne, J. The objection is equivalent to this proposition, that a corporation in a State cannot be sued in the circuit courts of the United States by a citizen of another State, unless all the members of the corporation are citizens of the State in which the suit is brought. If it be right to look to the members to ascertain whether there be jurisdiction or not, the want of appropriate citizenship in some of them to sustain jurisdiction cannot take it away, when there are other mem- bers who are citizens, with the necessary residence to maintain it. After mature deliberation, we feel free to say that the cases of Strawbridge and Curtis, and that of the Bank and Deveaux, were car- ried too far. . . . The case of The Commercial Bank of Vlckshm-g said Slocomb, 14 Peters, 60, was most reluctantly decided upon the mere authority of these cases. / A corporation, created by a State, to perform its functions under the authority of that State, and only suable there, though it may have (members out of the State, seems to us to be a person, though an arti- Ificial one, inhabiting and belonging to that State, and therefore en- jtitled, for the purpose of suing and being sued, to be deemed a citizen /of that State. [After asserting that the Act of Feb. 28, 1839, enlarged the juris- diction of the courts.] The case before us might be safely put upon the foregoing reason- ing and upon the statute, but hitherto we have reasoned upon this case upon the supposition that, in order to found the jurisdiction in cases of corporations, it is necessary there should be an averment, which, if contested, was to be supported by proof, that some of the corporators are citizens of the State by which the corporation was created, where it does its business, or where it may be sued. But this has been done in deference to the doctrines of former cases in this court, upon which we have been commenting. But there is a broader ground, upon which we desire to be understood, upon which we altogether rest our present judgment, although it might be maintained upon the narrower ground already suggested. It is, tha t a corjooration created by and doing busi^ ness in a particular Stat^, i s to be deemed to al l intents and purposes as a person^ althoug h anj irtificial person, an inhabitant of the same" State^^or^h^purposes_of its incorporation, capable of being tr eated as a citizen of tliat^Statgj. as imicli as a iiatural__person. Like a citizen ff makes contracts, and tliMii;^li in regard to what it may do in some ST. LOUIS, &c. E. CO. V. JAMES. 99 particulars it differs from a natural person, and in this especially, the manner in which it can sue and be sued, it is substantially, within the meaning of the law, a citizen of the State which created it, and where its business is done, for all the purposes of suing and being sued. Judgment affirmed. Grier, J., IN MARSHALL v. BALTIMOEE & OHIO R. CO. 1853. 16 Howard, 314, pp. 328-329. But it is contended that, notwithstanding the court, in deciding the question of jurisdiction, will look behind the corporate or collective name given to the party, to find the persons who act as the representa- tives, curators or trustees, of the association, stockholders, or cestui que trusts, and in such capacity are the real parties to the controversy ; yet that the declaration contains no sufficient averment of their citi- zenship. Whether the averment of this fact be sufficient in law is merely a question of pleading. If the declaration sets forth facts from which the citizenship of t he parties maybe presumed or legally in- ferred, it is sufficient, f The presumption arising from the habitat of a corporation in the place of its creation being conclusive as to the resi- dence or citizenship of those who use the corporate name, and exercist the faculties conferred by it, the allegation that the "defendants are a body corporate by the act of the general assembly of Maryland," il a sufficient averment that the real defendants are citizens of that State/ Shiras, J., IX ST. LOUIS, &c. R. CO. v. JAMES. 1896. 161 U. S. 545, pp. 562-565. There is an indisputable legal presumption that a state corpora-/ tion, when sued or suing in a Circuit Court of the United States, is composed of citizens of the State which created it, and hence such a corporation is itself deemed to come within that provision of the Con- stitution of the United States which confers jurisdiction upon the Federal courts in ''controversies between citizens of different States." 9i it' h^ 3« We are now asked to extend the doctrine of indisputable citizen- ship, so that if a corporation of one State, indisputably taken, for the I purpose of Federal jurisdiction, to be composed of citizens of such' V/J State, is authorized by the law of another State to do business therein, yfJ ^ , . and to be endowed, for local purposes, with all the powers and priv- -f/^'*] ^^ ileges of a domestic corporation, such adopted corporation shall be'' deemed to be composed of citizens of the second State, in such "^^^ I \ ^ 100 ST. LOUIS, &c. R. CO. V. JAMES. sense as to confer jurisdiction on the Federal courts at the suit of a citizen of the State of its original creation. We are unwilling to sanction siich an extension of a doctrine which, as heretofore established, went to the very verge of judicial power. That doctrine began, as we have seen, in the assumption that State corporations were composed of citizens of the State which created them ; but such assumption was one of fact, and was the subject of allegation and traverse, and thus the jurisdiction of the Federal courts 'might be defeated. Then, after a long contest in this court, it was settled that the presumption of citizenship is one of law, not to be defeated by allegation or evidence to the contrary. There we are content to leave it. It is true that by the subsequent act of 1889, by the proviso to the second section, it was provided that every railroad corporation of any other State, which had theretofore leased or purchased any railroad in Arkansas, should, within sixty days from the passage of the act, file a certified copy of its articles of incorporation or charter with the secretary of state, and shall thereupon become a corporation of Arkansas, anything in its articles of incorporation or charter to the contrary notwithstanding; and it appears that the defendant com- pany did accordingly file a copy of its articles of incorporation with the secretary of the state. But whatever may be the effect of such legislation, in the way of subjecting foreign railroad companies to control and regulation by the local laws of Arkansas, we cannot con- cede that it availed to create an Arkansas corporation out of a for- eign corporation in such a sense as to make it a citizen of Arkansas within the meaning of the Federal Constitution so as to subject it as such to a suit by a citizen of the State of its origin. In order to bring such a n artificial body as a corporation within the spiriFandJetter of that Constitution, as construed by the decisions of this court, it would be necessary to create it out of naturalpersons, jwhose citizenship of the State^ creajting it could_beimputed_jbo the corporation its^IL But it is not pretended in the present case that natural persons, resi- dent in and citizens of Arkansas, were by the legislation in question created a corporation, and that therefore the citizenship of the indi- vidual corporators is imputable to the corporation. HANCHETT V. BLAIR. s HANCHETT V. 1900. 100 Federal Reporter, 817.1 Blair, alleging himself to be a citizen of Isew Jersey, brought suft^T in the U. S. Circuit Court for the District of Nevada, against th^ " Silver Peak Mines, a New York corporation, to foreclose a mortgage ' J on real estate in Nevada. L. J. Hanchett, a citizen of California, was '^ made a co-defendant. The answer of Hanchett alleged, in effect, that Blair was the owner of all the capital stock of the corporation, save a nominal number of shares standing in the name of his agents for the purpose of permitting them to be officers thereof. Judgment was rendered for Blair in the U. S. Circuit Court, and Hanchett appealed to the Circuit Court of Appeals for the Ninth Circuit Morrow, Circuit Judge. -j^ f. /- l^ It would appear from the foregoing that the citizenship of the coiaw/B- '^ ^ */< fyr plainant, as alleged in the bill of complaint, was sufficiently estaD-,'. K « ^ tJn/tt lished by the proofs. But the appellant further attacks the allegatioqi/^ .^^ of diverse citizenship upon the ground that the evidence disclosed the fact that the complainant is a stockholder of the defendant corpo- ration, and must therefore be presumed to be a citizen of the same state as the corporation. It is claimed that authority for this doc trine is found in the case of Railroad Co. v. Letson, 2 How. 497, ll^^' L. Ed. 353; In Railroad Co. v. Wheeler, 1 Black, 286, 29G, 17 L. EdJ yfA 130 ; and in Shaiu v. Mining Co., 145 U. S. 444, 451, 12 Sup. Ct. 935Jf 36 L. Ed. 768. The question under consideration in those cases was ' not the citizenship of individuals, but the status of a corporation under the constitution and laws of the United States relating to jurisdic- tion of circuit courts over controversies between citizens of different states. It was conceded that a corporation was not a citizen, but courts had in certain cases recognized the real persons who composed the corporation, and hence, for the purpose of jurisdiction, the su- preme court would consider a corporation created by the laws of a state as an organization similar to a partnership composed of individ- uals having citizenship ; and thus it followed that if all the members of a corporation were citizens of one state, and the party on the other side was a citizen of a different state, the court had jurisdiction. But another difficulty arose. There were many cases of large corpora- tions, where the members or stockholders were citizens of different states, and sometimes of foreign countries ; and in such cases, the legal entity of the corporation not being recognized, the suit was necessarily between the individual members of such corporation and the opposing party. With the rapidly growing number of corpora- tions, however, and the increasing volume of business transacted by 1 Only so much of the case is given as relates to a single point. — Ed. 102 HANCHETT V. BLAIR. means of corporate association, with interests extending, not only tlirough many states, but over the entire world, and the holdings of stock naturally scattered, it became apparent that the effort to brin^ individual members, either personally or by representation, into the courts, would result in the most cumbersome and tedious litigation with unnecessary annoyance to the stockholders, and in some in stances accomplish the final defeat of the jurisdiction of the court, when based upon the lack of diverse citizenship between some of the members of the corporation on one side and parties on the other side of the controversy^ To meet this difficulty the supreme court deter- mined that, " where a corporation is created by the laws of a state, the legal presumption is that its members are citizens of the state in which alone the corporate body has a legal existence." It was further determined " that a suit by or against a corporation in its cor- porate name must be presumed to be a suit by or against citizens of the state which created the corporate body, and that no averment or evidence to the contrary is admissible for the purpose of with- drawing the suit from the jurisdiction of a court of the United States." Railroad Co. v. Wheeler, supra. These presumptions preserved the jurisdiction of the United States courts over corporations in accord- ance with the evident spirit and purpose of the constitution, but such presumptions had no relation to_the citizenship of individ uals a s parties to a contr oversy in their own r ight, and i t would manifestly be an unauthorized exten sion of^their scope and effect to so construe the dec isions of the supreme court. It_f ollows that th erejs^no legal ure.- sumptio n tha t the individual complai nant, who is also a stockhol der of the defendant corporation, is a citizen of the same state as the cor- poration.^ 1 As to the "inhabitancy," or "residence," of a corporation, see Curtis on Jurisdiction of U. S. Courts, 2d edition, 152-154; Shaw v. Quincy Mininr/ Co , 145 U. S. 444; Galveston, ' J^ P hw W ai^nf.o ffpr nsnrpincr the ofRce of burgcss of the Dorongh of lepping Wycombe. It was admitted on the pleadings that the cor- poration of Chepping Wycombe has existed from time immemorial. Plea, alleging, inter alia, defendant's election by a select body of the burge.Bses, according to the custom from time immemorial. Replica- tion, setting out a charter granted by the Crown in 15 Charles II., whereby it was granted that the entire bod}' of burgesses should and might be able to elect new burgesses. Rejoinder, that said charter was not accepted by the then burgesses as to that part thereof which ordained the mode of electing new burgesses. Demurrer. Scarlett, in support of demurrer. Tindal, contra. 1 Citations of counsel for appellees are omitted. — Ed. '^ Statement abridged. Arguments omitted. Only so much of the case is given aa relates to one point. — Ed. 112 EEX V. WESTWOOD. LiTTLEDALE, J. . . . But then the rejoinder sajs the charter was not accepted in that part which relates to the election of the burgesses. 1 think that rejoi nder is ba d, becaus e_^ think a cor poration ^-annot a'cceijt a charter in part only. When a charter is given b}' the crown, it IS consklei-ed as for ming a whole schenae^ formed upoji deliberation for th e go od government of the b orough. Some parts of this maj'jiot be what the corporation may like in themselves ; but the crown, on the othe r hand, may have granted them other va luable pri vileges as a sort of c ompensation for the inconvenience andJa-QuMe, thej'^ might suffer from ot her parts. But the c orporation would ne ver have had the valu- able parts unless they had had some of the troublesome ones also. In Tlie King \\ The Vice (JhanceUor of Cambridge, 3 Burr. 1647, it was considered b}"^ Lord Mansfield, that a corporation might accept a char- ter in part. In page 1656, he says, " but there is a vast deal of difference between a new charter granted to a new corporation (who must take it as it is granted) and a new charter given to a corporation already in being, and acting either under a former charter, or under prescriptive usage. The latter, a corporation already existing, are not obliged to accept the new charter in toto, and to receive either all or none of it ; they may act partly under it, and partly under their old charter or prescription." And Mr. Justice Wilmot, 3 Burr. 1661, says, " It is the concurrence and acceptance of the universit}' that give the force to the charter of the crown, and they may take and accept the body of statutes or code of laws separately and distinctly- ; they are not bound to take all, or leave all." But though such is the law laid down it was not necessary to do so, because the office of High Steward was an ancient office existing long before the statutes of Queen Elizabeth^ and from the language of those statutes, it is plain, the crown did not mean to interfere with the mode of electing the ancient officers in the university, except such as were particularly men- tioned ; and a question lately arose in this court upon the construction of one of those statutes, whether a particular professorship fell within the meaning of it, viz., that all officers where the mode of election was not pointed out, should be elected as the Vice-Chancellor. That was not a general charter given to the university to form the whole consti- tution of it, but a selection of statutes for the election of particular officers, and it is by the aggregate of different statutes given at differ- ent times by the crown, that the university is governed. In T/ie King V. Amenj, 1 T. R. 589, BuUer, J., says, " The averment proceeds on a mistake by supposing that a charter may be accepted in part and rejected as to the rest. The only instance in which I have ever heard it contended that a charter could be accepted in part only, is where the king has granted two distinct things, both for the benefit of the grant- ees ; there I know that some have thought that tlie grantees may take one, and reject the oilier. However that may be, it cannot extend to this case. lln^4jor])or^tion^jnust _eit^^ accciited in toto, or not. at all. If thex ,could liave accepted a part only of the charter, they EEX V. WESTWOOD. 113 would have b een a corporation ^reated_Jjj Jhems elves. and not b vjh^ king. If a charter directed that the corporation should consist of a ' niaj-or, aldermen, and twenty-four common councilmen, the}- could noti accept the charter for the mayor and aldermen only, omitting the com-j nion councilmen." There not being any case where I consider the) point as having distinctl}' come in judgment, there are only the oppo- site dicta of judges to guide us, and then I must give my judgment in that way which appears most consonant to the general principle of law as applicable to grants of the crown, that the grantees must take the whole of one entire thing which the crown grants, or none at all. Therefore, the rejoinder is no answer to the replication to the first and second pleas, and judgment must be for the crown on that part of the record. ^Omitting other opinions.] Judgment for the Crown on the first two pleas. For the cfe* fendant upon the third plea. [A writ of error was brought to the House of Lords, where it was argued that the judgment ought to be reversed upon another point. Lord Tenterden delivered an opinion, from which the following is an extract.] Two questions of law, therefore, have arisen upon this record ; the first, whether it is competent to an existing corporation, to whom a charter of the crown is offered, to accept that charter in part and reject it in part ; or if it accept it in part, whether that must not be taken to be an acceptance of the whole ? Upon that point there never has been any difference of opinion among the learned Judges. There are, indeed, to be found some expressions of Judges in former times im- porting that a corporation might accept part of a charter and reject the remainder ; but of late times all Judges have been of opinion that it is not open to a corporation ; otherwise a corporation might reject the obligation which was imposed, and accept the benefit which was conferred upon them ; and accordingly there was judgment in the court below for the crown upon that point, namely, that the allegation that the charter was accepted in part was a bad allegation. Judgment affirmed. >"\Vr ELLIS V. MARSHALL. ELLIS V. MAESHALL. 1807. 2 Massachusetts, 269.1 /w , , "^Ejectment. The plaintiff claimed under a sale by the "Front Street Corjyomtion in the town of Boston,''^ established by a law of the Commonwealth, passed March 6, 1804.^ By this statute sundry per- //V" ^sons, and amongst them the defendant, Marshall, described as ''being /Ly 1 K owners and proprietors of the lands and flats over which the said street V \ ^ \ ^' • '^^ill pass, and of the lands and flats adjoining thereto^' are incorpo- rated for the purpose of making a street in the town of Boston., By the third section of the statute, the corporation are authorised to as- sess upon all the owners and proprietors of said land and flats, accord- ing to the proportion they severally hold therein, suph sums of money as shall be agreed upon by the said proprietors, or the major part of such of them as shall be assembled at any legal meeting to be called for that purpose ; and if any of the said proprietors shall neglect or refuse to pay the sums of money duly assessed upon him therefor, for the space of three months, the proprietors are authorized to sell, at ' publip auction, so much of such delinquents share of said lands and I ri) ^'' I/* ' -^^^^ ^^ shall be sufficient to pay the sums so assessed, and the charges ^ • " of sale : and the said proprietors may, by their clerk or committee, execute a good deed to the purchaser in fee simple. Marshall was not one of the petitioners for the act of incorporation ; never assented to the petition ; and never attended a meeting of the .,-, .corporation. \Ajj^ It was agi'eed, "that, on the tenth day of October last, the land de- f manded in this action, being part of the said MarsliaW s estate adjoin- f ''^ing said street, was sold at public auction, according to the rules and Q) ' regulations of the Corporation, and the powers granted in said act, for the purpose of raising the amount of the assessment taxed on him by said Corporation, as being towards his proportionate part of the ex- yence of making said street, which, though often requested, he had refused to pay, and a deed of conveyance thereof was accordingly given by said Corporation to said JEllls, to hold the premises demanded, to him in fee simple." " If on the foregoing facts the court should be of opinion that the said Corporation could, by virtue of the said act, legally assess the said Marshall, and sell his lands for non-payment thereof, then it was agreed that the defendant should be defaulted, and judgment should be rendered for the plaintiff ; otherwise the plaintiff was to become nonsuit, and judgment be rendered for the defendant." Parsons and Dexter, for plaintiff. The Attorney General, Sullivan, and Amory, for defendant. 1 Statement abridged. Arguments and part of opinion omitted. — Ed. 2 3 Mass. Special Laws, 375. .-tv/^"""' (^ K)> ELLIS ,». MARSHALL. Il5 t ' ^- - Parker, J. From the^-toregoing facts and the arguments thereon by the counsel, it appears that all the proceedings of the corporation relative to the assessment and sale were correct; so that if Marshall were, at the time thereof, a member of the corporation, the title to the demanded premises in Ellis could not be disputed. We are therefore necessarily brought to the question, indeed the only one in the case, whether Marshall, by virtue of the act aforesaid, L vv^L^^U/M became a member of the said corporation, subject to its rules and \ \ regulations, and liable to be assessed for the purpose of building said { street. The counsel for the plaintiff have contended 1st. That by virtue of the act itself, Marshall being named therein, he became ipso facto a member of the corporation, the Legislature having competent power to compel him thereto : 2dly. That should this not be the case, the foregoing facts contain sufficient evidence of his consent, tacit at least, to the passing of said act, and the insertion of his name therein. The determination of the first point requires that we should ascer- tain the true nature and character of this legislative proceeding. If it were a public act, predicated upon a view to the general good, the question would be more difficult. If it be a private act, obtained at the solicitation of individuals, for their private emolument, or for the improvement of their estates, it must be construed, as to its effect and operation, like a grant. We are all of opinion that this was a grant or charter to the individuals who prayed for it, and those who should associate with them ; and all incorporations to make turnpikes, canals and bridges must be so considered. Can then one, whose name is by mistake or misrepresentation in- ^ serted in such an act, refuse the privileges it confers, and avoid the burthens it imposes ? If he cannot, then the Legislature may, at all times, press into the service of such corporations those whose lands may be wanted for such objects, whenever they may be prevailed on to insert the names of such persons, b}^ the intrigue or mistake of those more interested in the success of the object. No apprehension exists in the community that the Legislature has such power. That_ the land of any person^ over or through which a turnpike or canal may pass, may be taken for that purpose, if the Legislature deem it proper,' is not doubted. The constitution gives power to do this, provided compensation is made. But it was never before known, that they have power over the person, to make him a member of a corporation, and subject him to taxation, nolens volens, for the promotion of a private enterprise. That a man may refuse a grant, whether from the government or an individual, seems to be a principle too clear, to require the support of authorities. That he may decline to improve his land, no one will doubt. Although the Legislature may wisely determine that a certain use of his property will be highly beneficial to him, he has a right to \ 116 STATE V. BULL. judge for himself on points of this nature. The fact therefore in the case, that Marshall is benefitted equally with the other owners by the making of this street, is of no importance. It being then the opinion of the court that this act is of a nature to )require the assent of Marshall, either express or implied, before it can operate upon him, it is necessary to enquire into the second point, viz., whether the facts agreed on in this case furnish evidence of such assent. Upon the whole, therefore, we are of opinion that the act under which the plaintiff sets up his title, could not bind Marshall without his assent : that he having uniformly, whenever opportunity occurred, signified his dissent, is not a member of the corporation it created, was not liable to their assessments, and therefore that the sale of his land was without authority of law and is void. yi^y- Plaintiff nonsuit. 1 A vi f\ ' STATE V. BULL. ISU. 16 Connecticut, 179.1 Information in the nature of a qtio ivarranto, to test the right to exercise certain corporate franchises. In 1833, the legislature passed an act to authorize the formation of a corporation to carry on the business of insurance. Among the pro- "'(j ' ' visions of the act are the following : the capital is to be $100,000, divided into shares of $20 each ; subscriptions to the stock shall l^e opeiied Under the superintendence of seven commissioners, named in tjie act, at such times and places as they shall appoint ; there shall be ; ' paid to the commissioners at the time of subscription $1.00 on each share subscribed ; the subscriptions shall continue open three days ; in case the subscriptions shall not amount to $100,000, the subscriptions to complete said sum may remain open, or be opened anew, at some ^;^ ^ subsequent time or times as the commissioners shall determine, and '^ further subscriptions may then be made to complete the amount ; after the stock shall have been fully taken up, the subscribers, their successors and assigns, shall be, and are hereby, created a corporation f { by the name of the Connecticut Life and Fire Insurance Company, C] In June, 1833, the commissioners opened subscriptions, giving due notice of the time and place, and the subscriptions were kept open for the time prescribed in the act. The subscriptions amounted to only .$15,000. The subscriptions were thereupon closed; and the commissioners then, or soon after, refunded to the subscribers the sum of one dollar which they had paid on each share. 1 Statnmcnt abridged. Arguments and part of opinion omitted. — Ep- , *v STATE V. BULL. 117 Nothing further was attempted to be done under the act, until March 16, 1844, when the commissioners, without giving any public notice, opened subscriptions anew. Three persons then subscribed for the entire capital stock. Thereafter the holders of the shares so last subscribed met, elected directors, claimed to be a corporation, and proposed to engage in the business of insurance. To the information setting out, in substance, the foregoing facts, there was a general demurrer. T. C. Perkins, in support of the demurrer. Hungerford and Touceij, contra. Church, J. The commissioners appointed under this charter, to receive subscriptions to the stock of the proposed Insurance Com- pany, were the agents of the state, empowered to offer an act of in- corporation to such as would accept it, upon the terms and conditions proposed. The legislature was influenced in granting the charter, by what it supposed the public interest, at that time, required. We cannot pre- sume, that it was enacting a supernumerary charter, to be laid away among the state records, to await either the convenience or necessity of future times. Nor can we, without great disrespect, suppose it intended to give opportunity for the exercise of favouritism, or to prevent competition in subscriptions. [The learned Judge then held, that public and general notice should have been given whenever the books for subscription were opened anew. The opinion then proceeds.] The foregoing considerations are decisive of our opinion on this subject. But there are others, which confirm it. The commission' ers, who had been appointed, in view of the state of things then existing, performed the duty required of them. They offered the charter for public acceptance ; and it was declined. They restored to the subscribers all they had advanced, and abandoned the project. In the meantime, perhaps, other corporations may have been created, to supply the public necessities, which once were supposed to exist ; and the legislature Jiave not again spoken on the subject. Under these circumstances, and because this charter was not accepted within a reasonable time, we think the trust conferred upon the commission- ers must be considered as having been surrendered ; and that it can- not be resumed, now, without a renewed expression of the will of the legislature. We hold the information to be sufficient. ~~^- ~ Demurrer overruled. ^':. I, ' 118 PEOPLE V. MONTECITO WATER CO. '^ .\ SECTION III. PEOPLE V. MONTECITO WATER CO. 1893. 97 California, 276. xjdonditions precedent to Incorporation De Jure. " One Man Company." 'O \ [In Department Two.^] Appeal from a judgment of the Superior Court of Los Angeles Count}'. The facts are stated in the opinion. John J. JBoyce, Richards & Carrier, and George H. Goidd^ for appellant. IF. C. Stratton., for respondents. Temple, C. Plaintiff appeals from a judgment entered upon demur- rer to complaint. The demurrer was general, and on the ground of insufflcienc}' of the facts. It is a proceeding taken by the attorney general of the state, in the nature of a quo warranto, to deprive the defendant corporation of its corporate charter, and procure its dissolu- (^ tion on two grounds — First, for want of a substantial compliance with ^.^vx.- ! the statutor}^ requirements in its formation ; and second^ for abandon- ment and misuse of its corporate franchise and powers, and for alleged A>-'^^'^ ) violations of law. In answer to the first point the respondent raises the preliminary objection that, by making the corporation a defendant, its corporate -jj character is admitted, and cannot be questioned in this proceeding. As P , ^mJl^ authority for this proposition the case of the People v. Stanford, 77 Cal. 360, 18 Pac. Rep. 85, and 19 Pac. Rep. 693, is chiefly relied upon. , In that case it was alleged in the complaint that the assumed corpora- /xV^ < tion had never been a corporation. If it were not a corporation of any character, it had no legal existence, and could not be sued. By mak- ing it a partv, plaintiff conceded that it was a person that could be sued. It was said that the corporation could not be treated as a person which could be sued simpl}' to obtain a judgment ; that it was not and never had been such a person. There is no such inconsistency here. It is averred that the corporate defendant is a corporation de facto, but it is claimed that it did not become a corporation de jin-e, because the per- sons who attempted the incorporation did not compl}' with the condi- tions which tlie statute makes conditions precedent to its rightful ', incorporation. Under such circumstances, although the association is a legal entity, which may be sued, its riglit to corporate exist- ence may be questioned by the state in a proceeding of this character. Section 358, Civil Code. This court said in People v. La Rue, 67 ^ Ah to tlif! Dfpartnionts of the Supreme Court, and as to Supreme Court Commi* doners, bcc I'reface to 97 California, pp. v-vil ■^I^ttc ^.^' V. MONTECITO WATER CO. 119 \ Cal. -SSOj 8 Pac. Rep. 84, and repeated the language in First Bap« ^ tist Cliurch V. Branliam, 90 Cal. 22, 27 Pac. Rep. 60: "A corpo^ ,A ration de facto -may legall}^ do and perform every act and thing \ wJKch the same entit}' could do or perform were it a de jure corpora- |j^^;|(^y As to all the world, except the paramount authority under which \ it acts, and from which it receives its charter, it occupies the same posi- j tion as though in all respects valid ; and even as against the state, except in direct proceedings to arrest its usurpation of power, it is submitted its acts are to be treated as efficacious,." lender such cir- cumstances it seems clear that the corporation is not only a proper, but a necessary part}-. People u. Flint, 64 Cal. 49, 28 Pac. Rep. 495; People V. Gunn, 85 Cal. 244, 24 Pac. Rep. 718. /j*tfc<^^7^*^ It is contended that the corporation is not rightfully such because, \ . 7 while five incorporators signed the articles of incorporation, only four ac- / A^L't^^HJU" knowledged the same. Section 292 of the Civil Code reads as follows : J / ^%.\,(^^ Ji- " The articles of incorporation must be subscribed by five or more per- ) sons, a majority of whom must be residents of this state, and acknowl edged by each before some officer authorized to take and certify acknowledgments of conve3-ances of real propert}'." It was said in People V. Selfridge, 52 Cal. 331 : " The right to be a corporation is in itself a franchise ; and, to acquire a franchise under a general law, the prescribed statutory conditions must be complied with." Still, a substantial, rather than a literal, compliance will suffice. PebpIe'vT Stockton & V. R. Co., 45 Cal. 313. Was there substantial compli- ance in this case? Because a substantial compliance will do, it does not follow that any positive statutory requirement can be omitted, on the ground that it is unimportant. They are conditions precedent to acquiring a statutory right, and none can be dispensed with by the court. What is a substantial, rather than a literal, compliance, may be illustrated from the cases. In Ex parte Spring Valley Waterworks, 17 Cal. 132, the certificate stated the place of business, but did not describe it as the " principal place of business," as required. The court said : " The statement that San Francisco was the place of busi- ness would seem to imply that it was not only the principal, but the onl}', place of business." In People v. Stockton & V. R. Co., 45 Cal. 306, the affidavit required in such cases to be attached to the certificate stated that 10 per cent of the amount subscribed had been actuall}' paid in, omitting the words " in good faith," which the statute required. In the certificate it was stated that more than 10 per cent had been actually in good faith paid in.. It was held sufficient, and it would seem that, if it was actually paid in cash, it must have been paid in good faith ; and it was further held that payment by checks drawn against sufficient funds in a bank, which was ready to accept and pay the checks, was substantially payment in cash. In People v. Cheese- man, 7 Colo. 376, the acknowledgment taken by the notar}' omitted to state that the persons whose acknowledgments were taken Were person- ally known to the n9t^ry. The certificate did state that the persons 1^ -» W4A4AW VLIW ^\jX. i3\JKk»3 « r r ^ c\ 120 / ' PEOPLE i\ MONTECITO WATER CO. , d^^ Twho signed appeared before him and acknowledged it. The statute did A/5^ I ftu *^°^ prescribe what the acknowledgment should contain, and it was held i A ^ a substantial compliance with the requirement, although the form pre- scribed for acknowledgments to deeds was not followed. It was ac- knowledged. In all these cases it will be seen that the thing required was done, but not literall}' as directed ; but there was no omission of any requirement. No case has been cited where the entire omission of a thing prescribed has been excused, unless it be the case of Larrabee V. Baldwin, 35 Cal. 155. That was not an action instituted by the state to disincorporate on the ground of noncompliance. As we have seen, unless the state complains, a de facto corporation must be consid- ered, under our Code, as possessing a corporate character ; and the stockholders, when sued upon their individual liability, should not be allowed to make the point that they did not comply with the law. In that case the certificate was signed by five directors, but two failed to acknowledge it. Other questions are discussed at great length in the opinion, but in regard to the point made on the certificate it was simply remarked: " It is not clear that an}' fatal defect exists in the certifi- » , vfV^ate of incorporation. If so, it is cured b}' the act of April 1, 1864." Plainly it was unnecessary to consider the question. The curative act re- ferred to declares : " All associations or companies heretofore organized, and acting in the form and manner of corporations, and that have filed certificates for the purpose of being incorporated, but whose certificates are in some manner defective, or have been improperly acknowledged r before a person not authorized by law to take such acknowledgments, ^' are hereby declared to be, and to have been, corporations from the date of the filing of such certificates, in the same manner and to the same effect and intent as if such certificates were without fault, and properly acknowledged before the proper oflficer ; and all such certifi- /iV- Gates are hereby validated, and declared to be legal, and shall have the , same force and effect as if such certificates were free from all fault or defect, and were properly acknowledged," etc. St. 1863-64, p. 303. / Section 292 of the Civil Code requires the articles to be subscribed and \ acknowledged by each. As this is an express condition precedent to a\ I valid incorporation, it is not of consequence to the court whether it \ be a wise or necessary requirement or not. Still, it is eas}' to see a I reason for it. The certificate secures the state, and all concerned, against the possibility of any fictitious names being subscribed to the articles, and furnishes proof of the genuineness of the signatures. If the acknowledgment can be dispensed with as to one, wh}' not as to two or three, or all? Ordinarily, no doubt, the state would not be expected to institute a proceeding of this character for such a defect alone, and we must presume that the attorne}' general would not have instituted this infjuiry if he were not convinced that there were reasons sufficient to justify it. Otlier reasons are alleged ; but, as the statute authorizes a proceeding to forfeit the charter where the statute has not been com- plied with, although the corporation is acting in good faith, and is a WEWCOMB V. REED. 121 de facto corporation, the complaint must be held to state a cause of action, and the demurrer should be overruled. The judgment should be reversed, and the cause remanded, with directions to overrule the demurrer. Haynes, C, and Belcher, C, concurred. For the reasons given in the foregoing opinion, the judgment is re- versed, and the cause remanded, with directions to overrule the demurrer. ■<^,- De HaveN; J., McFarland, J., Fitzgerald, J. ^ ^ y NEWCOMB V. REED. 1866. 12 Allen, 362. Contract, in which the plaintiff sought to charge the officers of the Boston Mechanical Bakery Company with a debt contracted in the name of the corporation, in consequence of their neglect to file cer- tificates and statements of the condition of the corporation. At the « p^ trial in the superior court, before Ames, J., without a jur}-, the judge V " found for the defendants upon facts which are stated in the opinion ; and the plaintiff alleged exceptions. C. B. Goodrich & E. Avery, for the plaintiff. E. 3fericin, for the defendants. Hoar, J. The defence to this action rests wholly upon the assump- tion that the corporation, whose officers the plaintiff seeks to charge with a statute liability for its debts, never had a legal existence. The only defect suggested in the organization of the corporation is, that the call for the first meeting was signed by only one of the persons named in the act of incorporation, and not by a majority of them, as required by St. 1855, c. 140. The case of Utley v. Union Tool ComjMny, 11 Gray, 139, is the authority on which the defendants chiefly rely. That case decided that in order to charge as stockholders of a manufacturing corporation persons who had been summoned in an action against it under St. 1851, c. 315, the plaintiff must prove the legal existence of the cor- poration. The alleged corporation had no charter or act of incorpora- tion from the legislature, but was an association which had undertaken to assume corporate powers under a general act for the formation of joint stock companies, St. 1851, c. 133. That statute authorized three or more persons who had entered into " articles of agreement in writ- ing" for the transaction of certain kinds of business, to organize in a manner prescribed, and thereby to become a corporation ; and the court were of opinion that written articles of agreement were essential to constitute a corporation, and that these articles must fix the amount of the capital stock, and set forth distinctly the purpose for which ani^ V !>' K 122 KKWCOMB V. EEED. the place in which the corporation was established. The court say, " There is an obvious reason for making such organization by written articles of agreement a condition precedent to the exercise of corpo- rate rights. It is the basis on which all subsequent proceedings are to rest, and is designed to take the place of a charter or act of incorpora- tion, bv which corporate rights and privileges are usually granted." And the}' add that "it is not a case of a defective organization under a charter or act of incorporation, nor of erroneous proceedings after the necessar}' steps were taken to the assumption of corporate powers, but there is an absolute want of proof that any corporation was ever called into being, which had the power of contracting debts or of ren- dering persons liable therefor as stockholders." We think these reasons have no application to the case now before us. In this, there was an act of incori)oration from the legislature. There is no question that the corporate powers which it conferred were assumed b}' the persons by whom it was intended that they should be enjoyed, so far as the}' chose to avail themselves of them. The organ- ization was not strictly regular, but can hardly be considered even as defective. I And if the object of the statute is. regarded, by which it is required / that the first meeting shall be called by a majority of the persons / named in the act of incorporation, it will be evident that it is directory \ merely, and only designed to secure the rights conferred b}' the charter / to those to whom it was granted, among themselves, b}' providing an ( orderly method of organization.. Thus, if all the persons interested j should come together without_any_notice_or call whatever, and proceed >^ to accept the charter, and do the other acts necessary to constitute the corporation, we cannot doubt that their action would be valid, and that neither the public, nor any persons not belonging to the association, would have any interest to question their proceedings. The purpose of the statute was probabl}' to avoid such difficulties as were disclosed in the case of Lechmere Bank v. Boynton, 11 Cush. 369, where two parties had attempted to organize separately under the same charter, each claiming to be the corporation. There is nothing in the facts found and reported to show that all persons interested were not actually notified of the meeting for organ- ization. On the contrary, it would seem that the}' were. No one has questioned the regularity of the proceedings, orx;laimed, as in Lech- mere Bank v. Boynton, a right to organize in a different manner. The evidence was ample to show that the persons named in the act of incorporation with their associates, or at least all of them who desired to do so, have accepted the act, organized under it, issued stock, elected officers who have acted and served in that capacity, carried on business, contracted debts, and exercised all the functions of corporate existence. It is therefore too late to deny that the corporation ever had any legal existence, or for these officers to avoid the liabihties which the statutes of the Commonwealth impose. CHERAW AND CHESTER RAILROAD CO. V. WHITE. 123 The defendant Brackett, who was treasurer in February 1861, ap- pears to have been liable with the directors under the provisions of Gen. Sts. c. 60, §§ 18, 20, 31. Exceptions sustained. .v^ M J^ CHERAW & CHESTER R. CO. v. WHITE. 1880. 14 Soicth Carolina, 51,^ ' , ,-) '^''^ WiLLARD, C. J. This action was brought to recover the amount 6f subscription to the capital stock of the plaintiff company, alleged t have been made by the defendant, and not duly complied with on hi part. The defendant demurred to the complaint on various grounds. ^ ^ This demurrer was overruled by the Circuit Court, and leave to " \y « answer granted on terms. From this decision the defendant nowy^ ^ appeals. The first ground of demurrer is, that the plaintiff has no capacity to sue. Several propositions are stated under this ground of demurrer 'that, in substance, involve the general proposition that the plaintiffs have received, by law, only authority to become a corporation upon the performance of certain conditions precedent, and that the com- plaint contains no allegations showing that such conditions have been performed. The act to charter the plaintiff company, passed February 27th, 1873, (15 Stat. 442,) confers corporate powers on the corporators named, in terms importing an immediate grant, with the following (CUju^ proviso annexed : " Provided that said persons shall commence opera- tions upon said road within two j'ears after the and complete the same within five years." The is stated b}- Section 6 at seven years, but this conflict of time is not material to the present question. The question is whether the proviso can have the effect to convert a grant of the corporate franchise, made in terms that import an immediate grant, into one taking effect only upon the happening of a certaiiTcontingencj'., If the purpose intended by the proviso cannot be fnll^' accomplished without a limitation of the broad sense of the language conferring the franchise, then such effect can be accomplished consistently with the rules of construction, for, in that case, the proviso would be necessaril}- interpreted as a condition in substance and effect. As a condition subsequent this is undoubt- edly the effect of the proviso, but does it contain, in itself, anything that imports a necessit}- tliat it should operate::^a&Jbjco^ passage of this act, \ i i , period of completion |7J\M-^ ^'^^'^^ ) Ur 1 Statement omitted. Only so much of opinion is given as relates to ona point. — Ed. 124 CHEEAW AND CHESTER RAILROAD CO. V. "WHITE. deutP Two things are to be considered in this respect : ^irst. What "Is essential to the full efficacy of the matter of the proviso itself? /Second. What would be the effect of allowing it to stand as a condition precedent on the completeness of the powers granted for the purpose intended b}' the grant, and to which the terms of the proviso stand as a condition? It certainly was intended that the corporators should have all the powers and capacity properh' incident to a railroad corpo- ration for the purpose of enabling it to commence and complete the road in the times prescribed b}' the law, for it must be assumed that the construction of the road was deemed a public benefit, and that the acqui- sition of that benefit to the public was the true consideration of the grant, and, in this light, the^proyiso must be i-egarded as directl y inte nded as^ a means of hastening its construction. This view also excludes the idea that the proviso was intended to limit the capacity or powers of the companj' to construct the road within the times prescribed for that purpose. It must certainl}' be assumed that the possession of corpo- rate powers during the time that the company was organizing and acquiring the capital and credit requisite to construct the road was a material aid toward the accomplishment of that result. It is fair, then, k ^/^ to assume that the grant, in terms irpporting immediate corporate C JCV^^^-^^^^"^^ I capacity, was intended to operate as such for the purpose of conferring on the corporation the most perfect means for accomplishing that which it was the purpose of the proviso to secure. So far then from its being essential to the efficacy' of the proviso that the sense of the terms grant- ing, directh', the corporate franchise should be narrowed, the purpose of the proviso is best subserved by holding these powers intact accord- ing to the terms in which they were granted. If, at the end of two 3ears, the corporation had not commenced to construct the road, every object intended to be secured to the state and to the public, b}' the limitation, would be full}' attained, even if the compan}- had at once, upon the granting of the charter, become a corporation. The ex- tinguishment of the franchise of building and operating a raih'oad would have followed, and the right to exercise the functions of a cor- poration would have fallen with it as an accessor}'. On the other hand if the grant is held to be subject to a condition precedent, by reason of the limitation as to commencing work in two years, the argu- ment that would produce that result would go a step further and make the completion of the road a condition precedent. In that case the anomaly would be presented of a company undertaking the construc- tion and completion of a work of such magnitude without tlie powers of a corporation, and only hoping to obtain such powers when the work had been accomplished. Such an intention cannot be ascribed to the statute. It is clear that the demurrer was properly overruled as it regards the ground just considered. • ••••••• Judgment affirmed- JOHNSON V. KESSLEE. 125 JOHNSON V. KESSLER. 1888. 76 Iowa, 411. Appeal from Bremer District Court. Action in chancery to restrain the collection of a tax voted by the electors of a township in aid of the construction of a railroad. Upon a trial on the merits plaintiffs' petition was dismissed. They now appeal to this court. Boies, Husted & Boies, for appellants. Gibson & Daivson, for appellees. Beck, J. I. Counsel for plaintiffs insist that the tax voted is void for the reason that, as the stock authorized by the articles of in- corporation of the company to whom the tax was voted was not all subscribed or taken, the corporation was not in fact in existence. j » Counsel's position, expressed in their own language, is this : " It was ("^JiAJpJ not in law a corporation until its required capital stock was sub- ) *1 Jt^" scribed." The ready answer to this objection is found in the statute. ) Ocrv^C5-voV-^r-»^ The purposes and objects of an incorporation is to clothe persons who ' associate themselves together for that purpose with authority and power to do lawful business as an individual. Code, sec. 1058. It is enacted that an incorporation may commence business as soon as its articles of incorporation are filed in the recorder's office. Id. sec. 1064. The corporation may, then, lawfully commence business, — that is, exercise its corporate authority and power, — when its articles of incorporation are filed. Nowhere is there an intimation in the statute that this authority and power cannot be exercised until all of its stock has been subscribed. There is nothing in the articles of in- corporation of the railroad company to which the aid was voted, pro- viding that the company shall not begin business until a prescribed amount of stock shall have been subscribed. Peoria & R. I. Ry. Co. V. Preston, 35 Iowa, 115, cited by plaintiffs' counsel, interprets the power of an Illinois corporation, in the absence of any statute simi- lar to our own, authorizing corporations to commence business upon filing articles of incorporation, or upon the happening of any other prescribed event. [Omitting opinion on other points.] Affirmed. 126 ASPEN WATER AND LIGHT CO. V. CITY OF ASPEN. Gaines, J., in NATIONAL BANK OF JEFFERSON v. TEXAS INVESTMENT CO. 1889. 74 Texas, 421, pp. 435-436. But it is also insisted that the company was never legally incorpo- rated because the capital stock was not subscribed and paid for by the promoters of the enterprise. That the Legislature contemplated that corporations organized under the statute under consideration should be conducted as stock companies, having their capital stock divided into shares, we think there can be no doubt. The law requires that the articles of incorporation shall show "the amount of capital stock, if any, and the number of shares into which [it] is divided." Rev. Stats., art. 567 ; see also arts. 590, et seq. Article 591 provides that the stock subscribed for shall be paid in such manner and in such installments as the board of directors may order. But we find no pro- vision in the law making the existence of the corporation dependent upon the subscription to its stock or the payment therefor. On the contrary it is expressly provided that " the existence of the corpora- tion shall date from the filing of the charter in the office of the Secre- tary of State." Rev. Stats., art. 570. It follows, we think, that when the company filed its articles of Incorporation with the Secretary of State, it became a corporation in law, and that the owners of its stock and the managers of its busi- ness can not be held liable as partners for debts contracted by it. This ruling is supported by authority. Laflin & Rand Powder Co. v. Sinsheimer, 46 Md. 315 ; Society Pm'im v. Cleaveland, 43 Ohio St., 481 ; First Nat. Bank v. Almy, 117 Mass. 476. ;K \^ USPEN WATER AND LIGHT CO. v. CITY OF ASPEN. V,^ t^ ,.r^ ''^^ 1894. ^ Colorado Appeals, Vl.^ Appeal from District Court of Pitkin County. ^ ^ The statutes of Colorado provide that any three or more persons ^ who may desire to form a company for carrying on any lawful business, may make, sign and acknowledge certificates in writing in which shall be stated certain specified things including the amount of capital stock, the number of shares into which it is divided, the number of the directors or trustees and the names of those who are to manage the affairs of the company for the first year of its existence. Such 1 The RtatemfMif is taken from a note in 12 Lewis' Amer. R. R. & Corp. Reports, page 5Io. Onlv part of the opinion is given. — Eu. ASPEN WATER AND LIGHT CO. V. CITY OF ASPEN. 127 certificate is to be filed in each county in which the corporation does business and in the office of the secretary of state. 1 Mill's Stats, § 473. The next section in the original act provides that when the certificates have been filed as aforesaid, the secretary of state shall record and preserve the same and that a copy thereof duly certified by the secretary shall be evidence of the existence of such company. 1 Mill's Stats. § 475. A subsequent section provides that the corpo- rate powers shall be exercised by a board of directors or trustees of not less than three nor more than thirteen, who shall respectively be stockholders in said company, and who shall (except the first year) be annually elected by the stockholders. The statute is silent as to how or when the subscription to the stock is to be taken and also as to any further organization of the company, except that provision is made for the election of a president by the directors and for such other officers as may be provided for in the by-laws. Proceedings were taken to form the Aspen Water and Light Company, and the statute appears to have been complied with so far as its positive re- quirements were concerned. But no stock was ever subscribed for or issued. The company obtained a grant of a franchise from the city of Aspen and some attempt was made to enter upon the construction of the works. But the city attempted to revoke or annul its franchise and forcibly prevented the company from proceeding with its work. Thereupon the company brought suit for damages. James M. Doivning, Porter Plumb, and Joseph W. Taylor, for ap- pellants. William O^Brien and R. G. Withers, for appellee. BissELL, P. J. ... " It only remains to determine the legal con- sequenceswhich flow from the failure to complete the organization by the preparation, issue and sale of stock. In some states the General Incorporation Act provides that upon the filing of the certificate the persons who sign it, and their successors, shall become a body cor- porate, and be invested with certain powers. But even in a case like that the authorities hold that it only thereby becomes a quasi cor- poration, invested possibly with certain powers for certain limited purposes. In reality it becomes a corporation only in name. It is universally agreed that a corporation cannot exist without stockholders or members. As said by the learned Commissioner Pattison in Arkan- sas River, Town & Canal Co. v. Farmers^ Loan & Trust Co., 13 Col. 587 ; 32 Pac. Pep. 954, ' without organization and members, without officers and stockholders, a corporation is but a naked body.' 1 Mor. Priv. Corp. § 33. We are thus confronted with this situation : Con- ceding, ex gratia, that the Aspen Water and Light Company had an existence on the 27th of February, 1885, and was possessed of suf- ficient corporate capacity to render the grant contained in the ordi- nance operative to vest in that company the rights expressed when the organization should be complete, it remains true that at the time of the alleged breach, and the bringing of the suit, the grant had not 1^8 PALMEK V. LAWRENCE. become operative. . . . The company never had any legal president and never had any legal secretary, and consequently the so-called con- tract was never executed. The statute provides (Gen. St. 1883, §§ 242-244) that the corporate powers shall be exercised by a board of directors or trustees, who must be stockholders of the company, and from which body a president may be elected. This is a statutory limitation upon the corporate power, and the governing body must, according to that statute, be composed of shareholders, and the presi- dent can only be rendered competent by possessing the same statutory qualification. Since it is true that no stock was ever subscribed for or issued by this company, and no agreement was established which obli- gated the promoters for the stock of the company so that they might jbe taken to be joint owners of all of it, it follows that there never was any board of directors competent to make a contract, nor any persons who could execute an agreement for the company. Under these cir- cumstances, one of the first essentials of a valid contract is absolutely wanting. There was not at the date of the alleged breach, and there is not at the present time, any such corporation as the Aspen Water and Light Company. What the rights of the promoters may be, if any, is not before us for consideration. The suit was not brought by them, or in their behalf, but in the name and on behalf of a corpora tion without a legal existence." [Remainder of opinion omitted.] Affirmed. \ b\^ DuER, J., IN PALMER V. LAWRENCE. 1849. 3 Sandford's New York Superior Court, 161, pp. 172-174. DuER, J. . . . We proceed now to the direct consideration of the objections that are relied on ; not that it is at all necessary that these objections should be answered, in order to justify the decision that we propose to make, but that the same, or similar objections, may not be raised in any future case that we may be required to determine. The construction of the general banking law, upon which the first objection proceeds, namely, that the actual payment of the capital must precede the making and filing of the certificate, we have no difficulty in reject- ing. It is as unreasonable as it is novel. It is not required by tlie terms of the statute, and is inconsistent with several of its provisions. The third subdivision of the fifteenth section declares, that the certifi- cate of the associates " shall specify the amount of the capital stock of such association ; " and it is upon these few words — this narrow foundation — that the ingenious argument of the defendant's counsel was exclusively built; yet these words are so far from necessarily im- I)lying that the capital has been paid when the certificate is made, that it is only by a strained and violent interpretation that such a meaning PALMER V. LAWRENCE. 129 can be attributed to them. The terms " such association " are used throughout the law, as designating, not the individuals who agree to form the association, but the association itself when formed ; an asso- ciation clothed with all the powers and attributes that the statute con- fers ; and we, therefore, cannot understand how such an association can have a capital before it exists.' If the payment of its capital is to precede its existence, when, how, and to whom is it to be paid ? From whom is the authority to receive it to be derived ? Whose property is it until the association is organized ? How is it to be secured in this interval ? When, how, and to whom is it to be paid over ? Not one of these questions is answered by the law as it stands, but we find it impossible to believe that any one of them would have been left un- answered, had the legislature intended that the payment of the entire capital should be a condition precedent to the existence of the asso- ciation. We find it impossible to believe that such an intention, in- stead of being plainly and fully expressed, would have been left to be gathered, by a remote and doubtful implication. There are numerous acts of incorporation, many of which were quoted by the defendant's counsel, as showing the general policy of the state, in which the pay- ment of a portion of the capital is made a condition precedent to the existence of the corporation ; but, in every one of these acts, the per- sons to whom the payment is to be made are named or designated, and the time and mode of payment, and the disposition to be made of the moneys paid, are carefully prescribed ; nor can we doubt that specific regulations of such manifest propriety woiild have been found in the general banking law had the legislature meant that the pay- ment of the whole, or of any portion of the capital of an association, should precede its organization. We have said that the interpretation we reject is inconsistent with several provisions in the law ; and it plainly is so. It is inconsistent with the provision in section 19th, that every person to whom shares of stock are transferred, shall suc- ceed to the rights and liabilities of the original stockholder. It would be absurd to suppose that any liabilities are here meant, except such as directly relate to the shares themselves ; and if the shares have al- ready been fully paid for, none such can exist. It is inconsistent with the provision in section 26th, that the semi-annual statement to be made to the comptroller shall *' specify the amount of the capital paid in, or secured to be jx^id ;" for if the whole capital has been paid, no portion can remain for which security is to be given. If the whole capital has been paid, and then loaned by the company, each loan is an investment of capital paid, not a security for its future payment ; and every such investment would appear, in the statement to the comptroller, among the debts due to the association, not as a part of its unpaid capital. We do not doubt that the whole capital of an as- sociation must be paid, or secured to be paid, when it is organized ; but it is secured to be paid, in the sense of the law, by force of tlie subscriptions of the associates, just as certainly as if each associate 130 PEOPLE V. CHAMBERS. had given his note or bond for the amount of his shares. The security may not be adequate, but it exists ; and of its adequacy the public has been wisely left to judge. PEOPLE V. CHAMBERS. 1871. 42 California, 201.1 Appeal from District Court. Decision below for defendants. Action of quo warranto against the defendants, claiming to com- pose the " Oroville and Virginia City Railroad Company," in which the defendants are charged with usurping the functions of a railroad company, without having been duly and properly incorporated as such. Section 1, of Act of May 20, 1861 (Statutes of 1861, p. 607), requires as a preliminary to the organization of the company, that stock to the amount of at least $1000 per mile of the proposed road shall be sub- scribed " and ten per cent in cash so required to be subscribed shall be actually and in good faith paid to a Treasurer to be named and appointed by said subscribers from among their number." In the present case, the greater part of the ten per cent was not paid in cash, but was paid in a check drawn by one Bolinger on the Bank of California. Bolinger had not sufficient funds on deposit in that Bank to meet the check, and the check never was presented for payment. Van Clief & Gear, for appellant. Haymond & Stratton, for respondents. Crockett, J. [After discussing the facts and holding that the check could not be considered as payment in cash, even though it be conceded that the check would have been ])aid had it been presented.] Counsel insist, however, that the provision in respect to the prior subscription of stock, and the payment of the ten per cent, is direc- tory only, and that the payment is not a condition precedent, the per- formance of which is essential to the validity of the act of incorpora- tion, and in support of this proposition we are referred to the case of Commonwealth v. Westchester Railroad Company, 3 Grant, Pa. 200. But that decision was founded on a special statute, in many respects essentially different from ours, and does not sustain the position here contended for. But if it was directly in point, we would not be in- clined to follow it. On the other hand, I think it is apparent that v/ithout a substantial compliance with this provision the subscribers acquired no jurisdiction to organize themselves into a corporate body, and this view of the law is supported by the following authorities : Eaton V. Asjnnwall, 19 N. Y. 119 ; People v. Troy House Company, 44 1 Statement abridged. Arguments and part of opinion omitted. — Ed. BRODERIP V. SALOMON. 131 Barb. 634 ; Haviland v. Chase, 39 Barb. 283 ; TaggaH v. Western Md. Railroad Company, 24 Md. 588 ; People v. Rensselear Insurance Com- fany, 38 Barb. 323 ; Patterson v. Arnold, 45 Pa. St. R. 415. If these views be correct, the act of incorporation is invalid, and • the defendants are not entitled to exercise corporate powers. Judgment reversed and cause remanded, with an order to the Dis^ trict Court to enter judgment for the plaintiff on the findings. Mr. Justice Temple did not participate in the foregoing decision. /V /f/^ / ^ ^ f. BRODERIP V. SALOMON. / \^ 1895. Law Reports (1895), 2 Chancery, 323. V • ' ^ ^ 5^AL0M0N V. SALOMON & CO., LIMITED ^ ^^ iO£7U. .l^ttU/ ^LC^Kfl ti> \^A.LrUlJj ^IJJ^"^'-^'' Ut*OCOj itid>~ \ ~ I]»-1892, Aron Salomon was carrying on business as a leather mer- chant, &c., and was solvent. July 28, 1892, a Limited Company was registered, under the ComfTanies Act of 1862, for the ostensible pur- J-pose of taking over and carrying on the business then conducted by Salomon. The Act of 1862 provides (Section 6), that " any seven or more per- sons, associated for a lawful purpose may, by subscribing their names \ / to a memorandum of association, and otherwise complying with the provisions of the Act in respect of registration, form a company with or without limited liability." "No subscriber shall take less than one share " (Section 8). The Act prescribes no minimum value for shares, , and hence the shares may be of as small a value as those who form the*^' company may please. Nor does the Act impose any limit upon the number of shares which a single member may subscribe for. Section 30 provides that no notice of any trust shall be entered on the register. Upon the registration of the memorandum of association, and of the articles (where required), the registrar shall certify that the company is incorporated. "The subscribers of the memorandum of association, together with such other persons as may from time to time become members of the company, shall thereupon be a body corporate by the name contained in the memorandum of association, capable forthwith of exercising all the functions of an incorporated company, and hav- ing perpetual succession and a common seal, with power to hold lands." . . . (Section 18.) The name of the company was Aron Salomon & Co., Limited. The nominal capital was 40,000^., divided into 40,000 shares, of \l. each. The memorandum of association was subscribed by Salomon, his wife, his daughter, and his four sons, each subscribing for one 1 Statement rewritten. Arguments omitted ; also portions of opinions. — Ed. % 132 BRODEEIP V. SALOMON. share. Salomon then conveyed his business and its assets to the company for an agreed price of about 39,000^. In consideration of this conveyance, he received from the company some payments in cash, also debentures (a charge on the assets) for 10,000Z., and shares for the par value of 20,000/.^ No other shares were ever allotted; and it was never intended that any shares should be allotted to any person except Salomon and the six members of his family. The practical result was, that Salomon owned |§.gg| of the allotted shares ; and also held the company's debentures for 10,000^.^ Subsequently, Salomon, upon the security of his aforesaid deben- tures, obtained from Broderip a loan of 5000Z., which sum Salomon re- loaned to the company. Thereafter, in Feb. 1893, the original deben- tures, which had been issued to Salomon for 10,000Z., were returned to the company and were cancelled. In lieu thereof, with the consent of Salomon as beneficial owner, fresh debentures of the company to the same amount were issued to Broderip in order to secure the pay- ment of his aforesaid loan of 5000^. Default having been made in the payment of his interest, Broderip, in the autumn of 1893, instituted an action, on behalf of himself and all the debenture holders, to enforce his security. Thereafter a wind- ing up order was made and a receiver appointed. The company put in a defence and counter-claim, making Salomon a party to the counter-claim. At the time of the company's going into liquidation, 11,264Z. was due to unsecured creditors whose debts had been contracted since the formation of the company. About 7733Z. of this was due to trade creditors, the rest to Salomon. The liquidator has realized the assets, by arrangement without prejudice to any question on the counter-claim. He has paid Broderip's " mort- gage debt on the debentures," and the rest of the proceeds will not be sufficient to satisfy what remains due on the debentures. Salomon claims whatever there may be as owner of the debentures. The action was tried before Vaughan Williams J. [The follow- ing is an abridgment of the opinion of the learned Judge.] There was no fraud on the shareholders, inasmuch as they were all perfectly cognizant of the conditions under which the company was formed, and as there was no intention to allot further shares at a later period to outsiders. But the company was a mere nominee of Salo- mon's ; and the case is to be dealt with as if the nominee, instead of 1 According to a statement in the opinion of Lord Macnaghten, it would seem that, as cash came in to the company from the business, the company went through the form of lianding this cash over to Salomon, and then immediately receiving the same cash back from Salomon in exchange for the 20,000 shares allotted to him as fulh- paid shares. — Ed. 2 The charge given to the debenture-holder by the company on its property did not operate to prevent the company, wliile solvent, from using assets to pay current debts ; but it gave the debenture-holder a ])reference over unsecured creditors m the event of in- solvency. See 14 Law Quarterly Review, 339; Davey v. Williamson, L. R. (1898), 2 Q. B. 194. Buckley on Companies Acts, 7th edition, 186; Kay, L. J. in L. R. (1895), 2 Chan. p. 343. — Ed. BRODERIP V. SALOMON. 133 being the company, had been some individual agent of Salomon's to Avhom he had purported to sell this business. In that case the trustee in bankruptcy of the agent would have had a right to make Salomon indemnify the agent against the debts that he had contracted by the direction of his principal. The right of the liquidator in the present case is precisely the same, notwithstanding the debentures which were a mere form, intended to give an appearance of reality to a sale which, in fact, was no sale at all, because it was a sale by a man to an agent for his own profit. This business was Salomon's business, and no one else's. The creditors pf the company could, in my opinion, have sued Salomon. Their right to do so would depend on the circumstances of the case, whether the company was a mere alias of the founder or not. The relationship of principal and agent existed between Salomon and the company. The moment the creditors succeed in establishing the identity of Salomon with the company, the creditors of the company thereupon are shown to be the creditors of Salomon ; and although it is necessary, in order to get rid of the priority given to Salomon by these debentures, that one should fall back upon the lien of the com- pany as his agent, whom he was bound to indemnify, I do not mean to exclude from my judgment that the debentures were given to Salo- mon by his agent, the company, and that the necessary effect of Salo- mon as principal, taking these debentures from his agent, the com- pany, was that his creditors — for, according to my view, the creditors of the company were his creditors — were defeated and delayed by the debentures. His Lordship made the following order : — Declare that the plaintiffs, A. Salomon & Co. Limited, or the liqui- dator thereof are, or is entitled to be indemnified by the defendant A. Salomon against the sum of 7733Z. 8s. 3d. . . . Order and adjudge that the plaintiffs, A. Salomon & Co. Limited, do recover against defendant A. Salomon the said sum of 7733?. 8s. 3d. Declare that plaintiffs, A. Salomon & Co. Limited, are entitled to a lien for the said sum of 7733Z. 8s. 3d., upon all sums which would be payable to defendant A. Salomon out of the assets of the plaintiffs A. Salomon & Co. Limited, in respect of the debentures issued by the said company to the defendant E. Broderip in the pleadings men- tioned or otherwise, and that the defendant A. Salomon is not enti- tled to make any claim against the assets of the plaintiffs A. Salomon & Co. Limited, until the said sum of 11331. 8s. 3d. has been satisfied. Aron Salomon gave notice of appeal. The company gave a counter- notice of contention that [_inter alia"] they were entitled to have the agreement for the sale of Salomon's business and property to the company rescinded. Buckley, Q. C. and Muir Mackenzie (McCall, Q. C. with them), for Salomon. Farwell, Q. C. and Theobald, for the company. 134 BRODERIP V. SALOMON. LiNDLET L. J. This is an appeal by Mr. Aron Salomon against an order made by Vaughan Williams J., and which, in effect, directs ;Mr. A. Salomon to indemnify a limited company formed by him against the unsecured debts and liabilities incurred by or in the name of the company whilst it carried on business. The appeal raises a question of very great importance, not only to the persons immediately affected by the decision, but also to a large number of persons who form what are called " one-man companies." Such companies were unheard of until a comparatively recent period, but have become very common of late years. The material facts of this case are as follows : [His Lordship, after stating the facts of the case to the same effect as above, and adding that as to the 20,000 shares allotted to Aron Salomon he (Aron Salo- mon) contended he had paid for them though no call had ever been made ; that the liquidator, on the other hand, claimed 20,000Z. from A. Salomon in respect of these shares ; that A. Salomon had received moneys from the company, but that it did not appear whether he had paid the company for his shares, and that this was a matter which it was unnecessary to pursue further on the present occasion, proceeded as follows : — ] I proceed to examine the legal aspect of this case, which, as I have said, is one of great general importance. There can be no doubt that in this case an attempt has been made to use the machinery of the Com- panies Act, 1862, for a purpose for which it never was intended. The legislature contemplated the encouragement of trade by enabling a comparatively small number of persons — namely, not less than seven — to carry on business with a limited joint stock or capital, and with- out the risk of liability beyond the loss of such joint stock or capital. But the legislature never contemplated an extension of limited lia- bility to sole traders or to a fewer number than seven. In truth, the legislature clearly intended to prevent anything of the kind, for s. 48 takes away the privilege conferred by the Act from those members of limited companies who allow such companies to carry on business with less than seven members ; and by s. 79 the reduction of the number of members below seven is a ground for winding up the company. Al- though in the present case there were, and are, seven members, yet it is manifest that six of them are members simply in order to enable the seventh himself to carry on business with limited liability. The object of the whole arrangement is to do the very thing which the legislature intended not to be done ; and, ingenious as the scheme is, it cannot have the effect desired so long as the law remains unaltered. This was evidently the view taken by Vaughan Williams J. The incorporation of the company cannot be disputed. (See s. 18 of the Companies Act, 1862.) Whether by any proceeding in the na- ture of a scire facias the Court could set aside the certificate of incor- jjoration is a question which has never been considered, and on which I express no opinion ; but, be that as it may, in such an action as this BRODERIP V. SALOMON. 135 the validity of the certificate cannot be impeached. The company must, therefore, be regarded as a corporation, but as a corporation! created for an illegitimate purpose. Moreover, there having alwaysj been seven members, although six of them hold only one 11. share each, Mr. Aron Salomon cannot be reached under s. 48, to which I have already alluded. As the company must be recognized as a cor- poration, I feel a difficulty in saying that the company did not carry on business as a principal, and that the debts and liabilities contracted in its name are not enforceable against it in its corporate capacity. But it does not follow that the order made by Vaughan Williams J. is wrong. A person may carry on business as a principal and incur debts and liabilities as such, and yet be entitled to be indemnified against those debts and liabilities by the person for whose benefit he carries on the business. The company in this case has been regarded by Vaughan Williams J. as the agent of Aron Salomon. I should rather liken the company to a trustee for him — a trustee improperly brought into existence by him to enable him to do what the statute prohibits. It is manifest that the other members of the company have practically no interest in it, and their names have merely been used by Mr. Aron Salomon to enable him to form a company, and to use its name in order to screen himself from liability. This view of the case is quite consistent with In re George Neivman & Co} In a strict legal sense the business may have to be regarded as the business of the company ; but if any jury were asked. Whose business was it ? they would say Aron Salomon's, and they would be right, if they meant that the bene- ficial interest in the business was his. I do not go so far as to say that the creditors of the company could sue him. In my opinion, they can only reach him through the compan3^ Moreover, Mr. Aron Salomon's liability to indemnify the company in this case is, in my view, the legal consequence of the formation of the company in order to attain a result not permitted by law. The liability does not arise simply from the fact that he holds nearly all the shares in the com- pany. A man may do that and yet be under no such liability as Mr. Aron Salomon has come under. His liability rests on the purpose for which he formed the company, on the way he formed it, and on the use which he made qf it. There are many small companies which will be quite unaffected by this decision. But there may possibly be some which, like this, are mere devices to enable a man to carry on trade with limited liability, to incur d^bts in the name of a registered com- pany, and to sweep off the company's assets by means of debentures which he has caused to be issued to himself in order to defeat the claims of those who have been incautious enough to trade with the company without perceiving the trap which he has laid for them. It is idle to say that persons dealing with companies are protected by s. 43 of the Companies Act, 1862, which requires mortgages of lim- ited companies to be registered, and entitles creditors to inspect the 1 [1895] 1 Ch. 674. 'r 136 BRODEEIP V. SALOMON. register. It is only when a creditor begins to fear lie may not be paid that he thinks of looking at the register ; and until a person is a cred- itor he has no right of inspection. As a matter of fact, persons do not ask to see mortgage registers before they deal with limited companies ; and this is perfectly well known to every one acquainted with the actual working of the Companies Acts and the habits of business men. Mr. Aron Salomon and his advisers, who were evidently very shrewd people, were fully alive to this circumstance. If the legislature thinks it right to extend the principle of limited liability to sole traders it will no doubt do so, with such safeguards, if any, at it may think necessary. But until the law is changed such attempts as these ought to be defeated whenever they are brought to light. They do infinite mischief ; they bring into disrepute one of the anost useful statutes of modern times, by perverting its legitimate use, and by making it an instrument for cheating honest creditors. Mr. Aron Salomon's scheme is a device to defraud creditors. Agreeing as I do in substance with Vaughan Williams J., I do not think it necessary to investigate the question whether the so-called sale of the business to the company ought to be set aside. The only object of setting it aside is to obtain assets wherewith to pay the cred- itors, and this object can be attained on sound legal principles by the order which he has made. In the event, however, of this case going further, I will add that I regard the so-called sale of the business to the company as a mere sham, and that in my opinion it might, if neces- sary, be set aside by the company in the interest of its creditors, al- though all the shareholders, such as they were, knew of and assented to the arrangement. They were simply assisting Mr. Aron Salomon to carry out his scheme. I cannot regard In re British Seamless Pa- per Box Co} as an authority against a rescission of such a transaction as this. We have carefully considered the proper form of order to be made on this appeal, and the order of the Court will be as follows : The Court, being of opinion that the formation of the company, the agree- ment of August, 1892, and the issue of debentures to Aron Salomon pursuant to such agreement, were a mere scheme to enable him to carry on business in the name of the company with limited liability, contrary to the true intent and meaning of the Companies Act, 1862, and, fur- ther, to enable him to obtain a preference over other creditors of the company by procuring a first charge on the assets of the company by means of such debentures, dismiss the appeal of Aron Salomon with costs ; and, it being unnecessary to make any order on the liquidators' cross-notice of appeal, discharge the order directing the liquidator to I)ay costs of the counter-claim, and give him those costs. Loi'Ks L. J, This is a case of very great importance, and I wish shortly to state my reasons for concurring in the judgment just de- livered. I do not propose to restate the facts so fully and clearly 1 17 Ch. D. 467. BRODEEIP V. SALOMON. 137 detailed by Lindley L. J. : I shall content myself with shortly stating the impression they have produced on my mind. The incorporation of the company was perfect — the machinery by which it was formed Avas in every respect perfect, every detail had been observed ; but, not- withstanding, the business was, in truth and in fact, the business of Arou Salomon ; he had the beneficial interest in it ; the company was a mere nominis umbra, under cover of which he carried on his business as before, securing himself against loss by a limited liability of 1^. per share, all of which shares he practically possessed, and obtaining a priority over the unsecured creditors of the company by the deben- tures of which he had constituted himself the holder. It would be lamentable if a scheme like this could not be defeated. If we were to permit it to succeed, we should be authorizing a perver- sion of the Joint Stock Companies Acts. We should be giving vi- tality to that which is a myth and a fiction. The transaction is a device to apply the machinery of the Joint Stock Companies Act to a state of things never contemplated by that Act — an ingenious device to obtain the protection of that Act in a way and for objects not au- thorized by that Act, and in my judgment in a way inconsistent with and opposed to its policy and provisions. It never was intended that the company to be constituted should consist of one substantial person and six mere dummies, the nominees of that person, without any real interest in the company. The Act contemplated the incorporation of seven independent bona fide members, who had a mind and a will of their own, and were not the mere puppets of an individual who, adopt- ing the machinery of the Act, carried on his old business in the same way as before, when he was a sole trader. To legalize such a trans- action would be a scandal. But to what relief is the liquidator entitled ? In the circumstances of this case it is, in my opinion, competent for the Court to set aside the sale as being a sale from Aron Salomon to himself — a sale which had none of the incidents of a sale, was a fiction, and therefore in- valid ; or to declare the company to be a trustee for Aron Salomon, whom Aron Salomon, the cestui que trust, was bound to indemnify ; or to declare the formation of the company, the agreement of August, 1892, and the issue of the debentures to Aron Salomon pursuant to such agreement, to be merely devices to enable him to carry on busi- ness in the name of the company with limited liability, contrary to the true intent and meaning of the Companies Act, 1862, and further, to enable him to obtain a preference over other creditors of the company by obtaining a first charge on the assets of the company by means of such debentures. I wish to add that I am inclined to think that a scire facias would go to repeal the certificate of incorporation ; but I express no decided opinion on the point. The appeal will be dismissed with costs. [Kay L. J. delivered a concurring opinion.] 188 BRODERIP V. SALOMON. From the above decision, Salomon appealed to the House of Lords. His appeal was brought in forma j^auperis. The company brought a cross appeal against the part of the order refusing rescission of the contract for the sale of Salomon's business to the company. [The decision on these appeals is reported under the name of Salomon v. Salomon & Co. Limited.^ Cohen, Q. C, Buckley, Q. C, McCall, Q. C, and Muir Mackenzie, for Aron Salomon. Fartvell, Q. C, and Theobald, for the company. Lord Halsbury, Lord Chancellor. My Lords : The important question in this case, and I am not certain that it is not the only ques- tion, is whether the respondent company was a company at all; whether, in truth, that artificial creation of the Legislature had been validly con- stituted in this instance ; and, in order to determine that question, it is necessary to look at what the statute itself has determined in that respect. I have no right to add to the requirements of the statute, nor to take from the requirements thus enacted. The sole guide must be the statute itself . I must pause here to point out that the statute enacts nothing as to the extent or degree of interest'which may be held by each of the seven, or as to the proportion of interest or influence possessed by one or the majority of the shareholders over the others. One share is enough. Still less is it possible to contend that the motive of becoming share- holders, or of making them shareholders, is a field of inquiry which the statute itself recognizes as legitimate. If they are shareholders they are shareholders for all purposes, and, even if the statute was silent as to the recognition of trusts, I should be prepared to hold that if six of them were the cestui que trusts of the seventh, whatever might be their rights inter se, the statute would have made them /lareholders to all intents and purposes with their respective rights and liabilities ; and dealing with them in their relation to the company, the only rela- tions which I believe the law would sanction would be that they were corporators of the corporate body. I will, for the sake of argument, assume the proposition that the Court of Appeal lays down, that the formation of the company was a mere scheme to enable Aron Salomon to carry on business in the name of the company. I am wholly unable to follow the proposition that this was contrary to the true intent and meaning of the Com- X)anies Act. I can only find the true intent and meaning of the Act from the Act itself, and the Act appears to me to give a company a legal existence with, as I have said, rights and liabilities of its own, whatever may have been the ideas or schemes of those who brought it into existence. I observe that the learned judge (Williams, J.,) held that the busi- ness was Mr. Salomon's business and no one else's, and that he chose BRODERIP V. SALOMON. 139 to employ as agent a limited company. And he proceeded to argue that he was employing that limited company as agent, and that he was bound to indemnify that agent — the company. I confess it seems to me that that very learned judge becomes involved by this argumeat in a very singular contradiction. Either the limited company was a legal entity or it was not. If it was, the business belonged to it and not to Mr. Salomon ; if it was not, there was no person and no thing to be an agent at all ; and it is impossible to say at the same time that there is a company and there is not. The learned judges appear to me not to have been absolutely certain in their own minds whether to treat the company as a real thing or not. If it was a real thing, if it had a legal existence, and if, conse- quently, the law attributed to it certain rights and liabilities in its constitution as a company, it appears to me to follow as a consequence that it is impossible to deny the validity of the transactions into which it has entered. Williams, J. appears to me to have disposed of the argument that the company, which for this purpose he assumed to be a legal entity, was defrauded into the purchase of Aron Salomon's business, because, assuming that the price paid for the business was an exorbitant one, as to which I am myself not satisfied, bvit assuming that it was, the learned judge most cogently observes that when all the shareholders are perfectly cognizant of the conditions under which the company is formed and the conditions of the purchase, it is impossible to contend that the company is being defrauded. The truth is that the learned judges have never allowed in their own mind the proposition that the company has a real existence. They have been struck by what they considered the inexpediency of permitting one man to be, in influence and authority, the whole com- pany, and assuming that such a thing could not have been intended by the Legislature, they have sought various grounds upon which they might insert into the Act some prohibition of such a result. Whether such a result be right or wrong, politic or impolitic, I say, with the utmost deference to the learned judges, that we have nothing to do with that question if this company has been duly constituted by law, and, whatever may be the motives of those who constitute it, I must decline to insert into that Act of Parliament limitations which are not to be found there. I have dealt with this matter upon the narrow hypothesis pro- pounded by the learned judges below, but it is, I think, only justice to the appellant to say that I see nothing whatever to justify the imputations which are implied in some of the observations made by more than one of the learned judges. The appellant, in my opinion, is not shown to have done, or to have intended to do, anything dis- honest or unworthy, but to have suffered a great misfortune without any fault of his own. 140 BRODEKIP V. SALOMON. The result is that I move your Lordships that the judgment ap- pealed from be reversed, but as this is a pauper case I regret to say- it can only be with such costs in this House as are appropriate to that condition of things, and that this appeal be dismissed with costs to the same extent. Lord Watson. The allegations of the company, in so far as they have any relation to the amended claim, their pith consisting in the averments made on amendment, were meant to convey a charge of fraud, and it is unfortu- nate that they are framed in such loose and general terms. A relevant charge of fraud ought to disclose the specific facts necessitating the inference that a fraud was perpetrated upon some person specified. Whether it was a fraud upon the company and its members, or upon persons who had dealings with the company, is not indicated, although there may be very different considerations applicable to those two cases. The res gestce which might imply that it was the appellant, and not the company, who actually carried on its business are not set forth. Any person who holds a preponderating share in the stock of a limited company has necessarily the intention of taking the lion's share of its profits, without any risk beyond loss of the money which he has paid for or is liable to pay upon his shares, and the fact of his acquiring and holding debentures secured upon the assets of the com- pany does not diminish that risk. What is meant by the assertion that the company " was the mere nominee or agent " of the appellant, I cannot gather from the record, and I am not sure that I understand precisely in what sense it was interpreted by the learned judges whose decisions we have to consider. The Lords Justices of Appeal, in disposing of the amended claim, have expressly found that the formation of the company, with limited liability, and the issue of 10,000Z. worth of its debentures to the ap- pellant, were "contrary to the true intent and meaning of the Com- panies Act 1862." I have had great difficulty in endeavouring to interpret that finding. I am unable to comprehend how a company, which has been formed contrary to the true intent and meaning of a statute, and (in the language of Lindley, L. J.) does the very thing which the Legislature intended not to be done, can yet be held to have been legally incorporated in terms of the statute. " Intention of the Legislature " is a common, but very slippery phrase, which, popularly understood, may signify anything from intention embodied in positive enactment to speculative opinion as to what the Legislature probably would have meant, although there has been an omission to enact it. In a court of law or equity, Avhat the Legislature intended to be done or not to be done can only be legitimately ascertained from that which it has chosen to enact, either in express words or by reasonable and necessary imjjlication. Accordingly, if the words " intent and mean- BRODERIP V. SALOMON. 141 ing," as they occur in the finding of the Appeal Court, are used in their proper legal sense, it follows, in my opinion, that the company has not been well incorporated ; that, there being no legal corporation, there can be no liquidation under the Companies Acts, and that the counter- claim preferred by its liquidator must fail. In that case its creditors would not be left without a remedy, because its members, as joint traders without limitation of their liability, would be jointly and sever- ally responsible for the debts incurred by them in the name of the com- pany. I can conceive that there might be a limited company formed and registered by a person who had the sole interest in it, the other subscribing members being persons who were his aliases, and having no real existence ; and in that case also (which does not occur here) there would be no legal company, and the real owner of the concern ■would be liable for its debts to the full extent of his means. It seems doubtful whether a liquidator, as representing and in the name of the company, can sue its members for redress against a fraud which was committed by the company itself and by all its sharehold- ers. However, I do not think it necessary to dwell upon that point, because I am not satisfied that the charge of fraud against creditors has any foundation in fact. Lord Hebschell. [After stating the facts, and reciting the pre- vious proceedings.] It is to be observed that both courts treated the company as a legal entity distinct from Salomon and the then members who composed it, and therefore as a validly constituted corporation. This is, indeed, necessarily involved in the judgment which declared that the company was entitled to certain rights as against Salomon. Under these cir- cumstances, I ain at loss to understand what is meant by saying that A. Salomon and Company Limited is but an alias for A. Salomon. It is not another name for the same person ; the company is ex hypothesi a distinct legal persona. As little am I able to adopt the view that the company was the agent of Salomon to carry on his business for him. In a popular sense a company may in every case be said to carry on business for and on behalf of its shareholders, but this certainly does not in point of law constitute the relation of principal and agent be- tween them or render the shareholders liable to indemnify the company against the debts which it incurs. Here, it is true, Salomon owned all the shares except six, so that if the business were profitable he would be entitled substantially to the whole of the profits. The other share- holders, too, are said to have been '' dummies," the nominees of Salo- mon. But when once it is conceded that they were individual members of the company distinct from Salomon, and sufficiently so to bring into existence in conjunction with him a validly constituted corporation, I am unable to see how the facts to which I have just referred can affect the legal position of the company, or give it rights as against its mem- bers which it would not otlierwise possess. 142 BRODERIP V. SALOMON. The Court of Appeal based their judgment on the proposition that the formation of the company, and all that followed it, was a mere scheme to enable the appellant to carry on business in the name of the company, with limited liability, contrary to the true intent and meaning of the Companies Act 1862. The conclusion which they drew from this premiss was, that the company was a trustee and Salomon their cestui que trust. I cannot think that the conclusion follows even if the premiss be sound. It seems to me that the logical result would be that the company had not been validly constituted, and therefore had no legal existence. But, apart from this, it is necessary to ex- amine the proposition on which the court have rested their judgment, as its effect would be far reaching. Many industrial and banking concerns of the highest standing and credit have, in recent years, been, to use a common expression, converted into joint stock compa- nies, and often into what are called " private " companies, where the whole of the shares are held by the former partners. It appears to me that all these might be pronounced " schemes to enable " them " to carry on business in the name of the company, with limited liability," in the very sense in which those words are used in the judgment of the Court of Appeal. The profits of the concern carried on by the company will go to the persons whose business it was before the transfer, and in the same proportions as before, the only difference being that the liability of those who take the j)rofits will no longer be unlimited. The very object of the creation of the company, and the transfer to it of the business, is that, whereas the liability of the part- ners for debts incurred was without limit, the liability of the members for the debts incurred by the company shall be limited. In no other respect is it intended that there shall be any difference ; the conduct of the business and the division of the profits are intended to be the same as before. If the judgment of the Court of Appeal be pushed to its logical conclusion all these companies must, I think, be held to be trustees for the partners who transferred the business to them, and those partners must be declared liable, without limit, to discharge the debts of the company. For this is the effect of the judgment as re- gards the respondent company. The position of the members of a company is just the same whether they are declared liable to pay the debts incurred by the company, or by way of indemnity to furnish the company with the means of paying them. I do not think that the learned judges in the court below have contemplated the applica- tion of their judgment to such cases as I have been considering, but I can see no solid distinction between those cases and the present one. It is said that the respondent company is a " one-man " company, and that in this respect it differs from such companies as those to which I have referred. But it has often happened that a business transferred to a joint stock company has Ijeen the property of three or four persons only, and that the other subscribers of the memo- randum have been clerks or other persons who possessed little or no BRODERIP V. SALOMON. 143 interest in the concern. I am unable to see how it can be lawful for three or four or six persons to form a company for the purpose of em- ploying their capital in trading, with the benefit of limited liability, and not for one person to do so, provided in each case the require- ments of the statute have been complied with, and the company has been validly constituted. How does it concern the creditor whether tlie capital of the company is owned by seven persons in equal shares, with the right to an equal share of the profits, or whether it is almost entirely owned by one person who practically takes the whole of the profits ? The creditor has notice that he is dealing with a company the liability of the members of which is limited, and the register of shareholders informs him how the shares are held, and that they are substantially in the hands of one person, if this be the fact. The creditors in the present case gave credit to and contracted with a limited company ; the effect of the decision is to give them the benefit as regards one of the shareholders, of unlimited liability. I have said that the liability of persons carrying on business can only be limited provided the requirements of the statute be complied with, and this leads naturally to the inquiry what are those requirements ? The Court of Appeal has declared that the formation of the respond- ent company and the agreement to take over the business of the appel- lant, were a scheme " contrary to the true intent and meaning of the Companies Act." I know of no means of ascertaining what is the intent and meaning of the Companies Act except by examining its provisions and finding what regulations it has imposed as a condition of trading with limited liability. The memorandum must state the amount of the capital of the company and the number of shares into which it is divided, and no subscriber is to take less than one share. The shares may, however, be of as small a nominal value as those who form the company please ; the statute prescribes no minimum, and though there must be seven shareholders, it is enough if each of them holds one share, however small its denomination. The Legislature therefore clearly sanctions a scheme by which all the shares, except six, are owned by a single individual, and these six are of a value little more than nominal. It was said tliat in the present case the six shareholders other than the appellant were mere dummies, his nominees, and held their shares in trust for him. I will assume that this was so. In my opinion it makes no difference. The statute forbids the entry in the register of any trust, and it certainly contains no enactment that each of the seven persons subscribing the memorandum must be beneficially en- titled to the share or shares for which he subscribes. The persons who subscribe the memorandum or who have agreed to become mem- bers of the company, and whose names are on the register, are alone regarded as, and, in fact, are, the shareholders. They are subject to all the liability which attaches to the holding of the share. They can be compelled to make any payment which the ownership of a share 144 BRODERIP V. SALOMON. involves. Whether they are beneficial owners or bare trusts -s is a matter with which neither the company nor creditors have a^ yihing to do ; it concerns only them and their cestui que trust if thef have any. If, then, in the present case all the requirements of the statute were complied with, and a company was effectually constituted, and this is the hypothesis of the judgment appealed from, what t* arrant is there for saying that what was done was contrary to the try » intent and meaning of the Companies Act ? It may be that a company constituted like that under consideration was not in the contemplation of the Legislature at the time Tvhen the Act authorizing limited liability was passed ; that if what ijs possible under the enactments as they stand had 'been foreseen, a minimum sum would have been fixed as the least denomination of share per- missible, and it would have been made a condition that e&cK of tli^ seven persons should have a substantial interest in the compa"4y. But we have to interpret the law, not to make it ; and it must bt. remem- bered that no one need trust a limited liability company unli>5S he so please, and that before he does so he can ascertain, if he uj please- what is the capital of the company, and how it is held. Lord Macxaghten. My Lords : I cannot help thinking tlmt the appellant, Aron Salomon, has been dealt with somewhat Lardly in this case. [The opinion then discusses the evidence as to the formation of the company.] The company had a brief career ; it fell upon evil daya. Shortly after it was started there seems to have come a period of grtat depres- sion in the boot and shoe trade. There were strikes of wovkmen too, and in view of that danger, contracts with public bodies, uhich were the principal source of Mr. Salomon's profit, were split up and divided between different firms. The attempts made to push the business on behalf of the new company crammed its warehouses with unsaleable stock. Mr. Salomon seems to have done what he could , both he and his wife lent the company money, and then he got his ().ebentures can- celled and reissued to a Mr. Broderip, who advanced ht^ 5000^, which he immediately handed over to the company on loan. The temporary relief only hastened ruin. Mr. Broderip's interest w»<,i3 not paid when it became due. He took proceedings at once and gt 't a receiver ap- pointed. Then, of course, came liquidation and a forced sale of the company's assets. They rea,lized enough to pay Mr. Broderip, but not enough to pay the debentures in full, and the unsecured creditors were consequently left out in the cold. The order of the learned judge appears to me to be founded on a misconception of the scope and effect of the Companies Act, 1862. In order to form a company limited by shares, the Act requires that a memorandum of association should be signed by seven persons, who BRODERIP V. SALOMON. 145 are each to take one share at least. If those conditions are complied with, what can it matter whether the signatories are relations or stran- gers ? There is nothing in the Act requiring that the subscribers to the memorandum should be independent or unconnected, or that they or any one of them should take a substantial interest in the undertak- ing, or that they should have a mind and will of their own, as one of the learned Lords Justices seems to think, or that there should be any- thing like a balance of power in the constitution of the company. In almost every company that is formed, the statutory number is eked out by clerks or friends, who sign their names at the request of the promoter or promoters without intending to take any further part or interest in the matter. When the memorandum is duly signed and registered, though there be only seven shares taken, the subscribers are a body corporate *' capable forthwith," to use the words of the enactments, " of exercis- ing all the functions of an incorporated company." Those are strong words. The company attains maturity on its birth. There is no period of minority ; no interval of incapacity. I cannot understand how a body corporate thus made " capable " by statute can lose its individuality by issuing the bulk of its capital to one person, whether he be a subscriber to the memorandum or not. The company is at law a different person altogether from the subscribers to the memorandum, and, though it may be that after incorporation the business is precisely the same as it was before, and the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are the subscribers as mem- bers liable in any shape or form, except to the extent and in the man- ner provided by the Act. That is, I think, the declared intention of the enactment. If the view of the learned judge were sound, it would follow tliat no common law partnership could register as a company limited by shares without remaining subject to unlimited liability. Among the principal reasons which induce persons to form private companies as is stated very clearly by Mr. Palmer in his treatise on the subject, are the desire to avoid the risk of bankruptcy, and the in- creased facility afforded for borrowing money. By means of a private company, as Mr. Palmer observes, a trade can be carried on with limited liability and without exposing the persons interested in it in the event of failure to the harsh provisions of the bankruptcy law. A company too can raise money on debentures, which an ordinary trader cannot do ; any member of a company acting in good faith is as much entitled to take and hold the company's debentures as any outside creditor. Every creditor is entitled to get and to hold the best secur- ity the law allows him to take. If, however, the declaration of the Court of Appeal means that Mr. Salomon acted fraudulently or dishonestly, I must say that I can find nothing in the evidence to support such an imputation. The purpose 146 BKODERIP V. SALOMON. for which Mr. Salomon and the other subscribers to the memorandum were associated was " lawf uL" The fact that Mr. Salomon raised 5000Z. for the company on debentures that belonged to him seems to me strong evidence of his good faith and of his confidence in the company. The unsecured creditors of A. Salomon and Co. Limited may be entitled to sympathy, but they have only themselves to blame for their misfortunes. They trusted the company, I suppose, because they had long dealt with Mr. Salomon and he had always paid his Avay ; but they had full notice that they were no longer dealing with an individual, and they must be taken to have been cognisant of the memorandum and of the articles of association. It has become the fashion to call companies of this class " one-man companies." That is a taking nickname, but it does not help one much in the way of argument. If it is intended to convey the mean- ing that a company which is under the absolute control of one person is not a company legally incorporated, although the requirements of the Act of 1862 may have been complied with, it is inaccurate and misleading ; if it merely means that there is a predominant partner possessing an overwhelming influence and entitled practically to the whole of the profits, there is nothing in that that I can see contrary to the true intention of the Act of 1862, or against public policy, or detrimental to the interests of creditors. If the shares are fully paid up, it cannot matter whether they are in the hands of one or many. If the shares are not fully paid it is as easy to gauge the sol- vency of an individual as to estimate the financial ability of a crowd. Lord Morris. My Lords : I quite concur in the judgment which has been announced, and in the reasons which have been so fully given for it. Lord Davey. My Lords : It is possible, and (I think) probable, that the conclusion to which I feel constrained to come in this case may not have been contemplated by the Legislature, and may be due to some defect in the machinery of the Act. But, after all, the inten- tion of the Legislature must be collected from the language of its enactments ; and I do not see my way to holding that if there are seven registered members, the association is not a company formed in compliance with the provisions of the Act, and capable of carrying on business with limited liability either because the bulk of the shares are held by some only, or even one of the members, and the others are what is called " dummies," holding, it may be, only one share of 11. each ; or because there are less than seven persons who are benefi- cially entitled to the shares. I think tliat this result follows from the absence of any provision fixing a minimum nominal amount of a share, the provision in sect. 8, that no subscriber shall take less than one share, and the provision in sect. 30, that no notice of any trust shall be entered on the register. BRODEEIP V. SALOMON. 147 With regard to the latter provision, it would, in my opinion, be im- possible to work the machinery of the Act on any other principle, and to attempt to do so would lead only to confusion and uncertainty. The learned counsel for the respondents (wisely, as I think), did not lay any stress on the members, other than the appellant, being trus- tees for him of their shares. Their argument was that they were " dummies," and did not hold a substantial interest in the company — i. e., what a jury would say is a substantial interest. In the lan- guage of some of the judges in the court below, any jury, if asked the question, would say the business was Aron Salomon's, and no one else's. It was not argued in this case that there was no association of seven persons to be registered, and that the registration therefore operated nothing, or that the so-called company was a sham and might be disregarded. And, indeed, it would have been difficult for the learned counsel for the respondents appearing, as they did, at your Lordships' bar for the company who had been permitted to liti- gate in the courts below as actors on their counter-claim, to contend that their clients were non-existent. I do not say that such an argu- ment ought to or would prevail ; I only observe that, having regard to the decisions, it is not certain that sect. 18, making the certificate of the registrar conclusive evidence that all the requisitions of the Act in respect of registration had been complied with, would be an answer to it. We start, then, with the assumption that the respondents have a corporate existence with power to sue and be sued, to incur debts and be wound-up, and to act as agents or as trustees, and I suppose, there- fore, to hold property. I am at a loss to see how in either view taken in the courts below the conclusion follows from the premises, or in what way the com- pany became an agent or trustee for the appellant, except in the sense in which every company may loosely and inaccurately be said to be an agent for earning profits for its members, or a trustee of its profits for the members amongst whom they are to be divided. There was certainly no express trust for the appellant, and an implied or con- structive trust can only be raised by virtue of some equity. I took the liberty of asking the learned counsel what the equity was, but got no answer. By an alias is usually understood a second name for one individual, but here, as one of your Lordships has already ob- served, we have, ex hypothesi, a duly formed legal persona, with cor- porate attributes, and capable of incurring legal liabilities. Nor do I think it legitimate to inquire whether the interest of any member is substantial when the Act has declared that no member need hold more than one share, and has not prescribed any minimum amount of a share. If, as was said in the Court of Appeal, the company was formed for an unlawful purpose, or in order to achieve an object not 148 BRODERIP V. SALOMON. permitted by the provisions of the Act, the appropriate remedy (if any) would seem to be to set aside the certificate of incorporation, or to treat the company as a nullity, or, if the appellant has committed a fraud or misdemeanor (which I do not think he has), he may be proceeded against civilly or criminally ; but how either of these states of circumstances creates the relation of cestui qiie trust and trustee, or principal and agent, between the appellant and respondents, is not apparent to my understanding. I am, therefore, of opinion that the order appealed from cannot be supported on the grounds stated by the learned judges. But Mr. Farwell also relied on the alternative relief claimed by his pleadings, which was quite open to him here, viz., that the contract for purchase of the appellant's business ought to be set aside for fraud. The fraud seems to consist in the alleged exorbitance of the price, and the fact that there was no independent board of directors with whom the appellant could contract. I am of opinion that the fraud was not made out. I do not think the price of the appellant's business (which seems to have been a genuine.one, and for some time a prosperous business) was so excessive as to afford grounds for re- scission, and as regards the cash portion of the price it must be observed that as the appellant held the bulk of the shares, or (the respondents say) was the only shareholder, the money required for the payment of it came from himself in the form either of calls on his shares or profits which would otherwise be divisible. Nor was the absence of any independent board 'material in a case like the pre- sent. I think it an inevitable inference from the circumstances of t^e case that every member of the company assented to the purchase, and the company is bound in a matter intra vires by the unanimous agreement of its members. In fact, it was impossible 'to say who was defrauded. In the original appeal, order appealed from reve7'sed. In the cross appeal, order appealed from affirmed. ^ ''\&W FINNEGAN ^> ^^t1fe>>. '^ A>/ CHA CORPOEATIONS HE ^AQTO. HE ^ <.^" :/ ^'"\V/ FINNEGAN v. NOERENBERG. 1893. 52 J//»neso- 150 FINNEGAN V. NOERENBEEG. nature of quo rvarranto, in behalf of the state ; for, although an asso- ciation may not be able to justify itself when called on by the state to show by what authority it assumes to be, and act as, a corporation, it may be so far a corporation that, for reasons of public policy, no one but the state will be permitted to call in question the lawfulness of its organization. Such is what is termed a corporation de facto, — that is, a corporation from the fact of its acting as such, though not in law or of right a corporation. What is essential to constitute a body of men a de facto corporation is stated by Selden, J., in Methodist^ etc.^ Church V. Pickett, 19 N. Y. 482, as " (1) the existence of a charter or some law under which a corporation with the powers assumed might lawfully be created ; and (2) a user by the part}" to the suit of the rights claimed to be conferred by such charter or law." This state- ment was apparentl}' adopted by this court in East Norway Church v. FroisUe, 37 Minn. 447, (35 N. W. Rep. 260 ;) but, as it leaves out of account an}' attempt to organize under the charter or law, we think the statement of what is essential defective. The definition in Taylor on Private Corporations (page 145) is more nearly accurate : "When a body of men are acting as a corporation, under color of apparent organization, in pursuance of some charter or enabUng act, their author- it}' to act as a corporation cannot be questioned collateral]}'." To give a body of men assuming to act as a corporation, where there has been no attempt to comply with the provisions of any law authoriz- ing them to become such, the status of a de facto corporation might open the door to frauds upon the public. It would certainly be impoli- tic to permit a number of men to have the status of a corporation to any extent merely because there is a law under which they might have become incorporated, and they have agreed among themselves to act, and they have acted, as a corporation. That was the condition in Johnson v. Corser^ 34 Minn. 355, (25 N. W. Rep. 799,) in which it was held that what had been done was ineffectual to hmit the individ- ual liability of the associates. They had not gone far enough to become ft de facto corporation. They had merely signed articles, but had not attempted to give them publicity by filing for record, which the statute required. " Color of apparent organization under some charter or enabling act " does not mean that there shall have been a full compliance with what the law requires to be done, nor a substantial compliance. A substantial compliance will make a cori^oration de jure. But there must be an apparent attempt to perfect an organization under the law. There being such apparent attempt to perfect an organization, the failure as to some substantial requirement will prevent the body being a corporation de jure ; but, if there be user pursuant to such attempted organization, it will not prevent it being a corporation de facto, [The Court then held, that the subject of tlie act was properly expressed in the title, and that the statute authorized the formation of corporations for the purposes stated in the articles signed by these JONES V. ASPEN HARDWARE CO. 151 defendants. The opinion then proceeds as follows :] The omission to state distinctly in the articles the place within which the business is to be carried on, though that might be essential to make it a de jure corporation, would not prevent it becoming one de facto. \ v The foundation for a de facto corporation having been laid by the Y^ attempt to organize under the law, the user shown was sufficient. j Judgment [for defendants'] affirmed. ' ^y^ 1895. 21 Coforac/o, 263.1 , J^ W^ /^ JONES V. ASPEN HAEDWAEE CO. f\^''" Error to the District Court of Pitkin County. VN'^" YC^AW^'^^ jJ'^ The Aspen Hardware Company instituted this suit in the court I •y^ "1^ below for the purpose of recovering a stock of goods seized by theuj-^ /KiJ\i J United States marshal under a writ of attachment issued out of the '0 ^^i}t^ *r circuit court of the United States at the suit of Joseph A. Thatcher, t'^ '' /^ \ a J\^ plaintiff, against one A. B. Eads. The only question in the case has/j/..'/^ ^ 1< reference to the corporate cajiacity of defendant in error, it not hav-^ L|^ (A"^^ ing filed, prior to the attachment levy, its certificate of incorpora--' ' jLr^> (^ tion with the secretary of state, as required by statute. Session Lawsyv.^"^ / ',ajL^ » ' of 1887, p. 406. In the district court judgment was entered in favoii .^^ ^ / ' X^"'^^ of the company. The statute reads as follows : • -jjt/'v rf^^^^^^^ " Every corporation . . . incorporated by or under any general oi^ .W" U/^ special law of this state, . . . shall pay to the secretary of state foi^. , />^ /W^^ the use of the state, a fee [proportioned to the amount of capital^VK-'* . -- z^*"' iTi stock]. . . . The said fee shall be due and payable upon the filing ofj . C^'' IJU^''^^ the certificate of incorporation, articles of association, or charter of^'^ Jy^ ^'^'iv^ said corporation, ... in the office of the secretary of state ; and no!/ Q'^ 'JLZ such corporation . . . shall have or exercise any corporate powers or "i^ ^p^ti^" i be permitted to do any business in this state until the said fee shall '^ '"ji/^^ have been paid; and the secretary of state shall not file any certifi-/^,,^ v^^ \ ^jA cate of incorporation, articles of association, charter or certificate of nJ^^^'^^ . V*^' the increase of capital stock, . . . until said fee shall have been paid f\ to him. ..." . c'-" In 1889, Bowles, Eads, and Kettler formed an organization known as the Aspen Hardware Company. They intended that the company U- \ ^^' *\ should be legally incorporated. To this end they caused to be exe-/yv\>^ v*-*'"'*'*^ cuted articles of incorporation, on Nov. 16, 1889, in due form ; and rK/^ immediately filed the same with the clerk and recorder of Pitkin , ^ : County. For some reason not explained by the evidence, the articles were not filed in the office of the secretary of state until after the ,.. levy of the writ of attachment hereinafter referred to, and not until the day upon which this suit in replevin was instituted, but whether 1 rStatement abridged. Part of opinion omitted. — Ed. (a V M^ 1^2 JONES V. ASPEN HARDWARE CO. before or after the commencement of this action does not clearly appear from the evidence. After the articles were filed with the county clerk, the directors therein named, of whom Eads was one, held a meeting, elected offi- cers, caused capital stock to be issued, &c. Eads, thereupon, for a valuable consideration, sold and transferred to the new organization the stock in trade of a hardware business ; and Bowles from that time conducted the business for the Aspen Hardware Company, selling goods and purchasing new goods in the corporate name. The business was thus continued until July 31, 1890, when a suit was commenced by Thatcher against Eads, and the property in ques- tion levied upon as the property of the defendant in that suit ; and this action of replevin was immediately instituted to recover posses- sion of the property, or its value. A. B. McKinleij, Hugh Butler, and Wilson & Salmon, for plaintiff in error. H. W. Clark, and W. W. Cooley, for defendant in error. Hayt, C. J. . . . The controversy in this case is narrowed to the single question of the capacity of defendant in error to take title to the property in controversy as a corporation at the time of the attempted transfer by Eads, it not having at that time filed its articles of incor- poration with the secretary of state, or paid the fee for such filing, as provided by the statute of 1887. Session Laws of 1887, p. 406. The language of the act is plain and unambiguous. It reads, " no such corporation . . . shall have or exercise any corporate powers. . . ." The taking of title to property was certainly the exercise of a corporate power, and as such prohibited by the express terras of the statute. This is not controverted by counsel for appellee, but it is contended that Eads having assisted in the organization of the cor- poration, and having sold to it the hardware stock, is estopped from denying the corporate existence of the company, and that the attach- ing creditor took the property subject to the same estoppel. The doctrine of estoppel cannot be successfully invoked, we think, unless the corporation has at least a de facto existence. The rule is stated as follows by Morawetz on Private Corporations, sec. 750, it having been first announced in the case of Broutver v. Appleby, 1 Sandf. 158 : " A defendant who has contracted with a corporation de facto is never permitted to allege any defect in its organization as affecting its capacity to contract or sue, but that all such objections, if valid, are only available on behalf of the sovereign power of the state." It is also well settled that to constitute a de facto corporation there must be either a charter or a law authorizing the creation of such a corporation, with an attempt in good faith to comply with its terms, and also a user or attempt to exercise corporate powers under it. J)u(j(jan v. The Colo. Mort. & Inv. Co., 11 Colo. 113; Bates et al, v. Wilson et al, 14 Colo. 140. JONES V. ASPEN HAEDWARE CO. 153 K de facto corporation can never be recognized in violation of a. positive Jaw. This principle, which seems to be supported by all the authorities7~is thus stated by Morawetz on Private Corporations, sec. 758 : " If the formation of a corporate association is not only prohibited by this general rule of the common law, but is also in vio- lation of some principle of morality or public policy, or a jyositive statutory prohibition, the parties forming such association will not be legally bound by their agreement of membership, and the courts will not recognize the association, either as among its members or against third parties." To recognize the defendant as a de facto corporation, ^ would, as we have seen, be in direct conflict with the express language of the act, which declares that without the payment of the fee the corporation shall have no corporate power. One object of this statute is to restrict the organization of " wild- cat " corporations, it being supposed that the increased fee required by the act would, in a measure at least, prevent the overcapitalization of companies. The legislature being of the opinion that this purpose would be advanced by requiring the fee to be paid as a condition precedent to the exercise of any corporate power, it is the duty of the courts to give effect to this intent as the same is manifest from the plain language of the act. The taking of title to the property in controvery being the exercise of a corporate power, and, as such, forbidden until the fee for filing has been paid, it follows that the title of The Aspen Hardware Com- pany as a corporation cannot be upheld. Having failed to comply with the statute. The Aspen Hardware Company at the time of the transfer was neither a de jure nor a de facto corporation, but simply a voluntary association of individuals in the nature of a copartnership. There is a broad distinction between those acts made necessary by the statute as a prerequisite to the exercise of corporate powers and those acts required of individuals seeking incorporation, but not made prerequisites to the exercise of such powers. " In respect to the former, any material omission will be fatal to the existence of the corporation, and may be taken advantage of collat- erally, in any form in which the fact of incorporation can properly be called in question. In respect to the latter, the incorporation is responsible only to the government in a direct proceeding to forfeit the charter." Abbott v. Omaha Svielting & Refining Covrpanij, 4 Neb. 416. The omission in this case is of acts of the former class, and consequently there was no corporation in esse at the time of the levy of the writ, while the evidence leaves it in doubt if this omission had been supplied prior to the institution of the present action. But although it could not at the time exercise any corporate power, this did not prevent The Aspen Hardware Company from taking title to' the property as a copartnership. In other words, under the con- ceded facts, the company was not at the time a corporation, but this will not preclude it from maintaining the action as a copartnership. 154 McLENNAN V. HOPKINS. The plaintiff sues as The Aspen Hardware Company, and the facts alleged show that such company was a copartnership and not a corpo- ration. There is nothing in the name of the association to conflict with this, as at common law partners may carry on business under any name they choose. They are bound rather by their acts than by the style which they give to themselves. Cook on Stock and Stock- holders, sec. 233 ; Chaffee v. Ltideling, 27 La. Ann. 607. This principle has been applied in many cases where parties have set up the defense of individual nonliability by reason of having directed an incorporation to be had, but where none in fact was con- summated. Cook on Stock and Stockholders, sees. 233, 234; Abbott V. Omaha Smelting & Refining Co., supra ; Empire Mills v. Alston Grocerij Co., 15 S. W. Rep. 505 (Texas). The law having cast this liability upon the members of the associ- tion, we think they must be given the advantages accorded a copart- nership. So, in this case, while we feel compelled under the statute to deny plaintiff's right of recovery as a corporation, we think they may maintain the action as a copartnership. The cause will accordingly be reversed and remanded, with directions to the district court to allow the parties to amend their pleadings as they may be advised. Reversed. A \ 0" Garver, J. IN McLENNAN v. HOPKINS. I.- p! 1895. 2 Kansas Court of Apjieals, 260, pp. 265-268.i Garver J. . , . The question still remains, was the Bank of Dorrance a corporation ^ r ■ de facto ? We think not. It is difficult, and perhaps unnecessary, to attempt to reconcile the many decisions bearing on this question. l>etween some of them there is an irreconcilable conflict, so that, when , we come to determine what is a de facto corporation, we are met by a diversity of authority. The rule recognized by the Supreme Court V/ Vi''^ ' ^^ ^^^^ state is thus stated by Mr. Justice Brewer in Fape v. Capital ■ ' Bank, 20 Kan. 440 : " When parties have associated themselves to- '^ gether for the purpose of organizing a corporation under a general law, and have proceeded in good faith to take all the steps supposed necessary to complete such incorporation, and on the faith thereof engage in business as a corporation for a series of years, a party who has repeatedly dealt with them as such corporation will not, when sued on a note and mortgage held by it, be permitted to show, as a defense to the action, that there was some mere technical omission in the steps prescribed for incorporation. The corporation is one de ^ facto ; and only the state can then inquire — and that in a direct pfo- ^ J The extracts from the opinion are reprinted from 41 Pacific Reporter, pp. 1062, 1063. ^ ^^' Mclennan v. hopkins. 155 ceeding — whether it be one de jure. . . . There must in such cases be a law under which the incorporation can be had. There must also be an attempt in good faith on the part of the incorporators to incor- porate under such law. And when, after this, there has been for a se- ries of years an actual, open, and notorious exercise, unchallenged by the state, of the powers of a corporation, one who is sued on a note held by such corporation will not be permitted to question the validity of the incorporation as a defense to the action. Ko mere matters of technical omission in the incorporation, no acts of forfeiture from misuser after the incorporation, are subjects of inquiry in such an action." The attempt to incorporate, referred to in that case, must be something more than the mere physical organization, or formal arrangement into a working force, of the promoters of the enterprise. Something must be done beyond the mere transaction of business in the manner and form usually adopted by corporations. There must also be something more tangible and effective than a mere mental operation in the direction of what is intended. The steps taken and the attempt made must, to some extent and in some degree, have re- sulted in the effecting of those things which the law designates as a prerequisite to a corporate existence, however informal and irregular such proceedings and results may be. Had the articles of incorpora- tion been prepared and recorded or filed as required by the statute, and the organization had been otherwise effected as shown in this case, no question could be thus raised as to the fact of a corporate existence because of defects and irregularities in the attempted organization, or in the articles of incorporation. But, an entire failure on the part of the officers of the bank to prepare and exe- cute the certificate or articles of incorporation required by law, and an entire failure to file a certificate or statement of any kind whatever in the office of the register of deeds of the county, or in the office of the secretary of state, left the organizers of this bank without a shadow of legal corporate existence. There was no sub- stantial compliance with the law, and there could be no de facto cor- poration. We are supported in this conclusion by the following cases : Bigelow v. Gregory, 73 111. 197 ; Kaiser v. Bank, oQ Iowa, 104, 8 N. W. 772 ; Sheble v. Strong, 128 Pa. St. 315, 18 Atl. 397 ; Hill v. Beach, 12 IN". J. Eq. 31 ; Stout v. Zulick, 48 N. J. Law, 599, 7 Atl. 362 ; Abbott v. Smelting Cy., 4 Neb. 416 ; Society Perun v. Cleveland, 43 Ohio St. 481, 3 X. E. 357 ; Railroad Co. v. Cary, 26 N. Y. 77 ; Hurt v. Salisbury, 55 Mo. 310 ; Smelting Co. v. Richards, 95 ]\ro. 106. 8 S. W. 246 ; Whipple v. Parker, 29 Mich. 369. In the cases cited, there was a failure on the part of the organizers of the claimed corporation to do some act, generally the neglect to file the articles of association or incorporation, made by the statute a prerequisite to corporate exist- ence ; and the rule clearly and forcibly laid down is that in such case there is no de facto corporation, and that the claimed corporate exist- ence may be attacked collaterally. An exception to this rule exists 156 DAVIS V. STEVENS. in cases where one is sued by the alleged corporation vipon a contract in which the corporate capacity is recognized. To this effect are Jones V. Foundry Co., 14 Ind. 89 ; Meikel v. Fund Soc, 16 Ind. 181 ; Irrigation Co. v. Warner, 72 Cal. 379, 14 Pac. 37 ; Massey v. Building Ass'n, 22 Kan. 379. In those cases another principle is invoked, which does not permit a party to avoid the obligation of his contracts upon the mere technical objection that the party with whom he con- tracted had not the legal capacity to enter into the contract of which he has had the benefit. The distinction between that class of cases and the case under consideration is obvious. It is equally well set- tled that a substantial, though imperfect and irregular, compliance with the law, in a bona fide attempt to incorporate, followed by a user of corporate rights, will create a de facto corporation, and the corpo- rate existence cannot be collaterally questioned by one dealing with it as a corporation. To this effect are Baker v. Neff, 73 Ind. 68 ; Wil- liamson V. Asshi, 89 Ind. 389 ; Rice v. Railroad Co., 21 111. 93 ; Rail- road Co. v. Cary, 26 N. Y. 75 ; Mining Co. v. Woodbury, 14 Cal. 424 ; Oroville, etc., R. Co. v. Plumas Co., 37 Cal. 361 ; Sivartwout v. Rail- road Co., 24 Mich. 389. We think the facts shown by the record justified the trial court in holding the plaintiffs in error liable as partners for the debts of the bank. DAVIS V. STEVENS. 1900. 104 Federal Reporter, 235.1 In the U. S. District Court for the District of South Dakota. On March 21, 1900, creditors of the Bank of Plankinton filed a pe- tition, praying that the Bank of Plankinton be adjudged bankrupt, as a. private banking institution, and a co-partnership consisting of the above-named defendants. In their answer defendants deny generally the allegations of the petition, and, further answering, allege that the Bank of Plankinton was during the times alleged in the petition, and now is, a corporation duly organized under the laws of the territory of Dakota and the state of South Dakota. It appears from the testi- mony and admission of the parties to this proceeding that on the 27th day of November, 1885, articles of incorporation, duly signed and ac- knowledged by Edwin S. Rowley, Fred L. Stevens, Charles A. John- son, Joseph D. McCormick, and William M. Smith, were duly filed in the office of the secretary of the territory of Dakota, wherein it was stated that the business of the proposed corporation, which was to be , 1 Statement abridged. Only so much of the opinion is given as relates to a single point, ^Ed. DAVIS V. STEVENS. 157 called the Bank of Plankinton, should be a general banking, real estate, and loan business. Upon the filing of said articles there was issued by the secretary of the territory of Dakota a certificate of cor- porate existence to the parties above named, wherein it was certified that said parties, their associates and successors, had become a body politic and corporate under the corporate name of Bank of Plankinton. ... It further appears that the Bank of Plankinton did business as a banking corporation from the time of its alleged incorporation until about Jan. 10, 1900, when it closed its doors and ceased to do business. Garland, District Judge. [After stating the case.] It is claimed by the petitioners that, as there was no law of the territory of Dakota which authorized the incorporation of individuals to do a banking business, the defendants in this proceeding, who are alleged to have owned stock in this corporation, were simply partners, and as sucb were doing business as a private bank, and thus subject to be adjudi- cated a bankrupt as a private bank. It is contended by the defend- ants that whether or not the Bank of Plankinton was a corporation cannot be inquired into collaterally, and that the state of South Da- kota is the only power which could, by proceedings in the nature of a quo warranto, inquire into the legal organization of this corporation. If the Bank of Plankinton was a de facto corporation, this position would be unassailable. But, in order that there maybe a, de facto goy- poration, it must have been possible for the territory of Dakota to have chartered a dejure corporation, and as there was no law of the terri- tory of Dakota permitting the incorporation of banking corporations at the time the Bank of Plankinton received its certificate of corporate existence, it results that there cannot be a de facto cori^oration. The limitation of the doctrine that the validity of corporate existence can- not be litigated collaterally is that, where there is no law under which a corporation might exist, then the validity of corporate existence may be attacked collaterally. Heastony. Railroad Co., 16 Ind. 275; Krutz V. Town Co., 20 Kan. 397 ; Eaton v. Walker, 76 Mich. 579, 43 N. W. 638, 6 L. R. A. 102 ; 1 Thomp. Corp. § 505. As is said in section 502, 1 Thomp. Corp. : '' We must not get too far away from the primal proposition that the legislature alone can create a corporation, and that a collection of in- dividuals cannot make themselves a corporation by merely resolving to be such, or calling themselves such. The three tailors of Tooley street did not make themselves the people of England by passing a resolution in which they styled themselves such. There must be some basis for the operation of the rule, and accordingly we find a better statement of it in the proposition that where a corporation exists de facto, and in fact exercises corporate powers, the question whether it exercises such powers lawfully cannot be litigated in a collateral pro- ceeding between private parties, or between a private party and the corporation. The question can only be litigated between the corpora- tion and the state." 158 MONTGOMEKY V. FORBES. Defendants invoke section 2892 of the Compiled Laws of Dakota, which is in the following language : "The due incorporation of any company claiming in good faith to be a corporation under this chapter and doing business as such, or its right to exercise corporate powers, shall not be inquired into collater- ally in any private suit to which such de facto corporation may be a party, but such inquiry may be had and action brought at the suit of the territory in the manner prescribed in the Code of Civil Procedure." This section, as I understand it, simply declares the law in the same manner that the courts declare it. It presupposes that there is a de facto corporation, which cannot exist if there could have existed no de jure corporation. In the case of Oroville & V. E. Co. v. Sujyervisors of Plumas Co., 37 Cal. 354, it was held by the Supreme Court of Cali- fornia that a similar provision in the laws of that state did not go to the extent of precluding private persons from denying the existence dejure or de facto of the alleged corporation. As the claims of the creditors who are petitioners in this action arise from simply depositing money with the Bank of Plankinton, there is no such relation between the bank and the creditors as would allow the principle of estoppel to be urged. I, therefore, am of the opinion that the parties interested in the Bank of Plankinton were co- partners. [Petition dismissed for other reasons.] ^ MONTGOMERY v. FORBES. 1889. 148 Mass. 249. Contract, to recover the price of goods sold and delivered. At the trial in the Superior Court, before Dewey, J., the only ques- tion was whether the goods were sold to a corporation called the Forbes Woolen Mills, or to the defendant as doing business under that name. The plaintiffs introduced evidence tending to show that subsequently to May, 1885, they received an order for the goods by a letter, written upon paper with the printed heading, " Incorporated 1885. Forbes 1 If the statute which purports to authorize incorporation, and under which there has been a bona fide attein[)t to orgjinize, is sulisecjuentl}' lield to be unconstitutional, does this prevent the orj^anization from occupying the position of a de facto corporation ? For an affirmative answer, see Eaton v. Walker, 76 Michigan, 579 (and compare Branden- stein V. Jloke, 101 California, 131; the case of a Levee District). For cases holding tliat shareholders and persons contracting with sucli an organization are precluded from denying its corporate existence, see Winget v. Quinrij, (fc. Association, 128 Illinois, 07, p. 84; BuiUlinr/, tfc. Association v. Chamberlain, 4 South Dakota, 271 ; Rich- ards v. Minnesota Savinos Bank, 75 Minn. 196, pp. 205-206, ; Gardner v. Minneapolis, ^c. It. Co.T.\ :\Iinn. 517, pp. 526-528. — Eu. MONTGOMEKY V. FORBES. 159 Woolen Mills. George E. Forbes, Treasurer," and signed, "Forbes Woolen Mills by Geo. ¥.. Forbes, Treasurer"; that they thereupon shipped the goods to the Forbes Woolen Mills and received in payment therefor three promissory notes, together equal to the price of the goods, signed "Forbes AVoolen Mills by Geo. E.Forbes, Treasurer"; that when they sold the goods and took the notes, they understood from their correspondence with tlie defendant, as well as from information gained from a commercial agenc}', that the Forbes Woolen Mills were a corporation, and made all charges on their books against them as a corporation, and took the notes from the defendant as the notes of a corporation ; and that after they sold the goods and received the notes they became satisfied there was no such corporation as the Forbes Woolen Mills ; and contended that they were entitled to recover the price of the goods from the defendant personally. The defendant contended that the Forbes Woolen Mills was a cor- poration, and testified that he purchased the goods as treasurer of the Forbes Woolen Mills, but admitted that they had not been paid for except by the notes, which themselves had not been paid ; that in Ma}', 1885, for the purpose of limiting his personal responsibilit}', and because the tax laws of New Hampshire were more favorable to corporations than the Massachusetts laws, he went to Nashua, New Hampshire, to form a corporation for the manufacture of woollen goods ; that he em- ployed an attorney at law of Nashua to incorporate the compan}' in a legal and proper manner, under the laws of that State, and subse- quently paid him for his services and disbursements in the premises ; that he went to Nashua again, and with the attorney' and three other persons, selected and secured by the attorney, signed and executed an agreement of association, which was dated Ma}- 6, 1885, and was duly recorded in the office of the Secretary of State of New Hampshire on May 12, 1885, and in the office of the clerk of the city of Nashua on Ma}' 13, 1885, and recited that the subscribers associated themselves for the purpose of forming a corporation, to be called the Forbes Woolen Mills, the amount of the capital stock to be twenty thousand dollars, divided into four hundred shares of fifty dollars each ; and that the object of the corporation was to manufacture and sell woollen and other goods, and the places of business were Nashua in New Hamp- shire, and East Brookfield in Massachusetts. The defendant further testified that, subsequently to the execution of the agreement of association, one or more meetings were held by the signers, at which he was elected president and treasurer of the cor- poration, and such other officers and directors were elected as were necessary under the laws of New Hampshire ; that the attorney had been recommended to him as a reputable and reliable man and attornev, and he left everything in his hands, and supposed he did everything necessary and proper to establish the corporation in a legal manner ; that records of the meetings were kept by the attorney, and that there was a stock-book and certificates of stock were issued ; that ill the 160 MONTGOMERY V. FORBES. stock was issued to the defendant, and that no other person was inter- ested in it ; that fift}- per cent of the capital stock of the corporation was actually paid in by him in cash and supplies ; that after the or- ganization of the corporation he hired, as treasurer of the corporation, a mill in East Brookfield belonging to his mother, Roxanna Forbes, and himself, and began the manufacture of woollen goods ; that he pur- chased the necessary supplies, including those named in the plaintiff's account, and placed them under the direction of a superintendent, em- ployed to supervise the manufacture of the goods ; that there was no manufacturing done in Nashua, nor any other business except th& holding of corporate meetings, and possibly the sale now and then of a bill of goods in the ordinar}^ course of business ; and that the prin- cipal place of business of the corporation was in East Brookfield ; that he, as president and treasurer of the corporation, continued to manu- facture woollen goods for about four months, and sent the goods to commission houses in New York to be sold ; and that at the end of said four months he was unable to continue the business and gave it up, and no further business was done by him or by the corporation. The following sections of chapter 152 of the General Laws of New Hampshire of 1878, were introduced in evidence : " Sect. 1. An}' five or more persons of lawful age may, b}' written articles of agreement, associate together, for agricultural, educational, or charitable purposes, or for carrying on an}' lawful business, except l^anking and the construction and maintenance of a railroad ; and when such articles have been executed and recorded in the office of the clerk of the town in which the principal business is to be carried on, and in that of the Secretary of State, they shall be a corporation, and such corporation, its officers and stockholders, shall have all the rights and powers, and be subject to all the duties and liabilities of similar cor- porations, their officers and stockholders, except so far as the same are limited or enlarged by this chapter. " Sect. 2. The object for which the corporation is established, the place in which its business is to be carried on, and the amount of capi- tal stock to be paid in, shall be distinctly set forth in its articles of agreement." Upon this evidence, the defendant asked the judge to rule that the plaintiffs were not entitled to recover, that the account in question had been paid by the notes of the Forbes Woolen Mills as a corporation, and that there was no evidence to authorize the jury to find for the plaintiffs. The judge declined so to rule, and submitted the following questions to tlie jury: "1st. Did the Forbes Woolen Mills and the members of said alleged corporation, including said Forbes, at the lime of its at- tempted organization, intend to carry on its business as a manufactur- ing corporation (other than holding meetings of its members and officers) in whole or in part in the city of Nashua, New IIain[)shire? (Jd. Was there an attempt in good faith on the part of the defendant, MONTGOMERY V. FORBES. 161 Forlbes, to organize the corporation of the Forbes Woolen Mills? 3d, Did said Forbes, at and prior to the time the goods in controversy were ordered, namely, at all times after May 12, 1885, during liis deal- ings with the plaintiff, believe that the organization of said Forbes Woolen Mills was a valid corporation?" The jury answered the first two questions in the negative, and the third in tlie affirmative. The judge, being of the opinion that, upon the findings of the jur}' and the uncontradicted evidence in the case, the plaintiffs were entitled to recover, directed the jury to return a verdict for the plaintiffs, and reported the case for the determination of this court. W. B. Harding & II. F. Harris, for the plaintiffs. B. W. Potter k- 31 M. Tat/lor, for the defendant. C. Allen, J. The apparent corporation was not a corporation. The statute of New Hampsliire requires five associates, and the articles of agreement must be recorded in the town in which the principal business is to be carried on, and the place in which the business is to be carried on must be distinct!}- stated in the articles ; otherwise there is no corporation. The defendant's pretended associates were asso- ciates only in name ; he alone was interested in the enterprise. The articles of agreement were recorded in Nashua, and stated that the business was to be carried on there ; but it was not in fact carried on there, and was not intended to be. The defendant took all the shares of the capital stock, and paid in to himself as treasurer only fifty per cent of the amount thereof. Tliis is not a case where there has been a defective organization of a corporation which has a legal existence under a valid charter. Here there was no corporation. It was just the same as if the defendant had done nothing at all in the way of establishing a corporation, but had conducted his business under the name of the Forbes Woolen Mills, calling it a corporation. The busi- ness was his personal business, which he transacted under that name. Fuller V. Hooper, 3 Gray, 334, 341. Bryant v. Eastman, 7 Cush. 111. The jury found that he did not in good faith attempt to organize the corporation, but that he believed it to be a valid corporation. His belief, in view of the facts of the case, is immaterial. Under this state of things, the defendant bought goods of the plaintiffs for his own sole benefit, adopting the name of the apparent corporation, which had no real existence, and which represented nobody but himself. He cannot escape responsibility for his purchases by the device of putting such a mere name between himself and the plaintiffs. The purchase was in substance by and for himself alone. The plaintiffs might have repudi- ated the transaction, and maintained replevin, if they had learned the facts in time. They may also treat the transaction as a sale to the defendant personally. Fay v. Nohle, 7 Cush. 188, 194. Kelner v. Baxter, L. R. 2 C. P. 174, 183, 185. 2 Kent Com. (13th ed.) 630. Since the notes represented nothing, the plaintiffs were at liberty to 162 INDIANAPOLIS FURNACE CO. V. HEKKIMEK. treat them as void, and recover on the orighial contract for goods sold. Melledge v. Boston Iron Co. 5 Cush. 158, 171. Yerdict to stand. ■( ' INDIANAPOLIS FURNACE CO. v. HERKIMER. 1873. 46 Indiana, 142.1 From the Marion Circuit Court. Jlendncks, Hard & Hendricks and Test^ Burns <& Wright, for appellant. f ' -^-« Furnace and Mining Compan}'. "Article Second. The capital stock of said company shall be one hundred thousand dollars, and be divided into shares of fifty dollars each, to be paid for in such amounts and at such times as ma}' be ordered by the board of directors. " Article Third. The stockholders shall elect directors, who shall from their number elect a president, secretary, and treasurer, who shall hold their office for one year and until their successors are elected and qualified. " Article Fourth. The board of directors shall have the control and management of the business of the company, except as they may ap- point some one or more persons to take charge of the same, in which case the record of the action of the board in appointing them shall be evidence of their authority to act for said company. "Article Fifth. The board of directors shall have power to make assessments on stock, collect the same, issue certificates therefor, and declare and pay dividends, which shall be at least twice a year. "Article Sixth. All the expense incurred by the company shall be paid, and all the indebtedness of the same shall likewise be discharged before any dividends shall be paid to the stockholders, unless the direc- tors shall direct otherwise. "Article Seventh. We, the undersigned, hereby subscribe to all the foregoing articles, provisions, conditions, and stipulations, and agree to the organization of a compan}- as therein stated, binding ourselves to take and pay for the number of shares of stock set opposite our uaiues respectively', and pay for the same at such times and in such ^ Ouly part of the opiuiuu is giveu. — Ei>. INDIANAPOLIS FURNACE CO. V. HERKIMER. 163 amounts as the board of directors maj- order the same to be paid for, without rehef from valuation or appraisement laws. " Subscribers' Names. No. of Shares. " J. D. Herkimer, by D. Root, 100." There were three })aragraphs in the complaint, each counting upon the same instrument, in each of which it was alleged that at the lime of the execution of the instrument by the defendant, the plaintiff was a duly organized corporation ; but it is not alleged in either paragraph that after the execution of the instrument any steps were taken to per- fect the organization. The defendant demurred to each paragraph, assigning for cause the want of a statement of sufficient facts, but the demurrers were over- ruled, and the defendant excepted. The defendant then answered, 1. By general denial. 2. I^ul tiel corporation. 3. Nul tiel corporation.^ setting out specially the omission of the per- formance of the acts required by the statute, in order to perfect the corporate organization. 4. A denial of the execution of the instrument, sworn to. Trial b}' the court, finding and judgment for the defendant, the plaintiff having unsuccessfull}' moved for a new trial. We ma}' properly here notice another proposition, which, though not perhaps directiv involved, is in some measure connected with the motion for a new trial. We are of opinion that a radical error was committed in overruling the demurrers to the several paragraphs of the complaint. The articles of association signed b}' the defendant, includ- ing his subscription for stock, were ver}' clearl}' mere preliminary articles, contemplating a future perfection of the organization as a cor- poration. The defendant's contract did not purport to be with an exist- ing corporation, but with one to be brought into existence in the fulure. The averment in the complaint that the plaintiff was, at the time the sul)scription was made, an existing corporation, cannot change the nature and legal effect of the defendant's contract. That contract was, in legal effect, that the defendant would take and pay for the stock subscribed for, in case the organization should be perfected and the corporation brought into legal existence, and not otherwise. Such preliminar}- subscriptions seem to enure to the benefit of the corporation when formed. Heaston v. The Cincinnati^ etc., Railroad Co.., siqjra. But unless the subsequent steps, necessary- to bring into existence the corporation, were taken, there was no corporation to whose benefit the contract could enure, and the defendant could not be liable ; and it should have been averred in the complaint that such steps had been taken. Wert v. The Crawfordsville and Alatno Turnpike Co.., 19 164 INDIANAPOLIS FURNACE CO. V. HERKIMER. Ind. 242 ; Williams v. The Franklin Township Academical Associa- tion, 26 lud. 310. In such case, the estoppel growing out of a contract with a party as an existing corporation does not apply. In the case last cited, the court say : ' ' This rule of estoppel does not apply to a suit brought on a sub- scription made with a view to the organization of a corporation, and as ])reliminary thereto, where other acts are required b}' the law as a con- dition precedent to the exercise of corporate powers." [The court then held, that, under the statute, it was an indispensable prerequisite to the legal existence of the corporation that a certificate should be filed in the oifice of the Secretary of State, which was not done in the present case.] Now, although the complaint was held good, the pleas of nul tiel corporation put in issue the existence of the corporation ; and we think, under the issues, the plaintiff was bound to prove such existence by showing a compliance with the statutory requisites. The burthen was on the plaintiff, because the defendant was not estopped b}- his con- tract to dispute the existence of the corporation, and because the per- fection of the organization was a condition precedent to the plaintiff's right to recover. "We now proceed to consider the ground, upon which it is claimed that a new trial should have been granted. There were six reasons assigned for a new trial. [One reason was, the refusal of the court to hear the tes- timony' of Horace W. Hibbard, to the effect that the defendant told him that he had five thousand dollars of the stock of said company, and offered to trade the same to him. As to this Worden, J., said] : The evidence of Hibbard was properly rejected, because such recognition by the defendant of the existence of the corporation could not estop him to controvert the fact ; nor could it supply the omission of an act which the law requires to be performed before the corporation can be called into being. Judgment below affirmed. 1874. ON PETITION FOR A REHEARING. Worden, C. J. The appellant has filed a petition for a rehearing in this case, claiming, as we understand the argument, that as it was shown bj' averment and proof, that the defendant's contract was made with an existing corporation, it should be treated as such ; and therefore it was unnecessary for the plaintitf to show that the proper steps had been taken to perfect the organization of the corporation. In the original opinion, we set out in full the contract entered into b}- the defendant. That contract very clearly was not with an existinf''^ a copartnership, and its affairs settled between the complainant and^-' ^^^ f>^ i > defendants accordingly. In the court below, the demurrer was sus- tained and the bill dismissed. ^ -> s,- I ' V The following facts appear from the bill : In 1884 the complainanir i ^^-f^' ,\«^-'5 and the individual defendants entered into a written agreement to't'^ form a corporation, with the above title, under the laws of the State ; '"^ all the required steps were taken, up to and including the issuing of a certificate of the complete organization of such corporation by the Secretary of State ; complainant was a director ; and for several months secretary and soliciting agent, actively engaged in its busi- ness. In 1885 complainant became afflicted with melancholia and remained incapacitated for the transaction of business for about three \ years. During his sickness, the other directors sold some of his shares for non-payment of installments, the sale being without notice. Since the sale he has been excluded from all participation in the 1 Statement abridged. Arguments and part of opinion omitted. — Ed. 178 BUSHNELL V. CONSOLIDATED ICE MACHINE CO. niana"-ement of the business. After being restored to health, and before filinf^ his bill, he made frequent demands to be restored to his rights in said corporation, but without avail. The only allegation of the bill which is seriously insisted upon as furnishin"' a ground for the relief prayed is, that the certificate of complete organization, issued by the Secretary of State was never recorded in the office of the recorder of deeds in the county where the principal office of the company was located. The statute requires that " the same shall be recorded " in that office. WiLKIX J. But assuming that a corporate existence dejure depends upon the filing of the certificate of complete organization in the office of the re- corder of deeds of the county in which its principal office is located, and that the bill properly avers that it was not done in the case of the corporation in question, it by no means follows that it did not become a corporation de facto as between the complainant and defendants. From the facts set up in the bill it clearly appears that there was an honest attempt by the incorporators to organize a corporation author- ized by the laws of this State. The necessary steps to perfect that organization were all taken as required by the statute, except that the final certificate was not recorded. It is shown by the bill that upon the issuing of that certificate its directors elected the proper officers and proceeded to the transaction of business as a corporation, and continued to act as such until the filing of this bill, a period of more than five 3'ears. That these facts establish a corporation de facto is settled by numerous decisions of this court. President and Trustees^ etc. V. Thompson, 20 111. 198 ; Rice v. R. I. and A. R. R. Co. 21 id. 93 ; Baker et al. v. Administrator., 32 id. 79 ; Ramsey v. Marine and Fire Ins. Co. 55 id. 311 ; Cincinnati., Lafayette and Chicago Rail- road Co. V. Danville and Vincennes Ry. Go. lb id. 113; Louisville^ New Albany and Chicago Ry. Co. v. Shires, 108 id. 617 ; Hudson v. Green Hill Seminary Corporation, 113 id. G18, That plaintiff in error, if he had been sued by the Consolidated Ice IMachine Company' on his subscription to its capital stock, could not have questioned its corporate existence on the grounds alleged in his bill, is directl}' settled by several of the above cited decisions. It is equally clear that if, during the time he was a member of said cor- poration, it had been sued as such, neither he nor an}- other of its members could have been heard to say that no such corporation ex- isted. The general rule is, that one who deals witli a corporation as existing de facto, is estopped to deny, as against it, that it has been legally organized. It is the settled rule in this State that the legal existence of a corporation de facto can not be questioned collaterally. Bee cases sufira, and Remiiick et al. v. Hdl et Y 1885. ^3 Ohio State, A%\> ■'^ ^ Error to the District Court of Cuyahoga County. Action by city of Cleveland to foreclose a mortgage, as against cer- tain subsequent grantees, mortgagees, and purchasers. Perun, a cor- poration, Jan. 28, 1874, executed and delivered a mortgage to the cit}'. This mortgage was not filed for record until Oct. 21, 1879. In Feb- ruary, 1874, certain persons attempted to organize, under general laws, a corporation by the name of Society Perun. In Ma}', 1874, Perun delivered to Society Perun its deed, purporting to convey to the latter the premises theretofore mortgaged to the city. Between that date and Oct. 21, 1879, Society Perun, acting in its supposed corporate 1 Statement abridged. Arguments omitted — Ed. 184 SOCIETY PERUN V. CLEVELAND. capacity, executed and delivered deeds and mortgages, purporting to conve}' and incumber parcels of these mortgaged premises to various parties, who are made defendants in the present suit. During the pen- dency of the present foreclosure suit, it was adjudged, in a Quo War- ranto proceeding, instituted by the Attorney General, that the persons who attempted to incorporate under the name of Society Perun had not been legall}' incorporated, and that their attempted organization as a corporation was wholly void ; and a decree of ouster was rendered. Upon the trial of the present foreclosure suit in the District Court, the plaintiff gave in evidence, against the objection of the defendants, the record of the Quo Warranto proceedings. Defendants offered evidence tending to prove an attempt in good faitli to incorporate Society Perun. This evidence was excluded, and defendants excepted. The District Court found, among other things, that, as to the city of Cleveland, Society Perun was not a corporation either in law or in fact ; that the conve^'ance to it b\' Perun was void as against the city ; and that the claims of all the defendants (except certain claims for taxes and im- provements) were subsequent and inferior to the lien of the cit}'. To reverse the judgment rendered upon these findings, error was brought. Willson cfc' Sykora, for plaintilT in error. B. H. Beavis, for executors of Stone, cross-petitioners in error. A. T. Brinsmade and W. E. Sherwood, for city of Cleveland. Owen, J. The defendants below, conceding that Society Perun had never been a corporation dejure. maintain that the court below should have permitted them to prove that such society was a de facto corpora- tion ; that it attempted, in good faith, to become a body corporate ; proceeded to act and transact business in good faith under the sup- posed authorit}' of incorporation, and that its acts ought not to have been declared to be whollj' void as against the city of Cleveland. The judgment of ouster was an adjudication between the state and the society' upon the right of the latter to exercise corporate franchises. For the purposes of such adjudication it was competent for this court to consider and determine what had been its status from its first at- tempt to incorporate. But it had no power to pass upon or determine the rights of parties not before it. It was not competent for this court to determine in that proceeding that Society' l*erun had never been a corporation de facto, or that its acts and business transactions, under the color of its supposed charter powers, were void. The authority of the court in that behalf was de- rived from sec. 6774 (Rev. Stats.), which provides: " When a defend- ant is found guiltj' of usurping, intruding into, or unlawfully holding or exercising an office, franchise, or privilege, judgment shall be rendered that such defendant be ousted and altogether excluded therefrom, and tiiat the relator recover his costs." When the court had excluded the society from its franchises to be a eorijoration, it exhausted its jurisdiction over the subject-matter. It liad no power to speak concerning whatever rights may have been SOCIETY PERUN V. CLEVELAND. 185 acquired bj- the society as a corporation de facto, or by tliiid parties in their transactions with it as an acting corporation. It is conceded b}" the city that parties who had recognized the exist- ence of the society b}- tlieir transactions with it as a supposed corpora- tion are estopped to den\' its corporate existence. But it is maintained that the city, having engaged in no transactions with it, is free to chal- lenge its existence as a corporation de facto as well as de jure. The argument is that: " No case can be found where it is held that there is a corporation de facto against persons who have in no wa}' recog- nized its existence as a corporation," and that: "The notion of a de facto corporation is based on the doctrine of estoppel ; when estoppel can not be invoked there can be no de facto corporation." The theory that a de facto corporation has no real existence, that it is a mere phantom, to be invoked only by that rule of estoppel which forbids a part}- who has dealt with a pretended corporation to deny its corijorate existence, has no foundation, either in reason or authorit}'. A de facto corporation is a reality. It has an actual and substantial legal existence. It is, as the term implies, a corj)oration. " It is a self-evident proposition that a contract can not be made with a corporation unless the corporation be in existence at the time. A real contract with an imaginary corporation is as impossible, in the nature of things, as a real contract with an imaginary person. It is essential, therefore, in order to establish the existence of a contract with a corporation, to show that the corporation was in existence, at least de facto., at the time the contract was made." Morawetz Private Corporations, sec. 137. It is bound by all such acts as it might rightfully perform as a cor- poration de jure. Where it has attempted in good faith to assume corporate powers ; where its proceedings in that behalf are colorable, and are approved by those officers of the state who are authorized to act in that regard ; where it has honestly proceeded for a number of years, without interference from the state, to transact business as a corpora- tion ; has been reputed and dealt with as a dul}' incorporated bod}', and valuable rights and interests have been acquired and transferred b}' it, no substantial reason is suggested wh}' its corporate existence, in a suit involving such transactions, should be subject to attack b}' an}' other party than the state, and then only when it is called upon in a direct proceeding for that purpose, to show by what authority it assumes to be a corporation. Proof was offered upon the trial below to show, (1) that the persons seeking to incorporate first filed with the secretary of state a certificate which fully complied with the requirements of the statutes, and free from the defect which finally proved fatal to its existence, but which was disapproved by the attorney-general ; (2) That the certificate of incorporation which was finally filed with the secretary of state recited that, " said association has been formed and organized for the mutual protection and relief of its members, and for the payment of stipulated 186 SOCIETY PERUN V. CLEVELAND. suins of monej- to the families or heirs of the deceased members of said association ; that the officers of said association have been dul^' chosen ; that for tlie purpose of becoming a body corporate under an act passed by the o-eneral assembl}' of the state of Oliio, entitled, an act sup- jjieraentary to an act, entitled an act to provide for the creation and reo-ulation of incorporated companies in the state of Ohio, passed Ma^' (, 1852, passed April 20, 1872 ; " (3) That this certificate was approved bv the secretar}' of state, and also by the attorney-general, as provided by the statutes (69 Oliio L. 150) ; (4) That it proceeded in good faith to transact business peculiar to corporations provided for by the act under which it attempted to incorporate. All this was excluded, and the decision of the court below practically rested on the proof offered by the city, that Society Perun had been ousted of its franchises, which was evidently construed as determining that such society had from the first no corporate existence, either de jure or de facto, and consequently no capacity to receive or impart any interest in or title to real estate except as against such parties as were by reason of their recognition of or dealings with it, estopped to deny its incorporate existence. Did the court err? This fairly presents the controlling and very im- portant question : "Was it competent to show, as against a party who was not estopped to deny its corporate existence, that Society- Perun was, at the time of the transactions involved in controversy', a corpora- tion de facto? In Attorney- General ex rel. Pettee v. Stevens, Saxton (N. J. Eq.) 369, the relator sought to enjoin the Camden and Amboy R. R. and Trans- portation Co. and others acting under its authority from erecting a In-idge over a navigable stream. The claim was that the act author- izing the corporation had been perverted and disregarded, and that there was no legal incorporation. The relators were iii no manner estopped to attack the corporate existence of the respondent. The court held : " Where a set of men claiming to be a legally incorporated company under an act of the legislature, have done everything necessary to con- stitute them a corporation, colorably at least, if not legally, ^and are exercising all the powers and functions of a corporation ; they are a corporation, de facto, if not dejure; and this court will not interfere, in an incidental wa}', to declare all their proceedings void, and treat them as a body having no rights or powers." The chancellor, speaking for the court, said : " Here, then, is a set of men claiming to be a legally incorporated company under the act of the legislature, exercising all the powers and functions of a corporation. The}' are a corporation de facto, if not dejure. P^ver}' thing nccessar}' to constitute them a corporation has been done, colorably at least, if not legally ; and I do not feel at liberty, in this incidental way, to declare all tlicir proceedings void, and treat them as a body having no rights or powers. It has been seen SOCIETY PERUN V. CLEVELAXD. 187 that the court will not do this where a corporation properly organized has plainl}- forfeited its privileges ; and there is but little difference in principle between the two cases. In both the corporation is actually- in existence, but whether legally and rightfully so is the question. And it appears to me that if the court can take cognizance of the matter in this case, it must in all others where it can be brought up, not only directly, but incidental!}." This case is approved and followed in N^. cfc C R. B. Co., 45 Cal. 680, it was held that: " If a corporation de facto is in the actual possession of a public highway, under a grant of a franchise to improve and collect tolls on the same, a mere trespasser can not justify his entry thereon on the ground that it was only a corporation de facto, and was not de jure entitled to the franchise." In Williams v. Kokorno B. & L. Ass'n., 89 Ind. 339, one Leach gave to an acting corporation his mortgage on real estate. Subsequent to the execution and recording of it, he executed another mortgage on the same land to Williamson. In a proceeding to foreclose the junior mortgage, Williamson maintained that the pretended corporation had no legal existence, by reason of defects and omissions in the proceed- ings to incorporate, and that the senior mortgage was void. He was in no manner estopped, by dealings with, or recognition of, the first mort- gagee to denj- its corporate existence. The court held that : " A junior mortgagee can not defeat a senior mortgage by showing that the corpo- ration to which the senior mortgage was executed was defectively or- ganized, if it be a corporation de facto." Elliot, J., said: "Where persons assume to incorporate under the laws of the state, and in part comply with their requirements, assume corporate functions and trans- act business as a corporation, private persons can not collaterally question the right of such an association to a corporate existence, although there has not been a full compliance with the provisions of the statute. Baker v. JVeff, 73 Ind. 68. This rule is not limited to cases where one by contract admits corjyorate existence, but is a rule of general application" It is not easy to distinguish the principle of this case from that of tlie case at bar. In Pajie v. Capitol Bank, 20 Kan. 440, Pape and wife gave their notes to '"James M. Spencer or beaver," and their mortgage on real estate to secure them. Spencer transfei-red the notes to the Capital Bank of Topeka, an acting corporation, with this indorsement: "Pay the bearer, without recourse on me ; James M. Spencer." The mort- gage was also transferred to the bank, which proceeded by suit to col* 188 SOCIETY PERUN V. CLEVELAND. Ject the notes and foreclose the mortgage. Pape and wife interposed the defense that the bank was not, and never had been, a bod}' corpo- rate, b}- reason, among others, of a defective organization. The bank had assumed corporate functions after an attempt, in good faith, to in- corporate, and for a number of ^^ears was in the actual and notorious exercise of corporate franchises. Pape had transacted banking business with the plaintiff prior to the purchase of the notes and mortgage, but such business was wholl}' unconnected with the notes and mortgage in suit. His wife, however, had not in an}' manner recognized the exist- ence of the bank as a corporate bod}', and the doctrine of estoppel was not invoked to aid the court in sustaining a judgment oif foreclosure against Pape and wife. Brewer, J., says: " Tlie corporation is one de facto ; and only the state can inquire, and that, in a direct proceed- ing, whether it be one dejure. . . . There must, in such cases, be a law under which the incorporation can be had ; there must, also, be an at- tempt, in good faith, on the part of the corporators, to incorporate under such law ; and when, after this, there has been for a series of years an actual, open, and notorious exercise, unchallenged by the state, of the powers of a corporation, one who is sued on a note held by such corporation will not be permitted to question the validity of the incorporation as a defense to the action. No mere matters of technical omission in the incorporation, no acts of forfeiture from misuser after the incorporation, are subjects of inquiry in such an action. This is not upon tJie ground of equitable estoppel but upon grounds of public •policy. If the state, which alone can grant the authority to incorporate, remains silent during the open and notorious assertion and exercise of corporate powers, an individual will not, unless there be some powerful equity on his side, be permitted to raise the inquiry." Ixv Thompson \ . Candor, 60 III. 244, Willetts, in February, 1858, deeded to " Mercer Collegiate Institute," a body pretending to be a corporation, the tract of land in controversy. He died in March, 1858. In 1«G8 his heirs quit-claimed their interest in the land to Thompson, who filed a bill in chancery for the cancellation of the deed from Wil- letts to the "Institute," alleging, as one of the grounds of relief, that the named grantee was not legally incorporated — had no capacity to take tlie title, and tliat the deed was void. The court held : *' Where parties endeavor to organize a corporation for educational purposes, under the general law, adopt a name, elect trustees, and or- ganize by electing a president and oflicers, and the trustees had acted for years in managing the property, had leased and mortg:iged it, and expended a large sum of money in its im[)rovement, these acts consti* tute it a corporate body de facto, and the regularity of its organization can not be questioned collaterally. Such irregularity can only be ques- tioned by quo vmrranto or scire facias." Tliornton, J., says: "In 1856 an attempt was made to organize a coriKjration under the general incorporation law. A corporate name was selected, trustees were appointed, and an organization effected b^ SOCIETY PERUN V. CLEVELAND. 189 the election of a president and proper officers. The trustees thus ap. pointed acted for 3'ears in the general management of the propert}', leased and mortgaged it, and expended a large amount of money. Here then was a corporate body de facto, which had been engaged in an undertaking involving important interests. The regularity of its organization can not be questioned collaterally. Any alleged non- compliance with the law can only be inquired into b}' the writ of quo loarranto or scire facia s y There is no suggestion throughout the entire case of the rule of estoppel as an element affecting its disposition. In Paper Works v. Willett, 1 Robertson (N. Y. Sup.), 131, it is held that formal defects in proceedings to organize a corporation are not available to defeat an action brought by a corporation for trespass in wrongfully taking property out of its possession. See also, as illustrating the principle under discussion : Smith v. Sheeley, 12 Wall. 361 ; Grand Gulf Bank v. Archer, 8 S. & M. 151, 173; Dunning v. R. R. Co. 2 Carter (Ind.), 437; Dannebroge Min- ing Co. v. Ailment., 26 Cal. 286 ; Searsburgh Turnpike Co. v. Cutler.^ 6 Vt. 315 ; Mitchell v. Deeds, 49 111. 416 ; Eliz. Academy v. Lindsey, 6 Ired. 476 ; Darst v. (?a/e,83 111. 136 ; Rondellv. Fay, 32 Cal. 354 ; De Witt v. Bastings, 40 N. Y. (Superior Court) 463 ; Rice v. R. R. Co., 21 111. 93 ; Douglas County v. Bolles, 94 U. S. 104 ; The Banks, V. Poitiaux, 3 Randolph (Va.), 136 ; Goundie v. Northampton Water Co., 7 Pa. St. 233 ; Baker v. Backus, 32 111. 79 ; Tarbell v. Page, 24 111. 46 ; Thornhurgh v. B. B. Co., 14 Ind. 499 ; Tar Biver Nav. Co. v. Neal, 3 Hawks, 520 ; Bear Camp Biver _ Co. v. Woodman, 2 Me. 404. In Jones v. Dana, 2 A Barb. 395, it was held that if a company has in form a charter authorizing it to act as a body corporate, and is in fact in the exercise of corporate powers at the time of taking a note from an individual, it is, as to him and all third persons, a corporation de facto, and the validitj' of its corporate existence can onl}' be tested by proceedings on behalf of the people. In the case at bar, the certificate which was last filed by the society embraced a full statement of the objects of incorporation and indicated what the nature of its business must necessarily be, and was strongly suggestive of the manner in which it must necessarily be transacted ; and while it is not our purpose to call in question the action of this court in the quo warranto proceedings, we have no hesitation in sa3ung that if we were now called upon to determine whether the corporate life of Society Perun should be taken, the question, upon the facts offered in proof at the trial below, would not be free from doubt and difficulty. It is ver}' clear that the proceedings to incorporate were colorable ; and so far as this fact is a test of the existence of a corporation de facto, it is most amply established. That there was proof of user is mani- fest from the evidence which was received without objection. That the judgment of ouster did not and could not have a retroactive 190 SOCIETY PERUN V. CLEVELAND. effect upon the rights of the societ}', and of parties who had dealt with it during its de facto existence, is suggested by the opinion of Wright, J., in G"fv. Flesher, 33 Ohio St. 115. The evidence which was offered and exchided would, if credited, have shown Society- Perun capable of holding and transferring the legal title to the lands in controversy. Walsh v. Barton^ 24 Ohio St. 43 ; BarA V. Gale, 83 111. 136 ; Shewalter v. Pirner, 55 Mo. 218 ; JSTat. Bank v. 3Iatthews, 98 U. S. 628 ; Go%mdie v. Northampton Water Co., 7 Penn. St. 233 ; Barrow v. Nashville Turn. Co., 9 Humph. 304 ; Kelly V. People's Trans. Co., 3 Ore. 189 ; Bogardus v. Trinity Church, 4 Sandf Ch. 758. The public and all persons dealing with this society were justified in assuming that the certificate filed with the secretary' of state, and by him admitted to record in his oflflce, had been approved by him, and also b}' the attorne3'-general, as required by statute (69 Ohio L. 150), and that it so far conformed to all legal requirements that, as provided in section 2 of the act of incorporation (69 Ohio L. 83), " a copj-, duly certified by the secretary of state, under the great seal of the state of Ohio, shall be evidence of the existence of such association." It would seem that such approval, record, and certificate, followed b}- uninterrupted and unchallenged user for nearl}' six years, of all of which proof was tendered, would constitute a corporation de facto, if such a body is, under any circumstances, entitled to legal recognition. The highest considerations of public policy and fair dealing protest against treating such an organization as a nullity, and all of its trans- actions void. The principle of the above cases is to be distinguished from a case where a mere corporation de facto attempts to assert the power of emi- nent domain by tlie appropriation of private property to public use. It has been held that the exercise of tliis right (which is but a delega- tion of the sovereign power of the state), depends upon the sufficiency and legal validity of the certificate of incorporation and public record of its organization. B. B. Co. v. Stdlivant, 5 Ohio St. 276 ; Atkinson V. B. B. Co., 15 Ohio St. 21. The case of Baccoon Biver Nav. Co. v. JEJagle, 29 Ohio St. 238, is relied upon by the defendant in error. It was an action to recover upon a stock subscription. A plea of md tiel corporation was inter- posed. Tiie plaintiff claimed to be organized under an act to authorize the incorporation of companies " for the purpose of improving any stream of water . . . declared navigable by any law of the state of Ohio." On the trial the plaintiff offered in evidence a certificate by which it appeared that the company was formed for the pur- pose of improving, etc., Big Raccoon river. Unfortunately there was no navigable stream in Ohio by that name. No other testimony was offered. There was no proof of user. There was no defect in the form of the proceedings to incorporate, but an attempt to organize and Incorporate for a purpose impossible of accomplishment. There was BRADLEY V. REPPELL. 191 neither a de jure nor de facto corporation. Judgment was properly rendered for defendant. In excluding proof of what was actuall}' done looking to the incor- poration of Society Perun, and of the subsequent acts of user, which was offered in evidence, there was error, for which the judgment in the first entitled case (as well as that in the same plaintiff against Hay et al., which was tried with it and involves the same general questions) are reversed. Numerous other questions are presented by the volumi- nous records in these cases, but as the}' all depend upon the one cen- tral and controlling question discussed above, and as the disposition here made of the cases must lead to a re-trial in the light of the prin- ciples indicated in this opinion, they are not separately considered. J ^j/^. V** ^ W (J Judgment reversed. - ,. 'h\ ^^ — ee— I ->, U^'^ V- ,v. BRADLEY et als. v. REPPELL. ,1/ <> n ^ October Term, 1895. Supreme Court of Missouri, Division No. \} \J^ Brace, P. J. This is an action in ejectment in common form '^ '^ recover the possession of certain lands described in the petition, situat^l^ i' ^ n in Kansas City; instituted in the Circuit Court of Jackson County, nt^^/H^ ^ y taken thence by change of venue, and tried, in the Circuit Court " Clay County. The answer was a general denial, and a plea of the statute of limita- tions as to a part of the land, and no claim as to the remainder. Issue^ was joined by repl}'. On the trial, at the close of the plaintiff's evidence, the court sus-ji/T^ | tained a demurrer to the evidence as to the plaintiff T. C. Bradley, and-f^ overruled it as to the other plaintiffs, Samuel F. Freeman and the Atlas v^ Investment Company. The trial then proceeded, and after all the evi' dence was heard, the issue was submitted to the jury, who returned verdict for the defendant. Thereupon plaintiffs tiled motions for new trial and in arrest of judgment. The motion for new trial coining on to be heard, was sustained and the verdict set aside on the followinw^ grounds, " specified of record." " 9th. Because the Court erred in refusing to admit as evidence a certifie copy of the Warranty Deed dated August 20, 1880, from the West Kans City Land Company to Charles W. Whitehead, which certified copy wasM offered in evidence by plaintiff. . ^ m^ z loth. Because the Court erred in refusing to admit as evidence the certi-^^'V) "-^tlr^ fied copy of the Quit Claim Deed from the West Kansas City Land CompanyC^l < '' ' * to Charles W. Whitehead, which is offered in evidence by the plaintiff." . a , -a* , ^ . From the order sustaining this motion and setting aside the verdict, i/ "^/yv^ V^ the defendant appeals. -^'3^ Qr\ (1). By a Special Act of the Legislature approved March 14, I859h[^,r^ ^ \j ', 1 From copy of opinion furnished by Clerk of Supreme Court. K*^ A^it-S ?W il (^ 192 BRADLEY V. REPPELL. (Sess. Acts, 1858, p. 292), The "West Kansas Cit}' Land Company was incorporated with power " to make contracts, sue and be sued," and to " purchase and hold any quantity of land in Kaw township in Jackson County, Missouri, not exceeding one tliousand acres ; to lay the same off into parks, squares, and lots, improve, sell or conve}' the same by deed ; to re-purchase and re-convey any portion of the same, when necessar}' in transacting the legitimate business of said com- pany ; and purchase and hold any personal property necessary for the purposes above indicated." Nothing was said in the act either directly or indirectl}' as to the duration of the company's corporate existence. By the general law in force at the time this compan}' was thus incor- porated it was provided that " P^verj- corporation, as such, has power, to have succession by its corporate name for the period limited in its charter and when no period is limited, for twenty years." R. S. 1855, Vol. 1, p. 369. Sec. 1. "" And that upon the dissolution of any cor- poration, the president and directors or managers of the affairs of the corporation at the same time of the dissolution shall be trustees of such corporation with full power to settle its affairs." R. S. 1855, Vol. 1, p. 375, Cap. 34, Sec. 24. The corporation thus chartered was an ordinary business corporation whose corporate existence b}- virtue of these statutory provisions expired on the 14th of March, 1879, State ex rel. vs. Payne, 29 Mo. 468, and the two deeds rejected 'by the court upon the trial were executed after that date in the name and under tho corporate seal of the company " b}' "William McCo}', Presi- dent." "Attest: Edw. A. Allen, Secretar}'." The defendant objected to the introduction of these deeds offered in evidence by the plaintiffs as constituting a part of their chain of title, and in support of his objec- tions read in evidence the Act of the Legislature aforesaid incorporat- ing said company, and it was admitted that said company in whose behalf said deeds bad been so executed, was the same compan}- by said act, incorporated, and that it was never thereafter re-incorporated. The defendant's claim of title was b}' adverse possession, and there is not in the case any question of estoppel to den}' the existence of the corporation by reason of the relation sustained by the defendant to the land company, or of any dealings by him directl}- or indirectly with it, or any person connected with, or representing it. Why then should the defendant be precluded from showing, by the law that gave that company its corporate existence, that, at the time these deeds were made, it was dead, incapable of executing a legal convej'ance of the real estate in question, and that said deeds were tlierefore void, and no evidence of title? The answer returned by the counsel for plaintiffs to this question is, " That it is the settled law of this State that a con- veyance to, or b}' a corporation de facto can be assailed on the ground of lack of corporate existence only by the State." This answer does not meet the question, unless it be assumed that a cor{)oration wiiosc corporate existence has expired b}- the terms of the law whicli created it, still exists as a de facto corj)oratiou as to all per- BRADLEY V. REPPELL. 193 sons except the State, an assumption that we think is not sustained by the authorities cited, and is not '' the settled law in this State." £)n t he contrar}', in _this State, as^jsewhcI^e,_unlessoLher wisp prnvirlpfi . bx^statute, the law is, that whei'e the term of the existence of a cor- w poration is fixed b}' its ch a rter or the general law, upon the expiration of that term, the corp oration becomes ipso fa cto dissolved ; it can no longer act in a corporate capacity, and its title to propeity ceases. , 2 Beach on Private Cor. Sec. 780; 2 Morawetz, Sec. 1031. In such an event in this State the title to its property is b}- statute devolved upon trustees for the settlement of its affairs and the distribution of its assets. R. S. 1855 supra, R. S. 1889, Sec. 2513 ; and thereafter it has no power to make a legal contract or convey property in its corporate name and capacity. It ceases to be a corporation, dejnre et de facto, for the reason that there is no law in force authorizing its existence, and no law by virtue of which it might exist, and no person unless estopped by his own action, ought to be, or can be precluded from showing this fact, apparent on the face of the law itself, without the necessit}' of any judicial investigation; in an issue involving his own personal rights and interests. An examination of the authorities cited by counsel for respondents, and of all the other cases touching this question, will show that it has never been otherwise ruled in this State, nor elsewhere so far as we have been able to discover. The first case cited by counsel for respondent ]\IcIndoe vs. St. Louis, 10 Mo. 576, does not touch the question, side, edge, or bottom The cases of Cham.bers v. St. Louis, 29 Mo. 543 ; Land v. Coffman, 50 Mo. 243 ; Shewalter v. Pirner, 55 Mo. 218 ; and Conn. Mutual Life Ins. Co. vs. Smith, 117 Mo. 26 ; go no farther in the direction of our present inquiry than to hold that where an existiiig corporation has power to acquire, hold and dispose of land the question whether such corporation has transcended the limits of such power in respect thereto can only be raised and determined in a direct proceeding by the State against the corporation. But this falls far short of the question here ; which goes to the fact of the existence of the corporation, conceded in these cases. It is also well settled law that one who has contracted with an / organization as a corporation, in its corporate name, is estopped / from denying the existence of such corporation at the time of making/ the contract, or of alleging any defect in its organization affecting its! capacity to contract or sue as a corporation upon such contract.^ 4 Thomp. Corp. 5275 ; 4 Am. & Eng. P^ncycl. of law, p. 198 and cases ' cited note 1, p. 199 ; 2 Morawetz Priv. Corp, Sec. 750, 753 ; Beach on Corp., Sec. 13. And so it has been ruled in this state in many cases, including those next cited in the brief of counsel for respond- ent. Ohio & M. R. R. Co. vs. McPherson, 35 Mo. 13 ; Farmers & Merchants Ins. Co. v. Needles, 52 jNIo. 18 ; City of St. Louis v. Sliield, 62 Mo. 247 ; Stoutimore vs. Clark, 70 Mo. 471 ; Studcbaker Bros. v. 6 194 BKADLEY V. EEPPELL. Mont- J^^a American Steam and Gas Pipe Co. The plaintiff was found b}- the ^ e\^ ^^''^TS^Kl^y^^^'^^^ ^^ ^^ ^ stoclvholder in the latter Company. Chapter 128, Rev. ,n '. '^\/^'' ^ifi'^ P^y-' ^^"^ ^^^^ upon the personal liabilit}' of the stockholders, and of ?''^.l f^y"^^ t^ /;^**^^e plaintiff especially as one of them. Plaintiff contends that he is lA ■t' ^^"^^t/^ • ^^^ subject to any such liabilit}-, for the reason that the American O^sj}^, i '^ f^ Steam and Gas Pipe Company never had any legal existence as a corporation. ^ Bradley and John Eddy^ for plaintiff. B. N. & S. S. Lapham^ Jcimes Tilllnghast and Cohh, for defendants. DuRFEE, J. [in SJocum v. Providence &c. Co.]. . . . The charter, ^ or act of incorporation, for the American Steam and Gas Pipe Com- ' ' ''op^^^y-' ^^s granted or passed in 1867, the capital named in the charter \jiy^^ or act being seventy-five thousand dollars. At that- time, there was in f^ 1^ \ ^ force in the state a public statute which provided that no act of incor- "^ ir^'(^^^^ poration granted after the passage thereof, "for any other than for W^ \\ }^ 'Ko ^^ religious, literary, charitable, or cemetery purposes, or for a military or / /^^ ' -/\'/l^ fire company, shall take effect until the persons therein incorporated L §->^ i^^ shall have paid to the general treasurer the sum of one hundred dol- v*V-. X) (<^'' Mrs, if the capital limited by such act of incorporation is the sum oi fA F ^ / any less sum than one hundred thousand dollars." The hundred dol« /\ A (> L^ lars, required by this statute, was not paid for the American Steam and 1^ ^* y ^^^ ^''P^ Compan}', and consequently, their act of incorporation never ' \jr^ went into effect, if it is to be construed as passed subject to the statute. We think it is to be so construed, there being no clause of the act excepting it out of the operation of the statute. See The Union Horse Shoe Works v. Levns, 1 Abbott U. S. 518. The defendants contend that, even if the act has never gone into elfect, the existence of the compan}' as a corporation cannot be ques- tioned in a collateral proceeding. It is undoubtedly the rule that, if a uliurter lias once been duly granted and accepted, the state alone can % 1 Statement abridged. Only portions of the opinions are given. — d. SLOCUM V. PKOVIDEXCE STEAM AND GAS PIPE CO. 199 enforce a forfeiture of the charter for an}' violation thereof, or faihire to coraph' with its considerations on the part of the corporation ; and that, until the state sees fit to enforce the forfeiture, the corporation is to be recognized as legally existing in all collateral proceedings. But here, the act of incorporation being inoperative, there never was an}' corporation to incur a forfeiture, or an}- charter to be forfeited. We know of no rule wliich prechides inquiry into the question, wliether a company which assumes to act as a corporation has ever been incorpo- rated, in any case, in the absence of any matter of estoppel to prevent the inquiry. But tlie plaintiff, in order to have the relief which he seeks, ought to satisf}' us, not onl}' that his company is not a corporation, but also that he is entitled to show the fact as against its creditors. We as- sume, as we think the bills warrant us in assuming, that the plaintiff is a stockholder in the American Steam and Gas Pipe Company, though he has done nothing as such, except hold his stock. The que stion then iSj_wheUier^ a st ockholder, who does nothing but hold his stockjjs_eSi topped, when pursued b}' a credi tor of the supposed corporation, from denying its existence . W e think he is so estopped ^ B}' becoming an d continuing a stockholder, he holds himse lf out as a corporato r^_and so contribute sJo_the belief tha t the company wit h which he is ass oci- ated is a corporation. To pem iit^ a person who has so held h j mself outto_say ttuithejs not a co rporator, when legally purs ued as such, w ould Ijc to permit him to take advanta ge of his ow n wrong,. He is like a person who, having held himself out or suffered himself to be held out as a copartner, ma}' be charged with the copartnership debts. Or he is like a person who, without authority, as executor or adminis- trator, intermeddles with the property of a decedent, and so becomes chargeable as an executor in his own wrong. The plaintiff having assumed the character of a corporator, where he is sought to be charged as such, ought not to be heard to say that the character was falsely or unlawfully assumed. The fact that he was not active in the business of the company cannot avail him ; for it is the assumption to hold the stock as if he were a corporator, which makes the mischief. It might easily happen that the stockholder, whose name contributed most to the credit of the supposed corporation, was least active in its busi- ness, and it would be plainly unjust to exempt him from liability to the creditors, merely because of his inactivity. We are aware that in Utley v. Union Tool Company^ 11 Gray, 139, the Supreme Court of Massachusetts exempted a stockholder from lia- bility to a creditor of a supposed corporation, upon proof tliat the corporation had never legally come into being under the statute of that state But it does not appear that in that case the question of estoppel was raised by the counsel or considered by the court. We should agree entirely with the Supreme Court of Massachusetts in their decision in any case in which the estoppel would be inapplicable. 6 200 SLOCUM V. WARREN. DuRFEE, J. [in Slocum v. Warreii]. . . We decided in tlie former ease that having, by becoming a stockholder, helped to hold the com- pan}- out as a corporation, he could not be permitted to say, when pursued by a creditor of the company, that he and his associates or predecessors had omitted to do an act which they ought to have done before organizing as a corporation, and that in consequence of this delinquency the company was not (what it purported to be) a legally established corporation." The plaintiff maintains that this decision was erroneous, and in support of his view, relies especially upon the cases of Hudson V. Carman, 41 Maine, 84 ; Unity Insurance Company v. Cram, 43 N. H. 636; Utley v. Union Tool Company, 11 Gray, 139 ; and Gardner v. Post et al. 43 Pa. St. 19. We propose to consider these and some of the other cases bearing upon the question, somewhat in detail. [After commenting on various authorities, the opinion proceeds.] The plaintiff also cites cases in which it has been held that a corpora- tion dulj' established as such is not estopped from denying its liability where there is a want of power to contract the liability, the reason being, he says, that otherwise the powers of the corporation might be indefinitely enlarged ; and he argues that, in the case at bar, the doc- trine of estoppel is still less applicable, inasmuch as the company was acting not merely in excess of its corporate powers, but without any corporate power whatever. But in the case at bar, the defect of power exists not by reason of any insufficiency of the grant, but by reason solely of a delinquency on the part of the grantees of the power ; and the estoppel, if applied, would be applied not to prevent an appeal to the charter to show a want of authority, but to prevent the intro- duction of evidence by the company or its members to prove their own delinquency. We do not think that in such a case there should be any hesitation to apply the doctrine of estoppel from fear that it would lead to an indefinite enlargement cf the powers of the corporation. And see Bargate v. SJiortridge, 5 H. L. Cas. 297, 318 ; ZabrisJde v Cleve- land, Columbus & Cincinnati Railroad Company et al. 23 How. U. S. 381. [After citing and commenting upon other authorities, the opinion proceeds.] It is true these cases are not precisely like the case at bar, but they are cases which illustrate the application of the law of estoppel in respect to corporations, or companies acting as corporations, or which illustrate to what extent the corporate existence of a company acting as a corporation can be collaterally questioned. And we think it is safe to say upon the authority of these cases, that at least where there is an act or charter in existence, under which a company bv taking the proper steps can become a corporation, if ajx)mpaiiy docs defmto or<^tiiz(^nd bold itself outas a C£r|>orat ioni^ contracting (jbligations as 6ucli»ut_caiuiot^, wlicnsucdu] )on such_ C)l2li^^ations, b^\- [xisons wiio have de alt wit h it as sudL Jn good faith, be permitt ed to avoid a'cor porate SLOCUM V. WARKEN. 201 I Ijabilitv thereon, by setting up that it has not taken all the steps pre- scribed as conditions prpppfTpntj^nJfg Ifgnl pvistpn np as a corporat ion If this be so in regard to the compan}- as a whole, we do not see why it is not equally so in regard to each member of the company individu- ally, in so far as membership imports an individual liability. In this case, it is said there was no act or charter ; but in our opinion there was a charter dul}' granted b}- the legislature, subject only to a condi- tion that it should not take effect until a certain act should be per- formed ; but inasmuch as this act could have been performed, as it ought to have been performed, by the grantees of the charter before their organization as a corporation, the case does not, in our view, substantially differ from cases which are clearh' within the rule above stated. Indeed it is frequently the case that a charter is granted sub- ject to an implied condition, that the grant shall not take effect un- til it has been dul}' accepted ; and yet, as we have seen, the doctrine of estoppel may be applied to prevent the want of such an acceptance from operating to defeat a just claim. Cam/) v. Byriie^ supra ; and see Tobacco Pipe Makers' Co. v. Woodroffe, 8 D. & R. 30, cited in Abbott's Dig. Law of Corp. p. 331, § 23. In this case the company bad only to pay Into the treasury' of the state one hundred dollars, and all would have been right. When it organized as a corporation, and from 3ear to year continued doing business as such, it as much as said, and each one of the stockholders as much as said, that that sum had been paid ; and now neither the compan}' nor any one of the stock- holders ought to be heard to assert the contrary in order to escape any liabilitv to which he or it would have been subject if the payment had been duh' made. This decision is doubtless a hard decision for the plaintiff, and we ver}- much regret that his situation is such that he is so seventy af- fected by it. But hard as the decision is for the plaintiff, it onh' sub- jects him to the liability to which he would have been subjected if the tax due the state had been paid, as it ought to have been paid, and therefore only to the liability which, as an honest man, he must be presumed to have intended to incur when he connected himself with the companj.i [Plaintiff' s ptrayer denied.'\ 1 The statute under consideration in the above case was repealed by the Rhode Island General Statutes of 1872; and the following provision substituted: " No corporation shall be organized under a charter, until the petitioners . . , shall pay into the general treasury for the use of the State, one hundred dollars." In Eughesdale Mfg. Co. v. Vanner, 12 R. I. 491 Ian action of assumpsit by the corporation), it was held, that, under the later statute, the failure to make the payment would be taken advantage of only by the State, and did not avail the defendant as a valid objection to the plaintiff's corporate existence. The Court said, that the payment prescribed by the later statute was not, like that prescribed by the earlier statute, a condition precedent to the existence of the corporation; but some- thing re(|uired to be after the charter has gone into effect, and, if the charter is in the usu^ form, after the corporation has been created. — Ed. Q 202 NARRAGANSETT BANK V. ATLANTIC SILK CO. ^ '^ J^ARRAGANSETT bank v. ATLANTIC SILK CO ,Q . ^ I 1841. 3 Metcalf, 287.1 Mi/^ Shaw, C. J. The first of these cases was assumpsit on a bill of ex- f change, drawn on the corapany at four months' date, and accepted by l} Samuel B. Tuck, treasurer. This company was incorporated as a man- /K^^ • ./» . jrlifacturing corporation by St. 1836, c. 108. The defendants contended, ^ ^ A/^ ' i*^ that in order to recover against the defendant corporation it was in- ^ . jf cumhent on the plaintiffs to prove that the company had complied with (f" jMg^rovisions of the Rev. Sts. c. 38, §§ 4, 9, and c. 44, § 3, regula- fu^ v~ rting the organization of manufacturing corporations. These provisions /j^'"^ D^ *>» require them to choose a clerk and treasurer ; that the clerk shall be sworn, and shall keep a record of votes ; that the capital stock shall Vvbe divided into shares ; that the first meeting shall be called by a pre- "bed form of notice, &c. The court are of opinion, that this argu- ^mept^f the defendants proceeds upon an erroneous view of the law ; ij^speciall}' in cases, where a party, who is a stranger, and not pre- sumed to have access to the books, and to have notice of the proceed- ings of a corporation, is proceeding to recover against a company acting as a corporation. Many of the requisitions of the statute? referred to are director^' to the corporation, its oflBcers and members, and are not conditions precedent to the existence and capacitj* of the corporation to contract. But were it necessary to prove the regular organization of the corpo- ration, the objection would come with an ill grace from the defendants, and under the circumstances must be deemed untenable. It is the duty of such corporations to keep records ; the primar}' and only regu- lar evidence of their organization is legally- presumed to be in their records and the defendants decline producing those records, on notice, without assigning an}' reason. The maxim of law is, that all things shall be presumed to have been riglitly and con-ectly dune, until tTie contrary is proved. This maxim is stated and explained, and many instances given of its application to corporations, and to acts and doings of their members, officers and agents, in J^a»k of U. States v. Daiidridge, 12 Wheat. 70. As the cor])oration could not proceed law- fujly^^ until_dulx_organized, ancl as^they^ did_£roceed to act as a corpora- t ion, this^ presumi)tionJ ias-it§. effect. The defendants have the records, which prove such organization, if it took place, and withhold them. This maxim under these circumstances, would go far to establish the actual and regular organization of the defendant corporation. But the court are of opinion, that in an action against a corporation, It IS not incumbent on the plaintiff to prove that the defendants have oomplied with the requisitions of the statutes, where they are not ie ' Statement, and part of opinion, omitted. — Ed. NAERAGANSETT BANK V. ATLANTIC SILK CO. 203 terms, or by necessary- or reasonable implication, conditions precedent to their existence, or capacit}' to do particular acts. It has been held that the existence of a corporation, and of course its organization, may be proved by reputation, and by its actual use, for a length of time, of the powers and privileges of a corporation. Dillmffham v. Snow, 5 Mass. 547. Stockbridge v. West Stockhridge, 12 Mass. 400. In regard to manufacturing corporations, which are of more recent origin in this Commonwealth, it is in general sufficient to give in evLr denc e the act of incorporation duly authent icated,^ and the actual us e of the p owers and privileges of an incorp orated company, under the name desig nated in the act of incorporation. Bank of IT. States v, Dandridge, 12 Wheat. 64l XMca Ins. Co7\. Tillman, 1 Wend. 555. Utica Ins. Co. v. Cadwell, 3 Wend. 296. Fire Department of Neio York V. Kijy, 10 Wend. 266. These were cases in which the corpo- ration, whose organization was in question, were plaintiffs. The rule applies a fortiori to the case of a plaintiff seeking to enforce an obli- gation against a corporation. \ And we think it highly necessary- to the purposes of justice, that the law should be so held ; otherwise a company might avail themselves of the powers and privileges of a corporation, without subjecting them- selves to its duties and obligations, and might set up their own neglect of duty, or wilful non-compliance with the requisitions of law, to dis- charge themselves of such obligations. Nor would this be the whole extent of the wrong doue by such construction, in regard to manufac- turing corporations. It has been the polic}' of this Commonwealth to give a qualified remed}' against the individual members of manufac- turing corporations, as collateral security to their debts and obligations. But any construction, which would destro}' or impair the obligation of tlie corporation, would, to the same extent, take from creditors their remedy against the members. As to the evidence in regard to the fact of acting as a corporation, it is stated hereafter in reference to the other case.^ Judgment on the verdict for plaintiff . 1 Acts of incorporation are now deemed public acts; Rev. Sts. c. 2, § 3; anc? printed copies of them, published under the authority of the government, are to be admitted as sufficient evidence thereof, in all courts of law, &c. Rev. Sts. c. 94, § 58. 2 [In the opinion in the case of Westcott v. Atlantic Silk Co., heard at the same time, Shaw, C. J., says : " The act of incorporation being shown, there was evidence tending to prove that the company went into operation, established a factor}^ and erected machinery ; . . ."] 204 JONES V. CINCINNATI TYPE FOUNDRY CO. JONES V. CINCINNATI TYPE FOUNDRY CO. I860. 14 Indiana, 89.1 Appeal from the Grant Circuit Court. /Perkins, J. — Suit upon a promissory note. ^ " The Cincinnati Type Foundry Company^ a corporation," &c., r^ " complains of David W. Jones ^ defendant," &c., upon a promissory note, of which a copy is set out thus : "$279. Indianapolis, Indiana, October 11, 1857. " Six months after date, I promise to pay to the order of the Cincin- nati Type Foundry Company, two hundred and sevent3'-nine dollars, for value received, without relief from valuation laws. David W. Jones" The defendant demurred to the complaint. The demurrer was over- ruled, and rightly. The defendant then answered ^ 1. That he was not indebted to the plaintiffs. 2. That each and everv allegation of the complaint was untrue. 3. That the plaintiffs had not a legal capacity to sue, because not a corporation. Issue. Trial. The note constituted all the evidence. Judgment for the plaintiffs on the note. The appellant contends that the case was not made out against him, because it was not proved that the appellees were a corporation, and thus possessed of the capacity to sue. The appellees insist that the note sued on is a contract with them as a corporation, and that their existence is therebv admitted. As a general proposition, it is the law of this state that a contract «vith a party as a corporation estops the party so conti-acting to deny the existence of the corporation at the time it was contracted with as such. Shappel v. Ilnhhard, at this term. And it has been held in other states that where individuals are incor- porated upon performance of certain acts, a person who contracts with them by their corporate name, cannot, in an action against him on the contract, deny the performance b}' them of the acts necessary to give them a corporate existence. Ilamtranch v. Tlie Bank of Edwards- ville, 2 Miss. R. 169. — Tarr River Naniyation Co. v. Neal^ 3 Hawks, 520. See 1 U. S. Dig., 593 ; 4 id. 433. In New York, to work such estoppel, it has been necessary that the contract should state that the party contracted with was a corporation. But this rule docs not prevail in other states. It has not been acted i]l)on in this state. If the style by which a party is contracted with is such as is usual in creating corporations, viz., naming an idealit}', but disclosing that of 1 Part of opinion omitted. — Ed. JONES V. CINCINNATI TYPE FOUNDKY CO. 205 no individual, as is usual in the cases of simple partnerships, it has been treated as prima facie, at least, indicating a corporate existence. And such seems to have been the rule at common law. Grant on Corp., 62. Probably, a special answer, in such cases, in the nature of a plea in abatement, might, at the proper time, be made available. See Ang. and Ames on Corp., 506, 507, and the numerous cases in our own Reports. And there is no hardship in this. The party executing the note owes tlie amount of it. The judgment upon it in the suit merges it, and the payment of the judgment satisfies it, and bars any other action against the maker for the money. But, in this class of cases, it would seem, after all, that the Courts have proceeded upon a rule of evidence, rather than the strict doctrine of estoppel. They have treated the contract with a party by a name im-i ]>lying a corporation, really as evidence of the existence of a corpora-/ tion, more than as an estoppel to disprove such fact. Grant, in hislatg learned work on Cor[)orations, says : " Generally, the fact of an aggre- gate body being called by a name, is, prima facie, evidence that the3' are incorporated, ' for the name argues a corporation.' Nbrris v. /Stops, Hobart, 11. But the Courts take judicial notice that '•A. JB. and company' is not the name of a corporation. Hex v. Harrison^ 8 T. R. 508.'"' The doctrine of conclusive estoppel seems more properly applied to cases involving the question of legality of organization, where the fact of an existing statute, authorizing, in the given case, such corporation, is known to the Court, either by judicial notice or actual evidence in tlie cause. In such cases, where a party has contracted with a body as being organized as a corporation under the law, he will be estopped to dis- pute the legality of the organization. See the cases cited in the U. S. Dig., and Ang. and Ames, iibi supra. This doctrine of estoppel, as applied to contracts with corporations, needs further examination ; but it is not important in this case, and we shall not here pursue it. The decision of this case will rest upon another ground. [The learned Judge then takes the position that the general denial in the answer admits the plaintiff's capacit}' to sue, and that the subse- quent paragraph denying plaintiff 's capacit}' is in the nature of a plea in abatement and is inconsistent with such general denial*] Judgment affirined. TOUTIMORE V. CLAEK. STOUTIMORE v. CLARK et als. 1879. 70 il/issouri, 471.1 Appeal from Cla}' Circuit Court. ^I/' /W^ I ' ^^6 action, Stoutimore v. Clark^ was brought to establish a certain • V I ^.y^jjiarge as a lien upon the land formerlj' the property of Joseph Y. £/j2^'^ji ■'. ^ Clark, now deceased ; and to obtain a decree for the sale of the land . J > ^^^ --^.--f".. iu_ _i gy order of court, the Missouri Cit}' Savings made defendants in said suit. The lien under a judgment against Clark, •^^ ^ y, ^ rendered March 27, 1874. This judgment was founded on a note of Tj / said Clark paj-able to the order of the Missouri City Savings Bank, at ^ / the office of said Bank. Chrisman filed an answer alleging a lien on |r ' , I n- part of the land under a trust deed, executed by Clark Sept. 19, 1874, ^jh*' to secure a loan. Chrisman also filed a cross answer to the answer of the , Missouri City Savings Bank, alleging that said Bank was not a corpo- ration. Upon the trial, to prove the corporate organization and exist- ence of the Bank, a certificate signed by the alleged president and secretary was ofl^ered in evidence. To the admission of this certificate Chrisman objected, on the ground that it did not comply with the statutory requirements. This objection was sustained, and the evi- dence was excluded. The Circuit Court ordered the sale of the land ; and directed that the judgment of the Bank should be paid out of the proceeds before the claim of Chrisman. Chrisman appealed from an order denying his motion for a new trial. D. C. Allen, and /Samuel Hardwicke, for appellant. "^ The doctrine of estoppel does not apply. It takes two to make an estoppel. There must be a party estopped, and a party in whose favor the estoppel works. Herman on Estoppel, 40, 41. It is plain from the evidence that the Missouri City Savings Bank never had a cor- porate existence, nor a lawful organization on which corporate exist- ence could be based. The Circuit Court in excluding the certificate dated April 24th, 1869, so held. Hence there was no person in whose favor an estoppel could work. Douthitt v. Stinso7i, 63 Mo. 279. The judgment against Clark being a nullity (because not rendered in favor of any legal entity), no question of estoppel arises under it. Bigolovv on Estoppel, 21, 283 ; Wixom v. Stephens, 17 Mich. 518. [Omitting remainder of argument.] Simrall & Sandusky, for respondent. By the execution of the note Clark admitted the corporate existence of the Missouri City Savings Bank, and he was estopped thereafter from denying its corporate existence. [Omitting citations.] It was un- necessary to allege that plaintiff was a corporation ; and therefore 1 Only so much of the report is given as relates to one point. — Ed. STOUTIMORE V. CLARK. 207 unnecessar}' to prove it. Clark was not only estopped by the execu- tion of said note from denying the corporate existence of the bank, but he was also estopped by the judgment. If the defense, 7ml tiel corpo- ration, was open to him at all, it should have been asserted before the rendition of said judgment. [Omitting remainder of argument.] Norton, J. . . . In support of these positions it is insisted by counsel that, inasmuch as, on the trial of the cause, the Missouri City Savings Bank failed to introduce evidence establishing the fact that it was a corporation, the said judgment rendered in its favor was a nullity and did not create a lien upon the real estate of Clark. We think the view thus taken is unsound. The note upon which said judgment was rendered is as follows : " S4,000. Missouri Citt, July 1st, 1870. Four months after date we promise to pay to the order of the Mis- souri City Savings Bank, Four Thousand Dollars, negotiable and pay- able at the office of the Missouri City Savings Bank, Missouri Cit}', Mo., without defalcation or discount, for value received, with interest at ten per cent per annum from maturity until paid. Gilmer, Clark & Co. J. Y. Clark. R. G. Gilmer, Security." "We think it clear that in the suit instituted by the bank on this note Clark would not have been allowed to deny the corporate existence of the bank for the reason that b}- executing the note he admitted the fact that it was a corporation, which estopped him from disputing it. This principle was distinctly enunciated in the case of National Insuraficej /f- Co. V. Boicman, 60 Mo. 252, following the case of Farmers and Mer- chants Insurance Co. v. Needles, 52 Mo. 17, and the case of O. db M, B.R. Co. V. McPherson, 35 Mo. 13. In the case of City of St. Louis V. Shields, et al., 62 Mo. 247, it was expressly held that the obligors on a bond given to a corporation by making and signing the instrument admit the corporate capacity of the obligee, and in a suit on such bond cannot plead nul tiel corporation. The cases cited indisputably estab- lish that Clark, the obhgor in the note upon which the judgment rests, could not have set up as a defense that the bank was not a corporation, and it therefore follows that the judgment, so far from being a nullity as counsel contend, was rightful and proper, and from the time of its rendition became a lien on the real estate of Clark in Clay county, and was conclusive and binding not only on him but upon all claiming through or under him. [After discussing the doctrine of privity.] It thus appearing that Clark, against whom the judgment in favor of the bank was rendered, could not have prevented its rendition by disputing the corporate ex- istence of the bank it therefore necessarily follows from the principles ^^fi^ 208 CALLENDER V. PAINESVILLE AND HUDSON RAILROAD CO. above announced that Chrisman, the beneficiary in the deed of trust executed subsequently to the rendition of the judgment, and convey- nig to the trustee for him land upon which said judgment had become a lien, occupied no better position than Clark. The judgment being efficacious to create a lien on Clark's land, could not have been drawn iu question by Clark on the ground that it was a nullity, because the bank was not a corporation ; nor can it be assailed on the ground by Chrisman, who became a priv}^ in estate by reason of the grant made by Clark to him in the deed of trust of part of the land upon which the judgment was attached as a lien. Judgment affirmed. PAINESVILLE & HUDSON RAILROAD CO. I860. 11 Ohio State, b\(>A R to the Court of Common Pleas of Cuyahoga County, ved in District Court. Plaintiffs filed petition to recover debt and damages claimed under a written contract of defendant, an incorporated company, executed on the part of the company by Van R. Humphrey, as its president. ^ George W. Steele filed a motion to dismiss ; stating that he was a member and secretary of the compan}', denying the validity of the ser- vice of the summons, and alleging that said company is not a corpora- The Court of Common Pleas dismissed the action, holding that, lew of the defects in the certificate of organization under the feneral statute, the defendant was not a duly organized corporation or [liable to be sued as such. SuTLiFF, J. [After considering the question as to the validit}' of ^ certificate, and intimating that the only objection to it raised by v^ counsel was untenable.] ■J^'t^'y^ I^i^t in this case the original petition alleged that the defendant was y^ 1 a corporation. The contract upon which the action was brought, a y2 copy of which was appended to the petition, purported to be executed by the defendant, as a corporation ; and the motion and the affidavit of the mover, disclosed, at most, only a defect in the act of incorpora- tion. But the affidavit admits that the company had attempted in all respects to comply with the requisitions of tlie statute, and in fact ob- tained, by a supposed compliance on their part, the acceptance and record of their certificate by the secretary of state, a copy of which was to them a valid charter, as they supposed. And tlie affiant further states tliat he had acted as their secretary for some three years, and * Only so much of the case is given as relates to one point. —Ed. CALLENDER. V. PAINESVILLE AND HUDSON RAILROAD CO, 209 that the president of the compan}' was then residing at Painesville, where the company then kept its office. It thus appears that the members of the company obtained their charter, supposed themselves a legally incorporated company, and had continued to hold themselves out, and to act as such, to and with the public, and are still so acting. Nor is there any denial, either in the motion or aftidavit of Steele, that their president, Humphrey, was not authorized by himself and others of the association, to execute said contract on behalf of the association, as an incorporated company. Under such circumstances, the members of the company, and espe- cially the officers of the company, are estopped to deny its existence as a corporation. However mistaken in fact, no person, whether artificial or natural, is permitted to so conduct and represent himself as to induce reasonable men, at his instance, to act upon the truth of such represen- tations in their contracts and dealings with him, and to then den}- the truth of such representations, to the prejudice of the party so having relied upon them. In order for the company-, or any member thereof, to so repudiate its conduct, and disprove the truth of its own representation, it is neces sarj for jt, not only to show an honest mistake^, but that such mistak representation had not induced the adversary party, in the exercise reasonable prudence on his part, to give the credit, make the contra';c, I and act under it in confidence of the truth of such conduct and I representations. But in this case, not only has the association obtained a cop}- of the certificate, its charter of incorporation, and represented itself to the other party to be a corporation, by making the contract in that capa- city, but it has continued to act in a corporate capacity down to the time of filing the motion ; and the member so filing the motion states that he is still the officer of the corporation. It thus appears that, in- stead of contradicting the misrepresentation, before the contract was made, the company had not, even after making the contract, either in conduct or representation, ever denied their corporate character. Under such circumstances, to suffer the defendants to repudiate their first conduct, and deny the truth of their representations, by which the plaintiffs had been induced to contract with them, and upon which both parties had acted, would be in contravention of those prin- ciples of equity upon which the doctrine of estoppel rests, and its operative effect to prevent fraud depends. We are, therefore, clearly of opinion that, at the time of the hearing of the motion, the company and its members who had so Iield them- selves out to be a corporation, were estopped to deny tlint fact, for any defect whatsoever, if the same had in fact existed in their charter. The judgment of the court of common pleas must, therefore, be reversed, and the cause remanded. Judgment accordbighj. Scorr, C. J., and Peck, Gholson and Brinkekhoff, JJ., concurred. itsy cen \ p ;of 1 \ <^^.- ;^^ V CE V. TRUSTJ^ES'' OF TOWSONTOWN STATION. (i r- ' BOYCE V. TRUSTEES OF TOWSONTOWN STATION OF ' THE M. E. CHURCH. u- 1877. 46 Maryland, 359.1 / Assumpsit against an alleged religious corporation. Defendants ap- Ipeared by counsel, and pleaded, 1st, that the defendants are not and ' never were a body corporate, as alleged. Plaintiff offered in evidence an agreement or certificate of incorporation under a general statute. The statute required this document to be acknowledged before two ustices of the Peace, or a Judge of the Circuit Court or of the Supreme Bench of Baltimore. It was acknowledged before a single Justice of /^ " J the Peacq. Plaintiff, to show user of the corporate name and franchise, //V^^-'^ffered in evidence a deed of land to said Trustees ; and a mortgage ^ ^ ^2_ fi'O™ said Trustees to Crook and Hiss, Trustees. ' All the above evidence was rejected, and plaintiff excepted. Verdict VA'^^^d judgment for defendants. Plaintiff appealed. , iV Wm. A. Fisher and Orville Horwitz, for appellant. Arthur W. Machen^ for appellee. Stewart, J. . . . But the appellant has undertaken to offer evidence of certain acts and proceedings of the appellee, referred to in the xceptions, to show that it held itself out as a corporation, and treated ith-tue appellant as such, and is estopped from denying its liability as corporation. / We think it would be extending the doctrine of estoppel to an extent, not justified by the principles of public policy, to allow it to operate through the conduct of the parties concerned, to create substantially' a de facto corporation, with just such powers as the parties may by their acts give to it. This would be substituting the dealings of the parties, for compliance with the requirements of the law, and giving to them the same effect tiu-ough the aid of the Courts. Thus, virtually, through the Courts, recognizing the existence of the corporation, in manifest disregard of the written law. It has been determined by this Court, that a corporation cannot bind itself in excess of its powers. Penna. tSteam Navigation Co. vs. Dandridge, 8 G. & J., 319. Whilst denying its capacity upon any principle of estoppel, to make contracts ultra vires, to bind itself; it would not be consistent with that tlieoiy to recognize its existeyice ad Ubition, according to the con- duct of the parties concerned. Such a principle would seem to affix no otlier limit to the existence of the coi-poration de facto, or the extent of its power than the deal- ings of tlic parties, tlnough the recognition of the Courts, might, upon the doctrine of estopiK;!, prescribe. . 1 Stateiiicnt abridged. Arguments, and part ui (;i)iuioii, omitted. — Ed. BOYCE V, TKUSTEES OF TOWSONTOWN STATION. 211 It would be more reasonable to hold corporations to their contracts, though ultra vires, of which they have received the benefit, or to pre- vent parties who have contracted with them, and received the bene- fit therefrom, from defeating their liability, on the ground of want of power in the corporation, as is held in quarters of high authority, (see note and references in 2/ul ICent, 351,) than to hold that corpora- tions should be deemed to have existence, because they had so held themselves out. The statute law of the State, expressl}' requiring certain prescribed acts to be done to constitute a corporation, to permit parties indirectlj', or upon the principle of estoppel, virtually to create a corporation for any purpose, or to have acts so construed, would be in manifest opposi- tion to the statute law, and clearly against its policy, and justified upon no sound principle iu the administration of justice. Judgment affirmed. 212 THRASHER V. PIKE COUNTY R. CO. CHAPTER V. ACQUISITION OF MEMBERSHIP — SUBSCRIPTIONS FOR ST0CK.1 Ua a d^tryb %, ^ ^'^'^^riRASHER V. PIKE COUNTY R. CO. \l ^ yAj^ 1861. 25 ///mow, 393.2 \ij A^m. A''^^ .BfeEESE, J. The appellee, who was plaintiff in the court below, IV' (^ges several reasons justifying a recovery in this case, which it is Ji^ i( necessary to notice. The declaration contains a special count, aver- I /^T^ Vjrmng, that on the nineteenth of March, 1856, the plaintiffs were a body \ ' [Lpolitic and corporate, with power to construct and operate a railroad • .^)rH^ within the county of Pike, and authorized by law, as such corporation, to V*""^*' Insecure subscriptions to the capital stocli of the company to the amount ^i /'jj-V^ A)f one million of dollars, in shares of one hundred dollars each, and, V ^r ^ desiring to ascertain what amount of stock would be subscribed, and r/'Mv nO^ ^ ^0^ having opened regular subscription books, but intending so to do, ■ ' ^ M i/^ agreed with the defendant that they would, in a reasonable time there- \jLji'^ t"/^ 4fter, open books for the purpose of securing such subscriptions, and .(^ , Ik^ K ■( wA that they would permit and allow the defendant, when the books should ■\ ,j<^t t^ be opened, to subscribe to the capital stock of the company thirty ^^^ shares of one hundred dollars each, and upon payment therefor, the defendant should be the owner of thirty shares of the capital stock of the company. It is then averred, that the defendant, in consideration of this promise, undertook and promised the plaintiff that he would subscribe to the stock of this company the sum of three thousand dol- lars, when the books should be opened for subscriptions ; that this promise was by a writing, signed by the defendant, and by him de- 1 The effect of fraud in obtaininj^ suljscriptions is not dealt with as a specific topic in this book. Tlie fjeneral rule of law, tliat a contract induced by fraudulent representations is voiilable at the option of the innocent party, "ai)plies with full force both to contracts of membership and to contracts to jiurchase or to take shares in a corporation at a future time." Hut, of course, the riRht to avoid a subscrijition induced by fraud may bebarred by laches. And, in view of the peculiar character of the contract of membership, "and the e(|uitable relations which it creates as between the shareholders and creditors atid between the share- holders themselves," the person defrauded "must proceed with the utmost dilijifence if he desires to annul his contract." See 1 Morawetz on Private Corporations, 2d ed. ss. 94 and 108. — En. 2 Statement omitted. Only so much of the opinion is given as relates to a single point. — Ed. Qr^^ THRASHER V. PIKE COUNTY R. CO. 213 livered to the plaintiff. It is then averred, that on the same day, sub- scription books to the capital stock of the company were opened, of which the defendant had notice. The breach is, that the defendant neglected and refused to subscribe anything to the capital stock, ac- companied by an averment that the subscription, when the books were opened, was due and payable before the commencement of the suit, and although notified thereof, the defendant has refused to pay any part of the sura of three thousand dollars. The common counts are added, in one of which the indebtedness is alleged to be for one hun- dred shares of the stock of the Pike County B^ailroad, before that time bargained and ^old to the defendant. This is the cause of action as set forth by the plaintiffs, and it is claimed by them, that they are entitled to recover as damages the par value of the stock, or the amount of calls made from time to time upon it, and which, at the commencement of the suit, amounted to fourteen installments, of five per cent, each, making, in all, twenty-one hundred dollars. This, we do not think, is a fair view of the defendant's liability upon I his promise, if one was made to the plaintiffs. His undertaking is, I to subscribe a certain amount of stock, when the subscription books should be opened. This promise does not make him a stockholder, and, as such, liable to calls. The company has parted with no stock to him, and can only claim as damages, the actual loss sustained by them by his failure, or refusal to subscribe, when he was notified the books were opened for such purpose. The company has the stock which the defendant promised to take, but did not take. His promise is like any other promise, or agreement to purchase any specific article of property. If the property contracted for be retained by the vendor, and there is no delivery to the purchaser, or offer to deliver, the dam ages must not be measured by the value of the prop'srty ; for it would not be just, in such cases, that the vendor should retain the property, and recover, also, the value of it from the promisor. Some damag might result from the loss of a bargain, and to such the vendor woul be entitled, if the extent could be established. In many cases, they would be merely nominal. On an agreement for the sale and purchase of stocks, and a refusal by the purchaser to take the stocks, the mea- sure of damages, ordinarily, might be the difference between the par value of the stocks and their market value, or between them and money. As well argued by the appellant, the defendant having vio- lated his promise by failing to subscribe, he has acquired no right to stock ; nor could a recovery in this action entitle him to become a stockholder. The company retains its stock, and the defendant his money. A stock certificate of three thousand dollars would represent a value to the company equivalent to so much money, and, in a state- ment of their liabilities, this would appear against the company as so much held by the stockholders, for which the company was respon- sible. If there is no actual subscription, the company does not incur A 214 WINDSOR ELECTRIC LIGHT CO. V. TANDY. this liability. There being no special damages alleged, or proved, we do not think the plaintiffs could recover under this declaration, as they have done, the par value of the stock the defendant promised and af^reed to take. A proper count might doubtless be so framed as to justify a full recovery, under sufficient proof. [Remainder of opinion omitted.] f Judgment reversed. (j^ , f^y WINDSOR ELECTRIC LIGHT CO. v. TANDY. '- jT ^ 1893. 66 Ve,rm.ont, 248.1 ^ . Y Tyler, J. This is an action of general assumpsit brought by the ^^^ -f^ plaintiff company to recover of the defendant an assessment upon his (y^ ^*^ subscription for shares of the plaintiff's capital stock. After the de- ,J^ y^jLl V^ fendant had rested the court directed a verdict upon the ground that ' A/ U^ ^ /^ jithe action could not be maintained in the absence of an e xpress jp ror. ^u^W /V'^^^se. \ \>- 1 /A\ A , / It appeared in evidence that the defendant and eight other persons, '*' "^ on Feb. 21, 1890, associated themselves together as ^ corporation, under ch. 153, R. L., as follows : \ '' We, the subscribers, hereby associate ourselves together as a cor- \ poration under the laws of the state of Vermont, to be known by the name of the Windsor Electric Light Co., for the purpose of furnish- ing electric light, electric heat and electric power at Windsor, in the county of Windsor, in the state of Vermont, with a capital stock of five thousand dollars, divided into two hundred shares of twenty-five dollars each. Dated at said Windsor, this 21st day of February, A. D. 1890." The articles of association were duly recorded July 3, 1890, in the office of the secretary of state, whereupon the corporation was organ- ized, by-laws were adopted and officers were elected as provided by the statute. At a meeting held Nov. 29, 1890, it was voted to assess the stock one hundred cents on each dollar subscribed, and the Assess- ment was made payable Dec. 15, 1890. The defendant's subscription was as follows : « Frank H. Tandy, ..... 80 shares," following which were the names and subscriptions of the other eight subscribers. Section 3260, R. L., ch. 152, provides that when a proprietor in any corporation does not pay a tax or assessment laid or assessed by such corporation, agreeably to the by-laws thereof, the treasurer may sell, by public auction, the shares of the delinquent under such regulations as the corporation, by its by-laws, directs. There was no provision in 1 Statement and arguments omitted; also part of the opinion. — Ed. WINDSOK ELECTRIC LIGHT CO. V. TANDY. 215 the by-laws that the plaintiff might sell delinquent stock, as is per- mitted by this section of the statute. The plaintiff claims that the defendant's subscription to the capital stock raised an implied promise by him to pay all assessments law- fully laid upon his stock, and that the statutory remedy was merely cumulative. The defendant contends that, as there is no provision for the enforcement of payment of assessments either in chapter 153, in the by-laws, or in the articles of association, the plaintiff's only remedy is by a forfeiture and sale, as provided in section 3260. When the defendant and others, by articles, had associated them- selves together pursuant to the provisions of the statute, and the arti- cles had been recorded and certified by the secretary of state, and the corporation had been organized, and all the conditions precedent re- quired by the statute had been complied with, those persons became a body politic and corporate under the laws of the state. The plain- tiff's corporate existence was then and thereby established, and the defendant became, by the act of subscription, a stockholder. His subscription is presumed to have been accepted by the plaintiff, and it was binding upon it and upon the defendant, the prospective rights of membership being a sufficient consideration to support the con- tract. Beach on Pri. Cor., ss. 63 and 513 ; HaHford & Neiv Haven R'. Co. V. Kennedy, 12 Conn. 499. Whether the defendant, by becoming a stockholder, incurred a per- sonal liability to pay his proportion of such assessments as should be laid upon the stock, can best be determined by inquiring what the relation was which he assumed towards the corporation by the act of subscription. By agreement the entire capital was to be five thou- sand dollars, divided into two hundred shares of twenty-five dollars each. The defendant subscribed for and agreed to take eighty shares, and the corporation, by accepting his subscription, became obligated' to assign that number of shares to him. It_se ems clear, then, that i n the defendant impliedly promised^ta^contribute, toTvards the entire I /j capital as miic5 £dhey as his number oX shares represented,^ and in ' s uch instalments and at su ch times as the cojp Qration should re quire. '^n Lake Ontario, etc., R. Co. v. Mason, 16 N. Y. 451, it was held that] the defendant's subscription to the articles was, in effect, a contract to pay for the shares for which he subscribed. Dayton v. Boist, 31 N. Y. 435 ; Phoejiix Warehouse Co. v. Badger, 67 N. Y. 294 ; Merri- mac Mining Co. v. Levy, 54 Penn. St. 227. Morawetz on Pri. Cor., s. 56, says that such a subscription does not constitute a mere executory contract of sale^ but that t he liability to m\Lthe amou nt of the shares is an incident of the contract ol" mem- bership ; that the~moraent tlie "suBscriber assumes' the statuS^f a / sliareholder he becomes entitled to the rights and privileges incident/ to membership, and is liable to all the obligations of a stockholder,) and must contribute the amount of capital subscribed by him. In section 128 the same writer says that the liability is not merely to 216 ATHOL MUSIC HALL CO. V. CAREY. pay for the shares for which he has subscribed, but to contribute to the capital of the company in proportion to the number of shares he has taken. See notes to same section. In Massachusetts, Maine and New Hampshire a different rule has obtained. In those states it has been held that, unless there is an express promise to pay for the shares, the subscriber incurs no personal liability. [After commenting upon Essex Bridge Co. v. Tuttle, 2 Vermont, 393 ; Conn. & Pass. B. Co. v. Baileij, 24 Vermont, 465 ; and B. & B. B. Co. V. Thrall, 35 Vermont, 536.] Judge Aldis said in the opinion [in B. & B. B. Co. v. Thrall] : " At an early day in railway enterprises it was claimed, that where provisions for forfeiture were embodied in the charter, the corpora- tion could not sue for subscriptions, but must and could enforce the payment of them only by proceedings in forfeiture. But it has long been held that the right to sue and to declare stock forfeited co-exist, and that the latter proceeding is merely cumulative. Such it was intended to be in this charter." ... While the case cannot be regarded as authority upon the point here in controversy, we think that the rule stated in the extract quoted from the opinion is the more just, and ought to be adopted rather than the one that prevails in some of the other states. It was not necessary that the defendant should expressly promise to pay for his shares, or to contribute his proportionate amount of the $5,000 capital. The promise is clearly implied, and the action can be maintained upon it. The remedy by forfeiture is only cumulative. Judgment reversed and cause remanded,^ ATHOL MUSIC HALL COA. CAREY. J ^. 1875. UG Massachusetts, i71.^ L //^^ ij^ L^ jCoNTRACT on the following agreement : "■^ f ^^^ each, of which more than 10 per cent has been subscribed. Jf^^ ty^ '< ^" March 22, 1890, the defendant, with other persons, became a sub- flj>^ f aaV scriber to the capital stock by severally executing and delivering the Jt ^ ^ Statement abridged. Arguments and part of opinion omitted. — Ed. LINCOLN SHOE MFG. CO. V. SHELDON. 221 signed subscribers, hereby bind ourselves to purchase the number of shares of stock set opposite our names in the Lin coln Shoe M e turiug Company at fifty (^50) dollars per share ;< one fourth of the amount so by us subscribed respectively to be paid when the founda- tion of the building is laid ; one fourth whe n the building i s undei roof, the balance on call of the directors. /"Tn consideration of the building being erected on the west half oithe northeast quarter of section twenty eight (28), town ten (10), range six (6), along the line of the Lincoln & Northwestern railroad. Witness our hands on this 22d day of March, 1890." Defendant placed the number of fifty shares opposite his name ; and thereby agreed to take that number of shares and agreed to pay the plaintiff therefor the sum of $2500. After more than 10 per cent of the capital stock had been subscribed, the plaintiff company commenced the erection of a building. The foundation was laid June 10, 1890 ; and on Sept. 1, 1890, the building was erected and under roof ; and it was on the land described in the agreement. Plaintiff, before the beginning of the action, demanded of defendant payment of the two instalments of one fourth each which had thus become due, and tendered certificates of stock to de- fendant, who has not paid said instalments. Plaintiff prays judgment for $1250, with interest. A demurrer to this petition was sustained by the District Court. Plaintiff brought error. Thomas C. Munger, for plaintiff in error. y(rH. Pound & Biirr, contra. tf^ (J«^ Ragan C. [after stating the case] : "^-Z // ^ ^ ' Two arguments are relied upon here to sustain the judgment of tHa.'p . ,^^\jc^\ V / district court. 1. The first contention //-' is that the contract of Sheldon made t^.« basis of this suit is an agreement to purchase certain shares of stock l M' nJ^^^r M of the manufacturing company, and not a subscription to the stock of/ •■,j~f-'\ «<> such company ; and that the measure of the manufacturing company's';' ~* damages is the difference in the actual value of the stock and the price ia<^: ^ .n5> which Sheldon agreed to pay for it at the date of the breach of his, » .^ contract; and since the petition does not allege what the value of t\ied < ^^J{tJ^'^'^ stock was at the date Sheldon refused to take it, that it does not state a cause of action. Is the contract of Sheldon a contract to purchase stock in the manufacturing company, or is it a contract of subscrip-",^ '^' tion to_ the capital stock of such corporation ? Whether one or the" otKer is a matter of construction for the court, and to be determined^ from the intention of Sheldon, gleaned from the contract itself and the law in force applicable to the subject-matter of the contract. The manufacturing company is a corporation organized under chapter 16, Compiled Statutes, 1893, entitled "Manufacturing Companies." Section 37 of that chapter provides that whenever any number of persons associate themselves together for the purpose of engaging in the business of manufacturing they shall make a certificate specify- 222 LINCOLX SHOE MFG. CO. V. SHELDON. ing the amount of capital stock necessary, the amount of each share, the name of the place where the corporation shall be located, and the name by which it shall be known ; that such certificate shall be certi- fied and forwarded to the secretary of state and by him recorded ; and when these things are done that the persons so associating them- selves together are authorized to carry on manufacturing operations by the name they have adopted ; and section 39 of the chapter pro- vides : " The persons named in the certificate of incorporation, or a majority of them, shall be commissioners to open books for the sub- scription to the capital stock of said company, at such times and places as they shall deem proper, and the said company are [is] au- thorized to commence operations upon the subscription of ten per cent of said stock." It appears from the petition that on the 10th of February, 1890, certain gentlemen associated themselves together for the purpose of organizing the manufacturing company ; that they made the certificate contemplated by said section 37 on that date and tiled it with the secretary of state ; and on the 22d of March afterwards Sheldon signed the contract sued upon in this case. The presump- tion then is that the gentlemen, or a majority of them, who executed the certificate of incorporation provided for by said section 37, after it was executed and filed with the secretary of state, opened books to enable persons, who might desire to do so, to subscribe for the capital stock of the corporation, and that the contract sued upon was made by Sheldon at such time. The law does not require that the capital stock of a corporation like this shall be subscribed before its certifi- cate of incorporation is executed and filed with the secretary of state ; indeed the statute contemplates that the certificate of incorporation shall be first made and filed and afterwards the stock books opened. The language of the contract in suit is : "We, the undersigned sub- scribers, hereby bind ourselves to purchase the number of shares of stock set opposite our names in the Lincoln Shoe Manufacturing Company at fifty dollars per share ; one-fourth of the amount so by us subscribed, respectively, to be paid when the foundation of the building is laid ; one-fourtli when the building is under roof ; the balance on call of the directors." While it is true that the word "purchase" is in the contract, yet we are unable to construe this contract as a contract of sale of stock. The corporation did not own any stock. The averments of the petition exclude the pre- sumption that this manufacturing company on the 20th of March, 1890, was the owner of any of its stock and that it agreed on that day to sell its stock or any of it to Sheldon. When we take into consideration the law under which this incorjioration was organized ; that it was authorized to commence business wlien ten per cent of its capital stock had been subscribed ; that after its articles or certificate of incorporation had been filed with the secretary of state, that the persons executing such certificate had the right to open books for LINCOLN SHOE MFG. CO. V. SHELDON. 223 .1 ) ^ /^ subscriptions to the capital stock of the corporation ; that the con- tract bound the signer of it to pay one-fourth of the value of fifty- shares of stock at fifty dollars a share when the foundation of the building to be used by the manufacturing company should be laid, and a like one-fourth when such building should be under roof, and the remainder of the value of said fifty shares at fifty dollars per share on call of the directors, we are forced to the conclusion that by the contract in suit Sheldon subscribed and agreed to pay for, in the manner stated in the contract, fifty shares of the capital stock of the manufacturing company. For the purposes of this case, however, we think it entirely immaterial whether the contract of Sheldon is one to purchase' fifty shares of stock of this manufacturing company, or| whether by the contract he subscribed for fifty shares of this stock. The petition alleges that before the bringing of this suit the founda- tion of the building to be used by tlie manufacturing company had been laid and such building was under roof, and that the manufactur- ing company demanded of Sheldon that he pay it ^1250, the agreed value of twenty-five shares of said stock, and at the same time ten- dered him certificates of the stock of said corporation for the amount of money claimed. So that if we should adopt the construction of this contract claimed by Sheldon he would still be liable to the manu- facturing company for the agreed price of the shares of stock. As Sheldon's having agreed to purchase fifty shares of this stock at fifty dollars per share, and the manufacturing company having tendered him the stock, it would be entitled to recover the contract price of the stock. (3 Parsons, Contracts [5th ed.], 209. [After referring to Wasson v. Palmer, 17 Nebr. 330 ; Thrasher v. Pike County R. Co., 25 111. 393 ; and Thompson v. Alger, 53 Mass. 428.] These decisions are but applications of the well known rule that where a vendee refuses to perform his contract the vendor has either , one of two remedies : he may keep the property made the subject of ' the contract and sue the vendee for his failure to perform, and in I such case his measure of damages will be the difference between the ■ contract price of the property and its actual value at the date of the ! breach of the contract ; or the vendor may tender the property made ' the subject of the contract to the vendee, and then in a suit upon the contract the vendor's measure of damages will be the contract price • of the property. 2. The second contention is that the petition fails to state a cause I _^^ jj'' t of action for the reason that it shows that the whole amount of cap-/ >• iM/^'^^JL' /^ ital stock provided by the articles of incorporation of the manufac-i • I A* lO'c, <^, turing company has not been subscribed. To sustain this contention' t^ ~^ ^<>^ we are cited to Livesey v. Omaha Hotel Co., 5 Keb. 50, in which it was rM^, held : " When the subscription contract or charter of a corporation a \ specifically fixes the capital stock at a certain amount, divided into ^ shares of a certain amount each, the capital so fixed must be fully / 224 LINCOLN SHOE MFG. CO. V. SHELDON. subscribed before an action will lie against a subscriber to recover assessments levied on the shares of stock, unless there is a clear pro- 'vision in the contract to proceed with the accomplishment of the main desitrn with a less subscription than the whole amount of capital specified, or there is a waiver of the condition precedent," and Hale v. Sanborn, 16 Neb. 1, and Hards v. Platte Valley Imj^rovement Co., 35 Neb. 263. The general rule announced in the case in 5 Neb. was fol- lowed and adhered to in the cases in the 16th and 35th ; but these cases are not in point here. In the case in 5 Neb. the corporation was a hotel company, in 16 Neb. the corporation was a flouring mill, and in 35 Neb. the corporation was organized for the erection and operation of a hall for the use of societies, organized meetings, and for such other purposes as the trustees of the corporation might deem for the benefit of the stockholders. In other words, none of the cor- porations were manufacturing corporations. The corporations men- tioned in those cases were organized under the general incorporation laws of the state, and there is no provision in this general law by which a corporation is authorized to commence the transaction of business until all its capital stock is subscribed. In the case at bar the corporation is a manufacturing corporation and expressly^arrthbr- ized by the statute under which it was incorporated to commence business when ten per cent of its capital stock should be subsciobed. Cook, in his work on Stock and Stockholders, after stating the gen- eral rule that it is an implied part of a contract of subscription to the capital stock of a corporation that the contract is to be binding and enforceable against the subscriber only after the full capital stock of the corporation has been subscribed, says : " The act of in- corporation may of course vary this rule. Thus, it is well established that where the charter authorizes the organization of the company, and the commencement of corporate work after a certain amount of the capital stock has been subscribed, such a charter provision is equivalent to an express authority to the corporation to call in the subscriptions as soon as this organization is effected. Subscriptions to the full amount of the capital stock are held not to be necessar3^ The defence is not good." (1 Cook, Stock & Stockholders, sec. 177.) ,In this state the legislature does not by a special act charter a corpo- ration, but all corporations are formed under general laws, and these laws and the articles of incorporation adopted in pursuance of and in conformity with such laws constitute the charter of a corporation of |;his state. In Jewett v. Valley R. Co., 34 0. St., 601, the contract sued upon was in the following language : " ' We, the undersigned, hereby re- spectively subscribe to and agree to take of the capital stock of the Valley Railway Company the number of shares, of fifty di)llars each, sot oj)posite our I'espective signatures,' " etc. The capital stock of the railway company was fixed by its certificate of incorporation at three millions of dollars. Jewett subscribed for one hundred shares LINCOLN SHOE MFG. CO. V. SHELDON. 225 of its stock amounting to $5,000. A law in force in Ohio at the time provided that railroad corporations, so soon as ten per cent of their capital stock should be subscribed, might give notice to the stock- holders to meet for the purpose of choosing directors and construct and maintain a railroad. The railroad company sued Jewett on his subscription, and he defended on the ground that, as the entire amount of the capital stock authorized by the certificate of incorporation had not been subscribed, he was not liable. The court said : " Can assess- ments be made and enforced on subscriptions for shares of the capital stock of a railroad corporation before the whole amount of stock, mentioned in the certificate of incorporation, has been subscribed ? In the absence of both legislation and express agreement on the sub- ject, they cannot." The court then cites Salem MUl-Dam Corjioratioii V. Ropes, 6 Pick. [Mass.], 23, and other cases supporting the general doctrine, and continues : " In most states, however, provision has been made by statute ; and it is well settled that ' contracts must be expounded according to the laws in force at the time they are made, and the parties are as much bound by a provision contained in a law as if that provision had been inserted in and formed a part of the contract.' ... A careful consideration of the enactments set forth in the statement of this case, and other cognate statutory provisions, leaves with us no doubt that when ten per cent of the capital stock had been subscribed the company may organize by the election of directors, who may ' transact all business of the corporation,' and, looking to the duties imposed on the directors, it is clear that the residue of the stock, beyond the ten per cent, . . . must ' be paid in such installments and at such times and places, and to such persons as may be required by the directors of such company,' though the whole amount of the capital stock may not have been subscribed. . . . The terms of the subscription on which this suit was brought are in harmony with the statutory provisions as we have construed them ; and hence the fact that the whole of the capital stock had not been taken afforded no defence to this action." (See, also. Hunt v. Kansas & Missouri Bridge Co., 11 Kan. 412.) We conclude, therefore, that the fact that all the stock authorized by the articles of incorporation of a manufacturing company has not been subscribed is not a defence to a subscriber for such stock when sued on his contract of subscription, if ten per cent of the stock of such manufacturing corporation has been subscribed. The judgment of the district court is reversed and the cause remanded. Reversed and remanded. i{p\ U\y>^t^^(r< ^"\ INNEAYOLiafcHK I ESHING MACHINE CO. |&/ DAVIS, V r 1889. 40 Minnesota, 110,1 MiNNllA!|>OLIS THRESHING MACHINE CO.-,t!. DAVIS. y.V^^ J^IiTCHELL, J. This was an action to recover instalments due on (? subscriptions to stock of the plaintiff. The facts fully appear from the findings of the court, in connection with Exhibits A and B at- tached to the complaint. Those material for present purposes are that, a scheme having been started to organize a manufacturing cor- poration with $250,000 capital, whose works should be located at Junction City, near Minneapolis, and one McDonald having proposed that if the citizens of Minneapolis would subscribe $190,000 to the capital stock, he would subscribe the remaining $60,000, one Janney, a promoter, but not a subscriber to the stock of the proposed corpora- tion, acting as a voluntary solicitor, having with him the subscription j,«^r, (Exhibits A and B,) about April 1, 1887, proceeded to canvass j^ L'^i\v subscriptions to the stock of the proposed corporation, on the ' terms and conditions embodied in the paper. He first applied to de- fendant, who subscribed $5,000 of stock. Afterwards, and about the same date, o|lK(r citizens respectively subscribed to the stock, on the same papepj^to the aggregate amount, including defendant's subscrip- tion, of$ttyO,000, of which over $65,000 has been paid in to plaintiff. I^lpon McDonald, in accordance with his proposition, subscribed emaining $60,000, which he has paid up in full. All the condi- expressed in the written subscription (Exhibit A) having been K '' ju^'\ f^^lly performed and complied with, the proposed corporation was " J i/^ afterwards, about April 25, 1887, organized, and these subscriptions to * * (uA its stock delivered over to it. The corporation, acting in good faith upon such subscriptions, including that of defendant, expended large sums of money in locating and constructing its works, and entered into large contracts, and incurred liabilities to the amount of over $J5,000. During all this time, the corporation had no notice or nowledge of any coiulition being attached to defendant's subscription other than those expressed in the subscription paper itself. Neither is it found or claimed that any of the other subscribers to the stock had any such notice or knowledge. Defendant was not present at the /Vorganization of the corporation, and never attended or took part in "^ any of its meetings, and had no notice or knowledge that the sub- scription pai)er had been transferred or delivered over to the plain- tiff, or that plaintiff relied on it, until about November, 1887, just ])rior to the commencement of this action. Upon the trial the defendant was permitted, against plaintiff's ob- jection and exception, to testify that he signed or subscribed to the stock only upon the express oral condition and agreement, then had between him and Janney, that the latter should retain in his possession 1 Statement omitted. — Ed. ^s^r-'C-^*^ V" >r V- r' .V ;\^ ^ ^^, MINNEAPOLIS THRESHING MAClili[E CO. V. DAVIS^ <^527 said agreement with his name signed thereto, and noTcfeliver it to any one, or use it in any way, until certain four i)ersons should subscribe to the stock, each in the sum of $5,000; that Janney took the agree- ment from defendant on that express condition and understanding, and not otherwise ; that none of these four persons ever did subscribe to the stock of the plaintiff ; and that defendant never authorized Janney or any one to deliver said agreement to any one except upon the condition referred to. The court found the facts to be in accord- ance with the testimony, and upon that ground found as a conclusion of law that defendant never became a subscriber to the plaintiff's stock. The competency of this evidence is the sole question in this case. Under the elementary rule of evidence that a written agreement ^nnot^be varipHj TrfljdRfnx)^^^^ paroIT it is not competent for a sub:. scrjL igr to_ stock to allege that he is b ut a conditional subscriber. The condition must be inserted in th e writi ng to be effe ctual. This rule applies with special force to a case like the present, where to allow the defendant now to set up a secret parol arrangement by which he may be released, while his fellow-subscribers continue to be bound, would be a fraud^ not' only upon them, but upon the corporation which has been organized on the faith of these subscriptions and upon its creditors. The defendant of course does not attempt to controvert so elementary a rule as the one suggested, but contends that the effect of this evidence was not to vary or contradict the terms of the writing,, but to prove that there was never any delivery of it, and hence that there never was any contract at all, delivery being prerequisite to the, very existence of a contract. His claim is that the subscription paper Avas given to and received by Janney merely as an escrow, or as ill the nature of an escrow, only to be delivered or used upon the perr formance of certain conditions precedent, and that until they were performed there could be no valid delivery. In determining this question it becomes important to consider the nature of a subscription to the stock of a proposed corporation, and the relation of the different parties to each other, under the facts of this case. A subscription by a^umber of jersons to th e stock of a corporationtojbej^i erea^ r formed by theni_ has in Jaw_a double character : Firsts, It is a contract between the subscribers themselves -^ to become stBfCkholders without further act on their part immediately \I) upon the formation of the corporation. As such a contract it is binding and irrevocable from the date of the subscription, (at least in the absence of fraud or mistake,) unless cancelled b y consent of all th e subscribers before acceptance by the corporation. Second, It is also ^ in the nature of a continuing offer to the proposed corporation, which, Ci- upon acceptance by it after its formation, becomes as to each sub- scriber a contract between him and the corporation, 1 Mor. Priv. Corp. § 47 et seq. ; Red Wing Hotel Co. v. Frederick, 26 Minn. 112, (1 N. W. Rep. 827.) Janney, the promoter who solicited and obtained t 228 MINNEAPOLIS THRESHING MACHINE CO. V. DAVIS. the subscriptions, occupied the position of agent for the subscribers as a body, to hold the subscriptions until the corporation was formed in accordance with the terms and conditions expressed in the agree- ment, and then turn it over to the company without any further act of delivery on part of the subscribers. The corporation would then become the party to enforce the rights of the whole body of subscrib- ers. It follows, then^ that, considering the subscription as acontract between the subscribers, a delivery to Jaiiiiey b y a subscriber was a complete and valid delivery, so that his subs criptio n became_£Q iw- stanti aJ)i_ndi^o c ontract . The case stands precisely as a case where a'contract is delivered by the obligor to the obligee. It cannot there- fore_b£ _treated as a ca se where a writing has bee n delivered to a th ird par ty in escrow;^ . The defendant, however, attempts to bring the case within the rule of Westman v. Krumweide, 30 Minn. 313, (15 N. W. Rep. 255,) in which this court held that parol evidence was admissible to show that a note delivered by the maker to the payee was not intended to be operative as a contract from its delivery, but only upon the happen- ing of some contingency, though not expressed by its terms ; that is, that the delivery was only in the nature of an escrow. We so held upon what seemed the great weight of authority, although the doc- trine, even to the extent it was applied in that case, is a somewhat dangerous one. The distinction between proving by parol that the delivery of a contract was conditional, and that the contract itself contained a condition not expressed in the writing, is one founded more on refinement of logic than upon sound practical grounds. It endangers the salutary rule that written contracts shall not be varied by parol. Said Erie, J., in Pym v. Campbell, 6 El. & Bl. 370, in sus- taining such a defence: "I grant the risk that such a defence may be set up without ground, and I agree that a jury should therefore look on such a defence with suspicion." And in all the cases where such a defence has been sustained, so far as we can discover, they have been cases strictly between the original parties, and where no one has changed his situation in reliance upon the contract and in ignorance of the secret oral condition attached to the delivery, and hence no question of equitable estoppel arose. Many of the cases have been careful to expressly limit the rule to such cases. Benton V. Martin, 52 N. Y. 570 ; Sweet v. Stevens, 7 R. I. 375. Conceding the rule of Westman v. Krumiveide, supra, to its full ex- tent, there are certain well-recognized doctrines of the law of equita- ble estoppel which render it inapplicable to the facts of the present case. This subscription agreement was not intended to be the sole contract of defendant. It was designed to be also signed by other 7)arties, and from its very nature defendant must have known this. Each s\icceeding subscriber executed it more or less upon the faith of the subscriptions of others preceding his. The paper purports on its face to be a completed contract, containing all the terms and con- MINNEAPOLIS THRESHING MACHINE CO. V. DAVIS. 229 ditions which the subscribers intended it should. When this agree- ment was presented to others for subscription, defendant had not only signed it in this form, but he had also done what, under the facts, constituted, to all outward appearances at least, a complete and valid delivery. He had placed it in the proper channel according to the ordinary and usual course of procedure for passing it over to the corporation when organized, and clothed Janney with all the indicia of authority to hold and use it for that purpose without any other or further act on his part, untrammelled by any condition other than those expressed in the writing. In reliance upon this, others have not only subscribed to the stock, but have since paid in a large share of it. The corporation has been organized and engaged in business, expending large sums of money, and contracting large liabilities, all upon the strength of these subscriptions to its stock, and in entire ignorance of this secret oral condition which defendant now claims to have attached to the delivery. To permit defendant to relieve him- self from liability on any such ground, under this state of facts, would be a fraud on others who have subscribed and paid for stock, upon the corporation which has been organized and incurred liabilities in reliance upon the subscriptions, and on creditors who have trusted it. The familiar principle of equitable estoppel by conduct applies, viz. : Where a person, by his words or conduct, wilfully causes another to believe in the existence of a certain s.tate of facts, and induces him to act on that belief so as to alter his own previous condition, he is estopped from denying the truth of such facts to the prejudice of the other. We have examined all of the numerous cases cited by defendant's counsel, and fail to find one which, in our judgment, is analogous in its facts, or the law of which wilt cover the present case. The two which at first sight might seem most strongly in his favor are Beloit & Madison R. Co. v. Palme)', 19 Wis. 574, and Oftaiva, etc., H. Co. v. Hall, 1 Bradw. 612. But an examination of those cases will show that in neither did or could any question of estoppel arise, and in both the court held that the person to whom the instrument was delivered after signature was a stranger to it, so that it was strictly a delivery in escrow to a third party. Cases are cited where a surety signed a' bond or non-negotiable note, and delivered it to the principal obligor /y( upon condition that it should not be delivered to the obligee until/ some other person signed it, and where, without such signature, the principal obligor delivered it to the obligee and yet the courts held that the surety was not liable, although the obligee had no* notice of the condition. Such cases seem usually to proceed upon the theory that a delivery to the principal obligor under such cir- cumstances is a mere delivery in escrow to a stranger ; the term " stranger," in the law of escrows, being used in opposition merely to the party to whom the contract runs. It may well be doubted whether in such cases, where the instrument is complete on its face, the courts ^. 230 PACIFIC NATIONAL BANK V. EATON. have not sometimes ignored the law of equitable estoppel. No such defence would be allowed in the case of negotiable paper, and it is not clear why the distinction should be drawn on that line. The doctrine of estoppel rests upon totally different grounds, and operates inde- pendently of negotiability, being founded upon principles of equity. But whether the cases referred to be right or wrong, we do not see that they are in point here. Our conclusion is that the court erred in admitting the evidence objected to, and for that reason a new trial must be awarded. '\ ;,'r i *^^:^y A \ or 'Pacific national^ tojyfe'v^vEtoit. A. ff^ty ' J. - f Error to Supreme Court of Massachu's^tts. V A^ ''l/P|v nr ^{y Action at law by Mary J. Eaton, to recover from th ^ Jiyv / » .} amount paid in as a subscription to an increase of its stock. ^y^ 'ktL tlr y^n Sept. 28, 1881, paid the bank for the stock ; and 1^ "^"^ ■ '*' Action at law by Mary J. Eaton, to recover from the bank an Plaintiff ypu oepii. ^o, xoox, paiu uiic uaiiii. lur uiic Qtuuiv ^ ciiiu received a gj^ y ■ TV receipt — "Eeceived of Mary J. Eaton four thousand dollars on ^ jX^y^^j /] J account of subscription to new stock." Certificates for the new stock were made out in a book, Avith stubs to indicate their contents, and were delivered to the stockholders as they called for them. Such a certificate was made out for Miss Eaton, but she never called for it,- though she was registered in the stock register of the bank as owner thereof without her knowledge. On Jan. 10, 1882, the plaintiff de- manded of the bank repayment of said four thousand dollars, upon the ground that the conditions upon which it was received had not been performed. The Supreme Court of Massachusetts sustained this contention of the plaintiff. A. A. Ranney, for plaintiff in error. J. H. Benton, Jr., for defendant in error. Bradley, J. [After deciding another point.] The only question to be considered, therefore, is whether the fact that the defendant in error did not call for and take her certificate of stock made any difference as to her status as a stockholder. We can- not see how it could make the slightest difference. Her actually going or sending to the bank and electing to take her share of the new stock, and paying for it in cash, and receiving a receipt for the same in the form above set forth, are acts which are fully equivalent to a subscription to the stock in writing, and the payment of the money therefor. She then became a stockholder. She was properly entered as such on the stock book of the company, and her certificate of stock was made out ready for her when she should call for it. It was her certificate. She could have compelled its delivery had it 1 Only so much of the report is given as relates to a single point. — Ed. > PACIFIC NATIONAL BANK V. EATON. 231 been refused. Whether she called for it or not was a matter of no consequence whatever in reference to her rights and duties. The_ case is not lik e that of a deed for lands, which has , no foi:cfi, and is not a deed, anH']gasses no estate, until it is delivered. In that case everything de ijgnds on the delivery. But with capitaLatockit— / _is_differenti_ Witliou t exjp ress regulation to the contrary, a persoji // becflmiS g a stocSSSder by subscri bing for stock, paying the amounj;_tiL. ' * the company or its p roper officer, an d being entered on the stock book as a stockholde r. He m ay take out a certificate or not, as_ he sees fit._ Millions of dollars of capital stock are held without any certificate ; or, if certificates are made out, without their ever being delivered.- A certificate is authentic evidence of title to stock ; but it is not the stock itself, nor is it necessary to the existence of the stock. It cer- tifies to a fact which exists independently of itself. And an actual subscription is not necessary. There may be a virtual subscription, deducible from the acts and conduct of the party. Judgment reversed, and the cause remanded for further proceedings not inconsistent with this ojnnion. ERLANGER V. NEW SOMBRERO PHOSPHATE Y^ V\ A^ y^ (F EEEA^ER V. NEW SOMBRERO PHOSPHArf CQ^' ^sj.^ . ik/^\ ^ Ji^^ J^^Jf^ 1878. Law Reports, 3 Appeal Cases, 1218.'^ ti ^ \,^ AA^' K^ /o-'^j Jk^ APPEAL against a decision of the Court of Appeal \vnicn Ji^d/re- w V ^ (Versed a decree of Vice Chancellor Malins. WrljA^ i*' J^ ^ ^ ijf Sombrero, a small island in the West Indies, the property %f the fir S^' -^ >[>Cro\vn, had been leased out by the Crown for 21 years from 1865. > J C/* \y '-^^^^ lQSi?>e had been assigned to "The Sombrero Company," which L, ''^ Vv ^ y undertook to work the beds of phosphate of lime with which the N V^ 0^ ry -ik"^ island abounded. This company was ordered to be wound up. The i^^, jj^' i^,^ lease was ordered to be sold by the official liquidator, Mr. Chatteris. " r nt' i^ Erlanger and others formed a syndicate to purchase it, and did pur- 1/5 Jrr A chase it for £55,000. The purchase was effected by a provisional con- \.Jf*\ ^y ' L/* tract Aug. 30, 1871, though not formally concluded until later. The ^r Z'' f*^ ^ ^ syndicate desired to resell the lease at a profit ; and with that view /s^ift^ J >/ A "Z*^ proceeded to get up a company to purchase it from the syndicate. ' 1^ jJ J^ iT Erlanger, who acted for the syndicate, took steps to form a com- \ mt^^j^ ii' V^^Y) under the Companies Act. A memorandum of association was \*^ J^ rS^ I drawn up by the solicitor of the syndicate, and was signed by seven Aff J( ^ ^ persons all of whom were mere nominees of the syndicate. The arti- i Iv \\^^^{k^ I ^^^^ *^^ association for the company were drawn by the same solicitor, ry ♦'^ t^ |^> -(Waiyi bear date Sept. 20, 1871. These articles provide that the first board \\f. 4 r ^ ^v^ '^jo6i directors shall consist of five specified persons ; that two directors \.^, I \j^ shall be a quorum for the transaction of business ; and that the direc- ' h-^ji/* t^ tor^may, without any further authority from the members, adopt and n/J t "^.tjl 1) jMirry into effect the contract, of even date, for the assignment to the , ,^^ ly^ i)^^jct>tnpany of the island of Sombrero for the residue of the term of the lI T |w*A If^ A contract had also been drawn up, and dated Sept. 20, for the sale A 1/ J ^^ ^^^® lease to the new company. This contract purported to be ^^^y^ ,jir^ • made between Evans as vendor and Pavy as purchaser on behalf of /^tA^ L*^ b^ i^A^ne new company. Evans was a trustee or agent for the members of ' ' f^ tX' the syndicate. The contracty^as, on the face of it, a provisional one, Case abridged. Arg umdnt^mitted ; also greater nj^rt of the opinions. — Ed. ■^ ERLANGEK V. NEW SOMBRERO PHOSPHATE CO. 233 subject to the formation of the company, and the adoption of the con- tract by it. This contract recited the purchase by the syndicate on Aug. 30, but did not name the price then given. The price to the new company was to be £110,000, of which £80,000 was to be paid down, and the remaining £30,000 to be satisfied by fully paid-up shares in the new company. The money was to be obtained by the subscriptions for the shares, which were to be 13,000 in number of £10 each. The five persons specified in the articles as directors were all named by the syndicate. Two of them were persons not likely to act, and who did not act, in the early proceedings of the board. The other three were Evans, Macdonald and Dakin. Evans' shares were given to him by Erlanger. Macdonald held shares only as trustee for Erlanger. Dakin had not sufficient knowledge of the facts to form an independent judgment. The first meeting of the directors was held Sept. 29, 1871 ; and was attended by Evans, Macdonald and Dakin. It was resolved that the contract of purchase for £110,000 "be approved and confirmed." A prospectus was soon issued; and after its publication the number of applications for shares became considerable. There was never any confirmation of the purchase by vote of the stockholders. Subsequently, after new directors had been chosen, the bill in this suit was filed by the company against Erlanger and all the members of the syndicate ; one prayer being that the contract of Sept. 20 might be set aside ; and the purchase money repaid to the company. The case was heard before Vice Chancellor Malins, who ordered the bill to be dismissed, but without costs. On appeal by the company, the contract was ordered to be rescinded as to all members of the syndicate, the purchase money paid by the company repaid, and, on payment of the money so ordered to be repaid to the company, the island was to be restored by the company to the syndicate. Erlanger et als. then brought the present appeal to the House of Lords. The case was twice argued. Southgate, Q. C, and Benjamin, Q. C. (Ligle Joyce with them), for appellants. J. Najner Higghis, Q. C., and Davey, Q. C. {Alexander Young with them), for respondents. Lord Penzance. [After stating the facts.] Can a contract so obtained be allowed to stand ? The bare state- ment of the facts is, I think, sufficient to condemn it. From that' statement I invite your Lordships to draw two conclusions : first, that the company never had an opportunity of exercising, through' independent directors, a fair and independent judgment upon the subject of this purchase ; and, secondly, that this result was brought about by the conduct and contrivance of the vendors themselves. It 234 ERLANGER V. NEW SOMBRERO PHOSPHATE CO, was the vendors, in their character of promoters, who had the power and the o[)portunity of creating and forming the company in sucli a manner that with adeqnate disclosures of fact, an independent judg- ment on the company's behalf might have been formed. But instead of so doing they used that power and opportunity for the advance- ment of their own interests. Placed in this position of unfair ad- vantage over the company which they were about to create, they were, as it seems to me, bound according to the principles constantly acted upon in the Courts of Equity, if they wished to make a valid contract of sale to the company, to nominate independent directors and fully disclose the material facts. The obligation rests upon them to shew they have not made use of the position which they occupied to benefit themselves ; but I find no proof in the case that they have discharged that obligation. There is no proof that either Sir Thomas Dakbi or Admiral Macdonald was aware of the price at which the property had just been brought under the authority of the Court of Chancery, nor, indeed, that they even knew that the real vendors were also the promoters of the company. And there is certainly no proof that in the selection of the directors who were to be the com- pany's agents for accepting and affirming the proposed purchase, the vendors used their power as promotors in such a way as to create an independent body capable of acting impartially in defence of the company's interests. A contract of sale effected under such circumstances is, I conceive^ upon principles of equity liable to be set aside. The principles of equity to which I refer have been illustrated in. a variety of relations, none of them perhaps precisely similar to that of the present parties, but all resting on the same basis, and one which is strictly__aEPlicable to,ih.e__£3^sent case^ The relations of principaTandagent, trustee and cestui qlifirust, parent and child, guardian and ward, priest and penitent, all furnish instances in which the Courts of Equity have given protection and relief against the pressure of unfair advantage resulting from the relation and mutual position of the parties, whether in matters of contract or gift ; and this relation and position of unfair advantage once made apparent, ourts have always cast upon him who holds that position, the bur den of shewing that he has not used it to his own benefit. ave no difficulty, therefore, in asking your Lordships to assent to the proposition of the Lord Chancellor, that if, within a proper time after the completion of this purchase, a bill had been filed by the company, the purchase must have been set aside. The question remains whether the present bill has been filed with sufficient promp- titude for that purpose. [His Lordship held, that the company was not barred by laches. The facts relating to this branch of the case have been omitted.] LoKi) Caikns; Lord Chancellor. [After referring to purchase by the syndicate on Aug. 30, 1871.] ERLANGER V. NEW SOMBRERO PHOSPHATE CO. 235 My Lords, I stop at this point for the purpose of saying that I think it to be clear that the syndicate in entering into this contract acted on behalf of themselves alone, and did not at that time act in, or occupy, any fiduciary position whatever. It may well be that the prevailing idea in their mind was, not to retain or work the island, but to sell it again at an increase of price, and very possibly, to pro- mote or get up a company to purchase the island from them ; but they were, as it seems to me, after their purchase was made, perfectly free to do with the island whatever they liked ; to use it as they liked, and to sell it how, and to whom, and for what price they liked. The part of the case of the Respondents which, as an alternative, sought to make the Appellants account for the profit which they made on the re-sale of the property to the Respondents, on an allegation that the Appellants acted in a fiduciary position at the time they made the contract of the 30th of August, 1871, is not, as I think, capable of being supported, and this, as I understand, was the view of all the Judges in the Courts below. [After stating the subsequent proceedings up to and including Sept. 20.] In the whole of this proceeding up to this time the syndicate, or the house of Erlanger as representing the syndicate, were the pro- moters of the company, and it is now necessary that I should state to your Lordships in what position I understand the promoters to be placed with reference to the company which they proposed to form. They stand, in my opinion, undoubt edly in_j^_fidiiiciary_position. They have in their hands the creatioiiancTmoulding of the company^ they have the power of defining how, and when, and in what shape,/ and under what supervision, it shall start into existence and begin toj act as a trading corporation. If they are doing all this in order that/ the company may, as soon as it starts into life, become, through its managing directors, the purchaser of the property of themselves, the promoters, it is, in my opinion, incumbent upon the promoters to take care that in forming the company they provide it with an executive that is to say, with a board of directors, who shall both be awar that the property which they are asked to buy is the property of promoters, and who shall be competent and impartial judges as to whether the purchase ought or ought not to be made. I do not say that the owner of property may not promote and form a joint stock company, and then sell his property to it, but I do say that if he does he is bound to take care that he sells it to the company through the medium of a board of directors who can and do exercise! an independent and intelligent judgment on the transaction, and I who are not left under the belief that the property belongs, not to] the promoter, but to some other person. *- ' " [His Lordship was of opinion that the company was barred by laches from obtaining the relief prayed for.] ivel are\ jj the/ //^^/ 236 EELANGER V. NEW SOMBRERO PHOSPHATE CO. Lord Blackburn. Throughout the Companies Act, 1862 (25 & 26 Vict. c. 89), the word " promoters " is not anywhere used. It is, however, a short and con- venient way of designating those who set in motion the machinery by which the Act enables them to create an incorporated company. Neither does this Act in terms impose any duty on those promoters to have regard to the interests of the company which they are thus empowered to create. But it gives them an almost unlimited power to make the corporation subject to such regulations as they please, and for such purposes as they please, and to create it with a man- aging body whom they select, having powers such as they choose to give to those managers, so that the promoters can create siich a cor- poration that the corporation, as soon as it comes into being, may be bound by anything, not in itself illegal, which those promoters have chosen. And I think those who accept and use such extensive pow- ers, which so greatly affect the interests of the corporation when it comes into being, are not entitled to disregard the interests of that corporation altogether. They must make a reasonable use of the powers which they accept from the Legislature with regard to the formation of the corporation, and that requires them to pay some regard to its interests. And consequently they do stand with regard to that corporation when formed, in what is commonly called a fidu- ciary relation to some extent. Some reference was made in the argu- ment to the Companies Act, 1867 (30 & 31 Vict. c. 131, s. 38), on the con- struction of which there has been a great diversity of judicial opinion. That section does contain the word " promoters," which, as I have already observed, is not to be found in the Comjjanies Act, 1862, but it imposes no fresh duty on them with regard to the company. It imposes a fresh duty towards, and gives a new cause of action to, per- sons who take shares in the company as individuals ; it does not alfect the obligation of the promoters towards the corporation. I think that the extent of that fiduciary relation, which, as already said, in my opinion, the promoters bear to the company, is a very im- portant consideration in construing that section ; and I am desirous to avoid prejudging that question by saying in this case more than is necessary for its decision. I^tliicki^as already said, th^t the pro- moters are in a situation of co^nfidence to some extent to wards _ the CO nipan^jth ey^o rm . Where, as in the present case, the company is formed for the pur- pose of becoming purchasers from the promoters as vendors, the in- terests of the promoters and of the company clash. It is the vendors' interest to get as high a price as possible, and they have a strong bias to overvalue the yiroperty which they are selling ; it is the purchas- ers' interest to give as low a price as possible, and to secure that the price actually given is not more than the property is really worth to them. GREENWOOD V. LEATHER SHOD- WHEEL CO 237 Lord Melon, in Gibson v. Jeyes^ says that '' it is a great rule of the Court that he who bargains in matters of advantage with a person placing confidence in him, is bound to shew that a reasonable use has been made of that confidence — a rule applying to trustees, attprnej'S, or any one else." I think persons having property to sell may form a company for the purpose of buying it in such a manner as to shew this, and when they do so, the sale will be unimpeachable. I will not attempt to define how this may be done. Probably there are many ways. What I shall do is to inquire what, on the evidence, appears to have been done in this case, and then to confine myself to saying whether, on the facts of this particular case, it appears that an unrea- sonable use has been made of that confidence w hich th e pompfiny rli d not jjideed^plgLce in the promoters, for the company did not then exist, but w hich the Legislature did place in them for the company when ii. gave thepromoters^pwer to create it._ [Opinions concurring with Lord Penzance were delivered by Lords Hatherley, 0'HA,aAN, Se^^qkne, '9ytid Gordon.] v ^ J. V*" Order appealed from affirmed, ijf^ jJ*"^ k<\ ..' b LCTION by a shareholder in the defendant company agaMg^tngv^ )mpany, the directors, and the promoter, T. H. Lambert. J'^^ ^ |» ■<> The company was registered Feb. 12, 1897, under the Compani^ Acts. T. H. Lambert was the promoter. By authority of the direc- a tors, and of Lambert, a prospectus, dated Feb, 10, 1897, was issuecJ^. to the public inviting subscriptions for shares. Section 38 of the Companies Act, 1867, is as follows \%pectus of a company, and every notice inviting persons to subscribe jf{^ I for shares in any joint stock company, shall specify the dates and the i ^^ ^fjT' .'ufi I names of the parties to an y contract entered into by the_comj3any, or \ily '^ V*^^ , the promoters, directors, or trustees thereof, before the issue of such ^A I prospectus or notice, whether subject to adoption by the directors of M , ^. the company or otherwise ; and any prospectus or notice not specify- v"^ I *t>*^ I ing the same shall be deemed fraudulent on the part of the promoters, ffi^ • J'-^i iJh^^ directors, and officers of the company knowingly issuing the same, as ^ i**-"^^ i?-'^ A regards any person taking shares in the company on the faith of sucli/'!L^C«^' yi/^ prospectus, unless. he shall have had notice of such contract." - ^ ^ ily^ J^ At the end of the prospectus (issued as above stated), under the 1 6 Ves. 278. 2 Statement abridged, point. — Ed. ■\ Only so much of the report is given as relates to a ftigljt'*'"'^ • /fc_35» >a /ij AK5( e" 238 GREENWOOD V. LEATHER SHOD WHEEL CO. heading in large print, '' The following agreement has been entered into," was a paragraph in smaller print than the rest of the prospectus, purporting to give particulars of an agreement dated Feb. 5, 1897, (for the sale of certain patents by the Coria Syndicate, Limited, to the de- fendant company) — and then continuing thus : " There may be other agreements as to the formation of the company, the subscription to the capital, or otherwise, to none of which is the company a party, and which may technically fall witliin s. 38 of the Companies Act, 1867. Subscribers will be held to have had notice of all these contracts and to have waived all right to be supplied with particulars of such con- tracts, and to have agreed with the company, as trustees for the direc- tors and other persons liable, not to make any claims whatsoever or to take any proceedings under the saidsection, or otherwise in respect of any non-compliance therewith." Plaintiff received a copy of the prospectus ; and, on the faith of it, he applied, Feb. 15, 1897, for 1000 shares in the company, by filling )up and signing a printed application form, part of which was as fol- lows : ..." I beg to apply for 1000^. ordinary shares, ... on the ^terms of the prospectus. ... I further agree with the company, as /trustee for the directors and others liable, to waive any claims I may have against them for non-compliance in the said prospectus with s. 38 of the Com])anies Act, 1867, or otherwise. . . ." The 1000 shares were duly allotted to the plaintiff, and he paid the full amount of lOOOZ. thereon. Plaintiff subsequently discovered that an agreement had been en- tered into, on Dec. 3, 1896, between T. H. Lambert, on the one hand, and the Coria Syndicate, Limited — who were ultimately the ostensible vendors to the defendant company — on the other ; whereby it was agreed that the syndicate should purchase a number of leather tire patents from one Lembeke, alleged to be a nominee or agent of T. H. Lambert, on the terms of allotting half of its share capital to Lembeke, and the other half, less the seven statutory shares allotted to the subscribers to tlie syndicate's memorandum of association, to T. H. Lambert ; who thus on the ultimate sale to the defendant company acquired a substantial interest in it. On making this and other discoveries, plaintiff, on Oct. 1, 1897, re- pudiated his shares and demanded repayment. On the company deny- ing his right to repudiate, he began the present action. Kekewich, J., after trial, gave judgment, that, as against T. H. Lambert, the prospectus was to be deemed fraudulent under s. 38 of the Companies Act, 1867 ; and that T. H. Lambert should, in default of payment by the defendant company, pay to the plaintiff the said sum of lOOOZ. The defendants appealed. [The argument in behalf of the other defendants is omitted.] E. Ford, for T. H. Lambert. GREENWOOD V. LEATHEK SHOD WHEEL CO. 239 • • • The question, then, is whether he is liable under s. 38, for non- disclosure of that agreement [of Dec. 3, 1896.] I submit that the waiver clause in the prospectus, and also in the application for shares, debars the plaintiff from relying on the section. [RoMER, L. J. Your contention then is that, no matter how fraudu- lent a contract may be, there is nothing in the Act to prevent a share- holder from contracting himself out of the Act.] [LiNDLEY, M. R. Suppose this is a fraudulent prospectus as against the Company and you the promoter, the entire prospectus is a fraud including this waiver clause. What then becomes of the waiver ?] There is no enactment in the Act that a shareholder shall not con- tract himself out of it. [RoMER, L. J. Assume that there was a contract by the plaintiff not to take advantage of the Act, how can you bind him when you state in your prospectus that there " may be " other agreements when you knew there were ? In your case you are a promoter knowing of this contract, and yet you put in a misleading statement that there " may be " other agreements. That, surely, is not a case in which you can say there is a waiver.] I rely strongly on the waiver clause in the application form. To say that the plaintiff is not bound by that is to say that he may com- mit a breach of contract. After that contract he cannot turn round and say my client is liable. The allotment was made by the company upon the terms stated in the application form, and upon no other. [LiNDLEY, M. R. The expression in the application form, " or other- wise," is very significant. It covers a common law action of tort. It means that the shareholder shall not sue on any ground at all.] But the fact remains that the plaintiff has solemnly contracted him- self out of this head of relief. Whether a company can put in a pro- spectus or application form a clause to protect itself, or whether a shareholder can contract himself out of the Act, has never yet been decided ; but I submit that such a clause is not in itself unreasonable. Warmington, Q. C, Renshaiv, Q. C, and Norman Craig, for plaintiff. [Argument omitted.] Cur. adv. vult. LiNDLEY, M. R. [After discussing other questions.] One part of the order, however, affects Mr. T. H. Lambert alone, and it raises a very important question as to the effect of what are called *' waiver clauses " on s. 38 of the Companies Act, 1867. The prospectus in this case omitted all reference to an important contract of December 3, 1896, by which Mr. T. H. Lambert was to obtain considerable benefits. There can be no doubt that this contract ought to have been disclosed in the prospectus. Mr. T. H. Lambert has been held to have in- fringed this section, and an order has been made against him as to costs, of which he complains. The other directors apparently knew nothing of the contract in question, and no similar order was made 240 GREENWOOD V. LEATHER SHOD WHEEL CO. ao-ainst them. Kekewich, J.'s view was that the waiver clause could not avail Mr. T. H. Lambert because the plaintiff was not suf- ficiently informed of what he was waiving. I am of the same opinion, but, as this matter is one of great importance, I will state my reasons for ray conclusion. The first part of s. 38 enacts that every prospectus of a company, and every notice inviting persons to subscribe for shares, shall specify the dates and names of the parties to any contract entered into by the company, or the promoters, directors, or trustees thereof, before the issue of such prospectus or notice. The second part of the section enacts that every prospectus or notice not specifying the same shall be deemed fraudvilent on the part of the promoters, directors, and officers of the company knowingly issuing the same, as regards any person taking shares in the company on the faith of such prospectus, unless he shall have had notice of such contract. A prospectus, therefore, which does not comply with the first half of the section is to be deemed fraudulent, as between the persons issu- ing it, on the one hand, and all persons taking shares on the faith of it, on the other, except only in one case — namely, if they have notice of the contract, of which some particulars have to be given in compli- ance with the first part of the section. Considering the manifest object of this section, which is to compel the persons issuing prospectuses to afford to persons invited to take shares the information required by the section, it is obvious that the words, " unless he shall have had notice of such contract," mean a great deal more than " unless he shall have some vague information which, if followed up, will lead to such notice." Notice in the section means, not what is called " constructive notice," but actual notice, that is, notice which brings home to the mind of a reasonably intelli- gent and carefiil reader such knowledge as fairly, and in a business sense, amounts to notice of a contract. Any other construction would render the section perfectly useless. Again, what is to be deemed fraudulent is the prospectus as a whole. It may contain some true statements, but the introduction of these will not save the prospectus from being deemed fraudulent as a whole. The introduction into the prospectus of a tricky waiver clause, instead of preventing the pro- spectus from being deemed fraudulent, affords an additional reason for holding it to be so in fact. The waiver clause in the prospectus of this company is, in my opin- ion, clearly tricky and fraudulent on the part of Mr. T. H. Lambert. It is printed in small type, so as to escape attention ; it is worded so as to conceal, and not to afford notice of, the contract of December 3, 189G, to which he, the promoter, was a party. The language, "there may be contracts which perhaps ought to be referred to," when it was perfectly well known, to Mr. T. H. Lambert a.t all events, that there certainly was one which ought to have been disclosed, stamps the clause as tricky and dishonest, so far as he is concerned. GREENWOOD V. LEATHER SHOD WHEEL CO. 241 But then it is said that the application for shares contains another waiver chouse. But the application for shares refers to the prospectus, and was sent out with it, and the waiver clause in the application for shares is as tricky as the other, and is even worse by reason of the words " or otherwise," which increases its scope beyond all reason- able bounds. Literally construed, it would, if effect were given to it, afford a defence to the whole action. If a company's prospectus is fraudulent at common law, or is to be deemed fraudulent under s. 38 of the Companies Act, 1867, and an applicant for shares signs a con- tract which is intended to deprive him of his right to redress, he is not bound in equity by what he signs, unless his attention is called to the existence of facts which render the prospectus fraudulent. The introduction of a stipulation that an applicant for shares is to be deemed .to have notice of what is in fact concealed from him, is sim- ply part of the trick had recourse to in order to evade the consequeuQfi^ of the improper concealment. Such a stipulation in a tricky waiver / clause like the one before us affords no protection to the person wh;9/ seeks protection from it. The principle of refusing to give effect to parts of documents so as to prevent successful deception by means of them is quite familiar in its application to general words in releases, and to catching conditions of sale. The refusal is based on ordinary principles of honesty, and is as applicable to tricky waiver clauses as to other tricky documents. I wish to guard myself against being supposed to go further than I . intend. I have no doubt that a person who takes shares on the faith . of a contract which is fraudulent at common law, or which is deemed to be fraudulent under s. 38 of the Companies Act, 1867, may elect to_ keep his shares, and may agree not to enforce his right to damages., Butjjn order to bind him by electionor agreement, he must be fairly, dealt wit h ; a nd his attention must be fairly drawn to the facts, or at. all events the existence of facts, which confer the rights which he elects or agrees not t \.. J I tP" ( ^ it' 1^ ■ r MT^ I B^ ir\\ I/A Bill filed by Hubert Oil Company against thq a-dmijiistrators of ^<' M/ t^^^cElhenny's estate. \ ^'^ .0 jJJ^ Q^ McElhenny purchased land, probably at a cost of \piuch less than i^.^ lr\A^ , N $12,000. This land he sold to Baird and others ; upon their agree- I kjJ^ ' -vA AdJ^^^^^^^ ^-^^^ ^^® should receive $12,000; and should also receive a share M^ /C/'O^J *^^ 2 9f the profits to be made by the purchasers from him, in case they v: i^^aT ment that he should receive $12,000; and should also receive a share r^ 2 (j)f the profits to be made by the purchasers from him, in case thej j^p^ it into a company at the sum of $40,000. Baird et als. then prO' mptfdJJie formation of the plaintiff corporation. Stock was sub- scrLDJ^a to the amount of more than $40,000 ; McElhenny's name Appearing as a subscriber to the extent of $2000. The promoters ' sold the land to the corporation for $40,000. Out of this sum Mc- Elhenny was paid the $12,000, due from Baird et als. as purchase "/(Pfbney. The balance of $28,000 was divided as profit among the - >^•'^promoters ; McElhenny receiving as his share the sum of $2083.84. \V^ The sale to the corporation was made under such circumstances that j^ j^'Xa the promoter-vendors were compellable to refund to the corporation M\ ^ fJ^\Ar' ^^6 profit they received. \y \ A ^*^ '^ corporation claimed that McElhenny should account to it for (^ p^\j. fl/tiie^rofit received by McElhenny on the sale which he made to \ J-y vA^ 1^ Jimrd et als., as well as the profit received by McElhenny on the sale ^Jj} jL/f^ - J* ""^ Baird et als. to the corporation. The court below, apparently »\ Ik^ n-y (^ adopting this basis, decreed that the administrators should pay to \ ^n t • 1&^^ corporation the sum of $9083.84. ^^ Js^J^ From this decree, the administrators appealed. jji^'^ y^ \ ^ ^"^ order to bring the intestate's estate into liability to the com- ' ^^1 i^H ^^"y -°^ money received by him in payment for the land, it must be ^^i. . '" J-'iv'. niadaJzTappear that he occupied some fiduciary relation to it, so that . i^*^ vv\ lA^ »^ ^ Statement abridged. Arguments and part of opinion omitted. — Ed. Archer, Jr. (L. C. Cassidy with him), for appellants. E. S. Miller (C. B. Penrose with him), for appellees. b-^ ^ mcelhenny's appeal. 243 the receipt of the money, although received by him for his own use, was, by means of the fraud practised in his fiduciary relation, money_, of the jcompany . It is not damages in a case like this that equity gives, it is restoration of the thing wrongfully taken, viz. the money received, or an equal sum and interest. It nowhere appears that McElhennjj, the purchaser from Hubert, the original owner, did it as the agent of Messrs. Baird, Boyd & Co. and others, although he bought it to sell again, no doubt. If the property was not purchased by McElhenny for the use and as agent of the company, but for his own use (and this is the proof in the ease), he might sell it at a profit most assuredly. No subs equent q purchasers^ jromjiis^ vendees would have any right to call upon him "cD to_ac count _ for the profi ts^ made on his s a le. The parties to whom he sold have never asked him to account to them for the profit at which he sold to them. They have not pretended that he was their agent in making the purchase, and I am unable to understand the ground of a right in the company to demand it. The difference between the sum he paid and that at which he sold, he was as fairly entitled to as to the svim paid. Seeing no evidence of agency, or of a trust, or a fiduciary relation between the plaintiff and the defendant's intestate thus far, we are of opinion that there was error in decreeing payment of any portion of the profits made by him in the sale to the promoters of the Hubert Oil Co. ; and to the extent of $7000 the decree is to be modified. At this point another inquiry arises, is the estate of McElhenny liable in equity to refund to the company the share of the profits re- ceived by him over the sum of $12,000 ? We are inclined to think it is. After selling to Baird, Boyd and others^ and then joining them in selling to the company^ he__assumed their position and Uabilities, and if they~could not make a profit, he could not. [^Decree against McElhenny^ s estate for $2083.84. j Sharswood, J., dissented. BAXTER. KELNEE V. BAXTSEK ~f '« La t'^ ^' v^ •■^ (^'^/J ■'■^^^" Law Reports, 2 Common Pleas, TlIA-X^ '- fi itT ff^ The declaration was for goods sold and delivered, goods bargained ff^/]jK^ ^^^ ^°-^^' interest, and upon accounts stated. ■ K^ [Pleas omitted.] [r At the trial before Erie, C. J., at the sittings in London after last 1 1 /iTrinity Term, the following facts appeared in evidence : — The plain- A^ tiff was a wine merchant, and the proprietor of the Assembly Rooms at Gravesend. In August, 1865, it was proposed that a company should be formed for establishing a joint-stock hotel company at Gravesend, to be called The Gravesend Royal Alexandra Hotel Com- pany, Limited, of which the following gentlemen were to be the direc- tors, viz., Mr. L. Calisher, Mr. T. H. Edmands, Mr. M. Davis, Mr. Macdonald, Mr. Hulse, Mr. N. J. Calisher (one of the defendants), and the plaintiff. The plaintiff was to be the manager of the proposed company, and Mr. Dales (another of the defendants) was to be the permanent architect. One part of the scheme was that the company .^/M'shoald purchase the premises of the plaintiff for a sum of 5000Z., of j which 3000/. was to be paid in cash, and 2000Z. in paid up shares, the p x/^ stock, &c., to be taken at a valuation ; and this was carried into effect "^^^^ ^f^ and completed, the other defendant (Baxter) being the nominal pur- i 7^ i ^^'^'S^r on behalf of the company. In December a prospectus was set- t* .J^, ,tled. On the 9th of January, 1866, a memorandum of association was i^' "i'i^^executed by the plaintiff and the defendants and others. ending the negotiations the business had been carried on by the iff, and for that purpose additional stock had been purchased by im ; and on the 27th of January, 1866, an agreement was entered •^^ j.j^v . r into for the transfer of this additional stock to the company, in the y>*^ / IkM^ I following terms : — ''' - ' » -i ' ^ "January 27th, 1866. John Dacier Baxter, Nathan Jacob Calisher, and John Dales, on behalf of the proposed Gravesend Royal Alexandra Hotel Com- pany, Limited. J /- i'^'^\) OA-z^^^^l^men, — I hereby propose to sell the extra stock now at the M^ 1 L^ (\>'^ssembly Rooms, Gravesend, as per scliedule hereto, for the sum of ^M ^ ' * >tV /I 000/., payable on the 28th of February, 1866. r . ,U^ flfJAf (Signed) " John Reiner." « •' Then followed a schedule of the stock of wines, &c., to be purchased, P I /^-iid. at the end was written as follows : — Pleadings aud arguments omitted. — Ed. , t) 4^ ^t &. ^ KELNER V. BAXTER. 245 "To Mr. John Kelner. " Sir, — We have received your offer to sell the extra stock as above, and hereby agree to and accept the terms proposed. (Signed) " J. D. Baxter, " N. J. Calisher, "J. Dales, " On behalf of the Gravesend Royal Alexandra Hotel Company, Limited." In pursuance of this agreement the goods in question were handed over to the company, and consumed by them in the business of the hotel ; and on the 1st of February a meeting of the directors took place, at which the following resolution was passed : " That the ar- rangement entered into by Messrs. Calisher, Dales, and Baxter, on behalf of the company, for the purchase of the additional stock on the premises, as per list taken by Mr. Bright, the secretary, and pointed out by Mr. Kelner, amounting to 900/., be, and the same is hereby ratified." There was also a subsequent ratification by the company^ viz., on the 11th of April, but this was after the commencement of the action. The articles of association of the company were duly stamped on the 13th of February, and on the 20th the company obtained a certificate of incorporation under the 25 & 26 Yict. c. 89. The company having collapsed, the present action was brought against the defendants upon the agreement of the 27th of January. On the part of the defendants oral evidence was tendered for the ' jjurpose of showing that it never was intended that they should be personally liable ; but his Lordship rejected it. It was then submit- ted that, inasmuch as the agreement was not entered into by the de- fendants personally, but only as agents for the hotel company, they thereby incurred no personal obligation to the plaintiff, who was him- self one of the promoters. For the plaintiff it was insisted that, there being no company in ex- istence at the time of the agreement, the parties thereto had rendered themselves personally liable /"and that there could be no ratification of the contract by a subsequently created company.t/' A verdict was taken for the plaintiff for 900/., subject to leave re- served to the defendants (upon giving security) to move to enter a nonsuit, on the ground that the agreement of the 27th of January did not make them personally liable. Nov. 6, 1866. Seymour, Q. C, obtained a rule nisi accordingly," and also for a new trial on the ground of misdirection on the part of the learned judge, " in not allowing witnesses to be called to contradict the plaintiff as to the defendants' personal liability." J. Brown, Q. C., and Thesiger, shewed cause. Seymour, Q. C., in support of the rule. Erle, C. J. I am of opinion that this rule should be discharged. The action is for the price of goods sold and delivered : and the ques- •A >f' ,y^ (P, ^ 246 KELNER V. BAXTER. tion is whether the goods were delivered to the defendants under a contract of sale. The alleged contract is in writing, and commences with a proposal addressed to the defendants, in these words : — "I hereby propose to sell the extra stock now at the Assembly Rooms, Gravesend, as per schedule hereto, for the sum of 900/., payable on the 28th day of February, 1866." Nothing can be more distinct than this as a vendor proposing to sell. It is signed by the plaintiff, and is fol- lowed by a schedule of the stock to be purchased. Then comes the other part of the agreement, signed by the defendants in these words, — " Sir, We have i-eceived your offer to sell the extra stock as above, and hereby agree to and accept the terms proposed." If it had rested there, no one could doubt that there was a distinct proposal by the vendor to sell, accepted by the purchasers. A difficulty has arisen because the plaintiff has at the head of the paper addressed it to the defendants, "on behalf of the proposed Gravesend Royal Alexandra Hotel Company, Limited," and the defendants have repeated those words after their signatures to the document ; and the question is, whether this constitutes any ambiguity on the face of the agreement, or prevents the defendants from being bound by it. I agree that if the Gravesend Royal Alexandra Hotel Company had been an existing company at this time, the persons who signed the agreement would have signed as agents of the company, ^ut, as ther e was no company m existence at t^tjme,^ the agreement would be wholly inoperative unless it were h_eM. to be biiiding_onThe, defendants personally. Thg cases referred t o inj,he course of the argument fully bear out the pro- position j haty-wJiere^ a c ontract is sig ned by one who profes ses to be signing_^as agent," but who has^io_ principal exis ting at jthe_tirne, andtliejjontract would be altogether inoperative unless bintoi£_upon the p erson w ho signed itj he is abound therebyj_and a stranger can- not b y a subsequent ratificatio n relieve him from that r espon sibility. When the company came afterwards into existence it was a totally new creature, having rights and obligations from that time, but no rights or obligations by reason of anything which might have been done before. It was once, indeed, thought that an inchoate liability might be incurred on behalf of a proposed company, which would be- come binding on it when subsequently formed : but that notion was manifestly contrary to the principles upon which the law of contract is founded. Therejnust be two parties to a contractj and_the rights and obligations whi ch it creates cannot be transferred by one of t hem to a tlnrcl person who was not in a condi tion to be bound by it at t he time _it was made. The history of this company makes this construc- tion to my mind perfectly clear. It was no doubt the notion of all the parties that success was certain : but the plaintiff parted with liis stock upon the faith of the defendants' engagement that the price agreed on should be paid on the day named. It cannot be supposed that he for a moment contemplated that the payment was to be contingent on the formation of the company by the 28th of February. The paper KELNER V. BAXTER. 247 expresses in terms a contract to buy. And it is a cardinal rule that no ora evidence shall be admitted to shew an intention diiferent from that which appears on the face of the writing. I ccme, therefore, to the conclusion that the defendants, having no principal who was bound originally, or who could become so by a subsequent ratification, were themselves bound, and that the oral evidence offered is not admissible to contradict the written contract. WiLLEs, J. I am of the same opinion. Evidence was clearly inad- missible to shew that the parties contemplated that the liability on this contract should rest upon the company and not upon the persons con- tracting on behalf of the proposed company. The utmost it could amount to is, that both parties were satisfied at the time that all would go smoothly, and consequently that no liability would ensue to the de- fendants. The contract is, in substance, this, — " I, the plaintiff, agree to sell to you, the defendants, on behalf of the Gravesend Royal Alexandra Hotel Company, my stock of wines ; " and, " We, the de- fendants, have received your offer, and agree to and accept the terms proposed ; and you shall be paid on the 28th of February next.'' Who is to pay ? The company, if it should be formed. But, if the com- pany should not be formed, who is to pay ? That is tested by the fact of the immediate delivery of the subject of sale. If payment was not made by the company, it must, if by anybody, be by the defendants. That brings one to consider whether the company could be legally liable. I apprehend the company could only become liable upon a new contract. It would reqidre the assent of the plaintiff to discharge the defendants. Could the company become liable by a mere ratification ? Clearly not. Ratification can only be by a person ascertained at the time of the act done, — by a person in existence either actually or in contemplation of law ; as in the case of assignees of bankrupts and administrators, whose title, for the protection of the estate, vests by relation. The case of an executor requires no such ratification, inas- much as he takes from the will. It is unnecessar}^, however, to pur- sue this further. In addition to the cases cited at the bar, I would refer to Gunn v. London and Lancashire Fire Lnsurance Company,^ where this Court, upon the authority of Payne v. Neiv South Wales Coal and International Steam Navigation Company ^^ held that a con- tract made between the projector and the directors of a joint-stock company provisionally registered, but not in terms made conditional on the completion of the company, was not binding upon the subse- quent completely registered company, although ratified and confirmed by the deed of settlement : and Williams, J., said, that, " to make a contract valid, there must be parties existing at the time who are capable of contracting." That is an authority of extreme importance upon this point ; and, if ever there could be a ratification, it was in that case. Both upon principle and upon authority, th erefore, it seeing to me that t^ company ne^ver'couIdrbCIiaiIe.upon_this_^on^ 1 12 C. B. (N. S.) 694. 2 10 Ex. 283 ; 24 L. J. (Ex.) 117. Oim ciAA^MTV- .-e 248 KELNER V. BAXTER. as was put by my Lord, construing this document tit res nuigis valeat guanTpereat, we niust assume that the parties contemplated that t he persons sio^ning it would be pei-sonall y liable- Putting in the words *' on behalf of the Gravesend Royal Alexandra Hotel Company," would operate no more than if a person should contract for a quantity of corn "on behalf of my horses." As to the suggestion that there should have been a special count, that is quite a mistake. There need not be a special count unless there was a person existing at the time the con- tract was made who might have been principal. The common count perfectly well represents the character of the liability which these de- fendants incurred. It is quite out of the question to suppose that there was any mistake. The document represents the real transaction between the parties. I think that the course taken at the trial was perfectly correct, and that the rule should be discharged. Byles, J. I am of the same opinion. At first, I must confess, I entertained some doubt, the contract appearing on the face of it to have been entered into by the defendants on behalf of the company. The true rule, however, is that stated by Mr. Thesiger, viz., that j)er- sons who contract as agents are generallyj)ei;sonaIly_resj2onsiblewhere tliiere is no other person who is res ponsible as prin c ipal. Suppose this company never came into existence at all, could it be doubted that these defendants must be held to have bound themselves personally ? Then, was it contemplated that the liability was conditional only until the company should be formed ? It is said that the contract was ratified by the company after it came into existence. Tjiere could, how ever, be no ratifica^on. Omiiis ratlhabitio re trotrah itu r, et Tnandato priori ceQv i- faratur : but the ratification must be by an existing person, on wh_o se behalf the^ontr act might have been made at the time.. That_ could not be so here : a subsequent ratification by Ihe company could only be with the asse nt of the plaintiff ^ and ..then it would be a new con- tract. Mr. Seymour contended that the contract might amount to a personal undertaking on the part of the defendants that the company shall pay. That would make them equally liable. Any objection on the score of the Statute of Frauds would be cured by the Mercantile Law Amendment Act, 19 & 20 Vict. c. 97. In no way, therefore, in which it can be put, could the company become responsible. [The concurring opinion of KeatinGj J., is omitted.] Rule discharged. i^bo / A- igNDM'AN jU V. ENTWISTLE. Ifyigi^ >\LANDMAN" 1852. ENTWISTLE./ 7 Exchequer, 632.1 M V- j^. •1^ ih-\,^ ^ Assumpsit to recover 61&. 18s. M., claimed by plaintiff for his serP vices as the engineer of a projected railway, called the Kentish Rail- way Company, of which the defendant was one of the provisional/^ committee. nf^ At a meeting of the provisional committee, on Avig. 12, 1844, at ^[j^ which plaintiff was present, one of the resolutions was : — '' That the K provisional committee disclaim the intention of taking on them-'Ajli^ selves any personal responsibility as regards the expenses incurred or ' 1 to be incurred in or about the Company, and that no such resjionsi- ^ ^- bility shall attach to them." Another of the resolutions at the same ^ meeting was : — " That it be a recommendation to the committee of i' management to endeavour to secure the valuable services of J. Locke,/ ?^^ Esq., the eminent engineer, in addition to those of Colonel Landman, n ^ ^ \ v the original projector of the railway, it being clearly understood that V^ \ ^^ neither of those gentlemen shall have any personal claim against any'"^ member of the provisional committee." Oct. 11, 1844, plaintiff wrote to the solicitors of the Company : — "I never understood that, unless the project were successful, the engineers were to abandon all claim ; but I did understand that the individuals comprising the committee were not to be held personally liable. I am perfectly ready to continue to devote my time and atten- tion to the perfecting of the survey and getting up of the parliament- ary documents, without making any charge for the same until suffi- cient funds may have been collected." At a meeting of the committee of management, on Oct. 17, 1844, at which plaintiff was present, it was "Resolved, that Messrs. Lake & Co. be requested to forward the survey in such manner as may be found advisable. Colonel Landman [the plaintiff] stating that he would render every assistance in his power, and that he would make no claim for his personal services, or for those of his assistant, Mr. Pinhorn, until there should be sufficient funds of the Company to meet any demand he might be entitled to make." At a meeting of the committee of management on Oct. 29, 1844, one of the resolutions was as follows : " And it appearing to the com- mittee that it is absolutely necessary to provide a fund, in order that the surveys of the line may be immediately proceeded with, it was (on the motion of Mr. Entwistle) — Resolved, that the committee bind themselves to be answerable to the extent of 1000^., to be applied to engineering and surveying purposes." At a meeting, on Nov. 18, 1844, the committee resolved, that it is expedient that the Kentish Railway Company should withdraw from 1 Statement abridged. Arguments omitted. — Ed. t 250 LANDMAN V. ENTWISTLE. this undertaking in favour of the South Eastern Eailway Company. The resolution recited that there was an engagement by the South Eastern E. Co. " to reimburse to this committee the expenses hitherto incurred." The scheme was thereupon abandoned, and the deposits on shares, which amounted to 4168Z. were returned to the subscribers. At the trial, after the foregoing facts had been proved, Pollock, C. B., directed a nonsuit, reserving leave for the plaintiff to enter a verdict for him, if the Court should be of opinion that he was entitled to recover. A rule nisi having been obtained accordingly, the Attor?iey General {Hoggins and Sinythies with him) showed cause. Sir A. Cockburn, Bmmwell, and Wilkinson supported the rule. Parke, B. The rule must be discharged. It is clear that the plaintiff undertook to do the work, not upon a contract with the pro- visional committee, but looking to the chance of the scheme succeed- ing, and of there being funds available for the payment of his claim. The plaintiff's letter, of the 11th of October, shews that there was no contract on the part of the provisional committee that he should be ,paid at all events. In the majority of cases of this kind, the contract is that the party shall look only to the funds of the Company, and not to the responsibility of the individuals who manage it. Platt, B. I am of the same opinion. This action cannot be maintained, unless there was a personal responsibility on the part of the defendant to pay the plaintiff. But, by the resolution of the 12th |of August, the provisional committee distinctly repudiate any per- onal liability ; and it appears from the resolution of the 17th of ctober, that the plaintiff agreed to make no claim for his services "until there should be sufficient funds of the Company to meet any demand he might be entitled to make." That must surely mean suf- ficient funds of that description which the committee could properly apply in satisfaction of the plaintift''s claim. Now, the sum of 4168^., which consisted of deposits, was not a fund of that description ; for, pn the abandonment of the scheme, all the depositors were entitled to pall for repayment of their deposits, the consideration upon which rheir duty to pay was founded being at an end. The sum in ques- /tion, therefore, was not available in satisfaction of the plaintiff's I demand, and there were no funds out of which he was entitled to be \ paid. Martin, B. I am of the same opinion. The case has been put to us much in the same way that a counsel puts a case to a jury. He tells them that the plaintiff has done the work, and that he is entitled to be paid for it; and laying aside the documents upon Avhich the contract is founded, he calls upon the jury, and frequently with success, to infer a contract which renders the defendant liable. The answer is, that the true contract between the parties must be looked at for the purpose of ascertaining with whom the liability McARTHUR V. TIMES PRINTING CO. 251 rests. Now, in this case, was there any obligation on the part of the provisional committee to go on with the scheme ? There certainly was not. They were at liberty in that respect to act as they pleased, and the engineer had no right to compel them to go on. He took the chance of payment provided the scheme succeeded, in which case he would no doubt have been paid oi£tpf the profits. Pollock, C. B. I agree with \\he rest of the Court that there is no foundation for setting, ))isidjeXhe nbiWint. cARTHfl FEINTING CO. Mule discharged. l/^ ^ lPf^l V)y defendant, TraiesTPrinting Company, from an order^oftM the district court of Hennepin county. Canty, J., made August 4, 1891, denying its motion for a new trial. f- a Action brought by D. A. Mc Arthur to recover damages sustained/}^ by him from the breach of a contract made by defendant with him,' He was employed by it for a year from October 1, 1889, to solicit advertisements for its newspaper, and was to receive $20 a weeK? during October, and $30 a week for the residue of the year, and was also to receive, at the end of the year, five shares of its stock, of $100 each. He was discharged April 12, 1890. After the year ex-j' pired he brought this suit. It was tried May 5, 1891, and plaintiff had a verdict for $450. Defendant moved for a new trial. Th motion was denied, and it appealed Geo. F. Edwards, for appellant. F. B. Wright, for respondent. ' ' v- I? . " ^ . ' Mitchell, J. The complaint alleges that about October 1, 1889^: V)'^jU^ ^i-'^ the defendant contracted with plaintiff for his services as advertis-^ A-^ \ ' t^ ing solicitor for one year ; that in April, 1890, it discharged him, in ^t aL-U ' ^^^t 'i t violation of the contract. The action is to recover damages for the../^ .. j^^ The answer sets up two defenses: (1) That^ /V*^*" breach of the contract. plaintiff's employment was not for any stated time, but only from ^- ^ week to week; (2) that he was discharged for good cause. Upon. J^\ ^r' the trial there was evidence reasonably tending to prove that in Sep- tember, 1889, one C. A. Nimocks and others were engaged as proA"'^ ^^ moters in procuring the organization of the defendant company tO;; v^"^^ (/^^^^ ij^ publish a newspaper; that, about September 12th, Nimocks, as such, j n^''\ ^ a./^. promoter, made a contract with plaintiff, in behalf of the contem.-' ,' ' ^tj^^ jS plated company, for his services as advertising solicitor for the pe-;, ^o f~ \ l^P*'^ riod of one year from and after October 1st, — the date at which it ' -iuV^ was expected that the company would be organized; that the corpo- ■^.. tr-^ ration was not, in fact, organized until October 16th, but that thervj*""^ ^,A- / {tJ^^ publication of the paper wis commenced by the promoters October '>^^i>^>A' -< (Kj^V^ t'J^-x^\::>^' .V^.;^^ ^-^ ^ >^^ . <^< 252 MCAKTHUR V. TIMES PRINTING CO. 1st, at which date plaintiff, in pursuance of his arrangement with Nimocks, entered upon the discharge of his duties as advertising solicitor for the paper ; that after the organization of the company he continued in its employment in the same capacity until discharged, the following April ; that defendant's board of directors never took any formal action with reference to the contract made in its behalf by ^imocks, but all of the stockholders, directors, and officers of the corporation knew of this contract at the time of its organization, or were informed of it soon afterwards, and none of them objected to or repudiated it, but, on the contrary, retained plaintiff in the em- ^ Ay ployment of the company without any other or new contract as to -^ his services. There is a line of cases which hold that where a contract is made in behalf of, and for the benefit of, a projected corporation, the cor- poration, after its organization, cannot become a party to the con- 'W " \ .f; 7 tract, either by adoption or ratification of it. Abbott v. Hapgood, 150 < ^4L»^ I ^ass. 248, (22 K E. Eep. 907;) Beach, Corp. § 198. This, how- ever, seems to be more a question of name than of substance ; that is, whether the liability of the corporation, in such cases, is to be placed on the grounds of its adoption of the contract of its promot- ers, or upon some other ground, such as equitable estoppel. This court, in accordance with what we deem sound reason, as well as the weight~of authority, has held that, while a corporation is not bound by engagements made on its behalf by its promoters before its or- ganization, it may, after its organization, make sucli_ engagements its~qwn^on tracts^ And this it m ay do precisely as it might make si milar or iginal contracts ; formal action of its board of directors Being necessary only where it would be necessary in the ease of a similar original contract. That it is not requisite that such adoption or acceptan ce be_expresse d,"1out~Tr maynp e inferred from acts OT_ac- quiescence on part of the corporation, or its^ authorized agents, as any simi la r original contrac t_might be shown. Battelle v. North- western Cement & Concrete Pavement Co., 37 Minn. 89, (33 N. W. Rep. 327.) See, also, Mor. Corp. § 548. The right of the corporate agents to adopt an agreement originally made by promoters depends upon the purposes of the corporation and the nature of the agreement. Of course, the agreement must be one which the corporation itself could make, and one which the usual agents ot the cx)mpany have express rn- implied autho rity to ni ake. Tliat tlie contract in this case was oOhat J^miLlalYery clearj and the acts and acquiescence of the co rporate o fficers, after the_organization of the company, fully justi- fiecl the juryl n finding that it had adopted it as its own. The defendaht, however, claims that the contract was void under the statute of frauds, because, " by its terms, not to be performed within one year from the making thereof," which counsel assumes to be September 12th, — the date of the agreement between plaintiff and the promoter. This proceeds upon the erroneous theory that IN KE EMPRESS ENGINEERING CO. 253 the act of the corporation, iu such cases, is a ratification, which relates back to the date of the contract with the promoter, under the familiar maxim that " a subsequent ratification has a retroactive effect, and is equivalent to a prior command." But the liability of the corporation, under such circumstances, does not rest upon any principle of the law of agency, but upon the immediate and voluntary act of the company. Although the acts of a corporation with refer- ence to the contracts ^ made by promoters iu its behalf before its organization are frequently loosely termed " ratification," yet a " rati- fication," properly so called, implies an existing person, on whose behalf the contract might have been made at the time. Therecan-_ not, in law, be a ratification of a contract which could not have been made binding on the ratifier at the time it was made, because the ratifier was not then in existence. In re Emjyress Enrjineering Co., 16 Ch. Div. 128 ; Melhado v. Porto Alegre, N. H. & B. Ry: Co., L. K. 9 C. P. 505 ; Kelner v. Baxter, L. R. 2 C. P. 185. What is called " adoption," in such cases, is, in legal effect, the making of a contract of the date of the adoption^ and not as of some former date. Thg contract in this case was, therefore, not within the statute of frauds. The triaTcourt fafrly submitted to the jury all the issues of factTn this case, accompanied by instructions as to the law which were exactly in the line of the views we have expressed; and the evidence justified the verdict. The point is made that plaintiff should have alleged that the con- tract was made with Nimocks, and subsequently adopted by the de- fendant. If we are correct in what we have said as to the legal effect of the adoption by the corporation of a contract made by a promoter in its behalf before its organization, the plaintiff properly pleaded the contract as having been made with the defendant. But we do not find that the evidence was objected to on the ground of variance between it and the complaint. The assignments of error are very numerous, but what has been already said covers all that are entitled to any special notice, • vj / K^ ■ \ >^ Order affirmed^ ZM-^- EMPRESS ENGINEERING ^t^^yT^l^'.l/^l \P ^ 1880. Law Reports, \Q Chancery Division, I2b.^ \ ^/^^'^^ V^a J -■ S^^ 2 Appeal from Vice-Chancellor of Court of Chancery of the^ounty* ~j^<^^ ^A- ""iX: ij Palatine of Lancaster. V^ 4ir^ i > . ^ t By an agreement, dated May 2, 1879, between G and A on the one'^ ^ .. /^ <-^ yf^ part, and C, for and on behalf of a company intended to be registered /fh *'^jn/*'''\L*o aV as a limited company and to be called " The Empress Engineering ^^ ^, /i*v- -.a, Company," of the other part, it was agreed that the company shouldAJ^, '*^JV ^ f.J(^ 1 Statement abridged. Argument and part of opinions omitted. — Ed. ,y*^ •\'^ 'v~ • t.'^feJ5r^ -A f 254 IN KE EMPRESS ENGINEERING CO. purchase of G and A certain property ; and also that sixty guineas should be paid by the company to Jones & Pride, solicitors, for the incorporation thereof, such sum to include the preparation of the necessary documents and certain expenses. The company was incorporated under a memorandum of association, dated jNIay 9, which adopted said agreement. The directors, on June 23, 1879, ratified the agreement. Dec. 10, 1879, an order was made for winding up the company. Jones & Pride made a claim for the amount of the above-mentioned £63. The claim was disallowed, and they appealed. Snow, for appellants. [After arguing other points.] If the court is against me on that ground, I submit that the claimants can make out their case on the principle of Li re Hereford and South Wales Waggon and Engineering Company, L. R. 2 Chan. Div. 621, where it was held that there was. a good equitable claim for services rendered before the formation of the company, of which the company had the benefit. [James, L. J.: — The question has never been tried whether the company has had the benefit of the claimant's services. Jessel, M. R. : — That is a question of quantum merwi^,. and the subject for a distinct application.] Gazdar, for the liquidator, was not called upon, Jessel, M. E,. I must say that I do not see how it was possible for the Vice-Chancellor to have decided otherwise than he did. The con - tracf; between the promoters and the so-called agent for the_com^any of course was not a contract binding upon the co mpany, for the c om- pany had then no existence, nor could it become bind ing on thfi _com- ipany by ratification, becausej^has been decided, and, as it appears to me, well decided, that there cannot in law be an effectual ratification of a contract which could not have been made binding on the ratifier ^t_the tJm.eit was made, because the ratifier was not then i n existenc e. does not follow from that that acts may not be done bjjthe com- fpany^fter its fonnation which make a new contract to the same effect ias_the old^nei^but that stands on a differenj principle. lam of opin- ion, therefore, that there was no contract binding the company to pay ,this £63 tx) Messrs. ~Jones & Pride. "^ Supposing, however, that there was, it is then contended that a mere contract between two parties that one of them shall pay 'a cer- tain sum to a third person, not a party to the contract, will make tliat third person a cestui que trust. As a general rule that will not be so. . . . There is another ground suggested, namely, that as the company has had the benefit of the registration they ought to pay for it. But the answer to that is this — that was not the claim brought forward. The claim brouglit forward was for an agreed sum of £63, and any order we make (I do not know whether it is necessary to express it) WEATHERFORD, &c. R. CO. V. GRANGER. 255 will not prejudice that claim, which is merely for an amount due foi services the benefit of which has been taken by the company. James, L. J. The only thing that results from what is called ratification or adoption of such a contract is not the ratification or adoption of a contract (pia contract, but the creation of an equitable liability de- pending upon equitable grounds. It is inequitable for a man not tc : it James, L. J. The appeal will be dismissed with costs. It will be / ^. vy, ^ /r- without prejudice to any equitable claim on a quantum meruit. . . /yt^ at iir^ ^, pay for the services of which he has taken the benefit. ... ^ i[L. -R^x^r^rr, T T Qoncurred. ii^M^^ it . The appeal will be dismissed with costs. It will be/ ^. v aJP" lice to any equitable claim on a quantum meruit. . , tp^ at i}J^^ j^^ 4^-5^ WEATHERFORD, &c. R. CO. v. G^AfNG^.'T ^ . (^ fi^L v^vj* Gaines, Associate Justice. This suit was brought/ % the ^fenda^r*^-' ^'^^ • " ^ ment, which was affirmed by the Court of Civil Appeals. This writi^ v r jj^ 'Li'' of error is sued out for the purpose of reversing that judgment. (/^•j\t.^\ ^ '^ , The plaintiff in error, the defendant in the trial court, is a corpora^L^ 'X ^J}^ A. A^ioH,\ organized under the general law of the State for the purpose 4^ t/^ A^> '^ of (constructing and operating a railroad. The defendant in erroi^^^ ^. ^^^{Uj C /the plaintiff in the trial court, is a practising attorney at law. TheJ^ v-*^ J/f' ^ ^'"' .services for which a recovery was sought were for aiding to raise a2/^ -Vp. 1) -Vj^ ~j}fbonus and fojj'iegal advice and assistance, and were rendered both//1^-^ It^*^' y y^ l^fore and after the filing with the Secretary of State the company's] # ,' '^ ^'f^ \^~ ^ ->articles t)l incorporation. I|\t '' \ y^ The testimony, as shown by the statement of facts, in so far as ill ^ IV^, ^^ ^vT. V . briars upon the question before the court, is in substance as follows : Xj, ^ \^ « " '{j^ ^ \r^,\/\ -Hie plaintiff testified, that in jVIarch, 1889, he was employed by , ^ nr'^ X ' ]r^, pfle Anderson to assist in raising a bonus for the defendant company,^(>^ t^^^ U^ and "agreed that the said company would pay him well for his ser- .^ . '^ J ^ vices ; " that Anderson was a promoter of the corporation, and repre-^"^^^^' ^ {'. .sented himself as its general manager, and employed plaintiff notr^ rt^ ^ _,j^ ii ^^^'only to assist in procuring the bonus, but to attend to all the com-y yf' p' ft ^' ^"^^ pany's business as its attorney; that in September, 1889, AndersonJ! IaK>^ 'f ' o ' ^!r^ ?.yowed his account, and was at that time the owner of a majority ov ^^f^j ^\ '"-^ /the stock, which he subsequently transferred to one Stone, the presi-iV^'^ v'i/^ ^"^ C-^ '^ dent of the compan}^, and his associates. 'fif^ '^ ^ i^ C" Stoce testified, on behalf of the company, that in the spring of ' ,jK^ 5^^"^!^^^'^ iians^-'City, Missouri, he employed Anderson to go to eA NT /-^V^ '\ V'-^' 1 Arguments v> \s^ ^P^ jO^ ^;^_ v>^ uments omitted. — Ed. 256 WEATHERFORD, & c R. CO. V. GRANGER. Weatherford, and to procure a bonus of $40,000 and survey the right of way for a railroad from tliat city to Mineral Wells, and to pay him $1000 for his services ; that he had paid Anderson according to his agreement ; that he did not know that Anderson had ever employed plaintiff for any purpose ; that Anderson was never general manager for the company, and held no office in it excej)t that of director ; that he knew that the plaintiff was interesting himself in procuring the bonus, but supposed he was working for one Johnson, who was one of the charter members, and who owned certain coal lands which he wished to sell to the projectors of the railroad ; that plaintiff never said anything to him about the company owing him anything, and that the iirst he knew of plaintiff's claim was when this suit was brought. There was further testimony tending to show, that Anderson was the chief active promoter of the enterprise, and that he had the prin- cipal management of the business from its inception in March until he retired in September, 1889 ; and that during this time the plaintiff was frequently in attendance upon him, aiding and assisting him in procuring the bonus, and otherwise promoting the objects of the com- pany. No controversy is raised in this court as to the fact of plaintiff's services, or as to their value. The trial judge, as conclusions of fact, found, in substance, that some kind of a company was formed to build the railway from Weatherford to Mineral Wells ; that Anderson was " the principal mover in said scheme, and was so recognized by all parties ; " that he employed plaintiff to assist him in procuring a bonus and in other- wise advancing the enterprise, and that the plaintiff rendered service under said employment, both before and after the articles of the com- pany were filed; that the bonus was raised, and was, after its incor- poration, accepted by said company. The Court of Civil Appeals adopt the findings of the trial judge, and add additional findings as follows : " The charter of the defend- ant company was signed and acknowledged about June 1, 1889, and was filed in the office of the Secretary of State at Austin, July 2, 1889. The bonus or subsidy was not secured until after the filing of the charter. The records woiildhave justified the trial ^"purt, and so justifies_us^n findingj_as w£_do, JJi£Lfact^to be. that_ ^in avail ing kself oJL.the_ subsid y secur ed, -tJi e compa ny knew of the s ervices o f thejjlaintiff' in raising the bon us." Under the statute, the corporation came into existence when its articles of incorporation were filed in the office of Secretary of State. Kev. Stats., arts. 4104, 4105. Although the trial court found that the services for which plaintiff sued were rendered in part 'before and in part after the filing of the articles, their value was assessed as an entirety at $500, and judgment was rendered for the whole amount. In this there was error. We d,re of opinion, that under the WEATHERFORD, &c. R. CO, V. GRANGER. 257 circumstances of tliis case, a s shown by t hejgvic lprip.p, t.he flefen^lapt corporation can not be Iield liable to the plainti ff Jorjinj^sei'^^'^ss ren- dered by him before it was brought into legal e xistenc e. Upon the question as to the liability of a corporation growing out of contracts made on its behalf by its promoters, there is considerable diversity and some conflict of opinion. But there are some proposi- tions affecting this question upon "v^hich the authorities seem to be in substantial accord. A promoter, though he purport to act on behalf of tlig project ed corpo ratioii, and not for himself, can not be treated ag a^en t, because _the^ominal principal is not then in exi stence, ; and Eeiice when there is n othin.ia; more than a contract by a promoter, in w hich he undertakes to bind the future corporation, i t is generaljx con ceded tha t it can not be enforced. Kelner v. Baxter, L. R., 2 Com. fr7l74; MdhachY. Eallwai/, L. E., 9 Com. PL, 503. The promoters^jthemselves are liable upon the contract, unless the pe rson wit h whom they engage agrees_to look to some other fund foj p ayme nt. Kerrid(/e v. Hesse, 9 Carr. & P., 200. The statute, however, which authorizes the incorporation may pro- vide that the corporation, when formed, shall pay the necessary ex- penses of promoting the scheme ; in such a case, though the right of action is dependent upon the contract, the liability is created by the statute. Re Botherham, etc., Co., L. T. Rep., N. S., 217. It is now held in England, that although the articles of association bind the company to pay the expenses of its promotion, a third party can not avail himself of such a provision so as to maintain an action against the company. Re Rotherham, etc., Co., supra ; Elerj v. Assur- ance Co., 34 L. T. Rep., N. S., 190. It is also generally held, that contracts by promoters made on be- half of the corporation, within the scope of its general authority, may be adopted by the latter after its organization. Some of the courts say they may be ratified; Irut ratifica tion presupposes a principal existing at the time of the agent's action, and it seems to us, there'_ fore, tha t the~term is not^applicable in its technical sense. McArthur V. Printing Co., 51 N.^W. Rep., 215; SjjiUer v. Paris Skating Rink Co., 1 Ch. Div., 368. With the exception of the law courts of England, the rule is also very generally recognized, that if a contract be made on behalf of a (corporation by its promoters, and the corporation, after its organiza- ,tion, with a knowledge of the facts, accept its benefits, it must take 'it with its burdens ; and if the other party has performed the stipula- tion binding upon him, it may be enforced as against the corporation. Spiller V. Rink Co., supra ; Loucke v. Warehousing Co., 6 Ch., 67. But as to the application of the rule last announced, the courts differ in opinion. A leading case upon this subject is Edwards v. Grand Junction Railway Company, 1 Milne & Cr., 650. There the promoters of the railway company had entered into a contract with the trustees of a turnpike company, in which the latter agreed to with- -^itr 258 WEATHEEFOED, &c. E. CO, V. GEANGEE. draw their opposition to an act of Parliament for the incorporation of the railway company, in consideration of an agreement by the pro- moters to insert certain clauses in the act as to the nature of the necessary constructions at the crossing of the railway and the turn- pike road, and the opposition was withdrawn, but the clauses were not inserted ; and it was held, that the railway company should be enjoined from constructing the crossing in a manner different from that specified in the clauses which had been agreed upon and had been omitted. The correctness of the ruling in this case was seri- ously questioned in the House of Lords in Preston v. Railway, 5 House of Lords, 605, and in Caledonian Railway Co. v. Helensburg, 2 McQueen, 391. Same case, 2 Jur., N. S., 695. We presume the doubt as to this case arises from the fact that the only benefit ac- cepted by the defendant company was the exercise of the powers conferred upon it by the act of li^arliament. Whe n the promoters of _^a_rail way company have agreed wi th a lan^Ie d proprietor th rough whose estates the road is projected to run, to take the requisite quantity of his l and at a stip ulated p rice, and af tee the corporation is f ormed it takes the l and, it is certainly equita- ble^that j:;he company should be made to pay the agreed compe nsa- tion; andthe doctrine is recognized in many En glish equity cas es. 'Stanley v. Railway, 3 ]\Iilne & Cr., 773 ; Gooday v. Colchester Railway Co., L. E.., 15 Eq., 596; Preston v. Liverpool Railway Co., L. E,., 7 Eq., 124; Edwards v. Grand Junction Railway Co., 1 JNIilne & Cr., 650. The same rule has been a nnounced a lso in many American cas es. Little Rock Railway Co. v. Perry, 37 Ark., 164; Paxton Cattle Co. v. Bank, 21 Neb., 621 ; Grape Sugar Co. v. Small, 40 Md., 395 ; Bommer V. Manufacturing Co., 81 N. Y., 468 ; Battelle v. Pavement Co., 37 Minn., 89 ; McArthur v. Printing Co., supra. Having exercised rights and enjoyed benefits secured to it by the terms of a contract made by its promotei^s in its behalf, a ciiipoxation should be held estopped to den j- its validity. Again, when the promoters of a corporation have made a contract in its behalf, to be performed after it is organized, it may be deemed a continuing offer on part of the other party to the agreement, unless withdrawn by him, and may be accepted and adopted by the corpo- ration after such organization ; and the exercise of any right incon- sistent with the nonexistence of such contract might be deemed con- clusive evidence of such adoption. But there are some cases which go a step further. Low v. Rail- ivay, 45 New ILampshire, 370, was a case of a Vermont corporation sued in New Hampshire upon a contract made in the former State. After a charter had been granted, but before an organization had been effected, a public meeting was held to promote the enterprise, at which, it is to be presumed from the opinion, the corporators were ;present or were represented. A proposition was made that the plain- WEATHEKFORD, &c. K. CO. V. GRANGER. 259 tiff should be employed and paid to visit various towns and cities to interest capital in the projected scheme, and to solicit and procure subscriptions. The plaintitf accepted the offer and performed the ser- vices, and it was held that the corporation was liable. The court de- termined that the question of liability depended upon the law of Ver- mont, as announced in the case of Hall v. Railway, 28 Vermont, 401. But they were also inclined strongly to think, that upon general prin- ciples the company, by accepting subscriptions which were procured by the plaintiff, bound itself to pay for his services. They also seem to recognize the doctrine, that after a charter has been granted a majority of the corporators have the power to make contracts neces- sary to perfect the organization, which may be binding upon the com- pany when formed. But they also lay stress upon the fact that the charter of the defendant corporation provided, that " the expenses of all surveys and examinations, as also of the preliminary surveys already made and making, and all manner of incidental expenses relating thereto, shall be paid by said corporation." In Hall V. Railway, supra, a corporator was held entitled to recover for necessary services in organizing the company, although there was no express promise by any one that he should be paid. Unless the charter of the company provided for the payment of such expenses, this decision we think is unsupported by authority. It^s^ generally held, that in the absence of such provision in the act of incorporation in case of a special charter, or in the_gen£r^l-ia.w or in the articles of incorporation u nder a general law, no implied^ pr omise c an be imputed to a corporation to pay for the services of__a. corporator or promoter before the corporation comesinto exis tence. A contra cFlmade by promoters may be adopted by a corporation, ex- pressly or im pliedly, by exercising rights under itj but otherwise it js not b inding up on such corporat ion. Kelner v. Baxter, supra ; Melhado vT^ailivay, sflpra; Railway v. Ketchum, 27 Conn., 170; Kerridge v. Hesse, 9 CarK & P., 200 ; Munson v. Railway, 103 N. Y., 58 ; Morri- son V. Mining Co., 52 Cal., 306; Gent v. Ins. Co., 107 111., 652 ; Rail- way V. Sage, 65 111., 328 ; Western, etc., Co. v. Cousley, 72 111., 531 ; JBuffington v. Borden, 80 Wis., 635 ; see also. Railway v. Helensburg, 2 McQueen (H. of L.) ; same case, 2 Jur., K S., 695 ; Teft v. Bank, 141 Pa., 550. Now, when it is said that when a corporation accepts the benefit of a contract made by its promoters, it takes it cum onere, it is impor- tant to understand distinctly what is meant. There is, so far as this matteris-concerned, a radical difference between a promise made onj behali_QL-tlie future corporation in the contract itself, the beneiit which _the corporation has accepted, and the promise in a ju'eviqui contract t o_^y for services in procuring the latter toJ)e mad£, Thi is well illustrated by the facts of the present case. Here a propos tion was made on behalf of the company, by its promoters, that if bonus should be subscribed and paid to it, ijt would build ^^? road b 260 WEATHERFORD, &c. R. CO. V. GRANGER. B tween certain points, and would carry coal at a certain stipulated rate. By accepting the bonus, the company became bound to fulfill the stip- ulations of that contract. That was the burden which it took with the benefit of the agreement. Bu^italso appears that one of the promoters promised the plaintiff, thaT if_ he would assist in procuring subscribers to the bonus, the company wauld pay him for his services. This was no part of the contract the benefits of which were taken by the defendant. '**^ The benefits of a contract are the advantages which result to either party from a performance by the other ; and in like manner its bur- dens are such as its terms impose. A more accurate manner of stat- ing the nature of the plaintiff's demand is to say, that the defendant has accepted the benefit of the plaintiff's services and should pay for them. It is true, in one sense, that the company has had the benefit of plaintiff's services, and it is equally true that it would have had that benefit if the services had been rendered under an employment by the subscribers to the bonus ; and yet in the latter case it could no% be claimed that the company would be liable for such services, unless payment for them by the company were made one of the terms of the contract between the company and the subscribers. In Re Rotherham, etc.. Company, 50 Law Times Reports, New Series, 219, in the opinion of one of the justices, this language is used : "It is said that Mr. Peace has an equity against the company, be- cause the company had the benefit of his labor. What does that mean ? If I order a coat and receive it, I get the benefit of tlie labor of the cloth manufacturer ; but does any one dream that I am under any liability to him ? It is a mere fallacy to say, that because a per- son gets the benefit of work done by somebody else, he is liable to pay the person who did the work." There is more doubt as to the plaintiff's right to recover for his legal services in advising as to the articles of incorporation and in correcting and preparing this paper. Such services are usually neces- sary, and it would seem that the corporation should pay for them. Such payment is frequently provided for in the act of incorporation, or in the articles when the incorporation is effected under a general law. When such is the case, persons who take stock in the company are chargeable with notice that a liability fortius purpose has already been created, and it is proper for the corporation to discharge it. But in the absence of such provision in the statute or in the articles, it may be unjust to shareholders to charge the corporation with liabil- ities of which they had no actual knowledge at the time they accepted the shares. We therefore hold^ ^^^itli some hesitation, that claims for tr.e necessary expenses of the organization, under our statut e, shou ld iiot~be"^xcepted^ from the ge neral jade applicable to contract s ma de befor e the corporation has come into legal existence. Applying the rules we have announced to the case before us, it is apparent that the plaintiff has recovered, in part at least, for services WEATHERFORD, &c. R. CO. V. GRANGER. 261 for which the defendant was not bound to pay. He made his con- tract before the company had a legal existence as a corporation, with a single promoter ; and it is a matter of no moment that the promoter was the general manager of the project and became the owner of the majority of the stock upon its organization. There were other stock- holders. The law requires that there should be ten at least. Rev. Stats., art. 4099. The evidence does not disclose that his contract with Anderson was actually known to any other person ; nor do we see any other circum- stance from which knowledge should necessarily be inferred. Since Anderson had no power to b'ind the future corporation, but could bind himself, the inference from his assisting Anderson would be that he was acting gratuitously, or that Anderson had agreed to pay him. Anderson was interested in shifting his contract upon the com- pany ; and it may be doubted whether, although he became a director, notice to him could be deemed notice to the company. The Court of Civil Appeals find, however, that the company had notice. Waiving the question of the right of the court to supplement the finding of the trial judge under such evidence, and the further ques- tion whether there be any evidence to support this conclusion, it fol- lows from what we have already said, that the question of the com- pany's knowledge does not affect the case. The plaintiff's contracr ' with An derson^ though^niade by the latte r on behalf of the c ompany, ^ [j>*^ ^^ was_ not a lie n^_enciunbrauce. or burden u])on. the contract between th ep^.i , ^ subscribers to the bonus and thu defenda nt, and it incurred no liabil-^ ^i ^g/^'^ ity on the former contract by acce pting the benefit of the latter . j/jj The evidence was sufficient to sustain a recovery by the plaintiff for the value of his services rendered after the corporation was cre- ated ; but the court below failed to find separately the reasonable worth of such services. Therefore the entire judgment must be re- versed. We deem it proper to say, in conclusion, that if the opinion in the case of McDonough v. Bank, 34 Texas, 309, is to be construed as hold- ing that merely by accepting the benefit of the plaintiff's labor, the defendant ratified and became bound under the promoter's contract, it does not meet our approval. Whether the contract in that case was one which the bank had the power to ratify, is to say the least a doubtful question ; but it is one that does not concern us here, and upon which we express no opinion. The judgments of the District Court and of the Court of Civil Appeals are reversed and the cause remanded. Reversed and remanded. 262 DOWNING V. MOUNT WASHINGTON KOAD CO. 4 »/ 4 '/ CHAPTER VII. INTERPRETATION OF CHARTERS. DOWNING MOUNT WASHINGTON ROAD CO. I860. 40 New Hampshire, 230. ^'^J I %^' /fit ^'^cP Assumpsit, brought b}' Lewis Downing & Sons, to recover the price of eight omnibuses, and a model for the same, one light wagon, and one baggage wagon, made for the defendants, under a contract entered into by D. O. Macomber, president of the defendant corporation, in their behalf. The light wagon was made and sent to one Cavis, the agent for building the road, and was used by him in making it. The omnibuses and baggage wagon were intended to be used in conveying passengers up and down the mountain, after the road was completed. The omni- buses were constructed in a peculiar way, and are not fit for use on ordinary roads. By their act of incorporation, passed July 1, 1853, the corporation was empowered to lay out, make and keep in repair, a road from such point in the vicinity of Mt. Washington as they may deem most favor- able, to the top of said mountain, &c., and thence to some point on ^the northwesterly side of said mountain, &c., to take tolls of passengers nd for carriages, to build and own toll-houses, and to take land for heir road. The corporation was duly organized, and at a meeting of the direc- tors on the 31st of August, 18,53, before said contract was made, it was " voted that the president be tlie legal agent and commissioner of corapan}' ; " and his compensation as sucli was fixed. The president" was "directed to proceed with the letting of the work for the construction of the road," " tlie obtaining the right of way," and " what other action he shall deem proper, for the interests of the company," &c. A committee was appointed " to settle in relation to the right of way, &c., and in relation to land on which to build stables and other buildings, for the use of the road, and also for building all such stables and houses as may be necessary for the operations of the company." DOWNING V. MOUNT WASHINGTON ROAD CO. 2G3 It appeared that by an additional act, passed July 12, 185G, the corporation were authorized " to erect and maintain, lease and dispose of any building or buildings, which may be found convenient for the accommodation of their business, and of the horses and carriages and travelers passing over said road." The defendants denied the authority of Macomber to make such a contract in behalf of the corporation, and the power of the corporation under its charter either to authorize or enter into such a contract. Kittredge d; Hellov^s, for the plaintiffs. George ^''^'*^ for_wliich the y werfi t^st^ihlislied. Trustees v. Peaslee^ 15 N. H. 330; ^^""^^'T'/ Perrine v. Chesapeake Canal Co., 9 How. 172. In giving a construe- ^ -^^'^"^^^^ tion to the powers of a corporation, the language of the charter should in general neither be construed strictl}' nor liberally, but according to the fair and natural import of it, with reference to the purposes and objects of the corporation. Enfidd Bridge v. Hartford R. R., 17 Conn. 454. ; Strauss v. Eagle Co., 5 Ohio (N. S.) 39. If the powers conferred are against common right, and trench in any way upon the privileges of other citizens, they are, in cases of doubt, to be construed strictly, but not so as to impair or defeat the objects of the incorporation. In the present case the power to take the lands of others, and to take tolls of travelers, must be strictly construed, if doubts should arise on those points ; but it is not seen that the other grants to the defendant corporation should not receive a fair and natural construction. The charter of the Mount Washington Road empowers them to lay out, make and keep in repair, a road from Feabody River Valley to the top of Mount "Washington, and thence to some point on the north- west side of the mountain. It grants tolls on passengers and carriages, and authorizes them to take lands of others for their road, and to build and own toll-houses, and erect gates, and appoint toll-gatherers to col- lect their tolls. The remaining provisions contain the ordinary powers of corporations, relating to directors, stock, dividends, meetings, &c. Laws of 1853, chapter 1486. This charter confers the usual powers heretofore granted to turnpike corporations, and no others. The most natural and satisfactory mode of ascertaining what are the powers incidentally granted to such com- panies, is to inquire what powers have been usually exercised under them, without question by the public or by the corporators. It may be safel}' assumed that the powers which have not heretofore been found necessary, and have not been claimed or exercised under such charters, are not to be considered generally as incidentally granted. 1 Bellows, J., did uot sit. 264 DOWNING V. MOUNT WASHINGTON EOAD CO. Such charters have in former years been very common in this an(^ other States, and they have not, so far as we are aware, been under- stood as authorizing the corporations to erect hotels, or to establish stao-e or transportation lines, to purchase horses or carriages, or to employ drivers in transporting passengers or freight over their roads ; and no such powers have anywhere been claimed or exercised under them. We are, therefore, of opinion that the powe r to establish stag e and transportation lines to and from the moun tain, to purch as e car- riageinand horses foiLthe^_ pui-i X)se of carrying on suc h_a business, was notjn cidentally granted to t he cfefendant corporation by their charter . State\. Commissioners , 3 Zab. 510. But it is contended that the power to make this contract is con- ferred by the act in amendment of the charter, passed Jul}' 12, 1856. By this act the corporation may "erect and maintain, lease and dis- pose of any building or buildings wliicli may be found convenient for tiie accommodation of their business, and of the horses and carriages and travelers passing over their said road." By their business, which the buildings to be erected were designed to accommodate, it is said tlie legislature must have intended some permanent and continning business beyond that of merely building and maintaining a road ; and that it could be no other than that of erecting a hotel on the mountain, and establishing lines of carriages, for the purpose of carrying visitors up and down the mountain. But the foundation of this implication is very slight. The express grant is of an authority to erect, &c., buildings, not of all kinds, but such as may be found convenient for the accommodation of their busi- ness, and of travelers, &c. Tlie business here referred to must be understood to be such as they are by their charter authorized to engage in. If nothing had been said of horses and travelers, there could hardly be any foundation for the idea that a hotel could have been contemplated by the legislature. Buildings suitable for the accommo- dation of their toll-gatherers and workmen employed on their road, would probably be thought every thing the legislature intended to authorize by this additional act. Connected as this authority now is with travelers, horses and carriages, there is scarce a pretence for argument, that this additional act goes any further than the original act, to authorize a stage and transportation company. It is not unlikely that some of the projectors of this enterprise intended to secure much more extensive rights than those of a turnpike and hotel company, but it seems certain they have not exhibited this feature of their case to the legislature so distinctly as to secure their sanc- tion, and the charter and its amendment as yet justifies them in no such claim. The power of buying and selling real and personal property for the legitimate purposes of the corporation, and the power of cf)ntfacting generally for the same purposes, within the limits prescrilied by the charter, being granted, we understand the princi[)le to be, that their DOWNING V. MOUNT WASHINGTON ROAD CO 265 pirchases, sales, and contracts generally, will be presumed to be madej uithin the legitimate scope and purpose of the corporation, until tbt contrar}' appears, and that the burden of showing that any contract o| a corporation is beyond its legitimate powers, rests on the party wh<] objects to it. Indiana v. IVoram, 6 Hill 37 ; U.c parte Peru Jrar, Company^ 7 Cow. 540; Farmer's Loan v. Cloices, 3 Comst. 470; Same v. Curtis, 3 Seld. 4G6 ; Biers v. Phenix Compani/, 14 Barb. 358. If a corporation attempt to_ enforce a contract made with them in a ca se beyond the legitimate limits of their corporate power, that fact being shown, w ill ordinarily constitute a perfect defen ce. Green v. Seymour, 3 Sandf. Ch. 285; Bangor Boom v. Whiting, 29 Me. 123; Life <&c. Company v. Manufacturers <&c. Company, 7 "Wend. 31 ; ^"tic-York cC'c. Insurance Company v. F^y, 5 Conn. 560. And if a su it is brought uiJOU_a^on tract alleged to be made by the c orporatio n ,,i2ut_ which is shown to b e_beyond its cor porate power to enter into, t he contract will be regar ded a s void, and the corporation may av airt hemsely es_ of that defen ce. Beach v. Fulton Bank, 3 Wend. 573 ; Albert v. Savings Bank, 1 Md. Ch. Dec. 407 ; Abbot v. Baltimore &c. Company, 1 Bid. Ch. Dec. 542; Strauss v. Eagle Insurance Comptany, 5 Ohio (N. S.) 59 ; Baron v. Mississippi Insur- ance Company, 31 Miss. 116 ; Bank of Genesee v. Fatchin Bank, 3 Kern. 315 ; Gage v. Newmarket, 18 Q. B. 457. Tiie contract set up in this case was made not by the corporation itself, by a vote, nor b}' an agent express!}' authorized to sign a contract already drawn, but it was made bj- the president of the corporation, acting under an appointment as their general agent ; and it is argued that he was fully authorized by votes of the corporation to bind them by such a contract as the present ; but it is not necessary to consider this question, as we think it settled that the powers of the agents of corporations to enter into contracts in their behalf are limited, b}- the nature of things, to such contracts as the corporations are b}' their charters authorized to make. This principle is distinctly recognized in McCullough V. Moss, 5 Den. 567; overruling the case of Moss v. Bossie lead Co., 5 Hill 137, and in Central Bank v. Empire Co., 26 Barb. 23 ; Bank of Geriesee v. Patchin Bank, 3 Kern. 315. The same want of power to give authority' to an agent to contract, and thereby bind the corporation in matters bej'ond the scope of their corporate objects, must be cqualh' conclusive against any attempt to ratify such contract. What they cannot do directlv they cannot do indi rect!} ". The}' cannot bind tlieniselves by tlie ratification of a con- tract which they had no authority to make. 5 Den. 567, above cited. The^wer_QLjtlie agent must be restricted to the business which the company was^jauthorized to do. Within the scope of the business which they had power to transact, he, as its agent, may be authorized io act for it, but beyond that he could not be authorized, for its powers extend no further. d e. 7^ 266 STOURBEIDGE CANAL V. WHEELEY. This view seems to us entirely conclusive against the claim made for the omnibuses and model, and probably for the baggage wagon. As to the light wagon, that may stand on a different ground. Such a wagon might be useful and necessary for the use of the agent of the company, in conducting the undoubted business of the corporation — tlie building and maintaining the road. We are unable to assent to the position taken in the argument, that a ratification of part is a ratification of the whole contract. While the corporation ma}- be restricted from ratifying a contract beyond the scope of the objects of the corporation, there could be no such objec- tion as to any matter clearlj- within their power. The other contract- ing party might have a riglit to reject such ratification, claiming that-, the contract is entire, and if not ratified as such, it should not be made good for a part only. But if they claim the benefit of the pa: tication, tiie corporation can hardly object ^ "•^ ,' PROPRIETORS OF THE STOURBRIDGE CA^if AL v. WHEELEY. /jy^^ the public the use of the canal, p. 788, and it is contended that no per- sons have a right to use an\- part of the canal under that clause, except those who actually do pay some of the I'ates or dues, and consequently pass some of the locks ; and that if individuals have no right to navi- gate a particular part, the company may make their own bargain as to the terms upon whicli they ma}' be permitted to do so. But the clause in question is capable of two constructions ; one, that those persons who pass the locks, and therefore pay the rates, and tliose only, ai'e entitled to navigate any part of the canal or cuts ; the other, that all persons are entitled to use it, paying rates when rates are due. The former of these constructions is against the public and in favour of the company, the latter is in favour of the public and against the company, and is therefore, according to the rule above laid down, the one which ought to be adopted. And indeed the more obvious meaning of this clause is, to declare that the canal is dedicated to the public, but, at the same time, to pre- serve the right of the company to the rates already given : and it is reasonable to suppose that, by the section p. 777, which gives the rates as a compensation for the expenses of the proprietors, the legislature meant to include (ill the benefit they were to derive from the canal, and not to leave the company to make what agreement they pleased with the public in cases not provided for, and to gain an unlimited profit from a particular part of it. They i)robably did not contemplate the case of persons using the canal who did not pass any lock ; but whether the omission was intentional, or arose from inadvertence, it is still an omission in that clause which provides for the emolument of the company. Another section upon which some reliance was placed, was that in page 789, which gives to the owners of adjoining lands the power to use any pleasure boats on the canal, &c. (so as the same do not pass •through any lock), without paying any rates or dues for the same, and so as such boat be noi used for carrying any goods ; and it is argued that the inference arising from the latter part of this clause is, that pleasure boats carrying goods would be liable to pay rates, though they should pass no locks ; and if pleasure boats, then all other boats should be equally liaVjle. And there is no doubt but that this provision does CENTRAL TEAKSPORTATION CO. V. PULLMAN CAR CO. 269 afford some colour for this argument. The object of the clause appears to have been, partly to secure the right of the proprietors to use the canal with pleasure boats ; (and in that respect it was introduced pro majore cautela;) and partly to prevent the company being injured by their passing through locks ; and the framer of the clause seems to have added the last provision in the section merely to put pleasure boats with goods on board, on the footing of loaded vessels, without consid- ering whether loaded vessels were liable to duties or not. At any rate this clause is not sufficient, in our judgment, to enable us to say that it is dear the legislature intended to give the plaintiffs the right to the compensation claimed for the use of a part of the canal where there is no lock. Upon the principle of construction, therefore, above laid down, viz., that the company are entitled to impose no burthen on the public for their own benefit except that which is clearl}' given by the act, we are of opinion that, as their right to claim this compensation is not clearl}' given by the act, the plaintiffs are not entitled to recover. Judgment for defendants. Gray, J., in CENTEAL TRANSPORTATION CO. v. PULL- MAN CAR CO. 1891. 139 U. S. 24, p. 49. By a familiar rule, every public grant of property, or of privileges,, or franchises, if ambiguous, is to be construed against the gran- tee and in favor of the public ; because an intention, on the part of the government, to grant to private persons, or to a particular corpo- ration, property or rights in which the whole public is interested, cannot be presumed, unless unequivocally expressed or necessarily to be implied in the terms of the grant ; and because the grant is sup- po sed to be maj le_^ at the sol icitation of the grantee, and to be drawn up" by him^r b y his agents , and therefore the words used are to_be treated as th ose oi the^ grantee ; and this rule of construction is a wholesome safeguard of the interests of the public against any attempt of the grantee, by the insertion of ambiguous language, to take what could not be obtained in clear and express terms. Charles River Bridge v. Warren Bridge, 11 Pet. 420, 544-548 ; Dubuque & Pacific Railroad v. Litchfield, 23 How. 66, 88, 89 ; Slidell v. Grandjean, 111 U. S. 412, 437, 438. This rule_applies with peculiarjforce^ to articles of^association^hich are framed under general laws^and which^aie a substi.tute for a legislative charter, and assume and define_the powers of the corporation by the mere act of the associates, without any supervision of the legislature or of any public authority. Oregon Railway v. Oregonian Railioay, 130 U. S. 26, 27. ^«Y ^ CO. V. OEEGONIAN KY. CO. OKEGOK EAILWAY & NAVIGATION CO. OREGONIAN KAILWAY CO. 1889. 130 [T. S. 1, pp. 26, 27. V. y>^ iji is to be remembered that where a statute making a grant of \^v ^ property, or of powers, or of franchises, to a private individual, or a ^/f" J^ /private corporation, becomes the subject of construction as regards the extent of the grant, the universal rule is that in doubtful points /I the construction shall be against the grantee and in favor of the gov- ' ernment or the general public. As was said in the case of Charles River Bridge v. Warren Bridge, 11 Pet. 420, " in this court the prin- ciple is recognized that in grants by the public nothing passes by im- plication." See also Dubuque a7id Pacific Railroad Co. v. Litchfield, 23 How. 66 ; Turnpike Co. v. Illinois, 96 U. S. 63. Therefore if the articles of association of these two corporations, instead of being the mere adoption by the corporators themselves of the declaration of their own purposes'and powers, had been an act of the legislature of Oregon conferring such powers on the corporations, they would be subject to the rule above stated and to rigid construc- tion in regard to the powers granted. How much more, then, should this rule be applied, and with how much more reason should a court, called upon to determine the powers granted by these articles of asso- ciation, construe them rigidly, with the stronger leaning in doubtful cases in favor of the public and against the private corporation, We have to consider, when such articles become the subject of con- struction, that they are in a sense ex parte ; their formation and exe- cution — what shall be put into them as well as what shall be left out , — do not take place under the supervision of any official authority whatever. They are the production of private citizens, gotten up in I the interest of the parties who propose to become corporators, and [Stimulated by their zeal for the personal advantage of the parties con- cerned rather than the general good. These articles, when signed by the corporators, acknowledged before any justice of the peace or notary public, and filed in the office of the Secretary of State and the clerk of the proper county, become com- plete and operative. They are, so far as framed in accordance with law, a substitute for legislation, put in the place of the will of the people of the State, formerly expressed by acts of the legislature. Neither the officer who takes such acknowledgment, nor those who file the articles, have any power of criticism or rejection. The duty of the first is to certify to the fact, and of the second to simply mark them filed as public documents, in their respective offices. Tliese articles, which necessarily assume by the sole action of the corporators enormous powers, many of which have been heretofore considered of a public character, sometimes affecting the interests of \^ WHITAKEK V. DELAWARE AND HUDSON CANAL CO. 271 the public very largely and very seriously, do not commend them- selves to the judicial mind as a p,1as8 of instruments requiring or jus tifying j ;ny_veix_nberal construction. Where the question is whether they conform to the authority given by statute in regard to corporate organizations, it is always to be determined upon just i^ construction of the powers granted therein, with a due regard for ir j. all the other laws of the State upon that subject, and the rule state^ J^ above. . -i^ WHITAKEK V. DELAWARE & HUDSOI 1878. 87 Pa. State, 34.1 a/* Case to recover for damages to plaintiff's lumber rafra while passing 7^ ^n^ through the schute of defendants' dam, alleged to have resulted from (?^ ^ the improper construction and maintenance of such dam. At the ^^f^ tM^ trial, in the Court of Common Pleas, after evidence had been intro- *)\s ly <^^'f^ duced by both sides. Waller, P. J., directed a verdict for defendants. ^ ^^^"^ f^y^ £ jr^ Plaintiff took a writ of error. i ^v^ ."t^ ,. ^ G. G. Waller, for plaintiff in error. 0^ '' k \j Ly~^ II. M. /See/y, for defendant in error. (^y) - c/^ A^vj^' Trunkey, J. The defendants were incorporated under the laws oi/^|^^ *^^(k* New York, and by divers statutes of this state, are vested with certain/^/'' /^i| public franchises. For the purposes of the grant the dam across the t^ . L^ 'a** Delaware river was built about fifty years ago, and the right to main- ^^(&^ », "^ tain it is conceded. In the Act of 1825, Pamph. L. 142, is a pro-. /y^V^ " vision "That the said company shall not erect any works, or make any] improvement, connected with the Delaware river, unless the same shall/''^- be so constructed as to leave the channel of said river as safe and as convenient for the descent of rafts as it now is." The plaintiff com- plains that the river is not as safe and convenient for navigation as before the erection of the dam. Unquestionably this is so. A dam in a stream is an impediment and in some degree 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 vanishes. The statutes of this state, recognizing those of New York, and in connection therewith, conferring the power to construct a great public highway, are nugatory under a strict construction of the section providing for safe and convenient navigation of the river. This was not the legislative intent. It could not have been intended to grant a franchise to build a public highway, in connection with one in a sister state, and so clog it that the work could never be executed. Various statutes, from time to time, have been enacted authorizing public improvements, some of which would obstruct or impede the 1 Statement abridged. Argumeuts, and pa^rt of opinion, omitted. — Ed. 4 272 WHITAKER V. DELAWARE AND HUDSON CANAL CO. navigation of rivers, and others the use of streets and roads, which contained provisions forbidding such obstructions and impediments. Tlie courts have uniformly held that these provisions should be liberally construed, so as not to destroy the grant. For instance, the act of in corporation of the IMonongahela Bridge Company contained a declara- tion 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 said river, by boats, rafts or other vessels." It was held that the proviso was not intended to prevent the erection of piers in the bed of the river, yet piers in the bed of a navi- gable stream inevitably endanger navigation and render it more difficult. They do not necessarily " injure, stop or interrupt the navigation " in the sense in which these words were used by the legislature. A strict literal meaning was not intended, and in the ver}- nature of things, it never could have been. When the purpose of the franchise is the performance of a public act^the grant is to be so interpreted as to enable the act to be done . The extension of one highway over an- other is a public act, and not less so because of the power to exact tolls: Monongahela Bridge Co. v. Kirk, 10 Wright, 112. The charter of the Erie and North East Railroad Company bad a provision that " The said railroad shall be so constructed as not to impede or obstruct the free use of an}- public road, street, lane or bridge now laid out, opened or built." '' These words taken literally and in their strongest sense would prevent tTie railroad from being made on the streets at all. But we follow authority in saying the}' are not to_be so interpret ed. T he defendants have a right to use a street if thej- take caxe to obstruct it a"s little as the nature and character of their improvement will__permit, if they create no material or unnecessarj- impediment — no obstruction which could be avoided by any reasonable expenditure of money or labor. They cannot occupy the whole of a street and drive the public away from it altogether. But any street which is wide enough for the railroad and public both may be used on the terms mentioned." Per Black, C. J., Commonwealth v. E. & N. E. Railroad Co., 3 Casey 365. It is no departure from the current of decisions, but in its direct lineTto hold that the defendants can enjoy their franchise, can lawfully construct and maintain their dam, taking care to obstruct the channel asjittle as the nature and character of the imj)rovement jvi]]^j)ermit, and leaving it as safe and convenient for the navisfation of rafts as could be by any reasonable expenditure of jjiDney and-lahoj'. Tlieir franchise is for the construction of one highway over another. The wiiole community are interested in both. Private charters are strictly interpreted. In them what is not expressed or necessarily implied, is not granted, and what is doubtful is resolved in favor of the sovereign. But wlien the sovei'eign grants a public franchise over a liighway, a clause relative to the use of said highway will not be so construed as to defeat tlie grant. 'J'hij phiintiff does not claim merely for consequential damages, re- CHARLES RIVEK BRIDGE V. WARREN BRIDGE. 273 suiting solel}' from the construction of the dam. If he did, the defendants' answer would be found in Clark v. Birmingham and Pitts. Bridge Co., 5 Wright 147, and Monongahela Bridge Co. v. Kirk, saprtt. He claims further for an immediate injury, consequent upon tlie de- fendants' negligence, in that they " built and left the said dam in and 'across said highway, in a dangerous, insecure and impassable state and condition." His averment implies much more than_such obstruction as was necessar} and there was no If he adduced suffi( submitted to the jury. [After considering the evidence, the Co^iri held,., that it^was^^in! cient to warrant a ^fijidin^ that the defeudantj/ were ^uil^ ^1" '' ^m iJnT^ RITOE BRIDGE v. PfipipBI^' ©^•"WAEEEN BRIDGE^ h ^ Cy'^ ^ ,m7^ II Peters U.S. 420.' ^ j . ' ^.^Mv » . ■- ^^.. II Peters U. S. 420.^ ^' j, . ,, ■ „. fry or -^ ^t^ 5^^ Error to Supreme Court of Massachusetts. Bill in ^quit}^ to e the building of Warren Bridge, and for general relief. In 1650, the Massachusetts Legislature granted to Harvard Colli^^ the power to dispose, by lease or otherwise, of the ferry from Charles town to Boston. In 1785, the legislature incorporated "• The Proprier j^ ^ /.•V tors of Charles River Bridge," for the purpose of erecting a bridge in* j'^ xkt < the place where the ferry was then kept. The charter was limited to '^ ^ '^^ forty years from the opening; the company were to pay 200/ annually ^ V^^ i* ^ y\ to Harvard College ; and at the end of the forty years the bridge was^j;/^ f^^J^ ^ to be the propert}- of the commonwealth, saving to the college a reason- jji^ gl-^flA*- „a^' able annual compensation for the annual income of the ferr3\ bridge was opened in 1786. In 1792, the legislature chartered The Proprietors of West Boston Bridge to bridge the same river at a point' *f>' about a mile and a half from the first bridge. The 7th section of the C act of 1792 extends the charter of Charles River Bridge to seventypX' years from its opening; inasmuch as the erection of West Bosto^f" Bridge " ma}' diminish the emoluments of Charles River Bridge." Inf 1828, the legislature incorporated Proprietors of Warren Bridge toerecj;, another bridge across Charles River, distant only sixteen rods on the^^^ Cliarlestown side and about fifty rods on the Boston side from the bridge . L of the plaintiffs. Warren Bridge, by the terms of its charter, was to be^ • " "^ 1 Statement abriJ>?ed. Arguments omitted. — Ed. hJt)^ Ib*"'*^^ 'iu'^ 1 V «- 4^£ SJ-* M t^ ^ . (f' '/.V i^ ^.ti^ t^^ OJ '-^ fV 4^ >1 f{^,^ CHARLES ff///- ARREN -B , fis soon as the expense oi buil & f///' building: and ^ surrendered to the State, fis soon as tne' expense oi Duurting anrt sup- porting it should be reimbursed ; and this period was in no event to exceed six years from the time of beginning to receive toll. A supple- mental bill was filed, alleging that the Warren Bridge had been so far completed as to be open for travel. In the argument in the U. S. Supreme Court, it was admitted that sufficient toll had been received by llie owners of the Yv^arren Bridge to reimburse their expenses, that the bridge has now become the property- of the state and has been made a free bridge ; and that the value of the franchise granted to the owners of the Charles River Bridge has, by this means, been entirely estroyed. the Supreme Court of Massachusetts the judges were equally divided in opinion ; and the bill was there dismissed by a decree pro "^ " fjjformd.. 7 Pick. 344 / 6) ^■l ^M^ Dutton and Webster^ for plaintiffs. |-^ Greenleqf and Davis, contra. Taney, C.J. The plaintiffs in error insist mainly upon two grounds : 1. That by virtue of the grant of 1650, Harvard College was entitled, in perpe- tuity, to the right of keeping a ferry between Charlestown and Bos- ton ; that this right was exclusive ; and that tlie legislature had not. the power to establish another ferry on the same line of travel, because it would infringe the rights of the college ; and that these rights, upon the erection of the bridge in the place of the ferry, under the charter of • 1785, were transferred to, and became vested in "the proprietors of the Charles River Bridge ; " and that under and by virtue of this trans- of the ferr}' right, the rights of the bridge company were as exclu- e in that line of travel as the rights of the ferr3\ 2. That independenth' of the ferry right the acts of the legislature of Massachu- setts of 1785, and 1792, by their true construction^ neces sarily implied tli at tlie leg islature would not authorize another bridge, and e specially a free one^ by the side of this, and placed in the same line of trave 1 , whereby the franchise g ra nted to the " Proprietors of the Charles River Bridge" should be rendered of no value ; and th e pla inti ffs in error con-, tend that the grant of the ferry to th e college, and of the chart er to- tEe proprietors of liic bridge, are both contra cts on the pai;t _of the. State ; and that the law authorizing the erection of the Warren Br idge, iliJ828, impairs the obligation of one or botli of th ese contr acts. It is very clear that in the form in which tliis case comes before us, being a writ of error to a state court, the plaintiffs in claiming under either of these rights mustplace themselves on the ground of contract. and cannot sjapport tlieniselves^upqujlie principle that the law~deycsts festedjr^jhtsTjrris well settled by^e decisions of this court that a 81*510 law may be retrospective in its character, and may devest vested rights, and yet not violate the constitution of the United States, unless it also impairs the obligation of a contract. CHARLES RIVER BRIDGE V. WARREN BRIDGE. " 275 [The learned judge then held, that the ferry rights, and all franchises connected therewith, were extinguished, and not transferred to the Charles River Bridge corporation.] This brings us to the act of the legislature of Massachusetts, of 1785, by which the plaintiffs were incorporated by the name of "The Pro- prietors of the Charles River Bridge," and it is here, and in the law of 1792, prolonging their charter, that we must look for the extent and nature of the franchise conferred upon the plaintiffs. Much has been said in the argument, of the principles of construc- tion by which this law is to be expounded, and what undertakings, on the part of the State, may be implied. The court think there can be no serious difficulty on that head. It is the grant of certain franchises b}' the public to a private corporation, and in a matter where the pul)lic interest is concerned. The rule of construction in such cases is well settled, both in England, and b}' the decisions of our own tribunals. [The learned judge here cited and commented upon 8tourhrid(j6^ \ ^\ Canal v. Wheeley, 2 B. & Ad. 793, ante.'] |/V^-^ \K n Borrowing, as we have done, our S3"stem of jurisprudence from the / f^/^ ju:^ English law ; and having adopted, in every other case, civil and crim- f>5*^ bA inal, its rules for the construction of statutes ; is there anything in our , yj^'^"^ f, local situation, or in the nature of our political institutions, wliicli should lead us to depart from the principle where corporations are concerned? Are we to appl}' to acts of incorporation, a rule of construction differing from that of the P^nglish law, and, by implication, make the terms of a charter in one of the States, more unfavorable to the public, than upon an act of parliament, framed in the same words, would be sanctioned in an English court? Can an}- good reason be assigned for excepting this particular class of cases from the operation of the general principle ; and for introducing a new and adverse rule of construction in favor of corporations, wliile we adopt and adhere to the rules of construction known to the English common law, in ever}- other case, without excep- tion? "We think not; and it would present a singular spectacle, if, while the courts in England are lestraining, within the strictest limits, the spirit of monopol}', and exclusive privileges in nature of monopO' lies, and confining corporations to the privileges plainly given to them in their charter ; the courts of this countrv should be found enlarging these privileges hy implication ; and construing a statute more unfavor- ably to the public, and to the rights of the community, than would be done in a like case in an English court of justice. But we are not now left to determine, for the first time, the rules b}' which public grants are to be construed in this country. The subject has already been considered in this court ; and the rule of construction, above stated, fully established. [After referring to U. S. v. Arredondo, 6 Peters, 738 ; Jackson v. Lamjyhire, 3 Peters, 289 ; and JBeaty v. Lessee of Ktioicles, 4 Peters, 168; the opinion proceeds.] . _ 276 'CHARLES EIVER BRIDGE V. WARREN BRIDGE. But the case most analogous to this, and in which the question came more directly before the court, is the case of the Providence Bank v. Billings and Pittman, 4 Pet. 514, and which was decided in 1830. In that case, it appeared that the legislature of Rhode Island had char- tered the bank, in the usual form of such acts of incorporation. The charter contained no stipulation on the part of the State, that it would not impose a tax on the bank, nor any reservation of the right to do so. It was silent on this point. Afterwards, a law was passed, imposing a tax on all banks in the State ; and the right to impose this tax was resisted by the Providence Bank, upon the ground that, if the State could impose a tax, it might tax so heavily as to render the franchise of no value, and destroy' the institution ; that the charter^was a con- tract, and that a power which may in effect destro}' the ch arter is in- consistent with it, and is impliedly renounced b}' granting it. But the court said that the taxing power was of vital importance, and essential to the existence of government ; and that the relinquishment of such a power is never to be assumed. And in delivering the opinion of the court, the late chief justice states the principle, in the following clear and emphatic language. Speaking of the taxing power, he says, >'as the whole communit}' is interested in retaining it undiminished, that community has a right to insist that its abandonment ought not to be presumed, in a case in which the deliberate purpose of the State to abandon it does not appear." The case now before the court, is, in principle, precisely the same. It is a charter from a State. The act of incorporation is silent in relation to the contested power. The argu- ment in favor of the proprietors of the Charles River Bridge, is the same, almost in words, with that used by the Providence Bank ; that is, that the power claimed by the State, if it exists, may be so used as to destro}^ the value of the franchise the}' liave granted to the corporation. The argument must receive the same answer; and the fact that the power has been already exercised so as to destroy the value of the franchise, cannot in an}' degree affect the principle. The existence of the power' does not, and cannot depend upon the circumstance of its aving been exercised or not. It may, perhaps, be said, that in the case of the Providence Bank, this court were speaking of the taxing power ; which is of vital impor- tance to the very existence of every government. But the object and end of all government is to promote the happiness and prosperity of the community by which it is established ; and it can never be assumed, that the government intended to diminish its power of accomplishing the end for which it was created. And in a country like ours, free, active, and enterprising, continually advancing in numbers and wealth, new channels of communication are daily found necessary, both for travel and trade ; and are essential to the comfort, convenience, and prosperity of the people. A State ought never to be presumed to sur- render this power, because, like the taxing power, the whole community have an interest in preserving it undiminished. And when a corpora- CHAELES RIVER BRIDGE V. WARREN BRIDGE. 277 tion alleges, that a State has surrendered for seventy j-ears, its power of improvement and public accommodation, in a great and important line of travel, along which a vast number of its citizens must dailj' pass ; the community have a right to insist, in the language of this court above quoted, " that its abandonment ought not to be presum^l, in a ca se, in \vhich the delibe rate purpose of the State to abandon it. does not appear ." The continued existence of a government would be of no great value, if by implications and presumptions, it was disarmed of the powers necessary to accomplish the ends of its creation ; and the functions it was designed to perform, transferred to the hands of priv- ileged corporations. The rule of construction announced b}' the court, was not confined to the taxing power ; nor is it so limited in the opinion delivered. On the contrary, it was distinctl}' placed on the ground that the interests of the communit}' were concerned in preserv- ing, undiminished, the power then in question ; and whenever any power of the State is said to be surrendered or diminished, whether it be the taxing power or any other affecting the public interest, the same principle applies, and the rule of construction must be the same. No one will question that the interests of the great bod}' of the people of the State, would, in this instance, be affected b}' the surrender of this great line of travel to a single corporation, with the right to exact toll, and exclude competition for seventy j'eare. While the rights of private property are sacredly guarded, we must not forget that the community also have rights, and that the happiness and well-being of everj' citizen depends on their faithful preservation. Adopting the rule of construction above stated as the settled one, we. proceed to appl}' it to the charter of 1785, to the proprietors of the Charles River Bridge. This act of incorporation is in the usual formT] and the privileges such as are commonly given to corporations of kind. It confers on them the ordinary faculties of a corporation the purpose of building the bridge ; and establishes certain rates of toll^ which the company are authorized to take. This is the whole grant. \ There is no exclusive privilege given to them over the waters of Charles ) River, above or below their bridge. No right to erect another bridge themselves, nor to prevent other persons from erecting one. No engagement from the State that another shall not be erected ; and no undertaking not to sanction competition, nor to make improvements that may diminish the amount of its income. Upon all these sub- jects the charter is silent ; and nothing is said in it about a line of travel, so much insisted on in the argument, in which they are to have exclusive privileges. No words are used, from which an intention to grant any of these rights can be inferred. If the plaintiff is entitled to them, it must be implied, simpl}', from 'the nature of the grant; and cannot be inferred from the words by which the grant is made. The relative position of the Warren Bridge has already been de- scribed. It does not interrupt the passage over the Charles River Bridge, nor make the way to it or from it less convenient. None of that /fS , for ^ 278 CHARLES RIVER BRIDGE V. WARREN BRIDGE. tlie faculties or franchises granted to that corporation have been re- volved b\- the legislature, and its right to take the tolls granted by the charter remains unaltered. In short, all the franchises and rights of property enumerated in the charter, and there mentioned to have been granted to it, remain unimpaired. But its income is destroyed b}' the "Warren Bridge ; which, being free, draws off the passengers and prop- ert}' which would have gone over it, and renders their franchise of no value. This is the gist of the complaint. For it is not pretended that the erection of the Warren Bridge would have done them any injury, or in an}' degree affected their right of propert}', if it had not diminished the amount of their tolls. In order then to entitle themselves to relief, it is necessar}- to show that the legislature c ontracted not to do the act of which they complain, and that they impaired, or, in other words, violated that contract by the erection of the Warren Bridge. The inquiry then is. Does the charter contain such a contract on the ji/" part of the State? Is there any such stipulation to be found in that instrument? It must be admitted on all hands that there is none, — no words that even relate to another bridge, or to the diminution of their tolls, or to the line of travel. If a contract on that subject can ' JJ" ^e gathered from the charter, it must be by implication, and cannot be '>' found in the words used. Can such an agreement be implied? The Dy U^ y ' i^ ^"^^ ^^ construction before stated is an answer to the question. In nT* f «y (W^ charters of this description, no rights are taken from the public, or -Vk K^ ^ A given to the corporation, beyond those which the words of the charter, /iW^ h J^ \J ^y ^^^^'^' "''^t^i^'^l ^^^^ proper construction, purport to convey. There W rX f/ I ^^ ^^® ^^ words which import such a contract as the plaintiffs in error y^ «/\J 1^ ^y^■^ ^ i contend for, and none can be implied ; and the same answer must be L^ v} . , . 5j>A given to them that was given by this court to the Providence Bank. i^A^ A^ l/J 4 Pet. 514. The whole communit}- are interested in this inquiry, and C^ ^ A\f^ ^^^y have a right to require that the power of promoting their comfort ' i)^ / ) ^"^^ convenience, and of advancing the public prosperity, by providing l" A ^ safe, convenient, and cheap ways for the transportation of produce and \ K,**^^"" V ihe purposes of travel, shall not be construed to have been surrendered \ ^ or diminished by the State, unless it shall appear by plain words that it was intended to be done. But the case before the court is even still stronger against any such implied contract as the plaintiffs in error contend for. The Charles River Bridge was completed in 1786. The time limited for the dura- tion of tlie corporation, by their original charter, expired in 1826. When, therefore, the law passed authorizing the erection of the Warren Bridge, the proprietors of Charles River Bridge held their corporate existence under the law of 1792, which extended their charter for thirty years ; and the rights, privileges, and franchises of the company, must depend upon the construction of the last-mentioned law, taken in connection with the act of 1785. The act of 1792, which extends the charter of this bridge, incorpo- rates another company to build a bridge over Charles River ; furnish- CHARLES RIVER BRIDGE V. WARREN BRIDGE. 279 ing another communication with Boston, and distant only between one and two miles from tlie old bridge. The first six sections of tliis act incorporate tb& proprietors of the West Boston Bridge, an(] define the privileges, and describe the duties of that corporation. In the 7th section there is the following recital : "• And whereas the erection of Charles River Bridge was a work of hazard and public utilit}-, and another bridge in the place of West Boston Bridge may diminish the emoluments of Charles River Bridge ; therefore, for the encouragement of enterprise," they proceed to extend the charter of the Charles River Bridge, and to continue it for the terra of seventy Acars from the day the bridge was completed, subject to the conditions prescribed in the original act, and to be entitled to the same tolls. It appears, then, that b}' the same act that extended this charter, the legislature established another bridge, which they knew would lessen its profits ; and this, too, before the expiration of the first charter, and onlv seA'en ^-ears after it was granted ; there b}' showing, that the State did not suppose that, b}' the terms it had used in the first law, it had deprived itself of the power of making such public improvements as might impair the profits of the Charles River Bridge ; and from the language used in the clauses of the law b}' which the charter is extended, .< it would seem that the legislature were especially careful to exclude xn any inference that the extension was made upon the ground of com- .• (^ promise with the bridge companj-, or as a compensation for rights ^ ^ J , impaired. j^ On the contrary, words are cautiousl}' employed to exclude that con-'C^l/ /w/nT ^ elusion ; and the extension is declared to be granted as a reward for' «,/^ Iv^ the hazard thej* had run, and " for the encouragement of enterprise." A/j»l^ ^n -J^M ^ The extension was given because the company had undertaken and^r-ji^^^ ' i/y executed a work of doubtful success; and the improvements which thef, k^-*^' tWi ^ legislature then contemplated, might diminish the emoluments they hadl/f ^ro^ -ji expected to receive from it. It results from this statement, that the jvn ^ legislature, in the ver}' law extending the charter, asserts its rights to | _ (JA' y^ i \ authorize improvements over Charles River which would take oflf a por- f^^^t/JK » ■^*^' tion of the travel from this bridge and diminish its profits; and the ^JJ^ \ /' bridge company accept the renewal thus given, and thus carefully con-5 ^ yv^^lj^ ^ nected with this assertion of the right on the part of the State. Can i v ii? j^ '^ \ ^ they, when holding their corporate existence under this law, and deriv- ^^^^^r "" L^r * ing their franchises altogether from it, add to the privileges expressed kj^-^ K • in their charter an implied agreement which is in direct conflict with a il- portion of the law from which they derive their corporate existence? ■'»^ Can the legislature be presumed to have taken upon themselves an im- plied obligation, contrary to its own acts and declarations contained in the same law ? It would be difficult to find a case justifying such an implication, even between individuals ; still less will it be found where sovereign rights are concerned, and where the interests of a whole com- munity would be deeply affected b\' such an implication. It would, indeed, be a strong exertion of judicial power, acting upon its own 280 CHARLES RIVER BRIDGE V. WARREN BRIDGE. ^J-AjV "'■ fv^iv ■■■'■ views of what justice required, and the parties ought to have done, to raise, bj- a sort of judicial coercion, an implied contract, and infer from it the nature of the very instrument in which the legislature appear to have taken pains to use words which disavow and repudiate any inten- tion, on the part of the State, to make such a contract. Indeed, the practice and usage of almost every State in the Union, old enough to have commenced the work of internal improvement, is opposed to the doctrine contended for on the part of the plaintiffs in erroi'. Turnpike roads have been made in succession on the same line of travel ; the later ones interfering materially with the profits of the first. These corporations have, in some instances, been utterly ruined by the introduction of newer and better modes of transportation and travelling. In some cases, railroads have rendered the turnpike roads on the same line of travel so entirel}* useless, that the franchise of the turnpike corporation is not worth preserving. Yet in none of these cases have the corporation supposed that their privileges were invaded, or an}' contract violated on the part of the State. Amid the multitude of cases which have occurred, and have been dailj^ occurring for the last forty or fifty 3-ears, this is the first instance in which such an im- plied contract has been contended for, and this court called upon to infer it from an ordinary act of incorporation, containing nothing more than the usual stipulations and provisions to be found in everj- such (^aw. The absence of any such controversy, when there must have Vbeen so many occasions to give rise to it, proves that neither States, j nor individuals, nor corporations, ever imagined that such a contract could be implied from such charters. It shows that the men who voted for these laws, never imagined that they were forming such a contract ; and if we maintain that they have made it, we must create it by a legal fiction, in opposition to the truth of the fixct, and the obvious intention 'of the party. We cannot deal thus with the rights reserved to the States, and b}' legal intendments and mere technical reasoning, take away from them an}' portion of that power over their own internal police and improvement, which is so necessary to their well being and prosperity. And what would be the fruits of this doctrine of implied contracts on the part of the States, and of property in a line of travel by a corpora- tion, if it should now be sanctioned by this court? To what results would it lead us? If it is to be found in the charter to this bridge, the ■same process of reasoning must discover it in the various acts which have been passed, within the last forty j'cars, for turnpike companies, what is to be the extent of the privileges of exclusion on the dif- ent sides of the road ? The counsel who have so abl}' argued this have not attempted to define it by any certain boundaries. How far must the new improvement be distant from the old one ? How near may you approach without invading its rights in the privileged line? If this court should establish the principles now contended for, what is to become of the numerous railroads established on the same line of CHARLES RIVER BRIDGE V. WARREN BRIDGE. 281 travel with turnpike companies ; and which have rendered the fran- chises of tlie turnpike corporations of no vahie? Let it once be under- stood that such charters carr}- with them these implied contracts, and give this unknown and undefined property in a line of travelling, and you will soon find the old turnpike corporations awakening from their sleep, and calling upon this court to put down the improvements which have taken their place. The millions of property which have been invested in railroads and canals, upon lines of travel which had been before occupied by turnpike corporations, will be put in jeopard}'. "We shall be thrown l)ack to the improvements of the last centur}', and obliged to stand still, until the claims of the old turnpike corporations shall be satisfied, and they shall consent to permit these States to avail themselves of the lights of modern science, and to partake of the bene- fit of those improvements which are now adding to the wealth and prosperity, and the convenience and comfort of ever}' other part of the civilized world. Nor is this all. This court will find itself compelled to fix, by some arbitrary rule, the width of this new kind of property in a line of travel ; for if such a right of property exists, we have no lights to guide us in marking out its extent, unless, indeed, we resort to the old feudal grants, and to the exclusive rights of ferries, by pre- scription, between towns ; and are prepared to decide that when a, turnpike road from one town to another had been made, no railroad o canal, between these two points, could afterwards be estabHshed. Thi court are not prepared to sanction principles which must lead to sue lesults. Many other questions of the deepest importance have been raised and elaborately discussed in the argument. It is not necessary for the decision of this case, to express our opinion upon them ; and the court deem it proper to avoid volunteering an opinion on any question, in- volving the construction of the constitution, where the case itself does not bring the question directly before them, and make it their duty to decide upon it. Some questions, also, of a purely technical character, have been made and argued, as to the form of proceeding and the right to relief. But enough a))pcars on the record, to bring out the great question in contest; and it is the interest of all parties concerned, that the real controversy should be settled without further delay ; and as the opinion of the court is pronounced on the main question in dispute here, and disposes of the whole case, it is altogether unnecessary to enter upon the examination of the forms of proceeding, in which the parties have brought it before the court. The judgment of the supreme judicial court of the commonwealth of Massachusetts, dismissing the plaintiffs' bill, must, therefore, be aflBrmed, with costs. [McLean, J. delivered an opinion in favor of dismissing the bill for want of jurisdiction. Story, J. delivered an opinion dissenting from 7: 282 CHARLES RIVER BRIDGE V. WARREN BRIDGE. , the couclusions of Taney, C. J. Thompson, J. concurred in the views of Story, J. The following extracts are from the opinion of Story, J.] Story% J. . . . It is a well-known rule in the construction of private grants, if the meaning of the words be doubtful, to construe them most strongly against the grantor. But it is said that an opposite rule pre- vails in cases of grants by the king ; for where there is any doubt, the construction is made most favorably for the king, and against the grantee. The rule is not disputed. But it is a rule of very limited application. To what cases does it apply? To such cases only where there is a real doubt; where the grant admits of two interpretations, one of which is more extensive, and the other more restricted ; so that a choice is fairly- open, and either may be adopted without an3' violation of the apparent objects of the grant. If the king's grant admits of two interpretations, one of which will make it utterly void and worthless, and the other will give it a reasonable effect, then the latter is to pre- vail, for the reason, (says the common law,) " that it will be more for the benefit of the subject, and the honor of the king, which is to be more regarded than his profit." Cora. Dig. Grant, G. 12; 9 Co. R. 131, a; 10 Co. R. 67, b; 6 Co. R. 6. And in every case the rule is made to bend to the real justice and integrity' of the case. No strained or extravagant construction is to be made in favor of the king. And if the intention of the grant is obvious, a fair and liberal interpretation of its terms is enforced. But what, I repeat, is most material to be stated, is, that all this doctrine in relation to the king's prerogative of having a construction in his own favor, is exclusively confined to cases of mere donation, llowing from the bounty of the crown. Whenever the grant is upon a valuable consideration, the rule of construction ceases ; and the grant is expounded exacti}' as it would be in the case of a private grant, favorably to the grantee. Why is this rule adopted ? Plainly, because the grant is a contract, and is to be interpreted according to its fair meaning. It would be to the dishonour of the government, that it should pocket a lair consideration, and then quibble as to the obscuri- ties and implications of its own contract. If, then, the present were the case^ a royal grant, I should most strenuously contend, both upon principlejand a uthority, t hat it was to receive a liberal, and not a strict, construction. I should so coiitend upon the plain intent of the charter, from its nature and objects, and from its burdens and duties. It is confcssedl}' a case_o£ contract^and. not^of bounty ; a case of conti act for a vuluabFe consider ation; forob- jects of puljlic utility ; to encourage enterprise ; to adva nce the pu blic conveniencej and to ^.cure_ a ji'St__reiiiuuiiratiQn_fqr la rge outlaysj ^ pHvale cajHtal.- What is there in such a grant of the crown, which CHARLES RIVER BRIDGE V. WARREN BRIDGE. 283 should demand from any court of justice a narrow and strict interpreta- tion of its terms ? The present, however, is not the case of a royal grant, but of a legislative grant, by a public statute. The rules of the common law in relation to roj'al grants, have, therefore, in reality, nothing to do with the case. We are to give this act of incorporation a rational and fair construction, according to the general rules which govern in all cases of the exposition of public statutes. We are to ascertain the legislative intent ; and that once ascertained, it is our duty to give it a full and liberal operation. What solid ground is there to sa}', that the words of a grant in the mouth of a citizen, shall mean one thing, and in the mouth of the legis- lature shall mean another thing? That, in regard to the grant of a citizen, ever^- word shall, in case of any question of interpretation or implication, be construed against liim, and in regard to the grant of the government, every word shall be construed in its favor? That language shall be construed, not according to its natural import and implications from its own proper sense, and the objects of the instrument ; but shall change its meaning, as it is spoken by the whole people, or by one of them ? There may be very solid grounds to sa}', that neither grants nor charters ought to be extended beyond the fair reach of their words ; and that no implications ought to be made which are not clearly de^ ducible from the language and the nature and objects of the grant. There is great virtue in particular phrases ; and when it is once sug- gested, that a grant is of the nature or tendency of a monopol}', the mind almost instantaneousl}- prepares itself to reject every construction which does not pare it down to the narrowest limits. It is an honest, prejudice, which grew up in former times from the gross abuses of the royal prerogatives ; to which in America, there are no analogous au-. thorities. But what is a monopoly, as understood in law? It is an. exclusive riglit granted to a few, of something which was before of common right. No sound lawyer will, I presume, assert that the grant of a right to/ erect a bridge over a navigable stream, is a grant of a common right./ Before such grant, had all the citizens of the State a right to erect bridges over navigable streams? Certainl}- they had not; and, there- fore, the grant was no restriction of any common right. It was neither a monopol}- ; nor in a legal sense, had it any tendency' to a monopoly. It took from no citizen what he possessed before ; and had no tendency to take it from him. It took, indeed, from the legislature the power of granting the same identical privilege or franchise to any other persons But this made it no more a monopoly, tlian the grant of the public stock or funds of a State for a valuable consideration. Even in cases of I 1^ 284 CHARLES RIVER BRIDGE V. WARREN BRIDGE. monopolies, strictly so called, if the nature of the grant be such that it is for the public good, as in cases of patents for inventions, the rule has always been to give them a favorable construction in support of the patent, as Lord Chief Justice Eyre said, ut res magis valeat quani pereat; Boulton v. Bull, 2 H. Bl. 463, 500. Taking this to be a grant of a right to build a bridge over Charles River, in the place where the old ferry between Charlestown and Boston was then kept, (as is contended for by the defendants,) still it has, as all such grants must have, a fixed localit}' ; and the same question meets us, is the grant confined to the mere right to erect a b ridge on thej2roper spot, and to tak e toll of the passengers who may pass over it, without any exclu sive franchise on either side of the local li mits of the bridge? Or does it, by'im plication, include an exclusive franchi se oneach side, t o an extent which sh all shut out any jnjurjous compe- tition? In other words, does the grant still leave the legislature at , yi 1 liberty to erect other bridges on either side, free or with tolls, even in 1^, \ \ juxtaposition with the timbers and planks of this bridge? Or is there an implied obligation, on the part of the legislature, to abstain from all acts of this sort which shall impair or destroy- the value of the grant? The defendants contend that the exclusive right of the plaintiflTs extends no further than the planks and timbers of the bridge, and that the legislature is at full liberty to grant any new bridge, however near ; and although it may take away a large portion, or even the whole of the travel which would otherwise pass over the bridge of the plaintiffs. And to this extent the defendants must contend ; for their bridge is, to all intents and purposes, in a legal and practical sense, contiguous to that of the plaintiffs. The argument of the defendants is, that the plaintiffs are to take nothing by implication. Either (say they) the exclusive grant extends only to the local limits of the bridge, or it extends the whole length of the river, or at least up to Old Cambridge bridge. The latter con- struction would be absurd and monstrous, and therefore the former must be the true one. Now, I utterly- deny the alternatives involved in the dilemma. The right to build a bridge over a river, and to take toll, may well include an exclusive franchise beyond the local limits of the bridge, and 3'et not extend through the whole course of the river, or even to any considerable distance on the river. There is no diffi- culty in common sense or in law in maintaining such a doctrine. But then, it is asked, what limits can be assigned to such a franchise? The answer is obvious ; the grant carries with it a n exclu sive franchise to a_reasonable_distanceon the river, so that the ordinarj' travel to tlje K bridge shall not be diverted by any new brkl gc to the injury or ruin of \3 jf< the Jninchise. A new _b ridge wliiijh would be a nuisance to the old /f ^ilii^SS' vvould be withm the jeach oXJts exclusiyej'ight. Xijc question /1^*^K jJj*^"* would not be so muclwis to the fact joLdista ace, as it would be as to. r f ^ tlie~ract of nuisance. There is nothing new in such expositions of ry^ - - CHARLES EIVEK BRIDGE V. WARREN BRIDGE. 285 incorporeal rights, and nothing new in thus administering, upon this foundation, remedies in regard thereto. The doctrine is coeval with the common law itself. Suppose an action is brought for shuttinglip' the ancient liglits belonging to a messuage, or for diverting a water- course, or for flowing back a stream, or for erecting a nuisance near a dwelling-house ; the question In such cases is not a question of mere distance, of mere feet and inches, but of injury ; permanent, real, and substantial injury, to be decided upon all the circumstances of the case. But it is said that there is no prohibitory covenant in the charter, and no implications are to be made of an}' such prohibition. The pro- prietors are to stand upon the letter of their contract, and the maxim kpplies, de non apjmrentibus et non existentibus, eadem est lex. And yet it is conceded, that the legislature cannot revoke or resume this grant. Wh}' not, I pra}- to know? There is no negative covenant in the charter ; there is no express prohibition to be found there. The reason is plain. The proliibition arises by a natural, if not b}- neces- sary implication. It would be against the first principles of justice tol presume that the legislature reserved a right to destroy- its own grant./ That was the doctrine of Fletcher v. Peck, 6 Cranch, 87, in this court, and in other cases turning upon the same great principle of political and constitutional duty and right. Can the legislature have power to do. that indire ctly which it cannot do^directly,? If it cann ot take away_ or resum e the franehjse itself, can it take awa}' its whole sjil^stajicfi and-'' value ?_ _ If the law will c reate an implication that the kiri slature shall not resume its own grant, i s it not equally as natural and as necessary an implication, that the leg islature shall not do an}' act directly to pre- iu dice its own grant or t o desti'o y its valu e? But then again, it is said, that all this rests upon implication, and not upon the words of the charter. I admit that it does ; but I again isa}', that the implication is natural and necessar}'. It is indispensable to the proper elTect of the grant. The franchise cannot subsist without it, at least for any valuable or practical purpose. What objection can there be to implications, if the}' arise from the very nature and objects of the grant? If it be indispensable to the full enjoyment of the right to take toll, that it should be exclusive within certain limits, is it not just and reasonable, that it should be so construed? If the legislative power to erect a new bridge would annihilate a franchise already granted, is it not, unless expressly reserved, necessarily excluded by intendment of law? Can any reservations be raised by mere implication to defeat the operation of a grant, especially when such a reservation would be coextensive with the whole riglit granted, and amount to the reserva- tion of a right to recall the whole grant? The truth is, that the whole argument of the defendants turns upon 286 i ^ THE BINGHAMTON BRIDGE. // ^ /v * ._- ff ^ an iuii)lied reservatiou of power in the legislature to oefeai^^^dxdestroj^ y .; ^,^^ f ^ — V /yy///, y^ ^^ VxC<^H£^ANGO BRIDGE CO. v. BINGHAMTON BRIDGE CO.] 1^. ^J Vi^ ^ ir 1865. 3 W^aWace 17. aS. 51.1 j ^ ' ^y^ i/^ Error to the New York Court of Appeals. x^ - - ^f^f^ J, . , Bill in equity by Chenango Bridge Co. to enjoin Binghamton Bridge *p^ jP ,jj " Co. The plaintiff company was chartered by Section 4 of the Act of ^ y^ ' tions, restrictions, clauses and provisions of the before-mentioned Sus- g/f^^. .. ^_^quehanna Bridge Company," (referred to in Section 3 of the same'Act fj^ j(h^,'^ ^y* of 1808.) The latter company was incorporated by Section 38 of the iff J^' f^ -^^^ ^^ 1805, which gave the Susquehanna Bridge Co. all the " powers, A%ik y^ rights, privileges, immunities, and advantages," contained in the incor- / . V^ J"— poration of the Delaware Bridge Co. by Section 31 of the same Act of ^' '^ 1805. Said Section 31 enacted; " It shall not be lawful for any per- ' u}- y son or persons to erect any bridge, or establish an}- ferry across the said ^ItJ ^P^ ' ^®^* ^"^^ ®^^^ branches of Delaware River, within two miles either ti r/^i above or below the bridges to be erected and maintained in pursuance f^l J^ . of this act." Soon after the passage of the Act of 1808, the plaintiff /?tS /*''^Jf^ /) company built a toll-bridge across the Chenango River, at Chenango \ ^> ^Tft^ 'JKPoint. In 1855, the legislature granted a charter to the Binghamton ^A ■ ,^ })r ' Bridge Co., purporting to authorize the building of a bridge in close ^'''^lyfh'nw proximity to that of the plaintiffs. The latter company built a bridge Ul /r J/ir a few rods above the old one. The old company filed a bill in the ^,.\ I Supreme Court of New York to enjoin the new company. The plain- 7 •^■.' tiffs contended that the exclusive rights given by Section 31 of the ^, C Act of 1805 to the Delaware Bridge Co. were imported by Section 38 of that Act into the charter of the Susquehanna Co. ; that these again, thus imported, were translated into Section 3 of the Act of 1808 ; and that these last were carried finally into Section 4 of the latter Act ; thus making a contract by the State with the Chenango Bridge Co., that no bridge should ever be built over the Chenango River within two miles of their bridge, either above or below it. 'J'lie answer denied the contract thus set up. The Supreme Court of New York dismissed the bill ; and this decree was afllrmcd by the Court of Appeals. Mr. I). >V. iJkkenson^ for Binghamton Bridge Co. ' StatC'iiH'iit abridged. Arguinents, and parl.s of ypiuious, omitted. — Elt THE BINGHAMTON BRIDGE. 287 Mr. Mygatt, contra. Mr. Justice Davis delivered the opinion of the Court.* The Constitution of the United States declares that no State shall pass an}' law impairing the obligation of contracts ; and the 25th sec- tion of the Judiciary Act provides, that the final judgment or decree of the highest court of a State, iu which a decision in a suit can be had, ma}' be examined and reviewed in this court, if there was drawn in question in the suit the validity of a statute of the State, on the ground of its being repugnant to the Constitution of the United States, and the decision was in favor of its validity. The plaintiffs in error brought a suit in equity in the Supreme Court in New York, alleging that they were created a corporation by the legislature of that State, on the first of April, 1808, to erect and main- tain a bridge across the Chenango River, at Binghamton, with perpetual succession, the right to take tolls, and a covenant that no other bridge should be built within a distance of two miles either way from their bridge ; whicli was a grant in the nature of a contract that can- not be impaired. The complaint of the bill is, that notwithstanding the Chenango Bridge Company have faithfully kept their contract with the State, and maintained for a period of nearly fifty years a safe and suitable bridge for the accommodation of the public, the legislature of New York, on the fifth of April, 1855, in plain violation of the con- tract of the State with them, authorized the defendants to build a bridge across the Chenango River within the prescribed limits, and that the bridge is built and open for travel. The bill seeks to obtain a perpetual injunction against the Bingham-' ton Bridge Company, from using or allowing to be used the bridge thus built, on the sole ground that the statute of the State, which authorizes it, is repugnant to that provision of the Constitution of the United States which says that no State shall pass any law impairing the obli- gation of contracts. Such proceedings were had in the inferior courts of New York, that the case finally reached and was heard in the Court of Appeals, which is the highest court of law or equity of the State in which a decision of the suit could be had. And that court held that the act, by virtue of which the Binghamton bridge was built, was a valid act, and rendered a final decree dismissing the bill. Everything, therefore, concurs to bring into exercise the appellate power of this court over cases decided in a State court, and to support the writ of error, which seeks to re-examine and correct the final judgment of the Court of Appeals in New York. The questions presented by this record are of importance, and have received deliberate consideration. It is said that the revising power of this court over State adjudica- tions is viewed with jealousy. If so, we say, in the words of Chief Justice Marshall, " that the course of the judicial department is marked ^ Nelson, J., not sitting, being indisposed. 288 THE BINGHAMTON BRIDGE. out by law. As this court has never grasped at ungranted jurisdiction, so it never will, we trust, shrink from that which is conferred upon it." The constitutional right of one legislature to grant corporate jjrivileges and franchises, so as to bind and c onc lude a succeeding one, has been d enied . We have supposed, if anything was settled by an unbroken course of decisions in the Federal and State courts, it was, that an act of incorporation was a contract between the State and the stockholders. All courts at this day are estopped from questioning the doctrine. The security of property rests upon it, and every successful enterprise is undertaken, in the unshaken belief that it will never be forsaken. A departure from it note would involve dangers to societ}' that can- not be foreseen, would shock the sense of justice of the countr}-, un- hinge its business interests, and weaken, if not destroy, that respect which has always been felt for the judicial department of the Govern- ment. An attempt even to reaffirm it, could only tend to lessen its force and obligation. It received its ablest exposition in the case ot Dartmouth College v. 'Woodward,^ which case has ever since been considered a landmark by the profession, and no court has since dis- reo-arded the doctrine, that the charters of private corporations are contracts, protected from invasion by the Constitution of the United States. And it has since so often received the solemn sanction of this court, tliat it would unnecessarily lengthen this opinion to refer to the cases, or even enumerate them. The principle is supported by reason as well as authority. It was well remarked by the Chief Justice, in the Dartmouth College case, " that the objects for which a corporation is created are universally such as the Government wishes to promote. They are deemed bene- ficial to the country, and this benefit constitutes the consideration, and in most cases the sole consideration for the grant." The purposes to be attained are generally beyond the ability of individual enterprise, and can only be accomplished through the aid of associated wealth. This will not be risked unless privileges are given and securities fur- nished in an act of incorporation. The wants of the public are often so imperative, that a duty is imposed on Government to provide for them ; and as experience has proved that a State should not directly attempt to do this, it is necessary to confer on others the faculty of doing what the sovereign power is unwilling to undertake. The legis- y jlature, therefore, says to public-spirited citizens : *' If you will embark, yL ^ ff^AM^ I with your time, money, and skill, in an enterprise which will accommo- # , >\j^ / (lute the public necessities, we will grant to you, for a limited period, ^^^^^^^^^ I or in perpetuity, privileges that will justify the expenditure of your ^^U^Xj ^ Inioney, and the employment of your time and skill." Such a grant is d^-'iSY^^ „ Vv, contract, with mutual considerations, and justice and good poUcy alike IV \J.^^"''-c that the protection of the law should be assured to it. *' ^ It is argued, as a reason why courts should not be rigid in enforC' 1 4 Wheaton, 418. THE BINGHAMTON BRIDGE. 289 ing the contracts made b}' States, that legislative bodies are often overreached by designing men, and dispose of franchises with great recklessness. If the knowledge that a contract made by a State with individuals is equally protected from invasion as a contract made between natural persons, does not awaken watchfulness and care on the part of law- makers, it is difficult to perceive what would. The corrective to im- provident legislation is not in the courts, but is to be found elsewhere. A great deal of the argument at the bar was devoted to the consider- ation of the proper rule of construction to be adopted in the interpreta- tion of legislative contracts. In this there is no difficulty. All contracts are to be construed to accomplish tlie intention of the parties ; and in determining their different provisions, a liberal and fair construction will be given to the words, either singl}' or in connection with the subject-matter. It is not the duty of a court, bj- legal subtlety, to overthrow a contract, bat rather to uphold it and give it effect ; and no strained or artificial rule of construction is to be applied to any part of it. If there is no ambiguit}', and the meaning of the parties can be clearly ascertained, effect is to be given to the instrument used, whether it is a legislative grant or not. In the case of the Charles River bridge,^ the rules of construction known to the English common law were adopted and applied in the interpretation of legislative grants, and the principle was recognized, that charters are to be construed most favorably to the State, and that in grants by the public nothing passes by implication. This court has repeatedly since reasserted the same doctrine ; and the decisions in the several States are nearly all the same way. The principle is this : that all rights which are ass erted , against_t be State must be clearly defined, an d not raised b y in ference . or presumption ; and if the charter is sile nt about a powe r, it does not exist^ I f, on a fai r reading of the instru ment, reasonab le doubts arisg. as to the pro per interpretation to be given to it, those doubts are to be so lved in f avor of the State ; and w^here it is susceptible of two mean-^. /?} ings, the ^QuS- restricting and the o ther extending the powers of the ^ co rpora tion, that construction is to be adopted which w orks the least harm__to_the__State. But if there^is jio ambiguity in the charteri^and f the powers con ferred are plainly marked, and their limits can be readily I ascertaiuedj_then it is the duty of the court to sustain and uphold ir, Snd to__ carry out the true meaning and intention of the parties to^t. 1 An}- other rule of construction would defeat all legislative grants, and ■' overthrow all other contracts. What, then, are the rights of the parties to this controversy? [After considering the various N. Y. Acts in reference to Bridge Companies, and adopting substantially the construction contended for by plaintiffs, the opinion proceeds as follows :] The legislature, therefore, contracted with this company, if they » 11 Peters, 544. 290 THE BINGHAMTON BRIDGE. would build and maintain a safe and suitable bridge across the Chen- ango River at Chenango Point, for the accommodation of the public, they should have, in consideration for it, a perpetual charter, the right to take certain specified tolls, and that it should not be lawful for an}' person or persons to erect any bridge, or establish any ferry, within a distance of two miles, on the Chenango River, either above or below their bridge. Has the legislature of 1855 broken the contract, which the legislatures of 1805 and 1808 made with the plaintiffs? M^. The foregoing discussion affords an easy answer to this question. The legislature has the power to license ferries and bridges, and so to regulate them, that no rival ferries or bridges can be established within certain fixed distances. No individual without a license can build a bridge or establish a ferry for general travel, for "it is a well-settled principle of common law that no man ma}' set up a ferry for all passen- gers, without prescription time out of mind, or a charter from the king. lie may make a ferry for his own use, or the use of his family, but not for the common use of all the king's subjects passing that way, because it doth in consequence tend to a common charge, and is become a thing of public interest and use ; and every ferry ought to be under a public regulation." ^ As there was no necessity of laying a restraint on un- authorized persons, it is clear that such a restraint was not witliin the meaning of the legislature. The restraint was on the legislature itself. The plain read in g of the provision, " tha tj t shall not bej awfiil for any person or person s to erect a bridge within a dis t ance of two miles ," in, that the legislature icill not make it la wful by licensing any person, or association o f^ person s,_to^jlo_it. And the obligation includes a free bridge as well as a toll bridge, for the security would be worthless to the corporation if the right by implication was reserved, to authorize the erection of a bridge which should be free to the public. The Bing- hamton Bridge Company was chartered to construct a bridge for gen- eral road travel, like the Chenango bridge, and near to it, and within the prohibited distance. This was a plain violation of the contract which the legislature made with the Chenango Bridge Company, and as such a contract is within the protection of the Constitution of the United States, it follows that the charter of the Binghamton Bridge Com[)any is null and void. Decree of the Court of Appeals of New York reversed, and a man- date ordered to issue, with directions to enter a judgment for the plain- tiff in error, the Chenango Bridge Company, in conformity with this opinion. [Chase, C. J., delivered a dissenting opinion.] Chase, C. J., Field, J., and Guiek, J., dissented- 1 IIar{,'rave'8 Law Tracts, ch. ii. 16; The Enfield Toll Bridge Co. v. The Hartford and New Haven TJailroad Co., 17 Connecticut, 63 ; Hooker v, Cummings, 20 Johnson. 100 ; Bowman v. Wathan, 2 McLean, 383. V'/ myfr \ BOTT V. CITY OF LAWRENCEyJ^ y^ ROTT V. CITY .V 1872. 2 Z>t7/on [/. /S. Circuit Court Repiirts^ lo^iON to dissolve temporaiy injunction restraining the defendants^ if^ \ ijftie Messrs. Wilson, from operating the ferr}- hereinafter described. ^ »r Plaintiff is a citizen of Ohio, and a stockholder in the Lawrence Bridge, 'v Co. In his bill in equity, he alleges that the maintenance of the ferry! infringes upon the rights of the Bridge Co. ; and, to show his right toj maintain the bill, alleges that the Bridge Co. and its officers have refused to proceed in the State courts to obtain redress. Feb. 15, 1857, the Legislative Assembly of the Territor}- of Kansas^ incorporated the Lawrence Bridge Co.; granting; the exclusiv e right .'-j^ . and privilege of building and maintaining a bridge across the Kansas j^^ .j River, at the city of Lawrence for a period of twenty-one years ; withp \H\^ power to establish and collect tolls. Prior to said incorporation of the Bridge Co. the Legislative Assem- « bly had, in 1855, granted to one Baldwin the exclusive right to estab-p^'l^ (^ C i>- lish a public ferrj* within two miles of Lawrence, for a term of fifteen/5r j ' IV a,^ l*- years. The answer of some of the defendants alleges that Baldwin*^ (L ti* aV''^ kept a ferr}' in the immediate vicinity of the bridge for some time after T^yi w h^^^ the erection of the bridge ; when, for reasons unknown, he ceased tdC) ^ *" j^ operate the ferry. J[^ J/^ iV^ ' Jl By the laws of Kansas, the county commissioners have the power to yj\ . ,1 grant ferr}' licenses. In Januarj', 1871, the commissioners licensed,, j one Darling to keep a ferrv, at Lawrence, for one year. The ferry' i^t/"^. was o[)erated at first by Darling, and afterwards by the Wilsons, under^^ ' j A an arrangement with the city of Lawrence, the cit}' having purchased |f/^; i-. 110, § 1), therefore the grant sluill be deemed to have conveyed an estate for years, and not in fee. The unsoundness of that position is easily shown. It was never yet held, that a grant of a fee in express terras could bo restricted by the fact that the grantee had but a limited term of existence. If it were so, a grant could never be made to an indivifhi.'il ill foe, because, in his eurthl}' existence, he is not immortal. NICOLL V. NEW YORK AND ERIE RAILROAD CO. 299 Cnder such a rule, a man could never bu}' a greater interest in a farm than a life estate. It would follow that all estates would be life estates, except those held by perpetual corporations. The intent of parties, fully expressed in a deed, would avail nothing, but all grants would be measured by the mortality of the grantee. It is needless to follow out the proposition further to show its absurdity. It is not to the parties to a grant, but to its terms, that we look to ascertain the character and extent of the estate conveyed. Such was the rule at common law, and is still b}- statute. (1 H. jS., 748, § 1.) The change m ade by the statute favors the grantee, where there are no/ express terms in the graut, by the presuming the^rant gr inten d ed to | convey all his es tate. At common law, it was only where there were no express terms, defining the estate in the conveyance, that the terra of legal existence of the grantee was deemed to be the measure of the interest intended to be conveyed. Thus, words of perpetuit\-, such as " heirs or suc- cessors," were necessary to convey a fee. A grant to an individual, without such words, conve3-ed onl\- a life estate. For the same reason a grant, without such words, to a corporation aggregate ( Vifiers Ab., Estate^ L. 3), or to a mayor or commonalty {ih,, 3), conveyed a fee, because the grantees were perpetual. The grantee named in such case having a perpetual existence, the estate could not have been enlarged by words of succession. But this is now changed by our Revised Statutes. Words of inheri- tance or succession are no longer necessarj', and, in their absence, we look, not to the term of existence of the grantee to ascertain the estate, ))ut to the amount of interest owned by the grantor at the time he conve^'ed. All his estate is deemed to have passed by the grant. (1 R. S.. 748, § 1.) All this is applicable onl^' to cases where the grant is silent as to the extent of interest conve^'ed. Where that interest is expressly described, as in this case, the law never, either before or since our /evision, did violence to the intent of the parties, by cutting down the estate agreed to be conveyed to the measure of the grantee's term of existence. It has long been one of the maxims of the law, that " no implication shall be allowed against an express estate limited by express words." {Vinefs Ah., Implication^ A., 5 ; 1 Sulk.^ 236.) 1^ It is erroneous to say that an estate in fee cannot be fully enjoyed by a natural person, or 1)\' a corporation of limited duration. It is an enjoyment of the fee to possess it, and to have the full control of it, including the power of alienation, by which its full value may at once be realized. It is well settled that corporations, though limited in their duration, may purchase aiKniold a fee, and the}* ma\' sell such real estate wheQ- ever they shall find it no longer necessary or convenient. (5 Denio, 38y ; 2 l' rest 071 on Estates, 50.) Kent saj's: "Corporations have a fee simple for the purpose of alienation, but they have only a deter- 300 NICOLL V. NEW YOEK AND ERIE RAILROAD CO. minable fee, for the purpose of enjoyment. On the dissolution of the corporation, the reverter is to the original grantor or his heirs ; ^ but the grantor will be excluded by the alienation in fee, and in that wa}' the corporation may defeat the possibility of a reverter. (2 Kent, 282 ; \5 Denio, 389 ; 1 Comst. M. 509.) Large sums of money are accord- ingly expended bj^ railroad companies in erecting extensive station houses and depots, and by banking corporations in erecting banking houses, because, holding the land in fee, the}' may be able to reimburse themselves for the outlay by selling the fee before the termination of their corporate existence. The Hudson and Delaware Eailroad Company then, b}' their grant from Dederer, took a title in fee, but it was a fee upon condition, there being in the grant an express condition that the road should be con- structed by the company within the time prescribed b}' the act of incor- poration. This was not a condition precedent, as was argued b}' the plaintiff's counsel, but a condition subsequent. Kent says (4 Kent, 129; : ''Conditions subsequent are not favored in the law and are construed strictly, because the}' tend to destroy estates." They can only be reserved for the benefit of the grantor and his heirs, and no others can take advantage of a breach of them. (4 Kent Com. 122, 127; 2 Black. Com., 154.) The plaintiff took his deed of the farm on the first of April, 1844. This was one year before the expiration of the time for constructing the road, and two years before the Hudson and Delaware Railroad Company conveyed to the defendants. At that time, therefore, there had been no breach of the condition ; on the contrary, the right of the company was expressly recognized and reserved in the deed. Certainly, then, Dederer, when he conveyed, had no assignable interest. .. ••>••• [The concurring opinion of Gardiner, C. J., is omitted.] Judgment affirmed. ^ Thip view is now rejected. See Bacon v. Eohertson, post ; also Gray on the Rule against Perpetuities, §§ 44-51 ; and 2 Kent's Cora. 307, note l>. — Ed. ■\. \ h HOWARD. Power to Acquire Pro'perty hy Devise, am Bostwick, P \^ ^ iP" /V ! will. The residue, both^/^V j^ /■ y^ be applied for the benefit vf^ ^ [^ daughter should die leav- ^ ^, 1/ o-p ^'' ' WHITE V. HOWARD/^ ^ ^1\^ i.J^*.J.V . r jjy 1871. 38 Conn. 342.1 "jL V^ / 1/ 5iLL IN EQUITY b}' thc exccutors of the will of "William praying for advice in the construction of the will. The residue, both^^»/^ real and personal, was devised to trustees, to ' " ^ " " ' "' '^ of testator's daughter during her life. If the vict^.^u..^^ o^v^un-i «.iic icav- , ing no husband or issue, a certain part of the trust fund was to be B^ ^ . divided between six societies, of which the American Tract Societ\-, a \i t/T < New York corporation, was one. The daughter died, leaving neither ^ n husband nor children. Counsel for the heirs-at-law of the testator contend that the American Tract Societ}' is incapable of taking real estate in Connecticut b}' devise, and that the residuary clause must fail so far as it attempts to devise real estate iu Connecticut to that corporation. H. White and d. S. Beach, for petitioners. Doolittle and L. N. Bristol, for heirs of testator. D. B. Beach, for heirs of daughter. J. W. Edmunds, Cook, Campbell, G. N. Titus, T. Westervelt, A. L. Edwards, S. E. Baldwin, for various Societies. Foster J. It is asserted that the American Tract Society can take neither real or personal property under this will. That it cannot take real, because its charter of incorporation, granted by the state of New York, does not confer the power of taking by devise ; that it cannot take personal, because the charter provides that the net income of said society arising from real and personal estate shall not exceed the sum of 610,000 annu- ally. This limit it is claimed has been reached and exceeded, and so the capacity of the society to take property is exhausted. This society was incorporated by a special act of the legislature of the state of New York, passed May 26, 1841. The third section of its charter provides that the corporation shall possess the general powers, and be subject to the provisions, contained in title 3d of chapter 18 of the first part of the revised statutes, so far as the same are applicable and have not been repealed. The title and chapter referred to enumerate the powers of corporations, and the clause which bears directly upon this subject reads thus: "to hold, purchase, and convey such real and personal ^ Statement abridged. Onl\' so much of the opinion is given as relates to one point. Arguments omitted. — Ed. ^/302 J WHITE V. HOWAED. \y \ I estate as the purposes of the corporation shall require, not exceeding ^0^ Ithe amount limited in its charter." This charter was amended by the legislature of New York on the 31st of March, 1866, but as this was after the death both of the testator and of his daughter, that amend- ment need not be particularly considered, as it cannot materially affect the question involved. Now it is manifest that this corporation has express power by its charter to hold, purchase and convey real and per- sonal estate, for specified purposes and to a limited amount. There is no express power to take b}' devise, nor is the power so to take expressl}' prohibited. "We suppose there could be no doubt that this corporation could take b}' devise in New York, if the Statute of Wills of that state empowered corporations generally to take in that manner. The English Statute of Wills, passed in the time of Henry VIII, authorized ever}' person having a sole estate in fee simple of any manors «&c., "to give, dispose, will, or devise, to any person or per- sons, except to bodies jyolitic and corporate, by his lr^ agricultural societies. (Gross' Statutes, 1869, page 119.) By the third section of the act, the society was made a body corporate, with' power to sue and be sued, to acquire and hold real estate not exceed- 1 ing five hundred acres, to construct the necessary improvements and] 1 As to involuntarl}- alienation see post, chapter as to rights and remedies of creditors against corporate property and franchises. — Ed. 2 Statement, and part of opinion, omitted. — Ed. V 306 MOKISETTE V. HOWAKD. buildings for its purpose, to have and employ capital, machinery, live stock, etc., not exceeding in value $10,000. While it is true, no section of the act confers direct authority upon the society to sell or mortgage its property, except upon a dissolution of the corporation, yet the act does not prohibit or restrict the society from selling or giving a mortgage upon its real estate. The pow er to mor tgage, w jieii not expre ssly given or denie d, must be regarded as an incident to the power to acquire and hold real estate and mak e contracts. / We understand it to be the common law rule, that corporations have an incidental right to alien or dispose of their lands and per- sonal property, unless specially restrained by the act under which they are organized or by statute. It is said in Angell &, Ames on Corporations, p. 153 : "■ Independent of positive law, all corporations have the absolute jus dlsjjonendi nei- ther limited as to objects nor circumscribed as to quantity." The same doctrine is clearly laid down by Kent, vol. 2, page 280. We are, therefore, of opinion, as the society was not prohibited from mortgaging its lands, it possessed the power to do so a§>c|m in- cident to the power to purchase and hold real estate and ms^le con- tracts. :/-/h K a/^ >, ^J^OHNSTOx, J. This action was brought by W. H. Howard, trus- ) i>^ -r-tCe. to recover the possession of a stock of merchandise from A. M^-J^ r OHNSTOx, J. 'inis action wa? orougnt by e, to recover the possession of a stock of ^ ^lorisette, sheriff of Cloud county, who had seized it as the property ( ^On j(r\*^^ ^^^ Clyde iNIercantile Company, at the instance of the creditors of Vj XT^ that company. After the action was begun, Fannie L. Holman inter- vened, and alleged that she had previously purchased and paid for the merchandise, and was the actual owner and entitled to the posses- ■ sion of the same. The creditors of the mercantile company, through the sheriff, claimed that the sale of the goods to Holman was fraudu- nt as against them, and was made by the company without power or V^h f\ IK 'r A- J;/^authority lawfully exercised, and therefore was invalid. The trial resulted in a verdict in favor of the purchaser, and is, in effect, a ling that the sale was made in good faith and for a sufficient con- 'sideration. The honesty of the transaction was decided by the jury, ^j^- xf-'and is no longer open to question ; but there ig a contention that the! \t^ ^ /^r m^cantile company had no power to transfer property, and that, if it/ a legal and effective manner.) ood will wliich constituted the ^.}lad,~the j)0\vei'' was not exercised in r ifT rpj^g stock of goods, business, and goo ■f\ MOEISETTE '0. HOWAED. 307 entire assets of the corporation, were sold to Holman for $3000 in money, payable in installments, and also for certain real estate in Kansas City, Mo., known as the "Kamsey Flats," upon which there was a mortgage. It_2S__argued that the transfer of the entire assets"^ and good w ill of the corporation would disable it from continuing the j " « j bjisinesajgrjvliich it was organized, and that the attempt to do so isjl-i/'^ ultra vires and void . Itjs^ls^jcontended that the acceptance of reaT ] )roperty in conside ration of the transfer, as well as holding of the j same , are^no.t within the purposes for which the mercantile company ^\ :as organiz ed. Our statute, which is only declaratory of the commoiT^ law, provides that a corporation shall not employ its stock, means, asse-S, or other property for any other purpose than to carry out the objects for which it was created. Gen. St. 1899, § 1243. The mer- cantile company was organized for the purpose of buying and selling merchandise at retail, but that does not preclude the company from disposing of its property and closing out its business, if it is done in good faith and not for the purpose of delaying or defrauding its cred- itors. State V. Western Irrigating Canal Co., 40 Kan. 96, 19 Pac. 349. Counsel cites a number of cases to the effect that a corporation cau not abdicate its corporate functions or relieve itself from carrying out the object of its creation by a transfer of its entire property, or by otherwise disabling itself from performing corporate duties. The doctrine of these cases is applicable to corporations established for quasi public purposes, such as railroads and other companies having the right of eminent domain and other extraordinary privileges ; but it has no application to corporations of a strictly private character like the one in question. Holmes & Griggs Mfg. Co. v. Holmes & Wessell Metal Co., 127 I^. Y. 252, 27 N. E. 831 ; Treadwell v. Manu- facturing Co., 7 Gray, 393 ; Howe v. Carpet Co., 16 Gray, 493 ; Hodges V. Screw Co., 1 R. I. 312 ; Evans v. Heating Co., 157 Mass. 37, 31 X. E. 698 ; 27 Am. & Eng. Enc. Law, 387. The mercantile company exercises no powers of a public nature, and a sale of its property and a retirement from business do not contravene public policy or affect the public in any way. It does not appear that the mercantile com- pany obtained the real estate with a view of carrying on a real estate business, but, on the other hand, that the mercantile* business was unprofitable, and the stockholders desired to wind up the affairs of the company by a sale and transfer of the business ; and the real estate was taken in part payment, and as a step in the closing up of the corporate business. It appears to have been done in good faith, with the consent of the stockholders ; and we see no reason why a mere trading corporation, like this one, may not close up its business in the manner pursued in this instance. The money consideration of the sale was used in paying creditors of the corporation other than those contesting ; but it has been held that a corporation has the same dominion and control over the disposition of its assets and prop- erty as a partnership or an individual, and may make any honest U ^ xt. ^ 308 COMMONWEALTH V. SMITH. disposition of them, and also that it has the same power and right to prefer its creditors that a partnership or an individual has. Grand de Tour Ploiv Co. v. Rude Bros. Mfg. Co., 60 Kan. 145, 55 Pac. 848. Under the general finding of the jury, it must be assumed that the company and its agents acted in good faith in making the sale, and also in taking real estate in exchange for the goods, not as an invest- ment, but as the most advantageous way of disposing of an unprofit- able business, and closing it up with the least possible loss, {i; [Eemainder of opinion omitted.] v 6- \n } \' ''^ I /^^/ y J ^ £;^6mmonwealth v. Wt^ ¥ fJ^s, J ^'''\f^^' >'^^/^ 1865. \QAllen(nas&.)MJj/.^, ■' rf^ H^. r ■.■ /^"^ i f V' / V '* tP^ A^BiLL IN EQUITY Seeking to impeach the validity of a mortgage, exe- *ip ''^xW*^ ^ 6 " '^ ' cuted'^on the 30th of July 1855 by the Troy and Greenfield Railroad * '_ ^ /l'^ » Companj- to the defendants as trustees, covering by its terms the fran- r '^ jl /^,y«^'chise, railroad, and all other property of the corporation, then owned ^ ^ j^ or thereafter to be acquired, to secure bonds to the amount of 8900,000, • [r^*^ ijp 9'^ -t ^^ b® issued to the contractor as part compensation for constructing '^ ^ ^ Mf ^t^ the railroad, payable in thirty j-ears from date. This mortgage recited /'l^ ■ ^ j^ ty^^ provisions of a contract for the construction of the railroad, dated U J-^CiuJ ,M^' December 30, 1854, to the effect that such bond should be given ; and ^r>'*^ ^^^ fjb It was made subject to a prior mortgage to the Commonwealth to secure l*^ h^*^^'^ /d'^ f^ ^^^^® bonds to the amount of $2,000,000, which the Commonwealth ^'^'i.yit^ I ' ^ i" ^^'^ ^° issue under the provisions of /St. 1854, c. 226. / ^'*^-!( ^ ^ 1^ The following facts were agreed: Since the execut U^ii^^'/Ly^'S^o^^'^ ^^^ defendants, the Commonwealth have received two other '^J h> ■' <; A/mortgages upon the railroad and franchise of the Troy and Greenfield O^^M / i^ (^ j\4>^'Ra.i\roa.i\ Compan}-, one of which was dated on the 6th of July 1860, JtA»^' ^^■' I f^^^ and the other on the 5th of March, 1862 ; and also a surrender from fl -^/ (i J^ f" ^^^^ corporation of all their property subject to redemption under ^^A^jy"^^^ ^ ' ^^- 1^C2, c. 156. On the 4tli of September 1862 the Commonwealth tt/^<^^ ^ fi/"^ took possession of the mortgaged premises in various towns, for breach 3"' V ^^^^ kW^^' ^^ condition, in the manner shown by various certificates thereof, which y^ \ '1"^ ^^^ "*^^^ immaterial. The Counnonwealth under their various mort- "n^ A^ ^"^ S^gcs have at various times, from October 1858 to July 1861, advanced ^ yj H- - ■'to the Troy and Greenfield Railroad Company, large sums of "money, i^f-y , v\ ^ amounting in all to several hundred thousand dollars. The cbrpora- •Ji t^jj-^^ f^^ ' tion, under their mortgage to the defendants, have at various times, Jy^ f-^ ' from August 1855 to July 1861, issued l)onds to the amount in all of '^\^. ^,^ S600,000, payable in thirty years from date. All of these bonds were f ^S' issued in good faith, and are held by bona fide holders, and the corpo- KQSif ration have issuc|l no other bonds than the above. Before advancing any money to the corporation, the Commonwealth had actual notice of A COMMONWEALTH V. SMITH. 309 the execution of the mortgage to the defendants, and of the fact that a number of bonds had been issued under the same. The amount of capital stock of the corporation which, in December 1856, had been paid in was §143,905.77. Upon these facts, and others which are now Immaterial, the case was reserved b}- the chief justice for the determination of the whole court. D. Foster^ for the Commonwealth. The mortgage to the defendants j has never been sanctioned or ratified b}- the legislature, and its validity] must depend on the question whether the common law powers o f railroa(^ / corporations in IMassachusetts permit them to execute mortgages, and if] so to what extent. A t common law, a railroad corporation has no power t o execute an}- mortgage. This is clea rly the JEnglish ru le. Winch v. Birkenhead, (be. Kailioay, 7 Railw. & Canal Cas. 384. Beman v. Riif- ford., lb. 48. South Yorkshire Maihcay, dbc. v. Great Northern Mail- way, 9 Exch. 84. Shrewsbury., ^' ••(5 § U, et seq. The validity of a conve3'ance executed by full authority of a corporaiion, cannot be questioned by third parties, on the ground that the corporation itself had no authority to execute it. Althougli a corporation has exceeded its authority, yet the question cannot be tried collaterally, but it is a matter between the corporation and the state. In this case, the Commonwealth stands in the attitude of an individual. The corporation itself, while retaining the consideration could not maintain a bill in equity to escape from its contracts and conveyance. Chester Glass Co. v. Dewey, 16 Mass. 102, and cases cited. Parish v. Wheeler^ 22 N. Y. 502. The Commonwealth, taking only a quitclaim title, take subject to all equities of which they have notice. They succeed to the rights of the corporation and to no more. To hold that the Commonwealth can question this conveyance would be to hold that they have greater rights than their grantor had. This cannot be. Parker v. NigJitingale, 6 Allen, 344, 345. Joslyn v. Wyrnan, 5 Allen, 62. Taylor v. Dean, 7 Allen, 251. Vermont, (be. Railroad v. Vermont Central Railroad^ 34 Verm. 1. Morrill v. Noyes, ubi supra. Silver Lake Bank v. North, 4 Johns. Ch. 370. [Remainder of argument omitted.] Hoar J. The question whether the mortgage made to the defend- ants by the Troy and Greenfield Railroad Company is of any validity against the Commonwealth requires the court to give a construction to the provisions of St. 1854, c. 286. To ascertain what the legislature intended to authorize or prohibit by that statute, it will be expedient first to consider what were the powers of railroad companies in rela- tion to the issue of bonds and the making of mortgages at common law, or before the statute was enacted. There seems to be no reason why a railroad corporation should not be considered as having power to make a bond for any purpose for which it may lawfully contract a debt, without any special authority to that effect, unless restrained by some restriction, express or implied, in its charter, or in some other legislative act. A bond is merely an obligation under seal. A corporation having the capacity to sue and be sued, the right to make contracts, under which it may incur debts, and the right to make and use a common seal, a contract under seal is not only within the scope of its powers, but was originally the usual and peculiarly appropriate form of corporate agreement. The general [•ower to dispose of and alienate its property is also incidental to every corporation not restricted in this respect by express legislation, or by " the purposes for which it is created, and the nature of the duties and liabilities imposed by its charter." Treadwell v. Salisbury Manuf. Co. 7 Gray, 404. But in the case of a railroad company, created for the express and Hole pnr[)ose of consti'ucting, owning, and managing a railroad ; author- ized to take land for this public purpose under the right of eminent domain ; whose powers are to be exercised by officers expressly desig- nated by statute ; having public duties, the discharge of which is the COMMONWEALTH V. SMITH. 311 leading object of its creation ; required to make returns to the legisla* \ ture ; there are certain!}- great, and, in our opinion, insuperable objec- tions to the doctrine tliat its franchise can be alienated, and its powers and privileges conferred b}- its own act upon another person or body, without authority other than that derived from the fact of its own incorporation. T he franchise to be a c orpora,tion_clearly cann ot b e transferred by any corporate body, o fJt 3 own wi ll. Such a franchis e is not,^ n [ts own nature, transmissible . The power to mortgage can only be coextensive with the power to alienate absolutely, because ever}' mortgage may become an absolute conve yance b}- foreclosure. And although the franchise to exist as a corporation is distinguishable (p from the franchises to be enjoyed and used by the corporation after its t ^ (N Sy^*' /, v\ creation, yet the transfer of the latter differs essentially from the mere ''/)T-^'rt> •■JT • i alienation of ordinary corporate property. The right of a railroad ^j^\ Al tM^ company to continue in being depends upon the performance of its^ -f.') '' Lf^^ public duties. Having once established its road, if that and its fran- 't- "l^ ft- I] ,n . chise of managing, using and taking tolls or fares upon the same are ^ ■ ^ ^ l^ alienated, its whole power to perform its most important functions is'^i^';'^ • . ^ at an end. A manufacturing company may sell its mill, and l^"3'X'^^()u**^i^''^*^J, another; but a railroad company cannot make a new railroad at its ^^^ vi^ \* \ ^ , pleasure. 1 „ '.'■ '' ^,^A*; a o** , V ' The whole reasoning of the court in the case of Whittenton Mills v^' Jj^ r/)""'*'^ ^ Uj)to/i, 10 Gra}-, 582, in which it was held that a manufacturing cor-r.,' \ j^ "rl"' with much greater force to the transfer of its franchise bj' a railroad-' ; ^ J^^^ >a^ * company. i^'' ,f/-'' > (Jf' l^t^ No case has been cited in which the exercise of such a power lias. I '■ ^^ \ v^ a ever been judicially sanctioned in this commonwealth, where there was ' \^ CA?^T not express legislative authority for it ; and the cases in which the ^ ilj legislature has expressl}' conferred the power, or confirmed its exercise. „,v\ jj^ v*^ furnish at once a strong implication that it would not otherwise exist,^ , '' ' ^*j and afford a solution of the allusion to railroad mortgages which occurd.' ' U i "^ in the statutes. , ^ I L\ [The learned Judge then held, that the issue of bonds was in con^i ^ i\ ^ travention of Statute 1854, chapter 286; and said that "the bonda-V-^i t«3 ^ I^ being invalid, the mortgage to secure them is invalid likewise." Th^^^^ jJ^ K i a/" opinion concludes as follows :] ^ "X*^ ^ ^^ ^IV'^'^ "We find no evidence that the Commonwealth has ever known and^ i^ ^ *^k ^\p sanctioned the irregular and illegal issue of the bonds in question,' '■'^'^ ^5'^ ^'^ either directh' or by implication. Nor do we think that the}' fall within the class of cases in which it has been held that a violation of corpo- , . .^i- i ^■^-\ ^ ^ rate powers cannot be taken advantage of collaterall}'. The secondi^^^ . ^ cV ^ mortgage to the Commonwealth gives it a direct interest in the prop- ' "J^tA^ erty, and, not being made expressly subject to any prior incumbrance, - /'O gives the right to maintain and prove that the supposed conveyance to '^'* r r%'^ the defendants was illegal and void. ' \yv^ * J J" The result to which the point decided leads is this : that, the defend (l/^' 312 CHADWICK V. OLD COLONY E. E. CO. ants having no title which they can maintain against either of the mort- gages to the Commonwealth, the plaintiffs have a plain, complete and adequate remedy at law for any interference with the mortgaged prop- erty, and the bill must be dismissed. , ^>'5r /*' , CHAttWICK V. OLD COLONY E. E. CO. 1898. 171 Massachusetts, 239.1 ^ , Action by the assignee of Wardwell, an insolvent debtor, to recover ^l\/ the sum^f $10,000, previously paid by Wardwell to the defendant. The payment was made under an agreement whereby Wardwell was ■'^-^(r to purchase from the defendant a note and mortgage given by the ii^'t ^ Martha's Vineyard E. E. Co. to the defendant. /5^ M\ *> /j lh(^ "^^^ mortgage was on the property and franchises of the M. V. E. \P .J^i^ j^- Co. The note and mortgage were given in accordance with th€ ■kM^ih. ^ i/- 0^^ ^ [T •'^.. e^ A f- ^- > ^^ __^. „„„_ ^ the ^j^ provisions of St. 1874, c. 372, s. 57, which authorizes a railroad corpo- ration to aid in the construction of any " connecting railroad within the limits of this Commonwealth, whether connected by railroad or steamboat lines, by subscribing for shares of stock in such corpora- tion, or by taking its notes or bonds, to be secured by mortgage or otherwise, as the parties may agree." I , The note was in terms negotiable, and the mortgage contained a '^i/*^ power to the mortgagees to sell the property and franchises at auction (/ jJ^ for a breach of the conditions of the mortgage. The mortgage was made to two individuals as trustees for the defendant. These trustees were parties to the agreement with Wardwell. After making partial payments under the agreement, Wardwell failed to pay the balance of the purchase money, and became insolvent. His assignee, Chadwick, sued to recover the sums paid. His con- tention was, in substance, that such a mortgage as the statute author- izes could not give a title to the road that could pass by a foreclosure or otherwise to the hands of any natural person, or to any railroad company except the one which aided in the construction by taking the notes or bondg. Knowlton, J. . . . The questions raised in the action at common law involve a consideration of the rights of mortgagees of railroads. Our statutes authorize railroad corporations to mortgage railroads in certain cases, but they do not particularly define the rights of the mortgagees. Pub. Sts. c. 112, §§ 62-80. The general language used ^implies that their rights are like those of mortgagees of other kinds I of property, except so far as they are affected by the provisions of the \ statutes for the management or use of the property. It has sometimes been contended that the franchises of a corpora- 1 Statement abridged. Only part of the report is given. — Ed. L ) ¥8> \ / CHAD WICK V. OLD COLONY R. R. CO. 3lo tion cannot be conveyed by mortgage in connection with its property. It is true that the franchise to be a corporation is not assignable, or in any way transferable. The distinct ion between the franchise to be a corporation, and the franchise to xiseThe corporate property for the purposes for Avliii'h the corporation was organized, was pointed out by Mr.'Justice Curtis in Hall v. Sullivan Railroad, 21 Law Kep. 138, (2 Eedf. Am. Ry. Cas. 621,) and has been recognized many times by courts of high authority. In Memphis & Little Rock Railroad v. Railroad Commissioners, 112 U. S. 609, 619, the court says : " The franchise of being a corporation need not be implied as necessary to secure to the mortgage bondholders, or the purchasers at a foreclosure sale, the substantial rights intended to be secured. They acquire the ownership of the railroad, and the property incident to it, and the franchise of maintaining and operating it as such ; and the corporate existence is not essential to its use and enjoyment. All the franchises necessary or important to the beneficial use of the railroad could as well be exercised by natural persons. The essential properties of corporate existence are quite distinct from the franchises of the cor- por ation." In the opinion in New Orleans, Spanish Fort, & Lake Railroad v. Delamore, 114 U. S. 501, 509, is this language : " The authority to mortgage the franchises of a railroad company necessarily implies the power to bring the franchises so mortgaged to sale, and to transfer them with the corporeal property of the company to the purchaser. It could not be held that, when a mortgage on a railroad and its franchises was authorized by law, the attempt of the mortgagor to enforce the mortgage would destroy the main value of the property by the destruction of its franchises." In Ba.nk of Middlehury v. Edgerton, 30 Vt. 182, 190, the court says : " The right to build, own, ' manage, and run a railroad, and take the tolls thereon is not of neces- sity of a corporate character or dependent upon corporate rights. It may belong to and be enjoyed by natural persons, and there is nothing in its nature inconsistent with its being assignable." A similar doc- trine has been stated or recognized in many other cases. See Morgan v. Louisiana, 93 U. S. 217, 223 ; Trask v. Maguire, 18 Wall. 391, 409 ; Chesapeake & Ohio Railway v. Miller, 114 U. S. 176 ; Jackson v. Lude- li^g, 21 Wall. 616 ; Jackson v. Ludeling, 99 U. S. 513 ; State v. Sher- man, 22 Ohio St. 411, 428; Meyer v. Johnston, 53 Ala. 237, 327; Chaffe V. Ludeling, 27 La. An. 607 ; Willink v. Morris Canal & Bank- ing Co., 3 Green Ch. 377. So far as we are aware, the cases bearing upon' the s_u bjects all hold that a mortgage of a railroad and other property of a railroad corporation includes the franchise to use the property ,_- for the purposes for which it is held by the corporation. This right ; tl_ will pass to a purchaser at a foreclosure sale, whether the sale is to a J corporation or to an individual. A mortgage of property necessarily I implies the right in the mortgagee to make the property available../ This may be either by a sale or by use. There is no good reason why the right to sell should be restricted to cases in which an existing 314 CHADWICK V. OLD COLONY R. K. CO. railroad corporation is willing to become the purchaser. With such a restriction a mortgage on the property and franchises of a railroad ordinarily could only be made available through an actual vise by the mortgagee, or through a contract under the Pub. Sts. c. 112, § 66, with the mortgagor. . . , The right to foreclose such a mortgage by a sale, and the right of an individual, as well as a corporation, to purchase at the sale and to transfer to others the title which he acquires, is recognized by the St. 1886, c. 142, § 1, which is as follows : " A purchaser of a railroad at a sale under a valid foreclosure of a legal mortgage thereof, and his grantee and successors in title, shall be subject to all and the same ^jduties, liabilities, restrictions, and other provisions respecting such jrailroad, or arising from the construction, maintenance, and operation (thereof ; and have all and the same powers and rights relating to said irailroad, and the construction, maintenance, and operation thereof, Avhich the corporation by which said mortgage was made was subject ,to, and had at the time of said sale." This statute is declaratory of the law as it exists without legislation in other jurisdictions, and as doubtless it would have been held to be in this Commonwealth upon general principles before the enactment of the statute. It follows that the agreement under which the payments were made by Ward- well was not contrary to pviblic policy, and it gave him equitable rights in the mortgaged property and franchises that furnish a valuable consideration for his payments. It also follows that the original mortgage was not illegal in that it was made to secure a negotiable promissory note. . . . The fact that St. 1874, c. 372, § 57, (Pub. Sts. c. 112, § 80,) in authorizing the making of mortgages of railroads, does not expressly mention their franchises, is immaterial. The franchise to use the railroad and its appurtenances goes with the railroad by implication Avhen an entire railroad is conveyed. That a mortgage can be made originally only to a connecting railroad under this statute does not indicate that the mortgagee can make it available only by operating the railroad, and that the franchises cannot be used by a purchaser. So to hold would put a limitation upon the mortgage, for which there is no warrant in the statute. The grounds upon which the plaintiff seeks to recover are unten- able. Judgment for defendant. J. H. Benton, Jr., for R. R. Co. W. H. Cobb & L. LeB. Holmes, for Chadwick. V v/ A\A PITTSBURGH, C. C. & ST. L. R. CO. V. STICKLE Y. ^l^i^ rv' ' V PITTSBURGH, C. C. & ST. L. R. CO. v. STICKLEY. -{/' 1900. 155 Indiana, 312.1 From the Randolph Circuit Court. iJu \ The controversy rehited to the ownership of land, conveyed to the"^ ,J railway company in 1866. " This land the company intended to use\ .>- \V for depot purposes, but has not done so." The original plaintiff," Stickley, claimed title by adverse possession for twenty-five years. Judgment below for Stickley, and the E. R. Co. appealed. ' iV. 0. Boss and G. E. Ross, for appellant. J. S. Engle and W. G. Parry, for appellee. \^. v,' Baker, C. J. [After stating the case, and disposing of other points.] "^ v Appellant finally insists that land acquired by a railway company i. for right of way or station purposes cannot be taken from it by ad- verse possession, because a railroad is a public highway, and because the statute forbids interference with the company's exclusive use. A railway company owes certain duties to the public, but it holds and uses its property for the profit of its stockholders. The cases hold- ing that the statute of limitations affords no defense to actions for encroachment upon streets and roads are inapplicable. A railroad is not a public highway in the sense that it belongs to the people. Rail- road officers are not governmental agents whose laches creates no bar. It is true that, for reasons of public policy, a judgment creditor will not be permitted to destroy a railroad by cutting it into parcels on execution sales, if the company resists. Farmers, etc., Co. v. Canada, etc., R. Co., 127 Ind. 250, 11 L. R. A. 740. If a company voluntarily ^ disable itself to perform its duties to the public, its charter may be ' forfeited. But there is no reason why a railway company should not be permitted to dispose of land it does not need in fulfilling its public I U duties,, or why, if it disposes of land it does need, it should not be compelled, if it wishes to avoid a forfeiture of its charter, to reac- quire the land by purchase or condemnation. It is true that the I statute entitles a railway company to take land in fee and forbids interference with the company's exclusive use. But the right to the exclusive use (which is an incident to every unqualified ownership) must be asserted. If one occupies adversely for twenty years land owned by a railway company, the statute of limitations should raise the presumption of a grant, for the company holds its lands for pri- vate gain as a private proprietor. The State confers the power of eminent domain to enable railway companies to perform eflficiently their duties as common carriers. But it is not apparent why the State should be concerned in preventing investors in railway stocks from sustaining loss through the negligence of their agents. Illinois, etc., R: Co. V. Houghton, 126 111. 233, 18 N. E. 301, 1 L. R. A. 213; 1 Statement abridged. Only part of the case is given. — Ed. •A 316 COLLINS V. TOWNSEND. Illinois, etc., B. Co. v. O'Connor, 154 111. 550, 39 N. E. 563; Elinois, etc., R. Co. V. Moore, 160 111. 9, 43 N. E. 364 ; Donahue v. Illinois, etc., R. Co., 165 111. 640, 46 N. E. 714 ; Illinois, etc., R. Co. v. Wake- field, 173 111. 564, 50 N. E. 1002 ; Matthews v. Lake Shore, etc., R. Co., 110 Mich. 170, 67 N. W. 1111 ; Bobbett v. South Eastern R. Co., L. E. 9 Q. B. Div. 424 ; Norton v. London, etc., R. Co., L. E. 13 Ch. Div. 268 ; Erie, etc., R. Co. v. Rousseau, 17 Ont. App. 483. Judgment affirmed. Collins, J., ik N0ETHEE:N^ PACIFIC E. CO. v. TOWNSEND. Supreme Court of Minnesota, July 12, 1901. 86 Northwestern Reporter, 1007, pp. 1009, 1010. Collins, J. . . . The real object of this statute of limitations is to prevent litigation, and to quiet title to land which has remained in the possession of another adversely and in hostility to its true owner for the specified period of time. Such a law is a continual and deci- sive notice to owners that, if they allow others to adversely occupy, use, and improve their land for fifteen years continuously, they must be deemed to have acquiesced in the assertion of the occupants' claim of right to use the same, and to have abandoned all opposition thereto. There may be exceptional instances in which the nature of the right affected or the character of the party in whom the title is vested will prevent the operation of the statute, but the facts here do not come 'within the exception. That a railway company may be deprived of a part of its right of way by adverse occupation for the statutory period of time, and that such an occupation will bar its right to eject its ad- iversary, has often been determined by the courts of this country. Railway Co. v. Stickley, 155 Ind. 312, 58 N". E. 192 ; Mattlmos v. Rail- way Co., 110 Mich. 170, 67 N. W. 1111 ; Littlefield v. Railroad Co., 146 Mass. 268, 15 N. E. 648 ; Railroad Co. v. Wakefield, 173 111. 564, 50 N. E. 1002, and cases cited. See, also, upon this subject, 15 Harv. Law Eev. 146. It has also been decided that it is immaterial whether title is held by the company in fee simple, or is a mere easement, or a qualified fee, or an absolute fee ; for, whichever it is, the right con- ferred is a possessory one, and sufficient to sustain an action of eject- ment. Nor is it material whether the statute under which the defend- ant's claim is regarded as one indulging in the presumption of a grant by the true owner or is simply a statute of repose. We have held that it is the latter in Dean v. Goddard, 55 Minn. 290, 56 N. W. 1060. We have also decided that real property belonging to municipal corpora- tions and quasi public corporations can be lost under the statute by adverse possession. City of St. Paul v. Chicago M. & St. P. Ry. Co. 45 :\rinn. 387, 48 N. W. 17"; St. PoaiI, M. & M. Ry. Co. v. City of Minneapolis, 45 Minn. 400, 48 N. W. 22; Village of Wayzatav. Great BRADBURY v. BOSTON CANOE CLUB. 317 Northern Ry. Co., 50 Minn. 438, 52 N.W. 913.^ Municipal corporations hold real property for public use and for public purposes in a greater sense than do railway companies hold their right of way. There is no reason whatever for determining that the former are subject to the operation of the statute, and at the same time hold that the latter are exempt from the operation of the same law. Such a conclusion would take front rank among the legal absurdities. . . . No matter what rights the beneficiary of the grant may have to use and occupy, if it so chooses, its right of way over and through public domain to the full extent of 400 feet, it is obvious that it must take this right subject to the statute relating to adverse possession. No other conclusion can be tolerated. . . .^ \ ./ ^^ A SECTION IV. ^ yT- Power to borrow Money. Power to issue Negotiable Noies.^ BRADBURY v. BOSTON CANOE CLUB. ^\ - 1891. 153 Massachusetts, 77. Holmes, J. This is an action upon a promissor}' note for one hundred and fifty dollars and interest, given b}' the defendant to the plaintiff for mone}' lent to it by the plaintiff to be used in building a club-house. There is a second count for mone}- lent. At a meeting, duly called, the corporation passed a vote authorizing its treasurer to borrow money in terms sufficiently broad to cover the loan in question. -^ The suggestion that no sufficient notice of the business to be transacted was given, does not seem to us fairly open on the agreed facts. More- over, it would be impossible to argue that the defendant had not recog- nized and ratified the act of its treasurer in borrowing from the plaintiff. » But see 1 Dillon, Mun. Corp. 4th ed. s. 675. — Ed. 2 In the same direction is Midland R. Co. v. Wright, L. R. (1901), 1 Chan. 738. For a different view, see Southern Pacijic R. Co. v. Hyatt, California, 1901, 64 Pacific Reporter, 272. In Sapp V. Northern Central R. Co., 1878, 51 Maryland, 115, it was held, that an ease- ment of a footway by the side of a railroad track cannot be acquired b}' prescription. So in Canadian Pacific R. Co. v. Guthrie, Supreme Court of Canada, Feb. 19, 1901, it was held, that user of a way across (or under) a railway line " could never ripen into a title by pre- scription of the right of way." 37 Canada Law Journal, 272. — Ed. 8 Logically, a discussion of the question whether a corporation has power to incur any indebtedness at all should precede the discussion as to its power to incur indebtedness in the form of borrowing. It is generally assumed that corporations are not bound to do a strictly cash business; but are impliedly authorized to incur debts, in the ordinary waj- of business, for objects within the scope of the corporate purposes as defined by the charter. See Green's Brice's Ultra Vires, 2d Am. ed. pp. 207, 208. And "a limitation upon the right of a corporation to borrow money does not necessarily restrict the right of the company to incur debts in the course of its usual business." 1 Morawetz, Corp. 2d ed. s. 344. — Ed. 518 BATEMAN V. MID-WALES KAILWAY CO. The monej* was received b}" the corporation, and was used by it for the purpose mentioned. The onl^^ question for us is, whether the corpora- tion acted illegally in borrowing mone}- for the purpose of erecting a club-house upon land of which it held a lease. The defendant is a corporation formed under the Pub. Sts. c. 115, § 2, for encouraging athletic exercises. By § 7 it " may hold real and personal estate, and may hire, purchase, or erect suitable buildings for its accommodation, to an amount not exceeding five hundred thousand dollars," etc. We are of opinion that under these words the defendant had power to take a lease of land and to erect a suitable club-house upon it. Having this power, it was entitled to raise money for the pur- pose. No argument is needed to show that the power at the end of § 7, to receive and hold in trust funds received b}" gift or bequest, does not confine the corporations to that mode of raising it. Borrowing money is a usual and proper means of accomplishing what the statute ex- pressly permits. See Fay v. Noble, 12 Cush. 1, 18 ; Morvilh v. Ameri- can Tract Societij, 123 Mass. 129, 136; Davis y. Old Colony Hail- road, 131 Mass. 258, 271, 275. As this is a suflScient reason forgiving the plaintiff judgment, it is unnecessary to consider whether there are not others. Judgment for the plaintiff . C. J. Mclntire <& F. Hunt, for the plaintiff. C. H. Spraque, for the defendant. i vi i ' . \ BATEMAN v. MID- WALES RAILWAY CO.' '^ NATIONAL, &c., CO. v. SAME. OVEREND, GURNEY, & CO. (Limited) v. SAME.* 1866. Law Reports, I Cotnmon Pleas, 499, These were actions brought by the respective plaintiffs against the defendants, a railway company, incorporated under the 22 & 23 Vict, c. Ixiii., the 5th section of which prescribed the limit of their capital (170,000Z.), and the 7th and 9th the mode of raising it; the 37th and 38th impowered them to contract for working the traffic upon the rail« way, and the 1st section incorporated the provisions of the Companies Clauses Consolidation Act, 1845 (8 «fe 9 Vict. c. 16) ; the Lands Clauses Consolidation Act, 1845 (8 & 9 Vict. c. 18), and the Railways Clauses Consolidation Act, 1845 (8 & 9 Vict. c. 20) ; but there was no pro- vision in terms impowering them to draw, accept, or indorse bills of exchange or promissor}* notes. The declaration in each case charged the company as the acceptors of several bills of exchange, drawn respectively by John Watson & Co., * ArgurneiitH omitted ; also tlie concurring opinions of Bvlfs J., and Keating J — Ed. BATEMAX V. MID-WALES RAILWAY CO. 319 and purporting to be accepted in the following form : — " Accepted by order of the board of directors, and payable at the Agra and Master- man's Bank. John Wade, secretary," with the seal of the company annexed. It was proved (or admitted) in each case, that the company bad actually commenced business as a railwa}- compan}', and that there was a resolution of a board of directors authorizing the acceptance of the bills in question, as above. Under the plea traversing the acceptance, it was contended on the part of the defendants, at the trial before Erie, C. J., at the sittings in London after last Hilary Term, that the company had no power by law to accept bills of exchange ; and further, that, assuming that they had such power, the bills declared on were not accepted in such form as to be binding on thera. His Lordship directed verdicts to be entered for the plaintiffs in each action, reserving leave to the defendants to move to enter nonsuits if the Court should think the objections or either of them well founded. Karslake, Q. C, obtained rules nisi. E. James, Q.C., and Sir G. Honyman, for plaintiffs in first and second actions. KarslaJie, Q. C. , and Holland, for the defendants. BoviU, Q. C, and JIathetc, for plaintiffs in third action. Erle, C.J. These were actions by the indorsees against the accept- ors of several bills of exchange. The defendants pleaded in each action that they did not accept. It appeared that the defendants are a com- pany incorporated by an act of 22 & 23 Vict. c. Ixiii. for the purpose of making and working a railway in Wales. The precise purposes for which they are incorporated, and the powers which are intrusted to them, are limited and defined by the special act and the provisions of the general acts incorporated therewith. I take it to be well estab- ' lished that a corporation established for a specific purpose cannot bind itself by a contract which is entirely unconnected with the purposes of j its incorporation. The question then is, whether this compan}-, being a corporation created for the specific purpose of making a railwa}', can lawfully bind itself by accepting a bill of exchange. I am of opinion] that it cannot. The bill of exchange is a cause of action, a contract b}' itself, which binds the acceptor in the hands of any indorsee for value ; and I conceive it would be altogether contrary to the principles of the law which regulates such instruments that they should be valid or not according as the consideration between the original parties was good or bad, — or whether, in the case of a corporation, the consideration in respect of which the acceptance is given is sufficiently connected with the purposes for which the acceptors are incorporated. It would be inconvenient to the last degree if such an inquir}' could be gone into. Some bills might be given for a consideration which was valid, as for work done for the company, and others as a security for mone}' obtained on loan beyond their borrowing powers. It would be a pernicious thing io hold that, in respect of the former, the corporation might be sued bj? 320 BATEMAN V. MID-WALES KAILWAY CO. an indorsee, but in repect of the latter not. So much for the general bearing of the question upon principle. How stands the matter as to authority? Subject to three exceptions, I find no case in which an action upon a bill of exchange or promissory note has been sustained against a corporation : and these exceptions prove the rule. In Slark V. Highgate Archway Company^ the company was impowered b}^ its act of parliament to accept bills for the specific purpose : and in the 'cases of the Bank of England and the East India Company, the negoti* ' ation of bills and notes was within the very scope and object of their incorporation. In no other case that I am aware of has the liability of a corporation ever been enforced. In Broughton v. Manchester Water- works Com^Kmy,' the doctrine I have stated is laid down in general terms : and Bayle}^, J., entertained a doubt whether the holder of a bill of exchange accepted b}' a corporation could sue the corporation with- ' out shewing that the acceptance was given for a purpose for which it ^was competent to the corporation to accept. That proposition derives much more force when applied to the case of a corporation created for a specific purpose, as we have judicial notice from the act of parliament that this is. Upon both principle and authorit}-, therefore, I am of opinion that the acceptances given by this compan^^ are not binding ■.acceptances, and that the plea is established. Montague Smith, J. I am of the same opinion. The plaintiffs are indorsees, and not immediate parties to these bills, and therefore cannot recover unless the bills are in their inception valid instruments. I am clearl}' of opinion that it was not within the competency of this compan}' to accept bills. It is a compan}' incorporated for the formation of a railwa}', with a limited capital and limited powers of borrowing mone}'. If such a company had power to accept bills of exchange, the conse- quence would be either that they might bind themselves b}' acceptances to an unlimited extent, or there must in each case be an inquir3^ whether the bill was given for the payment of a just debt, or for a purpose not warranted by their incorporation. I think that it was not the intention of the legislature that they should accept bills at all. The shareholders advance their money upon the faith of the limited borrowing powers. This limit would be illusory if the directors could be held bound by acceptances. There is no authority to shew that they have power to accept, and there is much authority in analogous cases the other wa}'. It has been held that mining companies, waterworks companies, gas companies, salt and alkali companies, and many others, all more in the nature of trading companies than this company, are incapable of draw- ing, accepting, or indorsing bills of exchange. The first object of a railway is the making of a railway, though they may and practically always do carry on the business of carriers. That corporations created for the purpose of trading may have power to issue negotiable instru- ments is the well-known exception. But that applies where the pri- - o Taunt. :92. 2 3 b. & A. 1. UNION BANK V. JACOBS, 321 mar}' object of the incorporation is the carrying on of trade as other persons carr}' it on, viz. b}' buying and selling. In addition to the cases alread}' referred to, there is the distinct authority of many emi- nent text-writers that a railway company cannot accept. I will refer to one considerable authorit}', the late J. W. Smith. In his treatise on Mercantile Law, after speaking of the disability of corporations in general to accept bills he sajs : * " However, it has been considered that a trading corporation ma}' differ from others as to its powers of contracting, and its remedies on contracts relating to the purposes for which it was formed. Thus, such a corporation may in some cases bind itself by promissory notes and bills of exchange ; and it was even held that the Bank of England might without deed appoint an agent for such purposes. But a corporation will not have these extra- ordinary powers unless the nature of the business in which it is engaged raises a necessary implication of their existence." No express power \ to accept is given to this company : nor is there, in my judgment, any 3 necessary implication from the purposes for which it was created. For -.'^ these reasons, I am of opinion that the rule in each of these actions should be made absolute. , ■ Rules absolute to enter a nonsidtt ." 'j^ f f \-' Suit asrainst Jacobs, as ^ ■>. ic ■y K h\'^ \ \ 1845. Hiwassee Rail Road Company. !^^ ^ \>* L By Act of the Tennessee Legislature, in 1835-6, the Hiwassee R. "Rif^ %r ^a^ jfi Co. was created a body corporate, with perpetual succession, with''-, j5 ^ H ' IJNION BANK V. JACOBS. 6 Humphrey [Tennessee), 515.^ ,'•" endorser of the negotiable note v^. of to possess and enjoy all the rights, ^ power to make such by-laws, ordi- power to sue and be sued, and privileges and immunities, with nances, rules, and regulations, not inconsistent with the laws of this , State and the United States, as shall be necessary to the well ordering^ /and conducting the affairs of said company, By the 2d section, the capital stock was declared to be S600,000y^*' and the corporate powers were to commence when $400,000 were ^ subscribed. By the 4th section, after 4000 shares shall have been subscribed, there was to be paid on each share such sum as the company might direct, and in such instalment, not exceeding one fourth of the subscrip- tions in any one year. By the 12th section, if the capital stock of the company be found .Insufficient for the purposes of the road, the company may enlarge it from time to time, so as not to exceed in the whole 81,500,000, and new subscriptions for that purpose to be opened. (^l/,>^ '( v^^^' .t .^ V, 1 7th ed. by Dowdeswell, pp. 105-6. 2 Statement abridged. — Ed • lJ^ t 322 UNION BANK V. JACOBS. By the 13th section, the president and directors are invested with all the powers and rights necessary for the building, constructing, and keep- ing in repair of the railroad ; and they may cause to be made, or con- tract with others for making of said road or an}' part thereof. Under tlie provisions of the charter, the company- was legally organ- ized and proceeded to construct the road. The company became in- debted to Lonergin, a contractor, for grading the road, in the sum of $5000. For the payment of this debt, the company-, by its president, Jacobs, executed its promissory note to Jacobs, negotiable and payable at the Union Bank four months after date. The note was indorsed by Jacobs to Trautwine, and by him to the Union Bank, and the proceeds were passed by the bank to the credit of Lonergin. At maturity the note was protested, and notice given to the endorsers. Suit was brought against Jacobs as endorser. The circuit Judge charged the jury "■ that the note was drawn b}- the Hiwassee Rail Road Company in violation of its corporate powers ; that it was therefore null and void; and that the plaintiffs were not entitled to recover." ^ Verdict for defendant, and judgment. Plaintiff brought error, Lyon, for plaintiff. W. Sivan, Maynard, and Sneed, for defendant. TuRLEY, J. [After stating the facts.] It is contended against the plaintiff's right to recover, that there is no power given, either ex- pressly or by necessary implication, by the charter to the Hiwassee Rail Road Company, to borrow money or to execute promissory notes ; and that, therefore, the note executed and endorsed to the Bank is void, both, as against the maker and endorsers, and that no action can be maintained against them thereon. The construction of the powers of corporations has been a fruitful source of litigation, both in the courts of Great Britain and the United States. In the earlier cases they were construed with great strictness, and a stringent rule, as to the mode of exercising them enforced. I Whatever of strictness may have existed in the earlier cases, in re- stricting their power of contracting to the express grant of authority, has been also greatly relaxed, and the doctrine upon the subject been made more conformable to reason and necessity, the powers granted to corporations being now construed like all other grants of power, ,not according to the letter, but the spirit and meaning. In Augell & Ames on Corporations, page 192, sec. 12, it is said, ''a corporation having been created for a specific purpose, can not only make no con- tracts forbidden by its charter, which is, as it were, the law of its nature, but in general can make no contract which is not necessary, either directly or incidentally, to enable it to answer that puri:)0se. In deciding, therefore, whether a corporation can make a particular con- 1 The above is the charge as recited in the opinion of the Supremo Court. Tlie state- ment by the reporter says that the Judge charged "that the Hiwassee Company haa no power to borrow money, and that the note given in execution of a void contract was null and void also." — Ed. UNION BANK V. JACOBS. 323 tract, we are to consider, in the first place, whether its charter, or some statute binding upon it, forbids or permits it to make such a contract ; and if the charter and valid statutory law are silent upon the subject, in the second place, whether the power to make such a contract may not be implied on the part of the corporation, as directly or incidentally necessary to enable it to fulfil the purpose of its exist- ence, or, whether the contract is entirely foreign to that purpose. In general, an express authority is not indispensable to confer upon a corporation the right to become .drawer, endorser, or acceptor of a bill of exchange, or to become a party to any other negotiable paper. It is sufficient, if it be implied as the usual and proper means to accom- plish the purposes of the charter. — Chitty on Bills, 5th Ed. 17 to 21 ; Baily on Bills, ch. 2, sec. 7, p. 69 (oth Ed.) Story on Bills of Exchange- sec. 79, p. 94." In the case of Munn vs. Commission Co., loth John- son 52, Spencer, J., who delivered the opinion of the court, says : " It has been strongly urged, that, under the act incorporating this com- pany, they could neither draw nor accept bills of exchange. Their power is undoubtedly limited ; they are required to employ their stock solely in advancing money, when required, on goods and articles manu- factured in the United States, and the sale of such goods and articles on commission. The acceptance of a bill is an engagement to pay money ; and the company may agree to pay or advance money at a future day, and they may engage to do this by the acceptance of a bill." When a charter or act of incorporation and valid statutory law are silent as to what contracts a corporation may make, as a general rule, it has power to make all such contracts as are necessary and usual in the course of business, as means to enable it to attain the object for which it was created, and none other. The creation of a ' corporation for a specific purpose, implies a power to use the necessary ' and usual means to effectuate that purpose. — Angell & Ames on Corp. ' 200, sec. 3. — ^ Mr. Story, in his treatise on bills of exchange, p. 95, speaking of the power of corporations to draw, endorse, and accept bills of exchange, |[ '^' doing. There is no principle which prevents a corporation contracting debts within the scope of its action ; and, as has been observed, if it may contract a debt, it necessarily may make provision for its pay- ment, by drawing, or endorsing, or accepting notes or bills. It Is not pretended that this power extends to the drawing, endorsing or accepting bills or notes generally, and disconnected from the purposes for which the corporation was created. Tlie corporation, in the present case, was indebted to one of its con- tractors for work done upon the road, for the payment of which, the note in question was drawn. This, upon principle and authorit}', was a usual and ai)propriate means for accomplishing the object and pur- poses of the charter, viz: the construction of the road. Not only do all the elementary writers sustain this view of the subject, but as we have seen, there are three adjudicated cases in courts of high authority directly in its favor. The case of Munn vs. Commission Company, 15th John. 52; the case of Mott lis. Hicks, 1st Cowen, 513; and the case of Hayward vs. the Pilgrim Society, 21st Pickering, 270. There has not been produced a single case to the contrary. The cases cited relied upon are decided upon different grounds entirely. [The learned Judge here commented upon the cases relied upon by the defendant.] NOERIS V. STAPS. 327 We are then of opinion, (to use tlie words of Chief Justice Mar- shall, in the case of McCullock vs. the State of Maryland,) that the end proposed by the Hiwassee Rail Road Company, in executing the note in question, was legitimate, and within the scope of its charter ; that as a means it was appropriate, and plainly adapted to that end, which is not prohibited, but consistent with the letter and spirit of the charter and therefore not void, but binding and effectual upon the company and the endorsers. Let the judgment of the circuit court be reversed, and the case be remanded for a new trial. ^ SECTION V. A' Power to make By-Laws. ^ HoBART, C. J. [?], IK NORRIS V. STAPS. | ^ ^ 1614-1625 [?]. HobarVs Reports, p. 211 a. * A Now I am of opinion, that though power to make laws is given by special clause in all incorporations, yet it is needless ; for I hold it to be included, by law, in the very act of incorporating, as is also the power to sue, to purchase, and the like. For, as reason is given to the natural body for the governing of it, so the body corporate must have laws, a,s a politic reason to govern it ; but those laws must ever be subject to the general law of the realm, as subordinate to it. And therefore, though there be no proviso for that purpose, the law sup- plies it. 1 The reporter has printed, as an appendix to this case (pp. 528-532), an opinion given by Ex-Chancellor Kent, of New York, as counsel. He came to the conclusion that the company had not power to borrow money ; and that the notes, being illegal and impliedly prohibited, could not be enforced against any of the parties thereto. After stating the substance of the charter provisions. Chancellor Kent said (inter alia) : "Here we have the delineation of the powers of the company, and it cannot but strike any attentive reader of the act, that those powers are very specially designated and con- fined within strict and narrow limits. The road is to be made out of capital or funds raised by subscrii)tions, and to be called for from time to time, under reasonable and guarded checks, from the subscribers or stockholders. The power of acquiring and making the road, the extent of the expenditures to be bestowed in making it, the source from which the moneys requisite for the work are to be procured, and the manner in which the}' are to be raised, are all declared in the charter with a certainty and precision that cannot be mistaken ; and here we may confidently conclude that the charter contains no power in the president and directors to borrow money upon loan, or to give their promis- sory notes to the lender of money, for the purpose of making the road and carrying into effect the object of the charter. The mode of raising the funds, and the Innitation to th* amount of those funds, are specifically prescribed, and all the other modes are necessarily excluded. "That it is an established and deemed a salutary rule in the construction of corporate powers, where the charter is for special purposes, and the powers and the manner of exe- cuting them specially designated, that no other powers and no other mode of exercising the powers granted can be deemed lawfully to exist, I would refer to the English and American cases." — Ed. 328 HOKNE V. IVY. CHAPTER IX. MODE OF CONTRACTING AND OF APPOINTING AGENTS. , ^ HORNE V. IVY. V-Tv '' 20 Car. 2. 1 il/oc?erw, 18. Trespass for taking away a ship. The defendant justifies as servant under the patent whereby The Canary Company is incorporated, and whereby it is granted, "That none but such and such should trade >- iS- \^ thither, on pain of forfeiting their ships and goods, &c." and says, that y }J .lJ the defendant did trade thither, &c. The defendant demurs. ^y^ PoLLEXFEN/br the plaintiff QoxA^w^Q^^ that the defendant ought to '\/* Vr have shewn the deed whereby he was authorized by the Company to if^ u seize tiie goods ; ^ though he agreed, that for ordinary employments and services a corporation ma}' appoint a servant without deed, as a cook, a butler, &c.^ A coiporation cannot license a stranger to fell trees without deed.^ Nor can the}' make a disseisor without deed, nor deliver a letter of attorney without deed.^ Secondly, The plea is double ; for the defendant alledges two causes of a breach of their charter, viz. their taking in wines at the Canaries, and importing tliem here ; which is double. Then there is a clause that gives the forfeiture of goods and imprisonment, which cannot be by patent.^ This patent I take also to be contrar}^ to some acts of parliament, viz. 2. Edw. 3. c. 1. 2. Edv^. 3. c. 2. 2. Rich. 2. c. 1. 11. Rich. 2. c. 2 ; and these statutes the king cannot dispense withal by a non obstante. TwiSDEN, Justice. For the first point, I think, they cannot seize without deed, no more than they can enter for a condition broken with- out deed. Kelynge, CI def Justice. We desire to be satisfied, Whether this is a monopoly or not? — It was ordered to be argued again.' 1 26, lien. 6. pi. 8. 14 Edw. 4. pi. 8. Bro. " Corporation " 59. 2 Plowd. 95. 8 12. Hen. 4. pi. 17. < 9. Edw. 4. pi. 59. Bro. "Corporation," 24. 34. 14. Hen. 7. pi. 1. 7. Hen. 7. pi. 9. 1. Roll. Abr. 6 8. Co. 125. Noy, 123. 6 It appear.s in Kehle and Veniris, that judpjment was ^\v^x\. in this case for the plaintiff, on the first ol)jection, because the defendant justified by the command of a corporation, without shewing that his authority to seize the ship was by a deed ; and S. C. Siderjin says, tliat the Court also held the bar bad in substance, because the king by his jiutent cannot create it. forfeiture for the doing those tilings which his patent prohibits. See 3. Teer. Wms. 424. Ilardres, 55. ykiiiner, 135, 224. 8. Co. 125 Palmer, 5. 3. Lev. 353. 1. 8alk. 32. 5. Com. Dig. " Trade," (B.). 1. Borr. fc26. 1. Term Rep. 118. 9-" BANK OF UNITED STATES V. DANDEIDGE^/ A'^ 329 IVlARSHALL, C. J., IN BANK OF U. S. r. DANDRIDGE. 1827, 12 Wheaton, 64. [In this case the majority of the Court held, that the acceptance of a cashier's bond by the board of directors of a bank may be proved with- out the production of a written record ; and that, althoug)i there was no recorded vote of acceptance, the acceptance might be proved by evidence of the facts that the person acted as cashier and was recog-( nized as such by the directors, and that the bond was required to be given as a condition precedent to his so acting, and was actually found ' la * /^, ^ among the corporate documents. Lll^ ly^' ■/ ' Marshall C. J., delivered a dissenting opinion, from which thai ( o^ l^'" /^ following extracts have been made.] jjy . 'jfS^^ a^y Marshall C. J. , ))) ^ " 4 k", < ^t^i^X ' . I ^^IVT 1^ , / The plaintiff is a corporation aggregate; a being created by law,"" JS' '.)^^ }}j^ itself impersonal, though composed of many individuals; these indi-"^ y-^ ^V^ >Y viduals change at will; and, even while members of the corporation^^ (r^ ij^i'- can, in virtue of such membership, perform no corporate act, but are " '' responsible in their natural capacities, both while members of the corpo- {^ ration and after the}' cease to be so, for every thing they do, whether in the»^^ ' y^ ' name of the corporation, or otherwise. The corporation being one entire tLj^ •.. -' impersonal entity, distinct from the individuals who compose it, musjt, iJ- /^ be endowed with a mode of action peculiar to itself, which will alvva3-s ^^, 0' distinguish its transactions from those of its members. This faculty^ ^ , ^-^ must be exercised according to its own nature. Can such a being speak, or act otherwise than in wa-iting? Being destitute of the natural organs of man, being distinct from all its mem- bers, can it communicate its resolutions, or declare its will, without thci v . ^ '^'' aid of some adequate substitute for those organs? If the answer to this ^-r-''^ -t question must be in the negative, what is that substitute ? I can imagine * , '^ no other than writing. The will to be announced is the aggregate will. ^^■ The voice which utters it must be the aggregate voice. Human organs &'" ^ belong only to individuals. The words they utter are the words of <• '^^ a individuals. These individuals must speak collectivel}' to speak corpo- / (>^ //*^ ratel}', and must use a collective voice. They have no such voice, and ' [jJ- ■ t'T must communicate this collective will in some other mode. That other yiV^ >^ mode, as it seems to me, must be by writing. p*^'^ U ,.^ A corporation will generally act by its agents ; but those agents have^^'^x,^^ no self-existing power. It must be created by law, or communicated^ -^ ^^ by the body itself. This can be done only b}' writing. /!^ ' \ ^ ' If, then, corporations were novelties, and we were required now to 1 devise the means b}' which they should transact their affairs, or communi- cate their will, we should, I think, from a consideration of their nature, of their capacities and disabilities, be compelled to saj', that where other .^ D 830 BANK OF UNITED STATES V. DANDKIDGE. means were not provided by statute, such will must be expressed in writing. But they are not novelties. They are institutions of very ancient date ; and the books abound with cases in which their character and their means of action have been thoroughly investigated. In Brooke's Abridgment (title Corporation), we find many cases, cited chiefly from the Year Books, from which the general principle is to be extracted, that a corporation aggregate can neither give nor receive, nor do any- thing of importance, without deed. Lord Coke, in his commentary on Littleton (66 b.), says: "But no corporation aggregate of many persons capable can do homage." "And the reason is, because homage must be done in person, and a corporation aggregate of many cannot appear in person ; for, albeit, the bodies natural, whereupon the body politic consists, may be seen, yet the body politic or corporate, itself, cannot be seen, nor do any act, but b}' attorney." So, too, a corpora- tion is incapable of attorning otherwise than b}' deed (6 Co. 386), or of surrenderhig a lease for years (10 Co. 676), or of presenting a clerk to a living (Br. Corp. 83), or of appointing a person to seize forfeited goods (1 Vent. 47), or agreeing to a disseisin to their use (Br. Corp. 34). These incapacities are founded on the impersonal character of a corpo- ration aggregate, and the principle must be equally applicable to every act of a personal nature. ; Sir William Blackstone, in his Commentaries (v. 1, p. 475), enumer- ates, among the incidents to a corporation, the right " to have a com- mon seal." " For," he adds, "a corporation being an invisible body, 1 cannot manifest its intention b}' any personal act or oral discourse. It therefore acts and speaks only by a common seal. For though the particular members ma}- express their private consents to any acts, by words, or signing their names, yet this docs not bind the corporation ; it is the fixing of the seal, and that only, which unites the several assents of the individuals who compose the communitj', and makes one joint assent of the whole." Though this general principle, that the assent of a corporation can appear only l>y its seal, has been in part overruled, yet it has been over- ruled so far only as respects the seal. The corporate character remains what Blackstone states it co be. The reasons he assigns for requiring their seal as the evidence of their acts, are drawn from the nature of .corporations, and must always exist. If the seal may be exchanged for something else, tliat something must yet be of the same character, must be equally capable of " uniting the several assents of the individuals who compose the community, and of making one joint assent of the whole." The declaration that a seal is indispensable, is equally a declaration of the necessity of writing ; for the sole purpose of a seal is to give full faith and credit to the writing to whicli it is appended. I The seal in itself, not affixed to an instrument of writing, is nothing ; is meant as nothing, and can operate nothing. The writing is the sub- Btauce, and the seal appropriates it to the corporation. BANK OF COLUMBIA V. PATTEKSON'S ADMINISTRATOR. 331 The English cases on this subject are ver}' well summed up by Mr. Kyd, p. 259. The result of the whole appears to be, that in England i the general rule is that a corporation acts and speaks by its common seal, at least so far as respects the appointment of officers, whose duties and powers are important. In tliose transactions where the use of the seal would be unnecessarj' and extremel}' inconvenient, it is frequentl}' dispensed with ; but in all of them, I think, writing is indispensable. In almost ever}- case which I can imagine, there ought to be and is a record in the corporation books. With respect to the necessit}' of a seal, the difference is certainly great between ancient and modern times ; and between corporations whose principal transactions respected land, and those which are commercial in their character. This distinc- tion ma}' and ought to influence the use of the seal, but not the use of writing. The inability of a corporation aggregate to speak or act other- wise than In' writing, is constitutional, and must be immutable, unless it be endowed hy the legislature with other qualities than belong to the corporate character. The English cases, so far as I have had an oppor- tunity of examining them, concur in the principle that a corporation aggregate can act only by writing. "When a being is created without the organs of speech, and endowed only with the faculty' of communicating its will by writing, we need not look in the laws given by its creator for a prohibition to speak or a man- date to write. These are organic laws which it is compelled to observe. If we find, in the act of its creation, an enumeration of duties and powers which are to be performed and exercised by writing, it is evidence that the creator considered it as certain that the creature would write, and that the evidence of its conformitv to the will of the creator would be found in writing. Itji^ equivalent to a declaration that it shall act by writing. A;/t>\ / ) X" 'C^ •^&M/ \ V » I gOLUMBiyv. PATTERSON'S AITMINISTRATOIt. c y^ ^ .^'^ ^ Y/ ^- \ 18^13. 7 Cra«c^, 299.1 ' ' \n ''^ ''' ^^y ^ /-^ ^^ Error to the Circuit Court for the District of Columbia. ^> ' '> aT . J '*' '^ r^ ,t '^ Indebitatus assumpsit by Patterson's Adm'r against the Bank of ^ \\i^ t^ ^j\ J^ *• Columbia. In 1804, a written agreement was made between Patterson j'jLMi ;i- y i ^ i and a committee of the directors, whereby the committee agreed to pay "^ ka'^-^ •' "^ Patterson for carpenter work which lie was to do upon a new bank'^v^ ^ Jt J' building agreeably to a certain plan and in a particular manner. InK /yv ^. \^^ 1807, a sealed agreement was entered into between Patterson and a .a. /'i^\ ^ ^ 1 Statement abridged. Part of opinion omitted. — Ed. 332 BANK OF COLUMBIA V. PATTERSON'S ADMINISTRATOR. committee of the directors, under their private seals. It recites, that a difference of opinion had arisen between Patterson and the com- mittee for building the new banking-house, as to certain work extra of an agreement made between Patterson and the said committee, in 1804, and thereto annexed ; whereupon it was agreed., that all the work done b}- Patterson should be measured and valued b}' two persons therein mentioned, according to certain rates, called in George- town old prices, and the sum certified by them should be taken by both parties, in their settlement, as the amount thereof. It was also thereby agreed, that the outhouses, respecting which there had been no specific agreement, should be measured and valued by the same persons in the same manner. Evidence was offered as to the work done, including a paper of par- ticulars of the work, certified by the persons named in the agreement of 1807. It was proved that, while the work was going on, the defend- ants paid Patterson sundr}* large sums of money on account thereof. Defendants requested an instruction that the plaintiflT was not enti- tled to recover, which was refused. Defendants also asked an instruction — that the plaintiff could not recover, unless he should prove that the defendants, after the meas- urement and valuation, expressly promised to pay the amount thereof to the plaintiff; and that the jur}'- could not, from the evidence offered, presume any such promise. This request was also refused. Morsell and Kdi/i for plain tiflfs. Jones and C Xee, for defendants. Story^ J . [The court overruled various objections. Among other points they held: 1st, that indebitatus assumpsit will lie to recover the stipulated price due on a special contract, not under seal, where the contract has been completely executed ; and that it is not in such case necessar}' to declare upon the special agreement : 2d, that a prom- ise wliich would be im[)lied by law for the extra work, against the cor- poration, was not extinguished, by operation of law, by the provisions of the sealed contract of 1807; the said sealed instrument merely recognizing an existing debt, and providing a mode to ascertain its amount and liquidation. After deciding the above and other points, the opinion proceeds as follows :] The case has thus been considered all along, as though the con- tracts were made between the plaintiff's administrator and the corpora- tion, and indeed some points in the argument have proceeded upon this ground. It is very clear, however, that neither the first nor sec- ond ageecments were made by the corporation, but by the committee, 'M ,'v ^' 5J, J ^ in their own names. In consideration of the work ])eing done, the HKr/ ^ ^5 \\' ' committee, and not the cori)oration, personally and expressly agree to Vrt*' 0^ ^^^- ^'^^ stipulated price. A question has therefore occurred, how far A • ^ the corporation were capable of contracting, except under their corpo- ^irate seal ; and if it were capable, as no special agreement is found in \> BANK OF COLUMBIA V. PATTERSON S ADMINISTRATOR. 333 the case, how far the facts proved show an express or an implied con- tract on the part of the corporation. Ancientl}', it seems to have been held, that corporations could not do anything without deed. 13 H. 8, 12 ; 4 H. 6, 7 ; 7 H. 7, 9. Afterwards, the rule seems to have been relaxed, and they were, for conveniency's sake, permitted to act in ordinary matters without deed ; as to retain a servant, cook, or butler. Plow. 91, b. ; 2 Sand. 305 ; and gradually' this relaxation widened to embrace other objects. Bro. Corp. 51 ; 1 Salk. 191 ; 3 Lev. 107 ; Moore, 512. At length, it seems to have been established, that though they could not contract directly, except under their corporate seal, yet they might by mere vote or other corporate act, not under their corporate seal, appoint an agent, whose acts and contracts, within the scope of his authority, would be binding on the corporation. Rex v. Bigg, 3 P. Wms. 419 : and courts of equit}', in this respect seeming to follow the law, have decreed a specific performance of an agreement made bj- a major part of a cor- poration, and entered in the corporation books, although not under the corporate seal, 1 Fonb. 296, Phil. ed. note (o.) The sole ground upon ' \ which such an agreement can be enforced, must be the capacity of the j corporation to make an unsealed contract. As it is conceded, in the present case, that the committee were fully ' authorized to make agreements, there could then be no doubt, that a contract made by them in the name of the corporation, and not in their own names, would have been binding on the corporation. As, how- jK ever, the committee did not so contract, if the principles of law on this i subject stopped here, there would be no remedy for the plaintiff, except * against the committee. The technical doctrine, that a corporation could not contract, except under its seal, or, in other words, could not make a promise, if it ever had been fully settled, must have been productive of great mischiefs. Indeed, as soon as the doctrine was established that its regularly ap- pointed agent could contract in their name without seal, it was impos- sible to support it ; for otherwise the part}" who trusted such contract 1 would be without remedy against the corporation. Accordingl}', it ' [^ would seem to be a sound rule of law, that wherever a corporation js | acting within the scope of the legitimate purposes of its institution, alii parol contracts made b}' its authorized agents, are express promises ofJ the corporation ; and all duties imposed on them by law, and all bene^ fits confen-ed at their request, raise implied promises, for the enforcfi-1 ment of which an action may well lie. And it seems to the court, that! adjudged cases fully support the position. Bank of England v. Moffat, 3 Bro. Ch. Rep. 262 ; Rex v. Bank of England, Doug. 524, and note ib. ; Gray v. Portland Bank, 3 Mass. Rep. 364 ; Worcester Turnpike Corporation v. Willard, 5 IMass. Rep. 80 ; Gilmore v. Pope, 5 Mass. Rep. 491 ; Andover & Medford Turnpike Corporation v. Gould, 6 Mass. Rep. 40. In the case before the court, these principles assume a peculiar J) 334 BANK OF COLUMBIA V. PATTERSONS ADMINISTRATOR. importance. The act incorporating the Bank of Cokimbia, (act of Maryland, 1793, ch. 30,) contains no express provision authorizing the corporation to make contracts. And it follows that upon principles ot the common law, it might contract under its corporate seal. No power is directly given to issue notes not under seal. The corporation is made capable to have, purchase, receive, enjoy, and retain, lands, tenements, hereditaments, goods, chattels, and effects, of what kind, nature, or qualit}', soever, and the same to sell, grant, demise, alien, or dispose of — and the board of directors are authorized to determine the manner of doing business, and the rules and forms to be pursued ; to appoint and pay the various officers, and dispose of the money or credit of the bank, in the common course of banking, for the interest and benefit of the proprietors. Unless, therefore, a corporation, not expressly authorized, ma}- make a promise, it might be a serious ques- tion, how far the bank notes of this bank were legally binding upon the corporation, and how far a depositor in the bank could possess a legal remedy for his property confided to the good faith of the corpora- tion. In respect to insurance companies also, it would be a difficult question to decide, whether the law would enable a part}' to recover back a premium, the consideration of which had totally failed. Public policy, therefore, as well as law, in the judgment of the court, fully justifies the doctrine which we have endeavored to establish. Indeed, the opposite doctrine, if it were yielded to, is so purely technical, that it could answer no salutary purpose, and would almost universally con- travene the public convenience. Where authorities do not irresistibly require an acquiescence in such technical niceties, the court feel no dis- position to extend their influence. Let us now consider what is the evidence in this case, from which 'the jur}' might legally infer an express or an implied promise of the corporation^-^ The contracts were for the exclusive use and benefit of the corporation, and made by their agents for purposes authorized bj- their charter. The corporation proceed, on the faith of those con- tracts, to pay money from time to time to the plaintifTs intestate. Although, then, an action might have laid against the committee per- sonally, upon their express contract, yet as the whole benefit resulted to the corporation, it seems to the court, that from this evidence the jury might legally infer that the corporation had adopted the contracts of the committee, and had voted to pay the whole sum which should i. become due under the contracts, and that the plaintiff's intestate had accepted their engagement. As to the extra work respecting which j there was no specific agree?hent, the evidence was 3'et more strong to l)ind the corporation. In every wa}' of considering the case, it appears to the court that there was no error in the court below, and that the judgment ought to be affirmed. Y" y S> SHERMAN V. FITCH, iT V "^ ^ ^ \ 'b i/r SHERMAN V. FITCH. .. 98 Massachusetts, 59.1 ' f\ JtV^ttJ^ \\ Y^"^ U -Vvlll ' assignees of the Northampton Street Sugar Vi K. Bill in equity by Refinery, an insolvent corporation, praying for a decree that a recorded mortgage of personal property, held forth by the respondent as having been made to hira by the corporation, might be declared ^t^ ^ „ void. The mortgage (dated Jan. 19, 1865) purported, by the Ian- '*^ j*^ guage of the grant, covenants, and condition, to be the mortgage of ^' \ the corporation. It was signed "George R. Sampson, President of 4*^ Northampton Street Sugar Refinery. [Seal.] " * ^ ^ \ ^ \y'^ -y After a demurrer had been overruled, the respondent filed an answer^''" V kj^t'^ C^ a] putting in issue the validity of the mortgage as a mortgage of the cor-^/^ V^ j- S^^ poration. Tlie case was reserved for determination by the full courtT^ '^LAjj^ (^ on agreed facts, which were, in part, as follows : — '' ' ^ ^ ^ ■" For some time prior to January 19, 1865, the respondent had been, f/^(J^ *- i^ and then was, selling agent of the corporation, which owed him about^^ ^^ jiy I eighteen thousand dollars, to secure the payment of which b}' the cor-, ''*' 'I " poration, George R. Sampson, who was president and a director, and ' was also manager of the manufacturing department, executed and de- livered to him the instrument in question. At that date there werej^A^ ^ ^ four directors (who were the principal stockholders) : Sampson ; his a *- Cv son ; a nephew ; and one Tappan, who was in Europe. That was the ^ ^^ full number of the board required bv the bj'-laws, which also provided '^ 7 4 that "'the board of directors shall manage and control the business, i\-- jjroperty and affairs of the corporation." The records of the cor- poration contained no express vote of either directors or stockholders authorizing the execution and delivery to the respondent of a mortgage on the corporate property- ; but the execution and delivery of the instru- ment was known to all the directors except Tappan, at the time thereof, " and was approved by them, provided their neglect to make any ob- jection to the same can be construed as an approval." C. H. Drew, for complainants [argument omitted.] D. P. Kimhnll, for respondent. Wells, J. [The court held, that the mortgage was, upon its face, the mortgage of the corporation, and not the individual contract of Sampson. The court then said :] The remaining consideration relates to the authority of Sampson to execute the mortgage in behalf of the corporation. It is not necessary that the authority should be given by a formal vote. Such an act by the president and general manager of the business of the corporation, with the knowledge and concurrence of the directors, or with their sub- sequent and long continued acquiescence, may properly be regarded as , the act of the corporation. Authoritv in the agent of a corporation ; v iA^ Only 80 much of the case is given as relates to a single point. — Ed. »36 ROBERTS V. DEMING WOODWORKING CO. maj' be inferred from the conduct of its officers, or from their knowl- edge and neglect to make objection, as well as in the case of indi- viduals. Emmons v. Providence Sat Mamifacturing Co. 12 Mass. 237. Milledge v. Boston Iron Co. 5 Cush. 158. Lester v. Webb, 1 Allen, 34. The absence of one of the directors in Europe could not deprive the corporation of the capacity to act and bind itself by the acts of the officers in actual charge of its affair^. V \ )* ^ w>A K.-^ \i-' CO. f i ROBERTS V. P. A. DEMING WOODWORKINO p^ 1892. \\\ North Carolina, ^m. This was a civil action, tried at the August Term, 1892, of Buncombe Superior Court, before Bynum., J., for the value of work and labor done for the defendant corporation. The defendant denied the debt, and resisted paj'ment upon the fur- 4her ground that the contract was not in writing under seal of the cor- poration, nor signed by an}' authorized officer thereof, and therefore void under section 683 of The Code.^ When the plaintiff rested his case, the Court intimated he could not recover on his own showing ,- the contract, being above $100, was not according to the formalities prescribed by The Code, s. 683. Whereupon the plaintiff submitted to a nonsuit and appealed. H. B. Carter, for plaintiff. T H. Cobb, for defendant. Clark J. The court ruled that the plaintiff could not recover in (any aspect of the evidence, because the contract of the defendant com- (pany was not "in writing and under the seal of the corporation, or 'jSigned by some officer of the company dul}' authorized," as required by ) The Code, s. 683. That section and its purport was construed in Curtis v. Piedmont Company, 109 Nor. Car. 401. It is there held that it applies to executory contracts and protects corporations from enforce- ment of such unless evidenced in the manner prescribed by the statute. But the Court adds that it does not apply to cases where the corpora- tion has received and availed itself of property sold and actually deliv- »m-

' ■^ A 338 MAYOK, ETC. OF NORWICH ..Ay^Kco/y^^ Lord Campbell, C. J., in MAYOR NORFOLK R 1855. 4 Ellis &,- Blackburn, p. 443 to> [In an action against a railway compan}- on a covenant under seal that, unless certain works were completed within twelve months,* '^^.^^ whether an Act of Parliament then agreed to be obtained should be ^^ pn' f ' obtained or not, the company' would pay 1000^. as liquidated damages.] j, %l^ ' Lord Campbell C. J. Although the agreement be under seal, we^^j_^,«*,«*--^*^ ma}' examine to see whether there was an}-, and what, consideration. ■^ffXt^'tk for the contract to pay mone}', when we are to determine whether the/ /Uvirw^. contract was or was not ultra vires. The mere circumstance of a cov- , ^,j ena£t_b}^jdirectors jn_the name of the Compan^^ being ult i'a vire s, ^^^^ as betw een them and the ^ shareholders^ does not jiecessaril^; disentitlet- -*^u<-j>-» the c oyeii antee to sue upon it. For example, if the directors of a rail-/ A<»^ wa}' compan}' were to enter into a contract under the seal of the Com4^'**''^^>' pany for the purchase of a large quantity of iron rails and to pay for them at a fixed price, as the vendor had reasonable ground for suppos- ing that the rails were wanted for the purpose of the railroad, it would be no defence to an action for the price, or for not accepting them, that the rails were illegally purchased on speculation, to be resold by the directors for their own profit. But suppose that the directors of a railway company should purchase a thousand gross of green spectacles, as a speculation, and should put the seal of the Company to a deed covenanting to pa}' for these goods, here would be a clear excess of authority on the part of the directors ; this excess^ of authority woul d necessarily be known to the covenantee ; and, he being in pari delicto, I conTielve that the maxim would apply potior est conditio possidentis. This would be an illegal contract to misapply the funds of the Com- pany ; and the illegality might be set up as a defpnce. Sji^jf^jwithout, any consideration whatever, the directors of a railway company wejie to pu t the Company's seal to a deed covenanting to pay a mere stranger 1000^., this would be ultra vires, to the knowledge of the covenaiitee, and he could not maintain an action to recover the 1000/. fiom the funds of the Company in fraud of the shareholders. When the exc ess oTliuthority, with the knowledge of both parties, is shewn by plea, this joint violation of the law, I aj2prchend, is a bar to the action. It has been contended, I am aware, that the deeds of such companies are to be treated like the deeds of individuals or of common partner- ships. But there seems to be an essential distinction between them. The individual may do what he likes with liis own ; and he may bind liimsclf by a deed disposing of his property, however capriciously, and without any consideration, so that no fraud has been practised upon him. In such a case, want of consideration is immaterial ; no one is injured ; and there is no illegality to be pleaded. '' To look upon AMERICAN NATIONAL BANK V. AMERICAN WOOD PAPER CO. 339 a railway companj'," says Lord Langdale^ in Colman v. Eastern Counties Huilway Company^ 10 Beav. 1, 14, "in the light of a com- mon partnership, and as subject to no greater vigilance than common partnerships are, would, I think, be greatly to mistake the functions which they perform, and the powers which they exercise of interference, not only with the public, but with the private rights of all individuals in this realm. We are to look to these powers as given to them, in consideration of a benefit which, notwithstanding all other sacrifices, it is to be presumed and hoped, on the whole, will be obtained by the public;" "and I am clearly of opinion, that the powers which are given by an Act of ParUament like that now in question, extend no farther than is expressly stated in the Act, or is necessarily and prop- erl}- required for carrying into effect the undertaking and works which the Act has expressly sanctioned." The same learned Judge, in answer to an argument that the directors may apply the funds of the Company as the}" please, so that their object is to increase the traffic upon the railway, and thereby to increase the profits of the share- hoklers, exclaims, "surely that has no where been stated; there is no authority for saying anj' thing of that kind." ^ " Unless acts so done can be proved to be in conformity with the powers given b}' the stat- utes under which those Acts are done, they furnish no authority whatever." The equity reports abound with cases in which injunctions have been granted against the application of the funds of such companies to pur- poses not authorized by the Acts of Parliament creating them, although professedly for the benefit of the shareholders : and I apprehend that a contract, against the performance of which an injunction would be granted in equity, must be considered illegal and void at law, on proof that, to the knowledge of both parties, it is beyond the power of The' director s, and lea ds to^a misa pplicatio n of the Tunds of the Company. y^^ J.^/j: AMERICAN NAT. BANK v. AMERIC^ \H^OOD PAPER Q(^\) \f 1895. 19 Rhode Island, 139F ^T VjA 'V 'A Debt on bond. Certified from the Common Pleas Division on murrer to the declaration. y Plaintiff sues as purchaser and bearer of certain coupon bonds, issued'' by the defendant corporation under its corporate seal, payable to the 1 This citation is from the judgment as reported in 16 Z. J. N. S. Chancery, 78. The passage in the judgment as reported in 10 Beav. p. 15, is to the same effect, but not in the same language. 2 Statements abridged. . Part of opinion omitted. — Ed. ri ^ 340 AMERICAN NATIONAL BANK V. AMERICAN WOOD PAPER CO. -f /} ' - Girard Life Insurance, Annuity and Trust Company, or bearer, or in ^ \j,, ^ case of registry to the registered owner. (\ )* '1% 7^*^ .^Richard B. Comstock S Rathhone Gardner^ for plaintiff. /^ s.«^ t' P'' lI^ Arnold Green & James T'dlmghast^ for defendant. \/J^,, ^ (^ Stiness, J. Tlie plaintiff sues to recover the principal and interest A^l ^^ due on certain bonds and coupons issued by the defendant May 1, v^ *^ A. D. 1890, and payable May 1, 1900, or sooner after five years. The (iA^, ^ ■• bonds are secured by a mortgage of all the defendant's property, in the State of Pennsylvania, given to a trustee for the bondholders, in which j^ it is provided that in case of default in the payment of interest for more -X than six months, the principal of said bonds shall be due and payable. '^ The declaration sets out the bonds and mortgage, profert of which is made, and alleges default in payment of interest for more than six .^ontlis after demand made therefor. The defendant demurs to the ^y»/^^declaration, upon several grounds ; but the two grounds pressed in the argument are that the bonds are not negotiable so as to give the plain- tiff a right of action in its own name, and that the terms of the mort- gage cannot be imported into the bonds so as to give'a right of action for the principal thereof before maturity. AV e think t hat the bonds must be treated as negotiab jp. Rpp.nn't. ips. "While there has been^some drversTty of opinion upon this subject, the tendenc}' of recent decisions and the weight of authority and reason seem now to be in favor of negotiabilit}-. At first, before such bonds had become common, courts naturally held that they lacked the tech- nical and established characteristics of negotiable instruments. Thus, in Crouch v. The Credit Fonder, L. R. 8 Q. B. 374 (1873), it was held that the contract embodied in similar bonds prevented them from being promissory notes, even if they had been without a seal, and that the custom to treat them as negotiable, being of recent origin, could not attach as incident to a contract contrary to the general law. But in Goodwin v. Robarts, L. R. 10 Exch. 337 (1875), the court, by Cock- burn, C. J., does not concur in thinking the latter ground conclusive. In the recent case Venahles v. Baring, L. R. 3 Ch. Div. 527 (1892), American railroad bonds, upon the evidence of an American lawj-er as to their negotiability in this country, were held to have acquired in England, in the city of London, among English merchants, the char- acter of negotiability. Notwithstanding the limitations of this decision we think it may be taken as practically settling tlie rule in England. See also In re Imperial Land Co., L. R. 11 Eq. Cas. 478. In this country the decisions have been quite explicit. The principle on which tliey rest was well stated by INIr. Justice Grier, in Mercer County v. Ilachit, 1 Wall. 83 (1863), as follows: "This species of bonds is a modern invention, intended to pass by manual delivery and to have the qualities of negotiable paper ; and their value depends mainl}' upon this character. Being issued b3' States and corporations they are necessarily under seal. But there is nothing immoral or contrary to good policy in making them negotiable, if the AMEEICAN NATIONAL BANK V. AMERICAN WOOD PAPER CO. 341 necessity of commerce require that they should be so. A mere tech- nical dogma of the courts of common law cannot prohibit the commer- cial world from inventing or using any species of security not known in the last century. Usage of trade and commerce are acknowledged by courts as part of the common law, although they may have been un- known to Bracton or Blackstone. And this malleability to suit the necessities and usages of the mercantile and commercial world is one of the most valuable characteristics of the common law. When a cor- poration covenants to pay to bearer and gives a bond with negotiable qualities, and bj' this means obtains funds for the accomplishment ot the useful enterprises of the daj^, it cannot be allowed to evade the paj-- ment b}- parading some obsolete judicial decision that a bond, for some technical reason, cannot be made payable to bearer. T hat t hese secu- rities _are.txeated 51S negotiable by the commercial usages of j,he w hole civilized wo rl d and ha ve received the sancfions of judicial reco gnition, not only injthi s cou rt {TFA j^g v. Ve rmont R. E., 21 How. 575)^bjitjif nea rly every State in \be Union, is well known and admitted." After this strong statement it is needless to say more, except to refer to a few cases to the same effect. Kneeland v. Laun-ence, 140 U. S. 209 ; Chicago Railway Co. v. Merchants^ Bank, 136 U. S. 268 ; DeHass v. Roberts, 59 Fed. Rep. 853 ; Reid v. Bank of Mobile, 70 Ala. 199 ; National Exchange Bank v. Hartford, Prov. & Fishkill R. R. Co., 8 R. I. 375 ; 1 Randolph on Commercial Paper, § 74, note 1, and cases cited. It is true that some States have statutes which declare bonds of this kind to be negotiable, (see 2 Amer. & Eng. Ency. of Law, 319), and the point is taken that it is not so in this State, since Pub. Stat. R. I. cap. 142, §§ 6, 7, relate only to promissory notes. We do not think, however, that this fact prevents us from holding these bonds to be negotiable. Such statutes are declaratory and remedial and are evidently not intended to exclude other forms of negotiable paper. Bonds of this sort are clearly within the intent of the statute to give a' title by delivery and a right of action to the holder of negotiable paper, and the bonds in effect are promissory notes. The special provisions contained therein are not such as to deprive them of their fundamental character of a promise to pay at a certain time. These bonds are not given as collateral to a note secured bj' mortgage, but the mortgage is securit}' for the bonds themselves. Riker v. Sjtrague Manuf. Co., 14 R. I. 402. See Costello v. Crowell, 127 Mass. 293, and 134 Mass. 280. [Omitting opinion on remaining point.] Our conclusion is that tlie demurrer to the negotiability of the bonds must be overruled, and the demurrer to the statements of the plaintiffs present right of action must be sustained. ^)/o(\f Jt^ 342 GAS , ^- . e' ^ (^ ysft);^is(&^«). Wilder gas co. ^'^-^^v*^'^ ^^"l^-^ ^:!:< 91 Maine,, 492.1 WiSWELL, J. '5- i>^' This action is to recover tlie purchase price of cer- tain materials furnished by the plaintiffs for the construction of a gas plant at Eockland. The defendant denied that it had ordered the goods, or received them, or that it had any connection whatever with the construction of the gas plant. For the purpose of showing that the defendant did construct this plant, and that it received and used these articles in the construction, ^>4he plaintiffs were allowed to introduce in evidence, against the de- fendant's objection, a written instrument which purported to be exe- cuted by the defendant corporation and which provided for the con- struction of the plant. The attestation clause and form of execution were as follows : — "In witness whereof, said Wilder Gas Company by the hands of its chairman of the executive committee, Luke A. ^ • " n'J>^^ caT^^^^^^®^' thereunto duly authorized, has hereunto set its corporate name ' f^>^ I jl)i^ and affixed its corporate seal, and said Knox Gas and Electric Com- //^* jJ T j/t^ pany by the hand of A. D. Bird, its Treasurer, thereunto duly author- *^'^ ^ ^ ized, has set its corporate name and affixed its corporate seal the year and day above written. The Wilder Gas Co., by Luke A. Wilder, Chairman of Executive Committee (L. S.) Knox Gas & Elec. Co., by A. D. Bird, Treas. (L. S.) " Objection was made to the introduction of this instrument upon two grounds : because it was not a contract between the parties to the suit, and^ecause there was no evidence showing that the contract had been authorized by the defendant corporation^ We have no doubt that a contract between the defendant and the owner of the plant, if shown by colnpetent testimony to have been authorized by the defendant, was admissible in evidence for the purpose for which it was introduced. But was there any evidence showing that this instrument was the contract of the defendant ? The signature of Luke A. Wilder, and the fact that at the time he was a member of the board of directors and of the executive committee of the deferidant corporation, were proved and admitted; but there was no evidence by record or other- wise, outside of the instrument itself, and the fact that it bore the corporate seal, that._the contract was ever authorized by the corpora- tionj__pr that Wilder had aut hority to execute this contract or contracts of thi s_general description, or that the executive committee or aify member ther eof- had any authority to make contracts of this nature. Some cases and text writers have laid down the rule that the pre- sence of the corporate seal upon an instrument that jmrports to be the contract of a corporation gives rise to a prima facie presumption that it was affixed by proper authority ; while others very materially limit 1 Statement and arguments omitted. — Ed. (O^ ;>^^ MORRISON V. WILDER GAS CO. 343 the rule by saying, that when the seal is affixed by a proper official, in the line of his authority, it is evidence of the assent and act of the corporation. Here the only proof was that Wilder was a director and member of the executive committee. But a director, as such, has no authority to make contracts for his corporation. He may of course have such au- thority, — it may be either express or implied, and it may be shown by record or parol, — but it does not follow that he had, merely from the fact'of his being a director. It is a familiar rule, which requires^ no citation of authority, that directors of a corporation, as such, have / no implied authority to act singly ; they can only act as a board, un-/ less there be an express or implied delegation of authority to act in^ dividually. So far as this case shows, Wilder had no such authority; he was not the proper official, either to sign the corporate name or to affix the corporate seal ; it was not within the line of his authority. We can see no reason why the presence of a corporate seal, which does not appear to have been affixed by one having authority, or by a proper official in the general line of his authority, should be even prima facie evidence that a contract, signed and sealed by a person, who, so far as the case shows, had no authority to make or execute this or such a contract, was the contract of the corporation. We very much prefer the doctrine laid down by Mr. Morawetz in his work on Private Corporations. We quote from that work a por- tion of section 340 : " It has sometimes been said, that, if the seal of a corporation appears to be affixed to an instrument, the presumption is that it was rightfully affixed, — that the seal is itself prima facie evidence that it was affixed by the proper authority. The meaning of these statements is not perfectly clear. The seal of a corporation cer- tainly has no mysterious virtue not possessed by other seals ; and a contract under seal executed by the agents of a corporation is subject to the same rules of evidence, and of law, as a similar contract exe- cuted by the agents of an individual. In order to prove the execution of a contract purporting to have been executed under the corporate seal, two facts must be shown. First, it must be shown that the agents by whom the contract purports to have been executed were in fact agents of the corporation, having authority to execute the con- tract in question, or contracts of that general description ; and, sec- ondly, it must be shown that the signatures are genuine, or, in other words, that these agents did actually execute that particular contract. The mere circumstance that a seal was affixed to the contract would evidently not tend to establish either one of these facts." Here there was sufficient evidence that Wilder executed the contract \C^ in the name of the corporation and affixed thereto the corporate seal. There was no evidence whatever that he had any authority, express or implied, to execute this contract, or contracts of this nature, or any contract whatsoever for the defendant corporation. We think therefore, that the instrument was improperly admitted. Exceptions, sustained. /^ plaintiffs acquired by their subsequent purchase in October. ^/^^ ^. "X?" ^ On April 29, 1865, at a stockholders' meeting, afwhich all the stock- ^\. ^' *_ i'^ holders were present, a resolution was unanimously adopted authoriz- '""^ ing Turner, Willis, and Hodges, Trustees of the corporation, for and ^-^ ^ 'fc,^ ^^ behalf of the corporation, to sell and convey the mine to Barney. V"*^ fi^^^^^^ (ij^ In pursuance of said resolution, and without any other authority V- ^^^ \yS-^' shown, a conveyance was executed to Barney, on June 5, by said / ^ \y^'^ Trustees, purporting to be the deed of the corporation. The deed was , » (5.' signed by the Trustees, for and on behalf of the corporation; the -- Trustees afi&xing their own seals, "the said corporation having no seal." On the trial, after proving the adoption of the resolution, plaintiffs offered in evidence the said deed of June 6, which was excluded by the court. To this exclusion, the plaintiffs excepted, and the case came up on appeal. 11. P. Barber, and James H. Hardy, for Appellants. John B. Hall, and Caleb Dorsey, for Eespondents. Sawyer, J. . . . Under the view we take, it will only be necessary to consider the t, 1 Statement abridged. Argument and parts of opinion omitted. — Ed. GASHWILER V. WILLIS. 345 first ground of the objection, and the question is, does the instrument in question appear to be the act or deed of the corporation ? We are not aware of anything in the law, independent of any authority expressly conferred by the corporation, which authorizes Turner, Willis and Hodges, in their official character as Trustees, to execute the instrument in question on behalf of the corporation. No law of the kind has been called to our attention, and we do not under- stand that any is claimed by appellants' counsel to exist. And there is nothing in the nature of those ofiices, as connected with the ob- ject and business of the company, from which a general power in the Trustees, when not acting as a Board, to sell and convey the mine, mill and other property of the company, could be implied. {McCul- lough v. Moss, 5 Den. 575.) The parties executing the instrument, then, if they had any authority in the premises, must have derived it from some corporate act ; and the only act proved or relied on is the resolution adopted at the stockholders' meeting before mentioned. This was a meeting of the stockholders only. It was called as such, and the proceedings all appear to have been conducted as a stock- holders' meeting. The resolution authorizing the sale and convey- ance of the mine, etc., in question, was adopted by the stockholders, as such, at said meeting, and not by the Board of Trustees, or at any meeting of said Board. The Board of Trustees do not appear to have ever acted at all upon the matter in the character of a Board, but the testimony shows that they acted in pursuance of the said resolution adopted at the meeting of stockholders. Section five of the Act authorizing the formation of corporations for mining purposes provides : " That the corporate powers of the*\ corporation shall be exercised by a Board of not less than three Trus- , tees, who shall be stockholders," etc. And section seven provides '^V that: "A majority of the whole number of Trustees shall form a Board for the transaction of business, and every decision of a ma- jority of the persons duly assembled as a Board shall be valid as a corporate act." (Laws 1853, p. 88, Sec. 5; 7 Hittell's Gen. Laws, Arts. 936, 938.) Conferring authority to sell and convey the corpo*-^ rate property is the exercise of a corporate power, and under these 1 provisions the " corporate powers of the corporation " are to be u exercised by the Board of Trustees when the majority are " duly assembled as a Board." When thus assembled and acting the decision f, ' t of the majority " shall be valid as a corporate act." We find nothing J^ in the Act authorizing the stockholders, either individually or collec- tively in a stockholders' meeting, to perform corporate acts of the character in question. The property in question was the property of the artificial being created by the statute. The whole title was in the' corporation. The stockholders were not in their individual capacities owners of the property as tenants in common, joint tenants, copart- ners or otherwise. (^Gorham v. Gilson, 28 Cal. 484 ; Mickles vT 346 GASHWILER V. WILLIS. Rochester City Bank, 11 Paige, 128.) This proposition is so plain that no citation of authorities is needed. Had the stockholders all executed a deed to the property, they could have conveyed no title, for the reason that it was not in them ( Wheelock v. Moulton et al., 15 Vt. 521) ; and what they could not do themselves they could not by resolution or otherwise authorize another to do for them. Thecor- poration_coul d only a ct — could only speak —^through the medium prescribed Jjy law, andl;hat is its Board of Trustees. As well might tHe^citizens of San Francisco in public meeting assembled, by unani- mous resolution authorize certain Supervisors, designated by name, to sell and convey the City Hall. It is said, however, that the Trustees were also all present and participated in the proceedings at the stock- holders' meeting and assented to the resolution ; that the resolution therefore was approved by all of the constituents of the corporation, and the powers of the corporation were exhaustively exercised. But they were acting in their individual characters as stockholders, and not as a Board of Trustees. In this character they were not author- ized to perform a corporate act of the kind in question. As well, also, might a valid ordinance be passed by the citizens of San Fran- cisco in public meeting assembled, at which the Supervisors were all present and voted in the affirmative. Such an ordinance, when signed by the Mayor, would have the assent of all the constituents of the corporation as clearly as the resolution in question has in the present instance. But such is not the mode in which the corporation is authorized by the law of its creation to manifest its will and exercise its corporate powers. The power to sell and convey could only be conferred by the Trustees when assembled and acting as a Board. IThis is the mode prescribed. As a Board they could perform valid jcorporate acts, and confer authority within the province of their /powers, upon the Trustees individually or upon any other parties to .perform acts as the agents of the corporation. We are not without lauthorities upon this precise point. In Conro v. Port Henry Iron Company, 12 "Barb. 27, the same ql^es- tion arose. A lease of the company's iron works was made in pursu- ance of a resolution adopted at a meeting of the stockholders at which the Directors were present. It was held that the resolution imparted no authority to make the lease. The Court say : " The stockholders in this case had no power to make a lease or do any other adminis- trative act in the management of the affairs of the corporation. If a lease could be made at all, it could be executed only in pursuance of the act of the Directors, who are the body appointed by the charter for the management of its affairs. It is no answer that the individual stockholders, who were present at the meeting when the lease was ordered, were also Directors. They did not meet as Directors, but as stockholders. The Mayor and Common Council of a municipal cor- poration can only act in the manner prescribed by law. When not acting in their official character and in the mode prescribed by law, GASHWILER V. WILLIS. ti^l their acts are no more binding than those of other private citizens. (See, per Lord Mansfield, Bex v. I[ead,.4: Burr. 2,515, 2,521.) " (lb. 63.) [After commenting on various cases.] These cases are in point, and none to the contrary have been called to our attention. They a^ the necessary consequence of the prin ciples es tablished_by_the great body of the^xitliorities, that the corporate powers of corporations can onl j be exercisedTih th e mode and throug h_the instr umentalities pre - scribed by th eir charters. In this case, the resolution adopted by the stockholders was not a corporate act, and it conferred on the three Trustees named — whether they constituted the whole number of Trustees does not appear — no authority to perform a corporate act, to execute the deed, or adopt a seal for the occasion. It not only does not appear, then, that the instrument in question is the act or deed of the corporation, but it affirmatively appears that it was ex- ecuted in pursuance of a resolution that conferred no authority whatever to perform a corporate act; for the plaintiffs themselves introduced in evidence the authority under which they claimed the act to have been performed, and upon which they relied. Having done this, we are not at liberty to indulge the presumption that the parties executing the deed on behalf of the corporation were other- wise duly authorized. The authority acted upon is affirmatively shown, and this fails. We think the deed properly excluded. But even if it had been admitted without further proof of the authority of the parties to execute it, it would not have availed the plaintiffs. As there does not appear to have been any authoritj' in the parties assum- ing to act, to sell or convey at all, it is unnecessary to discuss the other questions. .Judgment affirmed. Mr. J'ustice Rhodes did not express an opinion. By the Court, Sawyer, J., on petition for rehearing : 'The consequences assumed as the only basis of the argument in the petition for rehearing do not follow from anything determined or in any way suggested in the opinion in this case. We have nowhere held, or even intimated, that the Board of Trustees of a corporation can convey all the property of the corporation necessary to enable it to carry on the business for which it was organized, or do anything else destructive of the objects of its creation without the consent of its stockholders. We have not even held that it was competent for the Truste es, acting as a_ board, to^Hthbrize^ the conveyance^ gro p^erty now in_ question without the consent of the stockholders. There was no such question in the case. We simply held that the) ^ stoc khold ers t hemselves cou ld not authorize the Trustees, acti ng as j individual Tru stees, or an ybodsijelse,^ to convey it;^^ that nobody] could conve y it unless auth orized by jome act of_the^gardof Trus-J tees, acting'as a Boaivd. It may be conceded for the purposes of this* case thaFthe~Board of Trustees itself could not authorize a convey 348 ELLERMAN V. CHICAGO JUNCTION R. CO. auce of the i^roperty in question without the consent of the stock- holders. But it is unnecessary to consider that question, for the case does not present or even suggest it. It will be time enough to decide that question when it arises. Eehearing denied. EN, V. C, IN ELLERMAN v. CHICAGO JUNCTION E. CO. /■^ 1891. 49 Ntw Jersey Equity, 219, pp. 231-233. ly^ tf s (T 1^ Green, Vice-Chancellor. The bill is filed by a stockholder in ,1 , jX^ t/ behalf of himself and any other applying stockholders against the jtv V* -y^ corporation to prevent its carrying a contract, made by the directors, */" ' -.g^ 1p "tr^^L-into execution, on the ground that the same is not legally within the jC^ (s^ // jj-^ powers conferred by its charter. No question is raised as to the *' ' y/ validity of the organization, or the legality of the purposes stated in the certificate of incorporation as not contemplated by the Corpora- tion act, if, indeed, such questions could be raised by a private person in this court. National Docks Co. v. Central It. JR. Co., 5 Stew. Eq. lC)0 ; Elizahetlitoivn Gas Light Co. v. Green, 1 Dick. Ch. Rep. 118. He appeals not through or by the attorney-general, but bases his claim for relief solely upon his ownership of certain shares of the stock of the Junction Company. The theory of the suit is, that the agreement will be an injury, primarily, to the company and, in- cidentally, to him as a stockholder ; that appeal to the present direc- ^^'^ L. " tors to protect the company and stockholders will be futile, as they y'-r^ ^ have decided otherwise, and, therefore, he asks to be permitted to V. "^ ii act for himself and others in like position. The only damages with which complainant, as a stockholder, can be threatened are to the security of his investment, and to the dividends he expects to receive — whether the latter is imminent depends mainly upon the probable results of the arrangement challenged, as a business operation. As a holder of preferred stock, his fixed yearly dividend is secured by the articles of incorporation, while the dividend on his common stock must depend on the success of the business and the action of the directors, for such dividends may be lawfully dimin- ished if the diversion of the same be for a purpose which is within the corporate powers, unless the non-declaration of them be in fraud of the rights of the stockholders. Beach Corp. p. 601. Nor is his right to challenge action which he may deem dangerous to his investment absolute. Individual stockholders cannot questio n, in j udicial proceedings^ thercorporate acfs of directo rs, ifthe^ same are within the powers of the corporation, and, in furtherance of its purposes, are not unlawful or against good ja orals, and arfTHone^i n good t'arth and in the exercise of a n honest judgment. Q uestion s oF policy of management, of expediency of contracts oraction^of "n f^ K HOYT V. THOMPSON'S EXECUTOR. 349 adequa cy qf^ consideration not grossly disproportionatCj of l awful agpropr iation of corjDorate funds to advance corporate inter ests, are left solely to the honest decision oT the directors if their powers are without liimtation_andiree from restraint. To hold otherwise would be to substitute the jud gment and discretion of othersjn the place of thos e determine d on by the scheme of incorporation. Park v. Grant Locomotive Works, 13 Steiu. Eq. 114 ; affirmed, 18 Steiv. Eq. 244 ; Elkins V. Camden and Atlantic R. R. Co., 9 Stew. Eq. 241 ; Rutland and B. R. Co. v. Proctor, 29 Vt. 93 ; Morawetz Corp. § 243 ; Beach Corp. p. 388. By the Corporation act {Rev. p. 177 § 1 If 6) power is given to cor- porations to make by-laws for the regulation and government of its affairs. By the by-laws of the Junction Company, article 2, section 1, it is provided that the business of the company shall be managed and con- ducted by a board of ten directors. The bill alleges that the board of directors of the Junction Com- pany did, by a resolution, order and direct the execution of the con- tract in question, and the answer of the company states that each and every director of the company has voted in favor of the agreement as being for the best interests of the company. The agreement, then, has the unanimous sanction of the board of directors, to whose judgment and determination the management and control of the affairs of the company has been entrusted without restriction. [The court held, that the covenants entered into by the company in this contract " are referable to the objects stated in their certificate * - of incorporation or to power^ incident to the corporation, and are au-^^-f i^u^^ '^ thorized by its charter."]/ ,-\ , Ap' ^/ < k^^^^^o^ 6~^ ^i^^* e/?^^/^o4j;Ptj^^ EXECUTOR i<-^ ^^y*^ U rd>{% CoMSTOCK, J. . . . The precise point in controversy is, whether the^^'/Hnvz/t-'^w^f -y "^ plaintiff or one Abraham G. Thompson became entitled to a bond and \s>K.*,Jii^^ ^ -^ £y^4''t mortgage of $G0,000, executed in November, 1839, by the Long Island ■^ _ , • ^^ Railroad Company, a corporation chartered by this State, to the^ f^ Morris Canal and Banking Company. The last mentioned company^ ^f --^fl-^7*'. v*^^f^ was a New Jerse}'' corporation, and held and owned this security until ^ ,^ L, ♦ ^ December 9, 1840, when an assignment of it was made to the State of ^ _ zv fkjhit, Michigan. Thompson claimed title and acquired possession of the^^*^ ^^ T^ security under this transfer, having purchased it at auction from the'-^'^ unw *♦ ^-^ agent of Michigan, in May, 1843. The plaintiff claims under a trans- -^.c^^*-^^*-^ ** ^ fer, junior in point of time, made to one Sanxay his immediate as- L^^^Jt-^'C**-** i-J*^*^ 1 Only part of the report is given. —Ed. -^ ^ '^ >(xri^>v/» /?vj^ h^lVj*i ^ -i/" K 354 HUTCHINSON V. GREEN. there is an answer. In the first place, we think the exception takes much too limited and strict a view of the powers of bank direc- tors. A board of directors of the banks of Massachusetts is a body recoo-nized by law. By the by-laws of these corporations, and by a usage, so general and uniform as to be regarded as part of the law of the land, they have the general superintendence and active manage ment of all the concerns of the bank, and constitute, to all purposes of dealing with others, the corporation. We think they do not exer- cise a delegated authority, in the sense in which the rule applies to agents and attorneys, who exercise the powers especially conferred fon them and no others. We think, therefore, that a board of direc- jtors may delegate an authority to a committee of their own number, [to alienate or mortgage real estate; that an authority to convey necessarily implies an authority to execute suitable and proper instru- I ments for that purpose ; and, in case of a corporation, to affix the [corporate seal to an instr|iment requiring it.^ IN HUTCHINSON v. GREEN. ^iF JU J* / 1886. 91 Missouri, 367, pp. 375, 376. Black, J\ ... It is further insisted that the board of directors had no power to make the assignment without the consent of the stock- holders. A corporation may, like an individual, make an assignment nder the statute of this state relating to voluntary assignments. Shockley v. Fisher, 75 Mo. 498. By whom, then, is the power to be exercised ? By the directors, the stockholders, or by both ? Where the powers of a corporation are vested in a board of directors, they inay, unless restricted, d£ whatever the corporation might. Field on Corp., sees. 146 and 152. Now, while, by express statute, a vote of the stockholders of these corporations is essential to enable them to increase or diminish the stock, to change the business, to issue pre- ferred stock, and to convert bonds into stocks, still, in general, article 8, of chapter 21, Revised Statutes, contemplates that the business will be con€ucted by a board of directors. Section 930, among other things, provides that " the property or business of the corporation shall be conducted and managed by directors." Certain it is there is nothing in the statute under which this corporation was created, and by which it is governed, or in its articles of association, or bylaws, which limits or restricts the powers of the directors in the disposition of the pro- perty. The corporation then has the power to make an assignment, 1 Under a Massachusetts statute of subsequent date, no conveyance or mortgage of the real f»tat« of a corporation, or lease thereof for more than one year, shall be made "unless authorized bj' a vote of the stockholders at a meeting called for the purpose." Pub. Sti. ch. 100, 8. 23. — Ed. CHICAGO CITY RAILWAY CO. V. ALLEKTON. 355 and that power being vested in the directors without restriction^t/ must foll ow that they, and they alone, are authorized to_make_rL Itl isjthe_dutyjof the directors to care for the creditors, ajid when thei corporation becomes crippled and unable to meet its obligations in theT/l usual course of business, it is competent for the directors to make an( assignment, and this they may do without the consent of the stock! holders^ This conclusion has the support of adjudications of this ana other courts. Chew v. Ellingxvood, 86 Mo. 260 ; Dana v. The Bank oj- the United States, 5 W. & S. (Pa.) 223 ; DeCamp v. Alward, 52 Ind. 473. The directors may, with propriety, consult with the stockhold- ers, but under the circumstances just stated, and in the exercise of their best judgment, they may make the assignment even against the expressed will of the stockholders. Of the cases relied upon by the appellants, that of Abbott v. American Hard Rubber Co., 33 Barb. 580, was not an assignment for the benefit of creditors. There the trus- tees attempted, through the form of a sale, to secure to themselves the property of the corporation at the expense of the other stockhold- ers. The sale was voidable, as to the stockholders not consenting, though a majority agreed to the transaction. — ^i^ CHICAGO CITY KAILWAY COMPANY v. ALLERTONC^^ ^rt?^^ ^^^X' 1873. 1% Wallace {U. S.), 2^Z. Kr^^ '^"It^^'^'^^t/^ [i^ Appeal from the Circuit Court for the northern district pf^ 111!- ^'^ ^" f^(^- nois ; the case being thus : '^yi^i;'> o^/»^ - .'^ J^^J^ j The Chicago City Railway Company was a corporation owning JT^ ^-^^ ^^^T j street railroad in Chicago. The directors of the company, without'*^*'^^tV^ i^ consulting the stockholders or calling a meeting of them, resolved tO(^ increase the capital stock of the company from $1,250,000 to $1,500,- ^ \r^ f SECTION II. /rr- of C(gr^>«'■ a-»^ i/^ Upon a careful examination of the record and paper-books, which r JB ^'-IjU^ make up nine hundred and sixty-six printed octavo pages, we have ' , come to the following conclusions of fact, which are supported also '**^by the Opinion of the Master. First, That no fraudulent conduct is o^*"^^ ^^ im|i»f^le to any one of the defendants, at any period of time during "^r'^^JJX^^eir administration of the trust. No pecuniary advantage, to the ^^t^ it^ - amount of a dollar, was ever realized or sought by any one of them. 1/^^} P'v^- \ There was no embezzlement or misappropriation of the funds by any / ' f^ ^^^^''*^\>^ officer or agent of the corporation. There is no pretence that the ^^ "fJ^ '*V^^-^ef endants are liable to account upon either of these grounds. " One /) 1^^ [jj^ p ' ,^act," says the Master, "is quite clear — that none of the defendants P^ T ,^('^^*-^,;jU(y^^"ha.re made any profit out of their transactions which was not common t^^^ ^ '^ to all the stockholders." Second, That in regard to investments, and ^t-f^t^^ r^P^^t/^. -/--the mode of transacting the business — the legality of which under A^^ r ♦-^^"^..A^^ ^^ charter is questioned — the defendants uniformly acted under fi,»^\ tA (l^ legal advice. '* It appears in the evidence," says the report, " that ^/-.^ (l^ "f ^}^g defendants always acted upon legal advice, as to the mode of JTi.'^ (_-«-^'^^ '^''^ doing business and making investments. No important step was ever ft > \ if^^ taken without first obtaining the advice of the solicitor." Third, '^^'i i/*'^^''^ Looking at the history of the institution in the light of subsequent H^ J'^^'^ events, its direction was unwise and unfortunate. The money of the ' y- \ , r^* v^epositors was not invested in first-rate and perfectly safe securities, -|j' ^\^i.^ ^s they engaged to do, and as the fu«ds of such a charity unques- A* X^ ji.^ tionably ought to be. Loans were largely made upon very doubt- ijU ^ Ijl^ ft A' See later chapters for cases as to the right of stockholders or creditors to maintain ■ ^ ""^ iWuilN, in their own names, against directors for alleged mismanagement. fy / {\j^/^' jbaST' Important questions have arisen as to the construction and operation of statutes which rt i^ I L/^ L/<^ inifiose lial)ilitiea upon directors. But the statutory liability of directors is not one of the ^r^ t\X> klA^ topics specifically dealt with in this work. — Ed. 2 Statement omitted. — Ed. SPEEING S APPEAL. 359 ful collaterals. Their investments in real estate were injudicious. They lost from a failure to insure. They sought to realize large pro- fits at usurious rates of interest. The crash came in 1860, just before the breaking out of the civil war. All doubtful securities fell in the market. Their debtors went to the wall. In the vain attempt to sus- tain their credit they sacrificed securities and collaterals. Had they stopped and made an assignment at once, a large amount of the loss which subsequently fell upon them would undoubtedly have been prevented. The story might be much amplified by entering into a detail of particulars : but the conclusion would be the same. Such is a brief resume of the facts. It is not the history of this institu- tion alone, but of many others in this country. The broad question then is, whether upon such a state of facts, the f directors of a corporation can be made to account for losses arising/ from mismanagement merely. 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 man- datories — persons^ who have gratuitously undert aken to p erform c_er- tjin .duties, and who are thereforejbound to a pply ordina ry skill and diligence, but no more. Indeed, as the directors are themselves stock- holders, interested as well as all others that the affairs and business of the corporation should be successful, when we ascertain and deter- mine that tliey 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 judgment and skill. OugM._they_to be held r esponsible for mistakes of judginent or want of skill and knowledg e ? They have been requested by their co-stockholders to take their positions, and they have given their services without compen- sation. Wea re dealin g now wit h their responsibility to_stockholders, not to outs ide partie s — c^ditors_and depositors. It is unnecessary to consider what the rule may be as to them. Upon a close examina- tion 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 person- ally guilty of some fraud on the corporation, or have known and con- nived at some fraud in others, or where such fraud might have been 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 direct- ors personally liable. But it is^evident that^enilemen elected by the st ockholders from tEelr own body ought not to be judged by the same strict sta ndard a s^the jgent or trustee^fji^gnvatejestate. Were r-j ^ 360 spering's appeal. such a rule applied, no gentlemen of character and responsibility would be found willing to accept such places. The authorities I think fully endorse these views. The leading case is The Charitable Corporation v. Sutton, 2 Atk. 400, which was treated by Lord Hardwicke as a case of fraud entirely. Five of the managers or committee-men entered into a confederacy to loan out money to their own storekeeper, upon whom was devolved the duty of putting an estimate upon the value of the pledges ; the others connived at the fraud. " It is such a notorious fraud or at least gross inattention," said the Lord Chancellor, "to suffer him, who was to set a value on all the pledges, to borrow money upon them himself, that I shall direct those who appear to be guilty of it to make good the loss. Committee-men are most properly agents to those who employ them in the trust and who empower them to direct and superintend the affairs of the corporation. If so m e pers o ns are guiltx of gross non-attendance and leave the management entirely to others, they may be guilty by this_ means of the b2eaches_of_tru^t tliat are committed by others." So accordingly in The York and Xorth Midland Railway Company v. Hudson, 16 Beavan 495, the chairman of a railway company appropriated unallotted shares to the use of various persons, whose names he did not mention, in order to secure or reward services which he declined to state, but which it was insinuated was in the nature of " secret service money ; " it was held that if the defendant had applied the property of the company in a manner which would not bear the light, he must suffer the conse- quences, and that being charged with the receipt of the money, he could not discharge himself by the suggestion of such an application. In Williams v. Page, 24 Beavan 661, Sir John Eomilly said, in treat- ing a director as a trustee : " The trust no doubt is a peculiar one." In Great Luxembourg Railway Co. v. Magnay, 25 Beavan 592, he held that if a director enters into a contract for the company he can- not personally derive any benefit from it. So also in Ex parte Ben- nett, 18 Beavan 339, directors of a public company are trustees for the shareholders, and their private interests must yield to their pub- lic duty wherever they are conflicting. In Turquard v. Marshall, 3 Equity (Law Rep.) 127, which is the last English case on the subject. Lord Eomilly, M. R., held directors liable, first, for not calling a meeting of the shareholders under a clause of the charter requiring tliem to do so, on the exhaustion of their surplus fund, and second, for loaning money to one of themselves without security. He used however this language : that if directors have been guilty of gross and palpable breach of trust, which cannot be set right by a public meeting of the company, they may be made responsible for their mis- conduct. On appeal, however, the decree of Lord Ilomilly, holding the directors personally liable, was reversed by Lord Chancellor Hatherley, 4 Chancery Appeals (Law Rep.) 386. He said : " There was no fraud alleged, nor was it alleged that the directors applied the spering's appeal. 361 funds of the company to their own use, or in any way except in what they thought was for the benefit of the company, however incorrect their course might have been." Then as to the loan to Higgins (the co-director) : " The statement of this in the bill was only as part of the general misconduct of the directors, and the loan was only men- tioned as one of the losses incurred. There was no specific allegation of any impropriety in lending the money to. him, nor was any specific relief prayed in this respect. It was within the powers of the deed to lend to a brother director, and however foolish the loan might have been, so long as it was within the powers of the directors, the court could not interfere and make them liable. They were intrusted with full powers of lending the money, and it was part of the business of the concern to trust people with money, and their trusting to an undue extent was not a matter with which they could be fixed, unless there was something more alleged, as, for instance, that it was done fraudulently and improperly and not merely by a default of judg- ment. "Whatever may have been the amount lent to anybody, how- ever ridiculous and absurd their conduct might seem, it was the misfortune of the company that they chose such unwise directors ; but as long as they kept within the powers of their deed, the court could not interfere with the discretion exercised by them." To pass now from the English to the A.merican cases : Koehler v. The Black River Falls Iron Co., 2 Black S. C. 715, was a case of fraud. Mr. Justice Davis said : " Instead of honestly endeavoring to effect a loan of money advantageously for the benefit of the corpora- tion, these directors, in violation of their duty and in betrayal of their trust, secured their own debts to the injury of the stockholders and creditors. Directors cannot thus deal with the important inter- ests intrusted to their management. They hold a place of trust, and by accepting the trust are obliged to execute it with fidelity, not for their own benefit, but for the common benefit of the stockholders of the corporation." In Scott v. Depeyster-, 1 Edw. Ch. Eep. 513, the object of the bill was to make the directors liable for money embezzled by their secretary on the ground of their negligence. So, in Robinson V. Smith, 3 Paige 222, the bill alleged that the directors had engaged in a gambling speculation in stocks, wholly unauthorized by the charter, which was carried on to subserve their own individual interests and purposes. On demurrer to the bill, it was of course held that the directors of a corporation, who wilfully abiise their trust or misapply the funds of the company by which a loss is sustained, are personally liable as trustees to make good that loss, and they are also liable if they suffer the corporate funds to be lost or wasted by gross negli- gence and inattention to the duties of their trust. In the same cate- gory is Taylor v. Miami Exporting Company, 5 Hammond (Ohio) 162 ; Verplanck v. Mercantile Insurance Co., 1 Edw. Ch. Eep. 84 ; Bank of St. Mary v. St. John, 25 Alab. N. S. 566 ; Butts v. Wood, 38 Barb. 181 : s. c. 37 New York 317. In The Franklin Fire Insurance Co. v. 4^ 362 speking's appeal. Jenkins 3 Wend. 130, which was an action on the case in which the declaration alleged against directors " want of cave and attention," and also ''corrupt and wilful mismanagement," a demurrer was sus- tained Sutherland, J., remarking : " These are very different allega- tions and require distinct and different answers." Lexington & Ohio Railroad Co. v. Bridge, 7 B. Monroe 556, was a bill by creditors against directors for making a dividend when no profits existed. " We are satisfied," say the court, " that if they were guilty of negligence to any extent it is not of that gross and palpable character that would render their conduct so reprehensible as to subject them to the impu- tation of a personal or even a legal fraud." In Godbold v. Branch Bank at Mohile, 11 Alab. 191, it was decided that the directors of a bank are not responsible for an injury to the bank caused by their act, originating in an error of judgment, unless the act be so grossly wrong as to warrant the imputation of fraud or the want of the ne- cessary knowledge for the performance of the duty assumed by them on accepting the agency. In Hodges v. Neiv England Screw Co., 1 Ehode Island 312, in dismissing the bill, Greene, C. J., observed : " It does not appear that the directors sought or secured to themselves any benefit or advantage which was not common to all the other stockholders of the Screw Company." See also Neall v. Hill, 16 Cali- fornia 145. It seems unnecessary to pursue this investigation any further. These citations, which might be multiplied, establish, as it seems to me, that while directors are personally responsible to the stockholders for any losses resulting from fraud, embezzlement or wilful miscon- duct or breach of trust for their own benefit and not for the benefit of the stockholders, for gross inattention and negligence by which such fraud or misconduct has been perpetrated 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 fairly within the scope of the powers and discretion confided to the managing body. "■ In regard to the question last adverted to, whether the defendants should be held responsible for any of their acts and investments as ultra vires, it might be sufficient to notice the fact that the charter of this corporation was a very complicated one, made up by comparing together no less than sixteen different acts of incorporation or supple- ments. The ingenuity of the young gentlemen of counsel for the defendants has been exercised in presenting to the court a genealogi- cal map or pedigree, tracing tlie Acts of Assembly, from one to an- other. To have mistaken the extent of their powers under such cir- cumstances would not have been matter of surprise even in the most timid and cautious. We may adopt upon this point the language of C. J. Greene in Hodges v. Neiv England Screw Co., 1 llhode Island 312. " In considering tho question of the personal responsibility of the directors we shall assume that they violated the charter of the HUN V. CAEY. 863 Screw Company. The question then will be, was such violation the result of mistake as to their powers, and if so did they fall into the mistake from want of proper care, such care as a man of ordi nary prudence practises in his own affairs. For, if the mistake be such as with proper care might have been avoided, they ought to be liable. If, on the other hand, the mistake be such as the direc ors might well make, notwithstanding the exercise of proper care and if they acted in good faith and for the benefit of the Screw Com pany, they ought not to be liable." We may say in this case, con- ceding that the directors did violate the charter, it was a question upon which with all due care they might have made an honest mis- take ; and moreover, it appears by the evidence, and is so reported, that they acted throughout by the advice of their counsel. It is well nettled that trustees will be protected from responsibility under such / circumstances : Lewin on Trusts 595 ; Vez v. Emery, 5 Ves. 141 Calhoun's Estate, 6 Watts 189. a^ i\ VM. {iDecfi,^hwrv(ied. V caey: Earl, J. This action was brought "'by the receiver of the Cen V //• ,V rf' tral Savings Bank of the city of New York, against the defendants, I 'X'" who were trustees of the bank, to recover damages which, it is al- 1 \ leged, they caused the bank by their misconduct as such trustees. ' O^ The^Jiigt questio n to be considered is t he m easure of fidelity, [jT^ c are and d iligence which such trustees owe to such a bank ami_ its depositors . The relation existing between the corporation and its trustees is mainly that of principal and agent, and the relation between the trustees and the depositors is similar to that of trus- tee and cestui que trust. The trustees are bound to observe the limits placed upon their powers in the charter, and if they tran- scend such limits and cause damage, they incur liability. If they act fraudulently or do a willful wrong, it is not doubted that they may be held for all the damage they cause to the bank or its de- positors. /But if the y act in good faith within the limits of powers conferred, ustrtg proper prudence and diligence, they are not re- sponsible for mere mistakes or errors of j^uclgment.) That the trustees of such corporations are bound to use some diligence in iftie discharge of their duties cannot be disputed. All the authorities hold so. What degree of care and diligence are they bound to exer- cise ? Not the highest degree, not such as a very- vigilant or ex- tremely careful person would exercise. If such were required, it 1 Statement and arguments omitted. — Ed. 364 HUN V. CART. would be difficult to find trustees who would incur the responsibil- ity of such trust positions. It would not be proper to answer the question by saying the lowest degree. Few persons would be will- in f^ to deposit money in savings banks, or to take stock in cor- porations, with the understanding that the trustees or directors were bound only to exercise slight care, such as inattentive persons would give to their own business, in the management of the large and im- portant interests committed to their hands. When one^depogjis money in a savings bank, or takes stock in a corporation, thus di- vesting himself of the immediate control of his property, he expects, and has the right to expect, that the trustees or dii-ectors, who are c liosen to take his_^a_ce_in the mana,gement and control of hisjpro- pei-ty, will exercise ordinary care and prudence in the trusj;s com- .mitted t^ them — the same degree of care and prudence that men prompted by self-interest generally exercise in their own^affairs. When one voluntarily takes the position of trustee or director of a corporation, good faith, exact justice, and public policy unite in re- quiring of him such a degree of care and prudence, and it is a gross breach of duty — crassa negligentia — not to bestow them. It is impossible to give the measure of culpable negligence for all cases, as the degree of care required depends upon the subjects to which it is to be applied. (First Nat. Bank v. Ocean Nat. Bank, 60 N. Y, 278.) What would be slight neglect in the care of a quantity of iron might be gross neglect in the care of a jewel. What would be slight neglect in the care exercised in the affairs of a turnpike cor- poration, or even of a manufactviring corporation, might be gross neglect in the care exercised in the management of a savings bank intrusted with the savings of a multitude of poor people, depend- ing for its life upon credit and liable to be wrecked by the breath of suspicion. There is a classification of negligence to be found in the books, not always of practical value and yet sometimes service- able, into slight negligence, gross negligence, and that degree of neg- ligence intermediate the two, attributed to the absence of ordinary care ; and the claim on behalf of these trustees is that they can only be held responsible in this action in consequence of gross negligence, according to this classification. If gross negligence be taken accord- ing to its ordinary meaning — as something nearly approaching fraud or bad faith — I cannot yield to this claim; and if there are any authorities upholding the claim, I emphatically dissent from them. It seems to me that it would be a monstrous proposition to hold that trustees, intrusted with the management of the property, inter- ests and business of other people, who divest themselves of the man- agement and confide in thorn, are bound to give only slight care to the duties of their trust, and are liable only in case of gross inatten- tion and negligence ; and I have found no authority fully upholding such a proposition. It is true that authorities are found which hold that trustees are liable only for crassa negligentia, which literally HUN V. GABY. 365 means gross negligence ; but that phrase has been defined to mean the absence of ordinary care and diligence adequate to the particular case. [The learned Judge here quoted from various authorities.] In Sperinr/s Appeal, Judge Siiarswood said that directors ''are not liable for mistakes of judgment, even though they may be so gross as to appear to us absurd and ridiculous, provided they were honest, and provided they are fairly within the scope of the powers and discretion confided to the managing body." As I understand this language, I cannot assent to it as properly defining to any ex- tent the nature of a director's responsibility. Like a mandatary^ to_ w hom he has been likened, he i s bound not only to exercise proper caje_anil_dili^encejJjutJordinary skill and judgment. As he is bound to exercise ordinary_skill and judgment, he cannot set up that~he did not possess them. When damage is caused by his want of judgment, h e cannot e xc use him self by^alleging his gross ignoranc^. One wlio^ vo luntari ly takes the position of director, and invites con fidence in t hat relationTlind ertakes, like a mandatary, with those whom he re- pres ents o r ^or whom he acts, that he possesses at least ordinary knowleclg^_and skilly and that he will bring them to bear in the dis- c harge of J iisjduties. (Story on Bailments, § 182.) Such is the rule applicable to public ofiicers, to professional men and to mechanics, and such is the rule which must be applicable to every person who undertakes to act for another in a situation or employment requiring skill and knowledge ; and it matters not that the service is to be rendered gratuitously. These defendants voluntarily took the posi- tion of trustees of the bank. They invited depositors to confide to them their savings, and to intrust the safe-keeping and management of them to their skill and prudence. They undertook not only that they would discharge their duties with proper care, but that they would exercise the ordinary skill and judgment requisite for the dis- charge of their delicate trust. Enough has now been said to show what measure of diligence, skill and prudence the law exacts from managers and directors of corporations ; and we are now prepared to examine the facts of this i ^^ *y/ case, for the purpose of seeing if these trustees fell short of this r , J^ iJiry' measure in the matters alleged in the complaint, /J^ \^ , jA* [The bank was incorporated in 1867, and did business until 1875, hjh ^a <«■ ^i^^ when a receiver was appointed. Daring this time the deposits aver- y ^^ P' ^ r^ '^ aged about $70,000. From 1867 to 1873 the total expenses, including ^ >^ ^f{^*>^' interest paid to depositors, exceeded the income. In 1873 the trustees ;>/^o° iX\^ 'V^ | of the bank, which had hitherto occupied hired premises, purchased, v,. ^ ^J' in behalf of the institution, four lots of land, with a view to erecting f5l^ ^^P i^,i^ a bank building upon one of the lots. The greater part of the pur-^'l //•^^'^iv^:^^ chase price was secured by mortgages on the lots. At the time of ^ a. '^^-^ purchase the bank became obligated to erect upon the corner lot a^'\^ five story building. Such a building was thereafter erected at an ''' .xs- ^ > ^^y^ . |/*V^ /--IC^ 366 HUN V. GARY. •J- ^^ J^ '^ expense of about $27,000. The other lots were disposed of without IJ^ J ^ 'P^ loss. The coruer lot had cost the bank $29,250 (presumably its fair ^yyi^ r^'s^ "^ .^^^j^ value), exclusive of the building. It was mortgaged for $30,500. r ^1^^^ t^^'^ fiy^ Vrhen the receiver was appointed, that lot and building, and other u -t>^ "T • assets which produced less than $1000, constituted the Avhole pro- K/^' ifj>/^ ijJ^^ pert}^ of the bank, and subsequently the lot and building were swept --5^ ■> e^ — ojih^ away by a mortgage foreclosure. The present action was brought to *>/'-'n7,rW9^ ^ recover the damages caused to the bank by the alleged improper in- ^^*^_4^zr^ vestment of its funds, as above stated.^] >"** ^ ^ , At the time of the purchase of the lot, the bank was substantially i^^ Uf^'^'^l^ ^ii^olvent. If it had gone into liquidation, its assets would have ^i' ^^*-*^(-'-^ fallen several thousand dollars short of discharging its liabilities, (/L-^' , ^^^ and this state of things was known to the trustees. It had been in {y**^ , yT^ ^ existence about six years, doing a losing business. The amount of 'f^ '^ -fji^ its deposits, which its managers had not been able to increase, shows M^V^ jh /jA^that the enterprise was an abortion from the beginning, either be- ' A^ t^"^ cause it lacked public confidence, or was not needed in the place (/^ ')*^ ^, T' where it was located. It had changed its location once without any (\/^ J^y^ ""* benefit. It had on hand but about $13,000 in cash, of which $10,000 ^ -Jij^ Li/^ w eve taken to make the first payments. The balance of its assets i*jC^^^ ^ was mostly in mortgages not readily convertible. One was a mort- ,xy^ JL>^ gage for $40,000, which had been purchased at a large discount, and ^ w^ tf $ we may infer that it was not very salable, as the trustees resolved to (■^qX '^'•^ sell it as early as May, 1873, and in August, 1873, authorized it to be ' sold at a discount of not more than $2500, and yet it was not sokl until 1874. In this condition of things the trustees made the pur- chase complained of, under an obligation to place on the lot an expen- sive banking-house. Whether, under the circumstances, the purchase was such as the trustees, in the exercise of ordinary prudence, skill and care, could make ; or whether the act of purchase was reckless, rash, extravagant, showing a want of ordinary prudence, skill and care, were questions for the jury. It is not disputed that, under the charter of this bank, as amended m 1868 (chap. 294), it had the power to purchase a lot for a banking-house " requisite for the trans- action of its business." That was a power, like every other pos- sessed by the bank, to be exercised with prudence and care. Situated as this moribund institution was, was it a prudent and reasonable thing to do, to invest nearly half of all the trust funds in this ex- pensive lot, with an obligation to take most of the balance to erect thereon an extravagant building ? The trustees were urged on by no real necessity. They had hired rooms where they could have re- mained ; or if those rooms were not adequate for their small business, we may assume that others could liave been hired. They put for- ward the claim upon the trial that the rooms tliey tlieu occupied were not safe. That may have been a good reason fur making them 1 The passapes enclosed in brackets [ ] are an abridgment of the recitals of fact in the •pinion of the court. — Ed. HUN V. CAEY. 867 more secure, or for getting other rooms, but not for the extravagance in which they indulged. It is inferable, however, that the principal motive which influenced the trustees to make the change of location was to improve the financial condition of the bank by increasing its deposits. Their project was to buy this corner lot and erect thereon an imposing edifice, to inspire confidence, attract attention, and thus draw deposits. It was intended as a sort of advertisement of the bank, a very expensive one indeed. Savings banks are not organized as business enterprises. They have no stockholders, and are not to engage in speculations or money-making in a business sense. They are simply to take the deposits, usually small, which are offered, ag- gregate them, and keep and invest them safely, paying such interest to the depositors as is thus made, after deducting expenses, and pay- ing the principal upon demand. It is not legitimate for the trustees of such a bank to seek deposits at the expense of present depositors. It is their business to take deposits when offered. It was not proper for these trustees — or at least the jury may have found that it was not — to take the money then on deposit and invest it in a banking- house, merely for the purpose of drawing other deposits. In making this investment, the interests of the depositors, whose money was taken, can scarcely be said to have been consulted. It matters not that the trustees purchased this lot for no more than a fair value, and that the loss was occasioned by the subsequent gen- eral decline in the value of real estate. They had no right to expose their bank to the hazard of such a decline. If the purchase was an improper one when made, it matters not that the loss came from the unavoidable fall in the value of the real estate purchased. The jury may have found that it was grossly careless for the trustees to lock up the funds in their charge in such an investment, where they could not be reached in any emergency which was likely to arise in the affairs of the crippled bank. We conclude, therefore, that the evidence justified a finding by the jury that this was not a case of mere error or mistake of judgment oUj the part of the trustees, but that it was a case of improvidence, o reckless, unreasonable extravagance, in which the trustees failed in that measure of reasonable prudence, care and skill- which the law requires. [Omitting remainder of opinion.] Judgment [on verdict for plaintiff] affirmed. 868 ,1^ ■A SWENTZEL V. PENN BANK« SWENTZEL V. PENN BANK. 1892. 147 Pa. State, 140.1 ^L in Equity, praying that directors of the Penn Bank be de- creed to pay all moneys lost by their carelessness, negligence and ] y ^^ ..J^ i Af I'audulent management. Facts found by a master, who recommended ^ ^^'*'*^ •f^^X' the bill be dismissed as to most of the defendants. The assignee jh* Av- ^^^^ii the Bank filed exceptions to the report, and alleged error in ^^'"'^ ^ various rulings and decrees made in the court below. H. A. Miller, D. F. Patterson, and A. M. Brotvn, for the assignee. S. Schoyer, Jr., D. T. Watson, and others, for various defendants. Paxson, J. . . . Briefly stated, the bill was filed for the purpose of holding the officers and directors of the bank responsible for the losses resulting from its failure. It^ is claimed that the officers and directors were negligent in their management of the bank's affaii'S, arid that_by^ason of such negligence the losses occurred. 'Z^!^^'^^^ jfi^-^ It is conceded on all sides that the losses and the disastrous failure ^ * z^-'"""^***/***^^^ of the bank were directly traceable to Mr. Kiddle, its late president, ''"*^ ^ / ..^'now deceased. He practically emptied the vaults of the bank in carrying on a gigantic speculation in oil. This was done with the knowledge of the cashier, and the cooperation of one or more clerks or subordinates. It would have been extremely difficult, if not prac- tically impossible, for any person to have committed such a swindle without the cooperation of some one inside. The question is whether the directors ought to have known of these transactions, and whether their failure to know what the real plunderer was doing, was such negligence on their part as to render them liable to the creditors of the bank. The Penn Bank closed its doors in May, 1884. It is not too much to say that its failure was a great shock to the business interests of Pittsburgh. It was the cause of much excitement ; led to a large amount of litigation, much of it directed against the board of direc- tors. As usual, in such cases, the current of public opinion was turned against them, and up to the present time they have been defending themselves against hostile litigation. The time has now arrived when the rights of the parties can be considered calmly, and disposed of in disregard of prejudice or popular clamor. [ The first question that naturally suggests itself for our considera- tion is, the««xtent of the duty which the directors of a bank owe to Ithe stockholders, whom they represent directly, and the creditors, ■ Whom they represent indirectly. Upon this point there is a general misapprehension in the popular mind. This finds ex])ression, after bank failures, in severe condem- nation of directors, and a general assertion of the doctrine that their 1 Statement abridged. Arguments and part of opinion omitted. — Ed. ,1^ ->^^ Lj^ ^ SWENTZEL V. PENN BANK. 369 duty requires them to be familiar with all the details of the manage- ment. In the popular mind they are held to the rule that they ought to take the same care of the affairs of the bank that they do of their own private business. Even the learned judge below evidently adopted this view, when he said in his opinion: "If we were to decide this case on first impressions, as to the conclusions of fact to be drawn, and under the decisions cited and rules laid down in the minority opinion in Briggs v. Spalding, we would say there was gross negligence, or want of the ordinary care that a man of fair intelli- gence would take of his own affairs." It cannot be the rule that the director of a bank is to be held to the same ordinary care that be takes of his own affairs. He receives no compensation for his services. He is a gratuitous mandatory. His principal business at the bank is to assist in discounting paper, and for that purpose he attends at the bank at stated periods — gen- erally once or twice a week — for an hour or two. The condition of the bank is then laid before him, in order that he may know how much money there is to loan. Once or twice a year there is an examination of the condition of the bank, in which he participates. The cash on hand is counted, the bills receivable and sureties ex- amined, to see whether they correspond with the statement as furnished by the officers. Beyond this he has little to do with either the cash or the books of the bank. They are in the care of salaried officials who are paid for such services, and selected by reason of their supposed integrity and fitness. To expect a director, under suchj -j circumstances, to give the affairs of the bank the same care that hej -- takes of his own business, is unreasonable, and few responsible men/ T^^t^^ would be willing to serve upon such terms. In the case of a cit; bank, doing a large business, he would be obliged to abandon his ow affairs entirely. A business man generally understands the details o his own business, but a bank director cannot grasp the details of a' large bank without devoting all his time to it, to the utter neglect of, his own affairs. A vast amount of authority has been cited upon this question, which we do not think it necessary to review. It is sufficient to refer to a few cases only. In Spering's Ap., 71 Pa. 11, the subject is very fully discussed by the late Justice Sharswgod. and the rule of ordi- nary care is laid down. Not, however, the ordinary care which a man takes of his own business, but the ordinary care of a bank director in the business of a bank. Negligence is the want of care according to the circumstances, and the circumstances are everything in consider- ing this question. The ordinary care of a business man in his own affairs means one thing ; the ordinary care of a gratuitous mandatory i is quite another matter. The one implies an oversight and know- ledge of every detail of his business ; the other suggests such care only as a man can give in a short space of time to the business of other persons, from wham he receives no compensation. 370 SWENTZEL V. PENN BANK. The same learned judge, in Maisch v. Saving Fund, 5 Phila. 30, laid down the rule as follows : " As to the directors, however, receiv- \i\ ^^ijb *^ troller of the currency five days later, and on July 1, 1893, entered vC^.Vfij a3 y upon the discharge of his duties. The total liability of the bank to '""^irlv^'^ '^ ^-''"n ^*^ creditors at the time of its failure was $237,733. The nominal j-*^ . t^ ^ steadily increasing amount, has in one way and another di- ^^V^\,t/^ y^ verted its funds to his own use, to the extent that at the date of the rjl^,r ^ ^^^'''"''^ suspension of the bank he was indebted to the bank u])on paper of -^.-'^'"^ i/A-^ which he was the maker in the sum of $3(),2G3.(»3, and as indorser \[A^ ^jL^i ^ iJ'^ ^'is own name in the sum of $44,819.59. lie was also liable as . ^<^]'\>.t/t'^ indorser under the name of Le Roy Moore & Co. in the sum of ■ rn/^*^; //^ $17,419.97. No other person than Le Roy Moore was liable for these •^ ) ^' \^'-^ p^^ A^./py^// GIBBONS V. ANDERSON. 373 Indorsements of Le Roy Moore & Co.; the other member having long since been discharged by the renewal of paper and the extension of credit without his knowledge, — that firm having been dissolved in 1887, and the liabilities thereof assumed by Moore. There was also in the bank at the time of its suspension, representing part of its assets, paper upon which the Stanwood Manufacturing Company was maker to the amount of $8,750, and upon which it was indorser, $G7,- 748.54, amounting in all to $76,498.54. This Stanwood Manufactur- ing Company was a business concern of which Moore was the owner, with a trifling exception. He owned 2,400 of the 2,500 shares of $10 each, and, so far as appears, only 20 other shares were taken. The books of the company show that $15,000 only of its capital stock were paid in, and this by Le Roy Moore's individual promissory notes, upon which he never made any payment. The bank had a chattel mortgage on all its property, and the sum of $3,500 was the sum realized out of the sale of that property under tliis mortgage. Over $63,000 of paper held by the bank, upon which the Stanwood Manu- facturing Company was indorser, consisted of accommodation notes made by the employes about the factory of the Stanwood Manufactur- ing Company, and was worthless. This paper was all unloaded upon the bank by Moore in the prosecution of his own enterprises, and operated practically as a credit to himself. For a number of years prior to the suspension of the bank he was a borrower from it, either upon his own name, or under a guise so thin as to be transparent, to an amount grossly in excess of the legal limit. The comptroller in his letter of October 14, 1892, states that at the last examination he was directly indebted to the bank in the sum of $29,565. I n all thes e ways, dire ct and indirect, Moore converte d the asse ts_of_the bankjD his ownjise, a nd in t he end it appea rs th at fo r all these large _sums which Moore had obtained, and which_were_ repre s ented by ^papgi. which he had employed for that purj)osej_amounting._to $172,768.88, on]X-gi- vf^r y litt le can Jje realized,^ Moore made a trust deed of all his property to secure the debts he owed to the bank, out of which not more than $12,000 to $15,000 can be realized. This is the result, not of a single fraud, nor of a group of contemporaneous frauds, practiced by Moore, but, as already stated, it is the consequence of malversa- tion of the funds of the bank from about the beginning of its history. It is needless to go into detail. The books of the bank show that he was going deeper and deeper into the funds of the bank, and, under one cover or another, converted of its assets more than three times the amount of its capital stock. The defendants, who were directors all this time, say that they were ignorant of anything wrong in tlie affairs of the bank until their eyes were opened to the facts by its failure. Greenville is a small place, of only about 3,000 inhabitants, and the defendants resided there. The volume of the business of the bank was comparatively small, — certainly not so large but that the most cursory examination of the general features of its business by 374 GIBBONS V. ANDERSON. ^ &^ any one having ordinary business intelligence -would have disclosed the truth. It is contended by the directors that they did not in fact know how Moore was carrying the substance out of it, and it is the more charitable view to take of their conduct to the extent that supine neo'ligence is more easily excused than active fraud. Ther e is in the record the testimony of witnesses stating that atjbhejj^nie of the fail- ul-e of theljan k these defendants dec lared^liat jhey trusted all to^ JJie president, and tjiatjthey knew b ut lit tl e of th e bank^s affa.irs, .rely^ing as^hey did upon their confidence in the manage ment . Biit what else can be said than that, if they had notice of the facts, they were cul- pable, or that, if they did not know them, they were grossly negligent and inattentive to their duties ? The testimony convinces me that the latter is the fact, and that their negligence and lack of interest was so profound that not even the disclosures and the warning con- tained in the letter of the comptroller of October 14, 1892, and which, pursuant to his request, was brought to their attention, aroused them from the stupor which beset them ; for the situation was in no wise redeemed, and grew steadily worse without the moving of a hand by the directors to save it. From thej;ime of their elec ti on theJ :ioard of directors seems to have slumbered over the affai£S_of the bank w^ile iWmanaging officer was plundering it of all that it ojwned, and nJTTei r th at~belonged toTpthers. Once in a while there seems to have been some faint consciousness, but nothing which indicates any ac- tivity. But they say, and have called witnesses to prove, that acting in accord with the usage and custom of national banks, and having called into the management a person in whom they had entire confi- dence, which was justified by his reputation, and committed the affairs of the bank to him, they were not bound to have doubt and distrust of his correct dealing until something occurred which should arouse suspicion. And this is their defense. The learned counsel for the defendants puts the question thus : " Whether a director in a national bank is individually liable for loss to the bank accruing through another director, viz. its president, when such mismanagement was not known to or participated in by the directors sought to be charged." Or, in another form : " Whether an individual director in a national bank is liable in his individual capacity for all losses occasioned by the mismanagement of the bank's affairs by a trusted officer through the neglect of the board of directors to meet and examine into the affairs of the bank." These questions present in the most favorable light for the defend- ants what is undoubtedly the substance of the inquiry upon the facts which existed in this case, and which is, in short, this : Whether the duty of the board of directors is discharged by the selection of officers of good reputation for ability and integrity, and then leaving the affairs of the bank without any other supervision or examination than mere inquiry of tlie officer, and relying upon his statements until some GIBBONS V. ANDERSON. 375 cause for suspicion attracts their attention. Section 9 of the national banking act, being section 5147 of the Eevised Statutes, provides that : '^ Each director, when appointed or elected, shall take an oath that he will, so far as the duty devolves on him, diligently and honestly administer the affairs of such association." And by section 5145 it is declared that the affairs of such associa- tion shall be managed by not less _th an fi vedirectors. The oath which the director is required to take, that he wiTrd"iligently and honestly administer the affairs of such association, indicates the scope of his obligation. The management of the bank is cast upon the board of directors. The duty of managing and administering the affairs of the bank by the board of directors has been differently construed in de- cisions bearing upon this subject, but it is not necessary for me to analyze the cases, or to reconcile their apparent differences. Some of them have gone to a length which in my opinion is extremely danger- ous to the public safety, and, if generally applied, would make these /^ banking associations, which were designed to supply the people of the jT^ country with financial institutions hedged about with security on ^ was devotecPfco the~consideration of the special circumstances upon r which rested the charges made against the several directors. Those circumstances have little or no resemblance to those of the present case, and not much aid is afforded by that part of the discussion ; for, as the court in that case observed, each case must stand upon its own facts. The directors in that case were held to be excusable. One very important and noticeable difference between that case and this is in the fact that the question there was narrowed down to one of fact, as to whether the defendants were fairly liable for not preventing loss by putting the bank into liquidation within 90 days after they became directors, the previous condition of the bank being admitted to have been good, whereas in the present case the defendants' neglect runs through quite a number of years. But the court laid down certain gen- eral rules by which the obligation of directors of national banks is to be tested ; that is to say, they declare what is the minimum of that obligation. Chief Justice Fuller, delivering the opinion of the court, t/ said : - ^ [ (WN>\ \ ""We hold that directors must exercise ordinary care and prudence* *^ ^'r^ in the administration of the affairs of a bank, and that this includes something more than officiating as figureheads. They are entitled, under the law, to commit the banking business, as defined, to their duly-authorized officers, but this does not absolve them from the duty of reasonable supervision ; nor ought they to be permitted to be shielded from liability because of want of knowledge of wrongdoing, if that ignorance is the result of gross inattention." 876 GIBBONS V. ANDEKSON. l^ i^'^ -y In my opinion, it does not meet tlie requirements of this statement of the law that directors may confide the management of the opera- Q^ (tions of the bank to a trusted officer, and then repose upon their con- ^' 'fidence in his right conduct, without making examinations themselves, or relying upon his answers to general questions put to him with regard to the status of the affairs of the bank. To begin with, it is to be assumed in every case that the directors have not selected any other than a man of good reputation for capacity and integrity. Any other idea assumes that they have been guilty at the outset of a glar- ing fault. Further, it is a well-known fact that a large proportion of the disasters which befall banking institutions come from the malfea- sance of just such men, and it would be manifest to everybody that only a satisfactory and quieting reply would be made by the official who has any reason for concealment. Again, what are the duties of management that are committed to the cashier, or the officer standing in his place ? They are those which relate to the details of the busi- ness, to the conduct of particular transactions. Even in respect of those, his duties are conjoint with those of the board of directors. In large affairs it is his duty to confer with the board. In questions of doubt and difficulty, and where there is time for consultation, it is his duty to seek their advice and direction. It is his duty to look after the details of the office business, and generally to conduct its ordinary Si)J /operations. It is the right and duty of the board to maintain a super- I vision of the affairs of the bank ; to have a general knowledge of the i manner in which its business is conducted, and of the character of ^ \ that business ; and to have at least such a degree of intimacy with its affairs as to know to whom, and upon what security, its large lines of credit are given ; and generally to know of, and give direction with regard to, the important and general affairs of the bank, of which '^the cashier executes the details. They are not expected to watch the routine of every day's business, or observe the particular state of the accounts, unless there is special reason; nor are they to be held responsible for any sudden and unforeseen dereliction of executive officers, or other accidents which there was no reason to apprehend. The duties of the board and of the cashier are correlative. One side are those of an executive nature, which relate mainly to the details. On the other are those of an administrative character, which relate to direction and supervision ; and supervision is as necessarily in- cumbent upon the board as direction, unless the affairs of banks are to be left entirely to the trustworthiness of cashiers. Doubtless there are many matters which stand on middle ground, and where it may be difficult to fix the responsibility, but I think there is no such difficulty here. The idea which seems to prevail in some quarters, that a director is choseii because he is a man of good standing and character, and on that account will give reputation to the bank, and that his only office is to delegate to some other person the manage* ment of its affairs, and rest on that until his suspicion is aroused, GIBBONS V. ANDERSON. 377 ■whicli generally does not happen until the mischief is done, cannot be accepted as sound. It is sometimes suggested, in effect, that, if larger responsibilities are devolved upon directors, few men would be willing to risk their character and means by taking such an office ; but congress had some substantial purpose when, in addition to the provision for executive officers, it further provided for a board of directors to manage the bank and administer its affairs. The stock- holders might elect a cashier, and a president as well. The banks themselves are prone to state, and hold out to the public, who compose their boards of directors. The idea is not to be tolerated that theyl serve as merely gilded ornaments of the institution, to enhance its attractiveness, or that their reputations should be used as a lure to, customers. What the public suppose, and have the right to suppose, i is that those men have been selected by reason of their high character for integrity, their sound judgment, and their capacity for conducting) the affairs of the bank safely and securely. The public act on this) rt. Ijresumption, and trust their property with the bank in the confidencei that the directors will discharge a substantial duty. How long would any national bank have the confidence of depositors or other creditors if it were given out that these directors whose names so often stand at the head of its business cards and advertisements, and who are al- ways used as makeweights in its solicitations for business, would only select a cashier, and surrender the management to him ? It is safe to say such an institution would be shunned and could not endure. It is inconsistent with the purpose and policy of the banking act that its vital interests should be committed to one man, without oversight and control. Eecurring to the present case, it is clear that unless the board of directors is to be absolved upon the theory that they were justified in committing the affairs of the bank to Moore, and .relying upon his good conduct, and his answers to the perfunctory questions which were occasionally put to him, until they were brought to the facts by the collapse of the bank upon the first prick of a financial stringency; such as came upon the country in the summer of 1893, they must be( held liable. It is with sincere commiseration and regret that the court feels compelled to reach this conclusion, in view of the conse- quence which must follow to these directors. But there is another side to this matter. The court cannot ignore the rights and interests of the depositors and others who have trustfully confided their money to the bank, and who now find that it was run through a shell into the hands of Moore, while the defendants turned their heads away, and failed to give them the protection which a proper discharge of their duties would have afforded. The records of the board of directors make a sorry showing, when put in contrast with the financial history of the bank. The entries are few, at long intervals, and are almost wholly limited to the election of directors and the declaration of divi- dends. They are feebly supplemented by the oral testimony "■f the 378 DOVEY V. CORY. defendants, which tends only to show that individual inquiries were occasionally made by them, of a comparatively superficial character. There was no examination of the books ; at least, none of any value. If there had been such examination by a fairly intelligent man, such as a director promises he is, the condition of things would have been seen. It is not irreconcilable with what they de- clared, when the bank failed, with respect to their knowledge of its affairs, and with what I must believe was substantially the truth of the matter. It may be conceded that the members of the board were not responsible for the malfeasance or nonfeasance of their associates, where the fault of the others was not known to them, and they were helpless to prevent the consequences ; but in the present case the charge of negligence rests upon the whole board, and there is nothing to show that the defendants took any steps to retrieve the conse- quences of the joint negligence. If the defendants had been able to show that they themselves had done what they could to induce the board to attend to its duty, a different case would be presented. I do not understand why the comptroller did not more energetically inter- fere, but I have no duty to criticise his action. [The learned Judge then held, that the date from which the directors should be charged with losses was July 1, 1892 ; when the fact that a year had elapsed without the declaration of a dividend should havevi m^uced the directors to institute an examination.] ^' « / [d '^■^^^ Decree to he entered in conformity with the above o'^inipn. , ^ %oP ^ ^(\1^ 1^ oA l^r House of Lords, Aug. 1, 1901. 17 Times^IidvM?e;fts 732A^ / ^f/ /y y ^C\'^ i itA ImT ^ousi, of Lords, Aug. 1, 1901. 17 Tmes^ZJliwl^fce/fo 73^.1 ^ /.?///, 9^%^i^ /y^r — -^^^ Kr/x^^ t^iJ"^"^^'^ (p'^^^l ^ This was an appeal from the decision of %he Court of Appeal (the Of^ . z^^ r^ Master of the Rolls, now Lord Lindley, Sir F. H. Jeune, and Lord Jj^'^ f^ *'m^ Justice Romer), which reversed a judgment of Mr. Justice Weight. ^ A>l'^^,/r^'^^jr>^ *The hearing before the Court of Appeal {suh nomine "In re National ^'O^ iS^ \Jk^ank of Wales ") is reported in 15 The Times L. R. 517 ; L. R. (1899) ' 0/f^ ^ -^ '^^^^ appellant is the liquidator of the National Bank of Wales, and Ay fj" ^ the Metropolitan I>ank (of England and Wales) have purchased and '^ ^ • /L taken over its assets and liabilities. The respondent, John Cory, was »^ ^ A 0*^ for some years a director of the National Bank. In the liquidation ^ ,^c^^ A ■) of the latter a summons was taken out to render the respondent liable AN' J^^'^^ A*^. '~;— not to creditors, all of whose claims had been satisfied — but to the ^'- -^^ '■''^^ -^^ ' contributories, in respect to alleged misfeasance (1) in paying divi- dends out of capital ; (2) in making improper advances to directors ; '" 1< 1 Portions of the opinions are omitted. The case will be officially reported in Law Re- ijJ\ ^pj-\ • .^^ P'Jrts (1901), Appeal (Jases. — Ed. t < '^^!;^^ DOVEY V. CORY. 379 and (3) in making improper advances to customers who •were, or were reputed to be, insolvent, and the summons asked that the respondent should be ordered to repay the full amount of all losses caused by- such acts of alleged misfeasance with interest and costs. Mr. Cory became a director on November 23, 1883, and resigned on December 18, 1890. The summons asked that the respondent should be de- prived of the benefit of the Trustee Act, 1888, and of the Statutes of; Limitation, on the ground that the losses arose from the respondent's wrongful acts and fraudulent concealment of the true state of affairs. The appellant's counsel, however, disclaimed the imputation of any moral obliquity on the part of the respondent, but argued the ques- tion on the basis of negligence and failure to discharge the duties of a fiduciary position. The transactions complained of were voluminous and ranged over a series of years and related to the affairs not only of the head office, but of the branches, which in 1890 were 33. It was, however, found possible by the parties to condense the story within the limits of four volumes and about 1500 pages. In February, 1893, an agreement was entered into between the Kational Bank of Wales and the Metropolitan, Birmingham, and South Wales Bank, now the Metropolitan Bank (of England and Wales) (Limited) whereby the latter bought the assets and goodwill and undertook the liabili- ties and contracts of the former, the value of the assets and goodwill being taken at not less than £110,000. Voluntary resolutions were passed for winding up the National Bank, and Thomas Cory, its former chairman, and the appellant were appointed liquidators. Mr. Thomas, Cory subsequently resigned and the appellant became sole liquidator. The alleged gmount of improper payments of dividends was £52,986 ; of loss on advances and credits to directors to December 31, 1890, £37,731, and of loss on improper advances to customers, £43,087. The whole of the assets were realized or valued, and the appellant Dovey alleged that after discharging the liabilities of the National Bank and crediting it with the value of its assets and £110,000 as its goodwill, there remained a deficiency of assets amounting to £84,392. Calls were made of £2 10s. per share each in July, 1896, and September, 1899. Mr. Justice Wright ordered the respondent to pay £54,787, being £37.000, the aggregate amount of dividends paid to the shareholders in 1887, 1888, 1889, and 1890 (except a part of the last dividend), and as to the balance, interest at 5 per cent, on each of the dividends. The learned Judge held that all these divi- dends were in fact paid out of capital ; but he declined to make the respondent liable for improper advances to directors or customers. The Court of Appeal, in an elaborate judgment delivered by the Mas- ter of the Rolls, exonerated the respondent from liability. This de- cision was affirmed by the noble and learned Lords. Sir E. T. Reid, K. C, Ingpen, K. C, and S. T. Evans, for appellant. Swinfen Eady, K. C, Rufus Isaacs, K. C, G. F. Hart and E. A. Nepean, for respondent. -B S80 DOVEY V. CORY. Sheldon, for Metropolitan Bank of England and Wales, which was originally a respondent, but subsequently made an appellant. The Lord Chancellor, [Lord Halsbury]. — In this case the liquidator of the National Bank of Wales (Limited) appeals against a judgment of the Court of Appeal, whereby Mr. John Cory, the respond- ent, was discharged from the liability which Mr. Justice Wright's judgment had imposed upon him to pay £37,000 for the benefit of the shareholders of the company, in respect of dividends already distributed, and a further sum for interest. Mr. John Cory was a director of the company, and it is for his supposed misconduct in the management of the affairs of the company that this liability was imposed upon him. It is alleged and proved that certain losses have been sustained by the company, and the ground upon which Mr. John Cory is sought to be made liable is the very short and intelligi- ble~ground that he was a party to false and fraudulent statements as to the position of the company and had had a share in causing these losses. The Court of Appeal have acquitted him of any knowledge of what was falsely stated, and Sir Robert Reid, in opening this ap- peal, stated to your Lordships that he did not intend, in arguing for Mr. John Cory's liability, to impute to him any moral obliquity. Now there is no doubt that there were balance-sheets laid before meetings of the shareholders which, to use the language of the arti- cles of the association, were not proper and which did not truly report as to the state and condition of the company, and did not comply with the requirements of the articles in question in respect of the /particular sum which the directors recommended as dividend, that it I should be paid out of the profits, but a greater sum was paid out as dividend than Avould have been paid if certain things had been taken ( into consideration, and therefore larger than should have been paid. A great part of the judgment, both of Mr. Justice Wright and of the Court of Appeal, is occupied by discussing matters which are not now before your Lordships as matters in debate. It is now admitted that ]\[r. John Cory ceased to be a director in December, 1890. My Lords, I am clearly of the opinion that the judgment of the Court of Appeal is right and ought to be affirmed ; but my opinion is entirely based upon the question of fact that he was guilty of no breach of duty whatever, and for reasons which I will refer to hereafter I am very anxious not to deal with some reasons given for their judgment by the Court of Appeal, which, in view of the facts that I take, do not arise here ; and in what I say I desire to be understood as only ^dealing with the facts of this particular case. Now, in the first instance, I will assume that the company has sustained loss by the issue of fraudulent balance-sheets, by the improper advance of money to the customers of the bank, and that it has also sustained , loss by the lending of money to directors without security. With respect to the default involving liability, if Mr. John Cory was conscious of the falsehood it is not necessary to go any further. Like DOVEY V. CORY. 381 any one else who is a party to a false statement acted upon to the prejudice of the person to whom it is made, he would be liable to the extent to which his falsehood has inflicted loss on his victims, but after the admission that has been made it is unnecessary to pursue this head of inquiry ; he certainly could not be acquitted of moral obliquity if party to a fraudulent statement ; but it is said he has so grossly neglected his duty as a director that, though he may not have known the true state of the facts, he ought to have known them, and his breach of duty in that respect renders him liable. In order to see how far this obligation is made out it is necessary to consider what the business of the company was, and what was the position of Mr. John Cory in relation to it. My Lords, I think it is idle to talk in general terms of the duty of a director to look after the con- cerns of the company of which he is one of the managers without seeing what in the ordinary course of business he ought to do or to have done. Now there are some things which, of course, must be, or at all events ought to be, apparent to any one responsible for the con- duct of a commercial business, and we must apply that observation to the business of which we are speaking — namely, a banking busi- ness ; but I do not understand that any one has suggested that there was neglect or default by reason of the absence of some system under which, if honestly carried out, the interests of the bank would have been in that respect secured. It is admitted that (extract from jucTg^ ment of the Court of Appeal) the company's principal bank and its head office were at Cardiff, where the directors met and the general manager was in daily attendance. The company had also many branch banks each with its own manager. The course of business was this. Each branch manager sent weekly to the head office what is called a weekly state — i. e., an account showing how the assets and liabilities of the branch stood, what advances or overdrafts had been made or allowed and to whom, what securities the bank held, and other matters. Every quarter each branch manager made a more formal return to the head office showing the position of the branch and the business done during the past quarter. It was the duty of the general manager to examine these documents and to report to the board anything disclosed by them which required their attention. The weekly states or quarterly returns were in the board rooms for reference in case of need, but unless attention was called to them the directors did not think it necessary to examine them. The chairman of the directors was Mr. Thomas Cory, a brother of Mr. John Cory. The chairman and general manager (Mr. Collins) visited each branch bank every year ; and, in addition, two skilled inspectors frequently went round and inspected the accounts and reported to the general manager. The accounts of the branch bank, appear, however, not to have been separately audited by professional accountants. The audi- tors employed to examine the company's accounts and to certify the annual balance-sheets and accounts laid before the shareholders only "e 382 DOVEY V. COKY. , I saw the head office books and the returns from the branch offices certi^ ' fied by their respective managers to the head office. These certified ' returns formed part of the weekly states, but omitted much that they \ contained. The minutes of the directors' meetings show that, speak- ino- generally, they attended with reasonable regularity and transacted , a large amount of business. No director, vinless it was the chairman, ' attended to any details not brought before the board either by the chair- Wan or by the general manager. Mr. John Cory stated in his affidavit the general course of business at board meetings, and his cross-exami- nation does not substantially differ from the account he there gives. But it is suggested that Mr. Cory is responsible because this and other portions of the system were not faithfully adhered to. And, indeed, what is really made the test of his responsibility is that he did not ' find out what was fraudulently withheld from his knowledge. So '' *■ the warning letters of the auditor, which were never suffered to reach him, are suggested as warnings to him which he ought not to have neglected. Again, there was the insufficient striking out of bad and doubtful debts, by which it is alleged that the amounts paid in divi- dends to himself and other directors, as well as shareholders, are by a process of reasoning and calculation assumed to be payments out of capital. These things are all assumed to have been done as though done with knowledge and intention, while at the same time the ad- mission is made that there was no evil mind or conscious fraud. Kow I think such things, if done with evil mind and intention, would be fraud, and it comes back again to the proposition that the respon- sibility must be based upon the assumption that Mr. Cory is respon- sible because he did not fipd out the fraudulent knaves by whom he was surrounded. One was his own brother, another was the general manager, and, once I arrive at the conclusion that there were those about him whose interest and object it was to deceive him, I certainly do not think that the things which were designedly concealed from him are things which ought to be relied upon as matters for which he was responsible. In the view I take the whole of the evidence — which is relevant and important to the question, did Mr. Cory know- ingly permit the things to be done which were done — becomes to my mind entirely immaterial if one is to start with the assumption that he knew nothing about them. Dealing with the several heads of charge as they have been fo^iulated in the judgment of Mr. Justice Wright — viz., ^negligence, breaches of trust in respect of advances made contrary to said articles of association,^and payment of divi- dends out of capital. I think each and all of them may be disposed jj ^ j of by the proposition that Mr. Cory was not himself conscious of any ' ' one of these things being done, and that unless he can be made re- sponsible for not knowing these things, as Mr. Justice Wright put it, unless he is shown to have exhibited a conij)lete neglect of the duties _he had undertaken, the charges are not made out. The charge of neglect appears to rest on the assertion that Mr. Cory, like the other DOVEY V. CORY. 383 directors, did not attend to any details of business not brought be- fore them by the general manager or the chairman, and the argument raises a serious question as to the responsibility of all persons hold- ing positions like that of directors — how far they are called upon to distrust and be on their guard against the possibility of fraud being committed by their subordinates of every degree. It is obvious that if there is such a duty it must render anything like an intelligent devolution of labor impossible. Was Mr. Cory to turn himself into an auditor, a managing director, a chairman, and find out whether audi- tors, managing directors, and chairman were all alike deceiving him ? That the letters of the auditors were kept from him is clear. That he was assured that provision had been made for debts and that he believed such assurances is involved in the admission that he was guilty of no moral fraud ; so that it comes to this — that he ought to have discovered a network of conspiracy and fraud by which he was surrounded and found out that his own brother and the managing director (who have since been made criminally responsible for frauds connected with their respective offices) were inducing him to make representations as to the prospects of the concern and the dividends properly payable which have turned out to be improper and false. I cannot think that it can be expected of a director that he should be watching either the inferior officers of the bank or verifying the calculations of the auditors themselves. The business of life could not go on if people could not trust those who are put into a posi- tion of trust for the express purpose of attending to details of man- agement. If Mr. Cory was deceived by his own officers — and the theory of his being free from all fraud assumes under the circum- stances that he was — there appears to me to be no case against him at all. The provisions made for bad debts, it is well said, was inadequate, but those who assured him that it was adequate were the very persons who were to attend to that part of the business —and so of the rest. If the state and condition of the bank were what were represented, then no one will say that the sum paid in dividends was excessive. If I assume, as I do, that Mr. Cory acted upon repre- sentations made to him which he believed and which came from the officers of the bank to whom he was, in my judgment, justified in giv- ing credit, the discussion of whether the dividends actually paid were or were not properly divisible, has no bearing on :Mr. Cory's liability, and I am very reluctant to give any opinion upon it, inasmuch as the question may arise when it may be necessary to decide it. I depre- cate my premature judgment. My Lords, I am, as I have said, very reluctant to enter into a question which for the reasons I have given does not arise here, and into which the Court of Appeal has entered at some length. The only reason why I refer to it at all is lest by silence I should be supposed to adopt a course of reasoning as to which I am not satisfied that it is correct. I doubt very much whether such questions can ever be treated in the abstract at all ^ 6|. I 334: DOVEY V. CORY. The mode and manner in which a business is carried on, and what is usual or the reverse, may have a considerable influence in deter- mining the question what may be treated as profits and what as capi- tal. Even the distinction between fixed and floating capital which in an abstract treatise like Adam Smith's *' Wealth of Nations " is appropriate enough, may with reference to a concrete case be quite inappropriate. It is easy to lay down as an abstract proposition that you must not pay dividends out of capital, but the application of that very plain proposition may raise questions of the utmost difficulty in their solution. I desire, as I have said, not to express any opinion, but as an illustration of what difficulties may arise the example given by the learned counsel of one ship being lost out of a considerable number, and the question whether all dividends must be stopped until the value of that lost ship is made good out of the further earn- ings of the company or partnerships, is one which one would have to deal with. On the one haiid, people put their money into a trading concern to give them an income, and the sudden stoppage of all divi- dends would send down the value of their shares to zero and possibly involve its ruin. On the other hand, companies cannot at their will and without the precaution enforced by the statute reduce their capi- tal ; but what are profits and what is capital may be a difficult and sometimes an almost impossible problem to solve. When the time comes that these questions come before us in a concrete case we must deal with them, but until they do I, for one, decline to express any opinion not called for by the particular facts before us, and I am the more adverse to doing so because I foresee that many matters will have to be considered by men of business which are not altogether familiar to a Court of law. I move that this judgment be affirmed and this appeal dismissed with costs. [Lord Macnaghten delivered a short concurring opinion.] Lord Davey. , . . The respondent, in his affidavit, states generally that he was from first to last under the honest and genuine belief that the affairs of the company were in a sound and solvent condition, and that its business was being carried on at a profit, and that its net pro- fits for the time being were amply sufficient to justify the dividends which were from time to time during his directorship paid to the share- holders. And he adds that the general manager and branch managers were, so far as he knew, men of unquestioned confidence and integrity, and that he and his co-directors were compelled by the magnitude of the business and the exigencies of the case generally to rely upon (and he did rely upon) these officials in all ordinary matters relating to the accounts of customers and other questions of detail. And he deals specifically with the various matters alleged in the liquidator's evidence on the same lines. The respondent was cross-examined on his affidavit at great, but not unnecessary, length. I am not, I think, doing injustice to the appellant's case when I say that reliance was chiefly placed on the " weekly states " and " quarterly returns " made DOVEY V. CORY. 385 by the brancli managers, or that, if he cannot succeed in fixing the respondent with liability on these documents, his case fails. These returns were laid on the table in the board room at each meeting of the directors. A comparative analysis of them, made by the skilled accountant who advises the appellant, does, I think, show that certain accounts which were treated as good by the general manager in the preparation of the balance-sheets submitted by him to the directors were, in fact, irretrievably bad, and it is difficult to acquit the general manager of improper conduct in including them as assets. The re- spondent says in his affidavit that the " weekly states " consisted each week of a very large and voluminous pile of sheets, which it would have taken the directors a couple of days to go through, and that it was the duty of the general manager to go through the weekly states, with the letters of the branch managers accompanying them, and to place upon the agenda any points arising upon them which he consid- ered ought to be brought to the attention of the directors ; and upon the discussion of such points the documents were, when necessary, referred to ; but, except in such cases, the weekly states were not con- sulted by the directors, but they relied on the general manager going carefully through them and drawing their attention to any matter requiring their consideration. On cross-examination he adhered to this statement. He added that the chairman also went through them often individually, and he did so for the board. He admitted that before recommending a dividend he did not look at all the accounts or look at the books themselves, but he said that the directors looked at the documents which were put before them by the manager — the amount which he considered was doubtful and bad — and they made a reserve for it. He also said that it was never brought before him that amounts cfne from bankrupt debtors were included in the balance- sheets of each year, and he never heard of any single case of that kind. It further appeared from the evidence of other witnesses that the branches of the bank were regularly visited and their books examined , by the chairman and two inspectors. In this state of the evidence, I ' , ask whether the course of business at the board meetings as described by the respondent was a reasonable course to be pursued by the re- ^spondent and other directors, or whether the knowledge that might \ have been derived from a careful and comparative examination of the weekly states and quarterly returns from the different branches of the i bank ought to be imputed to the respondent, or alternatively, whether \ \ he was guilty of such neglect of his duty as a director as would render _^ him liable to damages ? I do not think that it is made out that either \ of the two latter questions should be answered in the affirmative. I think the respondent was bound to give his attention to and exercise his judgment as a man of business on the matters which were brought before the board at the meetings which he attended, and it is not proved that he did not do so. But I think he was entitled to rely upon the judgment, information, and advice of the chairman and gen- 386 ABEKDEEN RAILWAY CO. V. BLAIKIE. eral manager, as to whose integrity, skill, and competence he had no reason for suspicion. I agree with what was said by Sir George Jes- sel in ''Hallmark's Case'' (9 Ch. D., 329), and by Mr. Justice Chitty in " In re Denham & Co." (25 Ch. D., 752), that directors are not bound to examine entries in the company's book. It was the duty of the general manager and, possibly, the chairman to go carefully througli the returns from the branches, and to bring before the board any matter requiring their consideration, but the respondent was not, in my opinion, guilty in negligence in not examining them for him- self, notwithstanding that they were laid on the table of the board for reference. The case is no doubt one of some difficulty, but the appellant has not made out to my satisfaction that the respondent wilfully (as that term is explained in the cases I have referred to) misappropriated the company's funds in payment of dividends. [Lord Bkampton concurred.] Judgment affirmed. Appeal dismissed. ^''jJ^ ^ ii SECTION III. ^. ^yT jy^jf^ Special Interest^ of Director. - — How affecting Action taken bv ^an •fV il)J lr,(J ' T)ealings between Director and Corporation.^ ./ ./ iJ^^'l^l/^ -rh- ^^E^^EE^ EAILWAY CO. V. ^JJ'^'^^'^'' y^~^ \ -y^^ r IJSi* 1 Macqueen, 461.2 . ^y'o/^ J"^ ^^ ^^ House of Lords, on appeal from the Scotch Court of Session. 'Jf 'ni ^ ^^ ^^^ action was by Messrs. Blaikie, iron-founders in Aberdeen, ^y ^^^gainst the Railway Company for performance of a contract whereby Zy*^ ' t/f f^ the Company had agreed to purchase and accept from Messrs. Blaikie t^fyjf\^ ^, ^ certain iron chains, which they were to manufacture for the Company JP^^y^ i^ ^ at the rate of 8^. 10s. per ton. The summons concluded for imple- ^■tK " r ^ ^^ ment of the contract or for damages. > r./^ ^1 /y:^ ^ The principal defence was, that Mr. Thomas Blaikie, the managing a^ J^b^\^- copartner of the Pursuers, was at the time of the contract a Director, ^4/^ \^ ^ "^ and indeed Chairman, of the Railway Company, and so incapacitated Oi^-^ ' \-'^' ^ ^^^ dealing in the character with his own firm. ^IV^.^ ' >) '^ The Court of Sessions held that the Companies' Clauses Consoli- C/^"^. ^^ ■? dated Act (8 Vict. c. 17, s. 88 & 89,) did not nullify the contract, ^!^ ^ '^ ^ although under it the contractor ceased to be a Director. They there- f^w^ [,^ A/tf^^ fore decide in favor of the Pursuers. Hence this api)eal. '\J^ (r c/**^*'^ ^ ^*"^ ti\90, post, chapter on Power of an insolvent Corporation to prefer particular J ,^ J^ i_ Creditors. — Ed. J^j}' {\A^''*^A «, 2 Arguments and part of opinions omitted. — Ed. ABERDEEN RAILWAY CO. V. BLAIKIE. 387 The Solicitor General (Sir H. Bethell) and Mr. Gordon, for appellants. Mr. Bolt, and Mr. Macfarlane, for respondents. The Lord Chancellor (Lord Cranwortii). . . . This, therefore, brings us to the general question, whether a Director of a Railway Company is or is not precluded from dealing on behalf of the Com- pany with himself, or with a firm in which he is a partner. The Directors are a body to whom is delegated the duty of manag- ing the general affairs of the Company. A corporate body can only act by agents, and it is of course the duty of those agents so to act as best to promote the interests of the corpo- ration whose affairs they are conducting. Such agents have duties to discharge of a fiduciary nature towards their principal. (See Mr. Hud- son's Case, 16 Beav. 485.) And it is a r ule of univer sal application, thatno one^having sucli^uties to d^c harge, shallbe allowed to enter i nto enga gements in which he has, or can have, a personal in terest conflicting, or which possibly may confli ct, with the interestsof those whom he is bound to protect So strictly is this principle adhered to, that no question is allowed to be raised as to the fairness or unfairness of a contract so entered into. It obviously is, or may be, impossible to demonstrate how far in any particular case the terms of such a contract have been the best for the interest of the cestui que trust, which it was possible to obtain. It may sometimes happen that the terms on which a trustee has dealt or attempted to deal with the estate or interests of those for whom he is a trustee, have been as good as could have been obtained from any other person, — they may even at the time have been better. But still so infl exibl e^ is^the,rule__ that no enquiry on that subject is ^e^aitted^ The English authorities on this~Fead are numerous and uniform. The principle was acted on by Lord King in Keech v. Sandford, Select Cases, temp. King, p. 61, and by Lord Hardwick in Whelj^dale V. Cookson, 1 Ves. Sen. 8, and the whole subject was considered by Lord Eldon on a great variety of occasions. It is sufficient to refer to what fell from that very learned and able judge in Ex parte James. It is true that the questions have generally arisen on agreements for purchases or leases of land, and not, as here, on a contract of a mercantile character. But ^his can make no difference in principle. The inability to contract "depends not oiTthe subject matter of the agreement, but on the fiduciary character of the contracting party, and I can not entertain a doubt of its being applicable to a party who is acting as manager of a mercantile or trading business for the bene- fit of others, no less than to that of an agent or trustee employed in selling or letting land. Was then Mr. Blaikie so acting in the case now before us? — if he /i 383 ABERDEEN RAILWAY CO. V. BLAIKIE. was, did he while so acting, contract on behalf of those for whom he was acting with himself ? Both these questions must obviously be answered in the affirmative. Mr. Blaikie was not only a Director, but (if that was necessary) the Chairman of the Directors. In that character it was his bounden duty to make the best bargains he could for the benefit of the Company. While he filled that character, namely, on the 6th of February, 1846, he entered into a contract on behalf of the Company with his own firm, for the purchase of a large quantity of iron chairs at a certain stipulated price. His duty to the Company imposed on him the obli- gation of obtaining these chairs at the lowest possible price. !His personal interest would lead him in an entirely opposite direc- tion, would induce him to fix the price as high as possible. This is the very evil against which the rule in question is directed, and I here see nothing whatever to prevent its application. I observe that Lord Fullerton seemed to doubt whether the rule would apply where the party whose act or contract was called in ques- tion is only one of a body of Directors, not a sole trustee or manager. But, with all deference, this appears to me to make no difference. It Avas Mr. Blaikie's duty to give to his co-Directors, and through them to the Company, the full benefit of all the knowledge and skill which he could bring to bear on the subject. He was bound to assist them in getting the articles contracted for at the cheapest possible rate. As far as related to the advice he should give them, he put his interest in conflict with his duty, and whether he was the sole Director or only ^one of many, can make no difference in principle. The same observation applies to the fact that he was not the sole person contracting with the Company ; he was one of the firm of Blaikie, Brothers, with whom the contract was made, and so inter- ested in driving as hard a bargain with the Company as he could induce them to make. It cannot be contended that the rule to which I have referred is one confined to the English law, and that it does not apply to Scot- land. It so happens that one of the leading authorities on the subject is a decision of this House on an appeal from Scotland. I refer to the case of The York Buildings Company v. Mackenzie, decided by your Lordships in 1795. The principle, it may be added, is found in, if not adopted from, the civil law. In the Digest is the following passage : " Tutor rem pupilli em ere non potest : idemque porrigendum est ad similia ; id est ad curatores, procuratores, et quinegotia aliena gerunt." (Dig., Lib. xviii., t. 1, c. 34, s. 7.) In truth, the doctrine rests on such obvious principles of good sense that it is difficult to suppose there can be any system of law in which it would not be found. ABERDEEN RAILWAY CO. V. BLAIKIE. 389 It was further contended that whatever may be the general prin-l r. ciple applicable to questions of this nature the Legislature has in casesl of corporate bodies like this Company modified the rule. ' The statute, i. e. the Companies' Clauses Act, it was argued, has impliedly, if not expressly recognized the validity of the contract, by enacting that its effect shall be to remove the Director from his office ; indicating thereby that a binding obligation would have been created, which would render the longer tenure of the office of Director inexpe- dient ; and your Lordships were referred to the case of Foster v. The Oxford, Worcester, and Wolverhampton Railway Company. That was an action for breach of a contract under seal, whereby the defendants covenanted with the plaintiffs (as in the case now before your Lord- ships) to purchase from them a quantity of iron. The defendants pleaded that, at the time of the contract one of the plaintiffs was a Director of their Company, and to this plea there was a general demurrer. That such a contract would in this country be good at common law is certain. The rule which we have been discussing is a mere equi- table rule, and therefore all the Court of Common Pleas had to consider was how far the contract was affected by the statute. The decision was that the statute left the contract untouched, and that its opera- tion was only to remove the Director from his office. The 85th and 86th sections of the English statute 8th and 9th Vict., c. 16, on which the Court proceeded, are in the same words as the 88th and 89th sec- tions of the Scotch statute, and the Counsel of your Lordships' bar relied on this decision as being strictly applicable to the case now under appeal. But there is a clear distinction between them. In Scotland there is no technical division of law and equity. The whole question, equitable as well as legal, was before the Court of Session. All that the Court of Common Pleas decided was that a contract clearly good at law was not made void by an enactment that its effect should be to deprive one of the contracting parties of an office. This] decision will not help the Eespondents unless they can go further and; show that the statute has had the effect of making valid a contiacti c which is bad on general principles, that is to say, principles enforce-] able here only in equity, but not recognized in our Courts of common | law. I can discover no ground whatever for attributing to the statute any such effect. Its provisions, however, will still be applicable to the case of Directors who become interested in contracts, as representatives or otherwise, and not by virtue of contracts made by themselves. I have therefore satisfied myself that the Court of Session came to a wrong conclusion. I therefore move your Lordships that this Interlocutor be reversed. [Lord Brougham delivered a concurring opinion.] Interlocutor reversed. 390 BENT V. PRIEST. ^^ ,v ^ BENT V. HRlkS^. '^ 1881. 10 Missouri Appeals, 5i3 J- Action by the receiver of the St. Louis Mutual Insurance Company 'to recover securities alleged to have been paid to defendant to induce him, as a director of said company, to consent to a proposed transfer of ' the assets of the company to the Mound City Life Insurance Company. It appeared that the Mound City Life Insurance Company agreed ![> ' to pay a large sum to Peck, a stockholder in the St. Louis Co., for \l^ ihis services in procuring a reinsurance of the St. Louis Co. risks in the Mound City Co. Before the contract of reinsurance was effected, Peck promised to pay the firm of Priest & Wyman a certain sum in case the proposed reinsurance should be effected. Thereafter, Priest, in his capacity of director of the St. Louis Company, advocated and voted for the proposed measure, without disclosing the agreement between his firm and Peck. The firm of Priest and Wyman subse- quently received valuable securities from Peck in satisfaction of his promise. Upon the evidence, the court held, that this contract of reinsur- ance " must be taken to have been a valid one, beneficial alike to the selling and purchasing company, and to those beneficially interested therein." Judgment below for plaintiff. Defendant appealed. A. J. P. Garesche, and John M. Holmes, for appellant. Thomas T. Gantt, and John M. Glover, for respondent. Thompson, J. . . . The principles of law applicable to this transac- tion are very familiar and very well settled. Directors of a corpora- tion are regarded by courts of equity as trustees for the corporation and for its members. Great Luxembourg R. Co. v. Magnay, 25 Beav. 686 ; Gaskell v. Chambers, 26 Beav. 360 ; Hodges v. Screiv Co., 1 R. I. /312. A court of equity will never permit a trustee, without the know- ledge and consent of his cestui que trust, to speculate out of his trust, y or to retain any gain which may have accrued to him personally there- ^/ I from, but will subject his conduct to a rigid scrutiny, and will compel him to account to his cestui que trust for all profits which he may make out of the trust relation. Ex parte James, 8 Ves. Jr. 337 ; Faw- cett V. Whitehouse, 1 Russ. & M. 132 ; Hichens v. Congreve, 1 Russ. & M. 150, note ; Kiniber v. Barber, L. R. 8 Ch. 56 ; Bentley v. Craven, 18 Beav. 75 ; Gillett v. Peppercorne, 3 Beav. 78 ; Michand v. Girod, 4 How. 503 ; Hamilton v. Wright, 9 CI. & Fin. Ill ; BUsset v. Daniel, 10 Hare, 493 ; Tennant v. Trenchard, L. R. 4 Ch. 537 ; Bowes v. City, 11 Moo. P. C. 463 ; Tyrrell v. Bank, 10 H. L. Cas. 26 (affirming s. c. 27 Beav. 273). This rule is applied with_full_forfig__to_directors_ of 1 Statement abridged from opinion. Arguments omitted; also the greater part of the opinion. — Ed. CUMBERLAND COAL CO. V. SHERMAN. 391 corpQ ratioQS. Great Luxembourg R. Co. v. Magnay, 25 Beav. 586 ; Imperial, etc., Assn. v. Coleman, L. R. 6 H. L. 189 (reversing s. c. L. R. 6 Ch. 558) ; York v. Hudson, 16 Beav. 485 ; Parker v. McKenna, L. R. 10 Ch. 96 ; Parker v. Nickerson, 112 Mass. 195 ; Poor v. Rail- road Co., 59 Me. 277 ; Redmond v. Dickerson, 9 N. J. Eq. 509 ; Pick- ering's Case, L. E. 6 Ch. 525 ; Madrid Bank v. Pelly, L. R. 7 Eq. 442 ; Ex parte Bennet, 18 Beav. 339 ; Cumberland Coal Co. v. Sherman, 30 Barb. 553 ; Butts v. Wood, 37 N. Y. 317 ; Blake v. Railroad Co., 56 N. Y. 485. It may, we think, be stated as a universal application of this rule, that whenever a director of a corporation proposes to its shareholders, or to his co-directors, a contract, or, acting as such director, makes, assents to, or ratifies a contract for the corporation, from which he himself is to derive a secret profit, that profit belongs to the company, and he will be compelled, in a court of equit}-, to account for it and to surrender it up to the company. It is not essen- tial to the liability of the director that the company has suffered a loss from what he has done ; it is sufficient that he has gained a profit through it. Whether the contract which he has made, or in the making or ratification of which he has concurred, was in point of fact beneficial or injurious to the company, is wholly an immaterial inquiry. Thejaroad^principle is, that whatever he acquires by virtue of his fiduciary relation, excepFm open dealings with the company, such as a director in common with strangers may sometimes have, belongs not to him, but to the company. Nothing else than this satisfies the demands of the law. [Remainder of opinion omitted.] Judgment affirmed. p^ C^ p^^ Davies, J., IN CUMBERLAND COAL CO. v. SHERMAN. 1859. 30 Barbour [N. Y. Supreme Court), 553, pp. 572, 573. Davies, J. . . . There can be no question, I think, at the present time, that a director of a corporation is the agent or trustee of the stockholders, and as such has duties to discharge of a fiduciary nature, towards his principal, and is subject to the obligations and disabilities incidental to that relation. . . . Neither are the duties or obligations of a director or trustee altered from the circumstance that he is one of a number of directors or trustees, and that this circumstance diminishes his responsibility, or relieves him from any incapacity to deal with the property of his cestui que trust. The same principles apply to hiin^s one of a num- be r, a s if he was acting as a sole trustee. It is not doubted that it has been shown, that the relation of the director to the stockholders is the same as that of the agent to his principal, the trustee to his 392 JESUP V. ILLINOIS CENTRAL R. CO. cestui que trust ; and out of the identity ol these relations necessa- rily spring the same duties, the same danger, and the same policy of the law. In the language of the plaintiffs' counsel, it is justly said : " Whe- ther it be a director dealing with the board of which he is a member, or a trustee dealing with his co-trustees and himself, the real party in interest, the principal is absent — the watchful and effective self inter- est of the director or trustee seeking a bargain, is not counteracted by the equally watchful and effective self interest of the other party, who is there only by his representatives, and the wise policy of the law treats all such cases as that of a trustee dealing with himself." ('' The number of directors or trustees does not lessen the danger or insure security, that the interests of the cestui que trust will be pro- |;ected. The moment the directors permit one or more of their num- ber to deal with the property of the stockholders, they surrender their own independence and self control. If five directors permit the sixth to purchase the property intrusted to their care, the same thing must be done with the others if they desire it. Increase_of_t he nu m- ber of the agents in no degree diminialie§_tlie-J!^giL.gf_unfai^^ ness. WJiichcote v. Lawrence (3 Vesey, 740) was a case of several trustees. In this case Lord Loughborough says : " There was more opportunity for that species of management, which does not betray itself much in the conduct and language of the party, when several trustees are acting together. I am sorry to say there is greater negli- gence where there is a number of trustees." V / rastees. ' V / ^ 4 / ;, Harlan, J., in JESUpVieL5N!M£KGEN;TE-AE E. CO. ^ , >^ -/'- ' ^ . "^ ^ : ' V " ./ "^■ * 2 <^^ a/^*i> '^ Harlan, J. . . . A cont ract, in the narher*^bf \| .ji£iiqx)ration, by its 'A{^ *^'o'^ board of d irectors, is not void, if othervvise mmssailabl^^simply be- \\r^jj^ i''^ causesome of the directors, constituting a minority, used their position \(^^y*^'^ '^ with "the effect, or even for the purpose^^of advancing their perso nal njSAf'^ ^yi/^ . interests__ to _±h^ injury of the comjmny they .assumed_tQ_rfi])resent. r\y_ ^ )b The lease here in question, as we have seen, was approved by the nine ^ \ P^ O^ t^ directors of the Dubuque Company, five of whom had no personal ends /^, ' u^ t. to subserve by imposing upon the company a lease that was unreason- /!'V^ ■^'%T 1875. 38 New Jersey Law, 505 In the Court of Errors and Appeals, upon error to the Supreme Court. The Lehigh Valley Railroad Company sued Cornelius Stewart and Joseph C. Stewart, in assumpsit, for tolls upon the passage of boats with merchandise over the Morris Canal. The defendants, in 1868, made a contract under seal with the Morris Canal and Banking Company, /i/, U whereby it was stipulated {inter alia) that, for a term of five years, the defendants should be allowed a drawback of one half the tolls payable according to the printed rates for certain classes of freight. At the date of this contract one of the defendants was a director of the Morris Canal and Banking Company. In 1871 the Morris Canal and Banking Company leased its canal, appurtenances and franchises to the Lehigh Company, and also assigned to the Lehigh Company its con- tract with the defendants. If the defendants are allowed the stipu- lated drawback, nothing is due from them for transportation. Vanatta, Attorney General, and B. Williamson, for plaintiff. Thos. N. McCaHer, for defendants. Dixox, J. . . . The plaintiff raises another and a most important question touching the validity of this contract, by a second replication to the second plea before mentioned, upon which no issue was joined, because of the judgment of the Supreme Court holding that plea bad. The main fact averred in the replication also appeared in evidence at the trial, and testimony as to some of the outljing circumstances was offered by the defendants, excluded and exception taken. On the argument before this court, the counsel for the plaintiff urged this main fact as necessarily invalidating the contract relied on by the defendants. This fact is, that at the time of the negotiations for, and I the execution of, the contract in question, one of the defendants was a director of The Morris Canal and Banking Company — a trustee | ^ Only so much of the report is given as relates to a single question. — Ed. 398 STEWART V. LEHIGH VALLEY R. CO. for it, to manage its affairs — and it is insisted that his relation to the company was, therefore, such that he was prohibited from entering into this contract with it, and that the contract is, ipso facto, void. The position thvis assumed by the plaintiff rests upon the broad principle that it was the duty of the director to so deal with the pro- perty and franchises of the corporation — to so manage its affairs as would most conduce to the corporate interest, and that he could not perform that duty while contracting with it in his own behalf, or if by possibility his own interest was consistent with the best interest of the company in so contracting, yet, so insidious are the promptings of selfishness and so great is the danger that it will over-ride duty when brought into conflict with it, that sound policy requires that such contracts should not be enforced or regarded. After an exam- ination of all the cases cited, and such others as I have found, and a careful consideration of the principle and the results of regarding and of disregarding it, I have come to the conviction that the true legal rule is, that such a contract is not void, but voidable, to be avoided at the option of the cestui que trust, exercised within a reasonable time. I can see no further safe modification or relaxation of the principle than this. A director of a corporation may have rights not arising out of express contract — such as the right to pass over its railroad, or transport his goods over its canal, on paying reasonable tolls, or to have money which he has loaned it repaid to him ; but where the right is one which must stand, if at all, upon an express contract, and which does not arise by operation or implication of law, then he shall not hold it against the will of his cestui que trust ; for in the very bargain which gave rise to it, in which he should have kept in view the interest of that cestui que trust, there intervened before his eyes the opposing interest of himself. The vice which inher es i n the judgm^nt^jjijudge in his own cause, contaminates the co ntract ; the mind of the director or trustee Ts~theTorum in which he and his cestui que trust are urging their rival claims, and when his opposing litigant appeals from the judgment there pronounced, that judgment must fall. It matters not that the contract seems a fair one. Fraud is too cunning and evasive for courts to establish a rule that invites its presence. There may be isolated cases in which the trustee is willing to make a contract on more favorable terms for the cestui que trust tlian any one else, but the opportunities for self-advancement, at the expense of those whose concerns he has in charge, and under circum- stances where concealment is easy, are so much more numerous than these isolated cases, that in declaring a rule the latter are not worthy of consideration. Nor is it proper for one of a board of directors to support his contract with his company, u pon the grou nd thatjhe absta ined from participating as director in the negotiations^ for and final adoption of the bargains by his co-directors ; the very words in which he asserts his right declare his wrong; he ought to have participated, and in the interest of the stockholders, and if he did STEWAET V. LEHIGH VALLEY R. CO. 399 not, a nd they^have thereby suffered loss,^Qf-igJiicli^t]iey_sIiall b e the J^g6A^6_^^st restore the rights he has o btai ned — he must hold a ga i nst the m no advantage that he has^ot through neglect of his dut^^ tfiwardsJthem. Many authorities exemplifying the rule may be found. I cite a few only : — York Buildimj Ass. v. Mackenzie, 8 Bro. P. C, 42 of Appendix — 4 Cr. & Stew. 378 ; Aberdeen Railwaij Co. v. Blaikle, 1 Macq. 461 ; The York & M. N. R. Co. v. Hudson, 16 Beav. 485 ; Mulford v. Minch, 3 Stockt. 16 ; Davoue v. Fanning, 2 Johns. Ch. 252 ; Cumberland Coal & Iron Co. V. Sherman et al., 30 Barb. 553 ; Gardner v. Oyden et al., 22 N. Y. 327 ; Butts v. Wood, 37 N. F. 317 ; Michoud et al. v. Girod et al, 4 Hoiv. 503. The application of the rule is most frequent in the relations between vendor and purchaser, but its reason and force extend to all agents and trustees, public and private. It has not always presented itself to the minds of judges in its full scope. At times they have been seduced into listening to suggestions that the circumstances of the special case showed the absence of fraud and over-reaching. At other times, they have intimated that the cestui que trust must seek his re- lief in equity ; but the strongest intellects have enunciated the rule with its utmost vigor, and in its broadest extent. The qualification, however, which the rule undoubtedly has, saves the case before us from its operation. The cestui que trust of the defendant director was not the plaintiff, but the Morris Canal and Banking Company. The right of avoidance was one which belonged to that company and its stockholders, and not to the plaintiff. The act of 1871, empowering the canal company to lease, only authorized it to lease the canal, with its boats, property, works, appurtenances, and franchises ; and under this power, it could scarcely transfer so peculiarly personal a privilege as this option to avoid a contract. Xor would a transfer of the contract, and all of the canal company's rights under it, carry this right of choice ; for that does not spring out of the contract, but out of the fiduciary relation existing between the parties at the time the contract was made. And, moreover, the case shows that, after the lease to the i)laintiff, and during all the time in which it is claimed the tolls sued for were accruing, the plaintiff dealt with the defendants on the basis of the binding efficacy of the con- tract. I conclude, therefore, that there appears before us no reason for re- fusing to give to this contract that force to which our construction of its terms entitles it, and that, upon the case before us, judgment should be rendered for the defendants below, the plaintiffs in error. For affirmance — Keed, Woodhull — 2. For reversal — The Chancellor, Dixon, Knapp, Clement, Dodd, Green, Lathrop, Wales — 8.^ 1 Compare Dillon, J., in Buell v. Buckingham, a. d. 1864, 16 Iowa, 284, pp. 293-296. In Burden v. Burden, a. d. 1896, 8 New York Appsllate Division, 160, pp. 171-174, it ig 400 JUNKINS V. UNIONS' JUNKINS V. U 1855. STRICT. LJBOeOOL DISTRICT. Maine, 220.1 Assumpsit on account annexed. At a meeting of the school dis- trict it was voted to erect a school-house and to raise money for that purpose. At the same meeting the plaintiff and two other persons were chosen a committee to superintend the erection of the school- house and the laying out and expending the money raised by the dis- trict. The committee employed the plaintiff to do certain work in connection with the building of the school-house. The case was submitted to the full court upon report from Nisi Prius. N. D. Apjyleton, for defendant. Eastman and Leland, for plaintiff. Shepley, C. J. ... It is insisted that the committee could not law- fully employ one of its own members to do such work ; that the trust was a personal one to be performed by all. A majority of a committee so composed is authorized by statute to act. Ch. 1, § 3, art. 3. A majority having such authority to do what all its members might, constitutes a party capable of employing ; and one of the members of the committee, not acting as such, but as an individual, constitutes another party capable of contracting or of being employed. In such case the contract is not made or the person employed by a committee attempting to make a contract or incur a liability with itself. A committee might thus act corruptly and fraudulently, by two dif- ferent members making contracts with each of the others, so that each sliould have a contract in the performance of the work entrusted to all. In such case their contracts would be set aside. There is in this case no proof authorizing an inference that there has been fraudu- lent or corrupt dealing. held, that a contract between two corporations having one or more common directors (if not disapproved bj' a majority of the stockholders) will not be avoided at the suit of a minority stockholder, unless the contract were fraudulent and injurious to the corporate property. The court saj' that the contract may be voidable at the election of the corpora- tion. But the minority stockholders "are not entitled to make such election in behalf of the corporation." See, however, note to Farmers' Loan and Trust Co. v. Nero York and Northern R. Co., in a subsequent chapter. — Ed. 1 Only so much of the report is given as bears on a single point. Argument omit- ted. — Ed. JANNEY V. MINNEAPOLIS INDUSTRIAL EXPOSITION. JANNEY V. IVnNNEAPOLIS INDUSTRIAL EXPOSITlOlfi^ e< (^r' y/^ r J^^ 1900. 79 Minnesota, 488.1 *v( ] CjAy OX/ Appeal from District Court for Hennepin County, where' tae^ rf^ o* // ' case was tried before Simpson, J. ; who found in favor of plaintiffslf 5 and denied a motion for a new trial. .^9 w^ Plaintiffs were directors and creditors of the defendant corporation.S^^'lO^i One question in their litigation with other stockholders who were |>>^ made defendants grew out of the purchase of corporate property by, ^ L plaintiffs at an assignee's sale. 'Ijj' V The facts found by the trial court are in part as follows : — a^ ^ The corporation, having become insolvent, made an assignment for,' ' the benefit of creditors. The assignee was ordered by the court to advertise for bids for the corporate property, or any part thereof. But no sale was thus effected, except that of two lots of land. Sub- sequently, by order of the court, the assignee was authorized to adver- '-^ ' /I tise and sell the remaining property so assigned at public vendue to yjy^^ M"^ the highest bidder. At such sale there was no bidder except the pi^ Ji A plaintiff Janney, acting for himself and other creditors (now co-plain-'^« -^ w^ tiffs). Janney, in order to protect his own interests and that of the*''*A' ^ other plaintiffs, did, in good faith, bid for the property the sum of n ^ i f $25,100. The assignee reported the sale to the court, and, after a J^ {/^ hearing therein, it was duly confirmed, and the assignee ordered n^ to convey to Janney, which was done ; he paying the assignee in cash $25,100. The sale was fairly and lawfully conducted, and the amoiint realized was the highest sum which the assignee was able to obtain for the property. The property so sold to the plaintiffs was, according to the expert testimony, then worth the sum of $100,000. The trial court did not find that if a resale of the property was ordered it would bring an increased price, or that there was any reasonable probability that such would be the case, other than may be inferred, if at all, from the value of the property as found by the court. The defendant stockholders, in their answer, objected to the sale ; and asked that the plaintiffs be charged with, and be required to account for, the difference between the purchase price paid by the plaintiffs for the property and its value. Their answer also prayed for general relief. Hale & Montgomery, for appellants. Hahn, Belden & Hawley, for respondents. Start, C. J. . . . The appellants further claim that, even if it be conceded that plaintiffs may enforce the stockholders' liability for the payment of their debts against the corporation, still the trial court 1 Statement abridged from opinion. Arguments omitted. Only so much of the opiaioa is given as relates to a single question. — Ed. 402 JANNEY V. MINNEAPOLIS INDUSTRIAL EXPOSITION. erred in its conclusions of law, for the reason that the court, upon the facts found, ought to have ordered a resale of the property at an upward bid above the amount paid by the plaintiffs, or applied pro tanto upon their debts against the corporation the difference between the amount they paid for the property and its value as found by the court. This conclusion rests upon the assumption that in purchas- ing the property at the assignee's sale, pursuant to the order of the court, the plaintiffs violated their duties as directors. If the pre- mises are correct, the conclusion would seem to follow that the stock- holders are entitled to some relief if not guilty of laches. But are the premises correct? This question must be answered from a con- sideration of the special facts of this case with reference to the gen- eral principles of law applicable to the rights, duties, and disabilities of directors of a corporation. The relation between a corporation and its directors is that of principal and managing agents. They are not trustees in the sense of holding the legal title to any of its propert}' for its benefit, or that of its stockholders or its creditors. Still, the relation is essentially rt !a fiduciary one, and upon sound principles of public policy directors / JL are inhibited, as a general rule, from purchasing for their own benefit the property of the corporation, very much as a trustee is disqualified from purchasing for his own advantage the property of his cestui que trust. This proposition, upon principle and authority, is unquestion- ably the law. Beach v. Miller, 130 111. 162, 17 Am. St. Rep. 291, 298, notes; 3 Thompson, Corp. § 4071; 2 Cook, Stockh. § 653. It is, /however, equally clear upon principle that where the legal title and Icontrol of all of the property of a corporation is vested in an assignee /or receiver, in trust for the benefit of its creditors, and the court fc] orders the property sold for the purposes of the trust, a director- / creditor, having interests to protect, may in good faith purchase the A I property at such sale, and acquire thereby the absolute title thereto, n / Especially is this so where there are other active directors, and the / sale is made subject to confirmation by the court, and is approved by \ it. But in all such cases the director must act in the utmost good faith, for the transaction will be jealously scrutinized. 1 Morawetz, Priv. Corp. § 527 ; 3 Thompson, Corp. §§ 4068, 4074 ; Barber y. Boiven, 47 Minn. 118, 49 N. W. 684 ; Twin-Lick Oil Co. v. 3Iarbury, 91 U. S. 587; Appeal of Lusk, 108 Pa. St. 152. The facts of this case bring it within the exception to tlie general rule that directors cannot purchase the property of the corporation for their own benefit. The title, possession, and control of the property were in the hands of an officer of the court (the assignee), and had been for nearly a year prior to the sale. The sale was made by direction of the court, and subject to its confirmation. The pl ain- tiffs had no control over the property or the assignee, who was the i() 5^'i'i<--'' Illative of the corporation, its creditors, and its stockholders. >3 I Tii(ry had no power to prevent or control the J^ale, which was a judi- CAMPBELL'S CASE. 403 cial^one, brought about by the court through its officer. They had material interests to protect by bidding at the sale. They purchased in good faith, at the best price obtainable. The appellants had notice of the sale, and did not object thereto until long afterwards. See Pinkm V. Minneapolis Linen Mills, 65 Minn. 40, 67 N. W. 643. The sale was fairly conducted, and was confirmed by the court. There were twenty-one directors at the time besides the plaintiffs. These facts justify the conclusion of the trial court to the effect that the plaintiffs, in purchasing the property to protect their own interests, did not violate their duties to the corporation. The facts found by the court justify its conclusions of law. Order affirm^ CAMPBELL'S CASE,D MPAGNIE GENERALE D^ 1876. Law Reports, 4 Chancery Division^dX^' '' V^P^Y the articles of association of the Compagnie Generale be Belle- ' garde, Limited, the directors were authorized to borrow ; the repay- ment to be secured by mortgage, or by debentures, or in such other) manner as the directors might think expedient. In 1872 the direct-^ ors resolved to borrow £90,000 by mortgage obligations, and issued .'-^>' '^. y^' I '/ a prospectus offering mortgage certificates at par. Findinsr that thev..-t^ ., ^<^ '^ at par. Finding that they ►^^ y. ^ ^*lir ar, the directors proceeded ^^WvK^I< T /^, ... .^^ . — .^ .^^ ^. — .^ „. ^^^, ^^„. per cent. Of the bonds so ^ , n, /^ i^ issued, a director named Campbell took one set of the nominal value ('' ^«^ y' if i' of £1320, for which he paid £1221, being at the rate of 92 1-2 per ^^ » \ ^'^ k/^ were unable to place the debentures at par, to issue bonds to the public at £92, 10s. per cent. 7^ y cent., and also another set of the nominal value of £680, for which he ^W paid £629, being at the same rate. In the company's books Cam]>'^'j;Jt/^ bell was credited with payment of the two sums of £1320 and £680 'K y j in full ; and was debited with the two sums of £99 and £51, under y^^y^ the entry, " Commission on mortgage obligations." ' ' r* f/' The company having been, on Jan. 15, 1876, ordered to be wound^'.'^* {y . ^'■ up, the official liquidator now took out a summons that Campbell'' ,/■" . might be ordered to pay the two sums of £99 and £51. ^' ^r ''^ P It appeared that all the bonds were issued at £92, 10s. per cent, ^ except two lots of the aggregate amount of £340, which were issued without any discount. Sir H. Jackson, Q. C, and Terrell, for the official liquidator. Kay, Q. C., and W. Renshaiv, for Campbell. Bacon, V. C. This case, in one point of view, is of importance,, because it has been argued as if it fell within the principle which the Courts of Equity have always adhered to, not to permit an agent, or 1 Statement abridged. Arguments and part of opinion omitted. — Ed. y. L/ (^ 404 Campbell's case. director, or any person in a fiduciary character, and having power and influence in the concern, to make a profit by his dealings with the concern. But the fact that any profit was made I find to be wholly wanting in this case. There was no profit. The directors publish a prospectus, in which they say, " We are going to issue bonds at par." It is all very well to say so, but when they come to issue these bonds, people ' will not take them at par. What are they to do ? They find they cannot place them at par, and they sell them on the best terms they can, and, except in the two particular cases mentioned, they issue all these debentures on the same terms as those on which the debentures j taken by Mr. Campbell were issued. What is there unlawful in that ? \What is there to prevent the directors buying on the same terms as Sother people ? The case, when examined, does not fall within the principle upon which the application is made. The section of the Companies Act which has been referred to is really wide of the pre- sent case. That section compels restitution from directors when they shall have misapplied or retained in their own hands, or become lialDle or accountable for, any moneys of the company. But, in this instance, when did the difference between par and 92 1-2 per cent, ever become the money of the company ? It was money which they never received, and which was never theirs. The section proceeds, " or has been guilty of any misfeasance or breach of trust in relation to the company." What misfeasance or breach of trust was Mr. / Campbell guilty of in advancing to the company, on exactly the same I terms as everybody else, money which they were in want of ? It was not money for which he had become liable or accountable. The com- pany's books have been kept, as it appears to me, in the proper and regular way. It is necessary for book-keeping purposes, that there should be entered on the credit side of the ledger the aggregate amount of all the debentures representing the debt due from the company. Then the company debit the amount unpaid, and whether that amount be called commission or discount, the true nature of the transaction cannot be obscured. The directors did that which it was lawful for them to do — they issued debentures at a certain discount. Mr. Campbell took them as other people took them, and paid his money for them. He derived no sort of profit from them ; the advantage, if any, was all on the side of the company. [Eemainder of opinion omitted.] Summons dismissed. SEYMOUR V. SPRING &c. ASSOCIATION. SEYMOUR V. SPEING &c 1895. 144 New York, 333 ASSO(it!ztTi ^ 406 SEYMOUR V. SPRING &c. ASSOCIATION. proximate authority. There are cases of co-partnership in which the general rules pertaining to that specific relation might prove to be broad enough to cover the purchase of the debt owing by the firm (Am. Bk. Note Co. v. Edson, 56 Barb. 89), and other cases in which the duties flowing from a liquidation conducted by the trustee, and as to which he owes a specific trust duty, forbid a purchase by the trus- tee for his own benefit at a discount. But in every class of cases the rule is founded upon the unwillingness of the law to uphold contracts which bring into collision the trust duty and the personal interest, and it is because of that collision, and the temptations whicli surround it, that it declares the contract voidable at the election of the bene- ficiary without investigating the good or bad faith of the trustee. The entire basis of the rule consists in this collision between trust duty and personal interest, and the equitable prohibition has no appli- cation where there is no such possible inconsistency. There is no such conflict in the ordinary case of the purchase by a director in a going corporation of its outstanding obligations. There is no present duty resting upon him to extinguish them. The time for that has not come, the duty has not arisen, may never arise, the corporation is not prepared to pay, does not contemplate paying, but intends and expects to await the full maturity of the debt. Unless some special fund has been provided, or some special liquidation has been ordered, the director owes no duty to his company to discharge or buy in the out- standing bonds, and may purchase for himself because no inconsistent trust duty has arisen. Why should he not ? While the bonds are running to their maturity, and the corporation is not able to extinguish them, is not bound to do so, does not even wish or seek to do so, what does it matter who holds the securities or on what terms they pass from hand to hand ? It seems to me that we are asked to crowd the rule almost to the verge of an absurdity, and to inflict a vital injury upon business interests by tainting with invalidity the holding by a director of the unmatured obligations of the corporation bought by him in the open market and not put in liquidation or sought to be 'extinguished. There must at least be some fact or circumstance which charges the trustee with a present duty to act for his company in respect to the bonds, which duty is or may be inconsistent with a personal purchase. No such duty rested upon Hotchkiss and Sey- imour, and they had a right to buy and hold for their own benefit. Indeed, there is a furtlier and equally conclusive answer. If the doctrine invoked applied to this case it would make the purchase not void but voidable at the election of the corporation, and that election must be made promptly and upon sufficient knowledge of the facts. The beneficiary cannot wait and speculate upon the cliances of delay, but must act. Here the purchase was made before 1873, and in 1880 the corporation is found recognizing and ratifying the title of tlie vendees or their successors, making payments to them, and providing for future payments, and it is only after a delay of fifteen years that an attempt to repudiate the purchase is made. COMMONWEALTH V. BRINGHURST. 407 CHAPTER XI. VOTING RIGHTS OF STOCKHOLDERS. "It seems that, at common law, each shareholder is entitled to east but one vote, irrespective of the number of shares which he holds ; but there are good reasons for holding that this rule has no applica- tion to ordinary joint-stock business corporations at the present day. The custom of giving the shareholders in such companies a vote for every share has become so well established, that it is fair to imply an intention to follow this custom in the absence of any indication to the contrary. It is generally provided by statute [a general law ap- plicable to all private business corporations], or by express provision in the articles of association of a corporation, that the shareholders shall be entitled to a vote on account of each share." Morawetz on Private Corporations, 2d ed. s. 476a. COMlvfo. WEALTH V. BRINGHURST. ^ f(^ ji'^y^ N\ 1883. 103 Pa. S*^ Defendants demurred. j-^ ^\ The court below sustained the demurrer and entered judgment for , K defendants. 1 Statement abridged. Part of argument omitted. — Ed. y^ 408 COMMONWEALTH V. BRINGHUKST. R. C. Dale and Samuel Dickson for plaintiffs in error. The rule of the common law, established when municipal, I'eligious, and charitable corporations were alone known, has no application to trading or monied corporations where the relation of the members is not personal. In the former, the units are persons, in the latter the units are shares. State V. Tudor^ 5 Da}-, 329. The case of Taylor v. Grisvold (2 Green, N. J. 223) manifests a narrow adherence to common-law doctrines, Hud the other cases cited on the other side are not authorities. Philips V. WicJcham (1 Paige, 590, 598) was the case of a quasi municipal •corporation. Brown v. Commonwealth (3 Grant, 209) was decided on un express limitation in the charter, and Craig v. Church (7 Norris, 42) vas the case of a religious society. An examination of the general legislation of this State shows that the legislature regarded the right j)f shareholders to vote b}- proxy as an inherent right without special enactment [citing various Acts]. In all business transactions what one does by another he does himself, and what he can do himself he can do by another. Story on Agency, § 3. If a vote cannot be given by prox}', the Guarantee Trust Company, which is the largest holder of this stock, is disfranchised, for a corporation can only act through an agent. George JR. Van Dusen and W. Heyward Drayton^ for defendants in error. [Argument omitted.] Mercur, C. J. The relators are stockholders of the Philadelphia Iron and Steel Company. It was incorporated by special Act of 12th of April, 18G7. The contention is, whether the stockholders may vote by proxy, in ithe annual election of officers of the corporation? ) Section 2 of the Act declares " the affairs of said company shall be managed by a board of five directors, one of whom shall be the presi- dent, who shall be chosen by the stockholders. All elections shall be by ballot, and every share of stock upon which the required instalments have been paid, shall entitle the holder thereof to one vote." Section 3, inter alia, authorizes the corporation to " make all needful rules, regu- lations, and by-laws for the well ordering and proper conduct of the business and affairs of the corporation. Provided the same in no wise conflict with the constitution and laws of this State or of the United States." The charter in no wise refers to voting by proxy. No by-law has been adopted authorizing the stockholders to so vote. In the absence of any express authority in the charter, and without any by-law authorizing it, the question is whether the stockholders may vote by proxy. In other words, is it a power necessaril}- incident to the corporate rights of the stockholders ? nVO^ ¥' < '^*^\xi\ '^ ^*^^ A corporation is the mere creature of the law. It cannot exercise any power or authority other than those expressly given by its charter, »>r those neccssarilj incident to the power and authority thus granted, COMMONWEALTH V. BRINGHUEST. 4c79 and therefore, in estimation of law, part of the same. Wolfx. Ooddard, 9 Watts, ooO ; Diligent Fire Co. v. Commomcealth, 25 P. F. Smith, 291. The r ight of voting at an election of an incorporated compan^^by proxy is not .a^general right. The party wlio claims it mns t sho w a s pecial au thority foiLthat purpose. Angell & Ames on Corporations, § 128 ; Philips v. Wickham, 1 Paige's Cases in Chancery, o90. In this case, Chancellor Walworth says, the only case in which it is allowable at the common law is by the peers of England, and that is said to be in virtue of a special permission of the King. He adds : " It is possible that it might be delegated in some cases by by-laws of a corporation, where express authority was given to make such by-laws, regulating the manner of voting." In the People v. Ticaddell, 18 Hun, 427, it was held, a stockholder cannot so vote unless expressl}' authorized by the charter or by-laws. Taylor y. Grisxcold, 2 Green (N. J.) 222, holds that a right of voting by prox}' is not essential to the attainment and design of a charter, and even a general clause therein authorizing the compan}' to make by-laws for its government was insufficient of itself to give that right. In State v. Tudor^ 5 Day (Conn.) 329, there was no clause in the charter authorizing the stockholders to vote b}' proxy; 5'et the company made a b^-law authorizing them to so vote. The validity of this by-law was sustained b}' a majority- of the court. So in People V. Crossley, 69 111. 195, effect was given to a by-law of the corporation, authorizing voting by prox}', the by-law not being in con- flict with the Constitution and laws of the State. That a right to vote b}' proxy is not a common-law right, and there- 1 fore not necessaril}- incident to the shareholders in a corporation, appears to have been recognized in Broxcn v. Commoyiicealth, 3 Grant, 209, and in Craig v. First Preshyterian Church, 7 Norris, 42. The selection of officers to manage the affairs of this corporation requires the exercise of judgment and discretion. They must be elected by ballot. The fact that it is a business corporation in no wise dis- penses with the obligation of all the members to assemble together, unless otherwise provided, for the exercise of a right to participate in the election of their officers. Although it be designated as a private corporation, yet it acquired its rights from legislative power, and it must transact its business in subordination to that power. As then the re- lators cannot point to anv language in the charter expressly giving a right to vote by proxy, and it is not authorized by any by-law, they have no foundation on which to rest their claim. Judgment was correctly entered for the defendants on the demurrer. Judgment affirmed. ^y^cy E BARDELEBEN COAL AND IRON CO. y fiif^^v€'/j., IN MACK V. DeBARDELEBEN COAL AND J^ . ^ IRON CO. ■f Ji^ J^ ^^^^' ^^ Alabama, 396, pp. 401-404. /}i- ■ Ia i' Many other questions material to the future government of the '' l^-^ -^ Eureka Company have been well and ably argued, and we feel it r ^j^ rJ^ our dut}' to notice some of the more important of them. In the act y^^^p (J-^ ^ to amend the charter of said company, approved December 6, 1873 — I '^L,^ ^_i/ ( 'Sess. Acts, 139 — is this language : " No stock [holder], either in his I Ky"-^ ^y^^ •djown right, or as proxy or agent for others, shall be entitled to cast r' Jty^ ' ^ (lt^ jmore than one-fourth of all the votes at any election of directors." - i, ^jy^Jj^Tlus clause is set forth in the amended bill, and is in that way brought /? ' V>r^ before us. We hold this language means one-fourth of all the votes ' /^ ,yui^ ^^® shares of stock authorize to be cast. One-fourth of the votes in *^ the Eureka Company, with its present number of shares, is 2,077. It is averred, and not denied, that the DeBardeleben Company, as a L ^ j^^^ corporation, is the owner of more than 4, GOO of the Eureka shares. The ♦ ^ \ v-*" amended bill charges that "the defendant, H. F. DeBardeleben, as Q. ' ^ • v-^ president of the DeBardeleben Coal and Iron Company, and acting as fi^ ' y^ aU^ president of Eureka Company', and David Roberts, as secretary of both i/* ,i^ j^<^f Said companies, and with the knowledge and consent and connivance jL^J/^ ij}- \jj^ of the defendant A. T. Smythe, a short time prior to the 19th of January, ^^^.X) j^ _ 1S90, had a large lot of the stock of the Eureka Company, . . . which U ^- iji^y^^ owned and held by the DeBardeleben Coal and Iron Company, J]c,Mr- i, ^X^ • • transferred into their individual names, that is to say: they had ' fO0^^\j- A transferred to each of the following persons, who were at that time - / ^ iJ-y ^ directors of the DeBardeleben Company, or large stockholders in said ♦^^^^i^^^!^ 'Li*^^™^'''^"^' ^^^ following number of shares: H. F. DeBardeleben, 500 «M Shares ; David Roberts, 500 shares ; A. T. Smythe, 360 shares ; M. B. Lopaz, 423 shares; Robert Adger, 300 shares; A. M. Adger, 300 shares ; F. J. Pelzer, 300 shares ; leaving in the name of the DeBar- deleben Coal and Iron Company 1,990 of the 4,G23 shares : . . . that the said stock so transferred . . . was, and is now, the stock and property of the DeBardeleben Coal and Iron Company ; . . . that the . transfers to said persons were so made ... for the purpose of avoid- ing and getting around the section of the charter and by-laws of said Eureka above set out. Said transfers of said stock were so made in fraud of the minority stockholders of said Eureka Company, and to enable all of said stock to be voted in the interest, and for the benefit of the DeBardeleben Coal and Iron Company." The substantial aver- ments of fact in the foregoing extract are not denied in the answers. It is contended for appellees that the said transferrees of the DeBar- deleben Company's stock in the Eureka Company are of right entitled to vote the several shares standing in their names, notwithstanding the statutory inhibition copied above. They rely on the following authori- MACK V. DE BARDELEBEN COAL AND IRON CO. 411 ties as supporting their contention : In re Stranton T. db S. Co., 16 Eq. Ca. L. R. 55!) ; Pender v. Zushinf/ton, 6 Cb. Div. L. R. 70 ; Mof- fatt V. Farquhar, 7 Ch. Div. L. R. 591 ; Camden ^ jjy jpf'ioreclo^re had been rendered in suits on mortgages ; and its total /tV" i/f^ ^^j'^nd&l^edness largely exceeded the value of the entire railroad propert}'. .J o ^^n arrangement was made between the creditors and the company ^ I C^'^ whereb}' the creditors accepted debentures in lieu of their original evi- jlf/f ' J of^lences of debt ; and the great majority of the stockholders, in effect, (•' ,S^^ J/ ' ^^onferred upon a trustee irrevocable power to vote upon the shares .so aV** ' aS"^ ^ ^P^o ^s ^"3" of the debentures should be outstanding. The sharehold- \ ^ ^/^j^ l^ t^ ^"S assigned their stock to the committee of reorganization ; the com- *V. //*"^ittee gave the Farmers' Loan & Trust Company an irrevocable power * pf attorney to vote npon the stock so long as any of the debentures should '^yy^ya^ outstanding. The shareholders who had thus assigned their stock to committee received in exchange new certificates entitling them to all the rights and privileges which pertain to the ownership of the said shares, saving and excepting that such ownership is subject to the power heretofore granted b}' the owners of said shares to the Farmers' Loan & Trust Company, in trust for the security of the debentures, to vote upon u\. s^id shares. yy^ Under the foregoing adjustment, all the creditors, except those secured bA^ewly issued first mortgage bonds, accepted the debentures provided ibr, in lieu of their former evidence of debt; "' " ' "^ were assigned to the Farmers' Trust Company ^ -^>^ /^or, 'in lieu of their former evidence of debt; the foreclosure decrees f^f^ were assigned to the Farmers' Trust Compan}- ; the receiver, under the ^.<^^^ I'' ^/^ ,\J, . f;?^ orders of the court, turned the property over to the railroad compan}' ; ^t'^^'^^ \M ^%^ t ^"^^ ^^^ corporation resumed its control and management of its property and business. In 1892, the plaintiffs denied the authorit}' under the power of attorney held b}- it to vote for themselves the right to vote their own stock ^A^ , \Z t^ -dtfihd business ^) j^ ^ dismiss the the plaintiffs denied the authorit}' of the Trust Company-, under the power of attorney held b}-' it to vote their stock, and claimed The right of plaintiffs ^^ jA /!> to vote at the stockholders' meeting was denied. Thereupon plaintiffs t^/. ^ filed the present bill ; praying, among other things, that the Farmers' Loan & Trust Compan}' be enjoined from voting on the stock under the power of attorney ; and that the railroad company be enjoined from refusing to accept the votes of plaintiffs and of otlier stockholders. A preliminar}' injunction was granted. The defendants moved to the bill for want of equity, and to dissolve the injunction. The overruled the motions. From his decrees an appeal was Statement abridged. Arguments omitted. •8 relates to a tjingle point. — Ed. Only RO much of the o])inion is given MOBILE AND OHIO R. R. CO. V. NICHOLAS. 419 J?. J. Phelps^ and J^red. W. Whitridge, for railroad company, appellants. E. L. Russell^ and R. P. Beshon^ for appellants. Ilannis Taylor, for Farmers' Loan & Trust Co., appellants. a. C. Tomjjkins, Gaylord B. Clark, William J. Curtis, and Alfred Jaretzki, for appellees. Coleman, J. [After stating the case.] The facts stated in the bill show, that hy the reorganization and compromise of 1876, perfected in 1879, the voting power was severed from the stockholder, and until the payment of the debentures, irrevocablv vested in the Farmers' Trust Company and the debenture holders. It is contended for comi)lainants that the agreement was, and " is void per se" because 1st : '' It con- travenes the language of the charter of the railroad company ; and 2d, because it is against public polic}'." The charter expressly provides, " Each share shall entitle the holder i thereof to one vote, which vote may be given by said stockholder in I person, or by lawful proxy." So far, then, as the right to vote by proxy is questioned, the charter expressly grants the power, and the legislature has thus declared that it is not unlawful, jyer se, to separate the voting power from the stock- holder, so far as the appointment of a proxy may be considered a sev- erance of the voting power. Where ^ proxy is d uly co nstituted, and the. power of the appointme nt is without limitation , a vote cast by tlie proxy ETncls the sIocliEoTder7 whether exercised in behaj jjofhisjnterest or_nqt,l to the ^me extent^^^ifjhe vote had been cast by the stockholde r in) person. We do not hold that a poweF^f attorney, absolute in its terms, will authorize the agent or proxy, to effect contracts, or legalize acts, outside of the scope of his authority, or contrary to law or public policy, neither could the stockholder in person by his vote effectuate such a result. The invalidity of acts of this character by a proxy, rightly un- derstood, is not made to rest upon the ground, that there has been a separation of the voting power from the stockholders, but because of the unlawful purpose for which the proxy was appointed, or the unlaw- ful end, attempted to be effected by the exercise of the voting power. The distinction should be kept in view. Take the case of the Rich- mond & Danville Extension Comjxiny v. The Woodstock Iron Co.^ 129 U. S. 643, cited by complainant. The Woodstock Iron Co. agreed to pay thirty thousand dollars, if the Georgia Pacific Railroad was run through the town of Anniston, where the Woodstock Iron Co. owned a large plant, mines, and other propert}-. The contract was held void as being against public policy. No question of the separation of the voting power from the shareholder, arose in the case. It was the character of the contract, the unlawful purpose in view, to build up the Woodstock Iron Co. at the expense of the stockholders of the rail- road company that was condemned. The same principl e applies to many other^ cases cited in which, it was held, " that contracts naadejo iDfluencejaikoa^^omp ^a^es~nr8e Iectin g their routes and erecting thei r 420 MOBILE AND OHIO JR. K. CO. V. NICHOLAS. liepots and stations bj' donations in land_and mo ney to some of ita directors and stockliolders were in valid/' citing £estor v. Wathe?i, 60 111. 131; Linden X. Carj)enter, 62'l]l. 307. Take the case of Ba/er v. iV". T. , Lake Erie & Western B. R. Co., 14 "Weekl}' Law Bulletin, p. 68. The case is thus stated : " A control- ling interest in the stock of the Cincinnati, Hamilton, and Dayton Rail- road Company was bought up in 1882, and placed in the name of H. I. Jewett, who was Vice-President of the New York, Lake Erie, ana "\Vestern Railway Co., under the agreement thac he should give irrevo" cable proxy to such persons as the Erie should appoint to vote on the stock ; that his stock certificates should be left in the hands of trustees, and that they should issue to the respective owners of the stock trust, or pool certificates for amounts equal to their respective equitable in- terest. On all stock thus pooled, the Erie agreed to guarantee a certain dividend." The court declared the contract void " both on the ground that the power is denied to one corporation thus to acquire control of another, and that the stockholder can not barter away the right to vote upon hia stock." True the opinion declares as an independent proposition, "that the stockholder can not barter away the right to vote upon his stock," and yet it is shown, by the facts of the case and the opinion, that the purpose to be effected b}- the barter of the right to vote, to wit, the plac- ing " of an Ohio corporation into the hands of a New York corporation," the enabling "one corporation to acquire control over another" was illegal. Speaking of the facts of the case the opinion proceeds as fol- lows : " It is obvious that the rule as to executed contracts can not be applied to the plaintiff for any such reason as that last mentioned, for he vms not a party to the contract. There are other cases wherein special circumstances made it imperative, as a matter of good faith, that the contract should not be interfered with, and others, when the protection of interest acquired b}- innocent parties caused the court to refrain." There is no rule of law which requires contracts to be upheld which are void as against public polic}', in order to preserve "good faitli" or " innocent parties." The rule of estoppel is often applied to prevent undue advantage b}- one person over another, but the rule does not extend to contracts which are void because contravening public pol- icy. Considering the opinion as an entirety, we do not regard it as authority to the proposition, that an agreement which provides for a separation of the right to vote from the holder of the stock is '•'■per se" at all times and under all circumstances contrary to public polic}' and void. We have examined case after case and find generally that the agreements declared void by the courts, where the power to vote was separated from the stockholder and vested in third persons, were under icircumstances which showed that the purpose to be accom[)lished was /unlawful, such as the courts would not sanction if the principal had I voted and not a proxy ; and in cases of a mere dry trust, it is held that itlie stocklioldcr might revoke a power of attorney in form irrevocable. Tlic doctrine as to dry trust does not arise in this case. MOBILE AND OHIO R. R. CO. V. NICHOLAS. 421 Certainly the case of Griffith v. Jeioett, 15 Weekly Law Bulletin, 419, or of 3foses v. tScott, 84 Ala. G08, do not sustain complainants' contention in tliis respect. If there were no precedents, upon princi- ple, we would hold that in determining the validity of an agreement, which provides for the vesting of the voting power in a person other than the stockholder, regard should be had to the condition of the par ties, the jurpose to be accomplished , the conside i- ation of the undertak- ingi in terests whid i_Jiaye_been_surren clered , righ_ts_ac2uu;ed, and the ' c onsequences to _result. The law does not make contracts for parties, neither will it annul them except to preserve its own majesty, and to conserve the greater interest of the public. Let us examine the condi- tions of the parties, the purpose in view and effect of the agreement of 1876, consummated in 1879, the consideration and interest surrendered and rights acquired by the readjustment, and issue of the debentures, the position of the complainants thereto, and the results of holding that reorganization, ^:)er se, void. The complainants belong to the class known as "Assenting Stock- holders." They surrendered their stock to the committee of reor- ganization in order that the power of attorney, executed to the trust company by the committee of reorganization, might be executed, and that the debentures should be issued to the creditors of the railroad cor- poration. The certificates of stock held by them show, upon their face, that they are subject to the power of attorney and to the rights of the debenture-holders. At the time the plan of adjustment was agreed upon the railroad company was in the hands of a receiver. Decrees of foreclosure rendered against the company-. The indebtedness far ex- ceeded the value of the railroad company's propei'ty. The execution of the decrees of foreclosure, b^- a sale of the property, and the pros- ecutions of the admitted claims against the railroad compan}^, would necessarily have transferred the property to other parties and wiped out ever}- vestige of present available interest or right of the stockholder, or hope of future profit. The creditors held the vantage ground, and in law their rights and interest were paramount to the stockholders. The latter might accept propositions but were in no position to dictate terms. These were the circumstances under which the settlement and agreement was made. Stated in short, the compromise and settlement'' led to the issue of the debentures to the creditors in lieu of their original evidences of debt, and a mortgage upon certain property to secure them, a plan for a sinking fund for their benefit, and the right and privilege under an irrevocable power of attorne_v to vote the stock ioitt'l the de- bentures were paid. The power of attorney was not in perpetuity, or absolute, but only until the debentures were paid, and a fair construe-' tion under the circumstances required that the voting power should be used fairl}' and honestly to this end, or as stated in the agreement itself, "for the uses and purposes declared in said memorandum, and until the same are fully accomplished." In consideration therefor the decrees of foreclosure, at first suspended, were transferred to the trust (^ p /fifty. 422 MOBILE AND OHIO E. R. CO. V. NICHOLAS. compan}', creditors surrendered their claims and accepted in lieu thereof the debentures, the receiver under the orders of the court restored the property to the Mobile & Ohio Railroad Co., which resumed manage- ment and control of its property and affairs, and the stock preserved to the stockholder. To this agreement over forty-five* thousand out of a total of about ,'-three thousand of shares of stock assented, and among those which assented were complainants. The ^reditors had the right to accept_ de- bgnture s for their debts. The agreement continued in existence the corporation and preserved to the stockholders their stock. It did not violate the charter of the railroad corporation. The purpose was legal, the means used did not contravene anj* statute of the State or principle of public policy, and was within the scope of the power of the contract- ■ying parties. Good faith on the part of the assenting stockholders, I whose interests were thus preserved, and to those who accepted the de- bentures in lieu of other evidences of debt and securities, and to those I who have since purchased them upon the faith of the plan of com- promise demand that the terms of the contract be fulfilled. Tested by I any principle of law, legal or equitable, the agreement was not only valid but fair at least to the corporation company and stockholders. [It was contended that the acceptance b}' the creditors, under an arrangement made in 1887-1888, of general mortgage bonds, extin- guished the debentures issued under the previous settlement ; and that thereby the stockholders became reinvested with the voting power which they had relinquished for the benefit of the debenture holders. The Court held, that the acceptance of the general mortgage bonds, under the conditions and terms then specified, did not eflfect an extinguish- ment of the debentures. It was also contended, that the agreement by which the stockholder parted with his voting power created the relation of surety and creditor between the stockholder and the debenture holder; and " that the vot- ing trust has been terminated b}- the extension and enlargement of the debt, and by the substantial modification of the terms upon which the voting franchise was to be exercised." The Court held, that the rela- tion of surety and creditor did not exist.] A decree will be here rendered dissolving the injunction granted upon the original bill, and dismissing the original bill for want of equity. 1 In Durkee v. People, ex rel. AsJcren, a. d. 1895, 155 Illinois, 355, a by-law of a railroad cor7)oration purported to confer on bondholders the right to cast one vote on every one hundred dollars of bonds ; and the stock certificates contained an express statement that the stock was subject to the bondholders' right to vote at all meetings of stockholders. Section 25 of the general railroad incorporation statute is as follows: " In all elections for directors and managers of such railway corporations, every stock- holder shall have the right to vote, in person or by proxy, for the number of shares of Block owned by him, for as many persons as there are directors or managers to be elected, or to cumulate said shares, and give one candidate as many votes as the number of di- rectors, multiplied by the number of his shares of stock, shall equal, or to distribute them, on the same principle, among as many candidates as he shall think fit; and such directora or maaagefB shall not be elected in any other manner." LINVILLE IMPROVEMENT CO. LINVILLE IMPEOVEMENT COj . 1896. 118 North Carolina, 693.1 I/-^\ ^.'v ^ - Action for an injunctiou and other relief, heard before lake, J. ' ^ si^ '-^'y 'J yt , Plaintiff has an option for the purchase of a sufficient number of i^ '^ J' ^ AY* shares of the capital stock of the company to give him a majority -j y\\/C j.^- r thereof ; and intends to purchase the same provided he can get controlff^ l/\ ^ \ 1^ of the company. He asks {inter alia) for an injunction restraining|K ^ >» ~V % Divine, Lenoir and MacRae (who are joined as defendants) from voting > /^ 3' ^ '^or its prudent and economical management in the interest of all of its 5^ V*^ ^J x^ stockholders, the said forty-two thousand shares should, for the term f^ p/' (^^ o^ve years thereafter, be voted as a unit in the election of directors [tJ.y ^ji ♦ ly}^ri\P^^ ^^^^ railway company. In pursuance of this agreement Smith and ^ -^/^ ^0 I ^ Foster, on the 24th of February, made their joint bid for the shares, offering to purchase them as an entirety for the sum of eight hundred thousand dollars and upward, and by order of court their bid was ^^^cepted, and on March 23d the sale was completed and the price paid. After the making of the bid, and before the consummation of y ' ly the purchase and completion of the sale, Smith prepared the agi-eement * fLr for the voting of the shares as a unit that had been contemplated by the f > "V pj^rties to the purchase, and on the 22d of March the same was executed -^ ILjA^ wiplicate between Smith, Markham, and Foster. By this instru- ir^ ment, after reciting therein that the parties thereto had purchased the forty-two thousand shares of stock, and had agreed to retain the f'l^ '' ^f jy^ f^^H. iP^^^^ of voting the stock for five years, *' so as to keep the control of /'^,he corporation from passing to persons other than themselves," it ' /^ was " mutually agreed between said Foster, Markham, and Smith that iM 4fiey will, during said period, retain the power to vote said shares in o>ie body, and that the vote which shall be cast by said shares, whether for directors or for any other purpose, shall be determined by ballot between them or their survivors." It was in the contemplation of the Stnlfimfnt rewritten. Argumenls and part of opinion omitted. — Ed. ^Tiie votes of Gundecker and Wagner were also rejected; the ground being that they ere not bona fide stockholders. The statement as to their right is here omitted. — Ed. p^. y> '^^I SMITH V. SAN FRANCISCO & N. P. R. CO. 427 parties to the agreement that they might sell or otherwise dispose of some of the shares, and, accordingly, they made provision in this in- strument for retaining the right to vote the stock so sold by them, and annexed thereto the form of an agreement to be taken by them from their vendees. This form or draft recited the purchase of the forty- two thousand shares by Foster, Smith, and Markham, and that, " for the purpose of keeping control of said road in the interest of them- selves and of all persons who shall buy any portion of the stock from them," they have agreed that for the period of five years " they shall vote the said stock in one block " at all elections for officers. The purchase of the stock hy Foster, Smith, and Markham was completed and the price therefor paid on the 23d of jMarch, and twelve thousand three hundred and thirty-six shares of the stock were transferred on the books to each of them — five thousand shares being left in the name of the Mercantile Trust Company, subject to some prior trust. Prior to the day for the election in 1896, a conference was called to be held between Foster, Smith, and Markham, upon proper notice therefor, to determine by ballot how the vote of the shares should be cast at the next annual meeting for directors, and, in accordance^ with said notice, said conference was held, at which Foster and Markham were present, and, upon a ballot had thereat, it was determined that said shares should be voted for Markham, Xewhall, and Lilienthal as directors. It was shown at tlie trial that at the meeting of the stock- holders, held on February 2oth, Smith tendered a vote for the shares standing in his name, and, at the same time, Foster presented the vote of the same stock by himself and Markham in behalf of Smith. Mu- tual jDrotests against the votes were made by different stockholders, and the vote cast by Foster and Markham was received and counted, and that cast by Smith was rejected. Smith also testified that, after . receiving the notice for the conference to determine the ballot to be cast, he informed Foster and Markham that he did not recognize the validity or legality of the agreement, and that he withdrew from the same, and would not be bound by anything which they might do there- under. At the trial the defendants sought to introduce in evidence the agreement of March 22d, and offered to prove, in connection there- with, the matters set forth in their answer relative thereto ; but upon the objection by the plaintiffs to this offer, " on the ground that said agreement was not a proxy, and did not provide that any of the par- ties thereto should vote the stock belonging to the other, and that it was revoked before the election and was invalid as against public policy," the evidence was excluded, the court saying : " I will assume, for the purpose of my ruling, that it was a valid agreement, but that it was not an agreement which gave authority to an}' other person to cast the vote of Mr, Smith." The superior court found that the agreement by Smith with the other stockholders did not preclude him from the right to vote the 428 SMITH V. SAN FRANCISCO & N. P. R. CO. stock standing in his own name as he might choose, and that the vote by the other stockholders for his stock was unauthorized, and his own vote shouhl have been received. Judgment was thereupon rendered that Lilienthal had not been chosen as a director, and was not entitled to exercise the office, and that at the said election Smith was chosen one of the directors, and was entitled to be so recognized. A motion for a new trial on behalf of the defendants was denied, and from both the judgment and the order denying the new trial appeals have been taken. W. S. Goodfellow, Jesse W. Lilienthal, and Garret W. McEnerney, for appellants. Page, McCutcheon & Eells, for respondents. Harrison, J. . . . . . . for the purpose of this appeal it is to be assumed that the evi- dence offered by the defendants would sustain the allegations of their answer, and the sufficiency of these averments to authorize the exclu- sion of the vote by Smith is to be determined. . . . That the instru- ment of March 22d constitutes an agreement that the forty-two thou- sand shares are to be voted " in one body," and that the parties thereto agreed that " they " would vote the stock " in one block," is stated therein in express terms. By this instrument they also " mutually agreed " that " the vote " to be cast by said shares should be deter- mined by ballot '' between them " or their survivors. To " determine by ballot " is to ascertain the result of balloting upon a proposition by those entitled to cast the ballots ; and the " vote " — that is, the voting paper or ticket to be cast for the officers, which the parties agreed should be thus determined — is to be the same for the entire forty-two thousand shares. That by virtue of this agreement an au- thority was given by each of the parties to the others to determine " the vote " to be cast by the forty-two thousand shares of stock is too clear for argument. When they mutually agreed that they would "determine" between them the vote which " shall be cast " for di- rectors, they declared by necessary implication that such vote should be cast in accordance with the results of that ballot, and that if either of them should fail to cast the vote as should be determined by the ballot, the vote so determined might be cast by the others. If we should hold that this instrument is to be construed as not giving authority to the majority of the parties thereto to cast the vote of the entire forty-two thousand shares of stock, as might be determined upon such ballot, we should be compelled to hold that the instrument was prepared in disregard of the agreement between the parties, and of the purpose for which it was to be executed. If there is any am- biguity in the language used for the expression of that agreement, it is to be construed so as to carry the agreement into effect, rather tlian to defeat its operation. No particular form of words is requisite to constitute a proxy. (Morawetz on Corporations, sec. 48(3.) Like any other agency, the instrument by which it is created may be informal, /I SMITH V. SAN FKANCISCO & N. P. R. CO. 429 but if, in order to give effect to its language in view of the purpose for which it is executed, it is necessary to construe the instrument as creating an agency, such construction will be given. The instrument executed between the par t ies must^ therefo re, be held to be a proxy, an d to authorize the vote o f_JJi P. fnrty-tw oJJTon-^ sand shares of stock to be cast in ac cordance with thejjetermin atio n of the majority o f the parties the reto, and, if it was made upon a con- s iderat ion siiMci ent to bi nd thejparties^tCL its enforc e ment, jt must be re garded as^ still oper ative. One of the inducements for the purchase of the stoclc, and under which the parties entered into the agreement, was that the shares should be voted in one body, and held for five years as a unit. It is immaterial that the voting agreement was not reduced to writing and executed until after the bid had been made for the stock. It was so executed before the parties thereto had com- pleted the purchase and become the owners of the stock by paying the purchase price. Nor is the validity of the agreement or the effect of its terms different by reason of different certificates having been issued in the names of the several parties to the transaction, rather than in the name of one of them. The agreement between them was with reference to the forty-two thousand shares of stock, and that it should be voted as a unit, and the purpose of the agreement was the economical management of the road, and to prevent irresponsible per- sons from getting control. It was within the power of the parties to contract in reference to this property as fully as with regard to any other property. They were at liberty to make as a condition of their purchase that its management should be held by either of them, or by a majority of the three, and the terms of the agreement for such pur- chase could not be repudiated by either after the purchase had been made. It may be assumed that neither of the parties would have entered into the transaction, or agreed upon the purchase of the stock, except upon these conditions, and it must be held that each contributed his money to the purchase of the stock upon the promise made to him by the others. There was thus a sufficient consideration for the agree- ment granting the right to vote the stock. It was in the nature of a power coupled with an interest, and, being given for a valuable con- ' si deration, could not be revoked at the pleasure of either, {Hey v. Dolphin, 92 Hun, 230.) Although the court in excluding this evidence, assumed that the instrument was valid, counsel for respondents have presented an argu- ment in support of their further objection thereto, that the instrument Kff^' is invalid by reason of being against public policy, and it therefore ^ J' a becomes necessary to consider this objection, inasmuch as the action'^ ^a^ of the court, rather than its reason for so acting, is to be reviewed ; '^ for, if the instrument is invalid, the refusal of the court to allow any effect to be gained from its exercise was proper. "Public policy" is a term of vague and uncertain meaning, which it pertains to the law-making power to define, and courts are apt to 430 SMITH V. SAN FRANCISCO & N. P. R. CO. I ^ oA'f^i encroach upon the domain of that branch of the government if they characterize a transaction as invalid because it is contrary to public policy, unless the transaction contravenes some positive statute or some well-established rule of law. Sir George Jessel, as Master of the i\olls, said in Besant v. Wood, L. R. 12 Ch. Div. 605, that public policy is " to a great extent a matter of individual opinion, because what one man or one judge might think against public policy, another might think altogether excellent public policy " ; and in another case {Print- ing, etc., Co. V. Sampson, L. R. 19 Eq. 465), the same jurist said: "If there is one thing which more than another public policy requires, it is that men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts when entered into freely and voluntarily, shall be held sacred, and shall be enforced by courts of justice." It is not in violation of any rule or principle of law for stockholders, who own a majority of the stock in a corpora- tion, to cause its affairs to be managed in such way as they may think best calculated to further the ends of the corporation, and, for this purpose, to appoint one or more proxies who shall vote in such a way as will carry out their plan. Nor is it against public policy for two or more stockholders to agree upon a course of corporate action, or upon the officers whom they will elect, and they may do this either by themselves, or through their proxies, or they may unite in the appoint- \ ment of a single proxy to effect their purpose. Any plan of procedure they may agree upon implies a previous comparison of views, and there is nothing illegal in an agreement to be bound by the will of the majority as to the means by which the result shall be reached. If they are in accord as to the ultimate purpose, it is but reasonable that the will of the majority should prevail as to the mode by which it may be accomplished. It would not be an illegal agreement if articles of partnership should provide that stock in a corporation owned by the partnership, though standing in the individual names of the partners, should be voted by one of its members, and it is no more against pub- lic policy for such an agreement to be entered into between stockhold- ers whose interests in the stock are separate than where their inter- ests are joint. Viewed from considerations of public policy merely, it is immaterial whether such an agreement is made by the members of an existing partnership, which owns the shares, or in pursuance of an agreement by two or more persons to form a partnership for their purchase, or to purchase them for their joint account, or as one of tlie terms of an agreement for their purchase, by persons who contem- plate no relation to each other further than that of owning stock in the same corporation. Such agreement would, in any case, be outside of the corporation and disconnected with the interest of every other stockholder, and, in either case, the same rules would control. Whether Buch an agreement is illegal, so that any action or vote under it can be set aside, or is of such a character that it will not be enforced, will depend upon the object with which it is made, or the acts that are SMITH V. SAN FRANCISCO & N. P. R. CO. 431 done under it, and will be governed by other rules of law. [Omitting quotations and references.] In cases of " voting trusts," where the owners of stock transfer the^ shares to trustees, with authority to vote at elections according to the direction of a majority of those holding trust certificates, and the only consideration for such transfer and agreement is the mutual promises of the several stockholders, it has been held that any stockholder may revoke his agreement and withdraw his stock at will ; and it is also held that stockholders, who become such after an agreement of this nature is entered into, are not bound by its terms, but will hold their shares freed from the limitations of the agreement. {Fisher v. Bush, '60 Hun, 641 ; Woodruff \. Dubuque, etc., Co., 30 Fed. Rep. 91 ; Brown v. Pacific Mail S. S. Co., 5 Blatchf. 525 ; Griffith v. Jewett, 15 Week. Law Bull. 419.) . . . The ag reement ,iT) question canno t be reg ar ded a,s illeg al by reason o f be ing in restra int of trade. The rule invalidating contracts in restraint of trade does not include every contract of an individual by Avhich his right to dispose of his property is limited or restrained, Section 1673 of the Civil Code makes void every contract by which one is restrained from " exercising a lawful profession, trade, or busi ness," except in certain instances. Bu^jyiis_is_ia!r_differen1^^ contract limiting his right to dispose of a parti cula^iece of property Except upon^ceTtain conditions. XsThe owner of property has th right to withhold it from sale, he can also, at the time of its sale,' impose conditions upon its use without violating any rule of public policy, and there is nothing inconsistent with public policy for two or more persons, who contemplate purchasing certain property, to agree with each other, as a condition of the purchase, that neither will dis pose of his share within a limited period, or for less than a fixed sum, or except upon certain limitations. They have the same right to con- tract with reference to the terms under which they will hold or dis- pose of the property after it shall have been purchased, as they have to agree upon any other terms upon which the purchase shall be made, and they no more violate a rule of public policy in making such agree- ment a consideration of their purchase than would two or more part- ners who should purchase property for partnership purposes, and agree that it should not be disposed of unless their vendee would assent to certain conditions regarding its use. These terms enter into, and form a part of, the consideration for the agreement to purchase, and are as binding and enforceable as any other terms of the agreement. (New England Trust Co. v. Abbott, 162 Mass. 148 ; Hodge v. Sloan, 107 N. Y. 244 ; 1 Am. St. Rep. 618 ; Williams v. Montgomery, 148 X. Y. 519 ; Matthews v. Associated Press, etc., 136 N. Y. 333 ; 32 Am. St. Rep. 741.) The contract in Fisher v. Bush, 35 Hun, 641, was held to be invalid for want of any other consideration than the mutual promise of the parties ; but it was said in that case : " If these parties and their associates were the promoters of this corporation, then, doubt- '^f'^ ^ 432 SMITH V. SAN FRANCISCO & N. P. K. CO. I \. y •A less, they could have entered into a valid agreement regulating a sale of the same, and requiring the owners to hold them from market for a reasonable and definite period of time, and thus forbidding a sale by either of his interests to one against whom his associates might have a reasonable objection. {Moffatt v. Farquhar, 7 Ch. Div. 591 ; re- ported in 23 Moak Eng. Kep. 731.) A stipulation of that character would not be illegal as against public policy, as it would be simply a provision assented to by all that the newcomer into the business trans- action should be with the approval of the other joint owners." Neither is it ille gal or against publi c_policy to separate^ the voting power_o^_t he stock Trom its ownership. The s t atute au thorizes t he stockhaLdfir_iQJVote h yd roxy] and it was held in Peoples Bank v. Superior Court, 104 Cal. 649, 43 Am. St. Rep. 147, that a by-law re- stricting the selection of proxies to stockholders was invalid ; that the statute places no limitation upon the right of selection, and that a stockholder may appoint as his proxy one who is an entire stranger to ithe corporation. The right to appear by proxy implies of itself that the voting power may be separated from the ownership of the stock, and, unless the authority of the ju-oxy is limited by the terms of his appointment, he is necessarily required to use his own discretion in any vote that he gives. Being the agent of the stockholder, he is required to use this discretion in behalf of his principal ; but he is at liberty to use his own discretion as to the means by which his princi- pal's interest will be best subserved. The cases in which it has been said that the stockholder could not divest himself of the voting power of his stock, and that it should not be separated from the ownership of the stock, were cases which involved either the sufficiency of the agreement by which the voting power was transferred, or the validj^ of the purpose for whic h the power was_toJ)e_exer£ised. The proxy must exercise a discretioiTofthe'sarae^nature as that which the stock- holder is authorized to exercise, and an authority to do otherwise would be invalid ; but the authority to exercise a discretion differs from an authority to perform a particular act. Under an appoint- ment without words of limitation the proxy may act against the inter- ests of the stockholder, or even against the interests of the corpora- tion, and the corporation, as well as the stockholder, will be bound by his act as fully as if the stockholder had acted in person, while, if the authority had been directed in terms to that act, it might have been invalid. ''J ^he dist inctioii_is that between an unlawful exercise of a^ lawful pow er, and the attemjjt tojiuthome the exercisej3f_an un- l awful power. The question has been presented in cases of voting i/^l'trusts, but an examination of these cases will show that the question has arisen either when the authority was expressly given to carry out some illegal purpose, or wlien, having been given without any con- sideration, though purporting to be for a definite term, subsequent pwners of the stock have sought to revoke it before the expiration of {Shepaug Voting Trust Cases, 60 Conn. 553, sometimes >". ^^ '^.■<' tt^ ^vt SMITH V. SAN FRANCISCO & N. P. R. CO. 433 reported under the name of Bostwick v. Chapman ; White v. Thomas Inflatable Tire Co., 52 jST. J. Eq. 178.) We have been cited to no in- stance where the purpose of a proxy given upon a sufficient considera- tion was lawful, and the person by whom the proxy was created continued to be the owner of the stock, in which the agreement has been held invalid. The stock holder can not separate the v^ing power from bja^ stock by selling his right to vote for a consideration personal t o himse lf_alone, any more than he could agree for the same considera- tion t o cast the votejiimself, and an agreement with others^ to aj^point a proxy upon the same considerati ons w ould be equally invalid. In-, {Jone^yTT^usseU, 48 N. J. Eq. 208, an agreement by the purchaser of stock to give to other stockholders his irrevocable proxy for the pur- pose of securing and maintaining the control of the company was held invalid, for the reason that it was one of the terms of the agreement that the directors, to be elected under its provisions, should employ the one giving the proxy at a fixed salary during its existence. Such an agreement was held to operate as an inducement to elect directors who would not act disinterestedly for the benefit of all of the stock- holders, but rather to promote the interest of the parties to the agree- ment alone, and was therefore void, as being against public policy. The court, however, said : " This conclusion does not reach so far as to necessarily forbid all pooling or combining of stock, where the object is to carry out a particular policy with the view to promote the best interests of all the stockholders." It was upon this principle that the agreements in Hafer v. New York etc. R. K. Co., 14 Week. Law Bull. 68, Guernsey v. Cook, 120 Mass. 501, and Fennessy v. Ross, 5 N. Y. Sup. Ct. App. Div. 342, were held invalid. The same princi- ple was declared in Gage v. Fisher, 65 N. W. Eep. 809. In Mobile etc. R. R. Co. V. Nicholas, 98 Ala. 92, the court held that there was nothing illegal or contrary to public policy in separating the voting power of the stock from its ownership, saying : " Where a proxy is duly constituted, and the power of the appointment is without limita- tion, the vote cast by the proxy binds the stockholder, whether exer- cised in behalf of his interest or not, to the same extent as if the vote had been cast by the stockholder in person. The invalidity of acts of this character by a proxy, rightly understood, is not made to rest upon the ground that there has been a separation of the voting power from the stockholders, but because of the unlawful purpose for which the proxy was appointed, or the unlawful end attempted to be effected by the exercise of the voting power." From the foregoing considerations it follows that the superior court erred in finding that Gundecker and Wagner were bona fide stock- holders in the defendant railway company, and also in refusing to receive in evidence the instrument of ]\Iarch 22d, and the evidence offered by the defendants in connection therewith, for the purpose of sustaining the averments of their answer. The judgment and order denying a new trial are reversed. k- >^ ,^>^' 434 BRIGHTMAN V. BATES. M .r** li^ Van Fleet, J., McFarland, J., and Henshaw, J., concurred. Beatty, C. J., dissenting. — I dissent from the judgment and from the conclusions of the court on both of the principal points decided. The contract between Smith, Markham, and Foster was, in my opinion, void as against the policy of the law giving to the holders of a majority of the stock of a corporation the right of control. Its sole purpose and object was to give to a minority of the stockholders the power to control the affairs of the corporation against the will of the jjiajority, and that object is secured by means of this judgment, here is not time at my command to go over the decisions, but I am satisfied that the weight of authority is against the validity of any contract by which the sole owner of stock parts irrevocably with the right to vote it, with the effect of putting a minority in control of the corporation. \^ [Eemainder of opinion omitted.] Eeheari^g denied. BEIGHTMAN H 1900. BATES^v 175 Massachusetts, 105.1' ^l^^'l^aAir K. ^^ lants. C. J. These are actions upon a covenant executed by the The covenant recites that 1,360 shares of the stock of 7t^^ ''%t/^'J^ j^<' the Union Street Eailway Company in New Bedford have been or are ^»£t> y- )S ^bout to be purchased by a syndicate, under an agreement of Sep- ^ ^ vy. "^ tember 4, 1894, that the plaintiff has been largely instrumental in (^ organizing the syndicate, and that " he considers that for his services n^ . ^ therein in case the syndicate is formed, and the aforesaid shares pur- '\ ]y chased, he should receive for his compensation " a certain amount of <^ stock. These recitals are followed by several covenants on the part ^c^ i <^ ^ \ of the defendants and one other to give the plaintiff, in stock of the ^^f^'^'^^y^^ A i,>^ompany at $169 a share, a commission of $4 a share " upon the ^ ^A^''^^^^ number of shares of said stock we sell to said syndicate, less the num- (K^^{^%/^^\ ber of shares we have severally subscribed as members of said syndi- 0M • ) ~^^ cate," and certain other deductions, in case the compensation was not V''* ^. U^ ^J^ got from the syndicate. The judge before whom the case was tried aM'''^^r-^ jQuiid for the plaintiff, and the case is here upon a report of requests '* ■ ' ^" for rulings which in various forms raise the question whether such a ^r ffy/O Ending can be justified in law. jJ^I oT^ • . • /K*- The syndicate referred to was formed under another written agree- •^ -,/vv* ^j^^-^ent, whereby the subscribers recite their desire to become members ^^of it to the end that control of the railway company and advantage to them may be gained, agree to take the shares set against their ^ J^ '^'^ '^*^.^;*Miame8 at $169 a share, and further agree after the purchase to enter {Cy>y-''^\M. *** iL/* X-^" ^1 Staten/ent omitted; also part of opinion. — Ed X-^^ ^ ^ yW^ y^ r "V 1886. (Supreme Court of Canada), 12 Canada Supreme C oui-t, 59S. ^/^ ^ I _ , (A 1887. (Judicial Committ ee of Privy Council), L. R. 12 ^/jp. Cases, 589.^ I^i "^ "^ 4 Bill ix equity by Henry Beatt}-, a minority stockholder, against tne'' North Western Transportation Company, and its directors, including"^ James H. Beatt}'. The bill seeks to rescind the purchase by the cor- poration of the steamer United Empire. The defendants filed a state-* ment of defence. The plaintiff joined issue, and the case was heard? before Boyd, Chancellor. The material facts are as follows : — The Transportation Company- is a corporation, with a capital stock^o^ of $300,000, divided into 600 shares of 6500 each. On January 1,,^-^' 1883, James H. Beatty owned 200 shares, and was a director. He' ' was tlien building a steamboat, to be called the United Empire ; an(r.^ desired to sell it to the company. In Januar}-, 1883, he purchased 101 '^. additional shares. On the day of the annual meeting in Februar3','t^^L/v 1883, he transferred 5 shares to Rose and 5 to Laird, whereby theyi^''^y/^ , became qualified to be directors ; and they were then elected directors. ' -fv^ ^ '\'^ The board was composed of five directors ; and James H. Beatt}'/ ''^ Jk \S ^ t ^ Rose, and Laird constituted a majorit}'. y^Jy^" ir^' 1 'jj^ The board of directors, while .James H. Beatty was present and act- j^ % iy''^ ing, passed a vote (called a bye-law) to purchase the steamboat of . ^ e/^ ^ Cj(^^ James H. Beatty upon specified terms. The directors, at the same i,^ jt/^ "''''. time, voted to submit the said bye-law to a special meeting of thef^^'y^''^'^ '^ '^ stockholders. At such meeting, a vote to adopt the bve-law was carried/, ' t by a vote of 306 to 289. Of the 306 affirmative votes, 291 were cas^^ ^Xa'^^^^> bv James H. Beattv, and ten bv his transferees, Rose and Laird. 1 0^ -^ ..r^ J^ The bill charges that the purchase was not entered into by James' ^^^ ^ -} I H. Beatty et ah. on behalf of the company in good faith for the P"t^^<-^*^ji^ \j^ pose of promoting the best interests of the company, but for the \>yvc''\,'^ Jr^ ^^^^"^ pose of serving tlieir private interests contrary to their duty to \\\qY°*\^ r^ -<():: \ company and its stockholders. Subsequently all charges of fraud and J/^ t)^ l-Y^ collusion were abandoned. It was proved by uncontradicted evidence, [^ /^ ^^^ and was substantially admitted, that, at the date of the purchase, the' ^j^' \ ^-./i, acquisition of another steamer was essential to tlie efficient conduct of*" jt J^^ the company's business; that the United Empire was well adapted J^^ '- t/>^ Vir^ ' c^ for that nurnose : that it was not within the nower of thp r-nmnnnr 1^^^ nAi .■•-' T for that purpose ; that it was not within the power of the company >'"'"V->^ 'i' to acquire any other steamer equally well adapted for its business \Jy^''^^_W^''^ 1 Statement compiled from the various reports. The greater portions of the argiiAA' ,^ 'r p^^ ments and opinions are omitted. — Ed. " ^«jC^ Aj- 438 BEATTY V. NOETHWESTERN TRANSPORTATION CO. and that the price agreed to be paid for the steamer was not exces- sive or unreasonable. The case was heard in the Chancery Division, at Toronto, before Boyd, Chancellor, who decreed that the purchase should be set aside. (6 Ontario, 300.) The Court of Appeal of Ontario (Hagarty, C. J., Burton and OsLEK, J J.) unanimously reversed the decree of the Chancellor. (11 Ontario Appeal, 205.) The Supreme Court of Canada (Ritchie, C. J., Fournier, Henry, Taschereau, and Gwynne, JJ.) unanimously' reversed the last men- tioned decision, and restored the decree of the Chancellor. Sir W. J. Ritchie, C. J. Though it may be quite true, as a general proposition, that a shareholder of a corapan}', as such, may vote as he pleases, and for purposes of his own interest, on a question in which he is personally interested, does that proposition necessaril}' cover this case? Is it not abundantly' clear that, whatever a simple stockholder may do, no director is entitled to vote, as a director, in respect to an^' ( V contract in which he is personall}' interested? Directors cannot man- age the affairs of the company for their own personal and private advantage ; they cannot act for themselves and, at the same time, as the agents of the corporation whose interests are conflicting ; the}' can- not be the sellers of property and the agents of the vendee ; there must be no conflict between interest and duty ; they cannot occupy a posi- tion which conflicts with the interests of the parties they represent and are bound to protect. Is it not somewhat of a mockery to say that this by-law and sale were invalid and bad, and not enforceable against the company as being contrary to the policy of the law by reason of a director entering into the contract for his personal benefit where his personal interests conflicted with the interests of those he was bound to protect, but that it can be set right by a meeting of the shareholders, by a resolution carried by the vote of the director himself against a large majority of the other shareholders? If this can be done, how has the conflict between self-interest and integrity ceased ? While recognizing the general principle of non-interference with the powers of the company to manage its own aff"airs, this case seems to me to be peculiarly exceptional ; a director, acting for the company, makes a sale, acting for himself, to the comp.any, a transaction admit- tedly indefensible ; this purchase is submitted to the shareholders, and the director, having acquired a controlling number of votes for this purpose, secures a majority by his own votes thus obtained without wliich tlio purchase would not have been sustained, and confirms as a Bhareholdcr his invalid act as a director, and thus validates a transac tion against which the polic}' of the law utterly sets its face. BEATTY V. XORTHWESTERX TRANSPORTATION CO. 4o9 It does seem to me that fair plaj' and common sense alike dictate that if the transaction and act of the director are to be confirmed, it should be by the impartial, independent, and intelligent judgment of the disinterested shareholders, and not by the interested director him- self, who should never have departed from his duty. If he had done his duty and refrained from acting in the transaction as a director the b3--lavv might never have been passed, and the contract of sale never entered into ; and having acted contrarj' to his duty to his co-share- holders he disqualified himself from taking part in the proceedings to confirm his own illegal act ; and then to saj' that he was a legitimate party to confirm his own illegal act seems to me simply absurd, for nobody could doubt what the result in such a case would be, as the futileness of the interested, but discontented, shareholders attempting to frustrate the designs of the interested director with his majority is too manifest ; but he, if he had done his duty towards them and refrained from entering into the transaction, would never have been in the position of going through this farce of submitting this matter to the shareholders, and when so submitted of himself voting that he, though he had acted entirely illegally, had done right, and thereby bind- ing all the other shareholders who thought the purchase undesirable ; or in other words, b}' his vote carrying a resolution that the bargain he himself had made for the companj- as buver, from himself as seller, was a desirable operation and should be confirmed. I rest this case entirely on the position Beatty held as a director, and the duty which pertained to that office. In that view it is not necessary to discuss how far, or rather under what circumstances a shareholder may vote at a general meeting of shareholders on matters on which he is individually interested. I cannot, however, but look! upon it as rather a bold and startling proposition that a shareholder should be able to offer a property for sale to the company from a bare majority of votes and by such vote, against the will of all the other shareholders, compel the company to become the purchaser at his own price and on his own terms, against the wish of all the other! shareholders, who may, as in this case, be a minority of 289 votes against 306. Henry and Gwynne. JJ. , delivered concurring opinions. The case was then carried by appeal to the Judicial Committee of the Privy Council. Sir H. jEJ. Webste?', Attorney General, and Jexne, for appellants, contended that the judgment of the Court of Appeal was correct, and that of the Supreme Court should be reversed. The fiduciary position of J. H. Beatty as director had, it was submitted, nothing to do with the question. His vote as^areholder a t the gen eraljarieeting was the thingin_dispute, wliether he was prevented from giving it on a jnatter in which h^ was~^fsonalkJutei'e^ed. As for his voting for the bve- 440 BEATTY V. NOETHWESTERN TRANSPORTATION CO. law at the directors' meeting it had no other object or effect than that of bringing the matter before a general meeting. At the mos t it was voidab le^jid^.not_v oid, and the questi on was as to the validitj'orTts ratificat ion, and that jlejjerided u])on the validity of the appellant's vote aTa shareholdej\^.^'rhere_i£jioj3n^^ sho uld be disquali fied_frornj\'atijTg at a general m eeting, or why his vote should b e examined and disiillos'jed^jexceptibjLfauad. The dis- qualification of directors results from their agenc}'. The shareholders are principals. In this case if the raajorit}' were interested in the ves- sel sold, the minority were interested in a comiDcting line and had interests adverse to the compan}- ; and the validit}- of their votes might also on the respondent's contention be examined on the ground of per- sonal interest. The motives of shareholders for their votes cannot be inquired into. If there is no fraud the}' are free to exercise their own judgment as they please, and that exercise cannot be called in question by other shareholders. Reference was made to Pender v. Lushing- ton ; ^ M' Doug all \. Gardiner ; ^ East Pant Pit United Lead Min- ing Company v. Merr y weather ^^ Mason v. Harris.* Sir Horace Pavey, Q. C, and Premner^ for respondent. [Argument omitted.] Sir Richard Baggallay. The question involved is doubtless novel in its circumstances, and the decision important in its consequences ; it would be veiy undesira- ble even to appear to relax the rules relating to dealings between trus- ^ tees and their beneficiaries ; on the other hand, great confusion would be introduced into the affairs of joint stock companies if the circum- stances of shareholders, voting in that character at general meetings, were to be examined, and their votes practically nullified, if they also stood in some fidjuciiary relation to the company. It is clear upon the authorities that the contract entered into by the directors <^n the 10th of February could not have been enforced against the company at the instance of the defendant J. H. Beatty, but it is equally clear that it was within the competency of the shareholders at the meeting of the 16th to adopt or reject it. In form and in terms they adopted it by a majority of votes, and the vote of the majority must prevail, unless the adoption was brought about by unfair or \ improper means. The only unfairness or impropriety which, consistently with the ad- mitted and established facts, could be suggested, arises out of the fact that the defendant J. IT. Beatty possessed a voting power as a shareholder which enabled him, and those who thought with him, to adopt the bye-law, and thereby either to ratify and adopt a void- able contract, into which he, as a director, and his co-directors had entered, or to make a similar contract, whicli latter seems to have been 1 6 Ch. D. 73. - 1 f'li. 1). 13. 8 2H. &M. 254. ■• 11 Ch. D. 107. PENDER V. LUSHINGTOX. 441 what was intended to be done by the resolution passed on the 7th of Febniaiy. It ma}' be quite right that, in such a ease, the opposing minorit}- should be able, in a suit like this, to challenge the transaction, and to shew that it is an improper one, and to be freed from the objection that a suit with such an object can only be maintained by the company itself. But the constitution of the compan}- enabled the defendant J. H. Beatty to acquire this voting power ; there was no limit upon the num- ber of shares which a shareholder might hold, and for ever}' share so held he was entitled to a vote ; the charter itself recognised the defend- ant as a holder of 200 shares, one-third of the aggregate number; he had a perfect riglit to acquire f-irther shares, and to exercise his voting power in such a manner as to secure the election of directors whose views upon policy agreed with his own, and to support those views at any shareholders' meeting ; the acquisition of the United Empire was a pure question of policy, as to which it might be expected that there would be differences of opinion, and upon which the voice of the ma- i ^ jority ought to prevail ; to reject the votes of the defendant upon the question of the adoption of the bye-law would be to give effect to the views of the minority, and to disregard those of the majority. The judges of the Supreme Court appear to have regarded the exer- cise by the defendant J. H. Beatty of his voting power as of so oppres- sive a character as to invalidate tlie adoption of the bye-law ; their Lordships are unable to adopt this view ; in their opinion the defend- ant was acting within his rights in voting as he did, though they agree with the Chief Justice in the views expressed by him in the Court of Appeal, that the matter might have been conducted in a manner less likely to give rise to objection. Their Lordships will humbly advise Her Majesty to allow the appeal ; to discharge the order of the Supreme Court of Canada ; and to dis- miss the appeal to that Court with costs ; the respondent must bear the costs of the present appeal. Jessel, M. R., in PENDER v. LUSHINGTON.^vf ^ /' 1877. J.aw Reports, 6 Chancery Division, 70, pp. 74-76. V^ jv IV s^ V^r Jessel, M. R. This is a motion by Mr. X Petider, on behalf of himself and all shareholders who voted with him against an amend- Ml ment, and the Direct United States Cable Company, Limited, as Plain- * tiffs, against E. H. Lushington and other gentlemen as Defendants, in substance to obtain the opinion of the Court that certain votes at a gen-, _ "^r"? ' eral meeting on behalf of the Plaintiff were improperly rejected Ity the -^fi ^ ^ 442 PENDER V. LUSHINGTON. chairman. That is the substance of the case, though there are other technical questions to which I must also refer. In all cases of this kind, where men exercise their rights of prop- erty, the}' exercise their rights from some motive adequate or inade- quate, and I have always considered the law to be that those who have the rights of property are entitled to exercise them, whatever their motives may be for such exercise — that is as regards a Court of Law as distinguished from a court of morality or conscience, if such a court exists. I put to Mr. Harriso^i, as a crucial test, whether, if a landlord had six tenants whose rent was in arrear, and three of them voted in a way he approved of for a member of Par- liament, and three did not, the Court could restrain the landlord from distraining on the three who did not, because he did not at the same time distrain on the three who did. He admitted at once that whatever the motive might be, even if it could be proved that the landlord had distrained on them for that reason, that I could not prevent him from distraining because they had not paid their rent. I cannot deprive him of his property, although he ma}- not make use of that right of property in a way I might altogether approve. That is really the question, because if these shareholders have a right of propert}', then I think all the arguments which have been addressed to me as to the motives which induced them to exercise it are entirely beside the question. I am confirmed in that view by the case of Menier v. Hooper'' s Tele- graph Worlis^ where Lord Justice MelUsh observes : " I am of opinion that, although it may be quite true that the shareholders of a company may vote as they please, and for the purpose of their own interests, yet that the majoritj' of shareholders cannot sell the assets of the com- pany and keep the consideration." In other words, he admits that a man may be actuated in giving his vote by interests entirely adverse to the interests of the company as a whole. He may think it more for his particular interest that a certain course ma}' be taken which may be in the opinion of others very adverse to the interests of the com- pany as a whole, but he cannot be restrained from giving his vote in what way he pleases because he is influenced by that motive. There is, if I may say so, no obligation on a shareholder of a company to give his vote merely with a view to what other persons may consider the interests of the company at large. He has a right, if he thinks fit, to give his vote for motives or promptings of what he considers his own individual interest. This being so, the arguments which have been addressed to me as to whether or not the object for which the votes were given would bring about the ruin of the company, or whether or not the motive was an mproper one which induced these gentlemen to give their votes, or hether or not their conduct shews a want of appreciation of the 1 Law Rep. 9 Ch. 350, '554. PRICE V. HOLCOMB. 443 principles on which this company "was founded, appear to me to be wholly irrelevant. Therefore I do not intend to enter into the ques- tion as to what the objects of the company were, or what was the mode in which it was proposed to carry out those objects. I am only bound to decide whether or not these people were entitled to vote. To tbatu question I am nawi^oing to address myself.^ ^ jY PKICE HOLCOMB et al. > ys* 1893. 89 Iowa, 123.2 Action in Equity, by minority stockholder in the lOwa Mill Company, to set aside a sale of the corporate property to Hol-iy \i/ , comb. The property was purchased by Holcomb as the highest bidder » . \ a at a public sale, which was authorized by a resolution passed at a^,vr \ \ j^ meeting of the stockholders. Out of 393^ shares voted in the affirma- Ap tT tive, Holcomb voted, in his own right, on 177^ shares ; and also voted,/^ ^ as a proxy, on 180 shares. S> <:^ •. ^ In the District Court a decree was entered dismissing the plain- *^-'^^ " '^ •• tiff's petition. Appeal. C. L. Poor and Thomas Hedge, for appellant. Power & Huston, for appellees. Given, J. [After deciding other questions.] The appellant cites Ol^^ cases announcing the familiar rule that a party holding a fiduciary S^ relation to trust property can not become a purchaser thereof, either jl.^ '^ directly or indirectly. It is contended that the defendant Holcomb, in voting the majority of the stock, as already stated, stood in the place of the corporation, and was charged with its trust relation^ toward the stockholders, and, therefore, within the rule forbidding him from purchasing the property. Mr. Holcomb's relation as a- stockholder was not that of agent or trustee, but a joint owner. An ' a gent or trustee is charged wjth__the,_inte rests of his _pr incipal ~ or ' o^ cestu i que ^rwg^, andT can not have any interest adverse ther eto. Not ^ s o, howev er^3^~lb' aTstockhoIder. He has his own_interests_to jpro- tect, jjid^js_iiQt _charged ^vith the care of the jnterejts of the othej stockhoMgrs. They_actjQ r themselves . The rule applicable to stock- holders is well stated in Rice's Appeal, 79 Pa. St. 204, as follows : " Where a person has the actual control of a corporation, whether 1 In Dorchester v. Youngman, A. d. 1880, 60 New Hampshire, 385, it was decided thati a citizen's special pecuniary interest in a question of town affairs does not disqualify himl from voting upon it. Seven suits had been brought by the town against different citizensJ A vote in town meeting, authorizing the settlement of these suits, was passed bj' the heln of the votes of the seven defendants. Held, that their interest did not disqualify then! from voting. — Ed. | 2 Statement abridged. Only so much of the case is given as relates to a single point. — Ed. 444 GUERNSEY V. COOK. '.^ such control arises from the ownership of a majority of the shares, or from his position or influence, he is held to most rigid good faith. The onus is upon him to show the fairness of the transaction if it is called in question." This brings us to inquire whether the appellee Holcomb acted in good faith. It is unnecessary that we extend this opinion by here discussing the evidence on this point. It is sufficient to say that purchasers for such property were not numerous, the sale was advertised and open, it was postponed in hope of securing bid- ders, the minimum price was fixed, and at an open sale the appellee Holcomb made his bid. It is true that the price bid was much less than the cost of the property, but it was all it would bring at an open sale, and, in view of the past failures of this new enterprise, may be said to be equal to the then value of the property. We find no evi- dence of fraud or bad faith in the transaction. What was done was authorized by the circumstances, and was done in good faith, and for the best interests of all concerned.^ . Judgmenw(Mlr^ed. ^^ J>* ^\r^'^- r,^- n ^ ^ -i^^^'/] CoMpf J. The contract declared on has been lield to be the personal t*^ , a* .^jl^ ,^ddfttract of the defendant. 117 Mass. 548. It provided in substance y» «M iTOh the part of the defendant and Mr. Beebe, who together owned a majority of the stock of the India Company, that the plaintiff should be made treasurer of that company at a stipulated salar}' ; the plaintiff on his part agreeing to take part of their stock at par, with an agree- ment that it should be taken back and an allowance made for interest, '' in case it should be desirable for an}' reason to dispense with the plaintiff's service as treasurer." The question is whether such a contract is void as being against public policy. Its decision depends upon the construction which must be fairly given to the terms of the (y^ (^^ ^ contract. ^Ar^^'^'^ "y It, In consideration of the purchase of a part of their stock at a pricfe 1/ Ah^^^t^ ,,/a.named, two of the stockholders agree to secure to the purchaser the Z*^ < / '7^ treasurership of the corporation, of which they are members, and to ^^^ I ^^^^ secure to him also a sum named, as the annual salary of the office. ij^^^ie. purchase of the defendant's stock and the agreement relating to ^the office are incorporated into the contract as part of one transaction ; Ia^^*"^ and each agreement is the valuable consideration of the other. The contract, if reasona])ly susceptible of two meanings, one legal and the other not, must indeed receive an interpretation which will support 1 rather than defeat it, and the presumption is in favor of its legality. 1 But see Reilly v. Oghbay, a. d. 1884, 25 West Virginia, 36; and Chicago Hansom Cai Co. V. Yerkes, a. d. 1892, HI Illinois, 320. — Ed. 'I /< '^ A "-^ k'- GUERNSEY V. COOK. 445 But this contract necessarily implies that the defendant intended to derive, and the plaintif intended to give to him. a private advantage, not shared b}- tlie other stoel^ DUDLEY V. KENTUCKY HIOTv^SCHOW. 1873. 9 Bush (Ky. Cradock & Trahue, for appellant. Ira Julian., for appellee.^ Lindsay, J. The order from which this appeal is prosecuted must be regarded as final. The special demurrer to the jurisdiction of the [V , '^ /"^ cou^t was sustained, and a judgment rendered against appellant for the \V. (r <> ,ic!6sts of the entire proceeding. This is equivalent to dismissing the Jr L^ /r*^ petition for the want of jurisdiction in the court, and effectually pre- ^ .Iw .^ eludes appellant from taking further steps in this litigation to obtain the relief desired. We are inclined to differ with the circuit court as to its want of juris- diction to enjoin the collection of so much of appellant's subscription to the high-school as had not been reduced to a judgment in the FranMin Quarterly Court ; but this question need not be considered in view of the fact that we feel satisfied, after a careful examination of the petition, that it sets out no cause of action, and that under the facts as presented, and the provisions of the act of the General Assembly incorporating the high-school, it cannot be so amended as to present a cause of action. The object of the corporation was to establish and maintain a high- school, and not to make money, and it has no legal right to engage in speculations or investments in real estate for the last named purpose ; but it has the expressly delegated power ' ' to receive and hold for the I)enefit of said high-school any lands, tenements, etc., ... by gift, devise, donation, contract, or purchase." It is not complained that the house and lands purchased or about to be purchased from Gaines are not to be held for the benefit of the school, but that the corporation is unable to pay the contemplated price, and that the inevitable result of the pur- chase, if consummated, will be the bankruptcy of the corporation and the failure of tlie project to establish the school. ^ This subject is also discussed in various cases which are given under special topics treated of in subsequent chapters ; especially in the cases relating to the stockholder's right to maintain suit, the cases relating to the reserved power of the legislature to alter or amend charters, and the cases on ukra vires. — En. * Citations of counsel omitted. — Ed. T)TTT)T.li".V OJ KVKTItnw mnvr crtxTnr>^ tli^i ]/' 14/ k.AA^^'-^M^ / /' \-J- — — ■ I r 4- I DUDLEY V. KENTUCKY HIGH SCHOOL. 447 It may be conceded that the facts stated in the petition full}' autbon ize this conclusion, and yet it does not follow that a court of equity has , the power at the suit of a stockholder to interfere by injunction to pre- vent the corporation from executing a contract it has the lawful right to make. It is true that a majorit}' of st ockholders, no matter how great, have Dotjl ie right to divert the fundsj)f ajpint-stock incorporated company to any jother than the purposes for w hich it was organized ; and Jf such funds are about to be so divert ed, a stockholde r may file a bill i^jequity against the company to restr ain it by injunction fro m suc h diversion or misapplicationj_ Bngshaw v. Eastern Counties Railway Go. (7 Hare, 114; 1 Beavan, 1) ; Marsh v. Eastern Railway Co. (40 N. H. 548). But relief will not be granted unless the corporation is about to do some act outside of the scope of its authority, or in disobedience to the pro- visions of its constitution, for so long as it exercises the powers granted b}* the charter the acts of the company must be treated by the courts as the acts of all the stockholders. Each and every_stockholde r con jractsjtjia t the will of the majority shall^2y£i''^ ^^ ^^^ matt ers coming within the limits o f the act of i ncor- porationPandnuT cases involving no breach of trust, but only error or mistake of judgment upon the part of the directors who represent the companj', individual stockholders have no right to appeal to the courts to dictate the line of policy to be pui-sued bj* the corporation. Angell and Ames on Corporations, sec. 393. Nor does the irregular manner in which the board of directors voted upon the proposition to make the purchase from Gaines authorize the chancellor to interpose to pre- vent its consummation. In the case of Foss v. Harhottle (2 Hare, 461), where the object of the bill in equity was to obtain relief against what was alleged to be a fraud committed by certain of the directors in an incorporated compan}-, which fraud consisted in the sale to themselves, as representatives of the company, of lands in which they were indi- vidually interested, Vice-Chancellor Wigram held that although the act might be voidable by the companj', yet, inasmuch as a majority of the proprietors might at a general meeting confirm it, he declined to inter- fere, saying, "• While the court may be declaring the acts complained of to be void at the suit of the present plaintiffs, who in fact may be the only proprietors who disapprove of them, the governing body of proprietors may defeat the decree by lawfully resolving upon the confirmation of the ver}- acts which are the subject of the suit." So in this case, while I it may be that ohe corpo'^alion has the right to avoid the purchase from Gaines, because one of the directors, without whose vote the propo- 1 sition would have been rejected- was allowed to vote b}' proxy, yet it may be that Dudley is ^he onl}- stockholder who disapproves of the purchase, and it might result that, at the time the court was protecting him against the payment of his subscription because of the unauthor ized action of the directors, a majority of the stockholders in general meeting might ratify or have already ratified the purchase, pud bound 448 NATUSCH V. IRVING. Dudley under his contract of subscription to submit to their wili ^hus regiilarl}' and legally expressed. It may be that the price agreed to be paid for the house and lands is greatly more than its value, but about this matter the opinion of the majorit}' of the stockholders as expressed through the directory must control, and so far as the action of the court in this case is concerned it is immaterial whether the corporation acted wisely or unwisel}' in jcontracting a debt which possibl}' it will be unable to pa}-. The chcirter empowers it to make purchases of land, to contract debts, and to "issue bonds to an amount not over two thirds of the stock subscribed ; and if these powers are so exercised as to result in loss to the stockholders, it is a misfortune against which the court^ can afford no protection. jj.' Judgment affirmed. ■ 4^ ) Vv^ P- rV NATUSCH u. IRVING et als. 1824. Gow on Partnership, Appendix No. VI. Page 398.1 Tj Plaintiff, on behalf of himself and all others the shareholders, mem- ^^ers, or partners of the Alliance British and Foreign Life and Fire , Assurance Company, filed this bill against the president and directors-, praying, i/iter alia, for an injunction to restrain them from carrying on the business of marine insurance in the name or on the account of the company, and from applying the capital of the company to any such purpose. The case made by the bill and affidavits was, in part, as follows : A prospectus was issued for the formation of an unincorporated com- fS/i/^V^^y to grant fire and life insurance, with a capital of five million pounds divided into fifty thousand shares, plaintiff subscribed for fifteen li'^s, paid the required deposit, insured his life in the company and paid the insurance premium. He was willing also to execute a proper deed of settlement. After the plaintiff had subscribed, &c., the ma- jorit}' of the company undertook to carry on the additional business of marine insurance. The}* prepared a deed of settlement which contained provisions for enabling tlic company to carry on marine insurance ; and which plaintiff refused to execute. Plaintiff objected to the company's arrying on a marine insurance business. The directors informed plaintiff that, if he was dissatisfied with the course intended to be pursued, he might receive back his deposit with interest, and also have his life policy cancelled and the premium returned. Loud Eldon, Chancellor. ' Statement abrirlged. Part of opinion omitted. The case was first reported in Gow, and has since been reported in 2 Cooper, Tempore Cottcuham, 358. — Ed. \jr i>^ :>^- .,}' NATUSCH V. IRVING. 449 3. An oflfer is made to the plaiutiflF that he may reoeive back his deposit with interest from the date of the paj'ment, and he is desired to consider himself as liaving received notice thereof But it is notT] I apprehend, competent to any number of persons in a partnership (unless they show a contract rendering it competent to them) formed for specified purposes, if they propose to form a partnership for ver}' different purposes, to effect that formation b}' calling upon some of their partners to receive their subscribed capital and interest and quit the concern ; and, in effect, merely by compdling them to retire upon such terras, so to form a neio company. This would, as to partner- ships, be a most dangerous doctrine. "Where a partnership is dissolve(^ (even where it can be in a sense dissolved the instant after notice to dissolve is given, if there be no contract to the contrary), it must still continue for the purpose of winding up its affairs, of taking and settling all its accounts, and converting all the property, means and assets of the partnership existing at the time of the dissolution as beneficially as ma}' be for the benefit of all who were partners, according to their respective shares and interests ; and the other partners cannot say to him, to whom the}' have given an offer of his deposit and interest, T(iJority o£rthe stockholders. \ Ajpdgment for the defendant mS^i^ ,^^ Bill in crifANCERY, preferred oefore the Chanwllor of the Third' ^ \ Judicial Circuit, against the Rutland & Burlington Railroad Company^. jji- »[ \A^ y%/^ and three of its directors, by a stockholder ; the object; of which is to \y '^ *^l/ >^ ^*^ obtain an injunction, restraining defendants from using the corporate9i5\* \<^'^>^ i/' -f^ funds or credit for the purpose of constructing a railroad from Burlington to Swanton. The original charter authorizes the building of a railroad^ on the Connecticut River. It provides that the capital shall be one!;^"^ ^^t' )J/' million dollars; with the right in the corporation to increase it to an. v' amount sufficient to complete said road and furnish all necessary ni)'^ apparatus for conveyance. The corporation was organized, the stock \ - taken, and the road constructed and put in operation. The plaintiff '\y\^ subscribed, and paid for, five shares ; same. After the plaintiff had become and is still tlie owner of the ^ X •^ i- t^ lu IS sLiii Lut; uwiiei ui lue ^ t a stockholder, and after the3'' J^'^i C^. road was in operation, the legislature passed an additional act, author- J'^ fZ^V J-~^ izing the corporation to extend its railroad from Burlington northerly ^ "^ us* ' to Swanton, a distance of about thirty miles; also providing that the (jtA~^ )^ "M'****^'^ \ ^^ ^^ ^^^ ^ ^ Statement abridged. Portions of opinion omitted. — Eu / ^jj-j^ 1 » ,j>y^\ c-o. vih^ tJ^ X S:|r£VEHS V. RUTLAND AND BURLINGTON RAILROAD CO. ■ A corporation, in the construction of this extension, shall have aR the rights and privileges and be subject to all the liabilities contained in )\^e original charter. This additional act was accepted by the board of (^-^ directors. The directors caused a meeting of the stockholders to be called, to see if they would accept of this act as an amendment of their charter ; and threatened, in case of acceptance, to apply the corporate funds in constructing the extension against the will of the minority and particularly of the plaintiff. After the bill was filed, and prior to the lieaping, the meeting was held, and a majority of the stockholders ^^vtoted to accept the additional act as an amendment of their charter. J\* /"O ' /I <*-' The defendants filed no affidavits, nor did they apply for a delay of the r ,"1^ i^ hearing for the purpose of answering the bill /ii^- L*^ /r^ f Bennett, Chancellor. The question is, can the orator, upon such /• ^t^ (T /i/yy^^\y^ ^ state of facts, claim, at the hands of the chancellor, his injunction. (U*^j_^ A, *^u>^*'/ -^^ ^^ ^" admitted principle, that in partnerships, and joint stock ^*A-T\;c jt^. ^j associations, they cannot by a vote of the majority change or alter r^^~\ ^■'^^\^ V'^'^^ (their fundamental articles of copartnership or association, against the , r>^ l^^ /> /will of the minority, however small, unless there is an express or im- A"^ (plied provision in the articles themselves that they may do it. It is , - I equally well settled, that a court of chancery will, upon the application ^.^ '" ^,^^' I of an individual member of a partnership, or joint stock association, .y^'^''^^ ^ *f-' jrestrain, by injunction, the majority from using the funds or pledging A -'"^^ /the credit of the partneiship or association in a business not warranted, ^y]*^"^^^ t and not within the scope of their fundamental articles of agreement. '^ ' ^' Ljr^ Courts of equity treat such proceedings by a majorit}', as a fraud upon 3>I* _x , the other members, which they will neither sanction or permit. To *^* T''^ 'V prevent the commission of fraud, b}' injunction, has been one of the yy/i I /J/-'-' V earliest and most appropriate heads of equity jurisdiction, as well as to iV^-*^' A,-<^'th> relieve against it, when committed. o^^ Af^ It was well conceded, in the argument on the defense, that if the cor- A. ^V- / poration had been about to proceed to a construction of the contem- t^^ . y' plated extension without the act of 1850, it would have been a proper yyiJ''^''^ ^- case for an injunction. The only question which can be open to debate ' is, as to wliat shall be the effect of the act of 1850, and a subsequent adoption of the act by the corporation, upon the individual rights of a shareholder who does not assent to its adoption? If bound by it, tiiere is no equity in this bill. It is, and must be admitted, that the legisla- ture has no constitutional power, unless it be reserved in the grant, to change or alter an act of incorporation without consent, and thereby cast upon the company new and additional obligations, or take from them rights guaranteed under the original charter. And indeed this the legislature have not attempted to do. It is also equally true that it is a part of the law of corporations, that they act according to the voice of tlie majority, lint it is to be remembered, that this is not a Buit in which the plaintiff seeks to protect hiuiself in any corporate right, but in his own individual right, growing out of the fact of his having become a corporator by his subscription and its payment, to the STEVENS V. RUTLAND AND BURLINGTON RAILROAD CO. 457 capital stock of the compan}'. One of an aggregate corporation may contract with the company, as well as a third person ; and the rights of the individual so contracting are no more distinct and independent in the one case than in the other. The plaintiff, hy his subscription, as- sumed to pay to the corporation, and only for the purpose specified in f\ the charter, its amount, according to the assessments ; and there was jj at the same time a trust created, and an implied assumption on the part of the corporation, to apply it to that object, and none other. The corporation also assumed upon themselves to account to this cor- porator for his share of the dividends, when this road should be com- pleted and put in operation, and for liis share of capital stock, though not in vuviero. The charter, in this case, gives to the state the right to purchase out the road of the corporation, after a given number of years, upon certain terms therein specified. The relation between each original shareholder and the corporation is the same. The obligation of the contract between tlie legislature and the corporation, after an acceptance of the charter, is no more sacred than that which is created between the corporation and the individual corporator. Does any one suppose the legislature could, without the consent of parties, absolve a corporator from liabilit}' on his subscription to the corporation, or K^ ' modif}' it? and can they do the reverse of it? 'l^o v It is conceded that there is a class of alterations in a charter, which the corporation may obtain and adopt, that would not so essentially change the contract as to absolve the corporator from his subscription, or give him a right to complain in a court of justice, in case he had previously paid it. AVhere the object of the modification or alteration' of the charter is auxiliary to the original object of it, and designed to enable the corporation to carry into execution the ver}- purpose of the original grant, with more facility and more beneficially than they other- wise could, the original corporator cannot complain ; and I should ap- prehend it would make no difference with the rights of a corporation, in such a case, though he could show that the charter, as amended, was less beneficial to the corporators than the original one would have been. The ground upon which such amendments bind the corporator, I deem to be his owni consent. When he becomes a corporator by his signing for a portion of the capital stock, he in effect agrees to the by-laws, rules, and votes of the company, and there is an implied assent, on his part, with the corporation, that the}' may apply for, and adopt such amend-/ ^ ments as are within the scope, and designed to promote the execution! of the original purpose; and he signs, and the corporation receive hisl subscription, subject to such implied contingenc}' ; and if we regard it in the nature of a license, only, it would not alter tlie principle. Both parties having acted upon it, it would not be countermandable. Eut suppose t he object of the alter atio n is a jundjjg^rUal_chan ge in the originaf purpose, and designed_to superadd to it something which is l^yo nd and aside of it ;_doe s the same pr inciple aj^jDly ?^,piAfter cit- ing ^nd commenting on various cases, the last of which is Hartford 't). 458 STEVENS V. RUTLAND AND BURLINGTON RAILROAD ©C & N. H. R. Co. V. Croswell, 5 Hill, 385, the learned Chitnc^Xof pro- ceeds •] Chief Justice Nelson, in his opinion, la3-s down thivj general proposition, " that corporations can exercise no power over the corpo- rators, beyond those conferred by the charter to which they have sub- scribed, except on the condition of their agreement or consent." This is a sound proposition. The consent or assent may, however, be implied in a class of cases, as has already been stated, where the amendment is not regarded as fundamental, and can be brought within the scope of the original purpose of the association ; and this is going to the ver}' verge of the powers of the corporation. It is difficult, and would be unwise, to attempt to la}' down any general rules to determine in what precise cases the assent of the corporator should be implied, and in what not. It is sufficient for the present purpose to sa}', that his assent cannot be implied, in a case like the present, from a majority vote. Courts ma}' differ, and doubtless will, in regard to what alter- ations shall be sufficient to constitute a fundamental change. But in the present case, I think, on this point there can be but one opinion. The termini of the road, as fixed by the charter, are Burlington, and some point on the west bank of Connecticut River, in the county of Windsor or Windham. The capital stock is one million of dollars, with a right in the corporation to increase it to an amount sufficient to com- plete said road, and furnish the necessary apparatus for conveyance. The supplementary act of 1850 purports to authorize the corporation, within three years, to construct and extend their railroad from the terminus in Burlington, to some point in Swanton, in the county of Franklin, a distance of about thirty miles ; and the act provides that in the construction of the road, they shall have all the rights and privi- leges, and be subject to all the liabilities, contained in their original charter, and the acts in addition to it. The franchise granted to this compan}^ was territorial ; and an ex- tension of the termini necessarily is an extension of the franchise. It cannot remain the same thing in substance, until it can be established that a part is equal to the whole. Besides, the compan}' may nicreaso the capital stock to such additional sum as shall be necessar}' to con- struct the extension. The statute of 1850 is little less in effect, if anything, than an at- tempt to create in a summary manner, and by the wa}' of reference, a new corporation, and to transfer all the old corporators to it. If all the corporators had assented to this transfer, it was well enough. The ^ '^ '^ ^ change in the purpose was not more fundamental in the case from the ^ y^ ^ J6ih of Hill than in this. It is not necessar}- that thejbusiness should ^Ay^l*'^/^^ I be changed, in kind, to change the_original purpose. If this is not a ^L'^yV^fl C I change in purpose, it would not be to extend the road in one direction ^ _ J y"^ ^ 'I to Canada line, and in the other to Massachusetts line ; and there would fi/^y^ /^^ ^^ limits to the control which the corporation might acquire over the yl X (individual corporators, and tliis, too, without their consent, except /what arises from the confines of legislative authority. STEVENS V. RUTLAND AND BURLINGTON RAILROAD CO. 459 The change, th enj^in_t lie charter be ingjundamental andjbe co rpora^ tion not being able to bind the plaintiff b}- a majority vote, what must be tlie result? If Tie had been sued for an assessment upon his stock, Ee~rnight have claimed that he was absolved from all liabilit}' upon the acceptance of the amendment. And is not this reasonable ? Shall it be said that the legislature and the corporation have power to embark this corporator in a speculation to which he has never consented? If it can be done in one case it can in another. But having paid his funds into the corporation, he has a right in chancery to compel a faithful performance of the trust by the corporation, in conformity to the origi- nal charter, and to keep them within its purview. No one can suppose that upon the payment of his subscription, the personal identity of the plaintiff was merged in the corporation, or that he ceased to have dis-j tinct and independent rights. In Rex v. Eastern Counties Railway Compan}', 1 Eng. Railway Cases 509, the King's Bench issued a man- damus, upon the application of a minority', against the comi^n}', direct- ing them to proceed in the construction of a railroad which had been chartered between two points, tlie corporation having stopped short of one of the termini, and voted to go no further. In the case before us, it must follow, if the plaintiff is not bound by the conjoined effect of the act of 1850, and a majority vote of the cor- poration, the defendants can stand on no better ground, than a volun- tary association, who are about to go beyond and aside of their original articles, against the will of a minority. This, in effect, was conceded in the argument. There was nothing improper in the passage of the act of 1850, though upon the application of a portion of the directors of the compan}', as stated in the bill. No attempt is made by the legislature to impair the obligation of an}' contract between themselves and the corporation, or to cast upon the company any new and addi- tional burthens without their consent. There was no attempt to impair any contract arising under the prior charter, between the corporation and the corporator as an individual, or disturb any vested right in either. The act is not mandatory; and there is, in fact, an implied condition annexed to it, that it is to be accepted by all whose individual and corporate interests are to be affected by it, before it shall become operative. But suppose this act had been mandatory upon the corpo- ration and the several stockholders, to build this extension in the road within three years ; would not all cry out against its palpable injus- tice? Suppose, instead of this, the legislature had left it optional with the corporation to accept or reject the act of 1850, and had provided, that in case of the acceptance of the amendment by the corporation, it should bind the corporators who dissented from it, or did not assent to it, and this too, in their individual rights; would there not be the same reason to cry out against it? Would it not, by its carrying a stockholder into an enterprise which he had never consented to, and changing the principles of liability between the corporation and the individual corporator from what they were under the origiual compact, 460 STEVENS V. EUTLAND AND BURLINGTON RAILROAD CO. z h Impair and disturb vested rights under it? I have no hesitation in say- ing, that, in my opinion, it would be bej'ond the pale of the constitu- tional authority of the legislature. In Ellis V. Marshall, 2 Mass. 269, it was held that no man could be made, by act of legislation, a member of an aggregate corporation without his personal consent ; and the same principle would seem to apply when he is asked to remain and become a corporator under a supplementary act, to be attached to and become a part of the charter, where that which it is proposed to superadd is vital, and constitutes a fundamental change in the charter, which is but the constitution of the company. [The learned Chancellor here discussed various authorities, includ- ing Ware v. Grand Junction Water Co., 2 Russell and Mylne, 461. In reference to this case, he said (inter alia) : '' I apprehend, that the views expressed by the Lord Chancellor in that case, if sound, miist rest upon one of two grounds ; either that the change asked for in the charter was not a fundamental one, or else upon the ground of the transcendent powers of a British parlia- ment. ... It is evident that Lord Brougham . . . grounds himself upon the sovereign and uncontrollable powers of the parliament. . . . But with us, no legislature can transcend the bounds of the constitu- tion."] The Rutland and Burlington Railroad Company is but a private corporation, so far as the stockholders are concerned ; though as it regards the powers of the legislature to authorize the taking of private property for public use, it may be said to be a qua public corporation. The stock is owned by individuals who compose the corporation, and from which they design to derive a profit; and they manage the business in view to their own interest; and it does not become a public corporation because the public interests may be incidentally promoted by it. In principle it is like a turnpike, a canal, or bridge charter ; Ten Eyck v. Delaware and Raritan Canal Company, 3 Harr. (^. J.) 200. I think it is obvious beyond a reasonable doubt, upon principle and authority, that the plaintiff is not bound in his indi- vidual rights as a cor])orator, by force of the act of 1850 and the majority vote of the corporation, without his individual assent. In the case of public corporations, as in towns, counties, &c., a different rule may obtain. The distinction between private and public associ- ations and corporations has been well settled since the days of Lord CoKi-:. CCoke Little. 181, b.) In case of public associations and corporations the public good re- quires that the voice of the majority should govern, and hence the power is more favorably expounded than when created for private purposes; and it would seem that public convenience required the adoption of such a rule. But in ca se of private assoc iations an d cor- poratioiTS it is not the doctrin e that a major it ycaiTbind the nvinon ty in a matteFbeyond and aside ^ their original articles of a ssociation, STEVENS V. RUTLAND AND BURLINGTON RAILROAD CO. 461 or cha r ter of in corporatioii,^ unlessjtjbe by special _agreement givin g suchj)ower, which must be a part of the ori^inaL asso ciation. If, in a case like the present, the majority cannot bind the minority, it is plain that there is an equity in this bill, and that the defendants can stand in no better situation than if tliey had, by a vote of the company, proceeded to build the extension, and to apply the funds and credit of the corporation to that purpose, without any additional act of the legislature. This doctrine of Lord Chancellor Eldon [in Natusch v. Irvlng'\ necessarily grows out of the doctrine that it is the business of courts of justice to enforce the contracts of parties, not to make them. To give to courts not only the power to enforce, but also the power to make, or even modify in one iota a contract fairly made, would be the rankest despotism. The ground assumed is, that tlais corporation had the funds of the oiigiiial stockholders for an object distinctly defined in the original charter, and that the}' cannot be allowed to apply them to any other purpose whatever, without the consent of the stockholders, and that to do it would be a breach of trust. In regard to the expediency of bringing this bill, the chancellor can- not, and has no right to judge. The orator has the constitutional and sole right of determining this matter ; and if he thinks it expedient, we must acquiesce in it ; and no plea of the public good or inequality of interests involved can justify the chancellor in denying to the orator a right which is clearly accorded to him by well established chancery principles. The pubHc good is best promoted by an impartial adminis- tration of justice according to the right of the case ; and courts can- not measure the equality or inequality of interests in the litigant parties and make that a basis for a decision, notwithstanding what has been urged in the argument. Where it is clearly shown that a corporation is about to exceed its powers, and to apply their funds or credit to some object beyond their authority, it would, if the purpose of the corporation was carried out, constitute a breach of trust ; and a court of equity cannot refuse to give relief by injunction. See Agar v. The Regent's Canal Company, Cooper's Eq. 77 ; The River Dun Navigation Company- v. North Mid- land Railwa}' Companj', 1 Eng. Railway Cases 153-4. It cannot justify the chancellor in refusing to exercise the juris- diction of chancery because the defendants may claim the right to proceed under color of the act of 1850. It is a settled principle that the circumstance of the defendant's acting under color of law, simply, can form no justification. The question, after all, will be: does the law justify the act which is being done, or threatened to be done ? Oshorn v. The Bank of the United States. 9 Wheaton, 738. If a law is unconstitutional it can give no authority. If the power it confers is abused or exceeded, the person acting under the color of law is a M 462 STEVENS V. RUTLAND AND BURLINGTON RAILROAD CO. \ wrong doer. In the case at bar the corporation had no power to build ithe extension under their original charter ; and the act of 1850 is not minding upon the orator without his consent. The injunction must therefore be allowed, but only so far as to re- strain the defendants until the further order of the chancellor from applying the present^Jimds of the corporation, or their^income from t_he4 )reserit, j:Dad, either directly or indirectly to the purpose^ol~1btrild- ing said extension in said road, or to pay land damages and other expenses which may be contingent upon the building of it ; and also from using or pledging, directly or indirectly, the credit of the corpo- ration in effecting the object of the extension ; and at the same time the company will be left at liberty to build the extension with any new funds which they may see fit to obtain for that specific object. Though this is but an interlocutory decree, made upon the plaintiff's equitable rights as disclosed in the bill, still it having been twice argued, and it being a case of considerable interest and importance, I have deemed it proper to publish, somewhat at length, the grounds of my opinion. "To err is human;" and if, upon more mature consid- eration, the conclusion of my own mind shall be found to be unsound, and not in accordance with principle and authority, I rejoice that they may be corrected by a superior tribunal.^ After the above decision was announced, and before the injunction was issued, the defendants proposed to file bonds to indemnify the plaintiff against all damages which he might sustain by reason of the extension ; upon which the chancellor suggested, that he did not deem it competent for him to make contracts for the parties ; and that upon the authority of the case of Natusch v, Irving et cd., it could make no difference, if filed, in the result."^ 1 The case was not carried lo a higher court. — Ed. 2 In Forrester v. Boston tf Montana, (fc. Co., A. d. 1898, 21 Montana, 544, the minority stockholders of a Montana corporation sought to enjoin the ratification of a transfer of th'i entire corporate property to a foreign corporation, in consideration of the latter corporation delivering its entire stock to the former corporation and assuming all its liabilities. By the agreement of transfer, the stockholders in the Montana corporation, who did not choose to accept shares in the foreign corporation in exchange for their present shares, were en- titled to receive from the foreign corporation $170 for each share not exchanged. Upon the hearing of the order to show cause why an injunction pendente lite should not issue, the defendants offered a bond in the penal sum of $50,000, conditioiu'd, in substance, that if the defendants shall, when requested by plaintiffs, purchase from them the 200 shares owned by plaintiffs at the market i)rice tliereof and pay any damages that might be sustained by them because of any action that might be taken at the meeting of the stock- holders called to ratify the transfer, the obligation should be void, but otherwise to be in force. The defendants further offered to execute a bond in such form, or with such con- ditions, in such amount, and with such sureties, as the court might designate, in lieu of the bond so offered, if it were deemed in any wise insufficient. The District Court declined to- .•iccept such bond, and granted the injunction order. Tlie defendants appealed from the order granting the injunction. The opinion on this branch of the case was as follows: • IMooTT, J., pp. 551, 552. "The court did not err in refusing to accept the bond or inidertaking tendered bv defendants. See Cook, Stock & S. § 502 ; Stevens v. Railroad r,,., 29 Vt. 545; Railroad Co. v. CoUivs, 40 Ga. 582; Tomlbixon v. Railirny Co., 35 Ch. Div. 175; Thomp. Corp. § 345. Section 870 of tiie (Jode of Civil Procedure confers upon the Kourt a discretionary power to vacate an injunction granted ad interim, or pendente lite, Where the alleged wrong or injury is reparable and capable of being adcquatel}- conipea- f s , < ^ >J\ ENGINE CO. |pMIE^/^.jp^Q^ ENGINE n X C. V^ r^^ ^®'^^J^ ^!i?^c;e kand, 302. CO. i'/^> Z^*'^^ /k '-"a^ Bill in Equity to res\;rain a sale of the property of a corporation,'^^.J y/* ' ' furnish enough cash to pay for the plant and provide a working capi- > '^, ' . tal. The terms of the proposed sale give to the present stockholders ' ^ $70,000 over and above the indebtedness of the company, amount- ing to about $228,000, making a total payment of about $298,000. The estimates of the value of the property vary from $327,000 to $397,000, the latter being the complainant's estimate ; but it does not appear that either party has reason to expect that either sum would ^ L be realized at a forced sale. This is not a sale in which the other t^^' stockholders are to gain any advantage beyond the privilege, which is also offered to the complainant, of taking his proportionate amount/ '^ . of cash or its equivalent stock in the new company, as he may prefer. ^ y*' It is in effect a cash sale to strangers, approved by stockholders f^^y representing 3,675 shares against 75 held by the complainant. While j^^ this majority cannot affect any rights to which he is entitled, it tends to show a fair price. It is a well-known result, to which courts of justice cannot be blind, that large plants of this kind are often, if not as the court mav rated for in money, upon defendant's executing such an undertakin re(iuire. We do not think the court abused its discretion. As counsel well say, if plain-, ^^ '^ tiffs were clearly entitled to an injunction in this case, the district court would not have , /l ' been justified in accepting an undertaking in lieu of the injunction, which would be licen-L«/*' sing the commission of a wrong not susceptible to compensatory damages. Although the.//^ • V present value of the shares held by plaintiffs may be accurately determined by a judgment, ' and the profits by way of future dividends on their shares that might accrue from the Montana Company predicted with approach to reasonable certainty, yet, if the transfer and the vote of the shareholders in attempted ratification thereof be ultra vires as to them, then it is manifest, upon the plainest principles of law, that no court may rightly compel them to dispose of their shares in invito. Tomkinson v. Railway Co., supra, Beach. Inj. §§ 295, 296; Mills v. Railway Co., supra. If, as matter of law, the proposed transfer was shown to be ultra vires the corporation, plaintiffs were entitled, as of right, to the injunc^ lion; and in such event, were a bond accepted and injunction refused, the fact would seem apparent that the court had decided that plaintiffs' property could not be taken without their consent, and at the same time had permitted it to be done, — an inconsistency need- ing no comment." — Ed. f- 464 PHILLIPS V. PKOVIDENCE STEAM ENGINE CO. usually, sold at a great sacrifice in case of a forced sale. We should not have to go outside of the records of our own court to find proof of this fact. A sale being necessary, the question is how shall it be made. The prayer of the bill is that a receiver may be appointed ; that the business may be wound up and the company dissolved ; and the argument is that the sale of the effects should be at public auction. The question, then, is whether the complainant is entitled to such a decree. There is a difference of opinion as to the power of a corporation to sell its entire property and thus practically to retire from business. Some courts hold that it may be done by the consent of all the stock- holders (Am. & Eng. Ency. L. 2 ed. vol. 7, p. 734, note 1), and others hold that it may be done by a majority. Ditto, notes 2, 3, and 4. All of the authorities cited in note 1, however, do not hold that the con- sent of all the stockiiolders is necessary, e. g. Treadwell v. SaUshiiry, 7 Gray, 393 ; Wilson v. Miers, 100 Eng. Com. Law, 248, et al. But the editor adds : " There seems to be no doubt that it may do so when it is no longer able to profitably continue its business." We think that this is the correct rule. It has been recognized in this State. Hodges v. iV. E. Screw Co., 1 R. I. 312, 350. In Wilson V. PropWs Central Bridge, 9 R. I. 590, Brayton, C. J., said : " No case has been cited, and, in view of the diligence of counsel in this case, we may say there is no case which holds that where the purpose of the incorporation could not be accomplished, the business contem- plated could not be carried on ; where the capital had been exhausted in endeavors to go on, having no means to go further ; a company thus laboring under burdens which they could no longer bear, could not release themselves by a surrender of their franchise to the State which granted and which was willing to receive it, and that by a majority. This is not only for their benefit, but it is a necessity, and it would be hard indeed if one stockholder could by his dissent prevent such relief against the prayer of all other members of the company." In Peubody v. Westerly Water Works, 20 E. I. 176, a necessary limita- tion to this rule was recognized in the words : ''The action of the company was taken by a vote of more than 1,100 out of a total of 1,350 shares. There is no proof of unfairness, oppression, or fraud in such action. The case as presented is simply that of a stockholder wlio differs from a large majority of his fellow stockholders as to the expediency of a sale." / The principle upon which these cases rest is that a corporation may 1 dispose of its property by a majority vote, in cases which are free I from unfairness, oppression, and fraud. Against wrongs of this kind Vequity will interfere. To this effect are Lawman v. Lebanon R. R., ViO Pa. St. 42 ; Treadioell v. Salishnry, 7 Grny, 393 ; Leathers v. Janney, 41 La. Ann. 1120; Seivell v. East Cape May Co., 50 N. J. Eq. 717; Sargent v. Webster, 13 Met. 497 ; Warfi.eld v. Marshall, 72 la. 666 ; Wilson V. Miers, 100 Eng. Com. Law, 348 ; see also Miner's Ditch Co. V. Zellerbach, 37 Cal. 543. PHILLIPS V. PROVIDENCE STEAM ENGINE CO. 465 The complainant does not charge improper conduct, but simply that he considers the price inadequate and unjust; and hence he prays for a receiver and a sale of the property by auction. Ordinarily when a court orders a sale it can only be done by auction. A court cannot negotiate a private sale, and it orders an auction as the fairest chance for all parties to bid and buy. But when the parties in interest have negotiated a sale which is fair to all concerned, and there is nothing to show that a larger price may reasonably be expected, it does not follow that an auction sale would be ordered. This question was con- sidered in Quidnick Co. v. Chafee, 13 R. I. 402, in which the trustee had an offer for the entire property, approved by nearly all the cred- itors. Then other parties intervened, agreeing to bid the amount named at auction, and the court ordered a sale by auction. In the present case there is no evidence that anybody is willing to give as much as the offer proposed, or that there is any reason to suppose that it will bring as much or more. The only testimony put in by the complainant is that the tools will probably bring more than they are valued at by the company, while as to the bulk of the property, the real estate, &c., there is no evidence of market value. Moreover, the complainant does not show that he desires to bid upon the property himself, or that he knows of any one who would bid at a sale. Inj this absence of evidence that a larger total might be expected from an/ ^ auction sale we see no reason to disturb the agreement already madeJ ^^ which, upon the testimony given, seems to be fair. The complainant relies strongly on Mason v. Pewahic Co., 133 U. S. 50. In that case the court had appointed a master to value the pro- perty, which he reported to be nearly $500,000. A majority of the company had arranged a sale to themselves at $50,000. Naturally, in view of such gross inadequacy, the court ordered a sale by auction. The case was very different in its details from the case before us. In Wilson v. Proph's Central Bridge, 9 R. I. 590, the city of Pro< vidence had control of the corporation and had sold the corporate property to itself. The court restrained the city from taking posses- sion and ordered a sale by auction. That, too, was a different case from this one. The court is bound to look to the interests of all parties, and espe-i cially to protect the rights of a minority from oppression and fraud./ But where, as in this case, no such thing is charged, and nothing is ^ shown to lead to the belief of a better total price, the complainants makes no case for interference. To show that movable tools may be sold at a price somewhat, but not largely, higher than that at which they are scheduled, is quite a different thing from showing that the plant as a whole would sell for more than the price offered. To set aside the sale under these circumstances would be to risk a certaintv for an uncertainty, without any testimony on which to base a hope of benefit to the stockliolders from such interference. We see no reason for such a step in the dark. BUI dismissed. 1^' ELYTON LAND CO. ?g3?^^" ELYTON LAND DDWDi:] 1896. 113 Alabama, 177.1 l^ Bill in equity filed by Annie Dowdell, the owner of five shares in '^ the Elyton Land Company, for the purpose of annulling a convey- ance of its property by that corporation to the Elyton Company, and also of annulling a mortgage executed by the latter company to secure certain bonds. ft^ome years before the conveyance the Elyton Land Company hav- .mig on hand, as profits, a large amount of notes, had issued dividend '■^certificates to the amount of $1200 per share. These certificates had subsequently been paid for in bonds of the company, denominated " Dividend Trust Bonds." The plaintiff had disposed of her bonds. Her rights as a bondholder are not involved in this litigation, but only her rights as a shareholder. The Elyton Land Company, under its charter and amendments, was authorized to buy laud and sell lots ; to borrow and lend money ; to guaranty indebtedness ; to build, rent, lease, and use buildings ; to issue bonds in amount not to exceed five millions of dollars; and lO^take stock in other corporations. n 1893, the Elyton Company was incorporated, with authority to engage in many enterprises not included in the original or amended "[j^ charter of the Elyton Land Co. The fourth section of the act incor- porating the Elyton Co. enacts, " that said corporation may purchase i 'the property, real, personal, and mixed, of the Elyton Land Com- C^ .^pany : provided that such sale is made under the laws now in force, -^id nothing in this act shall be construed to impair or in any manner whatsoever to affect the rights of any stockholder of the Elyton Land Company." . . . At a regular meeting of the stockholders of the Elyton Land Com- pany, a majority of the stockholders voted to sell its entire assets to ^^ the Elyton Company. The terras of the sale were, that the Elyton jL^ A, ^Company should pay all the liabilities of the Elyton Land Company ; .^' Ji^./J fir* and issue |2,500,000 bonds, $1,796,000 of which were to be issued to e/^y - y^ ^ the holders of the dividend trust bonds in payment thereof; and in ^^y n^^ . addition issue 10 shares of its stock to each holder of 1 share of stock in the Elyton Land Co. Thereupon the Elyton Land Company trans- ferred all its property to the Elyton Company. The latter issued tlie bonds provided for, and executed a mortgage to secure them. The stipulated amount of stock was also issued, and was delivered to such of the stockholders as were willing to receive it in exchange for the stock held by them in the Elyton Land Company. No other arrange- t or provision was made to pay the stockholder in the Elyton ^ ' ^i^ JLand Company for his share, except to accept the stock in the Elyton . ^ Dhyr&i of City Court affimied. /^ A^RRI^^ LAND QO.etal. Bill in equity, by Mrs. Susie M. Morris, a stockholder in the Elyton Land Company, brought for the same purpose as the bill in Ehjton Land Co. V. Do v dell, .supra, p. 400. The plaintiff was an infant at the time of the transactions complained of. I Onl)' so much of the report is given aa relates to a single point. Arguments •mjtted. — Ed. MORRIS V. ELYTOX LAND CO. 469 Plaintiff applied for the appointment of a receiver. On the submission of the cause upon the application for a receiver, the chancellor decreed that the transaction assailed by the bill was not binding as to the complainant who was a non-assenting share- holder of the Elyton Land Company, but that the relief to which she was entitled was the payment of the value of her shares of stock in said Elyton Land Company ; and he directed that the respondents pay into the court $12,000 to await the final hearing of the cause, to be held as security for the satisfaction of the final decree ; further decreeing that unless they did so within the time named, a receiver would be appointed without further notice. The required deposit was made, and thereafter the chancellor entered a decree denying the appointment of a receiver, and refusing to extend to this cause the existing receivership in cause No. 2104, which was pending in the same court. From this decree the complainant appeals, and assigns the rendition thereof as error. Cabaniss & Weaklet/, for appellant. Alex. T. London, and Thomas G. Jones, contra. Per Curiam. [After reaffirming the decision in Elyton Land Co. V. Dowdell, 113 Ala. 177 ; supra, p. 466.] We think there can be no doubt of the proposition, that a court of chancery can and will undo an act, which is ultra vires, as well as prevent the same by injunction. There is an equity of rescission as well as of prevention. 2 Spelling on Corp. § 615 ; City of Chicago v. Cameron, 120 111. 447 ; City of Knoxvllle v. R. R. Co., supra ; Byrne's Case, 65 Conn. 336 ; Elyton Land Co. v. Dowdell, supra. The shareholder's suit, when brought, is for the benefit of the cor- poration and all shareholders. It is not the suit of the shareholder for his individual interest. The relief granted is the same, as if the corporation sued. — 4 Thompson, Corp., § 4491 ; 2 Pomeroy's Eq., § 1095 ; 1 Morawetz, Corp., § 262 ; Mount v. Radford Tnist Co. et ah, 5 Am. & Eng. Corp. Cases (x. s.), 92. It would necessarily and logically follow from this principle that a/ moneyed compensation to the complaining shareholder for the value of his stock could not against his objection be decreed as his relief. To do so would be nothing more nor less than compelling the share- holder to sell his stock, which a court of equity has not the power to do. That it would be to the benefit of the corporation and all other shareholders in it, to let the transaction stand and compel the dissen- tient to accept compensation for his stock, is an argument that rests upon no higher grounds than that of expediency. In the administra- tion of justice by the courts, principle should never be sacrificed at the altar of expediency. — Forrester v. Boston & Montana, &c., Co., sujjra ; Kean v. Johnston, sujiva ; Mills v. R. R. Co., supra ; Stevens V. R. R. Co. et al, 29 Vt. 545. The application for a receiver was heard on the bill as amended 'h 470 BARTHOLOMEW V. DERBY RUBBER CO. and exhibits, and answers of respondents, and upon affidavits filed in support of the bill and answers. Upon the undisputed facts in the !case, we are of the opinion that the application for a receiver should have been granted, and that the receivership in cause No. 2104 pend- ing in said chancery court should have been extended to this cause. From the action taken by the chancery court, it is evident that the chancellor was of the opinion that upon the facts the complainant was entitled to a receiver in the absence of a deposit by the respondents with the register of the court of $12,000 as a security for the com- plainant by way of compensation for her stock in the event of her recovery upon a final hearing. But in this alternative provision, the learned chancellor misconceived the character of the complainant's suit as well as the nature of relief to which she was entitled. For the suit, though brought in her name, was in legal contemplation and effect a suit by the corporation, and the relief, if any had, would be a recovery for the corporation. That the case is a proper one for the extension of the receivership upon the conceded facts is shown by the following authorities : Beach on Eeceivers, §§ 88, 789 ; Gluck & Becker on Eeceivers, 42, § 16 ; High on Eeceivers, § 292 ; Ala. Nat. Bank v. Mari/ Lee C. & B. Co., 108 Ala. 288 ; Bridgeport Dev. Co. v. Tritsch, 110 Ala. 274 ; Scott v. Ware, 65 Ala. 174 ; Stevens v. Davison, 18 Gratt. 819 ; Ponca Mill Co. v. Ifikesell, 8 Am. & En^. Corp. Cases, 18 Gratt. 819 ; Ponca Mill Co. v. jy^ikesell, » Am. & l^ng. uorp. (^. s.), 740. V 'A/Y cause ^*^'\^."''' (v^ 'Ir fl>>^SuiT by minority stockholders of a manufacturing corporation, to f^^-^ ^ j^ * f^J^%/Compel the surrender and cancellation of a lease of its plant to Loe- <^Y^^' ^^ h (A* "^enthal. The directors voted to make the lease, and gave notice of a jl^ AT ^ y ^f*^ecial stockholders' meeting to confirm their action. The action of \ y/^ ) the directors was approved by all the stockholders present at the T^} . ^ p^ \K < meeting. ' , . rr \.\ \ meeting. nj^ y^ , M The term of the lease thus confirmed was for one year, with a privi- »^\^.-' <■ \^ n 0-^,. J^ge upon the part of the lessee to renew the lease from year to year, Q^ji^ /* ^'^^^■^0^ ^ period not exceeding nine years, upon the same rent and con- ■ff^ . S "^t^^flitions. The lease also provided that at the expiration of any year A ^^ , the lessee might purchase the property if he chose, at a price to be . )y i*^, ^determined upon by an appraisal made in conformity to the mode - y^ y^^ therein designated. ^ A "i-fr* ',y^(* Other facts are stated in the opinion. ^' ^^ . j^ J/* The respondents demurred to the complaint. (}/*^\/ Hotel v. Dickinson, 6 Gray, 586 ; French v. Quincy, 3 Allen, 9 ; Lyndehorough Glass Co. v. Mass. Glass Co., Ill Mass. 315 ; Calloway Mining, etc., Co. v. Clark, 32 Mo. 305 ; Watts' s Appeal, 78 Pa. St. 370 ; Dupee v. Boston Water Power Co., 114 Mass. 37. We have considered this case on the assumption that the action of the directors and the majority stockholders was done in good faith and in the honest belief that they served the best interests of all con- cerned. If fraud had been c harged a v ery different case wo uld hav e l jeen j)resented^ Counsel for the plaintiffs says in his brief that the lease was fraudulent on its face. But fraud is not charged in the complaint. Fraud is never to be presumed. While fraud may in some cases be inferred from the facts, it is never to be inferred unless it is charged; and then only where the facts and circumstances indi- cate clearly that fraud has been committed. The Superior Court is advised that the complaint is insufficient, and to sustain the demurrer. In this opinion the other judges concurred.^ 1 " The remaining errori? complained of . . . may be considered together, namely, that the directors of the corporation, plaintiffs, had no power to make the lease sued on. It is supposed that a company chartered for the purpose of manufacturing and refining oil can- not lease its entire property, and so defeat the very purpose for which its charter was granted. But corporations, unless expressly restrained by the act which establishes them, or some other act of assembly, have, and always have had, an unlimited power over their respective properties, and may alienate and dispose of the same as fully as any individual may do in respect to his own property. Hence an insolvent corporation may make a | general assignment for the benefit of its creditors, and this power may be exercised by the directors, unless special provision to the contrary is made in the charter. Dana v. Bank of United States, 5 Watts & Serg. 223. li they can alienate absolutely, they may lease, which is but a partial or temporary alienation. Omne majus continet in se minus." Sharswood, J., in Ardesco Oil Co. v. North American <^c. Co., A. d. 1870, 66 Pa. State, 375, pp. 381, 382. — Ed. 474 PARSONS V. TACOMA SMELTING AND EEFINTNG CO. A- 'ARSONS V. TACOMA SMELTING AND EEFINING CO. 1901. Supreme Court of Washington, 65 Pacific Reporter, 765.1 Appellant Parsons, original plaintiff, brings suit as a stock- K [^ n legal tit le. Th e stockho lders are the ben eficiaries, holding the eq ui- (j"^ t able interest. " The jurisdiction to enforce performance of trusts arises^where property has been conferred upon and accepted by one person on the terms of using it for the benefit of another." Adams Eq. 26. The__£ule is, that_the equitable ownership includes aJ,e^aX_ right to a performance of the trust whicji can be spgcifically enf oitied in a c ourt of equity]^ and the authorities do not recognize a breach of coj^ora^te trust as aii_ gxception to the jaile. An injunction against the lease as a breach of the iSTorthern trust is, in effect, a decree that the trustee specifically perform the charter- contract and the trust declared in it. In the bill, the plaintiffs ask that the Northern company and their directors be ordered to resume the control, management, and operation of the Northern road. A de- cree for the plaintiffs, whether affirmative or negative in form, would run against the trustee, — not a mere imaginary person, but the whole body of stockholders, whose performance of their corporate trust is performance of their partnership contract. Whether the plaintiffs' rights, accruing from the contract, are called contractual or fiduciary, they are subject to the general rule that inequitable performance is hot specifically enforced when recoverable damages for non-perform- ance are an ample remedy. The equity to compel specific perform-! ance of contract arises where an agreement, binding at law, has been] infringed, and the remedy at law by damages is inadequate. Adams/ Eq. 77 ; Story Eq., ss. 716, 717, 717 a ; Fry Spec. Perf., s. 40 ; Pom. Spec. Perf., s. 3 ; Southern Express Co. v. Railroad, 99 U. S. 191, 200 ; Eckstein v. Downing^ N". H. 248; Black v. Canal Co., 22 N. J. Eq. 130, 399. But the adequacy of a compensatory suit on a broken con- tract does not always depend upon the breach being financially inju- rious to the plaintiff. A breach that would be pecuniarily beneficial to him may be of such a nature in other respects that nothing short of prevention will be just. If the price fixed by a written executory agreement for the sale of a farm is more than the value, that fact is not an answer to a bill brought by the purchaser against the vendor for specific enforcement of the agreement. The purchaser, financially benefited by the violation of his legal right, would be financially in- jured by resorting to the remedy of a suit for nominal damages. " Compensation in damages, measured by the difference in price as ascertained by the market value and by the contract, has never been regarded in equity as such adequate indemnit}^ for non-fulfilment of a contract for the sale or purchase of land as to justif}' the refusal of relief in equity." Jones v. Newhall, 115 Mass. 244, 248. The ven- dor's payment of the difference is not regarded by the law as a full, sufficient reparation for the purchaser who made the contract ** on a 482 DOW V. NORTHERN R. B. particular liking to the land." Buxton v. Lister, 3 Atk. 383, 384 ; Sto. Eq.. s. 111. The damage is irreparable in the legal sense. A written contract of farming partnership may be specifically en- forced by an injunction against its violation when a majority of the partners make an unauthorized attempt to turn the whole partnership property and business over to other principals for ninety-nine years in exchange for an annuity or other investment. On the question of equity jurisdiction, the mere expediency of the exchange as a financial measure would be as immaterial as the corporate or unincorporate form of the partnership organization. The recovery of one dollar by an expenditure of one hundred, in a suit at law, would not be a suf- ficient remedy for a partner objecting to the illegal change of his busi- ness. Specific^ relief^ would not be less necessary than in the case of a refusal to^erf orm a written agreeiiient for the sale of land. Performance of~the NorthefnT charter-contract^would not be ren- dered inequitable in law by the mere fact of non-performance being more beneficial to the stockholders. The plaintiffs' equitable right to be principals in the common-carrier business between Concord and Vermont, according to their contract, would not be barred by a finding that it would be better for them to exchange that business for the occupation of a lessor, or the business of a road running from Concord to Maine or Massachusetts. They have not agreed that their partners may take them from the stipulated position of principals in the work of carrying passengers and freight between Concord and Lebanon, and give them any other vocation in which a court or jury may think they , would be more profitably and judiciously employed. Their expulsion for ninety-nine years from the Northern carrier business, in violation of their partnership contract, is a case in which the general principle 'of equity gives an injunction, and the evidence shows no exceptional I reason for withholding the specific relief necessary to prevent their [wrongful exclusion from their chosen employment. steinway's petition. 4 ^ % b^ 483 CHAPTER XIII. STOCKHOLDER'S EIGHT TO INSPECT RECORDS AND PAPERS. CORPORATE In re STEINWAY'S PETITION. fj 1^ 1899. 159 New York, 250. ( NlV • [Petition, by Henry W. T. Steinway, for an inspection of the books and records of the Steinway & Sons corporation. I ^v' The Appellate Division of the Supreme Court granted the petition, with certain regulations. An appeal was taken from this decision.. The facts are stated in the opinion.] Edward C. James and G. W. C'otterill, for appellants. ^liyl Jr^' The method prescribed by the statute creating this corporation, and \]^ '3' \ j^ by the general statutes and rules and practice of the courts, for the ' A ^,«>^ il^''^ examination of the corporate books by a stockholder is exchisive, andr^wl ' ^ r x^^ ffi is inconsistent with the right claimed in this case to examine the ^(^ ^^ ji-^ books of account [citing authorities]. The law allows no general. \d^ '^ i^c^ fi^ right to a stockholder to inspect the books of the corporation. In-^^^ , ijVV" -^z spection can only be ordered in aid of a suit brought or defended ^^^^ ^^ ^ [authorities]. Assuming that the jurisdiction in cases of this kind is i'^ \\^ -^ ^ discretionary, that discretion is not arbitrary, but is governed by legal \}^* rules, and was not properly exercised by the Appellate Division in . this case. . . . ^ n /r ^ Wheeler H: Peckham and Edward B. Hill, for respondent. C ^ /■ ^«/^ Vann, J. Steinway & Sons, once a copartnership, became a cor- poration in 1876 under the General Manufacturing Act of 1848, and the relator has been a stockholder therein ever since. He now holds 1,440 shares of its stock of the par value of $144,000, out of a total of 20,000 shares of the value of $2,000,000, but with an actual value much in excess of that sum. He has not been an officer of the cor- poration since 1881, and he has had no means of knowing much about the management of its affairs since 1892, when he was given an opportunity to examine the books. Since then he has been substan- tially ignorant as to all the details of the management, and has had no 484 steinway's petition. access to the books or records. Learning of certain practices that he considered improper, on April 12tli, 1894, and March 27th, 1895, he made protests in writing to the company, but no attention was paid to them. On the 6th of April, 1896, he made a written request for leave to examine the books, but receiving no reply, on the 15th of that month he wrote requesting information, proper in character, upon certain subjects, and to this communication he received an answer from the secretary, dated April 23d, 1896, written in behalf of the board of trustees, virtually refusing the information asked for on the ground that the relator intended to use it in " hostility to the interest of the stockholders." On the 5th of April, 1897, he endeavored to ascertain certain material facts at the annual meeting, but without success, and thereupon he requested the officers and directors to afford his accountants and attorneys access to the books of account, vouchers and records of the company for the years 1892 to 1896, inclusive, for the purpose of examining the same. Keceiving no reply, on the 8th of May, 1897, he served a written request upon the treasurer for a statement in writing, under oath, of the affairs of the company, em- bracing a particular account of all its assets and liabilities for each of the several fiscal years from 1892 to 1896, inclusive, and in response to this he received a general statement placing the assets at more than three millions of dollars, but distributed into only fourteen items, eight of which were over $100,000 each. The liabilities included but eight items, three of which were the capital stock, the surplus and the profit of 1896. This was the first information as to the company's affairs which the petitioner had been able to obtain in five years, ex- cept that he once saw the balance sheet and inventory of January, 1893. Since 1891 the dividends declared bj'- the company have dwin- ^ [died in amount. In 1896 the dividend was only five per cent, but Q 1 never before since 1883 had less than ten per cent, and sometimes as much as eighteen and twenty per cent, been divided in dividends. The relator claimed in his petition for a writ of mandamus to per- mit inspection of the books, that the officers of the corporation were engaged in an attempt to form an English stock company for the con- trol of its business, with the design of selling their shares of the capital stock, or exchanging them for a much greater amount of shares in the English company, and that efforts had been made by the stockholders and officers to induce him to sell his stock at $250 a share ; but, as he insisted, it was impossible for him to fix upon any price without an opportunity to investigate the condition of the com- pany. He specified various acts which he alleged to be improper on ■ the part of the officers, such as the payment of exorbitant rentals, carrying on a banking business, allowing unusual rates of interest, / inventorying the assets too low, and paying the trustees salaries with no equivalent in services. The opposing affidavits contain a large amount of matter relating to aggravating conduct on the part of the relator in the past, and steinway's petition. 485 alleging improper motives and ulterior aims on his part. Many gen- eral allegations of the petition were denied in licec verba, without stat ing the real facts. The president and other officers of the corporation denied the allegations of improper conduct on their part and claimed that the relator wished to force them to buy him out at an extrava- gant price. As no alternative writ was issued and the relator pro- ceeded to argument upon his petition and the opposing affidavits, his right to a peremptory writ depends upon the conceded facts, the same as if he had demurred to the allegations of the defendants. (Feojple ex rel. City of Buffalo v. N. Y. C. & H. R. R. R. Co., 156 N. Y. 570; Matter of Haehler v. New York Prodiice Exchange, 149 N. Y. 414 ; People ex rel. Corrigan v. Mayor, etc., 149 N. Y. 215 ; People v. R., TV. & 0. R. R. Co., 103 N. Y. 95 ; Code Civ. Pro. § 2070.) While many of the facts alleged in the petition were denied, enough were left undenied to present a case for the exercise of judgment and discretion on the part of the Supreme Court, provided it has power in any case not expressly covered by statute, to authorize the inspection, wholly or in part, of the books of a manufacturing corporation, upon the application of a stockholder. The Special Term denied the application of the relator for a per- emptory writ of mandamus commanding the officers of the corporation to exhibit certain of its books and papers to him, but upon appeal to the Appellate Division the order of the Special Term was reversed by a divided vote, and the prayer of the petition granted, with certain regulations as to the time, place, and manner of exhibiting the books . and papers. The Appellate Division allowed an appeal to this court, p |\ and certified the following question for decision : " Has the Supreme Court the power, upon the petition of a stockholder, to compel by mandamus the corporation to exhibit its books for his inspection ? " ' The relator does not claim that the power in question has been con- ferred upon the court by statute, but he insists that it is a part of its inherent power. This position involves an inquiry into the origin and extent of the authority of the Supreme Court and its power of visitation, or of examining into the affairs of corporations according to the common law. [The learned Judge held, that the present Supreme Court of Xew York has all the powers of the English Court of King's Bench and the Court of Chancery as they existed in 1775 ; except as modified by the State Constitution or Statutes.] The right of a corporator, who has an interest in common with the other corporators, to inspect the books and papers of the corporation, for a proper purpose and under reasonable circumstances, was recog- nized by the Courts of King's Bench and Chancery from an early day, and enforced by motion or mandamus, but alwa3's with caution so as to prevent abuse. (Rex v. Fraternity of Hostmen, 2 Str. 1223 and note ; Gery v. HojyJcins, 7 IMod. 129, case 175 ; Richards v. Pattinson, 1 Barnes' Notes of Cases, 156 ; Young v. Lynch, 1 Sir W. Blackstone? ^ 486 STEIN way's petition. 27 ; The King v. Shelley, 3 D. & E. 141 ; The King v. Babh, 3 D. & E. 579, 580 ; The King v. Merchant Tailors' Company, 2 B. & A. 115 ; In re Burton, L, J. [312, B.] 62 ; In re West Deven Mine, L. R. [27 Ch. Div.] 106.) Lord Kenyon, in rendering judgment in The King v. Babb, assumed " that in certain cases the members of a corporation may be permitted to inspect all papers relating to the corporation." In Gery v. Hopkins the court, on granting the order to produce, said : " There is great reason for it, for they are books of a public company and kept for public transactions, in which the public are concerned, and the books are the title of buyers of stock by act of Parliament." In Rex V. Fraternity of Hostmen, the reporter states that the court said : " Every member of the corporation had, as such, a right to look into the books for any matter that concerned himself, though it was in a dispute with others." The following cases arose in this state, but the most of them are not strictly in point, as they rest mainly upon statutory authority, which does not extend to the case in hand [citing authorities.] The courts of other states compel the officers of corporations to allow stockholders to examine the books upon due application for a proper purpose. In Lewis v. Brainerd (53 Vt. 520) the court said : " The shareholders in a corporation hold the franchise and are the owners of the corpo- rate property, and as such owners they have the right, at common law, to examine and inspect all the books and records of the corporation at all seasonable times, and to be thereby informed of the condition of the corporation and its property." In Huylar v. Cragin Cattle Co. (40 N. J. Eq. 392, 398) it was said : " Stockholders are entitled to inspect the books of the company for proper purposes at proper times, and they are entitled to such inspec- tion, though their only object is to ascertain whether their affairs have been properly conducted by the directors or managers. Such a right is necessary to their protection. To say that they have the right, but that it can be enforced only when they have ascertained, in some way without the books, that their affairs have been mismanaged, or that their interests are in danger, is practically to deny the right in the majority of cases. Oftentimes frauds are discoverable only by examination of the books by an expert accountant. The books are not the private pro perty of the directors or managers, but are the records ofJj]j?jr_transa!cErQns_asJ;rii5tees forJJTej| o?ikh614e rs7" In Commonwealth v. Phoenix Iron Co. (105 Pa. St. Ill, 116), the rule was laid down that, "unless the charter provides otherwise, a shareholder iu a trading corporation has the right to inspect its books and papers and to take minutes from tliem for a definite and proper purpose at reasonable times. The doctrine of the law is that the books and papers of the corporation, though of necessity kept in some one hand, are the common property of all the stockholders." Upon a second appeal in the same case, sub nom. Fhcenix Iron Company v. steinway's petition. 487 Commonwealth (113 Pa. St. 563, 572), the court said : " Under the circumstances mentioned for the purposes stated, we are of opinion that according to our ruling when the case was here before, the re- lator is clearly entitled to an examination of the books and papers of the company. Such a right is, of course, not to be exercised to gratify curiosity, or for speculative purposes, but in good faith and for a specific honest purpose, and where there is a particular matter in dispute involving and affecting seriously the rights of the relator as a stockholder. ... A stockholder in a trading corporation must cer- tainly have some rights which a board of directors should respect. Sellers (the relator) was not bound to accept the mere statement of the board, whether under oath or otherwise, as to the contents of the books, etc. He had a right to a reasonable personal inspection of them, and with the aid of a disinterested expert might make such ex- tracts as were reasonably required in the preparation of the bill he purposed to bring. The relator, we think, has a clear right under the writ and return to the relief he asks, and it is plain that he has no specific legal remedy for the enforcement of that right ; and the exist- ence of a supposed equitable remedy is not a ground for refusing the mandamus." In Cockburn v. Union Bank of Louisiana (13 La. Ann. 289, 290), the court, in granting a mandamus requiring the officers of a corpora- tion to allow access by a stockholder to the books, said : " A stock- holderJD ^ corporation posse ss es all his ind ividualri ghts except so. ' far as h e is deprive d_of^jt hem by the charter or the law of the land ; as long then asjthe^char ter or the rules and by-laws passed in con- formity thereto, and the law,^^ji ot restrict his individual rights, he poss esseF Them in f ull and can demand to exe rcise them. It cannot bejlenied_that it is the right j)f ev e ry on e to see that hisjyopertyjs we ll mana ged an d to have a ccess to the proper sources of kn owledge in_thisj;^pe^" The same court in a like case declared that a stock- holder in a trading corporation " has in the very nature of things, and upon principles of equity, good faith and fair dealing, the right to know how the affairs of the company are conducted, whether the capital of which he has contributed so large a share is being pru- dently and profitably employed or otherwise. ... In order to comply with this call and to vote understandingly, it was certainly requisite for the relator to know the condition of the affairs and business operations of the company and be enabled from this knowledge to act for the best interests of the stockholders and of the compan3\" {State of Louisiana v. Bienville Oil Works Co., 24 La. Ann. 204, 208 ; see, also, Stone v. Kellogg, 46 N. E. Kep. [111.] 222 ; Stettauer v. X. Y. & Scranton Con. Co., 42 N. J. Eq. 46 ; People v. Walker, 9 Mich. 328 ; State V. Bergeyithal, 72 Wis. 314.) The elementary works unite in holding that a corporator has the right in question, and that mandamus is a proper remedy. Mr. Wait, in his work on Insolvent Corporations, after reviewing the authorities, Q 488 STEINWAYS PETITION. says : " It will be apparent from an examination of these authorities that the rule in favor of a stockholder's right of inspection and in- vestigation of corporate books and papers is becoming very broad and general." (§ 504.) But while t he lear ned a uthor reco gnizes the rule , h e insists, and we^ agree"witirE m, that~a nTnspecti on should " n ot_be graii1^ed_to_facili^^ schemes orjto^gratif y idle curiosity." He declares that " mandamus is the most complete and effective form of redress available to a stockholder or party in case of a denial of the right of inspection." (§ 516.) Mr. Cook, in discussing the question, says that " the stockholders of a corporation had, at common law, a right to examine, at any reasonable time and for any reasonable pur- pose, any one or all of the books and records of the corporation. This rule grew out of an analogous rule applicable to public corporations and to ordinary copartnerships, the books of which, by well-established law, are always open to the inspection of members." (2 Cook on Corporations, § 511.) " The prevailing doctrine in the United States is said to permit an incorporator the same freedom in examining the books of the company as a partner has with respect to the books of his firm, but the right only extends to such documents as are necessary to the stockholder's particular purpose. . . . Statutes giving the shareholders of corpora- tions the right to inspect the corporate books have been passed in many of the American states and in England. These statutes, how- ever, do not supplant the common-law right." (1 Beach on Private Corp. § 75.) Judge Thompson, in his work on Corporations, says : " One of the jjrivileges incident to ownership of stock in a corporation is that of an inspection of the books and condition of the company, and this privilege, in general, becomes a f iglit when the inspection is sought at proper times and for proper purposes." (§ 4406.) He further de clares that w hen the right is guaranteed by statut e the motive for its e x- er cise IS TmniatenaTTbut when it~rests upon the commo n law it will not be jillovg£ii-fQr-Sj3e culative purposes, the grati fiLcation of_curiosity , or where it s exercise would prod uce ^reat in convenience. (§§ 4412- 4^20:} (SeeTalso, Angell & Ames on Corp. [9th"ed.y§ 681 ; Morawetz on Corp. § 473; High's Extraordinary Legal Ilemedies, §308; 19 Am. & Eng. Ency. of Law, 231.) We think that, according to the decided weight of authority, a stockholder has the right at common law to inspect the books of his corporation at a proper time and place, and for a projjer purpose, and that if this right is refused by the officers in charge a writ of man- damus may issue, in the sound discretion of the coui-t, with suitable safeguards to protect the interests of all concerned. It should not be issued to aid a blackmailer, nor withheld simply because the interest of the stockholder is small, but the court should i)rocced cautiously and discreetly, according to the facts of the particular case. To the extent, however, that an absolute right is conferred by statute, <,'> steinway's petition. 489 nothing is left to the discretion of the court, but the writ should issue as a matter of course, although even then, doubtless, due precautions may be taken as to time and place so as to prevent interruption of business, or other serious inconvenience. The appellants, however, insist that certain statutory provisions relating to the subject are exclusive, and as they do not extend to the case under consideration, that the Appellate Division had no right tu grant the writ. The history of legislation upon the subject in brief is as follows : By the General Manufacturing Act of 1848 it was made the duty of the trustees of corporations organized under it to keep a transfer book, which was required to " be opened for the inspection of stockholders and creditors of the company," substantially every busi- ness day at the office of the corporation. (L. 1848, ch. 40, § 25.) This section was subsequently amended so as to require the treasurer to make a statement of the affairs of the company upon the request of per- sons owning a specified percentage of the capital stock. (L. 1854, ch. 201, § 1 ; L. 1862, ch. 472, § 1.) The Business Corporations Law of 1875 required the directors of corporations organized thereunder " to cause to be kept at its principal office or place of business, correct books of account of all its business and transactions, and every stockholder in such corporation shall have the right at all reasonable times by him- self or his attorney to examine the records and books of account of such corporation." (L. 1875, ch. 611, § 16.) These statutes were all repealed in 1892 by the General Corporation Law. (L. 1892, ch. 687, pp. 1816-1819.) During the same year the Stock Corporation Law was passed, which provides that every stock corporation shall keep a stock book, which " shall be open daily, during business hours, for the inspection of its stockholders and judgment creditors, who may make extracts therefrom." (L. 1892, ch. 688, § 29.) It also requires the treasurer, upon the request of stockholders owning a fixed percentage of the capital stock, to furnish a statement of all its assets and lia- bilities. (Id. § 52.) We do not think that the statute now in force is exclusive, or that it has abridged the common-law right of stockholders with reference to the examination^of^corporate books. By enablin g a stockholder to get some ^jnf ormation in a new wa y, it did not~Impiiedly repeal th e common-law rule whichenabled him to^sret other information in an- ""oEher way, for the courts do not hold the comm on la w^obj^ repealed by'im^ncatimvujdessJihejTiJentijjn^^^ By^imply providing ai Taddition al remedy the existing remedy was n ot ja ken^ way\ The statute merely strengthened tEe^common-law rule with reference to one part thereof, and left the remainder unaffected. It dealt with but a single book, and as to that it am})lified the qualified right previously existing, by making it absolute and extending it to judgment credi- tors. The stock book has no relation to the business carried on by a corporation, and the change was doubtless made to enable stockhold- ers to promptly learn who are entitled to vote for directors, and judg- 490 CINCINNATI VOLKSBLATT CO. V. HOFFMEISTER. ment creditors to learn who are liable as stockholders for a failure to comply with the provisions of the act. The statute is silent as to the other books, and provides no system of inspection as a substitute for the right of examination at common law. The provision for a report from the treasurer was not designed to take away an old right, but to give a new one, not as a substitute but as an addition. / We think that the common-law right of a stockholder with refer- / ence to the inspection of the books of his corporation still exists, I unimpaired by legislation ; that the Supreme Court has power, in its \ound discretion, upon good cause shown, to enforce the right, and i;hat such power is a part of its general jurisdiction as the successor of ^he courts of the colony of New York, which had the jurisdiction of the Court of King's Bench and the Court of Chancery in England. It follows that the order appealed from should be affirmed, with costs, and that the question certified should be answered in the affirm- ative. All concur. Order affirmed. HOFFMEISTER. CINCINNATI VOLKSBLATT 1900. 62 Ohio State, 189.1 Error to the Superior Court of Cincinnati. Hoffmeister's petition alleges that he is a stockholder in the Cin- cinnati Volksblatt Company ; that he has requested the corporation ^-to allow him to inspect its books and records and to fix a reasonable ^ time for said inspection ; but that the corporation has refused to allow (him to inspect the books and records. The petition prays that the defendant be enjoined from refusing to allow him to inspect its books and records. A demurrer having been overruled, the defendant filed an answer ; and the petitioner in his reply took issue with new matter alleged in the answer. Upon trial, the court found the issues for the plaintiff ; that he is entitled to inspect any of the books and records of the defendant at any reasonable time ; and that he may make such inspection by himself, or by agent, bookkeeper or accountant ; and may take copies of any of said books and records. Judgment was entered enjoining defendant from preventing the inspection and tak- ing of copies as aforesaid. Charles W. Baker, for plaintiff in error. Alfred B. Benedict and Jerome D. Creed, for defendant in error. Spear, J. [After deciding that plaintiff had not mistaken his remedy.] . . . 2. It being determined that the action was properly brought, and that the court had jurisdiction, is the petition sufficient, or must the 1 Statement abridged. Arguments omitted. — Ed. CINCINNATI VOLKSBLATT CO. V. HOFFMEISTER. 491 plaintiff, before he can have standing in court, set out what his reasons for desiring the inspection asked are, and show that he is actuated by proper motives and in the pursuit of justifiable ends ? Such is the contention of plaintiff in error. The statute is, section 3254 : " And the books and records of such corporation shall at all reasonable times be open to the inspection of every stockholder."/ -/l But it is insisted that this provision is not intended to enlarge the riglitTTjiit j s a'lnere'affirmation o f the common law rule, andjthatjthat rule embodies many cond itions, am ong them that the stockhold er must allege and pl-ove^ that he is acting in good faith. "Without stop- j)ing to discuss the extent of, and the limitations upon, the rule as established by the common law (for the holdings are at variance upon it), we inquire what reason there is for saying that the intent of the legislature was to merely affirm the common law rule ? If that had been all, why take the trouble to legislate on the subject at all ? ,Is_ it not m ora-reasanable, to conclu^de that the object was to get rid of all uncertainty and of various conditions, whatever they were, and estab lisTi th e rightjl)y a rule, clear, direct, simple, and practically without qualification ? The language is plain. The right given is clear! One condition, and one only, is attached, viz. : that the right can be exercised only at reasonable times. Ordinarily the motive, or purpose, of the party who i s in the ex ercise of, or is about to exercise, a cleaf~regal right, is unimportant. Letts v. Kessler, 54 Ohio St. 73, atTcT "author ities cited ; McDonald v. Smalley, 1 Pet. 620. A like rule prevails as to one's pursuit of an equitable remedy. Morris v. Tut- hill, 72 N. Y. 575 ; Davis v. Flagg, 35 N. J. Eq. 491 ; Thompson on Corp., sec. 4412, and authorities cited. No reason is apparent why the rule should not apply to the case at bar. We are of the opinion, that where a suitor demands the enforcement of a clear right given him by law, whether the remedy be legal or equitable, his motive for such action is not a proper subject for judicial investigation. The petition stated a cause of action and if supported by the evidence warranted the granting of equitable relief. 3. Was the order of the trial court too broad ? The finding by the court of all the issues for the plaintiff settles the questions of fact for this court, but it is not improper to add that there was an entire failure to show, on the part of defendant, that the plaintiff was acting from the improper motives charged in the answer, and that the evidence, all of which we have read and considered, fully justifies the finding in favor of the plaintiff. So that, even had the petition been obnoxious to a demurrer in failing to allege a proper purpose for 'the suit, the defendant, having obtained a full hearing on the charges stated in the answer, would have no ground of complaint on account of the action of the court on the demurrer. The contention is that whatever right of examination the statute > gives is a personal right, and must be exercised by the stockholder in person. Since when, we would inquire, has it been the law that \^ 492 CINCINNATI VOLKSBLATT CO. V. HOFFMEISTEE. one who has given him a clear right as to property may not exercise it by any proper agent ? The proposition has the qnality of novelty, but it is not sound. It must be apparent, on reflection, that if so circumscribed a limit were placed on the right, its exercise in many instances would be futile. Foster v. White, 86 Ala. 467 ; Mitchell v. Rubber Co. (N. J.), 37 Corp. Cases, 42, and notes, and same case in 24 Ap. Kep. 407 ; State ex rel. v. Bienville Oil Works, 28 La. Ann. 204. Nor is the right limited to one inspection. It is an incident to ownership of stock, and may be exercised at any reasonable time so long as the relation of stockholder subsists. The right to take copies from the records follows as an incident to the right to inspect. It rests, as does the entire right to examination rest, upon the broad ground that the business of the corporation is not the business of the officers exclusively, but is the business of the stockholders. Phoenix Iron Company v. Commonwealth, 113 Pa. St. 563 ; Mtitter v. By. Co., L. R. 38 Chy. Div. 92. We refrain from extended discussion of the questions involved, be- cause they are fully and ably discussed, and the authorities cited at large, in the briefs of the respective counsel which precede, and to which attention is here directed. [See 62 Ohio State, pp. 191-196.] AVe would add, however, that the rights of the plaintiff in this case are based upon a recognition of his standing as an integral part of the corporation. The idea that the corporation is an entity distinct from the corporators who compose it, has been aptly characterized as "a nebulous fiction of thought." Much learning has been indulged in and much space occupied by text-writers and others in an effort to differ- entiate the essential character of a corporation from that of its stock- holders, and great ingenuity has been displayed in the argument, but fit has been in the main a fruitless metaphysical discussion. For the /purpose of description and in defining corporate rights and obliga- j tions, and characterizing corporate action, the fiction that the corpo- 1 ration is an artificial person or entity, apart from its members, may \be convenient and possibly useful, but in the opinion of the writer the argument favoring the essential separate entity of the corpora- tion fails, and it is believed that the effort has resulted in misleading I conceptions and in much confusion of thought upon the subject. When all has been said it remains that a corporation is not in reality a person or a thing distinct from its constituent parts, and the con- stituent parts are the stockholders, as much so in essence and in reality as the several partners are the constituent parts of the part- nership. Stripp ed of misl e ading v e^r biage, t he corporation is a device f created jjy law whereby an aggregation of persons who may av ail ' themselves of it s,pnvileges_byLQi:ganizat ion, are permitted to use t heir property in__a_way different from that_which is i)crmitted toothers who_do no t so o rganize, and with certain special advantages, among which are a measure as to personal liability^. for debtSj and the power to perpetuate The organization^ denied by ^h^awJbo,alLothers. With CINCINNATI VOLKSBLATT CO. V. HOFFMEISTEE. 493 this conception of a corporation, it would seem to follow as matter of course, that the property of a corporation, although subject under some conditions to rights of creditors, is, in the last analysis, that o£^ the stockholders, and that when one seeks an inspection of its books, records, or prdp'erty, he is in reality but seeking an inspection of his own, and that thiT^hould be accorded fully, freely, an d at all times when suc h insp ectionjwilLnot unreasonably^ inco nvenience others who have like interest^ iji^a nd rights to the property, a nd that the atte mpt to unre asonably^ hamper such inspection, by officers, managers, or others, is^ an u njust e xercise of p ower and one whic h courts sho uld not sanctio n! Xor can the officers of the corporation, or the other stockholders, justly complain. They have chosen this method of investing their means and conducting the business for personal profit, a method which, as we have seen, is especially favored by the law, and they should expect to endure such inconveniences, and such chances of exposure of management, as the method entails. In other words, it is not unreasonable that they should be required to take the bitter with the sweet. No error is found in the judgments of the courts below, and they will be Affirmed. i 494 SMITH V. HURD. CHAPTER XIV. STOCKHOLDER'S RIGHT TO BRING SUIT IN REFERENCE ^r- ^TO CORPORATE MANAGEMENT, OR TO PROTECT ^ ' CORPORATE INTERESTS. Jy V^/SMITH V. HURD et \i^ '■•r lSd7. 12 MetcaJf {Mass.), ^\ .. This was a special action on the case, by^ a ^tockhol^ei_Qf jfchg V ^ Jo" Ptioenix^Bank^against the dkefitors. There were two counts; one oV ir (f/^ M ^founded in non-feasance of official duty, the other in misfeasance. )^ KJ\ . ^^ ^ > The first count alleged (inter alia) that it was the dut}' of the direc- drs to direct and superintend the proceedings of the officers, and to ixercise reasonable vigilance in seeing that the property of the bank was not lost, wasted, or misused ; but that the directors disregarding eir duty, and contriving together to injure and deceive the plaintiff tJi«reio, neglected to give reasonable personal attention to the business i^fjf/ae bank ; and negligently permitted the whole business to be ' anaged by the president^ W3'man, who loaned its monies on in- sufficient securities, used certain sums himself, and made loans to jaidividual directors exceeding the limits of the law : whereb}- the bank ^ cai)ital became wholly' lost, and plaintiff was made liable, under the faw, for his proportion of the capital lost by the official mismanage- ment of the directors, and further liable to pay large sums for the redemption of the bills of the bank. The second count alleged {inter alia) that the directors, disregard- ing their duties, and contriving together to injure and deceive the plain- tiff therein, concurred with each other that the whole business should be managed by the president, Wyman, as he should see fit ; and that defendants themselves declared dividends when there were no profits, and caused false returns to be made to the State authorities, by which means plaintiff was misled and induced to rely on the security of hia investment. And, generally, the second count charged as acts of the defendants (done through Wyman) the matters which, in the first count, were charged as negligences and permissions, and deduced * Statement abridged. Arguments omitted. — Ed. /^ A^fy^Xc^ . ^^^7r?^ ^t^uc-^ "^c^^^ ^^^^-^^V :^t^i^.<>< ^^ ill' V: ']U o^ G^ .^. J^ ' V^ SMITH V. HURD. 495 therefrom iu like manner the failure of the bank, and the special dam- age to the plaintiff. The count concluded witii an averment that defendants, by " misconducting the business of said bank, as aforesaid, so vvilfull}', deceitfully and fraudulently mismanaged the business and property of the said bank, that the whole capital thereof was utterly lost and wasted." Defendants demurred to the declaration. £, H. Curtis and Ji. Jiaud, for defendants. Gardiner (Grreenleaf wiih him), for plaintiff. Shaw, G. J. This is certainly a case of first impression. We are not aware that any similar action has been sustained in England, or in any of the courts of this country. It is founded on no statute. It is an action on the case, at common law, brought by an individual holder of shares in an incorporated bank, against the directors, not includinfr the president, setting forth various acts of negligence and malfeasance, through a series of years, in consequence of which, as the declaration alleges, the whole capital of the bank was wasted and lost, and the shares of the plaintiff became of no value. The circumstance that no such action has been maintained, would certainly be no decisive objec- tion, if it could be shown to be maintainable on principle. But the fact, that similar grievances have existed to a great extent, and in numberless instances, where such an action would have presented an obvious and effective remed}', affords strong proof, that in the view of all such suffering parties, and their legal advisers and guides, there was no principle on which such an action can be maintained. If an action can be brought by one stockholder, it may be brought b}- the holder of a single share ; so that for one and the same default of these directors, thirty-five hundred actions might be brought. If it- may be sustained by proof of an act, or series of acts, of carelessness, neglect, and breach of duty, in managing the affairs of the bank, by which the whole value of the stock is destroyed, it may, on the same principle, be maintained on any act or instance of such negligence, by which the shares are diminished in value fiftv, ten, five, or one per cent. Still, notwithstanding these consequences, if the plaintiff has a good right of action, upon recognized and sound legal principles, his action ought to be sustained. But the court are of opinion that the action cannot be maintained ; and that on several grounds, a few of the more prominent of which may be alluded to. 1. There is no legal privity, relation, or immediate connexion, be- tween the holders of shares in a bank, in their individual capacity, on the one side, and the directors of the bank on the other. The^directors are notjhe bailees, the factors, agents or trustees of such individually .^^.^ >^ stockhojiiei-s. Tlie bank is a corporation and l><>dy politic, having j^-*!^ /k^V*^ a separate existence as a distinct person in law, in whom the whole ,u^(^ stock and property of the bank are vested, and to whom all agents, ^ debtors, officers and servants are responsible for all contracts, express ^i- c h ft,/r/' ^»^ V -f^*^ ^'>^ n^ ..> &anner. Jf^ p, 2. The individual members of the corporation, whether they shou ld a]l join, or each act severally, have no right or power to intermeddl e wjth the pro pert}' or concerns of the bank, or call any officer, age nt or serv ant- to account, or discharge them from any liabilit y. Should aU the stockholders joi n in a power of attorne;^o^n3 ' one, he c ould not take possession of any re al or p ersonal estate, any s ecuritv or chose iij a^tionjconlcTn ot collect a debt, or^ ischarge a claimi_or_re lease d am- age arising from any d efault ; simply because they are not tj jcjegal owners of_jthe_j3rop.ertyj_and damage done to su ch property is not an injury to them. T hei r rights and their p owe rs are limited an d well defined. The}' are mem bers of an organized b ody, and exercise such po wers asjthe^rgaii izatLon of the_in stiti i ti on gi ves,lh£iii;__Stockholder9 in banks have a separate jjglit^ to dividends, when declared, an d to a HistributiA^ share of th e_C3j3itaL-Stockj, JiLOiLy remains whcnjt he chart ef qfTh£]biink_isji.-arL^nd,. and its debt s paid . I 3. But another important consideration is, that the injury done to -, (ihe capital stock l)y wasting, impairing, and diminishing its value, is , - -Jj \not, in tlie first instance, nor necessarily, a damage to the stockholders. \/ jAll sums which could, in any form, be recovered on that ground, would be assets of the corporation, and when collected and received by directors, receivers, or any other persons entitled to receive the same, they would be held in trust, first to redeem the ])ills and pay the debts of the bank; and it would be only after these debts were paid, and in case any surplus should remain, that the stocklioklers would be entitled to receive any thing. It is, therefore, an indirect, contingent and sub- SMITH V. IIUED. 497 ordinate interest, which each stockholder has, in damages so to be recovered against directors. If, upon such indirect, contingent, and remote interest, individual stockholders could recover for the defaults of directors, and especialh', as is alleged in this case, where these defaults have been so great as to sink the capital, a fortiori would the creditors of the bank individually have a right to maintain similar actions ; because their claim upon the funds, being prior to that of stockholders, would be somewhat more immediate and direct. In the same connexion, it is obvious to remark, that a judgment in favor of one stockholder would be no bar to an action by a creditor, nor a judgment by both, to an action by the corporation. 4. But it is said, that although the real and personal estate, the securities and capital stock, are, in legal contemplation, vested in the corporation, yet the individual has a separate and distinct propert}- and interest in his particular shares, by any injury to which he may have a separate damage. To some extent, it is true that he has a sev- eral interest in his shares ; but it is to be taken with some qualifica- tions. Strictl}' speaking, shares in a bank do not oonstitute a legal estate and property ; it is rather a limited and qualified right which the stockholder has to participate, in a certain proportion, in the benefits of a common fund, vested in a corporation for the common use ; it is a qualified and equitable interest, a valuable interest, manifested usually by a certificate, which is transferable. To the extent of this separate and peculiar interest, a stockholder, no doubt, might maintain his separate and special action, according to the nature of the wrong done to him in respect to it ; as trover or trespass, for the conversion or tortious taking of his certificate ; trespass on the case for refusing to make a transfer on a proper occasion ; assumpsit for a dividend de- clared, and the like. But an injury done to the stock and capital, by negligence, or misfeasance, is not an injury to such separate interes t, but to the whole bod}' o f stockholders in common. Itj s like the ca se oTa co mmon nuisance, where one who suflTers a special jlamagejj2ecu- li ar to "h i mself, and distinguishable in kind fr om that w^hich hj^ shares i n the common inj ury, may maintain a special action. Other wise, h e cannot^ Co. Lit. 56 a. 3 Steph. N. P. 2372. Lansing v. Smith, 8 Cow. 146. But we are pressed with the argument, that for ever}' damage which one sustains, which is caused by the wrongful act of another, he oughf to have a remedy. This is far from being universally true. Another maxim in regard to claims for damage is, causa proxima, non remota, spectatur. Thousands of instances occur, in which one sustains conse- quential and incidental damage from the misconduct of another, with- out a remedy at law. By the misconduct of the officers or agents of a parish, town, county, or even of the State or the Union, defalcations ma}' take place, treasure be squandered and wasted, and all the mem- bers of the respective aggregate bodies suffer damage, for which the law, from the nature of the case, can afiford no direct remedy. But the ^ 498 DODGE V. WOOLSEY. ^ fVy 9, true answei* to the objection is, that stoek bolders have a remedy^ tKeol'etic one in deed, and~perhaps often inadequate, in the p ower of the eor|)oration, ui its c orporate_ capaeity, to obt ain redress for injuries done to tlie common proper U", by tlie rec oyeryof d amages ; and each i n dividual stocliholder has his remedy, through the power s thus v est£d_ in the co rporation, for the ^ommon_benefil. On^tEe whole, the court are of opinion that the demurrer is well taken, and that the action cannot be maintained. ^S V* 1^^ 18 Howard (f7. S.). 331.1 woolsey; / Appeal from the U. S. Circuit Court for the District of Ohio. This is a suit in equity by John M. Woolse}^ to enjoin the collection of a tax, assessed by the State of Ohio, on the Commercial Branch Bank of Cleveland, a branch of the State Bank of Ohio. The de- fendants are Dodge, the tax collector, the directors of the bank, and the bank itself. Woolsey avers that he is a citizen of Connecticut, that he is the owner of thirty shares in the Branch Bank of Cleveland, that Dodge and the other defendants are all citizens of Ohio, and that the Com- mercial Branch Bank is a corporation, made such b}- an act of the egislature of Ohio. He alleges that, by the act of incorporation, the on its ation, or subject. He further alleges that subsequent changes were made by the constitu- tion and statutes of Ohio, undertaking to tax the Bank at a different and more burdensome rate. He asks the Court to enjoin Dodge from collecting by distress a tax which has been assessed against the Bank under this law ; contending that the subsequent statute and assessment are in violation of the clause in the U. S. Constitution, which prohibits ■ States from passing laws impairing the obligation of contracts. He .finally declares that, as a stockholder of the Bank, he had requested measures, b^- suit or otherwise, to assert the against the collection of what he believes to be an unconstitutional tax, and that they had refused to do so. Dodge filed an answer, in which he denied that Woolsey had made ^J lany application to the directors to prevent the collection of the tax. M^,. liut it was agreed by the counsel that such an application had been *. / AT 1 Stateuicnt abridged. Only so much of the case is given as relates to one point. dZ-'^A -'^ hJ^ ^fJ'''^ directors to take meaj I jJA rv^ty^^ franchises of the Bank aga 'y^''^ 0^ .(^' DODGE V. WOOLSEY. 499 made ; and that the directors replied that, though concurring in the view that the tax was illegal, yet, in consideration of the many obstacles in the way of testing the law in the Courts of the State, they could not consent to take the action which the}' were asked to take. Spalding and Pugh, for appellant. Stanberry and Vinton, for appellee. Wayne, J. [After stating the case]. Upon the foregoing pleadings and admission, the circuit court ren» dered a final decree for the complainant, perpetuall}' enjoining the treasurer against the collection of the tax, under the act of the 13th February, 1852, and subjecting the defendant. Dodge, to the payment of the costs of the suit. From that decision the defendant, Dodge, has appealed to this court. His counsel have relied upon the following points to sustain the appeal : 1. The complainant does not show himself to be entitled to relief in' a court of chancer}-, because the charter of the bank provides that its affairs shall be managed by a board of directors, and that they are not/i\ amenable to the stockholders for an error of judgment merely. AndiM that in order to make them so, it should have been averred that they were in collusion with the tax collector in their refusal to take legal steps to test the validity of the tax. 2. It was urged that this suit had been improperly brought in the circuit court of the United States for the district of Ohio, because it is a contrivance to create a jurisdiction, where none fairl}' exists, b}' sub- stituting an individual stockholder in place of the Commercial Bank as complainant, and making the directors defendants ; the stockholder being made complainant, because he is a citizen of the State of Con- necticut, and the directors being made defendants to give countenance to his suit. 3. It was said, if the foregoing points were not available to defeat the action, that it might be contended that the defendant was in the discharge of his official duty when interrupted b}- the mandate of the circuit court, and that the tax had been properly assessed bj* the law of the State, in conformity with its constitution, of the 1st September, 1851. We will consider the points in their order. The first comprehends two propositions, namely : that courts of equit}- have no jurisdiction over corporations, as such, at the suit of a stockholder for violations of charters, and none for the errors of judgment of those who manage their business ordinaril}'. There has been a conflict of judicial authority in both. Still, it has been found necessarv, for prevention of injuries for which common-law courts were inadequate, to entertain in equity such a jurisdiction in the progressive development of the powers and effects of private corpora- tions upon all the business and interests of society. It is now no longer doHbted, either in England or the United States, 500 DODGE V. WOOLSEY. that courts of equity, in both, have a jurisdiction over corporations, at the instance of one or more of their members ; to apply preventive remedies by injunction, to restrain those who administer them from doing acts which would amount to a violation of charters, or to prevent any misapphcation of their capitals or profits, which might result in lessening the dividends of stockholders, or the value of their shares, as either may be protected b}' the franchises of a corporation, if the acts intended to be done create what is in the law denominated a breach of trust. And the jurisdiction extends to inquire into, and to enjoin, as the case ma}' require that to be done, any proceedings by individuals, in whatever character the}' may profess to act, if the subject of com- plaint is an imputed violation of a corporate franchise, or the denial of a right growing out of it, for which there is not an adequate remedy at law. 2 Russ. & Mylne Ch. R., Cunliffe v. Manchester and Bolton Canal Company, 480, ?i.; Ware v. Grand Junction Water Company, 2 Russ. & Mylne, 470 ; Bagshaw v. Eastern Counties Railway Company, 7 Hare Ch;R. 114; Angell & Ames, 4th ed. 424, and the other cases there cited. It was ruled in the case of Cunliffe v. The Manchester and Bolton Canal Company, 2 Russ. & Mylne Ch. R. 481, that where the legal remedy against a corporation is inadequate, a court of equity will hiterfere, and that there were cases in which a bill in equity will lie against a corporation by one of its members. "It is a breach of irust towards a shareholder in a joint stock incorporated company, established for certain definite purposes prescril)ed by its charter, if the funds or credit of the company are, without his consent, diverted from such purpose, though the misapplication be sanctioned by the votes of a majority ; and, therefore, he may file a bill in equity against the company in his own behalf to restrain the company by injunction from any such diversion or misapplication." In the case of Ware r. Grand Junction Water Company, 2 Russell & Mylne, a bill filed by a member of the company against it. Lord Brougham said : " It is said this is an attempt on the part of the company to do acts which they are not empowered to do by the acts of parliament," meaning the charter of the company ; "so far I restrain them by injunction." "Indeed, an investment in the stock of a corporation must, by every one, be con- sidered a wild speculation, if it exposed the owners of the stock to all sorts of risk in sujjport of i)lausible projects not set forth and au- thorized by the act of incori)oration, and which may possibly lead to extraordinary losses." The same jurisdiction was invoked and applied in the case of Bagshaw v. The Eastern Counties Railway Com- pany ; so, also, in Coleman w. The same company, 10 Bcavan's Ch. Rci)orts, 1. It appeared in that case that the directors of the com- pany, for the purpose of increasing their traflic, proposed to guarantee certain profits, and to secure the capital of an intended steam packet company, which was to act in connection with the railway. It was held, such a transaction was not within the scope of their powers, and DODGE V. WOOLSEY. 501 they were restrained by injunction. And in the second place, that in such a case one of the shareholders in the railway company was entitled to sue in behalf of himself and all the other shareholders, except the directors, who were defendants, although some of the shareholders had taken shares in the steam packet company. It was contended in this case that the corporation might pledge, without limit, the funds of the company for the encouragement of other transactions, however various and extensive, provided the object of that liability was to increase the traffic upon the railway, and thereby increase the traffic to the share- holders. But the master of the rolls, Lord Langdale, said, " there was no authorit}' for anything of that kind." But further, it is not only illegal for a corporation to apply its capital ' to objects not contemplated by its charter, but also to apply its profits. And therefore a shareholder ma}' maintain a bill in equity against the directors and compel the compan}- to refund any of the profits thus improperl}' applied. It is an improper application for a railway com- pany to invest the profits of the company in the purchase of shares in another compan}'. The result of the cases is well stated in Angell & Ames, paragraphs 391, 393. " In cases where the legal remedy against a corporation is inadequate, a court of equity will interfere, is well settled, and there are cases in which a bill in equity will lie against a corporation by one of its members." " Though the result of the authorities clearly is, that in a corporation, wlien acting within the scope of and in obedience to the provisions of its constitution, the will of the majority, duly ex- f Ji^ pressed at a legally constituted meeting, must govern ; yet beyond the '' limits of the act of incorporation, the will of the majority cannot make an act valid ; and the powers of a court of equity may be put in motion fh at the instance of a single shareholder, if he can show that the cor- , poration are employing their statutory powe^slfor the accomplishment of purposes not within tlie scope of their institution. Yet it is to be observed, that there is an important distinction between this class of cases and those in which there is no breach of trust, but only error and] misapprehension, or simple negligence on the part of the directors." ... We have then the rule and its limitation. It is contended that this case is within the limitation ; or that the directors of the Commercial Bank of Cleveland, in their action in respect to the tax assessed upon it, under the act of April 18, 1852, and in their refusal to take proper measures for testing its validity, have committed an '* error of judg- ment merely." Now, in our view, the refusal upon the part of the directors, by their / own showing, partakes more of disregard of duty, than of an error of / cP judgment. It was a non-performance of a confessed official obligation, amounting to what the law considers a breach of trust, though it may not involve intentional moral delinquency. It was a mistake, it is true, 502 PEABODY V. FLINT. of what their duty required from them, according to their own sense of it, but, being a duty by their own confession, their refusal was an act outside of the obligation which the charter imposed upon them to pro- tect what they conscientiously believed to be the franchises of the bank. A sense of duty and conduct contrary to it, is not "an error of judg- ment merely," and cannot be so called in any case. It amounted to an illegal application of the profits due to the stockholders of the bank, into which a court of equity will inquire to prevent its being made. Thinking, as we do, that the action of the board of directors was not " an error of judgment merely," but a breach of duty, it is our opinion that they were properly made parties to the bill, and that the jurisdic- tion of a court of equity reaches such a case to give such a remedy as its circumstances may require. This conclusion makes it unnecessary for us to notice further the point made by the counsel that the suit should have been brought in the name of the corporation, in support of which they cited the case of the Bank of the United States v. Osborn. The obvious difference between this case and that is, that the Bank of the United States brought a bill in the circuit court of the United States for the district of Ohio, to resist a tax assessed under an act of that State, and executed by its auditor, and here the directors of the Com- mercial Bank of Cleveland, b}' refusing to do what they had declared it to be their dutj' to do, have forced one of its corporators, in self- defense, to sue. If the directors had done so in a State court of Ohio, and put their case upon the unconstitutionality of the tax act, because it impaired the obligation of a contract, and had the decision been against such claim, the judgment of the State court could have been re-examined, in that particular, in the supreme court of the United States, under the same authority or jurisdiction b^^ which it reversed the judgment of the supreme court of Ohio, in the case of the Piqua Branch of the State Bank of Ohio v. Jacob Knoop, treasurer of Miami county, 16 How. 369. Decree of Circuit ^purt a Catron, J., Daniel, J., and Campbell PEABODY (T L, JuvSiseentcd. ;j) . /* /Ay/ t. -A /it 1863. 6 Allen (Mass.), 52.1 Bill in equity, brought March 9, 1860, by two stockholders of the ^Lowell and Salem Railroad Company, for themselves and in behalf of V\'lthe other stockholders, against certain directors and agents of said company, and of the Lowell and Lawrence Railroad Company, whose 1 ArcrumentH omitted. — Ed. PEABODY V. FLINT. 503 railroad connected with that of the former compan}', and others, charg- ing various acts of conspiracy and fraud, b}' wliich the interests of the stockholders in the Salem and Lowell Railroad Company were preju- diced and sacrificed, for the benefit of the Lowell and Lawrence Rail- road Company ; and especiall}- in reference to false and fraudulent representations and practices for the purpose of injuring the credit of the Salem and Lowell Railroad, and enabling them to issue and take its bonds, on the 20th of August 1856, secured b}' a mortgage of prop- erty of the company, at prices below their true value ; and also in reference to a contract executed on the 1st of October 1858, b}- which the Lowell and Lawrence Railroad Company were to "do and perform all the transportation of persons and freight upon and over the Salem and Lowell Railroad," and to pretended settlements made between said companies. The bill also set forth that, since the plaintiffs had reason to suspect the frauds and conspiracies charged, the}' have demanded explanations of the defendants, petitioned the general court for an investigation, and endeavored to procure the election of directors who would cause the matters to be investigated, but, being in a minorit}-, have failed to succeed. The defendants filed a general demurrer. The plaintiffs, at the argument, moved to amend their bill by joining the Salem and Lowell Railroad Company* as defendants. This case was argued in Januarj' 1862. X G. Abbott and T. Wentworth, for defendants. S. H. Phillips and J. A. Gillis ( W. P. Webster with them,) for plaintiffs. Chapman, J. The bill sets forth a very complicated case. A full consideration of the charges of fraud which it contains would involve the necessity of examining the various legislative acts which it recites, and the contracts and dealings which it sets forth. But such a discussion is unnecessary. The principal ground of demurrer relied on by the defendants is, that the plaintiffs have not, and never had, any remedy for such injuries /* as the}' complain of; that, conceding the truth of the allegations that the directors of the Salem and Lowell Railroad Company, either by , themselves or with the consent and connivance of a majority of their stockholders, combined, either among themselves, or with the Lowell and Lawrence Railroad Company or its directors, or with any of the ' other defendants, to defraud a minority of the stockholders of the Salem and Lowell Railroad Company, and in pursuance of this combination did the acts alleged, and so dealt and managed as to destroy the value of the stock as set forth, yet the only relief which the minority can have is the very imperfect one of selling out their stock for what it will bring in market. This doctrine is said to result from the nature of corporate i property, which, being owned absolutely by the corporation, is under I the absolute control of a majority of the stockholders, and of such I directors as they choose to elect. Their decisions and acts, it is said, J are final, and the minority are bound to submit to them. / 504 PEABODY V. FLINT. Bat this doctrine, if correct, would place the propert}' of stockholders in a corporation in a perilous condition. For it would enable the managers of one corporation to get the control of another by the pur- chase of a majority of its stock for the purpose, and then to manage its affairs in such subservience to the interests of their own corporation, as to render the stock of the minority worthless, and avail themselves of its value without compensation. The demurrer concedes, for the purposes of this discussion, that the managers of the Lowell and Law- rence Railroad Compan}' have thus acted in respect to the minority of stockholders in the Salem and Lowell Railroad Compan}'. It requires no great sagacity to see how similar frauds ma}' be practised in behalf of many other railroads against connecting or rival roads, so that a system of railroad connections ma}- become a S3'stem of frauds. If it ma}^ be practised with impunity between railroad corporations, it ma3' also be practised between manufacturing corporations, and a managing majority may, at their pleasure, sacrifice the interests of the minoritj' for the benefit of another corporation owned b}' them. The same remark is true in respect to several other classes of business corpora- tions. The question thus presented is of great importance, because there is no known practicable method of establishing and managing railroads except by means of corporations ; and many other great enterprises and branches of business which require, for their successful prosecution, a large and permanent investment of capital, are also usually and most conveniently established and managed by means of corporate organizations. This doctrine is also said to result from the nature of corporations and corporate propert}', as stated in Smith v. Ilurd, 12 Met. 37L The views taken in that case are unquestionably correct ; and they apply with especial force to that class of corporations whose stock- holders have little more power than to elect officers, who, when elected, are invested by law with the sole and exclusive power of managing the concerns and business of the corporation. The corporation itself is regarded as a distinct person ; and its property is lega lly veste d in itself, and not in its stockholders. Asjndividuals, they cannot, even by joining together unanimously, convey a title to it, or maintain an action at law for its possession, or for da mages don e tojt. Nor can they make a contract that shall bind it, or enforce by action a contract that has been made with it. The artificial person called the corporation must manage its affairs in its own name, as exclusively as a natural person manages his property and business. The officers, though chosen by \;^te of the stoc khol ders, are_not their agents," but the agents of the icorporation; and they are accountable to it alone. Therefore one or 'more of the stockholders cannot maintain an action at law against the officers for any breach of official duty that injures the corporate prop- erty as a whole. An injury done by the directors of a company to an individual by inducing him to become a member of the company by means of false representations is actionable, because it is an injury PEABODY V. FLINT. to him and not to the company. But the interest of stockholders Gerhard v. Bates, 2 El. & Bl. 476 as state d in Smith v. Hard, cited Aly ij^ above^merely a qua lified jmd equital)le_ intereaL- Bu^Jf_there is an_^urtahlejiiteregt, the re must re sult JVom it equi tabl e^ relations an d equita ble_rjgh ts ; and these rights may be e nforced by equitable remedies._ As between the corporation itself^ ajid ^ts officer s, it was long since held t hat they were trustee s, a nd that a court of equity would hold them responsible for every breacji of trust. 'Charitable IJorpm'ationx . Sutton, 2 Atk. 400. The co rporati on it self holds its prope rty' as trustee for the stockholders^ who have a jointjnter- est in^ all^ its propertj' and eflfects, and each j)f whom is related to itjis V^^ j cestui qi ie_trust. l^jie corporation ma3^jcall its officers to accoun t if th e}' aJ [j wilfully abuse their trust, or misapply the funds of the compan}^^ ajidjf ( „ ^, it refuses to sue, or is stiU n^^^^}\ under the control of those who must made defendants in the suit, the stockholders who are the real parties o in interest may file a bil l in their own names, making the corporation a pa,rty defendant ; or a part of them may file a bill in behalf of them- selves and all others standing in the same relation, if convenience requires it. Hobinson v. Smith, 3 Paige, 222, and cases there cited. See also the other authorities cited for the plaintiffs on this point ; and Hersey v. Veazie, 24 Maine, 9, and Smith v. Poor, 40 Maine, 415, cited by the defendants. If other parties have participated with the oflScers in such proceedings, the}' may, according to the established principles of equit}- pleading, be joined as parties. In the discovery of frauds, and in furnishing remedies to parties defrauded, equity does not suffer technicalities to stand in its way, but seizes upon the substance of the case, and holds all parties to their just responsibilit}', following trust property into the hands of remote grantees and purchasers who have taken it with notice of a trust, in order to subject it to the trust. The objection, therefore, that a court of equity has no power to furnish a remedy in a case of this character, is untenable. But there is another objection to the bill which must prevail. | Equit}- regards diligence as one of its important elements ; and it dis- countenances laches as inequitable ; and unreasonable dela}' to prose cute an existing claim is a bar to a bill in equity, especially when the parties cannot be restored to their original position, and injustice ma^j be done. Veazie Cush. 252. Fuller note 3. In this case there has been unreasonable dela}'. The bill was sworn to March 9, 1860. The mortgage complained of was executed August 20, 1856, and the lease to the Boston and Lowell Railroad Company, October 1, 1858. The 'contracts and dealings to be investigated and readjusted commenced in 1850, and continued till the execution of the mortgage, and even to the execution of the lease in 1858. Every day's delay increased the complication and the difficulty of making an -- -- -. /^ directors, and should purchase for the company certain lands owned 4 ', by themselves and by other parties to the combination, at greatly /^"^V*^ increased and exorbitant prices. The directors, accordingl}-, before the ^^ passing of the act, agreed to purchase certain lands at rents or prices A'^'^ y^ i*^ greatly exceeding those at which the vendors had purchased the same, ^^/^ ^ After the passing of the act of incorporation, the directors and their ^x^ ^ 'U^ confederates proceeded to carry into execution the previously formed 'TIa^ C^ ^ ,^r^ design of fraudulently profiting by the establishment of the company y^^ ' ^y* ' ' arid at its expense. The directors, accordingl}-, on behalf of the companj'^^*''^ ^ ij^* purchased from themselves, and from the other parties, lands charged;//*^ /^ " - ^y y with chief or fee-farm rents, greatly- exceeding the rents payable to the 7^^ w^^^-'^^'^^^L^ persons from whom the said vendors had purchased the same. B}-' these means, the company took the laud, charged not only with the chief '' #>*-^ c'^ 1 Statement abridged. Arguments and part of opinion omitted. — Ed. 'J,-^^L^] 1} \ ^^ 508 rOSS V. HARBOTTLE. rents reserved to the original landowners, but also with additional rents reserved and paj'able to the immediate vendors (the directors et als.). In further pursuance of the same fraudulent design, the directors, after purchasing the said land for the company, applied about 27,000/. of the monies in their hands, belonging to the compau}-, in the purchase or redemption of the rents so reserved to themselves and their associates, leaving the land subject onl}' to the chief rent reserved to the original land- owners. The lands pui'chased bv defendants were re-sold by them to the compan}' at a profit and at a price considerably exceeding the real value of the same. Owing to the sums appropriated b}' the directors to themselves, and paid to others in reduction of the increased chief rents, and payment of such rents, and owing to their having otherwise misapplied monies, the funds of the company in their hands were exhausted, and the}' raised large sums upon mortgage or incumbrance of lands and property of the com- pan}', which the}' had no authority to do under the act of incorporation. Some of the lands thus mortgaged, though the equitable property of the company, did not stand in the name of the compan}" ; and hence some of the mortgagees had no notice of want of authority on the part of the mortgagors. The bill further alleged, that there had ceased to be a sufl3cient number of directors to constitute a board for transacting the business of the company ; and that, in the present circumstances of the com- pany and of the board of directors, the shareholders had no power to take the propert}- of the company out of the liands of the former directors, or to appoint directors to supply the vacancies, or to wind up, or dissolve, the company, without the assistance of the court. The bill also alleged, that the defendants concealed from the plaintiffs and the other shareholders the aforesaid fraudulent and improper acts and proceedings ; and that plaintiffs and the other shareholders had only re- cently ascertained the particulars thereof, so far as they were now stated. The bill prayed, that an account miglit be taken of the losses and expenses incurred in consequence of the said fraudulent and improper dealings of the defendants with the monies, lands, and property of the company, whicli the}' were liable to make good, and that the}' might be respectively decreed to make good the same, including in particular tlie profits made by buying and re-selling the said land ; that it might be declared that the mortgages upon the lands, etc., created as aforesaid, so far as regards tlie defendants who executed the same or were privy thereto, were created fraudulently and in violation of the provisions of the act, and that certain of tlie defendants might be decreed to make good to the company the principal and interest due upon such of the mortgages as were still subsisting ; that inquiries might be directed to ascertain which of the mortgages could be avoided and set aside as against the persons claiming the benefit thereof, and that proceedings might be taken for avoiding them accordingly ; and that a receiver might be appointed. FOSS V. HARBOTTLE. 509 Certain of the defendants demurred to the bill, assigning for cause, want of equit}-, want of parties, and multifariousness. Lowndes^ Rolt, Walker^ and Glasse, in support of the demurrers. James Russell., Roiipell^ and Bartrum^ for the bill. WiGRAM, Vice-Chancellou. The relief which the bill in this case seeks, as against the Defendants who have demurred, is founded on several alleged grounds of complaint ; of these it is onl}- necessary that I should mention two, for the consideration of those two grounds involves the principle upon which I think all the demurrers must be determined. One ground is, that the directors of the Victoria Park Compan}', the Defendants Ilarbottle, Adshead^ Byrom, and Bealey, have, in their character of directors, purchased their own lands of them- selves for the use of the company, and have paid for them, or, rather, taken to themselves out of the monies of the company a price exceeding the value of such lands : the other ground is, that the Defendants have raised money in a manner not authorized by their powers under their act of incorporation ; and, especially, that the}' have mortgaged or incumbered the lands and property of the compau}-, and applied the monies thereby raised in effect, though circuitoush', to pay the price of the land which the}' had so bought of themselves. [Part of opinion omitted.] For the present purpose, I shall assume that a case is stated, entithng the company, as matters now stand, to complain of the transactions mentioned in the bill. The Victoria Park Company is an incorporated body, and the conduct with which the Defendants are charged in this suit is an injury not to the Plaintiffs exclusively ; it is an injury to the whole corporation b}' individuals whom the corporation entrusted with powers to be exercised onl}' for the good of the corporation. And from the case of the Attor- ney-General v. Wilson^ (without going further), it may be stated as undoubted law, that a bill or information b}' a corporation will lie to be relieved in respect of injuries which the corporation has suffered at the hands of persons standing in the situation of the directors upon this record. This bill, however, differs from that in the Attorney- General V. Wilson in this, — that instead of the corporation being formally represented as plaintiffs, the bill in this case is brought by two indi- vidual corporators, professedl}' on behalf of themselves and all the other members of the corporation, except those who committed the injuries complained of, — the plaintiffs assuming to themselves the right and | power in that manner to sue on behalf of and represent the corporation] itself. Itwasnot, nor could it successfully be argued, that it was a matterjof co urse f or an y individual members of a corporation thus to assuipe^tq^ tllemseh;^s the right of suing in the name of the corporation. In law,Jbe^ corp oration , and the aggregate members of the corporation, ar ejiot_tlJL&. same thin^for^purposes like thisj and the only question can be, whether '^' 1 Cr. S>- Ph. 1 " ~ y ^y ^ / 510 FOSS V. HAEBOTTLE. the facts alleged in this case justif}' a departure from the rule which prima facie would require that the corporation should sue in its own name and in its corporate character, or in the name of some one whom the law has appointed to be its representative. The demurrers are, — first, of three of the directors of the compan}', who are also alleged to have sold lands to the corporation under the circumstances charged ; secondh', of JBealey, also a director, alleged to have made himself amenable to the jurisdiction of the Court to remedy the alleged injuries, though he was not a seller of land ; thirdl}', of Denison, a seller of land, in like manner alleged to be implicated in the frauds charged, though he was not a director ; fourthl}-, of Mr. Bunting^ the solicitor, and Mr. Lane, the architect of the company. These gentlemen are neither directors nor sellers of land, but all the frauds are alleged to have been committed with their privit}', and thev also are in this manner sought to be implicated in them. The most convenient course will be, to consider the demurrer of the three against whom the strongest case is stated ; and the consideration of that case will ap[)ly to the whole. The first objection taken in the argument for the Defendants was, that the individual members of the corporation cannot in any case sue in the form in which this bill is framed. During the argument I inti- mated an opinion, to which, upon further consideration, I fully adhere, that the rule was much too broadly stated on the part of the Defendants. I think there are cases in which a suit might properly be so framed. Corporations like this, of a private nature, are in truth little more than private jjartnerships ; and in cases which may easily be suggested, it would be too much to hold, that a society of private persons associated together in undertakings, which, though certainly beneficial to the public, are nevertheless matters of private propert}', are to be deprived of their civil rights, inter se, because, in order to make their common objects more attainable, the crown or the legislature may have conferred upon them the benefit of a corporate character. If a case should arise of injury to a corporation b}' some of its members, for which no adequate remed}' remained, except that of a suit by individual corporators in their private characters, and asking in such character the protection of those rights to which in their corporate character they were entitled, I cannot but think that the principle so forcibly laid down by Lord Cotten- luim in Walhcorth v. Holt^ and other cases, would apply, and the claims of justice would be found superior to any difficulties arising out of technical rules respecting the mode in which corporations are required to sue. But, on the other hand, it must not be without reasons of a very urgent character that established rules of law and practice are to be departed from, — rules, which, though in a sense technical, are founded on general principles of justice and convenience ; and the question is, whether a case is stated in this bill, entitling the Plaintiffs to sua \s\ their 1 4 Myl & Cr. G35. See also 17 Ves. 320, per Lord EldoH. FOSS V. HARBOTTLE. 511 private characters. [His Honor stated the substance of the act, sec- tions 1, 38, 39, 43, 46, 47, 48, 49, 67, 70, 114, and 129.1] The result of these clauses is, that the directors are made the governing bod}-, subject to the superior control of the proprietors assembled in general meetings ; and, as I understand the act, the proprietors so assembled have power, due notice being given of the purposes of the meeting, to originate proceedings for an}- purpose within the scope of the company's powers, as well as to control the directors in any acts which they may have originated. There may possibly be some exceptions to this pro- position, but such is the general effect of the provisions of the statute. Now, that my opinion upon this case may be clearly understood, I will consider separately the two principal grounds of complaint to which I have adverted, with reference to a very marked distinction between them. The first ground of complaint is one which, though it might prima facie entitle the corporation to rescind the transactions com- plained of, does not absolutely and of necessity fall under the descrip- tion of a void transaction. The corporation might elect to adopt those transactions, and hold the directors bound by them. In other words, the transactions admit of confirmation at the option of the corporation. The second ground of complaint may stand in a different position ; I allude to the mortgaging in a maniver not authorized by the powers of the act. This, being beyond the powers of the cor^wration, may admit of no confirmation whilst any one dissenting voice is raised against it. This distinction is found in the case of Preston v. The Grand Collier Dock Gorti'pany.'^ On the first poin t, it is only necessary to refer to the clauses of the act to shew, that, Avhilst the supreme governing body, the proprietors at a special general meeting assembled, retain the power of exercising the functions conferred u}x>n them by the act of incorporation, it cannot be competent to individual corporators to sue in the manner proposed by the Plaintiffs on the present record. This in effect purports to be a suit by cestui que trusts, complaining of a fraud committed or alleged to have been committed by persons in a fiduciary character. The com- plaint is, that those trustees have sold lands to themselves, ostensibly for the benefit of the cestui que trusts. The proposition I have advanced is, that although the act should prove to be voidable, the cestui que trusts may elect to confirm it. Now, who are tlie cestui que trusts in this case? The corporation, in a sense, is undoubtedly the cestui que trust ; but the majority of the proprietors at a special general meeting assembled, independently of any general rules of law u[)on the subject, by the very terms of the incorporation in the present case, has power to bind the whole body, and every individual corporator must be taken to have come into the corixjration upon the terms of being liable to be so bound. How then can this Court act in a suit constituted as this is, if it is to be assumed, for the purposes of the argument, that the 1 Supra, p. 4()i, n., et seq. 2 11 Sim. 327, S.C.; 2 Railway Cases, 835. 512 FOSS V. HAEBOTTLE. rt powers of the body of the proprietors are still in existence, and ma> Mawfull}- be exercised for a purpose like that I have suggested? Whilst the Court ma}' be declaring the acts complained of to be void at the suit of the present Plaintiffs, who in fact ma}' be the only proprietors who disapprove of them, the governing body of proprietors may defeat the decree by lawfully resolving upon the confirmation of the very acts i,wliich are the subject of the suit. The A'ery fact that the governing body of proprietors assembled at the special general meeting may so bind even a reluctant minority, is decisive to shew that the frame of this suit cannot be sustained whilst that body retains its functions. In order then that this suit may be sustained, it must be shewn either that there is no such power as I have supposed remaining in the proprietors, or, at least, that all means have been resorted to and found ineffectual to set that body in motion : this latter point is nowhere suggested in the bill : there is no suggestion that an attempt has been made by any proprietor ^jO set the body of proprietors in motion, or to procure a meeting to be convened for the purpose of revoking the acts complained of. The question then is, whether this bill is so framed as of necessity to exclude the supposition that the supreme body of proprietors is now in a condi- tion to confirm the transactions in question ; or, if those transactions are to be impeached in a court of justice, whether the proprietors have not power to set the corporation in motion for the purpose of vindicating its own rights. [The learned judge then controverted the plaintiff's position that, upon the allegations of the bill, it must be regarded as impossible to now legally convene a general meeting of the shareholders. He was of opinion that certain clauses in the act were merely directory, and that a general meeting could be called even if the corporation lacked certain oflflcers. He also held, "that the existence of a board of directors ch facto is sufficiently apparent upon the statements in the bill." In this dis- cussion he said — "I have applied strictly the rule of making every in- ■^jcndment against the pleader in this case, . . . : " also — "... I have felt bound in favor of the defendants to construe this bill with strictness."] The second point which relates to the charges and incumbrances ' alleged to have been illegally made on the property of the company is open to the reasoning which I have applied to the first point, upon the question whether, in the present case, individual members are at liberty to complain in the form adopted by this bill ; for why should this anomalous form of suit be resorted to, if the powers of the corporation may be called into exercise? But this part of the case is of greater difficulty upon the merits. I follow, with entire assent, the opinion expressed by the Vice Chancellor in Preston v. IVie Grand Collier Dock Company, that, if a transaction be void, and not merely voidable, the corporation cannot confirm it, so as to bind a dissenting minority of its members. But that will not dispose of this question. The case made with regard to tliese mortgages or incumbrances is, that they were exe- cuted In violation of the provisions of the act. The mortgagees are not FOSS V. IIARBOTTLE. 513 defendants to the bill, nor does the bill seek to avoid the .secnritj- itself, if it could be avoided, on which I give no opinion. The bill prays inquiries with a view to proceedings being taken aliunde to set aside these transactions against the mortgagees. The object of this billf against the defendants is to make them individually and personally/ responsible to the extent of the injury alleged to have been received b}'! the corporation from the making of the mortgages. Whatever the case might be, if the object of the suit was to rescind these transactions, and the allegations in the bill shewed that justice could not he done to the shareholders without allowing two to sue on behalf of themselves and others, very different considerations arise in a case like the present, in which the consequences only of the alleged illegal acts are sought to be visited personally upon the directors. The money forming the con- sideration for the mortgages was received, and was expended in, or partly in, the transactions which are the subject of the first ground of complaint. Upon this, one question appears to rae to be, whether the company could confirm the former transactions, take the benefit of the mone}' that has been raised, and yet, as against the directors personally, complain of the acts which they have done, by means whereof the com- pany obtains that benefit which I suppose to have been admitted and adopted b}' such confirmation. I think it would not be open to the company to do this ; and my opinion already expressed on the first point is, that the transactions which constitute the first ground of com- plaint maj' possibly be beneficial to the company, and may be so regarded by the proprietors, and admit of confirmation. I am of opinion that this question, — the question of confirmation or avoidance, — cannot properly be litigated upon this record, regard being had to the existing state and powers of the corporation, and that therefore that part of the bill which seeks to visit the directors personally with the consequences of the impeached mortgages and charges, the benefit of which the company enjoys, is in the same predicament as that which relates to the other subjects of complaint. Both questions stand on the same ground, and, for the reasons which I stated in considering the former point hese demurrers must be allowed. / eP^i4 iL BREWER V. BOSTON THEATRE. ^ ^ Wells, J., in BEEWEE V. BOSTON THEATEE et ^^ ^ rJ^\ l>^ „ If,, 1870. 104 Massachusetts, 378, pp. 394-397.1 Wells, J. . . . The defendants contend that the corporation cannot deprived of its right to determine, in all matters not ultra vires, ■whether to impeach or to ratify transactions supposed to be preju- dicial to its interests. Granting this position, it would result that in no case, as to matters intra vires, could a suit be maintained by indi- / viduaL stockholders to enforce rights or redress wrongs of the corpo- J jlaft^body, except where the delay necessary in order to secure corporate action might defeat or endanger the attainment of appropriate relief. .If, when called upon to act, the corporate body should elect to confirm 'T^ . the supposed wrongful transactions, or should do so indirectly by re- cJ' ~^fusal to act, they would no longer be open to impeachment. If, on the other hand, it should determine to take action, it would do so in /^X its own name and behalf ; and there would be no ground of necessity ^^-'-^for proceedings in the name of the individual corporator. We are not prepared to say that this would not be the case in all matters to which the only objection is that they are prejudicial, or supposed to be so, to the corporate interests merely, but not illegal in themselves, and affecting all the corporators alike. Perhaps it would ■^l^^i be so whenever the surrender of property or the release of rights, ( acquired by the corporation through the transactions sought to be ■ impeached, is necessary in order to reach the proper remedy. Great Luxembourff Railway Co. v. Magnaij, 25 Beav. 586. The corporation might be entitled to determine for itself exclusively whether it would retain or release property or rights thus acquired, although it thereby precluded, or rendered ineffectual, all proceedings against parties who may have made illegal or fraudulent gains out of the transactions. These questions, however, we need not at present decide. The cases now before us involve no release of property or rights by the corporation. The alleged wrongs are not merely prejudicial to the interests of the corporation ; but are such as tend to deprive one part of the corporators of their rightful share in the fruits of the common property and business, for the advantage of others of the corj>orators. This inequality and injustice is accomplished by means of the control over the corporate organization and management, which has been secured by the parties so benefited. By the amendments to the several bills it is alleged that such control has been exercised since the year , 1 This was a bill in equity, brought by minority stockholders, apfainst the corporation /and against certain directors and other individuals, for fraudulently conspiring to lease the I corporate property on a rent much below the market value and share in the profits of the I lessees. The bill (as amended) alleged that individual defendants own or control a majority of the stock and control the proceedings at stockholders' meetings; also that a majority of the directors arc fraudulently colluding with these defendants to continue to them the con- trol of the corporation and its property-. A demurrer was overruled. — ICd. >/^ BREWER V. BOSTON THEATRE. 515 1866, inclusive, by Tompkins and Thayer, with the aid of the other defendants. That which is important is the fact of such control and its exercise for such purpose, rather than the means by which it has been obtained. A majority of the corporators have no right to exer- cise the control over the corporate management, which legitimately belongs to them, for the purpose of appropriating the corporate pro- perty or its avails or income to themselves or to any of the share- holders, to the exclusion or prejudice of the others. And if any have obtained such unfair advantage by fraud or abuse of the trust con- fided to them as officers or agents of the corporation, it is not in the power of a majority to ratify or condone the fraud and breach of trust,! so far as it affects the rights of the others, without reasonable restitu-l tion. This proposition, if stated in reference to formal transactions,! such as assessments of capital or dividends of income, would not be) questioned. Preston v. Grand Collier Dock Co., 11 Sim. 327. Hodg- kinson v. National Live Stock Insurance Co., 26 Beav. 473. But the indirect appropriation of the common property, profits or means of profit, to their own benefit, by any portion of the corporators, in fraud of their associates, is equally incapable of being authorized or ratified by the vote of a majority of the corporators, or by any act or omission of the corporate body. Gregory v. Patchett, 33 Beav, 595. Atwool v. Mei^y weather, Law Eep. 5 Eq. 464, note. If it were otherwise, the minority would be without means of protection or redress against inequality and injustice. The y^ would be equally so if they could obtain redress only in the name and through the action of the cor po- ration itself. Such acts are wrongs done primarily to the corporation ; and~therefore the restitution or redress is to be secured to the corpo- ration. But in their effect and essential character they are wrongs to the individual shareholder, inflicted upon his corporate interests by means of the control over those interests secured through the cor- porate organization and management. He can seek his redress only through the corporation ; but that does not give the corporation the right to deprive him of all redress. Any attempt to do so, whether regarded as the action of the corporation or of a majority of share- holders, would have the same voidable character as the original wrong. Officers of a corporation, dealing with it in matters of their own indi- vidual interest, stand very differently in this respect from strangers, who have no occasion to regard any other than the corporate body. If by means of their relations to the corporate management they secure] to themselves undue advantage over their associates, they cannot retain it. Such transactions are voidable, not merely for want of authority in the officers by whom they are done, but because neither the officers nor the corporation itself, by whatever majority of votes it may act, can do, assent to, or confirm them. The wrong to the indi- vidual shareholder is the same, whether committed with the concur- rence or subsequent approval and adoption of his associates controlling the corporation, or without it. ^ 3 fi 51G ATWOOL V. MERRYWEATHER. In our opinion, the facts of these cases, as set forth in the several amended bills, show such abuse of authority and breaches of trust by the defendants, in misappropriating the income of the corporate property to the benefit of themselves or of some of them, as cannot be ratified or remitted by the corporation ; and also such incapacity of tlie plaintiffs to move the corporation to take action for their re- dress, as entitles them, from necessity, to seek it in the form of these jDroceedings. In the first and second of the bills a majority of the present direct- ors are not joined as parties ; but the necessity for the mode of proceeding adopted is shown by the allegations that Tompkins and Thayer own or control a majority of the stock and control all meetings of the corporation, and that a majority of the present directors are knowingly, wilfully, and fraudulently endeavoring to continue and secure sucli control to them. In support of these conclusions we may cite Ativool v. Merryweather, Law Rep. 5 Eq. 464, note ; Hichens v. Cosgreve, 4 Russ. 562 ; Gregory V. Patchett, 33 Beav. 595 ; Hodges v. New England Screw Co., 1 R. I. 312; Allen v. Curtis, 26 Conn. 456; Hersey v. Veazie, 24 Maine, 9; March v. Eastern Railroad Co., 40 N. H. 548, 567 ; Robinson v. Smith, 3 Paige, 222, 233 ; Peahody v. Flint, 6 Allen, 52. We do not think the authorities cited in support of the demurrers are in conflict with these positions. The leading case relied on, Foss V. Harhottle, 2 Hare, 461, was a bill' to set aside a sale of property to the corporation. It was dismissed because it did not exclude the sup- position that the proprietors might lawfully confirm the transaction ; nor show that all means had been resorted to and found ineffectual to set the corporate body in motion or that such efforts would have been useless. It involved, of course, a surrender of the property %y the corporation. j // ?(tTWOOL MERRYWEirftpfL/ * 0^ .-nA/^ 1867. L. R. 5 Eq. Cases, 464, note. This was a bill by the Plaintiff, on behalf of himself and all other the areholders in the ^ast Pant Du United Lead Mining Company^ Limited, except the persons who were Defendants thereto, against Samuel Merryweather, Henry Whitworth, and the East Pant Du Company, Limited, for the purpose of setting aside a contract for the ^^, and purchase of certain mines (for the purpose of purchasing and M . vJ^ '\ ^ JiV^'orking which the company was formed), and compelling repayment 1^.i ^ A^^JJ »/» >(.^ K ATWOOL V. MEEEYWEATHEE. 517 flora 31erryweather and Wliihoorth of the sum of £3940, or such por- tions as had been received b}* them, and a return of the GOO shares allotted to Merryiceather. The bill stated the incorporation, in 1863, of the compan)* under the promotion of Defendants Merryweather and WIntworth, who published a prospectus stating that the company was formed " for the purpose of purchasing and working the extensive and valuable mining sets known as the East Pant Du and Colomendy Lead Mines^^' and containing ver3' favourable representations of the value of the mines, for the pur- chase of which the compan\' was stated to have arranged for £7000 — £4000 to be paid in cash, and £3000 in shares of the company. The capital was fixed at £30,000, divided into 6000 shares of £5 each ; but only 2000 shares had been taken altogether, on which £3940 had been received. This money was paid to Merryweather, and 600 shares were registered in his name as paid up, in part payment of the £7000, the alleged price of the mines. Upon inquiries, the following circumstances were discovered in refer- ence to the formation of the compan}- : Merryweather applied to Whitworth to assist him in disposing of the mines in question, which he held under an agreement for a lease for twenty-one years, and had then discovered to be of no value. Merryioeather proposed to dispose of his interest for £4000, and the scheme concocted between himself and Whitworth was, that a company should be formed for the purpose of purchasing and working the mines, which were to be sold to such company for £7000. Of this money 3Ierryxoeather was to get £4000, while the remaining £3000 was to be paid to Whitworth for his assietance in getting up the company. This agreement was concealed from the other directors, who were induced to believe that £7000 was bond fide to be paid as the purchase-money. A committee appointed at a meeting of the 1st of June, 1864, recom- mended by their report that the undertaking should be abandoned, steps taken to relieve the compan}- from any liability on the contract, and to recover back the money alread}' paid by the shareholders. At an extraordinary general meeting held on the 16th of June, 1864, a resolution was passed for receiving the report bj- a majority of the shareholders, and on the 30th of June, 1864, a bill was filed in the name of the company, alleging that the contract for the purchase of the mine had been fraudulenth' obtained by the Defendant Merryweather^ and was void, and that he was not entitled to the 600 shares allotted! to him in respect of it, and praying that the purchase of the mine might be set aside, and the money paid returned to the shareholders who had advanced it. On the 6th of July Merryweather and Whittcorth caused notices to be issued for a meeting of the board of directors " to consider the course to be taken in reference to the Chancery proceedings which have been instituted in the name of the company." At the meeting /vn r^ 518 ATWOOL V. MEKEYWEATHER. held on the 9th of Juh' Merryweather, Whitworth and Ashworth (the three out of the six dh'ectors present at the meeting) passed a resolution that proceedings should be taken to get the bill taken off the file. On the 1st of August, 1864, the Court was moved to take the bill off the file, but the motion was ordered to stand over until the next term in order to give an opportunity to call a general meeting of the share- holders of the company to take the matter into consideration. A meeting was accordingly held on the 12th of October, " for the purpose of taking the said bill into consideration, and adopting such resolutions in reference thereto as the meeting maj- determine upon." A resolution was proposed for adopting and continuing the Chancery proceedings, whereupon an amendment was proposed by Whiticorth for referring all matters in difference between the shareholders and Merryweather to arbitration, and for staying all legal proceedings. This amendment was lost by 11 votes to 4 upon a show of hands, and the original resolution was carried by 10 to 4. A poll having been demanded upon the amendment, proxies were produced, and 14 per- sons, holding altogether 1070 shares and 324 votes, voted against the amendment, and 12 persons, holding 1490 shares and having 344 votes, voted for the amendment. But excluding the votes of the Defendants Merryioeather and Whitworth, there was a majority of 86 votes against the amendment, and excluding only the votes of Merrxj- weather there was a majority against it of 58 votes. The motion to take the bill off the file was renewed, and on the 5th of December, 1864, the Vice-Chancellor Sir W. P. Wood directed the bill to be taken off" the file, but made no order as to the costs of the motion. (See 2 H. & M. 254.) The present bill, which was filed on the 14th of December, 1864, by a holder of 100 shares in the company (purchased on the faith of the statements contained in the prospectus), suing on behalf of himself and all other the shareholders in the £!ast Pant Pu Company, except the Defendants, against Merryweather, Whitworth, and the company as Defendants, alleged that none of the shareholders in the company other than the Defendants were desirous that the contract with Merry- v;eather should be carried into effect, or that the relief prayed should not be granted ; that the Defendants had altogether 106 votes as shave- holders in the company, and obtained the proxies of the other share- holders who voted for the amendment by entering into engagements to indemnify them against loss ; " and such votes, together with the afore- said 106 votes of the said Defendants, constitute a majority of the shareholders' votes in the company." The 1)111 also alleged, that even without such proxies the 106 votes held by the Defendants made it impossible to obtain a fair decision at a general meeting. The bill further charged, that the contract was obtained by misrep- sesentations as to the value, with full knowledge by the Defendants ATWOOL V. MERRYWEATHEE. 519 that the mines were worthless, that £4000 was an exorbitant price for them, and that no other portion of the £7000 was ever intended to be treated as purchase-money of the mines, but was intended to be paid to Whitworth, the Defendants having become promoters of theV . company solely for the purpose of raising the £7000 for their own pri-l ^ vate benefit; that these facts were fraudulently concealed from the; other directors and shareholders, and that if they had been disclosedj ^ -^ the company never would have contracted to purchase the mines. The ( 1^^^ bill pra3'ed that the contract for the purchase of the mine might be seti aside, and a return of the money and shares received by Whitworth\ and Merry weather; and an injunction to restrain any proceeding to recover the balance of the purchase-money ; compensation for all damage and loss occasioned to the company, and, if necessary, that the compan-y might be dissolved and wound up under the direction of tho Court. Mr. Kay, Q. C, and Mr. Fry, for the Plaintiff : — A sufficient case of fraud, collusion, and suppression has been shewn to enable the Court to set aside the contract, and it is competent foi an individual shareholder to maintain a suit for setting aside the con- tract, even if such suit were opposed by a majority of the shareholders. But that is not the case here, as, by excluding the votes of Merry- weather^ there is a majority in favour of setting aside the purchase and winding up the company : Bromley v. Smith (1 Sim. 8) ; Preston v. Grand Collier Dock Company (\\ Sim. 327); Hichens v. Congreve (4 Russ. 562) ; Beck v. Kantorowicz (3 K. «Ss J. 230) ; Lovell v. Hicks (2 Y. & C. Ex. 46, 481). Mr. JDruce^ Q. C, and Mr. A. E. Miller^ for Merryweathe)^ s assig- nee : — Upon the frame of the suit, the contract is not void, but merely voidable, and the majorit}' of the shareholders may confirm it, and bind the whole body for that purpose. The suit, therefore, in its pres- ent form, is improperl}' framed : Foss v. Harhotile (2 Hare, 461, 494) ; and the proper course would have been for the Plaintiff to have filed a bill for leave to use the name of the company against the parties to the contract. Assuming the price paid for the mine to have been excess- ive, the Plaintiff may have a case for making the directors account, but that affords him no locus standi as against the vendors for setting aside the contract: Pulsford v. Richards (17 Beav. 87) ; Fraser v. Whalley (2 H. & M. 10). Mr. Horsey, for Whitworth's assignee. Mr. Charles Hall, for the company. Sir W. Page Wood, V. C. : — I think that, upon principle, a contract of this kind cannot stand, and that there is not such a defect in the constitution of the suit as would be fatal according to the authority of Foss v. Harhottle (2 Hare, \ 461). Looking at the facts as they come out, I am clearly of opinion that this arrangement, by which Merryweather was to have £4000 and 520 ATWOOL V. MERRYWEATHER. Whitioorth £3000, was concealed from everybody, and that Merry- weather assisted in that concealment by allowing his name to appear as the sole vendor, and taking the pnrchase-money. Upon such a transaction the Court will hold that the whole contract is a complete fraud. I do not in the least say that where persons with their e3-es open know that the agent who secures them the bargain is going to take mone}' for it, that would not be all right enough. If the company knew this gentleman was to have this amount as promotion- money, well and good. There might have been some difficulty, Mr. Whitii'orth being a director, if it had been a sale by Merryioeather and Whitioorth eo nomine, both of them together. If that had been the case more might have been said about the frame of the suit. But here it is a simple fraud, and nothing else. Merryweather knowing Whit- worth's position with regard to the company-, and that as an honest man Whitioorth was bound to tell the company what price he bought the mines for, agreed that the mine should be sold to the company for £7000, and that the real price, £4000, should not be disclosed to the com pan}'. With regard to the frame of the suit, a question of some nicet}' arises how far such relief can be given at the instance of a shareholder on behalf of himself and other shareholders on the ground that the trans- action might be confirmed by the whole body if they thought fit, and that the case would fall within Foss v. Harbottle^ according to which the suit must be by the whole company. On the previous occasion^ when it was desired to take proceedings to set aside this transaction, a gentleman took upon himself to file a bill in the name of the compan}'. A motion was made to take that bill off the file, as the person filing the bill was not tlie solicitor of the compan}', and was not authorized to file the bill, and I ordered the bill to be taken off the file. There was a majority against setting aside this transaction. The number of votes for rescinding the transaction was 324, and 344 the other way. But Merryioeather, in respect of the shares obtained b}' this sale, which I have held cannot stand, had 78 votes, and Whitworth 28, mak- ing altogether lOG out of the 344. If I were to hold that no bill could be filed b}' shareholders to get rid of the transaction on the ground of the doctrine of Foss v. Harbottle, it would be simply im- possible to set aside a fraud committed by a director under such cir- cumstances, as the director obtaining so many shares b}' fraud would always be able to outvote everybody else. I held on a former occasion, and I adhere to that decision, that the Court must first be satisfied .that the Plaintiffs were authorized to call themselves the compan}', the Bolicitor who put the bill upon the file having no retainer under the corporate seal. This bill being filed by the Plaintiff on behalf of himself and the other shareholders, it is suggested that the proper course would be to file a rtill on behalf of himself and the other shareholders for leave to use th ys The National Bank oT Seneca brought an action against the State |^ Bank of Seneca, to recover for money loaned. The State Bank made <^ default in tlie suit. Thereupon certain of its stockholders (a minority) filed a motion to be allowed to defend in the place of the corporation, alleging the lack of power of the corporation officers to incur the obli- gations sued upon ; also that such obligations were given without con- sideration and in fraud of the corporation and its stockholders ; and that the officers of the defendant corporation, being the same as those of the plaintiff corporation and being the ones guilty of the wrongful acts charged, had neglected to defend as they should have done. In connection with the motion to be allowed to intervene, the stockhold- ers tendered a verified answer, setting up all the matters herein briefly mentioned ; and asked that they be allowed to file it, and under it be allowed to defend for their corporation. The case was heard upon the motion for leave to intervene and to 1 Statement condensed from opinion. — Ed. h 522 FITZWATER V. NATIONAL BANK OF SENECA. file the answer. Considerable evidence was taken, much of which tended quite strongly to support the contention of the stockholders. The court below overruled the motion, and the stockholders brought error. DOSTEE, C. J. . . . . . . the trial that was had was not a final trial, but only a trial of the motion for leave to intervene and have a trial. In other words, the trial that was had was not the trial proper, but was a trial of the preliminary question as to whether a tri&,l should be had. There can be jiojjue stion bu t j;hat s tock holders ar e entitled to de- fend legal^proceedings in behalf of their corporation in case i t s dire ct- ors or managing agents are wilfully or fraudulently neglectful of its interests.^ Mining Co. v. McKibben, 60 Kan. 387, 56 -Pac. 756. In that case it was said : " If the directors be derelict in their duties, and through wilful neglect, or for a fraudulent purpose, fail to protect the corporate interests, the stockholders may do so in their stead ; but, to entitle them to do so, it must be made to appear that the corporate officers who are primarily charged with the duty are wilfully or fraud- ulently neglectful of it." A proper practice in such cases is for the stockholders to move the court for leave to intervene in the suit they wish to defend, and to allege and show that the authorized and man- aging agents of the company are derelict in their duties. Before allow- ing th is privilege to the st ockholders, the cou rtshould require of_them a pri ma^/act ejtiowm that showing^ ieed jiot_^e more T han sl prim a facie one, — -enough to en able the court to conclude t hat there are reasonable gro unds to be lieve that the corporation defendan t Eas~a meritori ous~^ def ence to the a ction aga instit, and that its officers areiraudulently or improvident ly neglectful of i ts in terests. This showing~wa^ made~In the case we are considering. Irrespective of the matters of fraud charged in the motion and answer, and to sup- port which there was some showing of testimony, it would seem that, if the National Bank of Seneca was the State Bank of Seneca reor- ganized, such last-named bank had no authority to contract the obliga- tions sued upon. Rather, it had no existence, and, having no exist- ence, the contracting of a debt cannot be predicated of it. Smith, Dig. Nat. Bank Dee. 215. However, we do not wish to be understood as making such decisions at this time. We only remark, as we did before, that such seems to be the rule of the cases upon the subject. If such be the law, tliere can be no question, unless some exceptional facts exist, that the old corporation had no power to contract the obli- gations sued upon, and the stockholders, therefore, would be justified in asking leave to defend. Hence we are of the opinion, upon the showing made, that the court should have sustained the motion of intervention, should have allowed the filing of the answer and the making of an issue thereon, and sliould have allowed a full trial of the case. To enable such to be done, the judgment of the court below is therefore reversed. All the justices concurring. V. DOWS. 523 Because the railroad company was not made a party to Because the complainant had a complete remedj' at V 'y ^0■'^>'" "'''"'"" "'■ ■'■'■ '"'' 'i^'' "^-^A Appeal from tlie Circuit Court for the District of Iowa. r Q (T (K^ P^ Dows, a citizen of New York, in belialf of himself and all other non-^ -> jr" ir/ii^ ' resident citizens of Iowa, who were stockholders in tlie Chicago, Rock ^iVr*^ ^ Island, and Pacific Railroad Company, filed a bill in the court below fl/^ \^ J t \, against the city of Davenport, and its marshal, to arrest the collection ^ p^ of a tax, alleged to be illegal, levied b}' the said city for general revenue 'X /^ ^ purposes, on the property of the company within its limits. The bill /^ -^y^ assigned as a reason for its being filed by Dows, a stockholder in the ^>-^ y. company, instead of by the compan}' itself, that the company- neglected . <^ ) v and refused to take action on the subject. A demurrer was mterposed f^ i^ to the bill, which was overruled, and on the defendants refusing to,i«^ J answer over, the Circuit Court ordered that the collection of the tax be i ^ , !> perpetual!}' enjoined. From this, its action, the defendants appealed, ^\4J^ Oy^\ insisting that the Circuit Court erred in overruling the demurrer, for three reasons : I^irst. the bill. Second. law; and, 5^_ j^ ^J'^aJ/' Third. Because the tax in question was a proper charge against .^^ .yy^r^^ L ^^ the property of the corporation. ^j^.y^ ^ 3 Mr. J. N. Bogers for the appellants ; Mr. T. F. Witherotc^ V(> contra. Mr. Justice DAVIS delivered the opinion of the court. It is unnecessar}' to notice the last two reasons assigned, why the demurrer should not have been overruled, as the first is well taken. Indeed, it would be improper to pass on the merits of the controversy until the proper parties to be affected b}' the decision are before the court. That a stockholder maj' bring a suit when a corporation refuses is settled in Dodge v. Woolsey,^ but such a suit can only be maintained on the ground that the rights of the corporation are involved. These rights the individual shareholder is allowed to assert in behalf of himself and associates, because the directors of the corporation decline to take the proper steps to assert them. M anifes tl}- the proceedin gs for ^tbis purposeshould be^o conduc ted thatan y decree^which shall be^ made on the merits s hall conclude the corporation. This can onl}- be done Ijvjna king the corporation a part}' defendant . T he relieT a s ked is on ^ behalf of the corporatio n, not the individual shareholder, and if it be grant ed the complai nant deri ves only an incidental benefit from it. It, would be wrong, in case the sha reholder were unsuccessful, to allow l^o^'e^'^^^^ f^ K 1 18 Howard, 340. 524 HAWES V. OAKLAND. the corporation to renew th e liti gation in anothet sui t, involvino; pre- cisely tlie same subject-matter. To_jvvoid^ su ch a^^esult. a court of equit}' will no t take c ognizai]cej)£ajjillj2rong]it to sottlp a question in which the corporation is the essential party in interest, unless it is made a p arj}^toJhg3itigation.^ In this case the tax sought to be avoided was assessed against the Chicago, Rock Island, and Pacific Railroad Company, and the decree rendered discharges the company from the payment of this tax. The corporation, therefore, should have been made a party to the suit, and as it was not, the demurrer should have been sustained. Decree reversed, and the cause remanded for further proceedings, In conformity with this opinion. 1 III'''-'' *^'%^.r^ fc>v- HAWES 1881. OAKLAN] 104 U. S. 450.2 I^yl^-PFEAL from the Circuit Court of the United States for the District I of California. The facts are stated in the opinion of the court. Mr. Charles JV. Fox for the appellant. Mr. Henry Vrootncm for the appellees. Mr. Justice Miller delivered the opinion of the court, his is an appeal from a decree in chancery dismissing the com- plainant's bill, wherein he, a citizen of New York, alleges that he is a stockholder in the Contra Costa AVater-works Company, a California corporation, and that he files it on behalf of himself and all other stockholders who may choose to come in and contribute to the costs and expenses of the suit. The defendants are the city of Oakland, the Contra Costa, Water - woijvs_C(ampaiw, and Anthony Chabot, Henry Pierce, Andrew J. Pope, CHarles IIoIBrook, and John W. Coleman, trustees and directors of the company. The foundation of the complaint is that the city of Oakland claims at the hands of the company water, without compensation, for all municipal purposes whatever, including watering the streets, public squares and parks, flushing sewers, and the like, whereas it is only 1 Robinson v. Smith, 3 Paige, 222, 233 ; Cunningham v. Pell, 5 Id. 607; Hersey v. Veazie, 24 Maine, 1; Charleston Insurance and Trust Co. v. Sebring, 5 Richardson, Equit}-, 342; Western Railroad Co. v. Nolan, 48 New York, 573; Bagshaw v. Eastern Union Railroad Co., 7 Hare, 114-131. 2 Portions of opinion omitted. — Ea \a^ HAWES V. OAKLAND. jj-tV^l 52^ , ^-' ^'^ ■■■'■ ' (■.^' , ■ entitled to receive water free of charge in cases of fire or other great •neccssit}- ; that the company comply with this demand, to the great loss and injury of the company, to the diminution of the dividends which should come to him and other stockholders, and to the decrease in the value of their stock. The allegation of his attempt to get the directors to correct this evil will be given in the language of the bill. He says that /' on the tenth day of July, 1878, he applied to the president and board of directors or trustees of said water company, and requested them to desist from their illegal and improper practices aforesaid, and to limit the suppl}' of water free of charge to said city to cases of fire or other great necessit}', and that said board should take immediate proceedings to prevent said city from taking water from the works of said company for any other purpose without com- pensation ; but said board of directors and trustees have wholly declined ( to take any proceedings whatever in the premises, and threaten to go ) on and furnish water to the extent of said company's means to said cit}' of Oakland free of charge, for all municipal purposes, as has here- tofore been done, and in cases other than cases of fire or other great necessit}', except as for family uses hereinbefore referred to ; and your orator avers that by reason of the premises said water company and 3'our orator and the other stockholders thereof have suffered, and will, by a continuance of said acts, hereafter suffer, great loss and damage." To this bill the water-works company' and the directors failed to make answer; and the city of Oakland filed a demurrer, which was sustained b}' the court and the bill dismissed. The complainant ap- pealed. Two grounds of demurrer were set out and relied on in the court below, and are urged upon us on this appeal. They are : — 1. That appellant has shown no capacity in himself to maintain this I 'v. ■ , suit, the injur}', if any exists, being to the interesti of the corporation, I r^ and the right to sue belonging solely to that body. ' 2. That by a sound construction of the law under which the company / is organized the city of Oakland is entitled to receive, free of compen- / sation, all the water which the bill charges it with so using. The first of these causes of demurrer presents a matter of very great interest, and of growing importance in the courts of the United States. Since the decision of this court in Dodge v. Woolsey (18 How. 331), the principles of which have received more than once the approval of this court, the frequency witli which the most ordinary and usual chancer}' remedies are sought in the Federal courts by a single stock- holder of a corporation who possesses the requisite citizenship, in cases where the corporation whose rights are to be enforced cannot sue in those courts, seems to justify a consideration of the grounds on which that case was decided, and of the just limitations of the exercise of those principles. This practice has grown until the corporations created by the laws 526 HAWES V. OAKLAND. of the States bring a large part of their controversies with their neigh- bors and fellow-citizens into the courts of the United States for adjudi- cation, instead of resorting to the State courts, which are their natural, their lawful, and their appropriate forum. It is not difficult to see how this has come to pass. A corporation having such a controvei-sj-, which it is foreseen must end in litigation, and preferring for an}' reason whatever that this litigation shall take place in a Federal court, j/1 >v^ '" which it can neither sue its real antagonist nor be sued b}- it, has i_^ ,> x^ objection, and the case proceeds to a hearing. Or he may file his 4- . L>' , answer denying the special grounds set up in the bill as a reason for ^^^^\^r^\ T^x^*'*^ the stockholder's interference, at the same time that he answers to the ^'~ " - ■ erits. In either event the whole case is prepared for hearing on the rits, the right of*the stockholder to a standing in equity receives but little attention, and the overburdened courts of the United States have this additional important litigation imposed upon them by a simu- lated and conventional arrangement, unauthorized by the facts of the case or by the sound principles of equity jurisdiction. That the vast and increasing proportion of the active business of modern life which is done by corporations should call into exercise the beneficent powers and flexible methods of courts of equity, is neither to be wondered at nor regretted ; and this is especially true of con- troversies growing out of the relations between the stockholder and the corporation of which he is a member. The exercise of this power in protecting the stockholder against the frauds of the governing body of directors or trustees, and in preventing their exercise, in the name of the corporation, of powers which are outside of tlieir charters or articles of association, has been frequent, and is most beneficial, and is undisputed. These are real contests, however, between the stock- holder and the corporation of which he is a member. The case before us goes beyond this. HAWES V. OAKLAND. 527 This corporation, like others, is created a bod}* politic and corporate, that it may in its corporate name transact all the business which its charter or other organic act authorizes it to do. Such corporations may be common carriers, bankers, insurers, mer- chants, and may make contracts, commit torts, and incur liabilities, and may sue or be sued in their corporate name in regard to all of these transactions. The parties who deal with them understand this, and that they are dealing with a body which has these rights and is subject to these obligations, and they do not deal with or count upon a liability to the stockholder whom they do not know and with whom they have no privity of contract or other relation. The principle involved in the case of Dodge v. Woolsey permits the stockholder in one of these corporations to step in between that cor- poration and the party with whom it has been dealing and institute and control a suit in which the rights involved are those of the corporation, and the controversy is one really between that corporation and the I other party, each being entirely capable of asserting its own rights. This is a \Qvy different affair from a controversy between the share- bolder of a corporation and that corporation itself, or its managing directors or trustees, or the other shareholders, who may be violating his rights or destroying the property in which he has an interest. Into such a contest the outsider, dealing with the corporation through its managing agents in a matter within their authorit}-, cannot be dragged, except where it is necessary to prevent an absolute failure of justice in cases which have been recognized as exceptional in their character and calling for the extraordinary' powers of a court of equitj-. It is, therefore, always a question of equitable jurisprudence, and as such has, within the last forty j'ears, received the repeated consideration of the highest courts of England and of this countr\'. [The learned judge here cited, and commented on, various cases; especially Foss v. Harhottle, 2 Hare, 461 ; Gray v. Lewis, L. R. 8 Chan. Ap. 1035,; MacDougall v. Gardiner^ L. R. 1 Chan. Div. 13 ; and Dodge v. Woolsey, 18 Howard, 331. The opinion then proceeds as follows :] This examination of Dodge v. Woolsey satisfies us that it does not establish, nor was it intended to establish, a doctrine on this subject different in any material respect from that found in the cases in the English and in other American courts, and that the recent legislation of Congress referred to leaves no reason for an}- expansion of the rule in that case beyond its fair interpretation. We understand that doctrine to be that to enable a stockholder in / „ -i a corporation to sustain in a court of equity- in his own name, a suit (^ founded on a right of action existing in the corporation itself, and in which the corporation itself is the appropriate plaintiff, there must exist, as the foundation of the suit — S ome acti on or threatened actiori^f the managing board of directors ^ r trustees of the corporation which is beyond the authority conferred on them by their charter or other source of organization ; 528 HAWES V. OAKLAND. y >r^ Or such a^ fraudulent transaction completed or coatem|jlat cd by th e acting managers, in connection with some J0tlleJ:4^J,rt;J^JJ0rJlmong them- iseh-e^or with other shareholders_aa. will ..rp..sii1t.,m^erious inju ry to t he corporation, or to the interests ofjLhe-othm: shareholders ; Or where tlie board of directors, or a majority of^ them, are acting forjheir owninterest, in a manner destructive of the corporation it self. 3 1 or_of thejnghts of the^other shareholders ; Or where the^ majority of shareholders themsel ves are oppre ssively and^llegallyj3ursuing a course „in thejiame_of th e corporation ^jvhich I i s^in vio lation of the^ rights of the other shareholders^and which can IT only_be restrained bjLthe aid of a court of e quity. _ ^ ' Possibh' other cases may arise in which, to prevent irremediable injur}', or a total failure of justice, the court would be justified in exercising its powers, but the foregoing may be regarded as an outline of the principles which govern this class of cases. Bufe,^!'' addition to the existence of grievances which call for this ^fixl of relief, it is equally important that before the shareholder is permitted in his own name to institute and conduct a litigation which "^jLj^ usually belongs to the corporation, he should show to the satisfaction ^ 1- of the court that he has exhausted all the means within his reach to obtain, within the corporation itself, the redress of his grievances, or action in conformity to his wishes. He must make an earnest, not a simulated effort, with the managing body of the corporation, to induce remedial action on their part, and this must be made apparent to the court. If time permits or has permitted, he must show, if he fails with the directors, that he has made an honest effort to obtain action by the stockholders as a body, in the matter of which he complains. And he must show a case, if this is not done, where it could not be ;lone, or it was not reasonable to require it. The efforts to induce such action as complainant desires on the part of the directors, and of the shareholders when that is necessary, and the cause of failure in these efforts should be stated with particularity, and an allegation that complainant was a shareholder at the time of the transactions of which he complains, or that his shares have devolved on him since by operation of law, and that the suit is not a collusive one to confer on a court of the United States jurisdiction in a case of which it could otherwise have no cognizance, should be in the bill, which should be verified by aflidavit. It is needless to say that appellant's bill presents no such j;asc as we have here supposed to be ^n ecessar y to the jurisdic tion o f jhe c ourt. He merely^avers that he requested the president and directors to desist from furnishing water free of expense to the city, except in case of fire or otlicr great necessity-, and that they declined to do as he requested. No correspondence on the subject is given. No reason for declining. We have here no allegation of a meeting of the direc- tors, in which the matter was formally laid before them for action. No uttenii)t to consult the other shareholders to ascertain their opinions, or DUNPHY V. TEAVELLER NEWSPAPER ASSOCIATION. 529 obtain their action. But within five days after his application to the directors this bill is filed. There is no allegation of fraud or of acts I ultra vii'es, or of destruction of propert}', or of irremediable injur}' of j an}' kind. Conceding appellant's construction of the company's charter to be correct, there is nothing which forbids the corporation from dealing with the city in the manner it has done. That city conferred on the company valuable rights by special ordinance ; namely, the use of the streets for laying its pipes, and the privilege of furnishing water to the whole population. It may be the exercise of the highest wisdom to let the city use the water in the manner complained of. The direc- tors are better able to act understanding!}- on this subject than a stock- holder residing in New York. The great body of the stockholders residing in Oakland or other places in California may take this view of it, and be content to abide by the action of their directors. If this be so, is a bitter litigation with the city to be conducted by one stockholder for the corporation and all other stockholders, because the amount of his dividends is diminished ? This question answers itself, and without considering the other point raised by the demurrer, we are of opinion that it was properly sustained, , and the bill dismissed, because the appellant shows no standing in a / court of equity — no right in himself to prosecute this suit. l^ /I > Decree affirmed. ^ f t / r b |^ / KxowLTox, J., IN DUNPHY v. TEAVELLER ASSOCIATION. 1888. 146 Massachusetts, 495, p. 498. " •' y Knowlton, J. . . . The only exception tO/t]b8 rule that a stock hol der m ust apply to the directo rsTand alsoif need beto the corpora - tTon^ forredress of a wrong~don e it;, _before he can sue in a court oi. equity, for himself ancT in beh alf o f other stockho]^derSiTs_ when it appeai^s~that"sucli applic ation wo uld be u navailing t o protect bis rights. 1 The following " Additional Rule of Practice in Equity," No. 94, was promul- gated by the U. S. Supreme Court, Jan. 23, 1882, and is printed in vol. 104 U. S. Preface, ix. : — ^ " Every bill brought by one or more stockholders in a corporation, against the cor-^ ^ • i poration and other parties, founded on rights which may properly be a.'opean Company, through the influence which they had as holders of 3000 shares in the European Company, and through the influence of the directors nominated by them. And the bill prayed that Hoop>et's Company might be declared not entitled to the benefit of the profits derived from the abandonment of the suit and other arrangements aforesaid, and might be declared a trustee of those profits for the Plaintiff and the other shareholders in the European Company ; and that the European Compa)nj and the De- fendants might be restrained from repaying to Hooper's Company an}- of the money paid on the allotment of shares in the European Company., and from disposing of the property of the European Company. MENIER V. hooper's TELEGRAPH WORKS. , o33 To this bill the Defendants Hooper's (Jompany and W. Hooper demurred for want of equit}' ; and the Defendants Cruce and the Euro- pean Compxiny also demurred, and for cause of demurrer shewed that the Plaintiff had not made out such a case as entitled him to dis- covery or relief. The Vice-Chancellor Bacon, on the 12th of Januar}-, 1874, overruled both demurrers ; and the Defendants appealed. Mr. Fry, Q, C., and Mr. Millar, for Hooper's Company : — A shareholder has a right to vote as he pleases, and to suit his own interests. If not, the Court in every case might have to interfere wherever there was a small majority, and consider what were the motives of each shareholder. If there was a suit by the company against any individual shareholder, he would not be disabled from voting. He is not a trustee for any one, and he may vote against the interests of the company or of any of the other shareholders. No constructive trust can be raised: Gray \. Lexins} In Atwool v. Merryweather" the vote ■was impeached. If such a suit can be maintained, one shareholder ma}' file a bill to have a certain contract set aside, and another to have it carried on. Such a suit can only be maintained b}' the com- pany against the directors. At all events, the proceedings ought to be in the liquidation, and not b}' bill. Mr. Kay, Q. C, Mr. Jackson, Q. C, and Mr. Eceritt, for the Plain- tiff, were not called upon. Sir W. M. James, L. J. : — I am of opinion that the order of the Vice-Chanceilor in this case is quite right. The case made by the bill is very shortly this : The Defendants, who have a majority of shares in the company, have made an arrangement by which they have dealt with matters affecting the whole compan}-, the interest in which belongs to the minoritj- as well as to the majoritv. They have dealt with them in consideration of their obtaining for them- selves certain advantages. Hoopefs Company have obtained certain advantages b}- dealing with something which was the propert}' of the whole company. The minority of the shareholders sa^^ in effect that the majorit}' has divided the assets of the company, more or less, be- tween themselves, to the exclusion of the minority. I think it would be a shocking thing if that could be done, because if so the majority might divide the whole assets of the compan}-, and pass a resolution that everything must be given to them, and that the minority should have nothing to do with it. Assuming the case to be as alleged by the bill, then the majority have put something into their pockets at the ex- pense of the minority. If so, it appears to me that the minorit}- have a right to have their share of the benefits ascertained for them in the best wa}' in which the Court can do it, and given to them. 1 Law Rep. 8 Ch. 1035. 2 Law Rep. 5 Eq. 464, n. 534 farmers' loan and trust CO. V. N. Y. AND NORTHERN R. CO. It is said, however, that this is not the right form of suit, because, according to the principles laid down in I^oss v. Harbottle,^ and other similar cases, the Court ought to be very slow indeed in allowing a shareholder to file a bill, where the company is the proper Plaintiff. This particular case seems to me precisely one of the exceptions re- ferred to by Vice-Chancellor Wood in Atwool v. llerryiceather,'^ a case in which the majority were the Defendants, the wrong-doers, who were alleged to have put the minority's property into their pockets. In this case it is right and proper for a bill to be filed by one shareholder on behalf of himself and all the other shareholders. Therefore the demurrer ought to be overruled. Sir G. Mellish, L. J. : — I am entirely of the same opinion. It so happens that Hooper's Company are the majority in this com- pany, and a suit by this company was pending which might or might not turn out advantageous to this compan}-. The Plaintiff says that Hoopefs Co'tnpany being the majorit}', have procured that suit to be settled upon terms favourable to themselves, they getting a considera- tion for settling it in the shape of a profitable bargain for the laying of a cable. I am of opinion that although it may be quite true that the shareholders of a compan}- ma}' vote as they please, and for the pur- pose of their own interests, yet that the majority of shareholders cannot sell the assets of the company and keep the consideration, but must allow the minorit}' to have their share of any consideration which may come to them. I also entirely agree that, under the circumstances, the suit is properly brought in the name of the Plaintiff on behalf of him- self and all the other shareholders. The appeal will be dismissed with costs. Mr. Fooks, Q. C, and Mr. Davey, for the other Defendants, then submitted to have their appeal dismissed. FAEMERS' LOAN AND TRUST CO., as Trustee, v. NEW YORK AND NORTHERN R. CO. 1896. 150 New York, 410.3 Action to foreclose a second mortgage upon the property of the New York and Northern R. Company ; the mortgage being given by that corporation to the plaintiff as trustee to secure the payment of bonds. The mortgage provided that no foreclosure could be had until the expiration of one year after default in the payment of the inter- est. Such default had taken place. 1 2 Hare, 461. 2 Law Rep. 5 E<^ 4*4, n. 8 Sutement abridged. Arguments and part of opinion omitted. — ■ ^, farmers' loan and trust CO. V. N, Y. AND NORTHERN R. CO. 535 The Northern E. Company made no defence. Holmes and Pick, minority stockholders in that corporation, were, tn their own motion, made parties defendant in the action, and served an answer. Upon the trial, the following facts appeared : The New York Central and Hudson River E. E. Company and the Northern Company are parallel lines and were competing lines. The Central purchased a majority of the stock and a majority of the second mortgage bonds of the Northern for the sole purpose of ob- taining control of the property of the latter corporation. The Central, as such majority stockholder, acquired the entire control of the affairs of the Northern ; dictating and governing the action of the board of directors of the Northern. The present action was procured to be commenced by the Central. On the trial, Holmes and Pick sought to prove that after the Cen- tral became the owner of such stock and bonds, and while its officers were in substantial control of the Northern, they declined to accept traffic from other roads that would have produced a fund with which to pay the interest due on the bonds ; that the income of the road Avhich should have been employed to pay such interest was used for other and improper purposes ; and that such action caused the in- ability of the Northern to pay the interest and thus cure its default. This evidence was rejected as immaterial. Holmes and Pick excepted to the ruling. The trial court held that the plaintiff was entitled to judgment of foreclosure and sale. This decision was affirmed by the General Term (78 Hun, 213). The minority stockholders appealed from this judg- ment. James C. Carter and Simon Sterne, for appellants. Ashbel Greene, David McClure, and Thomas Thacher, for respond- ents. Martix, J. ... In determining the correctness of the rulings made by the trial court, it becomes necessary to determine inciden- tally whether a corporation, purchasing a majority of the stock of another competing corporation, may thus obtain control of its affairs, cause it to divert the income from its business, or to refuse business which would enable it to pay the interest for which it was in default, and then institute an action in equity to enforce its obligations for the purpose of obtaining control of its property at less than its value to the injury of the minority stockholders, and they have no remedy. Or, in other words, whether a court of equity, with those facts estab- lished, would lend its aid to such a stockholder by enforcing the mort- gage and decreeing a foreclosure and sale of the mortgaged premises, at its request, in its behalf, and to accomplish such a purpose. If it would, then the rulings of the trial court were proper ; if not, then the appellants were entitled to prove those facts, and it was error to reject the evidence. [After citing and stating various decisions.] 536 FAKMEKS' LOAN AND TRUST CO. V. N. Y. AND NORTHERN E. CO. " The law requires of the majority of the stockholders the utmost good faith in thei* control and management of the corporation as regards the minority, and in this respect the majority stand in much the same attitude towards the minority that the directors sustain towards all the stockholders. Thus, where the majority are inter- ested in another corporation, and the two corporations have contracts between them, it is fraudulent for that majority to manage the affairs of the first corporation for the benefit of the second. A court of equity will intervene and protect the minority upon an application by the latter." (2 Cook on Stock and Stockholders [2d ed.], § 662, p. 945.) The same principle is stated in 1 Morawetz on Private Corpo- rations (2d ed., § 529) ; 1 Beach on Private Corporations (§ 70) ; 2 Bige- low on Frauds (§ 645), and Beach on Mod. Eq. Juris. (§§ 132, 686). While the question in some of the cases cited arose between stock- holders and the directors and officers of a company, who as such held a position of trust as to the former, still, where, as in this case, a majority of the stock is owned by a corporation or a combination of individuals, and it assumes the control of another company's business and affairs through its control of the officers and directors of the cor« poration, it would seem that for all practical purposes it becomes the corporation of which it holds a majority of stock, and assumes the same trust relation towards the minority stockholders that a corpora- tion itself usually bears to its stockholders, and, therefore, under such circumstances, the rule stated in the Sage and other similar cases applies to majority stockholders who control the affairs of the com- pany, as well as to its directors or officers. The principle of these authorities renders it quite obvious that a corporation, purchasing a majority of the stock of another competing one, cannot obtain control of its affairs, divert the income of its busi- ness, refuse business which would enable the defaulting company to pay its interest, and then institute an action in equity to enforce its obligations, for the avowed purpose of obtaining entire control of its property to the injury of the minority stockholders. Such a course of action is clearly opposed to the true interests of the corporation itself, plainly discloses that one thus acting was not influenced by any honest desire to secure such interests, but that its action was to serve an outside purpose, regardless of consequences to the debtor company, and in a manner inconsistent with its interest and the interest of its minority stockholders. The respondents, however, contend that the doctrine of tlie author- ities cited is not controlling in this case, but that the New York Cen- tral and Hudson River Railroad Company had a right to purchase a majority of the stock and bonds of the New York and Northern Rail- way Company, for the express purpose of obtaining control of the affairs of the latter for its own use and benefit, and to thus acquire ' FAKMERS' LOAN AND TRUST CO. V. N. Y. AND NORTHERN R. CO, 537 its property at less than its actual value, to the injury of the minority stockholders, and that such stockholders had no remedy in law or in equity to protect themselves against such action of the majority stock- holder, although it diverted the income which should have been ap- plied to the payment of such interest to other and improper purposes, and refused business which would have enabled the defaulting com- pany to pay its interest. In other words, the claim of the respond- ents is, and the General Term in effect held, that the purpose for which the JS'ew York Central and Hudson River Eailroad Company obtained a majority of the stock and bonds of the ]New York and Northern Railway Company is entirely immaterial, and that notwith- standing the existence of such a purpose, a court of equity will aid them in enforcing the mortgage. To sustain this contention they cite Morris v. Tutliill i;j2 N. Y. 575) ; Fhelps v. NoxoUn (72 N. Y.'39) ; Chenango Bridge Co. v. Paige (83 N. Y. 178) ; Ramsey v. Erie Rail- way Co. (8 Abb. Pr. [n. s.] 174) ; Clinton v. Mijers (46 N". Y. 511) ; Simjjson v. Ball (3 Wall. 476) ; Ogleshy v. Attrill (105 U. S. 605) ; Adler v. Fenton (24 How. [U. S.] 407), and Beveridge v. N. T. E. R. Co. (112 N. Y. 1). In Morris v. Tuthill the action was to foreclose a mortgage brought by an assignee. There was no question or principle of trust involved in that case. The plaintiff owed the defendant no duty, and, hence, it was held that under such circumstances the plaintiff had a right to maintain an action for the foreclosure of the mortgage, although he took title to it from motives of malice, and the assignor assigned the mortgage to him from a like motive. That that case was correctly de- cided we have no doubt, but it is clearly distinguishable in principle from the case at bar, and has no bearing whatever upon the question under consideration. In the Phelps case it was held that a party was not liable for the consequences of an act done upon his own land, lawful in itself, which did not infringe upon any lawful right of another, simply because he was inflvienced in doing it by wrong and malicious motives, and that courts would not inquire into the motives actuating a person in the enforcement of a legal right. How the doctrine of that case is ap- plicable to the question involved in this, it is difficult to perceive. In that case the party simply exercised a lawful right, and the court held that no liability arose from his having done so. There the plaintiff owed the defendant no duty and sustained no relation of trust towards him, and, hence, it is clearly distinguishable from the case at bar. The same may be said of Chenango Bridge Co. v. Paige, Ramsey v. Erie Raihvay Co., Clinton v. Myers, Simpson v. Dall, Ogleshy v. Attrill, and Adler v. Fenton. We do not think these cases in any way aid the respondents. [After discussing the Beveridge case.] As we have already seen, there are circumstances under which the 538 farmers' loan and trust CO. V. N. y. and northern R. CO. majority stockholders occupy substantially the same relation of trust towards the minority as the board of directors would occupy towards the stockholders it represents, and, hence, where there are Qorrupt motives, personal intere(St or fraud, the case cited is an authority to sustain the conclusion which we have already reached. That any person or corporation authorized to do so might have pur- chased the bonds of the New York and Northern Railway Company, and have rigorously enforced them by a sale of its property, there can be no doubt. They might also have purchased the stock of the com- pany and thus have become the owners of both ; and while such owners might have enforced the liability of the company upon its bonds, so long as they acted in good faith and their purpose was pro- per ; but when the New York Central and Hudson Eiver Railroad Company purchased the stock and bonds in question, thus obtaining a controlling interest in the affairs of the New York and Northern Railway Company for the avowed purpose of destroying it, to serve a purpose entirely outside of that for which it was organized, and in hostility to it, it becomes clear that as such stockholder it owed a duty to the minority stockholders, that the law implied a quasi trust upon its part, and that a court of equity will not aid it in the destruc- tion of that corporation and a confiscation of its property, although it held a majority of its stock and the required amount of its bonds. Hence, we are of the opinion that the court erred in rejecting as immaterial evidence offered by the appellants to show that, after the New York Central and Hudson River Railroad Company became the owner of a majority of the stock and bonds of the New York and Northern Railway Company, and while its officers were in control of the latter corporation and its affairs, it declined to accept traffic from other roads which would have produced a fund with which to pay the interest that was due ; that the income of the road, which should have been employed to pay such interest, was used for other and im- proper purposes, and that such action upon the part of the majority stockholder occasioned the inability of the company to pay the in- terest and cure the default. To the rejection of this evidence the defendants excepted. We think many of these rulings were erroneous, and that the appellants had the right to make the proof offered, so far as it related to the transaction of the business of the New York and Northern Railway Company during the time the New York Central and Hudson River Railroad Company owned a majority of its stock and controlled its affairs, and for the error in those rulings the judg- ment should be reversed. The respondents claim that by virtue of the provisions of section forty of the Stock Corporation Law the New York Central and Hud- son River Railroad Company had the right to acquire the stock of the New York and Northern Railway Company. We do not deem it necessary to either discuss or decide that question, for if it be EUSSELL V. WAKEFIELD WATERWORKS CO. 539 admitted that the Kew York Central and Hudson River Eailroad Com- pauy was authorized to purchase such stock and bonds, still nothing will be found in the statute which authorizes it to employ them for the purpose of destroying the property of the New York and Northern liailway Company to the injury of its minority stockholders. If the New York Central and Hudson Kiver Railroad Company had a right to purchase the stock and bonds of the New York and North- ern Railway Company, it obtained no better title and secured no greater right than any other stockholder would have acquired under a similar purchase. The right to purchase, even if given by statute, conferred upon the purchaser no authority to employ the stock and bonds for purposes condemned by the principles of equity. Judgment reversed. New trial granted. ^ Jessel, M. R., in RUSSELL v. WAKEFIELD WATER- WORKS CO. 1875. L. R. 20 Eq. Cases, 474, 478-483. Sir G. Jessel, M.R. A great deal of the argument m this case turned upon what may be described perhaps, in one sense, as a technical objection, but which is a very formidable and important objection. It was said that this is a bill to make a stranger pay back mone}' be- longing to a company which the stranger has illegally or improperly possessed himself of, or appropriated to his own use, and that an}' person who takes possession of a trust fund is liable to be sued in equity by the owner of the trust fund if he had notice at the time that it was a trust fund ; and although he gave value, still in that way the bill can be maintained against him. The answer was, that where the owner of the trust fund is an incorporated company, the corporation is the only party to sue ; the stranger has nothing whatever to do with the individual corporators ; and although in a sense it is their property, because individual corpo- rators make up the corporation, yet in law it is not their propert}', but the property of the corporation, and therefore the right person to sue 1 Where the managers of a railroad corporation, acting in its interests, buy a controlling interest in the stock of a connecting road for the purpose of making witli themselves as controlling managers of the latter road contracts more favorable to the former, and ac- complish their purpose, the question whether the contracts thus obtained are fair and just is immaterial in a stockholder's injunction suit to restrain the carrying out of the contracts. Pearson v. Concord R. R., A. i>. 1883, 62 New Hampshire, 537. The contracts will be annulled, at the instance of minority stockholders in the corporation thus controlled, without regard to the question whether the controlling corporation was guilty of actual fraud. Glen- gary '\ of. X» ^^^^- ^0 New Jersey Equity {5 Dickinson). 656.^ S / J) V/ ^ ' a^J^On rule to show cause why an injunction should not issue. THeard, ^ JL^ jj^ 1^ bill, supplemental bill, answers and affidavits, and on subsequent f/j^'^^^^fp^ ^■'*^ fetipulatiou that the cause should be disposed of as having been heard jl^l^ a/^l c^''^ on final hearing. ^u(v • W Ifjo The original bill was filed Dec. 17, 1891, by Willoughby, on behalf f^ j,^^ l^/^ l<\/^^ himself, as a stockholder in the Chicago Junction &c. corporation ^ ^^^M/^ ' (called by the court the New Jersey Co.), and all other stockholders ja>^ 1/- ■ Ji/^ therein, who should come in and contribute to the expense of the suit. O^'^'jl^ -^ X^'^© other stockholders were afterwards, by an order of court, ad- '> ju^^^^^^XHj^ ^^(£/*^iiitted as parties complainant. The aforesaid corporation and certain £^c>\ ^ >^Vt)ther parties were made defendants. The object of the original bill -. IV^""^^^ K/^ ^ /L^^^ ^o restrain defendants from carr3'ing into execution an agreement ^^f I ^» „ l^tween the New Jersey Co. and certain other defendants, dated July i rw ^fr^y--'^ ^^' 1^9^- Before a hearing on this bill, another agreement was entered *() n^"*^^^ L^'^^^^'^ between the New Jersey Co. and the same parties, dated Jan. 15, ^ "t/^ jj/v I r . ^ 1892, which, while it contained many of the provisions of the former ^^'^/Jt^^^^'''^ M ^*^i agreement, yet by its fourteenth paragraph expressly annulled such ^ '^^yf^*^"^^^ '^^f^A{ former agreement. Thereupon Willoughb}^ and his three co-plaintifl^s, /;iyt'*-^ / ^y leave of the court, filed a supplemental bill against the same defend- "^ ^^ji^ 0^-*^ ants, setting out the fact of the original suit, and, as far as proper, incorporating the original bill, and seeking to restrain the carrying * "-tfiiAto effect both the agreement of Jan. 15, 1892, and that of July . ^ 27, 1891. /) ijy""^^ *y^ / u Ellerman, another stockholder of the New Jersey Co., on Aug. 19, nA"^"^^ ^ 1891, filed a bill in this court, on behalf of himself, and of all other '/^ d,^/^.^*^^ stockholders who should come in and contribute to the expense of the t'^^^'^ "* suit, for the purpose of preventing the consummation of the same "^'lUAji ^ / agreement of Jul}' 27, 1891. Ellerman's suit was heard before a vice- (j^^^ ' r A^ company from building a belt line of railroad under a charter amendment, which had /^ -,^,A>-w^ ^^^-^^ recently been granted by the Secretary of State upon the application of a majority of the Ju^v *'*-^*^^/) • stockholders. After the court had decided that the amendment was invalid in tiie absence ■'^ mA'^^-'^'*^ of the unanimous assent of the stockholders and that the injunction should be granted, the ^"^"C**^ .A-«>-^ ' — ' plaintiffs claimed that the company should be compelled to pay the fees of the plaintiffs' coun- fC^^*'^^' foi^. sel. This claim was disallowed. The court said that the plaintiffs had not sued in the right ,^Ayi-4-»-*-^ ( of the corporation, but in their own right as stockholders. They were not compelled to ask f^^^^^.^ **~ ^?<»^*-— ^ y,g (jorporation to sue or to show a reason for not so asking. The gist of their complaint ^^^t^^^^ji^S^ I ■^'♦^as that the building of the belt line would violate the rights which inhered in the owner- •j/^^' ship of their stock. The suit of a stockholder in such a case is based upon the contract * Z'''*''*^^"^ which the law im])lies as existing between the corporation, the other stockholders, and **/**<. "^ himself. It is unlike the case where the stockholder is permitted to sue in the right of the ..^-.^ , corporation to undo a wrong done to the corporation. In the latter case his suit is not based on the theory that his rights have been directly violated. The corporation itself would be (0 the proper plaintiff; and it is only when the corporation virtually refuses to sue that tha gtockholder is permitted to sue in its behalf. — Ed. I Statement abridged. Portions of opinion omitted. — Ed. V, WILLOUGHBY V. CHICAGO JUNCTION, &c. CO. 543 Chancellor on bill and answers ; an opinion was filed Dec. 18, 1891 (49 N, J. Eq. 217), holding that said agreement was not ultra vires the corporation and not illegal ; and a decree was entered dismissing the bill on tliat ground. AaroJi P. Whitehead, Frederic W. Stevens, and Thos. N. McCarter, for plaintiffs. Ji. Wayne Parker, Cortlandt Parker, Joseph H. Choate, Wm. D. Guthrie, and Barker Gummere, for various defendants. Green, V. C. [After stating the case.] Assuming that such decree is not impeachable for fraud, collusion or other vice, to what extent, if at all, is the decision of questions in the Ellerman suit conclusive in this action? . Mr. Black, in his work on Judgments, thus states the general j^r^ rule (§ 504) : t^' " A point which was actually- and directly in issue in a former suit, I lip^^ and was there judicially passed upon and determined b}" a domestic/ ,^ court of competent jurisdiction, cannot be again drawn in question in\ "A any future action b etween the same parties or their privies , whether) the causes of action in the two suits be identical or different." As the rule in question is generally stated, the former judgment is binding only on parties and their privies, but the course of decisio n has been such as to embrace others who do not stand in a relation, st rictly speakmg, of privity with the or jginal party^ as a sherif f and his ^puty, iLing v. Chase, 15 W. B~ 9 (41 Am. Dec. 657) ; m aster and servant, in an action of trespass, E mery v. Fowler, 39 Me. 326 (63 Am. Dec. 627) : the joint and several makers of a promissory not e, Spencer v. Dearth, 43 Vt. 98 ; t he true owner, and thp hnilpp of cnm- plainant. Bates v. Stanton, 1 Duer. 79; a c hattel mortgagee and th e vendee of the mortgaged goods, Atkinson v. White, 60 Me. 396 ; a town and parties alleged to have caused an obstruction to the h ighway, in an action for negligenc e. Hill v. Bain, Town Treas., 15 P. I. 75 (23 Aln. Pep. 44) ; see, also, Durham v. Giles, 52 Me. 206 ; Freer v. Stotenhur, 2 Ahh. Ct. of App. Dec. 189. Chief Justice Durfee, in Hill v. Pain, referring to some of the cases, says (at p. 77) : "In these cases the defendants were permitted to avail themselves, by way of estoppel, of judgments to which they were neither parties nor privies. The ground on which this was permitted seems to have been that the defendants, though not parties to the judgments, were so connected in interest or liability with the parties that the judgments, when recovered, could be regarded as virtually recovered for them, for the purposes of estoppel, as well as b}' and for the parties of record." Plack on Judgments (§ 537) thus states the rule as to the parties affected : "It is not always necessary that the parties to the two suits should be nominally the same in order that one recovery may bar another. 544 WILLOUGHBY V. CHICAGO JUNCTION, &c. CO. It is in general sufficient if they are really and substantially in interest the same." And Mr. Freeman, in his work on Judgments, thus (§ 154) : " Persons who were parties to the suit, or in privity with such party, or in such a position that they were the real parties in interest in the .litigation conducted for their benefit in the name of another, undei such circumstances as to make them answerable for the result of the litigation by virtue of the principles to be hereinafter stated." The practice has long been recognized of permitting suit to be brought by a few as the representatives of a numerous class, on behalf of themselves and all others of the class, when there is a common interest or a common right which the suit seeks to protect, and against a few as representing a numerous class subject to a common liabiUt}' which the suit seeks to enforce. Story Eq. PI. § 97. i' " In most, if not in all, cases of this sort, the decree obtained upon such a bill will ordinarily be held binding upon all other persons stand- ing in the same predicament, the court taking care that sufficient per- sons are before it, honestl}', fairly and fully to ascertain and try the general right in contest." Story Eq. PI. § 120. [The learned Judge then stated the cases of Harmon v. Auditor, 123 111. 122; Gasl-ell v. Dudley, 6 Metcalf, 546; and Paveyx. St. Albans Trust Co., 60 Vt. 1.] None of these cases, it is true, is exactly in point, but they show clearly how elastic is the rule limiting the conclusive character of judgments to parties and their privies. How does the question stand on principle? Actions of the class to which the Ellerman and Willoughby suits belong are sui generis, in this, that the complainant does not prosecute in his own right — a stockholder, as such, does not have a legal or equitable estate in the corporate property ; his only right of property is to a proportionate share of the profits of the business while the com- pany is in operation, and to a proportionate share of the net assets on its dissolution. Unauthorized dealing with the franchises or funds of the corporation directly injure it as a legal entity ; it is the franchises of the corporation which are to be misused, the funds of the corporation which are to be misappropriated, and the corporation is, therefore, the party to be injured and should itself seek redress. This class of cases must not be confounded with the preventive remedy of every stockholder to restrain acts idtra vires the corporation. While " the directors are \ quasi or sid)-modo trustees for the corporation with respect to the corporate property, the}' are also quasi or suh-modo trustees for the stockholders with respect to their shares of the stock." 3 Pom. Eq. Jur. §1000. Each stockholder has invested his money in tlie very enterprise contemplated by the charter, and has, in his own riglit, an equitable remedy to prevent his quasi-trnsiccQ, as directors, from misuse of the corporate franchises, and from diversion of corporate funds, to a pur- WILLOUGHBY V. CHICAGO JUNCTION, &c. CO. 545 pose foreign to that of the charter, and for which he has invested his money, and this although every other stockholder favors the proposed action, and it is plainly advantageous to the financial interests of the company. The Ellerman and Willoughby suits belong not to this, but to that class of cases in which the corporation itself is directly injured and is primarily interested, and should itself institute and maintain an action for relief; in which the remedy- to be obtained, whether pecuniar}' or otherwise, is for its benefit and belongs to it alone ; the stockholder in such case has no standing in the court, as a party, except on the refusal, either express or implied, of the corporation itself to prosecute. Where, as in this case, an appeal to the directors to bring suit would apparently be unavailing, refusal to prosecute is implied, and a stock- holder is permitted to commence the action in his own name ; but otherwise the suit is treated in every respect as one brought b}- and for the corporation ; although the stockholder is the nominal, the corpora- tion is the real part}- complainant, represented not b}' its accustomed officials, but b}- one or more of its stockholders. Professor Poraeroy (3 ^q. Jur. § 1095) says, with reference to such a suit : " AVherever a cause of action exists primaril}' in behalf of the cor- poration against directors, officers and others, for wrongful dealing with corporate propert}', or wrongful exercise of corporate franchises, so that the remedy should regularly be obtained ihrough a suit by and in the name of the corporation, and the corporation either actually or virtually refuses to institute or prosecute such a suit, then, in order to prevent a failure of justice, an action may be brought and maintained by a stockholder or stockholders, either individuall}' or suing on behalf of themselves and all others similarly situated, against the wrong-doing directors, officers and other persons ; but it isa bsolutely indispensab le that t he co rporatio n itself jihould be joine d as a p arty — usually as a c o-defendan t. The rationale of this rule should not be misapprehended. The stockholder does not bring such a suit because his rights have been directly violated, or because the cause of action is his, or because he is entitled to the relief sought ; he is permitted to sue in this manner simply in order to set in motion the judicial machiner}' of the court. The stockholder, either individually or as a representative of the class, ma}' commence the suit, and may prosecute it to judgment ; but in every other respect the action is the ordinary one brought by the corporation ; it is maintained directly for the benefit of the corporation, and the final relief, when obtained, belongs to the corporation and not to the stockholder-plaintiff. The corporation is, therefore, an indis-l pensably necessary party, not simply on the general principles of equity pleading, in order that it may be bound by the decree, but in order that the relief, when granted, may be awarded to it, as a party to the record, by the decree. This view completely answers the objections which are sometimes raised in suits of this class, that the plaintiff has (^ 546 WILLOUGHBY V. CHICAGO JUNCTION, &c. CO. no interest in the subject-matter of the controversy, nor in the relief. In fact, the plaintiff has no such direct interest ; the defendant cor- poration alone has an}- direct interest ; the plaintiff is permitted, not- withstanding his want of interest, to maintain the action solely to prevent an otherwise complete failure of justice." Cook on Stockholders (1st ed.) § 692, says : ' ""The rule that the corporation itself is an indispensable party de- fendant to such suit, is due to the fact that all other possible future suits by the corporation are thereby prevented, the rights of the cor- poration are duly ascertained, and the remedy made effectual against the corporation as well as others." Neither this suit nor the Ellerraan suit was in the right of the respective complainants ; they were the nominal, but not the real, parties complainant. The}' were suing merely as representing the company, to establish and enforce its rights ; the relief to be obtained was not and is not for their individual benefit, but for the benefit of the corporation as such. In these cases the corporation itself is a necessary and was and is actuall}^ a party defendant ; in these it was and is represented by counsel, answered the bills and has taken part by counsel, in the discussion of the case. The decree in the EUerman suit certainly binds the company. In the face of that decree, neither the old nor a new board of directors could attack it except b}' an appeal. Thejformer decree could be successfully pleaded as a bar to an action institutedTrTthe name o7~tlie~com"pan y by an thorfz ed agents wli ojnigh t desire to relitigate the questions d ecided. If the compan}' and its authorized representatives are then concluded b}' such a decree, how can a stockholder, suing in behalf of the company, be permitted to relitigate questions which are conclusive upon the corporation? A stockholder has no standing in the court to prosecute such an action except on the refusal of the directors, either actual or presumptive, to prosecute. But such refusal of the directors to prosecute must be an unjustifiable refusal. If their reason for not doing so is a valid one, the individual stockholder cannot, from such refusal derive a right to .prosecute in his own name. It would not be unreasonable or unjusti- /fiable for a board of directors to refuse to prosecute, on the application of a stockholder, when there had been an adjudication on the point which he seeks to have passed upon, which is conclusive upon the company. And if the stockholder in the face of a refusal by the directors on that ground should persist and commence the action, an answer by the directors in his suit, that they had refused to bring the action solely on the ground that the question had been before adjudi- cated, would necessarily be followed by a dismissal of his bill. This argument goes to the root of this question, and demonstrates that the decision of questions litigated in this court in the suit brought by Ellerman, a stockholder, in his own behalf and tliat of other stock- holders, in which the company was made a defendant and appeared, WILLOUGHBY V. CHICAGO JUNCTION, &c. CO. 547 is conclusive in another suit brought by another stockholder for the purpose of relitigating the questions which have been determined. If not so there can be no end of litigation, for the court is then open to suit by every stockholder, seriatim, presenting the questions over and over for consideration and decision. In Daunmeyer v. Coleman, 11 ^ed. JRep. 97, Sawyer, C. J., says: *' By reference to JBurke v. Flood, supra, it will be seen that a similar suit for these same grievances was brought by a single stockholder, Burke, on behalf of himself and all other stockholders — and it is a notorious, historical fact, of which the daily newspapers have been full, that these are not the onl}' suits brought in the same way for the same grievances. Is each holder of one of these five hundred and fort}' thousand shares of stock entitled to bring a suit in equit}' on behalf of himself and all other stockholders for an account of their transactions? Or, where such a suit has been brought by one stockholder, must the others come in and seek their relief in that suit? If each stockholder is entitled to bring such a suit, then there is something wrong in the law, and the sooner tlie supreme court by rule, or congress by statute, regulates the matter the better it will be for the due administration of justice." It is urged that no party should be concluded without an opportunity to be heard ; but this complaint does not lie in the mouth of Mr. Willoughby. He had an opportunity to be heard in the Ellerman suit. It was expressly for the benefit of all stockholders wlio might come in and contribute to its expense. He could, at any time before decree, have been made a party to the Ellerman suit, and have then advised the court of anything not before brought to its attention. He had ample time to so apply after he actually knew of the pendency of the suit, and his solicitor was thoroughly informed of all proceedings in the Ellerman case in time to Lave intervened. Counsel admitted, upon the argument, that the question whether they should intervene in the Ellerman suit, or resort to an independent action, was considered and discussed before bringing the present suit was determined upon. Besides, from the very form and nature of these suits, each stock- hokler must be considered as represented, for if he is in sympathy with the complainant he may become a party complainant by appli- cation to the court ; if he is in sympathy with the threatened action of the company, he is represented by and in the corporation which is a necessary part}' to the suit. March v. Eastern li. R. Co., 40 N. H. 548. Not only this, but the court may, if satisfied that the interests of the corporation are not being properly presented or protected, admit a stockholder to be made a party defendant. Bronson et al. v. La Crosse <& M. R. R. Co., 2 Wall. 283. [The learned judge then held, that the charge that the Ellerman suit was collusive was not sustained; and said: " The Ellerman suit, not being collusive, must be held to be conclusive in this, upon all Questions 548 TOMKINSOX V. SOUTH-EASTERN RAILWAY CO. ■which were therein decided, . . ." He then proceeded to consider the matters which arise under the contract of Jan. 15, 1892, not passed on in the former suit, and which are the subject matter of the supplemental bill.] Sill and supplemental bill dismissed. Van Fleet, V. C, concurred. '^?^'' ^P-' O^^J^HJ^K^' ^CJmkinson v. south-eastern railway CO. t/r\ '.jj Aj^ r This was a motion by the Plaintiff, a holder of £500 deferred %^^\^\K ^^ ^^ ordinary stock of the South- Eastern Railway Company, for an in- r ) 'TjjL/^ //rj^mction to restrain the company and its directors, officers, servants, ^^ Lf c/^ ^^nd agents, until the trial of the action or further order, from sub- yy* ^ ^/^^/iv* c' scribing, advancing or paying, out of the moneys of the company, the ...P\.\t^ ^^FOTlREST y. MANCHESTER, &c. tlAIL^Y CO. 1861. 4 De Gex, Fisher %■ Jones, 125.1 ''^^His was the appeal of the plaintiff from the dismissal of his bill b}' the Master of the Rolls. The plaintiff was a shareholder in the e^Manchester &c. Railway Co. ; and sued, on behalf of himself and njD h^"* ^ *^the powers of the company under their Act, and was also prejudicial to '-^,^y''^t, ^^ another company called The " Gainsborough United Steam Packet ^ ., ^ i . Company, Limited," in which the plaintiff was a large shareholder. - tv O-'^'^rl'''*^'''''^^ '^^^ answer stated, inter alia, that the suit was not for the benefit of I " C^ .jji Va^A "^ the other shareholders of the company on whose behalf the plaintiff /-^ 'iJ' ■>-*' ^^^^^ himself out as suing, but was instituted solely to promote and ''^^ t>^'*\y\fVf^ serve the interests of the Gainsborough United Steam Packet Company P^ ' ''^^ J/ Limited, and that all the other shareholders of the defendants' company were opposed to the suit. ^ i ' v^ Ay^ Evidence was gone into, and the plaintiff on his cross-examination (cy^^ /y^ ^ ^admitted, that he held only 82?. stock in the railway company, but was ju^ /J^ the holder of twelve 30?. shares in the packet company, which was paving a dividend of lOJ, per cent ; and that the excursion traffic had e^ continued for eight or ten years. He also admitted that the ifectors of the packet company had directed the institution of the suit, and indemnified him against costs. The Master of the Rolls dismissed the bill on the ground that the Act sought to be restrained was not xdtra vires. /Selinjn, and M K. Earslake, for appellant. [Citations omitted.] The Solicitor General (Sir H. Palmer) and Fischer, for respond- ents, were not called upon. The Lord Chancellor [Westbury]. In this case I am asked to reverse the order of the Master of the Rolls dismissing this bill with costs. I desire it to be distinctly understood that my decision does not proceed upon the grounds stated by the Master of the Rolls. It is unnecessary for me to express an}' opinion upon the grounds stated by his Honor which, if they are correct, would be confined entirely to this particular case, because they have reference to the peculiar constitution of the present compan}'. But the ground upon which I proceed is en- tirely that of personal exception to the character of the i)laintiff, and the foundation of my decision is contained in this passage of the plain- tiff's own examination not attempted to be qualified or questioned. lie says in that examination " The directors of the packet company 1 Statement abridired. — Ed. A FORREST V. MANCHESTER, &c. RAILWAY CO. 553 directed the institution of this suit and indemnify me against costs." It is not that the}' persuaded him to institute the suit, not that they instigated the suit, but that the directors of the other companj- have "directed the suit," and are to indemnify the plaintiff against the costs of it. To use a familiar expression, the plaintiff is the puppet of that company. It has been a very wholesome doctrine of this Court that one shareholder having in view the legitimate purposes of the com- pany may be permitted in this Court to maintain a suit on behalf of himself and the other shareholders of the company, but the priuc-iple upon which that constructive representation of the shareholders is per- mitted indisputably requires that the suit shall be a bojid fide one, faithfull}', truthfully, sincerely directed to the benefit and the interests of those shareholders whom the plaintiff cl alms~a right to" re present. But canT^rmilra man^who is the'^juppet of another company to represent the shareholders of the company against whom he desires to establish the interests and benefits of a rival scheme ? That would be entirely' contrary to the principle upon which this constructive repre- sentation has been permitted to be founded. "When the plaintiff sues in that capacity- any personal exception to the plaintiff remains, and it would be in direct contradiction of every principle of truth and justice if I permitted a man to come here clothed in the garb of a shareholder of compan}' A., but who is in reality" a shareholder in compau}' B., and has no sympatliy whatever with, no real purpose of promoting the interests of the other company. Such a thing would be so much at variance with the principles of a Court of Equity that it would be impossible for it to entertain a suit of that description which is a mere mocker}', a mere illusor}- proceeding. It is, however, said that this objection was considered some Aears ago in the well-known case of Colman v. The Eastern Counties Rail- vxAy Gomjxiny,^ and was overruled b}' the late Master of the Rolls, Lord Langdale. All I mean to saj' about that case is that the objec- tion there proceeded upon a different ground. The proposition of Lord Langdale is that it is no ground of personal exception to a plaintiff that he has been instigated to institute his suit b}' another company. If the proposition be limited to the extent of the words in which it is expressed, possibl}' there may be no exception to that proposition, but undoubtedly I would not assent to it if carried one jot beyond those limits. I desire, however, to point out again the wide difference which / exists between a suit " directed" to be instituted by the directors of/ ,^ another company, and a suit which is bo7ia fide instituted by the plain- 1 -P tiff, persuaded only to the institution of it by the arguments of another} company. In the one case the suit is the suit of the plaintiff, and is for ought that appears instituted at the peril of the plaintiff. In the otlier case, the w-hole origin of the suit and the direction and conduct of it emanate altogether from the other company, and the suit would 1 10 Beav. 1. Q 554 FORREST V. MANCHESTER, &c. RAILWAY CO. have no existence whatever but for the order of the other company. I consider, therefore, that the language in which the Master of the Rolls expresses himself upon the proposition then submitted to him does not in the smallest degree interfere with or weaken the ground that I have taken. f I have nothing to do with the motives of plaintiffs suing in this Court. If they come here in a bond fide character, the reason for their coming here is a matter beyond the province of a Court of Justice to inquire into.^ But if a man comes here representing to me that he is a hondfida shareholder in a compan}^ and that it is the bond fide suit of that compan}^, and it turns out not to be the suit of that company', but in reality to be in its origin and its verj^ birth and creation the suit of ^ another company, then I repeat that this is an illusory proceeding, and ought not to be attended to by the Court. The well-known words, — the trite quotation, — will occur to the minds of those who hear me. " Fabula non est judicium in scena non in foro res agitur." If this gentleman be permitted to come and assume merely for the purpose of coming into this Court the garb of a shareholder, but at the same time explicitly announces, "This suit is not directed to the purposes of that company ; I have nothing in common with the shareholders of that company ; it has not emanated from the wish of the sharehold- ers ; it does not emanate from me as a shareholder ; it is not my act : I am directed to do it by another party, and another body of men," then in point of fact the suit is not the expression of his own will, nor is it the legitimate prosecution of his own interests or his own objects, but it is the prosecution of the interests and objects of persons who have no right whatever to invoke the interference of this Court. I treat this suit as an imposition on the Court. By these words I mean no reflection upon the plaintiff himself, because he has told the truth, and does not appear at any time to have desired to conceal it. But as he comes here in the character of a shareholder in the company, and tells me frankly that the institution of the suit is not his own act, but an act that he has been directed to do by the other company, then, using the words without offence, I denominate that suit an imposition on the Court, and I dismiss it accordingly, and affirm, though on a dif- ferent ground, the order that has been made. I refuse this application with costs. 1 See Kerr Inj. 549. / 0^ >^ .y^ ^ > y SEASON V. aRANT^.-- /jyise?. L. R. 2 C^n. A% 459.1 This was an appeal from an order made on the 12th of Februar}'. 18G7, by Vice-Chancellor JIalins, refusing an application of the Defendants that the bill might be taken off the file, or that all further proceedings might be stayed. The bill was filed by Charles Seaton, on behalf of himself and all other shareholders in the Credit Fonder and Mohilier of Enr/land, Limited^ except the Defendant, Albert Grants against Albert Grant, George Edward Seymour^ and the above-named company, under the^ following circumstances : — The Defendant, Albert Grants was the managing director of tlier above-named company. The Defendant, George Edward Seymoin\ i , . * was the chairman of a company called the City of Milan Improvements. *■ ^^y^- Co7npany. The Plaintiff alleged that the two last-named DefendantsL«/ • I ^\P^ bad, in the 3'ear 1865, formed what is called a "syndicate" on the v qn l^.. i/'' 0^ Stock Exchange ; that is, a combination for the purpose of raising the , value of the shares of the Milan Company to a fictitious premium ; and ^ \ Ja that, with this end, Grant had purchased 12,129 shares in the Milan, "y Company, and paid for them out of the funds of the Credit Fonder, by o. iwhich the latter company had sustained a great loss, the shares of ^; (the Milan Company having fallen ver}' much in value. ^^>#/7/0 He also alleged that the Defendants were taking measures to re- v^ ^ constitute the Credit Fonder^ by dissolving the compao}-, and trans- ferring its assets and liabilities to a new company. The bill prayed that the Defendants, Grant and Seymour^ might repay to the Credit Fonder the money expended in the purchase of the shares in the Milan Company, and that the Credit Fonder might be restrained from handing over their assets to any other company, until all their debts and liabilities had been paid and satisfied. The bill was filed on the 19th of July, 1866, and immediately after- wards the Plaintiff moved for an injunction, in terms of the prayer, before Vice-Chancellor Kindersley, who refused the motion with costs. On the occasion of the motion, the Plaintiff was cross-examined in Court, when it appeared that he held only five shares of £20 each in the Credit Fonder, which he acquired solely for the purpose of filing this bill ; and that his reason for filing the bill was that he and several of his friends had lost monc}- by speculating in shares of the Credit Fonder, and that be was advised that if he bought shares, and then filed a bill to impeach certain transactions of which he had notice, he would probably be bought oflf at a high price, and so obtain compensation. ' ^^P 1 Portions of argument, and of opinions, omitted. — Ed 556 SEATON V. GKANT, Subseqnentlj' to the filing of the bill, two extraordinary meetings of the Credit Fonder were held on the 30th of July and the 15th of August, 1866, at which resolutions were passed for winding up the company voluntaril}', and for the formation of a new company-, for objects which would include the carrying on of the business of the Credit Fonder. The Defendants put in answers to the bill, but refused to giA'e full information to the Plaintiff as to the transactions complained of ; and their answers were excepted to by the Plaintiff. The motion now under appeal was made by the Defendants Grant and the Credit Fonder, and, having been refused by the Vice-Chancellor, was now renewed before the Lords Justices. The Attorney- General (Sir John Molt), Mr. Karslake, Q.C., and Mr. Waller., for the company ; and Sir Boundell Palmer, Q.C., Mr. Bailey, Q.C., and Mr. Speed, for the Defendant Grant : — We say, first, that this suit is not bond fide. The Plaintiff had no shares in the company while the bill was being prepared ; he bought five shares just before it was filed, and can give no reason for his proceedings, but that he had lost money by speculating in the shares of the company, and wanted to make the company repay him these losses. The Court will not entertain such a bill : Forrest v. Man^ Chester, Sheffield, and Lincolnshire Raihoay Company.^ That case decided that the Plaintiff must have a legitimate interest in the subject matter of the suit. The interest of the Plaintiff is merely nominal. If his whole claim is recovered, and divided among the shareholders, his share would be about 40s. Such a bill is an abuse of the process of the Court, and partakes of the nature of maintenance : Filder v. London, Brighton, and South Coast Mailway Company ;^ Foxwell V. Webster.^ [Remainder of argument omitted.] Mr. Wickens, for defendant Seymour. Mr. Glasse, Q.C., and Mr. Cracknall, for plaintiff, were not called on. [The opinion of Sir G. J. Turner, L. J., is omitted.] Lord Cairns, L. J. This motion is one of a ver}' novel, but of a ver}' important character, because it asks the Court to shut the door [0 y V_A/ ^^ ^^® ^^^® ^^ ^^^ Plaintiff, not on the merits of the case, but on the yVr I/- ground that he has b}' his conduct disentitled himself to institute the \ L'C/^ ^ i t^^ ^^"^* '^^^ theory of the law of this country is, that ever}' sul)ject has |l^/ j-j^ ^[/^ a right to bring his complaint to a hearing, if it be not capable of ^- .^l . >\ being stopped by a demurrer or a plea. The exceptions which have 9 ^ 'T^J'"'^ (^ been established to this rule merely shew the strength of the general *^ rule. Those exceptions are four in number : — First, wliere the Plaintiff is required to give security for costs. That is hardly an exception, because the Court only stays the proceedings in the suit until the 1 9 W. R. 818. 2 1 H. &M. 489. 8 12 W. R. 94, 18& M^> SEATON V. GRANT. 557 security is given. Second, where the Defendant is willing to give to the Plaintiff all the relief which he asks, and to pay his costs of the suit. Third , where the subject matter of the litigation has perished, of has been removed, and nothing remains to be decided but the payment of costs of the suit. There the Court considers that it would be useless to allow the suit to go on to a hearing when the only question to be determined can be as well decided upon motion. Fourth, where the bill has been filed without the authority of the person who appears as ihe Plaintiff, or where the name of a corporation has been used without a sufficient title to use it. In such a case the bill is treated as a fraud upon the Court, and is therefore ordered to be taken off the file. Th e grounds alleged for the present motion are three : — First, a p ersonal exception to the Plain tiff. I do not think that I unfairly | represent the conclusion which the parties desire to draw from the/ cross-examination of tlie Plaintiff if I put it in this way. The Plaintiff ( had in a collateral way lost some money, and he then finds a blot in the management of the compan}- of which he thinks the shareholders might complain. He buys five shares in the compan}', and then files this bill, in order to induce the compan}' to bu}- off the litigation. That, no doubt, is a course of conduct which would meet with little approval in this Court, Or, indeed, in any other Court, and such conduct might be material at the hearing with reference to the amount of relief which the Plaintiff could obtain, or whether he was entitled to an}- relief at all. But___the question is, whether these_jact3_are necess aril}" fatal to the Plaintiff's claim_to^relief?^ Suppose an answer were put in admitting air~the allegations contained in the bill, it would be difficult to say at this stage of the suit that the Plaintiff's conduct would altogether dis- • entitle him to relief. The case of Forrest v. Manchester, /Sheffield, audi Lincolnshire Raihcay,^ which was relied upon in the argument, is dis-] tinguishable from the present case upon two grounds : first, because | that was the hearing of the cause ; and, secondly (and this is the main distinction), because there the Court came to the conclusion that the Plaintiff was simpl}' a puppet in the hands of another company, and that he was indemnified by that company against the costs of the suit. That objection amounted to this, that a suit professing to be the suit of Compan}' A., was really the suit of Company B. The second ground relied on in support of this motion was, that the Plaintiff's quantum of interest in the suit was very insignificant. But if we should hold that the suit can be maintained in other respects, I think that the aggregate interest of all the shareholders in the subject matter of the suit is amply suflflcient to sustain the suit. [Remainder of opinion omitted.] 31otion refused icith costs, 1 9 W. R. 818. ^ y \f\,t BURT V. BRITISH, &c. ASSOCIATION. BURT BRITISH, &c. ASSOCIATION. 4 De Gex ^ Jones, 158.^ 1859 yv^ Appeal by plaintiff from the dismissal of his bill by Vice-Chancelloi Stuart. Plaintiff sued on behalf of himself and all other shareholders, except those made defendants. The bill sought to set aside various trans- actions of certain persons with the association. Greene and Bromehead^ for appellant. Malins^ Thring^ W. W. Cooper^ Bacon., and H. R. Bagshawe, for various defendants. Knight Bruce, L. J. [The learned Judge found, upon evidence, that the plaintiff, who had been a director of the association, having liad knowledge of the transactions now complained of, had so con- ducted himself that he must be regarded as having acquiesced in and confirmed these transactions. The opinion then proceeds as follows :] I am of opinion, however, looking only at what took place in December., 1856, that by the conduct of the Plaintiff at that time, and his conduct afterwards, he has precluded himself from any right of complaint, whatever right of complaint others may have, either as against the Defendants or as against the Plaintiff himself As to that it is not necessary to give an opinion. He has sued on behalf of himself and others, and notwithstanding what has been con- tended on the part of the Defendants, I assume that there still exist persons who have a right to complain of these transactions. But that will not give the Plaintiff a title to sue for them. As on one hand a Plaintiff, who has a right to complain of an act done to a numerous societ}^ of which he is a member, is entitled effectually to sue on behalf of himself and all others similarly interested though no other may wish to sue, so, although there are a hundred who wish to institute a suit and are entitled to sue, still if they sue by a Plaintiff only, who has personally precluded himself from suing, that suit cannot proceed. The present case in my opinion stands upon the same footing as if the dis- satisfied shareholders (supposing them to be dissatisfied) had sued by a Plaintiff who had released the Defendants. For that in my opinion is the position in which effectually Mr. Burt has placed himself. Whether, therefore, agreeing or disagreeing with the particular ground on which his Honor the Vice-Chancellor has proceeded, I apprehend that the grounds which I have stated are amply sufficieot to render a dismissal of the bill necessary. Turner, L. J., concurred. 1 Statement abridged. -Ed. Only so much of opinion is given as relates to one point, SOR V. BAILEY. 559 -^m / .V- \f /wmSOR V. BAILEY. 1875. 55 New Hampshire, 21S^ Bill in equity by Winsor et als. against the Hooksett M'f'g Co., and various individuals ; alleging that certain monies of the company have been wrongfully paid over to some of the defendants ; and pray- ing that the recipients may be decreed to repay the same to the corpo- ration. The bill alleges that the plaintiffs are owners of stock in the company, and sets out specifically the number of shares owned b}' each ; but does not allege that they were owners of stock at the time of the payments complained of. Defendants demurred. Mugridge, for plaintiffs. Fotcler and Tappan^ for defendants. Ladd, J. 2. The bill alleges that the plaintiffs are owners of stock, and sets out specifically the amount owned by each. It is contended for the d efe n dants th at the b ill is defectiv e in jio^ showing jthat th ey weiFe. o wners of stock at the time of the alleged wrongful payment to som e or all of the defendants . No authority is referred to in support of this position, and I see no sound reason upon which it can be sustained. To hold so, would jeem to involve the singular consequence th at the transfeFoFstofikliL^J^orporalw^ right to inquire into ti re"previ oug_fraudulent conduct of its _officers^ whereby its funds have been misappropriated. Gushing, C. J., concurred. Smith, J. 2. The plaintiffs allege that they are stockholders in the Hooksett Manufacturing Company, and specify the number of shares owned by each, but do not allege that they were stockholders at the time the dividend was paid the defendants. But that is not necessar}', and it is immaterial whether they were or not. The transfer of the stock con- veyed to them not only the ownership of the shares and the right to the future dividends thereon, but also placed them on an equal foot- ing with the other stockholders in respect to the right to call the officers and agents of the corporation to an account for their fraud- ulent conduct. 1 Only 80 much of the case is given as relates to one point. — Ed. t^' 560 ,) (J^ ,y PAESONS V. JOS i^y.- P^ 7a<,^^'V^>^ PAESONS v.\ JOSEJ&. ^^ ^ /* r ^gt) 1890. 92 ^/aiama, 403.1 YJ ^c ^v^ ># Jj, ' , -"Appeal from the Chancery Court of Jefferson gi ^\. (y y^ }t Heard before the Hon. Thomas Cobbs. 'r *^ A^>^ l^*^ ^^® ^^ "^ '^^^^ ^^^^ ^^® ^^®*^ ^"^ ^^® ^^^^ day of Jul}', 1890, by \ K Jl Heurj- Joseph, as a stockhohler in the Bh-mingham, Powderly & V ^y " J £j^Bessemer Street Raih'oad Compan}', against the said corporation and ^^ ^(r*^{*^ OjT^S. H. Parsons; and sought the cancellation of certain certificates of \ U /^ I ^ stock issued by the corporation to said Parsons, on the ground that the stock was fictitious and fraudulent. There was a demurrer to the bill, and a motion to dissolve the injunction, each of which was overruled ; and this appeal is sued out by the defendants from that interlocutory decree. Lea ' the Birmingham, Powderly & Bessemer Street Rail- road Co. to defendant Parsons, cancelled, on the ground that the stock / tJ^ fH^ ^^^■''"^^^fitrtitious, and was issued in violation of the Constitution and statute rr* 4 ^-^^v y ^^aw of the State. The bill pra3'ed an injunction, and the writ was ^^ jS"^^ 'r awarded by the chancellor. A demurrer was interposed, and also an ('<^'^ -^ answer by the defendant Parsons. The cause was submitted for i/^/^ /f'^^s.K decree on the demurrer, and upon motion to dissolve the injunction. fd^^ ' " (^ The court overruled the demurrer, and denied the motion to dissolve /^t^. the injunction, and from this interlocutory decree the appeal is taken. Among other averments, the bill substantially alleges that plaintiff is a bona fide stockholder in said company ; that shortly after the organization of the company, the defendant subscribed for one hundred and seven shares of the capital stock of the compan}', of the par value of fifty dollars each, and paid for the same in full by conveying to the company thirty-nine acres of land (describing the land) at an agreed price and valuation of one hundred and thirty-seven dollars per acre, when the land was not worth more than twenty-five dollars per acre, and for this land Parsons was to receive one hundred and seven shares of the stock ; that shortly thereafter, the capital stock of the company was doubled, and without further consideration than the thirty-nine acres of land, Parsons' stock was doubled, and he received two hun- dred and fourteen shares of the capital stock. Tlie bill, as amended, charges the excessive valuation of the land was made knowingly, wil- fully, and with the fraudulent intent of having issued to Parsons the fictitious stock, in violation of law. This is a sufficient statement of the facts for the consideration of the demurrer. 1 Arguments omitted. — Ed. PAKSONS V. JOSEPH. 561 The demurrer admits the truth of the averments. It is_ co ntended, t hat the bi l l is defective in not averring that plaintiff was a stockholde r "^ /\ " at the time of the transaction, com plained ojLas_beiDg f raudul ent, qt r y^^ -^ that his stock devolved upon him by o ijgrati on of la w. fH^ .^^ In the case of D imp fell v. Ohio S Miss. H. H. Co., 110 U. S. p« ^•^-'''''^''^Z^-^ 209, relied upon by appellant, it was held, that a stockholder, contest- />« iog as idfra vires an act of the directors, should aver " that he was a stockholder at the time of the transaction of which he complains, or that his shares have devolved on him since b}' operation of law,"' To the same effect was Haices v. Oakland^ lO-l U. S. 450 ; and man}' others might be cited. Upon an examination of these authorities, it will be seen that the principle asserted rests solel}' upon equit}- Rule No. 94 adopted by the United States Supreme Court and which ma}' be found in the preface to vol. 104 of U. S. Reports. Morawetz on Private Corporations, speaking of this rule, sa}s, it was evidently de- signed as a rule of practice merely, and was deemed necessary to guard courts from being imposed upon by collusion of parties. — Morawetz on Priv. Corp., §§ 269, 270. The rule is not a general principle of law, applicable to pleadings in all the courts, and has never been applied to the courts of this State. The demurrer to the bill for fail- ing to make this averment was properly overruled. . The motion to dissolve the injunction was heard upon the sworn bill and answer. The answer denied that plaintiff was a bo)ia fide stock- holder, and set up that plaintiff was the transferee of one E. Lesser. The answer admits that defendant's stock was doubled without the payment of any additional consideration than that of the land ; but by way of explanation and defense, avers that the lands were not truly and properly valued at first, and the increased valuation of the lauds only raised them to their real and true value, and the additional issue of stock was for property at its fair valuation. The answer continues, ho wever, as fo llows ; th at if said transaction ha d been illegal and f raud ulent, and not done in good faith, com plainant is esto pped from setting up fraud in sai d transaction, or seeking to cancel said stock, / P because E. Lesser, wTIo~was complainant's transfer rer, participate d in I all of said transactions and himself fixed the jyalu e of said lands, with fu ll knowledge of a nd after full investig ation of the value of said land. 'to' A transferree of stock is not necessarily disqualified as a suitor in all i ^^ cas es, because t he prior ho lders were personally disqualified . If the ' ly^ ,2 ti^ans feree ])urch ased the sliares in good faith, and without notice of( ^' the fact_:tb.at ^tha^j^norliolderhacl pr ecluded himself from suing, he/ woiild_haye_as just a title to re lief, as i f he had purchased from a share -' hold er who \£a,s_un der n o dis abil ity^; but, if the purchaser was aw^arej_ tbat^he prioLJiolder had barred his ri^it to relief,^neitherjustice iiQrj public 4K llicy wo uld require that the transferee, under these circuni- staiicejj_sh^uld,Jbe_accprde d any great e r rights than his transferrer . — Morawetz, siqyra, § 267. The same rule prevails in this State in favor of derivative purchasers. 5C2 PARSONS V. JOSEPH. ^ ^ If a claimant was a bona fide purchaser, without notice of a fraud, or of facts which the law considers sufficient to establish it, or from which it is inferable, then he could not be affected by notice to his vendor. — Horton v. Smithy ^ Ala. 78 ; Fenno v. Sayre, 3 Ala. 458 ; Weer v. Davis, 4 Ala. 442 ; Martinez v. Lindsey^ 91 Ala. 334 ; Wait on Insol. Cor., §§ 628, 630. If a stockholder participates in a wrongful or fraudulent contract, or silently acquiesces until the contract becomes executed, he can not then come into a court of equit}-, to cancel the contract, and more especially, if the company, or himself, as a stockholder, has reaped a benefit from the contract ; and this rule holds good, although the con- sideration of the contract may be one expressly prohibited by statute. The same disability would attach to the transferee of his stock who bought with notice. We consider this general rule of equity abund- antly sustained. — Morawetz'on Priv. Corp., §§ 261, 262; Cook on Stock and Stockholders, §§ 39, 40, 735 ; Wright v. Hughes, 12 Amer. St. Rep. 413. It is sustained by the familiar rule, that he who invokes the aid of a court of equity must have clean hands. Mr. Cook states the conditio ns upon which astockholde i- can s ustai n a suit to remedy the frauds, idtra v lres_ a.Q,is, or negligence of directors, to be, firsts the acts complained of must be such as to amount to a breach of trust, and such as neither a majority of the directors nor of the stockholders can ratify or condone; second ^ that the complaining stockholder himself j s free from laches^ acquiescence of the acts to remedy which the suit is brought ; third , that the corporation lias been requested and refused or neglected to institute the suit, that the suit is instituted by bona fide stockholders as complainants, and that the corporation and the guilty parties, and other proper parties have been made defendants. Cook, supra, § 646. If the averments of the bill are sustained by proof, the stock issued to the defendants was in violation of section 1662 of the Code and of section 6, Article XIV of the Constitution. On the contrary, if the proof shows that the property was received in payment of stock, at a fair valuation, such would not be the result. — Davis Bros. v. Mont- gomery Fur. S (Jhern. Co.., at present term. In cases where the stockholders of the company by any laches, acquiescence, or participation in the unlawful and fictitious issue of stock or for any other sufficient cause are precluded from instituting the proper proceedings, to remedy the wrong, the remedy is still open to the State to institute all necessary and proper proceedings to vacate and dissolve the corporation, or have such other proper judgment and decree rendered, as the proof and justice may demand. It may be, that stockhoUlers, who knowingly and intentionally have subscribed and paid for stock with property upon a fictitious valuation, •AY(\ liable as stockholders who have not paid up in full for their stock, within the meaning of the statute, to creditors who have not precluded themselves from maintaining the suit. —Wait, svpra, § 593; Douglas V. Ireland, 73 N. Y. 100 ; Boynton v. Andrews, 63 N. Y. 93, AMBROSE LAKE TIN AND COPPEK MINING CO. 563 Applying the rule of law applicable when a motion to dissolve an in- junction is submitted upon bill, exhibits, and answer, and considering only so much of the answer as is responsive to the bill, we are of opin- ion that the decretal order, overruling the demurrers and motion to dissolve the injunction, is free from error. Affirmed. The case of Downey v. Joseph was affirmed on the authority of the /i*^J* above case. r^i. 6''> C r In re AMBROSE LAKE TIN AND COPPER MINING CO. . ,H <^ t4V^ SJx parte TAYJ^On. Ex parte MOSS. 1880. Law Reports, 14 Chancery Division, 390. Gr^'^.yA J^ 3- ^ ' Jr r^ <^ ^ This was an appeal from a decision of Mr. Fisher, the Vice-WardeA^ y\ p^ -J* of the Stannaries Court, in the winding-up of the Ambrose Lake Tin J' ^ and Copper Mining Company, Limited, given on the 2d of July, 1879. ^ /^ In the course of the years 1870 and 1871 the appellants, Josephv'^'''''^ Taylor and Joshua Moss, became the principal proprietors of theij|>^ ited company. For that purpose the mine and machinery were as-/ signed by the lessees to W. Eaton, a clerk of Taylor's ; and by ai, ^j, memorandum of agreement dated the 22d of December, 1871, made ^ between W. Eaton of the one part, and Joseph Taylor and E. Hardey i -^ of the other part, Eaton agreed to sell the mine and machinery tov Taylor and Hardey in trust for a company to be called the Ambrose >K - \' ' Lake Tin and Copper Mining Company, Limited, in consideration of j^f^ _ ^ - to say, 6000 fully paid-up shares of £2 each, and 12,000 shares with^^ j "^ -^ r^^ each considered as paid thereon. th^\ xjf^^ ii^ the sum of £24,000, to be paid to Eaton in manner following, that is ^^ j This agreement was registered under the Companies Act, 1867, on ^ 'ur ^ \^ Xj^K 20s the 26th of January, 1872. '^ ^^ . . ^j^ , The new company was registered on the 19th of January, 1872. ^ »/6»^H«'*' The memorandum of association stated that the object of the company, (^ ^V '^\i-'^ft»-' was to purchase and Avork the Ambrose Lake mine, and that the capi-^v» ^ Jt^^ lOT J^ tal of the company was to be £36,000, divided into 18,000 shares oi c ^ ri^^ o-'^ £2 each. ^/.^^O' ^ By the articles of association the first directors were to be Joshua^\i>^ P^ t, Moss, Joseph Taylor, E. Hardey, William Moss, and J. Maguire, all^^ % of whom had shares in the cost-book mine, and Taylor was appointed * fj , managing director. The memorandum and articles referred to the P agreement which had been entered into with Eaton for the purchase of the mine. ^ 564 AMBROSE LAKE TIN AND COPPER MINING CO. At the first meeting of the directors it was resolved that the agree- ment should be adopted, and Eaton was credited with £24,000, namely, £12,000 on account of 6000 fully paid-up shares, and £12,000 on account of 12,000 shares with £1 paid on each. But in fact only five shares were allotted to Eaton ; 2900 fully paid-up shares,, and 5650 shares with £1 paid up were allotted to J. Moss ; 2880 fully paid-up shares and 5650 shares with £1 paid up were allotted to J. Taylor ; and the rest of the shares Avere divided between the other shareholders in the cost-book mine according to their interest therein. The value of the mine and machinery was considered by the Vice- Warden to have been about £6000. Taylor sold a considerable number of his shares at a premium. Moss retained all his except 150. No prospectus was issued to the public. The allottees paid up the remainder of the money due on the shares on which £1 only had been paid ; but the company was not successful, and was wound up by an order of the Court on the 8th of January, 1878. The official liquidator applied for orders against Moss and Taylor, charging them with having improperly sold the mine to the company for more tlian it was worth, and calling upon them to repay the differ- ence between the value of their shares in the new company, including the profit on those which had been sold, and the value of their in- ■terests in the cost-book mine. The Vice-Warden took this view of the lliability of the two appellants, and in the result he ordered Moss to pay the sum of £6825, and Taylor the sum of £10,185. From this order Moss and Taylor appealed. Cookson, Q. C, and Burton Buckley, for the appellant Moss ; and Waller, Q. C, and Bunting, for the appellant Taylor. [Argument omitted.] Ince, Q. C'., and Northmore Lawrence, for the official liquidator. The contract was a misrepresentation from beginning to end. Eaton was not in possession of the mine and had no title to it. Moss and Taylor had constituted themselves trustees for the new com- pany, and were buying the property from themselves for the company, and they bought it at a far higher price than it was worth. Such a transaction cannot stand. It makes no difference of whom the com- pany consisted at the time. It must be treated as having an inde- pendent existence, and tliose who now represent it have a right to call on the directors and all persons who stand in a fiduciary relation to it to account for their profits. Moss and Taylor made a profit by the transaction, for they received shares to the value of more than £22,000 in exchange for property which was wortli only £6000. But if they made no profit themselves they prevented the company from making profit, by taking shares which the company might have allotted to the public. We are, therefore, entitled to call on them to make good what they have deprived us of, and that is measured by the value whicli might have been obtained by their shares in the market. [Citations omitted.] AMBROSE LAKE TIN AND COPPER MINING CO. 565 James, L. J. I am of opinion that the order of the Vice-Warden in this case cannot be sustained. It appears to me that one must look, even as between companies and directors, at what the substance of the transaction was as between the company and the persons whom the company is seeking to make answerable. Now the transaction appears to me to be quite clear, and I cannot help tliinking myself there was an object in it, and that object was not at all an object for obtaining an undue advantage as between the company and the persons who are dealing with the company and selling to the company, but the obtain- ing an undue advantage in the stock market, wherever the stock market of the company might be, as between the persons who got the shares in the new company and the persons who were foolish enough to buy the shares from them in the new coinpany. They ij itend^fl ^<^ r epre- s ent the_bhing as worth something a great de al mo re than it was w orth, namely, the nominal capital that was attributed to it. Now what we have got here to consider is a sale in substance made by the vendors for themselves, as beneficially interested, to them- selves as directors of the company, being in that sense in a fiduciary character towards the company, and the sale is a sale by themselves in the one character to themselves in the other character. OX_course such a sn1pjR _p. thing tha t nail not stand, if it is quest-.inned in tirneTa ni^ P ioper offers made to res tore the thi ng pu r chase d. And if there is any difficulty in the way of restoration, if it is made out that they had received something beyond the proper price of the property, there ought to be no difficulty in making them pay that extra value. Sup- pose the property had been sold before the fraud was discovered, or suppose the cestuis que trust laid out a great deal of money in improve ments, then the only mode of setting it right would be to make the vendors give the extra price which was paid for it. According to_ my vjewj2fJihisjiase th e^ vendors did g e t no extra price from the company as a company . What the company got was the mine as it stood. The mine and machinery and plant, or whatever was on the property, was sold to them. Now what they gave for it was a certain share in the mine, the very property itself divided into a great number of shares, it was a certain share in the assets of the company ; the assets of the company consisting only of the very thing which they had bought. No doubt they got the assets of the company at that moment, which consisted of their right to call up the unpaid part of the unpaid shares. But then the right to call up that was a liability upon the vendors themselves, so that the only thing which the company gave back to the vendors was what the vendors had given to them, and what they covenanted to give to them, that is to say, the property and the liability to contribute the money which was due on the shares. Under these c ircumstances it seems to me jmpossib le to say th at, howeyer_wrong the transaction was iiTrespect to other per sons^ there was any_t hing wrong as Between the company and the vendors . There was no fraud on the existing shareholders, because they were parties c 566 AMBROSE LAKE TIN AND COPPER MINING CO. to it. There was no fraud on any future allottees of shares, because there could be, under the circumstances at the time the arrangement was made and completed, no future allottees of shares. The transac- tion was a transaction in which the whole of the capital of the com- pany was given in exchange for the property purchased. That being so, it seems to me that the numerous other questions which have arisen in this matter, and which have been discussed at some length and with considerable ability, do not arise. In my vi ew, the company only gave backju substance that which it was getting, and the frau d was not between the vendors and the company, the pur- chasers, buFV as a tiling calculate d to delude people into believing that thej hares when g ot were something more v alna. blp. t.hmi t^p y really ^wei'e. What the company lost, if they lost anything, was this : If they had formed the company and issued shares, they might have got the iictitious value which the shares would have brought in the market by availing themselves of the lies respecting the property, which they say are contained in the contract. That does not seem to me to be a sort of thing which the company would be entitled to claim. I rest my decision on the ground which was opened by the appellants' counsel, particularly by Mr. Buckley, that what was taken back was the very thing that was given in exchange for it, calling it by differ- ent names and dividing it into different«shares. Brett, L. J. Whether a fraud upon which any action can be taken has been committed in this case I am not prepared at present to say, but that a fraud was intended I have not the least doubt. The transaction has all the badges of fraud, but I think that the claim which is now made fails altogether ; because, even if the right parties are suing, they have not asked for the right remedy ; and I also think the parties suing are not the parties who were intended to be defrauded on this occasion. Now, it seems to me the facts are these, that certain persons were the owners of the mine, and they had worked it for a certain time, and they knew it was a perfect failure ; that they then, in order to retrieve that failure, pretended themselves to make this arrangement, that as to that mine, which was a failing mine, probably worth nothing, they might pretend to buy the mine from a person other than themselves, although they were really (if it can be called a pur- chase at all) buying it from themselves for £24,000, but that they might then risk a further sum of £12,000, making up £36,000, so as to work the mine for a certain time, and then the mine appearing to have been bought for £24,000, and £12,000 being advanced by them to work it, it would appear to the outside public to be a profitable mine, and then the shares might be sold at a profit, and so, instead of liaving a failing mine in which they were wasting their capital, by risking £12,000 more they would be able to place shares with the y)ublic, retrieve what they lost, leaving the public to lose what they gave for the mine. AMBROSE LAKE TIN AND COPPER MINING CO. 567 Now, many questions have been raised as to what would have been the effect if this had been done by directors of an existing company. It seems to me, the whole transaction was a solemn farce. This agreement which has been set out is a mere farce. These people were not acting as trustees for anybody, they were the people themselves, and that which is called a contract for purchase and sale being made by these people with themselves is no contract at all, or anything of the kind. Therefore, this agreement, which is set out, and pretends to represent an agreement of purchase and sale, is a mere falsehood. It is not a contract of purchase and sale, to my mind, for a price greater than they ought to have given, or a contract of purchase and sale for a certain price, if the supposed price is given back to the agent for the people complaining. The truth is, it is no contract at / all, and this agreement which is set out is a mere farce . Therefore, the very constitution of the company, this turning of themselves by this mode into a limited company, is a mere representation. Whether the registration could have been set aside or not I really do not know, but the whole thing is a misrepresentation — to defraud whom ? The people who _we re repres^ tingthis farce did_no t deceive them selves"; ner were the people supposed to be buying nor the people supposed to be selTmg deceive d^ I s there any dec eption at all ? The whole t hing was done by the same people . Theresas nobody in the limits of company who was deceived in the least, ^t is impossible, in my mind, to suppose that it had no business purpose, and that it was not intended to produce some effectj On whom could it produce that effect ? It could not produce that effect on the parties themselves, It is quite true to say, inasmuch as they were the same people, they gave nothing for this ihine and received nothing for this mine, The supposed purchaser gave nothing, the supposed seller received no- thing, and the only people who would be deceived would be the out- side public ; but how would they be deceived ? If anybody who had / shares in the new company has sold those shares to anybody of the outside public upon the faith of those documents which are contained in these articles of association, or memorandum, — if they have sold their shares on the faith of that simulated agreement for the purchase of the mine being a true one, it seems to me they have obtained the money from those purchasers by fraud. To show that, it must be shown that a vendor of shares in the com- pa ny did sell to the purchasers shares in the company, and th at the pers ons who jbmight- th e s h ares— purchaaexLJhem on t he faith of this agreeme nt,_g ,Tirl thp^ rBpias£ntations_made in it. If t hat should ever be proyedj_thaJLJ6s:©uhlr-giv^-a. j^medy^o a^ person w ho has so bee n deceived ag ajnsiLthe person who made these ^pre sentations to him, p i t hat is, agains t the— LndtviduaL There would be no liabilit y on the part of the com pany,ag such. Ther efore, there_has been n o mischie f d one to the co mpan y as the com pany, an d it seems to me, therefore, the latter has no remedy at all, However^mpro per or disrepu table! I 568 AMBROSE LAKE TIN AND COPPER MINING CO. as my Lord says^this^transactionjv'as, it did no mischief to anybo dy whom the liquidator repr esents, and it coul d only do mischief to peo - ple wSo ^may have been deceived, but we cannot tell now wheth er anybod y has been decei yeX~ Those persons are not before the Cogr t. Therefore the remedy sought here is by the wrong persons and in the wrong form. Cotton, L. J. ... As I understand the transaction, it was this : They were the owners of the mine, the only owners, and they were originally the only members of the company. I say that because, although shares were allotted to some persons, yet as far as I can see they were simply nominees of some of the owners of the mine, and therefore were exactly in the same position as the owners of the mine. Then they, being entitled to the mine in certain proportions, which I will consider as so many £2 shares, in handing over the property of the company, represent, their interest by a different denomination. For themselves hav^ing all the shares in the company, they choose to •call their shares in the mine, as the property of the company, not 6000 shares of £2 each, but 18,000 shares of £2 each ; of course each of those 18,000 shares is much less valuable than its nominal value. But they are the only members of the company, and they were the only owners of the mine. Therefore, I cannot see how the company can complain of that act which all the members of the company were .cognizant of, and which, as far as they could, they approved of and jconfirmed. If that is so, the whole case comes to an end. It may be that what was done was done for the purpose of enabling the company to be passed off on the market as something different from what it was. Whether that was so or not is, in my opinion, immaterial to the present question. But if it was so, the remedy is not an action by the company against those who were vendors and purchasers. The remedy is a remedy of each purchaser of shares, if there were any such, who was deceived by the representations made by his vendor as to the constitution of the company, In my opinion, not only can this order not be maintained, but even if there has been any profit made by the appellants, we are not in a position at the suit and instance of the company in any way to make them account for it. \PAES0NS v. HAYES. PAESONS V. HAYES. 'V X^^g 'J\^yYs83.' U Abbott's New Cases (N. Y.), 419.1 Plaiotiff sues on behalf of himself and all other shareholders in the V'arhuff Mining, &c. Co., a corporation formed under the laws of New York. The defendants are the corporation, and various individuals who are officers of the same. Tlie complaint alleged, inter alia, that the corporation was under a disabilit}' to sue, by reason of being con- trolled by its directors, who were guilty of malfeasance in office. The other averments ai'e stated in the opinion. The original complaint was demurred to. The demurrer was over- ruled, but plaintiff amended the complaint. Defendants answered. Plaintiff demurred to certain matters set up as defenses. Certain of plaintiff's demurrers were overruled, and others were sustained. Plaintiff appealed to the General Term of the Superior Court, from the order overruling his demurrers to certain defenses set out in the answer. Grove M. Jffaricood and John B. (yDonneU, for appellant. [Omitting part of argument.] III. The corporation could sue, as it is a distinct person from its shareholders (Pollock on Contr., 81, 82; Lindley on Partn. 4, 5; Dicey on Parties, 1G3). The members are but agents of the corpora- tion and the corporation may sue its members {Society v. Abbott, 2 Beav. 559). IV. The corporation holds the property and assets as a trustee for the members (Hotel Co. v. Wade, 97 U. S. 13), and if the corporation will not sue, the members can {Butts v. Wood, 37 N. Y. 317 ; Greaves V. Gouge, 69 N. Y. 154). Robert L. Foxder and Yictor Moraicetz, for various defendants. [Omitting part of argument.] II. This is not an action for a wrong to the plaintiff. If the defend- ants had deceived the plaintiff, or caused him any injury directh", he would be entitled to recover the amount of damages he had suffered in an action of a legal nature. No such claim is made. The complaint is framed as a proceeding on behalf of the corporation for a wrong against the corporation. Plaintiff alleges that the stock which he pur- chased was issued as paid up stock, and represented to the world as paid up stock by the board of directors. But he does not state that he was deceived by this representation, or that it caused him any injury. The form of the complaint is that of the ordinary stock- holders' bill known in chancery practice. It is fimdaraental that a suit of this character cannot be maintained b}' a stockholder, unless 1 The case, as here given, is made up partly from the report in 14 Abbott, and partly from the report in 50 New York Superior Court, 29. The statement is re- ivritten, and portions of the argument are omitted. — Ed. 570 PARSONS V. HAYES. the corporation itself would be entitled to recover in an action for tlie wrongs complained of. The complaint does not show that the cor- poration ever had a cause of action against the individual defendants. It was deprived of nothing of value b}' the issue of its shares. Shares of stock are merely the proportionate interests of the holders in the whole corporate concern, and their value depends upon the real capital wliich the company owns. The whole and the sum of its parts must be equal. In the present case the purchaser took back what he gave in another form. The corporation was not realh' in existence until the shares had been issued, although the statute provides that it shall be deemed in existence for certain purposes from the filing of the certifi- cate of incorporation. The existence of a corporation before its shares have been issued is a fiction. The corporation could not be injured by the act which brought it into being. IV. If a subsequent bona fide purchaser was deceived by the un- authorized and untrue certificates issued by the directors, he would have his remedy for damages. Creditors also would be entitled to redress to the extent of their claims. But the corporation as a body could not complain. V. The law recognizes the fact that a corporation and the whole number of its stockholders are identical, — that the one represents and is made up of the other. It is upon this ground alone that the plaintiff has any standing in this court. A corporation cannot complain even on account of a breach of trust, or a direct misapplication of the cor- porate funds by the directors, after the acts complained of have been acquiesced in and ratified by the whole body of shareholders. If the corporation itself cannot complain under these circumstances, it is plain that a stockholder cannot complain on its behalf {Hotel Co. v. Wade, 97 U. S.\d\ Kent v. Quicksilver 3Iining Co., 78 N. Y. 159, 184; Scott y. Depeyster, 1 Edw. Ch. 513, 536; Wattes Appeal, 78 Pa. St. 370 ; Terry v. Eagle Lock Co., 47 Conn. 141 ; Kitchen v. St. Louis, &c. Ry. Co., 69 Mo. 224, 264 ; Samuel v. Ilolladay, 1 Woolw. 400; Zahriskie v. HacJcensack, <&c. JR. B. Co., 18 N.J. Eq. 178, 194; Phosphate of Lime Co. v. Green, L. B., 7 C. F. 43; Ffooks V. Southwestern By. Co., 1 Sm. & G. 142, 164; Graham \. Birkenhead, cfcc. By. Co., 2 McM. tfb G. 146). VII. There is a distinction between a suit by a shareholder for relief on account of a wrong committed before he purchased his shares, and a suit brought to restrain the performance of an unauthorized and void contract, which had been previously entered into. Sedgwick C. J. [After deciding that, upon this appeal, it is proper to examine the complaint to see if it contains any cause of action.] The learned counsel for the appellant states the claim of the complaint as follows. The plaintiff sues on behalf of himself and all other stockholders of the corporation defendant, alleging that the individual PARSONS V. HAYES. ' 571 defendants, then being trustees of the said corporation, immediately after the organization thereof, by agreement with one Catlow, issued^ ^ to him the whole capital stock of said corporation, viz. $2,000,000; m exchange for property worth not to exceed $150,000. That 90,000 shares of the stock were turned over to the defendant Hayes and his associates, and 20,000 shares to the defendant corporation by said Catlow, without payment therefor, in pursuance of the real agi'eement between the parties for the purchase of property and the issue of stock. That the individual defendants knew, or could have known, the value of the property, and that a portion of the stock was to be turned over as stated. That the defendants, trustees, represented the stock as full paid, and that the stock has been sold as full paid to innocent pur- chasers, including the plaintiff. That the plaintiff purchased his stock regularly in the open market, relying upon such representations, and received regular certificates, and that the stock was regularly trans- ferred to him on the books of the corporation. That the individual defendants have received large gains and profits from the sale of that portion of the stock turned over to them. That the individual defend- ants have sold the stock turned over to the defendant corporation, or a large portion of it, at $1 per share. That the individual defendants have not accounted for the difference between the value of the stock and the amount of property received (except as to the $1 a share re- ceived from the treasury stock), nor for the gains and profits received by them from tlie sale of the stock turned over to them. That the corporation defendant is still under the control of the individual defendants. The defendants among other defenses pleaded that plaintiff pur- chased his stock, knowing the facts attending the transaction set out in the complaint. By the terms of the complaint the plaintiff sues for himself and *' all other stockholders of the defendant com pan}' who may choose to come in and avail themselves of the benefit of the actions." The plain- tiff is excused from naming ail of thesfe stockholders, on account of the inconvenience of making a great number of persons parties ; but in legal contemplation, all of them are parties plaintiff, and all of them are in like case with the plaintiff named. These persons are stock- holders, as it is called, having become so by transfer of shares from Catlow remotely or directly, and Catlow himself, if he have not trans- ferred all his stock ; unless as to Catlow, he is not to be deemed a party because he is not in like case with the plaintiff. It will be convenient first to inquire, if Catlow as a plaintiff could | have maintained such an action. The facts would have been, that I previous to the impeached issue of certificates of shares, the corporation ' would have been in existence b}- virtue of the statute which declares (.Laws 1848 c. 40, § 2, 3 Edm. 733) that when the certificate shall have been filed, the persons who shall have signed and acknowledged the same and their successors shall be a body politic and corporate in fact .vV*-^- 572 PARSONS V. HAYES. and in name, by the name stated in such certificate and by that name have succession and shall be capable of suing and being sued and they and their successors may have a common seal and the}^ shall by their corporate name, be capable in law of purchasing, etc., property. There was no stock or capital and there could be none excepting by third persons paying money or property for certificates of shares of the capital issued to them. There were then, of course, no shareholders. Catlow and the trustees of the corporation, who, by the statute were the corporation, made an agreement that was carried out, that certifi- cates should be issued to him by the trustees which should represent that he was the owner of the whole number of shares of the capital stock, or two hundred thousand shares of the stock which by the certificate of incorporation was to be $2,000,000, and he should convey to the company mining claims and property-, which in fact had no greater value than $150,000, as the parties to the transaction knew. In substance Catlow subscribed for the whole of the shares, agreeing to pay therefor, onl}' propert}^ of the value named. The statute declared that only money should be taken by the trustees to the nominal amount of the shares issued, or property', the actual value of which was equal, to that nominal amount. The agreement was unlawful and its execution could not have been enforced by either party to it. It was in fact made and executed to evade the statute. It was a part of the agreement that upon the certificates being issued to Catlow he should transfer to each of the trustees certain shares. The trustees received these shares from Catlow and afterwards sold them for large sums of money for their own benefit. Upon the certifi- cates being issued to Catlow he would become a shareholder. At least it is necessary to suppose, that although the transaction was forbidden by law, yet it was in fact done, and by it, Catlow became a shareholder. Upon the supposition that Catlow, being the owner of all the shares excepting such as he had transferred to the trustees, brougiit his action, he would claim that he had a right to demand that the company should bring an action against the trustees to compel them to pay the company money sufficient with the value of the mining property to amount to $2,000,000 which was by the certificate to be the capital, and also pay to the company the amounts of mone}'^ for which they had Bold the shares he had transferred to them. As the action would be by him declared to be for his benefit, it ivould ordinarily be necessary to say no more, than that he was not entitled to be benefited, through claiming an interest in what may be called damages for an act in which he had taken part, indeed which he had promoted. But certain positions have been taken for the present plaintiflT, which would apply to Catlow and those may be now examined. It is said for the present plaintiff that the transaction was unlawful and invalid, and cannot be made lawful or be validated. If that be so, it would be true in the case of Catlow. It is nevertheless also true, PAKSONS V. HAYES. 573 that there is nothing unlawful or invalid, in the parties to an unlawful arrangement, being without a right to share in damages (to use a convenient word) which have flowed from the unlawful act. There is at this point a distinction taken for the plaintiff, between the right of the corporation to damages and the right of a party con- senting to the wrong, being entitled to damages. It is said that a corporation is an artificial person, a legal entit}' entirel}' different and distinct from the persons of which it is composed and the corporation as a distinct person may be injured b}" one or all of its members, and in either case has a right of action. Without stopping to ascertain the real meaning of this definition of a corporation, and assuming the other proposition to be correct, it is further to be ascertained if the corporation has been injured in the transaction or has suffered damage. The injur}' or damage in one direction would be the consequence of issuing certificates b}' an invalid act that on the assumption of the plaintiff's argument is incapable of ratification. If this be a void act, then it would be necessary to say, that the certificates issued were void and the corporation could proceed to issue certificates of shares in a legal manner. But such a view would disclose that Catlow or the plaintiff would not be a shareholder and therefore not entitled to bring such an action as the present. Such an injur}', of course, is not claimed, but it is claimed that the injury was the trustees issuing for property of small value certificates to the nominal amount of $2,000,000, whereas it was the duty of the trustees not to issue them except for S2, 000, 000. The complaint does not allege nor can it be presumed that if the certificates had been properl}' dealt with, any more could have been procured for them, than was in fact, and therefore it does not appear that an}- pecuniary damage was suffered. Or, in other words, it does not appear that if the trustees had performed their dutj', of not issuing except for equivalent value, that the corporation would have had more capital than now. Excepting these considerations it may be supposed that there was damage to the compan}' from the trustees' acts. Was there an}' injury under the facts? It is true, that the corporation is something more than its trustees and shareholders ; but its property, chattels, money or choses in action, it owns not in its own interest but for the pecuniary benefit of the natural persons connected with it. It would be impossible to look upon the property rights of a corporation merely having regard to its being an ideal creature. It acts through natural persons. It acts for the benefit of natural persons. In truth natural persons com- pose it. The statute under which it was formed says this. The trustees who are trustees under the statute for the corporation are the trustees for the shareholders. In Karnes v. Rochester & Genesee Valley R. R. (4 Abb. Fr. N. S. 107), the court said, " The directors stand in the relation of trustees to stockholders and between them exists the relation of trustee and cestui que trust." As for this Butts V. Wood (38 J3. 181, afterwards affirmed, 37 X. Y. 317), was quoted, 574 PARSONS V. HAYES. it must have been said upon an identification of the stockholders and the corporation. The same ease said (p. 110), "The corporation does not stand in any fiduciary relation to its stockholders. Such a relation between the corporation and its corporators, is shown in a well con- sidered opinion by Vice-Chancellor McCoun, in Verplanck v. Mercantile Ins. Co. (1 £dic. Ch. 87), to be impossible. The stockholders are in no sense creditors of the corporation, nor are the}- in the situation of partners. They are constituent parts of the corporation." The language of Vice-Chancellor McCoun, in Verplanck v. Mercantile Ins. Co. (1 Edw. Ch. 87) was, "The corporation is merel}' the creature of the law, a political bod}', not a natural bod}', made up of the compact entered into by the stockholders, each of whom becomes a corporator identified with and forming a constituent part of the corporate body, and therefore when we speak of stockholders and the incorporated company of which the}' are the components, we refer to one and the same collection of persons. How then, can the relation of trustees and cestui que trust exist, for such a relation requires separate and distinct persons or separate and distinct bodies to constitute it." This case afterwards aflSrms that the directors are the agents and trustees of the corporation or stockholders. In Railway Company ??. AUenton (18 Wcdl. 234), the charter declared that all the corporate powers of the corporations shall be vested in and exercised by a board of directors, etc., and it also declared that tlie capital stock of the corporation may be increased from time to time at the pleasure of said corporation. The court held that the capital could not be increased by the directors without the consent of the share- holders. The opinion said that a corporation like a partnership is an association of natural persons, and that fundamental changes of cor- porate purposes cannot be made without tlie express or implied consent of the members. J Again, considering that the fundamental position, is that Catlow became in fact, shareholder to the amount of all the capital stock, the following was the relation between the parties. The corporation was the holder of the legal title of the property of the corporation, subject to corporate uses. Excepting this legal title for corporate uses, the shareholders were the parties interested in the property in fact, owning all of it, excepting the legal title, which as against them could be used for corporate purposes. The trustees were the statutory corporation- The shareholders were members or a part of the corporation. The corporation held the legal title, for the pecuniary benefit of the share- holders, having no beneficial or pecuniary benefit in it. On tiie claim for the plaintiff, the thing possessed is the right of the corporation to have an action against its trustees, for damages for their acts wliich it is claimed were wrongful to the corporation. This right was, if it existed, held by the same tenure and for the same purposes that other property would be held. The corporation would have a bare title to it for the beneficial use of shareholders. It seems to be evident, PARSONS V. HAYES. 673 t hat the corporation could not claim as damage to its interest what would be damag e to the beneficial interest where the owners of the latter had consented to the so called iniur y . In fact, however, the case is a little different in point of circumstance, although not essentiall}'. The beneficial owner or shareholder having in advance of the occurrence, which but for their participation would have created a cause of action in the corporation, promoted it and then participated in it, the conduct of the trustees never made a cause of action, because that conduct was not wrongful as respects the shareholder. The principles that have now been used are established by Scott v. De Peyster (1 Udic. Ch. 513) ; Hotel Co. v. Wade (97 V. S. 13) ; Kent V. Quicksilver Mining Co. (78 JV. Y. 159). It is not necessary to give the reasoning of these cases. Thej' are applicable here. It is supposed that in the last case there is a difference, in that acquiescence of shareholders was held to estop them in favor of innocent third parties. But it must be considered that after the power to ratify- or acquiesce is held to exist, the same principle would act in favor of third parties although not innocent, against whom damages for the act ratified were claimed. It seems to be clear that Ca tlow coul d no t_ m aintain an a ction like. this, fi rst beca use he co uld not cla im th at the corporation shoul d bri ng an action for his benefit on account of a transac tion which he took part i3i7^nd"""second ^5ecaiise the cortoor ation would have no cause of actio n or right to dama ges. If the second proposition be true, then it necessarily follows there never having been any cause of action, or the right to damages having never accrued the claim cannot be revived in the future in favor of any person whether or not a transferee of shares from Catlow. The plaintiff, however, because he claims through a transfer from Catlow cannot bring an action which Catlow could not have brought upon this case. In Mann v. Currie (2 B. 298), the court said of the defendant that " if he became a stockholder by transfer to him of the stock of an original subscriber, he at once adopted his contract with the compan}' and became substituted in his place, both as regards his rights and liabilities." This was said in relation to the obligations of the defend- ant to fulfil the terms of the original subscription of his assignor. The reasoning that tends to the application of this conclusion in this case is just and seems to be clear. The shares which the plaintiff holds came to him through a certificate which was issued upon a particular arrangement under which the plaintiff claims, necessarily admitting it to have been effective. One feature of that arrangement was that the certificate should be issued to Catlow as his property for a consideration which the plaintiff claims was injurious to the corporation. As the pl aintiff cla ims that the c onsideratioia_aithoiigh unlaivful wa s sufficient togiveatitle whicti he maintains, he must abide by it as a fact and 576 - PARSONS V. HAYES. therefore in all its consequences . It_|8_not competentjor ^im to take part and jigject part as it was one trans action . Counsel for the defend- ant in a later case before the general term cited on this point : Hooker V. London Railway Co. (7 Ins. 368) ; the opinions in Williams v. Telegraph Co. (48 Siqyer. Ct. 349) ; Mech. Bank v. N. Y. & N. H. R. R. Co. (13 JSr. Y. 599) ; Hughes v. Copper Co. (72 N. Y. 207). The claim that the corporation had a right to recover the amounts of profits made by the trustees for themselves individually in a transaction which they were conducting for the corporation has not yet been noticed. What has been already said is to be applied to this claim. There is no doubt of this general rule that trustees are liable to respond to those for whom they act for any profits made by them individually^ but this is limited bj' the proposition in the language of the court of appeals (Moody V. Smith, 70 N. Y. 598), " a principal may give an agent express power to act in the business of the principal, so that the agent ma}' reap a benefit, and in such case the principal is bound by the acts of their agent." It has been already considered that the shareholders were the real parties interested and that their consent would bind the corporation, and it follows that the corporation would not recover from [the trustees, what shareholders had arranged they should individually receive. This opinion' has had in regard solely the r ight of a niember^f a COTporat^ n to require th at cor porati on to assert for his b enefit, a clai m for damages in w hich he may share, whenln reality He s tands in ^the shoes of one who took part^njthe transactTon_complaine d of . His w ant of jjghtjto maintain such an action does not affect an y claim he may have for individual damage from misrepresentation by_the^orpora- tion oFThird parties, nor does it affect the claim of credito rs o r the liability of the corporation or its trustees to an actio n by the att orney generaU^ Judgment affirmed, ivith costs. Truax, J., dissents. Ingraham, J. — [Concurring.] — I concur with the Chief Judge on the ground stated by him that as Catlow was a party to the agreement under which the stock was issued, and received the benefit of such agreement, he would not be entitled to bring such an action as the present one, and that plaintiff's title to the stock he owns and on which he brings his action, having come through Catlow, he can have no greater right as stockholder than his assignor had. LONDON TRUST COMPANY V. MACKENZIE. ^W^ i" jj" LONDON TRUST COMPANY, Limited, v^MAC&eSzIE. y^ 1893. G8 Law Times, New Series, 380.1 OX Tkial of action before "Wright, J., sitting as an additional Judge of the Chancery Division. The original plaintiffs were the London Trust Company, Limited," and the Bankers Investment Trust, Limited ; suing on behalf of them- selves and other shareholders of the Barbadoes Water Supply Com- pany, Limited ; and claiming relief against the former directors of the Barbadoes Company, on the ground that the Barbadoes Company had incurred loss through breach of duty on the part of the directors. In the first instance the Trust Companies were the only plaintiffs, the defendants having control of the voting majority when the action was instituted ; but subsequently, in accordance with the resolution of a general meeting, the Barbadoes Company were joined as co-plaintiffs. The Barbadoes Company was formed in 1886. The capital was limited to 200,000^. At the end of 1888, the Company had issued only ASo3L shares of 51. each, and debentures for a total sum of 5100^. About Jan. 1, 1889, the directors made an agreement in behalf of the company with a firm of contractors ; whereby the latter under- took to execute certain works for a specified sum in debentures and fully paid shares of the company (110,000^. in cash or debentures, and 50,735^. in fully paid shares), and by means of a stipulated portion of those debentures and shares to carry out the provisions of certain contemporaneous agreements, under which debentures and fully paid shares of the company were to be handed over, without consideration, to certain persons (including tlie directors themselves). This scheme was sanctioned by each existing shareholder and creditor of the com- pany. Each of the shareholders and debenture holders for the time being of the company ultimately took a benefit under one or other of the agreements ; each receiving a considerable, though not uniform, bonus. In order to obtain funds for the purposes of the contract, the di- rectors issued debentures. The prospectus, upon which subscriptions for the issue were invited, did not disclose the above arrangement, nor give any notice that the money raised was to be applied to any other than legal liabilities. The issue was underwritten to the full amount offered for subscription by various financial concerns including the plaintiff trust companies. The underwriting agreement purported to be made with the Barbadoes Company. It states that the debentures are offered at 99^, and that underwriters are to have 2 per cent, com- mission and a bonus in ordinary shares equal to 25 per cent, of their subscriptions. The plaintiff trust companies subscribed for and 1 Statement abridged. Part of opinion omitted. —Ed. 578 LONDON TRUST COMPANY V. MACKENZIE. acquired some of the debentures ; receiving from the contractors as a commission a certain number of shares and a money payment from the Barbadoes Company itself. The plaintiffs are now suing as holders of the bonus shares which they received under this agreement. The defendants alleged, and the plaintiffs appear to have admitted, that no share capital had been issued by the Barbadoes Company since the completion of the above transactions, in April, 1889. Sir Horace Daverj, Q. C, Levett, Q. C, and Waggett, for plaintiffs. [Argument omitted.] Sir John Rigby, Solicitor General, and Chachvyck Healey, Q. C. {Ingle Joyce and Reginald Hughes, with them), for one of defendants. Every shareholder, creditor, and debenture-holder of the Barbadoes Company was concerned in the arrangement which is complained of. No person was injured by it, and no shares have since been issued. It was not a scheme to deceive future shareholders, as was the case in Society of Practical Knoivledge v. Abbott, 2 Beavan, 559. The scheme was for the benefit of the Barbadoes Company, and the de- fendants, as directors, committed no breach of duty in making it. Re British Seamless Paper Box Company, 44 L. T. n. s. 498 ; 17 Chan. Div. 467. By the issue of further shares and debentures, the position of the shareholders and debenture-holders was altered for the worse, and that alteration gave them a right to bargain. The consent of the individual corporations [corporators ?] was equivalent to a resolution of the Barbadoes Company, by which it became bound. Re Gold Company, 40 L. T. n. s. 5 ; 11 Chan. Div. 701 ; Re Ambrose &c. Co., 42 L. T. N. s. 604 ; 14 Chan. Div. 390. The plaintiffs must show that what was done was a fraud on the Barbadoes Company. They have not done so. There was, moreover, no purchase by the Barbadoes Company of its own shares. In substance and in form the contractors purchased the shares. The share capital remains the same. The court is not obliged to visit directors with the consequences of acts done in good faith. London Financial Association y. Kelk, 50 L. T. N. s. 492 ; 26 Chan. Div. 107 ; Pickering v. Stephenson, 26 L. T. N. s. 608 ; L. E. 14 Eq. 322. Levett, Q. C, in reply. It is conceded that a company can condone or approve matters that are merely ultra vires of the directors, but that is not the case with regard to matters ultra vires of the company. Even if the decision in Re British Seamless Paper Box Company (ubi sup.) is now to be regarded as good law, the case does not apply, for there is here no evidence of any resolution, or even of any inten- tion, that no further capital should be issued after April, 1889. Wright, J. ... It is important to observe that the new shares issued or intended to be issued to the contractors must have been intended, in the ordinary course of things, to be transferred by the LONDON TEUST COMPANY v. MACKENZIE, 579 contractors to other persons, and there is power to issue further shares. First, it is said that the arrangement was one to which every one who had any interest either as shareholder, or debenture-hokler, or creditor, agreed that no one Avas wronged or defrauded, and that, under the circumstances, the cases of He The Gold Mining Company (ubi sup.), He The Ambrose Lake Tin and Copper Company (ubi sup.), and He The British Seamless Paper Box Company (ubi sup.) applied, and neither the company nor the plaintiff shareholders could complain. But those were all cases of persons who owned the entire capital of the company and intended to remain the sole proprietors, and they ■were held free to make honest agreements among themselves as to the appropriation of their property, whereas in the present case there was to be a large issue of shares to the contractors, which it must have been intended that the public should take up, and there remained a large part of the share capital to be allotted in the future, and the parties to the present agreements were taking for themselves some 30,000^. of the capital of the company to the detriment of all who might take any such shares, and they were doing so secretly and were mis- representing by the prospectus and registered deed the real nature of the transaction. It seems to me that the company is entitled to pro- tect the future shareholders and its own funds against such appro- priations, and that the very cases relied on by the defendants are authorities for this view. " If," said James, L. J., in the last cited case, "they were intending, although then constituting the whole company, that other people should come in afterwards to whom what had been done would be injurious, the court would feel no difficulty in saying, as Lord Langdale did in The Society of Practical Know- ledge V. Abbott {ubi sup.), that they intended to commit a fraud." Objections were raised to the right of the plaintiffs to maintain this action. So far as the company is concerned, it is for the reasons already given entitled to sue in the interest of those who hold the shares issued to the contractors or to be issued to the public. The ' other plaintiffs are said to be disentitled because their shares are bonus shares, and they are said to stand in the shoes of the contract- ors from whom they took the shares, and who had notice of all the facts. It is clear, however, that these plaintiffs had no notice of any part of the arrangement, nor any notion that the 28.000Z. would be applied otherwise than for new works or in liquidation of existing legal liabilities. An d I think ^ there_is no authorijy^ for^ t he g eneral pro position that an or d inary ^transferee of shares in a limi ted company i s^ affecte d bj^th^^act^:bhatJiis_transferor^ad knowledgejwhich would havedis abled him_from suing . . . .^Tt would seriously affect the position of shareholders in limited companies, and the value of shares. 580 LONDON TRUST COMPANY V. MACKENZIE. if it were held that such equities against a transferor affect the rights of transferees for value without notice. [The learned Judge held, that, to the extent to which the contract- ors had been provided with debentures and shares to be made over to third parties without consideration, the transaction was ultra vires of the company ; and that the directors were liable to make good the loss occasioned thereby.] EE SEVEKN AND WYE AND SEVERN BEIDGE R. CO. 581 CHAPTER XV. DIVIDENDS. PREFERRED STOCK. Re SEVERN akd WYE and SEVERN BRIDGE R. CO. 1896. 74 Law Times, New Series, 219. 1896. 74 Law I imes, j\ew Series, 2ld. ^ v^ ^ '\ ^ ^^ df (Before Romer, J., sitting for Williams, J.) ^ J^^ t^ y^\ *^V^*^ Summons. ^ ^ > J>\1^^^ The Severn and Wye Railway and Canal Company (hereinafter^ '^ ,j/^ v ^'' called the original company) was incorporated by Act of Parliamenty J /\j^ t . y in 1809, and under an Act passed in 1879 (42 & 43 Vict. c. clxiii.)^ \iij^ l^ this company and the Severn Bridge Railway Company were amalga-^./- t 'f 'J- mated, and the shareholders were united into one company and incor- [|, '^ i^- \ porated under the name of the Severn and Wye and Severn Bridge n J^ ' if^ i Railway Company. ^^ >* J ''ji' By tlie last-mentioned Act it was provided that the capital of the two \^ ^^ J^ companies should after the amalgamation be kept distinct. f^ ^y i 'J^ The original company was prosperous in its early days, and paid JL^ o /^ t dividends half-yearly on the production to its bankers of a notice issued r j,' jf^ A by the secretary to the shareholders and on their signing a special \m^ ff'^^J^f\ form of receipt. /^ ^ j\ jp^ Under the authority of another Act, passed in 1894 (57 & 58 Vicf. ^ rrjy^ c. clxxxix.), the amalgamated company sold its undertaking to therh uf' . ^^ Great Western and Midland Railway Companies. Sect. 4 of the Act 'L \^'i/^i ^ provided that the amalgamated company should be wound up as if it /LX ^4>^ 'Jb ^ r were a company registered under the Companies Acts 1862 to 1890, ^^''^vf '^'''^^ and had on the day of the passing of the Act passed a special resolution t>^^ ^^^ J for winding up voluntarily. ,i^ After providing for payments required by sect. 7 of the Act of 1894 it was anticipated that there would be a surplus in the hands of the liquidators of £2000, inclusive of £1238 representing unclaimed divi- dends declared by the original compan}- prior to March, 1878, and this surplus was, ^nder a proviso to sect. 7 of the Act, to be divided amongst the preference and ordinary shareholders of the amalgamated company in certain proportions. Prior to the amalgamation the dividends appeared in a di\idend ledger of the original company, and this practice was continued in the 582 RE SEVERN AND WYE AND SEVERN BRIDGE R. CO. same book after the amalgamation and down to the 30th June, 1885, each shareholder having an account in the ledger. In December, 1895, these were written off the dividend ledger and transferred to the general ledger to an account headed "Unpaid dividends," the whole being aggregated, and that account had ever since remained in the general ledger. In the half-yearl}' published accounts down to June, 1885, these dividends were entered under one item of " Unpaid dividends and interest," but in subsequent balf-3early published accounts they were included in an item called " Sundry outstanding accounts." The company had in some cases paid dividends which had been unclaimed 4 for over six years. The £1238 was made up entirely of unclaimed dividends on stock which represented shares in the original company-, such dividends having all been declared more than twenty' 3'ears ago. This was a summons taken out by the liquidators for the determina- tion by the court of the question whether two sums of £753 14s. 3d. and £349 4s. 3d. representing unclaimed dividends which accrued upon the stocks respectively held by William Robbins and John Sherborne prior to the 3'ear 1874, and which remained in the hands of the liqui- dators should be paid to their respective legal personal representatives, or whether the}^ ought to be ti'eated as part of the general assets of the Icompany available for distribution as such amongst the preference and (ordinary stockholders as provided b}' sect. 7 of the Act of 1894. I^. Thompson for the liquidators. Vernon H. Smith, Q. C, and Hoirden for the stockholders of the amal- )gamated compan}'. — The claims of the legal representatives of Robbins and Sherborne were barred by the Statute of Limitations, if not at the expiration of six years from the time of the declaration of the dividends, at all events at the expiration of twenty years : (Lindley on Companies (5th edit.), p. 437). As soon as the dividends were declared an action lay to recover them. From that time the company became a simple contract debtor to the shareholders for the amount of the dividends. The entries in the books of tlie company were entirely consistent with the relationship of debtor and creditor, and cannot be regarded as a sufficient acknowledgment to take the case out of the statute : Bush V. Martin, 9 L. T. Rep. 510 ; 2 H. & C. 311. They also referred to the Companies Act 1862, s. 16. Dihdin for the personal representatives of Robbins. — The company I held the dividends as trustees for the shareholders, and therefore no ijLquostion on the Statute of Limitations arises: Smith v. Cork and ■n) Jiandon Baihmy Company, Ir. Rep. 5 Eq. 65 ; Gourattd v. Edison Oower Bell Telephone Company of Europe Limited, 59 L. T. Rep. 813; 57 L. J. 489, Ch. ; Re Lands Allotment Comp>any, 70 L. T. Rep. 286 ; (1894) 1 Ch. 616. The company was in a position analogous to that of a partnership. In the case of a claim by one partner against tlie other time docs not commence to run under the statute until after the dissolution of the partnership: Penny v. Pickvnrk, 16 Beav. 246 ; Barton v. North Staffordshire Railway Company, 58 L. T. Rep. 549 ; RE SEVERN AND WYE AND SEVERN BRIDGE R. CO. 583 38 Ch. Div. 458. He also referred to Companies Act 1862, Table A, cl. 76 ; LincUe}- on Partnership, 6tli edit., pp. 511-2 ; Lindley on Com- panies, 5th edit., p. 401. W. M. Cann, for the personal representatives of Sherborne, adopted the same argument. Ver?i07i H. Smith replied. Cur. adv. vult. March 9. — Romer, J., delivered the following written judgment : The liquidators have raised, as they were entitled to do, the defence of the Statute of Limitations in answer to the claims for unpaid dividends, which I have to consider. That defence is, in my opinion, fatal to the claims. The dividends in question were declared and became pajable more than twenty years before the present claims were made, and constituted debts due to the shareholders for which they could have sued at law, as was pointed out b}' Lindley, L. J., in the passage in his treatise on company law (p. 437), which was cited in the argument before me. Presumably, therefore, the Statute of Limitations began to run in favor of the company from the time the dividends became payable. But the claimants contend that the statute never began to run against them, on two grounds. I n the first pl ace, they contend that the com - pa nj' was in the position of a t rustee for them of these di vidends. In my' judgment, t his^was^ot_so. The declaration that the dividend was payable did not make the compan}' a trustee of it for the shareholders* Nor did the company or its successor, the amalgamated company constituted by the Act of 1879, ever constitute itself a trustee. In the books of the two companies an account was kept as of a liability in respect of the unclaimed dividends. B ut th e e ntry in_the books^f a debtor_of_jMiability to a creditor d oes not constitutie the debtor a_ trustee of_j,he amount of that liabilit}^ for j he creditor. There was no s'ettmg apart of any special part o f the as sets of the co mpanie s as being or re2reseritin^these_dLvidendSj^ nor w as the re any notice given to the sEareholders, nor any step taken b^' the companies, which, so far as I can see , cou ld be treated^s^ putting the companies in the position^ of trustees_or_as_prevenUng_Jhe^tatute_of^^ from runn ing in th eir fav or. In the next place, the claimants contend that the statute did not run, on the ground that the shareholders and the company were in the position of partners, or in an analogous position. In my opinion that contention is untenable. Nor can I see that the reasons upon which the rule is founded, that the Statute of Limitations does not run in respect of a claim between partners during the continuance of the partnership, apply to a claim for unpaid dividends between a share- holder of an incorporated company and the compan}-. The case of Penny v. PichricJc (ubi si/p.), relied on b}" the claimants, was one of a simple partnership which Lord (then Sir John) Romilly held under the circumstances was a continuing partnership. In the case of Barton V. North Staffordshire Mailway Company (ubi sup.) Lord Justice ^ 584 LE KOY V. GLOBE INS. CO. (then Mr. Justice) Kay decided that where persons entitled as stock- holders in a railway company were suing to establish their position as such, their cause of action only arose when the company first refused to treat them as stockholders, and that the Statute of Limitations did not commence to run before that refusal. He did not say that the case was, in fact, analogous to a claim between partners, but only that, if the analogy were applicable, it would support his view, because the statute only runs against a partner from the time of his exclusion. Nor is the claimants' contention supported by the fact that, for many purposes, the directors of the company are held to be in a fiduciary position with regard to their shareholders as shown by the cases, referred to by the claimants, of Gouraud v. Edison Qower Bell Telephone Company of Europe (lihi sup.) and Jie JLands Allotment Company {ubi sup.). For these reasons, in my opinion, the claims fail. I should add that, though I cannot find any decision of the English courts on the point I have had to consider, the view I am taking was expressed in the Irish Court of Appeal by Christian, L. J., in the case of Smith v. Cork and Bandon Railway Cmtpany ROY V. GLOBE INS,erca 2 Edwards Chancery (N. Y.)%7^yy J^' in this case, as they appeared by the pleaoings, were HE facts briefly these. The complainant and Catharine A. Newbold, since deceased, as guardians of infants, were stockholders of the Globe Insurance Com- joany. These persons possessed one hundred and ten shares of its capital stock, the par value of each share being fifty dollars. The said /i/' 'K^compan}' was incorporated for insurance against loss b}' fire, with a ^ '(>[// capital of one milhon of dollars, and conducted its business in the city jy^ ^^^i \ of New York. n^,* / '^ At a meeting of the directors of the company held on the tenth day ^ . (y^ yA. ■ of November, one thousand eight hundred and thirty-five, a statement )J^^^ \\^ \ ' ^jj^i its affairs, up to the first of December then next, was exhibited by l^'xt^'^*'^*^ ,/\A^^ the proper officers and committees of the company, showing a surplus (»^^^^ I f JiM^ fund, arising from profits then earned and undivided, amounting to , , JjJ (l/i^^ , seventy-six thousand four hundred and twenty-nine dollars and sixty- \ ^ ^Ujv'^''-''^^-^ * nine cents. t/ >^rv-v. O^ the exhibition of these statements, the directors, by a resolution './/tAv/^**~^ passed on the same day, declared a dividend of three and one half per Xo ILa J '^^ centum on the capital stock of the company, for the six months then • itjXji^ f*'^ ^ f >Dly so much of the case is given as relates to one point. ""^ \ Pa' (^i^^^..¥ Arguments omitted. %>^ LE ROY V. GLOBE INS. CO. 585 last past, to be paid out of such surplus profits on and after the first day of December then next. This dividend amounted to thirty -five thousand dollars, which sum, on the thirtieth day of November, one thousand eight hundred and thirt^'-five, was carried, in the books of the company, to the debit of profit and loss ; leaving the capital then entire and a further surplus to the credit of the company, for profits then earned and not divided, amounting to forty-one thousand four hundred and twenty-nine dollars and sixty-nine cents. Notice of this dividend and that it would be paid on and after the first day of December was given in the public papers on the eleventh day of November, one thou- sand eight hundred and thirty-five. Checks or drafts on the Merchants Bank were accordingly prepared, such checks being severally filled up for the amount of the dividend payable to each stockholder. These checks were all dated the first da}' of December, one thousand eight hundred and thirt3'-five. They were signed by Henry Rankin, Presi- dent, made payable to the order of Richard Dunn, Secretary' of the company, and were placed in the hands of the latter, to be endorsed by him and delivered over to the stockholders, as they should call for them, on their signing receipts for the same in the dividend book. Between the first and seventeenth da^'s of December, about four-fifths, in amount, of these checks, were called for by and were delivered to stockholders and dul}' paid on presentment at the bank. Among the checks thus filled up and signed, was one for one hundred and ninety-two dollars and fifty cents, intended to pay the dividend due to the complainant and Mrs. Newbold on their one hundred and ten shares of stock and to be delivered to them. On the night of the sixteenth of December, one thousand eight hundred and thirt3--five, the great fire took place in the cit}- of New York : the complainant and other stockholders, to the amount of about one fifth in value, not having then called for their dividends. On the eighteenth of the same December, the complainant applied for the check payable to him and Mrs. Newbold, to the secretary, who, acting under the orders of the directors, refused to deliver it or otherwise pay the dividend, on the ground that the company had sustained losses b}' the fire above mentioned to an amount which had rendered it insolvent. On application to the directors, the same answer was given ; and the dividend remained unpaid. On the twent3'-fifth day of January, one thousand eight hundred and thirty-six, the directors declared the company to be insolvent ; and three of them, namely, the defendants, Henr}- Rankin, Isaac Carow and James Heard, were (under the act) appointed receivers of its estate and effects. The declaration of insolvenc}' and a certificate of the appointment of the receivers, both under the seal of the company, were filed with the clerk of the court of chancery for the first circuit : on the same day and thereupon the receivers took upon themselves tho duties of their office and possessed themselves of all the estate of the compan}', including the unpaid portion of the said dividend. >86 LE KOY V. GLOBE INS. CO. ^ J' T. L. Ogden, for complainant. D. Lord, for defendants. McCouN, Vice-Chancellor. — This case does not necessarily call for a decision of the question, whether, as between the stockholders of an insolvent insurance company and the creditors, the former are entitled to all the surplus which remained with the compan}^ undivided at the time of its disaster over and above the entire capital? Although there is here such a surplus of upwards of fort3-one thousand dollars, besides the dividend, amounting to thirty-five thou- sand dollars, which was declared on the tenth day of November and made payable on and after the first day of December, yet the com- plainants, in their bill, onl}- claim to have their parts or portions of this dividend, which they have not received, now paid over to them out of the funds in the hands of the receivers, instead of leaving the money there to be applied as assets of the company in discharge of its debts. The complainants assert their right to the monej' upon the ground of its having become theirs by an express appropriation and setting apart so much out of the company's earnings for the stockholders and thereby distinguished from the general mass of the company's funds ; and I am convinced that enough has been done to produce this separation in the view of a court of equit}' and to confer upon this amount the character of a trust fund which could not afterwards be diverted to other objects. The investigation of the affairs of the company' and the ascertainment of a clear surplus to warrant a dividend — declaring that dividend hy a resolution of the board of directors — fixing the period for its payment — giving publicity to it — carrying the amount on the books of the company to the debit of profit and loss — apportioning the same among the stockholders, b}' filling up and signing checks upon the bank where the funds were deposited for the purpose of being delivered to each stockholder when called for : — these are all acts which the company-, by its officers, might lawfull}^ perform. These acts became binding upon the company in its corporate capacit}' ; and gave to the stockholders individually rights which the directors and officers of the company could not afterwards take from them. If, for instance, the}' had refused, after the first day of December, to deliver out the checks or make payment of the dividends and no insolvency had intervened, it appears to me there would have been no difficulty in the remedy by mandamus in favor of all the stockholders or by action at the suit of individuals from whom the payment was withheld. Neither, I apprehend, could there be any valid objection to a bill in equity for the purpose of obtaining possession of the checks or the fund in the bank upon which they were drawn, upon the footing of its being a trust fund which the officers of the company were bound to distribute after the first day of December and over which they had no other control. That the officers of the company- considered tlic money which was deposited to its credit in the bank appropriated to meet the checks LE ROY V. GLOBE INS. CO. 587 is evidenced by the fact that they went on delivering out checks to such of the stockholders as called for them until the seventeenth of December, when the disastrous fire had occurred ; and they would have delivered checks to these complainants in like manner if the}' had called to receive thera. It makes no difference, in m}' judgment, that themone}* was not told out and specifically set apart in the bank to meet these checks or that a separate fund was not created for the purpose or that the money intended to meet them still formed a part of the general mass standing to the credit of the compan}' on the books of the bank : for this court can^ nevertheless, la}' hold of the mass and separate so much as may be necessar}' to accomplish what was intended and which accident alone prevented at the time. Up to the moment of the prostration of the company, the intention remained, on the part of those who were charged with the management of its affairs, to continue the appropria- tion and consummate the payment of the dividends which had been nearl}' completed. It was a matter no longer executory in the view of the parties ; and so far as it remained unexecuted this court will now perform it. The intention must be fulfilled ; and, for this purpose, a court of equity will consider, not merely the sums which were paid out in dividends, but the whole thirty-five thousand dollars as actually appropriated and set apart for distribution among the stockholders from and after the first day of December and regard it as a trust fund to which the stockholders had acquired vested rights — not in their corporate capacit}', but as individuals to whom the money legally and equitably belonged distinct from their other interests in the funds and effects of the company. Having acquired this right, as between thera and the corporation, the assignment or transfer to the receivers could not take it awa}'. The receivers do not stand in the light of purchasers for valuable con- sideration without notice ; and, under such circumstances as exist here, are bound by the trust : Adair v. Shaw, 1 Sch. & Lef. 262 ; Wood v. Dummer, 3 Mason's R. 312. The act of the eighteenth of January, one thousand eight hundred and thirty-six, under which the receivers were appointed, vests in them all tlie property and effects of the corporation ; but, like any other assignment by operation of law, such as in bankruptcy or under our insolvent acts it does n ot p ass t rust property — but onl}' such as the bankrupt or insolvent held or was possessed of or entitled to for his own benefit. I shall decree that the receivers band over to the stockholders the amount of the unpaid dividend declared on the tenth day of Novembei and payable on the first of December, 1835 ; . . , € jy ^!^r EASTHAMPTON' CO. RUBBER THREAD CO. 1893. 158 Mass. 84. At the trial in tlie Superior Court, without a juiy, before Aldrich, J., there was evidence tending to show that the plaintiff on June 16, 1891, owned fiftj'-two shares of the capital stock of the defendant company, of the par value of one hundred dollars per share ; that on that day the directors passed the (K ^ -Ay^ ir J^ Contract for money had and received ^ 'y^u*^y^ the capital ^tr (r^ y\ ^ hundred ,^ \ \\i^ following vote, namely, " That a dividend of 20 per cent be paid to V /f^,^ ^s i^tockholders of this date, payable Tuesday, June 23d, 1891 " ; that on .'j* said June 16th the annual meeting of stockholders of the compan}- for ^ the election of directors was held immediatel}- after the meeting of directors, according to custom, and duly elected five directors, as pro- \ ' vided by the b3--laws of the company, two onl}- of the old directors being re-elected, and no director being re-elected who voted for the \ ft/twenty per cent dividend, though the two who were re-elected were ^ present at the meeting when it was voted ; and that on said June 16th, as soon as the stockholders' meeting adjourned, the directors elected I re-elected thereat met, qualified, organized for the ^ear, and passed the following votes: "That the vote passed bj' the directors of this company this da}^ declaring a dividend of 20 per cent on the capital stock of the company, payable Tuesday, June 23d, 1891, be reconsidered and rescinded ; the same is hereby rescinded. That a dividend of six per cent, payable June 23d instant to stockholders of record this day, be declared in place of the dividend voted at earlier .meeting of this board this day," It also appeared that no money was set aside or provided to pa}' said dividend of twent}^ per cent, but the company had ample means and facilities for paying the twent}" per cent dividend ; that always before money had been provided to pay a divi- dend before it was declared ; that money to pay said six per cent dividend was provided after the meeting and before said 23d of June bj' borrow- ing, and the same was set aside and deposited in bank therefor ; that ^ -- j^S^^ir^ the treasurer sent the check of the defendant on the bank where the iv" .f, ^ .\f^ (). mone}' was deposited to each stockholder of record of said June 16th to pay the dividend on his stock at six per cent, including the plaintiff, on said 23d June, 1891 ; and that the plaintiff declined to accept the check, and returned the money to the treasurer. It further appeared in evidence that no stockholder of the defendant had been paid the twenty per cent dividend for June, 1891 ; that a majority of the stock- holders had accepted the dividend of six per cent paid by checks as .tr V " • ' aforesaid on June 23, 1891, in full; that the plaintiff, by his attorney, :^Li^^>^j(/'*^'^ ,^J ^Vby letter of June 30, 1891, demanded payment of the twenty per cent ^^-^ fW^ * dividend from the defendant ; and that the plaintiff made no objection to the check of the defendant sent him to pay the dividend of June 16, «v^ y- ^' ."r- VO>^ 0^' i,o;~^' .^^'.u>^^ .^■^>^' '^ FORD V. EASTHAMPTON RUBBER THREAD CO. ;89 1891, except that it was for a dividend of six per cent, instead of twent}' per cent. Tlie defendant asked tlie court to rule tliat the directors elected on June 16 had a right on that day to rescind the vote whereby the twent)' per cent dividend was declared payable at a future day ; and that the plaintiff could not recover. The judge declined so to rule, ordered judgment for the plaintiff, and reported the case for the deter- mination of this court. If the refusal to rule and order of judgment were correct, judgment was to be affirmed ; otherwise, judgment was to be ordered for the defendant. G. M. Stearns, for the plaintiff. W. G. Hassett, for the defendant. Field, C .^J . It seems to be settled that, when a dividend has been fully declared, the corporation thereb}' manifests its intention that the amount of the dividend should be considered as having been separated from the other property of the corporation, and as having become the individual propert}' of the stockholders, and that therefore, when the dividend becomes payable according to the terms of the vote declaring it, each stockholder has a right to demand payment of the proportional part of the dividend which belongs to his shares of stock, and to sue the corporation for it, if it is not paid on demand. In some cases money or other propert}- equal to the whole amount of the dividend declared has been specifically set apart as a fund appropriated to the payment of the dividend, and the stockholders have been regarded as the cestuis que trust of this fund, each entitled to his share. In other cases, the corporation has credited the stockholders with the amount of their shares of the dividend, and the stockholders have assented to this, and the amount so credited has been regarded as a debt of the corporation to the stockholders ; or the corporation has paid to some of the stock- holders their shares of the dividend, and has refused to pay anything to the others, and it has been held that the corporation must paj' all alike. See Beers v. Bridgeport Spring Co. 42 Conn. 17; State v. Baltimore & Ohio Railroad, 6 Gill, 363 ; King v. Pater son & Hud- son Riner Railroad, 5 Dutch. SO-l; Jcrmain v. Lake Shore &, Michi- gan Southern Railicay, 91 N. Y. 483; Hopper v. Sage, 112 X. Y. 530 ; JacJcson v. Neicark Plankroad Co. 2 Vroom, 277 ; Wheeler v. ]SForthv:estern Sleigh Co. 39 Fed. Rep. 347. When a dividend has been declared payable at a definite future time, but no fund has been set apart for the payment of the dividend, and the corporation mean- while becomes insolvent, whether the stockholders to the extent of their proportions of the dividend should share ratablj' with the creditors of the corporation in its property" has not, so far as we know, been recenth' considered, but the decision in Loxrene v. American Ins. Co. 6 Paige, 482, is that they should. XLie getti ng apa rt of a fund to pay a, dividcn d ^has be en held to give a lien upon it tq_tbc stoc kholders T which they can en force to the exclusion of the general cred itors of th e c orporation. In re Xe Blanc, 14 Ilun, 8, and 75 N. Y. 598. Le Roy A 590 rOED V. EASTHAMPTON KUBBER THREAD CO. V. Ghbe Ins. Co. 2 Edw. Ch. 657. The English Companies' Act, 1862, (25 & 26 Vict. c. 89, § 38, cl. 7,) provides that " no sum due to any member of a compan}-, in his character of a member, by wa^- of dividends, profits, or otherwise, shall be deemed to be a debt of the company, payable to such member in a case of competition between himself and any other creditor not being a member of the company- ; but any such sum may be taken into account, for the purposes of the final adjustment of the rights of the contributories amongst them- selves." Upon these questions, however, we desire to express no opinion. It has been_argued ^at thereig^no consideration for the promise of a corporation to pa}- a dividend to its stockholders, but we think that \ the doctrme^f consideratioiT applicable to a simple contract between persons having no fiduciary relations to each other is not applicable to such promise. It is the object of a private business corporation to make money for its stockholders, and, under our laws, it is ordinarily the duty of the directors from time to time to declare dividends out of the net earnings, if there are an}', and it must be left largelj^ to the dis- cretion of the directors to determine when and for how much such divi- dends should be declared. The whole property of the corporation is held on a sort of trust for the stockholders, and the directors are, in a general sense, the managers ; and when a dividend is declared bj- the directors, the declaration is a determination b}- a bodj' authorized to make it that the amount of the dividend should be taken from the prop- erty of the corporation and paid over to the stockholders. The cause of action q£ each stockhold er against th e corporation forjion -payment of the dividend does not arise from any actual contract between the corporation and its stock holders , but from the nature oTThe organiza- tioh, ancPElie^ relation oTThe'^tock holders to tbe^cofporat ion~an d Jts property T Unless the rights of creditors intervene, or the corporation is enjoined from paying the dividend, on the ground that the dividend has not been earned, or on some other ground, the amount of the divi- dend, after it has been declared and has become payable, is considered as propert}' held by the corporation for the use of the stockholders indi- viduall}', and the stockholders ma}' recover their shares as money or property had and received to their use. We have been able to find little or no authority on the precise question involved in this' case, namely, whether, after a dividend has been duly declared by a vote of the directors, but payable at a future time, the vote can be rescinded at a subsequent meeting of the directors, held before the time at which the dividend becomes payable according to the vote, when the fact that a dividend has been declared has not been made public, or in any manner communicated to the stockholders, and when no fund has been set apart for the payment of the dividend. On principle, we do not sec why the directors may not rescind such a vote, under the circum- stances stated. . By the vote no specific property passed to the stock- holders. If the vote be regarded as a declaration of trust in favor of McXAB V. McNAB AND HARLIN MANUF. CO. ;9i the stockholders, it could be revoked before it was communicated to them or any property' was identified and set aside for them. Indeed, cases ma}' easily be supposed of such a change in the affairs of a cor- poration, between the time when a dividend is declared and the time when it becomes payable, as to make the exercise of such a power by the directors useful, if not necessary, for the successful continuance of the business of the corporation. It appears in the present case that the meeting of the new directors at which the vote was rescinded was held after the annual meeting of the stockliolders, but on the same day as the meeting of the directors at which the vote was passed, which was held just before the meeting of the stockholders ; and that at the meeting of the stockholders " the president did not, as had for man}' years been the custom, announce that an}' dividend had been declared, or promulgate the same to the stockholders " ; and it does not appear that any of the stockholders, except the directors, knew of the original vote, or that any of the stockholders had made any contracts, incurred any liability, or done anything relying on the vote. It also appears that no fund was distinctly set apart for the payment of the dividend before the vote was rescinded. As the passage of the vote did not constitute an actual contract of the corporation with its stockholders, but was merely a mode of dividing the earnings of the property of the corporation among the stockholders, we are of opinion that before the division had been actually made, and before tlie position of the stock- holders had been changed in reliance on the vote, — certainly before the passage of the vote had been made public, or communicated to the stockholders, — it was within the power of the directors, at a meeting subsequent to that at which the vote was passed, to rescind it. In this action at law, we cannot supervise the exercise of this power by the directors. X'W'^^ /^ Judgment for the defendant. .^ ]^ABtvC/M(^AB & i5^ /' ^ ^^r t CO. HARLIN MANUF. 69 New York Supreme Court (62 Hun. Supreme Court, General Term, First ET .), 18.1 ALS. Departmentr^.y*^ New York Appeal from Special Term, New York County Action brought to compel the division of a surplus among the shared holders. A judgment was rendered, dismissing plaintiff's complaint.' Plaintiff appealed. Artemus V. Smith, for appellant. S' . Frederic R. Coudert and Frederic G. Dow, for respondents. '^ J^ ^^ ^ Daniels, J. The McNab & Harlin Company, defendant, was incor- ^>^ 'S p^*^'- porated on or about the 28th of April, 1871, under the laws of this. Only so much of the case is given as relates to one point. — Ed. :/" ''tjj'/^^ ^\ r ^ r)92 McNAB V. McNAB AND HARLIN MANUF. CO. state providing for the incorporation of manufacturing companies. Its business was declared to be tliat of manufacturing brass and iron goods for sale, and since its incorporation it has carried on that business. The plaintiff was the owner of 8 shares of its capital stock, which consisted of 150 shares, of $1,000 each, and the other defendants were officers and shareholders in the company. After its formation, and in or about the 3'ear 1877, the company* became unable to pay its debts, and a proceeding in bankruptcj' was instituted to discharge it from its debts. Soon after the proceeding was commenced the defendant Harliu became the president of the company. He owned seventy-eight shares of its capital stock, and compromised the debts owing to the creditors of the compan}'. The agreement for the compromise was to pa}' sevent}'- five per cent, within the period of three years. After he took charge of the affairs of the company as its president, and under his manage- ment, the business became prosperous, and the seventy-five per cent, was paid to the creditors, and afterwards they were paid the additional sum of twent3--five per cent., making payment of their demands in full. The prosperity' of the company continued, owing to the judicious management of the president, and for eight years prior to the time of the trial, which took place in May, 1891, its net profits amounted to the sum of $100,000 a year, or a sum slightly- in advance of that amount, and from the year 1881 to the year 1891 it made and paid a dividend on its shares amounting to an average exceeding the sum of twentj'-five per cent. ; and, in addition to the dividends made in this manner, it accumulated a large surplus, which was mainly used in its business, but to the extent of about one hundred thousand dollars was in its deposit accounts. And it was stated by the treas- urer in his evidence upon the trial that there was at that time an actual surplus owned by the company amounting to the sum of $152,209, and the plaintiff, whose action was brought to secure the distribution of the suri)lus by way of dividends, alleged and claimed that a still larger surplus had been earned and was owned by the company ; and it was one of the principal objects of the action to secure the division of this surplus by way of dividends among the shareholders. But it was proved in the course of the trial that the surplus maintained by the com[)any was profitably employed in purchasing the material used by lit in the course of its manufactures, and that it was considered for the 'best interests of the company not to divide this surplus among the shareholders. The directors, in restricting the dividends as they did, seem to have been impressed with the i)ropriety of this conviction, and the dividends were accordingly limited to such amounts from year to year as did not intrench upon the large surplus which had been earned and secured. In their action upon this sul)ject the trustees appear to have exercised the judgment which they deemed to be most consistent with the prosperity and maintenance of the interests of the company, and the statute under which the incori)oration took place delegated the liuthority of the trustees to manage the stock, pro[)erty, and concerns STRINGEIl'S CASE. 593 of the company (2 Rev. St., 5tli Ed., p. 503, § 29;) and _to wh at amountJ;he dividends shall be made, and the extent of the surplus wlii gh the mter ests of the company may require to be retained, are withm this,4gle gation o f authority confided to the trusteesV And it ■was so regarded in Williams v. Telegrajih Co., 93 X. T.'TC2, where it was said, with the apparent approval of the court, that " when a corporation has a surplus, whether a dividend shall be made, and, if made, how much it shall be, and when and where it shall be payable, rest in the fair and honest discretion of the directors, uncontrollable by the courts." Id. 192. And no broader principle than this was either stated or sanctioned in Scott v. Fire Co., 7 Paige, 198, or in either of the other authorities which have been brought to the attention of the court. The principle to be applied is that which shall secure the observance of good faith on the part of the directors, and this principle was neither denied nor intrenched upon in Seeley v. Bank, 8 Daly, 400, which was affirmed in 78 N. Y. 608. The trustees are chosen by the shareholders, to exercise their best judgment, depending upon their knowledge of the affairs and condition of the company ; and when that has been done, the courts do not undertake to control their action, although they might differ in their views of the proper management to be adopted and followed. No reason has been disclosed by the case for doubting or impeaching the good faith of these trustees. Xeither can it be affirmed justly, in view of the large business carried on by the company, that they acted unreasonably or capriciously in declining to order a larger dividend than that which was in fact paid to the shareholders. [Opinion on other points omitted.] J) ^\)- ■ Judgment affirmed. STRINGER'S CASE^iTip- MERCANTILE TRADING CO. 1869. L. R. 4 Chan. Ap. 475. This was an appeal from an order of Vice-Chancellor Ilalins, made in the winding up of the Mercantile Trading Company, Limited. The company was registered under the Companies Jet, 1862, on the 27th of June, 1863. The objects of the company, as stated in the memorandum of association, were the purchase of goods and ships for export and transmission to America, for sale or barter and return and sale of goods from thence, and the chartering or freighting of ships, and all other matters necessary for carrying on the operations of the company, or other operations of a similar character. It was, however, admitted that the real object of the company was to trade with the Confederate States of America, by running the blockade then main- tained by the government of the Federal States. For this purpose 594 steingee's case. the}- provided a line of ships running from Bermuda to Charleston and Wilmington, which were intended to carry goods from England to the Confederate government, and to bring back cargoes of cotton in return. The company had a nominal capital of £150,000, of which about £112,000 had been paid up. The articles of association embodied the rules given in Table A of the Companies Act, 1862, which provide, in Rule 73, that " no dividend shall be payable except out of the profits arising from the business of the compau}', except so far as modified by the articles ;" and the articles provided, by Article 5, that "the directors shall declare a dividend on the subscribed capital of the com- pany as soon and as often as the profits of the compan}- in hand are sufficient for payment of a dividend of £5 per cent, on such capital, subject to the resolutions of a general meeting of the company called with reference thereto." Shortly after the establishment of the company, the directors entered into a contract with the Confederate government, under which the Con- federate government agreed to be co-owners of the ships employed by the compan}', and that the ships should be owned in the proportion of two-thirds by the Confederate government, and one-third by the com- pany ; the ownership of the Confederate government to be paid for in cotton, at Charleston or Wilmington, on the basis of 6(?. per pound for '•^Middling Upland" cotton. Several successful trips were made by the ships, and although some of them were captured or lost, a considerable profit was at first made by the company on their adventures. In May, 1864, a balance sheet was made out of the state of the compan}-, down to the 29th of February, 1864, showing a profit of £42,718 15s. 2^/., out of which the directors proposed a dividend to be paid at the rate of £25 per cent, on the capital, amounting to about £28,000. This dividend was adopted by a general meeting of the company, held on the 17th of Ma}-. The balance sheet was submitted to the directors of the Agra and United Service Bank, the company's bankers, and was examined by their accountants. The bank then advanced them upwards of £21,000 towards the payment of the dividend to the shareholders, although their account was already overdrawn to the amount of £5000. The dividend received by Mr. M P. Stringer, the managing director, in respect of his shares, amounted to £3560. The termination of the civil war in America, by the success of the Federal gowQvumeui, caused the failure of the company, the cotton appro- priated to them in the Confederate States being all destroyed or captured, and the debt due from the Confederate government turning out worthless. The company was accordingly wound up, the only creditor of large amount being the Agra and Masterma/n^ s Bank, which had succeeded to the business of the Agra and United Service Ba)ik. The present application was made by the official liquidator to obtain a repayment by Mr. Stringer of the dividend received by him, on the ground that stringer's case. 595 the balance sheet was delusive, and the dividend really paid out of the capital of the company-. The sections of the Companies Act, 1862, under which it was contended that the Court had jurisdiction to order the return of the money upon this application, were the 101st and 165th. The principal objections made to the balance sheet were as follows : First, that the directors had taken credit for a sum of £51,589 due to the company from the Confederate government as an asset of the company at its full value ; secondh^ that they had also taken credit for cotton within the Confederate States, which was all subsequeutl}'' destroyed, at the value of £17,000 ; and, thirdly, that they had entered the loss of three ships as a loss of only one-third of their value, thus reckoning the guarantee of the Confederate government for the other two-thirds at its full value. The Vice-Chancellor was of opinion that the dividend declared was altogether delusive, and that it amounted to a return of one-third of the capital to the shareholders ; but he also held that he had no juris- diction under the 101st or 165th sections of the Companies Act, 1862, to make an order for the return of the dividend ; but that it was necessary for the official liquidator to file a bill for that purpose. The official liquidator appealed from this decision. Cotton, Q. C, and Higgins, for appellant. The declaration of the dividend was both in violation of the articles and delusive, amounting to a return of part of the capital. Table A of the Comp>anies Act, 1862, which was adopted by the company, forbids payment of dividend out of capital, and the 5th clause of the articles is still further restrictive, providing that the dividends are to be paid out of '• profits in hand." So far was the company from having profits in hand that they were obliged to borrow part of the money to pa}- the dividend from the Agra and Masterrnarcs Bank. But the balance could not be called profits in any sense until it was known whether the cotton in the Confederate States and the debt of the Confederate government could ever be realized. The directors were not justified m, putting a value upon what they could not realize, and which it was ver}'] doubtful whether they would ever be able to realize. At all events, the value put upon these items was much too high. No cotton in the Confederate States or liability of the Confederate government bore such a high price in the market at that time as was put upon these items in the balance sheet. ,v>V ^l^ Glasse, Q. C, and H. M. Jackson^ for Stringer. There is nothing in the articles to render this dividend improper. The 5th clause does not mean that the directors were only to pay profits out of mone}' at tlicir bankers. The}' were to estimate the profits in the usual mercantile way, that is, b}' valuation of the assets of the company. This was done ; there was no concealment on the balance sheet, and it was submitted to the Agra and Masterman's 596 stringer's case. SanJc^ who understood all the circumstances, and would not have advanced the money unless the balance sheet had been honestly made. And 3'et they are the very parties who are now, through the official liquidator, complaining of it. At that time the prospects of the Con- federate cause and tlie security of the government were thought good by most mercantile men, and it is not right to judge of the fairness of the transaction by the result of the speculation. [The opinion of Sir C- J. Selwyn, L. J., is omitted.] Sir G. M. Giffard, L. J. [After deciding that the Court has power, under the Companies Act, to order a repayment of dividends declared and paid under a delusive and fraudulent balance sheet :] Now, with regard to this case, the first important matter that we have to consider is the effect of these articles of association, and I quite agree that if the effect of these articles was that you could have no division of dividends until all the transactions were wound up, that you could have no legal dividend except out of what is termed profits in hand, there might be a great deal to be said in this case ; but if we look at the articles of association as compared with Table A., it is clearly manifest that the articles of association amount to nothing of the kind. [His Lordship then referred to the provisions in Table A., and in the articles of association, which have been before mentioned, and continued: — ] I have no hesitation in saying — especially if you compare the word "maj' " in Table A., and the word "shall" in the 5th clause, and consider that there are negative words in Table A., and that there are none in this clause — that this clause was intended simply to have this effect, and no other, viz., that when the directors had in their hands profits they should not be able to set them aside for a contingency fund, and that they should then, at all events, be com- pellable to make a dividend. It did not prevent their making a 1 dividend ; but I agree, it must be out of profits, although those profits were not profits in hand. ' Then, when we come to the facts themselves — I will not again go tlirough them, for they have been considered at very considerable lengtli, not only in argument, but also by my learned brother — it was not argued or suggested, nor could it be argued or suggested, that it was intended that this thing, though in terms a dividend, should cover what was not really a dividend transaction. The mode in which the matter was done was fair enough. The books were put into the hands of an accountant, calculations were made, and a certain conclusion was arrived at. True it is, no doubt, that these proceedings were full of risk ; but although, on the one hand, there might be a great loss, every- one knows that whenever there was a success the profits were something very enormous, and upon the balance sheets as taken from the books it did appear tliat there was a profit of £42,000, and it was proposed out of that to divide somewhere about £28,000, the profits, I agree, not being profits in hand. The fault that is found with that is, that the 22 STEINGEK'S CASE. 597 estimate was an erroneous estimate ; that too sanguine a view was taken of tlie prospects of success ; and that there ought to have been a ver}' much less sum put upon the face of this balance sheet as assets than really was put there. But I do not think that anj'one can say it was not at this date possible for honest persons carrying on this trade, entertaining the view which they did entertain as to their prospects, honestl}' to make out such a balance sheet as this, and houestl}' to believe that those were profits fairly divisible between them. As I have said before, this was not done in any underhand manner ; the' whole thing was patent and open ; it was known, or capable of being known, by every shareholder, and if the directors of the Agra and 3Iasterman's Bank did not know anything about it, the}- neglected their duty, and behaved most shamefully to their own shareholders whose money they lent ; for the balance sheet was put in their hands, and they had accounts of every description, and they must have known perfectly well that it was neither more or less than a blockade-running company ; the very nature of the accounts shewed it ; and so far from there being any concealment, the balance sheet itself was put into the hands of the auditors, and no person who knew what the business of the company was could look through that balance sheet without seeing at once that the full value was put upon the Confederate government debt, and that the four ships had been lost, and without knowing at once that if things turned out adversely that which was profit might, from subsequent events, become a great loss. Again, this dividend was declared in May, 1864, and was actually paid in June, 1864, and I cannot forget that it was actually paid by the Agra and Masterman'a Bonk^ who not only advanced the money, knowing the affairs of the compan}', but who paid the dividends through the medium of cheques drawn upon them by the shareholders. I think it would be a gross injustice if at this distance of time, when a dividend has been made and paid in this way so long ago as the year 1864, because things turn out adversely afterwards, and the company is wound up in 1867 at the instance of a creditor, such a dividend should be repaid. I quite agree when there has been what can be termed fairly a misap- propriation of assets as against a creditor, that creditor has a right in the winding-up to have those assets recouped ; but I cannot think that such a dividend as this was in any sense a misappropriation as against either the Agra and Masterrnan' s Bank or any other creditors, or that it was in any sense delusive, or in any sense a fraudulent transaction, or that it was any other transaction than this, viz., that mercantile men who were engaged in adventures which might result in very great or even total loss, and which might also I'esult in very great profit, took a sanguine view of what the value of the assets was, looking at what at that date was the actual profit made, and acted upon that hon6, fide^ not intending to defraud in any way any person whatever. Therefore, I am of opinion that this appeal must be dismissed with costs. '^i'- IT' (S. v^ ^ ^% > Keceiver, v. WILLIAMS. 1899. 174 United States, 397.1 (w^' r by receiver of the Capital National Bank of Lincoln, Ne- . y. braska, to recover from defendants, stockholders in the bank, the \P^ lyeA kJ^ amount of certain dividends previously received by them. ' vr^^^^"^ *^ "^ Upon a trial in the U. S. Circuit Court there was a decree in favor ^^^^ of plaintiff for the recovery of a part of the sums claimed. Both parties appealed. Upon the argument of the appeal in the Circuit Court of Appeals, that court desired the instruction of the Supreme Court on certain questions. It appears from the statement of facts made by the court that the bank suspended payment in January, 1893, in a condition of hope- less insolvency, the stockholders, including the defendants, have been . . - ,,;) assessed to the full amount of their respective holdings, but the ^J J-"^ «money thus obtained, added to the amount realized from the assets, ' m & >* j^ M «money thus obtained, will not be sufficient even if all dividends paid during the bank's ex- ^^^ istence were repaid to the receiver, to pay seventy-five per cent, of '^ the claims of the bank's creditors. This suit was brought to compel the repayment of certain dividends paid by the bank to the defendants on that part of the capital of the bank represented by their stock of the par value of $5000, on the ground alleged in the bill that each of said dividends was fraudu- lently declared and paid out of the capital of the bank, and not out net profits. ^'^ A^list of the dividends and the amount thereof paid by the bank -''^m January, 1885, to July, 1892, both inclusive, is contained in the ^ statement, and it is added that all dividends, except the last, (July ji'' '><' /M ^^' 1892,) were paid to the defendant Williams, a stockholder to the Af/^ j:^ ^^/n^^jj^^monnt oi $5000, from the organization of the bank. The last divi- 7.' ''♦^'^^ '^ ^'^' dend was paid to the defendant Dodd, who bought Williams' stock, ^ "■^^^'^i- -^ and had the same transferred to his own name December 16, 1891. When the dividend of January 6, 1889, was declared and paid, and ti^ jjC\^ ^^ j vviieu Lilt; uiviuenu ui January o, iDoy, was cteciarea ana paia, ana ^^ fjA 2/^^/-^ when each subsequent dividend, down to and including July, 1891, y J, ' }>^ X ^^^^ declared and paid, there were no net profits. The capital of the (i^ ^^ ''h ^ IJiy 'J bank was impaired, and the dividends were paid out of the capital, ,but the bank was still solvent. When the dividends of January and July, 1892, were declared and paid there were no net profits, the capi- tal of the bank was lost, and the bank actually insolvent. I nj The defendants, neither of whom was an officer or director, were (>L ^>L^ '*\^ignorant of the financial condition of the bank, and received the divi- j»^ .jJ(\J dends in good faith, relying on the officers of the bank, and believing ^ J> ^*^ the dividends were coming out of the profits. '^ '■'^ U^ I ^ Statement abridtjed. Part of opinion omitted. The docket titl Statement abridtjed. Part of opinion omitted. Receiver, \. Willianu. — Ed. case is Hay- Mcdonald v. williams. 599 (2 V Upon these facts the court desired the instruction of this court for the proper decision of the following questions : First question. Can the receiver of a national bank recover a divi- . —f . dend paid not at all out of profits, but entirely out of the capital, (/OJi-AA^^y^ when the Stockholder receiving such dividend acted in good faith, — "^ believing the same to be paid out of the profits, and when the bank,, at the time such dividend was declared and paid, was not insolvent ? r^^) [The second qiiestion is omitted.] Edward Wlnslow Paige, for appellant. Theodore De Witt {George G. De Witt with him), for appellees. Peckiiam, J. . . . The complainant bases his right to recover in this suit upon the theory that the capital of the corporation was a trust fund for the payment of creditors entitled to a portion thereof, and having been paid in the way of dividends to the shareholders that portion can be recovered back in an action of this kind for the purpose of paying the debts of the corporation. He also bases his right to recover upon the terms of section 5204 of the Revised Stat- utes. We think the theory of a trust fund has no application to a case of this kind. When a corporation is solvent, the theory that its capital is a trust fund upon which there is any lien for the payment of its debts has in fact very little foundation. No general creditor has any lien upon the fund under such circumstances, and the right of the corporation to deal with its property is absolute so long as it does not violate its charter or the law applicable to such corporation. In Graham v. Railroad Company, 102 U. S. 148, 161, it was said by Mr. Justice Bradley, in the course of his opinion, that " when a cor- poration becomes insolvent, it is so far civilly dead that its property may be administered as a trust fund for the benefit of its stockhold- ers and creditors, and a court of equity, at the instance of the proper parties, will then make those funds trust funds, which, in other cir- cumstances, are as much the absolute property of the corporation as any man's property is his." And in Hollins v. Brierfield Coal and Iron Company, 150 U. S. 371, 383, 385, it was stated by Mr. Justice Brewer, in delivering the opin- ion of the court, and speaking of the theory of the capital of a corpo- ration being a trust fund, as follows : " In other words, and that is the idea which underlies all these ex- pressions in reference to ' trust ' in connection with the property of a corporation, the corporation is an entity distinct from its stockhold- ers as from its creditors. Solvent, it holds its property as any indi- vidual holds his, free from the clutch of a creditor who has acquired no lien ; free also from the touch of a stockholder who, though equi- tably interested in, has no legal right to, the property. Becoming insolvent, the equitable interest of the stockholders in the property, together with their conditional liability to the creditors, places the property in a condition of trust, first, for the creditors, and then for \f -^.x- ■^ 600 Mcdonald v. williams. the stockholders. Whatever of trust there is arises from the peculiar and diverse equitable rights of the stockholders as against the cor- poration in its property and their conditional liability to its creditors. It is rather a trust in the administration of the assets after possession by a court of equity than a trust attaching to the property, as such, for the direct benefit of either creditor or stockholder." And also : " The ofiS-cers of a corporation act in a fiduciary capacity in respect to its property in their hands, and may be called to an account for fraud, or, sometimes, even mere mismanagement in respect thereto ; but, as between itself and its creditors, the corporation is simply a debtor, and does not hold its property in trust, or subject to a lien in their favor, in any other sense than does an individual debtor. That is certainly the general rule, and if there be any exceptions thereto they are not presented by any of the facts in this case. Neither the insolvency of the corporation, nor the execution of an illegal trust deed, nor the failure to collect in full all stock subscriptions, nor all together, gave to these simple contract creditors any lien upon the property of the corporation, nor charged any direct trust thereon." Other cases are cited in the opinion as holding the same doctrine. In Wabash, etc., Railway Company v. Ham, 114 U. S. 587, 594, Mr. Justice Gray, in delivering the opinion of the court, said : '' The property of a corporation is doubtless a trust fund for the payment of its debts, in the sense that when the corporation is law- fully dissolved and all its business wound up, or when it is insolvent, all its creditors are entitled in equity to have their debts paid out of the corporate property before any distribution thereof among the stockholders. It is also true, in the case of a corporation as in that of a natural person, that any conveyance of property of the debtor, without authority of law, and in fraud of existing creditors, is void as against them." These cases, while not involving precisely the same question now before us, show there is no well-defined lien of creditors upon the capital of a corporatio^n while the latter is a solvent and going con- cern, so as to permit creditors to question, at the time, the disposition 'of the property. The bank being solvent, although it paid its dividends out of capital, did not pay them out of a trust fund. Upon the subsequent insolvency of the bank and the appointment of a receiver, an action could not be brought by the latter to recover the dividends thus paid on the theory that they were paid from a trust fund, and therefore I ivere liable to be recovered back. . , It is contended on the part of the complainant, however, that if the issets of the bank are impressed with a trust in favor of its creditors when it is insolvent, they must be impressed with the same trust fy^,, ty^ when it is solvent ; that the mere fact that the value of the assets of ^ c/y^V the corporation has sunk below the amount of its debts, although as i; ;:\ Mcdonald v. williams. GOl yet unknown to any body, cannot possibly make a new contract be- tween the corporation and its creditors. In case of insolvency, how- ever, the recovery of the money paid in the ordinary way without condition is allowed, not on the ground of contract to repay, but be- cause the money thus paid was in equity the money of the creditor ; that it did not belong to the bank, and the bank in paying could bestow no title in the money it paid to one who did not receive it bona fide and for value. The assets of the bank, while it is solvent, may clearly not be impressecl with^ trust in fa vor of creditors, a nd yet th aFtru st may^l)e createcMDj^ the very fact of the insolvency, and the trust enforced by a receiver as the representative of aU the cred- itors. But we do not wish to be understood as deciding that the doctrine of a trust fund does in truth extend to a shareholder receiv- ing a dividend, in good faith _believing it is p aid out of profits , even though the bank at the time of the payment be in fact insolvent. That question is not herein presented to us, and we express no opin- ion in regard to it. We only say, that if svich a dividend be recover- able, it would be on the principle of a trust fund. Insolvency is a most important and material fact, not only with individuals but with corporations, and with the latter as with the former the mere fact of its existence may change radically and materially its rights and obligations. Where there is no statute pro- viding what particular act shall be evidence of insolvency or bank- ruptcy, it may be and it sometimes is quite difficult to determine the fact of its existence at any particular period of time. Although noi trust exists while the corporation is solvent, the fact which creates the trust is the insolvency, and when that fact is established at that instant the trust arises. To prove the instant of creation may be almost impossible, and yet its existence at some time may very easily be proved. What the precise nature and extent of the trust is, even in such case, may be somewhat difficult to accurately define, but it may be admitted in some form and to some extent to exist in a case of insolvency. Hence it must be admitted that the law does create a distinction between solvency and insolvency, and that from the moment when the latter condition is established the legality of acts thereafter per- formed will be decided by very different principles than in a case of solvency. And so of acts committed in contemplation of insolvency. The fact of insolvency must be proved in order to show the act was one committed in contemplation thereof. Without reference to the statute, therefore, we think the right to | recover the dividend paid while the bank was solvent would not exist. / But it is urged on the part of the complainant that section 5204 , ^J>^ of the Revised Statutes makes the payment of a dividend out of o j o^^ capital illegal and xcltni vires of the corporation, and that money thus m (J -^^^ paid remains the property of the corporation, and can be followed into the hands of any volunteer. 1 602 Mcdonald v. williams. The section provides that " no association, or any member thereof, shall, during the time it shall continue its banking operations, with- draw, or permit to be withdrawn, either in the form of dividends or otherwise, any portion of its capital." What is meant by this lan- guage ? Has a shareholder withdrawn or permitted to be withdrawn in the form of a dividend any portion of the capital of the bank when he has simply and in good faith received a dividend declared by a board of directors of which he was not a member, and which dividend he honestly supposed was declared only out of profits ? Does he in such case within the meaning of the statute withdraw or permit to be withdrawn a portion of the capital ? The law prohibits the making of a dividend by a national bank from its capital or to an amount greater than its net profits then on hand, deducting therefrom its losses and bad debts. The fact of the declaration of a dividend is in effect the assertion by the board of directors that the dividend is made out of profits. Believing that the dividend is thus made, the shareholder in good faith receives his portion of it. Can it be said that in thus doing he withdraws or permits to be withdrawn any portion of the capital of the corporation ? We think he does not withdraw it by the mere reception of his proportionate part of the dividend. The withdrawal was initiated by the declaration of the dividend by the board of directors, and was consummated on their part when they permitted .payment to be made in accordance with the declaration. We think I this language implies some positive or affirmative act on the part of Itlie shareholder by which he knowingly withdraws the capital or jsome portion thereof, or with knowledge permits some act which pesults in the withdrawal, and which might not have been so with- Idrawn without his action. The permitting to be withdrawn cannot /be founded upon the simple receipt of a dividend under the facts ( stated above. One is not usually said to permit an act which he is wholly igno- rant of, nor would he be said to consent to an act of the commission of which he had no knowledge. Ought it to be said that he with- draws or permits the withdrawal by ignorantly yet in entire good faith receiving his proportionate part of the dividend^ Is each shareholder an absolute insurer that dividends are paid out or^rofits ? Must he employ experts to examine the books of the bank previous to receiving each dividend ? Few shareholders could make such examination themselves. The shareholder takes the fact that a divi- dend has been declared as an assurance that it was declared out of profits and not out of capital, because he knows that the statute pro- hibits any declaration of a dividend out of capital. Knowing that a dividend from capital would be illegal, he would receive the dividend as an assurance that the bank was in a prosperous condition and with unimpaired capital. Under such circumstances we cannot think that Congress intended by the use of the expression " withdraw or permit |to be withdrawn, either in the form of dividends, or otherwise," any Mcdonald v. Williams. 603 portion of its capital, to include tlie case of the passive receipt of a dividend by a shareholder in the bona fide belief that the dividend was paid out of profits, while the bank was in fact solvent. We think it would be an improper construction of the language of the statute to hold that it covers such a case. We are strengthened in our views as to the proper construction of this act by reference to some of its other sections. The payment of the capital within a certain time is provided for by sections 5140 and 5141. Section 5151 provides for the individual responsibility of each shareholder to the extent of his stock at the par value thereof in addition to the amount invested therein. (These shareholders have already been assessed under this section.) And section 5205 pro- vides for the case of a corporation, whose capital shall have become impaired by losses or otherwise, and proceedings may be taken by the association against the shareholders for the payment of the deficiency in the capital within three months after receiving notice thereof from the Comptroller. These various provisions of the statute impose a very severe liability upon the part of holders of national bank stock, and while such provisions are evidently imposed for the purpose of securing reasonable safety to those who deal with the banks, we may nevertheless say, in view of this whole system of liability, that it is j^innecessary, and that it would be an unnatural construction of the language of section 5204 to hold that in a case such as this a share- holder, by the receipt of a dividend from a solvent bank, had with- drawn or permitted to be withdrawn any portion of its capital. We may concede that the directors who declared the dividend under such circumstances violated the law, and that their act was therefore illegal, but the reception of the dividend by the shareholder in good faith, as mentioned in the question, was not a wrongful or designedly improper act. Hence the liability of the shareholder should not be enlarged by reason of the conduct of the directors. They may have rendered themselves liable to prosecution, but the liability of the shareholder is different in such a case, and the receipt of a dividend under the circumstances is different from an act which may be said to be generally illegal, such as the purchase of stock in one national bank by another national bank for an investment merely, which is never proper. Concord First National Bank v. Hawkins, just decided, ante, 364. The declaration and payment of a dividend is part of the course of business of these corporations. It is the thing for which they are established, and its payment is looked for as the appropriate result of the business which has been done. The presumption of legality attaches to its declaration and payment, because declaring it, is to assert that it is payable out of the profits. As the statute has pro- vided a remedy under section 5205 for the impairment of the capital which includes the case of an impairment produced by the payment of a dividend, we think the payment and receipt of a dividend under 604 HEIGHT V. LOED. the circumstances detailed in tlie question certified do not permit of its recovery back by a receiver appointed upon the subsequent insol- vency of the bank. The facts in the various English cases cited by counsel for com- plainant are so entirely unlike those which exist in this case that no useful purpose would be subserved by a reference to them. Not one holds that a dividend declared under such facts as this case assumes can be recovered back in such an action as this. T ~ wJ" We answer the first question in the negative.^ / J- ^ ^ ^ ^ 1^' S^ /^ O-W ^ ^^"^- ^'^ Indiana, 212. y^U> y ^ xf / > ^^v*'^^^ N 4 From the Marion Superior Court. \ ^ f ^ .jju^ ^ J. £J. 3IcDonald, J. 31. Butler, IT. W. Harrington and H. Aj^ ,./^' / Francisco, for appellant. - >. > \jy\ ^ B. Taylor, F. Band, E. Taylor, B. Harrison, C. C. Hines rK (^ ^ aijji |T7. H H Miller, for appellees. ^ SJ^ Biddle, C. J. — The facts averred in the appellant's complaint are ' 2X^^ ' ' (^ Jp^^ follows : "■^^ j-\A^ ■ c)-*^ That on the 1st da}' of April, 1873, the appellant entered into a ^v** I' JJ"^'^ \^ provisional contract with John M. Lord, John Lord, and Charles M. t--*^ ^P^ Lord, by which the\' agreed to sell to the appellant five hundred and ' ^ • '^'*^ / \ twenty shares of the capital stock of the Indianapolis Rolling Mill ^2,^-^"''''*^ . -^ Company, of fifty dollars each, for the sum of thirteen thousand dol- ^^"^ "yJ^ lar's, at the option of the appellant, to be by him taken at any time on Uuk^- I I " or before the 18th day of June, 1873, to be paid for on delivery ; that t ' .J^^^ /7^.->^efore the expiration of said oi)tion, on the 14th da}' of June, 1873, ^/jb^ T/ t^^*-'*'^ the said Lords, for the consideration of one hundred dollars, to them 1^^ ^'^ -^^ (o-*^ paid by appellant, extended the time of said provisional contract for ^ in/i^^^'^^ ((^A**^4hirty days, within which time the appellant paid the Lords thirteen ^^^ ' yj^ vi thousand dollars, and received the stock, which, on the 16th day of \r-^^ L, July, 1873, was duly transferred to him on the books of the Rolling Lj^l/J'^ Mill Company ; that the appellant purchased the stock without the reservation of any dividends or earnings, and with all the benefits and interests that pertain to the same ; that on the 3d of July, 1873, the board of directors of the Rolling Mill Company declared a dividend on the capital stock of the company of five per cent., to be paid on the 1st day of August ensuing, amounting, on the stock, etc., purchased by 1 After the Supreme Court had pfiven the above opinion, the Circuit Court of Appeals rendered judgment against the receiver as to the dividends in the j'ears when the bank was still solvent, and against the defendant stockholders for the dividends paid during in- solvencj-. Lacomue, J., said: "No (juestion was propounded" (i.e., to the Supreme (Jourt) "as to the dividends paid when the bank was actually insolvent, as we had no doubt the receiver could recover them in a proper action." Ilnyden v. Williams, 9(5 Federal Keporter, 279, pp. 283, 284. See, also, Grant v. Ross, a. d. 18'JG, 100 Kentucky, 44. —Ed. BEIGHT V. LORD. 605 the appellant, to thirteen hundred dollars, which the appellant claims ; that the company was about to pay the said thirteen hundred dollars to the Lords, who also claimed the amount. Prayer to restrain the com- pany from paying the thirteen hundred dollars to the Lords, to decree the amount to the appellant, and for general relief. The Rolling Mill Company was served with process, but made default. Interlocutory proceedings were had after complaint and before answer, but as no question is raised upon them, they are not stated. The Lords answered by a general denial. The case was submitted to the court for trial, which resulted in a finding for the defendants. Motion for a new trial overruled. Exception. Appeal to the general term, where the judgment was affirmed, from which an appeal was taken to this court. The only error assigned here is in affirming the judgment at the general term. The evidence is before us, and we think it fairly proves the allegations in the complaint. Wasjhe appellant entitle d to the dividend declared while it wag -^ l^ opjdonaj^jwiyi^liiii]Lio_purchase^j^^ and before the //^vft purchase was c ompleted ? This is the j^ole question in the case. Where a stockholder in a railroad assigned and transferred his stock after two years interest had accrued, which, by a resolution of the compan}' was payable annually, and had been carried to the account of the stockholder, it was held that the interest did not pass hy the assignment of the stock; the court stating the rule to be, that "the interest follows the principal, as an incident to it, so long as it remains an incident : but when it is separated and set apart from the principal by actual payment, or by being carried, when due, to the credit of the owner of the principal in his account with the debtor, and this in pur- suance of a provision in the contract creating and defining the principal debt, it is so separated and disjoined from the principal as to cease to be an incident to, and does not follow it." The City of Ohio v. The Cleveland, etc., R. E. Co., 6 Ohio St. 489. And in the case of Jones V. The Terre Haute tjb Michmond M. R. Co., 29 Barb. 353, it was held, that " where, by a resolution of the board of directors, a dividend is made to the persons then holding stock, without any discrimination, out of the surplus earnings of the corporation for a given period, pa\-- able at a future day, all who are stockholders on the books of the compan}', at the time the dividend is declared, are entitled to sliare therein." This case seems to us as being remarkably similar to the one before us. It has also been held that the purchaser of a share of stock in a corporation has the right to receive all future dividends, ft'ora whatever source the profits ma}- arise, provided he remain a toember of the corporation until a dividend is made. March v. TJie JUastern B. B. Co., 43 N. H. 515. The same rule was recentl}' held in England. Tiie testatrix was t mer of certain shares in the South Australian Banking Company. 606 BRIGHT V. LORD. On the 7tli daj" of June, 1865, dividends were declared T)y the com- pany, pajable on the 15th of July, 1865, and on the 15th of January, 1866. On the 31st of December, the testatrix died, having made her will, devising the stock, in 1863. The question arose as to whether the dividend due on the 15th of January, 1866, passed to the devisee, or belonged to her residuary estate. Sir W. Page Wood, V. C, said: "As soon as the dividend was declared, although payment, for convenience of the company, was postponed until the following January, from that moment the testatrix became entitled to it, although she could not have then recovered it, and it would have passed to her legatee had she specifically bequeathed it." De Gendre v. £ent, 4 Equity Cases, 283. In an American case, still later, it was held that a dividend belongs to the owner of the stock, at the time the dividend is actually declared, and that dividends made to the stockholders after the death of a testator belong to the widow who owns the stock, but if made before, although payable afterwards, they will pass by the devise. Jirundage V. Bru7idage, 65 Barb. 397. In support of this general principle, see, also. In re Foote, 22 Pick. 299 ; Clapp v, Astor, 2 Edwards Ch. 379 ; Phelps v. Farmers and Mechanics Bank, 26 Conn. 269 ; Hyatt v. Allen, 56 N. Y. 553. From the authorities and upon principle, we think the rule may be deduced, that whoever owns the stock in a corporation at the time a dividend is declared owns the dividend also ; and a sale of the stock afterwards will not carry the dividend with it, though it may not be paid, or payable, until after the sale. The same rule governs in the sale of bonds or other securities, where the interest is payable at stated periods, as upon coupon bonds ; but when the interest is accruing from day to day, whatever is due on the bond or other security at the time it is sold, will pass with it. The reason of the distinction is, that when the interest accrues from day to daj^, it is divisible and payable at an}' time ; but when the interest is payable at stated periods, no part of it is due until the period arrives ; and in the earnings or profits of stocks, it is impossible to know what amount is due until the dividend is declared. In the case before us, Bright did not become the owner of the stock until the 16th day of July, 1873. Up to that time, it was optional with him to purchase it or refuse it. The Lords would have had no remed}^, if Brigiit had refused the stock, and Bright would have suffered no loss, except the consideration he had paid for the option, and incurred no liability, whatever. The dividend had been declared on the 3d day of Jul}', 1873, and the amount fixed, by which it became the property of the Lords at that time, although not payable until the 1st da}' of August ensuing ; and there is notliing in the complaint to inform us but what Bright knew all these facts at the time lie com- pleted the purchase of the stock. At least, ordinary business diligence TAFT V. HARTFORD, PROVIDENCE, & FISBKILL R. CO. 607 would have informed him of the facts> if he did not actually know them, and then he could have purchased the stock, as it then stood, or not, at his option. As he has not averred in his complaint that he did not know these facts, and could not have ascertained them by ordinary business diligence, he must be held to Uve known them, and to have made his purchase accordipgly. ^J\ The judgment is affii;ifieU\ J ^' 1866 PROVIDENCE, & FISHKILL R. CO. 8 Rhode Island, 310.1 ssumpsit for the recovery of the amount of dividends, at ten per cent, per aniiGm, for eight years, upon 402 shares of the capital stock of the defendant corporation, (as the plaintiff argues,) " not as arrears of dividends unpaid, but as their equivalent, as damages, for the non- performance of the defendants' contract that they should be paid." The case was submitted upon the pleadings and a statement in writing of the facts. On Oct. 25, 1854, the corporation had only common stock. At a meeting of the stockholders held that da}', acting under an amendment fr^ to the charter, the following votes were passed : — - fl '^ Voted, That five thousand shares of one hundred dollars each be and the same are hereby created and added to the capital stock of this com- pan}', and that the same be a preferred and guaranteed stock, entitling the holder thereof to preferred and guaranteed dividends equal to ten^ ^^.^ per cent, per annum, payable semi-annuall3\ And no dividend shall j^r^^iii be paid on the remaining shares of said stock until such semi-annual '^ -.Jb dividends, at the rate of ten per cent, per annum, above mentioned,^ . />• ^ i«( shall first have been paid on said guaranteed or preferred stock. J'ro-U j^ 4^ i vided, that said preferred stock shall be issued on tlie express con- j^i^.j^ J \ dition following, viz. : that at any time after the first day of April, j^**^ i^ ^ 1860, or after the first day of April, 1865, as the directors shall decide, _t, said company reserve, and shall have the right to redeem and extin- '-^ guish the whole or any part of said preferred stock, b}' paying to the ^ AiAil i ' [,a holder thereof, on the books of said compau}', the par value of one hun- ^ i^ ^ a)' dred dollars for each and every share held by him, her or them, and i^^^'^^^'^i %r^ that, at au}^ time after the time or times fixed by the directors, any'T*'^ j^ \ holder of said preferred stock shall have the right to demand and ve-*'-^ ^„j^^^''^^ cr^ i ceive for the whole or any part thereof, one hundred dollars for e^c\v^^ jj^r^ y^'^^f^^jJ share, and all right to further dividends on said preferred stock, thatX*-^^ i. '^t"-^ shall have been so paid for or redeemed, shall tliereafter cease and '*_^ determine. ' ' YoUd, That the guaranteed dividend of ten per cent, on such pre 1 Statement abridged. Portions of argument omitted. — Ed, .«5^C ^ 608 TAFT V. HAKTFORD, PROVIDENCE, & FISHKILL R. CO. 4 ferred stock, to all subscribers who pay for the same in raone}- previ. ous to said first day of April next, shall begin to accrue on and from the day when the mone}^ for said stock shall have been paid to said compan3\" Subsequently a circular was issued oflTering the new stock to subscrib- ers, and containing, i?iter alia, the following statement : — " Guaranteed dividends, at the rate of ten per cent, a year, will commence from the time when the money is actually paid for said pre- ferred stock." Subscribers for the new stock received certificates in the following form : — Be it known, That entitled to shares in the preferred and guaranteed stock of the Hartford, Providence and Fishkill Railroad Company, on which one hundred dollars, on each share, have been paid, subject to the provisions of the charter, and the by- laws of the corporation, the sa me b eing^ entitled to pref erred and gua r- anteed dividends, at the rate of ten per cent per annum, payable semT^innuallvrbefore any dividen d shall be jiaid^on o ther stock of sa id Ic om])any ; and being redeemable by the company, and the par value thereof demandable by the holder of the same, from the company, at any time after April 1st, 1865. No dividends were earned by the corporation. Durfee and Eames, for plaintiff. The word guarantee, though most usually employed to designate a contract by which one person becomes answerable for another, is not unfrequently employed to express an unusually emphatic assurance of a party in his own behalf, as in Section 4, Article IV., of the Federal Constitution. Will the Court say that a word which is constantly selected by the company to characterize and denominate the subject to which it applies, is simply tautological ? Could the company have supposed that the subscribers for stock would expurgate or ignore the word " guaranteed," or would interpo- late after it, the incompatible qualification, " if the net earnings of the road suffice for the payment of such dividends ? " Suppose that, for ten years after the issue of the new stock, the corn- pan}^ barel}' make enough to pa}- interest and expenses ; and that at the end of ten years they redeem the new stock and the road becomes prosperous. According to the view which we are combating, the sub- scribers are not entitled to dividends for the ten years that are gone, because none were earned ; and they arc not entitled to dividends for the future, because they have ceased to be stockholders. And, as to the word "dividends," we maintain that it was not used b}' the parties in its ordinary sense, as signifying a certain proportion TAFT V. HARTFORD, PROVIDENCE, & FISHKILL R. CO. 609 of the earned profits of the road ; but as signif^'ing that the holders should be entitled to receive, in value, what was equivalent to ten per cent on the amount which they had paid from the time of payment ; . . . The expression is equivalent to the word interest at the fixed rate. But even if the word "dividends," as used in connection with the word "guaranteed," means, in its true import, dividends out of the net earnings of the road, as claimed b}- the defendants, the defendants do not advance a step in the defence to the action. If the dividends ■were to be paid out of the net earnings of the road, they were, never- theless, guaranteed or stipulated to be paid out of such net earnings. In other words, the guaranty was, that the net earnings should be suf- ficient to pay a dividend equal to ten per cent per annum ; and if the | result was that such earnings were insufficient for that purpose, there I was none the less a breach of the guaranty, on the part of the defend-/ ants, that they should be sufficient, for which an action will lie to recover,! by wa}' of damages, the amount which the plaintiff would have received/ if such net earnings had been sufficient to pay the stipulated ten per cent. Currey {Blake with him), for defendants. [Argument omitted]. Bradley, C. J. The defendant corporation was authorized, by an amendment to its charter, to issue five thousand shares of additional stock, and to provide that the same be " a preferred and guaranteed stock, entitling the holder to preferred and guaranteed dividends equal to ten per cent, per annum, payable semi-annually." Pursuant to this authority this stock was issued, and the certificates entitled ' ' preferred and guaranteed ten per cent, stock," contained the expression, " the same being entitled to preferred and guaranteed dividends at the rate of ten per cent, per annum, payable semi-annually, before any dividend shall be paid on any other stock in said company." This suit is brought to compel the company to pay the plaintiff, holding a portion of said stock, a sum of mone}' equal to ten per cent, per annum on his stock, though no dividends have been earned. The question presented is, what is the meaning and engagement of the company, as expressed in these words? The relations between these parties are obviously those between shareholders and tlie corpora- tion. Thej' are not, on the face of the contract, those of creditor and debtor, A corporation may issue bonds or other obligations convert- ible at certain times and upon certain contingencies into stock. The}' may issue stock, as in this case, redeemable at a certain time and upon certain conditions. But until such change is made in eiihcr case, the original relation remains. A holder of the stock retains his right to share in the management of the corporation and to participate in its profits. He is not its crcditorby virtue_of_t his relation . If be is / . to be constitutedltrCTedi tdrrEIie Fe are welFknown modes and wbrd ^-b^ / O-^ GIO TAFT V. HAKTFORD, PROVIDENCE, & FISHKILL E. CO. which that relation can be expressed. If, instead of adopti ng them, h e receives a_ certificate of stock, and _then claims tg_be botlTTts creditor and stockholder b^^ vi rtue of the samejionti'act, thejburden i s upon bim. ^ y^\ to show that^ sucb anomalous relation exists. The presumptions of law and the usual course of business are against him. In thls^case, the evidence of the r e lation is a certificate of stock, and the subject of the e ngagem ent or contract is the dividends, so called, to be paid upon it. A divid ebdis money paid out of profits b}' a corporati on to its share- Iholders! A preferred dividend is that which is paid to one class of _ shareholders in priorit}' to that to be paid to another cl , as s. The word over which the controversy arises in this case is " guaran- teed." Guaranteed, in addition to preferred, applied to dividends, means what? It is certainly not used in the strict and proper sense of the word, for there is, in this contract, no third part}- promising to make good an engagement by the corporation to its stockholders. Is it, on the one hand, an instance of that tautology so common in legal proceedings, — a synonym for " preferred," and not increasing its sig- nificance? Or does it, on the other hand, when it is added to tlie word dividend, entirely change its character and meaning, and 'convert a dividend, which, in its nature, cannot legally exist except when origi- nating in profits, into a liability entirely independent of the pre-exist- ence of such profits? Or has it still a third signification, b}' which, added to the idea of a simple preference out of dividends, it shall be considered as an engagement that a dividend, equal to the sum of ten per cent, per annum, shall be charged upon all the profits which, from year to year, may accrue, thus binding and pledging the total sum of all the earnings of the compan}', so long as the engagement lasts, to the payment of a dividend " equal to," as the amended charter says, — ' ' at the rate of," as the compan}- express it, — as much as ten per cent, per annum, if semi-annually paid, would amount to, and this amount to ,be paid before the other stock receives anything. Intervening the two arguments in this cause, the Court examined, and desired the counsel to examine, beyond our own libraries, the de- cisions of the courts upon this subject, to see if this somewhat anoma- lous expression had received a judicial or practical construction. Among the emergencies so common to these railway companies in our countrv, and in that from which we derive our language and so much of our law, we thought it not unlikely that similar circumstances had induced simi- lar contracts, and that the language used by this company', doubtless under the advice of counsel, might have been taken from railway legis- lation, or contracts elsewhere, and with a full knowledge of its legal and practical meaning. In this country we found no decision throw- ing light on this question. In England, however, there are several. The most apt of these cases is, perhaps, Henry v. The Great North- ern Railway Company, 3 .Jurist, part i. p. 1,133. An act of Parliament in that case authorized the company " to guarantee the payment of dividends," not exceeding a certain per cent., " and in preference to the TAFT V. HARTFORD, PROVIDENCE, & FISHKILL R. CO. Gil payment thereof on other shares." The question in this, as in the other English oases over similar words, was between wliat we have indicated as the first and third construction. It has never been even claimed in tlie English courts that the construction secondly stated by us, and urged by the plaintiff, could be adopted, and the court decides that these statutes guarantee to the favored stockholders " a charge on all accruing profits at the stipulated rates, before anything is divided among the ordinary shareholders. This is substantially interest chargeable exclusively on profits." And they further hold that if the profits, accrued when the dividend is declared, are insufficient to furnish the stipulated amount, the deficiency is a charge upon subsequent profits. Again, in Crmcford v, North Eastern Railway Comjyany, 3 Jurist, N. S. part i. p. 1,093, Vice-Chancellor Wood says, in conclu- sion : "Of course, I do not mean to saj* that it is a guaranty in an}' other sense than that you are to be paid these sums out of the profits of the company. That is the only fund }ou are to look to. If the com- pany make no profits you will have no dividend, but, I apprehend, the profits in perpetuity." In Matthews v. Great Northern Railway Com- pany, 5 Jurist, N. S. part i. p. 284, the Vice-Chancellor says of the term " guaranteed share : " "It must be a guaranty limited, at least, to the whole profits made by the railway." "Without dwelling longer upon this and similar authorities, it is per- fectly apparent that the g uaranty of a dividend by a railvva}' company is considered by the courts, and, it seems from the course of the argu- ment by the counsel in these causes, who, doubtless, faithfully represent the interests and wishes of their clients, b^^ the business community also, t o mean nothing more th an a pledge of the funds legalh' applicable to the pur poses of a dividen d ; that, in short, it is a divide^njl, and not a ( leStT which is thus preferred and guaranteed ; and as the statement of facts admits that dividends have not been earned in this case, the plam- tiflf, if there were no other diflSculties in his way, could not recover, and we must give judgment for the defendant,^ Ordinarily, preferred shareholders ha v e no preference in the di s- t£i butio n_oFTIie~company's capital, when_the busin e s s_isjw ound up . A right of this kind cannot be presumed from the fact that a prefer- ence has beeu given in the payment of dividends ; but, ujider ^ n^ ex£ress_agTeernent, a preferred shareholder may be entitled to with- draw the amount of his shares before the other shareholders can take anything. The rights of the preferred member are thus assimilated in man y respec ts~to~those of a cifiditai-. 1 Morawetz on Corporations, 2a^."s. 461. 1 "There is a sense in which every shareholder is a creditor of the corporation to the extent of his contribution to the capital stock. In that sense every corporation includes its capital stock among its liabilities. But that creditor relation is one which exists only between the corporation and its shareholders. It is a liability which is postponed to every other liability, and_rio part_oXthe capita l stock can be lawfully returned to the stockholders until all debts^^arejSl^pr provided for. " Lurton, J., in Hamlin v. Toledo, ^c, R. Co., A. D. 'l89Y, T8 Federal Reporter, 664, p. 671. —Ed. .^ 612 DUNCUFT V. ALBKECHT. CHAPTER XVI. TRANSFER OF SHARES. DUNCUFT V. ALBRECHT. . 1841. \2Simons,\m^ \r^ Bill in equity, praying that defendant be decreed to specificall}' per- form an oral contract for the sale to the plaintiff of shares in a railway company. Defendant demurred to the bill, for want of equity. j G. Michards^ and Myloie, in support of the demurrer. Secondly : the Court will not enforce the agreement in this case ; for shares in a railway company, fall within the description of goods, wares and merchandizes; and, by the 17th section of the Statute of Frauds (29 Car. 2, c. 3) it is enacted that no contract for the sale of any goods, wares and merchandizes, for the price of 10/. or upwards, shall be al- lowed to be good, except the buyer shall accept part of the goods so sold and actually receive the same, or give something in earnest to bind the bargain or in part of payment, or that some note or memorandum in writing of the said bargain, be made and signed b}' the parties to be charged by such contract, or their agents thereunto lawfully authorized. In this case, none of those requisites has been complied with. Shares in a public company, have been held to be goods, within the purview of the 72d section of the Bankrupt Act (6 Geo. 4, c. 16). Cooper v. Ehton; ^ Smith v. Sarman; ^ Mussell v. Cooke.'^ All that the case of Bradley v. Iloldstoorth ^ decides, is that railway shares are not an interest in or concerning lands, tenements or hereditaments, and, there- fore, not within the 4th section of the statute. Knight Bruce, and Piggott, appeared in support of the bill, but 1 Statement abridged. Part of argument omitted. Only so much of the opinioa is given as relates to a single point. — Ed. 2 7 T. R. 14. » 9 Barn. & Cress. 561. See the Judgment of Litllcdale, J., p. 571. * Free. Ch. .533. » 3 Mees. & Wels. 422. TISDALE V. IIAEPJS. G13 The Vice Chancellor [Shadwell], without hearing them, said : I do not feel any difficulty about this case ; because I think that the verbal agreement, as it is stated, is quite sufficient. In my opinion tliis is a case to which the 17th section of the Statute of Frauds does not apph' ; because it is impressed upon m}' mind that, in the decisions which have been made with respect to the 17th section, it has been held to apply only to goods, wares and merchandizes which are capable of being in part delivered. If there is an agreement to sell a quantity of tallow or of hemp, you may deliver a part ; but the deliv- ery of a part is not a transaction applicable, as I apprehend, to such a subject as railway shares. The}' have been decided not to be land. They have been decided to be, in_effe ct, p ersonal estate^; but nqt^ger- sonal esfateoTthe quality ofgoods, war es an d^jner chandizes with in th e meauTng of the^TTtlTsection. h Then there is nothing, as I understand, either in the Statute of Frauds or in the law of this Court, which prevents the execution of such an agreement as is here stated : and, though it may be true that the Plain- tiff has asked more than this Court would give or might give under cer- tain circumstances ; my opinion is that he has stated quite enough to show that he is entitled to some relief : ^ and, therefore, the demurrer must be overruled.^ TISDALE V. HARRIS. 1838. 20 Pickering {Mass.), 9.3 Assumpsit on an oral agreement of the defendant, to sell to the plaintiff two hundred shares, with all the earnings thereon, in a Con- necticut corporation. Verdict for plaintiff. Motion to set aside verdict. One ground of the motion was, because the contract set up was within the statute of frauds. Bartlett and F. C. Loring, for the motion. C. P. Curtis, and B. R. Curtis, contra. Shaw, C. J. [After deciding another question.] But by far the most important question in the case, arises on the objection, that the case is 1 See Hibhlewhite v. M 'Marine, 6 Mees. & Welsh. 200 ; Adderhy v. Dixon, 1 Sim & Stu. 607 ; Ex parte The Lancaster Canal Company, Montagu's B. C. 116 ; and Hum He V. Mitchell, 2 Railway Cases, 70; S. C. 11 Ad. & Ell. 205. 2 On the 23d of July, 1841, The Lord Chancellor affirmed the decision in the case ahove reported. 3 Statement abridged. Citations of counsel omitted. — Ed. o^ ^ 614 TISDALE V. H ARRIS. within the statute of frauds. This statute, which is copied precisel}' from the English statute, is as follows : " No contract for the sale of goods, wares or merchandise for the price of ten pounds ($33.33) or more, shall be allowed to be good, except the purchaser shall accept part of the goods so sold, and actuall}^ receive the same or give some- thing in earnest to bind the bargain, or in part payment, or that some ■ooteor memorandum in writing of the said bargain, be made and signed bj^ the parties to be charged by such contract, or their agent, thereunto lawfully authorized." This being a contract for the sale of shares in an incorporated com- pany in a neighboring State, for the price of more than ten pounds, and no part having been delivered, and no purchase money or earnest paid, the question is, whether it can be allowed to be good, without a note or memorandum in writing, signed b}- the party to be charged with it. This depends upon the question, whether such shares are goods, wares or merchandise within the true meaning of the statute. It is somewhat remarkable that this question, arising on the /St. 29 Car, 2, in the same terms, which ours has copied, has not been defini- tively settled in England. In the case of Pickering v. Applehy., Com. Rep. 354, the case was directly and fully argued, before the twelve judges, who were equally' divided upon it. But in several other cases afterwards determined in Chancery, the better opinion seemed to be, that shares in incorporated companies, were within the statute, as goods or merchandise. Mussell v. Cooke, Prec. in Ch. 538 ; Crull v. Dod- soti^ Sel. Cas. in Ch. 41. We are inclined to the opinion, that the weight of authorities, in mod- ern times, is, that contracts for the sale of stocks and shares in incor- porated companies, for more than ten pounds, are not valid, unless there has been a note or memorandum in writing, or earnest or part payment. 4 Wheaton, 89, note ; 3 Starkie on Evid. 4th Amer. Edit. 608. Supposing this a new question now for the first time calling for a construction of the statute, the Court are of opinion that as well by its terms, as its general policy, stocks are fairl}' within its operation. The words "goods" and " merchandise," are both of very large sig- nification. Hona, as used in the civil law, is almost as extensive as personal property itself, and in many respects it has nearly as large a signification in the common law. The word "merchandise" also, in- cluding in general objects of traflfic and commerce, is broad enough to include stocks or shares in incorporated companies. There are man^' cases indeed in which it has been held in Elngland, that buying and selling stocks did not subject a person to the operation of the bankrupt laws, and thence it has been argued that the}' cannot be considered as merchandise, because bankruptcy extends to persons using the trade of merchandise. But it must be recollected that the bankrupt acts were deemed to be highlj^ penal, and coercive, and tended to deprive a man in trade of all his property. But most joint TISDALE V. HARRIS. 615 ^ \/fi > stock companies were founded on the hypothesis at least, that most of the shareholders took shares as an investment and not as an object of traffic ; and the construction in question only decided, that by taking and holding such shares merely as an investment, a man should not be deemed a merchant so as to subject himself to the highl}' coercive pro- cess of the bankrupt laws. These cases, therefore, do not bear much on the general question. The main argument relied upon, hy those who contend that shares are not within the statute, is this. That statute provides that such con- tract shall not be good «S:c., among other things, except the purchaser I /^''[^ "1^ shall accept part of the goods. From this it is argued, that by neces-li^r ^r^ sary implication, the statute applies onl}' to goods, of which part may '\r jti\ be delivered. This seems however to be rather a narrow and forced |v^ construction. The provision is general, that no contract for the sale of goods &c. shall be allowed to be good. The exception is, when part are delivered ; but if part cannot be delivered, then the exception can- not exist to take the case out of the general prohibition. The provision extended to a great variety of objects, and the exception may well be construed to apply only to such of those objects to which it is appli- cable, without affecting others, to which from their nature it cannot apply. There is nothing in the nature of stocks, or shares in companies, which in reason or sound policy should exempt contracts in respect to them from those reasonable restrictions, designed by the statute to prevent frauds in the sale of other commodities. On the contrary, these com-i panics have become so numerous, so large an amount of the property of the communit}' is now invested in them, and as the ordinary indicia of property, arising from deliver}- and possession, cannot take place, there seems to be peculiar reason for extending the provisions of this statute/ to them. As the}' ma}' properly be included under the term goods, as they are within the reason and policy of the act, the Court are of opinion, that a contract for the sale of shares, in the absence of the other requisites, must be proved by some note or memorandum in writ- ing ; and as there was no such memorandum in writing, in the present case, the plaintiff is not entitled to maintain this action. As to the argu- ment, that here was a part performance, by a payment of the money on one side, and the delivery of the certificate on the other, these acts took place after this action was brought, and cannot therefore be relied upon to show a cause of action when the action was commenced. Verdict set aside and plaintiff nonsint. Y \ i^.. ^y^^^ WHITE V, SALISBURY, WHITE, Executor, v. SALIS 1862. 33 Missouri, 150.1 ^i^E appellant sued the respondents upon the following instrument JT^ oi writing : ^ " We, the undersigned, agree to pa}' and deliver to William White, or order, seven hundred and seventy-seven dollars and sixteen and thpe-fourths cents in railroad stock of the North Missouri Railroad ompany, the same to be delivered to him on or before the fifteentb day of July next, which amount is understood to be seven shares and ^,r^77f of a share. The above shares are given in discharge of a note given by L. W. Salisbury to William White for 6616.72, and dated February 21, 1853. L. W. Salisbury, H. D. Brown. Test: W. G. Shackelford. Dated 22d June, 1857." Plaintiff averred in his petition that the defendants had failed to comply with their contract, in not delivering the railroad stock on or before the fifteenth day of July, 1857, the time agreed upon for its the amount of the consideration o^ AA h [a^ \ delivery, and claimed damages to ^)r^ ^ advanced by White to Salisbury & Brown, being the note he (White) held on Salisbury for the sum of $616.72. The answer of the defendants denied that plaintiff was entitled to damages, as claimed, or in any sum ; that defendants did, in compli. ance with the terms of their contract, on the fifteenth day of July, 1857, Lave the requisite number of shares entered in the name of William White upon the books of the North Missouri Railroad Compan}-. This cause was submitted to the court without a jury, and the follow- ing declarations of law were prayed by plaintiff : 1. That, under the terms of the contract read in evidence between the ^olaintiff's testator and defendants, the defendants were bound to deliver on or before the fifteenth day of July, 1857, a certificate of the stock contracted to be delivered, and that a transfer upon the books of the compan}', on the fifteenth day of July, 1857, or at any previous time, without any notice to White, is not in law a sufficient deliver}' under said contract. The Court refused tlie instructions, and gave a judgment for the defendants. Jones & Ilayden, for appellant. I. That under the contract a transfer or entr\' upon the books of the company of the amount of stock contracted to be delivered was no delivery, either actual or symhoUcal. [Remainder of argument omitted.] Sharp tjb Broadhead, for respondents. I. The act of respondent Salisbury, in procuring a transfer of the imount of the stock called for bv the contract on the books of the 1 Part of case omitted. — Ed. WHITE V. SALISBURY. CI 7 North Missouri Railroad Company, is a substantial compliance with the contract. It may be safely stated, that upon an agreement for the sale of personal chattels, where the property is in its nature intangible and incapable of manual or actual deliver}', that if the vendor, b^- his act, passes the title to the vendee and puts it out of his power to recall it, that it amounts to a deliver}'. (Acts of 1853, pp. 325 & 326, sec. 8.) This was done by act of the company, and the mere fact that the new certificates of stock were handed to defendant did not vest him with any authority or control over them ; they were issued to "White, and White alone could control the stock or re-assign it. (5 W. & Serg. p. 106.) [Remainder of ai-gument omitted.] Drydek, J. The defendants, b}' the contract sued on, agreed to deliver to the plaintiff's testator, on or before the fifteenth of July, 1857, seven 77-100 shares of stock in the North Missouri Railroad Company. The main ground of controversy in the court below was as to what was^ required to be done by the defendants to comply with their engage-l nient, the plaintiff maintaining that the delivery of certificates of stocla to his testator was essential ; while it was insisted b}' the defendantsA that a transfer of the stock to him on the books of the compan}' wasj what was necessary, and all that was requisite. We think the defend-| ant's theory the correct one. The en d the pa rties intended to accom- plish waa_to_confex upoiijthejxhiint^^' ^ testator the title an cLQwi^ership ofthe stock contracted for. Tlie delivery of the certificates from one par ty to the other wouFd leave_the ^ title to^ e s tock just where it was before. The onT}- eflfectual mode of Jiansferring Jli e title was b} ^ trans^Ton^the books of tlie company, and b}' that means only. The Eighth section of the amended charter of tlieT^sortir Missouri Railroad Compan}', (Sess. Acts of 1853, p. 325-6,) provides that, " when payment for the stock of any subscriber or stockholder shall be fully made, the president and directors shall deliver one or more certificates of such stock, signed by the president, and countersigned by the treas- urer, under the seal of the company, to such subscriber or stockholder, for the number of shares belonging to him or her, which certificates shall be transferable in a book to be kept for that purpose by the com- pany, and, when transferred, shall be delivered up to the president and directors and be cancelled, and new certificates be issued to the as- signee." In the Agricultural Bank v. Burr, 11 Shepley (Mc.) R. 2C3, shares of bank stock had been transferred to the defendant on the books of the bank, but no certificate of stock had been issued to him. The question arose whether he was a stockholder. Mr. Justice Sheple}-, in delivering the opinion of the court, saj's, " a person becomes legally entitled to shares so transferred to him upon the books of the bank. The certificate is but additional evidence of his titles." Same Bank v. Wilson et al. 273, is to the same effect. (Ellis v. Essex Merrimack Bridge Co. 2 Pick. 243 ; Chester Glass Co. v. Dewey, 16 Mass. 94.) [Remainder of opinion omitted.] Judgment affirmed* A «» >.<^A boatmen's ins. and trust CO. V. ABLE. t^, C/ ^ y^ ^ ^Jf >^ ^/vBbATMEN'S INSURANCE AND TRUST CO. v. ABLE. jU^ . J-^'^^^^^ Jr'^ jy 1871. 48 Missouri, 136 ^ / • ^ ^^ ^ ^^ kj ^"^ ^' ijJ^ ^ ixEjcrob, to St. Louis Circuit Court. ^lY < Isy ^P Glover & Shepley^ for plaintiff in error. \iijJ jy^ Sharp t& Broadhead. for defendants in error. ^ tj>^-^ Bliss, J. Defendants were indebted to the plaintiff by a promissory atJ^ note for $4,000 and Able, the principal upon the note, owned stock in "n (5c'' the company. Upon maturity of the note, defendant Able proposed to sell the plaintiff his stock in part payment, and to his proposition Received the following reply : "Dear Sir: I am instructed to receive your eighty shares of Boat- men's Insurance stock at fifteen dollars per share, and credit the amount on 30ur new note for $4,000 payable at thirty days after date. If the above proposition meets your views, a'Ou will please send your note and your stock certificate by your boy, and step in yourself and transfer the same on the books of the compan3^ Yours respectfully, Edw. Brooks, Sec'y. The new note was sent in without the certificate, and a few days certificate was mislaid, but ^in/^ g^ that he would look it up, and signed upon the stock-book of plaintiff lA^ e^ yC/' ' A the usual blank transfer of his stock, to be filled up by plaintiffs ofii- cers. Not being able to find his certificate, he again calls and asks -tnat the price of the stock be indorsed upon the note without its pro- duction ; but plaintiff's secretary refused to make the indorsement unless Ir. Able would obtain a new certificate and assign it by complying with ^ ii^ terms of one of the company's by-laws. This Mr. Able would not \,y^do. The new note went to protest, and this suit is brought to recover ^jjH *^ ^ p ^^"^ ILe new note was sent ui wittiout tne l'^*^ijy .Af^-^ after, Mr. Able called and said his stock ' . ^^^in/^ (^ that he would look it up, and signed upon its amount. The answer sets up part pa3'ment b}' a transfer of the stock, and the reply denies the transfer. The onh' question of fact put in issue was whether the stock was actual!}' transferred or not ; and the court, finding the affirmative of that issue, gave judgment for the bal- ance due on the note. Even if we thought that the preponderance of evidence showed that plaintiffs officers took the assignment condition- ally, and never intended to receive the stock unless the certificate was given up, and hence that it was not in fact transferred, yet the court below found otherwise, and that finding we cannot review, but can only inquire whether the court was justified in refusing the following declara- tion of law asked by plaintiff: " If the court find that plainfifl' agreed with defendant Able to take eighty shares of stock, standing on their books in his name, and credit 81,200 on tlie debt in suit, without know- ing said Able could not produce his certificate for said shares for cnn- cellation, plaintiffs were not bound to enter said credit without such 1 Arguments oiuiLted. — Ed. boatmen's ins. and trust CO. V. ABLE. C19 production of said certificate for cancellation ; and if said Able would neither produce said certificate for cancellation nor take steps provided by plaintiff's by-laws to procure another certificate in case of loss, the verdict should be for plaintitfs." This declaration, if made, would have been defective in ignoring several facts, among which was the actual assignment upon the com- pany's books ; nor does it seem to have been drawn with a careful reference to the issue. The question was transfer or no transfer, purchase or no purchase, and it only touches that question argumenta- tively. With reference to this issue, the scope and effect of the instruc- ^ tion must be understood to be that there could have been no transfer of the stock without a surrender of the stock certificate, unless such surrender was waived by the purchaser, and that this stock was not in fact transferred for want of compliance with the requirements of the company's by-laws in obtaining a new certificate for surrender. Had the declaration predicated the agreement to purchase upon such surren- der, as a condition of receiving the stock, it would have been so far clearly right, for the plaintiff's officers had a right to affix an}- condition to their agreement they saw fit. They certainly had a right to insist that the outstanding stock certificate should be given up, and to refuse to receive a transfer until it was done. But the declaration does not do that ; and if the construction I have given it be the correct one, the plaintiff is made to claim that no credit should be given for the stock, although it may have been legally transferred. We have, then, onh' to consider whether the transfer could have been in fact made without the production of the certificate, and not whether defendant Able failed to comply with a reasonable condition in an agreement to purchase. Upon this point there can be no doubt. Plaintiffs' charter, approved January 26, 1864 (§ 8), expressly provides that the stock shall "be assignable only on the books of the company," and thus adopts the rule applicable to the transfer of corporation stock, whether expressed in the charter or not, with its corollary that such assignment upon the books passes the title. (White, Ex'r, v. Salisbury, 33 Mo. 150.) It is also a recognized rule in the sale of stock that an assignment or trans- fer of a stock certificate will not of itself pass the title to the stock, although, like an agreement in writing to sell land, it gives an equity, and the assignee of the certificate can compel a transfer upon the books except as against a bona fide purchaser who has acquired a title by such transfer. (Sargent v. Franklin Ins. Co., 8 Pick. 90 ; Sargent v. Essex M. R. C, 9 Pick. 202 ; Com. Bank v. Cartwright, 22 Wend. 348 ; Chouteau, etc., v. Harris, 20 Mo. 382.) The fear that there might be such outstanding equity that would give trouble to the purchaser, would be a very good reason on his part for insisting, as a condition of purchase, that the certificate be surrendered. But when no such condition was insisted orij and lUiJlransfer was in ft,ct_made, such fear would be no excuse for refusing payment The purchaser in that case would assume the risk of all the trouble that C!_ A f|\ jjr ' ^^ o^ * commonwealth v. crompton. OsS. ^ght arise fr6m the outstanding certificate. The court below found vthis fact against the plaintiff, and, having so found it, committed no error fn refusing the declaration of law he sought. The judgment will be affirmed. Judge Wagner concurs^(^lB5ge fCurrier not sitting. s^ii^ ^ ,.i^ ^ OMMONWEALTH v. CROMPT' ir^ ^J t^ h..aJ^ ^ J^ 1890. 137 Pa. 5fa«e, 138.1 -^ ^ i^ ^ H/^ \- In the matter of the escheat of the estate of Alex^j^er McNaugh- <^^y^J ^0°' t^eceased. /^^'>, jij ' i^ >^^ Issue between the Commonwealth and Mrs. Susan Crompton, admin- { 1l ^"■"^^'^ istratrix. McNaughton died intestate, unmarried, without issue ; and, ^ i ,jy^ *, so far as known, leaving no kindred. Proceedings for an escheat were / f-*^ ^ ^y^ instituted in behalf of the Commonwealth. Mrs. Crompton introduced % ^,f^ J^ ^ evidence that McNaughton had boarded in her family for man}- years, 9f '^ ^^ 2f} that she did his washing and mending, and that he said he would pay (r*^" H/^.,^ "* r-j^hev some day ; also that, some months before his death, he gave her a j-^ ^.^ "-'€ the subject-matter of the gift were delivered to the donee, we think she has a title to the securities which cannot be destroyed in a proceeding b}- the commonwealth to escheat them. ^^it*'^'^^\^ V , ^ Judgment affirmed. r"^^ — =/ u N /■'• /I \cy A^ A y^ One "^^ P I & Am: :^ \ /fflHenrv MATTHEWS ^.'. HOAGLAND. 1891. 'i^ New Jersey Equity, Abb)- One question in this case was whether certain shares in the Camden Amboy R. R. Company were the property of the estate of the late /jT >^ 1 (j^j^j Henry Matthews. It was claimed on behalf of two of his children that / , (j^ he gave these shares to them. Mrs. Hoagland, one of the children, l^Q.^ Il . testified in substance, that her father handed the certificate of this (' fp'^ 1^ stock to her brother, John H. Matthews, in her presence, telling him 4 Jt ^P-^ (^'- that this was for his sister and himself, and that he (the father) wanted ^ - IP^ T*^ "^ ^^® brother and sister to have it whilst he was living. ^^'^n. gJ^^ t^^-^^^ 3Iartin L. Trimmer and Charles A. Skillman, for plaintiff. *^^ \^^^^~^ i,'^ t^f^' N'ewton Voorhees and Albert D. Anderson, for various defendants. Cj4ieen v. C. A^ \^ (y A.x^ i^ These shares are on the face of the certificate in the name of Henry atthews, and declared to be "transferable only by him, or by his legal representatives, on the books of the compan}-, on the surrender of this certificate." The certificate has on its back a printed blank assignment and power of attorney for the transfer of the stock b}' the record owner. The provisions of charters, or of by-laws, under the statute {Rev. p. 181 § 26), that stock of the corporation shall be transferable only on the books of the company, are held to be intended merely for the protection of the company. It is settled that one in possession of a certificate of stock in an incorporated company, accompanied by an assignment in blank, exe- cuted by the record owner, with an irrevocable power of attorne}-, authorizing the transfer of the stock, is presumptively the equitable owner of the shares, whose title thereto cannot be impeached if he has gi^en value for them without notice of any intervening equity. liof/ers v. New Jersey Insurance Co., 4 JIalst. 167; Broadwaij Bank v. McElrath, 2 JBeas. 24 ; affirmed in Hunterdon Connty Batik v. JVas' sau Bank, 2 C. E. Gr. 496 ; 3fount Holly Co. v. Ferree, 2 C. E. Gr. 117 ; Prall v. Tilt, 1 Stew. Eq. 479 ; Del. & All. B. B. v. Irick, 3 Zab. 321 ; State, Bush, v. Warren F. Co., 3 Vr. 439. * The greater part of the case is omitted. — Ed. MATTHEWS V. HOAGLAND. 623 The reason of the rule is, that the record owner has done everything in his power to effect the transfer, and by such act has assigned all in- terest he may have had, and surrendered all indicia of ownership — as to third parties, holders for value, he is estopped from asserting owner- ship (McNeil V. Te)ith National Bank, -iG N Y. 325 ; Williams v. Col. Bank, L. B. (38 Ch. Biv.) 388 ; affirmed Z. B. (lo A])]). Cas.) 267 — as to volunteers, the gift is complete and irrevocable if inter vivos. In England, stocks, shares, bonds, debentures and other securities which are not assignable at law unless duly transferred, must be duly transferred, and not merely assigned or covenanted to be transferred, to constitute a valid gift. Mai/ Fraud. Conv. *413 ; Antrobus v. Smith, 12 Ves. 39; Dillon v. Cojqnn, 4 Myl. & C. 647; Searle \. Laio, 15 Sim. 95. The Companies Clauses act of 1845 requires such assignments to be by deed, and to be delivered to the officer of the company, without which formalities the legal title will not pass. Nan- ney v. Morgan, L. B. (37 Ch. Biv.) 346. The English cases proceed on the ground that the title not having passed b}' a legal assignment, equity will not interfere to enforce an equitable title of a volunteer. The same is the effect of the decisions in Maryland, unless the trans- fer is made complete in the lifetime of the donor, on the ground that the power of attorne}' does not survive him {Pennington. Admr., v. Gitting's Exrs., 2 Gill, ci' J. 209 ; Bait. Betort and Fire Brick Co. v. Mali, 65 3Id. 93), while in other states the mere dehver}' without endorsement or written assignment of the certificate of stock with words of gift are held sufficient. Commonioealth v. Cronipton {Pa.), 20 Atl. Bep. 417; Bidden v. Thrall {N. Y.), 26 N. E. Bep. 627; Hopkins v. Manchester {B. I.), 19 Atl. Bep. 243. Smith V. Burnet, 8 Steio. Eq. 314, in the court of errors and appeals, on the question of gift, turned on the point that there was no such de- livery of the stock as implied an intention, on 'the part of the donor, to give it absolutely, or to abandon control of its proceeds. The ordinary, in Bilts v. Stevenson, 2 C. E. Gr. 407 (at p. 413), says : " To constitute a perfect gift the donor must part with the pos- session and dominion of the propert}'. And if the thing given be a chose in action, the law requires an assignment, or some equivalent instrument, and the transfer must be actually executed" — citing 2 Kent Com. *439. The rule, thus broadly given in the last sentence, has undoubtedl}', since Chancellor Kent so stated it in his commenta- ries, been greatly relaxed in man}' jurisdictions with reference to money obligations, and in others to all choses in action, while Judge Grover, In Grag v. Ba7'to7i, bb N. Y. (at p. 73), quotes the same extract with approval. In man}' cases in that state the principle socms to be disre- garded. There is great diversity of opinion evinced by the decisions in other jurisdictions, but I am unable to find any authority in this state which would indicate a departure from the principle stated. The relaxation of the rule elsewhere seems to have resulted from the (uling as to money obligations, and gifts causa mortis. 624 MATTHEWS V. HOAGLAND. There seems, however, to be CA^ery reason why it should be adhered to ill a case of an alleged gift ititer vivos of stock, both from the nature of the subject-matter, and from the incidents of such gifts. There is a wide difference in the character of property in shares of stock and that in money obligations. Chief-Justice Shaw, in Fisher v. Essex Bank^ 5 Gray 373 (at p. 377), speaking of the character of property in shares of stock, and wherein it differs from a money obligation, sa^'s : "A nearer analogy, perhaps, is that of a chose in action, capable, like this, of being assigned in equity', by a delivery over of the certificate, which is the assignor's mu- niment of title, with an assignment duly executed, transferring to the assignee all the assignor's right, title and interest. And yet it is not like the assignment of a chose in action, which is the transfer of the assignor's interest in a debt, and vests in the assignee an equitable right to collect the debt in the name of the assignor. ''The right is, strictl}' speaking, a right to participate, in a certain proportion, in the immunities and benefits of the corporation ; to vote in the choice of their officers, and the management of their concern ; to share in the dividends of profits, and to receive an aliquot part of the proceeds of the capital, on winding up and terminating the active ex- istence and operations of the corporation. Again, when a transfer is rightfully made and complete, it vests a right in the transferee not merely to act in the place of the vendor and in his name, but substitutes fiim, in all respects, as the legal and only holder of the shares trans- ferred to the same extent to which they were before held by the vendor. The title, therefore, by which such interest is held is strictly a legal title ; it is created and defined hy law ; its benefits are secured b}' law ; it is transferable by operation of law, and may be attached on mesne process and seized on execution and sold by legal authorit}' to satisfy the debts of the owner." The incidents of gifts m^e/* vivos call for the observance of the rule as laid down hy Chancellor Kent. Cogent reasons are given by Mr. Justice Gilbert in Johnson v. Spies^ 5 Him, 468, why the law might well overlook an informality or incompleteness in a gift causa mortis^ which it would not tolerate in respect to a gift inter vivos. 15 Alb. L. J. 40. A gift inter vivos must be complete in present i ; it has no reference to the future ; there must be a deliver}', and it must be an actual one, " so far as the subject is capable of delivery. It must be secundum suhjectam materiarn, and be the true and eflTectual way of obtaining the command and dominion of the subject." 2 Kent Com. *'139. In Basket v. JIassell, 107 U. S. 602, Mr. Justice Matthews (at p. G14) says: "The point which is made clear by this review of the decisions on the subject, as to the nature and effect of a delivery of a chose in action, is, as we think, that the instrument or document must be the evidence of a subsisting obligation, and be delivered to the donee, 60 as to vest him with an equitable title to the fund it represents, and MATTHEWS V. HOAGLAND. 625 to divest the donor of all present control and dominion over it, abso- lutely and irrevocably, in ease of a gift inter vivos, but upon the recog- nized conditions subsequent, in cases of a gift mortis causa / and that a delivery which does not confer upon the donee the present right to reduce the fund into possession by enforcing the obligation, according to its terms, will not suffice." As delivery is necessary' to the validity of a gift inter vivos, and as/ the certificate of stock is the only thing connected with its ownership that is capable of manual tradition, it would seem that an assignment and power to transfer, which are necessar}^ to make the certificate at once available, inheres in its effectual delivery. There appears to be a controlling distinction between a transfer in- volving the delivery of a certificate of stock with an assignment and power to transfer the shares, with words of gift, and a deliver}' of the certificate unassigned and unaccompanied by an act or writing empow- ering its transfer ; for a gift inter vivos being incomplete so long as an}' act of the donor remains undone which is necessary to confer on the donee the power of the present control and enjoj'ment of the sub- ject of the gift, the failure of the record owner of the stock to clothe the donee with the means of at once acquiring the benefits of the stock, leaves unperformed an act which prevents the gift from taking effect in presenti which is vital to it as a gift inter vivos. Again, it is necessary to the validity of a gift inter vivos that all of the title of the donor, whatever it may be, should be transferred at once to the donee. He cannot retain any interest therein without destroying I ^^^**^ t^ Its character as a gift. Young v. Toimff, 80 iV! r: 422. ' (jLV^ f^J!^^t^^^ The handing over of a certificate of stock without a written assign-"^'' " ment or power certainly does not transfer the legal title. If we admit it confers an equitable title, the legal has remained in the donor, and cannot be enforced, for equit}' recognizes and makes effective only as- signments founded on a valuable consideration and does not aid a vol- ->.- • ^v unteer. ^lay Fraud. Conv. *40G ; Weale v. OlHve, \1 lieav. 252. '/jL; ^\\y^ Nor under the decisions will equity build up a trust with the frag- '^y^ \/^ ments of an incomplete gift. Antrobus v. Smith, 12 Ves. 39 ; Richards' .-^^^^J^ V. Dolbridge, L. E. (18 Eq. Cas.) 11 ; Moore v. 3Toore, L. R. (18 Eq\ "^ .V^^^'^ Cas.) 474 ; Milroy v. Lord, 4 DeG., F.& J. 274 ; Hertley v. Nichol- son, L. R. (19 Eq. Cas.) 233 ; Young v. Young, suqjra. In ra}' judgment the character of the property in shares of a corpora- \ tion, as well as the distinctive qualities of a gift inter vivos, forbid a departure from the rule, that a valid gift of such property cannot be made by the delivery of the certificate of stock, without formal transfer, or an assignment and power in writing to transfer the shares. But, independent of the legal question, the rule that the possession of the certificate assigned or accompanied b}- authority to transfer is evidence of ownership, is now the recognized law of all mercantile com- munities in this country, and under it all transactions in the sale or pledge of stocks are carried on. The usage is so universal that the trans- ,JI( /fji •&\ -^' D 62G EAST BIKMINGHAM LAND CO. V. DENNIS. fers are printed on the certificates, as on the one in question. If the decisions in this state did not seem to require an assignment in writing, I would be satisfied that the failure of Henry Matthews to execute the transfer and power of attorney' on the back of the certificate, was con- clusive evidence that he did not intend to make a present gift of the stock, and to divest himself of all control and dominion over it or its proceeds. There was no haste in the matter ; he had taken the time to execute the deed to John Matthews with all formality ; he, it must be assumed, knew that the company would require his assignment in writ- ing to transfer the stock, and notwithstanding anything he may have said indicating an intention to give it, the fact of his not making the paper effective shows that he intended to retain some dominion over the propert}'. If so, it is fatal to the transaction as a gift inter vivos. The stock of the Camden and Amboy railroad I am of opinion was not efl'ec- tually given by the intestate, and belonged at his death to his estate. "^/"^ ..L^"" 1^ I f^ P ^^o Xv f< (/S^ h E^ST y-' ENNIS. ..■y r^. ^fj '^-^% ^r-', BIRMINGHAM LAND C( i, 1888. 85 Alabama, 565.1 Appeal from the City Court of Birmingham, in equity. Heard before the Hon. H. A. Sharpe. The bill in this case was filed on the 13th April, 1888, b}^ J. F. Dennis, against J. P. Mudd, and the East Birmingham Land Compan}', yo^ a private corporation ; and sought to compel the transfer, on the books Kj> _J^i the corporation, of a certificate for ten shares of stock, of which the complainant claimed to be the owner, and to compel the delivery of the certificate to him b}- said Mudd, who had possession of it under claim of ownership. The certificate was issued in the name of A. R. Dear- ie * A'^' born, and was indorsed by him in blank. The complainant claimed A\ that he had bought the certificate, with the blank indorsement thereon, ^ f from a holder wlio had acquired it by purchase from said Dearborn ; , « and that it was lost b}'' him, or stolen from him, without fault on his part. Mudd purchased the certificate, for full value, from Wilson, Sage & Clark, stock-brokers in Birmingham ; and while denying com- plainant's ownership, claimed that he acquired a good title b}' the cus- tom and usage of brokers and merchants in Birmingham. A decree pro coiifesso was taken against the corporation. On final hearing, on pleadings and proof, the court rendered a decree for the complainant ; and this decree is now assigned as error, by each of the defendants Beparatcly. S. D. Weakley, for appellants. • W. 11. IIoiKjfiion., contra. 7i >r.. Citatious of counsel omitted. — Ed. EAST BIEMINGHAM LAND CO. V. DENNIS. G27 \ SoMERviLLE, J. We concuF in the conclusion reached by the judge of the City Court, that the appellee, Dennis, complainant in the bill, is the owner of the ten shares of stock which are the subject of litigation in the present suit. The testimony satisfactorily proves that the certifi- cate of stock, indorsed in blank by Dearborn, who was the owner on the books of the defendant corporation, was the property of the appellee, and was taken or stolen from his possession, without an}- negligence on his part whatever, several months before it was purchased by the de- fendant Mudd, who innocently bought and paid value for it, some time in March, 1888. The onl}' question is, whether Mudd, who paid full value for this stock, without notice of the complainant's claim to it, acquired a title superior to that of complainant. The established rule is that no person can ordinarily be deprived of his ownership of property save by his own consent, or his negligence. Thei only exception to this rule is the case of a honajide purchaser for value of negotiable paper. We have no reference, of course, to the taking of property for pubUc uses b}' judicial condemnation, which may be done without the owner's consent. It can not be contended, with an}' degree of plausibility, that, under the facts of this case, the complainant was guilty of negligence, or the want of ordinary care in the custody of the certificate. He kept it in a box in the vault of a banking-house, whence it was abstracted by some unknown person, apparently, without any fault on his part. Nor does any question arise involving the rights of a subsequent bona fide purchase of stock, from one shown to be owner on the corporate books, who has already made a prior unregistered transfer of it to an- other purchaser. All such transfers made by the true owner, and not registered on the books of the corporation within fifteen days, are de- clared by statute to be " void as to bona fide creditors, or purchasers without notice." — Code 1886 § 1671; Fisher \. Jones, 82 Ala. 117. If the defendant Mudd had claimed by a subsequent purchase from Dearborn, the owner of the stock on the corporate books, this question would arise. But he does not so claim, his title being derived through the complainant Dennis himself, by two or more intermediate transferees, the first of whom was a fraudulent holder without title. Whether Mudd's title to the stock, therefore, is superior to that of Dennis, depends on whether a certificate of stock, indorsed in blank by the owner, is to be treated as negotiable paper. The rule is well settled, that a bona fide purchaser of a negotiable bill, bond or note, although he buys from a thief, acquires a good title, S if he pays value for it without notice of the infirmity of his vendor's title. The authorities are clear in support of the view, that a certificate of corporate shares of stock, in the ordinary form, is not negotiable paper, and that a purchaser of such certificate, although indorsed in blank by the owner, where no question arises under the registration laws, obtains no better title to tlie stock tlinn his vendor had, in the i i\ '> 628 EAST BIRMINGHAM LAND CO. V. DENNIS. absence of all negligence on the pnrt of the owner, or his authority to make the sale. This question arose, and was decided by the New York Court of Appeals, in Mechanics' Bank v. New York & New Haven B. R. Co,, 13 N. Y. (1856), 599. It was there hel d, that such a c er- tificate does not paj;take of the character of a negoti able instrument, and t hat a. bo7ia fide assignee, with full power to transfer the stock, takes the certificate subject to the equities which existed against his assignor. Such certificales, said ComstockTJ., " contain no words of negotia. Ijility. They declare simply that^the person named is entitled^ to c_er^ tain shares of stock. They do not, like negotiable instruments, run tQ. the bearer7or order of the^party to whom they are given." They :were_ said to be, in some respects, like a bill of lading, or warehouse receipt, Being " the representative of property existing under certain conditions, ami the documentary evidence of title thereto." The most that can be said is, that all such instruments possess a sort of quasi negotiability, dependent on the custom of merchants and the convenience of trade. They are not, in the matter of transferability, protected strictl}' as negotiable paper. In Shaw v. Spencer^ 100 Mass. 382 ; s. c, 97 Amer. Dec, 1 Araer^ Rep. 115 (18G8), it was also decided that a certificate of corporate stock, transferred in blank on its back, was clearly not a negotiable Instrument. " No commercial usage," it was said, " could give to such an instrument the attribute of negotiability. However many interme- diate hands it may pass through, whoever would obtain a new certifi- cate in his own name, must fill out the blanks, . . so as to derive title to himself directly from the last recorded stockholder, who is the only recognized and legal owner of the shares." The case of SevKtll v. Boston Water Poicer Co., A Allen, 282 ; s. c, 81 Amer. Dec. 701, de- cided by the same court a few years before, is referred to as a precedent in support of this conclusion. The precise point in the present case was also decided in Barstow v. Savage Mining Co., 64 CaL 388 ; s. c, 49 Amer. Rep. 705, where it was expressly held that a bona fide purchaser of stock standing on the compan^^'s books in the name of the former owner, regularly indorsed by him, and stolen from the present owner without his fault, gets no i title. The decision was based on the fact, that such certificates are not negotiable instruments, but simply muniments of title, and evidences of the holder's right to a given share in the property and franchises of the corporation. It was observed, in regard to the matter of negli- gence, as follows: "But, if the purchaser from one who has not the title, and has no authority' to sell, relies for his protection on the negli- gence of the true owner, he must show that such negligence was the proximate cause of the deceit." The same principle was applied to bills of lading, in Gurney v. Beh- rend, 3 Ellis & Bl. 622, decided by the English Queen's Bench, where an instrument of that kind, indorsed in blank by the consignor, and Bent by him to his correspondent, had been misappropriated. The EAST BIRMINGHAM LAND CO. V. DENNIS. 629 correspondent, without authority, fraudulently transferred the bill for value ; and it was held by Lord Campbell, that for the want of the element of negotiability in the paper, the title to the goods was unaffected by the transaction. The doctrine of Barstow v. Savage Mining Co., siqyra, is well sup- ported by authority-, and, in our judgment, announces a correct prin- ciple of law, and we fully approve it. — Woolley v. Sargeant, 14 Amer. Dec, Note, on page 427, and cases there cited; Cook on Stock and Stockholders, sec. 368, 437, 192, 7, 10; 2 Daniel's Keg. Instr. (3d Ed.), § 1708y. It harmonizes entirely' with the declaration of our statute,! that shares of stock in private corporations "are personal property,! transferrable on the books of the corporation " in accordance with the | rules and regulation of the corporation. — Code 1886, § 1669 ; Camp' hell V. Woodstock Iron Co., 83 Ala. 451. There is a class of cases, not to be confounded with the one in hand, where the holder of such a certificate of stock, indorsed in blank, is clothed with power as agent or trustee, to deal with such stock to a limited ex- tent, and transfers it b}' exceeding his powers, or in breach of his trust. In such cases, it has often been held that the true owner, having con- ferred on the holder, by contract, all the external indicia of title, and an apparently unlimited power of disposition over the stock, "is es- topped to assert his title as against a third person, who, acting in good faith, acquires it for value from the apparent owner." — 2 Dan. Keg. Inst. (3d Ed.), § 1708^/ McNeil v. Tenth Nat. Bank, 46 N. Y. 325; Mount Holly Turnpike Co. v. Ferree, 17 N.J. Eq. 117; Prall v. Tilt, 28 lb., 479 : Merchant's Nat. Bank v. Livingston, 74 N. Y. 223. These cases rest on the principle, that it is more just and reasonably where one of two innocent parties must suffer loss, that he should be the loser who has put trust and confidence in the deceiver, than a stranger who has been negligent in trusting no one." — Allen v. Maury tjb Co., 66 Ala. 10. It being an established principle of law, that certificates of stock are not to be regarded as negotiable paper, it is not permissible to prove a custom or usage among stock-brokers to the contrary. No usage is good which conflicts with an established principle of law, any more than one which contravenes or nullifies the express stipulations of a contract. Dickinson v. Gay, 83 Amer. Dec. 656, and note, 664 \ E. T., Ya. cfc Qa. R. R. Co. V. Jofinston, 75 Ala. 576 ; Lehman v. Marshall, 47 Ala. 362. The decree of the court below is in accordance with these views, and must be affirmed. )[c 6< 1 > -4Mck >^ NTH NATIONAL BANK/ / / (^ J s ^ /. lEIL V. TENTH NATIONAL BANK. 1871. 46 iVew; Fori, 325.1 ^ ; v^ ^/ji/i^ppEAL from a judgment of the General Term in the fourth district, ^ .latrirming a judgment entered in Montgomery count}', in favor of the (^yKa/^plaintiff on the report of a referee. J^^ "^^^ action was brought, to compel the surrender to the plaintiff of (/T^ 134 shares of the capital stock of the First National Bank of St. \}^ ^ Johnsville, which had been acquired by the appellant in the following ^ in question, had an account with Goodyear Brothers & Durant, of tlie city of New York, stock brokers, relating to other stocks, which they had purchased and were carrying for him. For the purpose of secur- ing any balance which might become due them on that account, tlie plaintiff delivered to and left with them, the certificate of the 134 shares j(>in dispute, with a blank assignment, and power of attorney to transfer indorsed thereon, signed by the plaintiff, in the following words : For value received, the undersigned hereby assigns and transfers unto . . . shares of the capital stock of the First National Bank of /St. Johnsville, and do hereby constitute and appoint . . . true and lawful attorney, irrevocable for . . . and in . . . name and behalf, to make and execute all necessary acts of assignment and transfer re- quired by the regulations and bj'-laws of said bank. In witness whereof, I have hereunto set my hand and seal, this day of . (Signed.) B. McNEIL. l^ Sealed and sworn in presence of . ^^ On the 18th of June, 1868, at the city of New York, the appellant r/*' ■ 1^^, at the request of Goodyear Brothers & Durant, paid the sum of $45,135 -t/iA^L^vJ ^ f to Fred. Butterficld, Jacobs & Co., receiving from them certain securi- ^ ib'^ ^V'^ies, including the certificate and power for the 134 shares in question, A' Ijy -A / 1^ .^ which had been previously pledged by Good3'ear Brothers & Durant to /^ \^ Fred. Butterfield, Jacobs & Co. f ^r/^ Goodyear Brothers & Co. were at that time insolvent, and indebted (ir to the appellant. In pledging the plaintiff's shares, they had acted without actual authority from him, and without his knowledge. He was indebted to them, on the account for which the shares were pledged '^1 to them, in the sum of $3,000 with interest from December 1, 1866; ^ . but the account liad not been rendered, or any demand made. ^ The appellant, at the time of receiving the shares, had no knowledge .ly^ ^ Tty^' ,JuJbf the plaintiff's interest therein. A/A ^ yf ^ .r^ I -^ "^ r jJ> > 1 Arcruments and part of opinion omitbetl." *~ .1 ;f ■* t^U ■'- upon the actual title or authority of the party with whom they deal directly, but are derived from the act of the real owner, which precludes him from disputing, as against them, the existence of the title or power which, through negligence or mistaken confidence he caused or allowed to appear to be vested in the party making the conveyance. (Picker- ing V. JBusk, 15 East, 38 ; Gregg v. Wells, 10 Adol. & El., 90 ; Saltus V. Everett, 20 Wend., 268, 284 ; Mowrey\. Walsh, 8 Cow., 238 ; Root V. French, 13 Wend. 570.) The true point of inquiry in this case is, whether the plaintiff did confer upon his brokers such an apparent title to, or power of disposi- tion over the shares in question, as will thus estop him from assert- ing his own title, as against parties who took bona fide through the brokers. Simply jn trusting the possession of a chattel to _anotIier-^s de posi-. tar}', pledgee ^r^ other bailee, or even under a_cgn ditional executory contract of sale, is clearly insufficient to preclude^the^real_05mer_from reclaiming his propert}^ in case of an unauthorized disposition_of it by the person so intrusteil. {.Ballard v. Burgett, 40 N. Y. R. 314.) "The mere possession of chattels, by whatever means acquired, if there be no other evidence of property or authority to sell from the true owner^ will not enable the possessor to give a good title." Per Denio, J. in Covill v. Hill (4 Den., 323). But if the owner intrusts to^another, not merely the possession of the~property, but j,lso written evidence, ov er his own signature, oftitle tEereto, and o f an unconditional power of dis position over it, the c ase is vasU y di fferent. There can be no occasion for the delivery of sucli J documents, unless it is intended that they shall be used, either at the pleasure of the depositar}', or under contingencies to arise. If the. cond itions_upon which this apparent right of control is to be exercised, are not expressed on the face of the instrument, b ut remain in confi- dence between the owner and the depositary, the case cannot be dis- tinguished in principle, from that of an agent who receive s secre t * Tiistructions qualifying or restricting ^n apparently_absolute j) owe r. In the^p resent case, the plaint! flf delivered to and left with his brokers, the certificate of the shares, having indorsed thereon the form of an assignment, expressed to be made "for value received," and an irrevocable power to make all necessary transfers. The name of the transferee and attorney, and the date, were left blank. This document was signed by the plaintiff, and its effect must be now considered. It is said in some English cases, that blank assignments of shares in corporations are irregular and invalid ; but that opinion is expressed in cases where the shares could only be transferred by deed under seal, duly attested, and is placed upon the ground that a deed cannot be executed in blank. Without referring to the American doctrine on that subject, it is suf- ficient to say that no such formality was requisite in this ease. It was McNEIL V. TENTH NATIONAL BANK. C33 only necessary to a valid transfer as between the parties, that the assignment and power should be in writing. The common practice of passing the title to stock by delivery of the certificate with blank assign- ments and power, has been repeatedly shown and sanctioned in cases which have come before our courts. Such was established to be the common practice in the city of New York, in the case of the New York w id New Haven Railroad Company v. Schuyler (34 N. Y., 41), and the rights of parties claiming under such instruments were fully recog- nized in that case. And in the case of Kortright v. The Commercial Bank of Buffalo (20 Wend., 91, and 22 Wend., 348), the same usage was established as existing in New York and other States, and it was expressly held that even in the absence of such usage, a blank transfer on the back of the certificate, to which the holder has affixed his name, is a good assignment; and that a party to whom it is delivered is authorized to fill it up, by writing a transfer and power of attorney over the signature. It has also been settled, by repeated adjudications, that, as between the parties, the delivery of_the certificate, with asjignment_and power indor sgd, passes the entire title, legal and equitable, in the shares, not- withstanding that, by the terms of the charter or by-laws of the corpora- tion, the stock is declared to be transferable only on its books ; that such provisions are intended solely for the protection of the corpora- tion, and can be waived or asserted at its pleasure, and that no effect is given to them except for the protection of the corporation ; that they do not incapacitate the shareholder from parting with his interest, and that his assignment, not on the books, passes the entire legal title to the »tock, subject onl}' to such liens or claims as the corporation may have upon it, and excepting the right of voting at elections, etc. (Angell and Ames on Corporations, 8th ed., § 354 ; Bank of Utica v. SmaUey, 2 Cow., 770 ; Gilbert v. Manchester Co., 11 Wend., 627 ; Kortright v. Com. Bank of Buffalo, 22 Wend., 362 ; N. Y. and N. H. B. E. Co. V. Schuyler, 34 N. Y., 80.) In the case of Kortright v. Com. Bank, Chancellor Walworth, in a dissenting opinion, strenuousl}' maintained, in conformit}' with his previous decision in Stehbins v. Phoenix Ins. Co. (3 Paige, 356), that by a transfer not on the books, the transferee acquired only an equi- table right to or lien on the shares ; and that, having but an equitable right or lien, he took subject to all prior equities which existed in favor of any other person from whom such assignment was obtained. (22 Wend., 352, 353, 355.) But his view was overruled by the majority of the court. The action was at law in assumpsit, brought hy the holder of the certificate and power, for a refusal to permit him to make a transfer on the books, and the question of his legal title was neces- sarily involved in the case. The judgment therein must therefore be regarded as a direct adjudication that, as between the parties, the legal title to the shares will pass by delivery of the certificate and power (See 20 Wend., 362.) t V 634 McNEIL V. TENTH NATIONAL BANK, This was reasserted in this court in the JVew Haven Railroad Case (34 N. Y., 80), notwithstanding what was said in the Mechanics' Bank Case (13 id., 625). By omitting to register his transfer, the holder of the certificate and power fails to obtain the right to vote, and ma^^ lose his stock bj- a fraudulent transfer on the books of the compan}', by the registered holder, to a bona fide purchaser (34 N. Y., 80) ; but in this respect he is in a condition analogous to that of the holder of an unrecorded deed of land, and possesses a no less perfect title as against the assignor and others. And he would have an action against the corporation, for allowing such a transfer in violation of his rights. (Id.) He also takes the risk of the collection of dividends by his assignor, or of any lien the corporation may have on the shares. But in other respects his title is complete. The holder of such a certificate and power, possesses all the external indicia of title to the stock, and an apparently unlimited power of dis- position over it. He does not appear to have, as is said in some of the authorities cited, concerning the assignee of a chose in action, a mere equitable interest, which is said to be notice to all persons dealing with him that they take subject to all equities, latent or otherwise, of third parties ; but, apparentl}^, the legal title, and the means of trans- ferring such title in the most effectual manner. , Such, then, being the nature and effect of the documents with which the plaintiff intrusted his brokers, what position does he occupy- toward persons who, in reliance upon those documents, have in good faith advanced money to the brokers or their assigns on a pledge of the shares? When he asserts his title, and claims, as against them, that he could not be deprived of his property without his consent, cannot h e be truly answered that, by leaving the certificate in the hands of his brokers, accompanied by an instrument bearing his own signature, which purported to be executed for a consideration, and to convey the title away from him, and to empower the bearer of it irrevocably to dispose of the stock, he in fact " substituted his trust in the honest}^ of his brokers, for the control which the law gave him over his own property," and that the consequences of a betrayal of that trust, should fall upon him who reposed it, rather than upon innocent strangers from whom the brokers were thereby enabled to obtain their money? }\Xj These principles, in substance, were applied in the case oi Kortright V. The Commercial Bank. But it is sought to distinguish that case from this ; and it is argued, that there the certificate was intrusted to an agent, with authority from his principal to borrow money upon it for the benefit of his principal, and that he simply exceeded his authority by borrowing more than he was authorized to borrow, and absconding with the excess. [After commenting on Kortright v. Ba7ik.'\ The principles of agency are, however, applicable to this case. In disposing of a pledge, the pledgee acts under a power from the pledgor. MCNEIL V. TENTH NATIONAL BANK. 635 The distinction between a lien and a pledge is said to be, that a mere lien cannot be enforced by sale by the act of the party, but that a pledge is a lien with a power of sale superadded. (Story on Bailments, 7th ed., § 311, note 2; Wasso?i y. Smith, 2 B. & Aid., 439.) The pledgee in selling, is bound to protect the interests of the pledgor, and as to the surplus, represents the pledgor exclusively. Now, for what purpose was the apparent ownership and power of disposition of this stock vested in the brokers? Surely for the purpose of enabling them, effectuall}' and summarily, to execute this power under certain con- ditions. If the Ij ower jwas absolute on its face, or if the wholejegal title was by the ins trument^apparentl^ivested in„the^ pl edgee, and _thfi_ condition^as secret, wher ein does the case differ in prin cip le from one of ordinary agency. I am at a loss to conceive on what principle it can be claimed, that an apparent naked authority' is more effectual to bind the party giving it, than an apparent ownership as well as authority. V/ V I have reviewed the authorities at much more length than usual, by reason of the difference of opinion expressed in the late Court of Ap- peals in this case, and for the purpose of meeting the positions so ably maintained in the opinions, in favor of the respondent, delivered in the court below, and in the late court, on the former hearing. My conclusion is, that the Tenth National Bank must, on the facts found, be deemed to have advanced bona fide on the credit of the shares, and of the assignment and power executed by the plaintiff, and is entitled to hold the stock for the full amount so advanced, and re- maining unpaid after exhausting the other securities received for the same advance. The points relative to the stamp and subscribing witness were fully answered in the opinions delivered on the first argument, and do not appear to have been the subject of dissent. I do not deem it neces- sary again to discuss them here. The judgment of the General Term, and that entered on the report of the referee, should be modified, so as to allow the plaintiff to redeem, on payment of the balance due to the Tenth National Bank, on its ad- vance of June 19th, 1868, and the costs of the action. All concur except Allen and Folger, JJ , not voting. Judym&nt modified^ ■^1/V 4' p^^' ^ i^ t^ U^' y Y •^ h|:rron v. gray. ?^^ x^ .> J. L. O'HEKKON O'HEREON V. grayAVV SAME ^/ V / y^ 0^> 1897. 168 Massachusetts, 573. (/. K^ ^>^ WO bills in equity, filed November 21, 1894, to compel the de- fendants to transfer and deliver to the plaintiffs certain certificates of the capital stock of the Boston and Albany Railroad Company. The cases were heard in this court on an agreed statement of facts, ■" i^fcthe material portions of which appear in the opinion, and a decree f'l was entered in favor of each plaintiff, requiring the defendants to transfer and deliver to them a certificate for thirty-one and twelve shares, respectively, of the capital stoqk of the Boston and Albany Eailroad Company, and to pay to them the amount of the dividends received by the defendants upon such stock. The defendants, in each jii^ case, appealed. ±A^ ' ^JlJ-'^ The case was argued at the bar in January, 1897, and afterwards ^y^ X M , , was submitted on briefs to all the justices. 'f jA^ . '*^'^\>^'> ■^' '^- Dewey, for the defendants. J /r^^l^). ^' Fo^^^^'^ for the plaintiffs. ,M^ . A^'^'^ lr /. y~^ /I -^ ^'^ ^^^^ ^^'^ o^ M^3'5 1867, it was ordered by rule of court, under f^iV-*^'^^ t^25 & 26 Vict. c. 89, s. 35,^ tliat the name of Amelia Trittin be re- ^i-^.^'C^.^ SAN FRANCISCO R. CO. haw Reports, 3 Queen's Bench, 584. -\/^- fxr^ n jtificates with a blank indorsement signed by him. New certificates were issued in their •K. J, /.y^'M stead to the purchaser. It Avas the duty of the manager of the corporation to cancel the '^ '-^ 'old certificates. Instead of doing so, he delivered them to Knox as security for a loan. Held, that the corporation was not estopped to deny the validity of the old certificates, and that Knox could not recover of the corporation the damages sustained bj' him by reason of his loaning mone}' on the faith of the certificates. Knox v. Eden Musee cfc. Co., A. D. 1896, 148N. Y. 441. — Ed. 1 The 25 & 26 Vict. c. 89 applies (s. 176) with certain exceptions to companies formed and registered under the Joint Stock Companies Acts of 1856 and 1857. Section 25 : — Every company under this act shall cause to be kept in one or more books a register of its members; and there shall be entered therein the following par ticulars : (1) The names and addresses, and the occupations, if any, of the members of uhe company, with the addition, in the case of a company having a capital divided' a shares, of a statement of the shares held by each member, distinguishing each share by its number ; and of the amount paid or agreed to be considered as paid on the shares of each member. (2) The date at which the name of any person wa? as a member. (3) The date at which any person ceased to be a any company acting in contravention of this section, shall incur a pen- V''*^^ J^ ^^^"^^ ^^^y ^'^^ exceeding 5/. for every day during which its default in not complying with the ''^ - ~^ jiT^ ' like penalty." ^ ' L<^ Section 31 : — "A certificate, under the common seal of the company, specifying any I %^ .^ ^y'> snares ui ciiuii luc -J. ■'^ ^^ La entered in the register ; (•^^ "\'t^ {1,^ member. And any cor provisions of this section continues, and every director or manager of the company who. jl '',^^v- share or shares, or stock held by any member of a company, shall be prima facie evi (Vi/^y dence of the title of the member to the share or shares or stock therein specified. \'t ^A^. -^ By s. 32, the register is to be open to the inspection of a member gratis, and of si yr stranger on payment of 1 s. ^ \ \ Section 35 : — "If the name of any person is without sufficient cause entered in or 1 A^^ V^ iS^ or any member of the company, or the company itself, may as respects companies re, i^ and any damages the pattrf X /?ktered in England or Ireland, by motion in any of her Majesty's superior courts of ij I) /^^isivf or equity, or by application to a judge sitting in chambers, or to the vice-warden ] A,( of the stannaries in the case of companies subject to his jurisdiction, and as respects companies registered in Scotland l)y summary petition to the court of session, or in V'^BUch other manner as the said courts may direct, apply for an order of the court that ^ jlic register may be rectified ; and the court may either refuse such application, with or M^ /-^r t/^ vjjthbut costs, to be paid by the applicant, or it may, if satisfied of tlic justice of the jVj „n^^ ^Jl/case, make an order for the rectification of the ^register, and may direct the company ■ L^ J AA^ ^ P*y ^ *'^® costs of such motion, application, (^ petition, an ■1 '^ \MJr' A'' ^ , vS V iV^' A .50 r, IN RE BAHIA AND SAN FRANCISCO R. CO. 641 stored to the register of the Bahia and San Francisco Railway Company in respect of the five shares in the company numbered 84,511 to 84,615 both inclusive, and that the company do pay to Amelia Trittin an}' dividends that have fallen due since the shares were transferred from her name. And it was further ordered that a special case be stated for the opinion of this Court between the Reverend Richard Burton and Mary Anne Goodburn and the company, for the purpose of determining the amount of damages (if any) which the company are liable to pay them respectivel}'. 1. On the 8th of March, 1866, Miss Amelia Trittin was the registered holder of five shares in the Bahia and San Francisco Railway Company, Limited, hereafter called " the compan}-," and deposited the certifi- cates of the shares with one Thomas Charles Oldham, a stock-broker, and requested him to keep the same and to receive the dividends pay- able thereon. 2. On or about the 17th of April, 1866, a transfer of the five shares to John Alfred Stocken and Samuel Goldner, purporting to be executed by Amelia Trittin, but which for the purpose of this case is admitted to have been a forgery, was left with the secretary of the company for reg- istration, together with the certificates of the shares. 3. The secretary of the company, in the ordinar}^ course of business, then sent by post to the last place of residence of Miss Trittin a writ- ten notice that the deed of transfer had been so received by him, and after ten days having received no answer from her, registered the deed of transfer and removed the name of Miss Trittin from and placed the names of John Alfred Stocken and Samuel Goldner upon the register of shareholders as holders of the aforesaid five shares, and share certifi- cates in respect of the said shares were handed to them. 4. In May, 1866, the Reverend Richard Burton through his broker bought on the Stock Exchange four shares in the company, and Mrs. Mary Anne Goodburn by her broker bought one share. 5. About the same time, John Alfred Stocken and Samuel Goldner sold five shares in the company to Arthur Bristowe, a stockbroker, and in pursuance of the above contracts transferred four of the "shares com- prised in the forged transfer to Mr. Burton, and the remaining one to Mrs. Goodburn. aggrieved may have sustained. The court may in any proceeding under thi.s section decide on any qnestion relating to the title of any person who is a party to such pro- ceeding to have his name entered in or omitted from the register, whether such ques- tion arises between two or more members or alleged members or between anv members or alleged members and the company, and generally the court may in any such pro- ceeding decide any question that it may be necessary or expedient to decide for the rec- tification of the register ; provided that the court, if a court of common law, mav direct an issue to be tried, in which any question of law may be raised, and a writ of error oj appeal in the manner directed by 'the Common Law Trocedure Act, 1S54,' shall lie." Section 37 : — " The register of members shall be primA facie evidence of any matteif ty this act directed or authorized to be inserted therein." 642 IN EE BAHIA AND SAN FRANCISCO R. CO, 6. It is admitted that Mr. Burton and Mrs. Goodburn entered into the contracts above-mentioned boni fide and for value of the shares, with- out notice of any fraud, and according to the usual course of business with reference to the purchase of shares, and on or shortly after the 28th of May, 1866, the}- were duly registered by the company' as the holders of the shares, and share certificates in respect thereof were handed to them. 6a. In the above transactions everything was done by the company in accordance with the usual custom of business, and there was nothing in the circumstances so far as they were known to the compan}' to excite their suspicion or to induce them to depart from such usual course of business. 7. The form of certificate used by the company was : — Certificate of Shares. Bahia and San Francisco Railway Company, Limited. Registered under the Joint Stock Companies Act of 1856. 28th January, 1858. Nos. to . Five shares of 20^. each. This is to certify that is the registered holder of the shares Nos. to in the above company, subject to the articles of association, on each of which there has been paid to this day three pounds. Given under the common seal of the compan}', Signed by two directors. the day of 18 8. The articles of association were made part of the case. By art. 1, the regulations of table B, of the Joint Stock Companies Act, 1856, were excluded, except as expressly set forth in the articles themselves, By art. 25, the board shall determine the mode and conditions of, and the charges for the transfer of shares, but no such charge shall exceed 25. Q)iL for every transferor named in the instrument of transfer. By . art. 26, every original shareholder shall, on payment of such sum, not exceeding 2s. 6f?., as the directors prescribe, be entitled to a certificate under the common seal of the company, and under the hands of two of the directors, specifying the shares held by him, and the amount paid up in respect thereof. The questions for the opinion of the Court were : 1. Whether, as against the company, Mr. Burton and Mrs. Goodburn are entitled to the said shares in the company, or an equivalent number. 2. Whether they are entitled to any and what damages to be paid to them by the company under the above circumstances. The Court were to make such order and give such judgment as they might think fit, and have power to make and give. J. Brown^ Q. C. ( TF. G.Harrison with him), for the claimants, Burton and Goodburn. [Argument omitted.] IN RE BAHIA AND SAN FRANCISCO R. CO. 643 WatJcin Williams (Cohen with him), for the company. The con- tract which a buyer makes in the market is only for a certain number of shares, not any specific shares, and it is not till the purchase is com- plete that the company is called upon to act and register the transfer. There is, therefore, no contract on which the companj' can be held liable to the claimants. Nor is there anj' breach of duty shown on the part of the company ; the secretary acted with due caution by notifying the proposed transfer to Miss Trittin, the person purporting to transfer, and the case states (par. 6a) that everything was done by the company in the usual course of business. [Blackburn, J. — The company are bound by the statute to keep a correct register.] Only to use due diligence in keeping it correct, not to have a register absolutely correct : see East Gloucestershire Railway Company v. Bar- tholomew, Law Rep. 3 Ex. 15. [Blackburn, J. — That case does not touch the present case. CocKBURN, C. J. — As far as the register is concerned, it does not appear that the claimants ever referred to the register.] Then it is said that the company-, having issued share certificates to Stocken and Goldner, as their credentials of membership, are estopped from denying their title. But the company never asserted they had title, but only that they were on the register as shareholders, which is true. The certificate isjio representationJLo^third persons, it is only a clocument between J,he holder and the company. [Blackburn, J. — The statute (s. 31) makes the certificate expressly prima facie evidence of the title of the holder.] As between him and the company. [Blackburn, J. — No, prima facie evidence generally.] In all the cases bearing on the subject, the company sought to be made liable had been guilty of negligence ; as in Ashby v. Blackwell, 2 Eden 299, where the power of attorney was grossly irregular on the face of it. Hidyard v. South Sea Compan}- and Keate, 2 P. Wms. 76, is the only case really in point. There, on a transfer of stock under a forged letter of attorney, the dividends and stock were ordered to be refunded and restored by the assignee to the right owner, and the company' were held not responsible. [Blackburn, J. — That was a case between the company, the pur- chaser under a forged letter of attorne}', and the true owner ; the rights of sub-purchasers had not to be considered.] But surel}' the remedy is against the vendor, if the purchaser gets nothing, instead of what he contracted for. The corapan}' were not in fault ; the claimants were not misled by the company, they made no inquiries, nor ever saw the register, as the Lord Chief Justice has pointed out. [Cockburn, C. J. — No ; but by giving the certificate the company practically armed the vendors with the means of holding themselves ouj, as the holders of these shares. 644 IN KE BAHIA AND SAN FRANCISCO R. CO. Lush, J. — The question comes round to this, what does the certificate mean : does it certify only that A. B. is on the register, or does it not rather amount to certifying that he is in reality a shareholder ?] Only that he is on the register. [Blackburn, J. — Can that be said in the face of s. 31 ? Lush, J. — Suppose after the contract, but before he pa3's the pur- chase-mone}', the purchaser applies to the company to know if his vendor is a member of the company, and the answer is yes? The compan^^ would then have made a representation on which the}' intended the purchaser to act. How does that differ from issuing a certificate, which says the same thing?] It differs in this : the company do not make a voluntary' statement, they are bound to keep a register, and issue a certificate. [Blackburn, J. — They are not bound to put a person on the register who is not rightfully entitled.] But in order to make them liable for putting a person not entitled on the register negligence must be shown, which is, in effect, negatived in this case. In Swan v. North British Australasian Company, 2 H. & C. 175, 181, 188, 32 L. J. Ex. 276, 279, Cockburn, C. J., says, " To bring a case within the principle estabished by the decisions in Pickard v. Sears, 6 Ad. & E. 469 (E. C. L. R. vol.'33), and Freeman v. Cooke, 2 Ex. 654, 18 L. J. Ex. 114, it is, in my opinion, essentially necessary that the representation or conduct complained of, whether active or passive in its character, should have been intended to bring about the result whereby loss has arisen to the other part}', or his position has been altered." And in the same case, Blackburn, J., says, " I agree that a party may be precluded from denying against another the exist- ence of a particular state of things, but then, I think, it must be by conduct on the part of that party such as to come within the limit so carefully laid down by Parke, B., in delivering the judgment of the Court of Exchequer in Freeman v. Cooke, 2 Ex. 663, 659, 18 L. J. Ex. 119, 117. It is pointed out by Parke, B., in the course of the argu- ment in that case, that in the majority of cases in which an estoppel exists, ' the party must have induced the other so to alter his position that the former would be responsible to him in an action for it.' And he had before pointed out that ' negligence,' to have the effect of estop- ping the party, must be ' neglect of some duty cast upon the person who is guilty of it.' And this, I apprehend, is a true and sound principle." Cockburn, C. J. — I am of opinion that our judgment must be for the claimants. If the facts are rightly understood, the case falls within the principle of Pickard v. Sears and Freeman v. Cooke. The com- pany are bound to keep a register of shareholders, and have power to issue certificates certifying that each individual shareholder named therein is a registered shareholder of the particular shares specified. This power of granting certificates is to give the shareholders the opportunity of more easily dealing with their shares in the market, IN EE BAHIA AND SAN FRANCISCO R. CO. 645 and to afford facilities to them of selling their shares by at once show- ing a marketable title, and the eflfect of this facilit}' is to make the shares of greater value. The power of giving certificates is, therefore, for the benefit of the company in general ; and it is a declaration by the company to all the world that the person in whose name the certificate is made out, and to whom it is given, is a shareholder in the company, and it is given by the company with the intention that it shall be so used by the person to whom it is given, and acted upon in the sale and transfer of shares. It is stated in this case that the claimants acted bona fide, and did all that is required of purchasers of shares ; they paid the value of the shares in money on having a transfer of the shares executed to them, and on the production of the certificates which were handed to them. It turned out that the transferors had in fact no shares, and that the company' ought not to have registered them as shareholders or given them certificates, the transfer to them being a forger}-. That brings the case within the principle of the decision in Pickard v. Sears, 6 Ad. & E. 469 (E. C. L. R. vol. 33), as explained by the case of Freeman v. Cooke, 2 Ex. 654, 18 L. J. Ex. 114, that, if you make a representation with the intention that it shall be acted upon by another, and he does so, you are estopped from denying the truth of what you represent to be the fact. The only remaining question is, what is the redress to which the claimants are entitled. In whatever form of action they might shape their claim, and there can be no doubt that an action is maintainable, the measure of damages would be the same. They are entitled to be placed in the same position as if the shares, which the}' purchased owing to the company's representation, had in fact been good shares, and had been transferred to them, and the company' had refused to put them on the register, and the measure of damages would be the market price of the shares at that time ; if no market price at that time, then a jury would have to say what was a reasonable compensation for the loss of the shares. Blackburn, J. — I am of the same opinion. When joint stock com- panies were established, the gi-eat object was that the shares should be capable of being easily transferred ; and the legislature has made pro- vision by 25 & 26 Vict. c. 89, s. 25, that the company shall keep a reg- ister of the members, and when the capital is divided into shares, each share is to be distinguished' by a number, and the shares held by each member is to be specified, and the dates at which each person's name was entered on the register. In order tojceep^up such a register, the company must alter its re^isterjwhenever a tra_ns^r of^shares^ isjna^, on the application and pav'ment of a, certain sum to thern b}- the person towhom the shares are alleged to be transferred. And the first thing the_company would have to do when a transfer was tendered to thjejn, vrould be to inquire into itj validity;^; but a company may be decei^:ed, and jnducedj as the company were in the present case, without any neg- ligence, tq^eceive^as genuine a forged transfer. They accordingly 646 IN EE BAHIA. AND SAN FRANCISCO E. COo '^^yo>y 4>^' inade an alteration in the register, and made it in factinaccur ate by p ut- ting the names of Stocken and GoMjier oiLthejr_egisteJL.asJtlieJ^Qld£rs_Qf particular shares, when in fact they were not so. The statute (s. 31) further provides that the compan}' may give certificates, specifying the shares held by an}' member ; and the object of this provision is expressly stated to be that this certificate should be prima facie evidence of the ,title of the person named to the shares specified ; and the compan}', Itherefore, by granting the certificate, do make a statement that the}' have transferred the shares specified to the person to whom it is given, and that he is the holder of the shares. If they have been deceived and the statement is not perfectly true, they maj" not be guilty of negligence, but the company and no one else, have power to inquire into the mat- ter ; and it was the intention of the legislature that these certificates should be documents on which bu3'ers might safel}' act. Now, on the facts of this case, although according to the practice on the stock ex- change, the claimants did not originall}^ contract for these particular shares, the mone}' was paid by them or their broker on the execution by Stocken and Goldner of a transfer, and on the certificate under the seal of the company being handed over to them that Stocken and Gold- ner were the holders of these particular shares ; and it is quite clear that a statement of a fact was made by the compau}', on which the compan}', at the ver}' least, knew that persons wanting to purchase shares might act. And the claimants having bona fide acted upon that statement, and suffered damage, can they recover from the company ? I think they can, on the principle enunciated in Freeman v. Cooke, 2 Ex. 654, 18 L. J. Ex. 114. Suppose an action by the claimants against the com- pany, asserting that the shares were the plaintiffs' and that the company refused to pay them the dividends and deprived them of the use of the shares, in effect an action of trover. The only plea would be that the plaintiffs were not the true owners of the shares, and there would be a replication by way of estoppel, that the company were estopped from saying that the plaintiffs were not the owners, because they had pur- chased on a statement of title made by the company, and intended by them to be acted upon ; this would clearly amount to an estoppel within the rule defined in Freeman v. Cooke, 2 Ex. 654, 18 L, J. Ex. 114. The claimants, therefore, would be entitled to a verdict, and it follows that they are entitled as damages to the value of the shares at the time they were converted ; that is, at the time when Miss Trittin interfered and claimed the shares. Mellor, J. — I am of the same opmion. I think the right of action cannot be grounded on negligence ; bjit that the facts do amount to_an estoppel on the company from denying the claimants' title. The com- pany need not register a person as a member, under a transfer of shares of which they have any doubt ; but can leave the transferee to come to the Court and make out his title. In the present case the company acted apparently without negligence, on the production of the transfer by the broker, and having sent a letter to Miss Trittin and received no IN KE BAHIA AND SAN FKANCISCO R. CO. 647 answer, the}' caused the transferees to be registered, and gave them a certificate under seal, clearly intending them to use it injthe market as a voucher or statement that they were the holders of the particular shares^ The claimants accordingly purchase the shares, but it turns out that they acquired no title, and their names are struck off the register. I cannot but think that a person must have a remedy against a company for wrongfully striking his name off the register, so as to prevent his having tue advantage of the shares he had purchased, and in such an action by the claimants the estoppel would arise against the comjQanj-. The measure of damages would be the value of the shares at the time they ceased to be recognized as shareholders. Whether or not the compan}' maj' have a remedy over against Stocken and Goldner it is unnecessar}- to consider. Lush, J. — I am also of the same opinion. It is not stated what the usual course of business is, but only that the shares were purchased iu the usual course. I take it, the claimants having bargained in the share market for a certain number of shares each, the}' were offered a transfer of the shares which had been transferred b}' a forged transfer to Stocken and Goldner, the certificate at the same time being handed to them before the completion of the purchase, and by this certificate, in the usual form and under the seal of the company, it is certified that Stocken and Goldner are the registered holders of the specific shares, giving the numbers. Now there is no doub t that the certifica te was given bj'JJie^ompany to Stocken and Goldne r in order that they mig ht u_se it in the usual wa3^in which ^ucLi certificates are usedjjyiz., as_a voucher to a purchaser of their names being on the register. And the claimants having acted on this statement by the companj-, there arises an estoppel as against the company, prohibiting them from jlenying thatwhat it^tates is true._ And the question then is, what does the certificate mean ? Does it mean merely, that Stocken and Goldner are on the register, and the company have done their best to ascertain that they are entitled to the shares, but cannot say whether they are so enti- tled? Or does it ai nount to a statement that the company take ujjoa thems elves th e responsibility of asserting that they are the registered shareholders entitled to the specific shares ?^^ I think the certificate musFaimount to the latter assertion. It is the company who are to keep and look after the register, and they are the only persons who have control over it, and they can refuse to register a person until he shows that he is legally entitled. Having, therefore, put the names of Stocken and Goldner upon the register, and granted them a certificate, the company are estopped after that statement has been acted upon, and cannot deny that those persons were the legal holders of the par- ticular shares which have been transferred to the claimants. The claimants, therefore, are entitled to recover from the company the value of the shares at the time when they were deprived of them. Brown, Q. C., asked that the Court would award interest in addition; de stated that the company paid 7 per cent, dividend, and that the con> ^ 648 WHITECHURCH V. CAVANAGH. pany refused to recognize the claimants as shareholders on the 10th of October, 1866. Per Curiam. — The rule will be that the company do pay to the claimants the value of their respective shares on the 10th of Octobei; 1866, at interest from that time at 4 per cent, as damages, together with costs. Mule absolute accordingly. / ^ ^GEOEGE WHITECHUECH, Limited, v. CAVANAGH. ^'f^ «/^ ( V v* ■A^'ig- 5, 1901. House of Lords, 17 Times Law Reports, 746.1 \j^ -TriX. Y^ "^ , This was an appeal from an order of the Court of Appeal (Lords ^ _^ V^ Justices A. L. Smith, Collist-s, and Eomer) affirming a judgment for '-r-'^ JCu. \ *^® plaintiff [Cavanagh] — respondent on the appeal — of Mr. Justice Bigham. The case below is reported, 16 The Times L. E. 303. Mr. Lawson Walton, K. C, Mr. Swinfen Eady, K. C, and Mr. Wills appeared for the appellants ; and Mr. Bufus Isaacs, K. C, and Mr. Ryland, for the respondent. The facts are rather complicated, and are sufficiently stated in Lord Macnaghten's judgment. The question was whether a company was estopped for refusing to give effect to the representations of its sec- retary and of its managing director. The action was in effect for damages from the appellant company for refusing to place the re- spondent on its register of shareholders. The House, having taken time for consideration, reversed the deci- sion of the Court of Appeal, and held that the company was not bound by these representations. Lord Macnaghten's judgment was read by the Lord Chancel- lor, who expressed his concurrence therein. It was as follows : This case has been argued very fully and very ably. Many interest- ing points have been discussed, most of which, I am happy to think, are not at all necessary for the determination of the matter in hand. The real question may be stated very shortly. Has the appellant company, George Whitechurch (Limited), incurred any, and, if any, what, liability by reason of representations made by its secretary, Eichard G. Wells, in London, and by its managing director, George Whitechurch, in Paris ? The claim as originally presented was founded on an alleged misrepresentation by the company. The action, however, was treated by the Court of Appeal and by the learned counsel for the respondent at your Lordships' Bar as an action to recover damages from the company for refusing to place the respondent Cavanagh upon its register of shareholders. It was held by the Court of Appeal, and it was strenuously argued at the Bar, that 1 It is supposed that this case will be officially reported in Law Reports (1901), Appeal Cases. — Ed. WHITECHURCH V. CAVANAGH. 649 the appellant company was estopped by the representations of Wells and Whitechurch from denying Cavanagh's right to be placed on the register. I quite agree with the Master of the Rolls in thinking that it is necessary to keep the two alleged estoppels distinct and to deal with them separately. Whatever difficulty there may be in ascertain- ing the precise scope and effect of the representations made by White- church, there can be no doubt as to the scope and effect of the repre> sentations made by Wells. They are in writing and in a common form. There can be no question as to the meaning of the written words, except, perhaps, in regard to one point, which in the view I take of the case is not material. It seems that one Raymond had undertaken to transfer to Cavanagh by way of security a large number of shares in George Whitechurch (Limited) which were of considerable value. On May 29, 1899, at Raymond's bidding, Wells, the secretary of the company, certified two transfers, one of 1,100 preference shares and the other of 9,250 ordinary shares in the com- pany. The shares wera each £1 shares, fully paid, and worth about 15s. apiece. The transfers were executed by Raymond as transferor. They were intended to be executed by Cavanagh, who was named as transferee. The certification on the transfer of the preference shares was in these words : "Coupon for £1,100 preference shares in the company's office. George Whitechurch (Limited). — Richard G. Wells, Secretary." The certification on the transfer of the ordinary shares was in similar terms. It was common ground that the word " coupon " stood for " certificate " or " certificates," and it was not disputed that the certification was a representation that there had been lodged in the company's office certificates for the shares specified in the bodies of the transfers, such certificates being either in the name of Raymond himself, as registered owner, or in the names of the registered owners who had executed in favor of Raymond trans- fers which had been lodged with the certificates. In the present case the jury found that the certification given by Wells imported that the shares in question were standing in Raymond's own name. It was contended that this finding was not supported by the language of the certification, or by anything in the evidence. In my opinion the point is immaterial. It turned out that no certificates had been lodged in the company's office by Raymond, nor were any certificates ever forth, coming to answer the transfers which Raymond had executed. As far as Raymond was concerned the whole thing was a fraud. Wells was Raymond's secretary and servant, as well as secretary to the com- pany. He was Raymond's instrument in carrying out the fraud. He lied purposely for Raymond's benefit. The jury have found that Wells joined in the fraud for the benefit of the company as well as for the benefit of Raymond. There is not, however, a shadow of evidence to support this conclusion. The finding, so far as the com- pany is concerned, must be disregarded. It only shows how little the jury appreciated the facts of the case. Then comes the question, 650 WHITECHURCH V. CAVANAGH. Is the company bound by the representations of their secretary ? That must depend upon what authority the secretary had or was held out as having. Now the duties of a company's secretary are well understood. They are of a limited and of a somewhat humble char- acter. " A secretary," said Lord Usher, " is a mere servant. His position is that he is to do what he is told, and no person can assume that he has any authority to represent anything at all " {Barrett v. South London Traimioays Company, 18 Q. B. D. 817). In the present case the secretary was not even in the pay of the company, at least not directly. The company, it seems, was provided with an office and a secretary too for £50 a year by another company which appears to have been under Raymond's control and management. No doubt the practice of certifying transfers is a convenient one. It facili- tates dealing iu shares on the Stock Exchange, and so tends indi- rectly to increase the value of shares as a marketable commodity. (But in permitting its secretary to certify transfers, it cannot be sup- posed that a company authorizes the secretary to do more than to give a receipt for certificates which were actually lodged in the office. I cannot think that a company is estopped by the certification of its secretary if he gives a receipt or an acknowledgment for certificates which have not been lodged with him. If authority be wanted for this proposition it seems to me that there is ample authority to be found in the case of Grant v. Norway (10 C. B. QQ)5). Grant v. Norway was a much stronger case than the present. There it was held that a shipowner is not bound by bills of lading signed by the master for goods not received on board. The court declared that it could not " discover any ground upon which a party taking a bill of lading by endorsement would be justified in assuming that " the mas- ter '' had authority to sign such bills whether the goods were on board or not." Having regard to the authority which the master undoubt- edly possesses, and the important part which bills of lading play in the commerce of the country, there was much to be said in favor of an opposite view. It was argued in Grant v. Norway that the doc- trine for which the shipowner was contending would go far to de- stroy the negotiability of bills of lading, and that as the master had an unlimited authority to sign bills for goods received, and was for some purposes regarded as the general agent of the owner, it was but just that the owner should be responsible if the master exceeded his authority or deceived third persons. But, for all that, the principle of the decision was accepted in Coleman v. Riches (16 C. B. 104), and the decision itself has been recognized in this House as sound law ; and the commerce of the country has not suffered, nor has the credit of bills of lading been impaired in consequence. There is a marked difference between a certificate and a certification. A certificate is under the seal of the company. By the Companies Act, 1862, a cer- tificate is made prima facie evidence of title. If faith were not given to the solemn assertions of a company under its common seal, " it WHITECHURCH V. CAVANAGH. 651 would," as Lord Caiexs observed in BurkinsJiaw v. Nicolls (3 App. Cas. 1004), " paralyse the whole of the dealings with shares in public companies." A certification stands on a different footing altogether. Transfers are never certified under the company's seal. There is no obligation on a company to certify transfers at all. The certification is not passed by the directors or brought before the board. A certifi-l cation, in fact, is only required for a temporary purpose, to meet the exigencies of business on the Stock Exchange, which has stated days and fixed periods for the different stages of a business transaction in- tended to be carried out under its rules. In dealings in shares not under the rules of the Stock Exchange certification is really out of place. In such dealings, in the case of a purchase, the price would only be paid in exchange for the transfer and share certificate — on the completion of the transaction and not before. Still less would a certification be required if the shares were merely intended to form a security. A good equitable charge may be created by the deposit of certificates, and if the certificates happened to include shares which were not intended to be the subject of the security, there would be no very great difficulty in defining the extent of the proposed charge in the memorandum of deposit. It seems to me that it would be most\ unreasonable in an}^ case, whether the transaction takes place on the Stock Exchange or not, to hold a company estopped by the certifica-j tion of its secretary if the secretary certifies a transfer without hav- ing received the certificates. The supposed estoppel, therefore, founded on Wells's certification, in my opinion, fails altogether, and for the same reason the case founded on alleged misrepresentation by the company fails also. I now come to the estoppel founded on representations made by George Whitechurch. [His Lordship here stated the evidence, and continued.] The jury found that George Whitechurch " allowed the plaintiff to think it was all right in order to induce the plaintiff to withdraw ' the opposition.' " It is not very clear what the jury really meant. The Master of the Rolls thinks they meant to say that Whitechurch represented that " the certified transfers were as good as transfers plus certificates." Lord Justice Collins held that the " jury meant that Whitechurch led Cavanagh to believe that nothing more was required by the company to entitle the plaintiff to receive a certificate giving him the right to be registered as the transferee of the shares." My Lords, I must confess I am utterly at a loss to see any ground upon which an estoppel can be raised against the company. To begin with, what authority had George Whitechurch to make any represen- tation in regard to these certified transfers which could bind the company ? He was no doubt the managing director. The commer- cial business of the company was entrusted to him. But nobody can suppose that this was commercial business. I put that aside. Then 652 WHITECHUECH V. CAVANAGH. I have always understood that a representation to bind anybody as an estoppel must be a representation of an existing fact, or rather a representation as to some fact alleged to be in existence and not to promises defuturo. What was it that Whitechurch represented as an existing fact ? That Wells was the secretary of the company, and that the certification on the transfers were signed by him ? Well, that was perfectly true. That Wells had actually received the neces- sary certificates ? It is absurd to suppqse that Whitechurch was asked to guarantee that. He had no reason to doubt Wells's honesty, and naturally took it for granted that Wells would not have given a receipt for that which he had not received. The Master of the Eolls seems to think that the representation attributed to Whitechurch was a representation to the effect that the company or the board of direc- tors would act on the certified transfer without requiring anything more. That seems to be the view of Lord Justice Collins also. That is not a representation of an existing fact. If it is anything it is a promise defuturo, which cannot be an estoppel. The doctrine of estoppel by representation is a very old head of equity. It has been discussed not unfrequently in this House, notably in the case of Jorden V. Money (5 H. L. C. 185), to which Lord Selborne was constantly in the habit of referring. It is founded upon a broad principle which enters so deeply into the ordinary dealings and conduct of mankind that I sometimes rather doubt whether any great advantage is to be gained by endeavoring to reduce it to rules such as those which have been formulated in the case of Carr v. London and North Western Railway Company (L. R., 10 C. P. 307). Perhaps some of the diffi- culties which have gathered round the present case have come from clinging to rules rather than attending to principles. [His Lordship added inter alia, that Cavanagh and his solicitor, who were both present at the interviews with Whitechurch, must be taken to have been cognizant of the articles of association of George Whitechurch, Limited, which deal with the transfer of shares in that company. Whether they were in fact acquainted with the regulations of the company or not, they must be taken to have had notice of them.] The Lord Chancellor said that Lord Sherrod concurred in the judgment proposed. Lord James of Hereford, Lord Brampton, and Lord Eobert- soN read judgments to the same effect. Appeal allowed. Action dismissed. -(^A <*'^ .//V YO^ AND NEW ^HAV^ V^Kl'^O. V. SCHUYLER. NEW YORK AND [) NEW 1865. '^y. ij- ■■\ ^r HAVEN R. R. CO. v. 34 iVew yori-, 30.1 ^^A^' (v, ^^ This is an action in the nature of a suit in equity, against Robert Schuyler and several hundred other defendants. The complaint was \j^ sustained by this court on demurrer, as will appear by reference to the reported case in 17 N. Y. 592. The object of the complaint was to have a large number of alleged false and fraudulent certificates and -V^ ^ transfers of pretended stock of the company, made by Schuyler, an( charged to be held by the defendants, adjudged spurious and void;''.^ ^ J^ and to compel the certificates to be brought into court and ca.nce\\ed;-<^ a'^-^'- and to enjoin the several defendants from further prosecuting actions />'^ ,o then pending, and from bringing suits against the company to enforce J^'^'- .^ ..^ such certificates and transfers, or to recover damages for any reasons v^ ^'t4 connected therewith. v^ 4/ U. ^ j^ A large number of the defendants answered, setting forth various iA !*''- "^ \ ' found various facts, some of which are hereinafter summarized. A i b^ judgment entered at the Special Term was affirmed at the General Term. From such affirmance the plaintiffs and some of the defendants [v ^ appealed. l^^ It appeared that, from 1847 to 1854, the issue of certificates, both ^v^ for entirely new stock and for stock reissued upon transfers, was left wholly in charge of Robert Schuyler, the transfer agent of the company. The charter provided that the shares should be transferred in such^- ^ manner as the by-laws should direct. By-laws were adopted, accord! ng-^^^ to which shares were transferable onl}' on the books of the compan}- b}- the shareholder or his attorney duh' appointed, and on the surrender of the certificate held by him when any certificate had been issued. Each certificate issued recited that the person named therein was entitled to shares transferable on the books of the company b}- such person, or his attorney, on the surrender of this certificate. Schuyler, as transfer agent, was authorized to sign and issue certificates on a transfer from one shareholder to another upon the books and on the surrender of the previous certificates. He also had authority to issue certificates in precisely- the same form to the original subscribers for the stock (there was a large increase in the capital stock in 1851, in conformity' with a ^ The greater part of the case is omitted. — Ed. H^ ^ 654 NEW YOEK AND NEW HAVEN R. R. CO. V. SCHUYLER. provision of the charter). He also had authority to dispose of the stock of the compati}' not taken b}' the original subscribers (of which there was a large amount), and issue certificates in the same form to the purchasers. He also had authority to dispose of certain for- feited shares, and in such case issue like certificates. He also had authority to receive transfer to himself of shares on behalf of the company, and transfer the same to purchasers and issue like certificates to them. From 1848 to 1854, Schuyler fraudulently' issued stock in excess of the amount limited b}' tlie charter. There were over-issues of what purported to be the original stock. There was also "over-issue by transfer," Schuyler issuing new certificates for shares of already' exist- ing stock in cases where the previously issued certificates had not been surrendered but were still outstanding. In many cases where valid certificates of stock had been issued to R. & G. L. Schuyler for stock actually belonging to them, and outstanding to their credit on the books at the time, and while such certificates with the usual assignments and powers of attorney executed in blank were outstanding in the hands of bona fide holders, the stock was permitted to be transferred by R. Schuyler in the firm name to other persons, who took the same for value in good faith, without the surrender of the outstanding certificates. The stock books kept by the transfer agent were not open to the inspection of the public. An examination of those books by the direc- tors would have disclosed Schuyler's frauds at an early stage of the over- issue ; and the directors were culpably negligent in not thus discovering the frauds. Geo. F. Comstock and Wm. Tracy., for plaintiffs. Twenty-four counsel appeared for various defendants. Davis, J. This somewhat summary disposition of the preliminary points of the case leaves an open path to its meritorious questions, some of which, however, may be disposed of even more summarily. One of these is the question whether the stock purporting to be created by the false y. certificates and fraudulent transfers of Schuyler can be valid stock of the corporation and become part of its capital. In the nature of things this is impossible. A corporation with a fixed capital divided into a fixed number of shares can have no power of its own vohtion, or by an}' act of its officers and agents, to enlarge its capital or increase the number of shares into which it is divided. The supreme legislative power of the State can alone confer that authorit}' and remove or con- sent to the removal of restrictions which are part of tlie fundamental law of the corporate being ; and hence every attempt of the corpora- tion to exert such a power before it is conferred, by any direct and express action of its officers is void ; and hence every indirect and fraudulent attempt to do so is void ; for if such ajesult cannot be ao NEW YORK AND NEW HAVEN E. K. CO. V. SCHUYLER. C55 com ^Iisbecl directly b}' the wbole ^macbinery^fjbhe corpor^ powers, it iTabsur^ ^ suppose that it ca nbejproduced by tbe~covert or fraudulen t egorts_of^oneor^iore of th e agents of the c orporation. The Special Terra was, therefore, right in holding that the spurious stock, attempted to be created by Schuyler in excess of the capital, formed no part of the capital stock of the compan}-, but was utterly invalid ; and it neces- sarily followed from the decision of this court when the case was before it on demurrer, that the plaintiffs were entitled to have all certificates and transfers which represented such spurious stock declared void and ordered to be cancelled. Another important legal proposition in the case is so clear upon principle, and so distinctly settled by authority, that nothing but con- .7 // _ /^ fusion can flow from its discussion. It will bear no more than plain '^^^ ^~ ^' enunciation. A corp oration is liable to the sa me ex t ent and under th e V-t^ A^iCofiX' same circumstances as a natural jDersGrT foFThe consequences of its oC 4 (>-^~^ 'M <-^ wrongful ac ts, and wijTbe held to respond in a civil action at the suit L^- oU^ -s^-^i--^ '^Li°i?J'^-^'?f^ P^'^^^3^-f'Qt^^6j'y grade and xlesci:iption of forcible T niall ^-^^/^ O-^d-^i^- cious o r negligent tort or wrong whichjt commits, however forelgnjo y^^^^j^^t^ Lfwc-^-i- its na ture or be yond its granted ^qi^rsjthejwron^ful transaction or act /T'^^/^T^^j^^ maybe^ {Life and Fire Ins. Co. v. I^chwtM Fire Ins. Co., T'WencT ^^^^ _ ^- 31 ; Angell on Corp., §§ 382, 388, 391 ; Albert v. Savings Bank, 2/^ .^a-^-^^-^-^ Mar}-. Dec. 169; Goodspeed v. East Haddam Bank, 22 Conn. 541 ; X/^!;?^-*'-''-^^-^^ '"'^'T'^ Bissell v. Michigan Southern and Northern Indiana Railroad Co.., J /•* ^t^^^^-^^A*-^^*^ 22 N. Y. 305-309, per Selden, J. ; 1 Wend. Black, [note], 476 ; Green 7 ^ ] v. London Omnibus Co., 7 C. B. 290 [N. S.] ; Frankfort Bank v. >*-^— Johnson, 24 Maine, 490 ; Philadelphia and Baltimore Railroad Co. V. Quiglg, 21 How. U. S. 209 ; and cases cited hy Campbell, J.) It follows, from this proposition, that if it were established in this' case that the corporation itself issued the false certificates of stock and permitted the fraudulent transfers of spurious stock, it would be liable to the part}- directl}^ deceived and injured by that transaction. The_ in cap acity to create the spurious stock would be no defense to an action for damages foiM-he injur}-^ On the contrary, that ver}' incapacity, since it would render the certificate or transfer a fraud and deceit, would itself be the cause of the injur}- and the basis of recovery. No court would hear the corporation assert that its wrongful act was be3-ondJts chai'tered powers, and therefore ineffective to charge it with the inju; rious consequences of the fraud. But in this case the false certificates were issued and the spurious stock transferred by an officer of the cor- poration. A corporation aggregate being an artificial bod}' — an im- aginary person of the law, so to speak — is, from its nature, incapable of doing any act except through agents to whom is given by its funda- jnental law, or in pursuance of it, every power of action it is capable of possessing or exercising. Hence the rule has been established, and may now also be stated as an indisputable princlpTe, that a cor^Mration is respo nsTble for the acts or negligence of its agents while engaged in the business of the agency, to the same extent and under the sarne 656 NEW YORK AND NEW HAVEN E. K. CO. V. SCHUYLER. circiimstancesj_ that a natural person is chargeable^ with the a cts o t iiegligence_pf his agent ; and " there can be no doubt," saj's liOrd Ch. Cranworth in Ranger y. The Great Western M. R. Co., " that if the agents employed conduct themselves fraudulent!}^ so that if they had been acting for private employers the persons for whom they were act- ing would have been affected by their fraud, the same principles must prevail where the principal under whom the agent acts is a corpora- tion." (5 House of Lords Cases, 86, 87; Thayer \. Barloio, 19 Pick. 511 ; 4 Serg. &. Rawl. 16 ; 7 Wend. 31 ; Frankfort Bank v. Johnson, 24 Maine, 490 ; Stor}' on Agency, sec. 308 ; Angell & Ames on Corp., sec. 382, 388.) d ^ Hay ford sold five shares in the stock yv^ i/^ 'V^^'' / of the Boston Music Hall Association to his brother Nathan H. Hay-(i^ J ^ '\ir^^ ford, to whom he delivered a stock certificate, and upon which he ;^ xf'y L*^>^ (^ indorsed and signed a written transfer in the usual form. No transfer a-^ tr^ k' / was made on the books of the corporation, and there was no provision' *" j*^*^ J^ in the charter or by-laws of the association requiring it. It was not , ij-^^^ i4'^^a'^ until after the shares were levied on as the property of Howard L., ia^ , L i ,/^ ' ^ May, 1878, that the corporation was notified of the alleged sale and-fl^^/^ ^ u/ \r ^ transfer to Nathan H. In the mean time Howard L., with the knowl- i^*^' v<^ i)rj-^ ^^ edge of his brother, collected the annual dividends declared on \}aQt,yAr^ /^ ^ \^ stock, attended meetings of the stockholders, and served upon com-'^^^^ mittees appointed at such meetings. Under the levy made in 18 Barney Cory bought the stock as the property of Howard L. ; and the'^^ ^ a)j^ ■ question presented by this bill of jnter pleadej is, which of the two'^/t-^ J^ f**-' ^ acquired the title. "^ ^ A w^'' ,(vM''^i The case comes up on an appeal from the decree of a single judge 1^, ^ ,.p^ Ih-'' In favor of Nathan H. Hayfoid, accompanied by a report of the evi- O-'^ ^r.. ^ 'vij^^ deuce taken at the hearing. In tlie first place, it is contended that the ^ T^ ^ i^''^ ividence fails to show that the stock was sold and assigned to Nathaoflj" ;<^*' (>'^\ ^^ m'^ Iv 664 BOSTON MUSIC HALL ASSOCIATION V. CORY. H. in good faith at an}' time before the lev}-. Upon this question of fact, the decision of the single judge will not be reversed, unless it clearly appears to be erroneous. Eeed v. Heed, 114 Mass. 372. Mont- ff ornery v. Pickeri7ig, 116 Mass. 227. The only evidence of the transaction in 1874 comes from the two Hayfords, who were the parties to it. But we cannot say that the fact that the apparent ownership remained unchanged for such an unusual length of time upon the books of the corporation, and that Howard L. received the dividends and continued to act as the real owner, is sufficient to lead us to believe that the judge erred in not treating it as sufficient to overcome the positive evidence of a valid sale of the property, coming from the two witnesses who were before him, and of whose truthfulness he had the best opportunity to judge. In the next place, it is strenuously urged that, by force of the various statutes of this Commonwealth relating to the ownership and transfer of stock in corporations, authorizing the attachment of shares, requiring returns to the Secretary of the Commonwealth, and imposing a personal liability on stockholders for the debts of tlie corporation, there can be DO transfer of stock, valid against the claims of an attaching creditor, unless such transfer be recorded in the books of the corporation. Gen. Sts. c. 68, §§ 10, 12 ; c. 123, §§ 59-61 ; c. 133, § 46. St. 1864, c. 201. The intention of the Legislature, it is said, must have been to provide for the owners of stock a convenient and uniform method of trans- ferring title on the books of the corporation, which should be the only valid transfer as to creditors, and others interested ; and, although the statutes have not provided in express terms that, as to creditors, trans- fers shall not be valid till they are so recorded, yet such, it is contended, is the necessary implication, for otherwise the design of the statutes, requiring registration and making the shares liable to be taken for debts, would be defeated. But this consideration is not sufficient to control the law as long since settled by the decisions of this court. It requires a clear provision of the charter itself, or of some statute, to take from the owner of such property the right to transfer it in accord- I ance with known rules of the common law. And by those rules the delivering of a stock certificate, with a written transfer of the same to a bona Jide purchaser, is a sufficient delivery to transfer the title as against a subsequent attaching creditor. Sargent v. Essex Marine Railway, 9 Pick. 201. Sargent v. Franklin Ins. Co. 8 Pick. 90. Fisher v. Essex Bank, 5 Gray, 373. Dickinson v. Central National Bank, ante, 279. It would not be in accordance with sound rules of construction to infer, from the provisions of several different statutes passed for the purpose of obtaining information needed to secure the taxation of such property, or for the purpose of subjecting stockholders to a liability for tlie debts of a corporation, or for protecting the corporation itself in its ilealings with its own stockhoklers, that the Legislature intended thereby lo take from the stockholder' his power to transfer his stock in any SCRIPTUEE V. FRANCESTOWN SOAPSTONE CO. C65 ^ recognized and lawful mode. If a change in the noode of transfer be desirable, for the protection of creditors, or for an}- other reason, it is for the Legislature to make it by clear provisions, enacted for that purpose. We see nothing in the facts which can be held to deprive Xathan H. Ha3-ford of the stock in question, on the ground that he is charge- able with laches in not causing the transfer to be sooner recorded, or that he is now estopped from setting up his title to the shares in his possession. It must be taken, upon the findings of the judge, that Nathan H. bought these shares in good faith in 1874 ; and that all whifili_the law 4:equired wiis clone to vest a perfect title in him, as against an attaching creditor of Hov»ard L. He was under no legal dut}' to_ have the transfer recorded in order to perfect his title as gainst stran^rSj and he can be charged with no neglect or laches which would involve the forfeiture of his title. The evidence in the case does not require us, against the findings of the single judge, to find that Nathan H. is estopped to set up his title against a creditor of Howard L. The acts and declarations of the latter, after the sale, would not affect the title, except so far as the}' were authorized by Nathan H., and there is nothing to show any act or declaration authorized by the latter, with intent to give a false credit to Howard L., or that any creditor of his was in fact defrauded. ^ ^ y^" J^ 'b. Decree affirmed. "^ V^ jA V^ ^ /, . • )NE CO.' ^k y F. C. Welch, fpr the attaching creditor. e/". P. .Tr^jadweU, for the transferee. yjJ'^y'y^ ■h /y ^ ^^i&<^^lPp}^V. ^^RtA.NCESTOT\b!r^SOAPSTONE cB.'^"^ . V^ rCoy y X / - ^^^ 50 New Hampshire, 571.1 ^ . i i - Assumpsit for not delivering to the plaintiff certificates for forty-five f/' ^ ^ A'^^K* v> shares of stock in the defendant company, which plaintiff had puf-^*-^ ^%» \Ai'^\/' chased of one Barton. Plaintiff purchased the stock of Barton on l (^ C^ j^ ui. V .u'l May 24, 1867. Barton transferred the same to him by his indorse-^ '^f'i , \yi \i(SV^' ment upon the back of the certificate. On Feb. 3, 1868, the said^'LcA^V^ ^ \ ■ L^^ certificate so transferred was presented to the treasurer of the com-i^^ ^ ^'q.'I v^* pany, and a new certificate for those shares demanded by the plaintiff^ft lj^ f L'^*^" i *' t The treasurer declined to issue a new certificate, for the reason thatp .^^ > '''^■/''^ the shares had been attached as Barton's property, on January 28, ^^ ' f^^^' - '* • 1868, in a suit brought by the Francestown Soapstone Company against^^/^ ^j> ^^ i«^ r^ Barton. At the trial the plaintiff proposed to introduce certain evi^^t,^' ->'^^'*')f*'0 i"^ .V, \ \^. '''" ,y ti^'..^'t^ dence to prove that the company had notice of the aforesaid sale and^ transfer before the attachment. Thereupon the cause was taken from,{^*> '^^J^t '■^ ^ u the jury for the purpose of determining, as matter of law, whether the ../v"'^ ijy^ir^^lx^ evidence offered was competent to prove notice or knowledge in the y^.' f^*- 1 Statement abridged. Arguments omitted— Ed. ^""^ a^ 666 SCRIPTUEE V. FEANCESTOWN SOAPSTONE CO, compaii}- ; and whether, with such notice or knowledge, the attachment would be valid to hold these shares against the plaintiff. A. W. Scnoyer, for plaintiff. Geo. Y. Smcyer & Sawyer., Jr.., for defendant. Ladd, J. The sale and transfer of these shares were made bj' Bar- ton to the plaintiff May 24, 1867 ; and the case shows that the plaintiff paid $95 per share for them, the par value being SIOO. It is alleged in the declaration, that on February 3, 1868, the plain- tiff caused the certificate and assignment to be delivered to the treasurer of the company ; and it appears that the reason assigned for not issu- ing to him a new certificate was, that prior to that time, namely, on the 28th day of January, 1868, said shares had been attached as Barton's property on a writ in favor of the company against him. If hy the attachment a valid lien was created in favor of the com- pan}', it was under no obligation to enter the transfer on its books at the time the certificate was presented ; and the plaintiff cannot maintain this suit. The question then is, What effect shall be given to the attachment made January 28, 1868? The plaintiff offered to prove that at the time of the sale said Barton was president of the corporation, and acted as its general agent in superintending the affairs thereof, and continued so to act until January 27, 1868, the day before the attachment was made ; that the agent who succeeded Barton, and who procured the attachment and caused a levy '.o be made on the shares, was a director in 1867, and knew of the sale «ind transfer of the shares from Barton to the plaintiff prior to the time of the attachment ; and that the treasurer of the company had actual notice of the sale and transfer as early as June, 1867 ; and other facts tending to show knowledge of the sale by the corporation at or about the time of the transaction. We think this evidence was clearly admissible for the purpose pro- posed. The president and treasurer, by the by-laws, were directors ex-officio ; and it is fair to suppose that they were active members of the board, participating largely in the control and management of the affairs of the corporation. But even if those officers had not been members of the board of directors, there would probably be no difficult}' in holding that notice to a general agent, who has the superintendence of the affairs of a corporation, is notice to the corporation, and there- fore that the defendant is chargeable with knowledge possessed by its president and general agent, Barton. Augcll and Ames on Corp. , § 305, and cases in note ; Hovey v. Blanchard, 13 N. H. 145 ; Marshall v. Ins. Co., 27 N. H. 157 ; Camp, bell V. Ins. Co., 37 N. H. 35 ; Patten v. Ins. Co., 40 N. H. 375 ; Fitz- lierhert v. Mather, 1 T. R. 12 ; N.Y. ^\yT^ ^^^ woul d get_a good title, although Barton would have been guilty* of a '^-^"^|^^<^^ fraud against the^^Iaintitf j)f t he^ost gross and flagrant charactj^r. ^■'^^W But if this second purchaser had notice of the former sale — was aware -^y* of the situation of the title as between Barton and Scripture — by con- certiiig_with the former to deprive the latter of his property he becomes aparty to the fraud, and no j)roces_s_of reason ijig, in logic or morals^ will lead to any other result but that he would be equally guilty with- the seller. To hold that such a purchaser acquired a good title would be to countenance the most scandalous bad faiths and encourage dishon esty. The difference between an attempt to gain a title under such cir- cumstances by purchase and b}' an attachment is not very apparent, and certainlv* not very broad. At all events, we think it entirely clear G70 HOTCHKISS AND UPSON CO. V. UNION NATIONAL BANK. that what cannot be accomplished in one way cannot be l)rought about in the other. In any view we are able to take of the case, we think the question for the jury is, whether the sale by Barton to Scripture was a bona fide sale, or whether it was so tainted with a secret trust, or other element of fraud in fact, that it cannot be sustained ; and upon that question the price paid for the shares as compared with their actual value, the omission of plaintiff to have the transfer recorded, and all other facts and circumstances tending to throw light upon the actual character of the transaction, will be proper evidence for the jury to consider. In short, that the sale may be attacked in the same manner and upon the same grounds as though the transfe^ had been entered upon the books of the corporation at the time t^H fact of the sale was brought to its knowledge. rj^i^ /\. Case discharged. -5\.> V^ UPSON CO. V. UNION NATIONAL BANK. J;^. 'C^; i>^ '/ir^ 1895. 37 U. S. Appeals, 86.1 tr^ 4- '^/^ Circuit Court of Appeals. Sixth Circuit. l/s^^ }^yiA'^ JL 0^ Appeal from U. S. Circuit Court for the Northern District of Ohio. ^ ^y*^ '\aA' A C*^ I^ill in equity by Union National Bank of Cleveland, Ohio, against ^iJ/*^ ttie Hotchkiss & Upson Company, a Connecticut corporation, to enforce ''^ . M'''*^ a liejv-upon stock of the latter company alleged to have been acquired u^i TO^ ^*^ P lA^bya pledge from Charles A. Hotchkiss. It appeared that Hotchkiss, (i^ ' /W/' _,x^as a collateral security for a loan, assigned in pledge to the bank cer- , ^^ jlM*/^ tificates for 140 shares of the Hotchkiss & Upson Compan}-. The ur^^ .^t/M^-^^*^^'assignment consisted in delivering the certificates to the bank; with a S ^jL>^- -Uj^ blank power of attorney for the transfer of the stock upon the books of ' s 0*=''*^^'^^^ i>w/>-*^tie company, executed bj' Hotchkiss. The stock has never been trans- ^'"'"^^ -^ "^Z vT^ ferred upon the books of the company to the bank, and no copy of the f^-^""*^ ^^^C y J^power of attorney was ever filed in the office of the company. l*^" ..yC^T^'^Jy ' Subsequently to the above pledge, Hotchkiss embezzled a large K*^ -l/ftj' '^ amount of the funds of the Hotchkiss & Upson Company, of which he f^^'^^*^ L^*'^ ^1^^ charge as president. djt.x*'*^^ ^ '^"'^ It is contended that by force of the general laws of Connecticut re- //CJi^*'*^'''^ A^tAV lating to corporations a lien was given to the company upon the stock J^ ^^-^^ stancling upon its books in the name of Hotchkiss for the amount of the ig,^ v«^>*T!l*'^^,(XA-^debtedness created by his embezzlements, and that this lien is para- r^iy-JU'-^Q . mount to that of the bank, for the reason that there was no transfer of ^ .4.XAJ- ^ ^ ^ ^^^e stock by Hotchkiss to the bank upon tlie books of the company, /^e/ ^^^-^^^*^ ,and no copy of the power of attornc}-, was filed in the oilice of the com- a (o^ C<*--Hf^ . ,^^^^ ^'^"'^^ -jr:^^ 1^ I'Unly part of the case is given. — Ed. J> HOTCHKISS AND UPSON CO. V. UNION NATIONAL BANK. 671 The provision of the statutes of Connecticut giving the company such lien is found in section 1923 of the General Statutes of that state (Re- vision of 1887), which reads as follows : ''When not otherwise provided in its charter, the stock of ever}- corporation shall be personal propert}-, and be transferred onl}- on its books in such form as the directors shall prescribe ; and such corporation shall at all times have a lien upon all the stock owned by any person therein for all debts due to it from him." And section 1924 declares how such stock may be pledged, and the manner in which such pledge may be made effectual, as follows: "Shares of stock in any corporation, organized in this state under the laws of this state or of the United States, may be pledged, by execut- ing and delivering a power of attorney for its transfer, with the certifi- cate of stock therein mentioned, to any party to whom the pledge is made ; but no such pledge, unless consummated by an actual transfer of the stock to the name of such party, shall be effectual to hold such etock against any person but the pledger and his executors and admin- istrators, until a copy of said power of attorney shall be filed with the cashier, treasurer or secretary of said corporation." The provisions of section 1924 were not complied with in the making of the above pledge. But the bank introduced evidence tending to show that the Hotchkiss & Upson Company had notice of the pledging of these shares before the embezzlement commenced. The court below found that the company had such notice ; and held^ that the bank's lien was superior to that of the company. A decree was made, sustaining the bank's lien upon the 140 shares pledged as above stated. J. E. Ingersoll, for appellant. W. B. Sanders {Squire, Sanders <& Dempsey were on the brief), for appellee. Severens, J. For, assuming that the bank was bound to take^otice, not only of the cha rter»J )ut the general laws of Connecticu t affecting the Hotch- kiss & Upson Company, we think it was competent for the bank to P show th at the C onnecticut corporation ha d the notice of the pledge of its stock to the bank for th e j)ayment _of the^^lSJiO^^^ote^ which it Avas^hej)urpose of section_19 24 of the laws of that state, jjjove quoted, to secure. ~~~' It is a widely prevalent doctrine, applj'ing to a variety- of statutes enacted for the purpose of protecting parties dealing bona fide with property' upon the assumption of its ownership by the persons dealing with them, against prior liens and conveyances, that, notwithstanding the generalit}' of the language of such statutes declaring that such for- mer liens and conveyances should be held void, if not registered in conformity' with the provisions of the statute, as against subsequent purchasers, j'et, seeing that the whole object of such provisions was to guard the subsequent purchaser against transfers of which he had nd 672 II0TCHKI3S AND UPSON CO. V. UNION NATIONAL BANK. 2) notice, if the object of the statute had been subserved by actual knowl- edge of the fact, the prior transferee would be protected. And there is no reason why this should not be so. Such laws are not designed to accomplish so unjust a result as that a person having knowledge of an- other man's equities may defeat them by an act of his own, taken with such knowledge. Converting those statutes to such purpose would be quite contrary to the spirit of their enactment. That such is the gen- eral doctrine upon this subject cannot, we think, be disputed. The cases are too numerous to justify a review of them here. Many of the principal decisions are collected in 1 Jones, Mortg. (5th Ed.) § 538, and the result of them stated ; and it is there said : " The doctrine is the same under statutes which declare without qualification that an un- acknowledged or unrecorded deed shall be void as against purchasers, or as against all persons who are not parties to the conveyance." The rule is the same in respect to personal property. No distinction in tlie application of the doctrine can be based upon a distinction be- tween the two classes of property. Jones, Chat. Mortg. (4th Ed.) § 308. It rests upon a broad and fundamental equity. It must be conceded that there are occasionally to be found cases which seem to lead to a different conclusion, but the general current and weight of authority is as above indicated. No doubt there are exceptions to this rule where the statute goes further than to provide for the mere giving of notice, and expressly declares that the instrument shall only become valid upon its registration. In such case the condition is made essential to its validit}'. The decisions of the supreme court of the state of Connecticut show be3ond doubt that the rule which prevails in that state upon this sub- ject is the same as the rule whicbLPievails generally injbhe^ courts of th e several states and of the United States, and it may be regarded as the settled rule of Connecticut that statutes of a kindred character, an d having the same purpoje_j^hat here under_ consid eration ,_ are to be construed, not as render ing prior transactions void as between the par - ties th emselves or ot hers who had equivalent notice of such transactions, and _who, therefore, were in no predicament requiring protection, but as provisions whose whole scope and intended effect was the protection of parties wh o had an equity arising upon the fact of their having altered their situation, in reliance^ 'ipon the apparent cond ition of things. WEeaton v. Dyer, 15 Conn. 307 ; Blatchley v. Osborn, 33 Conn. 226 ; Hamilton v. Nutt, 34 Conn. 501. [Remainder of opinion omitted.] Decree affirmed. h ;A\> FORT MADISOI^) »V/' /, // k. .^ FORT MADISON LjftlBER ^ 1887. 71 Iowa, 270. CO. V. BATAVIAN BANK. G73 i>- D- AP- / ..^^ Action in_e^mit}' to compel the defendants to interplead, in order that their respective claims against each other, and against the plaintiff com- panj', ma}' be determined. The facts appear to be that one Weston was at one time the owner of certain shares of stock in the plaintiff company, and the same stood in his name on the books of the com- pan}'. In 1883 he borrowed money of the defendant, the Batavian Bank of La Crosse, Wisconsin, and assigned to it certificates of his stock as collateral security ; but no transfer of the stock was made upon » the books of the company. Afterwards he became insolvent. Among' his creditors were the defendants D. Hammell & Co., the Clark Counts- Bank and the Neillsville Bank. These creditors brought actions upon their respective claims in the circuit court of Lee county, Iowa, and caused writs of attachment to be issued, and levied upon the stock in question. At the time of the levy they Jiadno^knqwledg e of an y ti-an§- fer of the_certificates by Weston. Shortly after the levy the Batavian Bank procured the secretary of the plaintiff to indorse upon the stubs of the book from which the certificates had been detached an entrj- or memorandum of a transfer. This action is brought for the purpose of procuring a determination of the question as to whether the rights of the Batavian Bank, as pledgee, are subject to the attachments, or the attachments subject to the rights of the Batavian Bank. The court held that the attachments were subject to the rights of the Batavian Bank. The defendants D. Hammell & Co., the Clark County Bank and the Neillsville Bank appeal. Casey & Caseij, for D. Hammell & Co., appellants. M. C. Ring, M. F. Kounts and Casey & Casey, for the other ap- pellants. C. W. Bunn and W. J. Knight, for the Batavian Bank. Van Valkenburg & Hamilton, for the other defendants. Frank Hagerman, for plaintiff. Adams, C. J. Tlj[e_ question whether a transfer of stock in an incor- porated company iji t his state, when not entered upon the books of the .^kn (^4AP^Crk\ company, jsj'ali d, as agains t attaching creditors of the assignor with- " — ^ — ■ out notic e, is now p resented for the first time in this court . Its deter- mination must depend upon the view which should he taken of the meaning of the provision found in section 1078 of the Code, and which is as fullows : " The transfer of shares is not valid, except as between ihe parties thereto, until it is regularly entered on the books of the company, so as to show the name of the person by and to whom trans- ferred, the numbers or other designation of shares, and the date of the iransfer." ^L FORT MADISON LUMBER CO. V. BATAVIAN BANK. J^ iy y^v' The question now presented does n ot arise between the parties to iy„ . A^|'^/*Tthe transfer. Without a ny question, the transferee will hold the stock, ^ as agai nst the transferer, for all the p urpo ses for whic h the transfer was madeT" The question arises betw e en one of the parties to the transfe r I and otherswho wer e not pa rties, and who dispute the v alidity of the I transfer ! IT we give the statute a literal construction, we must hold that the transfer is not valid. To hold otherwise, we should be obliged to enlarge the exception. The rule would be that the transfer is not valid, except as between the parties, and except as between the trans- feree and the attaching creditors of the transferer. But ordinaril}', in the construction of a statute, an exception is not to be enlarged. The question, however, is not free from difficult}'. It is urged b}^ the appellee, the transferee, that an attachment can in no case bind more than the interest of the debtor ; and, if the transfer is valid be- tween the parties, it is said that it follows, from the necessity of the case, that the attaching creditor of the transferer acquires a lien only upon such interest as the transferer has left, if imy. That there is plausibility in this argument cannot be denied. But in our opinion it is not sound. It would carr}' us too far. It would make a transfer that is valid between the parties to it valid as against all persons claiming under the transferer. But no one pretends that this is so. If the transfe rer sells again, and to an innocentjDurchaserJiu: value, wh o obtains a transfer upon the bo oks, no^e dou bts that he would become both the^ legal and equitable owner; and ^lis is true though the transferer had, in one sense^ li o^intere s^i n the s tock which hFcould^ sell. It is entirely competent, then, for the legislature to pro- "vide arbitrarily that a given transfer shall be deemed by a court valid or invalid, according to the parties which shall be before the court. The transfer is valid if the parties before the court were the parties to the transfer, and otherwise not. This, at least, is the rule of the stat- ute, and must be followed, unless some equitable consideration controls. If the attaching creditors of the transferer ha d knowledge of the Itransfer, it ma^^be that a court of equTt;^ would protect_jLhe trans- feree's rights. It has frequentlyl)een_so_hel^^ I nqt_befor e us . Our conclusion thus far has been based upon what seems to be the fair meaning of the language of the provision. But we are entitled to take a broader view, and look at other provisions. It is provided in the same section that the " books of the company must be so kept as to show intelligibly the original stockholders, their respective interests, the amount paid on their shares, and all transfers thereof; and sucb books, or a correct copy thereof, so far as the items mentioned in this section are concerned, shall be subject to the inspection of any person desiring the same." The above, it will be seen, is a provision that the books shall show, at any given time, precisely who the stock- holders are at that time. The books, too. Shall be kept open for inspection by any one. Wherea provision j^s jnade fo r a record o f spe- FORT MADISON LUMBER ,->^y P/V^ inspecting the record expends^ m oney upon t he faith of it, any otlieft ^',^ ^ v^ person through/whose negligenc e the Record fails to show the triith /,^ ,^ s houhl be estopped from settingjupjts mitrut hfulness^ -^ It is contended by the appellee that the provision for a record, de- signed to show who the stockholders are at anj' given time, is for the sole benefit of the corporation itself. But there is nothing in the pro- vision that calls for such construction. Besides, nothing can be clearer than that the record is for the benefit of any one who may desire to inspect it, because it is expressly provided for such. It is contended by the appellee that a mere attachment of stock should not have precedence over a prior assignment, not made of record, because the attaching creditor has expended nothing but his labor and the costs. By way of argument, it is said that an attach- i ment_does not take precedence of an unrecorded deed. But such a^^_»__»^^*^ case differs in this. The statute expressly requires transfers of stock to be recorded ; it does not require that deeds shall be. Stock in an incorporated company is personal property. Transfers of perso nal proper ty, to be valid as against attaching creditors, should be attended by^a yisibl^cbange of possession, or else evidence of the t£ansfer^should_be spread uponji public record. We have an^e^^ress provision of statute for__propert£ where j, visible chjuig^ of po ssess ion can b e made. In t he c ase of stock m an incorporated company, no visible c hang e of p ossessi on can be made. Stoc k is a share in the i nter ests and rights of the corporation. Certificates are mere ejvidence. They m ay never be issued. It is not essentiajjt hat t hey should be^. "NVhen issuejl, they are merel}- for convenience. Thej^bj ect of the im- perat ive jirovision that^ transfers of stocks shalL be recorded un £ues- tionably is that tbe^ownership maybe m ade apparent . Chief Justice Shaw, in Fisher v. Essex Bank, 5 Gray, 373, (380), in speaking of stock in an incorporated company, said : " It is of im- portance that the title be certainly and easily ascertained, that the mode of acquiring and alienating it ma}' at an}' time be made available by process of law for the debts of the owner." Again, speaking of the necessity of a record of the transfers as passing title, and of a levy according to the record, he says : " The shares [otherwise] could never be attached, for the officer could have no means of obtaining possession of the certificate from a reluctant debtor adversely inter- ested, and without it the shares might pass the next day to a purchaser without notice." Again he says : " It is necessary to fix some act, and some point of time, at which the property changes, and rests in the vendee ; and it will tend to the security of all parties concerned to make that turning point consist in an act which, while it may easily be proved, does at the same time give notoriety to the transfer." In support of the conclusion which we have reached, that the statute 6'<3 rOET MADISON LUMBEE CO. V. BATAVIAN BANK. \x O^^CX-yC-lA i/^i^-cy*^ in question was designed in part for tlie benefit of attacliing creditors, we will refer to another provision of tlie statute. The sheriff must, as nearly' as the circumstances will permit, levy upon property fifty per cent greater in value than the amount of the debt as sworn to. Code, § 2954. Now, if the construction contended for by the appellee is cor- rect, the attaching creditor and sheriff, proceeding strictly according to law in attaching stock, and exhausting their ability to secure the debt by such attachment, cannot know whether any security at all has been obtained. The certificate holder may keep himself concealed until the very moment when the stock is offered for sale on execution, and it is sufficient if he then appear, and give notice of bis claim. We cannot think that the statute was designed to admit such a result. We may say, indeed, that the very mode of attaching stock provided by statute seems to be a legislative construction of the statute in question. We come, now, to inquire how the question stands upon the authority of adjudicated cases. In ^laine the statute provides that "a transfer of shares is not valid, except between the parties thereto, until it is so entered in the books of the corporation." The provision is identical with the provi- sion of our own statute. In Skqwhegan BaiiJc v. Cutl er^ 49 Me. 3 1,5, a question _arose as to whether an attachment w ould take pre cedence of an unrecorded assignment, and it was h el d th at i t would . In Illinois it is provided that shares of stock in a corporation can be transferred only upon the books of the corporation. In People^ s Bank V. GridJey. 91 111. 457, a^question arose as to whether_the^ levy of a n execution would take precedence of a transfer of shares not ente red upon the books. It was held that it wouM. The action was brought to enjoin the sale on execution. The point was made that the execu- tion creditor, who had merely levied, was not an innocent purchaser for value, and that, not being such, the transfer, though not entered upon the records, might be set up against him ; but the court held other- wise. It is true, the Illinois statute differs a little from ours. It pro- vides that transfers can be made only on the books of the company. It does not, like our statute, expressly provide that a transfer not en- tered upon the books will be good as between the parties to the trans- fer. But the difference, in our opinion, is not material. The statute is the same in effect. It is well settled that, under a statute like the Illinois statute, a transfer not entered upon the books is good between the parties. The case, then, appears to be strictly in point. The same view was taken in Sabin v. Bank of Woodstock, 21 Vt., 553, and Cheever v. Meyer^ 52 Id., 66. In the former case. Chief Jus- lice Redfield said : " We entertain no reasonable doubt that . . ^_all persons unaffected with notice to the contrary are at liberty to act upon the faith of the title being where it appears upon the books o f the com* pany to be." In State Ins. Co. v. Sax, 2 Tenn. Ch. 507, Chancellor Cooper cites the case, and refers to it approvingl}-. In Wisconsin the statute pertaining to the transfer of stocks is like FOKT MADISON LUMBER CO. V. BATAVIAN BANK. 677 ours, and in ApiMcation of Murphy, 51 Wis., 419, 8 N. W. Rep., 419, a construction was put upon it which sustains the appellants in the case at bar. The court said: "We think that the meaning of the law i3_ that all transfers of shares should be entered, as here required, upon the books of the corporation ; and Jt_is^ equall}' clear to us that all^ transfers of shares not so entered are invalid as to attaching or execu- 7ion cred itors of the assignors, as well as to the corporatio n and sub - s equent p urchasers in good faith." In Pinkerton v. Manchester tJt L. R. Co., 42 N. H., 424, (462), an attachment, made without notice of a prior transfer not entered upon the books, was held to take precedence of it. The court said : " As to goods and chattels in possession, a substantial change of pos-| session is by our law essential when it can be had. In the case of I stock, the natural and appropriate indication of ownership is the entry; upon the stock record." In Connecticut an attachment was upheld as against a prior assign- ment not entered upon the books. Northrop v. Neicton <& bridge- port Turnpike Co., 3 Conn. 544. It is claimed by the appellee that in New York, New Jerse}' and California it has been held otherwise ; and it may be conceded that this is so, though we are not prepared to sa^' that all the statutory provi- sions in those states bearing upon the question are quite the same as in this. The case of Black v. Zacharie, 3 How., 483, is cited by the appellee. In that case language was used which might seem to support the appel- lee's position, but the case was essentially different from the one at bar. The attaching creditors had notice of the assignee's rights at the time the attachment was levied. The appellee also cites Moore v. Walker, 46 Iowa, 164. But the pretended attachment in that case was made before the assignment, and would unquestionabl}' have taken precedence of it if it had been proi> erly made ; but it was not, and had no validity, regardless of an}' question of transfer. It was expressly held that the provision of statute now in question (section 1078, Code,) had no application to the case. The remark, then, in the opinion, in regard to the scope of that section, does not have the force of an adjudication. There is jio question in regard to the preponderance of authority. It ii^learly on the side of the^appellants. But we are not influenced more by this fact than what seems to be the plain language and intent of the statute, and the difficulty and uncertainty which would often attend securing debts by attachment of stock, if stock, as against attaching creditors, can be transferred b}* mere delivery of the certificates, and if the books provided expressly for inspection by such creditors are to serve especially the purpose of a false scent. We think the judgment must be Reversed- 6o-^ P'^M" .^ )>^ y^ ,y*^-^^ Lowell, J. R. B. Conant was the cashier of the Eliot National Bank, <^ .u,, (ij of Boston, and owned 158 shares of its capital stock. Each of his cer- ,--^ tificates contained these words : "Transferable only on the books of ' /) ff J "^ T L^^ ^uJ^ U ^'^iolhe bank and cancelled, and a new certificate issued. In July, 1878, .4^ \t^^ ^y^ t"54:^-^'4..^:.:'^^ ^ CONTINENTAL NAT. BANK V. ELIOT NAT. BANK 681 Conant confessed to the directors of the Eliot Bank that he had embez- zled the funds of the bank to the amount of about $70,000. The}' required him to resign his position as cashier, which he did, and he has since been convicted, and is now serving a sentence of imprisonment for his fraud. The Eliot Bank attached his shares in an action which is still pending in the superior court for Suffolk count}'. Afterwards the Continental Bank sent to the Eliot Bank the certificates and powers of attorney, and demanded a transfer and new certificate, which was refused. This bill is filed to require the transfer to be made, or for damages, or other relief. Conant is made a defendant, and the bill as against him has been taken pro confesso. The officer is likewise a defendant, but it is admitted that no decree can be made against him. The onl}' question of fact in dispute is whether the Eliot Bank, before attaching the shares, had notice that they had been pledged, or mort- gaged, to the complainants. Conant testifies that at the meeting of the directors at which he confessed his misdoings, he was asked what assets he had, and mentioned certain shares of mining stock, and other things ; and that the president asked about these bank shares, and was informed of the fact that they were pledged to the New York banks for their face value. Conant, soon after leaving the directors' room, consulted Mr. Morse, an attornej' of this court, who went at once and saw the directors before they had left the bank ; and he testifies that he was told there by some one or more of them that this stock was pledged. On the other hand, none of the directors remember such a conversation ; and some of them are confident that none such can have occurred. If it occurred, it is admitted that the attachment could not hold because the attaching creditor had notice of the transfer. DkicJc v. Zacharie, 3 How. 483. I am inchned to think that the affirmative evidence must prevail in this case ; but there is so much doubt in my own mind, that I have thought best 'to examine the disputed question of law, whether the attachment would take precedence if made without notice to the attach- ing creditor of the unrecorded transfer. ^ ^^ The aiguments have been ver}' thorough on both sides, and a great man}' cases have been cited. It has been very ably urged that by the law of Massachusetts the attachment would have the preference. This I consider doubtful ; but the decision does not depend upon the law of Massachusetts. 1. It is not important to consider whether the contract was consum- mated in Massachusetts or in ?^ew York. The n£gotiabilit}M3 r trans - ferable quality of the^ stock^of a nati ^naL_bank_de|j ends upon the laws of^the United^ States. Dickinson v. Central National Bank, 129 Mass. 279. In IhrchaMs' Bank v. State Bank, 10 Wall. 604, the admitted law and usage of Massachusetts, where both the national banks were situated, and where the transactions took place, were wholly disregarded by the majority of the supreme court. The negotiability of foreign scrip in England is not governed by the law of England, but by the law of the foreign country, which may be proved by the general usage 682 CONTINENTAL NAT. BANK V. ELIOT NAT. BANK. of brokers and others dealing with such scrip. Goodwin v. Eoharts^ 1 App. Cases, 476. The time and mode of attaching property, and its effect in general, are part of the law of the formn ; but its operation upon unrecorded transfers of shares in national banks is regulated by the law which creates the shares and provides for their conveyance and registration. That law is section 5139, Rev. St., which provides that shares may be transferred on the books of the association in such man- ner as may be prescribed by the by-laws or articles of association. Such a law, in Massachusetts, might possibly mean that creditors could attach the shares as the property of the recorded owner. Blanchard V. Deedham Gas-light Co. 12 Gra}^ 213. I have already' said that I ^oubt if this is now the law of Massachusetts, and I shall return to the subject presently ; but that law favors attachments in certain classes of cases to an unusual extent. 2. It is a general rule that creditors, whether they proceed by an attachment on mesne process., seizure on execution, creditor's bill, or through an assignee in bankruptcy, must take their debtor's property subject to all equitable as well as legal charges, liens, or opposing titles. Willes, J., in giving judgment in the Queen's Bench in 1868, in a case quite analogous to this, against the right of seizing shares of the appar- ent owner, said that it was a rule applied by that court more than a hundred years before, in the analogous case of the statutory execution under the bankrupt law, that the creditors can have no more than a debtor was entitled to in equity or at law. Pickering v. IJfracomhe By. Co. L. R. 3 C. P. 235, 251. It has been the law of the lord mayor's court in London, from the time of Richard I., that an equitable assignment of a chose in actio)! should prevail against an attachment. Westoby v. Bay, 2 E. & B. 605. This application of the rule obtains in Massachusetts, and in the Unitea States generally, though a few courts hold otherwise. Drake on At- tachments, c. 24 ; Thayer \. Baniels, 113 Mass. 129, and cases cited. The doctrine is so familiar that I will merely cite authorities to show that it is the general rule in Massachusetts as well as elsewhere. The exceptions to it in this state I will consider afterwards. See Wakefield V. Martin, 3 Mass. 558 ; Bix v. Cobb, 4 Mass. 508 ; Kendall v. Laic- rence, 22 Pick. 540 ; Kingman v. Ferkins, 105 Mass. Ill ; Thayer v. Daniels, 113 Mass. 129 ; Boston Music Hall Ass'n v. Cory, 129 Mass. i3o. 3. The incorporeal property of the shareholder in a company of this sort is represented by his certificates ; and, if these are conveyed, the failure to record the conveyance is not evidence of such a constructive fraud as sometimes arises from the possession of chattels after the prop- erty has been parted with. On the contrar}', it wa s pr oved in_eaily cases to be the usage, and is now^idopted by the courts aS- iaw_ r r)ased~on~su ch usage, that the possession of the certificates, jvyitli_a W l^yvverjto transfer them is jn'ima J'acie evidence of tjtle ; aiid if, in Jactj. the possessor has given value, his title cannot be impeached even by CONTINENTAL NAT. BANK V, ELIOT NAT. BANK. G83 subsequent j)urchasers wh o did not receive the certificates^ muc u less t)j cj-editors of the transferrei^ In laXa cases tl iese certificates are likened to hills of lading^ and other qu asi negotiab1e _secu rities._ See Black v. Zacharie, 3 How. 483; Bank \. Lanier^ 11 Wall. 3G9 ; Johnson \. Laflin, (S. C. U. S.) 12 Cent. L. J. 440 ; U. S. v. Vaughan, 3 Binne.y, 394, approved in U. S. v. Cutts, 1 Sumn. 133 ; Finney's App. 59 Pa. St. 398 ; Wood's App. 10 Weekly Rep. 125 ; Smith v. Crescent City Co. 30 La. Ann. 1378 ; Bridgeport Bank v. Schngler, 34 N. Y. 30 ; McKeilv. Tenth NaLB ank. 46 N. Y. ^2 5 ; -Winter v. Belmont Mining ^^oTsFCal. 428 ; Fraser v. Charleston, 1 1 S. C. 486 ; Strong v. Houston B. Co. 10 Weekly Rep. 28 ; Broadway Bank v. 3IcElicrath, 13 N. J. Eq. 24 ; S. C. 24 N. J. Eq. 496 ; Prcdl v. Tilt, 28 N. J. Eq. 483 ; 31er- chants' Bank v. Richards, 6 Mo. App. 454 ; Conant v. Seneca Co. Bank, 1 Ohio St. 298 ; Duke v. Cahawha Navigation Co. 10 Ala. 82 ; Boss V. S. W. B. Co. 53 Ga. 514. In many of the foregoing cases there were laws providing for the transfer of shares upon the books of the company. But the courts held that this registration was intended chicfl}' for tlie convenience of the company, to enable it to know wlio should have dividends and who should vote. No doubt it is sometimes intended as a record of per- sons liable for the debts of the compan}-, and is so in the case of na- tional banks ; but the great weight of authority is that it is not intended for the benefit of creditors of the individual shareholders. Some of the £ourts lipid th at the u nrecord ed transfej^passes only an equjtable ^ title j othei;s, that it gives a legal title. I assume thatjjy th e decisi ons in tlie courti^ of the United States only^.an equitable_Jille is_j!jcqu]rc(l That point is unimportant. 4. The statutes of many, perhaps of most, of the States, provide that certain conve^'ances of land and of chattels shall be recorded, and that until record is made a conveyance shall have no effect excepting between the parties, and, in most cases, those having actual notice. An attaching or seizing creditor, without notice of a prior conveyance, is, undoubtedly, within the words of these statutes ; and so such cred- itors have come to be treated, and even spoken of, as in some sort pur- (■hasers. A few of the statutes requiring registration of the shares of companies follow the exact language of these registry* laws, and declare lliat no unrecorded title shall be good, or only against persons having notice. In California, even, such a law is held not to avail creditors, ( Winter v. Belmont Co. 53 Cal. 428 ;) but in Maine and Massachusetts, the decision, and perhaps the better one, is that such a law must be construed like other similar registry laws. Skowhegan Bank v. Cutler, 49 Me. 315 ; Bock v. Nichols, 3 Allen, 342. It was in this state of things that the case which is the support of the defence here was decided. In Fisher v. Essex Bank, 5 Gray, 373, the charter of a bank incorporated in Massachusetts provided that the shares should be transferred only at the banking house, and upon the books of the company, and the court held that an attaching creditor could hold against an earlier unrecorded 684 CONTINENTAL NAT. BANK V. ELIOT NAT. BANK. transfer for value. 1 have studied this decision with care. It seems to proceed upor the theorj' that by the charter, which is a public statute, there can be no such thing as an equitable transfer, or, at an}' rate, none except by a sort of equitable estoppel between the parties, and that it was a part of the intent of the act that a creditor at law should have the legal right to attach the legal title. This decision has been followed in Illinois, (People's Bank v. Gridley, 91 111. 457,) but rejected in the other states, so far as their courts have passed upon it. It is sometimes spoken of as being the law of Connecticut and Vermont, but the early cases in the former state are much modified b^- Colt v. Ives, 31 Conn. 25. The case cited from Vermont {Rice v. Curtis, 32 Vt. 464) is not in point. It is opposed directl}' to man}- of the cases already cited under the third point, and to the general principle that attaching creditors are bound by all equities, including equitable estoppels. It has, moreover, been seriousl}' modified, if not wholl}' overruled in Massachusetts, in Dick- inson v. Central Nat. Bank, 129 Mass. 279, printed, but not yet pub- lished. The Central National Bank had a by-law like that now in question, and A., the owner of ten of its shares, had transferred them bj' wa}' of security, precisel}' as Conant transferred his shares, and af- terwards became bankrupt. The transferee, still later, sold the shares at public auction, under his power, after due notice to A. and to his assignee. The bank, notwithstanding a notice and demand by the as- signee in bankruptcy, transferred the shares to the purchaser. The assignee sued the bank for damages, but was defeated. Colt, J., deliv- ering the opinion of the court, says that Fisher v. Essex BanJc, uli stipra, does not apply, because in that case the charter had the force of a general law, but that a by-law has no such effect, (citing Sdrfient V. Essex Marine M. Co. 9 Pick. 201,) and that in the absence of such a general law the transferee took an equitable title which should prevail against the assignee in bankruptcy of the transferrer. The only cir- cumstances in Fisher v. Essex Bank, not found in Dickinsoii v. Central Bayik, are these : (1) The law in the former case contained the word "only" — that the shares should be transferred only so and so; (2) that an attaching creditor and not an assignee in bankruptc}' was concerned ; (3) that the law governing the company was a Massachu- setts law, which might be differently construed from a national banking act. The first and third points, of course, are the same in this case as in the later one in Massachusetts. The second is not sound in this court ; an assignee and attaching creditor stand precisely alike, accord- ing to the law which governs this controversy. 5. The doctrine o^ Dearie v. Hall, 3 Russ. 1, confirmed in Foster v. Cockrell, 3 CI. & Fin. 466, is much relied on by the defendants. This doctrine is that of two innocent purchasers of merely equitable interests he shall be preferred who first gives notice to the trustee or holder of the legal title. To this there are several answers : 1. Though the cor- poration is for some purposes a trustee for the shareholders, the latter have an independent legal property in their shares which they can coa- CONTINENTAL NAT. BANK V. ELIOT NAT. BANK. C8o vev, find whether their actual coiive^-ance is legal or equitable is of d*" consequence. 2. The doctrine applies in England only to purchaser and not to creditors seizing or attaching, even though a statute gives a right to seize all shares standing in the debtor's name in his own right. This statute was once held bj- the Queen's Bench to mean that the cred- itor might seize what the register showed to be apparently the property of the debtor, {Watts \. Porter, 3 E. «fe B. 743;) but this has been overruled, on the ground that the legislature cannot be supposed to have intended to take one man's propert}' for another man's debt, with- out the most explicit statement of such a purpose ; and therefore the "right" refers to the equitable as well as legal right. Dimstery. Lord GleyxgaU, 3 Ir. Ch. 47 ; Scott v. Lord Hastings^ 4 K. & J. 633 ; Beavan v. Earl of Oxford, 6 D. M. & G. 524 ; Eyre v. McDonald, 9 H. L. 619 ; Robinson v. Nesbitt, L. R. 3 C. P. 264 ; Pichering v. II- fracombe Railway Co. L. R. 3 C. P. 235 ; Gill v. Continental Gas Co. L. R. 7 Ex. 619. A few courts in this country have carried the doctrine of Dearie v. Hall so far as to uphold the garnishment of a non-negotiable debt which had been equitably assigned without notice. We have already seen tliat this is not the law in England nor in Massachusetts. Neither is it the law of the United States generall}'. Drake, Attachments, c. 24 ; Cor- nick V. Richards, 3 Lea. 1. The supreme court of Tennessee in that case refused to extend the rule to shares of stock, though it applies in that state to chases in action. As shares are not choses in action, and as attaching creditors are not purchasers, Dearie v. HoJl is not in point. 6. It remains onh' to cite two decisions of the supreme court, which, in principle, are decisive of this case. In Bank v. Lanier, 1 1 Wall. ."69 a national bank was required to make good to the holder of an unre- corded certificate the value of his shares, although they had been trans- ferred on the books to a subsequent purchaser for value. That purchaser, to be sure, was not before the court, but if his title was better than that of the plaintiff, the bank was justified in transferring the shares and would have had a perfect defence. Dickinson v. Central Nat. Lank., 129 Mass. 279 ; Gill v. Continental Gas Co. L. R. 7 Ex. 232. If a purchaser for value could not hold against the holder of the unrecorded certificate, a fortiori of an attaching creditor. Bullardv. The Bank, 18 Wall. 589, is in the same line of thought. It decides that cei^ficates of shares in national banks are so far nego- tiable, or quasi negotiable, that a by-law of the bank, which undertakes to make them subject to the debt of the transferrer to the bank itself, is void. On the same ground it was held that a b3'-law like that of the Eliot National Bank, if intended to give attaching creditors a better title than transferees who had not recorded their certificates, was void. Sargent v. Marine Ry. Co. 9 Pick. 201. Here, again, the argument is a fortiori. If the bank cannot create a lien bj' its bj'-law, much less •an it obtain one indirectly, by attachment, upon the construction of an gmbiguous by-law. 686 LOWELL ON TRANSFER OF STOCK. MyconclusioiLisJha^^ v^Tn^gj^^^rthTnom^^ whether that is eq uitable o r /) legal. There is no conflict of jurisdicti on, becaus e no state court or H' officer has taken possession of'anything. Thejjuestion Jsj nerely on e of titieT Xbilfin equity will lie, because the_ci> iT i p1ai nn, nt compa nji has, or mighnuive7a_xigMAo I'equire Ihe shares to be transferred tojL As values are at present, it would be more just to enter a decree for xhe debt due the complainants, and interest, which would leave a consider- able value for the defendant bank if the present market price holds. I understood counsel to say that the precise form of the decree could probably be agreed on. Decree /or the complainants. A corporatio n ha s no implied lien on its shar es fo r calls or other debts owing frj)in jts shareholders,^idj;onseo[ue ntly no implied right to refuse to register a transfer because„the_transfe rrer is indebted to it. . . . As to whether a corporation has the implied power to pass a by-law giving itself a lien on its shares for the holders' indebtedness to it, the authorities conflict. A number of decisions hold it competent for a corporation to pass such a by-law, and the preponderance of authority is certainly to the eifect that a general power possessed by a corporation to regulate the transfer of its shares authorizes it to create by a by-law a lien on them in its own favor. But even this last proposition has been disapproved ; and many cases strenuously deny any implied power in a corporation to pass a by-law which creates a lien on its shares, or in any material way interferes with their transferability. But in order to decide some of the cases where the o pinion ofjthe court in terms denies the ^gowerjof^a co rporatio nJ:o pass j, by-law of this character, it^was onl y nece ssar y to ho ld (wha t those cases also hold with perfect justice on the ir side, and little or no authority against them), that the rights of_a _pers on pur chasing share s without actual notice of such a byj4awjiTe_^gLaJfected_bxit, Taylor on Corporations, 3d ed. ss. 600, 6OI.1 [As to remedy against a corporation by a stockholder whose certifi- cate has been lost or destroyed ; see Galveston City Co. v. Sibley, a. d. 1882, 56 Texas, 269 ; State, ex rel. Seaton, v. New Orleans & C. B. Co., A. D. 1899, 51 Louisiana Annual, 909 ; Lowell on Transfer of Stock, ss. 128, 241.— Ed.] 1 It is held, that a national bjink_isj)rolubit_e(l bv the ter_msj)f tlic National Ban king Act s from reserving a lijn on the shares of its stockholders. See cases cited in notes to 1 Mora- wctz^2d ed.^ s. 201, and in notes to Taylor, 3d ed., s. 602; also Buffalo German Ins. Co. r. Third National Bank of Buffalo, 162 New York, 163. —Ed. HEARD V. TALBOT. 687 CHAPTER XVII. FOKFEITURE OF CHARTER — HOW ENFORCED. SUIT BY STATE, OR BY CITIZEN, TO RESTRAIN ULTRA VIRES ^ ACTS, OR TO COMPEL PERF0R:MANCE OF ,CORPO-V^ / RATE DUTI|;^. > \f^/v/ ,^ ^./i/ ,/ ^ /^/A^'-^ / \I!OMPt AIN itf r 1856. lu6, ror flDwiug/land b}' the water of «^::u / 1 /. \to '\/^OMPtAiNT under Rev. Sts. c, Concord River, raised b}' the respondents' dam in the operation of their'^ Ar'^ mills. Respondents claim the right to now maintain the dam without r pa3-ment of damages, as the grantees of the corporation, styled the ,y Proprietors of the Middlesex Canal. The corporation was chartered^ in 1793 to build a canal. In 1798 an additional act authorized thee Proprietors to purchase and hold any mill seats on the waters connected with their canal, and to erect mills thereon. The charter provided that persons whose lands were flowed might obtain compensation by applying to the Court within one vear from the time of the damage done. The Proprietors, so long as they were in active operation as a (^ J" canal compan}-, leased and sold water power to divers persons, to be ^ ^p drawn from the head of water raised by the Proprietors' dam, and tolWr|^'^ be used in subordination to the use of the water for feeding the canal. In 1826, the Proprietors built the present dam, by which the plaint)ft"'s land is now flowed. In 1840, the plaintiff's ancestor applied to the Court to obtain compensation for flowage. The petition was dismissed ; the Court holding that the damage was "• done " when the dam was .y'' i^ ' completed, and that no application could be made after one 3'ear from J^rj , that time had elapsed. {Heard v. Froprietors, 5 Metcalf, 81.) '^ J^ p/ ^iS In 1851, the canal was wholly disused by the Proprietors, and filled iy^ /^ y^^^J^^ up in parts of it ; and it has now become wholl}' unfit for use, and is no ^ ^^y*^ iJ^ longer filled with water, and is wholly unused by the Proprietors. j^ \ e^y Hj y^ * At the time of the abandonment of the use of their canal, and as ^(y^ jJ^ y^ t^^ ■J'^' part of the winding up of their affairs, the Proprietors sold all their . '] jt'^J'-'^^^ i^^ land and the residue of the water power by them unsold, raised by ^"'*«f^^''''^'^ ^ their dam aforesaid, to the respondents by deed of quitclaim, " subject expressly to the reservation of all easements and services necessary- for^^ ^ / -^- or incident to the preservation and use of said canal for the purpose ov^ ^y\ 1 Statement abrklged. Arijuinent omitted^r-^Ef jj" "^ ^^^ '^ \~s • .^ ^ jlyf 688 HEAKD V. TALBOT. navigation, and of all the rights of the public therein, until the same shall be lawfully discontinued " ; and the respondents have since that sale maintained and kept up the water by said dam for manufacturing purposes, and claim to use the same in such manner and to such extent as may suit their convenience for such manufacturing purposes, subject to said reserved right of said canal. After abandoning the canal, and after the deed to the respondents, the Proprietors applied to the legislature for leave to wind up their affairs, and to sell their land and water power, and surrender their charter, which application was denied. Subsequentlj^ they petitioned the Supreme Court for leave to wind up their affairs and surrender their charter ; which petition is still pending. J^. F. Butler^ for plaintiff, J. G. Abbott, for respondents. BiGELOw, J. There can be no doubt, that the proprietors of the Middlesex Canal, under their original act of incorporation, St. 1793, c. 21, and under the additional act of 1798, c. 16, by which they were empowered to purchase and hold mill seats on the waters connected with their canal, acquired, as part of their franchise, the right to flow the land of the complainant ;* and that this right was in its nature a permanent easement or servitude, for which the complainant or those under whom he claims title had an ample remedy in damages provided in the third section of the original charter of the corporation. That remedy was an exclusive one, and the time within which parties could legally avail themselves of it has long since passed awa}'. These points have already been adjudicated. Stevens v. Middlesex Canal^ 12 Mass, 466. Sudbury Meadows v. Middlesex Canal, 23 Pick. 36. Heard v. Middlesex Canal ^ 5 Met. 81. It seems to us very clear that there is nothing in the facts of the present case to take it out of the principles settled b}' those decisions, and that there is no ground on which the claim of the complainant to damages under the mill act can be sustained against these respondents. They hold their title to the mills and water power raised by the dam which causes the land of the complainant to be flowed, under a grant from the Proprietors of the Middlesex Canal. By the deed under which they claim, the right is expressly reserved to the grantors to appropriate the water raised by the dam at all times to the purpose of supplying their canal. It is therefore in the right of the canal corpora- tion, and subject to this reservation, that the respondents claim to use and enjo}' the mill privileges created by the dam which is the subject lof this complaint. Unless, therefore, the corporation have surrendered [or lost the right to keep up and maintain this dam, it having been ^already settled in 5 Met. 81, that the complainant has no claim for /damages on account thereof against the corporation, it would seem to ifollow that he has none against these respondents, who claim under {the corporation. The 8o]e ground on which he now rests his case is, that^the canal HEARD V. TALBOT. 689 corporation have since the^year 1851 wholly disused their canal, filled />^^ up portions^ of it, and suffered it to remain in such condition as to be euth-eljjinfit for use. The argument is, that the right of erectjng and maintaining a dam was granted_to jthe corporation mainly for the purpose of enabling them to raise_w ater f or llie supply of their canal, and the power to hold mills was whollyjncidental to a nd d ependeut_OQ the appropriation and use of the water j-aised by the dam for the great object for which the corporation was establis hed and thei r franchise granted; that the corporation, h aving abando ned the^use of the canal, and ceased to supply it with wa ter, can no^lpn^er claim ^he right, under their charter, to maintain the d am. Admitting, for the sake of giving full force to this argument, the correctness of the premises on which it rests, we do not think the con- clusion drawn from them legitimately follows. An essential link in the chain of reasoning is wanting. The argument assumes that the neglect J or omission to use a r[ght granted to^ a^ corporation, as part of their franchise, for the specific purpose for which it was^iyen, necess arily works a forfeiture of the right itself. But this^js not^ s^ijjiulessjbhe. right is expressly made conditional on the use^ which^s no t done in. the act incorporating the proprietors of the canal. The rightjs given 7')?.-^ ,>« absolutely, and without express condition or limitation. The corpora- ^^^^J^ ^ tion are still in existence. All the rights and powers conferred on ■^,>^ -^-^ t ^ them hj lawj^ and comprehended within the broad terms of their y^^ cJ T franchise, have never yet been legally forfeited or extinguished. Nor ^^!^> can they be, except hy a surre nder of the charter and its acceptance p^ by the gove rnment, or by a forfeiture declared by the judgment_of_a competent tribunal, or by proceedings under St. 185 2, c. 55. In the abse nce" of express conditions in an act of incorporation^Jb^ which corporate rights and powers are ma de to depend on their diie yvi exerci se, a nonus er or misuser of them does not operate as a surrender^ or fo jjeiture^ the c harter. Althoug h th e disuse of the canal and its aban donment by the corp oration may be a gross d isregard of the duty imposed on them by lawTand an essential vio lation of the ter ms and condi tions implied from the contract entered^into with the g overn ment by the accep tance of theBia rter7and, "upo n due proceedings had, mi^t be~a sufficient ground~upon which to^ decree a forfeiture of alf their coijgorateju ghts and p rivilege^lh ey do not constitute^nxyalid.ground uj)on w hiclTthe exercise^%the^qrporationjof any of the powers con- ferred by/theii^^arterjcan]^e_defeated^r denied^ by third per sons in collat eral proceedings. This results' from the very nature of an act of ^ Incqrporatioir^ It is not a contractj)et ween the corporate bo dy, onjhe ".'' one hand, and individuals whose rights and interests may^be^flfected ' ^ bylhe^xercise of its powers, ^n t he o ther. It_i g a c omp act b etween ^ the^corpqratlon and tlie .government from which they derive their powers. Individuajs^therefqre_cannot take it upon themselv es in the assertion o? private rights, to insist on breaches of the contract by the corporation, as a grouDd^forj;gsisting or denyi ng th^ exerc ise^ of a cor- ^ k' -r^ l\ 690 HEARD V. TALBOT. porate power. That ^a be done onlj by the goyernmentjv ith which tEe^contract was made, an d m pipceedings dul y instituted against the corporation. It would not only be a great anomaly to allow persons, lioF parties to a contract, to insist on its breach and enforce a penalty for its violation ; but it would be against public polic}', and lead to con- fusion of rights, if corporate powers and privileges could be disputed and defeated by every person, who might be aggrieved by their exercise. Therefore it _has been often held, that a cause of forfeiture, however m-e at, cannot be tal^en__ad vantage of or enforced„ against corporation s collaterally or incidentally, or in am^ other^modejjm n by a direct p ro- ceedi ngjfor that objecMii behalf of^ the gavernment, Angell & Ames on Corp. § 777, and cases cited. Boston Glass Manufactory v. Langdon, 24 Pick. 49, Quincy Canal v. Newcomh^ 7 Met. 276. It follows from these principles, that the franchise of the Proprietors [of the Middlesex Canal, which includes the right of keeping up and /maintaining the dam which flows the land of the complainant, being istill in existence, it is not competent for him in this proceeding to show a nonuser or abandonment of the canal, as a ground for denying Ithe right of the corporation to continue the dam ; and as the respondents [hold their title under the corporation, and justify the flowing of the complainant's land under the corporate franchise, there is no ground for sustaining the present complaint under the mill act against the respond- mts. It is a sufficient answer to this suit, that the corporation have the legal right to maintain the dam as against the complainant, without payment of damages. This view of the case renders it unnecessary to determine the question discussed at the bar, whether the right to purchase and hold mills, which was conferred on the corporation by the act of 1 798, was the grant of an additional and distinct franchise or right, which may be used and enjoyed by the corporation or their grantees separately from and independently of the building and maintaining of a canal ; or whether it was merely secondary and subordinate to the making of a canal and the raising of water for its supply, and was to cease and become extinguished when the right of keeping and using the canal should be surrendered or forfeited. Nor have we occasion to decide whether the forfeiture or extinguishment of the charter of the corpora- tion would operate to defeat the title of the grantees of the corporation to the mills and water power which had been acquired by the cor- poration lawfully, and conveyed to the respondents by deeds valid at the time they were made, by which the title became vested before such extinguishment or forfeiture took place. These are important and interesting questions ; but it will be quite time enough to settle them, when tlie exigency of a case shall require, in order to adjudicate upon the rights of parties, that they should be judicially determined. Complainant nonsuit. ^'^H^lLAMET, &c. CO. V. KITTKIDGE. 691 VO^ ^' yp WALLAMET, &c. CO. v. KITTRIDGE. rs^y^/^^j'^y^- \\jh4^ 1877. b Sawyer {U.S. Circuit Court), U.-i- ^^ ^ (^-^ [/yJ^ U. S. Circuit Court. District of Oregon. Before Deadt, DiSTRictvO^/'^.u/ "^""^ , .COB. vvy^^y Action upon a bond, conditioned for the performance of a contract. ^^ \\y ^ v J^^ Defendants, among other defenses, pleaded : — ujt J^ y/ '/^ 2. That on May 1, 1876, the plaintiff ceased to cany on the hxxsX-J^. \ k ^ ness for which it was formed, and has not since transacted or carried \y '^^"^ c/^z on any of such business, and has ceased to exist. ^^T^ y -:, Plaintiff demurred. >> . yO^ ) ^ The above plea is founded on section 16 of the corporation act-^^^'^^ -/^ t^ (Oregon Laws, p. 528), which provides that if any corporation organ- -, ^" „ Lr^ k lized thereunder, "shall for any period of six months after ihc com-^ ^/^yv^' ,^ ^j^ y\ jmencement of its business, neglect and cease to carry on the same, itSy Jr^^Tj )j^\ icorporate powers shall also cease." fj r ^y * I Willkcm Strong, for plaintiff. ' g,J '\tP^ /j/iJ ^' Charles B. IJpton^ for defendant. ^0 (a^ ^ Deady, J. [After stating the case.] It is admitted by counsel fortf^ \\ \ ^ the defendant that a forfeiture of the plaintiff's corporate powers can- '^ '' not be set up to defeat this action. But it is claimed that the non-exist- ence of a corporation may always be pleaded to an action professed to be brought b}' it ; as that it was never duly created or had ceased to exist by lapse of time ; and that under the provision cited from section 16, supra, whenever a corporation neglects to use its powers for any one period of six months it ceases to exist, the same as if its corporate life had then expired by lapse of time. But in n mjudgment the language — ^Hjtsjj orporate pow ers shall cease," is the substantial equivalent of the phra se " its corpo rate powers sha irbejm-fe^d." In eith er case^the s^a,tutejloes not execute itself^ Aji in quiry mustj)ejmade to ascertain w hether t he corporation Jias^e2t^the^omliMons_subse(iuent i^^ its creationjjvas author- izedjind^ permU,ted. If ther e has been a failure to keep any such coji- dition jQO^one can allege it or take advantage of it but the State which created or authorizedjhe corporation^ In th js respec t a corporationjs like a nestate in fee^^ I fa condition -Sub sequent is anjnexed to such an estate, no one but tbe^rantor px h is successors can take advantage of its no n-performance. {Schnlenherg \. ilarriman, 21 Wall. 63.) UporT the question of whether the words — "its corporate powers shall cease," import a forfeiture of the corporate existence rather than an actual termination of the same, as bv lapse of time, the case of Lessee of Frost et al. v. Frostburg Coal Co., 24 How. 283, is in point. There the law provided that in case four fifths of the capital 1 Statement abridged. Only so much of case is given as relates to one point. -~Eix ^ 692 WALLAMET, &c. CO. V. KITTRIDGE. Btock of a corporation became concentrated in tiie hands of less than five persons '"the corporate powers and privileges shall cease and determine," and it appearing that the stock of the corporation defend- ant was so owned, the court held that it was a cause of forfeiture of which a private party could not take advantage; sa3-ing, " That is a question for the sovereign power, which may waive it or enforce it at its pleasure." In Chesapeake etc. Canal Co. v. Ohio Ji. Co., 4 Gill & John. 1, it was held that a violation of a provision in a charter of a corporation, to the effect that on a breach of a certain condition such corporation should not be entitled to any privilege under the act of incorporation, and that all its interest thereunder should be forfeited and cease, did not ipso facto work a dissolution of the corporation. See, also, to the same effect. The Peop)le v. The Manhattan Bank, 9 Wend. 382 ; Bradt v. Benedict [17 New York] 93 ; Mlckles v. Roches- ter Bank, 11 Paige, 118. That this provision in section 16, supra, concerning the non-user of corporate powers, is a condition subsequent and not a limitation upon the existence of the corporation, is further shown by the Code of Civ. Pro., which provides (sec. 353, sub. 4) that an action may be maintained in the name of the state " for the purpose of avoiding the charter or annulling the existence of such corporation, . . . whenever it has forfeited its privileges or franchises, by failure to exercise its powers." Here, the state has provided a direct judicial proceeding to annul the existence of a corporation which has failed to exercise its powers for such a period and under such circumstances as causes a forfeiture of its privileges — the ver}^ case described in section 16, supra. Indeed, this declaration of the statute is simply intended to define and make certain what kind and duration of neglect or non user of the corporate powers shall be a sufficient cause of their forfeiture. Without the statute the question in each case was involved in the uncertainty of determining whether, under all the circumstances, the neglect was wilful and mate- rial. (A. & A. on Cor. 776.) But now the statute furnishes a certain and prescribed rule. A neglect to exercise the powers of the corpora- tion for six months works a forfeiture without reference to the cause or consequence of such neglect. But this action can only be brought in the name of the state and upon leave granted by the judge of the court. Neither the forfeiture nor the fact of non-user can j)e set up b^ a private person for any purpose. It must first be judiciall y ascer ^ tamed and declared on the complaint of the state. (A. & A. on Cor., eec. 777^y The demurrei- to this defense is sustained. [Remainder of opinion omitted."! OAKLAND R. CO. V. OAKLAND, BROOKLYN, &c. R. CO. 693 Jt, Ih»- ^ ,^' Belcher, J., in OAKLAND R. CO. v. OAKLAND, BROOKLYN? ^)tA . &C.E.CO. i^^ A^"^.^' 1873. 45 Ca/{/brn(a, 365, pp. 373, 374, 378. 4 r ^^A^ ^ Conceding that the plaintiff's grant was upon condition subsequent, ^ aj ^^jX still it does not follow that its right in that part of the street where it ^ ^ • had not constructed a road could be determined only by a judgment of forfeiture. The grant was of a franchise, which had the legal character of an ' ^C* estate or property. " An estat e," said Chancellor Kent, " iii_such_a franchise a iid an e s tate in lan d rest upon the sa me_ principle, being i ^ e qually g rants^ of-^ijght or priv ilege fo j^n^adequate^ con sideratio n." . v^ 3 Kent's Com. 458. Now, while a forfeiture at common law does not operate to divest ^ > , the title of the owner until by a proper judgment in a suit instituted for-^ ^''" that purpose the rights of the State have been established, it is other- *-^ ' wise when the forfeiture is declared by a statute. In the latter case the title to the thing forfeited immediately vests in the State upon the commission of the offense or the happening of the event for which the forfeiture is declared, or at such other time and upon such other con- dition as the statute may name. The authorities to this effect are numerous and uniform. " It has been proved," said Marshall, C. J., " that in all forfeitures accruing at common law nothing vests in the government until some legal step shall be taken for the assertion of its right, after which, for raanj' purposes, the doctrine of relation carries back the title to the commission of the offense ; but the distinction taken by the counsel for the United States between forfeitures at common law and those accru- ing under a statute is certainh' a sound one. When a forfeiture is given by a statute the rules of the common law may be dispensed with, and the thing forfeited may either vest immediately or on the per- formance of some particular act, as shall be the will of the legislature. United States v. Grundi/, 3 Cranch, 151." In this case it is clear that the legislature intended, by the restric- tion as to the time within which the plaintiff^s work must be com- pleted, that it should have no rights in the streets of Oakland if it failed to exercise them within five years. This intention was expressed in the most explicit terms, for, as we have seen, it declared that upon failure to comply with the provisions of the act, •' then the fran- chise and privileges herein granted shall utterl}' cease and be forfeited." Not to give effect to this declaration would be to frustrate and defeat the legislative will. A \^ 694 BKOOKLYN STEAM TRANSIT CO. V. CITY OF BROOKLYN. BROOKLYN STEAM TRANSIT CO. v. CITY OF BROOKLYN. 1879. 78 New York, 524.1 Appeal from judgment in favor of defendant, rendered by General Term in the Second Department. Tlie action was brought by plaintiff, Aug. 31, 1878, to restrain de- fendant from interfering with the construction of its road in defendant's streets. Plaintiff was incorporated by Chapter 940, Laws of 1871. Section 17 provides as follows: "This act shall take effect sixty days after the N passage thereof; but unless said Brooklyn Steam Transit Company be .organized, and at least one mile of such railroad, as it is authorized and 'empowered to construct under this act, be laid within three 3'ears there- >after, then and in that case this act and all the powers, rights, and franchises herein and hereb}' granted, shall be deemed forfeited and I terminated." Under that act plaintiff was in some wa}' organized. By a subse- yquent act of 1873, the time for the construction of the one mile of rail- road was extended to Jul}' 4, 1876. The plaintiff did not build or lay an}' portion of its railroad until June, 1878, wlien it built a mile outside the city of Brooklyn, and commenced to lay foundations for a railroad within the city limits. David Dudley Field, for appellant. William, C. De Witt, for respondent. Earl, J. [After stating the case.] The claim of the defendant is that the plaintiff lost its corporate existence by not building one mile of its road before the expiration of the time limited, to wit, July 4, 1876. The general principle is not disputed that a corporation, by omitting to perform a duty imposed by its charter or to comply with its pro- visions does not ipso facto lose its corporate character or cease to be a corporation, but simply exposes itself to the hazard of being deprived of its corporate character and franchises by the judgment of the court in an action instituted for that purpose by the attoi-ney-general in be- half of the people ; but it cannot be denied that the Legislature has the power to provide that a corporation may lose its corporate exist- ence without the intervention of the courts by any omission of duty or violation of its charter or default as to limitations imposed, and whether the Legislature has intended so to provide in any case depends upon the construction of the language used. Here the language used shows that the Legislature intended to make the continued existence of the plaintiff as a corporation depend upon its compliance with tlie require- ments of section seventeen of the original act. In case of non-compli- ^ Statement rewritten. Argiiiiients and part of opiiiiuu omitted. — Ed. BROOKLYN STEAM TRANSIT CO. V. CITY OF BROOKLYN, 695 ance the act itself was to cease to have any operation, and all the ])owers, rights and franchises thereby granted were to oe " deemed forfeited and terminated." There was to be not merely a cause of forfeiture which could be enforced in an action instituted by the attorney-general, but the powers, rights and franchises were to be taken and treated as forfeited and terminated. At the end of the time limited the corporation was to come to an end, as if that were the time limited in its charter for its corporate existence. A precise authority for this construction of this statute is found in the case of the Brooklyn, Winfield and N'ev:ton Railroad Company (72 N. Y. 245). That company was organized under the general railroad act of 1850, as amended by the act, chapter 775 of the Law of 1867. By the last named act it is provided that "if any corporation formed under the general act shall not, within five years after its articles of association are filed and recorded, begin the construction of its road and expend thereon ten per cent on the amount of its capital, or shall not finish its road and put it in operation in ten j'ears from the time of filing its articles of association, as aforesaid, its corporate existence and powers shall cease." That company had not begun the construction of its road within the time Umited, and it was held that it had lost its corpor- ate existence, and the same view was emphaticall}' reiterated when a similar case of the same company was again before this court (75 jS\ Y. 335). It was held that the statute executed itself, and that the intervention of the courts in an action instituted by the attorn ej'-general was not necessary. The language of limitation used in section seven- teen of the act of 1871, more plainly, if possible, indicates the legisla- tive intention, that a failure to complj' with the limitations should put an absolute end to the corporation, than the language used in the act of 1867. An effort was made upon the argument of this case by the learned counsel for the appellant to distinguish this case from the one cited, but we can perceive no material difference between the two cases. In that case the company- was fully organized, as it was in this. That com- pany had a corporate existence to lose, and so had this. It is probably true, that this company in making surveys and plans within the three years may have done more than that company did, but that is imma- terial, so long as it failed to do the precise thing required by the stat- ute. In that case the proceeding was to interfere with private property by the right of eminent domain. Here this compan}' was proceeding to occupy the public streets which were under the charge and control of the city. In the one case, as in the other, corporate existence and right were necessary to justify the act. The city must have as much right to question this use of its streets as a private owner would to question the use of his property. If a private owner could in such case question the corporate existence of the company, the city must have the same right. The fact that that companj- was organized under a general law, while this is organized under a special law, can make 696 NEW YORK AND LONG ISLAND BRIDGE CO. V. SMITH. no difference. A corporation organized under a general law is upon precisely the same footing as one constitutionally organized under a special law which contains all the provisions of the general law. Nor can the fact that this company has already built one mile of its road distinguish this case from the one cited. If we are right thus far, it built that line without any authority, and it did not acquire thereby the right to enter the city and continue its wrongful acts there. But it is not necessary to determine in this case what the status of the plain- tiff would have been if it had been operating its road upon the mile thus constructed. It is sufficient now to determine that it cannot wage an aggressive warfare either upon private property or the public streets of the city of Brooklyn without further or other legislative authority than it invoked upon the trial of this action. [Remainder of opinion omitted.] NEW YORK & LONG ISLAND BRIDGE CO. v. SMITH. 1896. 148 New York, 540.1 Condemnation Proceeding. An order appointing commissioners of appraisal was affirmed by the General Term in the First Department. The defendant Smith appealed. J)e Lancey Nicoll, for appellant. JuUen T. Davies, and William. J. Kelly ^ for respondent. Bartlett, J. The main question presented by this appeal is whether the New York and Long Island Bridge Company was, at the time this proceeding was instituted, an existing corporation duly author- ized to acquire title to the land of the defendant Smith, for the purposes of constructing the bridge and its approaches. The learned counsel for the appellant rests his attack upon the cor- porate existence on various distinct grounds, and a proper considera- tion of them involves a full examination of the legislation under which the bridge company claims the right to maintain this proceeding. The appellant takes a preliminary point which, if sound, would require a reversal of the order appealed from, and a dismissal of this proceeding. The act incorporating the bridge company (Chap. 395, Laws of 1867), provides in the twelfth section thereof that the bridge shall be commenced within two 3'ears from the passage of the act, and shall be continued without unreasonable delay, until it is completed, " or this act and all rights and privileges granted hereby shall be null and void." 1 Statement abridged. Arguments omitted. Only so much of the opinion is given Ks relates to one ooint. — Ed. Y^it/H'^'^^ NEW YORK AND LONG ISLAND BRIDGE CO. V. SMITH. 697 It is the contention of appellant's counsel that this forfeiture clause is self-executing, and as it is admitted that the work was not com- menced within two years from the passage of the act, the bridge com- pany, ipso facto, ceased to exist. We are referred to a large number of authorities as sustaining this position, and, among others, to several cases in this court. It is to be observed that the question as to whether a forfeiture clause is or is not self-executing, depends wholly upon the language employed b}- the legislature. Our attention is called particularly to In re Brooklyn, Winfield & Newtoxon Ry. Co. (72 N. Y. 245) and Brooklyn Steam Transit Co. V. City of Brooklyn (78 N. Y. 524). In the first case the words of forfeiture were, " its corporate exist- ence and powers shall cease," and this court held that upon default the/ corporation's existence and powers ceased, without judicial proceed-/ ings. In the second case the words of forfeiture were, "this act and all the powers, rights and franchises herein and hereb}' granted shall be deemed forfeited and terminated," and this court held the clause ta be self-executing, thereby recognizing the undoubted power of the! legislature to provide that corporate existence shall cease b}' the mere fact of failure of the corporation to perform certain acts imposed by the/ charter. It requires, however, strong and unmistakable language, such as each of the cases referred to presents, to authorize the court to hold that it was the intention of the legislature to dispense with judicial J- proceedings on the intervention of the attorney-general. ir^^ In the case at bar the words of forfeiture are, " all rights and privi-/ ^ ^ leges granted hereby shall be null and void." ' *^'^^^\!^^ It cannot be said that the words ' ' shall be null and void " disclose ^^..^ jU^^ ' the legislative intent to make this clause self-executing. The words ^l- ^^'^^'^ "null and void," as used in this connection, clearly mean voidable. j The word " void " is often used in an unlimited sense, implying an act of no effect, a nullity ah initio {Inskeep v. Lecony, 1 N. J. L. 112) ; in the case at bar it was not so employed, but rather in its more lim- ited meaning. We think these words mean no more than if the legislature had said, in case of default the corporation " shall be dissolved." The attorne}'- general was authorized to treat the charter of the bridge company as voidable, and by appropriate legal proceedings to have terminated its corporate existence. The Supreme Court of the United States, in passing upon the mean- ing of the words "void and of no effect," uses this language: " But these words are often used in statutes and legal documents, ... in the sense of voidable merely, that is, capable of being avoided, and not as meaning that the act or transaction is absoluteh' a nullity, as if it never had existed, incapable of giving rise to any rights or obligations nnder any circumstances. {Ewell v. Daggs, 108 U. S. 148.) " 698 COMMONWEALTH V. UNIOX, &o. INS. CO. Holding, as we do, that the forfeiture clause in the act of 1867 was not self-executing, we find in the various acts amending the act of 1867 repeated waivers by the legislature of the failure of the bridge company to begin its work within two 3'ears from the passage of the act of 1867. [The learned Judge then referred to acts of 1871, 1879, 1885, and 1892.] [Opinion on other points omitted.] Order affirmed. COMMONWEALTH v. UNION, &c. INS. CO. 1809. 5 Mass. 230.1 This was a motion for a rule upon the defendants to shew cause why the Solicitor General should not be directed to file an information in the nature of a quo warranto against them, that the said companj^ might be dissolved, and their corporate powers be adjudged void. The motion was made by Sullivan in behalf of seventeen persons alleging themselves to be members of the corporation, . . . Jackson, for defendants. The Solicitor General, for the relators (but not appearing in his official character). Parsons, C. J. Informations of this nature are properly grantable for the purpose of enquiring into the election or admission of an officer or member of a corporation, when moved for by any person interested in, or injured by such election or admission, if the same was unduly made. And upon such information, if the election or admission was illegal, judgment of a motion might be entered, and a fine might also be imposed on the party who had usurped upon the commonwealth. In this case the parties applying for the rule do not complain of any illegal election or admission, of any officer or member of the corpora- tion : but the object of the application is to obtain a judgment of for- feiture of the franchises of the corporation, and a seizure of them by the commonwealth. We are well satisfied that a corporation, as well when created by chai'ter under the seal of the commonwealth, as by a statute of the legislature, may by nonfeazance or malfeazance forfeit its franchises, and that by judgment on an information the commonwealth may seize them. And if the allegations stated in the motion for the rule in this case were true, and the conimonwealth had caused an information to 1 Statement abridged. Arguments and part of opinion omitted. — Ed, 24 STATE V. FOURTH X. H. TURNPIKE. 699 be filed and prosecuted, for the purpose of seizing the corporate fran- chises for such malfeazauce, judgment for those causes might have been rendered for the commonwealth. But an information for the purpose of dissolving the corporation, or of seizing its franchises, cannot be prosecuted but by the authorit}' of the commonwealth, to be exercised by the legislature, or b}' the attor- ney or solicitor general, acting under its direction, or ex officio in its behalf. For the commonwealth may waive any breaches of anj- condi- tion expressed or implied, on which the corporation was created ; and we cannot give judgment for the seizure b}- the commonwealth of the franchises of an}' corporation, unless the commonwealth be & party in interest to the suit, and thus assenting to the judgment. This distinction between informations in the nature of a quo warranto^ to impeach an}- election or admission of a corporate officer or member, and informations to dissolve a corporation is well settled, and upon sound principles of law.^ Mule discharge' Information in the nature of quo warranto, filed % the Attorney STATE 1844 FOURTH N. H. TURN] 15 New Hampshire, 162.^ .vXV General against the defendants, and charging them with usurping the ' ' ^ privilege and franchise of maintaining a toll gate and demanding andt,^*^ ^ * receiving tolls. \ ^^ The case came before the Court upon the state's demurrer to the de-'^ fendants' rejoinder. Upon the pleadings the following facts appeared : The defendants were incorporated in 1800, with power to maintain a turnpike road and collect tolls. Soon after incorporation, they built the road and establisiied toll gates. The chai-ter enacts, that, at the end of ever}' six years after the setting up of any toll gate, an account of the expenditures and profits of the road shall be laid before the legisla- ture, under forfeiture of the privileges of said act in future. No ac- counts were furnished until 1830. In 1830, 1836, and 18-42. accounts were laid before the legislature, and were received by the legislature as sufficient and satisfactory. In 1833 an act was passed authorizing defendants to change the route of the road in certain towns. The defendants accepted this act, and changed the route at great expense. 1 Under the statutes of some jurisdictions, a private individual, whose private interest is specially affected by corporate acts, may maintain a proceeding to test the ritrhts of a cor- poration to exercise a particular franchise. In at least one instance, the statute provides that an action to vacate the charter of a corporation may be brought by a private party in the name of the State, on leave f^rantcd by the court. The latter provision applies where the corporation has misconducted in certain specified ways. — Ed. 2 Statement abridged. Arguments omitted. — Ed. 700 STATE V. FOURTH N. H. TURNPIKE. Perley^ for defendants. Walker, Attorney General, for state. Gilchrist, J. The charter makes it the duty of the corporation to lay before the legislature, at the end of every six years after the setting up of any toll-gate, an account of the expenditures and profits of the road, under the penalty of forfeiting the privileges of the act in future. These accounts, however, were not submitted until the years 1830, 1836 and 1842, in which years they were submitted to the legislature, and accepted by them as sufficient and satisfactory'. In the j'ear 1833 the legislature passed an act authorizing the corporation to change the route of their road in certain places. These are the facts laid before us, upon which we are to determine whether the defendants are now an existing corporation. The accounts not having been laid before the legislature, the penalty of forfeiture was incurred in terms. But the subsequent accounts were accepted by the legislature as sufficient and satis facto rj', and farther powers were conferred upon the defendants b}' the act of 1833. Has the legislature power to waive the forfeiture? And if it has, do these facts amount to such waiver? These are the questions presented to us by the pleadings. The doctrine of the waiver of a forfeiture by the legislature by sub- sequent legislative acts does not appl}-, if, by the terms of the charter, the franchise absolutely' determines on failure to perform the condition ; for as in such case the corporation has ceased to exist, the doctrine of waiver is inapplicable. The charter in this case provides that the accounts shall be laid before the legislature, "under forfeiture of the privileges of the act in future." The meaning of this is, that the for- feiture shall be proved in the regular, legal manner ; upon the institu- tion and prosecution of proceedings in the established course, such neglect of this duty shall be cause of forfeiture. It probably would not be competent for a debtor of the corporation, when sued, to set up b}' way of defence that the charter of the corporation was forfeited, unless the forfeiture had been established by the judgment of this court. Chester Glass Co. vs. Dewey ^ 16 llass. 102 ; Bank of Niagara vs. Johnson, 8 Wend. 645 ; The People vs. The Manhattayi Co., 9 Wend. 382. That is a matter to be judicially tried and determined, and not to be inquired into collaterally. Where a charter imposes the duty of making stated returns of the expenditures and profits, the government alone can enforce a forfeiture for a neglect of the duty. Peirce vs. Somersworth, \Q JSF. II. Rep. 369 ; The State vs. Carr, 5 JSf. 11. Rep. 367. In the case of the Bear Camp River Co. vs. Woodman, 2 Greenl. 404, the charter was to become void, if, at the end of one j^ear, the river should not be cleared of certain obstructions. In an action of assumpsit to recover tolls of the defendant, he offered to prove that the removal of the obstructions had never been effected ; but the evi- dence was rejected at the trial, and the ruling was held to be correct. This case affords a strong illustration of the necessity of specific judicial STATE V. FOURTH N, H. TUKNPIKE. 701 proceedings for the purpose of causing the charter to he declared for- feited. And in the case before us, we think that by the omission to la}- the accounts before the legislature, the corporation did not, ipso facto^ cease to exist, but proceedings must have been instituted, to establish the fact that the penalty of forfeiture was incui'red. Rex vs. Pasmore, 3 T. H. 244. A quo tvarranto is necessai'y where there is a body corporate de facto, who take upon themselves to act as a body corporate, but, from some defect in their constitution, cannot legally exercise the powers they affect to use. Ashhurst, J. Chancellor ITent says that he believes there is no instance of calling in ques- tion the right of a corporation, as a body, for the purpose of declaring its franchises forfeited and lost, but at the instance and on behalf of the government. /Slee vs. Boom, 5 Johns. Ch. 381. In The People vs. The Manhattan Co., 9 Wend. 382, Mr. Justice Sutherland says, " where the corporation expires b}' lapse of time, it may be otherwise, and in such case onl}'." A corporation may forfeit its franchises for misfeasance or nonfeasance, but the information for that purpose must be presented under the authority of the State, which must be a party to the suit and a party to the judgment for the seizure of the franchise. The Commoiucealth vs. Union Ins. Co., 5 Mass. 230 ; Hex vs. Amery, 2 T. R. 515 ; Vernon Society vs. Hills, 6 Coicen, 23. The corporation, then, being in existence in the year 1830, did the reception of the accounts and the passage of the act of 1833 constitute a waiver of the preexisting ground of forfeiture, so that it cannot now be insisted on? It is said expressly, by Parsons, C. J., in The Com- momoealth vs. Union Ins. Co., 5 Mass. 232, that the commonwealth may waive any breaches of any condition, expressed or implied, on which the corporation was created. The surrender of a charter can be made only by some solemn, formal act of the corporation, and will be of no avail until accepted b}' the government. There must be the same agreement of the parties to dissolve that there was to form the compact. Morton, J., Boston Glass Man. vs. Langdon, 24 Pick. 53. If acts of the legislature recognize the subsequent and continued existence of the corporation, such recognition will be a waiver of a for- feiture. The People vs. The Manhattan Co. In the case of TJie People vs. The Kingstown Turnpike Co., 23 Wend. 193, it was held, that an act extending the time for the completion of the road was not a waiver of breaches of conditions ; for such was not expressh- declared to be the intent of the legislature, nor was the intent necessaril}- to be implied from the act. From this position Mr. Justice Careen dissented, and held that a statute expressly giving time to complete the road was equivalent to a renewal or confirmation of the original charter. In the present case, the legislature did not expressly declare that they recognized the corporation as in existence, or confirmed its privi- leges, but we think no other construction can be given to their proceed- ings. It is a reasonable doctrine, that a breach of condition may be waived. It is an important element in the law relating to landlord and 702 STATE V. OBEELIN BUILDING AXD LOAN ASSOCIATION. tenant. In Goodright vs. Davids, Cowp. 803, Lord Mansfield ob- served that forfeitures are not favored in law, and where the forfeiture is once waived the court will not assist it. Coon vs. JBHckett, 2 JV. IT. Be}). 163 ; Doe vs. Pritchard, 5 B. & Ad. 765. There is as rancli reason for considering the acts of a legislative body as a waiver of a forfeiture, as there is for giving that effect to the act of a landlord. The State can claim no exemption from the ordinary- rules which govern contracts, and there is not to be one law for them and another for pri- vate persons. The legislature accepted the accounts laid before them in 1830, and the subsequent 3'ears, as sufficient and satisfactor}' ; that is, they were satisfied with the accounts as a sufficient compliance with the charter. The act of 1833 is an equally clear waiver of a forfeiture. Notwithstanding what had occurred, they authorized the corporation to alter the route of their road. The act is susceptible of no other construction in this regard, than that the legislature intended to waive an}' forfeiture consequent on the prior omissions of the corporation. If they had intended to insist on any forfeiture, the act certainly would not have been made. The act was intended to be beneficial to the cor- poration. But it would not have been so unless they retained the other corporate powers necessar}^ to enable them to carr}^ into effect the pur- poses of the act. We are, therefore, of opinion that the rejoinder is a sufficient answer to the replication, and that upon the demurrer there must be Judgment for the defendants} STATE V. OBERLIN BUILDING AND LOAN ASSOCIATION. 1879. 35 Ohio State, 258.^ Quo Warranto. Information filed by the Attornej' General, on the relation of Colburn, praying for a judgment of ouster against the defendant corporation. Colburn is a member of the corporation, and was former!}' a director. The case was heard on the pleadings, an agreed statement of facts, and certain testimony. Isaiah Pillars, Attorney General, and N. L. Johnson, for plaintiff I. A. 'Webster, and Geo. K. Nash, for defendant. 1 The governor and senate, without the concurrence of the assembly, have no power to waive a forfeiture. Bronson, J., in People v. Phtenix Bank, A. d. 3840, 24 Wendell, 431, p. 43-3. As to whether lapse of time constitutes a bar to a proceeding by the State to enforce a forfeiture, or to test the legality of assumed corporate existence, see 2 Morawetz on Corp., •2d ed. s. 1029, note 2; Taylor on Corp., 3d ed. s. 4G0; State v. Pawtuxet Turnpike Co., A. D. 18f;7 8 Rhode Island, 521; People v. Oakland County Bank, A. n. 1844, 1 Douglas, Mich. 282; Com. v. Bala, ^c, Co., A. u. 1893, 153 I'a. State, 47; State v. Janesville Water Power Co., A. D. 1896, 92 Wise. 490; Peojde v. Reclamation District, a. d. 1898, 121 Calif. 522. -Ed. '^ Statement abridged. Part of opinion omitted. — Ed. STATE V. OBEELIN BUILDING AND LOAN ASSOCIATION. 703 Oket, J. [After quoting various sections of the act under which the corporation was organized, and stating certain facts as to the con- duct of the corporation.] On this state of facts our conclusions are as follows : — 1. That the association has abused its corporate powers in several particulars, admits of no doubt. It has refused to loan its funds to its members, and it has established such rules and regulations, and so conducted its business by dividing its funds and otherwise, as to pre- vent the loan of its funds to a member, under the system of competi- tive bidding contemplated in the statute, and provided for in the bj'-laws of the company. It has, indeed, loaned its funds, in many instances, to persons who were not members of the association. The illegality of such a course is clearly stated in /State ex rel. v. Greenville Building and Saving Association, 29 Ohio St. 92. Again, the association has been in the habit of borrowing money for the purpose of lending it. We do not deny that corporations possess the power to borrow money which may be needed in the transaction of their necessary business ; but these transactions fall within no such principle. The monej' to be loaned b}' associations like this if, as here, deposits are not received, can onl}' be properly accumulated in the manner contemplated by the statute, that is by dues, fines, premiums, and interest ; and the acts complained of, and fully proved by the tes- timon}-, cannot be readil}- distinguished from the business of a banker, They are clearly illegal. Equally illegal was the act of dividing the money and securities among certain stockholders. It was opposed to the principle upon which such associations are organized. It was, indeed, even if it had been done with perfect impartiality, a plain violation of the statute, which contemplates that no such division shall be made until " said shares are full}* paid." Finall}', it was illegal for the association to traffic in shares of its own stock. We do not deny that a corporation has power to receive shares of its stock as security for a debt or other similar purpose ; but here the association purchased its own shares of stock, in several instances, for the purpose of disposing of them to persons not intending to become members of the association, with a view of making such shares the basis of loans to such persons. The law will not uphold such transactions. 2. The association compromised with several of its members, and released them from further obligation to the corporation, as well on account of indebtedness for loans, as on subscription. We have ex- amined the evidence, and we do not find there was any want of good faith in these transactions. The interest of the stockholders as well as the public, seems to have been kept in view. Of course, without this such acts could not be upheld ; but we are not able to find in the statute any inhibition of the power to make such compromises, and, on the fullest consideration, we unite in holding that the power exists. 704 PEOPLE EX EEL. ATTORNEY GENERAL V. IMPROVEMENT CO. 3. "Where a corporation has been guilty of acts which, by statute, are made a cause of forfeiture of its franchise to be a corporation, this court has no discretion to refuse such judgment. /State ex rel. v. Penn, & 0. Canal Co., 23 Ohio St. 121. But, in other cases, we are vested with discretion to'determine whetlier judgment of ouster of the franchise to be a corporation shall be rendered, or whether the corpora- tion shall be ousted from the exercise of the powers illegally assumed. With some hesitation, a majorit}^ of the court have reached the conclu- sion that it will be for the interest of the stockholders, as well as the public, that we should render the latter instead of the former judgment. The evidence satisfies us that if the corporation is permitted to wind up its affairs, the work will be accomplished in a few months ; but if the association should be ousted from its franchise to be a corporation, we would be required to appoint trustees under the act of 1878 (75 Ohio L. 817, 22; Rev. Stats. 6781), and this would occasion delay and involve increased expense. Accordingl}', the corporation will be ousted from the exercise of its powers referred to in the first paragraph of the syllabus, and from the power of permitting an}^ member to hold in his own right more than twenty shares of stock, but not from its franchise to be a corporation, nor from the exercise of the power referred to in the second paragraph of the syllabus. GiLMORE, C. J. I dissent only as to the judgment entered. Such flagrant and persistent violations of corporate powers and duties as are shown in this case, in my opinion, call for and require an application of the severest penalties of the law. The judgment should oust the defendant /rom being a corporation. jJJ^ J.J-^ — judgment of ouster as to sj)ecified powers. IaT^ ^ PEOPLE EX REL. ATTORNEY GENERAL v. KANKAKEE RIVER IMPROVEMENT CO. 1882. 103 ///inois, 491.1 Information in the nature of a quo warranto ; alleging that defend- ant, without any warrant, was exercising the power of controlling the navigation of the Kankakee and Iroquois Rivers, and collecting tolls, and requiring the company to show cause by what warrant it claimed to exercise such powers. To this information the defendant filed a plea, which was demurred to. The Circuit Court overruled the demurrer, and gave judgment for defendant, dismissing the information. Plaintiff appealed. The facts set out in the plea were in part as follows : — In 1847, an act was passed incorporating the Kankakee and Iroquois Navigation Company, with power to improve the navigation of both * Statement abridged. Arguments and part of opinion omitted. — Ed. PEOPLE EX EEL. ATTORNEY GENERAL V. LMPROYEMENT CO. 705 rivers from certain points up to the Indiana State line. No time was prescribed for completing any part of tlie improvements. Prior to 1865 improvements on a part of the Kankakee river had been made and used. In 1865 an amendatory act was passed, and was accepted by the corporation. Section 6 of this act provides that " said company shall lock and slack-water said Kankakee river from Kankakee Citv to the east line of the State of Illinois, within eight years from the pass- age of this act, . . ." The plea admits that the improvement from Kankakee City to the east line of the State of Illinois has not been commenced, and is no longer in contemplation by the defendant. The defendant corporation was formed about 1879 b}- persons who had purchased at a mortgage foreclosure sale the franchise, improvement, and real estate of the original corporation. James McCartney^ Attorney General, for the people. G. D. A. Parks, for appellee. Sheldon, J. We can see here but one entire franchise for the improvement of these streams, and that this obligation to make the improvement above Kankakee City was a condition annexed to this entire franchise. And we can not admit the idea, so ably and ingeniously pressed upon us, of the divisibility of the franchise, that there became a separate, independ- ent franchise as to the completed portion of the improvement below Wilmington, and a like one as to the portion of the improvement above Kankakee City, to which latter only the condition was annexed, and that it was the franchise as to this last named portion of the improve- ment onl}' which was forfeitable for breach of the condition. We think the non-compliance with tiie requirement in question was cause of for- feiture of the entire franchise. An abuse in a particular department of an entire franchise is cause of forfeiture of the whole franchise. Angell & Ames on Corp. sec. 776. The hardship upon the company of enforcing a forfeiture is urged as a reason against applying this remedy. This is the common argument addressed to courts in these cases, and the answer the}' make is, that the appeal is made to the wrong forum, — that this is a question for the legislature that prescribed the requirements of the charter. The courts have no dispensing power ; that the only questions for a court in such cases are, is the act required, and has it been performed. Yielding to such considerations of hardships would be a doing away with the estab- lished legal remedy of forfeiture for the breach of conditions annexed to estates. Inconvenience is the necessary result of the application of such a remedy. It is held to be most important to the public interest that the grantees of public franchises should be held to a faithful per- formance of the obligations which they assume, and to secure this, courts must administer the prescribed remedy in case of failure. Lastly, the court is invoked to exercise its discretionary power uuder the statute, and only assess a fine, the statute providing that instead of 706 WHEELER V. PULLMAN IRON AND STEEL CO. judgiJient of ouster from a franchise for an abuse thereof, unless the court is of the opinioji that the public good demands such judgment, a fine may be assessed instead. Had there been but the omission of some dut}' of minor importance, the alternative of a fine might properly be considered ; but the non-performance here is of a thing which is of the essence of the contract, — it goes to the object of the incorporation, not doing the very thing the performance of which was the purpose and object for which the company was instituted. It is failure by the cor- poration to act up to the end of its creation. The demand of public good is nothing less than that there should be a resumption by the State of the corporate franchise of which there has been such misuser, — that the company should be made to give wa}', so as to afford oppor- tunit}', through some other instrumentality, for the accomplishment of this work of public advantage, the improvement of the navigation of these two rivers, or at least of the Kankakee, to the Indiana State line. Being of opinion the demurrer to the plea should have been sustained, the judgment of the Circuit Court is reversed and the cause remanded. Judgment reversed. WHEELER V. PUXLMAN IRON & STEEL CO. 1892. 143 Illinois, 197.1 Bill in equity by two stockholders in the Pullman Iron & Steel Co. against said company and certain other defendants ; praying (inter alia) that the corporation be dissolved and its business closed up ; that a receiver be appointed ; and that an accounting be had between the parties growing out of matters stated in the bill. A demurrer to the bill was sustained and the bill dismissed. On appeal to the Appellate Court tills decree was aflSrmed. Plaintiffs now prosecute this further appeal. Ullman & Hacker^ for appellants. John S. Runnells^ and 'William Burry, for appellees. SnoPE, J. Without pausing to consider the ground of objection that the bill is multifarious, we are of opinion that the demurrer thereto was, on other grounds, properly sustained, and complainants electing to stand b}' their bill, it was properly dismissed. It is insisted that the bill may be maintained upon either of two grounds : First, as a bill to dissolve the corporation, wind up its affairs, and distribute its assets ; and second, as a bill for an accounting be- tween this corporation and the Pullman Palace Car Company and other creditors. In the absence of statutory authority, courts of chancery had no jurisdiction to decree a dissolution of a corporation by declaring a for- 1 Statement abridged. Arguments and part of opinion omitted. — Ed. WHEELER V. PULLMAN IRON AND STEEL CO. ,707 feitiire of its franchise, either at the suit of an individual or of the State. Verplanck v. Merchants' Ins. Co. 1 Edw. Ch. 84 ; Doyle v. Peerless Petroleum Co. 44 Barb. 239 ; Folger v. Columbian Ins. Co. 99 Mass. 274; Attorney OeyieralY. Bank of Niagara, 1 Hopk. 354; Benike v. Neto York, etc. 80 N. Y. 605. The mode of enforcing a forfeiture of the charter at common law was b}' scire facias or quo warranto in courts of law only, and at the suit, onlj-, of the sovereign. The judgment in such cases, at law, relates solelj- to the right to exer- cise the corporate franchise, and operates to extinguish corporate ex- istence. In respect of trade corporations, independentl}- of statutory provision, and notwithstanding the dissolution of the corporation, its assets belong to those who contributed to its capital and for whom it stood as representative in the business in which it was engaged, and are treated in equit}' as a trust fund, to be administered for the benefit of the bona fide holders of stock, subject to the just claims of creditors of the corporation. Morawetz on Corporations, 1032, and cases cited. The necessit}' for invoking the aid of a court of equity after judg- ment of forfeiture at law, that court alone being competent to reach and administer tlie fund, has led to statutory enactments vesting courts of equity with jurisdiction to decree a dissolution of the corporation and to wind up its affairs, in given cases, at the suit of an individual beneficiary of the fund. The power to confer such jurisdiction b}' stat- ute, as one of the powers over corporations reserved by the State, has been uniforml}^ recognized, and nowhere more clearh* than in this State, ( Ward V. Faricell et al. 97 111. 593 ; Chicago Mutual Life hidemnity Ass. V. Hunt., 127 id. 257,) and whenever the power of the court of chanceiy has been properl}' invoked the jurisdiction has been sus- tained. Life Ass. of America v. Fassett, 102 111. 315 ; Chicago Life Ins. Go. V. I'he Auditor, 101 id. 82 ; Mining Co. v. Mining Co. 116 id. 170, and cases supra. By the 25th section of the statute for the incorporation of companies for pecuniary profit, being the only section applicable here, it is pro- vided : " If any corporation, or its authorized agents, shall do or re- frain from doing any act which shall subject it to a forfeiture of its charter or corporate powers, or shall allow any execution or decree of any court of record for the payment of money, after dem.and made by the officer, to be returned, ' no property found,' or to remain unsatis- fied not less than ten days after such demand, or shall dissolve or cease doing business, leaving debts unpaid, suits in equit}' may be brought against all persons who were stockholders at the time, or in any way liable for the debts of the corporation, by joining the corpora- tion in such suits," etc. And after providing for jyro rata liability of stockholders upon unpaid subscriptions, etc., and for enforcing the same, proceeds : " And courts of equity shall have full power, on good cause shown, to dissolve or close up the business of any corporation, to appoint a receiver therefor," with authorit}- to wind up its alTairs. It is not pretended that the facts alleged bring the bill within the ?08 WHEELER V. PULLMAN IRON AND STEEL CO. provisions of the clause of the statute first quoted. It is not alleged, nor are facts set forth showing, that any of the causes exist for which hills in equit}' are b}- this statute authorized to be filed. The bil Hn- vo kes, not the ^^ower^onferredL by the statute, but_ the.generai chancery p owers of the court . But it is said, in effect, that as the second clause of the statute quoted gives courts of equity power to decree the disso- lution of a corporation "on good cause shown," it ma}- exercise that jurisdiction whenever the interests of the stockholders, or any of them, in equity and good conscience demand it. We do not think the statute capable of that construction. It is clear that the purpose of the pro- vision was to enable the court, in all cases in which the jurisdiction of the court was properly invoked under the statute, to afford complete relief. By the first clause a remedy is provided by which the assets of the corporation, in the cases enumerated in the statute, may be applied in payment of its liabilities, and if insufficient therefor, that subscribers for and holders of unpaid stock of the corporation may be compelled to contribute to the payment of any balance of corporate indebtedness after the application of the corporate effects, without first procuring a judgment of forfeiture at law. No judgment forfeiting the charter of the corporation is necessary to authorize the court to afford this relief, but by the later provision the court may, in cases where cause of for- feiture exists, declare the same, and b}' its decree dissolve the corpora- tion, and through its receiver administer and distribute the corporate estate, thus making the remedy in equity, in such cases, complete. (St. Zouis, etc. Mining Co. v. Mining Co. 116 III. 170; Ailing v. Wenzel, 133 id. 264.) As said by this court, in construing this pro- vision of the statute, in Chicago Mutual Life Ins. Co. v. Hunt., 127 111. 274 : " Courts of equity are given full power, on good cause shown, as a portion of the relief provided for by that section, to dissolve or close up the business of the corporation and to appoint a receiver of its effects." We are of opinion that it is only •' as a portion of the relief provided for by that section " that the power to dissolve the cor- poration can be invoked. Moreover, " good cause " for dissolving the corporation would necessarily be a legal cause, — a cause for which the sovereign authority might by law, resume the franchise granted. It can not be presumed that the legislature intended, by the use of the language here employed, to authorize a decree forfeiting the corporate franchise for causes for which the State might not procure judgment of forfeiture at law. The bill is not maintainable upon this ground. [Remainder of opinion omitted.] Judgment affirmed. ATTORNEY GENERAL V. TUDOR ICE CO. 709 ATTORNEY GENERAL v. TUDOR ICE CO. 1870. 104 Mass. 239. Information in equity by the attorney general, on behalf of the Commonwealth, and at the relation of Richard Price, to restrain the defendants from engaging in or carrying on any business other than the cutting, storing and selling of ice. Hearing, on a motion for an injunction, before the chief justice, who reported the case as follows: "The compan}' was organized in 1861, under the Gen. Sts. c. 61, for the purpose of cutting, storing and selling ice. Its capital stock was fixed at $360,000. It has carried on this business ever since, but has also carried on various other branches of business ; has been in the habit of chartering vessels for the East Indies, loading them with ice so far as was proper, and completing the cargo by purchasing and exporting kerosene oil, tobacco, rosin and lumber ; and has also im- ported merchandise of various kinds, including padd}', jute, linseed and tea. It has also erected buildings, and placed machinery in them, which cost about S400,000. Some of the machinery is for the manu- facture of tobacco, but the manufacture was discontinued about two jears ago. Some of it is for cleaning rice, some for the manufacture of jute into gunn}' cloth, and some for the manufacture of linseed into oil. These branches of business it still carries on, and the capital invested in them is three or four times larger than its capital stock. The business is connected with the exportation of ice, and has increased the profits of the company, but does not appear to be necessary to its legitimate business. It has imported two cargoes of tea, worth 8300,000, which had no connection with the ice trade. It does not appear that any of the creditors of the company are in danger of losing by it, and there is no objection to its proceedings, except that they are not authorized by its act of incorporation and are alleged to be against public policy for that reason. I report the case for determination upon the questions, whether this information in equity can be maintained, and, if it can be maintained, whether a temporary injunction ought to be issued, upon the facts above stated." /S. Bartlett^ for the Attorney General. C. B. Goodrich & H. W. Paine., for the defendants. Gray, J. This court, sitting in equit}', does not administer punish- ment or enforce forfeitures for transgressions of law ; but its jurisdiction is limited to the protection of civil rights, and to cases in which full and adequate relief cannot be had on the common law side of this court or of the other courts of the Commonwealth. The Tudor Ice Company is a private trading corporation. It is not in any sense a trustee for public purfDOscs. This is not a suit b}' a stockholder or a creditor. The acts complained of are not shown to have injured or endangered any rights of the public, or of any individual 710 ATTORNEY GENERAL V. TUDOR ICE CO. or other corporation ; and cannot, upon any legal construction, be held to constitute a nuisance. It is expressly stated, in the report of the chief justice, that " it does not appear that an}- of the creditors of the company- are in danger of losing b}- it, and there is no objection to its proceedings, except that the}^ are not authorized b}- its act of incor- poration and are alleged to be against public polic}' for that reason." No case is therefore made, upon which, according to the principles of equity jurisprudence and the practice of this court, an injunction should be issued upon an information in chancery. In Attorney General v, Utica Insurance Co. 2 Johns. Ch. 371, Chancellor Kent, in a very able and elaborate judgment, after a thorough discussion of the question on principle, and an extensive examination of the earlier authorities, held that such an information could not be maintained to restrain an insurance company from exer- cising banking powers in violation of a statute of New York ; but that the proper remedy was at law, b}- information in the nature of a quo vKirranto ; and no appeal appears to have been taken from his decree. An information in the nature of a quo vmrranto was thereupon filed, and sustained by the supreme court of New York, and judgment rendered thereon that the corporation be ousted from the franchise which it had usurped. People v. TJtica Insxirance Co. 15 Johns. 358. Similar proceedings ma}' be had at law in this Commonwealth in a proper case. Goddard v. Smithett, 3 Gray, 116, 122, 123. Attorney General v. Salem, 103 Mass. 138. Boston S Providence Railroad Co. V. Midland Railroad Co.., 1 Gray, 340. Gen. Sts. c. 145, §§ 16-24. One early English case of high authority, not cited by Chancellor Kent, nor at the argument of the present case, is so much in point as to be worth quoting in full. Upon a bill in equity, filed by the attorne}' general, at the relation of several freemen of the Weavers' Compan}-, against the oflScers of that company, setting forth " that the defendants had been guilty of many breaches and violations of their charters, and had oppressed the freemen, &c., and mentioned some particulars ; and for a discovery of the rest, and that they might be decreed for the future to observe the charters, and to have an account of the revenue of the corporation which the defendants had misspent, &c., was the end of the bill. To which the defendants demurred, because, as to part of the bill, it was to subject them to prosecutions at law, and to a quo warranto ; and as to the other parts, the plaintiffs had remedy by mandamus., information, or otherwise, and not here. And of the same opinion," the report proceeds, was Lord Cowper, " who said it would usurp too much on the king's bench ; and that he never heard of any precedent for such a case as this ; and so allowed the demurrer." Attorney General^. Reynolds, 1 Eq. Cas. Ab. (3d ed.) 131. The modern English cases, cited in support of this information, were of suits against public bodies or olliccrs exceeding the powers conferred upon them by law, or against corporations vested with the ATTORNEY GENERAL V. TUDOR ICE CO. 711 power of eminent domain and doing acts which were deemed incon- sistent with rights of the public. Some of them were cases of misapplication of funds raised b}' taxation and held by municipal corporations or officers upon specific public trusts. Such were Attorney General \. JVbrivich, 16 Sim. 225, Attor* ney General v. Guardians of Poor of Southam^pton^ 17 Sim. 6, and Attorney General v. Andrews, 2 Macn. & Gord. 225. The hypothetical case, in which Lord Westbur}', in Stockport District Watent:ork-s v. Manchester^ 9 Jur. (N, S.) 266, said that he should "probably' not hesitate" to act upon the information of the attorney general, was of a suit to restrain the making of a contract between an aqueduct corporation and a cit}- to carry water beyond the limits which the city was authorized hs law to supply. The passages cited from Liverpool v. Chorley Water Works Co. 2 De Gex, Macn. & Gord. 852, 860, and Ware v. Eegenfs Canal Co. 3 De Gex & Jones, 212, 228, were but dicta that an unauthorized diversion of water or flowing of land hy an aqueduct or canal corpora- tion, without proof of actual or imminent injury to property, gave no right of suit to an individual, and could only be checked on an application to the court by the attorne}^ general. The case of Attorney General v. Great Northern RaUicay Co. 4 De Gex & Smale, 75, was a clear case of nuisance, the unlawful obstruction of a public highway by a railroad. That of Attorney General v. Oxford, Worcester & Wolverhampton Railway Co. 2 Weekly Rep. 330, was the case of the opening of a railwa3' line in violation of an order which an authorized public board had made upon the ground that it would be unsafe to the pubhc. The single case, in which an information has been sustained in an English court of chancer}- against a corporation for carrying on a business beyond its corporate powers, is Attorney General v. Great Northern Baihcay Co. 1 Drewr}^ & Smale, 154, in which Vice Chan- cellor Kindersley in 1860 restrained a railway compan}' from trading in coal in large quantities, upon the ground that there was danger that, if allowed to go on, it might get into its hands the coal trade of the whole district from or through which its railwa}' ran, and thus acquire a monopoly injurious to the public. That case is evidently' the founda- tion of the dictum of Vice Chancellor Wood, two years later, in Hare V. London c6 Northwestern Railway Co. 2 Johns. &. Hem. SO, 111. In Attorney General v. Mid Kent Railway Co. Law Rep. 3 Ch. 100, a mandatory injunction was granted upon the information of the attorney general to compel a railway compan}- to construct a bridge over a public road, and with as gradual a slope as was required bv a special clause in its charter ; and the objection that the attorney general might have had an equal and complete remedy at law was stated b}' each of the lords justices as if it required no answer and aiforded no ground for refusing to entertain jurisdiction in equit}'. It is often said, in the English books, that the king or his attorncj- general, suing in behalf of 712 ATTOENEY GENERAL V. TUDOR ICE CO. the public, has the election to sue in either of his courts, and may therefore enforce a legal right in the court of chancery. 1 Dan. Ch. Pract. (3d Am. ed.) 6, 7. Attorney General v. Galioay, 1 Molloy, 9.5, 103. However that m&y be, by our statutes the general equity juris- diction of this court is limited to cases where there is no plain, adequate and complete remedy at law, as well in suits by the Commonwealth as in those brought by private persons. Gen. Sts. c. 113, § 2. Com- momcealth v. Smithy 10 Allen, 448. Clouston v. Shearer, 99 Mass. 209, 211, and other cases there cited. The 38th of the former rules in chancery of this court (14 Gra^', 360) by which the court adopted, as the outlines of its practice, the practice of the high court of chancery in England, so far as the same was not repugnant to the Constitution and laws of the Commonwealth, nor to those or such other rules as the court might from time to time make, cannot enlarge the jurisdiction of this court as defined hy statute, and has been repealed by the new rules recently established. Rules of \S1Q, post, 555. The only cases in which informations in equity in the name of the attorney general have been sustained b}' this court are of two classes. The one is of public nuisances, which affect or endanger the public safety or convenience, and require immediate judicial interposition, like obstructions of highways or navigable waters. District Attorney V. Lynyi <& Bostoji Bailroad Co. 16 Gray, 242. Attorney General v. Cambridge, lb. 247. Attorney General v. Boston Wharf Co. 12 Gray, 553. Rowe v. Granite Bridge Co. 21 Pick. 344, 347. The other is of trusts for charitable purposes, where the beneficiaries are so numerous and indefinite that the breach of trust cannot be eflfectivel}' redressed except by suit in behalf of the public. County Attorney v. May, 5 Cush. 336. Jackson v. Phillips, 14 Allen, 539, 579. Attor- ney General v. Garrison, 101 Mass. 223. Gen. Sts. c. 14, § 20. If there are anj' other cases to which this form of remedy- is appropriate, that of a private trading corporation, whose proceedings are not shown to have injured or endangered anj' public or private rights, and are objected to solel}' upon the ground that they are not authorized by its act of incorporation and are therefore against public policy, is not one of them. Information dismissed. 1 But see Ryan, C. J., in Attorney General v. R. R. Companies, a. d. 1874, 35 Wisconsin, 425, pp. 523-550; and McGill, Cliancellor, in Stockton, Attorney General, v. Central R. R. Co. of New .Jersey, a. d. 1892, 50 New Jersey Kquity, 52, pp. 78-85. In the first case there was a petition for an injunction to restrain the railroad companies from charging tolls in excess of the maximum rates established by statute. In the second case the ultimate object was to obtain a decree, declaring void a lease which was ultra vires and positively for- bidden by law, and the practical effect of which was to partially destroy competition in the production and sale of coal. The purpose of the immediate a])i)licatioii was to secure a temporary injunction. In both cases it was held, that the attorney general could main- tain a proceeding in equity. — Ed. PEOPLE V. NEW YORK CENTRAL, &c. R. PEOPLE 1883. 'A NEW YOKK CENTRAL, &^ 35 New York Supreme Court (28 Hun), ,543.1 li^^ ''^^ yyJ^ 0^ (3 Appeals from orders of the Special Term, granting motions to>^ J*< quash and dismiss the petitions and orders to show cause of the appel'-'yC^^^''^^^ lants, and denying the application of the appellants for peremptory ' 0^ 1^0^ writs of viandamus. y^'^ tA^T Upon the facts set forth in the petition and accompanying am- jr^^ davits, an order was made in each of the above entitled proceedings ^^^ -^ ^ requiring the respondent to show cause " why a peremptory writ o^v^'^'^ mandamus to compel the said corporation to exercise its franchises, and to receive and transport freight upon such terms as are reason-/ able and usual, and to perform its duties as a common carrier" should not issue in each case. Leslie W. Russell, attorney-general, and E. C. James, Simon Sterne, and Daniel G. Thompson, for the appellants. . W. D. Shipman and Boscoe Conkliiig, for the respondents. O^ .j^^ . Davis, P. J. . . . The question presented by the motion is one oil/C*^yf) '^ signal importance. It is whether the people of the State can invoke; J^ the power of the courts to compel the exercise by railroad corpora tions of the most useful public functions with which they are clothed If the people have that right, there can be no doubt that their attor- ney-general is the proper officer to set it in effective operation on thei behalf (1 R. S. 179, § 1 ; Code of Civ. Proc. § 1993 ; People v. Halsexj, 37 N. Y. 344 ; People v. Collins, 19 Wend. 56). The question involves a consideration of the nature of this class o£ <^ corporations, the objects for which they are created, the powers conU-^ ^ '^ ' 'fj"^^ ferred and the duties imposed upon them by the laws of their crea-^/*-'*''^ < tion, and of the State. As bodies corporate, their ownership may bejo-i^^'' and usually is altogether private, belonging wholly to the holders of >^,fi-^ their capital stock ; and their management may be vested in such offi- cers or agents as the stockholders and directors under the provisions of law may appoint. In this sense they are to be regarded as trad-*"^"^^ ing or private corporations, having in view the profit or advantages of the corporators. But these conditions are in no just sense in cow^aoX Jj^ with their obligations and duties to the public. The objects of their ^.^/.^^ creation are, from their very nature, largely different from those of ^^ ordinary private and trading corporations. Railroads are, in every essential quality, public highways, created for public use, but per- mitted to be owned, controlled, and managed by private persons. Bufc for this quality the railroads of the respondents could not lawfullyl exist. Their construction depended upon the exercise of the right of j eminent domain, which belongs to the State in its corporate capacity alone, and cannot be conferred, except upon a "public use." The 1 Portions of opinion omitted. — Ed. ^ c 714 PEOPLE V. NEW YORK CENTRAL, &C. R. R. CO. State has no power to grant tlie right of eminent domain to any cor- poration or person for other than a public use. Every attempt to go beyond that is void by the Constitution ; and although the legislature may determine what is a necessary public use, it cannot by any sort of enactment divest of that character any portion of the right of emi- nent domain which it may confer. This characteristic of jDublic use is in no sense lost o r dim in ished by the fa ct that the use of the i;ail- roadby the corporation which constructsj)r owns it, must, from its nat ure b e exclusive. That incident grows out of the meThodTof^use winch does not admit of any enjoyment in. common by the public. The general_aiid popular use of a railroad as a highway is therefore handed over exclusivelyto corporate management an^co ntrol becaus e that is for the best and manifest advantage of the public. The progress oFscience^ andTsToll has shown that highways may be created for pub- lic use, of such form and kind that the best and most advantageous enjoyment by the people can only be secured through the ownership, management, and control of corporate bodies created for that purpose, and the people of the State are not restricted for availing themselves of the best modes for the carriage of their persons and property. There is nothing in the Constitution hostile to the adoption and use by the State of any and every newly developed form or kind of travel and traffic, which have a public use for their end and aim, and giving to them vital activity by the use of the power of eminent domain. When the earliest Constitution of our State was adopted, railroads were unknown. The public highways of the State were its turnpikes, ordinary roads, and navigable waters. The exercise of eminent domain in respect of them was permitted by the Constitution for the same reasons that adapt it now to the greatly improved methods of travel and transportation ; and in making this adaptation, there is no enlarged sense given to the language of the Constitution, so long as its inherent purpose — the creation only of public uses — be faithfully observed. These principles are abundantly sustained by authority. In Bloods good V. The Mohawk and Hudson River Railroad Coiwpany (18 Wend. 9), the court of last resort in this State first announced them, and affixed to railroads their true character as public highways. It is there declared that the fact that railroad corporations may remuner- ate themselves by tolls and fares, " does not destroy the public na- ture of the road, or convert it from a public to a private use. ... If it is a public franchise and granted to the company for the purpose of providing a mode of public conveyance, the company, in accepting it, engages, on its part, to use it in such manner as will accomplish the object for which the legislature designed it." (Pages 21, 22.) And in OlcMt V. The Supervisors (16 Wall. 078, on p. 694). the Supreme Court of the United States adjudged : " that railroads, though con- structed by private corporations and owned by them, are public high- ways, has been the doctrine of nearly all the courts ever since such PEOPLE V. NEW YOPvK CENTRAL, &c. R. E. CO. 715 conveniences for passage and transportation have had any existence. Very early the question arose whether a State's right of eminent domain could be exercised by a private corporation created for the purpose of constructing a railroad. Clearly it could not, unless tak- ing land for such a purpose by such an agency is taking land for public use. The right of eminent domain nowhere justifies taking pro- perty for private use. Yet it is a doctrine universally accepted, that a State legislature may authorize a private corporation to take land for the construction of such a road, making compensation to the owner. What else does this doctrine mean, if not that building a railroad, thovigh it be built by a private corporation, is an act done for a public i;se ? And the reason why the use has always been held a public one is that such a road is a highway, whether made by the government itself, or by the agency of corporate bodies, or even by individuals, when they obtain their power to construct it from legis- lative grant. . . . Whether the use of a railroad is a public or a pri- vate one, depends in no measure upon the question who constructed it or who owns it. It has never been considered a matter of any im- portance that the road was built by the agency of a private corpora- tion. No viatter tvho is the agent, the function 'performed is that of the State. Though the ovmership is private, the use is public. . . . The owners may be private companies, htt they are compellable to permit the public to use their works in the manner in which such works can be used. That all persons may not put their own cars upon the road, and use their own motive power, has no bearing upon the question whether the road is a public highway. It bears only upon the mode of use, of which the legislature is the exclusive judge." All public highways are subjects of general State jurisdiction, be- cause the uses are the common property of the public. This prin- ciple of the common law is in this State of universal application. As to the class of public highways known as railroads, the common law is fortified by the express conditions of the statutes creating or regulating or controlling them. The general railroad act of this State may now be regarded as the general charter of all such corporations. It authorizes the organiza- *"ion of corporations for " the constructing, maintaining and operat- ing " of railroads "for public use,'^ and it imposes upon them the duty "to furnish accommodations for all passengers and property, and to transport all persons and property on payment of fare or freight." (Laws of 1850, chap. 140, §§ 1, 36.) These words are a brief summary in respect of the duties imposed upon such corpora- tions by all the provisions of the act. Those duties are consigned to them as public trusts, and as was said in Messenger v. The Pennsylva- nia Railroad Company (36 N. J. 407), "although in the hands of a private corporation, they are still sovereign franchises, and must be used and treated as such ; they must be held in trust for the general good." This relation of such a corporation to the State is forcibly 716 PEOPLE V. NEW YORK CENTEAL, &c. K. R. CO. expressed by Emmons, J., in Talcott v. Township of Pine Grove (1 riippin U. S. Circuit Ct. Rep. 144) : " The road once constructed is, instanter, and by mere force of the grant and law, embodied in the governmental agencies of the State and dedicated to public use. All and singular its cars, engines, rights of way and property of every description, real, personal and mixed, are but a trust fund for the political power, like the functions of a public office. The judicial personage — the corporation created by the sovereign power expressly for this sole purpose and no other — is, in the most strict technical and unqualified sense, but its trustee. This is the primary and sole legal political motive for its creation. The incidental interest and profits of individuals are accidents, both in theory and practice." The acceptance of such trusts on the part of a corporation, by the express and implied contracts already referred to, makes it an agency of the State to perform public functions which might otherwise be devolved upon public officers. The maintenance and control of most other classes of public highways are so devolved, and the performance of every official duty in respect of them may be compelled by the courts, on application of the State, while private damages may also be recoverable for individual injuries. The analogy between such officials and railroad corporations in regard to their relations to the State, is strong and clear, and so far as affects the construction and proper and efficient maintenance of their railways will be questioned by no one. It is equally clear, we think, in regard to their duty as carriers of persons and property. This springs sharply out of the exclusive nature of their right to do those things. On other public highways every person may be his own carrier ; or he may hire whom- soever he will to do that service. Between him and such employe a special and personal relation exists, independent of any public duty, and in which the State has no interest. In such a case, the carrier has not contracted with the State to assume the duty as a public tvust, nor taken the right and power to do it from the State by becoming the special donee and depositary of a trust. A good reason may, there- fore, be assigned why the State will not by mandamtcs enforce the performance of his contract by such a carrier. But the reason for such a rule altogether fails when the public highway is the exclusive property of a body corporate, which alone has power to use it, in a manner which of necessity requires that all management, control and user for the purposes of carriage must be limited to itself, and which, as a condition of the franchise that grants such absolute and exclu- sive power over and user of a public highway, has contracted with the State to accept the duty of carrying all persons and property within the scope of its charter, as a public trust. The relation of the State to such a body is entirely different from that which it bears to the individual users of a common highway, as between whom and the State no relation of trust exists ; and there is small reason for seek- ing analogies between them. It is the duty of the State to make and PEOPLE V. NEW YORK CENTRAL, &c. R. R. CO. 717 maintain public highways. That duty it performs by a scheme of laws, which set in operation the functions of its political divisions into counties, towns and other municipalities, and their officers. It can and does enforce those duties whenever necessary through its courts. It is not the duty of the State to be or become a common carrier upon its public higliways ; but it may, in some cases, assume that duty, and whenever it lawfully does so, the execution of the duty may be enforced against the agents or officers upon whom the law devolves it. It may grant its power to construct a public highway to a corporation or an individual and with that power its right of emi- nent domain in order to secure the public use ; and may make the traffic of the highway common to all on such terms as it may impose. In such case it is its duty to secure that common traffic, when refused, by the authority of its courts. {People v. Collins, 19 Wend. 56 ; Peo- ple v. Commissioners of Salem, 1 Cow. 23.) Or it may grant the same powers of construction and maintenance with the exclusive enjoyment of use which the manner of use requires, and if that excludes all com- mon travel and transportation it may impose on the corporation or person, the duty to furnish every requisite facility for carrying pas- sengers and freight, and to carry both in such manner and at such times as public needs may require. Why is that duty, in respect of the power to compel its performance through the courts, not in the category of all others intrusted to such a body ? The writ of man- damus has been awarded to compel a company to operate its road as one continuous line {Union Pacific R. R. Co. v. Hall, 91 U. S. 343) ; to compel the running of passenger trains to the terminus of the road {State V. H. and N. H. Ry. Co., 29 Conn. 538) ; to compel the com- pany to make fences and cattle guards {People ex rel. Garbutt v, Ro- chester State Line R. R. Co., 14 Hun, 373 ; s. c. 76 N. Y. 294) ; to compel it to build a bridge {People ex rel. Kimball v. B. & A. R. R. Co., 70 N. Y. 569) : to compel it to construct i^s road across streams, so as not to interfere with navigation {State v. N. E. R. R. Co., 9 Rich- ardson, 247) ; to compel it to run daily trains {In re New Brunswick, etc., R. R., 1 P. & B. 667) ; to compel the delivery of grain at a par- ticular elevator {Chicago and NortMvestern R. R. Co. v. Peoptle, 56 111. 365) ; to compel the completion of its road {Farmers' Loan and Trust Co. V. Henning, 17 Am. Law Reg. [n. s.] 266) ; to compel the grading of its track so as to make crossings convenient and useful {People ex rel. Green v. D. and C. R. Co., 58 N. Y. 152 ; N. Y. C. and H. R. R. R. Co. V. People, 12 Hun, 195 ; s. c. 74 N. Y. 302 ; Indianapolis R. R. Co. V. The State, 37 Ind. 489) ; fo compel the reestablishment of an abandoned station {State v. R. R., 37 Conn. 154) ; to compel the replacement of a track taken up in violation of its charter {Rex v. Severn and Wye Ry. Co., 2 Barn. & Aid. 646) ; to prevent the aban- donment of a road once completed {Talcott v. Pine Grove, supra, 1 Flippin, 145) ; and to compel a company to exercise its franchise. {People V. A. and V. R. E. Co., 24 N. Y. 261.) These are all express 718 PEOPLE V. NEW YOKE CENTRAL, &c. R. E. CO. or implied obligations arising from the charters of the railroad com- panies, but not more so than the duty to carry freight and passengers. That duty is, indeed, the ultima ratio of their existence ; the great and sole public good for the attainment and accomplishment of which all the other powers and duties are given or imposed. It is strangely illogical to assert that the State, through the courts, may compel the performance of every step necessary to bring a corporation into a con- dition of readiness to do the very thing for which it is created, but is then powerless to compel the doing of the thing itself. We cannot bring our minds to entertain a doubt that a railroad cor- poration is compellable by mandamus to exercise its duties as a car- rier of freight and passengers ; and that the power so to compel it rests equally firmly on the ground that that duty is a public trust, which having been conferred by the State and accepted by the corpo- ration may be enforced for the public benefit ; and also upon the con- tract between the corporation and the State, expressed in its charter or implied by the acceptance of the franchise {Abbott v. Johnstown B,. R. Co., 80 N. Y. 31) ; and also upon the ground that the common right of all the people to travel and carry upon every public highway of the State has been changed in the special instance, by the legislature for adequate reasons into a corporate franchise, to be exercised solely by a corporate body for the public benefit, to the exclusion of all other persons, whereby it has become the duty of the State to see to it that the franchise so put in trust be faithfully administered by the trustee. But it is said that the State is not injured and has no interest in the question whether the corporation perform the duty or not. The State may suffer no direct pecuniary injury, as it may not by the neglect of one or more of its numerous political officers who hold in trust for the people the official duties reposed in their hands ; but that is no test of the power or duty of the State in either case. The sover- eignty of the State is injured whenever any public function vested by it in any person, natural or artificial, for the common good is not used or is misused, or is abused ; and it is not bound to inquire whether some one or more of its citizens has not thereby received a special injury for which he may recover damages in his private suit. Such an injury wounds the sovereignty of the State and thereby, in a legal sense, injures the entire body politic. The State, in such a case as this, has no other adequate remedy. It may proceed, it is true, to annul the corporation, as has been held in many cases where corpora- tions had neglected public duties.* {People v. Fishkill & B. P. R. Co., 27 Barb. 452, 458 ; Peojde v. H. and C. Turnpike Co., 23 Wend. 254 ; Turnpike Co. v. Staie, 3 Wall. 210 ; Peoj^le v. K. & M. Turnpike Co., 23 Wend. 208 ; People v. B. & R. Turnpike Co., Id. 222 ; Charles River Bridge Co. v. Warren Bridge, 7 Pick. 344.) But that remedy is not adequate, for it only destroys functions where the public interests require their continued existence and enforcement. It has, therefore, PEOPLE V. NEW YORK CENTKAL, &c. R. R. CO. 719 an election which of these remedies to pursue. {State v. H. & N. H. Railroad Co., 29 Conn. 538 ; Peojde v. A. & V. Railroad Co., 24 X. Y. 261 ; Talcott v. Pine Grove, supra.) Undoubtedly a sound discretion is vested in its law officer to decide whether the exigency is such as to call for the use of either remedy, as it is ultimately for the court to judge whether the elected remedy should be applied. But upon the question of power and of sufficient legal injury to justify its use, where the corporation neglects or re- fuses to exercise its franchise or perform its duties, there seems to us no reason to doubt. Nor do we think the fact that injured individuals may have private remedies for the damages they have sustained by neglect of duties, precludes the State from its remedy by mandamus. Where the injury is to a single person under circumstances which do not affect the gen- eral public the courts, in the exercise of their discretion, have pro- perly refused this remedy on his relation. The injured party is then the suitor ; he has an adequate remedy by private action for damages. That was the case of People ex rel. Olden v. Erie Raihoay Companij (22 Hun, 533), relied upon by the court below, in which the court held that the relator's remedy was by suit for damages and not by manda- mus. That case is not authority for denying the writ to the Attorney- General for a neglect or refusal by corporations to exercise their fran- chises to an extent which affects a great number of citizens, and continues for a considerable period of time ; nor does it deny the right of the people acting on their own behalf and in their own suit to pursue this remedy in any case of neglect or refusal to exercise a public function which the interest of the people require should be kept in vigorous and efficient use. The court, in that case, recognizes the distinction, when it says, " an exception exists," ..." where a corporation suspends the exer- cise of its franchises." The suspension of the exercise of corporate functions is the gravamen of the complaint in this case ; and the case cited is no authority for denying the writ when the people come into court with their own suit, by their attorney-general to move for a writ of mandamus on allegations of an alleged long continued and very general suspension of a corporate duty. It was supposed by the court below that the provisions of section 28 of the act of 1850 (chap. 140) as amended by chapter 133 of the Laws of 1880, which provide that railroad corporations shall have power "to regulate the time and manner in which passengers and property shall be transported," interfere in some way with the power to grant the writ. Undoubtedly that provision gives the discretion which the learned judge states ; but it cannot be so construed as to justify a general or partial suspension of the duty of receiving and transporting freight. Language of that kind in a similar act was cor- rectly construed by Dickerson, J., in the Railroad Commissioners v. Portland and Oxford Railroad Company (63 ^le. 269). We adopt, but have not room to quote his language. 720 PEOPLE V. NEW YORK CENTRAL, &c. R. R. CO. Having determined the question of tlie right of the State to prose- cute the writ of mandamus on the ground of refusal or neglect of a corporation to exercise its duty of carrier, it remains to be seen whether a case which would justify the granting of the writ was pre- sented. The case stands altogether upon the facts presented by the appellants. The course taken by the respondents must be regarded as an admission of the material facts contained in the petition and affidavits. [The affidavits show that, for about two weeks, the railroad com- pany failed and neglected to receive from three-quarters to seven- eighths of the goods offered for transportation from the city, and large quantities seeking transportation to the city ; and in many instances refused to receive goods offered. The excuse offered by the railroad company was, in substance, as follows : The skilled freight-handlers of the company refused to work with- out an increase of wages to the amount of three cents per hour. The company refused to pay such increase. The skilled laborers then abandoned the work. Their abandonment of the work, and the in- efficiency of the unskilled men afterwards employed, caused the neglect and refusal complained of ; the company not procuring other laborers competent or sufficient in number to do the work. It was not alleged or shown that the former workmen committed any unlaw- ful act ; and no violence, no riot, and no unlawful interference with other employees of the respondent appeared. The foregoing facts do not constitute a valid excuse for the railroad company's failure to perform their public duties. If it had been shown that a " strike " of their skilled laborers had been caused or compelled by some illegal combination or organized body, which held an unlawful control of their actions, and sought through them to enforce its will upon the railroad company, and that the company, in resisting such unlawful efforts, had refused to obey unjust and illegal dictation, and had used all the means in their power to employ other men in sufficient numbers to do the work, and that the refusal and neglect complained' of had grown out of such a state of facts, a very different case for the exercise of the discretion of tlie court, as well as of the attorney general, would have been presented.] ^ We think the court below had power to award the writ, and that upon the case presented it was error to refuse it. Order reversed. Daniels and Brady, JJ., concurred.^ 1 The passages enclosed in [ ] are an abridgment of the opinion of the court on this branch of the case. — Ed. 2 "There are many cases, however, where the performance of a public duty by a corpora- tioh cannot be compelled by writ of mandamus, though the duty itself be clear. The propriety of issuing the writ of mandamus depends in part upon the character of the acts to Iowa UNION PACIFIC R. CO. V. HALL. > "^ r>^J ±/ UNION PACIFIC R. CO. v.ifALL.^/^. ^ a/* "jf \ 1875. n United States, 3i3^y-^ .a^*^^ '7''^^ 1/^ 'J^^ M" , Error to the Circuit Court of the United States for the.Dt)&*^t oi^nr (^ y^ A. J. PoppLeton, for plaintiff in error. U>^ J^ ly^iy^ f)^^^ ^i John N. Rogers, contra. ^^/^"^ ^^^ "^ J'^^'"'^^ Strong, J. This is a proceeding instituted under the act olCorf^/ jh ^^ L gress of March 3, 1873 (17 Stat. 509, sect. 4), which confers upon i\\^\ 'j ^ - fA proper Circuit Court of the United States jurisdiction to hear and 1,^ ^\ Aj/ determine all cases of mandamus to compel the Union Pacific Rail- ^ ^j^ road Company to operate its road as required by law. The altern?^ I j^'j^ tive writ, as amended, commanded the railroad company to operate fl>J \l. the whole of their road from Council Bluffs westward (including that^*^ (hfC^lyf t^ portion thereof between Council Bluffs and Omaha, and constructedu- I^ \ over and across their bridge spanning the Missouri River) as one 9^*^^^' continuous line for all purposes of communication, travel, and trans- 'r^ portation ; and especially commanded them to start from Council^ ,, ^ Bluffs their regular through freight and passenger trains westward ^^"^^^ bound, and to run their eastern-bound trains of both descriptions^^^^,^ through and over said bridge to Council Bluffs under one nnitovm ^J,J^ j^'- time-schedule with the remainder of their road, and to desist and /^H refrain wholly from operating said last-mentioned portion of said^A^^ road as an independent and separate line, and from causing freight oxj^^^^ " i passengers bound westward or eastward to be transferred at Omaha,' j, ^^% or to show cause why they did not obey the writ. To the alternative mandamus the railroad company put in a return, which was met by an answer filed by the relators ; and the case was heard by the Circuit Court on the facts started in the writ, the return, and the answer (the averments of the answer not being controverted), and a peremptory mandamus was ordered. It is of this final judg- ment that the plaintiffs in error now complain. The obligation of the Union Pacific Railroad Company to operate be enforced. A court should never attempt to compel the specific performance of an obli- gation, where it is apparent that the attempt would prove unavailing; and hence the writ of mandamus should not, as a rule, be issued in order to enforce the performance of a duty involving the exercise of a large measure of good faith and discretion on the part of the obligor. "It may be doubted, therefore, whether it be a rule applicable in all cases, that the courts will compel a railroad company to operate its line of road, even though the duty of the company be clear. The difficulty of supervising unwilling agents in the performance of a continuing duty of so complicated a nature as that of properly managing a railroad, involving the exercise of a large amount of discretion and technical skill, would in many cases prove a serious obstacle in the way of such an attempt. Whether a writ of manda- mus shall be issued, is in every case a matter resting largely in the discretion of the court, and depends upon all the surrounding facts and circumstances." 2 Morawetz on Corpora- tions, 2d ed. s. 1134. —Ed. 1 Part of opinion omitted. — Ed. ^ 722 UNION PACIFIC E. CO. V. HALL. their road as a continuous line, throughout its entire length, is not denied. The company is a creature of congressional legislation. It was incorporated by the act of Congress of July 1, 1862 (12 Stat. 489) ; and its powers and duties were prescribed by that act, and others amendatory thereof. By the twelfth section it was enacted that the " whole line of the railroad and branches and telegraph shall be operated and used for all purposes of communication, travel, and transportation, so far as the public and government are concerned, as one connected, continuous line." A similar requisition was made in the fifteenth section of the amendatory act of July 2, 1864. 13 Stat. 356. The contest in the case does not relate to the existence of this duty : it is principally over the question, whether the railroad bridge over the Missouri River, between Omaha in Nebraska and Council Bluffs in Iowa, is a part of the Union Pacific Eailroad ; for, if it is, there can be no doubt that the company are required by law to use it in connection with, and as a part of, their entire road, operating all parts together as a continuous line. The answer to this question must be found in the legislation of Congress, and in what has been done under it. [After a discussion of this question.] Holding then, as we do, that the legal terminus of the railroad is fixed by law on the Iowa shore of the river, and that the bridge is a part of the railroad, there can be no doubt that the company is under obligation to operate and run the whole road, including the bridge, as one connected and continuous line. This is a duty expressly imposed by the acts of 1862 and 1864, and recognized by that of 1871. What this means it is not difficult to understand. It is a requisition made for the convenience of the public. An arrangement, such as the company has made, by which freight and passengers destined for or beyond the eastern terminus are stopped two or three miles from it and transferred to another train, and again transferred at the ter- minus, or by which freiglit and passengers going west from the east- ern end of the line must be transferred at Omaha, breaks the road into two lines, and plainly is inconsistent with continuous operation of it as a whole. If not, the injunction of the statute has no mean- ing. The mandamus awarded in this case, therefore, imposes no duty beyond what the law requires. Such is our opinion of the merits of this case. A single objection made and urged against the form of proceeding remains to be con- sidered. The appellants contend that the court erred in holding that Hall and Morse, on whose petition the alternative writ was issued, could lawfully become relators in this suit on behalf of the public without the assent or direction of the Attorney-General of the United States, or of the district attorney for the district of Iowa. They were merchants in Iowa, having frequent occasion to receive and ship goods over the company's road ; but they had no interest other than such as belonged to others engaged in employments like theirs, and UNION PACIFIC R. CO. V. HALL. 723 the duty they seek to enforce by the writ is a duty to the public geuerally. The c|uestion r aised by the objection, there fore, is, whether a writ of mandamus to~compei the performan ce of a public~duty may be issueda t th e instance of a private relator . Clearly m EnglandTt may. Tapping on Mandamus, p. 28, asserts the rule in that country to be, that, " in general, all those who are legally capable of bringing an action are also equally capable of applying to the Court of King's Bench for the writ of mandamus." This is true in all cases, it is believed, where the defendant owes a duty, in the performance of which the prosecutor has a peculiar interest ; and it is equally true, we think, in case of applications to compel the performance of duties to the public by corporations. In The King v. The Severn & Wye Raihoay Co., 2 Barn. & Ad. 646, a private individual, without any allegation of special injury to himself, obtained a rule upon the com- pany to show cause why a mandamus should not issue commanding them to lay down again and maintain part of a railway which they had taken up. Under an act of Parliament, the railway was a public highway ; and all persons were at liberty to pass and repass thereon, with wagons and other carriages, upon payment of the rates. What the prosecutor complained of was the loss by the public, and particu- larly by the owners of certain collieries (of which he does not appear to have been one), of the benefit of using the railway taken up. The writ was awarded. It was not even claimed that the intervention of the Attorney-General was needed. Other cases to the same effect are numerous. Clarke v. The Leicestershire & Northamptonshire Union Canal Co., 6 Ad. & El. x. s. 898 ; 1 Chit. 700. In this country there has been diversity of decision upon the ques- tion whether private persons can sue out the writ to enforce the per- formance of a public duty, unless the non-performance of it works to them a special injury ; and in several of the States it has been decided that they cannot. An application for a mandamus, not here a prerogative writ, has been supposed to have some analogy to a bill in equity for the restraint of a public nuisance. Yet, even in the sup- posed analogous case, a bill may be sustained to enjoin the obstruction of a public highway, when the injury complained of is common to the public at large, and only greater in degree to the complainants. It was in the Wheeling Bridge Case, 13 How. 518, where the wrong com- plained of was a public wrong, an obstruction to all navigation of the Ohio Kiver. The injury to the complainants in that case was no more peculiar to Pennsylvania than is the injury to Hall and Morse in this peculiar and special to them. T here is, we_think, a decided preponderance of American authority in favor of the doctrine, that private persons may m ove for a mnndn- •m us to enforce a public duty ,_no t due to the government as j uch^ without the interv ention of th e government law-officer . People v. Collins, 19 WendTse J County of Pike v. The State, 11 111. 202 ; Ottawa 724 NORTHERN PACIFIC R. CO. V. WASHINGTON TERRITORY. V. The People, 48 id. 233 ; Hamilton v. The State, 3 Ind. 452 ; Hall V. The People, 57 N. Y. 307 ; People v. Halsey, 37 id. 344 ; State v. The County Judge of Marshall, 7 Iowa, 186 ; State v. Railway, 33 N. J. Law, 110 ; Watts v. Carroll Parish, 11 La. Ann. 141. See also Dillon on Mun. Corp., sect. 695, and High on Ex. Kern., sections 431, 432 ; Cannon v. Janvier, 3 Houst. 27 ; State v. Rahway, 33 N. J. Law, 110. The principal reasons urged against the doctrine are, that the writ is prerogative in its nature, — a reason which is of no force in this country, and no longer in England, — and that it exposes a defendant to be harassed with many suits. An answer to the latter objection is, that granting the writ is discretionary with the court, and it may well be assumed that it will not be unnecessarily granted. There is also, perhaps, a reasonable implication that Congress, when they authorized writs of mandamus to compel the Union Pacific Rail- road Company to operate their road according to law, did not con- template the intervention of the Attorney-General in all cases. The act of 1873 does not prescribe who shall move for the writ, while the Attorney-General is expressly directed to institute the necessary pro- ceedings to secure the performance of other duties of the company. For these reasons we think the Circuit Court did not err in holding that Hall and Morse were competent to apply for the writ in this case. The decree of the Circuit Court is affirmed. [Bradley, J., dissented ; differing from the majority as to the eastern terminus of the railroad.] dk- NORTHERN PACIFIC R. CO. v. WASHINGTON TERRI- TORY ex rel. DUSTIN. 71 f 1892. 142 United States, 492.1 'Iju^ -_^ Error to the Supreme Court of the Territory of Washington. ' " " ""^etition, in the name of the Territory of Washington, at the rela- of the prosecuting attorney for the county of Yakima and four //^,v> ^I'O/. ^.^0ther counties, praying for a mandamus to compel the Northern 1^ li^^ ^.ny' Pacific R. Co. to erect and maintain a station at Yakima City, on its ii ^' x^^^ "TAf ' road ; and to stop its trains there to receive and deliver freight, and ' ^ / S'^ kJ^^ receive and let off passengers. A. J^ > . 'J^ The company was incorporated by an Act of Congress, authorizing -^(^^ ku^ it to construct and maintain a railroad between certain points. By "^^ ijr H*"^^ Cy^^ s- ^ of ^^6 charter it was enacted " that said Northern Pacific Railroad ^ I oy^^' } shall be consti'ucted in a substantial and workmanlike manner, with ^'^^ D ■ '^"^^^^ ^ '^^ necessary draws, culverts, bridges, viaducts, crossings, turnouts, ^iiA'*'*^^^,^^^^*^'"^^ stations and watering places, and all other appurtenances, including \ ^^ , , v^' .-./- ._ 1 1 Statement abridged from opinion. Portions of opinion omitted. — Ed. '^^'>f^Z'^V '^..-^^ A--" ./'^k^ NORTHERN PACIFIC R. CO. V. WASHINGTON TERRITORY. 725 furniture and rolling stock, equal in all respects to railroads of the first class when prepared for business, with rails of the best quality, manufactured from American iron ; and a uniform gauge shall be established throughout the entire length of the road." The petition set forth at length the size and importance of Yakima City and its need of railroad accommodations ; alleged that it was the county seat of Yakima county, a county having more than 4000 inhabitants, and had a courthouse where courts of the United States and of the Territory were held, and a United States land office ; that the defendant had refused to establish a freight and passenger station or to stop its trains at Yakima City, but was building a freight and passenger station and stopping its trains at the rival town of North Yakima, four miles further north, which it had laid out on its own unimproved land, and was ruining Yakima City for the purpose of enhancing the value of its own town site. The answer, filed June 1, 1885, said nothing as to the courthouse ; admitted that at the time of filing the petition there was a United States land office at Yakima City, but alleged that it had since been removed by order of the President of the United States to North Yakima ; admitted that Yakima City heretofore had 500 inhabitants, but alleged that since the construction of the defendant's railroad two- thirds of them had removed with their houses and other buildings to North Yakima, and others were continually abandoning it, and no buildings or business were replacing those taken away ; denied that it had laid out the town of North Yakima for the purpose of enhan- cing the value of its own property, or for the purpose of injuring the property of any other person, town or city ; and alleged that there was not business. enough to warrant more than one station on this part of its road, and that North Yakima was a much larger and more prosperous town than Yakima City ever was, and was a more con- venient point for the people of the neighboring valleys, who were more than fifteen times as many, and had more than fifteen times as much taxable property, as the people living in Yakima City and its immediate vicinity. The parties also made allegations and denials, and (after the filing of a replication not copied in the record) introduced evidence at the trial by a jury, as to the matters afterwards stated in the special ver- dict, which was returned October 17, 1885, in answer to forty-six questions submitted by the court, and was in substance as follows : In January, 1885, the defendant carried freight and passengers for hire on its railroad to and from Yakima City, and kept an agent there who attended to the freight and sold tickets to passengers. But be- fore February 20, 1885, having completed its road to North Yakima, it ceased to stop its trains at Yakima City, and established a freight and passenger station at North Yakima ,• and pursuant to § 4 of its charter, tendered its road to the United States as fully completed and equipped from Pasco Junction to or beyond Yakima City, and caused 726 NOETHEKN PACIFIC R. CO. V. WASHINGTON TERRITORY. to be appointed by the President of the United States commissioners to examine and report on the condition of the road. On March 16, 1885, that part of its road from Pasco Junction by Yakima City to Xorth Yakima had not been turned over to the operating department of the company, but the freight and passenger trains were not run as subordinate to the construction of the road. In January, 1885, Yakima City was the oldest and largest town, and the most important business centre, on the Cascade Branch of the defendant's railroad, between the Columbia River and Puget Sound. On February 20, 1885, and when the defendant built and operated its road to Yakima City, the amount of business done at Yakima City annually was $250,000, its population was 500, and there was no other town or business centre of any importance in Yakima County. On October 17, 1885, Yakima City was the largest town, and the most important business centre in the count}^, except the town of North Yakima ; the population of Yakima City was 150 ; there were seventy children attending school there ; and it had two hotels, a flour mill, thirteen stores and places of business, twenty-seven dwell- ing-houses and but a limited amount of industries requiring railroad facilities. The amount of business furnished by Yakima City to the defendant over that portion of its road between Pasco Junction and North Yakima in the summer of 1885 was in June 16,000 lbs., in July 4000 lbs., in August none, in September 2400 lbs., in October none ; and during that period no product of Yakima City or the country adjoining was furnished by any one to be carried over the defendant's road. There is a safe and suitable place for a freight and passenger station in Yakima City on the line of the defendant's road and the defendant has the ability to construct and maintain such a station there, with freight and passenger facilities. If the defendant had done so, Yakima City would have retained its former size and importance. No demand was ever made upon the defendant for the establishment of a freight and passenger station there. The expense of construct- ing and fitting for practical use a station and warehouse at Yakima City would be about $8000, and of keeping the requisite agents there $150 a month. The wear and tear and cost of stopping a train at a station is $1. The passenger and freight traffic of the people living in the valleys of the streams entering the Yakima River at and near Yakima City and North Yakima, considering them as a community, would be better accommodated at North Yakima than at Yakima City. There are other stations for receiving freight and passengers on that part of the defendant's railroad, extending from Pasco Junction to North Yakima, called Yakima Division, furnishing sufficient facilities for all the country below North Yakima, and the earnings of that division are not sufficient to pay its running expenses. On the verdict of the jury and the admissions in the pleadings, each NORTHERN PACIFIC R. CO. V. WASHINGTON TERRITORY. 727 party moved for judgment; and on April 23, 1886, the District Court ordered a peremptory mandamus to issue, in accordance with the prayer of the petition. The record showed that the District Court during the previous proceedings in the case was held at Yakima City, but at the time of rendering judgment was held at North Yakima, to which the county seat and the courthouse had been removed pursuant to the statute of the Territory of January 9, 1886. Laws of Wash- ington Territory of 1885-6, pp. 57, 457. On appeal to the Supreme Court of the Territory, the judgment of the District Court was affirmed. 3 Wash. Terr. 303. The defendant thereupon sued out this writ of error. . . . A. H. Garland, for plaintiff in error {James McNaught, and H. J. May with him). No appearance for defendant in error. Gray, J. A^vmtpf_mandamusjbo_compel_a^ do a particular actjn constnictingjts^road or bui ldings, or in running Jts_trams, can beJssued_only when there is a specific legal d uty on its part to_do_that^.t, and clear proof of a breacli of t hat duty . ^if, as \\\Unio7i Pacific Railroad v. Hall, 91 U. S. 343, the charter of a railroad corporation expressly requires it to maintain its railroad as a continuous line, it may be compelled to do so by mandamus. So if the -charter requires the corporation to construct its road and to run its cars to a certain point on tide water (as was held to be the case in State V. Hartford & New Haven Railroad, 29 Conn. 538), and it has so constructed its road, and used it for years, it may be compelled to continue to do so. And mandamus will lie to compel a corporation to build a bridge in accordance with an express reql^irement of statute. Neiv Orleans etc. Railumy v. Mississippi, 112 U. S. 12 ; People v. Boston & Albany Railroad, 70 N. Y. 569. But i f the char ter^of a_railroad corporation si mply authorizes the corporation, without^equiring it^o construct and maintain a railroad to^a certain point, it has been held that it cannot be compelled by man- damus to complete or to maintain its road to that point,^ when it would not be remunerative.. York & North Midland Railway v. The Queen, 1 El. & Bl. 858 ; Great Western Railway v. The Queen, 1 El. & Bl. 874 ; Commonwealth v. Fitchhurg Railroad, 12 Gray, 180 ; State V. Southern Minnesota Railroad, 18 Minnesota, 40. The difficulties in the way of issuing a mandamus, to compel the maintenance of a railroad and the running of trains to a terminus fixed by the charter itself, are much increased when it is sought to compel the corporation to establish or to maintain a station and to stop its trains at a particular place on the line of its road. The location of stations and warehouses for receiving and delivering passengers and freight involves a comprehensive view of the interests of the public as well as of the corporation and its stockholders, and a consideration of many circumstances concerning the amount of population and busi- ness at, or near, or within convenient access to one point or another, 728 NOETHERN PACIFIC R. CO. V. WASHINGTON TERRITORY. which are more appropriate to be determined by the directors, or, in case of abuse of their discretion, by the legislature, or by administra- tive boards entrusted by the legislature with that duty, than by the ordinary judicial tribunals. The defendant's charter, after authorizing and empowering it to locate, construct, and maintain a continuous railroad *'by the most eligible route, as shall be determined by said company," within limits described in the broadest way, both as to the terminal points and as to the course and direction of the road ; and vesting it with " all the powers, privileges, and immunities necessary to carry into effect the purposes of this act as herein set forth ; " enacts that the road " shall be constructed in a substantial and workmanlike manner, with all the necessary draws, culverts, bridges, viaducts, crossings, turn- outs, stations and watering places, and all other appurtenances." The words last quoted are but a general expression of what would be other- wise implied by law, and cover all structures of every kind needed for the completion and maintenance of the railroad. They cannot be con- strued as imposing any specific duty, or as controlling the discretion in these respects of a corporation entrusted with such large discretion- ary powers upon the more important questions of the course and the ' termini of its road. The contrast between these general words and the specific requirements, which follow in the same section, that the rails shall be manufactured from American iron, and that " a uniform gauge shall be established throughout the entire length of the road " is significant. To hold that the directors^ of^ this^corp^o ratio n, in dete rmining the nu mber , place"and siz e of its stations an d^ other structures, having regard to the public ^oiwenience^ as well^j^to it^own pecuniary in- terests, can be controlled by the courts by writ of mandamus, w ould be inconsistent wi th many decis ions of h igh authority in analogous c ases. '^ [The learned judge then cited and commented upon various cases ; some of which are here abridged as follows : Atchison, T. & S. F. B. v. Denver & New Orleans B., 110 U. S. 667. The constitution of Colorado provided that " every railroad company shall have the right with its road to intersect, connect with, or cross any other railroad ; " also that there should be no unreasonable dis- crimination in facilities for transportation. The court held, that the above constitutional right to connect railroads was confined to their connection as physical structures, and did not imply a connection of business with business ; and that neither the common law, nor the constitution and statutes of Colorado, compelled one railroad corpora- tion to establish a station or to stop its cars at its junction with the railroad of another corporation, although it had established a union station with the connecting railroad of a third corporation, and had made provisions for the transaction there of a joint business with that corporation. Waite, C. J., said that, as a general rule, remedies NOKTHEEN PACIFIC R. CO. V. WASHINGTON TERRITORY. 729 for injustice of this kind could only be obtained from the legisla- ture. People V. Neiv York, L. E. & W. R., 104 New York, 58. The court refused to grant a mandamus to compel a railroad corporation to construct and maintain a station and warehouse of sufficient capa- city to accommodate passengers and freight at a village containing 1200 inhabitants, and furnishing to the defendant at its station therein a large freight and passenger business ; although it was admit- ted that its present building at that place was entirely inadequate ; that the absence of a suitable one was a matter of serious damage to large numbers of persons doing business at that station ; tliat the railroad commissioners of the state, after notice to the defendant, had adjudged and recommended that it should construct a suitable build- ing there within a certain time ; and that the defendant had failed to take any steps in that direction, not for want of means or ability, but because its directors had decided that its interests required it to postpone doing so. (Under the statutes of New York the so-called adjudications of the railroad commissioners had no effect save byway of advice or suggestion, and could not be judicially enforced.) Dax- FORTH, J., said : "As the duty sought to be imposed upon the defend-1 ant is not a specific duty prescribed by statute, either in terms or by) reasonable construction, the court cannot, no matter how apparent the! necessity, enforce its performance by mandamus." Com.. V. Eastern R. R., 103 Mass. 254. The court held, that a rail- road corporation, whose charter was subject to amendment, alteration, or repeal at the pleasure of the legislature, might be required by a subsequent statute to construct a station and stop its trains at a par- ticular place on its road. State V. Republican Valley R. R., 17 Nebraska, 647. The decision proceeded upon the theory that, independently of any statute require- ments, a railroad corporation might be compelled to establish a sta- tion and to stop its trains at any point on the line of its road at which the court thought it reasonable that it should.] The leading facts of this case, then, as appearing by the special ver- dict, taken in connection with the admissions, express or implied, in the answer, are as follows: The defendant at one time stopped its\ trains at Yakima City, but never built a station there, and, after com- pleting its road four miles further to North Yakima, established a freight and passenger station at North Yakima, which was a town laid out by the defendant on its own unimproved land, and thereupon ceased to stop its trains at Yakima City. In consequence, apparently, of this, Yakima City, which at the time of filing the petition for man- damus was the most important town, in population and business, in the county, rapidly dwindled, and most of its inhabitants removed to North Yakima, which at the time of the verdict had become the largest and most important town in the county. No other specific facts as / 730 NORTHERN PACIFIC R. CO. V. WASHINGTON TERRITORY. to North Yakiina are admitted by the parties or found by the jury. The defendant could build a station at Yakima City, but the cost of building one would be $8000, and the expense of maintaining it $150 a month, and the earnings of the whole of this division of the defend- aj^t's road are insufficient to pay its running expenses. The special erdict includes an express finding (which appears to us to be of pure matter of fact, inferred from various circumstances, some of which are evidently not specifically found, and to be in no sense, as assumed by the court below, a conclusion of law) that there are other stations for receiving freight and passengers between North Yakima and Pasco Junction, which furnish sufficient facilities for the country south of North Yakima, which must include Yakima City ; as well as an equally explicit finding (which appears to have been wholly disregarded by the court below) that the passenger and freight traffic of the people living in the surrounding country, considering them as a community, would be better accommodated by a station at North Yakima than by one at Yakima City. It also appears of record that, after the verdict and before the District Court awarded the writ of mandamus, the county seat was removed, pursuant to an act of the territorial legisla- ture, from Yakima City to North Yakima. The mandamus prayed for being founded on a suggestion that the defendant had distinctly manifested an intention not to perform a definite duty to the public, required of it by law, the petition was rightly presented in the name of the Territory at the relation of its prosecuting attorney ; Attorney General y. ^os^on, 123 Mass. 460, 479 ; Code of Washington Territory, § 2171 ; and no demand upon the de- fendant was necessary before applying for the writ. Commonwealth V. Allegheny Commissioners, 37 Penn. St. 237 ; State v. Board of Fi- nance, 9 Vroom, 259 ; Mottii v. Primrose, 23 Maryland, 482 ; Attorney ^ General v. Boston, 123 Mass. 460, 477. , But upon the facts found and admitted no sufficient case is made \y for a writ of mandamus, even if the court could under any circum- \\ 'Stances issue such a writ for the purpose set forth in the petition. v\ -^ The fraudulent and wrongful intent, charged against the defendant in y^ jthe petition, is denied in the answer, and is not found by the jury. ■^ The fact that the town of North Yakima was laid out by the defend- ant on its own land cannot impair the right of the inhabitants of that town, whenever they settled there, or of the people of the surrounding country, to reasonable access to the railroad. No ground is shown for requiring the defendant to maintain stations both at Yakima City and at North Yakima ; there are other stations furnishing sufficient facili- ties for the whole country from North Yakima southward to Pasco ^Junction ; the earnings of the division of the defendant's road be- tween those points are insufficient, to pay its running expenses ; and to order the station to be removed from North Yakima to Yakima City would inconvenience a much larger part of the public than it would benefit, even at the time of the return of the verdict. And, NORTHERN PACIFIC R. CO. V. WASHINGTON TERRITORY. 731 before judgment in the District Court, the legislature, recognizing that the public interest required it, made North Yakima the county seat. The question whether a mandamus should issue to protect the interest of the public does not depend upon a state of facts existing when the petition was filed, if that state of facts has ceased to exist when the final judgment is rendered. In this regard, as observed by Lord Chief Justice Jervis in GreatWestern Railway v. The Queen, already cited, " there is a very great difference between an indictment for not ful- filling a public duty, and a mandamus commanding the party liable to fulfil it." 1 El. & Bl. 878, The court will never order a railroad station to be built or maintained contrary to the public interest. Texas & Pacific Railway v. Marshall, 136 U. S. 393. For the reasons above stated, the judgment of the Supreme Court of the Territory must be reversed, and the case remanded, with di- rections to enter judgment for the defendant dismissing the petition ; and Washington having been admitted into the Union as a State by act of Congress passed while this writ of error was pending in this court, the mandate will be directed, as the nature of the case requires, to the Supreme Court of the State of Washington. Act of February 22, 1889, c. 180, §§ 22, 23 ; 25 Stat. 682, 683. Judgment reversed, and mandate accordingly. Mr. Justice Brewer, with whom concurred Mr. Justice Field and Mr. Justice Harlan, dissenting. I dissent from the opinion and judgment in this case. The question is not whether a railroad company can be compelled to build a depot and stop its trains at any place where are gathered two or three homes and families ; nor whether courts can determine at what locality in a city or town the depot shall be placed ; nor even whether, when there are two villages contiguous, the courts may determine at which of the two the company shall make its stopping place, or compel depots at both. But the case here presented is this : A railroad company builds its road into a county, finds the county seat already established and inhabited, the largest and most prosperous town in the county, and along the line of its road for many miles. It builds its road to and through that county seat ; there is no reason of a public nature why that should not be made a stopping place. For some reason, undisclosed, perhaps because that county seat will not pay to the managers a bonus, or because they seek a real estate speculation in establishing a new town, it locates its depot on the site of a " paper " town the title to which it holds, contiguous to this established county seat ; stops only at the one, and refuses to stop at the other ; and thus, for private interests, builds up a new place at the expense of the old ; and for this subservience of its public duty to its private interests, we are told that there is in the courts no redress ; and this because Congress' in chartering this Northern Pacific road did not name Ya- kima City as a stopping place, and has not in terms delegated to the courts the power to interfere in the matter. 732 NOETHERN PACIFIC R. CO. V. WA-SHINGTON TERRITORY. A railroad corporation has a public duty to perform, as well as a private interest to subserve, and I never before believed that the courts would permit it to abandon the one to promote the other. Nowhere in its charter is in terms expressed the duty of carrying passengers and freight. Are the courts impotent to compel the performance of this duty ? Is the duty o^ carrying passengers and freight any more of a public duty than that of placing its depots and stopping its trains at those places which will best accommodate the public ? If the State of Indiana incorporates a railroad to build a road from New Albany through Indianapolis to South Bend, and that road is built, can it be that the courts may compel the road to receive passengers and trans- port freight, but in the absence of a specific direction from the legis- lature, are powerless to compel the road to stop its trains and build a depot at Indianapolis ? I do not so belittle the power or duty of the courts. > V LAW UBRART -"^^S"-™ JC SOUTHERN REGIONAL LIBRARY FACILITY A A 000 866 418 7