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CASES 

ON 

THE  GENERAL  PRINCIPLES 

OF  THE 

LAW  OF 
PRIVATE  CORPORATIONS 

SELECTED  AND  ARRANGED  WITH  NOTES 
BY 

HORACE  L  WILGUS,  M.  Sc. 

Professor  of  Law  in  the  University  of  Michigan 

In  Two  Volumes 
VOLUME  1 


"A  substantial  and  compendious  report  of  a  case  rightly  adjudged  doth  produce 
three  notable  effects  ;  lirst,  it  openeth  the  understanding  of  the  reader  and  hearer ; 
secondly,  it  breal<eth  through  difficulties  ;  and  thirdly,  it  bringeth  home  to  the  hand 
of  the  studious,  variety  of  pleasure  and  profit ;  I  say  It  doth  open  the  window  of 
the  laws,  to  let  in  that  gladsome  light,  whereby  the  right  reason  of  the  rule  (the 
beauty  of  the  law)  may  be  clearly  discerned ;  it  breaketh  the  thick  and  hard  shell, 
whereby  with  pleasure  and  ease,  the  sweetness  of  the  kernel  may  be  sensibly 
tasted,  and  adorneth  with  variety  of  fruits,  both  pleasant  and  profitable,  the  store- 
houses of  those  by  whom  they  were  never  planted  nor  watered." 

Lord  Coke,  in  Preface  to  9th  Report. 


INDIANAPOLIS 

THE  BOWEN-MERRILL  COMPANY 

1902 


/ 


Copyright  1902 

BY 

HORACE  L.  WILGUS 


THE  HOLLENBECK   PRESS 
INDIANAPOLIS 


ft 


THIS    WORK    IS    DEDICATED    TO 

j.   G.   P.  W.. 

WITHOUT    WHOSE    HELP.  IN    INNUMERABLE    WAYS, 

IT    COULD    NOT    HAVE    BEEN    COMPLETED 


G67G20 


Digitized  by  the  Internet  Archive 

in  2007  with  funding  from 

IVIicrosoft  Corporation 


http://www.archive.org/details/casesongeneralpr01wilgiala 


PREFACE. 


Mr.  Justice  Swayne  said  the  Common  Law  is  "  Reason  dealing 
by  the  light  of 'experience  with  human  affairs";  and  Mr.  Justice 
Holmes  says  "  The  life  of  the  law  has  not  been  logic;  it  has  been 
experience."  This  work  is  designed  to  furnish  those  interested  in 
the  study  of  Corporation  Law, — whether  practitioner,  teacher  or  stu- 
dent,— such  material  from  the  original  sources,  and  in  such  order,  as 
will  show  how  reason  and  experience  have  dealt  with  the  subject. 
Effort  has  been  made  in  the  selection  to  secure  the  best  expression  of 
the  underlying  reason  or  theory;  to  place  these  in  such  order  as  to 
develop,  in  a  natural  way,  the  general  theory  of  Corporation  Law, 
set  forth  in  the  table  of  contents ;  to  insert  such  notes  as  will  present 
a  more  comprehensive  view  of  some  of  the  topics;  and  to  furnish,  in 
chronological  order,  such  a  list  of  cases  bearing  upon  the  principles 
as  will  enable  the  investigator  to  make  a  reasonably  complete  study 
of  the  same. 

The  editor  has  had  no  special  theories  to  advance,  but  some  effort 
has  been  made  to  bring  back  into  light,  and  put  in  their  proper  places, 
the  "personal"  and  "franchise"  theories  of  corporate  existence,  so 
much  obscured  by  the  "collection  of  individuals"  theory  in  the  excel- 
lent works  of  Mr,  Morawetz  and  Mr.  Taylor. 

The  Law  of  Corporations  cuts  across  nearly  the  whole  body  of  the 
Law.  In  addition,  intricate  and  peculiar  relations  arise  between  a 
corporation  and  the  State,  the  Promoters,  the  Members,  the  Officers, 
the  Creditors,  or  others,  as  well  as  amongst  themselves.  Recently 
the  volume  of  corporate  litigation  has  been  enormous,  resulting  in 
numerous  discordant  decisions  of  inordinate  length.  All  these  make 
the  choice  of  illustrative  cases  on  the  subject  especially  difficult. 
During  the  four  years  of  preparation,  many  thousand  cases  have  been 
examined  and  compared  in  order  to  make  this  selection.  Some  top- 
ics are  not  here  worked  out  in  such  detail  as  in  other  collections ;    bnf 

(V) 


VI  PREFACE. 

many  others,  such  as,  the  Corporation  as  a  Franchise,  Constitutional 
Limitations  on  the  Power  to  Create,  Functions  of  Promoters,  Subscrip- 
tions, Incorporation,  Organization,  Corporations  De  Facto  and  By 
Estoppel,  Name,  Power  to  Sue  and  Be  Sued,  Taxation,  Visitation, 
National  Corporations,  the  National  Government  and  State  Corpora- 
tions, etc.,  etc.,  not  found,  or  merely  touched  upon,  in  other  works, 
are  here  given  due  prominence.  An  appendix  of  forms  is  also  added. 
By  continual  cross  references,  many  cases  have  been  used  to  do  dou- 
ble service,  and  thereby  add  to  the  completeness  of  the  view. 

It  is  believed  that  a  constant  reference  by  the  student  to  the  out- 
line given  in  the  table  of  contents  will  be  of  material  service  in  help- 
ing him  to  understand  and  appreciate  the  bearing  and  relation  of  the 
cases  to  one  another  and  to  the  general  theory  of  corporation  law. 

Acknowledgments  are  due  to  Oscdr  Bader,  Esq.,  R.  G.  Schulder, 
Esq.  and  Mr.  H.  F.  Jacobs,  for  help  in  reading  proof  and  verifying 
citations. 

The  work  is  submitted  to  the  judgment  of  those  who  have  occasion 
to  use  it,  with  the  hope  that  it  may  be  found  of  service. 

H.  L.  W. 

Ann  Arbor,  Michigan, 

February  i,  igo2. 


CONTENTS. 


VOLUME  I. 

PAGE. 

PART      I.   THE  IDEA  OF  A  CORPORATION 1 

PART     II.   THE  BODY  CORPORATE 258 

Title  I.   Parentage — State  and  Promoters 258 

Subdivision    I.  The  State's  Power  to  Create 258 

Subdivision  II.   The  Promoters— Their  Functions 374 

Title      II.  Formation — Charter — Association 397 

Title    III.   Birth  and  Organization 560 

Title     IV.   Anatomy,  Internal  Structure  and  Constitu- 
tion    682 

Title      V.   Name 816 

Title     VI.  Life— Mode  of  Existence  and  Action 830 

Title  VII.   Death — Dissolution 866 

PART  III.  THE  CORPORATION  AS  A  SUBJECT  AND  SOURCE  OF 
RIGHTS  AND  OBLIGATIONS 914 

Title       I.   Powers,  Rights  and  Duties  in  General 914 

Title     II.   Particular  Powers 937 


VOLUME  II. 

Title    III.   Doctrine  of  Ultra  Vires 1176 

Title    IV.   General  Duties  and  Liabilities 1236 

PART  IV.   SPECIAL  RELATIONS  ARISING    FROM  THE  EXIST- 
ENCE OF  A  CORPORATION 1291 

Division  I.   Corporate  Relations 1291 

Title    I.  The  Corporation  and  the  State 1291 

Subdivision     I.   Governmental  Control,  General  Doc- 
trines , 1291 

Subdivision    II.   The  State  and  its  Own  Corporations.  1294 
Subdivision  III.  The  State   and    National  Corpora- 
tions   1476 

(vii) 


VIU  CONTENTS. 

PAGE. 

Subdivision  IV.  The  State  and  Foreign  Corporations  .  1480 
Subdivision   V.  The  National  Government  and  State 

Corporations 1527 

Title    II.   The    Corporation   and  Various    Classes   of 

Persons 1546 

Subdivision  I.  The  Corporation  and  its  Promoters  .  1546 
Subdivision  II.  The  Corporation  and  its  Members  ...  1559 
Subdivision  III.  The  Corporation  and  its  Officers.  .  .1727 
Subdivision  IV.   The  Corporation  and  its  Creditors. 

1760,  1808 
Subdivision    V.   The  Corporation  and  Outside  Parties. 1760 

Division    II.   Individual  Relations 1767 

Title     I.   Internal  Relations 1767 

Subdivision      I.   Promoters 1767 

Subdivision    II.   Shareholders 1770 

Subdivision  III.   Officers 1790 

Title    II.   External  Relations, — Creditors 1805 

Subdivision      I.  The  State  and  Corporate  Creditors  .  1805 
Subdivision    II.  The  Corporation  and  its  Creditors  ..  1808 
Subdivision  III.  The  Creditors  and  Corporate  Offi- 
cers     1874 

Subdivision  IV.   Creditors  and  Shareholders 1899 

I.  Rights  of  Creditors 1899 

A.  Arising  from  Imperfect  Incorporation  ...  1899 

B.  Common  Law  or  Equitable    Liability  of 

-Shareholders 1900 

C.  Statutory  Liability  op  Shareholders 1987 

II.  Rights  op  Shareholders 2034 

Subdivision  V.   Rights  of  Creditors  Inter  Se 2035 

Appendix  of  Forms 2065 


VOLUME  I. 

PART  I. 
THE  IDEA  OF  A  COBPOBATION. 

CHAPTER  1. 

iDescription  and  Classes  of  Corporations 1 

Article  I.   Definition  and  Tests 1 

Sec.    1.   Definitions, — the  corporation  as  a  person, — as  a  collection  of  in- 
dividuals,— as  a  franchise 1 

Sec.    2.  Tests  (1)  Merger  of  individuals 2 

Sec.    3.             (2)  The  legislative  intent 15 

Sec.    4.             (3)  The  powers  conferred 19 

Sec.   5.            (4)  In  foreign  jurisdictions,  powers  conferred  control 28 


CONTENTS.  IX 

PAGE. 

Notes :    1.  Definitions 31 

2.  The  New  York  bank  cases 31 

3.  The  Michigan  discussion 32 

4.  Later  holdings 32 

6.  The  fourth  test 32 

Article  II.  The  Corporation  as  a  Person 33 

Sec.    6.   For  most  purposes  the  corporation  is  so  considered 33 

(1)  And  particularly  as  having  rights 33 

(a)  Under  the  common  law 33 

Sec.    7.               (b)  Under  the  United  States  constitution 36 

Sec.    8.      (2)  And  as  subject  to  duties 44 

(a)  Of  a  public  nature 44 

Sec.    9.               (b)  And  of  a  private  nature 47 

Sec.  10.    This  artificial  personality  is  recognized  particularly — 

(1)  In  interpreting  statutes,  "person"  is  usually  held  to  in- 
clude corporations 51 

Note :    Illustrations 51 

Sec.  11.      (2)  As  to  the  ownership  of  its  property 58 

Sec.  12.      (3)  As  to  contracts  between  it  and  its  members  . 60 

Sec.  13.      (4)  As  to  contracts  between  the  members  themselves 65 

Sec.  14.      (5)  As  to  suits  by  or  against  third  persons 70 

Note:   Evidence, — shareholder  as  judge,  juror,  witness, 

etc 71 

Sec.  15.      (6)  As  to  suits  between  it  and  its  members 71 

Note :   1.  Ancient  ideas  of  personality 72 

2.  In  the  Roman  law 73 

3.  In  the  canon  law 74 

4.  In  the  early  common  law 74 

5.  In  the  modern  law 77 

Article  III.  The  Corporation  as  a  Collection  of  Individuals 79 

Sec.  16.  The  corporation  is  considered  as  a  collection  of  individuals — 

(1)  In  the  management  of  corporate  affairs 79 

Sec.  17.      (2)  When  agreement,  reason,  or  policy  so  requires 80 

Note:    Specific    performance  of    stock    agreement; 

waiver  of  statutory  liability 86 

Sec.  18.  (a)  Particularly  in  matters  relating  to  the  constitution  of 

the  corporation  or  changes  therein 87 

Sec.  19.               (b)  In  determining  the  rights  of  members  among  them- 
selves in  equity 88 

Sec.  20.  (c)  When  corporate  organization  is  used  as  a  cloak  to  aid 

in  the  commission  of  frauds 97 

Sec.  21.  (d)  When  corporate  sin^  result  from  the  concerted,  but 

apparently  individual,  actions  of  the  members 100 

Note :   The  corporation  as  a  collection  of  individ- 
uals,—history  and  definitions 109-113 


X  CONTENTS. 

PAGE. 

Article  IV.   The  Corporation  as  a  Franchise 113 

Sees.  22-3.   In  its  relation  to  the  state  it  is  considered  as  a  primary  fran- 
chise   113 

(1)  General  nature  of  a  franchise 113 

Sees.  24-5.        (2)  And  particularly,  this  primary  franchise  belongs  to  the 

members  in  their  individual  capacities 136 

Sec.  26.  (3)  There  may  be  secondary  franchises,  etc.,  owned  by  the 

corporation  itself 143 

Note :    Power  to  mortgage  franchise 149 

Sees.  27-8.       (4)  The  offer  and  acceptance  of  a  franchise  make  a  grantor 

executed  contract 150 

Sec.  29.  (5)  Franchises  are  property  and  can  not  be  taken  without 
cause  or  compensation,  but  may  be  forfeited  for  mis- 
user or  non-user 152 

Note :   The  corporation  as  a  franchise 157-167 

Article  V.   Corporations  as  Distinguished  from  Other  Institutions  . . .  167 

Sec.  30.  (1)  From  partnerships 167 

Note :   Corporations  and  partnerships 170 

Sec.  31.  (2)  From  joint  stock  companies 171 

Note :    Nature  of  joint  stock  companies 175 

Sec.  32.  (3)  From  fraternity  or  society 176 

Sec.  33.  (4)  From  stock  exchange 178 

Sec.  34.  (5)  From  cost-book  companies 182 

Sec.  35.  (6)  From  unincorporated  associations 187 

Sec.  36.  (7)  From  state  institutions 191 

Note :   Nature  of  state  institutions 192 

Akticlb  VI.    Classes  op  Corporations 193 

Sec.    37.        (a)  As  to  number  of  members:  1.  Sole;  2.  Aggregate 193 

Note :    OflBcers ;  one-man  companies 200 

Sees.  38-9.    (b)  As  to  purpose • 201 

1.  Ecclesiastical,  or  religious 201 

2.  Lay,  which  are 201 

(a)  Eleemosynary 201 

(b)  Civil,  which  are 201-3 

Sec.  40.  (1)  Quasi 214 

(2)  Pure  or  complete 214 

Sees.  41-43.  (c)  As  to  relation  to  the  state,  corporations  are 221 

1.  Purely  public 221-9 

2.  ^asi-public 222-9 

3.  Private,  which  are 222-9 

Sec.  44.  (1)  As  to  method  of  acquiring  membership 234 

1.  Stock,  or 234 

2.  Non-stock 234 

Sees.  45-47.  (2)  As  to  perfection  of  organization 239-53 

1.  De  jure 239 

2.  De  facto 244 

3.  By  estoppel 253 


CONTENTS.  XI 


PART  U. 


THE  BODY  COBPORATE,  ITS  PARENTAGE,  CONCEPTION,  BIBTH, 
ANATOMY,  LIFE,  AND  DEATH. 

PAGE. 

Title  I.   Parentage, — The  State  and  Promoters 268 

Subdivision  I.  The  State, — Its  Power  to  Create 258 

CHAPTER  2. 

Nature  of  the  Power  and  Method  of  Exercise 258 

Article  I.   Nature  of  the  power 258 

Sec.  48.    (a)  The  power  to  create  is  an  incident  of  sovereignty 258 

Sec.  49.   ( b)  None  but  the  sovereign  can  create 263 

Article  II    Methods  op  Exercise, — Evidence  op  Sovereign's  Consent.  264 

Sec.  50.    (a)  In  general 264 

Sec.  51.    (b)  King's  or  queen's  charter 266 

Note :   King's  power  to  create  corporations 269 

Sec.  52.    (c)  Common  law 270 

Note :   The  states  and  national  government  as  corporations.  275 
Sec.  53.    (d)  Prescription 275 

Note 278 

Sec.  54.   (e)  Legislative  bodies  whose  powers  are 278 

U )  Inherent 279 

Sec.  55.  (2)  Exclusive 279 

Sec.  56.  (3)  Plenary 283 

Sees.  57-57b.   And  as  to  the  form  or  method  of  exercising  this  power,  they 
act  by — 

(1)  Special  or  general  law 287 

(a)  Policy  of  general  corporation  laws 287-295 

Sec.  58.  (b)  Difference  between  method  by  general  and  by 

special  law 296 

Sec.  59.  (2)  Implication 298 

Note 300 

Sec.  59a.  (3)  Consolidation 301 

CHAPTER  3. 

Limits  on  the  Power  op  the  State  to  Create  Corporations 302 

Article  I.   From  the  Nature  op  Legislative  Power 302 

Sec.  60.    (a)  Delegation,— there  can  be  no  general  delegation  of  legisla- 
tive authority 302 

Sec.  61.    (b)  Exceptions,  or  apparent  exceptions,  in  cases  of 302 

1.  Territorial  legislatures 302 

Sec.  62.  2.  Regents  of  University  of  New  York 304 

Note :   Delegation  of  power  to  create  corporations 306 

Article  II.   From  Nature  op  a  Franchise 306 

Sec.  63.   (a)  Can  not  be  forced  on  any  one 306 

Sec.  64.   (b)  May  be  exclusive,  but  not  so  unless  expressly  made  so 309 

Article  III.   Constitutional  Limits 320 

Sec.  65.    (a)  In  the  national  constitution 320 


XU  CONTENTS. 

PAGE. 

(1)  On  congress 320 

Note :   National  corporations 325 

Sec.  66.  (2)  On  state  legislatures 326 

Sec.  67.  (3)  On  territorial  legislatures 332 

Sec.  68.    (b)  In  the  state  constitutions 333 

(1)  General  and  special  laws,  what  are  within  the  provis- 
ion,— "  the  legislature  shall  pass  no  special  act  creat- 
ing corporations,  or  conferring  corporate  powers". .  333 
Note :  What  are  general  and  special  laws 337 

Sees.  69-72.       (2)  Creating:    "The  legislature  shall  pass  no  special  or 

local  act  creating  corporations" 338-360 

Sec.  73.  (3)  Conferring  corporate  powers:  " The  legislature  shall 
pass  no  special  or  local  act  conferring  corporate 
powers"  360 

Sec.  74.  (4)  Title  and  special  privilege :  "The  legislature  shall  pass 
no  bill  embracing  mere  than  one  subject,  and  no 
private  or  local  bill  shall  be  passed,  granting  any  ex- 
clusive privilege" 363 

Sec.  75.  (5)  Two-thirds  vote:  "The  assent  of  two-thirds  of  the 
members  elected  to  each  branch  of  the  legislature 
shall  be  requisite  to  every  bill  creating  corpora- 
tions"   2,  19,  287,  292,  373 

Subdivision  II.   The  Body  Corporate,  its  Parentage,— the  Promoters.  374 

CHAPTER  4. 

Functions  and  Classes  op  Promoters 374 

Sec.  76.        Definitions ' 374 

Sees.  77-8.   Self-constituted,  functions  generally,  illustrations 375 

Sec.  79.         Statutory :   Commissioners 385 

Note :    Authority  and  functions  of  commissioners 390 

Sec.  80.        Incorporators,  under  general  statutes 391 

Title  II.  The  Body  Corporate  :    Its  Formation,  or  its  Conception  and 

Incubation , 397 

CHAPTER  5. 
The  Corporate  Charter 397 

Article  I.   Nature  and  Purpose  op  the  Charter 397 

Sec.  81.   In  general 397 

Sec.  82.   More  particularly,  the  charter  is  both  a  law  and  a  contract 397 

Sec.  83.   The  charter  as  a  law  and  as  a  contract 398 

Note :   The  charter  as  a  law '. .  406 

Sec.  84.   The  charter  is  a  license  of  authority  to  convert  persons  or  an  as- 
sociation of  persons  into  the  designated  corporation 406 

Article  II.   Its  General  Form — An  Offer  and  Acceptance 409 

Sec.  85.  The  offer  may  be  by  parties,  and  acceptance  by  tlie  state ;  or  it 
may  be  a  special  or  general  offer  by  the  state,  and  an  accept- 
ance by  individuals  or  an  association  of  individuals 409 

Sec.  86.  The  offer  may  be  withdrawn  before  acceptance ;  acceptance  is 

essential 412 


CONTENTS.  Xm 

PAGK. 

Sec.  87.  Acceptance  may  be  inferred  from  signing  articles,  holding  meet- 
ings, organizing  and  acting  as  a  corporation 414 

Sec.  88.   Acceptance  must  be  within  the  state  offering  the  charter 417 

Sec.  89.   Renewals,  extensions  and  amendments  must  also  be  accepted  to 

make  them  effective 417 

Article  III.   The  Charter — Its  Contents , 426 

Sec.  90.    In  general 426 

Sec.  91.   Under  special  charter  from  the  king, — illustration 426 

Sec.  92.  Under  speqial  act  of  the  legislature, — illustration 427 

Sec.  93.   Under  general  laws 429 

(a)  The  charter  consists  of: 

(1 )  The  provisions  of  the  general  corporation  law,  and 

(2)  Articles  of  incorporation,  authorized  thereby,  and 

consistent  therewith 429 

Note 434 

Sec.  94.         (b)  Usual  provisions  in  the  general  law 435 

Sec.  95.         (c)  Articles  of  incorporation,  form  and  contents 435 

Form  of  application  for  incorporation 436 

Sec.  95a.        (d)  Deed  of  settlement 440 

Sec.  95b.  Interpretation  of  charters 441 

CHAPTER  6. 

The  Association, — Its  Necessity,  Nature,  Forms  and  Parties 442 

Article  I.   Necessity,   Nature,  Consideration  and  General  Form  op 

THE  Association 442 

Sec.  96-7.  Necessity, — an  association  of  persons  is  necessary  to  or  results 

from  the  creation  of  a  corporation  aggregate 442 

Sec.    98.    General  nature  of  such  association  contract 445 

Sec.    99.     Consideration  of  the  agreement 448 

Sec.  100.     General  form  of  such  contract, — may  be  either  a  statutory  or 

common-law  contract 456 

Note 458 

Article  II.   Forms  of  Association  Contracts;    Statutory   Subscrip- 
tions    459 

Sec.  101.   An  exclusively  statutory  contract 459 

Sec.  102.   The  state  may  make  those  who  incorporate  and  not  those  who 

take  stock,  members 464 

Sec.  103.   The  state  may  require  signing  articles  of  incorporation  by  orig- 
inal shareholders 469 

Article  III.     Forms   op  Association  Contracts;    Common    Law  Sub- 
scription Contracts 471 

Sees.  104-5.   (1)  Agreements  to  subscribe  for  stock  in  a  corporation  to  be 

formed 471 

Sec.  106.         (2)  Agreements  subscribing  to  stock  in  a  corporation  to  be 

formed :   Theories 474 

(a)  A  mere  withdrawable  offer  before  accepted  by  the 

corporation 474 

Sec.  107.  Notice  of  withdrawal 478 


xiv  CONTENTS. 

PAGE. 

Sec.  108.                   (b)  Offer  until  acted  upon  in  accordance  with  its  pro- 
visions    482 

Sec.  109.  (c)  Binding  contract  from  time  of  making 491 

Sec.  110,  (d)  Offer  to  the  corporation,  and  a  binding  contract 

between  the  parties  subscribing 492 

Sees.  111-2.   (3)  Subscription  to  agent  or  trustee 497 

Sec.  113.         (4)  Underwriting 502 

Sec.  114.         (5)  Application,  allotment  and  notice 504 

Sec.  115.         (6)  Estoppel .510 

Form  of  subscription  to   stock   in  a  corporation  to  be 

formed 510 

Article  TV.    Conditional  Subscriptions 511 

Sec.  116.   Conditions  may  be  express  or  implied 511 

Sec.  117.   Express  conditions  may  be  attached  to  subscriptions  made  (1) 

before,  or  (2)  after  incorporation ;  payment  of  deposits 514 

Note :  Payment  of  deposits 521 

Sec.  118.       (1)  Prior  to  incorporation,  theories : 622 

(a)  Subscription  valid,  condition  void 522 

Sec.  119.  (b)  Subscription  and  condition  both  void 525 

Sec.  120.       (2)  After  incorporation,  theories : 526 

(a)  Valid  contract,  to  await  time  of  performance 526 

Sec.  121.  (b)  Mere  offer  until  performance 528 

Sec.  122.   Subscriptions  may  be  upon  conditions  precedent  or  subsequent.  532 
Sec.  123.   Conditional  delivery  of  subscriptions.   Escrows,  theories  of:  ..  536 

(a)  Delivery  can  not  be  to  company's  agent 536 

Sec.  124.        (b)  Delivery  may  be  to  company's  agent 538 

Article  V.   Fraud  and  Mistake  in  Subscriptions 539 

Sec.  125.   Fraud 639 

Note 644 

Sec.  126.   Mistake 545 

Note :  Mistakes  of  fact  and  of  law 547 

Article  VI.  Parties  to  the  Agreement 547 

Sec.  127.        Infants 547 

Note 548 

Sees.  128-9.   Married  women 549 

Note .-552 

Sec.  130.        Aliens 552 

Note 552 

Sec.  131.  Private  corporations 553 

Sec.  132.   Municipal  corporations  554. 

Note 557 

Sec.  133.   State  or  national  governments 558 

Title  III.  The  Body  Corporate :    Its  Birth  and  Organization 560 

CHAPTER  7. 

Organization  and  Compliance  with  Conditions 560 

Article  I.   Schemes  of  Organization 660 

Sec.  134.   (1)  Under  the  king's  charter 560 


CONTENTS.  XV 

PAGE. 

Sec.  135.   (2)  In  special  acts 660 

(a)  The  act  itself  provides  the  original  orgfanization ;  illus- 
tration    560 

Sec.  136.  (b)  The  law  provides  for  the  organization  to  be  made  by 

the  stock  subscribers ;  illustration 561 

Sec.  137.    (3)  Under  general  incorporation  laws 561 

(a)  Deed  of  settlement 561 

Sees.  138-9.         (b)  License  plan, — Illinois  and  Kansas  laws. 561-2 

Sec.  140.  (c)  Organization  completed  before  application  is  made, — 

Massachusetts  law 562 

Sec.  141.  (d)  Organization  by  stock  subscribers  after  filing  articles 

of  incorporation 563 

Article  II.    Proof  op  Organization 563 

Sec.  142.   General  presumption  of  regularity 663 

Article  III.    When  Does  Corporate  Birth  Occur:    Theories 565 

Sees.  143-4,   (a)  Only  upon  complete  organization 565 

Sec.  145.         (b)  Immediately  upon  filing  articles,  without  stock  subscrip- 
tion or  organization 571 

Sec.  146.         (c)  At  time  of  filing  articles ;   but  adult  corporate  capacity 

does  not  exist  until  the  capital  stock  is  provided 574 

Sec.  147.         (d)   As  soon  as  the  first  meeting  is  held  and  ofiicers  chosen .  581 

Sec.  148.         (e)  Under  special  acts 585 

Article  IV.    Compliance  with  Conditions.     De  Jure  Existence 585 

Sec.  149.   (1)  As  to  de  jure  existence  conditions  are 

(a)  Precedent,  require  a  substantial  compliance 585 

Sec.  150.  (b)  Subsequent 586 

Sec.  151.   (2)  Conditions  may  be  also 588 

(c)  Directory  merely  588 

Sec.  152.  (d)  Mandatory,  which  may  be 590 

(1)  Implied — good  faith  in  securing  corporate  privi- 
leges   590 

Sec.  153.  (2)  Express 594 

(a)  A  certain  number  of  incorporators 594 

Sec.  154.  (b)  Written  articles  of  agreement 597 

Sec.  155.  (c)  Names  and  residence  of  subscribers  to  stock    600 

Sec.  156.  (d)  Place  of  business 603 

Sec  157.  (e)  Purpose  of  incorporation 605 

Note 607 

Sec.  158.  (f)  Subscribing  and  acknowledging  articles.  .*. .  607 

Sec.  159.  (g)  Acknowledging  articles 609 

Sec.  160.  (h)  Filing  articles 611 

Article  V.  Conditions  of  De  Facto  Existence 614 

Sees.  161-2.   (1)  Conditions  precedent 614 

Sec.  163.        (2)  Reasons  for  not  allowing  collateral  attack  upon  de  facto 

corporate  organization 626 

Note :  De  facto  corporationa 629 


XVI  CONTENTS. 

PAOB. 

Article  VI,   Conditions  op  Corporatb  Existence  by  Estoppel 630 

Sees.  164.  A.  Theories : 

(1)  The  doctrine  is  one  of  equity 630 

(a)  Will  be  applied  where  it  would  be  inequitable 

not  to  do  so 631 

Sec.  165.  (b)  Will  be  applied  only  when  equitable  to  do  so. . .  632 

Sec.  166.  (2)  Estoppel  arises  on  matter  of  fact  only,  and  not  of  law . .  634 

Sec.  167.  (3)  Estoppel  applies  only  where  there  is  at  least  de  facto 

existence 637 

Sec.  168.             (4)  Public  policy  forbids  the  creation  or  recognition  of  cor- 
porations by  estoppel 642 

Sec.  169.  B.  Parties  estopped 644 

(1)  The  pretended  corporation  itself 644 

Sec.  170.  (2)  The  associates   646 

(a)  Among  themselves 646 

Sec.  171.  (b)  As  to  the  corporation  or  its  creditors 647 

1.  Upon  subscription  liability 647 

Note :  Estoppel  of  subscribers 649 

Sec.  172,  2.  Upon  statutory  liability 650 

Sec.  173.            (3)  The  promoters  and  oflScei-s  of  the  apparent  corporation .  660 
Sec.  174.            (4)  Dealers  with  knowledge  of  claim  of  corporate  capacity .  652 
(a)  Who  seek  to  evade  liability  to  the  apparent  corpo- 
ration    652 

Sec.  175.  (b)  Who  seek  to  hold  members  liable  as  partners 656 

Sec.  176.  (c)  Dealers  without  knowledge  of  claim  of  corporate 

capacity  are  not  estopped 662 

Sec.  177.            (6)  Non-dealers,  who  injure  the  corporation,  are  estopped 
(a)  In  cases  of  torts  against  the  apparent  corpora- 
tion   664 

Sec.  178.  (b)  Or  crimes  affecting  the  apparent  corporation 668 

Note :  Extent  of  doctrine  of  estoppel 671 

Article  VII.     Effect  op  Failure  to  Comply  with  Conditions,  and 
No  Estoppel  upon  Liability  of  Members.    Theories  : 

Sec.  179.   (1)  Makes  associates  partners 673 

Sec.  180.    (2)  Does  not  make  a  partnership 677 

Title  IV.    The  Body  Corporate:     Its  Anatomy,  Internal  Structure 

AND  Constitution 682 

CHAPTER  8. 
Members,  Parts,  Organs  op  Action,  with  Their  Functions  and  Mu- 
tual Relations 682 

Subdivision  I.    Members,  Integral  Parts  and  Organs  op  Action 682 

Article  I.   Members 682 

Sec.  181.   Necessity  of  members 682 

Sec.  182.   Acquisition  of  membership 682 

(1)  Non-stock  companies 682 

Sec.  183.       (2)  Stock  companies 687 

A.   By  subscription 687 

(1)  Statutory  contract 687 


CONTENTS.  XVn 

/■ 

PAGE. 

Sec.  184.  (2)  Common  law  contract 687 

1.  Agreements  to  subscribe 687 

2.  Agreements  subscribing 687 

3.  Agreement  with  promoter 687 

4.  Underwriting 687 

5.  Application,  allotment,  etc 687 

Sec.  185.  B.  Transfer 687 

Sec.  186.  C.   Estoppel 687 

Article  II.   Integral  Parts 687 

Sees.  187-8.   In  general 687 

Sec.  189.        Directors  are  not  integral  parts 688 

Article  III.   Organs  op  Action 690 

Sees.  190-1.   In  general 690 

Note 691 

Sec.  192.        Qualification  of  agents  and  officers 692 

Note :   Qualification  of  agents  and  officers 693 

Subdivision  II.   Functions  of  Members,  Directors  and  Officers 694 

Article  I.   Members  and  Directors 694 

Sec.  193.        Members  wield  the  extraordinary  powers,  and  directors  the 

ordinary  business  powers 694 

Note :   Functions  of  shareholders  and  directors 702 

Article  II.   Other  Officers 703 

Sec.  194.        The  president 703 

Note :   Various  officers 704 

Subdivision  III.   Internal  Relations  and  Constitution 705 

Article  I.  The  Corporate  Franchises , .  705 

Sec.  195.        Franchises  of  the  corporation  itself 705 

Note 706 

Sec.  195.        Franchises  of  the  members 706 

Article  II.   Contracts  Contained  in  the  Charter  of  a  Corporation  . .  707 

Sees.  197-8.   1.  In  general 707 

Note :   The  Dartmouth  College  decision  746 

Sec.  199.        2.  Contract  between  the  state  and  the  corporation 760 

Sec.  200.        3.  Contract  between  the  state  and  corporate  creditors,  and 
between  stockholders  and  creditors,  in  case  of  statutory 

liability 752 

Sec.  201.        4.  Contract  between  the  state  and  the  members 754 

Sec.  202.        5.   Contract  between  the  corporation  and  the  members,  or 

among  the  members  themselves 757 

(a)  As  to  the  amount  to  be  contributed 757 

Sec.  203.  (b)  That  subscriptions  are  made  in  good  faith 768 

Article  III.   The  Corporate  F^nds.     Capital  Stock 760 

Sec.  204.  In  general 760 

Sec.  205.   Right  to  create  a  capital  stock 761 

Sec.  206.   Power  to  increase  the  capital  stock 763 

Note 763 

Sec.  207.  Power  to  decrease  the  capital  stock 764 

ii — WIL.  CAS. 


XVUl  CONTENTS. 

PAGE. 

Sees.  208-9.   Nature,  function  and  purpose  of  capital  stock 766 

Note :  Definitions  of  various  kinds  of  stock 771 

Sec.  210.   Capital,  capital  stock,  surplus  and  franchise  distinguished 778 

Note :  Capital  stock,  capital,  shares,  property 781 

Sec.  211.   Capital  stock, — kinds,  common  and  preferred 785 

Sec.  212.   Preferred  stock,  power  to  issue 790 

Note :  Power  to  issue  preferred  stock  generally 793 

Sec.  213.   Shares  of  stock,— nature  of 794 

(1)  Personal  property 79-1 

Note , 798 

Sec.  214.       (2)  Statute  of  frauds,— "goods,  wares,  or  merchandise" 799 

Note 801 

Sec.  215.       (3)  Choses  in  action 801 

Sec.  216.       (4)  As  subjects  of  conversion 804 

Note 807 

Sec.  217.       (5)  Negotiability  of  shares 807 

Note 810 

Sec.  218.       (6)  As  subjects  of  attachment  or  execution 810 

Sec.  219.       (7)  Location  of  shares  for  attachment 81 1 

Sec.  220.       (8)  Seizure  in  equity  815 

Title  V.   The  Body  Corpoeate  :   Its  Name 816 

CHAPTER  9. 

The  Corporate  Name 816 

Sec.  221.   Necessity  of  a  name 816 

Sec.  222.   Acquisition  of  a  name 817 

Note 818 

Sees.  223-4.    Rights  in  the  corporate  name 819 

Note :    Rights  in  a  corporate  name 823 

Sec.  225.   Effect  of  misnomer 825 

Note :   Effect  of  misnomer 826 

See.  226.   Change  of  corporate  name 827 

Note :   Change  of  name 828 

Title  VI.  The  Corporate  Life 830 

CHAPTER  10. 

The  Mode  op  Corporate  Existence  and  Action 830 

Article  I.   Mode  of  Existence 830 

Sec.  227.   Perpetual  succession 830 

Note 833 

Article  II.   Mode  op  Action;  Shareholders  and  Directors 833 

Sec.  228.        Shareholders'  meeting,— necessity 833 

Sees.  229-30.  Shareholders*  meeting, — notice 835 

Note :   Notice  of  corporate  meetings 837 

Sec.  231.        Shareholders'  meeting, — quorum 839 

Note :    Quorum 840 

Sees.  232-4.     Place  of  meeting 841 

Note ;   Place  of  corporate  meetings ,  847 


CONTENTS.  XIX 

PAGE. 

Sees.  235-6.    Directors'  meeting,  necessity,  notice,  quorum .  848 

Note :   Delegation  of  powers  by  directors 850 

Article  III.    Mode  of  Action  Generally 854 

Sec.  237.   Presumptions 854 

Sec.  238.   Execution  of  contracts 862 

Note:      Corporate     acts,— record    of;    deeds;    acknowledg- 
ments ;  notes,  etc 862 

Title  VII.   Corporate  Death — Dissolution 866 

CHAPTER  11. 

Modes  and  Effect  of  Dissolution '. 866 

Article  I.   Methods  of  Dissolution 866 

Sec.  239.   In  general 866 

Note :    Modes  of  dissolution 868 

Sec.  240.   Expiration  of  charter 868 

Sec.  241.   Happening  of  a  condition    or  contingency   prescribed  in    the 

charter 871 

Sec.  242.   Death  of  members 873 

Sec.  243.   Loss  of  integral  part 875 

Sees.  244-5.   Surrender 877 

Sec.  246.   Non-user,  insolvency  and  surrender 881 

Note :  Surrender  886 

Sec.  247.   Repeal 887 

Sec.  248.   Forfeiture 887 

Sec.  249.   Ownership  of  stock  by  one  member 887 

Note :  One  man  companies 889 

Article  II.     Effect  of  Dissolution 891 

Sec.  250.   Lands,  chattels  and  debts  at  common  law 891 

Sec.  251.   Contracts  of  shareholders 895 

Sec.  252.   Contracts  of  creditors 896 

vSec.  253.   Executory  contracts 897 

Sec.  254.   Generally,  upon  rights  and  liabilities  in  equity 899 

Sec.  255.   Reversion  of  land 903 

Sec.  256.   Reversion  of  property  of  a  mutual  company 904 

Sec.  257.   Reversion  of  property,  charitable  corporation 906 

Note :  Effect  of  dissolution, — franchises,  contracts,  debts,  per- 
sonal property,  real  property,  actions,  judgments 910 


PART  IIIo 

THE  COBPOBATION  AS  A  SUBJECT  AND  SOUBCE  OF  BIGHTS 
AND  OBLIGATIONS. 

Title  I.     Rights  and  Duties  op  the  Corporation  in  General 914 

CHAPTER  12. 

Powers  and  Authority  in  General 914 

Article  I.  Theories  of  Corporate  Capacity 914 

Sec.  258.   Corporate  powers 914 


XX  CONTENTS. 

PAGE. 

Sec.  259.   Special  capacities 915 

Note 918 

Sec.  260.  General  capacity 919 

Note 924 

Article  II.   Classes  op  Corporate  Powers 925 

Sec.  261.   1.  Incidental  powers 925 

Sec.  262.  2.  Express  powers 926 

3.  Implied  powers 926 

Note:   Implied  powers.      Rules  of  construing  corporate 

charters 933 

Title  II.   Particular  Powers  and  Liabilities 937 

CHAPTER  13. 

Particular  Powers 937 

Article  I.   Perpetual  Succession 937 

Sec.  263.   Perpetual  succession 937 

Article  II.   Name 937 

Sec.  264.   Name 937 

Article  III.   Power  to  Contract 937 

Sec.  265.   (A)  As  to  form 937 

1.  In  general 937 

2.  As  to  seal 938 

Sec.  266.    (B)  As  to  subject-matter.. 938 

(1)  In  general 938 

Sees.  267-8.  (2)  Contract  debts  and  borrow  money 938 

Sees.  269-71.        (3)  Negotiable  instruments 940 

Note :  Power  to  issue  negotiable  instruments 946 

Sees.  272-3.  Accommodation  paper 949 

Sec  274.  (4)  Surety  or  guarantor 952 

Note :  Power  to  be  surety  or  guarantor 956 

Sec.  275.  (5)  Partnership 957 

Note :  Power  to  enter  into  partnership 959 

Sees.  276-7.         (6)  Trade  combinations 960 

(a)  Pools 960 

Sec.  278.  (b)  Contracts  restraining  trade  and  competition. .  967 

Note:    Corporate  combinations;   anti-trust 

acts 973 

Sec.  279.  (c)  Unincorporated  trusts 977 

Sees.  280-1.  (d)  Incorporated  trusts 978 

Sees.  282-4.  (7)  Consolidation  984 

(a)  Power  to  consolidate 984 

Sec.  285.  (b)  Interstate  consolidation 988 

Sec.  286.  (c)  Consolidation  or  merger 989 

Sec.  287.  (d)  Effect  of  consolidation  upon  creditor's  rights . .  995 

Note:  Consolidation — meaning,  consent  of  state,  con- 
sent of  shareholders,  effect  on  former  companies — 
their  existence,  rights,  privileges  and  liabilities.  .1003 


CONTENTS.  XX i 

PAGE. 

Article  IV.   Power  to  Acquire,  Hold  and  Alienate  Property  .... 1007 

Sec.  288.         1.  Acquire  and  hold  real  property 1007 

(A)  By  purchase 1007 

(a)  Presumptions 1007 

Sees.  289-90.  (b)  Extent  of  power  topurchase  and  hold 1008 

Sec.  291.  (c)  Consequences  of  nUra  vires  purchase 1014 

Note:    Acquisition  of  property  by  corpora- 
tion,— common  law,  statutes  of  mortmain, 

real  property,  who  can  complain 1015 

Sec.  292.  (d)  Estates  that  may  be  acquired 1018 

0 )  Fee-simple 1018 

Sec.  293.  (2)  Estates  in  common  and  joint  tenancy.  .1019 

Sec.  294.  (B)  By  devise .*. .1021 

(a)  History  and  general  doctrines 1021 

Sec.  295.  (b)  Restrictions  in  charters,  and  restrictions  in 

statutes  of  wills 1026 

Note :  Statutes  of  wills 1029 

Sees.  296-7.  (c)  Who  may  object  when  limit  is  exceeded 1029 

See.  298.         2.  To  acquire  personal  property 1040 

(1)  In  general 1040 

Note 1041 

Sec.  299.  (2)  Power  to  acquire  its  own  shares 1041 

(1)  The  English  rule 1041 

Note 1044 

Sec.  300.  (2)  American  rule, — theories 1045 

(a)  May  (with  some  exceptions)   acquire 
its  own  shares    unless  expressly  or 

impliedly  restrained 1045 

Note 1046 

Sec.  301.  Exceptions  to  rule  allowing  acquisition 

of  its  own  shares 1047 

Note " 1048 

Sec.  302.  (b)  May  not,  unless  necessary  to  prevent 

loss  to  the  company 1048 

Sec.  303.  (3)  Power  to  acquire  shares  of  stock  in  other 

corporations 1051 

(1)  The  English  rule 1051 

Sec.  304.  (2)  General  rule  in  the  United  States 1054 

Sec.  305.  t3)  Exceptions  to  the  general  rule 1060 

Note :    Acquiring  stock  in  other  cor- 
porations   1062 

Sec.  306.        3.  Power  to  alienate  property 10()5 

(a)  General  doctrine 1^5 

Note 1066 

Sec.  307.  (b)  Limits 10''6 

Sees.  308-9.  (c)  Property  charged  with  a  public  trust  can  not  be 

sold  without  special  authority 1070 

Sec.  310.  (d)  Contrary  view 1074 


xxii  CONTENTS. 

PAGE, 

Sec.  311.  (e)  Power  to  mortgage 1078 

Note 1081 

Sec.  312.  (f )  Power  to  dispose  of  franchise 1081 

1.  Not  without  special  authority 1081 

Sec,  313.                           2.  Theory  of  sale  when  authority  to  convey  fran- 
chise is  given 1 082 

Article  V.  Power  to  Act  in  a.  Personal  Relation. 1087 

Sen.  314.   1.  Power  to  take  as  a  trustee 1087 

Sec.  315.    2.  Power  to  act  as  administrator  or  executor 1088 

Sec.  316.  3.  Power  to  act  as  agent  or  attorney  in  fact 1090 

Article  VI.   Power  to  Sue  and  be  Sued 1092 

Sec,  317.   Right  to  sue,  at  common  law,  anywhere 1092 

Sec.  318.   Unoker  statutes,  conditions  imposed  do  not  generally  prevent 

suing 1093 

Sec.  319.   But  statutes  may  exclude  from  suing,  except  as  to  interstate  or 

foreign  commerce 1095 

Sec,  320,   But  such  statutes  can  not  exclude  from  suing  in  the  United 

States  courts 1097 

Sec.  321.   Federal  corporations  can  sue  in  the  federal  courts 1098 

Sec.  322,   Liability  to  be  sued 1099 

In  the  United  States  courts,  citizenship 1099 

Sec.  323.   In  what  district , 1106 

Note :   Residence  of  corporations  for  purpose  of  suits  against 

them 1110 

Sec.  324.   Alien  corporation 1111 

Sec.  325.   In  the  state  courts — where  found  doing  business 1 115 

Note :   Service  of  process,  domestic  corporations,  foreign  cor- 
porations   1120 

Sec,  326.   What  is  doing  business  so  as  to  authorize  service  of  process 1121 

Sec,  327.   Pleading 1122 

Corporation  plaintiff, — need  not  allege  corporate  existence.  .1122 

Sec.  328.  Contra, — must  allege  corporate  existence 1124 

Sec.  329.       Corporation  defendant, — plaintiff  need  not  allege  defendant  is 

a  corporation,  if  name  implies  it  is  not  a  natural  person.  1125 

Sec.  330.  Contra, — plaintiff  should  allege  corporation  is  such 1126 

Sec,  331,       General  issue,  at  law  does  not  raise  question  of  corporate  ex- 
istence ;  otherwise  in  equity 1128 

Sec.  332.  Contra, — under  general  issue  corporate  existence  must  be 

proved * 1129 

Sec,  333,   General  denial  under  the  code 1130 

Sec.  334.   Proof  of  corporate  existence — special  charter 1131 

Sec.  335.   Under  general  incorporation  laws 1132 

Sec.  336.   Power  to  confess  judgment 1134 

Sec.  337.  What  may  be  taken  on  execution  1136 

Article  VII.   Right  to  Have  and  Use  a  Seal 1136 

Sees.  338-9.   1.  Necessity  of  a  seal 1136 

(a)  At  common  law 1136 


CONTENTS.  xxiii 

PAGE. 

Sec.  340.  (b)  Now  generally  unnecessary,  except  where  required 

of  a  natural  person  also 1137 

Note 1138 

Sec  341.               (c)  In  deeds  conveying  land,  the  corporate  seal  is  re- 
quired in  some  states 1138 

Sec.  342.               (d)  Signing  in  some  way  is  now  generally  of  more  im- 
portance than  sealing 1142 

Note ^ 1144 

Sec.  343.       2.  Sufficiency  and  effect  of  a  seal 1145 

(a)  Presumptions 1145 

Note 1146 

Sec.  344.  (b)  As  evidence  of  agents'  or  officers'  authority 1147 

Note 1148 

Sec.  345.  (c)  As  evidence  of  a  consideration 1148 

Sec.  346.  (d)  Upon  a  negotiable  instrument .1150 

Article  VIII.    Power  to  Make  By-Laws 1153 

Sec.  347.   1.  Definition  and  purpose, — differs  from  regulation 1153 

Sec.  348.   2.  Power  to  make 1156 

(a)  Incidental  to  corporate  existence 1156 

Sec.  349,  (b)  This  power  resides  in  the  shareholders  or  members 

unless  otherwise  provided 1166 

Note 1157 

Sec.  350,  (c)  Limits  on  power  to  make 1157 

1 .  Forfeitures 1157 

Sec.  351,  2,  Transfers 1159 

Sees.  352-3.  3.  Liens  ' 1161- 

Note 1164 

Sec.  354.  4.  Expulsion  of  members 1165 

Note 1171 

Sec.  355.  3.  Validity  of  by-laws  in  general 1171 

Note 1173 

Sec.  356.   4.  Effect  of  by-laws 1174 

Note :  Members,  third  parties 1175 

Article  IX.   Disfranchisement  of  Members 1175a 


VOLUME  II. 

Title  III.  The  Doctrine  of  Ultra  Vires 1176 

CHAPTER  14. 

General  Therory  of  Ultra  Vires  Transactions 1176 

Article  I.   Meaning  of  the  Term 1176 

Sec.  357.   Senses  in  which  the  term  is  used 1176 

Article  ll.  Theories  as  to  Underlying  Principles 1177 


xxiv  CONTENTS. 

PAGE. 

Sees.  358-60.   (1)   Ultra  vires  acts  are  void  because  of  legal  incapacity  to 

make  them 1177 

Note 1183 

Sec.  361.  (2)   Ultra  vires  acts  are  not  necessarily  illegal 1183 

(3)   Ultra  vires  acts  are  illegal  and  void 1183 

Sec.  362.           (4)   Ultra  vires  acts  are  valid  if  all  the  shareholders  con- 
sent, and  creditors  are  not  injured 1197 

Sec.  363.  (5)   Ultra  vires  acts  are  valid  except  as  against  the  state 1197 

Article  III.  Various  Interests  Affected 1200 

Sec.  364.  The  state,  the  parties,  the  shareholders,  the  creditors 1200 

Article  IV.   Applications  op  the  Doctrine 1203 

Sees.  365-6.   1.  Contracts 1203 

(a^  Wholly  executed  by  both  parties 1203 

Sec.  367  (b)  Wholly  executory 1205 

(1)  Corporation  complainant 1205 

See.  368.  (2)  Other  party  complainant 1207 

Sec.  369.  (c)  Partly  executed 1211 

(1)  Fully  performed  by  the  corporation,  enforci- 

ble  by  it 1211 

Sec.  370.  Co7itra 1212 

Sec.  371.  (2)  Fully  performed  by  other  party,  notenforci- 

ble  by  him 1214 

Sec.  372.  Contra 1217 

Sec.  373.  (d)  Specific  performance 1224 

Sec.  374.  (e)  Leases 1224 

(1)  Recovery  of  damages  for  breach 1224 

Sec.  375.                             (2)  Recovery  of  unpaid  rentals  under  the  con- 
tract  1224 

Sec.  376.  (3)  Recovery  for  use  of  property 1225 

Sec.  377.  (4)  Re-entry 1225 

Sec.  378.  (5)  Recovery  of  possession  in  equity 1228 

Sec.  379.                             (6)  Recovery  of  property  in  an  action  for  unlaw- 
ful detention 1231 

Sec.  380.        2.  Ultra  vires  devises  and  bequests ;  theories 1232 

(a)  Valid  as  to  everybody  except  the  state,  which  alone 
can   complain  in  quo  warranto  for  violation  of 

charter 1232 

Sec.  381.  (b)  Void  as  to  excess  and  heirs  may  have  set  aside 1232 

Sec.  382.        3.   Ultra  vires  torts 1232 

Article  V.   Who  Can  Complain  of  Ultra  Vires  Acts 1233 

Sec.  383.   1.  The  state 1233 

See.  384.   2.  The  parties 1233 

Sec.  386.  3.  The  shareholders 1233 

Sec.  386.  4.  The  creditors  : 1233 

Sec.  387.  6.  Third  parties 1233 


CONTENTS.  XXV 

PAGE. 

Title  IV.   General  Duties  and  Liabilities 1236 

CHAPTER  15. 

Liabilities  Other  Than  Upon  Contracts 1236 

Article  I.   Torts 1236 

Sec.  388.    (1)  Conversion 1236 

Note :   Liability  for  torts  in  general 1239 

Sec.  389.    (2)  Nuisance,  obstructing  a  stream 1239 

Sec.  390.    (3)  Trespass  to  property 1243 

Sec.  391.    (4)  Assault  and  battery 1244 

Note :   The  old  doctrine 1246 

Sec.  392.  Joinder  of  corporation  and  servant  as  defendants 1249 

Sec,  393.    (5)  False  imprisonment 1250 

Sec.  394.    (6)  Libel  and  slander 1253 

Note :    Libel ;  slander 1255 

Sec.  395.    (7)  Malicious  prosecution 1256 

Sec.  396.    (8)  Fraud,  deceit  and  conspiracy 1262 

Sec.  397.    (9)  Negligence — ultra  vires  torts 1268 

Sec.  398.    (10)  Charitable  corporations 1272 

Note  . . : 1278 

Sec.  399.    (11)  Exemplary  damages 1279 

Note 1282 

Article  II.   Crimes 1283 

Sec.  400.   (1)  Non-feasance 1283 

Sec.  401.   (2)  Misfeasance 1284 

Sec.  402.   (3)  Libel 1286 

Note 1286 

Article  III.   Contempts 1287 

Sec,  403.   Liability  for  contempts 1287 


PART  IV. 

SPECIAL  BE L  ATI  ON S  ABISING  FBOM   THE  EXISTENCE  OF  A 

COBPOBATION. 

Division  I.   Corporate  Relations 1291 

Title  I.   The  Corporation  and  the  State 1291 

CHAPTER  16. 

Governmental  Control  op  Corporations 1291 

Subdivision  I.   General  Doctrines 1291 

Article  I.   By  the  Courts 1291 

Sec.  404.   1 .  Generally,— by  actions  at  law,  and  suits  in  equity 1291 

Sec.  405.   2.   Particularly,— by  visitation 1291 

Article  II.   By  Legislative  Bodies 1292 

Sec.  406.   Constitutional  limitations 1292 

1.  Powers  of  congress 1293 

Sec.  407.       2.  Limits  on  powers  of  congress 1293 

Sec.  408.       3.  Limits  on  powers  of  the  states 1293 


XX  vi  CONTENTS. 

PAGE. 

Sec.  409.       4.  General  provisions 1294 

5.  State  constitutional  limitations 1294 

Subdivision  II.   The  State  and  Its  Own  Corporations 1294 

Article  I.   Control  by  the  Courts 1294 

Sec.  410.   (1)  Methods  in  general 1294 

Sec.  41 1 .   (2)  Power  of  courts  to  issue  the  necessary  writs 1295 

Sec.  412.  A.  By  courts  of  law 

(1)   By  quo  warranto,  scire  facias,  or  information  in  nature 

of  quo  warranto 1298 

Sec.  413.  Abuse  and  misuse,  meaning  of 1300 

Sec.  414.  Illustrations,  abuse,  misuse  or  perversion 1300 

(a)  Unlawful  combinations 1300 

(b)  Illegal  insurance 1301 

(c)  Illegal  banking 1301 

(d)  Fraudulent  organization 1301 

(e)  Willful  or  negligent  non-user 1301 

Sec.  415.  Ouster  for  usurpation.     Proceedings 1302 

Sec.  416.  Illustrations  of  ouster  for  usurpation 1305 

(a)  Unlawful  purpose 1305 

(b)  Imperfect  organization 1305 

(c)  Exercise  of  corporate  powers  after  expira- 

tion of  charter 1305 

(d)  Intrusion  into  corporate  office 1305 

Sec.  417.  Statute  of  limitations 1305 

Sec.  418.  Waiver 1306 

Sees.  419-20.      (2)  Mandamus 1308 

(a)  Specific  duty 1308 

Sec.  421.  (b)  No  specific  doty 1313 

Sec.  422.  (c)  Who  may  complain 1317 

Note :  Mandamus  to  corporations 1318-21 

Sec.  423.  (3)  Indictments 1321 

Sec.  424.  B.  In  courts  of  equity 1321 

(1)  Dissolution, — general  rule 1321 

Sec.  426.  Exception 1323 

Sec.  426-7.         (2)  Injunction 1327 

Note 1331 

Article  II.  Visitation  of  Corporations 1332 

Sec.  428.   1.  Private  visitor 1332 

Note :   Visitation  of  corporations 1336 

Sec.  429.  2.    Public  visitor  or  officer 1337 

Article  III.   Control  by  Legislative  Action 1337 

Sec.  430-3.   1.  Ordinary 1337 

(1)  Eminent  domain  proceedings 1337 

Note :   Eminent  domain 1344 

Sec.  434-5.  (2)  Police  control 1344 

(a)  In  general 1344 

Sec.  436.  (b)  Regulation  of  rates 1352 


CONTENTS.  XXVii 

PAGE. 

Sec.  437.  (c)  Requiring  reports 1363 

Note :   Police  power 1364-70 

Sec.  438.  (3)  Taxation 1370 

(a)  Corporate  elements  subject  to  taxation 1370 

Note ' 1373 

Sec.  439.  (b)  Capital  and  capital  stock 1373 

Note :   Methods  of  taxing  capital  stock 1373 

Sec.  440.  (c)  Tangible  property,  and  movable  property 1374 

Note :   Taxation  of  railroads ;  rolling  stock ; 

migratory  property 1381 

Sec.  441.  (d)  Intangible  property 1381 

Note :   Taxation  of  patents,  copyrights,  etc.  .1387 

Sec.  443.  (e)  Special  franchises. 1388 

Note :  Taxation  of  corporate  franchises,  pri- 
mary ;  secondary ;  property  connected  with 
use    of    special    franchises;    methods    of 

valuation 1388 

Sec.  444.  (g)  Gross  receipts 1389 

Sec.  445.  (h)  Excise 1390 

Sec.  446.  (1)  License 1392 

Sec.  447.  (j)  Privilege  of  engaging  in  interstate  commerce  .  .1393 

Sec.  448.  (k)  Equal  protection  of  the  laws  in  taxation 1396 

Sec.  449.  (1)  Government  agencies 1397 

Note :   Taxation    of    telegraph    companies ; 

interstate  bridges ;  national  banks 1398 

Sec.  450.  (m)  Situs  of  shares  for  taxation 1399 

Note :   Situs  of  shares,  bills,  notes  and  bonds ; 

corporate  debts 1402 

Sec.  451.  (n)  Taxation  of  shares  held  by  aliens 1402 

Sec.  452.  (o)  National  taxation  of  state  corporations 1404 

Sec.  453.        2.  Legislative  control, — extraordinary  1404 

(1)  Repeal 1404 

(a)  Power  of  parliament 1404 

Sees.  454-6.  '    (b)  Power  of  congress 1404 

Sec.  456.  (c)  Power  of  state  legislatures,— no  reserve  power.  1412 

Sec.  457.  Extent  of  doctrine  of  Dartmouth  College  case. . .  1413 

Sec.  458.  (d)  Power  of  legislature,— under  reserve  power  to 

repeal 1422 

Sees.  459-61.  (e)  Effect  of  repeal  upon  vested  rights 1426 

Sees.  462-3.  (g)  Repeal  of  general  corporation  laws 1445 

Sec.  464.  (2)  Legislative  power  to  amend    1447 

(a)  When  there  is  no  reservation  of  a  power  to 

alter  or  amend, — offer  of  an  amendment 1447 

Sec.  465.  Acceptance  is  essential 1447 

Sec.  466.                               Material  amendment  requires  unanimous  con- 
sent  1448 

Sec.  467.  An  immaterial  amendment  can  be  accepted  by 

a  majority 1464 


xxviii  CONTENTS. 

PAGE. 

Sec.  468.  (b)  Power  to  amend  under  a  reserved  power  to 

to  amend, — extent  of  authority 1458 

Sec.  469.  General  limits  of   legislative  authority  under 

the  reserved  power  to  amend 1458 

Sec.  470.  Acceptance  is  essential 1461 

Sees.  471-2.  Power  of  majority  to  accept, — may 1461 

Sec.  473.  Power  of  majority  to  accept, — may  not  accept 

a  material  amendment  agaiijst  protest  of  mi- 
nority  1466 

Note :  Amendment  of  corporate  charters.  1472-6 

Subdivision  III.    The  State  and  National  Corporations  1476 

Sees.  474-5.   Status  of  national  corporation  within  the  states 1476 

Subdivision  IV.    The  State  and  Foreign  Corporations 1480 

Article  I.    Rights  of  Foreign  Corporations 1480 

Sec.  476.        (1)  Protection  of  its  property 1480 

Sees.  477-8.  (2)  To  do  business  out  of  the  state  creating  it.     Doctrine  of 

comity 1480 

Note 1485,  1489 

Sec.  479,       (3)  To  sue  in  state  courts 1489 

(a)  Generally 1489 

Sec.  480.  (b)  To  sue  non-residents 1490 

Sec.  481.  (c)  In  the  United  States  courts 1490 

Article  II.    Eights  of  the  State  as  to  Foreign  Cobpokations 1491 

Sec.  482.   (1)  To  exclude,  general  rule 1491 

Sec.  483.    (2)  Retaliatory  laws 1494 

Sec.  484.   (3)  Discrimination 1498 

Note 1502 

Sec.  485.    (4)  Limits  on  power  to  exclude, — government  agency 1502 

Sec.  486.   (5)  Limits  on  power  to  exclude, — interstate  commerce 1503 

Note :  Interstate  or  foreign  commerce 1504-7 

Sec.  487.  (6)  Limits  on  power  to  exclude,  —  what  is  interstate  com- 
merce ;  insurance  1507 

Sec.  488.  (7)  Effect  of  failure  to  comply  with  statutory  provisions  per- 
mitting doing  business  in  the  state  by  foreign  corpora- 
tions  1510 

Note :   Effect  of  failing  to  comply  with  statute,  when 

there  is  a  penalty ;  when  there  is  no  penalty. .  1511 
Sees.  489-90.  (8)  What  is  "doing  business"  in  violation  of  such  statutes .  .1513 
Note :    What  is  doing  business ;  tests ;  illustrations ...  1514 
Sec  491.  Owning  and  using  real  estate  by  a  foreign  corporation  is 

doing  business 1516 

Sec.  492.         (9)  Statutes  discriminating  against  non-resident  corporations 

as  creditors 1517 

Article  III.   Visitorial  Power  Over  Foreign  Corporations 1517 

Sec.  493.    (1)  Forfeiture  of  charter 1517 

Sec.  494.    (2)  Ouster  from  the  state 1517 


CONTENTS.  Xxix 

PAGE. 

Sec.  495.   (3)  In  general  there  is  no  visitorial  power  over  foreign  corpo- 
rations, out  of  the  jurisdiction 1619' 

(a)  Reinstatement  of  a  member 1519 

Sec.  496.  (b)  To  compel  issue  of  certificate 1521 

Sec.  497.  (c)  To  compel  inspection  of  books 1524 

Sec.  498.    (4)  Receivers  in  state  courts 1524 

Subdivision  V.   The  National  Government  and  State  Corporations  .  1527 

Sec.  499.    1.  Under  the  taxing  power 1527 

Sec.  500.   2.  Reorganization  of  state  corporation  as  a  national  corpora- 
tion   152^ 

Sec.  501.   3.  Interstate  commerce,  regulation  according  to  state  laws 1530 

Note 1533 

Sec.  502.   4.  Interstate  commerce  commission 1534 

Sec.  503.   5.  Interstate  commerce,  anti-trust  acts 1536 

Sec.  504.   6.  Control  of  mails 1541 

Sec.  505.   7.  Receivers  in  United  States  courts 1542 

Title  II.   The  Corporation  and  Various  Classes  of  Persons 1546 

CHAPTER  17. 
The  Relation  op  the  Corporation  to  its  Promoters,  Officers,  Share- 
holders, Creditors  and  Others 1546 

Subdivision  I.  The  Corporation  and  its  Promoters 1546 

Sec.  506.    Definitions  and  functions  of  promoters 1546 

Sec.  507.   Rights  of  corporation,  duties  of  promoters 1546 

Sec.  508.   Liability  of  promoters  to  the  corporation  and  shareholders. . .  .1548 

Sec.  509.   Promoters'  liability  to  shareholders 1550 

Sec.  510.   Liability  of  the  corporation  upon  promoters'  contracts 1551 

Sec.  511.   Liability  of  promoters  to  parties  with  whom  they  contract. . .-.  .1553 
Sec.  512.   Liability  of  corporation  to  promoter  for  expenses  incurred  in 

promoting  corporation 1558 

Subdivision  II.   The  Corporation  and  its  Members  or  Shareholders.  .1559 

Article  I.  Rights  of  the  Corporation 1559 

Sec.  513.   1.  To  corporate  existence, — estoppel  of  members  to  deny  cor- 
porate existence 1559^ 

Sec.  614.  2.  To  issue  preferred  stock,  or  increase  or  decrease  the  capital 

stock 1559 

Sec.  616.  3.  To  enforce  contracts  of  subscription 1669 

(a)  General  relation  of  shareholders  to  the  corporation,  to 
^                         other  shareholders,  and  to  creditors ;  subscription  in- 
duced by  fraud 1559 

Sec.  516.  (b)  Assumpsit,     misrepresentations,    release,     change    of 

amount  of  stock,  subscription  of  the  whole  amount. .  1563 

Sec.  617.  (c)  Forfeiture  for  non-payment 1567 

Sec.  618.  (d)  Calls,  how  made ;  forfeiture 1569 

Sec.  519.  (e)  Notice  of  calls 1673 

Sec.  520.  (f )  Calls  must  operate  equally 1574 

Sec.  621.  (g)  Calls  must  be  uniform 1575 

Sec.  622.  (h)  Calls  must  be  made  by  legal  directors 1576 


XXX  CONTENTS. 

PAGE. 

Sec.  523.   4.  Assessments  beyond  full  payment  of  amount  subscribed 1579 

Sec.  524.   5.  Right  to  reserve  a  lien  upon  shares 1580 

Sec.  525.   6.  Right  to  regulate  transfers 1580 

Sec.  526.    7.  Right  to  carry  on  the  corporate  enterprise  through  its  proper 

representatives 1580 

Sec.  527.   8.  Right  to  accept  amendments 1580 

Sec.  528.   9.  Right  to  dissolve  itself 1581 

Article  II.  Rights  of   Shareholders 1581 

Sec.  529.  1.  Who  are  shareholders 1581 

(a)  Certificate ;  subscription ;  payment. 1581 

Sec.  530.  (b)  Certificate  and  payment  in  case  of  increase  of 

stock 1582 

Sec.  531.  (c)  Shares  held  as  collateral  security 1585 

Sees.  532-3.  (d)  Corporate  books  as  evidence  of  membership 1585 

Sec.  534.  2.  Right  to  vote 1591 

(a)  Residence,  proxy,  and  number  of  votes 1591 

Note :  Proxy  voting 1596 

Sec.  535.  (b)  Personal  interest  of  shareholder 1597 

Sec.  536.  (c)  Pledgor  and  pledgee 1598 

Sec.  537.  (d)  Executors 1600 

Sec.  538.  (e)  Corporation  holding  its  own  shares 1601 

Sec.  539.  (f)  Cumulative  voting 1603 

Sees.  540-1.  (g)  Voting  trusts 1604 

Note 1613 

Sec.  542.  3.  Right  to  dividends 1614 

(a)  Definition 1614 

Sec.  543.                   (b)  Out  of  what  dividends  may  be  declared ;  provis- 
ion for  payment  of  permanent  debts 1616 

Note 1621 

Sec.  544.  (c)  Stock  dividends 1622 

Sees.  545-6.  (d)  What  is  a  severance  of  the  dividend  fund  from 

other  corporate  funds 1628 

Sees.  547-8.  (e)  Who  are  entitled  to  dividends,  option  contracts 1631 

Sec.  549.                   (f)  Rights  of   life-tenant  and  remainder-man  to  divi- 
dends   1638 

Sec.  650.  (g)  Remedy  of  shareholders  for  withholding  payment 

of  dividends 1643 

Note 1645 

Sec.  551.  4.  Right  to  inspect  books ,.  1645 

(a)  In  general 1645 

Sec.  552.  (b)  In  case  of  foreign  corporations ;  general  rule 1651 

Sec.  553.  Exception 1653 

Sec.  554.  6.  Right  to  transfer  shares  of  stock 1654 

(a)  Basis  of  the  right 1654 

Sec.  555.  (b)  General  doctrine  as  to  transfer;  nature  of  certifi- 

cates and  how  transferred  ;  refusal  of  corporation 
to  transfer;  remedy  of  holder  at  law  and  in 
equity;  liability  of  corporation  on  old  and  new 


CONTENTS.  xxxi 

PAGE. 

certificates;  who  is  owner;  bona  fide  transferee; 

theft,  fraud,  etc 1655 

Sec.  566.                   (c)  General  limit  on  right  to  transfer ;  transfers  for  pur- 
pose of  evading  liability 1661 

Sec.  557.  (d)  Fraud,  forgery,  etc 1663 

Sec.  558.  (e)  Registration   of    transfers  on   corporate    books — 

theories 1663 

(I)  Not  necessary ;  attaching  creditor  of  seller.  .1663 
Sec.  659.                               (2)  Registration  is  necessary;   attaching  cred- 
itor of  seller 1668 

Note :  Rules  as  to  registration  of  transfers ; 

attachment  of  shares 1673 

Sec.  560.  (3)  Fraudulent  transfer  by  pledgee 1674 

Sec.  561.  (4)  Fraudulent  transfer  by  agent 1680 

Sec.  562.  (5)  Fraudulent  transfer  in  breach  of  trust 1682 

Sec.  563.                               (6)  Fraudulent  transfer  in  breach  of  trust, — lia- 
bility of  the  corporation 1685 

Sees.  564-5.  (7)  Gift  of  shares 1688 

Sec.  566.  (f)  Effect  of  transfer  upon  liability  of  transferrer  and 

transferee ;  general  rule 1692 

Note 1694 

Sec.  567.                              Transfer  of  unpaid  shares  to  a  bona  fide  pur- 
chaser ;  liability  of  transferee 1695 

Sec.  568.  (g)  Refusal  to  transfer, — remedy 1698 

Sec.  569-70.  Mandamus 1701 

Sec.  571.  6.  Right  to  participate  in  issue  of  new  stock 1703 

Sec.  572.  7.  Right  to  be  released  from  corporate  liability 1705 

(a)  For  fraud  or  mistake  in  inducing  subscription 1705 

Sec.  573.                   (b)  In  case  the  requisite  amount  of  stock  is  not  sub- 
scribed   1705 

Sec.  574.  (c)  By  material  change  in  business 1705 

Sec.  575.  (d)  By  forfeiture  of  shares  for  non-payment 1705 

Sec.  576.  (e)  By  valid  and  completed  transfer  of  shares 1705 

Sec.  577.  8.  Right  to  enjoin  a  change  in  corporate  enterprise  unless 

such  power  is  reserved  to  the  state 1705 

Sec.  578.          9.  Right  to  share  in  distribution  of  surplus  assets  upon  dis- 
solution   1 706 

Sec.  579.         10.  Right  to  sue  for  wrongs  done  to  the  corporation 1706 

(a)  General  doctrine,  as  to  action  at  law 1706 

Sec.  580.  (b)  Suits  in  equity 1709 

Sees.  581-2.  General  rule  and  exceptions 1709 

Sec.  583.  (c)  Restrain  nltra  vires  acts 1715 

Sec.  584.  (d)  Causes  for  which,  and  circumstances  under  which 

shareholders  may  sue 1716 

Note 1723 

Sec.  585.  (e)  Good-faith  shareholder  only 1724 

Subdivision  III.   The  Corporation  and  its  Officers 1727 

Artice  I.   Rights  ok  the  Corporation 1727 


XXXii  CONTENTS. 

PAGE^ 

Sec.  586.  1.  General  doctrine 1727 

Sec.  687.  2.  Theories  of  the  relation  of  the  directors  to  the  corporation.  .1727 
(a)  Agents  of  the  corporation,  not  trustees  of  sharehold- 
ers   1727 

Sec.  588.  (b)  Trustees 1729 

Sec.  589.  (c)  Mandataries 1731 

Sec.  590.  3.  General  rules  as  to  duties  and  liabilities  of  directors  to  the 

corporation 1735 

Sec.  591.  4.  Right  of  corporation  to  all  profits  made  by  officers  by  virtue 

of  their  office 1735 

Sec.  592.  5.  Right  of  corporation  to  careful  service  by  its  officers,  degree 

of  care  due 1737 

Note :   Care  required  of  officers 174S 

Sec.  593.  6.  Right  of  corporation  to  remove  officers 1744 

Article  II.   Rights  of  Officers 1746 

Sees.  594-5.       1.  To  manage  the  ordinary  business  of  the  corporation 1746 

Sec.  596.  2.  Right  to  deal  with  the  corporation.    Theories 1750 

(a)  Dealings  are  not  necessarily  void 1750 

Note 1753 

Sec.  597.  (b)  Corporation  can  refuse  to  perform  or  may  have 

contract  set  aside 1753 

Sec.  598.  3.  Right  of  officer  to  compensation 1755 

(a)  General  doctrine 1755 

Note 1757 

Sees.  599-600.  (b)  Strict  rule 1758 

Subdivision  IV.  The  Corporation  and  Creditors 1760 

Sec.  601.   (See  the  topic  the  Creditors  and  the  Corporation) 1805 

Subdivision  V.  The  Corporation  and  Outside  Parties 1760 

Sec.  601a.   General  duties  and  liabilities 1760 

Article  I.   Notice  to  the  Corporation 1760 

Sec.  602.   1.  Notice  to  a  director 1760 

Sec.  603.  2.  Notice  to  an  officer,  when  he  is  acting  in  his  own  behalf 1763 

Note 1765 

Sec.  604.  3.  Notice  to  a  servant 1765 

Division  II.     Individual  Relations 1767 

Title  I.    Internal  Relations 1767 

CHAPTER  18. 
Relation  of  Promoters,  Shareholders,  Officers,  Etc.,  Among  Them- 
selves, to  One  Another,  and  to  Other  Parties 1767 

Subdivision  I.    Promoters 1767 

Sec.  605.   1.  Relation  to  the  state 1767 

Sec.  606.   2.  Relation  to  the  corporation,  the  shareholders  and  to  third 

parties 1767 

Sec.  607.   3.  Relation  among  themselves 1767 

Subdivision  II.     Shareholders  or  Members 1770 

Sec.  608.       1.  Relation  to  the  state 1770 

Sec.  609.      2.  Relation  to  the  corporation,  promoters  and  officers 1770 


CONTENTS.  XXXlil 

PAGE. 

Sec.  610.       3.  Relation  among  themselves 1770 

(a)  Right  to  good  faith  upon  the  part  of  fellow-sub- 
scribers to  the  stock 1770 

Sec.  611.  (b)  Right  to  equality,  in  proportion  to  stock  owned 1770 

(1)  In  management :  Voting ;  notice  of  meetings, 

etc 1770 

Sec.  612.  (2)  In  distribution  of  profits 1770 

Sec.  613.  (3)  In  contributing  to  the  corporate  enterprise, — 

equality  and  uniformity  of  calls 1771 

Sec.  614.  (4)  In  discharging  corporate  debts 1771 

Note :  Statutory  liability 1772 

Sec.  615.                            (5)  In  distribution  of  corporate  assets  upon  dis- 
solution   1773 

Sec.  616.  In  case  of  preferred  shareholders 1775 

Sees.  617-8.              (c)  Right  to  good   faith  upon  the  part  of  the  major- 
ity :  Power  of  the  majority 1775 

(1)  In  the  management  of  the  corporate  affairs.  .1775 

Sees.  619-20.  (2)  In  selling  all  the  corporate  property 1780 

Sec.  621.  (3)  In  surrendering  the  corporate  charter 1789 

Sec.  621a.  (4)  In  accepting  material  amendments 1790 

Sec.  622.       4.  Relation  of  shareholders  and  creditors 1790 

Sec.  623.       5.  Relation  of  shareholders  and  third  parties 1790 

Subdivision  III.   Officers 1790 

Sec.  624.   1.  Relation  to  the  corporation 1790 

Sec.  625.  2.  Relation  to  the  shareholders 1790 

(a)  Rights  of  shareholders 1790 

(1)  Individual,  —  vote,    dividends,    inspect   books, 

transfer  shares,  etc 1790 

Sec.  626.  (2)  Collective,  secondary 1790 

Sec.  627.  (b)  Rights  of  officers ' 1791 

(1)  To  deal  with  shareholders ;  officers  are  not  trus- 
tees for  shareholders 1791 

Sec.  628.  (2)  To  contribution  or  indemnity,  where  they  are 

required  to  discharge  corporate  debts  for  which 

shareholders  are  also  liable 1794 

Sec.  629.  3.  Relation  of  officers  among  themselves 1796 

Sec.  630.   4,  Relation  to  creditors 1796 

Sec.  631.   5.  Relation  to  third  parties 1796 

(a)  False  warranty  of  authority,  ultra  vires 1796 

Sec.  632.  (b)  Torts  in  general 1799 

Sec.  633.  (c)  Negligence 1800 

Title  II.   External  Relations 1805 

CHAPTER  19. 

The  Corporate  Creditors 1805 

Subdivision  I.   The  State  and  Corporate  Creditors 1805 

Article  I.   Rights  op  the  State, 1805 

iii — wiL.  CAS. 


xxxiv  CONTENTS. 

PAGB. 

^ec.  634.    1.  To  change  remedies 1805 

Sec.  635.   2.  To  dissolve  the  corporation 1807 

Sec.  636.    3.  To  amend  corporate  charters;  repeal  statutory  liability 1807 

Sec.  637.   4.  To  protect,  or  discriminate  in  favor  of,  resident  creditors.. .  .1807 

Article  II.   Rights  of  Creditors 1808 

Sec.  638.  To  have  their  security  and  remedy  against  corporate  assets  sub- 
stantially preserved  without  impairrnent 1808 

Subdivision  II.  The  Corporation  and   its  Creditors 1808 

Article  I.   Rights  of  the  Corporation 1808 

Sec.  639.       1.  To  manage  its  own  business 1808 

Sec.  640-1.   2.  To  dispose  of  its  property 1809 

Sec.  642.       3.  To  accept  amendments 1814 

Sec.  643.       4.  To  surrender  the  charter 1815 

Sec.  644.       5.  To  consolidate  with  other  corporations 1815 

Sec.  645.       6.  Right  to  prefer  creditors.    Theories 1815 

(a)  Can 1815 

Sec.  646.  (b)  Can  not  after  insolvency 1819 

Sec.  647.  (c)  Going  concern, — attachment 1827 

Sec.  648.     ,         (d)  Extra-territorial  effect  of  preferences 1828 

Sec.  649.       7.  Right  to  prefer  oflBcer — creditors.    Theories 1832 

(a)  Can  not 1832 

Sec.  650.  Reasons 1835 

Sec.  651.  (b)  Can 1836 

Article  II.   Rights  of  Creditors 1841 

Sec.  652.       1.  In  general 1841 

Sec.  653.       2.  At  law ;  execution 1842 

Sec.  654.       3.  In  equity.    Theories : 1847 

(a)  Assets  are  a  trust  fund  for  creditors 1847 

Sec.  655.  (b)  Assets  are  not  a  trust  fund ;  liability  is  based  on  fraud .  1852 

Sec.  656-7.   4.  Right  to  enjoin  waste 1862 

Sec.  658.       5.  Right  to  enjoin  threatened  wrong 1865 

Sec.  659.       6.  Right  to  set  aside  fraudulent  corporate  conveyance 

Sec.  660.       7.  Conditions  precedent  to  creditor's  rights  to  maintain  suit 

in  equity 1868 

Subdivision  III.   The  Creditors  and  Corporate  Officers 1874 

Article  I.  Rights  of  Creditors 1874 

Sees.  661-2.   A.  Common  law  liability  of  officers 1874 

1.  Directors'  responsibility 1874 

Sec.  663.  2.  Care  required  of  officers 1884 

Sec.  664.  3.   Ultra  vires  transactions 1888 

Sec.  665.         B.  Statutory  liability 1888 

1.  General  nature  of 1888 

Note 1892 

Sec.  666.  2.  When  contractual  and  when  penal.   Enforcement  in 

foreign  state 1892 

Article  II.   Rights  of  Officers 1899 

Sec.  667.   1  To  manage  corporate  affairs  within  their  powers,  and  in  good 

faith,  without  interference  bv  creditors 1899 


CONTENTS.  XXXV 

PAGE. 

Sec.  668.   2.  To  contract  or  deal  with  the  corporation 1899 

Sec.  669.   3.  To  obtain  a  preference  as  creditor 1899 

Subdivision  IV.   Creditors  and  Shareholders 1899 

I.   Rights  of  Creditors 1899 

Sec.  670.    A.  Arising  From  Imperfect  Incorporation 1899 

B.  Common  Law  or  Equitable  Liability  of  Shareholders  1900 

Article  I.   Arising  From  Ownership  of  Shares 1900 

Sec.  671.        1.   Who  are  shareholders 1900 

Note 1900 

Sec.  672.        2.  Creditors  iiave  no  right,  at  common  law  or  in  equity,  to 

have  more  than  the  face  value  of  shares  paid  up 1900 

Sec.  673.        3.  Right  of  creditors  to  have  the  full  face  value  of  shares 

paid,  if  necessary  to  pay  creditors, — general  rule 1902 

Note :     Unpaid  subscriptions ;  set  off 1906 

Sec.  674.        4.  Theories  as  to  the  basis  of  this  right 1907 

(a)  Trust-fund  doctrine ;  set-off,  statute  of  limitations. . .  1907 

Sec.  676.  (b)  Fraud  in  equity 1911 

Sec.  676.  (c)  Fraud  at  law ;  joint  tort-feasors 1917 

Sec,  677.        5.  Exceptions  to  the  general  rule 1919 

(a)  By  payment  of  a  corporation  debt  by  issue  of  stock 

in  good  faith 1919 

Sec.  678.  (b)  To  save  a  "going  concern" 1923 

Sec.  679.  (c)  In  case  of  a  gift  of  shares 1933 

Sees.  680-1.   6.  Payment  of  shares  in  property 1936 

(a)  Good-will 1936 

Sec.  682.  (b)  Valuation  of  property :     True  value  rule.     Notice..  .1943 

Note  .....* 1947 

Sec.  683.  Notice  of  value  tj;om  articles  of  incorporation 1947 

Sec.  684.  Statute,  notice  of  value 1949 

Sec.  685.  (c)  Actual  fraud  rule 1950 

Note 1951 

Sec.  686.        7.  Fictitious  issue  of  stock 1951 

(a)  Meaning  of  the  term 1951 

Note 1952 

Sec.  687.  (b)  Liability  upon  fictitiously  issued  stock:  "No  cor- 
poration shall  issue  stock  or  bonds,  except  for 
money  paid,  labor  done,  or  property  actually  re- 
ceived, and  all  fictitious  increase  of  stock  or  in- 
debtedness shall  be  void" 1953 

Sec.  688.        8.  Remedy  of  creditors I960 

(a)  Conditions  precedent;  in  general,  exhaust  remedies 

against  corporation I960 

Sec.  689.  (b)  At  law  and  in  equity I960 

Sec.  690.  (c)  In  the  United  States  courts 1962 

Sec.  691.  (d)  Mandamus,  or  suit  in  equity,  to  have  calls  made  . .  .1964 

Sec.  692.  (e)  Parties 1966 

Note 1967 


XXXVi  CONTENTS. 

PAGK. 

Sec  68S.  CO  Assignee  or  recover  in  a  foreign  state 1968 

Note 1972 

Sec  694.  (g)  Extara-territorial  effect  of  a  judgment.    Statute  of 

limitationB 1972 

Note 1976 

Aancix  II.  Liabilttt  Akisikg  From  Witkobawai.  op  Assists 1977 

Sec.  695.   1.  What  is  a  withdrawal  of  aas^s. 1977 

Sec.  696.  2.  Withdrawing  assets  which  creates  insolvency 1979 

Note 1979 

Sec.  697.  3.  Paying  dividends  after  insolvency 1980 

Sec.  698.  4.  Dividends  received  in  good  &dth  which  were  paid  out  of 

capital 1981 

Sec.  699.  5.  Remedy  only  in  equity, — not  at  law 1985 

C.  Statttort  Liabiutt  of  Shakbholdbss 1987 

AsncLB  I.  Gexsbal  Chabactkristics 1987 

Sec.  700.        1.  Kinds:  Contractual  and  penal 1987 

Note 1989 

Sec.  701.        2.  General  nature  of  contractual  ^atutory  liability 1990 

Note ;  surtival ;  set-off 1991 

Sees.  708-3.  3.  To  what  it  applies ;  interpretation;  debts 1992 

Sec  704.        4.  Cieneral  nature  of  penal  liability  . : 1996 

Note 1996 

AjCnCXS  n.    PABnCTLAB   KeSDS  op  CoSTBACTTAL   LlABILITT 1997 

Sec.  705.  1.  As  to  legal  character — 

(a)  Secondary,  limited  and  joint 1997 

Sec.  706.  (b)  Secondary,  unlimited  and  several 1997 

Sec.  707.  (c)  Primary,  unlimited,  partnership 1998 

Sec.  708.  (d)  Primary,  limited,  joint,  enforceable  only  in  equity. .  .2000 

Sec.  709.  (e)  Primary,  limited,  several,  enforceable  at  law 2001 

Sec.  710.  2.  Astoamount 2003 

(a)  TTnlimited 2003 

Sec.  711.  (b)  Double-    Who  liable 2003 

Sec.  712.  Double  liability;  assignee  can  not  enforce;  suit  only 

after  corporation  can  not  pay 2005 

Sec.  713.  (c)  Proportional 2009 

Sec.  714.  (d)  For  labor  and  services 2010 

AbTICLB  m.    EXPOBCKJIEST  OP  THK  STATUTORY  LlABEUTT 2012 

Sec.  715.  1.  In  general 2012 

Note:  Special  remedies;  receiver  or  assignee;  secondary 

liability ;  parties ;  statute  of  limitations 2013 

Sec.  716.  2.  Constitutional  provisions,  when  self -executing 2013 

Sec.  717.  3.  Self-executing  provisions ;  special  remedy ;  remedy  in  equity 

or  at  law ;  repeal 2014 

Sec.  718.  4.  Self-executing  provisions.  When  enforceable  in  other  states. 2018 

Sec.  719.  5.  Enforcement  in  other  states 2021 

(a)  When  it  will  not  be  enforced 2021 

Sec  720.  (b)  When  and  how  it  will  be  enforced  in  other  states 2029 


CONTENTS.  XXXVll 

PAGB. 

Sec.  721.  (c)  Penal  liability 2033 

II.   Rights  of  Shareholders 2034 

Sec.  722.    1.  To  receive  dividends  from  profits  earned 2034 

Sec.  723.   2.  To  keep  dividends  received  in  good  faith,  though  paid  out  of 

capital  when  solvent 2034 

Sec.  724.   3.  To  be  released  from  liability 2034 

(a)  By  fraud  in  securing  subscription 2034 

Sec.  725.  (b)  By  forfeiture  of  shares  for  non-payment 2034 

Sec.  726.            (c)  By  acceptance,  by  corporation,  of  a  material  amend- 
ment, when  not  assented  to  by  the  shareholder 2034 

Sec.  727.  (d)  By  completed  transfer  of  shares 2035 

Subdivision  V.   Rights  of  Corporate  Creditors  Among  Themselves.  .  .2035 

Article  I.   Priority 2035 

Sec.  728.        1.  In  general  by  promptness  of  action 2035 

Sec.  729.        2.  In  case  of  unpaid  subscriptions,  or  withdrawal  of  assets.  .2035 
Sec.  730.        3.  In  case  of  statutory  liabiUty  of  shareholders  or  oflBcers. .  .2035 

Sec.  731 .        4.  By  voluntary  preference  by  corporation 2035 

(a)  General  creditors 2035 

Sec.  732.  (b)  Director-creditors 2036 

Sees.  733-5.  5.  By  statutory  provisions.      Resident    and    non-resident 

creditors 2036 

(a)  Natural  and  artificial  non-resident  persons  as  cred- 
itors   2036 

Sec.  736.  (b)  Power  to  subject  corporate  assets  within  the  state 

to  the  payment  of  home  creditors 2050 

Sec.  737.       6.  Power  of  the  court  to  provide  for  the  payment  of  the 

claims  of  certain  creditors  in  preference  to  prior  liens. .  .2053 

Article  II.  Contribution  as  to  Expense  op  Enforcing  Remedies 2062 

Sec.  738.  Contribution  is  allowed 2062 


APPENDIX. 

Form  I.  Subscription  to  capital  stock  prior  to  organization 2065 

II.  Subscription  to  stock  in  corporation  to  be  formed 2065 

III.  Statutory  subscription 2066 

IV.  Conditional  subscriptions 2066 

V.  Application  for  incorporation 2066 

VI.   Certificate  of  incorporation 2066 

VII.   Charter  of  United  States  steel  corporation 2069 

VIII.   Waiver  of  notice  of  first  meeting 2074 

IX.   Proxy  of  subscribers,  first  meeting 2074 

X.    Assignment  of  subscription  to  stock 2075 

XI.   Waiver  of  notice  of  meeting  to  increase  stock 2075 

XII.   Waiver  of  notice  of  assessment  of  unpaid  stock 2076 

XIII.  By-laws 2077 

XIV.  General  scheme  for  by-laws 2079 


XXXviii  CONTENTS. 

PAGE. 

XV.   Minutes  of  first  meeting 2083 

XVI.  Directions  for  using  forms 2086 

XVII.   Option  contract ^ 2089 

XVIII.   Underwriting  contract 2095 

XIX.   Agreement  between  corporation  and  promoter 2097 

XX.  Unincorporated  trust 2098 

XXI.   Prospectus 2098 

XXII.   Certificate  of  stock 2098 

XXIII.  Preferred  and  guaranteed  stock 2100 

XXIV.  Voting  trust 2100 

XXV.  Corporate  notes,  signatures  and  acknowledgments 2103 


TABLE  OF  REPORTED  CASES. 


[References  are  to  Pages.1 

Adams  Express  Co.  v.  Ohio  State  Auditor,  165  U.  S.  194 1381 

Addyston  Pipe  &  Steel  Co.  v.  United  States,  176  U.  S.  211 1535 

Allen  V.  Curtis,  26  Conn.  456 1727 

Allen  V.  Montgomery  R.  Co.,  11  Ala.  437  (extract) 1960 

American  Live  Stock  C.  Co.  v.  Chicago  L.  S.  Ex.,  143  111.  210 682 

American  National  Bank  v.  Dallas  T.  W.  Mfg.  Co.,  39  S.  W.  Rep.  (Tex.) 

955  (extract) 1827 

American  Ry.-Frog  Co.  v.  Haven,  101  Mass.  398 J601 

American  Union  Telegraph  Co.  v.  Union  Pacific  Railroad  Co.,  1  McCrary 

188 1225 

Anderson  v.  Middle  &  E.  T.  Cent.  R.  Co.,  91  Tenn.  44 511 

Anglo-Continental  Corp.  of  Western  Australia,  Limited,  67  L.  J.  Ch.  179, 

78  L.  T.  R.  (N.  S.)  157 1773 

Armington  v.  Palmer,  21  R.  I.  109,  42  Atl.  308 820 

Armstrong  v.  Karshner,  47  Ohio  St.  276 526 

Ashton  V.  Burbank,  2  Dillon  (U.  S.  Circuit)  435 87 

Astor  V.  Arcade  Railway  Co.,  113  N.  Y.  93 363 

Attorney-General  v.  Fidelity  and  Casualty  Ins  Co.,  39  Minn.  538  (extract)  1517 
Attorney-General  v.  The  Legrand  Roller  Skating  Rink  Co.,  143  111.  118. .1321 

Attorney-General,  Ex  rel.  Minor,  v.  Lorman,  59  Mich.  157 605 

Attorney-General  v.  Tudor  Ice  Co.,  104  Mass.  239 1326 

Aurora  Agricultural  and  Horticultural  Society  of  Aurora  v.  Paddock,  80 

111.  263 1065 

B 

Bacon  v.  Robertson,  18  How.  (59  U.  S.)  480 899 

Baltimore  City  Passenger  R.  Co.  v.  Hambleton,  77  Md.  341 1582 

Baltimore  and  Potomac  R.  Co.  v.  Fifth  Baptist  Church,  137  U.  S.  568 1132 

Bank  of  Augusta  v.  Earle,  13  Peters  (38  U.  S.)  519 1480 

Bank  of  Jamaica  v.  Jefferson,  92  Tenn.  537 1128 

Bank  of  Little  Rock  v.  McCarthy,  55  Ark.  473 848 

Bank  of  Poughkeepsie  v.  Ibbotson,  24  Wend.  (N.  Y.)  473 2001 

Bank  of  the  State  of  South  Carolina  v.  Gibbs,  3  McCord  (S.  C.)  *377  ....  221 

Bank  of  United  States  v.  Dandridge.  12  Wheat.  64 854 

(xxxix) 


xl  TABLE    OF    REPORTED    CASES. 

[References  are  to  Pages.} 

Bank  of  United  States  v.  Planters'  Bank,  9  Wheat.  904 558 

Bank  of  Utica  v.  Smalley,  2  Cowen  (N.  Y.)  770  (extract) 1129 

Bardstown  and  Louisville  Railroad  Company  v.  Metcalfe,  4  Met.  (Ky.)  199, 

81  Am.  Dec.  541  (extracts) 1074 

Barned's  Banking  Company,  In  re,  L.  R.  3  Ch.  App.  Cas.  105 1051 

Barrow  Steamship  Company  v.  Kane,  170  U.  S.  100 1111 

Barry  v.  Merchants'  Exchange  Company,  1  Sandford's  Chancery  (N.  Y.) 

280 766 

Bateman  v.  The  Mid- Wales  Railway  Co.,  35  L.  J.  (C.  P.)  205 947 

Behre  v.  National  Cash  Register  Co.,  100  Ga.  213 1253 

Belfast  and  Moosehead  R.  Co.  v.  City  of  Belfast,  77  Me.  445 1616 

Bell  V.  The  Bank  of  Nashville,  Peck  (Tenn.)  269 279 

Belton  V.  Hatch,  109  N.  Y.  593 178 

Benbow  V.  Cook,  115  N.  C.  324 414 

Bennison  v.  McConnell,  56  Neb.  46 1771 

Bergeron  v.  Hobbs,  96  Wis.  641 611 

Bissell  V.  The  Michigan  Southern  and  N.  I.  Railroad  Companies,  22  N.  Y 

259 1183 

Bjorngaard  v.  Goodhue  Co.  Bank,  49  Minn.  483 1596 

Blake  v.  McClung,  172  U.  S.  239 2036 

Blake  v.  McClung,  176  U.  S.  59 2045 

Bloede  Co.  v.  Bleode.  84  Md.  129 1159 

Board  of  Commissioners  of  Hamilton  County  v.  Mighels,  7  Ohio  State, 

109 214 

Bolander  v.  Stevens,  23  Wend.  (N.  Y.)  103 2 

Bond  V.  Terrell  Cotton  and  Woolen  Manufacturing  Co.,  82  Tex.  309 1211 

Boston  Glass  Manufactory  v.  Langdon,  24  Pick.  (Mass.)  49 866 

Boyce  v.  Trustees  of  Towsontown  Station  of  the  M.  E.  Church,  46  Md. 

359  642 

Boyd  V.  Peach  Bottom  Railway  Co.,  90  Pa.  St.  169 522 

Bradbury  v.  Boston  Caaoe  Club,  153  Mass.  77 940 

Bradley  v.  Reppell,  133  Mo.  545 868 

Broadway  Bank  v.  McElrath,  13  N.  J.  Eq.  24 1663 

Brokaw  v.  New  Jersey  R.,  etc.,  Co.,  32  N.  J.  Law  (3  Vroom)  328 1249 

Bronson  v.  La  Crosse  and  Milwaukee  R.  Co.,  2  Wall.  (69  U.  S.)  283 1713 

Brooklyn  Steam  Transit  Co.  v.  City  of  Brooklyn,  78  N.  Y.  524 871 

Bright  V.  Lord,  51  Ind.  272 1635 

Brinkerhoff-Farris  Trust  &  Savings  Co.  v.  Home  Lumber  Co.,  118  Mo.  447. 1162 
Brunswick  Gas  Light  Company  v.  United  Gas,  Fuel  and  Light  Company, 

85  Me.  532 1071 

Bryant's  Pond  Steam  Mill  Co.  v.  Felt,  87  Maine  234 474 

Buck  v.  Ross,  68  Conn.  29 1977 

Budd  V.  Multnomah  St.  R.  Co.,  15  Ore.  413 1569 

Buffalo  and  N.  Y.  City  R.  Co.  v.  Dudley,  14  N.  Y.  336 1461 

Busenback  v.  The  Attica  and  Bethel  Gravel  Road  Co.,  43  Ind.  265 600 

Butternuts  and  Oxford  Turnpike  Co.  v.  North,  1  Hill  (N.  Y.)  518 525 


TABLE   OF   REPORTED    CASES,  xU 

[References  are  to  Pages.'] 

c 

California  v.  Pacific  R.  Co.,  127  U.  S.  1  (extract) 1478 

Camden  and  Atlantic  R.  Co.  v.  May's  Landing,  etc.,  R.  Co.,  48  N.  J.  L. 

530  (extracts) 1176 

Camden  v.  Stuart,  144  U.  S.  104  (extract) 1942 

Cameron  v.  Kenyon-Connell  Com.  Co.,  22  Mont.  312. 1800 

Canfield  v.  Gregory,  66  Conn.  9 647 

Capps  &  McCreary  v.  Hastings  Prospecting  Company,  40  Neb.  470 239 

Carey  v.  Williams,  79  Fed.  Rep.  906 1586 

Case  V.  Kelly,  133  U.  S.  21 1012 

Case  of  Suttton's  Hospital,  10  Coke  23a  (extracts) 264 

Casey  v.  Galli,  94  U.  S.  (4  Otto)  673 1529 

Cass  V.  Pittsburg,  Virginia  and  Charleston  Railway  Co.,  80  Pa.  St.  31 538 

Catlin  V.  Eagle  Bank,  6  Conn.  233 1815 

Central  Pacific  R.  Co.  v.  Gallatin,  99  U.  S.  700 1405 

Central  Transportation  Co.  v.  Pullman  Palace  Car  Co.,  139  U.  S.  24 1178 

Chandlery.  Bacon,  30  Fed.  Rep.  538 1546 

Chapman  v.  Iron  Clad  Rheostat  Co.,  62  N.  J.  Law  497 1045 

Chase  National  Bank  v.  Faurot,  149  N.  Y.  532 1150 

Chater  v.  San  Francisco  Sugar  Ref.  Co.,  19  Cal.  219 80 

Chestnut  Hill  Co.  v.  Rutter,  4  Serg.  &  R.  (Pa.)  *6 1239 

Chicago,  R.  I.  &  P.  R.  Co.  v.  Union  Pacific  R.  Co.,  47  Fed.  Rep.  15  (extract)1177 

Child  V.  Boston  &  F.  I.  Works,  137  Mass.  516 1992 

Child  V.  Hudson's  Bay  Co.,  2  P.  Wms.  207 1161 

Christensen  v.  Eno,  106  N.  Y.  97 1933 

Cincinnati  Cooperage  Company  v.  Bate,  96  Ky.  356 827 

Cincinnati,  Lafayette  and  Chicago  R.  Co.  v.  The  Danville  and  Vincennes 

R.  Co.,  75  HI.  113 664 

City  and  County  of  San  Francisco  v.  Spring  Valley  Water-Works,  48 

Cal.  493 346 

City  of  Denver  v.  Sherret,  88  Fed.  Rep.  226 1765 

City  of  Detroit  v.  Detroit  and  Howell  Plank  Road  Co.,  43  Mich.  140  . . .  .1458 

Clearwater  v.  Meredith,  1  Wallace  (68  U.  S.)  25 984 

Cleveland,  Columbus,  Cincinnati  and  Indianapolis  Railway  Company  v. 

Closser,  126  Ind.  348 960 

Cochran  v.  Arnold,  68  Pa.  St.  399 625 

Cole  V.  LaGrange,  113  U.  S.  1 554 

Cole  v.  Millerton  Iron  Co.,  133  N.  Y.  164 1866 

Coleman  v.  White,  14  Wis.  700 2000 

Colonial  Bank  v.  Whinney,  L.  R.  30  Ch.  Div.  261 801 

Commercial  Fire  Insurance  Co.  v.  Board  of  Revenue,  99  Ala.  1 773 

Commonwealth  v.  Crompton,  137  Pa.  St.  138 1688 

Commonwealth  v.  Cullen,  13  Pa.  St.  133 417 

Commonwealth  v.  Detwiler,  131  Pa.  St.  614 1591 

Commonwealth  v.  Hemmingway,  131  Pa.  St.  614 1591 

Commonwealth  v.  New  York,  etc..  Railroad  Co.,  132  Pa.  St.  591  (extract).  101 4 
Commonwealth  v.  Smith,  10  Allen  (Mass.)  448  (extracts) 1070 


xlii  T^BLE    OF    REPORTED    CASES. 

[References  are  to  Pages. ~\ 

Commonwealth  v.  Texas  and  Pacific  R.  Co.,  98  Pa.  St.  90 1476 

Compton  V.  Railway  Company,  45  Ohio  St.  502 995 

Contract  Corporation,  Ex  parte,  L.  R.  3  Ch.  App  Cas.  105 1051 

Cooke  V.  Marshall,  191  Pa.  St.  315 761 

Cooper  Mfg.  Co.  v.  Ferguson,  113  U.  S.  727.     (Extract.) 1503 

Coppage  V.  Button,  124  Ind.  401 469 

Coppin  V.  Greenlees  &  Ransom  Co.,  38  Ohio  St,  275 1048 

Corey  v.  Wadsworth,  118  Ala.  488  (extract) 1836 

County  of  San  Mateo  v.  Southern  Pacific  R.  Co.,  13  Fed.  Rep.  722 36 

Crafford  v.  Supervisors,  etc.,  87  Va.  110 51 

Curtis  V.  Tracy,  169  111.  233 650 

Cushman  v.  Thayer  Mfg.  Jewelry  Co.,  76  N.  Y.  365 1698 

D 

Dalton  &  M.  R.  Co.  v.  McDaniel,  56  Ga.  191  (extract). . .- 1964 

Dartmouth  College  v.  Woodward,  4  Wheat.  518 708 

Davenport  v.  Lines,  72  Conn.  118 1980 

Davis  V.  Nebraska  National  Bank,  51  Neb.   401,  6  Am.   &  Eng.  Corp. 

Cas.  (N.  S.)  593 1130 

Deaderick  v.  Wilson,  8  Baxt.  (67  Tenn.)  108 1791 

Demarest  v.  Flack,  128  N.  Y.  205 1486 

Denny  Hotel  Co.  v.  Schram,  6  Wash.  134 553 

Denver  Fire  Insurance  Co.  v.  McClelland,  9  Colo.  11 1217 

DeWitt  V.  The  City  of  San  Francisco,  2  Cal.  289 1019 

Dexter  Savings  Bank  v.  Friend,  90  Fed.  Rep.  703 1796 

Directors  of  the  Long  Island  R.  Co.,  In  re,  19  Wend.  (N.  Y.)  37 1157 

Distilling  and  Cattle  Feeding  Company  v.  People,  156  111.  448 978 

Dodge  v.  Woolsey,  18  How.  (59  U.  S.)  331 88 

Donworth  and  Behan  v.  Coolbaugh,  5  Iowa  300 1445 

Dousman  v.  The  Wisconsin  and  Lake  Superior  Mining  and  Smelting  Co., 

40  Wis.  418 1703 

Doyle  V.  Continental  Ins.  Co.,  94  U.  S.  535 1491 

Doyle  V.  Mizner,  42  Mich.  332 632 

Droitwich  Salt  Co.  v.  Curzon,  L.  R.  3  Exch.  35 764 

Dronfield  Silkstone  Coal  Company,  In  re,  L.  R.  17  Ch.  Div.  76 1041 

Duke  v.  Markham,  105  N.  C.  131,  18  Am.  St.  Rep.  889 833 

Dunn  v.  University  of  Oregon,  9  Ore.  357 298 

Durfee  v.  Old  Colony  and  Fall  River  R.  Co.,  5  Allen  (Mass.)  230 1462 

E 

Eagle  Insurance  Co.  v.  Ohio,  163  U.  S.  446 1363 

East  Birmingham  Land  Co.  v.  Dennis,  85  Ala.  565 807 

Eastern  Counties  Railway  Co.  v.  Broom,  6  Exch.  (Welsby,  H.  &  G.)  314, 

2  Eng.  L.  &  Eq.  406 1244 

Edgerly  v.  Emerson,  23  N.  H.  555 851 

Edgeworth  v.  Wood,  58  N.  J.  L.  463 28 


TABLE   OF   REPORTED    CASES.  xliii 

[References  are  to  Pages.] 

Edinboro'  Academy  v.  Robinson,  37  Pa.  St.  210 445 

Edwards  v.  Warren  Linoline  and  Gasoline  Works,  168  Mass.  564 171 

Ellis  V.  Marshall,  2  Mass.  269,  3  Am.  Dec.  49 306 

Ellis  V.  Ward,  137  111.  509 1729 

Enterprise  Ditch  Co.  v.  Moffitt,  58  Neb.  442,  76  Am.  St.  Rep.  122 1579 

Erie  &  Northeast  R.  v.  Casey,  26  Pa.  St.  287 .1435 

Erwin  v.  Oldham,  6  Yerger  (14  Tenn.)  185 • 815 

Estey  Manufacturing  Company  v.  Runnels,  55  Mich.  130 631 

Evans  v.  The  Philadelphia  Club,  50  Pa.  St.  107 1165 

Exchange  National  Bank  v.  Capps,  32  Neb.  242 1122 

Ex  parte,  see  name  of  party.  ^ 

F 

Fairfield  Savings  Bank  v.  Chase,  72  Maine  226 1760 

Falconer  &  Higgins  v.  Campbell,  2  McLean  (U.  S.  Circuit  Ct.)  195 287 

Farmers'  Loan  &  Trust  Co.  v.  N.  Y.  &  Northern  R.  Co.,  150  N.  Y.  410  . .  .1776 

Farrington  v.  Putnam,  90  Maine  405 1029 

Farrington  v.  Tennessee,  95  TJ.  S.  679 1370 

Farrior  v.  New  Eng.  Mortgage  Security  Co.,  88  Ala.  275 1615 

Farwell  Co.  v.  Wolf,  96  Wis.  10 1197 

Fay  V.  Noble,  7  Cush.  (Mass.)  188 677 

Fidelity  Insurance,  Trust,  etc.,  Co.  v.  Niven,  5  Houst.  (Del.)  416 1088 

Fietsam  v.  Hay,  122  111.  293 141 

Finnegan  v.  Noerenberg,  52  Minn.  239 614 

Fire  Insurance  Patrol  v.  Boyd,  120  Pa.  St.  624 1272 

First  National  Bank  v.  Peavey,  69  Fed.  Rep.  455  (extract) 1962 

Fisher  v.  Essex  Bank,  5  Gray  (Mass.)  373 1668 

Fiske's  Estate,  In  re.  Ill  N.  Y.  66 1034 

Fitzpatrick  v.  Rutter,  160  111.  282 644 

Flinn  v.  Bagley,  7  Fed.  Rep.  785 1902 

Flint  &  F.  P.  R.  Co.  v.  Woodhull,  25  Mich.  99 398 

Flint  V.  Pierce,  99  Mass.  68 1174 

Florence  Land  and  Public  Works  Co.,  In  re,  v.  Nicol's  Case,  L.  R.  29 

Ch.  Div.  421 604 

Florsheim  Bros.  Dry  Goods  Co.  v.  Lester,  60  Ark.  120 1513 

Forrester  v.  Boston  &  M.  Cons.  C.  S.  &  M.  Co.,  21  Mont.  544 1780 

Foster  v.  Borax  Co.,  80  L.  T.  R.  (N.  8.)  461 1863 

Foster  v.  Chase,  76  Fed.  Rep.  797 547 

Foster  v.  Essex  Bank,  16  Mass.  245 895 

Foster  v.  Moulton,  35  Minn.  458 646 

Foster  &  Sons  v.  Commissioners,  etc.,  L.  R.  1  Q.  B.  D.  516  (1894) 60 

Fowler  v.  Bell,  90  Tex.  150  (extract) 1828 

Franklin  Bridge  Co.  v.  Wood,  14  Ga.  80 279 

Franklin  Company  v.  Lewiston  Institution  for  Savings,  68  Maine' 43 938 


xliv  TABLE   OF   REPORTED    CASES. 

IBeferences  are  to  Pages. Ji 

G 

Garrett  v.  Belmont  Land  Co.,  94  Tenn.  459 1138 

Garratt  Ford  Co.  v.  Vermont  Manufacturing  Co.,  20  R.  I.  187 1093 

Gent  V.  Manufacturers'  and  M.  M.  Ins.  Co.,  107  IlL  652 668 

Gibbs'  Estate,  W.  Halstead's  Appeal,  157  Pa.  St.  69 244 

Gleason  v.  McKay,  134  Mass.  419 167 

Glenn  v.  Orr,  96  N .  C.  413 1589 

Globe  Accident  Ins.  Co.  v.  Reid,  19  Ind.  App.  203 1142 

Goodspeed  v.  East  Haddam  Bank,  22  Conn.  530 1256 

Governor  v.  Allen  &  McMurdie,  8  Humph.  (27  Tenn.)  176 270 

Graham  v.  Boston,  Hartford  and  Erie*R.  Co.,  118  U.  S.  161 846 

Graham  v.  Railroad  Co.,  102  U.  S.  148 1809 

Grand  Lodge  of  Alabama  v.  Waddill,  36  Ala.  313 1212 

Graves  v.  Brooks,  117  Mich.  424 1950 

Great  Western  Tel.  Co.  v.  Burnham,  79  Wis.  47 1574 

Great  Western  Tel.  Co.  v.  Purdy,  162  U.  S.  329 1972 

Greenberg  v.  Whitcomb  Lumber  Co.,  90  Wis.  226 1799 

Greene  v.  Dennis,  6  Conn.  292 275 

Green  v.  Graves,  1  Douglass  (Mich.)  851  (extracts) 292 

Green  v.  Knife  Falls  Boom  Corporation,  35  Minn.  155 339 

Greenwood  v.  Freight  Co.,  105  U.  S.  13 1422 

Griffing  Iron  Co.,  In  re,  63  N.  J.  Law  168 1744 

Griffith  v.  Blackwater  Boom  and  Lumber  Co.,  47  W.  Va.  56,  33  S.  E.  Rep. 

125  897 

Guckert  v.  Hacke,  159  Pa.  St.  303 662 

Guilford  v.  Western  U.  Tel.  Co.,  59  Minn.  332 1521 

H 

Hahns  &  Bros.'  Appeal,  16  Am.  &  E.  C.  C.  537,  18  W.  L.  N.  294 549 

Haley  v.  Reid,  16  Ga.  437 810 

Hamlin  v.  Continental  Trust  Co.,  47  U.  S.  App.  422,  78  Fed.  Rep.  664. .. .   786 

Handley  v.  Stutz,  139  U.  S.  417 1923 

Hanson  v.  Donkersley,  37  Mich.  184 1997 

Hardin  v.  Trustees  of  Second  Baptist  Church,  51  Mich.  137 201 

Harger  v.  McCullough,  2  Denio  (N.  Y.)  119 1998 

Harris  and  Stickle  v.  McGregor,  29  Cal.  124 603 

Harrod  v.  Hamer,  32  Wis.  162 686 

Harvey  v.  Linville  Improvement  Co.,  118  N.  C.  693 1604 

Hawes  v.  Anglo-Saxon  Petroleum  Co.,  101  Mass.  385 581 

Hawes  v.  Oakland,  104  U.  S.  450 1716 

Hawthorne  v.  Calef,  2  Wall.  (69  U.  S.)  10 752 

Hatch  V.Dana,  101  U.  S.  205 1965 

Heaston  v.-Cincinnati  &  Ft.  Wayne  R.  Co.,  16  Ind.  275 1573 

Hebgen  v.  Koeffler,  97  Wis.  313 1548 

Helm  v.  Smith-Fee  Co.,  79  Minn.  297 2062 

Higgins  V.  Downward,  8  Houst.  (Del.)  227 152 


TABLE   OF   REPORTED    CASES.  xlv 

[.References  are  to  Pages.'\ 

Holman  v.  The  State,  105  Ind.  669 690 

HoUins  V.  Brierfleld  Coal  and  Iron  Co.,  150  IT.  S.  371 1868 

Holloway  v.  The  Memphis,  El  Paso  and  Pacific  R.  Co.  23  Tex.  466 1124 

Hooper  V.  California,  155  U.  S.  648 1507 

Hoppin  V.  Bufium,  9   R.  I.  613 1598 

Home  V.  Ivy,  1  Mod.  18 1136 

Hospes  V.  Northwestern  Mfg.,  etc.,  Co.,  48  Minn.  174 1911 

Howarth  v.  Angle,  162  N.  Y.  179 2028 

Howe,  Brown  &  Co.  v.  Sandford  F.  &  T.  Co.,  44  Fed.  Rep.  231  (extract) .  1835 

Hudson  Real  Estate  Company  v.  Tower,  161  Mass.  10 478 

Hughes  V.  Antietam  Mfg.  Co.,  34  Md.  316  1663 

Hunt  V.  O'Shea,  69  N.  H.  600 1628 

Huntington  v.  Attrill,  146  U.  S.  657 1892 

I 

In  re,  see  name  of  the  party. 

Insurance  Company  v.  Morse,  87  U.  S.  (20  Wall.)  445  (extract) 1097 

Interstate  Commerce  Commission  v.  Cincinnati,  N.  O.  &  T.  P.  Co.,  167 

U.  S.  479  (extract) 1534 

In  the  matter  of  (see  name  of  party). 

Irwin  V.  Granite  State  Provident  Assn.,  56  N.  J.  Eq.  244 1524 

Ireland  v.  The  Palestine,  etc.,  Turnpike  Co.,  19  Ohio  St.  369 757 

J 

Jackson's  Administrators  v.  Newark  Plank-Road  Co.,  31  N.  J.  Law  277.  .1643 

Jackson  v.  Walsh,  75  Md.  304  (extract). 1447 

Jacksonville,  Mayport,  Pablo  R.  &  Nav.  Co.  v.  Hooper,  160  U.  S.  514. . .  .1146 

Jermain  v.  Lake  Shore  &  Mich.  Southern  R.  Co.,  91  N.  Y.  483 1631 

Jones  V.  The  Aspen  Hardware  Company,  21  Colo.  263 637 

Jones  V.  Guaranty  and  Indemnity  Company,  101  U.  S.  622 1078 

Johns  V.  Johns,  1  Ohio  St.  350 794 

Johnston  Fife  Hat  Co.  v.  The  National  Bank  of  Guthrie,  4  Okla.  17 1262 

K 

Kaiser  v.  Lawrence  Savings  Bank,  56  Iowa  104 607 

Kearns  v.  Leaf,  1  Hem.  &  Mill  681  (extract) 1862 

Keller  v.  Eureka  Brick  Machine  Manufacturing  Co.,  43  Mo.  App.  84 1665 

Kent  V.  Quicksilver  Mining  Co.,  78  N.  Y.  159 790 

Keokuk  and  Western  Railroad  Company  v.  Missouri,  152  U.  S.  301 989 

Killingsworth  v.  The  Portland  Trust  Co.,  18  Ore.  351, 17  Am.  St.  Rep.  737. .  1090 

King  v.  London,  Carth.  217  (extract) 705 

King  v.  Mayor  of  London,  Show.  280  (extract) 152 

King  V.  Passmore,  3  T.  R.  246  (extract) 150 


xlvi  TABLE   OF   REPORTED    CASES. 

[References  are  to  Pages. '\ 

L 

Lake  Shore  and  Michigan  Southern  R.  Co.  v.  Chicago  and  Western  In- 
diana R.  Co.,  97  I]l.  506  (extract)     1342 

Larrabee  v.  Baldwin,  35  Cal.  155  (extract) 2009 

Lawrence  v.  Greenup,  97  Fed.  Rep.  906  (extract) 1985 

Leazure  v.  Hillegas,  7  Serg.  &  R.  (Pa.)  313 1008 

Le  Roy  v.  Globe  Insurance  Co.,  2  Edw.  Ch.  (N.  Y.)  *657 1629 

Lewis  V.  Tilton,  64  Iowa  220 176 

Licensed  Victuallers'  Mutual  Trading  Assn.,  Ex  parte  Audain,  L.  R.  42 

Ch.  Div.  1,  26  A.  &  E.  C.  C.  217 502 

Little  Saw  Mill  Valley  Turnpike  Co.  v.  Federal  Street  and  P.  V.  P.  R. 

Co.,  194  Pa.  St.  144 1147 

Long  V.  Georgia  Pacific  Railway  Co.,  91  Ala.  519 1203 

Loring  v.  Salisbury  Mills,  125  Mass.  138 1685 

Lothrop  V.  Stedraan,  42  Conn.  563  (extract) 1865 

Louisville  Banking  Company  v.  Eisenman,  94  Ky.  83 887 

Louisville,  New  Albany  &  C.  R.  Co.  v.  Boney,  117  Ind.  501 •. . .  1842 

Lucus  V.  White  Line  Transfer  Co.,  70  Iowa  541 1207 

Luxton  V.  North  River  Bridge  Co.,  153  U.  S.  525 320 

M 

Maine  v.  Grand  Trunk  R.  Co.,  142  U.  S.  217  (extract) 1390 

Maisenbacker  v.  Society  Concordia,  71  Conn.  369 1279 

Mallory  v.  Hanaur  Oil  Works,  86  Tenn.  598 957 

Manchester  Fire  Ins.  Co.  v.  Herriott,  91  Fed.  Rep.  711 1498 

•Manchester  and  Lawrence  Railroad  v.  Concord  Railroad,  66  N.  H.  100. . .  963 

Man  wood  v.  Lovelace,  6  Vin.  Abr.  282 688 

Marchand  v.  Loan  and  Pledge  Assn.,  26  La.  Ann.  389 383- 

Marshall  v.  F.  &  M.  Savings  Bank,  85  Va.  676 1879 

Marshall  v.  Sherman,  148  N.  Y.  9 2021 

Martin  v.  Fewell,  79  Mo.  401 .673 

Martin  v.  South  Salem  Land  Co.,  94  Va.  28 539 

Matter  of  Rappleye,  43  App.  Div.  (N.  Y.)  84 1651 

Maund  v.  The  Monmouthshire  Canal  Co.,  4  Mann.  &  Gr.  (43  Engl.  C.  L.) 

*452 1243 

Mayor,  etc.,  of  Norwich  v.  Norfolk  R.  Co.,  82  Eng'.  C.  L.  (4  El.  &  Bl.)*367 

(extract) 1148 

McArthur  v.  Times  Printing  Co.,  48  Minn.  319 1551  • 

McCarthy  v.  Lavasche,  89  111.  270 253 

McCartee  v.  Orphan  Asylum  Society  of  New  York,  9  Cowen  (N.  Y.)  437.  .1021 

McClure  v.  Law,  161  N.  Y.  78 1735 

McDonald  v.  Williams,  174  U.  S.  397 1981 

McGinty  v.  Athol  Reservoir  Co.,  155  Mass.  183 873 

McGraw's  Estate,  In  re,  111  N.  Y.  66 1034 

McLouth  V.  Hunt,  154  N.  Y.  179 1638 

McKim  V.  Odom,  3  Bland  Ch.  (Md.)  407 222 

McNeil  V.  Tenth  Nat'l  Bank,  46  N.  Y.  325 1674 


TABLE   OF   REPORTED    CASES.  xlvH 

[References  are  to  Pages.'] 
Medical  Institution  of  Geneva  College  v.  Patterson,  1  Denio  (N.  Y.)  61. .  263 

Medway  Cotton  Manufactory  v.  Adams,  10  Mass.  360 825 

Memphis,  etc.,  R.  Co.  v.  Railroad  Commissioners,  112  U.  S.  609 143 

Mechanics'  Bank  v.  Heard,  37  Ga.  401 87" 

Merchants'  Bank  of  Canada  v.  Livingston,  74  N.  Y.  223 16  0 

Merchants'  Nat'l  Bank  of  Kansas  City  v.  Lovitt,  114  Mo.  519 17().j 

Merchants'  &  Planters'  Line  v.  Waganer,  71  Ala.  581 880 

Metcalf  v.  Arnold,  110  Ala.  180 97 

Methodist  Episcopal  Church  v.  Sherman,  36  Wis.  404 691 

Metropolitan  Elevated  R.  Co.  v.  Manhattan  Elevated  R.  Co.,  11  Daly 

373,  14  Abb.  New  Cas.  103 694 

Miller  v.  Ewer,  27  Maine  509 841 

Miller  v.  Insurance  Co.,  92  Tenn.  167 1214 

Mills  v.  Northern  R.  Co.,  L.  R.  5  Ch.  App.  Cas.  621 1813 

Miner  v.  The  Belle  Isle  Ice  Co.,  93  Mich.  97 1323 

Miners'  Ditch  Co.  v.  Zellerbach,  37  Cal.  543  (extract) 1200 

Minneapolis  Threshing  Machine  Co.  v.  Davis,  40  Minn.  110  492 

Missouri  Lead  M.  &  S.  Co.  v.  Reinhard,  114  Mo.  218 844 

Mobile  and  Girard  R.  Co.  v.  Alabama  Midland  R.  Co.,  87  Ala.  501  (ex- 
tract)   1340 

Mobile  and  Ohio  R.  Co.  v.  Tennessee,  l.'^3  U.  S.  486 1614 

Mokelumne  Hill  Canal  and  Mining  Co.  v.  Woodbury,  14  Cal.  424 296 

Montgomery  v.  Forbes,  148  Mass.  249 594 

Monument  National  Bank  v.  Globe  Works,  101  Mass.  57 949 

Mormon  Church,  etc.,  v.  United  States,  136  U.  S.  1 906 

Morrill  v.  Little  Falls  Manufacturing  Co.,  53  Minn.  371 839 

Morrill  v.  Smith  County,  89  Tex.  529  (extract) 987 

Morton  Gravel  Road  Co.  v.  Wysong,  51  Ind.  4 1156 

Moses  V.  Tompkins,  84  Ala.  613 1576 

Moxhamv.  Grant,  69  L.  J.  (Q.  B.)  97 1794 

Mumma  v.  The  Potomac  Company,  8  Peters  (33  U.  S.)  281 896 

Munson  v.  Syracuse,  Geneva  and  Corning  R.  Co.,  103  N.  Y.  58 1753 

Murphy  v.  Arkansas  &  L.  Land  Improvement  Co.,  97  Fed.  Rep.  723 950 

Muscatine  Water  Co.  v.  Muscatine  Lumber  Co.,  85  Iowa  112 1137 

N 

Nassau  Bank  v.  Jones,  95  N.  Y.  115 1205 

National  Bank  v.  Case,  99  U.  S.  628 1661 

National  Commercial  Bank  v.  McDonnell,  92  Ala.  387 549 

National  State  Bank  v.  Vigo  County  National  Bank,  141  Ind.  352 703 

National  Loan  and  Investment  Co.  v.  Rockland  Co.,  94  Fed.  Rep.  335 1755 

National  Telephone  Manufacturing  Co.  v.  DuBois,  165  Mass.  117 1490 

Neil  V.  The  Board  of  Trustees  of  The  O.  A.  &  M.  College,  31  Ohio  St.  15..  191 
Newby  v.  The  Oregon  Central  Railway  Co.,  Deady  609,  Fed.  Cas.  10144. .  819 

Newcomb  v.  Reed,  12  Allen  (Mass.)  362 588 

Nickum  v.  Bnrckhardt.  30  Ore.  464 391 

Nims  V.  Mt.  Hermon  Boys'  School,  160  Mass.  177 1268 


xlviii  TABLE   OF   REPORTED    CASES 

[References  are  to  Pages.] 

Nix  V.  Miller,  —  Colo.  — ,  57  Pac.  Rep.  1084 1874 

Norfolk  and  Western  R.  Co.  v.  Pennsylvania,  136  TJ.  S.  114 1393 

Norris  v.  Staps,  Hobart  211a  (extract) 1166 

North  Hudson  B.  &  L.  Assn.  v.  Childs,  82  Wis.  460 1737 

North  State  Copper  and  Gold  Mining  Co.  v.  Field,  64  Md.  151 1519 

Northwestern  Union  Packet  Company  v.  Shaw,  37  Wis.  655 1040 

Nulton  V.  Clayton,  54  Iowa  425 456 

o 

O'Bear  Jewelry  Co.  v.  Volfer,  106  Ala.  205 1852 

Oiney  v.  Conanicut  Land  Co.,  16  R.  I.  597 1832 

Oregon  R.  Co.  v.  Oregonian  R.  Co.,  130  U.S.I 429 

Overseers  of  Poor  v.  Sears,  22  Pick.  (Mass.)  122 193 

P 

Pacific  National  Bank  v.  Eaton,  141  U.  S.  227...., 1581 

Packard  v.  Old  Colony  Railroad  Co.,  168  Mass".  92 563 

Parsons  v.  Joseph,  92  Ala.  403 1724 

Payne  v.  Elliot,  54  Cal.  339 804 

Pearsall  v.  Great  Northern  R.  Co.,  161  U.  S.  646 1413 

Pearson  v.  Concord  Railroad  Corporation,  62  N.  H.  537 1060 

Peninsular  Railway  Co.  v.  Duncan,  28  Mich.  130 482 

Pennington  v.  Gitting's  Executor,  2  Gill  &  J.  208 1690 

Pennsylvania  Co.  v.  Bauerle,  143  111.  459  (extract) 1516 

Penobscot  Boom  Corporation  v.  Lamson,  16  Me.  (4  Shepley)  224 283 

Pensacola  Telegraph  Company  v.  Western  Union  Telegraph  Co.,  96  U.  S.  1  326 

People  V.  Ballard,  134  N.  Y.  269 1066 

People  V.  Chicago  Gas  Trust  Co.,  130  111.  268 1054 

People  V.  Chicago  Live  Stock  Exchange,  170  111.  556 1171 

People  V.  Coleman,  126  N.  Y.  433 778 

People  V.  Coleman,  133  N.  Y.  279 15 

People  V.  The  Dashaway  Association,  84  Cal.  114 1298 

People  V.  Fire  Ins.  Assn.  of  Philadelphia,  92  N.  Y.  1311 1494 

People  V.  Granite  State,  etc.,  Assn.,  161  N.  Y.  492 2050 

People  V.  Montecito  Water  Co.,  97  Cal.  276 609 

People  V.  Morris,  13  Wendell  (N.  Y.)  325 229 

People  V.  N.  Y.  Central  &  Hudson  River  R.  Co.,  28  Hun  (N.  Y.)  543 1308 

People  v.  North  River  Sugar  Refining  Co.,  121  N.  Y.  582 100 

People  v.  O'Brien,  111  N.  Y.  1 1426 

People  v.  Phoenix  Bank,  24  Wend.  (N.  Y.)  431 1306 

People  V.  Pullman's  Palace  Car  Company,  175  111.  125 926 

People,  ex  rel.,  v.  Roberts,  159  N.  Y.  70 1385 

People  V.  Utica  Ins.  Co.,  15  Johnson  (N.  Y.)  358 113 

Perkins  v.  Sanders,  56  Miss.  733 409 

Philadelphia  Savings  Institution,  In  re,  1  Wharton  (Pa.)  461 464 


TABLE   OF   REPORTED   CASES.  xlix 

IReferences  are  to  Pages. 1 

Philadelphia  &  Southern  Steamship  Co.  v.  Pennsylvania,  122  U.  S.  326 

(extract) 1389 

Philips  V.  Wickham,  1  Paige  Ch.  (N.  Y.)  590 875 

Pierce  v.  Commonwealth,  104  Pa.  St.  150 1603 

Pittsburg,  C.  &  St.  L.  R.  Co.  v.  Keokuk  Bridge  Co.,  131  U.  S.  371  (extract). 1182 

Plimpton  V.  Bigelow,  93  N.  Y.  592 811 

Pond  V.  Framingham  &  Lowell  R.  Co.,  130  Mass.  194 1808 

Pratt  V.  Boston  &  Albany  R.  Co.,  126  Mass.  443 1702 

President,  Directors,  etc.,  of  Bank  of  the  United  States  v.  Dandridge,  12 

Wheat.  (25  U.  S.)  64 854 

Price  V.  Pine  Mountain  Iron  and  Coal  Co.  (Ky.),  32  S.  W.  Rep.  267 1047 

Proprietors  of  The  Piscataqua  Bridge  v.  The  New  Hampshire  Bridge,  7 

N.  H.  35 309 

Prospect  Park  &  C.  I.  R.  Co.,  In  re,  67  N.  Y.  371  (extract) 987 

Pullman's  Palace  Car  Co.  v.  Pennsylvania,  141U.  S.  18 1374 

Q 

Queen  v.  Arnaud,  25  L.  J.  Rep.  (16  N.  S.)  50 58 

Queen  v.  The  Birmingham  &  Gloucester  R.  Co.,  3  Adol.  &  El.  N.  S.  223, 

43  Eng.  C.  L.  708 1283 

Queen  v.  The  Great  North  of  England  R.  Co.,  9  Adol.  &  El.  (N.  S.)  *315, 

58  Eng.  C.  L.  314 1284 

Quincy  Railroad  Bridge  Company  v.  Adams  County,  88  111.  615 988 

R 

Rahrer,  In  re,  140  U.  S.  545 1530 

Rapier,  In  re,  143  U.  S.  110 1541 

Railroad  (Paducah  and  Memphis)  v.  Parks,  86  Tenn.  654 532 

Railroad  Tax  Cases,  13  Fed.  Rep.  722 36 

Railway  Co.  v.  Allerton,  85  U.  S.  (18  Wall.)  233 442 

Read  v.  Frankfort  Bank,  23  Maine  (10  Shep.)  318 1805 

Reeve  v.  Harris  (Tenn.  Ch.  App.),  50iS.  W.  Rep.  658 1758 

Regina,  see  Queen. 
Rex,  see  King. 

Richardson  v.  Graham,  45  W.  Va.  134  (extract)  1550 

Richardson  v.  Swift,  7  Houst.  (Del.)  137  (extract)    1653 

Riche  V.  The   Ashburv   Railway  Carriage  and  Iron  Co.,  Ltd.,  L.  R.  9 

Ex.224 * 919 

Richmond  Railway  and  Electric  Co,  v.  Brown,  97  Va.  25 131 7 

Riddick  v.  Amelin,  1  Mo.  5 302 

Riddle  v.  Proprietors,  etc.,  7  Mass.  169 T.     47 

Rider  v.  Fritchey,  49  Ohio  St.  285 1994 

Roberts  Mfg.  Co.  v.  Schlick,  62  Minn.  332 1767 

Robertson  v.  Bullions,  9  Barbour  (N.  Y.)  64 203 

Rockford,  Rock  Island  and  St.  Louis  R.  Co.  v.  Shunick,  65  111.  223 545 

Romney  v.  United  States,  136  U.  S.  1 906 


1  TABLE   OF   REPORTED   CASES. 

[References  are  to  Pages.'] 

Root  V.  Sinnock,  120  111.350 2003 

Rose  V.  Turnpike  Co.,  3  Watts  (Pa.)  46 688 

Rouse  V.  Merchants'  Bank,  46  Ohio  St.  493 1819 

Ruse  V.  Bromberg,  88  Ala.  619 1575 

Russell  V.  Wakefield  Water- Works  Co.,  L.  R.  20  Eq.  Cas.  474 1709 

Rutter  V.  Chapman,  8  Mees.  &  W.  1 266 

Ryerson  v.  Wayne  Circuit  Judge,  114  Mich.  352 1121 

S 

San  Antonio  Street  R.  Co.  v.  State  of  Texas,  90  Tex.  520 1313 

San  Joaquin  Land  and  Water  Co.  v.  West,  94  Cal.  399 497 

Sasser  v.  The  State  of  Ohio,  13  Ohio  453 668 

Scovill  V.  Thayer,  105  U.  S.  143 1907 

Sedalia,  Warsaw  and  Southern  R.  v.  Wilkerson,  83  Mo.  235 459 

Sellers  V.  Greer,  172  111.  549 65 

Sharon  R.  Co.'s  Appeal,  122  Pa.  St.  533  (extract) 1342 

Shaw  V.  Quincy  Mining  Co.,  145  U.  S.  444 1106 

Shinney  v.  North  American  Sav.,  Loan  and  Building  Co.,  97  Fed.  Rep.  9.1542 

Shipley  v.  The  Mechanic's  Bank,  10  Johns.  (N.  Y.)  484 1701 

Shute  V.  Keyser,  37  Am.  &  Eng.  Corp.  Cas.  61  (Ariz.) 1134 

Silver  Lake  Bank  v.  North,  4  Johns.  Ch.  (N.  Y.)  370 1092 

Singer  Manufacturing  Co.  v.  Peck,  9  S.  D.  29 571 

Sinking  Fund  Cases,  99  U.  S.  700 1405 

Skillman  v.  Lachman,  23  Cal.  198 182 

Sleev.  Bloom,  19  Johns.  Ch.  (N.  Y.)  456 881 

Small  V.  Herkimer  Mfg.  and  Hydraulic  Co.,  2  N.  Y.  330 1567 

Smith  V.  Hurd,  12  Mete.  (Mass.)  371 1706 

Smith  V.  San  Francisco  and  North  Pacific  R.  Co.,  115  Cal.  584 1606 

Smith  V.  Tallassee  Branch  of  Central  Plank-Road  Co.,  30  Ala.  650 817 

Smyth  V.  Ames,  169  U.  S.  466 1352 

Smyth  V.  Visitors  of  the  Theological  Institution  in  Phillips  Academy  in 

Andover,  154  Mass.  551 1332 

Sniders  Sons'  Co.  v.  Troy,  91  Ala.  224 656 

Snyder  v.  Studebaker,  19  Ind.  462 634 

Society  Perun  v.  Cleveland,  43  Ohio  St.  481 *. 617 

Southern  Pacific  R.  Co.  v.  Orton,  32  Fed.  Rep.  457 354 

Southern  Railway  Co.  v.  Carnegie  Steel  Co.,  176  U.  S.  257  (extracts). . .  .2053 

Sprague  v.  Illinois  River  R.  Co.,  19  111.  *174 1454 

Sprague  v.  National  Bank,  172  111.  149  (extract) 1949 

Spring  Valley  Water-Works  v.  Schottler,  62  Cal.  69 120 

Standard  Underground  Cable  Co.  v.  Attorney-General,  46  N.  J.  Eq.  270.  .1392 

State  V.  Atchison,  3  Lea  (Tenn.)  729,  31  Am.  Rep.  663 1286 

State  V.  Bank  of  New  England,  70  Minn.  398 1585 

State  V.  Chicago,  Milwaukee  and  St.  Paul  Railway  Co.,  4  S.  D.  261 1126 

State  V.  City  of  Cincinnati,  20  Ohio  St.  18 360 

State  V.  Cunningham,  83  Wis.  90 1296 

State  V.  Curtis,  35  Conn.  374 258 

State  V.  Dawson,  16  Ind.  40 412 


TABLE   OF   REPORTED    CASES.  U 

[References  are  to  Pages. 1 

State  V.  Debenture  Guarantee  &  Loan  Co.,  51  La.  Ann.  1874 1302 

State  V.  The  Dodge  City,  Montezuma  and  Trinidad  R.  Co.,  53  Kan.  377.  .1330 

State  V.  The  Georgia  Medical  Society,  38  Ga.  608 136 

State  V.  Insurance  Co.,  49  Ohio  St.  440 406 

State  V.  Milwaukee  Chamber  of  Commerce,  47  Wis.  670  (extracts) 1294 

State  V.  Northeastern  R.  Co.,  9  Rich  (S.  C.  Law)  247 44 

State  V.  Overton,  24  N.  J.  Law  (4  Zabr.),  435 1153 

State  V.  Pacific  Brewing  and  Malting  Co.,  21  Wash.  451 1645 

State  V.  Parsons,  40  N.  J.  L.  1 333 

State  V.  Pawtuxet  Turnpike  Co.,  8  R.  I.  521 1305 

State  V.  Payne,  129  Mo.  468 830 

State  V.  Standard  Life  Association,  38  Ohio  St.  281 234 

State  V.  Sherman,  22  Ohio  St.  411 1082 

State  V.  Travelers'  Insurance  Co.,  70  Conn.  590 1402 

State  Bank  v.  The  State,  1  Blackf.  (Ind.)  267 891 

State  Trust  Co.  v.  Turner,  111  Iowa  664 1943 

St.  Clair  v.  Cox,  106  U.  S.  350 1115 

St.  Louis  F.  S.  &  W.  R.  Co.  v.  Tiernan,  37  Kan.  606 375 

St.  Louis  and  San  Francisco  Railway  Co.  v.  James,  161  U.  S.  545 1099 

St.  Louis,  V.  &  T.  H.  R.  Co.  v.  Terre  Haute  &  I.  R.  Co.,  145  U.  S.  393. . .  .1228 

Steam  Stone-Cutter  Co.  v.  Scott,  157  Mo.  520 1917 

Stein  v.  Howard,  65  Cal.  616  (extract) 1951 

Stevens  v.  Eden  Meeting-House  Society,  12  Vt.  688 < 836 

Stevens  v.  Rutland  and  Burlington  R.  Co.,  29  Vt.  545 1448 

Stewart  v.  Trustees  of  Hamilton  College,  2  Denio  (N.  Y.)  403 448 

Stockport  District  Water- Works  Co.  v.  The  Mayor,  etc.,  of  Manchester,  9 

Jurist.  (N.  S.)  266 1233 

Stockton  Savings  Bank  v.  Staples,  98  Cal.  189  1007 

Stoddard  V.  Lum,  159  N.  Y.  265 1968 

Stone  V.  Mississippi,  101  U.  S.  814 1348 

Stout  and  McHenry  v.  Hubbell,  104  Iowa  499 1947 

Stowe  V.  Wyse,  7  Conn.  214 836 

Strasburg  Railroad  Company  v.  Echternacht,  21  Pa.  St.  220 473 

Stryker,  In  the  matter  of,  158  N.  Y.  526 2010 

Sully  V.  American  National  Bank,  178  TJ.  S.  289 2046 

Supreme  Lodge  of  Knights  of  Pythias  v.  Hill,  76  Fed.  Rep.  468 1098 

Swentzell  v.  Penn  Bank,  147  Pa.  St.  140 1884 


Taber  v.  Interstate  Building  and  Loan  Assn.,  91  Tex.  92 1095 

Taggart  v.  The  Western  Maryland  R.  Co.,  24  Md.  563 514 

Tappan  v.  Merchants'  National  Bank,  86  U.  S.  (19  Wall.)  490 1399 

Telegraph  Co.  v.  Texas,  105  U.  S.  460 1397 

Telegraph  Newspaper  Co.  v.  Commonwealth,  172  Mass.  294 1287 

Thomas  v.  Dakin,  22  Wend.  (N.  Y.)  9 19 


Hi  TABLE   OF   REPORTED    CASES. 

[References  are  to  Pages.'] 

Thomas  v.  Railroad  Company,  101  U.  S.  71 915 

Thorpe  v.  The  Rutland  and  Burhngton  R.  Co.,  27  Vt.  140 1344 

Thrasher  v.  Hke  County  Railroad  Co.,  25  111.  393  (Orig.  ed.),  340  Gross's 

ed.,  1876 471 

Titcomb  v.  Kennebunk  Mut.  F,  Insurance  Co.,  79  Maine  315 904 

Tisdale  v.  Harris,  20  Pick.  (Mass.)  9 799 

Tod  V.  Kentucky  Union  Land  Co.,  57  Fed.  Rep.  47 952 

Toledo  Tie  &  L.  Co.  v.  Thomas,  33  W.  Va.  566 1510 

Tomkinson  v.  Southeastern  R.  Co.,  L.  R.  35  Ch.  Div.  675 1715 

Tomlinson  v.  Jessup,  15  Wallace  (82  U.  S.)  454 754 

Tonica  and  Petersburg  Railroad  Co.  v.  McNeely,  21  111.  71 491 

Treadwell  v.  Salisbury  Mfg.  Co.,  7  Gray  (Mass.)  393 1787 

Trenton  Potteries  Company  v.  Oliphant,  58  N.  J.  Eq.  507,  46  L.  R.  A.  255. .  981 
Trustees  of  Dartmouth  College  v.  Woodward,  4  Wheaton  (17  U.  S.)  518. .  708 

Trustees  of  f'ree  Schools  in  Andover  v.  Flint,  13  Mete.  539 1900 

Trustees  Mut.  B.  F.,  etc.,  Bank  v.  Bossieux,  4  Hughes  387  (extract) 1735 

Trustees  of  Phillips  Academy  v.  Attorney-General,  154  Mass.  551 2133 

Trustees  of  Univ.  of  N.  C.  v.  Foy,  1  Mur.  (N.  C.)  58 33 

Tunis  V.  Hestonville  M.  &  F.  Pass.  R.,  149  Pa.  St.  70 1600 

Twin-Lick  Oil  Co.  v.  Marbury,  91  U.  S.  587 1750 

U 

Umsted  v.  Buskirk,  17  Ohio  St.  113 1990 

Union  Bank  v.  Jacobs,  25  Tenn.  (6  Humph.)  515 941 

Union  Pacific  R.  Co.  v.  United  States,  99  U.  S.  700 1405 

United  States  v.  Addyston  Pipe  and  Steel  Co.  85  Fed.  Rep.  271 967 

U.  S.  Bank  v.  Dandridge,  12  Wheat  64 854 

United  States  Bank  v.  Stearns,  15  Wend.  (N.  Y.)  314 1131 

Upton  V.  Englehart,  3  Dillon  496 1559 

Utley  V  Union  Tool  Co.,  11  Gray  (Mass.)  139 597 

V 

Van  aeve  v.  Berkey,  143  Mo.  109 1953 

Van  Cott  V.  Van  Brunt,  82  N.  Y.  535 1919 

Veazie  Bank  v.  Fenno,  8  Wall.  (75  U.  S.)  533 1527 

Vidal  V.  Girard's  Executors,  2  How.  (43  U.  S.)  126  (extract) 1087 

VisaUa  &  Tulare  R.  Co.  v.  Hyde,  110  Gal.  632 1692 

w 

Wales  V.  Stetson,  2  Mass.  143,  3  Am.  Dec.  39 150 

Walker  v.  Devereaux,  4  Paige  Ch.  (N.  Y.)  229 385 

Wallace  v.  Lincoln  Savings  Bank,  89  Tenn.  630 1731 

Wallace  v.  Loomis,  97  U.  S.  146 338 

Wallace  v.  Pierce- Wallace  Pub.  Co.,  101  Iowa  313 1747 

Walton  V.  Oliver,  49  Kan.  107 565 


TABLE   OF   REPORTED    CASES.  liii 

[References  are  to  Pages. ^ 

Waring  v.  Catawba  Co.,  2  Bay  (S.  Car.)  109 71 

Warner  v.  Beers,  23  Wend.  (N.  Y.)  103 2 

Washburn  v.  National  Wall-Paper  Co.,  81  Fed.  Rep.  17 1936 

Weatherford  M.  W.  &  N.  W.  R.  Co.  v.  Granger,  86  Tex.  360 1553 

Webb  V.  The  Baltimore  &  Eastern  Shore  R.  Co.,  77  Md.  92 528 

Wechselberg  v.  Flour  City  National  Bank,  24  U.  S.  App.  308 574 

Wells,  Fargo  &  Co.  v.  Northern  Pacific  R.  Co.,  23  Fed.  Rep.  469  (extracts) .  295 

West  V.  Crawford,  80  Cal.  19  (extracts) 500 

West  Nashville  Planing  Mill  Co.  v.  Nashville  Savings  Bank,  86  Tenn.  262.1695 

West  River  Bridge  Co.  v.  Dix,  47  U.  S.  (6  How.)  507 1337 

West  Winsted  Sav.  Bank  and  Building  Assn.  v.  Ford,  27  Conn.  282 652 

Wheeler  &  Wilson  Mfg.  Co.  v.  Boyce,  36  Kan.  350 1250 

White  V.  Brownell,  etc.,  2  Daly  329 187 

White  v.  Howard,  38  Conn.  342 1026 

White  Mountains  Railroad  Co.  v.  Eastman,  34  N.  H.  124 758 

Whitman  v.  Oxford  National  Bank,  176  IT.  S.  559 2018 

Wight  V.  Shelby  Railroad  Company,  16  B.  Mon.  (Ky.)  4 536 

Wight  V.  Springfield  &  New  London  R.  Co.,  117  Mass.  226 692 

Wiles  V.  Suydam,  64  N.  Y.  173 1987 

Williamson  v.  Smoot,  7  Martin  (La.)  31 70 

Williams  v.  Western  Union  Telegraph  Co.,  93  N.  Y.  162 1622 

Willis  V.  Mabon,  48  Minn.  140  (extract) 2013 

Wilson  V.  Leary,  120  N.  C.  90 903 

Wilson  V.  Tesson,  12  Ind.  285 1446 

Winchester  v.  Mabury,  122  Cal.  522 1888 

Winter  v.  Montgomery  Gas  Light  Co.,  89  Ala.  544 1682 

Wood  V.  Dummer,  3  Mason  308 1847 

Woodworth  v.  Bowles,  61  Kan.  569 2014 

Woolf  V.  The  City  Steamboat  Company,  7  Man.,  Gr.  &  S.  (62  Eng.  C.  L.) 
*103 1125 


Yarborough  v.  The  Governor  &  Co.  of  the  Bank  of  England,  16  East  6.  ..1236 
Yeaton  v.  Bank  of  the  Old  Dominion,  21  Grattan  (Va.)  693 750 

z 

Zabriskie  v.  Hackensack  &  N.  Y.  R.  Co.,  18  N.  J.  Eq.  (3  C.  E.  Green) 

178 1466 

Zang  V.  Wyant,  25  Colo.  651 2005 

Zoller  V.  Ide,  1  Neb.  439 862 


CASES 


ILLUSTRATING 


THE   GENERAL  PRINCIPLES 

OF   THE 

Law  of  Private  Corporations 


PART  I. 
THE  IDEA  OF  A  CORPORATION. 


CHAPTER  1. 

DESCRIPTION  AND  CLASSES. 

ARTICLE    I.       DEFINITIONS    AND    TESTS. 

Sec.  1.  Definitions.*  A  Person^  "A  corporation  is  an  artifi- 
cial being,  invisible,  intangible,  and  existing  only  in  contem- 
plation of  law." 

1819.     Chief  Justice  Marshall,  in  Trustees  of  Dartmouth  College 
V.  Woodward,  4  Wheat.  (U.  S.)  618,  on  636. 

A  Collection  of  Individuals':  "The  word  'corporation' 
is  but  a  collective  name  for  the  corporators  or  members  who 
compose  an  incorporated  association ;  and  where  it  is  said 
that  a  corporation  is  itself  a  person,  or  being,  or  creature, 
this  must  be  understood  in  a  figurative  sense  only." 

1886.    Victor  Morawetz,  Law  of  Private  Corporations,  2d  ed.,  §  1, 

et  seq. 

A  Franchise*  :  "A  corporation  is  a  franchise  created  by  the 
king." 

c.  1745.     Comyn's  Digest,  Franchise  (F)  F.  1. 

»Angell  &  A.  Corp.,  §§  1-65;  Beach,  §  1;  1  Bl.  Com.,  *467;  Boone,  ch.  1; 
Clark,  ch.  1;  Cook,  ch.  1;  Elliott,  §§  1-20;  Field,  ch.  1;  Grant,  p.  *l-*9;  2 
Kent  Com.,  p.  *267 ;  1  Kyd  Corp.,  Int. ;  Taylor,  ch.  1-5;  1  Thomp.,  ch.  1. 

•  See  §§  6-15  infra,  and  note,  p.  72. 

'  See  §§  16-21  ivfra,  and  note,  p.  109. 

*  See  §§  22-29  infra,  and  note,  p.  157. 

(1) 


2        WARNER   AND   RAY   V.  BEERS BOLANDER   V.  STEVENS.       §  2 

Sec.  2.    Tests.     As  to  whether  a  particular  institution  is  a  corpora- 
tion or  not  the  tests  are : 

( I )   "  The  merging  of  the  individuals  composing  the  aggre- 
gate body  into  one  distinct,  artificial  existence." 

WARNER  AND  RAY  v.  BEERS.* 
BOLANDER  v.  STEVENS. 

1840.     In  the  Court   for    the  Correction    of  Errors.     23 
Wendell  (N.  Y.)  Reports,  pp.  103-190. 

[In  the  first  above  entitled  cause,  the  declaration  commenced  in  the 
name  of  "Joseph  D.  Beers,"  described  as  "President  of  the  North 
American  Trust  and  Banking  Company,  an  association  doing  busi- 
ness in  the  city  of  New  York,  under  and  by  virtue  of  an  act  of  the 
legislature  of  the  state  of  New  York,  entitled  'an  act  to  authorize 
the  business  of  banking,'  passed  April  i8th,  1838,  who  prosecutes 
for  and  on  behalf  of  the  said  association;"  and  then  was  set  forth  in  the 
usual  form  a  count  on  a  promissory  note  by  the  third  endorsee  against 
Warner  and  Ray,  as  endorsers.  The  declaration  also  contained  the 
common  money  counts,  and  the  instjmil  cotnputassent,  alleging  the 
debts  to  have  arisen,  and  the  promises  to  have  been  made  to  "the 
said  association,"  and  concluded  with  the  words  "to  the  damage  of 
the  said  association  of  five  hundred  dollars ;  and  therefore  the  said 
plaintiff,  as  president  as  aforesaid,  brings  suit,"  etc. 

The  declaration  in  the  second  suit  was  like  the  preceding,  except 
that  it  contained  only  the  common  money  counts,  and  the  count  on 
the  insimul  cotnputassent.  To  these  declarations,  demurrers  were 
put  in  by  the  defendants  respectively.  In  the  first  suit,  the  following 
cause,  among  others,  of  demurrer  was  assigned,  viz. : 

V.  The  institutions  or  associations  authorized  and  intended  to  be 
created  by  the  act  entitled  "An  act  to  authorize  the  business  of  bank- 
ing" are  corporations  or  bodies  politic,  and  the  act  expressly  allows 
the  creation  of  an  indefinite  and  unlimited  number  of  such  corpora- 
tions, at  the  pleasure  of  any  persons  who  may  associate  for  that  pur- 
pose. The  act  is,  therefore,  a  violation  of  the  ninth  section  of  the 
seventh  article  of  the  constitution  of  this  state,  and  is  absolutely  void. 

The  defendant  in  the  second  cause  also  interposed  a  demurrer  assign- 
ing special  causes  similar  to  the  special  causes  in  the  first  count ;  the 
fourth  special  cause  being  in  these  words:  "For  that  the  act  in 
the   declaration  mentioned,   entitled   'An   act  to  authorize  the  busi- 

'  Statement  of  facts  partly  omitted.  Arguments  omitted.  Opinions  by 
Bradish,  president  of  the  senate,  Walworth,  chancellor,  and  Root,  senator, 
omitted;  a/so,  part  of  the  opinion  of  Senator  Verplanck.  A  brief  analysis  of 
each  of  the  opinions  given  in  this  case  is  given  in  a  note  by  the  reporter  on 
pp.  103-105. 


§2  TESTS:     MERGER   INTO   ARTIFICIAL   BODY.  ^ 

ness  of  banking,'  so  far  as  the  same  proposes  to  authorize  this  suit, 
is  a  violation  of  the  provisions  of  the  constitution  of  this  state  re- 
specting the  creations  of  incorporations,  and  is  void ;  and  also  that 
the  said  act  is  void,  because  the  same  did  not  receive  the  assent  of 
two-thirds  of  all  the  members  elected  to  the  legislature  of  this  state, 
by  which  legislature  the  said  act  purports  to  have  been  passed."* 

The  two  demurrers  were  brought  to  argument  before  the  supreme 
court,  at  the  January  term,  1840,  and  judgment  given  in  both  cases 
for  the  plaintiffs.  The  court  referred,  for  the  reasons  of  the  judg- 
ment, to  the  opinions  delivered  by  Chief  Justice  Nelson,  Mr.  Justice 
Bronson  and  Mr.  Justice  Cowen,  in  the  case  of  Thomas  v.  Dakin,  22 
Wendell  9  et  seq.  2  Both  causes  were  removed  by  writs  of  error  to  the 
court  for  the  correction  of  errors,  and  were  brought  on  to  argument  on 
the  1 8th  February,  1840.] 

By  Senator  Verplanck.  The  decision  of  these  causes  seems  to 
me  to  depend  wholly  upon  that  of  the  question,  whether  or  no  asso- 
ciations with  constitutions,  powers  and  incidents,  similar  to  those 
authorized  under  the  general  banking  law,  are  bodies  corporate  and 
politic;  or,  in  other  words,  whether  the  general  banking  law  of  1838 
is  void,  because  it  was  not  passed  with  the  express  assent  of  two-thirds 
of  all  the  members  of  the  legislature. 

The  supreme  court  think  that  they  "must,  on  these  records,  presume 
the  general  banking  law  to  have  been  passed  by  two-thirds  of  all  the 
members  of  the  legislature."  Judge  Cowen  adds  :  "We  must  clearly 
do  so  until  the  fact  is  denied  by  plea.  The  requisite  constitutional 
solemnities  must  always  be  presumed  to  have  taken  place  until  the 
contrary  shall  be  clearly  shown.  Should  the  defendant  withdraw  his 
demurrer,  and  plead  specially  that  the  law  in  question  did  not  receive 
the  assent  of  two-thirds  as  required  by  the  constitution,  it  will  then  be 
in  order  to  pass  upon  the  validity  of  such  an  objection."  Judge 
Bronson  concurs  more  briefly  to  the  same  effect. 

Now,  it  appears  to  me  that  this  point  was  rightly  presented  on  the 
demurrers  in  these  cases,  so  as  to  authorize  and  demand  the  decision 
of  the  court.       *       *       * 

From  our  official  knowledge  of  the  facts  of  the  law — from  those  facts 
being  spread  out  on  our  journals — from  the  actual  inspection  of  the 
record  by  some  of  us,  we  all  well  know  that  the  act  was  not  passed 
by  the  vote  of  two-thirds  of  each  house  of  the  legislature.  We  must 
then  meet  directly,  and  settle  the  question  whether  the  associations 
formed  under  the  general  banking  laws  are,  or  are  not,  "bodies  politic 
and  corporate."* 

[Definition— Artificial  personality.] — What,  then,  is  the  strict  defini- 
tion of  the  phrase  bodies  ■politic  and  corporate? 

Definitions  differ  in  their  character  according  to  the  nature  of  the 
thing  to  be  defined.       *       »       * 

'Seein/m,  p.  373. 
^  Infra,  p.  19. 

*  For  statement  of  provisions  of  the  general  banking  law  of  1838,  see 
Thomas  v.  Dakin,  injra,  p.  21. 


4        WARNER    AND    RAY   V.  BEERS BOLANDER   V.  STEVENS.       §  2 

Strict  and  essential  definitions  can  generally  be  given  of  the  terms 
of  positive  jurisprudence,  and  particularly  so  in  the  extremely  techni- 
cal and  artificial  system  of  the  ancient  English  law.  This  is  remark- 
ably the  case,  for  instance,  in  regard  to  our  common  law  terms  of  real 
estate,  as  fee,  lease,  warranty,  grant,  covenant,  reversion,  remainder, 
etc. ;  all  of  which  are  defined  precisely  and  essentially,  not  explained 
by  mere  attributes.  Bodies  corporate  belong  to  that  system,  and 
thence  do  we  immediately  derive  them.  What,  then,  is  a  body  cor- 
porate.? 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  tn  abstractor  and  rests  only 
in  contemplation  of  law."  10  R.  50.  So  again,  he  says,  i  Inst.  202, 
250,  "Persons  capable  of  purchasing  are  of  two  sorts — persons  natural 
created  of  God,  a.nA  persons  created  by  the  policy  of  man,  as  persons 
incorporated  into  a  body  politic."  If,  leaving  the  quaint  scholastic 
teaching  of  the  father  of  English  law,  we  come  to  the  clearer  and  di- 
recter  sense  of  our  own  Marshall,  we  find  the  same  prevailing  idea. 
"A  body  corporate  is  an  artificial  being,  invisible,  intangible,  exist- 
ing only  in  contemplation  of  law.  Being  the  creature  of  law,  it  pos- 
sesses only  the  properties  conferred  upon  it  by  its  charter.  Among 
the  most  important  of  these  are  immortality,  and,  if  the  expression 
may  be  allowed,  individuality."  4  Wh.  R.  636;  i  Peters'  R.  46. 
Again;  "It  is  precisely  what  the  act  of  incorporation  makes  it ;  de- 
rives all  its  powers  from  that  act,  and  is  capable  of  exerting  its  facul- 
ties 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  Prof.  Woodeson,  "individuals  are  invested  by  the  law  with  a 
political  character  and  personality,  wholly  distinct  from  their  natural 
capacity."  "A  corporation,"  says  Kyd  on  Corporations,  13,  "is  not 
a  mere  capacity,  but  a  political  person  in  which  many  capacities  re- 
side." Thus,  then,  the  essential  legal  definition  that  covers  the  whole 
ground,  and  expresses  the  very  essence  of  the  being  of  a  body  corpo- 
rate, is  this:  '■'■It  is  an  artificial  legal  person  ^  a  succession  of  indi- 
viduals^  or  an  aggregate  body  considered  by  the  law  as  a  single 
continuous  person r  limited  to  one  peculiar  mode  of  action,  and  having 
the  power  only  of  the  kind  and  degree  prescribed  by  the  law  which 
confers  them."  Such  is  the  established  notion  of  our  common  law. 
Such,  too,  as  far  as  I  can  trace  it,  is  the  doctrine  of  the  modern  civil 
law,  as  modified  by  the  jurisprudence  of  the  European  continent. 
"Communities  that  are  lawfully  established  {i.  e.,  corporations),"  says 
Domat,  one  of  the  great  teachers  of  the  ante-revolutionary  French 
civil  law,  "are  in  the  place  of  persons,  and  their  union,  which  renders 
common  all  their  interest,  makes  them  to  be  considered  as  one  single 
person."  Domat,  Civil  Law,  Lib.  i,  tit.  15.  To  the  same  effect  a 
somewhat  older  Italian  civilian  speaks,  Oldradus  De  Ponte,  as  quoted 
by  Sir  Robert  Sawyer,  in  his  very  able  and  learned  argument  in  the 
case  of  the  city  of  London,  8  St.  Tr.  1175.  '■'■Licet  nan  habent 
veram  personam.,    habent  personam  fictione  juris. ^^     So  the  older 


§  2  TESTS :     MERGER   INTO    ARTIFICIAL    BODY.  5 

German  jurisprudence,  as  founded  on  the  Roman  law,  also  held  the 
idea  of  persona/tty  as  essential  to  corporations.  Heineccius,  one  of  the 
most  distinguished  civilians  of  that  school  in  the  last  century,  in  his 
instructive  essay  on  the  legal  history  of  the  corporate  guilds  or  socie- 
ties of  trade  so  common  in  Germany,  speaks  of  this  personality  as  an 
attribute  of  all  corporations.  '■'■  Universitates  et  contrahere  fossunt  et 
dclinquere,  guippe  quae  nioraliter  unam  representant  personam.**  De 
CollegiisOpificum,  in  Germania,  cap.  77,  §  19.  This  doctrine  of  the 
modern  civilians  of  France,  Italy  and  Germany,  may  be  traced  up 
even  to  the  jurists  of  the  Code  and  Pandects.  '•'•Personce  vice  fungitur 
7nunicipiuin  et  decuria.*'  Pan.  i,  22,  de  fide  juss.  I  do  not  cite 
these  civilians  as  direct  authorities,  biit  mainly  to  show  how  deeply  and 
generally  this  pervading  idea  of  legal  personality  and  artificial  individu- 
ality entered  into  and  formed  the  characteristic  of  all  corporate  bodies, 
in  those  systems  of  law  which  might  indirectly  affect  or  govern  our 
own,  or  tend  to  influence  even  the  popular  use  of  our  legal  terms. 

So  far  was  this  principle  of  corporate  personality  carried  in  our  old 
common  law  that  reasons  were  expressly  assigned  why  a  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  artificial  and  not  a  moral  person,  must  be  incapable  of  guilt.  The 
very  able  argument  in  the  celebrated  historical  case  of  the  charter  of 
London,  in  1682,  went  a  good  deal  into  these  refinements,  and  it  was 
held  on  one  side  that  a  political  person  had  a  mind  and  reason,  ac- 
cording to  Lord  Chief  Justice  Hobart,  and  that  its  reason  was  ex- 
pressed by  its  by-laws,  whilst  the  attorney-general  (whom  Bishop 
Burnet  has  egregiously  wronged  in  calling  him  "a  hot,  dull  man"), 
argued  most  acutely,  as  well  as  very  learnedly,  in  support  of  the  ca- 
pacity of  a  corporation  to  incur  political,  if  not  moral,  guilt  and  pun- 
ishment. 

All  these,  it  is  true,  are  refinements  of  technical  reasoning,  in  a 
taste  and  fashion  of  thought  which  have  passed  away ;  but  they  prove 
conclusively  how  strong  and  undoubted  was  that  legal  principle  of 
personality  upon  which  these  mere  inferences  and  nice  distinctions 
were  founded. 

In  order  to  continue  the  existence  of  such  an  artificial  person,  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  properties  specifically  confeired  upon  it;  and  can  possess  and  ex- 
ercise no  others,  except  such  as  are  absolutely  necessary  to  the  exer- 
cise of  the  powers  expressly  given.  This  is  the  enactment  of  our  re- 
vised statutes,  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 


6        WARNER   AND    RAY   V.  BEERS — BOLANDER   V.  STEVENS.       §  2 

by  the  common  law,  also  declared  in  our  statute,  and  common  to  all 
corporations,  as  to  sue  and  be  sued,  hold  and  convey  real  and  per- 
sonal property,  to  appoint  officers  for  its  services,  and  to  make  by- 
laws for  the  management  of  its  affairs.  To  these  more  important 
rights,  the  law  adds  the  external  evidence  of  a  name  and  a  common 
seal.  This  last,  though  apparently  a  matter  of  form,  is  not  without 
effect  any  more  than  the  legal  consequences  of  seals  to  instruments  in 
England  and  this  state,  so  widely  different  from  those  of  other  legal 
systems,  where  the  distinction  between  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  by  a  corpora- 
tion. 

[Powers  incidental  to  corporate  existence.] — There  are  several  very 
useful  and  beneficial  accessary  powers  or  attributes,  very  often 
accompanying  corporate  privileges,  especially  in  moneyed  cor- 
porations, which,  in  the  existing  state  of  our  lav\r,  as  modified  by 
statutes,  are  more  prominent  in  the  public  eye,  and  perhaps  some- 
times in  the  view  of  our  courts  and  legislatures,  than  those  which  are 
essential  to  the  being  of  a  corporation.  Such  added  powers,  however 
valuable,  are  merely  accessary.  They  do  not  in  themselves  alone 
confer  a  corporate  character,  and  may  be  enjoyed  by  unincorporated 
individuals. 

Such  a  power  is  the  transferability  of  shares^  whereby  investments 
may  be  made,  without  the  owner  losing  the  future  control  of  his  funds 
under  changes  of  circumstances.  Such,  too,  is  the  limited  responsi- 
bility by  which  the  stockholder,  having  once  fairly  paid  up  his  share 
of  the  capital,  is  exempted  from  further  personal  liability.  So,  too, 
the  convenience  of  holding  real  estate  for  the  common  purposes,  exempt 
from  the  legal  inconveniences  of  joint  tenancy  or  tenancy  in  cotnmon. 
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 
corporation,  is  quite  unessential  to  the  legality  of  a  corporation,  may 
be  found  where  there  is  no  pretense  of  a  body  corporate,  nor  will  they 
make  one  if  all  were  combined,  without  the  presence  of  the  essential 
quality  of  legal  individuality.  This  distinction  has  been  observed  and 
marked  by  Mr.  Kyd,  Kyd  on  Corporations,  13,  with  logical  acuteness 
and  precision:  "A  corporation  is  a  political  person,  capable,  like  a 
natural  person,  of  enjoying  a  variety  of  franchises.  It  is  to  a  franchise 
as  the  substance  to  its  attribute.  It  is  something  to  which  many  at- 
tributes belong,  but  it  is  itself  something  distinct  from  those  attri- 
butes:' 

Thus,  the  transferability  of  shares  is  not  essential  to  a  corporation. 
For  instance,  it  does  not  enter  into  the  constitution  of  our  chartered 
colleges,  academies,  hospitals  and  other  corporate  institutions  founded 
by  public  endowment,  or  private  beneficence.  It  does  not  enter  into  the 
charters  oi  incorporated  scientific  and  literary  societies  for  mutual  ben- 
efit or  charity,  in  the  funds  of  which  the  members  have  a  beneficial  in- 


§  2  TESTS :     MERGER    INTO   ARTIFICIAL    BODY.  7 

terest.  On  the  other  hand,  such  a  right  of  transfer  may  be  incorporated 
into  partnership  articles,  and  become  a  fundamental  condition  of  them. 
The  general  rule,  in  absence  of  any  express  stipulation,  is  indeed  the 
reverse  of  this,  and  in  practice  it  is  comparatively  rare  amongst  us. 
Hence  it  has  become  common  to  consider  such  transferability  as  a 
clear  indication  of  a  corporate  character.  "We  have  seen,"  says 
Collyer  on  Partnership,  647,  "that  in  common  cases  a  partner  is  pre- 
cluded from  assigning  his  interest  to  a  stranger,  so  as  to  make  that 
stranger  a  partner.  To  prevent  this  rule"  from  affecting  the  stock- 
holder of  a  trading  company,  there  must  be  provision  in  the  deed  of 
settlement  enabling  each  stockholder  to  assign  or  transfer  his  share." 
He  then  adds  the  limitations  rendered  necessary  in  England  by  the 
Bubble  act,  which  has  no  corresponding  statute  here,  and  the  con- 
clusion of  the  English  decisions  is  that,  by  the  common  law,  shares 
may  be  made  transferable  absolutely.  King  v.  Webb,  14  East  406; 
Pratt  V.  Hutchinson,  15  East  515  ;  Nichols  v.  Crosby,  2  Barn.  &  Cres. 
814.  See  also  other  cases  collected  by  Wordsworth  on  Joint  Stock 
Companies.  Again,  the  joint  stock  companies  authorized  by  statutes 
in  England  are  avowedly  and  confessedly  not  corporations ;  and, 
there,  says  Wordsworth  on  Joint  Stock  Companies,  183,  "It  is  the 
object  of  all  companies  to  render  their  shares  as  negotiable  as  pos- 
sible, so  that  in  fact  the  restrictions  imposed  by  the  deedof  settlement 
upon  the  transfer  of  shares  are  generally  very  few,  and  seldom  extend 
beyond  requiring  the  transferer's  name,  etc.,  being  registered  in  the 
books  of  the  company.  The  language  of  two  or  three  of  the  later 
acts  of  pai'Iiament  is  specially  worthy  of  attention  on  this  subject. 
They  declare,  as  strongly  as  words  can  declare  legislative  intention, 
that  transferability  of  shares^  and  the  consequent  succession,  can  be 
authorized  in  common  law  copartnerships,  without  giving  to  such 
companies  any  corporate  existence,  or  rendering  them  less  copartner- 
ships in  the  strict  legal  sense  of  the  term.  In  the  statute  of  6  Geo.  IV, 
ch.  43,  it  is  enacted,  "that  it  shall  be  lawful  for  any  member  of  any 
such  society  or  copartnerships  their  respective  executors,  adminis- 
trators or  assigns,  to  sell  and  transfer  any  share  or  shares,  or  portion 
or  portions  of,  or  the  entire  stock  or  interest  which  any  such  member 
may  possess  in  such  society  or  copartnerships  and  the  property  or 
funds  thereof,  subjected  to  such  regulations  and  restrictions  as  may 
be  required  by  the  constitution  of  such  society  or  copartnership." 
This  statute  is  entitled  "An  act  for  the  better  regulation  of  copartner- 
ships of  certain  bankers  in  Ireland."  The  preamble  and  recitals,  and 
all  the  sections  speak  of  these  banking  firms  as  mer6  copartnerships. 
This  strongly  marked  and  repeated  recognition  of  them  as  such,  in 
the  very  sections  authorizing  that  transferability  and  its  consequent 
succession,  which  have  been  insisted  on  as  infallible  marks  of  cor- 
porate character,  leave  no  doubt  in  my  mind  as  to  the  intention  and 
understanding  of  the  British  parliament,  that  in  authorizing  associa- 
tions with  these  and  other  powers  similar  to  those  granted  by  our 
banking  law,  they  were  not  creating  bodies  politic  or  corporate 

But  this  is  not  all ;   parliament  has  not  left  this  meaning  and  inten- 


8        WARNER   AND    RAV   V.  BEERS — BOLANDER   V.   STEVENS.      §  2 

tion  to  be  a  matter  of  inference.  In  1838,  another  act  was  passed 
amendatory  of  the  one  just  cited,  and  of  another  in  relation  to  bank- 
ers in  England,  which  gave  similar  powers.  That  amendatory  stat- 
ute, after  reciting  and  referring  to  the  titles  of  these  prior  acts,  adds 
in  the  preamble,  "and  whereas,  it  is  expedient  that  the  said  act  should 
be  amended,  so  far  as  relates  to  the  powers  enabling  any  such  copart- 
nership, not  being  a  body  corporate^  to  sue  any  of  its  own  members, 
and  the  powers  enabling  any  member  of  any  such  copartnership,  not 
being  a  body  corporate^  to  ^ue  the  said  copartnership.  Be  it  therefore 
enacted,  etc.,  that  any  person  now  being,  or  who  hereafter  may  be,  a 
member  of  any  copartnership  carrying  on  the  business  of  banking 
under  the  provisions  of  the  said  recited  acts  may  commence  and 
prosecute  any  action,"  etc. 

There  can  then  be  no  reasonable  doubt,  that  in  these  most  deliber- 
ately considered  and  very  technically  drawn  acts  of  parliament,  recog- 
nizing copartnerships  as  having  transferable  stock,  and  giving  them 
the  authority  of  suing  in  the  name  of  their  officers  and  other  persons, 
similar  to  those  of  the  associations  formed  under  our  act,  no  bodies 
corporate  were  intended  or  supposed  to  be  created. 

But,  on  this  head  of  transferability  we  need  not  rely  upon  English 
authority  alone.  We  have  as  strong  authority  in  our  own  usages  and 
decisions. 

In  the  articles  of  the  Merchants'  Bank  Association,  before  our  re- 
straining act,  a  similar  transferability  of  shares  was  provided,  and 
these  articles  have  the  authority  of  Alexander  Hamilton  for  their 
validity.  I  shall  have  occasion  to  refer  to  them  more  fully  here- 
after. 

S«  again,  in  the  case  of  the  Albany  Exchange,  before  it  received 
its  present  charter,  the  validity  of  the  partnership  or  joint  stock  com- 
pany for  a  public  enterprise,  with  transferable  shares,  was  expressly 
recognized.  By  the  court — Cowen,  J. — "The  objection  taken  on  the 
argument,  that  this  association  was  illegal,  as  being  in  the  nature  of 
a  corporation,  issuing  scrip  and  providing  for  a  transfer  of  stocky  is 
not  well  founded.  The  act  of  association  in  this  way  is,  we  think, 
properly  characterized  by  the  exception  taken  at  the  trial.  It  consti- 
tutes a  partnership  valid,  as  being  formed  for  the  purposes  of  a  law- 
ful, honest  enterprise."  Townsend  v.  Goewey,  19  Wendell  427. 
The  learned  judge  then  refers  to,  and  adopts,  the  authority  of  Collyer 
on  Partnerships,  p.  624,  and  the  cases  he  cites. 

Again,  this  transferability  may  be  found  in  many  sorts  of  trusts. 
A  well-known  instance  of  this  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  years'  experience,  during 
which,  above  two  hundred  shares  have  passed  through  courts,  assign- 
ments, insolvencies,  bankrupt  commissions,  distribution  of  estates, 
etc.,  without  their  legal  transferability  having  ever  been  impeached. 
See  printed  articles  of  the  Tontine,  N.  Y.,  1793. 


§  2  TESTS :     MERGER    INTO    ARTIFICIAL   BODY.  9 

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  contin- 
ued for  the  common  purposes.  This  has  been  noted  as  a  mark  of  cor- 
porate character;  yet  most  corporations  are  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 
the  opinion  of  the  supreme  court  in  these  cases  as  a  mark  of  a  corpo- 
rate body.  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 
ordinary  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 
Partnership,  p.  5,648;  Pease  v.  Chamberlain,  2  Vesey  Rep.  33; 
Haggerman  v.  Spears,  7  Pick.  Rep.  235  ;  Wrexham  v.  Huddleton,  i 
Swanst.  514. 

Again,  a  common  name  has  been  regarded  as  a  corporate  criterion. 
To  this  Lord  Ellenborough  gives  a  full  answer  in  Rex  v.  Webb. 
"As  to  the  fourth  point,  that  the  subscribers  have  presumed  to  act  as 
if  they  were  a  body  corporate — how  is  this  made  out?  It  was  urged 
that  they  assumed  a  common  name,  that  they  have  a  committee,  etc. 
But  are  these  the  unequivocal  evidence  and  characteristics  of  a  corpo- 
ration ?  How  many  unincorporated  assurance  companies  and  other 
descriptions  of  persons  are  there  that  use  a  common  name,  and  have 
their  committees,  general  meetings  and  by-laws.?  Are  these  all  ille- 
gal .?  Or  which  of  these  particulars  can  be  stated  as  being  of  itself 
the  distinctive  and  peculiar  criterion  of  a  corporation.?"  Thence  he 
infers  that  "these  subscribers  have  not  acted  peculiarly  as  a  body 
corporate."     Rex  v.  Webb,  14  East's  Rep.  406. 

But,  perhaps,  in  the  general  and  popular  understanding,  the  most 
familiar  distinction  between  corporate  bodies  and  common  partner- 
ships, or  other  joint  undertakings,  is  the  exemption  of  the  associates 
from  personal  liability  beyond  the  actual  amount  of  their  respective 
proportions  of  the  capital.  The  regarding  this  very  frequent  and 
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  strik- 
ing characteristic  between  a  corporation  and  a  partnership."  Yet  our 
own  statute  of  limited  partnerships  affords  sufficient  evidence  that  an 
alteration  of  the  existing  law  may  be  made  by  statute,  so  as  to  exempt 
from  personal  liability  beyond  the  stipulated  share  in  the  joint  funds, 
for  the  debts  of  a  firm,  without  the  remotest  thought  of  converting 
such  firms  into  bodies  corporate.  Besides,  the  right  of  making  a  con- 
tract, whereby  those  who  tender  it  stipulate  not  to  be  bound  beyond 


lO     WARNER   AND   RAY   V.  BEERS — BOLANDER   V.  STEVENS.      §  2 

the  amount  of  some  specific  pledged  fund,  must  be  a  natural  right 
growing  out  of  the  very  nature  of  contracts.  If  a  company,  or  asso- 
ciation, or  an  individual,  offers  to  contract  to  make  certain  payments 
only  to  the  amount  of  certain  specific  funds,  and  others  choose  to  ac- 
cept that  contract  on  those  conditions,  there  can  be  nothing  to  prevent 
the  validity  of  such  a  contract,  except  some  positive  rule  of  lav\^  founded 
on  policy  or  an  arbitrary  enactment.  In  the  absence  of  such  a  restric- 
tion, it  is  and  must  be  good.  Such  a  limitation,  then,  must  be  bind- 
ing on  all  who  accept  the  conditions.  The  policy  of  our  law  and  the 
usages  of  business  have,  indeed,  rightly  fixed  the  prestimption  the 
other  way,  so  that  the  stipulation  and  the  burden  of  proof  of  the 
limited  indebtedness  are  thrown  upon  those  who  expect  to  be  bene- 
fited by  them.  This  right  has  been  substantially  admitted  by  the 
highest  tribunals  in  Great  Britain,  in  the  case  of  Minnett  v.  Whin- 
nery,  3  Brown's  Pari.  Cas.  323,  and  it  was  held  to  be  good  by  Lord 
Ellenborough,  in  Alderson  v.  Clay,  i  Camp.  404.  The  doctrine  has 
been  received  as  settled  law  by  one  of  the  best  elementary  writers  of 
the  day,  often  cited  by  our  own  supreme  court.  "When  a  creditor," 
says  Collyer  on  Partnership,  214,  "has  notice,  that  by  an  arrangement 
between  partners,  one  of  them,  though  appearing  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  imincorporated  association,  with  limited  liability,  as  well 
as  transferable  shares,  which  were  read  in  argument  by  Mr.  Kent, 
have  the  great  professional  authority  of  Alexander  Hamilton,  who 
prepared  them,  and  of  the  many  eminent  men  who  joined  in  them,  and 
whose  professional  distinction  gives  to  their  approbation  the  character 
of  a  sort  of  judicial  sanction ;  whilst  the  restraining  act  passed  soon 
after  proves,  as  was  unanswerably  argued,  that  the  legislature  and 
its  legal  advisers  considered  such  a  voluntary  association,  thus  re- 
straining its  own  liability,  not  as  a  violation  of  common  law,  but 
merely  as  contradicting  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  con- 
ducive to  ends  of  profit  or  convenience  are  ordinarily  considered  as 
the  essential  qualities  constituting  corporations,  will  show,  that  all 
such  powers  or  incidents  are  merely  convenient  and  desirable  authori- 
ties or  modes  of  action,  added  to  and  engrafted  upon  the  creation  of 
a  body  politic ;  not  the  legal  attributes  absolutely  essential  to  a  cor- 
poration, and  denoting  its  existence  as  such. 

Amongst  us,  as  in  England,  bodies  politic  or  corporate  may  exist 
where  the  ultimate  personal  liability  is  still  retained.  The  personal 
liability  is  indeed  suspended  in  such  cases,  and  for  a  time  merged  in 
that  of  the  artificial  corporate  person ;  but  there  may  be  an  ulterior 
recourse  to  the  corporators  when  the  former  fails.  Many  corporate 
banks  in  other  states  are  so  constituted,  and  with  us  some  chartered 
companies  for  insurance,  etc.,  some  for  an  indefinite,  others  to  a  lim- 
ited  extent  beyond  the   capital.      Corporate  bodies   may  exist  also 


§2  TESTS:     MERGER    INTO    ARTIFICIAL   BODY.  II 

without  transferability  of  the  rights  of  the  corporators ;  for  a  large 
majority  of  our  literary  and  charitable,  as  well  as  all  our  municipal 
corporations,  are  so.  On  the  other  hand,  by  our  own  common  law 
as  it  would  exist  now,  independfently  of  statutory  restrictions,  associa- 
tions might  be  formed  and  trusts  created,  having  every  one  of  the  above 
enumerated  characteristics,  which  have  been  insisted  upon  as  essential 
to  a  corporation,  except  that  personality  which  I  before  stated  as  form- 
ing its  strict  and  necessary  essential  legal  definition.  The  present 
joint  stock  companies  of  England  afford  pregnant  examples,  showing 
how  many  of  these  attributes  may  be  embodied  in  voluntary  associa- 
tions which  are  confessedly  not  corporations. 

In  fact  the  line  may  be  very  faint,  and  depending  wholly  upon  the 
purely  legal  and  technical  character  conferred,  whether  a  joint  stock 
association  or  a  trust,  freed  by  law  from  certain  positive  restraints  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  may  well  be 
regarded  as  sanctioned  judicially.  It  is  a  valid  trust.  Add  to  it  a 
legislative  charter,  making  the  associates  a  body  corporate  and  no 
more,  what  then  is  the  effect?  Simply  to  give  a  different  technical 
character,  an  artificial  individuality  m  Chief  Justice  Marshall's  phrase, 
a  different  mode  of  standing  in  courts. 

Such  was  the  actual  history  of  the  Albany  Exchange.  It  was  a 
joint  stock  company,  formally  decided  to  be  valid.  19  Wendell's 
Rep.  427.  A  year  or  two  after  (1837),  it  appears  by  our  statute 
book  to  have  been  incorporated,  but  there  is  probably  but  little  differ- 
ence, besides  the  greater  convenience  of  the  corporate  body,  between 
the  former  organization  and  the  present. 

The  trusts  specially  permitted  by  an  act  of  last  year.  Statutes  of 
1839,  ch.  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  incor- 
poration of  churches  of  all  religious  denominations  (other  than  those 
provided  for  in  the  first  and  second  sections)  by  trustees,  who  are  to 
be  a  body  corporate. 

Those  who  have  had  occasion  to  look  into  the  mode  in  which  dis- 


12      WARNER   AND    RAY   V.  BEERS — BOLANDER   V.  STEVENS.      §2 

senting  religious  trusts  are  held  in  England,  as  I  presume  they  were, 
in  the  same  manner,  in  New  York  when  a  colony,  will,  I  think,  per- 
ceive that  our  statute  adds  little  more  than  a  convenient  corporate 
character  to  powers  elsewhere,  and  formerly  here,  exercised  under 
trusts. 

All  these  considerations  lead  me  to  the  conviction  that,  for  the  pur- 
pose of  constitutional  interpretation,  we  must  look  to  the  strict  legal 
meaning  of  the  phi-ase  body  politic  or  corporate^  and  not  to  those  cir- 
cumstances or  adjuncts,  which  amount  only  to  the  descriptions  of  the 
manner  in  which  such  bodies  are  very  frequently  constituted  when 
used  for  purposes  of  profit.  If  this  be  regarded  as  a  very  strict  rule 
of  interpretation,  let  it  also  be  remembered,  that  it  is  applied  where 
such  strictness  is  most  appropriate,  in  the  interpretation  of  a  provision, 
restraining  the  general  sovereign  power  of  the  state  expressing  the 
public  will  through  a  majority  of  the  people's  representatives. 

There  is  yet  another  rula  of  interpretation,  which  it  is  proper  to 
state  before  proceeding  to  examine  whether  the  associations  organized 
tmder  the  banking  law  are  or  are  not  corporations. 

Corporate  rights  are  well  defined  by  Chancellor  Kent  and  others  to 
be  "franchises  or  peculiar  privileged  grants,"  of  the  nature  of  incor- 
poreal property.  Such  franchises,  when  they  are  granted  for  pecu- 
niary or  other  purposes  valuable  to  private  interests,  are  of  the  nature 
of  monopolies,  and  are  always  granted  exclusively  by  the  sovereign 
power,  directly  or  indirectly.  It  is  a  well-known  fact,  admitted  on  all 
sides,  that  it  was  part  of  the  policy  and  intent  of  our  amended  consti- 
tution, to  prevent,  by  a  constitutional  and  fixed  limitation  of  the  leg- 
islative authority,  the  influence  of  corruption  or  interest  upon  the  leg- 
islature, as  well  as  the  abuse  of  political  favoritism,  and  the  danger- 
ous union  of  political  with  pecuniary  power.  The  clause  so  designed, 
though  so  general  in  its  terms  as  to  include  even  academies  and  vil- 
lage corporations,  it  is  not  doubted,  referred  in  its  policy  wholly  to 
the  monopoly  privileges  of  chartered  capital,  and  especially  to  banks. 

Here,  then,  in  my  view,  arises  another  branch  of  inquiry ;  and  the 
two  distinct  objects  of  examination  are  these:  (i)  Do  these  bank- 
ing associations  fall  within  the  right  legal  definition  of  the  word 
"bodies  politic  or  corporate,"  as  before  explained  and  established? 
(2)  Do  they  come' within  the  policy  and  intent  of  the  framers  of  the 
constitution  or  of  the  people  who  ratified  it  ? 

[Test  of  corporate  existence,] — The  most  peculiar,  and  the  strictly 
essential  characteristic  of  a  corporate  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  dis-- 
tinct,  artificial  individual  existence.  Now  this  is  not  found  in  the 
associations  under  the  act,  A  corporatiofi  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 


§2  TESTS:     MERGER    INTO    ARTIFICIAL    BODY.  1 3 

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  partnetship.  Not  so  as  to  these  associations.  By 
this  act,  suits  on  behalf  of  such  associations  may  be  brought  in  the 
name  of  the  president.  Persons  having  claims  against  the  company 
may  maintain  their  actions  against  the  president.  But  there  is  no 
reason,  except  that  of  mere  convenience,  why  the  association  may  not 
also  sue  and  be  sued  under  their  several  real  names,  as  other  partners 
may.  This  reason  of  convenience,  it  is  obvious,  would  not  apply 
where  the  company  was  composed  of  a  few  persons,  as  if,  for  exam- 
ple, one  of  our  great  banking  firms  were  to  come  under  the  law. 

It  was  indeed  argued  that  the  technical  construction,  which  gives  to 
may  the  meaning  of  must  or  shall^  applies  here.  But  that  construc- 
tion holds  only  when  there  is  a  previous  duty,  to  which  the  statute 
adds  some  new  power  or  authority,  as  in  the  case  of  a  public  officer ; 
or  where  from  other  reasons  it  is  manifest  that  (to  use  Judge  Story's 
words)  "the  legislature  meant  to  impose  an  absolute  duty,  not  to  give 
a  discretionary  power;"  otherwise,  as  he  says,  "the  ordinary  use  of 
language  must  be  presumed  to  be  intended,  unless  it  would  defeat  the 
provisions  of  the  act."  i  Peters'  Rep.  64.  The  ordinary  popular 
discretionary  sense  of  the  word  may  is  also  the  ordinary  legal  one. 
The  other  is  the  exception.  In  our  revised  statutes,  the  words  may 
and  shall  are  so  used  and  distinguished.  So  they  are  in  our  annual 
legislation,  as  when  it  is  said  of  a  company  that  it  may  hold  real 
estate,  may  take  a  certain  rate  of  tolls,  may  borrow  money. 

Moreover,  here  the  right  to  sue  and  be  sued  as  other  partners  is  a 
common  law  right,  and  can  not  be  taken  away  by  mere  implication. 
"A  statute  made  in  the  affirmative,  without  negative  words,"  say  the 
highest  authorities,  "does  not  take  away  the  common  law."  2  Inst. 
200.  See  also  Dwarris  on  Statutes  637,  and  the  authorities  there  re- 
ferred to.       *       *       * 

Again,  these  associations  do  not  act  by  a  corporate  name  and  seal, 
but  by  another  mode  familiar  to  our  law.  They  can  contract  through 
their  president,  as  a  limited  partnership  must  through  its  general 
partner.  They  are  authorized  to  sue  and  be  sued  through  him  ;  as 
Judge  Cowen  observes  :  "The  power  of  the  legislature  to  give  a  right 
of  action  to  one  man  in  his  own  name  for  a  debt  due  to  another,  has 
always  been  exercised  from  our  earliest  legal  history,  and  it  is 
now  too  late  to  call  it  in  question."  I  refer  to  the  several  legislative 
and  judicial  authorities  which  he  has  collected  in  his  opinion  on  these 
cases.  They  can  not  hold  real  estate  as  a  corporation  does,  or  con- 
tract 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  contempla- 
tion ? 

I    assent    fully   to    the    conclusive   reasoning  of  the    counsel,  who 


14     WARNER   AND    RAY   V.  BEERS — BOLANDER    V.  STEVENS.      §  2 

chiefly  pressed  this  part  of  the  argument  (Mr.  Kent),  that  they  are 
copartnerships  relieved  from  the  inhibitions  of  the  restraining  act, 
and  thus  allowed  to  carry  on  banking  business  under  certain  condi- 
tions. The  policy  of  the  state  has  prohibited  its  citizens  from  issuing 
paper  for  circulation  as  money,  or  from  associating  together  for  cer- 
tain banking  purposes,  i  R.  S.  711.  It  reserved  those  privileges 
for  corporate  banks.  The  act  to  authorize  the  business  of  banking 
repealed  that  prohibition  pro  tanto,  as  to  all  individuals  or  companies 
v\ho  would  comply  with  its  conditions.  The  associations  in  question 
are  partnerships  complying  with  those  conditions,  and  thus  exempted, 
as  any  other  citizens  may  be  on  the  same  terms,  from  the  operation 
of  a  statutory  restraint  of  general  right,  which  is  still  binding  on  all 
who  will  not  comply  with  the  conditions.  This  is  so  far  in  close  an- 
alogy to  the  law  of  special  partnership,  where  exemption  from  the 
general  liability  imposed  by  the  law  is  tendered  to  all  who  comply 
strictly  with  the  provisions  of  the  statute.  The  articles  and  certificate 
in  this  act  correspond  to  the  certificate  setting  forth  the  naines  of 
partners,  amount  of  capital,  time  of  termination  and  nature  of  busi- 
ness, required  by  the  title  of  "Limited  Partnerships,"  i  R.  S.  764, 
and  with  the  articles  which  every  such  copartnership  must  have.  The 
general  partner  there  is  authorized  to  transact  business  and  contract 
for  the  rest;  so,  though  with  less  authority,  is  the  president  here. 
The  mode  of  suing  and  being  sued  is  precisely  the  same  in  both 
cases.       *       *       * 

On  the  question  being  put,  shall  these  judgments  be  reversed?  all 
the  members  of  the  court,  with  but  a  single  exception  {twenty-three 
being  present),  voted  in  the  negative.  Whereupon  the  judgments  of 
the  supreme  court  were  affirmed.  The  court  thereupon  adopted  the 
following  resolutions: 

I.  "Resolved,  That  the  law  entitled  'An  act  to  authorize  the  busi- 
ness of  banking,'  passed  i8th  April,  1838,  is  valid,  and  was  constitu- 
tionally enacted,  although  it  may  not  have  received  the  assent  of  two- 
thirds  of  the  members  elected  to  each  branch  of  the  legislature." 
This  resolution  was  adopted  by  a  vote  of  23  to  i. 

3.  "Resolved,  That  the  associations  organized  in  conformity  with 
the  provisions  of  the  act  entitled  'An  act  to  authorize  the  business  of 
banking,'  passed  April  i,  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. 


§3  TESTS:     LEGISLATIVE   INTENT.  1 5 

Sec.  3.    Tests.     (2)  The  legislative  intent. 

THE  PEOPLE,  Ex  Rel.  WINCHESTER,  Etc.,  Respondent,  v.  COLEMAN 
Et  Al,,  Commissionebs  op  Taxes,  Etc.,  Appellants.' 

1892.     Court  of  Appeals,  New  York.     133  N.  Y.  279-287,    37 
Am.  &  Eng.  Corp.  Cas.  i,    31  N.  E.  96. 

Appeal  from  order  of  the  general  term  of  the  supreme  court,  in 
the  first  judicial  department,  made  February  13,  1891,  which  affirmed 
a  judgment  in  favor  of  plaintiff,  entered  upon  a  decision  of  the  court 
on  trial  at  special  term,  vacating  an  assessment. 

This  was  a  proceeding  by  certiorari  to  review  the  action  of  the 
commissioners  of  taxes  and  assessments  of  the  city  of  New  York,  in 
imposing  an  assessment  upon  the  capital  stock  of  the  National  Ex- 
press Company,  a  joint-stock  company,  of  which  the  relator  is  treas- 
urer, for  the  year  1888. 

The  facts,  so  far  as  material,  ai'e  stated  in  the  opinion. 

Finch,  J.  The  relator  was  taxed  upon  its  capital  on  the  ground 
that  it  had  become  a  corporation  within  the  meaning  of  the  provision 
of  the  Revised  Statutes,  which  enacts  that  "all  moneyed  or  stock 
corporations  deriving  an  income  or  profit  from  their  capital  or  other- 
wise, shall  be  liable  to  taxation  on  their  capital  in  the  manner  herein- 
after prescribed."  (i  R.  S.,  title  4,  ch.  13,  part  i.)  The  company 
was  formed  as  a  joint-stock  company  or  association  in  1853  by  a 
written  agreement  of  eight  individuals  with  each  other,  the  whole 
force  and  effect  of  which,  in  constituting  and  creating  the  organiza- 
tion, rested  upon  the  common  law  rights  of  the  individuals  and  their 
power  to  contract  with  each  other.  The  relation  they  assumed  was 
wholly  the  product  of  their  mutual  agreement  and  dependent  in  no 
respect  upon  the  grant  or  authority  of  the  state.  It  was  entered  into 
under  no  statutory  license  or  permission,  neither  accepting  nor  de- 
signed to  accept  any  franchise  from  the  sovereign,  but  founded  wholly 
upon  the  individual  rights  of  the  associates  to  join  their  capital  and 
enterprise  in  a  relation  similar  to  that  of  a  partnership.  A  few  years 
earlier  the  legislature  had  explicitly  recognized  the  existence  and  va- 
lidity of  such  organizations,  founded  upon  contract  and  evolved  from 
the  common  law  rights  of  the  citizens.  (Laws  of  1849,  ch.  258.) 
That  act  provided  that  any  joint-stock  company  or  association,  which 
consisted  of  seven  or  more  members,  might  sue  or  be  sued  in  the 
name  of  its  president  or  treasurer,  and  with  the  same  force  and  effect, 
so  far  as  the  joint  property  and  rights  were  concerned,  as  if  the  suit 
should  be  prosecuted  in  the  names  of  the  associates.  But  the  act 
explicitly  disclaimed  any  purpose  of  converting  the  joint-stock  ttsso- 
ciations  recognized  as  existing  into  corporations  by  a  section  prohibit- 
ing any  such  construction.     (§  5.)     In  1851  the  act  was  amended  in 

'  Arguments  omitted. 


l6  PEOPLE   V.    COLEMAN.  Jj 

its  form  and  application,  but  in  no  respect  material  to  the  present  in- 
quiry. There  is  no  doubt,  therefore,  that  when  the  company  was 
formed  and  went  into  operation  the  law  recognized  a  distinction  and 
substantial  difference  between  joint-stock  companies  and  corporations, 
and  never  confused  one  with  the  other,  and  that  the  existing  statute 
which  taxed  the  capital  of  corporations  had  no  reference  to  or  opera- 
tion upon  joint-stock  companies  or  associations. 

But  two  things  have  since  occurred.  The  legislature,  while  steadily 
preserving  the  distinction  of  names,  has  with  equal  persistence  con- 
fused the  things  by  obliterating  substantial  and  characteristic  marks 
of  difference,  until  it  is  now  claimed  that  the  joint-stock  associations 
have  grown  into  and  become  corporations  by  force  of  the  continued 
bestowal  upon  them  of  corporate  attributes.  It  is  said,  and  very- 
probably  correctly  said,  that  the  legislature  may  create  a  corporation, 
without  explicitly  declaring  it  to  be  such,  by  the  bestowal  of  a  corpo- 
rate franchise  or  corporate  attributes,  and  the  cases  of  banking  asso- 
ciations are  referred  to  as  instances  of  actual  occurrence.  (Thomas 
V.  Dakin,  22  Wend,  o;^  Bank  of  Watertowji  v.  Watertown,  25  Wend. 
686;  People  v.  Niagara,  4  Hill  20.)  It  is  added  that  such  result 
may  happen  even  without  the  legislative  intent,  and  because  the  gift 
of  corporate  powers  and  attributes  is  tantamount  to  a  corporate  crea- 
tion. It  is  then  asserted  that  a  series  of  statutes,  beginning  with  the 
act  of  1849,  has  ended  in  the  gift  to  joint-stock  associations  of  every 
essential  attribute  possessed  by  and  characteristic  of  corporations 
(Laws  of  1853,  ch.  153;  Laws  of  1854,  ch.  245;  Laws  of  1867,  ch. 
289)  ;  that  the  lines  of  distinction  between  the  two,  however  far  apart 
in  the  beginning,  have  steadily  converged  until  they  have  melted  into 
each  other  and  become  identical ;  that  every  distinguishing  mark  and 
characteristic  has  been  obliterated,  and  no  reason  remains  why  joint 
stock  associations  should  not  be  in  all  respects  treated  and  regarded 
as  corporations. 

Some  of  this  contention  is  true.  The  case  of  People,  ex  rel.  Piatt, 
V.  Wemple  (117  N.  Y.  136),  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  obscure,  elusive  and  difficult  to  see  and  describe. 
And  yet  the  truth  remains  that  all  along  the  line  of  legislation  the  dis- 
tinctive names  have  been  retained  as  indicative  and  representative  of 
a  difference  in  the  organizations  themselves.  As  recently  as  the  acts 
of  1880  and  1 88 1,  which  formed  the  subject  of  consideration  in  the 
Wemple  case,  the  legislature,  dealing  with  the  subject  of  taxation  and 
desiring  to  tax  business  and  franchises,  imposed  the  liability  upon 
"every  corporation,  joint-stock  company  or  association  whatever  now 
or  hereafter  incorporated  or  organized  under  any  law  of  this  state." 
It  is  significant  that  the  words  "or  organized"  were  inserted  by 
amendment,  and  evidently  for  the  understood  reason  that  joint-stock 

^Infra,  p.  19. 


§3  TESTS:     LEGISLATIVE    INTENT.  1 7 

companies  could  not  properly  be  said  to  be  ''incorporated,"  but 
might  be  correctly  described  as'  "organized"  under  the  laws  of  the 
state.  This  persistent  distinction  in  the  language  of  the  statutes  I 
should  not  be  inclined  to  disregard  or  treat  as  of  no  practical  conse- 
quence, when  seeking  to  arrive  at  the  true  intent  and  proper  con- 
struction of  the  statute,  even  if  I  were  unable  to  discover  any  practi- 
cal or  substantial  difference  between  the  two  classes  of  organizations 
upon  which  it  could  rest,  or  out  of  which  it  grew,  for  the  distinction 
so  sedulously  and  persistently  observed  would  strongly  indicate  the 
legislative  intent,  and  so  the  correct  construction. 

But  I  think  there  was  an  original  and  inherent  difference  between 
the  corporate  and  joint-stock  companies  known  to  our  law  which  leg- 
islation has  somewhat  obscured,  but  has  not  destroyed,  and  that  dif- 
ference is  the  one  pointed  out  by  the  learned  counsel  for  the  respon- 
dent, and  which  impresses  me  as  logical  and  well  supported  by 
authority.  //  is  that  the  creation  of  the  corporation  merges  in  the 
artificial  body  and  drowns  in  it  the  individual  rights  and  liabilities 
of  the  members^  while  the  organization  of  a  joint-stock  company  leaves 
the  individual  rights  and  liabilities  unimpaired  and  in  full  force. 
The  idea  was  expressed  in  Supervisors  of  Niagara  v.  People,  7  Hill 
512,  and  in  Gifford  v.  Livingston,  2  Den.  380,  by  the  statement  that  the 
corporators  lost  their  individuality  and  merged  their  individual  char- 
acters into  one  artificial  existence ;  and  upon  these  authorities  a  cor- 
poration is  defined  on  behalf  of  the  respondents  to  be  '•'•an  artificial 
person  created  by  the  sovereign  from  natural  persons  and  in  which 
artificial  person  the  natural  persons  of  which  it  is  composed  become 
merged  and  non-existent.'^  I  am  conscious  that  legal  definitions  in- 
vite and  provoke  criticism,  because  the  instances  are  rare  in  which 
they  prove  to  be  perfectly  accurate ;  and  yet  this  one  offered  to  us 
may  be  accepted  if  it  successfully  bears  some  sufficient  test.  In  put- 
ting it  on  trial  we  may  take  the  nature  of  the  individual  liability  of 
the  corporators  on  the  one  hand  and  of  the  associates  on  the  other, 
for  the  debts  contracted  by  their  respective  organizations,  as  a  suffi- 
cient test  of  the  difference  between  them,  and  contrast  their  nature 
and  character. 

It  is  an  essential  and  inherent  characteristic  of  a  corporation  that  it 
alone  is  primarily  liable  for  its  debts,  because  it  alone  contracts  them, 
except  as  that  natural  and  necessary  consequence  of  its  creation  is 
modified  in  the  act  of  its  creation  by  some  explicit  command 
of  the  statute  which  either  imposes  an  express  liability  upon  the 
corporators  in  the  nature  of  a  penalty,  or  affirmatively  retains  and 
preserves  what  would  have  been  the  common-law  liability  of  the 
members  from  the  destruction  involved  in  the  corporate  creation. 
In  other  words,  the  individual  liability  of  the  members,  as  it  would 
have  existed  at  common  law,  is  lost  by  their  creation  jnto  a  corpo- 
ration, and  exists  thereafter  only  by  force  of  the  statute,  upon  some 
new  and  modifying  conditions,  to  some  partial  or  changed  ex- 
tent, and  so  far  preventing,  by  the  intervention  of  an  express  com- 
2— WiL.  Cases. 


1 8  PEOPLE   V.    COLEMAN  §  3 

mand,  the  total  destruction  of  individual  liabilities  which  otherwise 
would  flow  from  the  inherent  effect  of  the  corporate  creation.  The 
penalties  sometimes  imposed  are,  of  course,  new  statutory  liabilities 
which  never  at  common  law  rested  upon  the  individual  members. 
The  retained  liability  occasionally  established  is  in  the  nature  and  a 
parcel  of  such  original  liability,  as  we  had  occasion  to  show  in  Rogers 
v.  Decker,  131  N.  Y.  490,  but  is  retained  by  force  of  the  express 
command  of  the  statute,  and  in  that  manner  saved  from  the  de- 
struction which  otherwise  would  follow  the  simple  creation  of  the 
corporation.  Ordinarily,  these  individual  liabilities  exist  upon 
other  than  common-law  conditions,  and  make  the  corporators  rather 
sureties  or  guarantors  of  the  corporation  than  original  debtors,  since 
in  general  their  liability  arises  after  the  usual  remedies  against  the 
corporation  have  been  exhausted.  But  where  that  is  not  so,  the 
invariable  truth  is  that  the  creation  of  the  corporation  necessarily 
destroys  the  common-law  liability  of  the  individual  members  for  its 
debts,  and  requires  at  the  hands  of  the  creating  power  an  affirmative 
imposition  of  new  personal  liabilities  or  a  specific  retention  of  old 
ones  from  the  destruction  which  would  otherwise  follow.  Exactly 
the  opposite  is  true  of  joint-stock  companies.  Their  formation  de- 
stroys no  part  or  portion  of  their  common  law  liability  for  the  debts 
conti'acted.  Those  debts  are  their  debts,  for  which  they  must  answer. 
Permission  to  sue  their  president  or  treasurer  is  only  a  convenient 
mode  of  enforcing  that  liability,  but  in  no  manner  creates  or  saves  it. 
The  statute  of  1853  did  interfere  with  it.  That  act  required,  in  the 
first  instance,  a  suit  against  the  president  or  treasurer,  and  so  a  pre- 
liminary exhaustion  of  the  joint  property.  But  that  act  was  modal, 
and  determined  the  procedure.  It  suspended  the  common-law  right, 
but  recognized  its  existence.  We  so  held  in  Witherhead  v.  Allen, 
4  Abb.  Ct.  App.  Dec.  628,  and  at  the  same  time  said  that  the  asso- 
ciations were  not  corporations,  but  mere  partnership  concerns.  Even 
that  mode  of  procedure  has  been  modified  by  the  Code,  §§  1922,  1923, 
so  that  the  creditor,  at  his  option,  may  sue  the  associates  without 
bringing  his  action  against  the  president  or  treasurer.  These  last  and 
quite  recent  enactments  show  that  the  legislative  intent  is  still  to  pre- 
serve and  not  destroy  the  original  difference  between  the  two  classes 
of  organizations ;  to  maintain  in  full  force  the  common-law  liability 
of  associates,  and  not  to  substitute  for  it  that  of  corporators,  and  pre- 
serving in  continued  operation  that  normal  and  distinctive  difference, 
to  evince  a  plain  purpose  not  to  merge  the  two  organizations  in  one  or 
destroy  the  boundaries  which  separate  them.  That  intent^  once  clearly 
ascertained^  determines  the  construction  to  be  adopted^  and  may  be  the 
only  reliable  test  in  view  of  the  power  of  the  state  to  clothe  one  or- 
ganization with  all  the  attributes  of  the  other.  The  drift  of  legisla- 
tion has  been  to  lessen  and  obscure  the  original  and  characteristic 
difference.  On  the  one  hand,  corporations  have  been  created  with 
positive  provisions  retaining  more  or  less  the  individual  liability  of  the 
members,  and  on  the  other  the  joint-stock  companies  have  been 
clothed  with   most  of    the   corporate   attributes,  but  enough   of  the 


§  4  TESTS:     POWERS    CONFERRED. 


19 


original  difference  remains  to  show  that  our  legislation  not  only  care- 
fully preserves  the  distinction  of  names,  but  sufficient,  also,  of  the 
original  difference  of  character  and  quality  to  disclose  a  clear  intent 
not  to  merge  the  two. 

We  may  thus  see  upon  what  the  legislative  intent  to  preserve  them 
as  separate  and  distinct  is  founded  and  what  distinguishing  character- 
istics remain.  The  formation  of  the  one  involves  the  merging  and 
destruction  of  the  common  law  liability  of  the  members  for  the  debts, 
and  requires  the  substitution  of  a  new  or  retention  of  the  old  liability 
by  an  affirmative  enactment  which  avoids  the  inherent  effect  of  the 
corporate  creation ;  in  the  other,  the  common  law  liability  remains 
unchanged  and  unimpaired  and  needing  no  statutory  intervention  to 
preserve  or  restore  it ;  the  debt  of  the  corporation  is  its  debt  and  not 
that  of  its  members,  the  debt  of  the  joint-stock  company  is  the  debt 
of  the  associates  however  enforced ;  the  creation  of  the  corporation 
merges  and  drowns  the  liability  of  its  corporators,  the  creation  of  the 
stock  company  leaves  unharmed  and  unchanged  the  liability  of  the 
associates ;  the  one  derives  its  existence  from  the  contract  of  individ- 
uals, the  other  from  the  sovereignty  of  the  state.  The  two  are  alike 
but  not  the  same.  More  or  less,  they  crowd  upon  and  overlap  each 
other,  but  without  losing  their  identity,  and  so,  while  we  can  not  say 
that  the  joint-stock  company  is  a  corporation,  we  can  say,  as  we  did 
say  in  Van  Aernam  v.  Bleistein,  102  N.  Y.  360,  that  a  joint-stock 
company  is  a  partnership  with  some  of  the  powers  of  a  corporation. 
Beyond  that  we  do  not  think  it  is  our  duty  to  go* 

The  order  should  be  affirmed,  with  costs. 

All  concur. 

Order  affirmed. 


Sec.  4.     Tests.     (3)  The  powers  conferred. 

THOMAS  V.  DAKIN.> 

1839.      In   the  Supreme  Court    of    New  York.      22  Wendell 

(N.  Y.)  9-112. 

Chief  Justice  Nelson  :  This  is  an  action  brought  by  the  plaintiff, 
as  president  of  the  Bank  of  Central  New  York,  an  association  formed 
under  what  is  familiarly  known  as  the  general  banking  law,  passed 
April  18,  1838,  to  recover  several  demands  due  the  institution. 

The  defendant  has  demurred  to  the  declaration,  and  urges  the  un- 
constitutionality of  the  law  by  way  of  defense ;  and  it  is  insisted,  in 
his  behalf:  (i)  That  the  associations  formed  under  this  law  are 
corporations;  and  (2)  That  a  general  law  authorizing  the  creation  of 
these  bodies  is  inconsistent  with  the  ninth  section  of  the  seventh  arti- 

'  Statement  of  facts,  except  what  is  given  in  opinions,  is  omitted;  alflo  ar- 
guments, and  much  of  the  opinions  of  Nelson,  C.  J.,  and  Cowen,  J. 


20  THOMAb    V.    DAKIN.  §  4 

cle  of  the  constitution.  On  the  part  of  the  plaintiffs,  it  is  urged  in 
reply:  (i)  That  the  associations  are  not  corporations;  (2)  That  if 
they  be,  the  act  authorizing  them  may  be  passed  by  a  majority  bill; 
and  (3)  If  within  the  ninth  section,  still  the  law  may  be  passed  by 
two-thirds  of  the  members  elected. 

[Test  of  Corporate  Existence.] — Are  these  associations  corporations  ? 
I7i  order  to  determine  this  question^  ive  must  Jirst  ascertain  the 
properties  essential  to  constitute  a  corporate  body^  and  compare  them^ 
•with  those  conferred  upon  the  associations^  for  if  they  exist  in  com- 
mon^  or  substantially  correspond^  the  answer  will  be  in  the  affirma- 
tive. A  corporate  body  is  known  to  the  law  by  the  powers  and 
faculties  bestowed  upon  it,  expressly  or  impliedly,  by  the  charter;  the 
use  of  the  term  corporation  in  its  creation  is  of  itself  imimportant,  ex- 
cept as  it  will  imply  the  possession  of  these.  They  may  be  expressly 
conferred,  and  then  they  denote  this  legal  being  as  unerringly  as  if 
created  in  general  terms.  It  has  been  well  said  by  learned  expound- 
ers, that  a  corporation  aggregate  is  an  artificial  body  of  men,  com- 
posed of  divers  individuals,  the  ligaments  of  which  body  are  the 
franchises  and  liberties  bestowed  upon  it,  which  bind  and  unite  all 
into  one,  and  in  which  consists  the  whole  frame  and  essence  of  the 
corporation. 

[Powers  Incidental  to  Corporate  Existence.] — The  ' '  franchises  and  lib- 
erties," or,  in  more  modern  language,  and  as  more  strictly  applicable 
to  private  corporations,  the  powers  and  faculties,  which  are  usually 
specified  as  creating  corporate  existence,  are:  i.  The  capacity  of 
perpetual  succession  ;  2.  The  power  to  sue  and  be  sued,  and  to  grant 
and  receive  in  its  corporate  name ;  3.  To  purchase  and  hold  real  and 
personal  estate ;  4.  To  have  a  common  seal,  and  5.  To  make  by- 
laws. These  indicia  were  given  by  judges  and  elementary  writers 
at  a  very  early  day,  since  which  time  the  institutions  have  greatly 
multiplied,  their  practical  operation  and  use  have  been  thoroughly 
tested,  and  their  peculiar  and  essential  properties  much  better  under- 
stood. Any  one  comprehending  the  scope  and  purpose  of  them,  at 
this  day,  will  not  fail  to  perceive  that  some  of  the  powers  above  speci- 
fied are  of  trifling  importance,  while  others  are  wholly  unessential. 
For  instance,  the  power  to  purchase  and  hold  real  estate  is  no  other- 
wise essential  than  to  afford  a  place  of  business ;  and  the  right  to  use 
a  comm.on  seal,  or  to  make  by-laws,  may  be  dispensed  with  altogether. 
For  as  to  the  one,  it  is  now  well  settled  that  corporations  may  con- 
tract by  resolution,  or  through  agents,  without  seal ;  and  as  to  the 
other,  the  power  is  unnecessary  in  all  cases  where  the  charter  sufii- 
ciently  provides  for  the  government  of  the  body.  The  distinguishing 
feature,  far  above  all  others,  is  the  capacity  confeired,  by  which  a 
perpetual  succession  of  different  persons  shall  be  regarded  in  the 
law  as  one  and  the  sam.e  body,  and  may  at  all  times  act  in  fulfillment 
of  the  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  which  enables  any  number  of  persons 
to  be  concerned  in  accomplishing  a  particular  object,   as  one  man. 


§4  TESTS:     POWERS    CONFERRED.  21 

While  the  aggregate  means  and  influence  of  all  are  wielded  in  effect- 
ing it,  the  operation  is  conducted  with  the  simplicity  and  individuality 
of  a  natural  person.  In  this  consists  the  essence  and  great  value  of 
these  institutions.  Hence  it  is  apparent  that  the  only  properties  that 
can  be  regarded  strictly  as  essential,  are  those  which  are  indispensable 
to  mold  the  different  persons  into  this  artificial  being,  and  thereby 
enable  it  to  act  in  the  way  above  stated.  When  once  constituted, 
this  legal  being  created,  the  powers  and  faculties  that  may  be  con- 
ferred are  various — limited  or  enlarged,  at  the  discretion  of  the  legis- 
lature, 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,  conclude  by  saying,  with  the  most  approved  au- 
thorities at  this  day,  that  the  essence  of  a  corporation  consists  in  a  ca- 
pacity:  (i)  To  have  a  perpetual  succession  under  a  special  natne^ 
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  (^^)  to  receive  and  enjoy  in  common^  grants  of  privileges  and 
immunities. 

We  will  now  endeavor  to  ascertain  with  exactness  the  powers  and 
attributes  conferred  upon  these  associations  by  virtue  of  the  statute. 
The  first  fourteen  sections  ( i  to  14)  prescribe  the  duties  of  the  comp- 
troller in  furnishing  notes  for  circulation,  taking  the  required  securi- 
ties, etc.  The  fifteenth  provides  that  any  number  of  persons  may 
associate  to  establish  offices  of  discount,  deposit  and  circulation.  The 
sixteenth,  that  they  shall  tnake  and  file  a  certificate,  specifying:  i. 
The  name  to  be  used  in  the  business.  2.  The  place  where  the  busi- 
ness shall  be  carried  on.  3.  The  amount  of  capital  stock  and  num- 
ber of  shares  into  which  divided.  4.  The  names  of  the  shareholders. 
5.  The  duration  of  the  association.  The  eighteenth  confers  upon 
the  persons  thus  associating  the  most  ample  powers  for  carrying  on 
banking  operations,  together  with  the  right  "to  exercise  such  inciden- 
tal powers  as  shall  be  necessary  to  carry  on  such  business;"  also  to 
choose  a  president,  vice-president,  cashier  and  such  other  officers  and 
agents  as  may  be  necessary.  By  the  twenty-first  and  twenty-second 
sections,  contracts,  notes,  bills,  etc.,  shall  be  signed  by  the  president 
and  cashier;  and  all  suits,  actions,  etc.,  are  to  be  brought  in  the 
name  of,  and  also  against,  the  president  for  the  time  being;  and  not 
to  abate  by  his  death .^  resignation  or  removal^  but  to  be  continued  in 
the  name  of  the  successor.  Twenty-fourth  section :  The  association 
may  purchase  and  hold  real  estate,  etc.,  the  conveyance  to  be  made 
to  the  president,  or  such  other  officer  as  shall  be  designated,  who  may 
sell  and  convey  the  same  free  from  any  claim  against  shareholders. 
Nineteenth  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.  Twenty-third 
section:  No  shareholder  to  be  personally  liable;  and  the  association 
is  not  to  be  dissolved  by  the  death  or  insanity  of  any  shareholder. 

I.    Upon  a  perusal  of  these  provisions,  it  will  appear  that  the  asso- 


22  THOMAS   V.    DAKIN.  §  4 

ciation  acquires  the  power  to  raise  and  hold  for  common  use  any  given 
amount  of  capital  stock  for  banking  purposes,  which,  when  subscribed, 
is  made  personal  property,  and  the  several  shares  transferable  the 
same  and  with  like  effect  as  in  case  of  corporate  stock ;  to  assume  a 
common  name  under  which  to  manage  all  the  affairs  of  the  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  different  persons,  holding  an  interest  in  the  capital  stock,  its  oper- 
ations are  so  arranged  that  they  do  not  appear  in  conducting  its 
affairs ;  all  are  so  bound  together,  so  molded  into  one,  as  to  consti- 
tute 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  conducted  by  common  agents.  In  this  way  it  purchases 
and  holds  real  and  personal  property,  contracts  obligations,  discounts 
bills,  notes  and  other  evidences  of  debt,  receives  deposits,  buys  gold 
and  silver  bullion,  bills  of  exchange,  etc.,  loans  money,  sues  and  is 
sued,  etc.  It  is  true  some  portion  of  the  business  is  conducted  in 
the  assumed  name,  and  some  in  the  name  of  the  president  for  the 
time  being;  but  this  in  no  manner  changes  the  character  of  the  body. 
A  corporation  may  have  more  than  one  name;  it  may  have  one  in 
which  to  contract,  grant,  etc.,  and  another  in  which  to  sue  and  be 
sued;  so  it  may  be  known  by  two  different  names,  and  may  sue  and 
be  sued  in  either;  and  the  name  of  the  president,  his  official  name,  or 
any  other,  will  answer  every  purpose.  2  Bacon's  Abr.  5  ;  2  Salk. 
451  ;  2  Salk.  237;  Ld.  Raym.  153,  680.  The  only  material  circum- 
stance 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  associations,  and  of  managing  their  di- 
versified 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  succes- 
sion. 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  without  limit,  §  16,  sub.  5,  the  whole  body  of  shareholders, 
though  perpetually  shifting,  constitute  the  same  uniform,  artificial 
being  which  is  to  be  engaged  through  the  instrumentality  of  officers 
and  agents  in  conducting  the  business  of  the  concern,  and  no  member 
is  personally  liable.  §  23.  Then,  as  to  the  powers  conferred,  with- 
out again  specially  recurring  to  them,  it  will  be  seen  at  once  that  the 
associations  possess  all  that  are  deemed  essential,  according  to  the 
most  approved  authorities,   to    constitute   a  corporate  body.     They 


§  4  TESTS :     POWERS    CONFERRED. 


23 


have  a  capacity:  i.  To  have  perpetual  succession  under  a  common 
name,  and  in  an  artificial  form.  2.  To  take  and  grant  property,  con- 
tract 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,  "/<? 
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.     *     *     * 

By  CovvEN,  J.  Independent  of  authority  and  general  reasoning, 
I  have  had  very  great  difficulty,  on  a  simple  reading,  to  avoid  see- 
ing plain,  direct  and  express  enactments  in  the  general  banking  law, 
conferring  all  the  requisites  demanded  by  counsel,  i.  I  read  of  a 
collective  existence,  i.  e.,  a  body  of  men  associated  under  a  name 
conierred  mediately,  i.  e.,  through  the  certificate  of  association,  by  the 
sovereign  power,  which  is  the  legislature.  2.  As  such  collective  ex- 
istence, I  read  that  the  association  has  a  standing  in  court,  perhaps  in 
its  own  name,  or  at  least  in  the  name  of  its  president.  It  recovers 
judgments  for  debts  due  to  it,  and  execution  is  levied  on  its  property, 
upon  a  recovery  against  it.  $•  I  read  of  power  to  take  and  convey 
title  to  property,  acquire  and  give  rights ;  all  this  to  be  done,  as  it 
must  be  in  every  corporation,  by  its  agents,  but  certainly  in  its  collec- 
tive name  and  designation ;  for  the  statute  demands  that  the  name 
which  it  assumes  shall  be  used  in  ail  its  dealings.  4.  I  shall  have 
occasion  to  show  that  under  a  general  provision  of  the  act,  there  can 
be  no  doubt  of  its  power  to  make  by-laws.  There  are  various  con- 
siderations connected  with  this  short  view  of  the  question,  which  may 
perhaps  tend  to  the  illustration,  distinctness  and  strength  of  that 
view. 

[Difference  Between  a  Partnership  and  a  Corporation'] — The  associa- 
tions formed  under  the  act  may,  like  our  ordinary  banks,  elect  their 
president,  cashier  and  directors,  confer  on  the  latter  as  I  have  as- 
sumed and  intend  to  show,  the  power  to  make  and  repeal  by-laws, 
to  regulate  elections,  and  through  their  proper  agents  in  the  name 
of  the  association,  to  exercise  all  the  other  functions  of  our  or- 
dinary incorporated  banking  institutions.*  The  latter  are  well  known 
as  aggregate  moneyed  corporations.' 

It  can  not  be  denied  that  a  voluntary  association  or  partnership 
might,  temporarily,  also  elect  the  like  officers  and  agents,  confer  upon 
them  nearly  the  same  powers,  and  perform  about  the  same  functions, 
without  any  charter  or  act  of  incorporation  whatever.  Collyer  on 
Partnership,  621,  Am.  ed.  1834.  There  is,  however,  much  difference 
between  the  power,  duration  and  legal  effect ;  a  corporation  aggre- 
gate is  in  law  an  individual  entirely  distinct  from  its  members,  each 
of  whom  may  hold  shares  or  interests  in  the  corporation,  legally 
transferable  in  virtue  of  its  charter ;  whereas  a  voluntary  association 
is  made  up  of  individuals  not  distinct  from,  but  belonging  in  their 
own  names  and  rights  to  the  company.     Their  shares  or  interests  are 

'  See  p.  170,  infra. 


24  THOMAS    V.    DAKIN.  J  4 

common  to  all ;  and,  except  so  far  as  these  may  be  made  up  of  prop- 
erty in  possession,  they  can  not  be  transferred  so  as  to  create  anything 
more  than  an  equitable  right  in  the  assignee.  Hence  a  voluntary 
company,  asserting  that  it  is  possessed  of  stock  transferable  at  the 
option  of  the  holder,  has  been  said  to  be  punishable  for  pretending  to 
act  as  a  corporation.     Collyer  on  Partnership,  624. 

The  members  of  a  copartnership  are  joint  tenants  in  the  stock  and 
all  the  effects  of  the  company,  and,  on  the  death  of  each,  his  interest 
in  the  common  choses  in  action,  at  law,  survives  to  the  other  mem- 
bers, w^hile  his  interest  in  the  common  land  and  choses  in  possession 
passes,  as  an  undivided  share,  to  his  heirs  or  personal  representatives. 
Collyer  on  Partnership,  4,  5,  68.  The  nature  of  these  interests  and 
the  course  of  succession  are,  in  some  respects,  modified  by  the  court 
of  chancery.  Collyer  on  Partnership,  70,  71.  All  the  members 
must,  as  we  have  in  part  before  seen,  be  named  in  suits  by  or  against 
the  company,  the  right  or  liability  to  which,  on  the  death  of  one,  sur- 
vives to  all  the  others.  Collyer  on  Partnership,  386,  395,  420,  427. 
Each  is  individually  liable  for  the  whole  debts  due  from  the  company, 
Collyer  on  Partnership,  212,  and  may  release  and  discharge  all  the 
debts  due  to  them.  Collyer  on  Partnership,  239.  One  may  enter 
upon,  use  or  otherwise  control  all  the  common  property,  real  or  per- 
sonal; indeed,  he  may,  in  general,  convert  it  to  his  own  use,  subject 
to  an  account.  Collyer  on  Partnership,  211.  All  the  remedies  inter 
se,  with  few  exceptions,  are  by  action  of  account  or  bill  in  equity. 
Collyer  on  Partnership,  143.  The  firm  can  not,  in  general,  sue  or 
be  sued  by  any  one  of  its  members,  for  this  would  involve  the  absur- 
dity of  a  man  being  both  plaintiff  and  defendant  on  the  same  record. 
Collyer  on  Partnership,  143,  644-5,  Partnerships  are  dissoluble,  not 
only  by  death  or  insanity,  but  by  the  bankruptcy  of  a  member ;  a 
general  sale  of  his  partnership  effects  by  execution ;  his  attainder  of 
felony,  if  it  result  in  his  civil  death ;  an  assignment  by  himself  of  all 
his  interest,  and  the  marriage  of  a  partner  who  is  ^  feme  sole.  Indeed, 
the  better  opinion  is,  that,  however  strong  the  provisions  against  a 
dissolution  may  be  in  the  articles  of  copartnership,  the  whole  concern 
may  be  dissolved  at  any  time,  by  the  act  of  a  single  partner,  at  his 
own  mere  pleasure.  Even  during  the  continuance  of  the  partnership, 
he  may  interrupt  its  proceedings,  by  interdicting  any  single  measure, 
though  agreed  on  by  a  majority  of  the  firm.  At  least  this  is  generally 
so  at  law,  and  the  power,  it  is  apprehended,  can  be  but  partially  quali- 
fied by  a  court  of  chancery.  Collyer  on  Partnership,  58,  §  2.  3 
Kent's  Comm.,  53-4,  3d  ed.  It  would  seem  clearly  to  follow,  if  it 
has  ever  been  disputed,  that  any  powers,  though  jointly  conferred  on 
others,  as  to  act  in  the  direction  of  affairs,  or  use  a  common  seal,  may 
be  revoked  at  the  pleasure  of  either  partner. 

Most  of  these  incidents  it  is  impossible  for  the  partners  to  avoid  by 
any  stipulations  in  their  articles  of  connection  ;  and  in  proportion  as  any 
body  of  men  is  authorized  by  statute  to  hold  property  and  sue  and  be 
sued  without  such  incidents,  they  approach  the  character  of  a  corpo- 
ration.    While  they  continue  partners  they  are  considered  as  natural 


§4  TESTS:     POWERS    COiNFERRED.  25 

persons  merely,  as  so  many  joint  tenants  or  tenants  in  common,  of  all 
their  property.  In  proportion  as,  by  statute,  they  cease  to  be  so  they 
become  an  artificial  person.  These  two  are  the  only  persons  known 
to  the  law,  according  to  the  language  of  the  great  commentator, 
I  Black.  Comm.  123.  "Persons,"  says  he,  "are  divided  by  the  law 
into  either  natural  persons  or  artificial.  Natural  persons  are  such  as 
the  God  of  nature  formed  us.  Artificial  are  such  as  are  created  and 
devised  by  human  laws  for  the  purposes  of  society  and  government, 
which  are  called  corporations  or  bodies  politic."  In  another  part  of 
his  work,  i  Black.  Comm.  467,  he  shows  the  advantages  of  corpora- 
tions over  partnerships  or  voluntary  companies.  He  says:  "Corpo- 
rations are  formed  in  order  to  preserve  entire  and  forever  those  rights 
and  immunities  which,  if  they  were  granted  only  to  those  individuals 
of  which  the  body  is  composed,  would,  upon  their  death,  be  utterly 
lost  and  ejltinct."  In  a  mere  voluntary  assembly  he  admits  the  indi- 
viduals that  compose  it  might  act  up  to  the  purposes  for  which  they 
associated  so  long  as  they  could  agree  to  do  so;  "but  they  could 
neither  frame  nor  receive  any  laws  or  rules  of  their  conduct ;  none,  at 
least,  which  would  have  any  binding  force,  for  w^ant  of  coercive  power 
to  create  a  sufficient  obligation  ;  and  when  they  are  dispersed  by  death 
or  otherwise,  how  shall  they  transfer  their  advantages  to  others 
equally  unconnected  with  themselves.'' 

"So,  also,  with  regard  to  holding  estates  or  other  property,  if  land 
be  granted  for  the  common  purpose  to  twenty  individuals  not  incor- 
porated, there  is  no  legal  way  of  continuing  the  property  to  any  other 
persons  for  the  same  purpose,  but  by  endless  conveyances  from  one  to 
another,  as  often  as  the  hands  are  changed.  But  when  they  are  con- 
solidated and  united  into  a  corporation,  they  and  their  successors  are 
then  considered  as  one  person  in  law;  as  one  person,  they  have  one 
will,  which  is  collected  from  the  sense  of  the  majority  of  the  individ- 
uals ;  this  one  will  may  establish  rules  and  orders  for  the  regulation 
of  the  whole,  which  are  a  sort  of  municipal  laws  of  this  little  republic  ; 
or  rules  and  statutes  may  be  prescribed  to  it  at  its  creation,  which  are 
then  in  the  place  of  natural  laws ;  the  privileges  and  immunities,  the 
estates  and  possessions  of  the  corporation,  when  once  vested  in  them, 
will  be  forever  vested,  without  any  new  conveyance  or  new  succes- 
sions; for  all  the  individual  members  that  have  existed  from  the 
foundation  to  the  present  time,  or  that  shall  ever  hereafter  exist,  are 
but  one  person  in  law,  a  person  that  never  dies ;  in  like  manner  as 
the  river  Thames  is  still  the  same  river,  though  the  parts  which  com- 
pose it  are  changing  every  instant."  In  this  quotation,  I  have  taken 
the  words  of  Blackstone  as  he  applied  them,  by  way  of  example,  to 
the  case  of  a  college  in  one  of  the  English  universities ;  and  without 
quoting  him  literally  throughout,  have  confined  myself  to  such  things 
as  the  learned  author  considers  peculiar  to  every  aggregate  corpora- 
tion. These  are,  in  short,  the  receiving  of  peculiar  laws  and  the 
making  of  bv-laws  for  itself;  perpetual  succession,  both  as  to  its 
privileges  and  property;  the  having  one  will,  as  collected  from  the 
power  of  the  majority  to  make  by-laws ;   and  the  being  but  one  per- 


26  THOMAS   V.    DAKIN.  §  4 

son  in  law,  a  person  that  dies  not,  but  continues  the  same  individual, 
though  its  parts  may  change.     See,  also,  Ang.  &  Ames  on  Corp., 

[The  Idea  of  Perpetual  Succession.] — The  great  and  essential  object  to 
be  attained  by  the  creation  of  a  corporation,  is  continuity  (sometimes 
called  immortality)  and  individuality:,  "properties,"  says  Ch.  J. 
Marshall,  "by  which  a  perpetual  succession  of  many  persons  are  con- 
sidered as  the  same,  and  may  act  as  the  single  individual .  They 
enable  a  corporation  to  manage  its  own  affairs,  and  to  hold  property 
without  the  perplexing  intricacies,  the  hazardous  and  endless  neces- 
sity of  perpetual  conveyances  for  the  purpose  of  transmitting  it  from 
hand  to  hand."  Dartmouth  College  v.  Woodward,  4  Wheat.  636; 
Angel  &  Ames  on  Corp.,  2.  A  peculiar  sort  of  individuality^  and  a 
peculiar  mode  of  succession^  for  a  particular  purpose,  and  not  allowed 
by  the  general  law  to  natural  persons,  enter  into  every  defiftition  of  a 
corporation  that  I  have  seen,  i  Kyd  on  Corp.,  2-3.  With  us  there 
can  be  no  recent  creation  of  such  an  artificial  person  except  by  stat- 
ute. 2  Kent's  Comm.,  276,  3d  ed.  No  agreement  of  individuals 
can  so  far  alter  the  nature  of  things  ;  and,  as  we  have  seen  of  persons, 
there  can  be  only  two  kinds,  natural  and  artificial,  so  there  can  be  but 
two  modes  in  which  property  is  transmitted  by  succession.  The  one 
takes  place  between  natural  persons,  of  which  we  have  an  example  in 
descent  on  the  death  of  the  ancestor ;  the  other  is  between  predeces- 
sors and  successors  in  a  corporation  aggregate  or  sole.  The  one  may 
be  called  a  natural,  and  the  other  an  artificial  succession;  and  it  is 
evident  that  the  latter  can  not  exist  independent  of  a  corporation,  any 
more  than  the  former  without  natural  persons,      i  Kyd  on  Corp.  2—3. 

In  the  associations  created  by  the  banking  law  great  care  has  been 
taken  to  introduce  and  maintain  corporate  succession  in  every  part  of 
the  system.  I  have  already  endeavored  to  show  that  the  beneficial 
interest  in  all  its  real  and  personal  property  belongs  to  any  associa- 
tion formed  under  that  law  as  an  individual.  If  I  have  succeeded,  it 
follows  that  such  association  is  a  corporation.  The  principle  of  suc- 
cession is  equally  maintained  in  respect  to  the  president  for  the  pur- 
pose of  receiving  conveyances  of  real  estate  and  selling  it;  and  so 
when  he  acts  as  the  organ  of  maintaining  actions  in  right  of  the  asso- 
ciation and  defending  actions  brought.  All  these  rights,  powers  and 
duties  pass  in  perpetual  succession  from  president  to  president  during 
the  existence  of  the  company.  The  president  and  his  successors  thus 
come  to  enjoy,  in  the  nature  of  a  sole  corporation,  a  perpetual  trustee- 
ship in  the  real  estate,  and  a  perpetual  power  or  control  over  it,  to- 
gether with  the  suits  of  the  cornpany.  "From  their  \\m\w^  perpetual 
succession^  and  suing  and  being  sued  in  their  political  character,  single 
persons  of  both  these  descriptions  have  (without  much  propriety,  as 
Mr.  Kyd  thinks)  been  uniformly,  in  the  books  of  English  law,  called 
corporations."  Kyd  on  Corporations,  19,  20.  "A  sole  corporation, 
as  its  name  implies,  consists  only  of  one  person,  to  whom  and  his 
successors  belongs  that  legal  perpetuity,  the  enjoyment  of  which  is 
denied  to  all  natural  persons."  Angell  &  Ames  on  Corporations,  iS, 


§4  TESTS:     POWERS    CONFERRED.  2^ 

19;  I  Black.  Comm.,  469.  It  need  scarcely  be  remarked  that  the 
president  cf  the  banking  associations  in  question  comes  fully  within 
the  general  definition. 

In  England,  sole  corporations  are  mostly  employed  to  hold  in  suc- 
cession the  rights  and  property  of  the  ecclesiastical  establishment ;  and 
it  is  said  they  can  not  take  personal  property  in  succession,  but  only 
real.  Sole  corporations  are  not  common  in  the  United  States.  Angell 
&  Ames  on  Corp.,  19,  20.  But  it  is  not  perceived  why  an  officer,  or 
other  person  authorized  to  hold  property,  real  or  personal^  to  him  and 
his  successors^  be  not  a  sole  corporation  within  the  plain  meaning  of 
the  definition.  The  chamberlain  of  London,  who  may  take  a  recog- 
nizance to  him  and  his  successors^  in  his  political  capacity,  in  trust  for 
orphans,  was  said  to  be  a  sole  corporation  in  trust.  Byrd  v.  Wilford, 
Cro.  Eliz.  464.  It  was  there  said  by  Gawdy  and  Fenner,  Js.,  that  the 
chamberlain  was  a  special  corporation  for  that  purpose ;  and  an  obli- 
gation may  as  well  go  in  succession  as  land.  So  of  the  comptroller 
who  takes  an  assignment  of  stocks,  bonds  and  mortgages,  to  hold 
under  the  general  banking  law.  Surely  these  would  not,  on  his  death, 
go  to  his  executors.  They  are  holden  by  him  in  trust,  to  pay  the 
debts  of  the  aSvSociation ;  and  would  pass  to  his  successors.  He  is 
equally  a  corporation  sole,  for  this  special  purpose,  according  to  the 
English  definition.  The  supervisor  of  a  town  may  sue  or  be  sued. 
3  R.  S.  387,  8,  §§  96  and  100,  2d  ed.  Suppose  he  were  authorized 
to  hold  lands  and  chattels  to  him  and  his  successors,  in  trust  for  his 
town,  would  he  not  be  a  sole  corporation,  as  the  board  of  supervisors 
or  loan  officers  are  an  aggregate  corporation  in  respect  to  lands  which 
they  hold  for  the  county?  Denton  v.  Jackson,  2  Johns.  Ch.  R.  325. 
The  grand  test  of  a  corporation  is  the  mode  in  which  property,  suc- 
ceeds from  one  to  another.  When  it  does  not  go  to  the  heirs  of  the 
holder  as  a  natural  person,  it  passes  to  the  successor  or  successors, 
because  it  is  holden  in  a  corporate  capacity.  The  holders  are  there- 
fore said  to  be  a  person  or  body  politic  and  corporate,  in  opposition 
to  their  natural  capacity.  Thus,  all  property  must  be  holden  by 
natural  persons  or  corporations.  If  the  property  of  an  association 
under  the  general  banking  law  be  not  holden  in  the  natural  capacity 
of  the  different  members  as  partners,  the  only  alternative  remaining 
is  a  holding  by  corporations  aggregate  or  sole.  No  third  description 
of  person  is  known  to  our  law.  None  was  known  to  the  Roman  law. 
See  I  Browne's  Civil  and  Adm.  Law,  141.  None  to  any  system  of 
laws  with  which  we  are  acquainted. 

There  are  two  cases  in  i  Rolle's  Abr.,  515,  which  show  still  more  dis- 
tinctly that  the  president  of  an  association  and  the  state  comptroller 
must  be  considered  each  as  sole  corporations.  One  is  where  a  presi- 
dent of  a  college  of  physicians  recovers,  in  that  character,  a  penalty 
against  a  party  for  practicing  without  license.  Another  is  where 
the  master  of  an  hospital  recovers,  in  that  character,  the  arrears  of 
the  annuity  due  to  the  hospital.  On  the  death  of  either  the  interest 
in  the  judgment  recovered  passes  to  his  successor,  and  not  to  his  ex- 
ecutor;  and  simply  because   the  debt  thus  goes  in   succession,  and 


28  EDGEWORTH    V.    V,'vjOD.  §  5 

Toller  says  they  are  each  a  special  or  sole  corporation  like  the  cham- 
berlain of  London  before  mentioned.  Toll,  on  Ex.,  ch.  4,  §  3,  p. 
136,  ed,  of  1803.  See  also  i  Wms.  Ex.  546,  ed.  of  1832.  Atkins  v. 
Gardener,  Cro.  Jac.  159.  This  matter  is  very  fully  illusti'ated  in  2 
Black.  Comm.,431,  2.     *     *     * 

By  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  can  not  concur  in  the 
opinion  that  the  legislature  has  the  constitutional  power,  although 
two-thirds  may  assent,  to  provide  by  a  general  law  for  the  creation  of 
an  indefinite  number  of  corporations  at  the  pleasure  of  any  persons 
who  may  associate  for  that  purpose. 

It  was  conceded  on  the  argument,  that  the  demurrer  does  not  reach 
the  objection  that  the  act  was  not  passed  by  a  two-thirds  vote ;  and  I 
have  not,  therefore,  considered  the  question  whether  we  can  look  be- 
yond the  statute  book.  A  plea  may  render  it  necessary  for  us  to  pass 
upon  that  question. 

Judgment  for  plaintiff. 


Sec.  5.    Tests.     (4)  But  in  foreign  jurisdictions  the  powers  con- 
ferred, rather  than  the  legislative  declaration,  will  control.^ 

EDGEWORTH  v.  WOOD,  Tkeasurer  op  the  United  States  Express 

Company. 

1896.     In  the  Supreme  Court  of   New  Jersey.     58  New  Jer- 
sey Law  (29  Vroom)  463-469,     3  Am.   &    Eng. 
Corp.  Cas.  (N.  S.)  299,   33  Atl.  940. 

On  rule  to  show  cause. 

Argued  at  November  term,  1895,  before  Beasley,  chief  justice, 
and  Justices  Magie  and  Ludlow. 

The  opinion  of  the  court  was  delivered  by  Magie,  J.  This  is  an 
action  in  tort  in  which  plaintiff  seeks  to  recover  damages  for  injuries 
suffered  by  him  by  reason  of  his  being  run  over,  in  a  public  street  in 
Jersey  City,  by  a  wagon  of  the  United  States  Express  Company,  neg- 
ligently driven  by  a  driver  in  the  employ  of  that  company.  The  jury 
having  rendered  a  verdict  for  plaintiff,  this  rule  to  show  cause  why  the 
verdict  should  not  be  set  aside  was  allowed.  Several  reasons  were 
filed  in  support  of  the  rule,  but  only  three  have  been  urged  in  the 
argument.      These  only  will  be  considered. 

It  is  first  contended  that  neither  plaintiff's  declaration  nor  the  evi- 
dence produced  by  him  discloses  any  liability  on  the  part  of  Theodore 
F.  Wood,  treasurer  of  the  United  States  Express  Company,  to  an- 
swer for  plaintiff's  injuries,  if  inflicted  as  he  claimed. 

^  See  note  (5)  at  end  of  Article  I,  infra,  p.  32. 


§  5  TESTS   IN    FOREIGN  JURISDICTIONS.  29 

Plaintiff  claims  to  have  made  out  his  case,  in  this  respect,  in  the 
following  manner:  He  produced  proof  that  the  United  States  Ex- 
press Company  was  an  association  organized  April  22,  1854,  under 
the  laws  of  New  York,  and  having  a  principal  place  of  business  in 
the  city  of  New  York,  and  that  Thomas  C.  Piatt  was  its  president 
and  Theodore  F.  Wood  its  treasurer.  He  put  in  evidence  chapter 
238  of  the  laws  of  New  York  for  the  year  1849,  ^"'^  sections  19 19, 
1924  of  the  New  York  code  of  civil  procedure,  whereby  it  appeared 
that  any  association  thus  organized  was  expressly  authorized  to  sue 
and  to  be  sued  in  the  name  either  of  its  president  or  its  treasurer  for 
the  time  being.  Upon  this  he  contends  that  he  is  entitled  to  an  ac- 
tion against  Wood,  as  treasurer,  and  as  Wood  is  a  resident  of  New 
Jersey,  and  was  served  with  process  here,  that  our  courts,  by  comity, 
will  recognize  the  liability  to  suit  imposed  by  the  laws  of  New  York. 

In  opposition  to  this,  it  is  contended  on  the  part  of  defendant 
that  if  it  be  conceded  that  our  courts  will,  by  comity,  adopt  and  en- 
force remedies  against  such  associations,  in  the  mode  prescribed  by 
the  law  of  the  state  under  which  they  came  into  existence,  yet  if  the 
law  of  this  state  has  furnished  a  mode  of  procedure  by  which  reme- 
dies against  such  associations  may  be  enforced,  the  rule  of  comity 
ceases  and  the  mode  of  procedure  provided  by  our  laws  must  be  pur- 
sued. The  supplement  to  the  Practice  act,  approved  May  23,  1890 
(Pamph.  L.,  p.  353;  Gen.  Stat.,  p.  2592,  §  342),  is  conceived  by 
counsel  to  have  furnished  a  mode  of  procedure  under  which  this  ac- 
tion could  have  been  maintained  against  the  United  States  Express 
Company. 

By  that  act  it  is  enacted  that  any  "unincorporated  company,  stock 
company  or  association,"  consisting  of  two  or  more  persons  united 
for  business  purposes  and  having  a  recognized  name,  may  be  sued  by 
that  name  in  any  action  affecting  the  common  property  or  the  joint 
rights  and  liabilities  of  such  company  or  association.  Provision  is 
made  for  the  service  of  process  and  for  the  issue  of  an  execution  upon 
judgment  in  the  same  manner  as  upon  judgments  against  corporations. 
If  the  United  States  Express  Company  is  an  unincorporated  associa- 
tion, within  the  meaning  of  the  act,  it  would  seem  that  plaintiff  could 
have  brought  his  action  under  that  act. 

Questions  concerning  the  nature  of  associations  formed  under  the 
laws  of  New  York,  such  as  the  United  States  Express  Company, 
have  been  frequently  considered  in  the  courts  of  that  state.  The  act 
of  1849  speaks  of  them  as  joint-slock  companies  or  associations.  By 
its  certificate,  this  company  calls  itself  a  joint-stock  company. 

In  the  earliest  case  to  which  my  attention  has  been  directed,  the 
question  requiring  solution  was  as  to  the  relation  between  a  share- 
holder and  such  a  company.  After  an  exhaustive  review  of  the  New 
York  statutes  on  the  subject,  Judge  Barnard  declared  that  such  com- 
panies had  all  the  qualities  of  corporations,  except  that  of  having  a 
common  seal.  His  conclusion  was  that  in  a  controversy  between  a 
shareholder  and  the  company,  he  was  not  to  be  considered  as  a  part- 
ner in  a  partnership,  but  the  courts  must  deal  with  his  relation  follow- 


30  EDGEWORTH    V.    WOOD.  §   5 

ing  the  analogy  of  the  law  of  corporations.     Waterbury  v.  Merchants' 
Union  Express  Co.,  50  Barb.  157. 

In  a  later  case,  an  action  was  brought  by  a  shareholder  in  the  same 
company  against  Fargo,  its  president,  to  recover  for  the  loss  of  articles 
entrusted  to  it  for  transportation.  The  defense  was  that  the  owner  of 
an  interest  in  the  company  could  not  maintain  such  an  action  against 
it,  which  it  was  claimed  was  like  an  action  by  a  partner  against  the 
partnership.  The  action  was  sustained  by  the  court  below.  West- 
cott  V.  Fargo,  President,  6  Lans.  319.  Upon  appeal,  the  opinion  was 
delivered  by  Dwight,  one  of  the  commissioners  of  appeal.  Upon  a 
review  of  the  statutes,  he  declared  that  the  president  or  treasurer  of 
one  of  these  joint-stock  companies  or  associations  was  to  be  regarded, 
for  the  purposes  of  an  action  against  the  company,  substantially  as  a 
corporation  sole ;  that  such  companies  possessed  some  powers  and 
privileges  of  corporations  not  possessed  by  individuals  or  partnerships, 
and  that  an  action  upon  a  liability  of  the  company  might  be  main- 
tained by  one  of  its  members.     Westcott  v.  Fargo,  61  N.  Y.  542. 

Later  the  United  States  Express  Company,  the  very  company  whose 
officer  is  here  sued,  objected  to  the  imposition  of  a  tax  upon  its  cor- 
porate franchises  and  business  computable  upon  its  capital  stock,  un- 
der an  act  taxing  corporations,  joint-stock  companies  and  associations 
incorporated  or  organized  under  any  law  of  the  state.  Its  contention 
was  that  it  was  neither  so  incorporated  nor  organized.  The  right  to 
impose  the  tax  was  sustained.  Judge  Danforth  saying:  "The  agree- 
ment which  brought  many  persons  into  one  artificial  body  was  so 
framed  as  to  accomplish  that  end,  and  in  proposing  to  conduct  its  af- 
fairs by  the  power  given  to  it  in  the  mode  prescribed  b}'  the  legisla- 
ture, they  must  be  deemed,  for  the  purposes  of  the  act  in  question, 
to  be  incorporated — that  is,  formed  or  united  under  the  law  of  the 
state,  whether  the  artificial  body  be  termed  a  corporation,  a  joint-stock 
company  or  association."  People,  ex  rel.  Piatt,  v.  Wemple,  117 
N.  Y.  136. 

Questions  have  also  arisen  respecting  the  right  to  remove  to  the 
federal  courts  actions  between  the  president  or  treasurer  of  such  com- 
panies and  other  persons. 

In  New  York,  it  was  held,  in  a  suit  by  Fargo  as  president  of  such 
a  company  organized  in  New  York,  that  the  company  was  to  be  con- 
sidered like  a  corporation,  a  citizen  of  New  York,  and  the  action  was 
removable  to  the  United  States  court,  if  the  other  party  was  a  citizen 
of  another  state.     Fargo  v.  McVicker,  55  Barb.  437. 

In  the  United  States  Circuit  Court  for  the  District  of  Michigan, 
Judge  Brown  (now  justice  of  the  supreme  court)  held  that  such  a 
company  formed  in  New  York  was  to  be  deemed  a  citizen  of  New 
York  without  regard  to  the  citizenship  of  its  members.  Maltz  v. 
American  Express  Co.,  i  Flip.  611. 

In  another  case  in  the  federal  courts,  the  action  was  brought  by 
Fargo  as  president  of  such  a  company  against  a  citizen  of  a  western 
state,  and  Judge  Gresham  held  that  such  a  company  was  a  citizen  of 
New  York  and  could  maintain  an  action  in  those  courts,  notwithstand- 


§   5  NOTES    TO   ARTICLE   I.  3  I 

ing  the  fact  that  some  of  its  shareholders  were  residents  of  the  state 
in  which  the  defendant  resided.  Fargo  v.  L.,  N.  A.  &  C.  Ry.  Co., 
6  Fed.  Rep.  787. 

In  the  case  last  cited  and  in  some  of  the  other  cases,  the  conclusion 
reached  has  not  been  deemed  invalidated  by  the  fact  that  some  of  the 
New  York  statutes  speak  of  such  companies  and  associations  as  unin- 
corporated. 

In  Liverpool  Ins.  Co.  v.  Massachusetts,  10  Wall.  566,  the  supreme 
court  of  the  United  States  held  that  an  English  joint  stock  associa- 
tion, which  was  endowed  with  certain  corporate  powers,  must  be  con- 
sidered by  our  courts  to  be  a  corporation,  notwithstanding  the  acts  of 
parliament  declared  that  such  associations  should  not  be  held  to  be 
corporations. 

[Test  of  Corporate  Existence.] —  Whether  an  aggregation  of  indi- 
viduals united  in  an  artificial  body  is  a  corporation  or  not  is  to  be 
determined  rather  by  the  faculties  and  foyers  conferred  upon  the 
body  than  by  the  name  or  description  given  to  it. 

Upon  this  review,  I  have  reached  the  conclusion  that  the  United 
States  Express  Company  is  a  corporate  entity,  empowered  to  sue  and 
be  sued,  not,  as  is  usual,  in  a  corporate  name,  but  in  the  name  of 
designated  officers.  To  such  a  corporation  the  act  of  1890  does  not 
apply,  and  this  action  was  therefore  properly  brought  against  Wood 
as  treasurer,  whose  status  in  the  suit  is  not  that  of  an  individual  but 
of  a  representative  of  the  company. 

This  reason  can  not,  therefore,  prevail. 

[Points  of  opinion  relating  to  sufficiency  of  evidence  are  omitted.] 

The  rule  to  show  cause  should  be  discharged. 


NOTES  TO  ARTICLE  I. 

1 .  Definitions:  For  the  authorities  favoring  one  or  the  other  of  the  defini- 
tions given  above,  see  notes  to  Articles  II,  III  and  IV,  infra,  pp.  72,  109,  157. 
Definitions  of  corporations  will  be  found  in  the  following  cases :  1804,  Head  v. 
Providence  Ins.  Co.,  2  Cranch  (U.  S.)  127,  on  167;  1809,  Bank  of  United 
States  V.  Deveaux,  5  Cranch  (U.  S.)  61 ;  1819,  Trustees  Dartmonth  Col.  v. 
Woodward,  4  Wheaton  618,  on  636,  667;  1839,  Thomas  v.  Dakin,  22  Wendell 
(N.  Y.)  -9,  70,  104,  supra,  p.  19;  1840,  Warner  v.  Beers,  23  Wendell  (N.  Y.) 
103, 123, 124,  snpra,  p.  2;  1841,  People,  ex  rel.  Bank  of  Watertown,  v.  Asses- 
sors, etc.,  1  Hill  ^N.  Y.)  616,  620;  1844,  Louisville  C,  etc.,  R.  Co.  v.  I^t- 
son,  2  Howard  (IT.  S.)  497,  552;  1860,  The  Ohio  Ins.  Co.  v.  Nunemacher, 
15  Ind.  295;  1861,  Ohio  and  Mississippi  R.  Co.  v.  Wheeler,  66  U.  S.  (1 
Black)  286,  295;  1672,  Railroad  Commissioners  v.  P.  &  O.  C.  R.  Co.,  63 
Maine  269,  277;  1872,  Thompson  v.  Waters,  25  Mich.  214,  223;  1875,  Board 
of  Commrs.  Tipp.  Co.  v.  L.  M.  &  B.  R.,  50  Ind.  85,  108;  1878,  Stale  v.  M. 
L.  S.  &  W.  R.  Co.,  45  Wis.  579,  592;  1882,  Bait.  &  P.  R.  Co.  v.  Fifth  Bap- 
tist Church,  108  U.  S.  317,  330;  1890,  United  States  v.  Trinidad  Coal  &  C.  Co., 
137  U.  S.  160;  1898,  Andrews  Bros.  v.  Youngstown  Coke  Co.,  86  Fed.  R.  686. 

2.  The  New  York  Bank  Cases:  The  second  resolution  adopted  by  a  vote 
of  22  to  3,  in  the  case  of  Warner  v.  Beers,  sttpra,  p.  14,  that  the  associations 
organized  under  the  banking  act  of  1838,  "are  not  bodies  politic  or  corporate, 
within  the  spirit  and  meaning  of  the  constitution,"  did  not  settle  the  law  that 


32  NOTES    TO   ARTICLE   I. 

Buch  associations  were  not  corporations  for  any  purpose,  but  only  that  they 
were  not  so  "toithin  the  spirit  and  meaning"  of  the  constitution.  See  particu- 
larly 1841,  People  v.  Assessors  of  Watertown,  1  Hill  (N.  Y.)  616,  618;  1845, 
De  Bow  V.  People,  1  Denio  (N.  Y.';  9,  14;  1845,  Gifford  v.  Livingston,  2  Denio 
(N.  Y.)  380,  382;  1850,  Gillet  v.  Moody,  3  N.  Y.  485.  The  decisions,  generally, 
after  Warner  v.  Beers,  treated  these  institutions  for  most  purposes  as  corpo- 
rations. The  cases  are:  1840,  Parmly  v. Tenth  Ward  Bank,  3  Edw.  Ch.  395; 
1840,  Delafield  v.  Kinney,  24  Wend.  345;  1841,  People  v.  Assessors  of  Water- 
town,  1  Hill  616;  Bank  of  Watertown  v.  Assessors  of  Watertown,  25  Wend. 
•686;  1842,  Willoughby  V.  Comstock,  3  Hill  389;  1842,  People  v.  Supervisors 
of  Niagara,  4  Hill  20;  1843,  Leavitt  v.  Tylee,  1  Sandf.  Ch.  207;  1844,  Super- 
visors of  Niagara  v.  People,  7  Hill  504;  1844,Boisegerard  v.  New  York  Bank- 
ing Co.,  2  Sandf.  Ch.  23;  1844,  Matter  of  Bank  of  Dansville,  6  Hill  370;  1845, 
Gifford  v.  Livingston,  2  Denio  380  (Court  for  Correction  of  Errors,  overrul- 
ing 1845,  De  Bow  v.  People,  1  Denio  9  (Supreme  Court);  1843,  Leavitt  v. 
Yates,  4  Edw.  Ch.  134;  1846,  Sagory  v.  Dubois,  3  Sandf.  Ch.  466,  485;  1848, 
Leavitt  v.  Blatchford,  5  Barb.  9;  1850,  Cuyler  v.  Sanford,  8  Barb.  225;  1850, 
Gillet  V.  Moody,  3  N.  Y.  (Comst.)  479;  1851,  Palmer  v.  Lawrence,  5  N.  Y. 
(1  Seld.)  389;  1852,  Talmage  v.  Pell,  7  N.  Y.  (3  Seld.)  328;  Tracy  v.  Talmage, 
18  Barb.  456;  1855,  Gillet  v.  Philhps,  13  N.  Y.  (3  Kern.)  114;  1858,  Leavitt 
V.  Blatchford,  17  N.  Y.  521;  1859,  Codd  v.  Rathbone,  19  N.  Y.  37. 

3.  The  Michigfan  Discussion:  Sec.  2,  art.  12,  of  the  constitution  of  Michi- 
gan, 1835,  provided,  "The  legislature  shall  pass  no  act  of  incorporation,  unless 
with  the  assent  of  at  least  two-thirds  of  each  house."  In  1837  (Sess.  L.  1837, 
p.  76),  an  "Act  to  organize  and  regulate  banking  associations"  was  passed. 
The  constitutionality  of  this  act  came  before  the  United  States  circuit  court 
for  Michigan  for  adjudication  in  1840,  in  the  case  of  Falconer  v.  Campbell,  2 
McLean  C.  C.  (7th  Circuit),  195;  Federal  Cases,  4620;  10  Myers'  Fed.  Dec, 
18,  infra  p.  287 ;  the  question  as  to  whether  the  act  had  received  the  required 
majority  was  argued,  but  it  was  held  not  properly  raised  by  the  demurrer. 
The  court  held  the  law  constitutional ;  that  the  associations  were  corporations, 
and  that  an  indefinite  number  might  be  created,  or  provided  for,  by  one  gen- 
eral act.  In  1844,  in  the  case  of  Green,  receiver  of  bank  of  Niles  v.  Graves, 
1  Douglass  (Mich.)  351,  the  same  points  were  argued  before  the  supreme 
court  of  Michigan,  and  the  law  was  held  unconstitutional,  because  it  attempted 
to  create  corporations,  and  an  indefinite  number  of  them  at  one  time ;  this,  it 
was  held,  could  not  be  done,  because  the  constitution  meant  to  require  a  two- 
thirds  vote  in  the  creation  of  each  and  every  corporation.  This  holding  has 
been  followed  since,  in  regard  to  the  banking  act  of  1837,  but  not  extended  to 
other  general  corporation  laws.  See  2  Doug.  (Mich.)  160,  195;  1  Mich.  119, 
120,  121,  482,  512;  2  Mich.  287;  5  Mich.  259;  13  Mich.  151  ;  16  Mich.  258.  and 
45  Mich.  610.     Also  1849,  Nesmith  v.  Sheldon,  48  U.  S.  (7  How.)  812. 

4.  Later  holding's:  Many  of  the  same  points  have  been  discussed  in.theNew 
York  courts  as  to  the  nature  of  their  joint-stock  associations,  as  were  in  the 
bank  cases.  People  v.  Coleman,  133  N.  Y,  279,  supra,  p.  16,  is  the  best 
case.  Others  are:  1867,  Waterbury  v.  Merchants'  Union  Express  Co.,  50 
Barb.  (N.  Y.)  157;  1869,  Fargo  v.  McVicker,  65  Barb.  437;  1876,  Westcott  v. 
Fargo,  61  N.  Y.  642;  1886,  Van  Aernam  v.  Bleistein,  etc.,  102  N.  Y.  355,  16 
American  and  Eng.  Corp.  Cas.  103;  1889,  People,  ex  rel.  Piatt,  v.  Wemple, 
117  N.  Y.  136,  29  American  and  Eng.  Corp.  Cas.  610;  1892,  McCabe  v.  Good- 
fellow,  133  N.  Y.  89,  37  American  and  Eng.  Corp.  Cas.  73. 

5.  Note  as  to  the  fourth  test  above  sriven:  This  is  qualified  in  many  of  the 
states  by  the  rule  that  the  decisions  of  the  courts  of  the  state  creating  the  insti- 
tution in  question,  as  to  whether  it  is  a  corporation  or  not,  will  be  deemed 
controlling.   See  1871,  Taft  v.  Ward,  106  Mass.  518;  1880,  Railroad  Co.  v.  Pear- 
son, 128  Mass.  445;  1883,  Gleason  v.  McKay,  134  Mass.  419,  mfm,  p.  167:  1895 
Gregg  v.  Sandford,  12  C.  C.  A.  626,  66  Fed.  Rep.  161,  48  Am.  and  ICng   Corp 
Cas.  292.    In  Liverpool  Insurance  Co.  v.  Massachusetts,  10  Wall.  (U   S  )  666 
the  supreme  court  appUed  the  rule  given  as  the  fourth  test  above,  and  held  an 


§  6  THE    CORPORATION  AS   A   PERSON.  33 

English  insurance  company  to  be  a  corporation,  notwithstanding  the  act  of 
parliament  under  which  it  was  created  expressly  provided  it  should  not  be 
so  considered.  This  holding,  however,  was  not  necessary  to  the  decision  of 
the  case.  But  in  1889,  Chapman  v.  Barney,  129  U.  S.  677,  the  sajne  court 
held  it  would  follow  the  decisions  or  the  statutes  of  the  states  in  which  the 
institution  was  organized  as  to  its  nature.  For  further  upon  this  point,  see 
note  to  Article  V,  infra,  p.  175;  1900,  Great  Southern  F.  Hotel  Co.  v.  Jones, 

177U^,_iia^  


0^' 


ARTICLE   II.       THE    CORPORATION  AS  A  PERSON. 

Sec.  6.     For  most  purposes  a  corporation  is  considered  as  a  per- 
son having,  as  such,  rights,  duties  and  liabilities. 

"For  by  incorporation  it  acquires y«5  personce,  and  becomes  per- 
sona politica,  and  is  capable  of  all  civil  rights  habendi  et  agendiy 

Per  Attorney -General,  Quo  Warranto,  v.  London,  3-8  as  given  in 
Comyn's  Digest,  Corporation,  under  Franchises  (F)  F.  1.  Also, 
8  Howell's  State  Trials,  p.  1039,  on  1156. 

(i)    And  particularly ,  having  rights:    («)  Under  the  com- 
mon law. 

TRUSTEES  OF  the  UNIVERSITY  op  NORTH  CAROLINA  v.  FOY 
AND  BISHOP.» 

1805.     In  the   Court  of   Conference  of  North  Carolina,      i 
Murphy  (N.  C.)  Reports  58-92,   3  American  Dec.  672. 

Locke,  J.,  delivered  the  opinion  of  the  court.  The  legislature  of 
North  Carolina,  in  the  year  1789,  granted  to  the  trustees  of  the  uni- 
versity "all  the  property  that  has  heretofore  or  shall  hereafter  escheat 
to  the  state."  And  by  another  act,  passed  in  the  year  1794,  they 
also  granted,  "the  confiscated  property  then  unsold."  By  an  act 
passed  in  the  year  1800,  they  declared,  "that  from  and  after  the  pass- 
ing of  this  act,  all  acts  and  clauses  of  acts,  which  have  heretofore 
granted  power  to  the  trustees  of  the  University,  to  seize  and  possess 
any  escheated  or  confiscated  property,  real  or  personal,  shall  be  and 
the  same  is  hereby  repealed  and  made  void. 

^'■And  be  it  further  enacted.  That  all  escheated  or  confiscated  prop- 
erty which  the  said  trustees,  their  agents  or  attorneys,  have  not  legally 
sold  by  virtue  of  the  said  laws,  shall  from  hence  revert  to  the  state, 
and  henceforth  be  considered  as  the  property  of  the  same,  as  though 
such  laws  had  never  been  passed." 

'  Statement  of  facts  (except  as  given  in  opinion),  arguments  and  dissent- 
ing opinion  of  Hall,  J.,  omitted.  Also  parts  of  the  opinion  of  the  coart  by 
Locke,  J. 

3 — WiL.  Cases. 


34  TRUSTEES   V.   FOY    &    BISHOP.  §  6 

The  trustees  of  the  university,  in  pursuance  of  the  powers  vested 
in  them  by  the  act  of  1789,  have  brought  this  suit  to  recover  the  pos- 
session of  a  tract  of  land  escheated  to  the  state  before  the  passing  of 
the  repealing  act  in  the  year  1800.  The  defendants  have  pleaded 
this  repealing  act  in  bar,  by  which  they  allege  the  power  of  the  trus- 
tees to  support  this  action  is  entirely  destroyed.  It  is  therefore  now 
to  be  considered  how  far  the  trustees  have  title  under  the  act  of  1789, 
and  in  the  next  place,  how  far  they  are  divested  of  that  title  by  the 
repealing  act  of  1800. 

[After  holding  the  act  of  1789  passed  the  title  to  the  trustees,  and  some  re- 
marks as  to  the  general  constitutional  provisions,  proceeds:] 

Some  light  will  be  thrown  upon  this  subject  by  examining  the  na- 
ture of  corporations,  how  property  can  be  taken  from  them,  and  how 
they  can  be  dissolved.  Corporations  are  formed  for  the  advancement 
of  religion,  learning,  commerce  or  other  beneficial  purposes.  They 
are  either  aggregate  or  sole,  and  created  by  grant  or  by  law. 

[Rights.] — When  they  are  once  erected,  they  acquire  many  rights, 
powers,  capacities  and  ^ova^  incapacities^  i  Black.  475,  as  (i)  to 
have  perpetual  succession ;  and  therefore  all  aggregate  corporations 
have  necessarily  the  power  of  electing  members  in  the  room  of  those 
who  die,  to  sue  and  be  sued  and  to  do  all  other  acts  as  natural  per- 
sons;  (2)  to  purchase  lands  and  to  hold  them  for  the  benefit  of 
themselves  and  successors;  (4)  to  have  a  common  seal;  (5)  to 
make  by-laws  for  the  better  government  of  the  corporation.  These 
corporations  can  not  commit  crimes,  although  their  members  may  in 
their  individual  capacity.  The  duties  of  those  bodies  consist  in  act- 
ing up  to  the  design  for  which  they  were  instituted.  Let  us  next  in- 
quire how  their  corporate  property  can  be  taken  from  them  and  how 
they  may  be  dissolved.  A  member  may  be  disfranchised  or  lose  his 
place  by  his  own  improper  conduct,  or  he  may  resign.  A  corpora- 
tion may  be  dissolved  by  act  of  parliament,  which  is  boundless  in  its 
operation ;  by  the  natural  death  of  all  its  members,  in  case  of  an  ag- 
gregate corporation ;  by  surrender  of  its  franchises  into  the  hands  of 
the  king,  which  is  a  kind  of  suicide ;  by  forfeitui'e  of  its  charter 
through  negligence  or  abuse  of  its  franchises,  in  which  case  the  law 
judges  the  body  politic  to  have  broken  the  condition  on  which  it  was 
incorporated,  and  therefore  the  incorporation  to  be  void ;  and  the  reg- 
ular course  is  to  bring  an  information  in  the  nature  of  a  quo  warranto^ 
to  inquire  by  what  authority  the  members  now  exercise  their  corpo- 
rate power,  having  forfeited  it  by  such  and  such  proceedings,  i 
Black.  485;  3  Black.  263.  None  of  these  prerequisites  have  been 
done  in  the  present  case. 

We  are  then  led  to  inquire  into  the  soundness  of  an  argument 
greatly  relied  on  by  the  defendant's  counsel,  that  those  who  create 
can  destroy.  The  legislature  have  not  pretended  to  dissolve  the  cor- 
poration, but  to  deprive  them  of  a  part  of  the  funds  that  were  deemed 
to  be  vested  in  them,  and  to  transfer  those  funds  to  the  state.  In 
England  the  king's  consent  to  the  creation  of  any  corporation  is  ab- 
solutely necessary,  either  given  expressly  by  charter  or  by  act  of  par- 


§  6  THE   CORPORATION   AS   A  PERSON.  35 

liament,  where  his  assent  is  a  necessary  ingredient  or  implied  by 
prescription,  i  Black.  472,  473.  The  king  may  grant  to  a  subject 
the  power  of  erecting  a  corporation ;  and  yet  it  is  the  king  that  erects, 
the  subject  is  but  the  instrument,  i  Black.  474.  Where  there  is  an 
endowment  of  lands,  the  law  distinguishes  and  makes  two  species  of 
foundation ;  the  first,  foundatio  incipiens.,  or  the  corporation,  in 
which  sense  the  king  is  the  founder  of  all  colleges  and  hospitals ;  the 
other,  fundatio  -perjiciens^  or  the  dotation  of  it,  in  which  sense  the 
first  gift  of  the  revenues  is  the  foundation,  and  who  gives  them  is  the 
founder,  i  Black.  481.  The  constitution  directed  the  general  as- 
sembly to  establish  this  institution  and  endow  it;  then  it  would  seem, 
from  the  principle  upon  which  all  this  doctrine  is  predicated,  that  the 
constitution  and  not  the  legislature  had  erected  this  corporation,  the 
legislature  being  only  the  agent  or  instrument  whose  acts  are  valid 
and  binding  when  they  do  not  contravene  any  of  the  provisions  of  the 
constitution.      *     *     * 

But  one  great  and  important  reason  which  influences  us  in  deciding 
this  question  is  the  loth  section  of  the  bill  of  rights,  which  declares 
"that  no  freeman  ought  to  be  taken,  imprisoned  or  disseized  of  his 
freehold,  liberties,  or  privileges,  or  outlawed,  or  exiled,  or  in  any 
manner  destroyed  or  deprived  of  his  life,  liberty  or  property,  but  by 
the  law  of  the  land."  It  has  been  yielded  on  the  part  of  the  defend- 
ants that  if  the  legislature  had  vested  an  individual  with  the  property 
in  question,  this  section  of  the  bill  of  rights  would  restrain  them  from 
depriving  him  of  such  right ;  but  it  is  denied  that  this  section  has  any 
operation  on  corporations  whose  members  are  mere  naked  trustees, 
and  have  no  interest  in  the  donation,  and  especially  on  a  corporation 
erected  for  a  public  purpose.  It  is  also  insisted  that  the  term,  "Law 
of  the  Land,"  does  not  impose  any  restrictions  on  the  legislature, 
who  are  capable  of  making  the  law  of  the  land,  and  was  only  in- 
tended to  prevent  abuses  in  the  other  branches  of  government.  That 
this  clause  was  intended  to  secure  to  corporations  as  well  as  to  individ- 
uals the  rights  therein  enumerated,  seems  clear  from  the  word  "/i3- 
erties,^^  which  peculiarly  signifies  those  privileges  and  rights  which 
corporations  have  by  virtue  of  the  instruments  which  incorporate  them, 
and  is  certainly  used  in  this  clause  in  contradistinction  to  the  word 
"liberty,"  which  refers  to  the  personal  liberty  of  the  citizen.  We 
therefore  infer  that  by  this  clause  the  legislature  are  as  much  restrained 
from  affecting  the  property  of  corporations,  as  they  are  that  of  a  private 
individual,  unless  the  expression,  "Law  of  the  Land,"  should  re- 
ceive the  construction  contended  for  on  the  part  of  the  defendant.  It  is 
evident  the  framers  of  the  constitution  intended  the  provision  as  a  re- 
straint upon  some  branch  of  the  government,  either  the  executive, 
legislative  or  judicial.  To  suppose  it  applicable  to  the  executive 
would  be  absurd  on  account  of  the  limited  powers  conferred  on  that 
officer;  and  from  the  subjects  enumerated  in  that  clause  no  danger 
could  be  apprehended  from  the  executive  department,  that  being  en- 
trusted with  the  exercise  of  no  powers  by  which  the  principles  thereby 
intended  to  be  secured  could  be  affected.     To  apply   it  to  the  judi- 


36      COUNTY   OF   SAN   MATEO  V.   SOUTHERN    PACIFIC    R.  CO.      §  7 

ciary  would,  if  possible,  be  still  more  idle,  if  the  legislature  can  make 
the  '■'-Law  of  the  Land.'^  For  the  judiciary  are  only  to  expound  and 
enforce  the  law  and  have  no  discretionary  powers  enabling  them  to 
judge  of  the  propriety  or  impropriety  of  laws.  They  are  bound, 
whether  agreeable  to  their  ideas  of  justice  or  not,  to  carry  into  effect 
the  acts  of  the  legislature  as  far  as  they  are  binding  or  do  not  contra- 
vene the  constitution.  If  then  this  clause  is  applicable  to  the  legisla- 
ture alone,  and  was  intended  as  a  restraint  on  their  acts  (and  to  pre- 
sume otherwise  is  to  render  this  article  a  dead  letter),  let  us  next  in- 
quire, what  will  be  the  operation  which  this  clause  will  or  ought 
to  have  on  the  present  question  ?  It  seems  to  us  to  warrant  a 
belief  that  members  of  a  corporation,  as  well  as  individuals,  shall  not 
be  so  deprived  of  their  liberties  or  property,  unless  by  a  trial  by  jury 
in  a  court  of  justice,  according  to  the  known  and  established  rules  of 
decision,  derived  from  the  common  law,  and  such  acts  of  the  legisla- 
ture as  are  consistent  with  the  constitution — and  although  the  trustees 
are  a  corporation  established  for  public  purposes,  yet  their  property  is 
as  completely  beyond  the  control  of  the  legislature  as  the  property  of 
individuals  or  that  of  any  other  corporation.  Indeed,  it  seems  diffi- 
cult to  conceive  of  a  corporation  established  for  merely  private  pur- 
poses. In  every  institution  of  that  kind,  the  ground  of  the  establish- 
ment is  some  public  good  or  purpose  intended  to  be  promoted ;  but  in 
many,  the  members  thereof  have  a  private  interest,  coupled  with  the 
public  object.  In  this  case  the  trustees  have  no  private  interest  be- 
ybnd  the  general  good ;  yet  we  conceive  that  circumstance  w^ill  not 
make  the  property  of  the  trustees  subject  to  the  arbitrary  will  of  the 
legislature.  The  property  vested  in  the  trustees  must  remain  for  the 
uses  intended  for  the  university,  until  the  judiciary  of  the  country,  in 
the  usual  and  common  form,  pronounce  them  guilty  of  such  acts,  as- 
will,  in  law,  amount  to  a  forfeiture  of  their  rights  or  a  dissolution  of 
their  body.  The  demurrer  must  therefore  be  allowed,  and  the  plea 
in  bar  overruled. 

[Note.    It  should  be  remembered  this  case  was  decided  before  the  case  of 
Trustees  of  Dartmouth  College  v.  Woodward,  4  Wheat.  (U.S.)  518,  infra,  p.  708.  ] 
Note.    The  rights  of  corporations  is  the  subject  of  chapter  12,  infra,  p.  914. 


Sec.  7.    Same,    {b)  Under  the  United  States  constitution. 

THE  RAILROAD  TAX  CASES. 

COUNTY  OF  SAN  MATEO  v.  SOUTHERN  PACIFIC  R.  C0.» 

1882.     In  United  States  Circuit  Court,  District  of  California. 
13  Federal  Reporter  722-782,  with  note  782-789. 

[Action  to  recover  taxes  and  penalty  of  the  Southern  Pacific  Rail- 
road Company,  a  corporation  formed  under  the  laws  of  California. 

^  Case  taken  to  supreme  court  of  the  United  States ;  settled  and  disposed  of, 
116  U.  S.  138.  See,  also,  Santa  Clara  County  v.  Southern.  Pacific  R.  Co.,  118. 
U.  S.  394,  on  396.  Statement  of  facts  condensed.  Only  so  much  of  the  opin- 
ions as  bears  directly  on  the  rights  of  corporations  under  the  14th  amendment 
of  the  United  States  constitution  is  given. 


§  7  THE   CORPORATION  AS   A   PERSON.  37 

By  the  California  constitution  all  property,  with  certain  exceptions,  is 
to  be  taxed  according  to  its  value ;  but  in  ascertaining  the  value  of 
property  owned  by  individuals  the  amount  unpaid  of  any  mortgage 
upon  it  is  to  be  deducted  from  the  assessed  value,  and  the  tax  levied 
on  the  balance,  as  against  the  owner.  "The  franchise,  roadway,  road- 
bed, rails  and  rolling  stock  of  all  railroads  operated  in  more  than  one 
county,"  are  to  be  assessed  at  their  actual  value  and  apportioned  to 
the  various  municipal  subdivisions  in  proportion  to  mileage,  without 
any  deductions  for  any  mortgages  on  the  property.  Also,  the  statutes 
provide  for  notice  and  hearing  by  the  parties  affected  before  the  as- 
sessment is  complete,  in  all  cases  except  railroads  operated  in  more 
than  one  county. 

The  railroal  company  contended :  (i)  That  the  assessment,  because 
no  deductions  for  mortgages  were  allowed,  as  in  other  cases,  had  the 
effect  of  denying  it  the  equal  protection  of  the  laws  guaranteed  by  the 
14th  amendment  of  the  United  States  constitution.  (2)  Also,  that 
the  fact  that  no  notice  was  provided  for,  deprived  it  of  its  property 
without  due  process  of  law,  contrary  to  the  same  amendment. 

The  county  contended:  (i)  That  the  state's  authority  to  tax  is  un- 
liinited  except  by  the  United  States  constitution.  (2)  That  the  United 
States  constitution  did  not  forbid  the  classification  of  property  for  tax- 
ation. (3)  That  the  14th  amendment  did  not  apply.  (4)  That  cor- 
porations were  not  persons  within  the  meaning  of  the  amendment. 
(5)  That  the  statute  requiring  a  statement  of  property  by  the  railroad 
company  was  sufficient  notice;  and  (6),  that  the  provisions  relative 
to  taxation  of  railroads  are  to  be  treated  as  conditions  upon  the  con- 
tinued existence  of  the  corporations.] 

Field,  J.  *  *  *  The  fourteenth  amendment  of  the  constitu- 
tion, in  declaring  that  no  state  shall  deny  to  any  person  within  its 
jurisdiction  the  equal  protection  of  the  laws,  imposes  a  limitation  upon 
the  exercise  of  all  the  powers  of  the  state  which  can  touch  the  indi- 
vidual or  his  property,  including  among  them  that  of  taxation.  What 
ever  the  state  may  do,  it  can  not  deprive  any  one  within  its  jurisdic- 
tion of  the  equal  protection  of  the  laws.  And  by  equal  pi'otection  of 
the  laws  is  meant  equal  security  under  them  to  every  one  on  similar 
terms — in  his  life,  his  liberty,  his  property,  and  in  the  pursuit  of 
happiness.  It  not  only  implies  the  right  of  each  to  resort,  on  the  same 
terms  with  others,  to  the  courts  of  the  country  for  the  security  of  his 
person  and  property,  the  prevention  and  redress  of  wrongs  and  the 
enforcement  of  contracts,  but  also  his  exemption  from  any  greater 
burdens  or  charges  than  such  as  are  equally  imposed  upon  all  others 
under  like  circumstances. 

Unequal  exactions  in  every  form,  or  under  any  pretense,  are  abso- 
lutely forbidden;  and,  of  course,  unequal  taxation,  for  it  is  in  that 
form  that  oppressive  burdens  are  usually  laid.  It  is  not  possible  to 
conceive  equal  protection  under  any  system  of  laws  where  arbitrary 
and  unequal  taxation  is  permissible ;  where  different  persons  may  be 
taxed  on  their  property  of  the  same  kind,  similarly  situated,  at  differ- 
ent rates ;  where,  for  instance,  one  may  be  taxed  at  i  per  cent,  on  the 
value  of  his  property,  another  at  2  or  5  per  cent.,  or  where  one  may  be 
thus  taxed  according  to  his  color,  because   he  is  white,  or  black,  or 


38      COUNTY    OF   SAN    MATEO   V.  SOUTHERN    PACIFIC   R.  CO.     §  / 

brown,  or  yellow,  or  according  to  any  other  rule  than  that  of  a  fixed 
rate  proportionate  to  the  value  of  his  property.     *     *     * 

If  we  may  now  look  at  the  scheme  of  taxation  prescribed  by  the 
constitution  of  California  for  the  property  of  railroad  companies,  we 
shall  perceive  a  flagrant  departure  from  the  rule  of  equality  and  uni- 
formity so  essential  to  equality  in  the  distribution  of  the  burdens  of 
government.  Whenever  an  individual  holds  property  incumbered 
with  a  mortgage  he  is  assessed  at  its  value,  after  deducting  from  it 
the  amount  of  the  mortgage.  If  a  railroad  company  holds  property 
subject  to  a  mortgage,  it  is  assessed  at  its  full  value,  without  any 
deduction  for  the  mortgage  ;  that  is,  as  though  the  property  were  un- 
incumbered. The  inequality  and  discriminating  character  of  the  pro- 
cedure will  be  apparent  by  an  illustration  given  by  counsel.  Suppose 
a  private  person  owns  a  farm  which  is  valued  at  $100,000,  and  is  in- 
cumbered with  a  mortgage  amounting  to  $80,000 ;  he  is,  in  that  case, 
assessed  at  $20,000;  if  the  rate  of  taxation  be  2  per  cent.,  he  would 
pay  $400  taxes.  If  a  railroad  corporation  owns  an  adjoining  tract 
worth  $100,000,  which  is  also  incumbered  by  a  mortgage  for  $80,000, 
it  would  be  assessed  for  $100,000,  and  be  required  to  pay  $2,000 
taxes,  or  five  times  as  much  as  the  private  person.  There  is  here  a 
discrimination  too  palpable  and  gross  to  be  questioned,  and  such  is 
the  nature  of  the  discrimination  made  against  the  Southern  Pacific 
Railroad  Company  in  the  taxation  of  its  property.  Nothing  can  be 
clearer  than  that  the  rule  of  equality  and  uniformity  is  thus  entirely 
disregarded.      *     *     * 

Is  the  defendant,  being  a  corporation,  a  person  within  the  meaning 
of  the  fourteenth  amendment,  so  as  to  be  entitled,  with  respect  to  its 
property,  to  the  equal  protection  of  the  laws."*  The  learned  counsel 
of  the  plaintiff  and  the  attorney-general  of  the  state  take  the  negative 
of  this  question,  and  assert  with  much  earnestness  that  the  amendment 
applies,  and  was  intended  to  apply,  only  to  the  newly-made  citizens 
of  the  African  race,  and  should  be  limited  to  their  protection.    *    *    * 

In  the  Dartmouth  College  case  it  was  urged  that  the  charter  of  the 
college  was  not  a  contract  contemplated  by  the  constitution,  because 
no  valuable  consideration  passed  to  the  king  as  an  equivalent  for  the 
grant,  and  that  contracts  merely  voluntary  were  not  within  the  prohi- 
bition. But  Chief  Justice  Marshall,  after  showing  that  the  charter  was 
a  contract  upon  a  valuable  consideration,  said: 

"It  is  more  than  possible  that  the  preservation  of  rights  of  this  de- 
scription was  not  particularly  in  view  of  the  framers  of  the  constitu- 
tion when  the  clause  under  consideration  was  introduced  into  that  in- 
strument. It  is  pi'obable  that  interferences  of  more  frequent  recur- 
rence, to  which  the  temptation  was  stronger  and  of  which  the  mischief 
was  more  extensive,  constituted  the  great  motive  for  imposing  this  re- 
striction on  the  state  legislatures.  But  although  a  particular  and  a 
rare  case  may  not,  in  itself,  be  of  sufficient  magnitude  to  induce  a  rule, 
yet  it  must  be  governed  by  the  rule  when  established,  unless  some 
plain  and  strong  reason  for  excluding  it  can  be  given."  And  again, 
"the  case  being  within  the  words  of  the  rule  must  be  within  its  opera- 
tion likewise,  unless  there  be  something  in  the  literal  construction  so 
obviously  absurd  or  mischievous,  or  repugnant  to  the  general  spirit  of 


§  7  THE   CORPORATION  AS   A   PERSON.  39 

the  instrument,  as  to  justify  those  who  expound  the  constitution  in 
making  it  an  exception."  •  4  Wheat.  644. 

Following  that  authority,  we  can  not  adopt  the  narrow  view  for 
which  counsel  contend,  and  limit  the  application  of  the  prohibition 
of  the  fourteenth  amendment  to  legislation  touching  members  of  the 
enfranchised  race.  It  has  a  much  broader  operation.  It  does  not, 
indeed,  place  any  limit  upon  the  subjects,  in  reference  to  which  the 
states  may  legislate.  It  does  not  interfere  with  their  police  power. 
Upon  every  matter  upon  which  previously  to  its  adoption  they  could 
act,  they  may  still  act.  They  can  legislate  now,  as  they  always  could, 
to  promote  the  health,  good  order  and  peace  of  the  community;  to 
develop  their  resources,  increase  their  industries  and  advance  their 
prosperity ;  but  it  does  require  that  in  all  such  legislation  hostile  and 
partial  discrimination  against  any  class  or  person  shall  be  avoided ; 
that  the  state  shall  impose  no  greater  burdens  upon  anyone  than  upon 
others  of  the  community  under  like  circumstances,  nor  deprive  any- 
one of  rights  which  others  similarly  situated  are  allowed  to  enjoy.  It 
forbids  the  state  to  lay  its  hand  more  heavily  upon  one  than  upon  an- 
other, under  like  conditions.  It  stands  in  the  constitution  as  a  per- 
petual shield  against  all  unequal  and  partial  legislation  by  the  states, 
and  the  injustice  which  follows  from  it,  whether  directed  against  the 
most  humble  or  the  most  powerful ;  against  the  despised  laborer  from 
China,  or  the  envied  master  of  millions.      *     *     * 

Private  corporations  are,  it  is  true,  artificial  persons,  but,  with  the 
exception  of  a  sole  corporation,  with  which  we  are  not  concerned, 
they  consist  of  aggregations  of  individuals  united  for  some  legitimate 
business.  In  this  state  they  are  formed  under  the  general  laws ;  and 
the  civil  code  provides  that  they  "may  be  formed  for  any  purpose  for 
which  individuals  may  lawfully  associate  themselves."  Any  five  or 
more  persons  may  by  voluntary  association  form  themselves  into  a  cor- 
poration. And,  as  a  matter  of  fact,  nearly  all  enterprises  in  this  state 
requiring  for  their  execution  an  expenditure  of  large  capital  are  un- 
dertaken by  corporations.  They  engage  in  commerce ;  they  build 
and  sail  ships ;  they  cover  our  navigable  streams  with  steamers ;  they 
construct  houses;  they  bring  the  products  of  earth  and  sea  to  market; 
they  light  our  streets  and  buildings ;  they  open  and  work  mines ;  they 
carry  water  into  our  cities ;  they  build  railroads,  and  cross  mountains 
and  deserts  with  them  ;  they  erect  churches,  colleges,  lyceuras  and 
theaters ;  they  set  up  manufactories,  and  keep  the  spindle  and  shuttle 
in  motion  ;  they  establish  banks  for  savings  ;  they  insure  against  acci- 
dents on  land  and  sea ;  they  give  policies  on  life ;  they  make  money 
exchanges  with  all  parts  of  the  world  ;  they  publish  newspapers  and 
books,  and  send  news  by  lightning  across  the  continent  and  under  the 
ocean.  Indeed,  there  is  nothing  which  is  lawful  to  be  done  to  feed 
and  clothe  our  people,  to  beautify  and  adorn  their  dwellings,  to  re- 
lieve the  sick,  to  help  the  needy  and  to  enrich  and  ennoble  humanity, 
which  is  not  to  a  great  extent  done  through  the  instrumentalities  of 
corporations.     There  are  over  500  corporations  in  this  state ;    there 


40      COUNTY   OF   SAN   MATEO  V.  SOUTHERN    PACIFIC    R.  CO.      §  / 

are  30,000  in  the  United  States,  and  the  aggregate  vakie  of  their  prop- 
erty is  several  thousand  millions.  ' 

It  would  be  a  most  singular  result  if  a  constitutional  provision,  in- 
tended for  the  protection  of  every  person  against  partial  and  discrimi- 
nating legislation  by  the  states,  should  cease  to  exert  such  protection 
the  moment  the  person  becomes  a  member  of  a  corporation.  We 
can  not  accept  such  a  conclusion.  On  the  contrary,  w^e  think  that  it 
is  vv^ell  established  by  numerous  adjudications  of  the  supreme  court  of 
the  United  States  and  of  the  several  states,  that  whenever  a  -provision 
of  the  constitution,  or  of  a  law ,  guarantees  to  persons  the  enjoyment  of 
property,  or  affords  to  them  means  for  its  protection,  or  prohibits 
legislation  injuriously  affecting  it,  the  benefits  of  the  provision  ex- 
tend to  corporations,  and  that  the  courts  will  always  look  beyond  the 
natne  of  the  artificial  being  to  the  individuals  whom  it  represents. 

The  case  of  the  Society  for  the  Propagation  of  the  Gospel  in  For- 
eign Parts  V.  Town  of  New  Haven,  8  Wheat.  464,  furnishes  an  apt 
illustration  of  this  doctrine.  The  sixth  article  of  the  treaty  of  peace 
with  Great  Britain  of  1783,  provided  that  there  should  be  "no  future 
confiscations  made,  nor  any  prosecutions  commenced,  against  any  per- 
son or  persons  for  or  by  reason  of  the  part  which  he  or  they  may  have 
taken  in  the  present  war,  and  that  no  person  shall  on  that  account 
suffer  any  future  loss  or  damage,  either  in  his  person,  liberty  or  prop- 
erty." An  English  corporation  claimed  the  benefit  of  this  article 
with  reference  to  certain  lands  in  Vermont  granted  to  it  before  the 
revolution,  which  the  legislature  of  that  state  had  undertaken  to  give 
to  the  town  where  they  were  situated.  It  was  contended  that  the 
treaty  only  applied  to  natural  persons ;  that  it  did  not  embrace  corpo- 
rations, because  they  were  not  persons  who  could  take  part  in  the  war, 
or  could  be  considered  British  subjects ;  but  the  position  was  held  to 
be  untenable.  The  court,  speaking  through  Mr.  Justice  Washington, 
said  that  the  argument  proceeded  upon  an  incorrect  view  of  the  sub- 
ject, and  referred  to  the  case  of  United  States  v.  Deveaux,  5  Cranch 
%6,  to  show  that  the  court,  when  necessary,  will  look  beyond  the 
name  of  a  corporation  to  reach  and  protect  those  whom  it  represents. 

The  constitution,  in  defining  the  judicial  power  of  the  United 
States,  declares  that  it  shall  extend  to  "controversies  between  citizens 
of  different  states;"  and  in  the  case  referred  to  by  Mr.  Justice  Wash- 
ington, the  question  arose  whether  a  corporation  composed  of  citizens 
of  one  state  could  sue,  in  the  circuit  court  of  the  United  States,  a  citi- 
zen of  another  state,  and  it  was  held  that  it  could.  In  deciding  the 
question,  the  court,  speaking  through  Chief- Justice  Marshall,  said: 

"However  true  the  fact  may  be  that  the  tribunals  of  the  state  will 
administer  justice  as  impartially  as  those  of  the  nation  to  parties  of 
every  description,  it  is  not  less  true  that  the  constitution  itself  either 
entertains  apprehension  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 

^The  number  of  corporations  here  stated  is  much  less  than  the  number 
actually  existing.    There  are  over  5,000  corporations  in  California  alone. 


§  7  THE   CORPORATION  AS   A  PERSON.       .  4I 

citizens,  or  between  citizens  of  different  states.  Aliens  or  citizens  of 
different  states  are  not  less  susceptible  of  these  apprehensions,  nor 
can  they  be  supposed  to  be  less  the  objects  of  constitutional  provision 
because  they  were  allowed  to  sue  by  a  corporate  name.  That  name, 
indeed,  can  not  be  an  alien  or  a  citizen,  but  the  persons  whom  it  rep- 
resents may  be  the  one  or  the  other,  and  the  controversy  is,  in  fact 
and  in  law,  between  those  persons  suing  in  their  corporate  character, 
by  their  corporate  names,  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  different  state  from  the  opposite  party,  come 
within  the  spirit  and  terms  of  the  jurisdiction  conferred  by  the  con- 
stitution of  the  national  tribunals.  Such  has  been  the  universal  un- 
derstanding on  the  subject.  Repeatedly  has  this  court  decided  causes 
between  a  corporation  and  an  individual  without  feeling  a  doubt  re- 
specting its  jurisdiction." 

The  same  point  was  presented  in  another  form  in  the  case  of  Mar- 
shall V.  Baltimore  &  O.  R.  Co.,  16  How.  326.  There  the  question 
was  whether  a  citizen  of  one  state  could  sue  in  the  circuit  court  of  the 
United  States  a  corporation  of  another  state,  and  a  similar  conclusion 
was  reached.  After  referring  to  the  clause  of  the  constitution  extend- 
ing the  judicial  power  of  the  United  States  to  controversies  between 
citizens  of  different  states,  the  court  proceeded  to  consider  the  objec- 
tions urged  to  treating  a  corporation  as  a  citizen,  so  far  as  it  might  be 
necessary  to  protect  the  corporators. 

"A  corporation,"  observed  Mr.  Justice  Grier,  speaking  for  the 
court,  "it  is  said  is  an  artificial  person,  a  mere  legal  entity,  invisible  * 
and  intangible.  This  is  no  doubt  metaphysically  true  in  a  certain 
sense.  The  inference,  also,  that  such  an  artificial  entity  'can  not  be  a 
citizen'  is  a  logical  conclusion  from  the  premises,  Ayhich  can  not  be 
denied.  But  a  citizen  who  has  made  a  contract  and  has  a  contro- 
versy with  a  corporation  may  also  say,  with  equal  tnith,  that  he  did 
not  deal  with  a  mere  metaphysical  abstraction,  but  with  natural  per- 
sons; that  his  writ  has  not  been  served  on  an  imaginary  entity,  but  on 
men  and  citizens,  and  that  his  contract  was  made  with  them  as  the 
legal  representatives  of  numerous  unknown  associates,  or  secret  and 
dormant  partners. 

"The  necessities  and  conveniences  of  trade  and  business  require 
that  such  numerous  associates  and  stockholders  should  act  by  repre- 
sentation, and  have  the  faculty  of  contracting,  suing  and  being  sued 
in  a  fictitious  or  collective  name.  But  these  important  faculties,  con- 
ferred on  them  by  state  legislation,  for  their  own  convenience,  can 
not  be  wielded  to  deprive  others  of  acknowledged  rights.  It  is  not 
reasonable  that  those  who  deal  with  such  persons  should  be  deprived 
of  a  valuable  privilege  by  a  syllogism,  or  rather  sophism,  which  deals 
subtly  with  words  and  names,  without  regard  to  the  things  or  persons 
they  are  used  to  represent." 

The  fifth  amendment  to  the  constitution  declares  that — 

"No  person  shall  be  held  to  answer  for  a  capital  or  otherwise  infa- 


42      COUNTY    OF    SAN    MATEO  V.  SOUTHERN    PACIFIC    R.  CO.      §  / 

mous  crime,  unless  on  a  presentment  or  indictment  of  a  grand  jury, 
except  in  cases  arising  in  the  land  or  naval  forces,  or  in  the  militia, 
when  in  actual  sei^vice  in  time  of  war  or  public  danger;  nor  shall  any 
person  be  subject  for  the  same  offense  to  be  put  twice  in  jeopardy  of 
life  or  limb ;  nor  shall  be  compelled  in  any  criminal  case  to  be  a  wit- 
ness against  himself,  nor  be  deprived  of  life,  liberty  or  property  with- 
out due  process  of  law ;  nor  shall  private  property  be  taken  for  public 
use  without  just  compensation." 

From  the  nature  of  the  prohibitions  in  this  amendment  it  would 
seem,  with  the  exception  of  the  last  one,  as  though  they  could  apply 
only  to  natural  persons.  No  others  can  be  witnesses ;  no  others  can 
be  twice  put  in  jeopardy  of  life  or  limb,  or  be  compelled  to  be  wit- 
nesses against  themselves ;  and,  therefore,  it  might  be  said  with  much 
force,  that  the  word  "person"  there  used  in  connection  with  the  pro- 
hibition against  the  deprivation  of  life,  liberty  and  property  without 
due  process  or  law,  is  in  like  manner  limited  to  a  natural  person.  But 
such  has  not  been  the  construction  of  the  courts.  A  similar  provision 
is  found  in  nearly  all  of  the  state  constitutions ;  and  everywhere,  at  all 
times  and  in  all  courts,  it  has  been  held,  either  by  tacit  assent  or  ex- 
press adjudication,  to  extend,  so  far  as  their  property  is  concerned,  to 
corporations.  And  this  has  been  because  the  property  of  a  corpora- 
tion is  in  fact  the  property  of  the  corporators.  To  deprive  the  cor- 
poration of  its  property,  or  to  burden  it,  is  in  fact  to  deprive  the 
corporators  of  their  property  or  to  lessen  its  value.  Their  interest, 
undivided  though  it  be,  and  constituting  only  a  right  during  the  con- 
tinuance of  the  corporation  to  participate  in  its  dividends,  and  on  its 
dissolution  to  receive  a  proportionate  share  of  its  assets,  has  an  ap- 
preciable value,  and  is  property  in  a  commercial  sense,  and  whatever 
affects  the  property  of  the  corporation  necessarily  affects  the  com- 
mercial value  of  their  interests.  If,  for  example,  to  take  the  illustra- 
tion given  by  counsel,  a  corporation  created  for  banking  purposes 
acquires  land,  notes,  stocks,  bonds  and  money,  no  stockholder  can 
claim  that  he  owns  any  particular  item  of  this  property,  but  he  owns 
an  interest  in  the  whole  of  it,  which  the  courts  will  protect  against  un- 
lawful seizure  or  appropriation  by  others,  and  on  the  dissolution  of 
the  company  he  will  receive  a  proportionate  share  of  its  assets.  Now, 
if  a  statute  of  the  state  takes  the  entire  property,  who  suffers  loss  by 
the  legislation.?  Whose  property  is  taken.''  Certainly,  the  corpora- 
tion is  deprived  of  its  property;  but  at  the  same  time,  in  every  just 
sense  of  the  constitutional  guaranty,  corporators  are  also  deprived  of 
their  property. 

The  prohibition  against  the  deprivation  of  life  and  liberty  in  the 
same  clause  of  the  fifth  amendment  does  not  apply  to  corporations, 
because,  as  stated  by  counsel,  the  lives  and  liberties  of  the  indi- 
vidual corporators  are  not  the  life  and  liberty  of  the  corporation. 

Nor  do  all  the  privileges  and  immunities  of  citizenship  attach  to 
corporations.  These  bodies  have  never  been  considered  citizens  for 
any  other  purpose  than  the  protection  of  the  property  rights  of  the 
corporators.      The  status  of  citizenship,  entitling  the  citizen  to  certain 


§  7  THE    CORPORATION  AS   A  PERSON.  43 

privileges  and  immunities  in  the  several  states,  does  not  belong  to  cor- 
porations. The  special  privileges  which  citizens  acquire  by  becom- 
ing incorporated  in  one  state  can  not,  therefore,  be  exercised  in  an- 
other state  without  the  latter's  consent,  as  was  held  in  Paul  v.  Vir- 
ginia, 8  Wall.  i68,  although  such  consent  will  generally  be  presumed 
in  the  absence  of  positive  prohibition. 

.  Decisions  of  state  courts,  in  harmony  with  the  views  we  have  ex- 
pressed, exist  in  great  numbers.  But  it  is  unnecessary  to  cite  them. 
It  is  sufficient  to  add  that  in  all  text  writers,  in  all  codes,  and  in  all 
revised  statutes,  it  is  laid  down  that  the  term  "person"  includes,  or 
may  include,  corporations;  which  amounts  to  what  we  have  already 
said,  that  whenever  it  is  necessary  for  the  protection  of  contract  or 
property  rights,  the  courts  will  look  through  the  ideal  entity  and  name 
of  the  corporation  to  the  persons  who  compose  it,  and  protect  them, 
though  the  process  be  in  its  name.  All  the  guaranties  and  safe- 
guards of  the  constitution  for  the  protection  of  the  prof  erty  possessed 
by  individuals  may,  therefore,  be  invoked  for  the  protection  of  the 
property  of  corporations.  And  as  no  discriminating  and  partial 
legislation,  imposing  unequal  burdens  upon  the  property  of  indi' 
viduals,  would  be  valid  under  the  fourteenth  amendment,  so  no  leg- 
islation itnposing  such  unequal  burdens  upon  the  property  of  corpo- 
rations can  be  maintained.  The  taxation,  therefore,  of  the  property 
of  the  defendant  upon  an  assessment  of  its  value,  without  a  deduction 
of  the  mortage  thereon,  is  to  that  extent  invalid. 

[The  remainder  of  the  opinion  of  Justice  Field,  holding  that  notice  was  ab- 
solutely essential,  and  that  the  constitutional  provisions  relating  to  taxation 
were  not  conditions  as  to  the  continued  existence  of  the  corporations,  is 
omitted.] 

We  are  satisfied  that  the  assessment  upon  which  they  were  levied 
is  invalid  and  void,  and  judgment  must  be  accordingly  entered  on  the 
demurrer  for  the  defendant,  and,  by  stipulation  of  parties,  the  judg- 
ment must  be  made  final. 

Sawyer,  C.  J.,  concurring.  The  facts  of  this  case  are  fully 
stated  by  Mr.  Justice  Field,  and  need  not  be  repeated  here.  The 
questions  presented  are  of  the  gravest  character,  and  of  the  utmost 
importance  to  the  people  of  California.  While  I  concur,  generally, 
in  the  conclusions  and  in  the  line  of  argument  adopted  by  my  associ- 
ate, I  shall  also  state  as  briefly  as  I  reasonably  can,  considering  the 
gravity  of  the  questions  discussed,  my  conclusions  upon  the  points  in- 
volved. 

I.  In  my  judgment,  the  word  "person"  in  the  clause  of  the  four- 
teenth amendment  to  the  national  constitution,  "No  state  shall  *  *  * 
deprive  any  person  of  life,  liberty  or  property  without  due  process  of 
law,  nor  deny  to  any  person  the  equal  protection  of  the  law,"  includes 
a  private  corporation.  It  must,  at  least,  through  the  corporation,  in- 
clude the  natural  persons  who  compose  the  corporation,  and  who  are 
the  beneficial  owners  of  all  the  property,  the  technical  and  legal  title 
to  which  is  in  the  corporation  in  trust  for  the  corporators.  The  fact 
that  the  corporators  are  united  into  an  ideal  legal  entity,  called  a  cor- 


44  THE   STATE   V.  THE   N.  E.   RAILROAD    CO.  §  8 

poration,  does  not  prevent  them  from  having  a  right  of  property  in 
the  assets  of  the  corporation  which  is  entitled  to  the  protection  of  this 
clause  of  the  constitution.  Nor  does  the  intervention  of  this  artificial 
being  between  the  real  beneficial  owners  and  the  state,  for  the  simple 
purpose  of  convenient  management  of  the  business,  enable  the  state, 
by  acting  directly  upon  the  legal  entity,  to  deprive  the  real  parties 
beneficially  interested,  of  the  protection  of  these  important  provisions. 
In  the  language  of  Mr.  Pomeroy,  one  of  the  counsel,  which  I  adopt: 
"Whatever  be  the  legal  nature  of  a  corporation  as  an  artificial, 
metaphysical  being,  separate  and  distinct  from  the  individual  mem- 
bers, and  whatever  distinctions  the  common  law  makes  in  carrying  out 
the  technical  legal  conception  between  property  of  the  corporation 
and  that  of  the  individual  members,  still,  in  applying  the  fundamental 
guaranties  of  the  constitution,  and  in  thus  protecting  the  rights  of 
property,  these  metaphysical  and  technical  notions  must  give  way  to 
the  reality.  The  truth  can  not  be  evaded  that,  for  the  purpose  of 
protecting  rights,  the  property  of  all  business  and  trading  corporations 
is  the  property  of  the  individual  corporators.  A  state  act  depriving  a 
business  corporation  of  its  property  without  due  process  of  law  does, 
in  fact,  deprive  the  individual  corporators  of  their  property.  In  this 
sense,  and  within  the  scope  of  these  grand  safeguards  of  private  rights, 
there  is  no  real  distinction  between  artificial  persons,  or  corporations, 
and  natural  persons." 

[Remainder  of  opinion  of  Sawyer,  J.,  omitted.] 

Note.    The  rights  of  corporations  is  the  subject  of  chapter  12,  infra,  p.  914. 
See  also  numbers  10,  18  and  21,  in  note  to  Crafford  v.  Board  of  Supervis- 
ors, etc.,  87  Va.  110,  infra,  pp.  66-57,  §  10. 


Sec.  8.   Same.    (2)  And  subject  to  duties:  {a)  Of  a  public  nature. 

THE  STATE,  Ex  Rbl.  BLAKE  Et  Al.,  v.  THE  N.  E.  RAILROAD  C0.» 

1856.     In  the  Court  of  Appeals  of  South  Carolina.     9  Rich- 
ardson (S.  C.)  Law  247-254,  67  American  Dec.  551. 

[Rule  against  the  railroad  company  to  show  cause  why  mandamus 
should  not  issue  commanding  the  removal  of  obstructions  placed  in 
New  Market  and  Vardell  creeks,  alleged  to  be  navigable,  and  pro- 
vide proper  viaducts  or  use  steamboats  for  crossing  water-courses,  so 
as  not  to  obstruct  navigation,  as  required  by  the  charter  of  the  com- 
pany.] 

Report  by  Glover,  J.  [who,  after  holding  the  streams  were  navi- 
gable, proceeded]  : 

The  last  inquiry  suggested  by  the  answer  of  the  respondents  is, 

^  Part  of  report  of  Glover,  J. ,  and  arguments,  omitted. 


§  8  THE   CORPORATION  AS   A  PERSON.  45 

whether  a  writ  of  mandamus  is  the  proper  remedy.  The  removal 
and  abatement  of  a  public  nuisance  is  generally  effected  by  indict- 
ment, which  affords,  in  most  cases,  an  ample  and  a  satisfactory  rem- 
edy ;  but  it  does  not  follow  that  a  mandamus  will  not  be  issued  where 
an  indictment  may  be  sustained.  The  cases  referred  to  in  the  argu- 
ment show  that  the  remedy  by  mandamus  has  been  adopted  to  compel 
a  corporation  to  do  its  duty  to  the  public  and  to  individuals.'  In  its 
form,  the  writ  commands  the  performance  of  some  act  or  duty  therein 
specified,  the  execution  of  which  is  consonant  to  right  and  justice. 
(3  Steph.  Com.  681.)  Although  railways  have  become  important 
for  public  travel  and  transportation,  yet  they  are  private  corporations, 
enjoying  large  privileges,  and  should  strictly  comply  with  the  pro- 
visions of  their  charters.  The  public  is  interested  in  their  successful 
operation,  and  their  usefulness  should  not  be  impaired  by  any  unneces- 
sary restraints ;  but  they  must  not  be  permitted  to  abuse  the  powers 
granted,  and  should  be  held  to  a  strict  performance  of  the  duties  en- 
joined. If  the  nuisance  be  abated  by  a  removal  of  the  track  of  the 
road  or  the  piles  which  sustain  it,  the  public  would  suffer  in  the  tem- 
porary delay  in  destroying  the  connection.  Whereas,  the  remedy  by 
mandamus  does  not  destroy  the  road  or  delay  its  operations,  but  com- 
mands the  company  to  fulfill  its  duty  to  the  public  by  pursuing  the 
directions  prescribed  by  their  charter  for  crossing  rivers  and  water- 
courses. 

The  remedy  by  mandamus  has  been  often  used  in  England,  in 
cases  not  unlike  the  present.  The  Eastern  Counties  Railway  Com- 
pany obtained  an  act  of  Parliament  for  making  a  railway  from  Lon- 
don to  Norwich  and  Yarmouth,  and  it  appearing  doubtful  if  the  com- 
pany intended  to  extend  their  road  to  the  points  indicated,  a  manda- 
mus was  issued  calling  upon  them  to  complete  the  whole  line  of  road 
pursuant  to  the  provisions  of  the  act.  (Reg.  v.  Eastern  Counties 
Railway  Company,  i  vol.  Railway  and  Canal  Cases.)  Lord  Den- 
man,  C.  J.,  delivering  the  judgment  of  the  court,  says:  "This  inter- 
ference is  occasioned  by  inferior  courts  or  persons  refusing  to  proceed 
in  some  course  prescribed  by  law,  and  not  in  consequence  of  any  mis- 
apprehension or  error  in  their  course,  provided  they  have  entered 
upon  it.  And  accordingly,  if  it  had  appeared  that  the  company  were 
substantially  complying  with  the  terms  of  their  undertaking,  there  would 
have  been  at  once  a  satisfactory  answer  to  that  application."  The 
writ,  in  this  case,  was  issued  at  the  instance  of  stockholders ;  but  it 
has  also  been  granted  to  command  a  railway  company  to  increase  the 
height  of  a  bridge  erected  by  them  over  a  public  carriage  road,  accord- 
ing to  the  provisions  of  their  act  of  Parliament.  (Tapp.  on  Man. 
243.)  The  remedy  by  mandamus  will  embarrass  the  company  less  in 
the  progress,  completion  or  use  of  their  road  than  an  indictment  to 
abate  and  remove  the  obstructions  complained  of.  The  result  of  an 
indictment  would  be  the  punishment  of  the  company  by  fine,  and  this 
might  not  afford  to  the  public  the  relief  which  is  sought,  to  which 
they  are  entitled,  and  which  the  railroad  company  are  required  by  the 
provisions  of  their  charter  to  afford.      It  is  no  objection  to   this  mode 


46  THE   STATE   V.  THE   N.  E.  RAILROAD    CO.  §  8 

of  relief,  that  the  relators  have  another  remedy,  especially  when  that 
remedy  is  not  so  convenient,  complete  and  beneficial.  (Tapp.  on 
Man.  24.) 

"It  is,  therefore,  ordered  that  a  writ  of  mandamus  issue."     *     *     * 

The  defendants  appealed,  and  moved  this  court  to  set  aside  the 
order  granting  the  mandamus,  on  the  ground,  inter  alia. 

3.  That  if  the  respondents  have  committed  a  nuisance,  mandamus 
is  not  the  proper  remedy.     *     *     * 

The  opinion  of  the  court  was  delivered  by 

Glover,  J.  The  appellants  have  abandoned  all  the  grounds  in 
support  of  their  motion,  except  the  third,  which  submits  that  if  they 
have  committed  a  nuisance  mandamus  is  not  the  proper  remedy. 

It  is  not  necessary  for  the  decision  of  this  question  to  trace  the  writ 
of  mandamus  from  its  first  institution  to  the  present  time,  and  to  in- 
quire how  far  it  has  been  enlarged  as  a  remedial  process  to  advance 
justice  and  right.  Its  earliest  application  seems  to  have  been  sug- 
gested in  aid  of  that  clause  of  Magna  Charta,  which  declares  that 
'■'•JVulli  negabinius  aut  differemus  justiciani  vel  rectum^ ^  (10  Mod. 
48).  There  never  has  been  any  disposition  to  abridge  the  use  of  the 
writ  of  mandamus  in  cases  where  it  is  applicable  as  a  remedy  either 
by  the  action  of  the  courts  or  by  the  legislature. 

The  general  doctrine  so  earnestly  insisted  on  by  the  appellant's 
counsel,  that  where  there  is  a  specific  legal  remedy  the  writ  will  not 
be  granted,  or,  if  granted,  will  be  quashed,  is  fully  sustained  by  rea- 
son, and  by  the  authorities  to  which  the  court  has  been  referred.  But 
this  general  rule  has  been  restricted  to  cases  where  the  specific  legal 
remedy  is  equally  convenient,  complete  and  beneficial. 

The  writ  of  mandamus  has  always  been  regarded  as  an  appropriate 
remedy  to  enforce  the  performance  of  duties  by  artificial  bodies.  In 
the  case  of  the  King  v.  The  Bishop  of  Chester  (i  T.  R.  396),  Bul- 
ler,  J.,  says:  "It  is  peculiarly  the  duty  of  this  court  to  see  that  the 
powers  created  by  the  king's  charter  are  properly  exercised."  How 
far  an  indictment  is  a  specific  remedy,  was  considered  in  the  case  of 
The  King  v.  The  Commissioners  of  Dean  Inclosure,  2  M.  &  Sel.  80. 
The  commissioners  had  neglected  to  obey  an  order  of  the  sessions  di- 
recting them  to  set  out  a  road  as  a  public  road,  and  it  was  held  that 
indictment  would  not  be  a  specific  remedy,  that  is,  such  as  the  case 
demands,  for  it  was  a  proceeding  in  pcenam  for  the  past,  and  not  a 
remedy  for  the  future.  It  is  admitted  that  if  indictment  be  equally 
convenient,  beneficial  and  effectual,  and  such  as  the  particular  case 
demands,  the  court  will  not  grant  the  mandamus.  King  v.  Severn 
and  Wye  Railway  Company,  2  Barn.  &  Al.  646.  This  is  not  the  or- 
dinary case  of  an  obstruction  placed  in  a  highway  which  maybe  abated 
as  a  nuisance  by  indictment ;  but  the  obstruction  of  a  highway  by  a 
railway,  and  in  the  free  use  of  both,  the  public  interest  is  involved. 
It  is  therefore  important  that  in  the  application  of  a  remedy,  public 
travel  and  transportation  should  not  be  stopped  or  checked,  either  on  the 
highway  or  railway.  "It  ought  to  be  the  concern  of  a  court  of  justice 
to  take  care  that  whilst  they  are  granting  a  remedy  to  one,  they  do  not  at 


§  9  THE    CORPORATION  AS   A  PERSON.  47 

the  same  time  expose  others  to  great  inconveniences,  and  likewise  that 
the  remedy  be  such  as  may  prove  effectual."  (lO  Mod.  48.)  The 
relators  do  not  require  that  the  railway  shall  be  destroyed,  but  that 
the  corporation  shall  exercise  the  powers  granted  in  the  manner  pre- 
scribed by  their  charter — not  that  they  shall  be  punished  by  fine  or 
otherwise,  but  that  they  shall  do  their  duty  to  the  public.  This  is  a 
reasonable  request,  and  can  not  be  enforced  by  indictment  without 
exposing  the  railway  company  to  great  inconvenience,  and  in  the  end 
it  would  not  prove  such  a  remedy  as  the  case  demands.  Corporate 
bodies  must  be  compelled  in  the  performance  of  their  duties  to  dis- 
charge their  public  obligations. 

This  court  is  of  opinion  that  a  writ  of  mandamus  is  an  appropriate 
remedy  to  compel  the  defendants  in  crossing  "rivers  or  other  water- 
courses," to  pursue  the  mode  prescribed  by  their  charter.  The  other 
grounds  having  been  abandoned,  the  court  has  not  considered  the 
questions  which  they  suggest.  Since  the  writ  of  mandamus  was 
granted  an  act  has  been  passed  by  the  general  assembly,  and  has  been 
brought  to  the  notice  of  the  court,  which  declares,  "that  the  existing 
structure  of  said  railway  at  the  points  of  intersection  of  said  road  with 
the  creeks  known  as  New  Market  and  Vardell's  creeks,  is  hereby  de- 
clared to  be  lawful,  and  the  said  company  is  hereby  authorized  to  cross 
said  creeks  without  drawbridges  or  other  pi'ovision  for  the  navigation 
of  the  same."  This  enactment  necessarily  supersedes  the  writ.  It  is 
therefore  ordered,  that  the  motion  be  dismissed,  and  that  all  further 
proceedings  on  the  writ  be  restrained. 

O'Neall,  Wardlaw,  Withers,  Whitner  and  Munroe,  JJ.,  con- 
curred. 

Motion  dismissed. 

[See  note,  p.  66. 

Note.  The  duties  and  liabilities  of  corporations  will  be  the  subject  of  later 
chapters.     See  infra,  chs.  13-17,  pp.  914-1766. 


Sec.  9.     Same,     {b)  And  of  a  private  nature. 

RIDDLE  V.  THE  PROPRIETORS,  Etc.,  ON  MERRIMAC  RIVER.' 

1810.     In  the  Supreme  Judicial  Court  of  Massachusetts.    7 
Mass.  Reports  169,  5  American  Dec.  35. 

[Action  on  the  case  against  the  proprietors  of  a  canal  who  were 
bound  by  their  incorporation  to  construct  their  canal  deep  and  wide 
enough  for  rafts  of  a  specific  size  to  pass  through  when  the  river  be- 
low was  navigable  for  craft  of  the  same  size.  The  proprietors  neg- 
ligently permitted  the  canal  to  become  out  of  repair  to  such  an  extent 
that  the  plaintiff  in  attempting  to  transport  a  raft  of  the  proper  size, 
after  paying  the  toll  exacted,  was  unable  to  do  so,  and  after  his  raft 
grounded  he  returned   home  for  the  purpose  of  waiting  until   there 

'  Statement  of  facts  condensed.   Arguments  and  parts  of  the  opinion  omitted. 


48  RIDDLE   V.    THE   PROPRIETORS.  §  9 

should  be  enough  water  to  move  the  raft;  while  he  was  away  a  storm 
occurred,  which  occasioned  the  loss  of  a  quantity  of  wood,  a  part  of 
the  raft,  and  the  value  of  which  the  jury  was  directed  to  include  in 
the  damages.] 

Parsons,  C.  J.  [After  a  brief  recital  of  the  declaration.]  The 
cause  was  tried  on  the  general  issue,  and  a  verdict  was  found  for  the 
plaintiff  agreeably  to  the  judge's  direction. 

The  defendants  have  moved  for  a  new  trial  for  the  misdirection  of 
the  judge  in  a  matter  of  law,  and  they  have  also  moved  in  arrest  of 
judgment  for  the  insufficiency  of  the  declaration. 

[After  holding  that  none  of  the  objections  to  the  verdict  could  prevail,  the 
judge  proceeded] : 

We  now  come  to  the  motion  in  arrest  of  judgment,  which  has  been 
made  on  two  grounds. 

The  first  is,  that  it  is  not  the  duty  of  the  defendants  to  keep  the 
canal  in  repair,  sufficient  for  the  passage  of  rafts  and  boats  of  the  de- 
scription mentioned  in  the  declaration.  This  ground  is  endeavored  to 
be  maintained  on  the  supposition  that  the  powers  granted  to  the  cor- 
poration were  a  privilege,  which  might  be  waived  or  exercised  at  its 
discretion.  But  we  think  this  supposition  is  not  correct.  When  the 
act  of  incorporation  first  passed,  it  was  optional  with  the  proprietors 
whether  they  would  or  would  not  take  the  benefit  of  it,  but  after  they 
had  made  their  election  by  executing  the  powers  granted,  and  claim- 
ing the  toll,  then  the  duties  imposed  by  the  tenth  section,  to  make  the 
canals,  etc.,  attached,  from  which  they  can  not  be  discharged,  but  by 
a  seizure  of  the  franchise  into  the  hands  of  the  government,  or  by  a 
repeal  of  the  act  with  their  assent. 

But  further  to  maintain  this  ground,  the  defendants  have  argued 
that,  from  the  plaintiff's  own  showing,  it  is  not  the  duty  of  the  corpo- 
ration to  keep  this  canal  in  repair.  By  the  statutes  relating  to  this 
subject,  if  the  corporation  did  not  open  this  canal  in  seven  years,  for 
the  passage  of  rafts  and  boats,  then  their  powers  as  to  this  canal 
ceased.  Now  the  plaintiff  alleges,  say  the  defendants,  that  when  the 
injury  complained  of  happened,  which  was  more  than  seven  years 
from  the  passing  of  the  statutes,  the  proprietors  had  then,  and  for  a 
long  time  before,  neglected  to  open  and  dig  this  canal. 

If  we  were  obliged  to  adopt  the  construction  of  the  plaintiff's  alle- 
gation, on  which  the  defendants  insist,  the  objection  ought  to  prevail. 
But  attending  to  other  parts  of  the  declaration,  we  find  it  averred  that 
this  canal  belonged  to  the  proprietors,  and  that  they,  unmind- 
ful of  their  duty,  neglected  to  open  and  dig  the  same  of  a  suf- 
ficient depth,  and  permitted  it  to  remain  in  a  decayed  state,  and  out 
of  repair,  and  the  passage  to  become  and  remain  choked  and  filled 
up.  We  are  now  considering  the  declaration  after  a  verdict,  and  the 
fair  construction  of  this  allegation  is  not  that  they  never  opened  and 
dug  the  canal  sufficiently,  but  that  they  neglected  to  open  it  by  dig- 
ging and  removing  the  collection  of  matters  which  choked  it  and  ob- 


§  9  THE   CORPORATION  AS   A  PERSON.  49 

structed  the  passage.     We  are,  therefore,  satisfied  that  the  motion  in 
arrest  can  not  prevail  on  the  ground  we  have  been  considering. 

The  other  ground  is  that  no  action  lies  against  a  corporation  for  a 
breach  of  its  duty  by  any  person  specially  injured  by  the  breach,  and 
that  the  only  remedy  is  by  information  or  indictment.  This  point  has 
been  argued  by  the  defendant's  counsel  with  much  ability,  and  has 
had  all  the  attention  we  could  give  it  in  the  short  time  the  constitution 
of  this  court  has  allowed  us. 

The  argument,  when  compressed,  is  that  corporations,  having  only 
a  legal  and  not  a  natural  body,  no  capiatur  lies  against  them ;  that  in 
all  actions  of  trespass  and  trespass  on  the  case,  where  the  general 
issue  is  not  guilty,  if  judgment  be  against  the  defendant,  a  part  of  the 
judgment  at  common  law  is  an  entry  of  a  capiatur;  that,  therefore, 
no  such  actions  lie  against  a  corporation  at  common  law ;  and  the 
statute,  taking  away  the  necessity  of  the  entry  of  a  capiatur,  does  not 
authorize  an  action  which  did  not  lie  before. 

That  a  process  to  take  the  body  of  a  corporation  does  not  lie  is 
certainly  true,  but  the  defendants  must  show  that  in  all  actions  of 
trespass  a  capiatur  against  the  defendant  may,  from  the  nature  of  the 
action,  be  entered.  In  21  Edw.  4,  7,  12,  27,  67,  it  is  holden  that  a 
corporation  can  not  be  beaten,  nor  beat,  nor  commit  treason  or  felony, 
nor  be  imprisoned  for  a  disseizin  with  force,  nor  be  outlawed,  nor  a 
capias  in  debt  be  awarded  against  them.  These  principles  result  from 
the  nature  of  an  aggregate  corporation. 

But  the  defendants  have  relied  on  an  opinion  of  Thorp,  J.,  in  22 
Ass.  pi.  67.  He  there  says  that  trespass  does  not  lie  against  a  corpo- 
ration aggregate  by  its  corporate  name,  for  a  capias  and  exigent  do 
not  lie  against  it.  That  a  capias  and  exigent  do  not  lie  against  a  cor- 
poration is  evident ;  but  that  no  action  of  trespass  lies  is  questionable. 
For  it  is  agreed  that  a  corporation  may  be  fined  on  indictment,  and 
the  fine  levied  by  distress  ;  and  why  may  not  a  corporation  be  amerced, 
and  the  amercement  collected  in  the  same  manner.?  This  has  led  us 
to  look  into  the  ancient  law  on  this  subject  and  we  find  Thorp's  opin- 
ion overruled  as  to  certain  trespassess.  In  31  Ass.  pi.  19  a  corpora- 
tion is  holden  answerable  in  assize  as  a  disseizor  with  force.  In  8 
H.  6,  I,  14,  6,  an  aggregate  corporation  was  holden  answerable  in 
trespass  for  distraining  the  plaintiff's  cattle  until  he  paid  a  toll,  which 
he  was  not  bound  to  pay.  Several  other  cases  are  mentioned  in  The- 
loal's  Dig.  lib.  4,  c.  13,  as  trespass  against  a  corporation  for  disturb- 
ing the  plaintiff  in  the  profits  of  his  liberties ;  or  for  disturbing  him 
in  holding  a  leet.  It  is  therefore  very  clear,  from  the  examination  of 
the  old  books,  that  some  actions  of  trespass  might,  at  common  law, 
be  maintained  against  aggregate  corporations.  And,  as  in  these 
actions  no  capiatur  could  be  entered,  the  omission  of  this  entry  can 
be  no  objection  to  actions  of  trespass  on  the  case.  The  foundation  of 
the  defendants'  argument  seems  to  fail  them. 

Let  us  now  leave  the  ancient  cases  and  resort  to  the  maxims  of  the 
common  law,  which  are  founded  in  good  sense  and  substantial  justice. 

4 — WiL.  Cases. 


50  RIDDLE   V.  THE   PROPRIETORS.  §  9 

It  is  one  of  these  maxims  that  a  man  specially  injured  by  the  breach 
of  diity  in  another  shall  have  his  remedy  by  action.  If  the  breach 
of  duty  be  by  an  individual^  there  is  no  question;  and  why  should  a 
corporation^  receiving  its  corporate  powers  and  obliged  by  its  corpo- 
rate duties  ^ith  its  own  consent ^  be  an  exception^  when  it  has^  or 
must  be  supposed  to  have^  an  equivalent  for  its  consent? 

We  distinguish  between  proper  aggregate  corporations,  and  the  in- 
habitants of  any  district,  who  are  by  statute  invested  with  particular 
powers  without  their  consent.  These  are  in  the  books  sometimes 
called  ^«^«52-corporations.  Of  this  description  are  counties  and  hun- 
dreds in  England,  and  counties,  towns,  etc.,  in  this  state.  Although 
j'?^a5Z-corporations  are  liable  to  information  or  indictment  for  a  neg- 
lect of  a  public  duty  imposed  on  them  by  law,  yet  it  is  settled  in  the 
case  of  Russel  et  al.  v.  Inhabitants  of  the  County  of  Devon, ^  that  no 
private  action  can  be  maintained  against  them  for  a  breach  of  their 
corporate  duty,  unless  such  action  be  given  by  statute,  and  the  sound 
reason  is,  that  having  no  corporate  fund,  and  no  legal  means  of  ob- 
taining one,  each  corporator  is  liable  to  satisfy  any  judgment  rendered 
against  the  corporation.  This  burden  the  common  law  will  not  im- 
pose, but  in  cases  where  the  statute  is  an  authority,  to  which  every  man 
must  be  considered  as  assenting.  But  in  regular  corporations,  which 
have,  or  are  supposed  to  have,  a  corporate  fund,  this  reason  does  not 

apply- 

Among  the  modern  cases  there  is  one  which  seems  in  its  principles 
to  apply  directly  to  the  case  before  us.  It  is  the  case  of  The  Mayor 
of  Lynn,  in  error,  v.  Turner.^  Turner  sued  the  corporation  of 
Lynn  Regis  for  not  repairing  and  cleansing  a  certain  creek,  in  which 
the  tide  ebbed  and  flowed,  as  from  time  immemorial  they  had  been  used, 
by  which  he  lost  the  use  of  his  navigation.  The  declaration  contained 
a  nurhber  of  counts,  in  one  of  which  the  special  damage  alleged  was 
that  the  plaintiff  was  obliged  to  carry  his  corn  round  about.  At  the 
common  pleas  judgment  on  nil  dicit  was  rendered  on  all  the  counts. 
For  the  plaintiff  in  error  it  was  argued  that  the  creek  as  described  was 
an  highway,  and  as  in  one  of  the  counts  no  special  damage  was  al- 
leged, the  action  did  not  lie.  But  Lord  Mansfield  and  the  court  said 
that  a  creek,  in  which  the  tide  ebbed  and  flowed,  was  not  necessarily 
a  highway;  that  the  corporation  were  bound  by  prescription,  and  it 
might  be  the  very  condition  or  terms  of  their  charter.  And  the  judg- 
ment was  aflSrmed.  By  this  decision  it  is  settled  that  case  will  lay 
against  a  corporation  for  neglect  of  a  corporate  duty  by  which  the 
plaintiff  suffers.  How  far  a  special  damage  must  be  alleged  we  need 
not  now  decide. 

For  the  proprietors,  in  support  of  their  motion,  a  reference  was 
made  to  the  several  statutes  creating  our  turnpike  corporations,  in 
which  an  action  is  given  to  any  person  specially  injured  by  a  neglect 
in  repairing  the  road.  This  provision  was  cumulative,  and  intro- 
duced ex  majori  cautela  by  the  framers  of  the  bills ;  and  is  no  objection 
to  our  present  construction  of  the  law. 

»  2  D  &  E.  667.  2  Cowp.  86. 


§  lO  THE   CORPORATION  AS   A  PERSON.  5 1 

There  appears  to  us,  upon  the  whole,  no  sufficient  ground  to  stay 
judgment,  and,  as  the  exceptions  to  the  verdict  can  not  prevail,  the 
plaintiff  must  have  judgment. 

Judgment  on  the  verdict. 

Note.    The  duties  and  liabilities  of  corporations  will  be  the  subject  of  later 
chapters.     See  infra,  chs.  13-17,  pp.  914-1766. 


See.  10.  Same.  This  artificial  personality  is  recognized  par- 
ticularly, (i)  In  statutes.  The  word  ''person"  includes 
private  corporations ,  unless  the  legislative  intention  or  the  rea- 
son of  the  law  is  clearly  otherwise. 

ORAFFORD  v.  SUPERVISORS  OF  WARWICK  COUNTY.^ 

1890.     In  the  Supreme  Court  of  Appeals  of  Virginia.     87  Vir- 
ginia 110-118,   10  L.  R.  A.  129. 

[In  1888  the  general  assembly  of  Virginia  enacted:  "That  it  shall 
be  the  duty  of  the  judge  of  the  county  court  upon  the  application  oj 
persons  paying  one-third  of  the  taxes  upon  real  estate  in  said  county.,''^ 
to  order  the  election  officers  to  hold  an  election  "for  the  purpose  of 
ascertaining  the  sense  of  the  qualijied  voters  of  said  county'' '  concern- 
ing the  removal  of  the  court-house,  etc.  Application  was  accord- 
ingly made  by  various  parties  (including  many  corporations),  who 
paid  more  than  one-third  of  the  taxes  on  real  estate  in  the  county, 
whereupon  the  court  ordered  the  holding  of  an  election ;  this  was 
done,  and  a  majority  of  the  qualified  electors  voted  for  removal ;  and 
in  pursuance  of  such  vote  the  supervisors,  as  provided  by  the  statute, 
commenced  to  remove  the  court-house.  The  appellants,  Crafford 
and  others,  obtained  an  injunction  from  the  corporation  court,  re- 
straining the  supervisors  from  proceeding  with  the  removal ;  this  in- 
junction was  dissolved  by  the  circuit  court,  and  appeal  from  that  court 
was  taken  to  the  supreme  court  of  appeals.] 

Fauntleroy,  J.,  delivered  the  opinion  of  the  court.  ♦  ♦  * 
The  question  raised  by  the  pleadings  in  this  cause  is,  whether  or 
not  corporations  are  included  or  signified  in  the  term  '•'■persons,"  as 
expressed  in  the  first  section  of  the  said  act  of  assembly  of  March  2, 
1888,  under  which  the  sense  of  the  qualified  voters  of  Warwick  county 
was  ordered  to  be  taken,  and  was  so  taken,  by  the  election  aforesaid. 
The  appellants  contend  that  the  word  '■'■persons"  in  the  said  act  does 
not  embrace  or  include  corporations,  and  that  the  said  word  '■^per- 
sons'' should  be  construed  to  mean  ^'■voters  paying  taxes  on  real  estate 
in  the  county  of  Warwick,"  and  that  the  corporations,  owning  real 
estate  in  the  said  county  and  paying  taxes  on  the  same  amounting  to 
very  nearly  two-thirds  of  the  whole  taxes  on  real  estate  in  the  county, 
were  not  competent  signers  to   the  written   petition  or  application  to 

•  Statement  of  facts  condensed.    Part  of  opinion  omitted. 


52  CRAFFORD   V.    SUPERVISORS,  §   lO 

the  judge  of  the  county  court,  upon  which  he  based  the  order  for  the 
election  to  take  or  test  the  sense  of  the  qualified  voters  of  the  county 
of  Warwick,  as  to  the  removal  of  the  site  of  the  court-house  of  the 
said  county,  under  the  provisions  of  the  said  act.  The  language  of 
the  first  section  of  the  act  under  consideration  is  plain,  explicit,  posi- 
tive and  unambiguous,  and  neither  calls  for  nor  admits  of  construc- 
tion. If  the  legislature  had  intended  that  the  words  (which  it  did 
use)  "upon  the  application  of  persons  paying  one-third  of  the  taxes 
upon  real  estate  in  said  county"  should  mean  "qualified  voters  pay- 
ing taxes  on  real  estate  in  the  county  of  Warwick  (which  it  did  not 
use),  it  would  presumably  have  said  so;  and  few,  simple  and  unam- 
biguous as  the  words  are,  contained  in  the  said  first  section,  the 
"officers  conducting  elections  in  the  county  of  Warwick,  on  the 
fourth  Thursday  in  May,  1888,  are  ordered  to  open  a  poll  for  the  pur- 
pose of  ascertaining  the  sense  of  the  qualified  voters  of  the  said 
county,"  etc.,  in  the  same  sentence  in  which  it  is  said  "that  it  shall 
be  the  duty  of  the  judge  of  the  county  court,  upon  the  application  of 
persons  paying  one-third  of  the  taxes  upon  real  estate  in  said  county^ 
to  order  the  election  to  be  held,"  etc.  It  is  thus  unmistakably  and 
undebatably  manifest  upon  the  face  of  the  short  and  plain  first  sec- 
tion itself,  that  in  the  same  sentence  the  legislature  discriftiinated 
the  phrase  "persons  paying  one-third  of  the  taxes  upon  real  estate  in  . 
said  county"  from  the  phrase  "the  sense  of  the  qualified  voters  of  said 
county,"  making  the  one  the  condition  precedent  to  warrant  the  judge 
to  order  the  election,  and  the  other  to  define  and  confine  the  election, 
when  held,  to  the  "qualified  voters  of  said  county." 

The  legislature,  like  every  other  oracle,  must  be  held  to  intend  to 
say,  what  it  has  explicitly  and  imperatively  said ;  and  where,  by  the 
use  of  clear  and  unequivocal  language,  anything  is  enacted  by  the 
legislature,  effect  must  be  given  to  it,  and  it  can  not  be  construed^ 
away.  The  whole  amount  of  the  taxes  upon  real  estate  in  the  county 
of  Warwick,  for  the  fiscal  years  of  1887-1888,  was  $10,009.76,  of 
which  $6,451.80  was  paid  by  corporations  owning  real  estate  in  the 
said  county;  and  the  fii'st  section  of  the  act  devised  a  mode  by  which 
these  heavy  tax-paying  corporations  could,  to  a  certain  extent,  and  in 
the  preliminary  action  prescribed  to  the  election,  protect  their  large 
interests  from  the  expense  and  burden  of  the  cost  of  the  election,  and 
of  the  removal  of  the  court-house  from  its  present  location  to  Newport 
News.  The  design  of  the  statute  was  to  protect  the  tax-payers  and  a 
designated  class  of  tax-payers — those  who  paid  taxes  upon  real  estate 
in  the  county — from  the  imposition  of  additional  taxation  upon  their 
real  estate.  The  tax-payer  on  personality  could  not  petition  the  county 
judge  to  order  the  election.  Why,  nobody  knows  or  can  conjecture; 
but  so  it  was  enacted.  Corporations  paid  taxes  on  real  estate  in  the 
county,  like  as  individuals,  and  had  the  same  interest  to  protect  and  a 
like  burden  to  bear  should  the  expense  be  incurred  and  the  tax  im- 
posed to  pay  it.  Why  are  they  not  in  equal  protection  of  the  law.? 
They  belong  to  the  designated  class,  and  they  are  equally  within  the 
reason,  the  justice  and  the  intent  of  the  law.     They  could  not  vote^ 


§  lo  "person"  includes  corporations.  53 

but  they  were,  designedly  and  expressly,  given  a  voice  in  the  question 
as  to  whether  or  not  the  election  should  be  ordered,  and  thereby  have 
an  additional  burden  of  taxation  imposed  upon  them. 

An  intent  to  do  what  is  unjust,  and  to  discriminate,  unjustly 
and  without  reason,  between  different  cases  of  a  like  kind,  is  not  to 
be  ascribed  to  the  legislature.  Arthur  v.  Blight,  2  Cranch  390;  24 
Pickering  370.^  The  real  estate  of  both  the  individual  and  the  corpo- 
ration are  alike  subject  to  the  taxation  which  may  be  imposed.  Can 
any  reason  be  given  why  there  should  be  a  discrimination  against  cor- 
porations owning  real  estate,  and  paying  nearly  two-thirds  of  all  the 
taxes  on  real  estate  in  the  county,  under  this  statute,  to  determine  the 
question  of  whether  additional  taxation  should  be  made  necessary? 
Would  not  this  be  an  unjust  and  unreasonable  discrimination  between 
classes  of  tax-payers  in  similar  cases?  Wherever  the  governing 
principle  is  taxation,  the  term  persons  in  a  statute  has  been  held  to 
include  corporations ;  and,  under  the  assessment  and  tax  laws,  corpo- 
rations are  assessed  and  taxed,  although  the  word  persons  is  used 
therein,  and  corporation  is  not  mentioned. 

In  the  case  of  Beaston  v.  Farmers'  Bank  of  Delaware,  12  Peters 
134-5,  ^^  supreme  court  of  the  United  States  said:  "Corporations 
are  to  be  deemed  and  considered  as  '■persons,^  when  the  circumstances 
in  which  they  are  placed  are  identical  with  those  of  natural  persons 
expressly  included  in  such  statutes." 

In  Stribbling  v.  The  Bank  of  the  Valley,  5  Rand.,  on  p.  180,  Judge 
Cabell  said:  "The  term  'person,'  used  in  the  law,  is  unquestionably 
sufficiently  comprehensive  to  embrace  corporations ;  and  it  must  be 
held  to  embrace  them  unless  there  is  something  in  the  law  showing 
the  legislative  intention  to  restrict  its  application." 

In  United  States  Bank  v.  Merchants'  Bank,  i  Robinson  589,  Judge 
Allen  said,  "For  civil  purposes,  corporations  are,  in  law,  deemed 
persons."  United  States  v.  Amedy,  11  Wheaton  393,  and  quoting, 
with  approval,  Beaston  v.  Farmers'  Bank  of  Delaware,  12  Peters 
134,  and  Stribbling  v.  Valley  Bank,  5  Rand.  132,  goes  on  to  say  the 
"only  doubt  has  been  whether  the  word  (person)  would  embrace 
(corporations)  within  penal  statutes,"  etc. 

In  Baltimore  &  Ohio  R.  Co.  v.  Gallahue's  Adm'r,  12  Graft.  663, 
"When  the  word  persons  is  used  in  a  statute,  corporations,  as  well  as 
natural  persons,  are  included  for  civil  purposes."  2  Inst.  697,  703, 
736. 

In  the  Code  of  1873,  ch.  16,  §  17,  p.  loi,  it  is  provided  that  the 
word  persons,  in  a  statute,  "may  extend  to  and  be  applied  to  bodies 
politic  and  corporate  as  well  as  to  individuals,  unless  it  would  be  in- 
consistent with  the  manifest  intention  of  the  legislature,"  and  the 
same  provision  is  in  the  Code  of  1887.  The  word  persons  does  cer- 
tainly include  corporations  unless  the  intention  of  the  legislature  is 
manifest  that  corporations  were  intended  to  be  excluded  from  its  op- 
eration.  Corporations  are  not,  in  terms,  excluded  from  its  operation. 
The   omission  of  the  word  corporations  does  not  exclude  them,  for 

^  Commissioners  v.  Kimball. 


54  CRAFFORD   V.    SUPERVISORS.  §  lO 

this  act  uses  a  word  "persons,"  which  may  include  them,  and  which 
must  include  them,  unless  it  was  the  manifest  intention  of  the  legisla- 
ture to  exclude  them  from  the  operation  of  the  act.  Nor  is  there  any- 
thing in  the  nature  of  the  act  to  exclude  corporations  from  its  opera- 
tion. Miller's  Ex.  v.  The  Commonwealth,  27  Graft.  115.  See, 
also,  Lehigh  Bridge  Co.  v.  Lehigh  Coal  and  Navigation  Co.,  4 
Rawle  9;  Field  v.  New  York  Central  R.  Co.,  29  Barb.  176;  Wright 
V.  Tame,  28  Barb.  80;  Johnson  v.  Mcintosh,  31  Barb.  267;  Wallace 
V.  Mayor  of  New  York,  2  Hilton  440 ;  La  Forge  v.  Exchange  Fire  Ins. 
Co.,  22  N.  Y.  334;  The  People  v.  Utica  Ins.  Co.,  8  Am.  Dec.  251 ; 
Pembina  Manf'g  Co.  v.  Pennsylvania,  125  U.  S.  Rep.  181;  Provi- 
dence Bank  v.  Billings,  4  Peters  504. 

To  hold,  as  is  the  contention  of  the  appellants,  that  the  legislature 
intended,  by  the  use  of  the  word  "persons"  paying  one-third  of  the 
taxes,  etc.,  to  restrict  it  to  voters  paying  one-third  of  the  taxes,  etc., 
would  not  only  exclude  corporations,  but  non-residents,  and  even  res- 
idents who  had  not  resided  long  enough  to  become  voters — women, 
minors,  aliens — none  of  whom  could  be  a  voter,  yet  many  of  whom, 
if  not,  indeed,  all,  are  tax-payers  upon  real  estate  in  Warwick 
county. 

If  we  give  the  other  construction  contended  for  by  the  appellants, 
that  "persons"  meant  natural  persons,  and  that  natural  persons  sign- 
ing the  application  should  represent  one-third  of  the  taxes  paid  upon 
real  estate,  it  would  have  put  it  in  the  power  of  two  persons  paying 
one-forty-fifth  part  of  the  whole  real  estate  tax  in  the  county  to  have 
denied  the  wishes  and  defeated  the  will  of  all  the  other  real  estate 
owners,  and  the  whole  population  of  the  county  united  in  the  applica- 
tion to  the  judge  to  order  the  election.  It  is  not  to  be  imputed  to  the 
legislature  that  they  had  any  such  an  absurdity  of  intention,  and  it  is 
not  consistent  with  the  object  and  context  of  the  act. 

If  corporations  paying  taxes  upon  real  estate  in  Warwick  county  are 
not  within  the  intent  of  the  word  "persons"  in  the  act,  then  they  must 
be  excluded  ;  and,  if  excluded,  the  individuals  paying  taxes  upon  real 
estate  in  the  county,  who  signed  the  petition  or  application  to  the 
judge  to  order  the  election,  did  pay  more  than  one-third  of  the  taxes 
paid  by  individuals  on  real  estate  in  the  county  of  Warwick.  The 
amount  of  taxes  upon  real  estate  in  the  county  of  Warwick  paid  by 
corporations  was  $6,451.80,  of  which  sum  the  Chesapeake  and  Ohio 
Railroad  Company  paid  $3,130.47.  It  is  objected  by  the  appel- 
lants that  Williams  C.  Wickham,  who  signed  the  application  to  the 
judge  to  order  the  election,  did  so  as  receiver,  and  without  authority. 
It  is  not  necessary  to  decide  this  question,  inasmuch  as  those  corpora- 
tions v/ho  did  sign,  other  than  the  C.  &  O.  R.  R.  Co.,  by  W.  C. 
Wickham,  receiver,  paid  $2,271.33,  which,  added  to  the  taxes  on 
real  estate  paid  by  individuals  who  signed  the  application,  $1,395.46, 
amounts  to  $3,666.79,  which  is  more  than  one-third  of  the  whole 
amount  of  the  taxes  on  real  estate  paid  in  Warwick  county  by  $333-53. 

We  are  of  opinion  that  the  election  was  properly  ordered  by  the 
judge  of  the  county  court  of  Warwick,  and  that  the  election  was  duly 


§  10  "person"  includes  corporations.  55 

and  properly  conducted,  and  that  the  circuit  court  rightfully  dissolved 
the  injunction  which  had  been  granted  in  the  cause,  September  4, 
1888,  by  the  judge  of  the  corporation  court  of  the  city  of  Manchester, 
and  the  decree  appealed  from  is  without  error,  and  the  same  is  af- 
firmed. 

Decree  affirmed. 

Note.  The  rule  given  in  this  case  seems  to  be  the  one  that  now  has  the 
weight  of  authority;  but  in  Betts  v.  Menard,  1  Breese's  Appeal  (111.),  p.  395 
(1831),  the  rule  was  announced  that  "persons"  would  not  include  "corporations" 
unless  it  was  absolutely  necessary  to  carry  out  the  objects  of  incorporation.  This 
rule  seems  to  have  been  followed  in  State  v.  Fertilizer  Co.,  24  Ohio  St.  611 
(1874),  in  interpreting  a  criminal  statute  relating  to  a  nuisance.  The  later 
Ohio  cases  seem  to  have  laid  down  a  rule  in  accordance  with  the  one  given 
above  in  the  Crafford  case.  See  Springfield  v.  Walker,  42  Ohio  St.  543,  and 
Cincinnati  Gas  Light  and  Coke  Co.  v.  Avondale,  43  Ohio  St.  257. 

Some  of  the  earlier  cases  followed  a  rule  similar  to  that  in  Betts  v.  Menard, 
supra.  See  Blair  v.  Worley,  1  Scam.  (111.)  178  (1835);  School  Directors  v. 
Cariisle  Bank,  8  Watts  (Pa.)  291.  And  in  Fox's  Appeal,  112  Pa.  St.  337,  14 
Am.  &  Eng.  Corp.  Cas.  356  (1886),  the  rule  is  stated  that  unless  something  in 
the  context  indicates  that  "person"  shall  include  "corporation,"  it  will  not 
be  so  held.  In  the  leading  English  case.  Pharmaceutical  Society  v.  London, 
etc.,  Assn.,  5  App.  Cas.  857,  it  was  allowed  that  in  an  act  of  Parliament,  re- 
lating to  persons,  corporations  were  presumptively  included,  but  that  the  pre- 
sumption was  not  strong,  and  the  context  of  the  act  should  determine. 

St,3,  particularly,  Elliott  Corp.,  §  8;  Morawetz  Corporations,  §  1091;  Grant 
on  Corp.,  p.  4,  note  5 ;  8  Am.  &  Eng.  Ency.  of  Law,  626  (franchise) ;  18  Am. 
&  Eng.  Ency.  of  Law  405  (person);  Cook  Stock  and  Stockholders,  §  700; 
note  19  Lawyer's  Reports  Annotated,  p.  222,  where  the  cases  are  classified. 

ILLUSTRATIONS. 

1.  In  general, — See  Ricker  v.  Am.  L.,  etc.,  Co.,  140  Mass.  346;  TurnbuU 
v.  Prentiss  Lumber  Co.,  55  Mich.  387 ;  Billings  v.  State,  107  Ind.  54;  Stewart 
V.  Waterloo  Turn  Verein,  71  Iowa  226, 60  Am.  Rep.  786 ;  Springfield  v.  Walker, 
42  Ohio  St.  543;  Forrest  v.  Henry,  33  Minn.  434;  Fagan  v.  Boyle  Ice  Mach. 
Co.,  65  Tex.  331;  Chippeway  Vallev,  etc.,  R.  R.  Co.  v.  Chicago,  etc.,  R.  Co., 
75  Wis.  224;  Union  Steamship  Co.  v.  Milburne  H.  Co.,  9  App.  Cas.  365;  Fox's 
App.,  112  Pa.  St.  337,  14  A.  &  E.  Corp.  Cas.  356. 

2.  Attachment  laws  relating  to  persons,  apply  also  to  private  corporations. — 
See  Planters'  Bank  v.  Andrews,  8  Port.  (Ala.)  404;  Libby  v.  Hodgdon,  9  N. 
H.  394;  Knox  v.  Protection  Ins.  Co.,  9  Conn.  430,  25  Am.  Dec.  33;  Bray  v. 
Wallingford,  20  Conn.  416;  Baltimore,  etc.,  R.  Co.  v.  Gallahue,  12  Gratt. 
(Va.)  655,  65  Am.  Dec.  254;  Mineral  Point  R.  Co.  v.  Keep,  22  111.  9,  74  Am. 
D.  124;  Bushel  v.  Com.  Ins.  Co.,  15  Serg.  &  R.  (Pa.)  173;  South  Carolina  R. 
Co.  V.  McDonald,  5  Ga.  531 ;  Union  Bank  v.  United  States  Bank,  4  Humph. 
(Tenn.)  369;  Martin  v.  Branch  Bank,  14  La.  415.  But  compare  McQueen  v. 
Middleton  Mfg.  Co.,  16  Johns.  (N.  Y.)  5;  and  Mayor  of  Baltimore  v.  Root,  8 
Md.  95.  In  DoUman  v.  Moore,  70  Miss.  267,  19  L.  R.  A.  222,  it  was  held  that 
a  board  of  school  trustees  was  not  a  person  within  the  meaning  of  attachment 
laws. 

3.  Appeals.— Statutes  allowing  appeals  by  persons  apply  to  corporations : 
People  V.  May,  27  Barb.  (N.  Y.)  238. 

4.  Banking-. — Statutes  prohibiting  persons  from  banking  apply  to  corpora- 
tions:    People  V.  Utica  Ins.  Co.,  15  Johns.  (N.  Y.)  368,  8  Am.  Dec.  243. 

5.  Citizens.— (a)  Corporations  are  notcitizens  within  the  meaning  of  section 
2,  article  4  of  theU.  S.  constitution,  saying,  "The  citizens  of  each  state  shall  be 
entitled  to  all  the  privileges  and  immunities  of  citizens  in  the  several  states." 
See  Paul  v.  Virginia,  8  Wall.  (U.  S.)  168;  Western  Union  Tel.  Co.  v.  Mayer, 
28  O.  S.  521 ;  Norfolk  &  West.  R.  Co.  v.  Pennsylvania,  136  U.  S.  114,  10  Sup. 
Ct.  Rep.  958;  Pembina  Con.  Silver  Min.,  etc.,  Co.  v.  Pennsylvania,  125  U.  S. 


56  ILLUSTRATIONS,  §  lO 

181;  Railroad  v.  Bamhill,  91  Tenn.  395,  30  Am,  St.  889;  Horn  S.  M.  Co.  v. 
New  York,  143  U.  S,  305;  People  v.  Wemple,  131  N.  Y.  64;  note  to  State  v. 
Goodwill  in  25  Am.  St.  Rep.  873;  Daggs  v.  Orient,  etc.,  Co.,  136  Mo.  382,  58 
Am.  St.  638;  Commonwealth  v.  New  York,  etc.,  R.  Co.,  129  Pa.  St.  463,  15 
Am.  St.  R.  724.  Compare  St.  Louis  Iron  M,  T.  R.  Co.  v.  Paul,  64  Ark,  83, 
62  Am.  St.  R.  154,  and  note  p.  167. 

(6)  But  corporations  are  citizens  of  the  state  creating  them  within  the  mean- 
ing of  section  2,  article  3,  of  the  constitution,  that  "the  judicial  power  shall 
extend  to  all  cases  between  citizens  of  different  states."  See  1809,  Hope  Ins. 
Co.  V.  Boardman,  5  Cranch  (9  U.  S.)  57;  1809,  Bank  of  U.  S.  v.  Deveaux,  5 
Cranch(9U.  S.)61;  1840,  Commercial,  etc..  Bank  v.  Slocomb,  14  Pet.  (U.  S.) 
60,  all  of  which  held  that  the  court  "would  look  bej'ond  the  mere  legal  be- 
ing, and  consider  the  citizenship  of  the  individuals  of  whom  the  company  is 
composed."  In  1844,  Louisville,  etc.,  R.  Co.  v.  Letson,  2  How.  (43  U.  S.) 
497,  558,  the  court,  after  an  elaborate  review,  overruled  the  former  cases  and 
announced  the  rule  above  given.  The  later  cases  are:  1853,  Marshall  v.  B. 
&  O.  R.  Co.,  16  How.  (57  U.  S.)  314;  1861,  Ohio  &  Miss.  R.  Co.  v.  Wheeler,  1 
Black.  (66  TJ.  S.)  286;  1865,  County  of  Allegheny  v,  Cleveland  &  P.  R.  Co.,  51 
Pa.  St.  228,  88  Am.  D.  579;  1870,  Railroad  Co.  v.  Harris,  12  Wall.  65;  1871, 
Chicago  &  M.  V.  R.  Co.  v.  Whitton,  13  Wall.  (80  U.  S.)  270;  1876,  Muller  v. 
Dows,  94  U.  S.  444 ;  1881,  C.  &  W.  I.  R.  Co.  v.  L.,  S.  &  M.  S.  R.  Co.,  5  Fed.  R. 
19;  1882,  Memphis,  etc.,  R.  Co.  v.  Alabama,  107  U.  S.  581;  1885,  Pennsyl- 
vania Co.  V.  St.  L.,  A.  &  T.  R.  Co.,  118  U.  S.  290;  1890,  Nashua  &  L.  R.  Co. 
V.  Boston  &  L.  R.  Co.,  136  U.  S.  356;  1890,  Paul  v.  B.  &  O.  R.  Co.,  44  Fed. 
Rep.  513;  1892,  Shaw  v.  Quincy  Mining  Co.,  145  U.  S.  444;  1892,  Southern 
Pac.  R.  Co.  V.  Denton,  146  U.  S.  202;  1893,  In  re  Hohorst,  150  U.  S.  653; 
1895,  Missouri  Pac.  R.  Co.  v.  Meek,  69  Fed.  Rep.  753,  30  L.  R.  A.  250;  1896, 
St.  Louis  &  San  Francisco  R.  Co.  v.  James,  161  U,  S.  545,  infra,  p.  1099;  1896, 
Louisville  Trust  Co.  v.  L.,  N.  A.  &  C.  R.  Co.,  75  Fed.  Rep.  433. 

(c)    As  to  fourteenth  amendment,  see  infra,  No.  10. 

6.  Contracts. — Statutes  relating  to  contracts  of  persons  apply  to  corpora- 
tions also:  Mott  v.  Hicks,  1  Cow.  (N.  Y.)  513;  State  v.  Nashville  Univ., 
4  Humph.  (Tenn.)  157;  Commercial  Bank  v.  Nolan,  8  Miss.  (7  How.)  608; 
Cincinnati  Gas  Co.  v.  Avondale,  43  Ohio  St.  257. 

7.  Death  by  wrong"fuI  act. — Statutes  making  persons  liable  for  such,  in- 
clude corporations:     Chase  v.  Steamboat  Co.,  10  R.  I.  79. 

8.  Eminent  domain  statutes  apply  to  corporations,  though  persons  only  are 
named:  Lehigh  Bridge  Co.  v.  Lehigh  Coal  Co.,  4  Rawle  (Pa.)  9,  26  Am. 
Dec.  Ill, 

9.  Evidence. — A  corporation  is  a  "living  person"  within  the  meaning  of  a 
statute  giving  a  party  the  right  to  testify  when  the  adverse  party  is  a  living 
person:     La  Farge  v.  Exchange  F.  Ins.  Co.,  22  N.  Y.  352. 

10.  Fourteenth  amendment.— The  provisions  of  section  1,  saying  "No 
state  shall  deprive  any  person  of  life,  liberty  or  property  without  due  process 
of  law ;  nor  deny  to  any  person  within  its  jurisdiction  the  equal  protection  of 
the  laws,"  protects  the  rights  of  the  corporations,  when  in  the  state,  the  same 
as  persons :  Pembina  Mining  Co.  v.  Pennsylvania,  125  U.  S.  181 ;  Santa  Clara 
Co.  V.  South  Pacific  R.  Co.,  118  U.  S.  394,  24  Am.  &  Eng.  Corp.  Cas.  523 ;  Min- 
neapolis, etc.,  R.  Co.  V.  Beckwith,  129  U.  S.  26 ;  Charlotte,  etc.,  R.  Co.  v.  Gill, 
142  U.  S.  386;  County  of  San  Mateo  v.  South  Pacific  R.  Co.,  13  Fed.  Rep.  722, 
supra,  p.  36;  Covington,  etc.,  R.  Co.  v.  Sanford,  164  U.  S.  578;  Smvthe  v. 
Ames,  169  U.  S.  522,  171  U.  S.  361.  But  contrary  to  the  holding  in  University 
v.  Foy,  supra,  p.  34,  the  14th  chapter  of  Magna  Charta,  that  "no  freeman  shall 
be  amerced,"  etc.,  was  held  not  to  apply  to  corporations  aggregate,  but  only 
to  corporations  sole.    2  Inst.  169,  170,  8  Rep.  39. 

11.  Foreig"n  corporations  are  not  persons  within  a  constitutional  provision 
"that  no  person  shall  be  deprived  of  the  natural  rights  to  life,  liberty  and  the 
enjoyment  of  the  gains  of  his  own  industry."     Daggs  v.  Orient  Ins  Co     136 
Mo.  382,  58  Am.  St.  638.     See,  also,  Blake  v.  McClung,  172  U.  S.  239,  infra 
p.  2036;  Hammond,  etc.,  Co.  v.  Best,  91  Maine  431,  42  L.  R.  A.  528. 

12.  Incorporation.  -  Statutes  providing  that  a  certain  numberof  persons  may 


§  lo  "person"  includes  corporations.  57 

incorporate  do  not  include  corporations  as  such  persons.  Factors,  etc.,  Ins. 
Co.  V.  New  Harbor  P.  Co.,  37  La.  Ann.  233 ;  Humphrey  v.  Mooney,  5  Colo.  282 ; 
Central  R.  Co.  v.  Pa.  R.  Co.,  31  N.  J.  Eq.  475.     See  infra,  pp.  553,  889. 

13.  Jurisdiction  of  courts. — For  this  purpose  a  corporation  is  a  person,  in- 
habitant or  citizen  of  the  state  creating  it.  See  cases  cited  in  this  note  No.  5, 
(6)  above.  See,  also.  Brown  v.  Mayor,  etc.,  66  N.  Y.  385;  Chicago,  etc.,  R. 
V.  Bank  of  North  America,  82  111.  493;  Eslava  v.  Ames,  etc.,  47  Ala.  384. 

14.  Limitation  of  actions. — Statutes  of  limitation  apply  to  corporations  in 
the  same  way  as  to  persons.  People  v.  Trinity  Church,  22  N.  Y.  44;  North 
Missouri  R.  Co.  v.  Akers,  4  Kan.  453. 

15.  Misdemeanors. — Statutes  making  persons  liable  for,  include  corpora- 
tions.    White  V.  State,  69  Ind.  273. 

16.  Penalties. — Statutes  providing  penalties  for  certain  acts  of  persons,  per- 
haps do  not  include  corporations  unless  the  context  very  clearly  shows  they 
are  meant  to  be  so  included.  This  is  on  account  of  the  strict  construction  of  such 
statutes.  See  Coats  v.. People,  22  N.  Y.  245;  United  States  v.  Kan.  P.  R.,  4  C. 
L.  J.  174;  Androscoggin  Water  Power  Co.  v.  Bethel  S.  M.  Co.,  64  Maine  441; 
Benson  V.  Monson,  etc.,  9  Mete.  (Mass.)  562;  Ohio  v.  Cincinnati  Fertilizer  Co., 
24  Ohio  St.  611 ;  Guardians  of  St.  Leonard  v.  Franklin,  3  C.  P.  Div.  377. 

17.  Promissory  notes.— The  Statute  of  Anne  providing  for  the  negotiability 
of  notes  made  payable  to  the  order  of  any  person  applies  to  notes  by  or  to 
corporations  or  to  the  order  of  corporations.  Indiana  v.  Woram,  6  Hill. 
(N.  Y.)  33;  Mott  v.  Hicks,  1  Cow.  (N.  Y.)  513. 

18.  Property,  protection  of. — See  below.  Trespass,  No.  23,  and  No.  10, 
above.    United  States  v.  Amedy,  11  Wheat.  (U.  S.)  392. 

19.  Practice  and  procedure.— People  v.  May,  27  Barb.  (N.  Y.)  238.  See 
al^o  Appeals,  No.  3,  above,  and  Jurisdiction,  No.  13,  above. 

20.  Riegfistry  laws. — Statutes  providing  for  the  registration  of  vessels  or 
other  things  by  persons  include  corporations.  Regina  v.  Arnaud,  9  Q.  B.  806, 
infra,  p.  58 ;  Durant  v.  Kennett  L.  R.,  5  C.  P.  262. 

21.  Real  estate. — Statutes  relating  to  real  estate  of  persons  apply  to  that  of 
corporations.  Lehigh  Bridge  Co.  v.  Lehigh  Coal  Co.,  4  Rawle  (Pa.)  9;  Blair 
V.  Worley,  1  Scam.  (111.)  178;  Cortes  v.  Kent  Water  Works  Co.,  7  B.  &  C. 
(K.  B.  Eng.)314. 

22.  Taxation. — Statutes  relating  to  the  taxation  of  the  property  of  persons, 
inhabitants,  residents,  etc.,  include  that  of  corporations  also.  See  Rex  v.  Gard- 
ner, Cowp.  79,  but  see  3  Q.  B.  233;  Royal  Exchange  Assurance  Co.  v. 
Vaughan,  1  Burr.  155;  Reg.  v.  Birmingham,  etc.,  Ry.  Co.,  3  Q.  B.  233;  Peo- 
ple V.  Utica  Ins.  Co.,  15  Johns.  (N.  Y.)  358,  382,  8  Am.  Dec.  243;  Mayor  of 
Mobile  V.  Rowland,  26  Ala.  498;  Trenton  Bank  v.  Haverstick,  6  Halst.  (N, 
J.)  171;  City  of  St.  Louis  v.  Rogers,  7  Mo.  19;  Bushel  v.  Can.  Ins.  Co.,  15  S. 
&  R.  (Pa.)  173;  Chicago,  etc.,  R.  Co.  v.  Bank  of  N.  A.,  82  111.  493;  People  v. 
McLean,  80  N.  Y.  254;  Otis  Co.  v.  Inhabitants  of  Ware,  8  Gray  (Mass.)  509; 
Baldwin  Inhabitants  v.  Trustees,  37  Maine  369;  Louisville,  etc.,  R.  Co.  v. 
Com.,  1  Bush  (Ky.)  250;  Compare  Fox's  Appeal,  112  Pa.  St.  337,  14  A.  &  E. 
C.  C.  356;  Cherokee  Ins.  Co.  v.  Justices,  28  Ga.  121;  Hartford  Ins.  Co.  v. 
Hartford,  3  Conn.  15. 

23.  Trespasses,  protection  from.— Statutes  protecting  the  property  of  per- 
sons apply  to  corporations  also.  White  v.  State,  69  Ind.  273 ;  State  v.  Nashville 
Univ.,  4  Humph.  (Tenn.)  157;   Bartee  v.  Houston,  etc.,  R.  Co.,  36  Texas  648. 

24.  Usury. — Statutes  forbidding  usury  by  persons  apply  to  corporations 
also.  Thornton  v.  Bank  of  Wash.^  3  Pet.  (U.  S.)  36;  Grand  Gulf  Bank  v. 
Archer,  8  S.  &  M.  (Miss.)  151. 

25.  Voting-.- The  English  Public  Health  Act  (11  and  12  Vict.,  sec.  20) 
authorized  corporations  aggregate  to  vote  by  proxy  under  their  common  seal 
at  the  election  of  local  boards  of  health.  Grant  on  Corp.,  p.  *4,  n.  s.  Of 
course,  where  corporations  may  be  owners  of  the  stock  of  other  corporations, 
statutes  relating  to  voting  by  persons  would  apply  to  the  corporations  as  well. 


58  THE   QUEEN,    ETC.,    V.    ARNAUD.  §   II 

Sec.    11.     Same.     (2)     As  to  the  ownership  of  its  property. 

THE  QUEEN  ON  THE  PROSECUTION,  Etc.,  v.  ARNAUD  Et  Al.» 

1846.     In  the   Court  of   Queen's  Bench.     25  Law  Journal  Re- 
ports (^New  Series^   Vol.  i6^,  for  the  year  1847,  part  II, 
Cases  at  Common  Law,  pp.  50-55. 

The  judgment  of  the  court  was  delivered  by — 

Lord  Denman,  C.  J.  The  object  of  the  present  mandamus  is  to 
compel  the  custom-house  officers  to  register  a  vessel,  the  property  of 
the  Pacific  Steam  Navigation  Company.  The  company  is  a  corpo- 
ration by  charter  of  her  present  Majesty,  for  the  purpose  of  providing 
vessels,  and  employing  them  in  the  Pacific  ocean.  It  is  admitted  by 
the  defendants  that  the  company,  as  a  British  corporation,  might  be 
owners  of  British-built  vessels,  and  prima  facie  would  be,  as  such 
corporation,  entitled  to  register  them,  under  the  provisions  of  the 
8  and  9  Vict.,  c.  89,  applicable  to  the  registry  of  vessels  by  corpora- 
tions.^ 

But  it  is  said  that  some  of  the  members  of  the  corporation  are  not 
British  subjects,  but  foreigners ;  and,  consequently,  that  the  vessel 
does  not  wholly  belong  to  her  Majesty's  subjects,  as  required  by  the 
5th  section  of  the  act,  and  is  within  the  prohibition  contained  in  the 
1 3th  section  of  the  act,  against  foreigners  being  entitled  to  be  owners, 
in  whole  or  in  part,  directly  or  indirectly,  of  any  vessel  requiring  to 
be  registered.  Now,  it  appears  to  us  that  the  British  corporation  is, 
as  such,  the  sole  owner  of  the  ship,  and  a  British  subject  within  the 
meaning  of  the  5th  section,  as  far  as  such  a  term  can  be  applicable  to 
a  corporation,  notwithstanding  some  foreigners  may  individually  have 
shares  in  the  company,  and  that  such  individual  members  of  the  cor- 
poration are  not  entitled,  in  whole  or  in  part,  directly  or  indirectly,  to 
be  owners  of  the  vessel.  The  individual  members  of  the  corpora- 
tion^ no  doubt ^  are  interested  in  one  sense  in  the  property  of  the  cor- 
poration^ as  they  may  derive  individual  benefit  from  its  increase.,  or 
loss  from  its  destruction;  but  in  no  legal  sense  are  the  individual 

^  Statement  of  facts,  except  as  given  in  the  opinion  and  notes,  and  argu- 
ments omitted. 
*  This  act  provided,  section  5,    *    *    *     "That  no  vessel  shall  be  registered 

*  *      *      except  such  as  are  wholly  of  the  build  of  the  United  Kingdom, 

*  *  *  and  which  shall  wholly  belong  or  continue  to  belong  to  her 
Majesty's  subjects  *  *  *"  Sec.  12.  *  *  *  "That  no  person  who  has 
taken  the  oath  of  allegiance  to  any  foreign  state,  *  *  *  ^or  any  person 
usually   residing  in   any   country  not  under  the  dominion  of  her  Majesty 

*  *  *  shall  be  entitled  to  be  the  owner  in  whole  or  in  part,  directly  or  in- 
directly, of  any  ship  or  vessel  required  to  be  registered,  etc."  Sec.  13.  *  *  * 
"That  if  it  shall  become  necessary  to  register  any  vessel  belonging  to  any 
corporate  body  in  the  United  Kingdom,  the  following  declaration  shall  be 
taken  and •  subscribed  by  the  secretary,  etc..  'I,  A.  B.,  Secretary,'  etc.,  'do 
hereby  declare,'  etc.,  *  *  *  <tliat  the'  same  (ship)  doth  wholly  and  truly 
belong  to  [name  of  company  or  corpunitiun].'  " 


§  I  I  THE  CORPORATION  AS  A  PERSON.  59 

members  the  owners.  If  all  the  individuals  of  the  corporation  were 
duly  qualified  British  subjects,  they  could  not  register  the  vessel  in 
their  individual  names  as  owners ;  but  must  register  it  as  belonging 
wholly  to  the  corporation  as  owner.  The  terms  of  the  23d  section, 
with  respect  to  the  condition  of  the  bond  to  be  given  upon  obtaining 
the  registry,  as  to  foreigners  purchasing  or  becoming  entitled  to  any 
part  or  share  of  or  interest  in  any  ship  or  vessel,  would  appear  to  be 
applicable  to  a  case  of  purchase  or  transfer  of  property  in  the  vessel 
itself,  as  it  provides  that  the  certificate  shall  be  delivered  up,  "within 
seven  days  after  such  purchase  or  transfer  of  property  in  such  ship," 
and  does  not,  as  it  seems  to  us,  bear  materially  on  the  present  ques- 
tion. It  was  contended  that  the  effect  might  be  to  defeat  the  object 
and  policy  of  the  navigation  laws  in  this  respect,  inasmuch  as  the  in- 
dividual members  of  the  British  corporation  might,  either  originally 
or  by  transfer,  be  all  foreigners.  Such  does  not  appear  to  be  contem- 
plated or  provided  for  by  the  act  in  question.  If  it  be  casus  omissus^ 
and  evil  consequences  arise,  they  may  be  remedied  by  the  interfer- 
ence of  the  legislature,  or,  possibly  (though  we  do  not  wish  to  be 
understood  as  giving  any  opinion  upon  this  point),  by  repealing  the 
letters  patent,  as  improvidently  giving  powers  operating  to  defeat  the 
law  and  public  policy,  and,  in  future  patents,  by  providing  against 
the  objection.  But,  as  the  case  stands,  it  seems  to  us  that  the  British 
corporation  is,  to  all  intents,  the  legal  owner  of  the  vessel,  and  entitled 
to  the  registry,  and  that  we  can  not  notice  any  disqualification  of  an 
individual  member,  which  might  disable  him,  if  owner,  from  register- 
ing the  vessel  in  his  own  name.  There  will,  therefore,  be  judgment 
for  the  prosecutors,  and  a  peremptory  mandamus. 
Judgment  for  the  Crown. 

Note.  See  also,  Russell  v.  Temple,  3  Dane's  Abr.  (Mass.)  108;  Bundy  v. 
Iron  Co.,  38  Ohio  St.  300;  Button  v.  Hoffman,  61  Wis.  20,  60  Am.  R.  131; 
Baldwin  v.  Canfield,  26  Minn.  43;  Tomlinson  v.  Bricklavers'  Union,  87  Ind. 
308;  Wheelock  v.  Moulton,  15  Vt.  519;  Atchison,  etc.,  R".  Co.  v.  Cochran,  43 
Kan.  225,  23  Pac.  151;  Central  T.  Co.  v.  Kneeland,  138  U.  S.  414;  Louisville 
Bank  Co.  v.  Eisenman,  94  Ky.  83,  42  Am.  St.  335;  Humphreys  v.  McKissock, 
140  U.S.  304 ;  Parker  v.  Hotel  Co.,  96  Tenn.  252, 34  S.  W.  209 ;  Pott  v.  Schmucker, 
84  Md.  535,  57  Am.  St.  415 ;  Gallagher  v.  Germania  Brewing  Co  ,  53  Minn.  214 ; 
Barrick  v.  Gifford,  47  O.  S.  180,  21  Am.  St.  R.  798;  Engiand  v.  Dearborn,  141 
Mass.  590;  Rough  v.  Breitung,  117  Mich.  48,  75  N.  W.  Rep.  147;  Warren  v. 
Davenport  Fire  Ins.  Co.,  31  Iowa  464,  holding  a  stockholder  has  an  insurable 
interest  in  the  corporation. 


6o  FOSTER   &    SONS    V.    THE   COMMISSIONERS.  §   12 

Sec.  12.    Same.     (3)  As  to  contracts  between  it  and  its  members. 

FOSTER  &  SONS,  LIMITED,   v.  THE  COMMISSIONERS  OF  INLAND 

REVENUE.i 

1893.     In  the  Court  of  Appeals.     Law  Reports  (1894),  i  Q.  B. 

Div.  516-532. 

[Case  stated  by  the  commissioners  of  inland  revenue  under  the 
stamp  act  of  1891,  54  and  55  Vict.,  ch.  39,  §  13.  In  1891,  eight 
persons  named  Foster,  then  partners,  extensively  engaged  in  mercan- 
tile, manufacturing,  mining  and  banking  business,  agreed  among 
themselves  to  form  a  corporation  under  the  English  Limited  Compa- 
nies Act,  to  carry  on  their  business ;  they  took  the  proper  steps  to  form, 
and  did  form,  a  corporation  knov^^n  as  John  Foster  &  Sons,  Limited. 
These  same  eight  persons,  acting  as  parties  of  the  first  eight  parts,  by 
indenture  duly  executed,  conveyed  all  the  partnership  property  to  the 
corporation,  John  Foster  &  Sons,  Limited  (composed  of  the  same 
eight  persons)  acting  as  the  party  of  the  ninth  part.  The  considera- 
tion for  the  conveyance  was  nothing  except  the  preferred,  ordinary 
and  debenture  stock  in  the  corporation,  which  was  apportioned  to 
each  one  of  the  first  eight  parties  in  proportion  to  his  former  interest 
in  the  partnership  property.  Under  the  English  Stamp  Act  (requiring 
all  conveyances  to  be  duly  stamped)  the  commissioners  of  Inland 
Revenue  levied  a  duty  of  jQ^oo  los.  This  act  provided,  Sec.  70. 
"The  term  'conveyance  on  sale'  includes  every  instrument  *  *  * 
whereby  any  property  upon  the  sale  thereof  is  legally  or  equitably 
transfered  to  or  vested  in  the  purchaser  or  any  other  person  on  his  be- 
half." *  *  *  Sec.  71.  "Where  the  consideration  *  *  * 
consists  of  stock  *  *  *  such  conveyance  is  to  be  charged  with 
ad  valorem  duty  in  respect  of  the  value  of  such  stock  *  *  *." 
Sec.  78  imposed  a  duty  on  conveyances  "not  otherwise  charged." 

The  question  in  this  case  was,  was  there  any  real  conveyance  upon 
which  a  stamp  duty  was  chargeable  }  Wright,  J. ,  of  the  divisional  court, 
held  there  was,  but  Cave,  J.,  of  the  same  court,  held  the  partners  had 
not  sold  their  property,  but  there  had  been  a  mere  rearrangement  of 
ownership  among  the  same  persons,  the  parties,  property,  shares  and 
consideration  had  remained  the  same.  Wright  withdrew  his  judg- 
ment and  allowed  the  commissioners  to  appeal.] 

LiNDLEY,  L.  J. :  I  confess  that,  with  great  deference  to  Cave, 
J.,  I  can  not  see  the  diflSculty  in  this  case. 

The  material  sections  of  the  act  of   1870  must  first  be  considered. 

[The  lord  justice  then  read  sections  70  and  71  of  the  stamp  act  of  1870,  and 
continued.] 

The  importance  of  section  71,  to  my  mind,  is  this:  It  shows 
that  there  may  be  a  conveyance  on  sale,  although  the  considera- 
tion for  it  is  not  cash  or  money,  but  may  include  or  consist  of  stock 
or  marketable  securities.     The  definition  of  "stock"  and  "marketable 

*  Statement  of  facts  condensed.  Opinions  of  Cave  and  Wright,  JJ.,  of  the 
divisional  court,  and  arguments  omitted. 


§  12  THE   CORPORATION   AS   A  PERSON.  6l 

securities"  will  be  found  in  section  2.  Then  section  78  imposes  a  stamp 
duty  on  conveyances  not  otherwise  charged,  and  the  schedule  shows  what 
the  stamps  are  that  are  imposed  upon  conveyances  that  are  charged. 
First,  we  have  "conveyance  or  transfer,  whether  on  sale  or  other- 
wise," of  certain  stocks  and  dividends.  The  present  case  does  not 
come  within  that  head.  Then  we  have  "conveyance  or  transfer  on 
sale,  of  any  property"  *  *  *  "where  the  amount  or  value  of 
the  consideration  for  the  sale  does  not  exceed  5/."  That  fits  in  with 
sections  70  and  7 1 .  Then  we  cometo:  "Conveyance  or  transfer  by  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  accordingly  consider  under  which  of  these  heads  the  par- 
ticular deed  in  this  case  comes.  It  certainly  does  not  come  under  the 
first,  nor  under  "conveyance  or  transfer  by  way  of  security  of  any 
property,"  and  the  alternative  is  between  "conveyance  or  transfer  on 
sale"  and  "conveyance  or  transfer  of  any  kind  not  hereinbefore  de- 
scribed." 

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  company'),  of  the  ninth  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 
tTJOo  parties,  one  party  consisting  of  several  individuals,  and  the 
other  party  consisting  of  a  corporation.  Whether  they  are  or  are 
not  the  metnbers,  or  the  only  members  of  the  corporation,  is  wholly 
immaterial.  The  corporation  is  a  totally  different  person  from  them 
in  any  capacity  you  choose  to  assign  to  them,  except  a  corporate  one. 

[The  lord  justice  then  stated  the  recitals  in  the  operative  part  of  the  con- 
veyances, and  continued] : 

Then  the  parties  of  the  first  eight  parts  put  their  seals  to  the  instru- 
ment, and  the  company  puts  it  seal  to  it.  Now,  what  is  that  instru- 
ment ?  It  is  certainly  a  conveyance  of  property — that  is  obvious.  In 
order  to  amount  to  a  conveyance  of  property  there  must  be  a  person 
conveying  and  a  person  taking,  and  you  have  them  both  here.  The 
persons  conveying  are  the  persons  named  in  the  first  eight  parts, 
and  the  persons  taking  are  the  corporation  named  in  the  ninth  part. 

Now,  what  is  the  consideration  }  The  consideration  for  the  trans- 
fer for  this  property  is,  I  agree,  not  money,  but  it  is  stocks  and  secu- 
rities, which  for  this  purpose  are  to  be  regarded  as  equivalent  to 
money  by  reason  of  section  71  of  the  act  to  which  I  have  already  alluded. 
Then  what  have  we  got?  To  sum  it  up  shortly,  it  is  a  conveyance  of 
property  from  one  person  to  another  for  money,  or  what  is,  according 
to  the  provisions  of  the  statute,  equivalent  to  money.  What  is  that 
except  a  conveyance  on  sale  }  What  else  can  you  call  it  ?  It  is  cer- 
tainly 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« 


62  FOSTER    &    SONS    V.    THE   COMMISSIONERS.  §  12 

sale.  I  do  not  know  what  is  necessary  to  constitute  a  sale,  except  a 
transfer  of  property  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  property.  I 
do  not  consider  it  a  redistribution  at  all.  It  is  an  entire  transfer  of 
property  from  one  set  of  people  to  another  person  altogether,  and 
whether  there  are,  as  there  may  well  be  hereafter,  additional  persons 
taking  shares  in  this  company,  is  perfectly  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  try  that.  Suppos- 
ing 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 
you  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  by  him.  Then  it  was  urged  that  these  shares  can  derive 
no  value  unless  the  company  gets  this  property  transferred  to  them. 
That  is  possible  enough.  That  is  to  say,  in  other  words,  that  the 
shares  in  the  company  would  be  valueless  unless  the  company  had 
assets.  Of  course  they  would  be,  but  that  does  not  affect  the  ques- 
tion whether  there  is  a  sale  or  a  conveyance  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  corpora- 
tion, which  consists  of  the  eight  persons  who  formed  and  who  are  the 
partners.     The  appeal  must  be  allowed. 

Kay,  L.  J.  I  am  of  the  same  opinion.  With  deference  to  Cave, 
J.,  it  seems  to  me  impossible  to  hold  that  this  transaction  was  any- 
thing else  than  a  conveyance  on  sale.  As  pointed  out  on  the  face  of 
the  statute,  the  consideration  may  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,  consti- 
tuted 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  independent  and  separate  body;  namely,  a  cor- 
poration. Suppose  that  corporation  had  consisted  of  altogether  dif- 
ferent persons,  no  one  for  a  moment  would  doubt  that  this  was  a  con- 
veyance 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  conveyance  on  sale.  But  the  argument,  as  I  understand  it,  is 
this:  that  the  individual  corporators  who  composed  that  corporation 
were,  in  fact,  the  very  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  only 
value  of  the  shares  and  debentures  was  derived  from  this  very  property 


§  12  THE   CORPORATION  AS   A  PERSON.  63 

which  the  individual  corporators  were  conveying  to  the  corporation, 
the  conveying  partners  either  got  no  consideration  for  that  which  they 
conveyed  other  than  part  of  the  property  actually  conveyed,  or  they 
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  corpora- 
tion are  not  the  same  thing  as  the  property  which  thai  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  com- 
plete 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  prop- 
erty, 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  that 
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 
be,  under  the  words  of  this  statute,  "a  conveyance  on  sale"  for  a  con- 
sideration which,  if  not  money,  at  least  is  money's  worth.  I,  there- 
fore, with  all  deference  to  Cave,  J.,  think  that  his  decision  must  be 
reversed  and  the  appeal  allowed. 

A.  L.  Smith,  L.  J.  The  question  in  this  case  is  whether  the  in- 
strument of  November  27,  1891,  is  a  conveyance  or  transfer  on  sale 
of  any  of  the  property  mentioned  under  the  second  head — "convey- 
ance or  transfer" — in  the  schedule  to  the  stamp  act  of  1870. 

Now,  in  order  to  find  out  what  is,  or  is  not,  a  conveyance  or  trans- 
fer on  sale  of  any  property  in  that  second  head  of  the  schedule,  I 
must  refer  to  sections  70  and  71  of  the  act.  And,  reading  both  these  sec- 
tions together,  it  seems  to  me  that  the  term  "conveyance  on  sale"  in- 
cludes every  instrument  whereby  any  property,  upon  the  sale  thereof, 
is  transferred  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 


64  FOSTER   &    SONS   V.    THE   COMMISSIONERS.  §  12 

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  whereby  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  agreement  as  regards  the  sale  was  carried  out  by  the  members  of 
the  old  fiiTn  before  any  company  limited  came  into  existence,  and  that 
inasmuch  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  company  limited  are  not 
the  same  persons  as  the  eight  members  of  the  old  firm — they  are  dif- 
ferent altogether.  It  was  admitted  by  Mr.  Finlay  in  argument, 
though  he  entirely  took  away  the  ground  from  under  my  brother 
Cave's  feet  when  he  said  so,  that  the  cotnpany  limited  could  main- 
tain a  suit  for  specific  performance  against  the  old  partners.  If 
that  is  so,  how  can  they  be  the  same  persons.  This  really  shows  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.  Section  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  pur- 
chaser." Then  section  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  con- 
sideration 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  con- 
veyed. It  seems  to  me  that  it  is  untrue  to  say  that  in  this  transaction 
there  has  been  no  consideration  passing  from  the  vendee  to  the  vendor. 
Although  charges  upon  the  land  and  the  trade-marks,  the  considera- 
tion comes  within  the  very  terms  of  section  71  itself — "any  stock  or 
marketable  security." 

For  these  reasons  I  prefer  the  judgment  of  my  brother  Wright  to 
that  of  my  brother  Cave. 

Appeal  allowed. 

Note.  See  also  Gordon  v.  Preston,  1  Watts  (Pa.)  385;  Polleys  v.  Insurance 
Co.,  14  Maine  141 ;  Pope  v.  Brandon,  2  Stew.  (Ala.)  401 ;  Lexington  Life,  F.  & 
M.  Ins.  Co.  V.  Page,  17  B.  Mon.  (Ky.)  412;  Moore  &  Handley  Hardware  Co. 
V.  Towers,  87  Ala.  206,  13  Am.  St.  23;  Davis  v.  Creamery  Co.,  48  Neb.  471, 
67  N.  W.  436;  1900,  Andres  v.  Morgan,  62  O.  S.  236,  78  Am.  St.  R.  712. 


§  13  THE   CORPORATION  AS   A  PERSON.  65 


Sec.  13.     Same.     (4)    Or  to  contracts  between  the  members  them- 
selves. 

MORRIS  SELLERS  v.  HOWARD  GREER.^ 
1898.     In  the  Supreme  Court  of  Illinois.     172  Illinois  549-558. 

Appeal  from  the  appellate  court  for  the  first  district,  heard  in  that 
court  on  appeal  from  the  superior  court  of  Cook  county,  the  Hon. 
Theodore  Brentano,  Judge,  presiding. 

This  was  a  bill  for  specific  performance,  brought  by  Howard  Greer 
against  Morris  Sellers,  in  the  superior  court  of  Cook  county.  The 
cause  proceeded  to  a  hearing  on  the  pleadings  and  evidence,  and  the 
court  entered  a  decree  dismissing  the  bill.  To  reverse  the  decree, 
Greer  appealed  to  the  appellate  court,  where  the  decree  was  reversed 
and  the  cause  remanded  for  the  purpose  of  allowing  Greer  to  recover 
such  damages  as  he  may  have  sustained  on  account  of  the  failure  of 
Sellers  to  perform  the  contract.  To  reverse  the  judgment  of  the  ap- 
pellate court,  Sellers  appealed  to  this  court. 

Upon  looking  into  the  record  it  appears  that  Morris  Sellers  and 
Howard  Greer  had  been  associated  together  in  the  business  of  manu- 
facturing railroad  supplies  for  several  years  prior  to  1891.  In  June, 
189 1,  they  formed  a  corporation  under  the  laws  of  this  state,  and 
adopted  the  name  of  Morris  Sellers  &  Co.,  incorporated.  The  capi- 
tal stock  of  the  corporation  was  fixed  at  $100,000,  each  share  being 
of  the  par  value  of  $100,  and  499  shares  were  subscribed  for  and 
owned  by  Morris  Sellers  and  Howard  Greer,  respectively,  each  own- 
ing that  number  of  shares  from  the  formation  of  the  corporation  to 
the  time  of  filing  the  bill.  The  remaining  two  shares  were  owned  by 
John  M.  Sellers  and  Paul  E.  Greer,  who  were  sons  of  said  principal 
stockholders,  each  owning  one  share.  No  money  was  paid  by  any  of 
the  stockholders  for  their  stock.  The  500  shares  belonging  to  Sellers 
and  his  son  were  paid  for  by  turning  over  the  plant  and  their  interest 
in  certain  patents  to  the  corporation ;  and  the  500  shares  issued  to  the 
Greers  were  paid  for  by  turning  over  their  interest  in  certain  patents 
controlled  by  them.  All  four  of  the  above  named  parties  were  stock- 
holders and  directors.  Morris  Sellers  acted  as  president  and  treas- 
urer and  had  charge  of  the  office  and  financial  department  of  the  con- 
cern. Howard  Greer  was  secretary  and  manager  or  superintendent, 
and  had  charge  of  the  factory  and  manufacturing  department  of  the 
business. 

After  the  organization  of  the  corporation  it  did  a  fair  business,  and 
its  management  and  success  seemed  to  have  been  satisfactory  to  the 

*Part  of  the  opinion  relating  to  specific  performance  of  the  contract  is 
omitted. 

5 — WiL.  Cases. 


66  SELLERS    V.    GREER.  §  1 3 

parties  interested  until  the  latter  part  of  1894,  when  trouble  arose  be- 
tween the  two  principal  stockholders  in  regard  to  the  management  of 
the  business,  Greer  made  an  offer  to  purchase  the  Sellers  interest, 
but  the  offer  was  not  accepted.  Negotiations  continued,  however, 
between  the  parties  until  September  4,  1894,  when  Morris  Sellers 
made  a  written  proposition  to  buy  out  Greer.  The  proposition  was 
written  and  executed  by  Morris  Sellers  and  by  him  delivered  to  Greer. 
It  was  as  follows : 

"Outline  of  proposition  between  Howard  Greer  and  Morris  Sellers : 
Greer  to  take  all  of  the  Greer  patents  and  all  of  the  special  machinery 
attached  to  punching  machines ;  all  other  appliances  belonging  to  the 
making  of  spikes,  he  surrendering  all  of  his  stock  in  M.  S.  &  Co., 
and  to  furnish  M.  S.  &  Co.  a  complete  set  of  templates  for  splices; 
M.  S.  &  Co.  to  loan  machine  No.  4  for  six  mo.  and  pay  Howard 
Greer  $1 ,800  toward  a  new  machine  for  cutting  spikes  ;  Howard  Greer 
to  fill  all  of  the  present  orders  so  far  as  the  material  now  on  hand  will 
complete.  This  agreement  to  be  put  in  proper  form  at  as  early  a  date 
as  possible,  pending  the  return  of  the  company's  attorney  to  draw  up 
the  necessary  releases.  Morris  Sellers. 

^^  Tuesday,  September  4,  18Q4.'* 

The  bill  alleged  and  the  evidence  tended  to  prove  that  the  Greer 
mentioned  in  the  proposition  was  appellee,  and  the  letters  "M.  S.  & 
Co."  meant  and  referred  to  the  corporation  known  as  Morris  Sel- 
lers &  Co. 

Mr.  Justice  Craig  delivered  the  opinion  of  the  court. 

The  two  following  grounds  are  relied  upon  by  counsel  for  appel- 
lant in  the  argument  to  reverse  the  judgment  of  the  appellate  court : 
"We  claim,  firstly,  that  the  proposition  is  not  a  contract  binding  upon 
appellee  or  upon  appellant ;  that  it  lacks  mutuality  ;  that  the  subject- 
matter  was  the  property  of  a  corporation,  and  not  of  either  of  the  par- 
ties named  in  the  proposition ;  that  appellee  is  in  nowise  bound,  and  so 
acted  as  not  to  legally  bind  himself  in  terms  to  said  proposition ;  that 
it  was  made  under  such  circumstances  that  it  was  not,  and  was  not 
intended  to  be,  a  complete  or  binding  contract  or  agreement  upon 
either  appellant  or  appellee;  hence,  its  specific  enforcement  was  not 
only  impossible,  but  if  attempted  by  way  of  assessment  of  dam- 
ages upon  appellant,  as  the  appellate  court  seeks  to  do,  would  con- 
travene equitable  principles.  Secondly,  that  if  all  these  points  are 
negatived,  appellee  has  yet  barred  himself  of  all  relief  in  equity  by 
his  own  inequitable  conduct." 

It  will  be  observed  that  appellee  did  not  sign  the  contract,  and 
hence  it  is  contended  that  the  contract  is  not  mutual.  It  appears, 
however,  that  the  contract  was  delivered  by  Morris  Sellers,  appellant, 
to  appellee,  on  the  day  it  was  executed,  and  appellee  accepted  the 
contract  and  agreed  to  its  terms  and  conditions.  The  acceptance  of 
the  contract  by  appellee  assenting  to  its  terms,  holding  it  and  acting 
upon  it  as  a  valid  instrument,  may  be  regarded  as  equivalent  to  its 
formal  execution  on  his  part,  as  held  by  this  court  in  Johnson  v. 
Dodge,  17  111.  433,  and  Vogel  v.  Pekoe,  157  111.  339. 


^  13  THE   CORPORATION   AS   A  PERSON.  6/ 

But  it  is  said  the  subject-matter  of  the  contract  was  the  property  of 
a  corporation,  and  not  of  either  6f  the  parties  named  therein,  and  as 
the  corporation  never  executed  or  ratified  the  contract  it  can  not  be 
enforced  in  a  court  of  equity.  Of  the  1,000  shares  of  capital  stock 
of  the  corporation  Greer  and  Sellers  owned  equally  the  entire  amount 
except  two  shares,  which  were  held  in  the  names  of  the  respective 
sons  of  the  two  parties.  These  sons  never  paid  anything  for  the  stock 
placed  in  their  names,  and  were  mere  nominal  shareholders,  and  the 
only  inference  to  be  drawn  from  all  the  evidence  is,  that  the  two 
shares  were  placed  in  their  names  in  order  that  the  concern  might 
have  a  sufficient  number  of  stockholders  to  make  up  a  board  of  di- 
rectors. In  the  management  of  the  affairs  of  the  concern,  whatever 
was  done  by  Greer  was  assented  to  by  his  son,  and  whatever  action 
was  taken  by  Sellers  was  approved  by  his  son.  As  between  appellant 
and  appellee  they  may  be  regarded  as  owners  of  the  property  named 
in  the  contract,  and  any  contract  which  they  may  have  made  in  re- 
gard to  the  property  may,  as  between  them,  be  enforced  in  a  court  of 
equity. 

But  it  is  said  the  proposition  was  not  intended  to  be  a  complete  and 
binding  contract.  There  is  nothing  appearing  on  the  face  of  the  con- 
tract, nor  is  there  anything  in  the  evidence  introduced  on  the  hearing, 
which  will  sustain  that  position.  The  contract  is  definite  and  specific 
in  regard  to  what  was  to  be  done  by  each  of  the  parties.  By  the  con- 
tract Greer  was  to  do  three  things :  First,  he  was  to  surrender  all  of 
his  stock  in  the  Morris  Sellers  &  Co.  establishment;  second,  he  was 
to  furnish  a  complete  set  of  templates  for  splices ;  third,  he  was  to  fill 
all  of  the  present  orders,  so  far  as  the  material  then  on  hand  would 
permit.  From  the  terms  of  the  contract  there  could  be  no  uncertainty 
or  doubt  in  regard  to  what  Greer  was  required  to  do  in  order  to  com- 
ply with  the  contract.  As  to  Sellers,  he  was  required  by  the  contract 
to  deliver  over  to  Greer  all  of  the  Greer  patents,  and  what  was  meant 
by  Greer  patents  was  well  understand  by  both  parties. 

It  is  true  that  Morris  Sellers  and  Howard  Greer  owned  all  of  the 
stock  of  the  corporation,  except  two  shares,  which  belonged  to  their 
sons.  But  did  this  fact  confer  upon  them,  or  either  of  them,  the 
power  to  sell  the  corporate  property.''  It  is  conceded  that  the  patents 
and  all  the  other  property  named  in  the  contract  in  question  belonged 
to  the  corporation  Morris  Sellers  &  Co. ,  and  the  question  presented 
is  whether  Morris  Sellers  and  Howard  Greer,  two  of  the  stockhold- 
ers, without  the  consent  or  authority  of  the  corporation  Morris  Sellers 
&  Co.,  had  the  right  to  divide  the  corporate  property  between  them- 
selves, or  to  sell  it,  as  was  attempted  to  be  done  by  the  contract  in 
question.  A  corporation  is  an  artificial  being  created  by  law.  clothed 
with  certain  powers.  It  acts  through  its  board  of  directors  and 
officers.  Its  property  is  not  subject  to  the  control  or  disposition  of 
its  members  or  stockholders.  They  have  no  power  to  sell  or  encum- 
ber the  corporate  property.  A  reference  to  a  few  authorities  will 
fully  sustain  what  has  been  said. 

In    Cook   on    Stockholders  (3d    ed.,    §   709),  it    is   said:      "The 


68  SELLERS    V.    GREER.  §   15 

stockholders  can  not  enter  into  contracts  with  third  persons.  Con- 
tracts between  the  corporation  and  third  persons  must  be  entered  into- 
by  the  directors  and  not  by  the  stockholders.  The  corporation,  in 
such  matters,  is  represented  by  the  former  and  not  by  the  latter.  Such 
is  one  of  the  main  objects  of  corporate  existence.  To  the  directors 
is  given  the  management  and  formation  of  corporate  contracts.  The 
stockholders  can  not,  in  meeting  assembled,  bind  the  corporation  by 
their  contracts  in  its  behalf.  Although  one  person  owns  a  majority  of 
the  stock,  or  all  of  it,  or  all  but  two  shares,  he  does  not,  in  conse- 
quence thereof,  acquire  the  right  to  act  for  the  corporation,  or  as  the 
corporation,  independently  of  the  directors.  One  person  may  own 
all  the  stock,  and  yet  the  existence,  relations  and  business  methods  of 
the  corporation  continue.  A  single  stockholder  can  not  make  a  con- 
tract for  and  in  the  name  of  the  corporation  which  shall  have  any 
binding  force  or  validity,  except  by  subsequent  ratification  or  adoption 
in  the  regular  manner." 

In  Allemong  v.  Simmons,  124  Ind.  199,  it  was  attempted  to  hold 
a  corporation  liable  on  a  contract  made  by  one  Crawford,  who  was  a 
director  and  owner  of  five-sixths  of  the  stock  of  the  corporation.  In 
disposing  of  the  question  the  court  said:  "It  is  true,  Crawford  was 
one  of  the  directors  of  the  company  and  held  a  majority  of  the  stock ; 
but  the  existence  of  these  facts  confers  upon  him  no  power  to  make 
contract  for  the  corporation.  It  could  only  be  bound  by  the  action  of 
its  board  of  directors.  The  board  could  have  conferred  upon  Craw- 
ford this  power,  but  there  is  no  evidence  that  it  had  done  so.  Craw- 
ford, as  one  of  the  directors,  had  no  more  authority  or  power  than 
any  other  director.  The  board  consisted  of  five  members,  and  three 
constituted  a  quorum.  Less  than  three  could  make  no  binding  con- 
tract for  the  corporation.  *  *  *  The  contract  which  Simmons 
and  Aleshire  executed  with  Crawford  was  the  mere  personal  engage- 
ment of  Crawford  with  the  said  parties." 

In  Humphrey  v.  McKissock,  140  U.  S.  304,  the  validity  of  the 
action  of  all  the  stockholders  of  a  corporation  in  transferring  its  prop- 
erty without  corporate  action  arose,  and  in  disposing  of  the  case  the 
court  said:  "Both  the  commissioner  and  the  court  in  confirming 
his  report  and  entering  the  decree  mentioned,  seem  to  have  con- 
founded the  ownership  of  stock  in  a  corporation  with  ownership  of 
its  property.  But  nothing  is  more  distinct  than  the  two  rights.  The 
ownership  of  one  confers  no  ownership  of  the  other.  The  property 
of  a  corporation  is  not  subject  to  the  control  of  individual  members^ 
'whether  acting  separately  or  jointly  They  can  neither  encumber  or 
transfer  that  property^  nor  authorize  others  to  do  so.  The  corpora-^ 
tion — the  artificial  being  created — holds  the  property^  and  alone  can 
mortgage  or  transfer  it;  and  the  corporation  acts  only  through  its 
officers  subject  to  the  conditions  prescribed  by  law. 

In  Smith  v.  Hurd,  12  Mete.  385,  the  relations  of  stockholders  to 
the  rights  and  property  of  a  banking  corporation  are  stated  with  his 
usual  clearness  and  precision  by  Chief  Justice  Shaw,  speaking  for 
the  supreme  court  of  Massachusetts,  and  the  same  doctrine  applies  ta 


■§  13  THE   CORPORATION  AS   A  PERSON,  69 

the  relations  of  slockholders  in  all  business  corporations.  Said  the 
•chief  justice;  'The  individual  members  of  a  corporation,  whether 
they  shall  all  join  or  each  act  severally,  have  no  right  or  power  to  inter- 
meddle with  the  property  or  concerns  of  the  bank,  or  call  any  officer, 
agent  or  servant  to  account  or  discharge  them  from  any  liability. 
Should  all  of  the  stockholders  join  in  a  power  of  attorney  to  any  one, 
he  could  not  take  possession  of  any  real  or  personal  estate,  any  se- 
curity or  chose  of  action^  could  not  collect  any  debt,  or  discharge  a 
claim,  or  release  damage  arising  from  any  default,  simply  because 
they  are  not  the  legal  owners  of  the  property,  and  datnage  done  to 
such  property  is  not  an  injury  to  them.  Their  rights  and  their 
powers  are  litnited  and  well  defined.^  " 

In  this  court,  in  Hopkins  v.  Roseclai-e  Lead  Co.,  72  111.  373,  the 
right  of  a  stockholder  of  a  corporation  to  transfer  certain  leases  be- 
longing to  the  corporation  arose,  and  in  disposing  of  the  question  the 
court"  said  (p.  379):  "It  is  insisted  that  La  Grave  had  no  power  to 
make  the  sale  of  the  leases,  to  transfer  the  control  of  the  suit  or  to  sell 
the  twenty  acres  of  land,  as  they  were  all  owned  by  the  company.  He 
was  but  a  stockholder,  and  as  such  had  no  power  to  make  the  sale. 
He,  although  owning  the  majority  of  the  stock,  could  not  act  for  the 
company  unless  specially  authorized.  He  could,  no  doubt,  control 
the  action  of  the  company  by  the  election  of  its  officers,  but  still  the 
company  could  only  act  through  its  officers  or  by  expressly  delegating 
power  to  others,  whether  a  stockholder  or  other  persons."  See,  also, 
England  v.  Dearborn,  141  Mass.  590;  Newton  Manf.  Co.  v.  White, 
42  Ga.  148;  Russell  v.  McLellan,  14  Pick.  63. 

From  what  has  been  said  it  is  apparent  that  Morris  Sellers,  al- 
though he  owned  one-half  of  the  capital  stock  of  the  corporation,  had 
no  right  to  sell  the  corporate  property,  and  any  contract  he  may  have 
made  would  not  be  obligatory  on  the  corporation.  The  corporation, 
Morris  Sellers  &  Co.,  the  owner  of  the  letters-patent  and  other  prop- 
erty described  in  the  contract,  was  not  made  a  party  to  the  bill,  and 
no  decree  could  have  been  obtained  against  it  if  it  had  been  made  a 
party,  for  the  reason  it  never  executed  the  contract,  nor  did  it  ratify 
the  contract  after  it  was  made,  but,  on  the  other  hand,  expressly  re- 
fused to  do  so  on  application  of  Greer  to  its  board  of  directors.  The 
bill  prayed  that  Sellers  might  be  compelled  to  convey  the  letters-pat- 
ent named  in  the  contract  to  Greer.  He  had  no  title,  and  hence  could 
not  make  a  conveyance,  and  any  decree  that  might  have  been  ren- 
dered would  have  been  nugatory.  In  a  bill  for  specific  performance 
the  contract  must  be  of  such  a  character  that  the  court  is  able  to  make 
an  efficient  decree  and  enforce  it  when  made.  3  Pomeroy's  Eq.  Jur., 
§  1405.     »     *     * 

Appellee  not  being  entitled  to  a  decree  for  a  specific  performance, 
the  next  question  presented  is,  did  the  court  err  in  refusing  to  retain 
the  bill  for  the  purpose  of  allowing  appellee  to  recover  damages  for 
the  failure  of  Sellers  to  perform  the  contract  ?     *     ♦     ♦ 

In  Kennedy  V.  Hazleton,  128  U.  S.  667,  it  was  held  that  specific 
performance  can  not  be  decreed  of  an  agreement  to  convey  property 


70  WILLIAMSON   V.    SMOOT.  §  1 4 

which  has  no  existence  or  to  which  the  defendant  has  no  title,  and  if 
the  want  of  title  was  known  to  the  plaintiff  at  the  time  of  beginning 
suit,  the  bill  would  not  be  retained  for  the  assessment  of  damages. 
The  same  doctrine  is  declared  in  Hurlbut  v.  Kantzler,  ii3  111.  482. 
Here,  Greer,  the  appellee,  knew  when  he  accepted  the  contract  from 
Sellers  that  the  property  named  in  the  contract  was  owned  by  Morris 
Sellers  &  Co.,  a  corporation.  He  also  knew  that  Sellers  had  no 
authority  to  sell  the  property,  and,  knowing  these  facts,  he  could  not 
maintain  a  bill  for  specific  performance,  nor  would  the  bill  be  retained 
for  an  assessment  of  damages  for  a  breach  of  the  contract. 

The  judgment  of  the  appellate  court  will  be  reversed  and  the  decree 
of  the  superior  court  of  Cook  county  will  be  affirmed. 

Judgment  reversed. 


Sec.  14.     Same.     ( 5 )    Aho  as  to  suits  by  or  against  third  per- 
sons. 

WILLIAMSON  Et  Al.,  Syndics,  v.  SMOOT  Et  Al.' 

1819.     In  the  Supreme   Court  of  Louisiana.     7  Martin   (La.) 
31-33,  or  vol.  7  of  Louisiana  Term  Reports. 

Appeal  from  the  court  of  the  first  district. 

Matthews,  J.,  delivered  the  opinion  of  the  court.  The  plaintiffs 
having  caused  an  attachment  to  be  levied  on  the  steamboat  Alabama, 
the  St.  Stephens  Steamboat  Company  intervened  in  their  corporate 
capacity,  and  claimed  her  as  their  property.  The  intei-vening  party 
are  a  body  politic,  created  by  an  act  of  the  legislature  of  the  territory 
of  Alabama,  the  capital  stock  of  which  is  divided  into  shares  of  a  cer- 
tain amount,  and  Smoot,  the  defendant,  owns  ten  of  them,  subscribed 
for  by  him. 

[The  questions  to  be  decided  are  *  *  *  2.  Can  the  shares  or 
stock  of  any  individual  stockholder  be  legally  attached  ? j     *     *     * 

II.  The  existence  of  the  claimants  being  recognized  as  a  body  cor- 
porate, and  it  being  admitted  that  the  boat  attached  belongs  to  them 
as  a  part  of  their  common  stock,  it  is  clear  that  Smoot  does  not  pos- 
sess such  certain  and  distinct  individual  property  in  it  as  to  make  his 
interest  attachable.  The  estate  and  rights  of  a  corporation  belong  so 
completely  to  the  body  that  none  of  the  individuals  who  cotnpose  if 
has  any  right  of  ownership  in  them,  nor  can  dispose  of  any  part  of 
them.      Civ.  Code,  88,  art.  11. 

The  court  is  of  opinion  that  the  district  court  erred  in  disallowing 
the  claim  of  the  company. 

It  is,  therefore,  ordered,  adjudged  and  decreed  that  the  judgment 
be  annulled,  avoided   and   reversed,  and  that  the   attachment  of  the 

'  Part  of  the  opinion  relating  to  the  recognition  of  a  foreign  corporation  by  a 
state  is  omitted. 


§  15  THE    CORPORATION  AS    A   PERSON.  7 1 

plaintiff  and   appellant  be  quashed,  so  far   as   it  relates  to  the  said 
steamboat,  the  Alabama,  and  that  she  be  released  therefrom. 

Note.  1.  Evidence.— Admissions  of  shareholders  are  not  admissions  of 
the  corporation.  Fairfield  County  Turnpike  Co.  v.  Thorp,  13  Conn.  173;  Pol- 
leys  V.  Ocean  Ins.  Co.,  2  Shep.  (Maine)  14J ;  Osgood  v.  Manhattan  Bank,  3 
Cow.  (N.  Y.)  612 ;  Hartford  Bank  v.  Hart,  3  Day  (Conn.)  493 ;  Mayor  of  Lon- 
don V.  Long,  1  Campb.  22. 

2.  Judg"e,  by  holding  stock,  is  disqualified  to  try  a  case  in  which  the 
corporation  is  a  party.  Bonham's  Case,  8  Rep.  226;  Day  v.  Savadge,  Hob. 
85,  87;  Washington  Ins.  Co.  v.  Price,  1  Hop.  Ch.  {N.  Y.)  1 ;  Gregory  v.  Cleve- 
land, etc.,  R.  Co.,  4  Ohio  St.  675;  Northampton  v.  Smith,  11  Met.  (Mass.) 
390;  Newcome  v.  Light,  58  Texas  141 ;  Dimes  v.  Grand  Junction  Canal,  3  H. 
L.  Cas.  759;  State  v.  Young,  31  Fla.  594,  34  Am.  St.  41.  But  see  Stewart  v. 
Mech.  &  F.  Bank,  19  Johns.  (N.  Y.)  501 ;  Searsburgh  Turnpike  Co.  v.  Cutter, 
6  Vt.  315. 

3.  JuroP,  who  holds  stock  can  not  try  a  case  in  which  the  corporation 
is  a  party.  Page  v.  Contoocook  V.  R.  Co.,  1  Fost.  (21  N.  H.)  438;  Peninsular 
R.  Co.  V.  Howard,  20  Mich.  18;  Michigan  Air  Line  R.  Co.  v.  Barnes,  40  Mich. 
383;  Georgia  A.  Co.  v.  Hart,  60  Ga.  550;  Butler  v.  Glens,  etc.,  R.  Co.,  121  N. 
Y.  112;  McLaughlin  v.  Louisville   Elec.  L.  Co.,  100  Ky.  173. 

4.  Witness. — At  common  law  a  shareholder  was  disqualified,  because  of 
interest,  to  be  a  witness  for  the  corporation.  Porter  v.  Bank,  etc.,  19  Vt.  410; 
McAuley  v.  The  York,  etc.,  6Cal.  80;  Mokelumne,  etc.,  Co.  v.  Woodbury,  14 
Cal.  265. 

5.  Sheriff,  though  a  stockholder,  is  not  disqualified  to  serve  process  on 
the  corporation.  Merchants'  Bank  v.  Cook,  4  Pick.  (Mass.)  405;  Adams  v. 
Wiscasset  Bank,  1  Greenleaf  (Maine)  361,  10  Am.  Dec.  88;  Barker  v.  Rem- 
ick,  43  N.  H.  235. 


Sec.  15.    Same.     (6)  Or  as  to  suits  between  it  and  its  members. 

1430.  "If  mayor  and  commonalty  disseise  one  of  the  commonalty 
he  shall  have  assise  against  them,  for  they  are  as  several  persons,  viz., 
body  politic  and  body  natural.  Per  Paston,  Br.  Corporations,  pi.  24, 
cites  8  H.  VI,  1,  14,"  as  given  in  6  Viner's  Abr.,  Corporations,  §  2, 


p.  304. 


WARING  v.  CATAWBA  COMPANY.* 


1797.     In  the   Superior   Courts   of  South  Carolina.     2  Bay 
(South  Carolina)  109-111. 

Assumpsit  for  goods  sold,  and  for  work  and  labor,  etc. 

Plea  in  abatement. 

This  case  came  before  the  court  upon  a  plea  in  abatement,  which 
pleaded  that  plaintiff  was  himself  a  member  of  the  company,  and, 
therefore,  could  not  maintain  any  action  against  it  in  his  individual 
capacity.  ' 

Mr.  Trezevant,  for  the  plaintiff,  argued  that  there  was  a  wide  dif- 
ference between  a  copartnership  in  trade  and  a  corporation.  Copart- 
ners, he  admitted,  must  sue  and  be  sued  jointly;  that  they  were  jointly 
and  severally  liable,  etc.     But  a  corporation  (as  in  the  present  case) 

*  Part  of  arguments  omitted. 


72  NOTES   TO    ARTICLE    II.  §15 

must  be  sued  in  its  corporate  name ;  that  the  private  property  of  its 
members  were  not  liable,  only  the  corporate  property,  so  that  there 
was  a  wide  difference  between  a  corporation  and  a  copartnership, 
both  as  to  the  mode  of  bringing  an  action  and  as  to  the  effect  of  any 
judgment  or  decree  against  them.      *     *     * 

The  attorney-general,  contra^  said  this  company  ought  to  be  con- 
sidered as  an  association  for  gain,  or  the  emolument  of  its  members, 
and  therefore  in  law  should  only  be  considered  as  a  kind  of  copartner- 
ship, and  not  as  a  public  corporation.     *     *     * 

The  court,  after  hearing  the  arguments,  overruled  the  plea  in  abate- 
ment, as  containing  principles  subversive  of  justice  ;  but  they  observed 
that  the  two  cases  of  Bourdeaux  and  Drayton  against  The  Santee  Canal 
Company  had  settled  this  point,  as  they  had  both  been  allowed  by  this 
court  to  maintain  their  actions  for  their  salaries,  etc.,  against  the  com- 
pany, as  well  as  the  cases  respecting  the  other  public  societies,  men- 
tioned in  the  argument. 

The  plaintiff  was  then  allowed  to  go  on  and  prove  his  debt  to  a 
jury. 

Present,  Burke,  Grimke  and  Bay;  but  as  Judge  Grimke  was  a 
member  of  the  company,  he  declined  giving  an  opinion. 

Note.    See  Culbertson  v.  Navigation  Co.,  Fed.  Cas.  3464 ;  Rogers  v.  Society, 
19  Vt.  187. 


_,  NOTES  TO  ARTICLE  II. 

1.  Ancient  ideas. — The  idea  of  an  artificial  person  seems  as  old  as  our  race. 
In  fact  the  underlying  idea  of  a  person  is  not  that  it  is  an  individual  human 
being,  but  rather  that  part  or  character  which  one  sustains  in  the  world.  The 
word  comes  from  the  Latin,  meaning  "a  mask  for  actors,"  or  "the  character 
represented  by  such  mask."  See  Century  Dictionary,  Austin's  Jurisprudence 
(Campbell's  edition),  §  438;  Holland's  Jurisprudence,  p.  65  (edition  of  1880). 
This  being  the  primary  meaning  of  the  word,  it  was  immaterial  whether  this 
person  was  composed  of  a  single  human  being,  or  many,  or  not  even  a  human 
being  at  all,  but  only  a  thing  or  group  of  things,  provided  they  or  it  had  the 
same  status,  or  was  entitled  to  the  same  rights  or  subject  to  the  same  duties 
as  any  single  human  being  was.  So,  too,  the  whole  hierarchy  of  gods  and 
goddesses  that  peopled  the  "heavens  and  earth"  of  the  ancient  world  was 
noi\i\ng  hnt  personifications  ot  the  forces  of  nature.  Morawetz  (Private  Cor- 
porations, §  1,  p.  2),  says:  "The  conception  of  a  number  of  individuals  as  a 
corporate  or  collective  entity  occurs  in  the  earliest  stages  of  human  develop- 
ment, and  is  essential  to  many  of  the  most  ordinary  processes  of  thought.  Thus 
the  existence  of  tribes,  village  communities,  families,  clans  and  nations  im- 
plies a  conception  of  these  several  bodies  of  individuals  as  entities  having 
corporate  rights  and  attributes."  The  oldest  corporate  body  or  artificial  per- 
son seems  to  have  been  the  family.  Hearn,  in  "The  Aryan  Household,"  pp. 
64,  5,  6,  thus  characterizes  the  ancient  family:  "It  formed  an  organized  per- 
manent body,  distinct  from  its  individual  members,  owning  property,  and 
having  other  rights  and  duties  of  its  own.  *  *  *  jt  ^^s  a  permanent  as- 
sociation. It  was  not  intended  to  pass  away  and  be  reformed  like  the  genera- 
tions of  men.  It  was  constructed  and  meant  to  endure  forever.  It  was,  in 
our  technical  language,  a  corporation.  It  had  perpetual  succession.  It  in- 
cluded in  its  members  both  the  living  and  the  dead.  These  members  had 
various  degrees  of  rank ;  but  the  whole  number,  taken  collectively,  formed 
one  well  defined  and  distinct  individuality.  Of  this  corporate  entity,  the  house 
father  for  the  time  being  was  the  head,  or,  as  we  might  say,  the  managing  di- 


THE    CORPORATION   AS   A   PERSON.  73 

rector."  Mr.  Hearn  cites  the  following  authorities:  Maine's  Early  History 
of  Institutions,  p.  78  (the  Hindu  family);  K.  O.  Miiller's  Dorians,  vol.  2, 
p.  240  (the  Greek  family) ;  M.  Ortolan,  History  of  Roman  Law,  p.  577  (the 
Roman  family ) ;  M.  de  Laveleye,  De  la  Propriety,  p.  23  (the  Slav  family); 
the  Editor  of  Ancient  Laws  of  Ireland,  Int.,  p.  79  (the  Irish  family) ;  Maine's 
•Ancient  Law,  p.  143  (the  German  family). 

2.  In  the  Roman  civil  law.— Although  corporations  do  not  seem  to  be 
mentioned  in  the  Institutes  of  Gains  (c.  180  A.  D.)  they  are  in  the  Institutes 
of  Justinian  and  there  are  many  provisions  in  the  digests  (A.  D.  633)  relat- 
ing to  them ;  the  ideas  above  expressed  were  embodied  in  the  Roman  law. 
"Every  being  capable  of  having  and  being  subject  to  rights  was  called  in  Ro- 
man law  a  persona.  Thus,  not  only  was  the  individual  citizen  when  looked 
at  as  having  this  capacity,  a  persona,  but  also  corporations  and  public  bodies. 
*  *  *  The  word  personae  has  also  another  sense.  It  was  used  not  only  for 
the  being  who  had  the  capacity  of  enjoying  rights  and  fulfilling  duties,  but 
also  for  the  different  characters  or  parts  in  which  this  capacity  showed  itself; 
or  to  borrow  the  metaphor  suggested  by  the  etymology  of  the  word,  for  the 
different  masks  or  faces  which  the  actor  wore  in  playing  his  part  in  the 
drama  of  civic  and  social  life.  Thus,  for  instance,  the  same  man  might  have 
the  persona  patris,  or  tutoris,  or  mariti;  that  is,  might  be  regarded  in  his  char- 
acter of /afAer,  fwfor,  or  A?<s6and.  *  *  *  ;S'toi?<s  (legal  standing)  is  the  cor- 
relative of  persona.  Status  is  the  legal  capacity  of  a  persona;  persona  is  that 
which  has  status."  Note  of  T.  C.  Sandars  in  Hammond's  Edition  of  Ban- 
dars' Justinian's  Institutes.  De  Jure  Personarum,  p.  76.  See,  also,  Mack- 
eldey,  Handbook  of  Roman  Law  (Dropsie's  Translation,  1883,  sections  128, 
129,  155.) 

"Auniversitas,  or  corporate  body,  exists  when  a  number  of  persons  are  so 
united  that  the  law  takes  no  notice  of  their  separate  existence,  but  recognizes 
them  only  under  a  common  name,  which  is  not  the  name  of  any  one  of  them. 
(Digest  3,  4,  2;  3,  4,  7,  1).  All  the  members  are  considered  in  law  as  a  sin- 
gle unit  or  being.  (Digest  46,  1,  22.)  Such  units  are  sometimes  called  ficti- 
tious persons,  because  the  corporate  body,  as  such,  may  sue  and  be  sued,  re- 
ceive or  part  with  property,  bind  itself  or  bind  others,  through  some  agent  or 
syndic  (Digest  3,  4,  1,  1),  who  acts  in  the  name  of  the  whole,  just  as  any  in- 
dividual may  act  for  himself.  (Digest  3,  4,  7,  1.)  The  chief  characteristic  of 
such  a  body  is  that  it  does  not  necessarily  die.  (Digest  5,  1,  76.)  *  *  * 
There  were  many  such  corporations  in  Rome,  chiefly  connected  with  trades, 
such  as  the  guild  of  bakers,  and  shipowners,  companies  of  tax-gatherers, 
companies  for  working  mines  of  gold,  silver,  salt,  etc.  The  internal  govern- 
ment of  the  corporate  bodies  was  in  the  hands  of  the  members  {sodales}.— 
Hunter's  Roman  Law,  2d  ed.,  pp.  314-5. 

Sheldon  Amos,  in  his  "  History  and  Principles  of  the  Civil  Law  of  Rome," 
p.  118,  says:  "Such  a  conception  fas  that  of  legal  persons)  had  thoroughly 
penetrated  the  fabric  of  Roman  law  and  society  long  before  the  time  of  Jus- 
tinian, and  the  appropriate  legal  consequences  had  worked  themselves  out 
with  considerable  exactness.  The  conception,  indeed,  was  extended  for  pur- 
poses of  legal  convenience,  even  beyond  the  original  sense  of  an  assemblage 
of  persons,  determinate  or  indeterminate,  treated  as  integral  unity.  The 
same  hypothesis  of  a  legal  personality  was  made  in  certain  cases  where  no 
human  beings  were  directly  concerned  at  all,  but  where  it  was  desired  to  as- 
sume, provisionally,  a  fixed  center,  to  which  a  group  of  rights  and  duties 
might  for  some  purposes  be  referred.  Thus,  in  the  case  of  an  inheritance  on 
which  the  heir  had  not  yet  entered,  it  was  convenient  for  the  moment  to  call 
it  a  person,  and  to  estimate  the  rights  and  duties  that  would  attach  to  a  person 
so  situated  than  to  be  making  constant  references  to  all  the  innumerable 
human  beings  who  might  be  actually  interested  in  the  succession."  Taylor, 
in  hia  work  on  Corporations,  ch.  1,  takes  a  slightly  different  view,  and  holds 
that  at  least  in  the  early  period  of  the  Roman  law  the  idea  of  the  artificial 
personalitv  of  a  corporation,  if  it  existed  at  all,  was  in  a  very  rudimentary 
shape,  though  he  admits  it  was  present  in  the  later  periods,  as  evidenced  by 
such  provisions  as,  "If  anything  is  owed  to  a  corporation,  it  is  not  owed  to 


)  * 

74  NOTES   TO    ARTICLE   II. 

any  single  [member] ;  nor  what  a  corporation  owes  do  the  single  [mem- 
bers] owe."  ["Si  quid  universitati  debetur,  singulis  non  debetur;  nee  quod 
debet  universitas  singuli  debeiit."  Digest  iii,  4,  lex  7,  §  1.]  And  in  the 
notes  (p.  3 1  he  cites  Ihring,  to  the  effect  that  the  members  of  a  corpora- 
tion were  the  true  subjects  of  corporate  rights  and  liabilities,  at  least  among 
themselves,  and  the  corporation  was  only  the  form  assumed  toward  outsiders. 
Gheist,  etc.,  iii,  Theil.,  pp.  219,  220,  343-4.  So,  too.  Pollock  and  Maitland 
say:  "It  would  be  a  great  mistake  to  suppose  that  what  we  are  wont  to  con- 
sider the  true  theory  of  universitates  lay  so  plainly  written  on  the  face  of  the 
Roman  law  books  that  no  one  could  read  them  attentively  without  grasping 
it.  The  glossators  did  not  grasp  it.  Bracton's  miaster,  Azo,  had  not  grasped 
it."     History  of  English  Law,  vol.  1,  p.  477. 

3.  In  the  Canon  law. — The  personification  of  an  institution,  such  as  The 
Church,  was  one  of  the  earliest  and  most  persistent  ideas  of  the  early  Chris- 
tian world;  so,  too,  the  blending  of  many  members  into  one  body  was  an  early 
Christian  conception.  "The  Church  of  God."  Acts  xx,  28;  1  Cor.  i,l  and  2; 
Rev.  ii,  7.  "He  is  the  head  of  the  body,  the  church."  Colos.  i,  18;  Eph.  i,22, 
23.  "For  as  the  body  is  one  and  hath  many  members,  and  all  the  members 
of  that  one  body,  being  many  are  one  body  ;  so,  also,  is  Christ  *  *  *  Now 
ye  are  the  body  of  Christ,  and  members  in  particular."  1  Cor.  xii,  12,  27. 
Pollock  and  Maitland,  History  of  English  Law,  vol.  1,  p.  489,  thus  summa- 
rises the  history  on  this  point:  "Within  the  ecclesiastical  sphere  there  have 
been  'juristic  persons'  from  an  extremely  remote  time.  Confining  our  view 
to  England,  we  may  say  that  they  have  existed  ever  since  ^thelberht  sanc- 
tioned God's  property  with  a  twelve-fold  hot,  and  gave  lands  to  St.  Andrew. 
God  and  the  saints,  it  is  needless  to  say,  were  not  regarded  as  imaginary  per- 
sons ;  still  their  property  had  to  be  administered  for  them  by  'the  church,'  and 
the  personality  of  the  church  is  more  purely  juristic.  A  personified  building 
gives  way  to  a  personified  institution  or  a  personified  purpose.  Then  the 
worldly  business  of  the  church  is  often  conducted  for  it,  not  by  a  single  man, 
but  by  a  group  of  men  acting  in  common  ;  still  these  men  are  not  the  eccle- 
sia ;  no,  not  though  they  be  all  taken  together.  Thus,  canonists  have  obtained 
a  foundation  of  fact  and  practical  law  for  their  theories.  They  see  and 
proclaim  that  the  universitas  is  persona  ficta,  not  found  in  the  world  of  sense, 
but  created  by  law,  that  it  is  invisible,  immortal,  a  body  that  has  no  body  and 
no  soul.  It  can  not  sin,  it  can  not  be  excommunicated,  it  can  not  commit  a 
crime,  it  can  not  be  punished ;  very  probably  it  can  not  commit  a  delict. 
These  theories  are  very  generally  worked  out  in  the  thirteenth  and  the 
following  centuries;  they  bear  abundant  fruit  in  our  latest  Year  Books.  To 
'the  church,'  modern  law  owes  its  conception  of  a  juristic  person,  and  the 
clear  line  that  it  draws  between  'the  corporation  aggregate,'  and  the  sum  of 
its  members."  In  fact  it  has  been  said  that  Pope  Innocent  IV  (A.  D.  1243- 
1255)  was  the  father  of  the  modern  learning  of  corporations.     lb.,  p.  477. 

4.  In  the  early  common  law. — The  personification  of  the  church,  as  having 
rights,  was  a  common  idea  in  the  Saxon  laws.  "The  property  of  God  and 
the  church  twelve-fold."  Laws  of  iEthelberht  ,  1  (c.  600  A.  D.).  "If  any 
carry  off  a  nun  from  a  minster  *  *  *  let  him  pay  120  shillings,  half  to 
the  king  and  half  to  the  bishop  and  to  the  cMirch-hlaford,^'  which  Stearns 
(Germs  and  Developments  of  Laws  of  England,  n.  1,  p.  78),  translates 
"church  corporation,"  though  the  word  is  more  frequently  rendered  tribute. 
See  Laws  of  Alfred,  8  (c.  890  A.  D.).  Under  the  Laws  of  Edward  the  Confessor 
(c.  1043-1066),  there  was  a  peace  of  the  church  as  there  was  of  the  king  (1,6); 
lands  were  held  of  the  church;  it  had  fiefs,  and  it  was  entitled  to  tithes  (3, 
4,7). 

These  provisions  of  the  laws  of  Edward  were  also  in  the  confirmation  of 
them  by  William  the  Conqueror.  London  traced  some  of  its  liberties  to  a 
charter  granted  by  the  Conqueror,  sealed  with  hisseal,  "bitten  with  his  tooth 
in  token  of  sooth."  Coke  says  he  had  seen  a  "charter  made  by  Henry  I 
(1100-1135),  by  which  he  granted  them  gildam  mercatorum,  and  a  confirma- 
tion by  Henry  II  (1154i-1189),  by  which  charters  they  were  incorporated." 
10  Rep.  30.     Though  corporations  seem  to  have  been  in  existence  from  the 


THE   CORPORATION   AS   A    PERSON.  75 

time  of  the  Conqueror,  Bracton's  ideas  (c.  1263)  were  not  clear,  and  were 
taken  almost  wholly  from  the  Roman  law.  He  says:  "Things  belong  to 
corporate  bodies,  and  not  to  individuals,  which  are  in  cities,  such  as  theaters, 
stadia,  etc.,  *  *  *  such  as  lands  and  serfs,  which  are  said  to  belong  to 
cities  because  they  so  belong  to  all  the  citizens  as  not  to  belong  to  any  one 
person  by  himself."  F.  8,  1  Twiss's  Translation  59.  This  is  substantially 
taken  from  Justinian's  Institutes,  Bk.  2,  T.  1,  §  6.  In  f.  1716,  he  speaks 
of  the  "body  corporate  of  the  realm."  [Universitas  regni.']  3  Twiss  93.  In 
f.  1806.  (3  Twiss  151),  he  adds  race  grounds,  walls  and  gates  of  cities,  to 
corporate  property.  From  what  he  says,  f.  102  (2  Twiss  133),  f.  2286,  (3 
Twiss  535),  it  seems  "all  may  complain  or  one  (only)  under  the  name  of  the 
corporation  {Universitatis') .  On  f.  374  (5  Twiss,  pp.  447-449),  he  says:  "If 
an  abbot,  or  prior,  or  other  collegiate  men  claim  land,  etc.,  in  the  name  of 
their  church  upon  the  seysine  of  their  predecessors,  ♦  *  *  the  declara- 
tion should  not  be  from  abbot  to  abbot,  or  from  prior  to  prior,  nor  should 
there  be  mention  of  the  intermediate  abbots  or  priors,  because  in  colleges  and 
in  chapters  the  same  corporation  always  remains,  although  they  all  die  suc- 
cessively and  others  are  substituted  in  their  place,  as  may  be  said  of  flocks  of 
sheep,  where  there  is  always  the  same  flock,  although  all  the  sheep  or  heads 
successively  depart,  nor  does  any  individual  of  them  succeed  to  another  by 
right  of  succession,  in  such  manner  that  the  right  descends  by  inheritance 
from  one  to  another,  because  the  right  always  pertains  to  the  church,  and 
remains  with  the  church,  according  to  what  may  be  seen  in  the  charters  of 
feoffment  of  religious  orders,  *  *  *  and  accordingly  if  the  abbot  or  the 
prior,  the  monks  or  the  canons  successively  die,  the  house  remains  to  eter- 
nity." This  comes  very  near  to  the  modern  idea  of  the  existence  of  the  cor- 
poration separate  and  distinct  from  its  members. 

By  1311  a  borough  is  called  a  ''corps."  Y.  B.,  4  Ed.  II  103,  Gross's  Gild 
Merchant  I,  94,  note.  But  "It  was  really  about  the  reign  of  Edward  III 
(1327-1377)  that  the  idea  of  the  lay  corporation,  the  lay  persona  ficta  as  now 
understood,  was  painfully  elaborated.  The  doctrine  that  there  could  not  be  a 
writ  of  capias  against  a  "commonalty"  was  definitely  expressed  at  least  as 
early  as  22  Edward  III  (1349),  22  Ass.  67,  and  the  practice  had  been  in  ac- 
cordance with  this  doctrine  considerably  earlier.  There  is  a  very  curious 
case  at  the  end  of  this  reign,  which  shows  not  only  that  the  lawyers  had  come 
to  the  notion  of  a  "body,"  afterwards  called  a  "body  politic,"  but  also  by 
what  road  they  traveled.  They  had  often  been  troubled  by  the  question 
whether  something  in  dispute  was  appendant  or  appurtenant  to  something 
else,  or  was  a  thing  by  itself  and  independent,  which  they  called  a  gross  («m 
gross).  It  was,  for  instance,  a  common  subject  of  argument  whether,  an 
advowson  was  a  gross  (according  to  modern  phraseology  "in  gross"),  or  ap- 
pendant. By  a  curious  psychological  process  they  realized  that  what  we  now 
call  a  corporation  was  "a  gross,"  or  something  which  had  an  existence  per 
se;  and  this  something  they  called  alternatively  "m«  corps."  Thus  they  came  to 
the  idea  of  an  individuality  composed  of  the  members  of  a  corporation,  or,  as 
we  might  now  say,  to  the  idea  of  a  persona  flcta.  At  the  same  time  it  was 
held  that  the  commonalty  of  a  guild  which  had  not  been  affirmed  by  a  royal 
charter  could  not  be  adjudged  to  be  a  body  inn  corps),  capable  of  purchasing 
an  estate  of  freehold."  See  49  Li.  Ass.  8.  Introduction  by  L.  O.  Pike  to  Y. 
B.,  16  Ed.  Ill,  part  1,  p.  xlvi.  Many  points  turning  on  or  recognizing  the 
artificial  personality  of  a  corporation  were  determined  during  this  reign.  In 
1335  it  was  held  the  head  of  the  corporation  could  be  sued  by  the  corpora- 
tion, as  the  dean  by  the  chapter  of  the  same  church.  Y.  B.,  9  Ed.  Ill  466. 
In  1341  it  was  held  that  if  a  corporation  disposes  of  all  its  property  the  cor- 
poration yet  remains.  15  Ass.  10.  In  1349,  as  indicated  above,  it  was  said: 
"The  corporation  is  invisible,  incorporeal ;  it  can  not  be  assaulted,  or  be 
beaten  or  imprisoned  ;  trespass  does  not  lie  against  it,  for  capias  nor  exigent 
lies  not  against  a  commonalty."  22  Ass.  100,  pi.  67.  In  1356,  "Nor  can  they 
commit  treason,  or  be  outlawed,  or  excommunicated,  for  they  have  no  souls, 
nor  can  they  appear  in  person,  but  by  attorney."  In  1372,  however,  it  was 
held  "a  corporation  can  commit  a  trespass."    45  Ed.  Ill  2. 


^6  NOTES   TO    ARTICLE    II. 

In  1375,  the  taking  by  the  servant  of  a  corporation  is  a  taking  by  the  cor- 
poration. 48  Ed.  Ill  17.  In  1376,  none  but  the  king  can  make  a  corpora- 
tion. 49  Ed.  Ill  4.  In  1377,  one  corporation  can  be  united  to  another 
(consolidation?),  so  as  to  succeed  to  the  rights  of  the  latter.  60  Ed.  Ill  27. 
Pollock  and  Maitland  (History  of  English  Law,  vol.  1,  p.  473)  place  the  birth 
of  the  corporate  idea  a  little  later  than  indicated  above.  They  say :  "If  for 
a  moment  we  take  our  stand  in  Edward  IV's  reign  (1461-1483)  *  *  *  ^e 
can  say  that  the  idea  of  a  corporation  is  already  in  the  minds  of  our  common 
lawyers;  it  may  trouble  them,  this  is  shown  by  their  frequent  discussions 
about  its  nature,  but  still  it  is  there.  First  we  notice  that  they  already  have 
a  term  for  it,  namely,  ^corporacion^  for  which  'coi-ps  corporat,'  and  'coi-ps 
politik,'  are  equivalents."  Kent  says  (2Comm.,  §270,  note  e),  "the  terms 
corporation  and  body  corporate  first  appeared  in  the  reign  of  Henry  IV 
(1399-14il3),  in  any  public  document."  In  1429,  it  was  unsuccessfully 
contended  that  when  a  member  and  the  corporation  were  sued  together,  the 
member  was  twice  sued.  Y.  B.,  8  Hen.  VI,  f.  1.  In  1437,  "if  a  man  recovers 
a  debt  or  damages  against  a  commonalty  he  shall  have  execution  only  against 
the  goods  they  have  in  common."  Y.  B.,  16  Hen.  VI,  Fitz.  Abr.,  Execution 
pi.  128.  In  1441,  "a  release  by  all  the  members  of  a  corporation  is  not  the 
release  of  the  corporation."  Y.  B.,  19  Hen.  VI  64.  So  too  "  if  all  the 
members  of  a  corporation  appear  in  person  to  answer  a  suit  against  the  cor- 
poration it  is  not  sufficient."  Y.  B.  19  Hen.  VI  80.  In  1442,  "if  all  the 
members,  as  abbots  and  monks, die,  the  corporation  is  dissolved."  Y.  B.,  20 
Hen.  VI  7,  8.     In  1454,  "when  a  city  or  village  is  incorporated  as  bailiff 

and  commonalty  of ,  they  are  by  this  name  a.  person  corporate,  an  entire 

body."  Y.  B.,  32  Hen.  VI  9.  In  1461,  "a  corporation  aggregate  of  sev- 
eral is  invisible,  immortal  and  rests  only  in  intendment  and  consideration  of 
law,  and  therefore  dean  and  chapter  can  not  have  predecessor  nor  successor." 
Y.  B.,  39  Hen.  VI  13b,  14.  In  1470,  generally  they  must  act  by  deed  only. 
Y.  B.,  9  Ed.  IV  59,  but  in  1479,  they  can  appoint  ordinary  servants  and 
agents  without  a  seal.    Y.  B.,  18  Ed.  IV  8. 

In  1481  corporate  bodies  are  contrasted  with  unincorporated  bodies.  Y.  B., 
20  Ed.  IV  2.  So,  too,  in  this  year  or  the  next,  a  juror  was  challenged  be- 
cause he  was  a  brother  to  one  of  the  members  of  the  corporation ;  it  was 
answered  that  the  juror  was  "a  stranger  to  the  chapter,  for  it  is  a  body  of  such 
nature  that  it  can  have  neither  brother  nor  cousin,"  but  conceded  that  it  would 
have  been  otherwise  if  the  juror  had  been  brother  to  the  Dean,  Y.  B.,  21  Ed. 
IV,  f .  28,  1  Pollock  and  Maitland  474.  In  this  year,  too,  a  corporation  is  called 
a  mere  name.  Y.  B.,  21  Ed.  IV  13.  Perhaps  the  most  interesting  case  of  the 
tiroe  is  the  one  of  this  year  summarized  by  Pollock  and  Maitland  thus :  "Ab- 
bot, of  Hulme,  sued  mayor,  sheriff  and  commonalty  of  Norwich,  on  a  bond, 
and  they  pleaded  that  when  the  bond  was  made  the  then  abbot  had  got  the 
then  mayor  in  prison  and  extorted  the  bond  by  duress.  The  lawyers  admit- 
ted that  the  corporation  itself  can  not  be  in  prison  or  suffer  duress,  and 
that  it  would  be  no  defense  to  urge  that  when  the  bond  was  made  some  few 
of  the  citizens  of  Norwich  were  in  prison.  Counsel  said :  'Every  body  politic 
is  made  up  of  natural  men.  And  as  regards  what  has  been  said  touching  its 
inseverability,  I  do  not  admit  that,  for  they  allowed  that  mayor,  sheriffs  and 
commonalty  make  up  a  single  body;  here,  then,  are  members,  namely  the 
mayor  is  one  member  *  *  *  the  sheriff  another  member  *  *  *  the 
third  is  the  commonalty.  In  this  case  there  is  an  alleged  imprisonment  of 
one  of  the  distinct  members  named  in  the  title  of  the  corporation,  to  wit,  the 
mayor,  who  is  the  head  and  (as  in  the  body  natural)  the  principal  member 
*  *  *  and  if  one  member  of  the  body  natural  be  restrained  or  beaten,  that 
is  a  restraint  or  battery  of  the  whole  body.'  "  Vol.  1,  p.  475.  Y.  B.,  21  Ed. 
IV,  f.  7,  12,  27,  67.  In  1483,  it  was  held  that  "if  the  king  makes  a  general 
corporation  by  a  certain  name,  all  the  incidental  powers,  as  to  sue,  be  sued, 
purchase  and  hold  land  and  other  property,  contract,  have  a  seal,  make 
by-laws,  etc.,  are  included."  Y.  B.,  22  Ed.  IV,  cited  in  10  Coke's  Rep.  30. 

Littleton,  in  his  Tenures,  written  about  1481,  does  not  have  much  to  say  of 
corporations,  but  enough  to  make  it  certain  that  their  nature  and  presence 


THE   CORPORATION   AS    A    PERSON.  -JJ 

•vpere  pretty  well  known,  and  the  distinctions  between  sole  and  aggregate 
pretty  well  recognized.  He  speaks  particularly  of  "prelates,  abbots,  priors, 
deans,  or  of  the  parson  of  a  church,  or  of  other  bodies  politike."  Section 
413.  See,  also,  §§  133  and  134.  And  his  statements  accord  with  the  holdings 
such  as:  "Where  a  bond  is  made  to  the  Dean  of  P.  and  his  successors,  and  it 
is  7iot  said  dean  and  chapter,  and  his  successors,  this  is  good  to  the  executors, 
and  void  to  the  successors.  Contra,  if  it  had  been  to  the  dean  and  chapter  and 
his  sticcessors ;  for  he  has  two  capacities,  viz.,  "To  him  and  his  heirs,  and  an- 
other with  the  corporation."  20  Ed.  IV  2  ( 1481).  So,  "If  land  be  granted  to 
a  mayor  and  commonalty,  saying  to  their  successors,  they  have  a  fee-simple.  11 
Hen.  VII 12  (1496).  In  1501,  where  a  corporation  has  a  head  (as  a  mayor) 
he  may  command  a  thing  in  person;  but  a  corporation  aggregate,  which  has 
no  head,  must  give  their  authority,  under  the  seal  of  the  corporation."  Y.  B., 
16  Hen.  VIII  2.  In  1523,  all  acts  of  a  corporation  must  be  by  their  name  of 
corporation,  and  by  writing,  otherwise  it  is  not  the  corporate  act.  As  do  a  tort 
make  a  feoffment,  enter  into  an  agreement;  yet  they  may  elect  a  dean,  mas- 
ter or  attorney,  which  are  of  record.  Y.  B.,  14  Hen.  VIII  2,  29.  In  1542, 
corporations  aggregate  can  not  do  fealty;  for  a  body  invisible  can  not  be  in 
person,  nor  can  swear.  33  Hen.  VIII,  Br.,  Fealty  pi.  15.  "A  body  politick 
is  not  contained  in  the  word  person."  Plowden,  f.  177  (1650-1580).  In  1585, 
a  corporation  consisting  of  confreres  and  sisters  is  dissolved  by  the  death  of 
all  the  sisters.  In  1587,  "A  corporation  is  a  body  politick,  consisting  of  ma- 
terial bodies,  which,  joined  together,  must  have  a  name  to  do  things  that  con- 
cern their  corporation,  or  otherwise  it  is  no  corporation.  Ch.  B.,  in  Mariot 
v.  Mascall,  And.  206  pi.  238,  29  Eliz.  In  the  argument  in  this  case  it  was  said : 
"All  the  natural  persons  are  not  the  corporation,  but  are  persons  of  which 
the  corporation  consist,  but  not  wholly ;  for  the  name  is  part  also,  without 
which  the  corporation  can  not  be."  And.  210.  In  1596,  it  was  contended 
that  an  annuity  charged  against  a  corporation  was  gone  when  the  corporation 
was  dissolved,  for  it  is  the  person  charged.  38  Eliz.  Viner,  Corp.  (4,  3)  8. 
Rochester  (Bishop's)  Case. 

Coke's  idea  of  a  corporation  was  that  of  an  artificial  personality.  "The 
corporation  itself  is  only  in  abstracto,  and  rests  only  in  intendment  and  con- 
sideration of  law."  Sutton''s  Hospital,  10  Rep.  1,  on  p.  32.  (1613).  "Per- 
sons capable  of  purchase  are  of  two  sorts,  persons  natural,  created  of  God,  and 
persons  incorporate,  or  politique,  created  by  the  policy  of  man  (and,  there- 
fore, they  are  called  bodies  politique)."  1  Institutes  2  a.  (1628).  "It  is 
also  called  a  corporation,  or  body  incorporate,  because  the  persons  are  made 
into  a  body,  and  are  of  a  capacity  to  take  and  grant."  lb.  250  a.  Lord  Chief 
Justice  Hale  classed  corporations  among  persons.  The  22d  section  of 
Analysis  of  the  Law  (c.  1676)  is  entitled  "  Concerning  persons  or  bodies  politic, 
i.  e.,  corporations.  I  have  done  with  the  jura  persona7-um  natnralium  *  *  * 
and  I  now  come  to  persons  politic,  or  corporations,  that  is,  bodies  created  bj' 
operation  of  law." 

5.  In  the  modern  law. — There  can  be  no  doubt  as  to  the  influence  of  the 
definitions  of  Blackstone  upon  our  legal  ideas,  and  there  can  be  scarcely  less 
doubt  as  to  the  influence  of  Hale's  classification  upon  that  of  Blackstone.  The 
latter  says:  "Persons  are  divided  by  the  law  into  either  natural  or  artificial. 
*  *  *  Artificial  are  such  as  are  created  and  devised  by  human  laws  for  the 
purposes  of  society  and  government,  which  are  called  corporations  or  bodies 
politic."  1  Comm.  *123  (A.  D.  1765).  On  p.  *467  he  says:  "It  has  been 
found  necessary,  when  it  is  for  the  advantage  of  the  public  to  have  any  par- 
ticular rights  on  foot  and  continued,  to  constitute  artificial  persons,  who  may 
maintain  a  perpetual  succession  and  enjoy  a  kind  of  legal  immortality.  These 
artificial  persons  are  called  bodies  politic,  bodies  corporate  (corpora  corporata), 
or  corporations,  of  which  there  is  a  great  variety  subsisting,  for  the  advance- 
ment of  religion,  of  learning  and  of  commerce."  Hammond  shows  that  parts 
of  this  18th  chapter,  Book  I  (containing  eighteen  small  pages),  have  been 
quoted,  cited  or  criticised  nearly  150  times  in  reports  of  cases  in  the  United 
States. 

Marshall's  definition  in  the  Dartmouth  College  Case,  4  Wheat.  (U.  S.),  p. 


78  NOTES   TO    ARTICLE   II. 

518  (A.  D.  1819),  seems  to  have  come  from  Coke  and  the  Year  Beoks.  He 
says:  "A  corporation  is  an  artificial  being,  invisible,  intangible  and  existing 
only  in  contemplation  of  law.  Being  the  mere  creature  of  the  law,  it  possesses 
only  those  properties  which  the  charter  of  its  creation  confers  upon  it,  either 
expressly,  or  as  incidental  to  its  very  existence.  These  are  such  as  are  sup- 
posed best  to  effect  the  object  for  which  it  was  created.  Among  the  most 
important  are  immortality,  and  if  the  expression  may  be  allowed,  individual- 
ity; properties  by  which  a  perpetual  succession  of  many  persons  are  con- 
sidered as  the  same  and  may  act  as  a  single  individual."  Although  in  this 
case  Judge  Story  seemed  to  favor  the  view  that  a  corporation  was  essentially 
a  collection  of  individuals  (see  infra,  p.  727),  yet  he  summed  up  his  definition 
thus:  "It  is,  in  short,  an  artificial  person,  existing  in  contemplation  of  law, 
and  endowed  with  certain  powers  and  franchises,  which,  though  they  must 
be  exercised  through  the  medium  of  its  nat  iral  members,  are  yet  considered 
as  subsisting  in  the  corporation  as  distinctly  &^  ii  li  yiere  a.  real  personage ." 
4  Wheat.  (U.  S.)  667.  Justice  Washington  quotes  Blackstone,  and  looks 
upon  a  corporation  as  &  franchise,  4  Wheat.  (U.  S.)  657;  (see  infra,  p.  723). 

The  Louisiana  civil  code  of  1824  defined  a  corporation  as  "an  intellectual 
body,  created  by  law,  composed  of  individuals  united  under  a  common  name 

*  *  *  and  for  certain  purposes,  considered  a  natural  person."  Tit.  10,  ch. 
1,  art.  418,  427.  This  is  approved  and  substantially  adopted  by  Angell  and 
Ames  Corporations,  p.  1  (1831).  Walker,  American  Law,  §90  (1837),  says: 
"Persons  are  either  natural  or  artificial,^'  the  latter  consisting  "of  natural 
persons  clothed  by  law  with  an  artificial  character  and  capacity."  So,  too, 
in  1839  (22  Wend.  70,  Thomas  v.  Dakin,  supra,  p.  19),  and  1841  (1  Hill 
(N.  Y.)  620),  corporations  are  defined  to  he  persons.  Grant  on  Corporations, 
p.  *4  (1850),  says:  "The  ideal  being  called  a  corporation  we  may  thus  de- 
fine to  be  a  continuous  identity,  endowed  at  its  creation  with  capacity  for  end- 
less duration ;  residing  in  the  grantees  of  it  and  their  successors,  its  acts  being 
determined  by  the  will  of  a  majority  of  the  existing  body  of  its  grantees  or  their 
successors  at  any  given  time  *  *  *  having  a  name,  and  under  such  name 
a  capacity  for  taking,  holding  and  enjoying  all  kinds  of  property,  a  qualified 
right  of  disposing  of  its  possessions,  and  also  a  capacity  for  taking,  holding  and 
enjoying   but   inalienably,   liberties,  franchises,  exemptions    and  privileges, 

*  *  *  of  suing  and  being  sued."  In  19  N.  Y.  39  (1859),  a  corporation  is 
treated  as  a  person.  Sir  Nathaniel  Lindley,  in  his  Treatise  on  tlie  Law  of 
Partnerships,  p.  66  (1860),  says:  "A  corporation  is  a  fictitious  person,  cre- 
ated by  special  authority,  and  endowed  by  that  authority  with  a  capacity  to 
acquire  rights  and  incur  obligations,  as  a  means  to  the  end  for  the  attainment 
of  which  the  corporation  is  created.  A  corporation,  it  is  true,  consists  of  a 
number  of  individuals,  but  the  rights  and  obligations  of  these  individuals  are 
not  the  rights  and  obligations  of  the  body  corporate  exercisable  by  or  en- 
forcible  against  the  individual  members  thereof,  either  jointly  or  separately, 
but  only  collectively  as  one  fictitious  whole." 

The  California  code  of  1872  calls  it  "a  creature  of  the  law  having  certain 
powers  and  duties  of  a  natural  person."  Section  283.  This  is  repeated  in  the 
codes  of  South  Dakota  (1883),  §  373 ;  and  Oklahoma,  §  944.  The  Georgia  code 
of  1882  says:  "A  corporation  is  an  artificial  person  created  bvlaw  for  specific 
purposes."  Section  1670.  Lowell,  Transfer  of  Stock,  §§  1,  2  (1884),  says:  "A 
corporation  is  an  imaginary  person,  who,  by  a  fiction  of  law,  possesses  certain 
rights,  and  is  made  subject  to  certain  duties.  *  *  *  The  corporation  is 
something  distinct  from  its  members.  Its  life  is  independent  of  theirs.  Its 
will  may,  at  times,  be  different  from  that  of  any  member,  or  of  any  given 
proportion  of  its  members,  and  it  may  be  bound  by  conduct'which  binds  no 
one  of  its  members  as  an  individual.  Of  course,  there  are,  in  reality,  no  rights 
or  duties  but  those  of  natural  persons ;  but  the  rights  and  duties  of  natural 
persons  who  deal  with  a  corporation  arise  from  a  fiction,  and  their  nature 
and  extent  are  determined  by  that  fiction.  A  person,  therefore,  who  con- 
founds a  corporation  with  its  stockholders,  who  says  that  they  are  the  cor- 
poration, or  that  it  consists  of  its  members,  not  only  misstates  the  legal  view 
of  the  matter,  but  is  in  danger  of  falling  into  endless  confusion  and  error.     A 


§  1 6     THE  CORPORATION  AS  A  COLLECTION  OF  INDIVIDUALS.      79 

corporation  is  distinct  from  its  members  in  the  same  sense  that  a  state  is  dis- 
tinct from  its  citizens." 

Austin  Abbott,  in  the  Century  Dictionary  (1889)  defines  a  corporation  as 
"An  artificial  person,  created  by  law,  or  under  authority  of  law,  from  a  group 
or  succession  of  natural  persons,  and  having  a  continuous  existence  irrespec- 
tive of  that  of  its  members,  and  powers  and  liabilities  different  from  those  of 
its  members."  Cook,  Stock  and  Stockholders  (3ded.,  1894),  §  1,  says:  "A 
corporation  is  an  artificial  person  like  the  state.  It  is  a  distinct  existence— 
an  existence  separate  from  that  of  its  stockholders  and  directors."  This  is 
repeated  in  the  4th  ed.,  1898.  Reese,  The  True  Doctrine  of  Ultra  Vires,  1897, 
says,  §2:  "It  will  be  assumed  in  the  examination  of  the  doctrine  to  be 
hereafter  discussed,  that  a  corporation  both  under  the  common  law  and  as 
now  organized  and  created  under  our  state  laws,  is- a  legal  entity,  separate  and 
distinct  from  the  members  who  compose  it;  that  in  the  corporation,  the  creature 
of  the  law,  is  vested  all  the  property  and  powers  of  the  company ;  that  it  can 
only  be  affected  by  such  acts  and  agreements  as  are  done  or  executed  in  its 
behalf  by  the  corporate  agencies,  acting  loithin  the  legitimate  scope  of  its  char- 
tered powers;  and  that  no  acts  or  contracts  by  the  officers  or  agents  of  the 
company  beyond  the  scope  of  the  powers  as  prescribed  and  designated  in  the 
charter  or  articles  of  association,  can  be  ascribed  to  the  corporation,  though 
done  and  concurred  in  by  each  and  all  of  the  stockholders."  Elliott  Cor- 
porations, 1899.  §2,  gives  and  approves  the  definitions  of  Abbott,  supra,  and 
Kyd,  infra,  p.  109. 

The  nature  of  the  corporate  personality  has  been  the  subject  of  much 
speculation.  At  present,  in  the  United  States,  the  theory  is  generally  held 
that  the  personality  is  artificial,  or  fictitious,  has  no  existence  in  fact.  On  the 
other  hand,  in  Germany,  the  theory  is  the  reverse  of  this — that  the  person- 
ality  of  a  corporation  is  organic — a  real  person,  with  a  will  and  capacityto  act, 
and  that  this  is  different  from,  but  just  as  real,  as  tlie  individual  personality 
of  each  of  its  members.  Recently  Dr.  Freund,  of  Chicago  University,  has 
put  forth  a  view  that  seems  to  be  between  these — ^that  the  personality  is  a 
representative  one,  limited  to  a  special  purpose,  but  within  that  purpose  ex- 
hibiting a  real  capacity  of  acting  and  willing  that  has  substantially  all  the 
legal  elements  of  responsibility  that  pertain  to  an  individual.  Like  the  state, 
it  is  a  real  legal  existence,  that  expresses  the  will  of  its  members  through 
representatives  selected  in  a  definite  way,  and  is  as  near  a  reality  as  the 
state  is. 


ARTICLE  III.       THE    CORPORATION  AS    A  COLLECTION  OF  INDIVIDUALS. 

Sec.  16.    The  corporation  is  considered  as  a  collection  of  individ- 
uals, 

(  I )    In  the  management  of  corporate  affairs:  ^ 

"Where  an  act  is  to  be  done  by  a  corporation,  all  of  the  members 
ought  to  be  assembled  together  to  consent,  but  this  can  not  be  separately 
and  apart  by  them  at  several  times,  for  then  it  \% -a  factum  singulorum. 
Case  of  the  Dean  and  Chapter  of  Femes,  5  Jac.  B.  R.  (1608)."  6 
Viner's  Abr.  Corporations  (G.  3),  6.  "In  a  trial  *  «  «  where 
there  are  twelve  canons  besides  the  dean,  which  in  all  make  thirteen 
of  the  corporation,  it  was  held:  ist.  That  prima  facie ^  in  all  acts 
done  by  the  corporation^  the  major  number  must  bind  the  lesser^  or 
else  differences  could  never  be  determined.  2d.  That  acts  done  by 
the  corporation  ought  to  be  done  by  the  consent  of  the  major  number, 

»  See  note  at  the  end  of  this  article.  000     , 

"^  The  management  of  corporations  is  treated  in  en.  10,  wfra,  p.  twd,  a  seq. 


8o  CHATER  V.  SAN  FRANCISCO  SUGAR  REFINING  CO.  §   1/ 

or  else  they  are  not  valid,  and  therefore,  where  the  corporation  con- 
sists of  thirteen,  there  ought  to  be  seven  to  make  a  chapter;  but  the 
act  of  the  major  number  of  these  seven  is  binding  to  the  corporation. 
But  if  the  ancient  usage  hath  been  that  acts  have  been  done  from 
time  to  time  by  the  major  part  of  those  that  are  present,  although 
they  are  but  three  or  four,  it  shall  be  then  intended  that  that  was  part 
of  their  constitution  at  the  beginning,  and  so  what  is  done  by  them  is 
binding  to  the  rest."  6  Viner's  Abr.  Corporations  (G.  3),  7,  citing 
Haschard  v.  Somany,  Freem.  Rep.  504  (1693).  "If  an  act  to  be 
done  be  referred  to  the  constitvient  members  of  a  corporation,  nothing 
can  be  done  but  by  those  who  are  the  constituent  part  of  the  corpora- 
tion ;  but  where  a  thing  is  referred  to  be  done  by  the  commonalty, 
there  the  majority  of  those  who  are  present  (all  being  summoned) 
will  determine  and  bind  the  rest,  but  in  the  other  case  the  majority  of 
those  who  are  present  will  not  do."  6  Viner's  Abr.  Corporations 
(G.  3),  8,  citing  The  Queen  v.  Lock,  6  Ann.  B.  R.  (1708). 


J 


Sec.  17.     (2)    When,  by  agreement  or  otherwise,  reason,  policy ,  or 

justice  requires,  the  artificial  personality  of  the  corporation  will 

be  ignored,  and  the  rights  and  duties  of  those  composing   it 

alone  considered. 
v~ 

^     CHATER  v.  THE  SAN  FRANCISCO  SUGAR  REFINING  CO.,  Et  Al.i 
1861.     In  the  Supreme  Court  of  California.     19  Cal.  219-248. 

[This  was  a  bill  filed  by  the  plaintiff  for  the  specific  performance  of 
an  agreement  between  plaintiff  and  Gordon  and  Bond,  for  the  forma- 
tion of  a  company  to  be  called  the  "San  Francisco  Sugar  Refining 
Company,"  to  consist  of  1,000  shares,  of  $100  per  share,  providing 
that  one-third  of  the  stock  was  to  be  issued  to  J.  B.  Bond  or  his 
assigns,  upon  him  or  them  paying  $12,500,  Bond  to  convey  back  to 
the  company  835/^  shares,  into  the  common  stock  of  the  company.  A 
like  provision  is  made  in  reference  to  Gordon.  And  also  "  one-third 
[of  the  shares]  are  to  be  issued  to  Nathaniel  Chater  or  his  assigns, 
upon  him  or  them  executing  two  notes — one  of  $6,250  to  J,  B  Bond, 
collaterally  secured  by  125  shares  of  stock,  having  two  years  to  run, 
bearing  2  per  cent,  per  month  interest;  and  another  note  of  $6,250  to 
George  Gordon,  collaterally  secured  by  125  shares  of  stock,  having 
same  time  to  nm,  and  bearing  the  same  interest,  and  said  Chater  is 
also  to  transfer  back  to  the  company  83^  shares  of  stock  into  the 
common  stock  of  the  company." 

"It  is  agreed  that  the  two  hundred  and  fifty  shares  of  stock  thus 
given  back  to  the  company  shall  be  sold  only  by  a  majority  vote  of 
the  company,  and  J.  B.  Bond  guarantees  to  the  extent  of  the  note  of 

>  Statement  of  facts  condensed,  arguments  and  part  of  opinion  omitted. 


§  17     THE  CORPORATION  AS  A  COLLECTION  OF  INDIVIDUALS.      8 1 

said  Chater  held  by  him  ($6,250),  that  from  one  hundred  and  twenty- 
five  of  the  shares  he  will  raise  the  sum  of  $12,500,  as  needed,  and 
George  Gordon  guarantees  to  the  extent  of  the  note  of  said  Chater 
held  by  him,  that  he  will,  on  one  hundred  and  twenty-five  shares,  also 
raise  the  sum  of  $12,500. 

"And  it  is  further  agreed,  that  the  shares  not  sold  belonging  to  the 
common  stock  of  the  company,  as  above  recited,  shall,  if  it  be  not 
found  necessary  to  sell  them,  be  divided  equally  among  the  three  par- 
ties hereto,  but  not  until  the  company's  works  have  been  in  operation 
for  at  least  twelve  months. 

"It  is  agreed  that  George  Gordon  shall  organize  the  company  in 
San  Francisco  by  taking  out  articles  of  incorporation  according  to  law, 
and  that  the  first  trustees  shall  be  Charles  W.  Bond,  Nathaniel  Chater 
and  George  Gordon. 

"That  upon  the  organization  of  the  company  and  on  the  enactment 
of  its  by-laws,  the  trustees  shall  issue  stock  as  herein  set  forth,  to  the 
parties,  upon  their  furnishing  the  respective  amounts  they  herein  agree 
to  furnish,  or  in  proportion  as  they  furnish  said  amount. 

"Each  certificate  of  stock  to  be  signed  by  two  trustees  and  counter- 
signed by  the  secretary. 

"The  stock  of  N.  Chater  to  be  issued  to  him,  as  herein  provided, 
on  the  execution  of  the  agreement  to  manage  the  works,  a  memoran- 
dum of  which  agreement  is  made  simultaneous  with  this. 

"The  said  Gordon  and  Chater  agree  that,  to  the  extent  of  the  in- 
terest which  they  may  control,  they  will  vote  for  the  said  Bond  to  act 
as  agent  of  the  company  in  San  Francisco,  attending  to  the  commer- 
cial affairs  of  said  company  there,  for  which  service  he  shall  receive 
a  salary  of  $1,800  per  annum." 

Afterwards,  another  agreement  was  made,  of  the  same  date,  as  fol- 
low: 

"Whereas,  N.  Chater  has  induced  the  said  Bond  and  Gordon  to 
enter  into  the  organization  of  a  company  in  San  Francisco  for  the  pur- 
pose of  sugar  refining  and  its  collateral  branches ;  and  the  said  Bond 
and  Gordon  do  so  on  the  representation  of  said  Chater  and  on  his 
promise  to  manage  the  same  for  five  years,  and  to  retain  his  interest 
therein  during  that  time,  and  upon  his  further  representation  that  he 
can  skillfully  manage  a  sugar  refinery ;  with  a  view  of  engaging  the 
services  of  said  Chater,  the  said  Bond  and  Gordon,  by  an  agreement 
of  even  date  herewith,  have  agreed  to  set  apart  to  said  Chater  two 
hundred  and  fifty  shares  of  the  capital  stock  of  the  company,  at  the 
rate  of  fifty  cents  on  the  dollar  of  the  par  value  of  the  shares,  and  to 
take  therefor  the  notes  of  said  Chater  (two,  and  $6,250  each),  hav- 
ing two  years  to  run,  collaterally  secured  by  the  two  hundred  and  fifty 
shares,  and  also  to  give  the  said  Chater  one-third  of  the  reserved  or 
paid  back  shares  which  may  not  be  sold,  as  provided  for  in  agreement 
of  this  date  made  between  the  present  contracting  parties. 

"Now,  the  said  Chater  agrees  with  and  to  the  said   Gordon  and 
Bond  (which  agreement  they  make  for  the  company  they  propose  to 
6— WiL.  Cases. 


82  CHATER  V.  SAN  FRANCISCO  SUGAR  REFINING  CO.  §1/ 

form,  and  with  the  understanding  that  they  shall  be  at  liberty  to  trans- 
fer the  said  agreement  to  the  company  when  it  shall  be  formed)  that 
he,  the  said  Chater,  will  proceed  to  San  Francisco  and  there  superin- 
tend the  erection  of  the  sugar  refineiy  and  construct  the  same  as  he 
may  be  directed  by  the  company,  with  regard  to  location,  cost  and 
extent,  and  get  the  same  into  working  order,  and  that  after  the  same 
is  in  order,  he  shall  superintend  the  business  of  sugar  refining  for  the 
said  company  for  the  period  of  five  years  from  the  date  of  first  of 
May,  1856  (eighteen  hundred  and  fifty-six). 

"That  he  shall  engage  in  no  other  business  during  the  period  of 
his  engagement  with  this  company,  but  devote  his  entire  time  to  the 
business  of  the  company  during  the  time  he  is  manager. 

"And  the  more  effectually  to  secure  the  performance  by  him,  the' 
said  Chater,  of  this  agreement,  he  hereby  agrees  that  during  the 
period  of  his  engagement  above  named,  of  five  years,  he  will  not  dis- 
pose of  such  of  his  shares  of  stock  in  the  company  (or  sell  or  transfer 
them)  as  he  may  have  been  enabled  to  pay  for  out  of  the  dividends 
made  upon  the  stock  issued  to  him,  and  the  said  Chater  agrees  that 
the  stock  shall  be  issued  to  him  with  such  restrictions  as  shall  prevent 
him  selling  it  during  the  above  named  period. 

"He,  the  said  Chater,  also  agrees  with  the  said  Bond  and  Gordon 
that  the  dividends  declared  from  time  to  time  upon  the  stock  issued 
to  him  shall  go  to  the  payment  of  the  notes  hereinbefore  referred  to. 

"The  said  Bond  and  Gordon  undertake  that  the  proposed  company 
shall,  in  consideration  of  the  premises,  agree  to  pay  the  said  Chater 
the  yearly  salary  of  $3,000,  in  monthly  sums  of  $250  per  month,  to 
commence  at  the  time  the  works  go  into  operation,  and  shall  also  pay 
him  the  monthly  sum  of  $150  during  the  time  his  services  may  be  re- 
quired in  erecting  the  works  prior  to  commencing  operations,  and  up 
to  the  time  of  commencing  operations. 

"That  said  Chater  also  agrees,  that  if  at  any  time  the  company 
become  dissatisfied  with  his  management,  they  may  remove  him  with- 
out prejudice  to  this  agreement,  in  which  event  his  yearly  salary  of 
$3,000  shall  cease  and  determine,  but  he,  the  said  Chater,  shall  not 
be  at  liberty  to  engage  in  California  in  the  business  of  sugar  refining 
either  for  himself  or  for  others. 

"Interest  on  the  notes  given  by  said  Chater  to  commence  on  the 
first  day  of  September  of  this  present  year. 

"It  is  agreed  that  said  Bond  and  the  said  George  Gordon  shall  pro- 
cure for  the  said  Chater,  within  sixty  days  of  being  notified  by  him 
of  his  readiness  to  pay  the  notes  herein  specified,  the  said  notes  and 
collaterals,  though  the  notes  shall  not  have  matured,  and  that  in  the 
event  of  the  said  Gordon  and  Bond  respectively  failing  to  procure  the 
said  notes,  the  interest  upon  same  shall,  from  such  date,  be  reduced 
to  one  per  cent,  per  month. 

"It  is  further  agreed,  until  dividends  shall  have  been  declared  by  the 
company  of  sufficient  amount  so  that  those  due  on  the  stock  of  said 
Chater,  hypothecated  to  secure  said  notes,  shall  be  sufficient  to  pay 
the  interest  due  and  accruing  monthly  on  those  notes,  that  the  company 


§  17     THE  CORPORATION  AS  A  COLLECTION  OF  INDIVIDUALS.      83 

shall  advance  to  said  Chater  the  interest  so  upon  due  until  the  ma- 
turity of  the  notes  as  a  loan  to  him."     *     *     * 

Chater,  afterwards,  on  the  17th  of  October,  1856,  was  seized  with 
paralysis,  and  was  rendered  incapable  of  attending  to  the  business. 

The  notes  mentioned  in  the  agreement  as  those  to  be  made  by  the 
plaintiff  were  never  given,  nor,  so  far  as  appears,  demanded. 

The  defense  seems  to  rest  principally  upon  the  point  that  these 
notes  were  not  made  as  contemplated  by  the  agreement,  that  the 
plaintiff,  therefore,  did  not  comply  with  the  contract  on  his  part,  and 
consequently  has  no  right  to  insist  on  performance  by  defendants, 
that  one  of  the  principal,  if  not  the  leading,  inducements  to  the  con- 
tract was  the  rendition  of  the  services  of  the  plaintiff,  and  that  the 
failure  to  render  these,  though  caused  by  his  sickness,  was  a  failure 
of  the  consideration  of  the  agreement ;  and  that  the  agreement  was 
that  of  the  individual  members  or  stockholders,  Gordon  and  Bond, 
and  not  of  the  corporation.]  *     *     « 

Baldwin,  J.,  delivered  the  opinion  of  the  court.  Field,  C.  J.,  and 
Cope,  J.,  concurring. 

The  whole  case  in  this  view  of  it  may  be  thus  summed  up :  Three 
men  enter  into  an  agreement  to  form  a  corporation  for  commercial 
purposes.  By  this  agreement,  and  the  corporate  act,  each  corporator 
is  entitled  to  an  equal  proportion  of  the  stock ;  two  contribute  to  the 
capital  in  money — the  third  has  no  money ;  he  proposes  and  is  allowed 
to  give  his  note  in  lieu  of  money,  pledging  his  stock  as  security ;  the 
other  two  agree  that  on  this  stock  they  will  raise  him  the  money.  It 
is  agreed  that  the  stock  due  him  shall  be  issued  on  a  given  event ;  the 
event  happens.  The  note  is  not  made  nor  the  stock  issued  to  him, 
but  the  company,  controlled  by  the  other  two  corporators,  goes  on  recog- 
nizing the  third  as  a  corporator;  no  demand  is  made  for  his  note  or 
the  stock  issued  to  him.  The  corporation  makes  profit  enough  to  pay 
the  debts,  and  the  share  coming  to  the  third  partner  pays  his  contribu- 
tion. No  stock  is  issued  to  him,  and  he  now  claims  it.  If  the  two 
who  were  to  raise  the  amount  to  be  contributed  by  the  third,  having 
by  the  agreement  the  right  to  demand  his  note  and  stock,  do  not  de- 
mand them  or  issue  the  stock  to  him,  but  without  this  form  of 
security  advance  the  money  which  was  to  be  raised,  they  are  to  be 
considered  as  waiving  this  formal  right,  and  are  not  at  liberty  to  plead 
the  want  of  a  mere  literal  compliance  as  a  forfeiture — for  such  it 
would  be — of  the  interest  of  the  third  partner  in  the  common  enter- 
prise. In  equity  the  substance  of  the  whole  transaction  is  fulfilled ; 
the  object  of  the  security  answered,  and  the  original  right  of  the 
plaintiff  here  to  his  stock  is  not  lost  by  a  mere  failure  on  his  part  to 
giv*e  a  particular  form  of  security,  upon  which  those  beneficially  in- 
terested in  demanding  it  did  not  insist.  What,  in  such  a  state  of 
things,  was  not  insisted  upon  was  waived ;  and  equity,  not  regarding 
mere  modes  or  forms,  but  looking  at  the  very  substance  of  the  trans- 
action, is  satisfied  when  the  substantial  purpose  is  effected,  though 
not  effected  in  the  precise  way  contemplated  by  the  parties ;  and  this 
is  the  more  especially  true  if  this  failure  to  follow  the  prescribed  mode 


S4  CHATER  V.  SAN  FRANCISCO  SUGAR  REFINING  CO.  §   1 7 

be  owing  to  the  laches,  or  be  by  the  waiver  or  acquiesence  of  the 
party  entitled  in  strict  right  to  insist  upon  it. 

The  notes  of  Chater  were  merely  to  represent  his  debt,  and  the 
money  to  pay  this  debt  Bond  and  Gordon  were  to  raise  on  the  secu- 
rity of  his  stock,  they  being  interested  in  using  it ;  and  whether  the 
stock  was  issued  in  the  form  of  a  certificate  or  not,  it  was  bound  by 
the  agreement;  and  if  they  chose,  they  could  as  safely  advance  the 
money  without  the  note,  and  the  substance  of  the  whole  arrangement 
be  attained.  It  is  not  necessary  for  us,  therefore,  to  consider  the  other 
points  urged,  to  say  the  least,  with  plausibility,  in  avoidance  of  the 
ground  taken  by  the  appellants  to  sustain  the  proposition  just  dis- 
cussed. 

This  view  distinguishes  this  case  from  mere  executory  agreement, 
through  a  performance  of  the  terms  of  which  a  party  becomes  entitled 
to  property,  of  which  class  Green  v.  Covillaud  (lo  Cal.  317),  and  the 
other  cases  cited  by  appellants,  are  examples.  Here  Chater  was  en- 
titled, as  of  original  right,  to  his  stock,  and  the  conditions  annexed  to 
the  issuance  of  the  certificates  to  him,  even  if  not  waived,  at  most 
were  mere  qualifications  in  favor  of  his  associates  of  that  right,  and 
in  the  nature  of  security  to  them,  the  substance  of  which  security  they 
enjoyed,  and  a  failure  of  the  precise  process  prescribed,  neither  by  the 
general  principles  of  law  applicable  to  such  contracts,  nor  by  the  ex- 
press terms  of  the  agreement,  worked  a  forfeiture  of  his  interest  in  the 
stock,  nor  in  the  business  of  the  corporation. 

We  think  there  is  nothing  in  the  point  that  the  rendering  of  plaint- 
iff's services  for  the  five  years  was  a  condition  precedent  to  the  vesting 
of  the  plaintiff's  title  to  the  stock.  Nothing  in  the  agreement  so  de- 
clares. The  provision  for  the  employment  of  plaintiff  as  superintend- 
ent 'seems  to  be  an  independent  term  of  the  agreement.     *     *     * 

Baldwin,  J.,  delivered  the  opinion  of  the  court  upon  the  petition 
for  rehearing.  Field,  C.  J.,  and  Cope,  J.,  concurring.     *     *     * 

It  is  next  insisted  that  we  erred  in  holding  that  this  agreement  bound 
the  corporation.  That  point  was  barely  suggested  on  the  oral  argu- 
ment, and  in  the  learned  and  able  briefs  of  the  counsel  no  great 
stress  seemed  to  be  laid  on  it.  We  gave  it  no  very  elaborate  consid- 
eration, for  we  really  supposed — erroneously,  perhaps — that  the  coun- 
sel placed  but  little  reliance  upon  it.  The  argument  now  on  this  point 
is  very  full  and  very  ingenious,  but  as  applied  to  the  facts  of  this  rec- 
ord is  not  sound. 

Every  opinion,  as  Chief  Justice  Marshall  well  observes,  must  be 
considered  with  reference  to  the  particular  facts  upon  which  it  is 
made ;  for  it  is  impossible  so  to  use  language  as  that  general  expres- 
sions apply  in  every  instance  with  the  same  meaning  to  every  condi- 
tion of  facts.  We  asserted  no  such  doctrine  as  that,  by  force  of  a 
secret  agreement  between  the  original  corporators  in  a  commercial 
corporation,  whether  made  before  or  after  the  act  of  incorporation, 
the  stock  issued  by  the  corporation  to  innocent  parties  without  notice 
of  the  agreement  could  be  charged  or  affected  by  it.  There  was  no 
case  before  us  for  the  application  of  such  a  principle.     But  the  right 


§  1/     THE  CORPORATION  AS  A  COLLECTION  OF  INDIVIDUALS.      85 

to  incorporate  for  such  a  purpose  as  that  here  is  a  statutory  right, 
which  is  free  to  everybody.  The  rights  in  the  corporation  can  be 
adjusted  by  contract,  and  the  terms  fixed  by  contract.  The  cor- 
poration is  little  more,  under  our  laws,  than  a  joint  stock  company 
under  the  English  laws,  indeed,  in  its  true  nature  more  nearly  resem- 
bling a  limited  partnership  under  special  articles  than  a  corporation 
at  common  law.  This  corporation  was  organized  under  an  agree- 
ment, whieh  was  in  itself  legal  and  binding.  The  original  corpora- 
•  tors  were  really  the  men  (except  one — if,  indeed,  he  were  not  the 
assignee  of  one)  who  made  the  agreement,  and  were  bound  to  execute 
it.  They  had  the  power  to  execute  it ;  for  they  had  on  the  organiza- 
tion the  power,  subject  to  restrictions  which  we  do  not  apply  here,  to 
control  their  own  business  in  their  own  way.  A  man  may  as  well 
make  an  agreement  with  another  for  certain  stock  in  a  corporation  to 
be  organized  hereafter,  as  an  agreement  for  stock  in  a  presently  ex- 
isting corporation.  If  A,  B  and  C  agree  to  form  a  corporation  for  a 
railroad  with  a  capital  of  so  much,  to  be  represented  by  so  many 
shares  of  stock,  why  may  not  they  contract  that  each  is  to  have  so 
many  shares  on  such  and  such  terms?  What  rule  of  law  forbids.''  Is 
there  anything  immoral  in  the  contract,  or  opposed  to  public  policy? 
Can  not  a  man  as  well  subscribe  one  time  as  another  for  stock,  if  all 
interested  consent?  Indeed,  asunder  this  particular  agreement  they 
organized,  so  far  as  the  then  members  are  concerned^  the  agreement 
becomes  as  effectual  as  if  a  part  of  the  corporate  act. 

As  there  is  in  this  respect  no  restriction  upon  the  terms  on  which 
they  associate  or  do  business,  or  to  the  time  of  making  them,  why  not 
find  those  terms  in  an  antecedent  agreement  as  well  as  a  present  adop- 
tion, if  the  preceding  agreement  is  connected  by  clear  proof  with  the 
act  of  incorporation  and  its  affairs?  Suppose  A,  B  and  C  agree  to 
form  a  corporation  for  running  stages,  and  put  in,  each,  $10,000,  but 
there  are  to  be  no  certificates  of  stock  issued  and  no  debts  incurred. 
This  agreement  precedes,  of  course,  the  incorporation ;  and  suppose 
the  money  is  paid  before  the  corporate  act  is  consummated.  The  cor- 
poration is  formed  and  proceeds  to  do  business.  Will  it  be  contended 
that  these  men  are  not  entitled  to  their  respective  shares  of  the  profits, 
etc.,  from  the  mere  fact  that  all  this  occurred  before  the  technical 
ideal  thing — the  corporation — was  called  into  existence  ?  The  truth  is, 
the  corporation,  under  our  system,  following  such  an  agreement,  would 
be  the  mere  agency  of  the  associates  created  for  the  sake  of  conve- 
nience in  carrying  out  the  agreement,  as  between  those  who  made  the 
bargain — the  different  characters  or  forms  in  which  or  by  which  the 
bargain  was  made,  and  the  order  in  which  the  several  parts  of  it  were 
executed,  makes  no  substantial  difference  in  the  obligation.  But  if 
it  did,  and  this  ideal  thing,  the  corporation,  be  something  essential,  dis- 
tinct and  exclusive,  making  the  men  inside  of  it  and  controlling  it 
wholly  different  from  the  same  men  just  before  they  went  into  it;  yet 
these  shares  are  interests  and  property  in  esse  or  posse.  This  interest, 
or  those  shares,  entitle  the  holder  to  certain  privileges  of  value,  and 
may  entitle     him  to  profits.      VVhether,  therefore,  the  corporation  is 


86  CHATER  V.  SAN  FRANCISCO  SUGAR  REFINING  CO.  §   1/ 

bound  of  itself,  and  as  a  separate  entity,  to  recognize  a  right  in  a 
claimant  to  this  interest,  a  private  person  holding  these  shares  or 
interests  would  be  bound  to  such  claimant  for  them. 

But  apart  from  all  this,  when  the  corporation  became  such,  it  or- 
ganized with  Chater,  Bond  and  Gordon  as  trustees,  and  these  were 
really  the  sole  corporators  also ;  and  they  organized  with  full  knowl- 
edge of  this  agreement,  which  not  only  contemplated  the  formation 
of  the  company  or  corporation,  but  prescribed  the  terms  and  rights  of 
the  members  in  the  corporation  and  corporate  business.  Chater  was 
not  only  superintendent  under  this  agreement,  but  trustee,  too ;  and 
the  corporate  business  was  commenced  and  for  a  longtime  prosecuted 
with  reference  to  this  agreement,  which  recited  these  terms  and  affirmed 
these  rights.  If  anything  could  be,  this  was  an  adoption  by  the  cor- 
poration of  these  terms.  It  is  not  necessary  to  inquire  whether  an  in- 
nocent purchaser  of  the  stock,  buying  subsequently  without  notice, 
would  be  affected  by  any  such  acts — for  no  such  question  is  before  us 
now.  If  the  coiporation  be  bound  by  this  agreement,  and  the  court, 
proceeding  to  enforce  it  by  ordering  the  issuance  of  stock,  should  af- 
fect injuriously  any  innocent  holder  of  stock,  it  will  be  time  enough 
to  consider  his  rights,  legal  or  equitable,  when  the  facts  and  proper 
parties  are  before  the  court. 

If,  on  taking  the  account,  it  should  appear  that  Chater  is  not  en- 
titled to  anything,  but  that  the  corporation  is  so  indebted  as  to  make 
it  inequitable  for  him  to  receive  his  shares,  the  court  below,  on  the 
final  hearing,  can  make  the  proper  decree,  unaffected  by  anything  in 
the  decree  imder  review. 

With  these  modifications,  the  decree  is  affirmed  and  the  cause  re- 
manded. 

Note.  (1)  Specific  performance  of  stock  agreements  may  be  had  when 
damages  would  be  inadequate.  See:  1746,  Buxton  v.  Lister,  3  Atkyns,  Ch. 
383;  1804,  Lady  Arundell  v.  Phipps,  10  Vesey  148;  The  Mechanics',  etc., 
Bank  v.  Seton,  1  Peters  (U.  S.  Sup.  C.)  299;  1828,  Cowles  v.  Whitman,  10 
Conn.  121;  1839,  Clark  v.  Flint,  22  Pick.  (Mass.)  281 ;  1863,  Treasurer  v.  Com- 
mercial Mmmg  Co.,  23  Cal.  390;  1879,  Cushman  v.  Thayer  Mfg.  I.  Co.,  76 
N.  Y.  365,  32  Am.  Rep.  315;  1886,  Eckstein  v.  Downing,  64  N.  H.  248, 10  Am. 
St.  Rep.  404;  1888,  Goodwin  Gas  S.  &  M.  Co.'s  Appeal,  117  Pa.  St.  514;  1891, 
Bumgardner  v.  Leavitt,  35  W.  Va.  194,  12  Law.  Rep.  Ann.  776;  1894,  New 
England  Trust  Co.  v.  Abbott,  162  Mass.  148,  27  Law.  Rep.  Ann.  271. 

(2)  Waiver  ot  statutory  liability,  by  creditors,  may  be  made  by  express 
agreement:  1839,  Kerridge  v.  Hesse,  9  Carr.  &  Payne  200;  1863,  Robinson  v. 
Bid  well,  22  Cal.  379;  1872,  Basshor  v.  Forbes,  36  Md.  154;  1883,  Brown  v. 
Eastern  Slate  Co.,  134  Mass.  590. 

(3)  Generally  an  informal  agreement  among  members  of  a  corporation, 
without  corporate  action  in  the  prescribed  mode,  does  not  bind  the  corporation : 
1891,  Independent  Order  of  Foresters  v.  Zak,  136  111.  186,  29  Am.  St.  Rep. 
318;  1896,  Dennis  v.  Joslin  Mfg.  Co.,  19  R.  I.  666,  61  Am.  St.  Rep.  805. 

(4)  Provisions  in  articles  of  association  contrary  to  law  or  public  policy 
are  void:  1889,  People  v.  Gas  Trust  Co.,  130  111.  268,  17  Am.  St.  Rep.  319;  yet 
they  may  be  considered  as  surplusage,  and  not  vitiate  the  organization :  1896, 
Shick  V.  Citizens'  Enterprise  Co.,  15  Ind.  App.  329,  57  Am.  St.  Rep.  230;  un- 
less there  is  no  sanction  in  law  at  all  for  the  purposes  proposed :  1894,  State 
V.  Inter-National  Investment  Co.,  88  Wis.  512,  43  Am.  St.  920. 


§  I  8     THE  CORPORATION  AS  A  COLLECTION  OF  INDIVIDUALS.      8/ 

Sec.   18.     Same.     Particularly,    (a)    In  matters    relating  to  the 
constitution  of  the  corporation  itself,  or  changes  therein. 

ASHTON  V.  BURBANK  Et  Al.» 

1873.    In  the  United  States  Circuit  Court,  Eighth  Circuit,  Dis- 
trict of  Minnesota.     2  Dillon  (U.  S.  Cir.  Ct.) 
435-441,    Fed.  Cas.  No.  582. 

[This  is  an  action  on  a  promissory  note,  dated  August  19,  1867,  for 
$3,000,  made  by  the  defendants  to  the  Provident  Life  Insurance  and 
Investment  Company.  The  defendants  were  subscribers  of  that  com- 
pany, and  the  note  in  suit  was  given  for  an  assessment  upon  their 
stock.  The  original  charter  of  said  company  authorized  it  to  transact 
a  "life  and  accident  insurance"  business.  After  the  defendants'  sub- 
scription to  the  stock,  the  charter  was  amended,  and  the  name  of  the 
company  changed  to  the  Eagle  Insurance  Company,  and  it  was  also 
authorized,  by  the  amended  charter,  to  transact  the  business  of  "fire, 
marine  and  inland  insurance."  The  amended  charter  was  accepted, 
but,  in  point  of  fact,  the  company  took  no  risks  during  the  short  period 
it  afterwards  did  business,  except  such  as  were  authorized  by  its  orig- 
inal charter.  Subsequently,  the  company,  being  then  in  possession 
of  the  note  in  suit,  forfeited,  under  authority  given  in  its  charter,  the 
stock  of  the  defendants  therein.  The  note  in  suit,  when  long  past 
due,  was  transferred  by  the  company  to  the  plaintiff.     *     *     * 

The  defendants  neither  procured  nor  assented  to  said  last  men- 
tioned act  [amending  the  charter],  nor  did  they  know  of  it  until  after 
its  passage,  and  thereupon  they  pi"otesed  against  it,  and  refused  to 
pay  the  note  in  suit  on  this  ground.  Subsequently  the  said  Eagle 
Insurance  Company  ceased  to  do  business,  and  this  note,  among 
other  assets,  was  sold  to  the  plaintiff  in  the  year  187 1,  in  payment  of 
a  debt  due  from  the  Eagle  Insurance  Company  to  him.  After  the 
said  amendment  of  the  charter  of  March  3,  1869,  the  Eagle  Insurance 
Company  did  not,  in  fact,  transact  any  fire,  marine  or  inland  insur- 
ance business,  or  do  any  other  business  than  such  as  was  authorized 
by  the  original  charter.] 

Dillon,  C.  J.     We  hold  the  following  propositions:      *     *     * 

The  change  in  the  charter,  by  which  a  life  and  accident  company 
was  authorized  to  transact  fire,  marine  and  inland  insurance,  is  an 
organic  change  of  such  a  radical  character  as  to  discharge  previous 
subscribers  to  the  stock  of  the  company  from  any  obligation  to  pay 
their  subscription,  unless  the  change  is  expressly  or  impliedly  assented 
to  by  them.  Here  there  was  no  such  assent,  and  no  acquiescence  in 
the  structural  change  made  in  the  charter  of  the  company.  The"  com- 
pany could  not,  against  such  a  subscriber,  maintain  a  suit  to  collect 
his  subscription,  and  take  the  money  and  use  it  as  capital  for  the 
transaction  of  business  under  the  charter  as  altered.     We  think,  in 

^  Statement  of  facts  condensed.     Part  of  opinion  omitted. 


88  DODGE   V.  WOOLSEY.  §  19 

such  a  case,  the  subscriber  is  not  bound  to  enjoin  action  under  the 
amended  charter,  but  may,  if  he  elects,  defend  against  an  action  to 
recover  on  his  subscription  to  the  stock. 

If  the  company  accepted  the  amended  charter,  as  it  did,  by  adopt- 
ing the  new  name,  it  is  not  essential  to  such  a  defense  to  show  that  at 
the  time  of  the  trial  the  corporation  had  actually  exercised  the  en- 
larged powers  conferred  upon  it.  The  defendants  are  not  bound, 
on  their  subscription,  to  pay  to  the  company  money  which,  if  paid, 
may  be  used  as  capital  to  carry  on  the  business  authorized  by  the 
amended  charter. 

Judgment  for  the  defendants. 

Nelson,  J.,  concurs. 

Note.  The  power  of  the  majority  to  modify  the  constitation  of  a  corpora- 
tion is  discussed  in  eh.  16,  see  p.  1447,  infra.  See,  particularly:  1820,  Livings- 
ton V.  Lynch,  4  Johns.  Ch.  573;  1824,  Natusch  v.  Irving,  2  Cooper's  Ch.  358, 
appendix  to  Gow  on  Partnership,  p.  398 ;  1862,  Durfee  v.  Old  Colony  &'  F.  R. 
R.  Co.,  5  Allen  (Mass.)  230;  1867,  Zabriskie  v.  H.  &  N.  Y.  R.  Co.,  18N.  J.Eq. 
(3  C.  E.  Green),  178,  90  Am.  Dec.  617;  1887,  Dow  v.  Northern  R.  Co.,  67  N. 
H.  1,  36  Atl.  510. 


Sec.  19.     Same.       {b)    In  determining    the    rights    of    members 
among  themselves  in  equity. 

DODGE,  Appellant,  v.  WOOLSEY.^ 

1855.     In  the  Supreme  Court  of  the  United  States.     18  How- 
ard (59  U.  S)  331-380. 

[Appeal  from  the  circuit  court  of  the  United  States  for  the  district 
of  Ohio. 

Suit  in  chancery  by  Woolsey,  a  citizen  of  Connecticut,  and  holder 
of  thirty  shares  in  the  Commercial  Bank  of  Cleveland  (an  Ohio  cor- 
poration, and  branch  of  the  State  Bank  of  Ohio)  against  the  tax  col- 
lector (Dodge),  the  bank  directors  and  the  bank  itself  (all  citizens  of 
Ohio)  to  enjoin  the  collection  of  the  tax  assessed  by  the  state  of  Ohio 
against  the  bank.  The  bank's  charter  of  1845  provided  that  semi- 
annually it  should  pay  six  per  cent,  of  its  net  profits  for  the  preceding 
six  months  to  the  state  of  Ohio  "in  lieu  of  all  taxes  to  which  said  com- 
pany or  the  stockholders,  on  account  of  stock  owned  therein,  would 
otherwise  be  subject."  In  185 1  the  new  state  constitution  was  adopted, 
and  this  provided  that  laws  should  be  passed  taxing  "the  notes  and 
bills  discounted  or  purchased,  money  loaned  and  all  other  property, 
effects  or  dues  whatever,  without  deduction,  of  all  banks  now  existing 
or  hereafter  created,  and  of  all  bankers,  so  that  all  property  employed 
in  banking  shall  always  bear  a  burden  of  taxation  equal  to  that  im- 
posed on  the  property  of  individuals."  In  1852  the  legislature  of 
Ohio,  in  accordance  with  this  constitutional  provision,  made  it  the  duty 

^  Statement  of  facts  condensed.    Arguments  and  parts  of  opinions  omitted. 


§  19     THE  CORPORATION  AS  A  COLLECTION  OF  INDIVIDUALS.      89 

of  the  president  and  cashiei-  of  every  bank  (under  a  severe  penalty)  to 
make  report  of  the  various  items  indicated  to  the  county  auditors,  who 
were  to  place  the  same  upon  the  tax  duplicate,  to  be  taxed  as  other 
property.  In  1852,  the  president  and  cashier  of  the  Commercial  Bank 
of  Cleveland,  did  this,  under  protest,  the  tax  assessed  and  collected 
by  distress  being  over  $10,000,  and  more  than  $7,500  more  than  it 
would  have  been  under  the  charter  plan.  Like  proceedings  were  had 
in  1853,  when  the  tax  assessed  was  nearly  $12,000  more  than  the 
charter  plan  would  have  made.  Woolsey  alleged  that  "if  the  taxes 
are  permitted  to  be  assessed  and  collected  *  »  *  jt  Yvill  virtually 
destroy  and  annul  the  contract  between  the  state  and  the  bank,  in  re- 
spect to  the  tax  which  the  state  imposed  upon  it  by  the  charter  *  *  * 
in  lieu  of  all  other  taxes,  the  stock  will  be  thereby  lessened  in  value, 
dividends  diminished,  and  the  bank  be  compelled  to  suspend  business; 
that,  as  a  stockholder,  he  had  requested  the  directors  of  the  bank  to 
take  measures  to  prevent  the  collection  of  the  tax." 

The  material  allegations,  except  the  unconstitutionality  of  the  law, 
and  the  application  to  the  directors  to  prevent  the  collection  of  the 
tax,  were  admitted.  Upon  the  latter  point  it  was  agreed  that  Woolsey 
had  by  his  attorney  addressed  a  letter  to  the  bank  requesting  it  to  take 
proper  proceeding  to  prevent  the  collection  of  the  tax,  the  answer  to 
which  was:  "Resolved,  that  we  fully  concur  in  the  views  named, 
and  believe  it  to  be  in  no  way  binding  upon  the  bank ;  but  in  consid- 
eration of  the  many  obstacles  in  the  way  of  testing  the  law  in  the 
courts  of  the  state,  we  can  not  consent  to  take  the  action  which  we 
are  called  upon  to  take,  but  must  leave  the  said  (Woolsey)  to  pursue 
such  measures  as  he  may  deem  best  in  the  premises."  Upon  the 
foregoing,  the  circuit  court  granted  the  injunction  with  costs  against 
Dodge,  who  appealed,  his  counsel  relying  upon  the  following  points: 

"i.  The  complainant  does  not  show  himself  to  be  entitled  to  relief 
in  a  court  of  chancery,  because  the  charter  of  the  bank  provides  that 
its  affairs  shall  be  managed  by  a  board  of  directors,  and  that  they 
are  not  amenable  to  the  stockholders  for  an  error  of  judgment  merely. 
And  that  in  order  to  make  them  so,  it  should  have  been  averred  that 
they  were  in  collusion  with  the  tax  collector  in  their  refusal  to  take 
legal  steps  to  test  the  validity  of  the  tax."] 

[2  and  3,  relating  to  the  jurisdiction  of  the  court,  and  the  constitutionality 
of  the  tax,  omitted,] 

Mr.  Justice  Wayne  (after  stating  the  facts)  delivered  the  opinion 
of  the  court.     *     *     * 

We  will  consider  the  points  in  their  order.  The  first  comprehends 
two  propositions,  namely ;  that  courts  of  equity  have  no  jurisdiction 
over  corporations,  as  such,  at  the  suit  of  a  stockholder  for  violations 
of  charters,  and  none  for  the  errors  of  judgment  of  those  who  manage 
their  business  ordinarily. 

There  has  been  a  conflict  of  judicial  authority  in  both.  Still,  it  has 
been  found  necessary,  for  prevention  of  injuries  for  which  common- 
law  courts  were   inadequate,  to  entertain  in  equity  such  a  jurisdiction 


90  DODGE  V.  WOOLSEY,  §  1 9 

in  the  progressive  development  of  the  powers  and  effects  of  private 
corporations  upon  all  the  business  and  interests  of  society. 

//  is  now  no  longer  doubted^  either  in  England  or  the  United 
States,  that  courts  of  equity^  in  both,  have  a  jurisdiction  over  cor- 
porations; 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  misapplication  of  their  capitals  or  profts  which 
tnight  result  in  lessening  the  dividends  of  stockholders  or  the  value 
of  their  shares,  as  either  tnay  be  protected  by  the  franchises  of  a 
corporation,  if  the  acts  intended  to  be  done  create  what  is  in  the  law 
denominated  a  breach  of  trust.  And  the  jurisdiction  extends  to  inquire 
into,  and  to  enjoin,  as  the  case  may  require  that  to  be  done,  any  pro- 
ceedings by  individuals,  in  whatever  character  they  may  prefess  to  act, 
if  the  subject  of  complaint  is  an  imputed  violation  of  a  corporate  fran- 
chise, or  the  denial  of  a  right  growing  out  of  it,  for  which  there  is  not 
an  adequate  remedy  at  law.  2  Russ.  &  Mylne  Ch.  Rep.,  Cunliffe 
V.  Manchester  and  Bolton  Canal  Company,  480,  n.  ;  Ware  v.  Grand 
Junction  Water  Company,  2  Russ.  &  Mylne  470 ;  Bagshaw  v.  East- 
em  Counties  Railway  Company,  7  Hare  Ch.  Rep.  114;  Angell  & 
Ames,  4th  ed.,  424,  and  the  other  cases  there  cited. 

It  tvas  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  in- 
terfere, and  there  were  cases  in  which  a  bill  in  equity  will  lie  against 
a  corporation  by  one  of  its  members.  '•'•It  is  a  breach  of  trust  toward 
a  shareholder  in  a  joint-stock  incorporated  company,  established  for 
certain  definite  purposes  prescribed  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  com- 
pany in  his  own  behalf,  to  restrain  the  company  by  injunction  from 
any  such  diversion  or  misapplication."  In  the  case  of  Ware  v.  Grand 
Junction  Water  Company,  2  Russ.  &  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 
impowered  to  do  by  the  acts  of  parliament,  meaning  the  charter  of  the 
company;  'so  far  I  restrain  them  by  injunction.'  Indeed,  an  in- 
vestment in  the  stock  of  a  corporation  must,  by  every  one,  be  consid- 
ered a  wild  speculation,  if  it  exposed  the  owners  of  the  stock  to  all 
sorts  of  risk  in  support  of  plausible  projects  not  set  forth  and  author- 
ized by  the  act  of  incorporation,  and  which  may  possibly  lead  to  ex- 
traordinary losses.  The  same  jurisdiction  was  invoked  and  implied 
in  the  case  of  Bagshaw  v.  The  Eastern  Counties  R.  Co. ;  so,  also,  in 
Coleman  v.  The  Eastern  Counties  R.  Co.,  10  Beavan's  Ch.  Rep.  i. 
It  appeared  in  that  case  that  the  directors  of  the  company,  for  the  pur- 
pose of  increasing  their  traffic,  proposed  to  guarantee  certain  profits, 
and  to  secure  the  capital  of  an  intended  steam-packet  company,  which 
was  to  act  in  connection  with  the  railway.      It  was  held,  such  a  trans- 


§19     THE  CORPORATION  AS  A  COLLECTION  OF  INDIVIDUALS.      91 

action  was  not  within  the  scope  of  their  powers,  and  they  were  re- 
strained 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  com- 
pany 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  authority  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  projits.  And  therefore  a  shareholder  may  maintain  a  bill  in  equity 
against  the  directors  and  compel  the  company  to  refund  any  of  the 
profits  thus  improperly  applied.  It  is  an  improper  application  for  a 
railway  company  to  invest  the  profits  of  the  company  in  the  purchase 
of  shares  in  another  company.  The  dividend  (says  Lord  Langdale, 
in  Solamons  v.  Laing,  14  Jurist  for  December,  1850),  which  belongs 
to  the  shareholders,  and  is  divisible  among  them,  may  be  applied 
severally  as  their  own  property:  but  the  company  itself  or  the  direct- 
ors, or  any  number  of  shareholders,  at  a  meeting  or  otherwise,  have 
no  right  to  dispose  of  his  shares  of  the  general  dividends,  which  belong 
to  the  particular  shareholder,  in  any  manner  contrary  to  the  will,  or 
without  the  consent  or  authority  of,  that  particular  shareholder. 

We  do  not  mean  to  say  that  the  jurisdiction  in  equity  over  corpora- 
tions at  the  suit  of  a  shareholder  has  not  been  contested.  The  cases 
cited  in  this  argument  show  it  to  have  been  othei"wise,  but  when  the 
case  of  Hodges  v.  The  New  England  Screw  Company  et  al.  was 
cited  against  it  (we  may  say  the  best  argued  and  judicially  considered 
case  which  we  know  upon  the  point,  both  upon  the  original  hearing 
and  rehearing  of  that  cause),  the  counsel  could  not  have  been  aware 
of  the  fact  that,  upon  the  rehearing  of  it,  the  learned  court,  which  had 
decided  that  courts  of  equity  have  no  jurisdiction  over  corporations  as 
such  at  the  suit  of  a  stockholder  for  violations  of  charter,  reviewed  and 
recalled  that  conclusion.  The  language  of  the  court  is:  "We  have 
thought  it  our  duty  to  review  in  this  general  form  this  new  and  unset- 
tled jurisdiction,  and  to  say,  in  view  of  the  novelty  and  importance 
of  the  subject  and  the  additional  light  which  has  been  thrown  upon  it 
since  the  trial,  we  consider  the  jurisdiction  of  this  court  over  corpora- 
tions for  breaches  of  charter  at  the  suit  of  shareholders,  and  how  far 
it  shall  be  extended,  and  subject  to  what  limits,  is  still  an  open  ques- 
tion in  this  court.  i  Rhode  Island  Reports  312 — rehearing  of  the 
case  September  term,  1853." 

The  result  of  the  cases  is  well  stated  in  Angell  &  Ames,  paragraphs 
39^'  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  agaist  a  corporation 


92  DODGE   V.  WOOLSEY.  §   19 

by  one  of  its  members. ^^  '•'■Though  the  result  of  the  authorities 
clearly  is,  that  in  a  corporation,  -when  acting  within  the  scope  of 
and  in  obedience  to  the  provisions  of  its  constitution,  the  will  of 
the  majority,  duly  impressed  at  a  legally  constituted  meeting,  tnust 
govern;  yet  beyond  the  limits  of  the  act  of  incorporation,  the  will 
of  the  majority  can  not  make  an  act  valid;  and  the  powers  of  a 
court  of  equity  may  be  put  in  motion  at  the  instance  of  a  single  share- 
holder, if  he  can  show  that  the  corporation  are  employing  their  stat- 
utory powers  for  the  accomplishment  of  purposes  not  within  the  scope 
of  their  institution.  Yet  it  is  to  be  observed  that  there  is  an  important 
distinction  between  this  class  of  cases  and  those  in  which  there  is  no 
bi^each  of  trust,  but  only  error  and  misapprehension,  or  simple  negli- 
gence on  the  part  of  the  directors."^ 

We  have  then  the  itile  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  judgment  merely." 
It  is  obvious,  from  the  rule,  that  the  circumstances  of  each  case 
must  determine  the  jurisdiction  of  a  court  of  equity  to  give  the  relief 
sought.  That  the  pleadings  must  be  relied  upon  to  collect  what  they 
are,  to  ascertain  in  what  character,  and  to  what  end  a  shareholder  in- 
vokes the  interposition  of  a  couit  of  equity,  on  account  of  the  mis- 
management of  a  board  of  directors.  Whether  such  acts  are  out  of 
or  beyond  the  limits  of  the  act  of  incorporation,  either  of  commission 
contrary  thereto,  or  of  negligence  in  not  doing  what  it  may  be  their 
chartered  duty  to  do. 

'  So  it  has  been  repeatedly  decided  that  a  private  corporation  may  be  sued 
at  law  by  one  of  its  own  members.  The  text  upon  this  subject  is  so  well 
expressed,  with  authorities  to  support  it,  that  we  will  extract  the  paragraph 
390  from  Angell  and  Ames  entire.  "A  private  corporation  may  be  sued  by  one 
of  its  own  members.  This  point  came  directly  before  the  court,  in  the  state 
of  South  Carolina  in  an  action  of  assumpsit  against  the  Catawba  Company. 
The  plea  in  abatement  was,  that  the  plaintiff  himself  was  a  member  of  that 
company,  and  therefore  could  maintain  no  action  against  it  in  his  individual 
capacity.  The  court,  after  hearing  argument,  overruled  the  plea  as  containing 
principles  subversive  of  justice ;  and  they  moreover  said,  that  the  point  had 
been  settled  by  two  former  cases,  wherein  certain  officers  were  allowed  to 
maintain  actions  for  their  salaries  due  by  the  company.  In  this  respect,  the 
cases  of  incorporated  companies  are  entirely  dissimilar  from  those  of  ordinary 
co-partnerships,  or  unincorporated  joint-stock  companies.  In  the  former,  the 
individual  members  of  the  company  are  entirely  distinct  from  the  artificial 
body  endowed  with  corporate  powers,  A  member  of  a  corporation  who  is  a 
creditor  has  the  same  right  as  any  other  creditor  to  secure  the  payment  of 
his  demands,  by  attachment  or  by  levy  upon  the  property  of  the  corporation, 
although  he  may  be  personally  liable  by  statute  to  satisfy  other  judgments 
against  the  corporation.  An  action  was  maintained  against  a  corporation  on 
a  bond  securing  a  certain  sum  to  the  plaintiff,  a  member  of  the  corporation, 
the  member  being  deemed  by  the  court  a  stranger.  Pierce  v.  Partridge,  3 
Met.  (Mass.)  44;  so  of  notes  and  bonds,  accounts  and  rights  to  dividends. 
Hill  v.  Manchester  and  Salford  Water- Works,  5  Adol.  &  Ellis  866;  Dunston 
v.  Imperial  Glass  Company,  3  B.  &  Adol.  125;  Geer  v.  School  District,  6  Vt. 
76;  Methodist  Episcopal  Society,  18  Vt.  405;  Rogers  v.  Danby  Universalist 
Society,  19  Vt.  187." 


§  19     THE  CORPORATION  AS  A  COLLECTION  OF  INDIVIDUALS.      93 

This  brings  us  to  the  inquiry,  as  to  what  the  directors  have  done  in 
this  case,  and  what  they  refused  to  do  upon  the  application  of  their 
co-corporator,  John  M.  Woolsey.  After  a  full  statement  of  his  case, 
comprehending  all  of  his  rights  and  theirs  also,  alleging  in  his  bill 
that  his  object  was  to  test  the  validity  of  a  tax  upon  the  ground  that 
it  was  unconstitutional,  because  it  impaired  the  obligation  of  aeon- 
tract  made  by  the  state  of  Ohio  with  the  Commercial  Bank  of  Cleve- 
land, and  the  stockholders  thereof;  he  represents  in  his  own  behalf, 
as  a  stockholder,  that  he  had  applied  to  the  directors,  requesting  them 
to  take  measures,  by  suit  or  otherwise,  to  prevent  the  collection  of 
the  tax  by  the  treasurer,  and  that  they  refused  to  do  so,  accompanying, 
however,  their  refusal  with  the  declaration  that  they  fully  concurred 
with  Woolsey  in  his  views  as  to  the  illegality  of  the  tax;  that  they 
believed  it  no  way  binding  upon  the  bank,  but  that,  in  consideration 
of  the  many  obstacles  in  the  way  of  resisting  the  collection  of  the  tax 
in  the  courts  of  the  state,  they  could  not  consent  to  take  legal  meas- 
ures for  testing  it.  Besides  this  refusal,  the  papers  in  the  case  dis- 
close the  fact  that  the  directors  had  previously  made  two  protests 
against  the  constitutionality  of  the  tax,  because  it  was  repugnant  to 
the  constitution  of  the  United  States,  and  to  that  of  Ohio  also,  both 
concluding  with  a  resolution  that  they  would  not,  as  then  advised, 
pay  the  tax,  unless  compelled  by  law  to  do  so,  and  that  they  were 
determined  to  rely  upon  the  constitutional  and  legal  rights  of  the  bank 
under  its  charter. 

Now,  in  our  view,  the  refusal  upon  the  part  of  the  directors,  by 
their  own  showing,  partakes  more  of  disregard  of  duty  than  of  an 
error  of  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,  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  protect  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  judgment  merely,"  and  can  not  be  so  called  in  any 
case.  It  amounted  to  an  illegal  application  of  the  profits  due  to  the 
stockholders  of  the  bank,  into  which  a  court  of  equity  will  inquire  to 
prevent  its  being  made. 

Thinking,  as  we  do,  that  the  action  of  the  board  of  directors  was 
not  "an  error  of  judgment  merely"  but  a  breach  of  duty,  it  is  our 
opinion  that  they  were  properly  made  parties  to  the  bill,  and  that  the 
jurisdiction  of  a  court  of  equity  reaches  such  a  case  to  give  such  a 
remedy  as  its  circumstances  may  require.  This  conclusion  makes  it 
unnecessary  for  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  dijtrict  of  Ohio,  to  resist  a   tax  assessed 


94  DODGE   V.  WOOLSEY.  §  1 9 

under  an  act  of  that  state,  and  executed  by  its  auditor,  and  here  the 
directors  of  the  Commercial  Bank  of  Cleveland,  by  refusing  to  do 
what  they  had  declared  it  to  be  their  duty  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  unconstitution- 
ality 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  su- 
preme court  of  the  United  States,  under,  the  same  authority  or  juris- 
diction by  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.      *      *      * 

Mr.  Justice  Campbell  (with  whom  concurred  Justices  Daniel 
and  Catron),  dissenting.     *     *     * 

The  court  has  assumed  this  jurisdiction,  and  I  am  therefore  called 
to  inquire  whether  a  court  of  chancery  can  take  cognizance  of  the 
bill?  The  act  of  incorporation  of  the  bank  charges  the  board  of  di- 
rectors with  the  care  of  the  corporate  affairs,  subject  to  an  annual  re- 
sponsibility to  the  stockholders.  The  principle  of  a  court  of  chancery 
is,  to  decline  any  interference  with  the  discretion  of  such  directors,  or 
to  regulate  their  conduct  or  management  in  respect  to  the  duties  com- 
mitted to  them. 

The  business  of  that  court  is  to  redress  grievances  illegally  inflicted 
or  threatened,  not  to  supply  the  prudence,  knowledge  or  forecast  re- 
quisite to  successful  corporate  management.  The  facts  of  this  case 
involve,  in  my  opinion,  merely  a  question  of  discretion  in  the  per- 
formance of  an  official  duty.  In  1852,  the  taxes  were  withdrawn  from 
the  treasurer  of  Cuyahoga  county,  by  an  assignee  of  the  bank,  and 
were  never  passed  into  the  state  treasury.  The  supreme  court  of  Ohio, 
subsequently  to  this,  pronounced  the  taxes  to  be  legally  assessed  upon 
these  banks,  and  that  there  was  no  contract  between  the  state  and  the 
banks,  and  there  was  no  exemption  froin  the  tax  by  anything  apparent 
in  the  act  of  1845.  Some  of  these  judgmeftts  were  pending  in  this 
court  upon  writs  of  error  then  undecided,  no  judgment  having  been 
given  contrary  to  that  of  the  authorities,  legislative,  executive  and  ju- 
dicial, as  well  as  by  the  people  of  Ohio.  It  was  under  these  condi- 
tions that  this  stockholder,  who  purchased  stock  after  the  controversy 
had  arisen  in  Ohio,  some  five  days  before  the  taxes  were  payable,  ad- 
dressed the  directors  of  the  Commercial  Bank  to  take  preventive 
measures — that  is,  I  suppose,  to  file  a  bill  for  an  injunction  instantly 
— and,  upon  their  suggestion  of  difficulties,  proceeds  to  take  charge 
of  the  corporate  rights  of  the  bank  by  this  suit,  in  the  circuit  court  of 
the  United  States.  The  directors  were  elected  annually;  they  were, 
collectively,  owners  of  one-tenth  of  the  stock  of  the  bank,  and  no  evi- 
dence is  shown  that  any  other  stockholder  supposed  that  "preventive 
measures,"  under  the  circumstances,  could  be  sustained.  There  is 
no  charge  of  fraud,  collusion,  neglect  of  duty  or  of  indifference  by  the 
directors,  save  this  omission  to  take  some  undefined  "preventive 
measures,"  which  the  plaintiff  affected  to  suppose  might  be  proper. 


§  19     THE  CORPORATION  AS  A  COLLECTION  OF  INDIVIDUALS.      95 

I  understand  the  rule  of  chancery  in  reference  to  such  a  case  to  be 
that  no  suit  can  be  maintained  by  an  individual  stockholder  for  a 
wrong  done,  or  threatened,  to  such  a  corporation,  unless  it  appears 
that  the  plaintiff  has  no  means  of  procuring  a  suit  to  be  instituted  in 
the  name  of  the  corporation ;  and  that  the  rule  is  universal,  applicable 
as  well  to  the  cases  where  the  acts  which  afford  the  ground  for  com- 
plaint were  either  such  as  a  majority  might  sanction,  or  whether  it  be- 
longed to  the  category  of  those  acts  by  which  no  stockholder  could  be 
bound,  except  by  his  own  consent.  This  principle  has  the  highest  sanc- 
tion in  the  decisions  of  that  court.  (Foss  v.  Harbottle,  2  Hare  461 — af- 
firmed I  Phil.  790;  2  Phil.  740;  7  Hare  130.)  The  principle  is  an  ob- 
vious consequence  from  the  relations  between  the  officers  and  members  of 
a  chartered  coi-poration  and  the  corporation  itself.  These  are  explained 
in  Smith  v.  Hurd,  12  Met.  371.  The  court  says:  "There  is  no  legal 
privity,  relation  or  immediate  connection  between  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  not  the  bailees,  the  fac- 
tors, agents  or  trustees  of  such  individual  stockholders.  The  bank  is 
a  corporation  and  body  politic,  having  a  separate  existence  as  a  dis- 
tinct person  in  law,  in  whom  the  whole  stock  and  property  of  the 
bank  are  vested,  and  to  whom  all  agents,  debtors,  officers  and  servants 
are  responsible  for  all  contracts,  express  or  implied,  made  in  reference 
to  such  capital,  and  for  all  torts  and  injuries  diminishing  or  impairing 
it."  The  corporation,  therefore,  must  vindicate  its  own  wrongs  and 
assert  its  own  rights,  in  the  modes  pointed  out  by  law. 

I  do  not  say  that  a  court  of  chancery  will  never  permit  an  individual 
stockholder  to  come  before  it  to  assert  a  right  of  the  corporation  in 
which  he  is  a  shareholder,  where  there  is  an  obstacle  of  such  a  nature 
that  the  name  of  the  corporation  can  not  be  employed  before  legitimate 
tribunals  in  their  regular  modes  of  proceeding,  but  the  burden  is 
thrown  upon  the  plaintiff  to  establish  the  existence  of  an  urgent  neces- 
sity for  such  a  suit. 

The  consideration  of  analogous  cases  will  strengthen  this  conclusion ; 
cases  where  courts  of  chanceiy  are  more  free  to  intervene,  from  the 
fiduciary  relations  between  the  parties  and  the  extent  of  its  general 
jurisdiction  over  them.  Such  are  cases  of  danger  to  the  interests  of  a 
creditor  of  an  estate  from  the  collusion  of  an  executor  with  the  debtor 
of  the  estate,  or  the  insolvency  of  the  executor ;  or  where  an  executor 
wrongfully  fails  to  make  a  settlement  with  a  surviving  partner,  and  a 
residuary  legatee  seeks  one  entire  settlement  of  the  estate  against  the 
executor  and  partner;  or  where  a  decedent  in  his  life  has  fraudulently 
conveyed  assets,  and  his  executor  is  estopped  to  impute  fraud,  and 
there  are  creditors ;  or  where  the  managers  of  a  joint  stock  company 
have  been  guilty  of  fraud,  illegality,  waste,  and  their  stockholders 
desire  relief.  In  all  these  cases  the  court  of  chancery  will  suffer  a 
party  remotely  interested  to  institute  the  suit  which  his  trustee,  or 
other  representative,  should  have  brought,  and  will  grant  the  relief  on 
that  suit  which  would  have  been  appropriate  to  the  case  of  him  who 


g6  DODGE   V.  WOOLSEY.  §  19 

should  have  commenced  it.     Sir  John  Romilly,  in  a  late  case  belong- 
ing to  one  of  these  categories,  says : 

"To  support  such  a  bill  as  this  it  is  not  sufficient  to  prove  that  it 
may  be  an  unpleasant  duty  to  the  executors  and  trustees  to  take  the 
necessary  steps  for  protecting  the  property  intrusted  to  them.  It  is 
not  sufficient  to  show  that  it  will  be  for  their  interests  not  to  take  such 
steps.  It  is  necessary  to  show  that  they  prefer  their  own  interests  to 
their  duty,  and  that  they  intend  to  neglect  the  performance  of  the  obli- 
gation incidental  to  the  office  imposed  upon  them,  and  which  they  as- 
sumed to  perform ;  or,  as  said  in  Travis  v.  Mylne,  that  a  substantial 
impediment  to  the  prosecution  by  the  executors  of  the  rights  of  the 
parties  interested  in  the  estate  against  the  surviving  partner  exists." 
Stainton  v.  Carron  Co.,  23  L.  &  Eq.  315;  Travis  v.  Mylne,  9  Hare 
141;  Hersey  v.  Veazie,    11   Shep.    i;  Colquitt  v.   Howard,    11   Geo. 

556. 

These  cases  afford  no  support  to  this  suit.  The  Cleveland  Bank 
has  betrayed  no  purpose  to  abandon  its  corporate  duty.  The  interests 
and  obligations  of  the  directors  coincide  to  support  its  pretensions. 
There  is  no  supineness  in  their  past  conduct,  nor  indifference  to  the 
existing  peril.  The  evidence,  at  the  most,  convicts  them  only  of  a 
present  disinclination  to  commence  suits,  which  were  likely  to  be  un- 
productive, at  the  request  of  a  single  shareholder.  The  answer  shows 
that  the  taxes  for  1852  had  not  been  recovered  by  the  state,  but  had 
been  retaken  by  an  assignee  of  the  bank.  Nor  does  the  correspond- 
ence show  that  the  directors  had  decided  to  abandon  the  contest.  The 
case  here  does  not  at  all  fulfill  the  conditions  on  which  the  interposi- 
tion of  a  shareholder  is  allowable.  Elmslie  v.  McAulay,  3  Bro. 
C.  C.  224,  I  Phil.  790;  Law  V.  Law,  2  Coll.  41;  Walker  v.  Trott, 
4  Ed.  Ch.  Rep.  38. 

But  the  evidence  does  not  allow  me  to  conclude  that  any  impedi- 
ment whatever  existed  to  a  suit  in  the  name  of  the  corporation,  from 
any  disposition  of  the  directors  to  resist  the  claims  of  the  state.  Their 
protest  appears  at  every  successive  stage  of  the  action  of  the  fiscal 
officers.  This  suit  is  evidently  maintained  with  their  consent ;  there 
has  been  no  appearance  either  by  the  directors  or  the  corporation, 
but  they  abide  the  case  of  the  stockholder.  The  decree  is  for  the 
benefit  of  the  corporation.  The  question  then  is,  can  a  coiporation 
belonging  to  a  state,  and  whose  officers  ai'e  citizens,  upon  some  hope 
or  assurance  that  the  opinions  of  the  courts  of  the  United  States  are 
more  favorable  to  their  pretensions,  by  any  combination,  contrivance 
or  agreement  with  a  non-resident  shareholder,  devolve  upon  him  the 
right  to  seek  for  the  redress  of  corporate  grievances,  which  are  the 
subjects  of  equitable  cognizance  in  the  courts  of  the  United  States,  by 
a  suit  in  his  own  name  ?  In  my  opinion,  there  should  be  but  one 
answer  to  the  question.      *     *     * 

Decree  of  circuit  court  affirmed. 

Note.  The  rights  of  members  of  a  corporation  is  the  subject  of  chapter  17, 
infra.  See  page  1706,  et  seq.,  where  this  topic  is  further  discussed.  A  few  refer- 
ences are  here  given :    1843,  Foss  v.  Harbottle,  2  Hare  (EngUsh  Vice  Chancel- 


\ 


§  20     THE  CORPORATION  AS  A  COLLECTION  OF  INDIVIDUALS.      97 

lor's  Court)  461 ;  1844,  Hersey  v.  Veazie,  24  Maine  9,  41  Am.  Dec.  364;  1847, 
Smith  V.  Hurd,  12  Met.  (Mass.)  371  ;  1867,  Seaton  v.  Grant,  L.  R.  2  Chan. 
App.  459;  1881,  Hawes  v.  Oakland,  104  U.  S.  450,  infra,  p.  1716;  1890,  Esc^h- 
wefler  v.  Stowell,  78  Wis.  316,  23  Am.  St.  Rep.  411;  1896,  Decatur  M.  L.  Co. 
V.  Palm,  113  Ala.  531,  59  Am.  St.  140. 
Pleading,  see  Quincy  v.  Steel  Co.,  120  U.  S.  241. 

Sec.  20.    Same.      (^)  When  the  corporate  organization  is  used  as 
a  cloak  to  aid  in  the  commission  of  frauds. 

METCALF  V.  ARNOLD.i 

1895.     In  the  Supreme  Court  of  Alabama,     i  10  Ala.  180-185; 
55  Am.  St.  Rep.  24. 

Appeal  from  the  chancery  court  of  Montgomery. 

Heard  before  the  Hon.  Jere  N.  Williams. 

The  bill  in  this  case  was  filed  by  the  appellees,  who  were  judgment- 
creditors,  for  the  benefit  of  themselves  and  all  other  creditors  of  the 
Metcalf  Drug  Company  who  might  desire  to  come  in  and  make  them- 
selves parties. 

The  bill  avers  that  complainants  recovered  a  judgment  against  H. 
B.  Metcalf  and  F.  G.  Weatherly,  who  were  doing  business  under  the 
firm  name  of  H.  B.  Metcalf,  and  that  executions  on  each  of  said  judg- 
ments were  issued  and  returned  no  property  found.  It  was  further 
averred  in  the  bill  that  after  the  debts  which  were  the  basis  of  the  judg- 
ment in  favor  of  each  of  the  complainants  were  contracted,  and  while 
said  H.  B.  Metcalf  and  F.  G.  Weatherly  were  indebted  to  complain- 
ants and  other  creditors,  the  said  H.  B.  Metcalf  and  F.  G.  Weatherly 
were  conducting  a  drug  business  in  the  city  of  Montgomery,  Alabama, 
and  had  a  large  stock  of  goods  and  assets  in  said  business,  none  of 
which  were  exempt  to  them,  or  either  of  them ;  that  after  the  creation 
of  the  indebtedness  to  the  complainants,  but  prior  to  the  rendition  of 
the  judgment  in  their  favor,  "the  said  H.  B.  Metcalf  and  F.  G. 
Weatherly,  with  the  intention  to  hinder,  delay  and  defraud  complain- 
ants and  others  of  their  creditors,  attempted  to  form  a  corporation, 
with  a  capital  stock  of  $8,000,"  and  put  into  the  said  corporation 
as  its  only  capital  stock,  the  stock  of  goods,  wares  and  merchandise 
and  notes  and  accounts,  which  were  the  assets  of  the  firm  of  H.  B. 
Metcalf;  that  "said  H.  B.  Metcalf  and  F.  G.  Weatherly,  carrying 
out  their  hitherto  formed  intention  of  hindering,  delaying  and  defraud- 
ing complainants  and  their  other  creditors,  had  the  stock  of  said  cor- 
poration, consisting  of  eighty  shares,  of  the  par  value  of  $100  each, 
issued  as  follows:  thirty-six  shares  of  par  value  of  $3,600,  to  A.  P. 
Metcalf,  the  wife  of  H.  B.  Metcalf;  eighteen  shares  of  par  value  of 
$1,800,  to  H.  B.  Metcalf;  seventeen  shares  of  the  par  value  of  $1,700, 
to  M.  M.  Weatherly,  the  wife  of  F.  G.  Weatherly;  and  nine  shares 
of  the  par  value  $900,  to  F.  G.  Weatherly." 

^  Arguments  omitted. 
7— WiL.  Casks. 


98  METCALF   V.  ARNOLD.  ^  §  20 

It  was  further  averred  that  the  corporation  so  attempted  to  be  formed 
was  known  and  called  the  "Metcalf  Drug  Company,"  but  that  the 
said  A.  P.  Metcalf  and  M.  M.  Weatherly  had  no  interest  whatever  in 
the  effects  put  into  the  formation  of  the  capital  stock  of  said  corpora- 
tion ;  that  all  of  said  property  put  into  the  said  corporation  belonged 
to  H,  B.  Metcalf  and  F.  G.  Weatherly,  doing  business  in  the  firm 
name  of  H.  B.  Metcalf;  and  that  the  property  so  put  into  the  corpo- 
ration constituted  all,  or  substantially  all,  of  the  property  belonging  to 
said  firm  and  to  each  member  thereof,  upon  which  property  the  com- 
plainants had  an  equitable  lien  for  the  payment  of  their  debts. 

It  was  further  averred  "that  on,  to  wit,  April  i8,  1894,  by  a  collu- 
sion between  H.  B,  Metcalf  and  F.  G.  Weatherly  and  a  small  creditor 
of  theirs,  a  judgment  was  allowed  to  be  taken  against  the  said  defend- 
ants, H.  B.  Metcalf  and  F.  G.  Weatherly,  in  a  justice  court,  for  an 
amount  less  than  one  hundred  dollars,  upon  which  judgment  execution 
was  issued  and  levied  upon  seventeen  shares  of  stock  in  the  name  of 
H.  B.  Metcalf  and  eight  shares  in  the  name  of  F.  G.  Weathei"ly,  and 
the  said  H.  B.  Metcalf  and  F.  G.  Weatherly,  with  the  still  further 
fraudulent  intent  of  placing  all  their  property  beyond  the  reach  of 
their  creditors,  allowed  all  of  said  shares  to  be  sold  at  public  outcry, 
and  they  pretended  that  said  shares  were  bought  in  by  their  respective 
wives,  but  your  orators  allege  that  in  truth  and  in  fact  the  amount  so 
bid  at  such  sale  for  said  stock  was  paid  by  the  said  H.  B.  Metcalf  and 
F.  G.  Weatherly. 

The  bill  further  averred  "that  according  to  the  stock-books  of  the 
Metcalf  Drug  Company,  the  said  H.  B.  Metcalf  now  owns  one  share  of 
stock  and  the  said  F.  G.  Weatherly  owns  one  share  of  stock,  but  upon 
said  stock-books,  notice  is  given  that  the  one  share  of  H.  B.  Metcalf 
is  transferred  as  collateral  security  to  his  wife  for  a  pretended  debt, 
and  the  one  share  of  F.  G.  Weatherly  is  transferred  to  his  wife  as 
collateral  security  for  a  pretended  debt." 

The  prayer  of  the  bill  was  for  the  issuance  of  an  injunction  restrain- 
ing the  defendants  and  each  of  them  from  disposing  of,  transferring 
or  incumbering  any  of  the  property  referred  to  in  the  bill,  and  for  the 
appointment  of  a  receiver  of  the  goods,  wares,  merchandise  and  the 
notes,  accounts  and  books  of  the  Metcalf  Drug  Co.,  and  "that  on  a 
final  hearing  of  this  cause,  your  honor  will  decree  that  the  formation 
of  said  coi-poration  was  fraudulent  and  void  as  to  your  orators,  and 
that  the  issue  of  stock  and  pretended  interest  therein  of  A.  P.  Met- 
calf and  M.  M.  Weatherly  is  illegal  and  void  as  to  your  orators,  and  that 
your  orators  have  a  lien  upon  said  property  to  the  extent  of  debts  due 
them,  and  that  your  honor  will  order  a  reference  to  ascertain  the 
amount  of  debts  due  your  orators  and  any  other  creditors  who  may 
come  in  and  make  themselves  parties  hereto ;  and  will  order  the  re- 
ceiver to  sell  and  dispose  of  said  stock  of  goods,  and  to  collect  the 
notes  and  accounts,  and  pay  your  orators  out  of  the  proceed  thereof," 

The  respondents  demurred  to  the  bill,  and  assigned  many  grounds, 
the  substance  of  which  were  the  following:  (i)  The  said  bill  seeks  to 
forfeit  the  charter  of  the  Metcalf  Drug  Company,  and  fails  to  show 


§  20     THE  CORPORATION  AS  A  COLLECTION  OF  INDIVIDUALS.      99 

that  it  was  not  duly  organized  according  to  law.  (2)  The  bill  seeks 
to  forfeit  the  charter  of  the  Metcalf  Ding  Company,  and  fails  to  set 
forth  any  grounds  for  the  forfeiture  of  said  charter.  (3)  The  bill 
seeks  to  condemn  the  assets  of  the  Metcalf  Drug  Company  to  the  pay- 
ment of  debts  for  which  it  is  not  liable.  (4)  The  bill  shows  on  its 
face  that  the  debts  which  are  sought  to  be  collected  in  this  suit  are  due 
from  H.  B.  Metcalf  and  F.  G.  Weatherly,  as  partners,  under  the  firm 
name  of  H.  B.  Metcalf,  and  are  not  due  from  the  Metcalf  Drug  Com- 
pany, and  yet  the  bill  seeks,  to  condemn  the  property  of  the  Metcalf 
Drug  Company,  and  not  the  property  of  said  debtors.  (5)  The  bill 
seeks  to  fasten  a  specific  lien  on  the  goods,  wares,  merchandise,  notes 
and  accounts  delivered  in  payment  of  the  corporate  stock  in  the  Met- 
calf Dnig  Company,  but  fails  to  state  that  all,  or  any  part,  or  what 
part  of  said  assets  were  in  the  possession  of  the  defendants,  or  anyone 
of  them,  at  the  time  of  the  filing  of  the  bill  in  this  cause. 

On  the  submission  of  the  cause  on  the  demurrer,  the  chancellor 
overruled  the  said  demurrer.  The  defendants  appeal  from  this  decree, 
and  assign  the  same  as  error. 

Brickell,  C.  J.  The  demurrer  was  properly  overiniled.  The  bill 
is  not,  as  is  supposed  by  several  of  the  causes  of  demurrer,  a  bill  as- 
sailing collaterally  the  incorporation  of  the  Metcalf  Drug  Company 
and  seeking  a  forfeiture  of  its  charter.  It  is  a  bill  by  judgment  cred- 
itors, seeking  the  aid  of  a  court  of  equity  to  remove  obstacles  and 
hindrances  to  the  enforcement  of  their  judgments,  which  the  judgment 
debtors  have  fraudulently  interposed.  Whatever  maybe  the  character 
of  the  obstacle  or  hindrance  ;  whatever  may  be  the  scheme  or  device 
to  which  the  debtor  resorts,  it  lies  within  the  province  of  a  court  of 
equity  to  remove  it.  The  formation  of  a  corporation,  investing  it  with 
the  legal  title  to  all_^  the  property  and  rights  of  property  of  the  judg- 
ment-debtors, and  parcelling  out  the  stock  of  the  corporation  to  the 
debtors  and  their  wives,  may  be  a  new  device  for  hindering,  delaying 
and  defrauding  creditors.  The  novelty  of  the  device  is  not  of  conse- 
quence ;  the  fraud  of  its  conception  and  consummation  vitiates  it,  as 
fraud  vitiates  all  transactions  tainted  with  it.  The  bill  does  pray  that 
the  formation  of  the  corporation  be  deemed  fraudulent  and  void  as  to 
the  complainant's.  Such  a  decree  would  be  proper  in  granting  to  the 
complainants  the  full  measure  of  relief  to  which  they  are  entitled  if 
the  allegations  of  the  bill  be  true.  But  it  would  not  work  a  forfeiture 
of  the  charter,  or  a  dissolution  of  the  corporation ;  it  would  simply  be 
ancillary  to  the  divestiture  of  the  title  to  the  property,  liable  to  the 
debts  of  the  complainants,  with  which  it  had  been  invested  by  the 
ju  dgment-debtors . 

Let  the  decree  of  the  chancellor  be  affirmed. 

Note.  See  also:  1865,  Booth  v.  Bunce,  33  N.  Y.  139,  88  Am.  Dec.  372; 
1878,  Des  Moines  Gas  Co.  v.  West,  50  Iowa  16;  1882,  Hibernia  Insurance  Co.  v. 
St.  Louif*.,  etc.,  Trans.  Co.,  13  Fed.  Rep.  516;  1886,  Slatterly  v.  St.  Louis,  etc., 
T.  Co.,  91  Mo.  217,  60  Am.  Rep.  245;  1890,  Montgomery  Web  Co.  v.  Dienelt, 
133  Pa.  St.  585;  1891,  Breman,  etc.,  Bank  v.  Branch,  etc.,  Co.,  104  Mo.  425, 
16  S.  W.  209;  1892,  Vance  v.  McNabb,  92  Tenn.  47;  1892,  Miner  v.  Belle  Isle 
Ice  Co.,  93  Mich.  97,  53  N.  W.  218;  1896,  Austin  v.Tecumseh  Natl.  Bank,  49 


lOO  PEOPLE  V.  NORTH    RIVER    SUGAR    REFINING   CO.  §  21 

Neb.  412,  68  N.  W.  628,  5  A.  &  E.  Corp.  Cas.  N.  S.  382,  35  L.  R.  A.  444; 
1897,  Ewing  v.  Composite,  etc.,  Co.,  169  Mass.  72;  1897,  Gates  v.  Tippecanoe 
Stone  Co.,  57  O.  S.  60,   48  N.  E.  Rep.  285,  7  A.  &  E.  Corp.  Cas.  N.  S.  431. 


Sec.  21.  Same.  (^)  When  corporate  sins  result  from  the  con- 
certed, but  apparently  individual,  actions  of  the  corporation 
members. 

THE    PEOPLE,    Etc.,    Respondent,   v.    THE    NORTH    RIVER   SUGAR 
REFINING  COMPANY,  Appellant.^ 

1890.  In  the  Court  of  Appeals  of  New  York.  121  N.  Y. 
582-626,  18  Am.  St.  Rep.  843,  32  Am.  &  E.  Corp.  Cas.  149, 
24  North  Eastern  Rep.  834;  also  in  the  lower  court,  54  Hun 
354,  7  N.  Y.  Supp.  406,  22  A.  &  E.  Corp.  Cases  511,  5  Ry.  & 
Corp.  L.  J.  56,  6  Ry.  &  Corp.  L.  J.  442. 

Appeal  from  judgment  of  the  general  term  of  the  supreme  court  in 
the  first  judicial  department,  entered  upon  an  order  made  November 
7,  1889,  which  affirmed  a  judgment  in  favor  of  plaintiff  entered  upon 
a  verdict  directed  by  the  trial  court,  and  affirmed  an  order  denying  a 
motion  for  a  new  trial. 

This  action  was  brought  by  the  attorney-general  to  have  the  defend- 
ant "dissolved,  its  charter  vacated  and  its  corporate  existence  an- 
nulled." This  complaint  alleged,  and  it  was  found  that  defendant  is 
a  corporation  organized  under  the  general  manvif acturing  act ;  that  it, 
together  with  other  corporations  and  firms,  in  violation  of  law  and  in 
abuse  of  its  powers,  became  a  party  to  and  carried^  out  an  agreement 
which  among  other  things  provided  in  substance  as  follows : 

Deed:  The  undersigned,  nameh',  Havemeyers  &  Elder  [and  fourteen 
other  sugar  refining  partnerships  "and  corporations  named,  including  the 
North  River  Sugar  Refining  Co.],  for  the  purpose  of  forming  the  board,  here- 
inafter provided  for,  and  the  other  purposes  hereinafter  set  forth,  enter  into 
the  following  agreement:  Name,  the  board  shall  be  designated  the  Sugar 
Refineries  Company.  Objects:  (1)  To  promote  economy  of  administration, 
reduce  the  cost  of  refining,  and  keep  the  price  of  sugar  as  low  as  is  consistent 
with  reasonable  profit.  (2)  To  give  each  refining  company  benefit  of  all 
appliances  and  processes  known  or  used  by  the  others,  useful  to  improve  qual- 
ity, and  diminish  cost  of  sugar.  (3)  To  protect  against  unlawful  combinations 
of  labor.  (4)  To  prevent  the  lowering  of  the  standard  of  refined  sugars,  and 
(5)  Generally  to  promote  the  interests  of  the  parties  hereto  in  all  lawful  and 
suitable  ways.  Board:  All  parties  hereto  not  corporations,  to  become  such 
before  deed  goes  into  effect ;  all  shares  of  stock  of  each  corporation  to  be  trans- 
ferred to  a  hoard,  consisting  of  eleven  persons,  any  member  to  be  removable 
by  two-thirds  of  the  entire  board  for  incapacity  or  refusal  to  serve,  vacancies 
in  term  to  be  filled  by  vote  of  board,  at  end  of  terms  by  election  of  certificate 
holders,  at  an  annual  meeting  in  New  York  City.  Board  to  make  by-laws 
for  themselves,  act  by  proxy  if  they  choose,  majority  to  be  a  quorum,  and 
majority  of  quorum  to  control,  except  in  appropriating  money,  a  majority  of 
all,  required ;  members  of  board  to  be  members  of  boards  of  directors  of  the 

^  Statement  of  facts  condensed.   Arguments  and  parts  of  the  opinion  omitted. 


§21     THE  CORPORATION  AS  A  COLLECTION  OF  INDIVIDUALS,     lOI 

several  companies ;  shares  in  such  companies  to  be  transferred  to  them  in 
order  to  qualify  them,  if  necessary  ;  members  of  board  to  be  divided  into  three 
classes,  first  to  serve  seven  years  (each  being  named),  second,  five  years 
(each  named),  and  third,  three  years  (naming  them).  Officers:  Board  tc 
appoint  a  president,  vice-president  and  treasurer  from  the  members  of  the 
board,  and  a  secretary  (not  necessarily  a  member  of  the  board),  and  such 
other  officers  as  necessary,  fixing  their  duties.  Plans:  The  several  parties 
hereto  to  maintain  their  separate  organizations,  and  carry  on  and  conduct  their 
own  business.  Capital  stock  of  each  corporation  to  be  transferred  to  the 
board,  and  certificates  not  exceeding  $50,000,000  (500,000  shares  of  $100  each) 
to  be  issued  by  the  board  to  each  refinery  in  proportion  to  the  value  of  its 
plant  as  fixed  by  appraisers  to  be  selected,  and  each  stockholder  in  each 
refinery  to  have  such  proportion  of  the  certificates  issued  to  each  refinery  as 
his  stock  bore  to  the  stock  of  that  refinery,  except  15  per  cent,  of  the  shares 
allotted  to  each  refinery  to  be  left  with  the  board  to  be  disposed  of  for  the 
purchase  of  other  refineries  or  increasing  the  refining  capacity  of  the  parties 
hereto. 

The  certificate  provided  that  the  holder  was  entitled  to shares  in  the 

sugar  refineries  company,  subject  to  the  provisions  of  the  deed,  transfera- 
ble on  the  books  of  the  board  upon  surrender,  subject  to  right  to  increase  the 
total  stock,  or  change  this  deed,  and  the  assignee,  by  accepting  the  certificate 
to  be  held  to  agree  to  the  terms  of  the  deed,  or  changes  made  therein.  The 
title  to  the  stock  of  the  corporations  to  be  in  the  members  of  the  board  as 
trustees,  strictly  as  joint  tenants  and  having  all  the  rights  and  powers  inci- 
dent to  stockholders  in  the  several  corporations,  subject  to  the  provisions  of 
this  deed.  Profits  of  each  corporation  to  be  paid  to  the  board,  and  dividends 
distributed  by  the  board  to  certificate  holders.  Changes  in  the  deed  to  be 
made  by  a  majority  of  certificate  holders.  Other  refineries  to  be  added  upon 
terms  provided  by  "the  board.  Custody  of  the  deed  to  be  in  the  president  of 
the  board,  with  sole  and  independent  control,  and  not  to  be  shown  to  any  cor- 
poration, firm  or  person  whatsoever  except  by  express  direction  of  the  board. 

The  stockholders  of  the  North  River  Sugar  Refining  Company  in  April, 
1887,  at  a  meeting  when  all  the  trustees  were  present,  appointed  a  committee 
to  make  arrangements  to  consolidate  the  sugar  refineries  of  New  York,  and 
directed  the  president  and  secretary  to  sign  such  contract  as  the  committee 
should  make  for  that  purpose.  The  secretary,  on  behalf  of  the  company,  in 
September  signed  the  foregoing  deed  to  go  into  effect  in  October.  In  Novem- 
ber, at  a  stockholders'  meeting,  the  powers  of  the  committee  and  the  presi- 
dent and  secretary  were  revoked,  but  it  was  recited  that  one  John  Searles, 
Jr.,  had  offered  to  purchase  all  of  the  stock  for  $325,000,  and  it  was  unani- 
mously resolved  that  a  committee  be  appointed  to  deliver  it  to  him,  the  pro- 
ceeds to  be  divided  in  proportion  to  the  ownership  of  shares  by  the  stock- 
holders. Accordingly,  the  members  individually,  transferred  their  shares, 
indorsed  in  blank,  to  Searles,  who  was  a  member  and  the  secretary  and  treas- 
urer of  the  board  created  by  the  deed  above  set  forth ;  the  stock  was  by 
Searles  transferred  to  the  board,  and  it  issued  certificates  to  the  shareholders 
to  the  amount  of  $700,000,  less  15  percent.,  as  provided  by  the  deed;  new 
directors  were  chosen  by  the  board,  Searles  became  president,  and  shortly 
afterward  the  works  of  the  North  River  Sugar  Refineries  Company  were 
closed,  and  never  run  thereafter,  though  it  was  allotted  its  share  of  dividends 
for  its  certificate  holders. 

Finch,  J.  The  judgment  sought  against  the  defendant  is  one  of 
corporate  death.  The  state,  which  created,  asks  us  to  destroy;  and 
the  penalty  invoked  represents  the  extreme  rigor  of  the  law.  Its  in- 
fliction must  rest  upon  grave  cause,  and  be  warranted  by  material  mis- 
conduct. The  life  of  a  corporation  is  indeed  less  than  that  of  the  hum- 
blest citizen,  and  yet  it  envelopes  great  accumulations  of  property, 
moves  and  carries  in  large  volume  the  business  and  enterprise  of  the 


I02  PEOPLE  V.  NORTH    RIVER    SUGAR    REFINING   CO.  §21 

people,  and  may  not  be  destroyed  without  clear  and  abundant  reason. 
That  would  be  true,  even  if  the  legislature  should  debate  the  destruc- 
tion of  the  corporate  life  by  a  repeal  of  the  corporate  charter ;  but  is 
beyond  dispute  where  the  state  summons  the  offender  before  its  judi- 
cial tribunals,  and  submits  its  complaint  to  their  judgment  and  review. 
By  that  process  it  assumes  the  burden  of  establishing  the  charges  which 
it  has  made,  and  must  show  us  warrant  in  the  facts  for  the  relief  which 
it  seeks.      *     *     * 

Two  questions,  therefore,  open  before  us,  first,  has  the  defendant 
corporation  exceeded  or  abused  its  powers;  and  second,  does  that  ex- 
cess or  abuse  threaten  or  harm  the  public  welfare. 

The  first  question  requires  us  to  ascertain  what  the  defendant  cor- 
poration has  done  in  violation  of  its  duty,  or  omitted  to  do  in  perfor- 
mance of  its  duty.  We  find  disclosed  by  the  proof  that  it  has  become 
an  integral  part  and  constituent  element  of  a  combination  which 
possesses  over  it  an  absolute  control,  which  has  absoi'bed  most  of  its 
corporate  functions,  and  dictates  the  extent  and  manner  and  terms  of 
its  entire  business  activity.  Into  that  combination,  which  drew  into 
its  control  sixteen  other  corporations  engaged  in  the  refining  of  sugar, 
the  defendant  has  gone,  in  some  manner  and  by  some  process,  for,  as 
an  unquestionable  tiiith,  we  find  it  there.  All  its  stock  has  been  trans- 
ferred to  the  central  association  of  eleven  individuals  denominated  a 
"Board;"  in  exchange  it  has  taken  and  distributed  to  its  own  stock- 
holders certificates  of  the  board  carrying  a  proportionate  interest  in 
what  it  describes  as  its  capital  stock ;  the  new  directors  of  the  defen- 
dant corporation  have  been  chosen  by  the  board,  made  eligible  by  its 
gift  of  single  shares,  and  liable  to  removal  under  the  terms  of  their 
appointment  at  any  moment  of  independent  action.  It  has  lost  the 
power  to  inake  a  dividend,  and  is  compelled  to  pay  over  its  net  earn- 
ings to  the  master  whose  sei*vant  it  has  become.  Under  the  orders  of 
that  master  it  has  ceased  to  refine  sugar,  and,  by  so  much,  has  lessened 
the  supply  upon  the  market.  It  can  not  stir  unless  the  master  approves, 
and  yet  is  entitled  to  receive  from  the  earnings  of  the  other  refineries, 
massed  as  profits  in  the  treasuiy  of  the  board,  its  proportionate  share 
for  division  among  its  own  stockholders  holding  the  substituted  certifi- 
cates. In  return  for  this  advantage  it  has  become  liable  to  be  mort- 
gaged, not  for  its  own  corporate  benefit  alone,  but  to  supply  with  funds 
the  controlling  board  when  reaching  out  for  other  and  coveted  refineries. 
No  one  can  look  these  facts  fairly  in  the  face  without  being  compelled 
to  say  that  the  defendant  is  in  the  combination  and  in  to  stay.  In-, 
deed,  so  much  is  with  great  frankness  admitted  on  the  part  of  the  ap- 
pellant. Its  counsel  concedes  that  the  stock  was  transferred  "to  the 
board  mentioned  in  the  agreement  and  on  the  terms  and  for  the  pur- 
poses mentioned  in  the  agreement ;  and  that  this  action  effectually 
lodged  the  control  of  the  defendant  company,  so  far  as  such  contol 
can  be  secured  by  the  voting  power  in  that  board." 

But  that  truth  does  not  alone  solve  the  problem  presented.  We 
are  yet  to  ascertain  whether  the  corporation  became  the  subordinate 
and  servant  of  the  board  by  its  own  voluntary  action,  or  the  will  and 


§  21     THE  CORPORATION  AS  A  COLLECTION  OF  INDIVIDUALS.     I03 

power  of  others  than  itself ;  by  force  of  a  contract  to  which  it  was  in 
reality  a  party,  or  as  the  simple  consequence  of  a  change  of  owners; 
by  its  fault  or  its  misfortune ;  by  a  sale  or  by  a  trust.  For,  if  it  has 
done  nothing,  if  what  has  happened,  and  all  that  has  happened,  is  as- 
certained to  be  that  the  stockholders  of  the  defendant,  one  or  many, 
sold  absolutely  to  the  eleven  men  who  constituted  the  board  their 
entire  stock,  and  the  latter,  by  force  of  their  proprietorship  and  as 
owners,  have  merely  chosen  directors,  in  their  own  interest,  and  are 
only  managing  their  property  in  their  own  way  as  any  absolute  own- 
ers may;  if  that  is  the  truth,  and  the  entire  and  exact  truth,  it  is  dif- 
ficult to  see  wherein  the  corporation  has  sinned,  or  what  it  has  done 
beyond  merely  omitting  for  a  time  to  carry  on  its  business.  That  is 
the  theory  upon  which  the  appellant  stands,  and  which  it  submits  to 
our  examination. 

On  the  other  hand  it  is  contended  that  there  never  was  a  sale,  but  a 
trust  constituted  by  mutual  agreement;  that  they  who  agreed  were 
the  whole  body  of  stockholders  in  each  corporation  necessarily  repre- 
senting and  binding  the  corporation  itself ;  that  they  transferred  their 
shares  to  the  board  upon  the  trusts  declared  in  the  deed ;  that  the  cer- 
tificates issued  by  the  board  were  the  formal  declaration  of  the  trust; 
that  the  corporate  stockholders  parted  with  the  legal  title  of  their  stock 
to  the  chosen  trustees  with  the  power  to  vote  upon  it,  but  retained, 
nevertheless,  its  beneficial  ownership  through  the  operation  of  the  cer- 
tificates ;  and  so  the  corporations  entered  into  a  partnership  with  each 
other,  vesting  the  partnership  power  in  a  board  of  control. 

I  have  brought  these  two  theories  face  to  face,  where  they  may  con- 
front each  other,  because,  when  a  choice  is  made  between  them,  we 
have  gone  a  long  distance  towards  the  end  of  the  controversy. 

[After  reviewing  the  provisions  of  the  deed  and  indicating  that  a  sale  im- 
plies existing  vendors  and  vendees,  a  negotiation  between  them,  signing  of 
the  formal  contract  by  both,  a  vesting  of  the  entire  dominion  in  the  vendee, 
with  the  accompanying  rights  of  ownership,  in  all  of  which  points  the  deed 
was  peculiarly  deficient ;  and  on  the  other  hand  that  the  board  was  expressly 
made  trustees,  with  managing  powers  of  stockholders  only  by  the  express 
terms  of  the  deed,  and  not  as  an  incident  of  real  ownership ;  that  the  right  to 
mortgage  was  derived  from  the  deed  alone,  and  not  as  owner;  that  payment 
was  to  be  made  not  by  money  but  by  certificates  of  the  board  created  by  the 
deed,  who  were  not  to  create  any  liability  either  as  a  whole,  or  by  its  mem- 
bers, all  of  which  indicated  a  trust  and  nothing  more,  the  opinion  proceeds:] 

The  combination,  therefore,  framed  by  the  deed  was  a  trust;  and, 
if  created  by  the  corporations,  or  in  any  respect  the  consequence  or 
product  of  their  action,  some  inevitable  results  would  be  certain  to 
follow.  But  here  we  encounter  the  stronghold  of  the  appellant's  argu- 
ment which  is,  that  if  the  corporations  are  in  some  manner  in  the  com- 
bination, they  are  there  solely  as  the  result  of  a  contract  other  than 
their  own ;  are  there  without  corporate  action  on  their  part ;  and  so 
are  sufferers  and  not  sinners.  The  reasoning  leading  to  that  result  is 
so  severely  technical  as  to  have  suggested  a  justification  almost  remind- 
ing one  of  an  apology.  We  are  called  upon  to  sever  the  corporation, 
the  abstract  legal  entity,  from  the  living  and  acting  corporators ;   as  it 


I04  PEOPLE  V.  NORTH    RIVER    SUGAR    REFINING    CO.  §21 

were,  to  separate  in  our  thought  the  soul  from  the  body,  and  admit- 
ting the  sins  of  the  latter  to  adjudge  that  the  former  remains  pure. 
Let  us  first  recall  the  facts  in  the  order  of  their  occurrence. 

[After  stating  the  facts  in  relation  to  the  surrender  to  the  board,  substan- 
tially as  above  set  forth,  p.  101,  the  opinion  proceeds:] 

And  yet  it  is  argued  that  the  corporation,  the  legal  entity,  has  done 
nothing;  that  Searles  was  guilty,  but  the  corporate  robe  that  enveloped 
him  was  innocent,  and  so  he  must  be  left  to  wear  it  undisturbed ;  that 
while  all  that  was  human  and  could  act  had  sinned,  yet  the  impalpa- 
ble entity  had  not  acted  at  all  and  must  go  free.  I  believe  that  the 
history  of  what  occurred,  as  I  have  already  described  it,  furnishes  a 
sufficient  answer,  assuming  that  stockholders  and  trustees  acting  to- 
gether can  do  a  corporate  act  at  all.  There  was  corporate  action  in 
making  the  combination  agreement  which  bound  the  defendant.  The 
revocation  of  an  executed  authority  left  the  contract  standing.  The 
corporation  thus  helped  to  make  the  tnist  and  became  an  element  of 
it.  If  there  was  anything  imperfect  in  its  action,  the  new  stockholder 
and  his  associates  waived  the  imperfection  by  acting  upon  the  agree- 
ment of  the  corporation,  and  so  confirming  it  in  all  particulars. 

But  the  assumption  underlying  the  view  I  have  expressed  is  itself 
contested,  and  a  proposition  asserted  which  denies  the  possibility  of 
any  corporate  action,  except  by  the  trustees  or  directors  acting  for- 
mally as  such;  a  proposition  which,  if  sound,  dominates  the  whole 
field  of  controversy,  and,  establishing  that  there  has  been  no  corpo- 
rate action  at  all,  effectually  shuts  out  every  question  of  illegality  or 
public  injury.  I  can  not  admit  that  proposition.  I  think  there  may  be 
actual  corporate  conduct  which  is  not  formal  corporate  action;  and  where 
that  conduct  is  directed  or  produced  by  the  whole  body,  both  of  officers 
and  stockholders,  by  every  living  instrumentality  which  can  possess  and 
wield  the  corporate  franchise ,  that  conduct  is  of  a  corporate  character, 
and  if  illegal  and  injurious  m.ay  deserve  and  receive  the  penalty  of  dis- 
solution. 

There  always  is,  and  there  always  must  be,  corporate  conduct  with- 
out formal  corporate  action  where  the  thing  challenged  is  an  omission 
to  act  at  all.  A  corporation  organized  in  the  public  interest,  with  a 
view  to  the  public  welfare,  and  in  the  expectation  of  benefit  to  the 
community,  which  is  the  motive  of  the  state's  grant,  may  accept  the 
franchise  and  hold  it  in  sullen  silence,  doing  nothing,  resolving  noth- 
ing, furnishing  no  formal  corporate  action  upon  which  the  state  can 
put  its  finger  and  say,  this  the  corporation  has  done  by  the  agency 
through  which  it  is  authorized  to  act.  That  is  corporate  conduct 
which  the  state  may  question  and  punish  without  searching  for  a  for- 
mal corporate  act.  The  directors  of  a  corporation,  its  authorized  and 
active  agency,  may  seethe  stockholders  perverting  its  normal  purposes 
by  handing  it  over,  bound  and  helpless,  to  an  irresponsible  and  for- 
eign authority,  and  omit  all  action  which  they  ought  to  take,  offer  no 
resistance,  make  no  protest,  but  silently  acquiesce  as  directors  in  the 
wrong  which,  as  stockholders,  they  have  themselves  helped  to  com- 


4  21     THE  CORPORATION  AS  A  COLLECTION  OF  INDIVIDUALS.     IO5 

mit.      That  again  is  corporate  conduct,  though  there  be  an  utter  ab- 
sence of  directors'  resolutions. 

Is  it  asked  what  they  could  have  done  to  prevent  the  organization 
of  the  trust,  how  they  were  negligent  and  unfaithful  as  corporate  of- 
ficers by  their  omission  to  act;  what  good  a  mere  protest  or  objection 
would  have  accomplished ;  what  effective  form  their  resistance  could 
have  assumed  ?  The  answer  is  that  they  could  have  refused  to  recog- 
nize the  illegal  trust  transfer  of  the  stock;  they  could  have  declined  to 
register  the  new  ownership  upon  their  stock  books;  they  could  have 
said,  and  acted  upon  their  words,  that  the  original  stockholders  re- 
mained not  only  the  beneficial,  but  the  legal  owners  of  the  stock; 
and,  if  the  board  of  trustees  appealed  to  the  law,  the  resisting  directors 
could  challenge  the  legality  of  the  transfer  as  molded  by  the  combina- 
tion agreement,  and  might  have  defeated  the  tnist  and  shattered  it  at 
the  outset  of  its  career.  So  much  they  could  have  done  as  coiporate 
officers ;  so  much  it  was  their  duty  to  have  done  as  representatives  of 
the  corporation,  and  when  beyond  that  corporate  neglect  they  recog- 
nized the  validity  of  the  stock  transfers  in  trust,  put  the  new  and  un- 
lawful ownership  upon  their  books,  and  accepted  its  votes  in  the 
choice  of  new  directors,  who  were  to  throttle  the  independence  of  the 
corporation  and  chain  it  to  the  will  of  the  tioist,  I  think  we  must  shut 
our  eyes  in  willful  blindness  if  we  fail  to  see  both  corporate  neglect 
and  corporate  action. 

It  is  true,  as  we  are  reminded,  that  the  statute  confers  upon  trustees 
and  directors  general  authority  to  manage  the  stock,  property  and  con- 
cerns of  manufacturing  corporations ;  and  equally  true  that,  as  a  gen- 
eral rule  and  as  between  the  companies  and  those  with  whom  they 
deal,  the  corporate  action  must  be  manifested  through  and  by  the  di- 
rectors ;  but  other  statutes  indicate  with  equal  plainness  that  there  are 
corporate  acts  which  the  trustees  can  not  perform,  and  which  affect 
and  bind  the  corporation  only  upon  the  condition  that  they  proceed 
from  the  stockholders,  or  from  them  and  the  trustees  acting  together. 
In  increasing  or  diminishing  the  capital  stock,  the  corporate  act  is 
wholly  that  of  the  corporators,  and  in  consolidating  two  or  more  com- 
panies into  one,  there  must  be  the  joint  action  of  both  trustees  and 
stockholders.  The  tnist  of  the  refineries,  in  substance  and  effect,  ap- 
proached very  near  to  these  two  coi-porate  acts,  so  far  as  the  resultant 
consequences  affected  the  corporators  acting.  The  tnist  stipulations 
practically  doubled  their  coiporate  stock  through  the  agency  of  the 
certificates  issued,  and  the  combination  in  its  result  is  largely  the  equiv- 
alent of  a  substantial  consolidation.  If  these  things  had  been  done 
lawfully,  they  would  have  been  accomplished  by  the  united  action  of 
trustees  and  corporators,  and  beyond  any  question  would  have  been 
corporate  acts.  Having  been  done  unlawfully,  but  by  the  same  united 
agency  aiming  at  similar  results,  they  must  still  constitute  corporate 
conduct,  unless  the  bare  fact  of  their  illegality  takes  away  their  corpo- 
rate character.  To  say  that  would  disarm  the  state  in  every  case  of 
misuse  or  abuse  of  chartered  powers. 

The  abstract  idea  of  a  corporation,  the  legal  entity,  the  impalpable 


I06  PEOPLE  V,  NORTH    RIVER   SUGAR    REFINING   CO.  §  21 

and  intangible  creation  of  human  thought  is  itself  a  fiction ,  and  has  been 
appropriately  described  as  a  figure  of  speech.  It  serves  very  well  to 
designate  in  our  minds  the  collective  action  and  agency  of  many  indi- 
viduals as  permitted  by  the  law;  and  the  substantial  inquiry  always  is 
what  in  a  given  case  has  been  that  collective  action  and  agency.  As 
between  the  corporation  and  those  with  whom  it  deals  the  manner  of  its 
exercise  usually  is  m.aterial,  but  as  between  it  and  the  state,  the  sub- 
stantial inquiry  is  only  what  that  collective  action  and  agency  has  done, 
2vhat  it  has,  in  fact,  accomplished,  what  is  seen  to  be  its  effective  work, 
7vhat  has  been  its  conduct.  It  ought  not  to  be  otherwise.  The  state 
gave  the  franchise,  the  charter,  not  to  the  impalpable,  intayigible  and 
almost  nebulous  fiction  of  our  thought,  but  to  the  corporators,  the  indi- 
viduals, the  acting  a7id  living  -men  to  be  used  by  them,  to  redound  to 
their  benefit,  to  strengthen  their  hands  and  add  energy  to  their  capital. 
If  it  is  taken  away,  it  is  taken  from  them  as  individuals  and  corpora- 
tors, and  the  legal  fiction  disappears.  The  benefit  is  theirs,  the  pun- 
ishme?it  is  theirs,  and  both  must  attend  and  depend  upon  their  conduct; 
ayid  when  they  all  act  collectively ,  as  an  aggregate  body,  without  the 
least  exception,  and  so  acting,  reach  results  and  accomplish  purposes 
clearly  corporate  in  their  character,  and  affecting  the  vitality,  the  inde- 
pendence, the  utility  of  the  corporation  itself,  we  can  not  hesitate  to  co?i- 
clude  that  there  has  been  corporate  conduct  which  the  state  may  review, 
and  not  be  defeated  by  the  assumed  innocence  of  a  convenient  fiction. 
As  was  said  in  People,  ex  rel.,  v.  K.  &  M.  T.  R.  Co.  (23  Wend. 
193)?  "thougli  the  proceeding  by  information  be  against  the  corpo- 
rate body,  it  is  the  acts  or  omissions  of  the  individual  corporators  that 
are  the  subject  of  the  judgment  of  the  court." 

It  remains  to  determine  whether  the  conduct  of  the  defendant  in 
participating  in  the  creation  of  the  trust,  and  becoming  an  element  of 
it  was  illegal  and  tended  to  the  public  injury  and  we  may  consider  the 
two  questions  together  and  without  formal  separation. 

It  is  quite  clear  that  the  effect  of  the  defendant's  action  was  to  divest 
itself  of  the  essential  and  vital  elements  of  its  franchise  by  placing 
them  in  trust ;  to  accept  from  the  state  the  gift  of  corporate  life  only 
to  disregard  the  conditions  upon  which  it  was  given ;  to  receive  its 
powers  and  privileges  merely  to  put  them  in  pawn ;  and  to  give  away 
to  an  irresponsible  board  its  entire  independence  and  self-control. 
When  it  had  passed  into  the  hands  of  the  trust,  only  a  shell  of  a  cor- 
poration was  left  standing,  as  a  seeming  obedience  to  the  law,  but 
with  its  internal  structure  destroyed  or  removed.  Its  stockholders, 
retaining  their  beneficial  interest,  have  separated  from  it  in  their  voting 
power,  and  so  parted  with  the  control  which  the  charter  gave  them 
and  the  state  required  them  to  exercise.  It  has  a  board  of  directors 
nominally  and  formally  in  office,  but  qualified  by  shares  which  they 
do  not  own,  and  owing  their  official  life  to  the  board  which  can  end 
their  power  at  any  moment  of  disobedience.  It  can  make  no  dividends 
whatever  may  be  its  net  earnings,  and  must  encumber  its  property  at 
the  command  of  its  master,  and  for  purposes  wholly  foreign  to  its  own 
corporate  interests  and  duties.     At  the  command  of  that  master  it  has 


§  21     THE  CORPORATION  AS  A  COLLECTION  OF  INDIVIDUALS.     lO/ 

ceased  to  refine  sugar,  and  without  any  doubt  for  the  purpose  of  so 
far  lessening  the  market  supply  as  to  prevent  what  is  termed  "over- 
production." In  all  these  respects  it  has  wasted  and  perverted  the 
privileges  conferred  by  the  charter,  abused  its  powers,  and  proved 
unfaithful  to  its  duties.  But  graver  still  is  the  illegal  action  substituted 
for  the  conduct  which  the  state  had  a  right  to  expect  and  require.  It 
has  helped  to  create  an  anomalous  trust  which  is,  in  substance  and 
effect,  a  partnership  of  twenty  separate  corporations. 

The  state  permits  in  many  ways  an  aggregation  of  capital,  but  mind- 
ful of  the  possible  dangers  to  the  people  overbalancing  the  benefits, 
keeps  upon  it  a  restraining  hand,  and  maintains  over  it  a  prudent 
supervision,  where  such  aggregation  depends  upon  its  permission  and 
grows  out  of  its  corporate  grants.  It  is  a  violation  of  law  for  corpo- 
rations to  enter  into  a  partnership.  N.  Y.  &  S.  C.  Co.  v.  F.  Bank, 
7  Wend.  412;  Clearwater  v.  Meredith,  i  Wall.  29;  Whittenton 
Mills  V.  Upton,  10  Gray  596.  The  case  last  cited  furnishes  the  rea- 
sons with  precision  and  at  length.  It  shows  the  utter  inconsistency 
of  a  double  allegiance  by  those  who  act  for  the  corporation  to  two  dif- 
ferent principals,  and  demonstrates  that  the  vital  characteristics  of  the 
corporation  are  of  necessity  drowned  in  the  parainount  authority  of 
the  partnership.  That  the  combination  of  the  refineries  partakes  of 
the  nature  of  a  partnership  is  not  denied.  Indeed,  in  one  of  the  papers 
added  to  the  appellant's  brief,  it  is  not  only  admitted,  but  asserted 
and  defended.  That  paper  shows  quite  clearly  that  by  force  of  the 
arrangement  there  was  a  community  of  interest  in  the  fund  created  by 
the  corporate  earnings  before  division,  and  that  each  member  of  the 
ti"ust  shared  in  the  profit  and  loss  of  all.  It  is  said,  however,  that  a 
consolidation  of  manufacturing  corporations  is  permitted  by  the  law, 
and  that  the  trust,  or  combination,  or  partnership,  however  it  may  be 
described,  amounts  only  to  a  practical  consolidation,  which  public 
policy  does  not  forbid,  because  the  statute  permits  it.  Laws  of  1867, 
ch.  960;  Laws  of  1884,  ch.  367.  The  refineries  did  not  avail  them- 
selves of  that  statute.  They  chose  to  disregard  it,  and  to  reach  its 
practical  results  without  subjection  to  the  prudential  restraints  with 
which  the  state  accompanied  its  permission. 

If  there  had  been  a  consolidation  under  the  statute,  one  single  cor- 
poration would  have  taken  the  place  of  the  others  dissolved.  They 
would  have  disappeared  utterly,  and  not,  as  under  the  trust,  remained 
in  apparent  existence  to  threaten  and  menace  other  organizations 
and  occupy  the  ground  which  otherwise  would  be  left  free.  Under 
the  statute  the  resultant  combination  would  itself  be  a  corporation  de- 
riving its  existence  from  the  state,  owing  duties  and  obligations  to  the 
state,  and  subject  to  the  control  and  supervision  of  the  state,  and  not, 
as  here,  an  unincorporated  board,  a  colossal  and  gigantic  partnership, 
having  no  corporate  functions  and  owing  no  corporate  allegiance. 
Under  the  statute  the  consolidated  company  taking  the  place  of  the 
separate  corporations  could  have  as  capital  stock  only  an  amount  equal 
to  the  fair  aggregate  value  of  the  rights  and  franchises  of  the  compa- 
nies absorbed ;  and  not  as  here  a  capital  stock  double  that  value  at  the 


108  PEOPLE  V.  NORTH    RIVER    SUGAR    REFINING   CO.  §  21 

outset  and  capable  of  an  elastic  and  irresponsible  increase.  The  dif- 
ference is  very  great  and  serves  further  to  indicate  the  inherent  ille- 
gality of  the  trust  combination. 

And  here,  I  think,  we  gain  a  definite  view  of  the  injurious  tenden- 
cies developed  by  its  organization  and  operation,  and  of  the  public 
interests  which  are  menaced  by  its  action.  As  corporate  grants  are 
always  assumed  to  have  been  made  for  the  public  benejit^  any  conduct 
which  destroys  their  normal  functions,  and  jnaims  and  cripples  their 
separate  activity,  and  takes  away  their  free  and  independent  action, 
must  so  far  disappoint  the  purpose  of  their  creation  as  to  affect  un- 
favorably the  public  interest;  and  that  to  a  much  greater  exte?ttxvhen 
beyond  their  own  several  aggregations  of  capital  they  compact  them 
all  into  one  combination  which  stands  outside  of  the  ward  of  the  state, 
which  dominates  the  range  of  an  entire  industry,  and  puts  upon  the 
market  a  capital  stock  proudly  defiant  of  actual  values,  and  capable 
of  an  tcnlimited  expansion.  It  is  not  a  sufficient  answer  to  say  that 
similar  results  may  be  lawfully  accomplished  ;  that  an  individual  hav- 
ing the  necessary  wealth  might  have  bought  all  these  refineries,  manned 
them  with  his  own  chosen  agents,  and  managed  them  as  a  group  at 
his  sovereign  will ;  for  it  is  one  thing  for  the  state  to  respect  the  rights 
of  ownership  and  protect  them  out  of  regard  to  the  business  freedom 
of  the  citizen,  and  quite  another  thing  to  add  to  that  possibility  a  fur- 
ther extension  of  those  consequences  by  creating  artificial  persons  to 
aid  in  producing  such  aggregations. 

The  individuals  are  few  who  hold  in  possession  such  enormous 
wealth,  and  fewer  still  who  peril  it  all  in  a  manufacturing  enterprise ; 
but  if  corporations  can  combine,  and  mass  their  forces  in  a  solid  tmst 
or  partnership,  with  little  added  risk  to  the  capital  already  embarked, 
without  limit  to  the  magnitude  of  the  aggregation,  a  tempting  and 
easy  road  is  opened  to  enormous  combinations,  vastly  exceeding  in 
number  and  in  strength  and  in  their  power  over  industiy  any  possibili- 
ties of  individual  ownership  ;  and  the  state  by  the  creation  of  the 
artificial  persons  constituting  the  elements  of  the  combination,  and 
failing  to  limit  and  restrain  their  powers,  becomes  itself  the  responsi- 
ble creator,  the  voluntary  cause  of  an  aggregation  of  capital  which  it 
simply  endures  in  the  individual  as  the  product  of  his  free  agency. 
What  it  may  bear  is  one  thing,  what  it  should  cause  and  create  is  quite 
another. 

And  so  we  have  reached  our  conclusion,  and  it  appears  to  us  to 
have  been  established,  that  the  defendant  corporation  has  violated  its 
charter  and  failed  in  the  performance  of  its  corporate  duties,  and  that 
in  respects  so  material  and  important  as  to  justify  a  judgment  of  disso- 
lution. Having  reached  that  result,  it  becomes  needless  to  advance 
into  the  wider  discussion  over  monopolies  and  competition  and  re- 
straint of  trade  and  the  problems  of  political  economy.  Our  duty  is 
to  leave  them  until  some  proper  emergency  compels  their  considera- 
tion. Without  either  approval  or  disapproval  of  the  views  expressed 
upon  that  branch  of  the  case  by  the  courts  below,  we  are  enabled  to 
decide  that  in  this  state  there  can  be  no  partnerships  of  separate  and 


§  21    THE  CORPORATION  AS  A  COLLECTION  OF  INDIVIDUALS.     IO9 

independent  corporations,  whether  directly,  or  indirectly  through  the 
medium  of  a  trust ;  no  substantial  consolidations  which  avoid  and  dis- 
regard the  statutory  permissions  and  restraints,  but  that  manufactur- 
ing corporations  must  be  and  remain  several  as  they  were  created,  or 
one  under  the  statute. 

The  judgment  appealed  from  should  be  affirmed  with  costs. 

All  concur. 

Judgment  affirmed. 

Note.  (1)  The  right  of  the  state  to  forfeit  the  charter  of  a  corporation  for  a 
violation  of  it  injuriously  affecting  the  public,  is  treated  in  ch.  16,  infra,  p. 
1294,  et  seq. 

(2)  Also  the  power  of  a  corporation  to  become  a  member  of  a  paitneish  : 
is  treated  in  ch.  13,  infra,  p.  957. 

(3)  As  to  the  "fiction  of  the  legal  entity  of  the  corporation"  see  particularly,. 
1892,  State  v.  Standard  Oil  Co.,  49  Ohio  St.  R.  137,  34  Am.  St.  R.  641,  and 
the  quotations  from  Morawetz  and  Taylor,  in  the  note  to  this  article,  infra, 
p.  110.  Also  1895,  Ford  v.  Chicago  Milk  Shippers'  Association,  155  111.  166; 
1895,  Belden  v.  Burke,  147  N.  Y.  542;  1888,  Wood  v.  Trust  Co.,  128  U.  S.  416. 

(4)  As  to  validitv  of  trusts  or  combinations  in  restraint  of  trade.  See  1889, 
Richardson  v.  Buhl,  77  Mich.  632,  27  Am.  &  E.  C.  C.  256;  1889,  People  v. 
Chicago  Gas  Trust,  130  111.  268,  17  Am.  St.  R.  319,  29  Am.  &  E.  C.  C.  257; 
1889,  Gibbs  v.  Consolidated  Gas  Co.,  130  U.  S.  396, 25  Am.  &  E.  C.  C.  369 ;  1890, 
Emery  v.  Ohio  Candle  Co.,  47  Ohio  St.  320,  32  Am.  &  E.  C.  C.  165 ;  1890,  State 
V.  Nebraska  Distilling  Co.,  29  Neb.  700,  29  Am.  &  E.  C.  C.  656;  1891,  Huston 
V.  RentUnger,  91  Kv.  333, 34  Am.  St.  R.  225 ;  1893,  People  v.  Sheldon,  139  N.  Y. 
251,  36  Am.  St.  R.  690;  1894,  Nester  v.  Continental  Brewing  Co.,  161  Pa.  St. 
473,  41  Am.  St.  R.  894;  1895,  Distilling  &  Cattle  F.  Co.  v.  People,  156  111.  448, 
47  Am.  St.  R.  200;  1895,  People  v.  Milk  Exchange,  145  N.  Y.  267,  45  Am.  St. 
R.  609;  1897,  People  v.  Chicago  Live  Stock  Exchange,  170  111.  556,  62  Am.  St. 
R.  404 ;  1897,  United  States  v.  Joint  Traffic  Association,  76  Fed.  R.  895,  s.  c. 
in  171  U.  S.  505. 


NOTES   TO   ARTICLE   III. 


The  corporation  as  a  collection  of  individuals,  history  and  definitions: 
Mr.  Kyd  (Corporations,  vol.  1,  p.  13,  1793)  says:     A  corporation,  or  body 

Eolitic,  or  body  incorporate  is  a  collection  of  many  individuals  united  in  one 
ody,  under  a  special  denomination,  having  perpetual  succession  under  an 
artificial  form,  and  vested  by  the  policy  of  the  law  with  the  capacity  of  act- 
ing in  several  respects  as  an  individual,  particularly  of  taking  and  granting 
property,  of  contracting  obligations,  and  of  suing  and  being  sued,  of  enjoying 
privileges  and  immunities  in  common,  and  of  exercising  a  variety  of  political 
rights,  more  or  less  extensive,  according  to  the  design  of  its  institution,  or 
the  powers  conferred  upon  it,  either  at  the  time  of  its  creation  or  at  any  sub- 
sequent period  of  its  existence." 

In  Hope  Insurance  Co.  v.  Boardman,  5  Cranch  (9  U.  S.)  57,  1809,  and  in 
Bank  of  United  States  v.  Deveaux,  5  Cranch  (9  U.  S.)  61,  same  year,  it  was 
held,  in  regard  to  the  citizenship  of  corporations  for  the  purpose  of  jurisdic- 
tion, that  the  court  "would  look  beyond  the  mere  legal  being  which  the 
charter  created,  and  consider  the  character  as  to  citizenship,  of  the  individ- 
uals of  whom  the  company  is  composed."  This,  of  course,  ignored  the  cor- 
porate personality,  and  continued  to  be  the  law  till  1844,  when  the  case  of 
Louisville,  etc.,  R.  R.  Co.  v.  Letson,  2  Howard  (43  LT.  S.)  497,  558.  announced 
that  a  corporation  "is  to  be  deemed  to  all  intents  and  purposes  as  a  person, 
although  an  artificial  person,"  and  a  citizen  of  the  state  creating  it.  In  the  later 
case  of  Ohio  and  Mississippi  R.  Co.  v.  Wheeler,  1  Black  (66  U.  S.)  286,  1861, 
the  Deveaux  and  Letson  cases  were  attempted  to  be  reconciled,  by  inventing 
another  strange  fiction  that  the  members  of  any  corporation  were  to  be  conj. 


no  NOTES   TO   ARTICLE   III. 

clusively  presumed  to  be  citizens  of  the  state  creating  the  corporation,  and 
"no  averment  or  evidence  to  the  contrary  is  admissible,"  though  the  truth  is 
otherwise,  and  though  the  suit  of  a  corporation  "is  to  be  considered  as  a  suit 
by  the  individuals  who  compose  it."     This  seems  to  be  the  theory  yet. 

In  Muller  v.  Dows,  94  U.  S.  444,  1876,  it  is  said :  "A  suit  may  be  brought 
in  the  federal  courts  by  or  against  a  corporation,  but  in  such  a  case  it  is  re- 
garded as  a  suit  brought  by  or  against  the  stockholders  of  the  corporation," 
all  of  whom  are  conclusively  presumed  to  be  citizens  of  the  state  creating  the 
corporation. 

(See  further  on  this  point,  Shaw  v.  Quincy  Mining  Co.,  145  U.  S.  444,  infra, 
p.  1066,  and  St.  Louis  &  S.  F.  R.  v.  James,  161  U.  S.  645,  infra,  p.  1099. ) 

Judge  Story,  jn  the  Dartmouth  College  case,  1819  (4  Wheat.  667,  infra, 
p.  727),  while  recognizing  the  artificial  personality  of  the  corporation,  yet 
seemed  to  emphasize  the  collective  or  associate  character  more  particularly 
He  says:  '  A  corporation  aggregate  is  a  collection  of  individuals  united  into 
one  collective  body,  under  a  special  name,  and  possessing  certain  immunities 
privileges  and  capacities  in  its  collective  character,  which  do  not  belong  to  the 
natural  persons  composing  it." 

Chief  Justice  Shaw,  of  Massachusetts,  in  Overseers  of  the  Poor  v.  Sears  22 
Pick.  (Mass.)  122 on  128,  infra,  p.  193,  1889,  says;  "A  corporation  aggregate 
consists  of  many  persons  united  together  into  one  society,  and  kept  up  by  a 
perpetual  succession  of  members  so  as  to  continue  forever." 

Lumpkin,  J.,  in  Hightower  v.  Thornton,  8  Ga.  492,  1850,  says:  "Corpora- 
tions are  but  associations  of  individuals."  So  Baldwin,  J.,  in  Chater  v.  San 
Francisco,  etc.,  Co.,  19  Cal.  219,  1861  {supra,  p.  80),  says:  "A  corporation 
organized  under  general  laws  is  scarcely  more  than  a  partnership,  or  an  asso- 
ciation of  individuals."  Similarly  Law,  J.,  in  Gelpcke  v.  Blake.  19  Iowa  263 
on  268,  1865,  asks:  "Who  in  law  constitutes  the  company,  if  it  be  not  the 
stockholders?" 

Mr.  Morawetz,  in  the  preface  to  the  second  edition  of  his  Treatise  on  the 
Law  of  Private  Corporations,  1886,  says  the  first  edition  (which  appeared  in 
1882)  was  prepared  according  to  a  plan  differing  from  that  follow^ed  in  any 
previous  treatise  on  the  same  subject,  and  specifies  particularly :  "The  author 
was  of  the  opinion  that  the  law  relating  to  private  business  corporations  could 
not  be  clearly  understood,  unless  the  fact  were  recognized  that  such  a  corpo- 
ration IS  really  an  association  formed  by  the  agreement  of  its  stockholders,  and 
that  the  existence  of  a  corporation  as  an  entity,  independently  of  its  mem- 
bers, IS  a  fiction ;  and  that  while  the  fiction  of  a  corporate  entity  has  im- 
portant uses  and  can  not  be  dispensed  with,  it  is  nevertheless  essential  to 
bear  in  mind  distinctly  that  the  rights  and  duties  of  an  incorporated  associa- 
tion are,  in  reality,  the  rights  and  duties  of  the  persons  who  compose  it,  and 
not  of  an  imaginary  being."  He  retains  the  same  view  throughout  the  sec- 
ond edition.  In  section  227  he  savs:  "A  corporation  is  really  an  association 
of  persons,  and  no  judicial  dictum  or  legislative  enactment  can  alter  this  fact." 
And  "In  equity  the  conception  of  a  corporate  entity  is  used  merely  as  a 
formula  for  working  out  the  rights  and  equities  of  the  real  parties  in  interest, 
while  at  law  this  figurative  conception  takes  the  shape  of  a  dogma,  and  is 
often  applied  rigorously  without  regard  to  its  true  purpose  and  meaning.  In 
equity  the  relationship  between  the  shareholders  is  recognized  whenever  this 
becomes  necessary  to  the  attainment  of  justice ;  at  law  this  relationship  is  not 
recognized  at  all."  He  particularly  enumerates  that  the  unanimous  actions 
of  the  members,  within  corporate  powers,  are  the  actions  of  the  corporation; 
notice  to  all  members  is  notice  to  the  corporation;  property  of  associations 
subject  to  debts  can  be  followed,  when  vested  in  a  corporation  organized  by 
their  members;  also  in  the  questions  relating  to  constitutionality  of  laws 
affecting  corporations,  and  laws  of  consolidations  and  dissolutions  of  corpora- 
tions, the  rights  of  creditors  and  the  rights  of  members  as  against  the  corpo- 
ration, and  in  similar  cases  the  fiction  is  necessarily  overlooked  or  ignored. 
See  sections  228,  229.  230  and  231. 

Mr.  Taylor,  Treaties  on  the  Law  of  Private  Corporations,  in  the  preface  to 
his  first  edition  in  1884,  says:     "It  is  the  opinion  of  the  writer  that  the  fie- 


THE  CORPORATION  AS  A  COLLECTION  OF  INDIVIDUALS.    I  I  I 

tion  of  the  'legal  person'  has  outlived  its  usefulness,  and  is  no  longer  adequate 
for  the  purposes  of  an  accurate  treatment  of  the  legal  relations  arising  through 
the  prosecution  of  a  corporate  enterprise.  Bv  dismissing  this  fiction  a  clearer 
view  may  be  had  of  the  actual  human  beings  interested,  whose  rights  may 
then  be  determined  without  unnecessary  mystification."  In  the  preface  to 
his  third  edition,  1894,  he  says:  "When  special  rules  cease  to  accord  with 
the  general  rule  once  back  of  them,— if  no  further  convenient  rules  can  be 
drawn  from  the  general  rule,— it  drops  from  the  body  of  the  law.  *  *  ♦ 
Thus  it  is  at  present  with  the  rule  or  fiction  that  a  corporation  is  a  legal  per- 
son ;  it  still  represents  a  convenient  phrase,  nay,  a  convenient  point  of  view ; 
but  it  is  dead  as  a  principle  because  legal  propositions  are  no  longer  deduced 
from  it,  nor  is  it  in  logical  connection  with  the  great  mass  of  legal  rules  which 
have  been  called  forth  by  controversies  relating  to  railroad  and  other  busi- 
ness corporations,"  citing  People  v.  North  Riv.  S.  R.  Co.  (snpra,  p.  100),  and 
State  v.Standard  Oil  Co.,  49  O.  S.  137.  In  the  text,  section  36,  he  says :  "A  corpo- 
ration, considered  as  a  legal  institution,  is  the  sum  of  the  legal  relations  re- 
sulting from  the  operation  of  rules  of  law,  in  its  constitution  upon  the  various 
persons,  who,  by  fulfilling  the  prerequisite  conditions,  bring  themselves  within 
the  operation  of  these  rules."  In  section  48  he  adds :  "It  is  now  necessary 
to  determine  who  are  the  individuals  composing  the  corporation  regarded  not 
as  a  mass  of  legal  relations,  but  as  a  body  of  men.  Can  it  be  said  that  the 
corporation,  or  body  corporate,  is  composed  of  all  the  persons  between  whom 
these  legal  relations  subsist?  This  conception  would  embrace  all  persons  in 
any  way  interested  in  the  corporate  enterprise,  *  *  *  the  state  *  *  * 
the  shareholders  and  directors,  *  *  *  and  creditors."  But,  he  says,  sec- 
tion 49,  "It  is  more  in  accordance  with  the  ordinary  use  of  terrasj^  and  a 
clearer  and  more  serviceable  conception,  to  regard  the  corporation  as  consist- 
ing of  the  shareholders,  who  may,  with  propriety,  be  said  to  constitute  the 
body  corporate,  as  it  is  through  their  acts,  or  the  acts  of  their  predecessors, 
that  incorporation  is  caused."  Section  50:  "The  shareholders,  then,  vested 
with  the  corporate  powers,  are  the  body  corporate,  corporation  or  company." 
Section  61 :  "Such,  then,  are  the  two  meanings  of  the  term  corporation ;  the 
one,  the  sum  of  legal  relations  subsisting  in  respect  to  the  corporate  enter- 
prise; the  other,  the  organic  body  of  shareholders,  whose  acts  cause  the 
operation  of  the  rules  of  law  in  the  constitution.  These  two  concep- 
tions include  all  that  is  really  connoted  by  the  term  in  whatever  sense 
used.  And,  if  so,  what  has  become  of  the  venerable  'legal  person?'  Is  he 
still  somewhere,  as  he  has  always  been  imagined?  Or  is  he  nowhere 
as  he  has  always  actually  been?  *  *  *  Shall  we  say  he  is  the  combination, 
the  mystic  unification  of  our  two  conceptions?  Better  not;  better  forget  him. 
For  he  is  a  conception,  which,  if  it  amounts  to  anything,  is  but  a  stumbling- 
block  in  the  advance  of  corporation  law  towards  the  discrimination  of  the 
real  rights  of  actual  men  and  women.  And  then,  after  all,  what  has  he  ever 
been  but  an  abstraction  materialized  in  a  name?"  He  says,  also,  note  1,  §  51 : 
"It  is  in  respect  of  the  doctrine  of  ultra  vires,  that  the  fiction  of  a  legal  per- 
son is  most  pernicious,  as  this  fiction  involves  regarding  a  corporation  as  a 
unit,  and  retards  the  proper  discrimination  of  the  rights  of  different  persons 
in  regard  to  tiltra  vires  acts."  Compare  the  definition  of  Reese,  supra,  p.  79. 
Prof.  Pomerov,  in  reviewing  Mr.  Taylor's  work,  under  the  title,  "Legal 
Idea  of  a  Corporation,"  19  Am.  Law  Rev.,  pp.  114-116  (1885),  says:  "The 
common  law  conception  of  the  'legal  personality'  of  the  metaphysical  entity 
constituting  the  corporation  entirely  distinct  from  its  individual  members 
arose  at  a  time  when  corporations  were  all  created  by  special  charters,  gen- 
erally granted  by  the  crown  ;  when  very  few  *  *  *  were 'stock' corpora- 
tions, *  *  »  and  were  necessarily  monopolies.  *  *  *  In  the  United 
States  *  *  *  almost  all  private  corporations  *  *  *  are  formed  under 
general  laws  *  *  *  for  almost  any  business  purpose.  *  •  *  The  asso- 
ciations thus  formed  *  *  *  differ  very  little  in  their  essential  attributes 
from  partnerships.  *  *  •  Of  late  years  parliament  has  enacted  statutes 
similar  in  their  scope  and  effect  to  our  general  laws  for  the  formation  of  pri- 
vate corporations.    The  English  courts  have  never  treated  the  joint-stock 


112  NOTES   TO    ARTICLE   III. 

companies  with  limited  liability,  formed  under  these  statutes,  as  being  identi- 
cal with  common  law  corporations,  but  have  always  carefully  distinguished 
between  them.  In  our  opinion,  tlie  American  courts  must,  in  time,  recognize 
and  enforce  the  same  distinction." 

In  Pembina  Mining  Co.  v.  Pennsylvania,  125  U.  S.  181,  on  189  ( 1888),  Field, 
J.,  says :  "A  private  corporation  is  merely  an  association  of  individuals  united 
for  a  special  purpose  and  permitted  to  do  business  under  a  particular  name, 
and  have  a  succession  of  members  without  dissolution."  He  said  the  same 
in  Baltimore,  etc.,  R.  Co.  v.  Fifth  Baptist  Church,  108  U.  S.  317,  330  (1883). 

The  Am.  &  Eng.  Ency.  (4  vol.  185)  (1888),  says:  "A  corporation  is  a  body 
consisting  of  one  or  more  persons,  established  by  law  for  certain  specific  pur- 
poses, with  the  capacity  of  succession  (either  perpetual  or  for  a  limited 
period)  and  other  special  privileges  not  possessed  by  individuals,  yet  acting 
in  many  respects  as  an  individual." 

Mr.  Beach,  Commentaries  on  the  Law  of  Private  Corporations,  vol.  1,  §  1, 
1891,  after  noting  the  conflicts  in  definitions  given,  says:  "Although  a  cor- 
poration is,  in  a  certain  sense,  something  distinct  from  its  members,  having  a 
life  independent  of  theirs,  the  truth  would  seem  to  lie  between  these  conflict- 
ing views  of  its  nature.  *  *  *  The  effort  of  practical  jurisdiction  should 
be  to  regard  it  as  a  unit  or  as  a  collection  of  persons  according  to  the  relation 
in  which  it  acts  in  a  given  instance.  As  has  been  aptly  said  to  this  point 
(quoting  Professor  Pomeroy,  19  Am.  Law  Rev.  114)  'the  shield  will  be  either 
white  or  red  accordingly  as  it  is  viewed  from  the  one  side  or  the  other.'  " 

Mr.  Thompson,  Commentaries  on  Corporations,  1895,  §1,  says:  "The 
most  usual  conception  of  a  corporation  is  that  it  is  a  collection  of  natural  per- 
sons, joined  together  by  their  voluntary  action  or  by  legal  compulsion,  by  or 
under  the  authority  of  an  act  of  the  legislature,  to  accomplish  some  purpose, 
pecuniary,  ideal,  or  governmental,  authorized  by  the  legislature,  under  a 
scheme  of  organization  and  by  methods  thereby  prescribed  or  permitted : 
with  the  faculty  of  having  a  continuous  succession  during  the  period  pre- 
scribed by  the  legislature  for  its  existence,  of  having  an  individual  name  by 
which  it  may  make  and  take  contracts  and  sue  and  be  sued,  and  of  acting  as 
a  unit  in  re*spect  of  all  matters  within  the  scope  of  the  purposes  for  which  it 
was  created." 

Mr.  Clark,  Handbook  of  the  Law  of  Private  Corporations,  1897,  §§  1,  2,  3, 
says :  "A  corporation  aggregate  is  a  collection  of  individuals  united,  by  author- 
ity of  law,  into  one  body,  under  a  special  denomination,  with  the  capacity  of 
perpetual  succession.  Every  corporation  aggregate  consists  of,  (a)  A  collec- 
tion of  individuals,  (b)  A  legal  entity,  which  is,  for  many  purposes,  in  con- 
templation of  law,  separate  and  distinct  from  the  members  who  compose  it. 
For  the  purpose  of  acquiring,  holding,  and  conveying  property,  contracting 
obligations,  incurring  liabilities,  suing  and  being  sued,  a  corporation  is 
regarded  in  law  as  a  legal  entity  separate  and  distinct  from  the  members  who 
compose  it.  *  *  *  That  a  corporation  is  thus  a  legal  entity,  separate  and 
distinct  from  the  members  who  compose  it,  is  a  mere  legal  fiction  introduced 
for  the  convenience  of  the  corporation  in  transacting  business,  and  of  those 
who  do  business  with  it;  and  when  urged  to  an  intent  and  purpose  not  within 
its  reason  and  policy,  it  will  be  disregarded,  and  the  fact  that  the  corporation 
is  really  a  collection  of  individuals  will  be  recognized,  even  at  law.  Courts 
of  equity,  in  numerous  instances,  look  behind  the  corporate  entity,  and  recog- 
nize the  individual  members  and  will  do  so  whenever  justice  requires." 

It  seems  from  the  foregoing,  and  still  more  from  the  further  treatment  of 
the  subject  by  Mr.  Beach,  Mr.  Thompson  and  Mr.  Clark,  that  "the  collection 
of  individuals"  is  emphasized  only  by  being  placed  first  in  their  definitions 
as  Mr.  Kyd  did,  and  is  not  made  especially  prominent  as  a  principle  from 
which  to  deduce  theories  of  corporate  rights  and  liabilities,  as  is  the  case  with 
Mr.  Morawetz  and  Mr.  Taylor. 

Mr.  Trapnell  in  "The  Logical  Conception  of  a  Corporation," — a  paper 
read  before  the  West  Virginia  Bar  Association  in  1896,  defines  a  corporation 
as  "an  association  of  individuals  formed  under  the  sanction  of  the  state,  for 
a  distinct  and  definite  purpose."     He  specifies  particularly  that  the  associa- 


§  22  THE   CORPORATION  AS   A  FRANCHISE.  II 3 

tion  originates  in  an  agreement  between  individuals,  which  becomes  effective 
only  through  a  special  charter  or  general  enabling  act,  the  provisions  of 
which  are  accepted  by  the  execution  of  the  agreement;  the  peculiar  mode  of 
existence  is  perpetual,  actual  or  potential ;  the  distinct  feature  of  its  termina- 
tion is  the  state's  power  to  dissolve  for  violation  of  the  law ;  the  distinctive 
features  as  to  membership  are  the  effect  of  assignment  of  stock,  and  the  confin- 
ing of  rights  and  liabilities  strictly  to  the  proper  purposes  of  the  corporation ; 
as  to  the  state's  sanction,  it  must  be  an  express  legislative  one,  which  operates 
both  as  a  grant  of  poioers  forming  a  contract  with  the  state,  and  as  a  law,  pre- 
scribing certain  forms  and  modes  of  action,  and,  as  to  the  purpose,  it  must  be 
a  definite  one,  and  no  corporate  power  is  to  be  exercised  outside  of  this  ex- 
press or  necessarily  implied  purpose,  under  penalty  of  forfeiture,  and  no 
corporate  liability  will  arise  therefrom  except  by  way  of  estoppel ;  the  cor- 
porate actions  must  be  tiirough  the  forms  and  by  the  parties  or  officers  pre- 
scribed, and  the  funds  must  be  applied  only  to  the  purposes  indicated,  with- 
out diversion  or  dissipation  to  the  prejudice  of  members  or  creditors.  The 
foregoing  is  the  substance  of  what  he  submits  "as  a  logical  statement  of  all 
the  elements  essential  to  a  modern  business  corporation,  with  such  analysis 
of  each  as  is  necessary  to  differentiate  a  corporation  from  all  other  associa- 
tions known  to  law,  as  regards  that  particular,"  in  other  words  "<o  exhibit  the 
anatomy  of  a  healthy  corporation.'''  He  says  further:  "It  seems  worth  while 
to  attempt  to  embody  a  clear  conception  of  a  corporation — immortality, 
'corporate  identity,'  'perpetual  succession,'  and  all — without  any  aid  from 
the  'artificial'  person  whom  Coke  and  Blackstone  regarded  so  lovingly,  and 
who  is  such  a  bugbear  to,  at  least,  one  modern  text  writer." 


ARTICLE    IV.       THE     CORPORATION    AS    A    FRANCHISE. 

Sec.  22.  In  its  relation  to  the  state  a  corporation  is  considered 
as  a  primary  franchise  held  by  the  members  in  their  individual 
capacity,  enabling  them  in  their  collective  or  corporate  capac- 
ity to  have  and  exercise  other  or  secondary  franchises,  rights 
or  privileges. 
(i)  General  nature  of  a  franchise. 

THE   PEOPLE,  Etc.,  Ex   Rel.  The  Attorney-General,   v.  THE  UTICA 
INSURANCE  COMPANY.* 

i8i8.     In  the  Supreme  Court  of  New  York.     15  Johnson  (N. 

Y.)  *358-*395- 

[Information  in  the  nature  of  quo  warranto  against  the  Utica  In- 
surance Company, — a  company  authorized  to  do  all  kinds  of  insur- 
ance business,  and  "in  general  of  doing  and  performing,  in  these  op- 
erations, all  the  business  generally  performed  by  insurance  companies, 
excepting  therefrom  that  this  corporation  shall  not  engage  in  loaning 
any  money  upon  bottomry  and  respondentia  nor  in  making  any  in- 
surance upon  any  life   or   lives,"— for  using  without  any   warrant, 

>  See  note  at  end  of  this  article,  p  157. 

*  Statement  of  facts  condensed,  parts  of  arguments,  and  parts  of  opinion 
omitted. 

8 — WiL.  Cases. 


114  PEOPLE   V.    UTICA   INSURANCE   COMPANY.  §22 

charter  or  grant  the  following  liberties,  privileges  and  franchises  to 
wit,  that  of  becoming  proprietors  of  a  bank  or  fund  for  the  purpose  of 
issuing  notes,  receiving  deposits,  making  discounts,  and  transacting 
other  business  which  incorporated  banks  may  and  do  transact  by  vir- 
tue of  their  respective  acts  of  recorporation,  all  of  which  liberties, 
privileges  and  franchises  the  said  company  have  usurped  and  still  do 
usurp  upon  the  people  of  the  state.  The  bank  pleaded  authority 
under  their  act  of  incorporation  and  the  people  demurred.] 

Attorneys  \^Harrison  and  T.  A.  Emnief^  for  the  insurance  com- 
pany maintained:  i.  The  acts  charged  against  the  defendants  aic 
not  the  exercise  of  franchises ;  and  therefore  an  information  in  the 
nature  of  a  writ  of  quo  warranto  will  not  lie  against  them.  Fran- 
chise or  not  is  a  question  of  law  and  is  not  admitted  by  the  de- 
murrer. A  franchise  is  a  royal  privilege,  or  branch  of  the  royal  pre- 
rogative, subsisting  in  the  hands  of  the  subject,  by  grant  from  the 
crown.  A  writ  of  quo  warranto  is  the  king's  writ  of  right  and 
and  issues  where  a  franchise  is  usurped,  or  forfeited  by  misuser.  (2 
Bl.  Com.  37,  Finch's  Law  38,  164,  166;  3  Cruises'  Dig.  278,  tit.  27, 
§  I.)  The  word  "franchises"  is  often  used,  in  common  parlance,  in 
a  very  broad  sense,  for  all  liberties,  but  its  legal  or  technical  signifi- 
cation is  more  confined.  A  franchise  was,  always,  in  England,  a 
gem  in  the  royal  diadem.  It  was  inherent  in  the  crown  from  the  first 
institution  of  monarchy.  But  the  right  of  banking  was  never  a  fran- 
chise or  branch  of  the  royal  prerogative.  The  bank  of  England  was 
established  in  1694,  pursuant  to  an  act  of  parliament  (5  W.  &  M., 
cap.  20),  which  authorized  their  majesties,  William  and  Mary,  to 
grant  a  commission  to  take  subscriptions  from  individuals,  and  to  in- 
corporate them.  Had  the  power  of  banking  been  a  royal  franchise, 
this  special  authority  from  parliament  would  not  have  been  necessary. 

In  1697  (8  &  9  W.  &  M.,  ch.  20,  §  28)  it  was  enacted  that  during 
the  continuance  of  the  bank  of  England,  no  other  bank,  or  any  other 
corporation,  society,  fellowship,  company  or  constitution,  in  the  na- 
ture of  a  bank,  should  be  erected  or  established,  etc.,  by  act  of  parlia- 
ment. 

This  still  left  individuals  and  ancient  corporations  free  to  bank.  But 
in  1708  (7  Anne,  ch.  7,  §  61),  it  was  enacted,  that  during  the  continu- 
ance of  the  bank  of  England,  it  should  not  be  lawful  fcr  any  corpora- 
tion erected,  or  to  be  greeted  (other  than  said  bank),  or  for  any  other 
persons  in  partnership,  exceeding  the  number  of  six  persons,  to  take 
up  money  on  their  bills  or  notes,  etc.  It  is  clear,  then,  that  if  parlia- 
ment had  not  interfered,  all  corporations  might  lawfully  have  carried 
on  banking  business;  the  act  of  7  Anne,  restraining  them,  does  not 
declare  it  unlawful,  but  merely  prohibits  the  exercise  of  the  power 
while  the  bank  of  England  continued.  It  is  manifest,  therefore,  that 
in  England,  banking  was  not  considered  as  a  royal  franchise;  and 
private  banking  is  now  carried  on  in  that  country  by  associations  of 
partnership  of  not  more  than  six  persons. 

If  we  look  to  the  acts  of  our  legislature,  we  shall  find  that  they 


§  22  THE   CORPORATION  AS    A  FRANCHISE.  11$ 

speak  the  same  doctrine.  Numerous  acts  of  incorporation  have  been 
passed  since  the  restraining  act  of  April  ii,  1804,  each  of  which  con- 
tains a  special  clause  to  restrain  the  corporation  from  banking. 

[Here  the  counsel  enumerated  more  than  fifty  acts  passed  since  1804,  which, 
he  said,  contained  a  special  restraining  clause.] 

It  is  remarkable,  also,  that  in  the  same  session  in  which  the  restrain- 
ing act  was  passed  there  was  an  act  of  incorporation  passed  containing 
a  special  prohibition  against  banking.  What  stronger  evidence  can 
be  wanted  of  the  sense  of  the  legislature  that  the  right  of  banking  is 
not  a  franchise,  but  exists  at  large  in  every  citizen,  and  may  be  freely 
exercised,  unless  expressly  restrained  by  the  legislature.'* 

The  right  was  open  to  every  individual,  and  the  defendants,  being 
created  a  corporation,  have,  as  its  inseperable  incidents,  a  perpetual 
succession,  a  capacity  to  sue  and  be  sued,  a  right  to  purchase  and  hold 
land,  to  have  a  common  seal,  and  to  make  by-laws,  etc.  (Kyd  on 
Corp.,  69,  70.)  They  might  therefore,  as  well  as  any  individual, 
carry  on  banking  business,  unless  expressly  prohibited.  If,  then, 
this  is  not  a  royal  franchise,  no  information  in  the  nature  of  a  writ  of 
quo  warranto  lies  ;  for  these  informations  have  been  substituted  in  the 
place  of  that  ancient  prerogative  writ.  (2  Co.  Inst.  496,  i  Bulst.  55, 
56;  Rex  V.  Marsden,  3  Burr.  1817,  per  Wilmot,  J.) 

Not  a  case  can  be  found  in  which  a  writ  of  quo  ivarranto  has  been 
brought,  or  an  information  in  the  nature  of  one  filed  for  exercising  the 
right  of  banking. 

In  The  King  v.  Shepherd  (4  Term  Rep.  381),  Lord  Kenyon  said, 
that  the  old  writ  of  quo  ■warranto  lay  only  where  there  was  a  usurpa- 
tion on  the  rights  and  prerogatives  of  the  crown  ;  and  that  an  infor- 
mation in  the  nature  of  a  quo  ivarranto  could  be  only  granted  in  such 
cases.  So,  in  The  King  v.  The  Corporation  of  Bedford  Level  (6 
East  359),  Lawrence,  J.,  says  it  has  been  always  understood  that  a 
quo  warranto  only  lay  for  encroachments  on  franchises  created  by  the 
crown. 

Again,  for  the  exercise  of  any  power  incidental  to  a  corporation  or 
association,  a  writ  of  quo  warranto  does  not  lie.  As  well  might  it  lie 
to  ascertain  by  what  authority  individuals  assembled  for  political  pur- 
poses. A  person  entitled  to  a  manor  need  not  show  by  what  title  he 
holds  a  court  baron,  for  that  is  incident  to  a  manor.  (Rex  v.  Stan- 
ton, Cro.  Jac.  259,  260.) 

But  it  is  said  the  restraining  act  has  made  banking  a  franchise,  and 
that  no  person  can  now  exercise  the  right,  without  showing  a  legisla- 
tive grant.  Suppose  in  England^  after  the  restraining  act,  more  than 
six  persons  had  associated  as  bankers,  would  an  information,  in  nature 
oi  2i  quo 'Warranto  ^\i2i\e.  been  filed  against  them?  No.  Their  acts 
would  have  been  illegal  and  void.  How  have  the  legislature  assumed 
this  prerogative  and  franchise .?  How  have  they  taken  to  themselves 
what  was  before  the  common  right  of  every  citizen  ?  By  prohibiting 
all  unincorporated  banking  associations.  Is  ever)^hing  which  is  made 
the  subject  of  exclusive  right  or  grant  a  franchise,  and  to  be  tried  by 


Il6  PEOPLE   V.    UTICA   INSURANCE    COMPANY.  §  22 

a  quo  "Warranto}  Ferries,  ninning  of  stages^  and  steamboats  diX^  made 
exclusive  rights,  yet  it  has  never  been  supposed  that  an  information 
in  nature  of  quo  warranto  would  lie  in  case  of  any  invasion  of  these 
rights. 

Again,  the  restraining  act  is  not  in  conjunctive;  it  declares  that  "no 
person  unauthorized  by  law  shall  subscribe  to,  or  become  a  member 
of,  any  association,  institution  or  company,  or  proprietor  of  any 
bank  or  fund  for  the  purpose  of  issuing  notes,  receiving  deposits,  mak- 
ing discounts,  or  transacting  any  other  business  which  incorporated 
banks  may  or  do  transact,  by  virtue  of  their  respective  acts  of  incor- 
poration." By  this  act  the  legislature  assume  the  rights  specified. 
They  do  not  resume  a  franchise.  If  the  legislature  can  thus  assume 
all  rights  common  to  the  citizen,  there  is  no  commercial  business  what- 
ever which  they  may  not  prohibit ;  and  so  the  chamber  of  commerce 
apprehended.  And  on  their  petition  the  sections  to  the  act,  27th 
session,  chapter  1 10,  sections  8  and  9,  were  passed  in  explanation  of 
the  restraining  act.  It  was,  in  effect,  an  act  to  restrain  commercial 
partnerships  or  companies,  but  the  explanatory  sections  do  virtually 
repeal  the  restraining  act. 

It  may  be  said  that  banking  is  quasi  a  franchise  or  branch  of  preroga- 
tive. But  when  every  individual  has  a  right  to  bank,  how  can  it  be, 
in  any  degree  or  shape,  a  franchise.''  The  act  merely  restrains  asso- 
ciations. Every  citizen,  or  inhabitant,  may,  if  he  pleases,  be  a  banker. 
Can  it  be  possible  that  the  legislature  may  assume  to  itself  the  rights 
of  every  citizen  ?  Such  is  not  the  law  of  England,  If  it  is  the  law  of 
any  country,  it  is  that  of  Turkey,  where,  alone  it  can  be  imagined  that 
the  common  rights  of  man  should  be  doled  out  for  the  purposes  of 
gain.  The  mind  revolts  at  the  idea  of  a  legislature  bargaining  out 
the  common  rights  of  the  citizen  for  money.  If  the  exercise  of  the 
right  be  injurious,  prohibit  it.  What  is  granted  should  be  given 
freely.  A  contrary  doctrine  would  be  attended  with  the  most  per- 
nicious effects.     *     *     * 

Van  Buren  in  reply.  *  *  *  The  general  demurrer  admits,  that 
the  power  exercised  by  the  defendants  is  a  franchise ;  and  it  follows, 
that  this  is  the  proper  remedy.  But  is  it  not  a  franchise?  The 
chancellor  had  no  doubt  on  the  question.  He  says,  that  "the  right 
of  banking  was  formerly,  a  common  law  right  belonging  to  indi- 
viduals, and  to  be  exercised  at  their  pleasure. 

But  the  legislature  thought  proper,  by  the  restraining  act  of  1804, 
which  has  since  been  re-enacted,  to  take  away  that  right  from  all  per- 
sons not  specially  authorized  by  law.  Banking  has  now  become  a  fran- 
chise derived  from  the  grant  of  the  legislature,  and  subsisting  in  those 
only  who  can  produce  the  grant ;  if  exercised  by  other  persons,  it  is 
the  usurpation  of  a  privilege  for  which  a  competent  remedy  can  be 
had  by  the  public  prosecutor  in  the  supreme  court."  This  ought, 
perhaps,  to  be  a  sufficient  authority  on  this  question.  But  to  pursue 
it  further:  A  franchise  is  a  liberty  or  privilege.  There  is  a  distinction 
between  royal  and  common  franchises — between  those  of  the  sov- 
ereign and  those  of  the  people,  as  the  right  of  trial  by  jury.     When 


§  22  THE   CORPORATION  AS   A   FRANCHISE.  II7 

the  colony  became  a  sovereign  and  independent  state  the  people  suc- 
ceeded to  all  the  rights  and  privileges  of  English  subjects,  and  more, 
they  succeeded  to  all  the  rights  and  privileges  of  the  crown  or  sov- 
ereign. The  legislature  have,  accordingly,  from  time  to  time  granted 
various  exclusive  liberties  and  privileges,  or  franchises,  to  citizens. 
By  the  restraining  act  of  the  nth  of  Aprils  1804,  the  legislature  did 
take  to  itself  the  right  or  liberty  of  banking.  What  was  before  com- 
mon to  all  ceased  to  be  so,  and  became  a  franchise  or  privilege  in  the 
government,  not  to  be  exercised  by  citizens,  unless  by  grant.  Whether 
this  was  a  franchise  in  England  or  not,  it  is  made  a  franchise  here, 
and  the  legislature  were  competent  to  make  it  so.  It  is  true  that  pri- 
vate individuals  may  bank,  but  the  defendants  are  an  association  car- 
rying on  banking  business  in  violation  of  the  act  of  the  i  ith  of  April, 
1804,  passed  expressly  to  prevent  any  unauthorized  or  unincorporated 
association  from  banking.  Being  a  privilege,  then,  which  the  defend- 
ants could  not  lawfully  exercise  without  a  grant  from  the  legislature, 
it  comes  within  the  very  definition  which  has  been  given  of  a  franchise. 
W^e  could  not  proceed  by  indictment,  for  the  act  gives  a  penalty,  and 
not  to  the  people,  but  to  the  informer.  If  this  remedy  does  not  lie, 
there  is  no  remedy,  civil  or  criminal.  It  is,  at  least,  a  liberty  in  the 
nature  of  a  franchise ;   and  this  is  the  only  and  proper  remedy.   *   *   * 

Thompson,  Ch.  J.,  delivered  the  opinion  of  the  court.  *  *  *  It  may 
safely  be  admitted,  that  formerly  the  right  of  banking  was  a  common 
law  right  belonging  to  individuals  and  to  be  exercised  at  their  pleasure. 
It  can  not,  however,  admit  of  a  doubt  that  the  legislature  had  author- 
ity to  regulate,  modify  or  restrain  this  right.  This  they  have  done  by 
the  restraining  act  of  1804  (sess.  27,  ch.  117),  and  which  has  since 
been  re-enacted  and  continued  in  full  force  (3  N.  R.  L.  234).'  The 
construction  which  has  been  given  by  this  court  to  the  act  is,  that 
it  extends  only  to  associations  or  companies  formed  for  banking  pur- 
poses, and  not  an  individual  who  carries  on  banking  operations  alone, 
and  on  his  own  credit  and  account  (14  Johns.  Rep.  205).  The  right 
of  banking,  therefore,  by  any  company  or  association,  has,  since  the 
restraining  act,  become  a  franchise ,  or  privilege ,  derived  from  the  grant 
■of  the  legislature,  and  subsisting  only  in  such  companies  or  associations 
as  can  show  such  grant.  The  defendants  have,  accordingly,  set  up, 
as  their  authority  or  charter,  for  the  exercise  of  this  privilege,  an  act 
passed  the  29th  of  April,  1816,  entitled  "an  act  to  incorporate  the 
Utica  Insurance  Company."  The  real  inquiry  is  whether  this  act 
contains  any  such  grant  of  banking  privileges.      *     «     ♦ 

Many  powers  and  capacities  are  tacitly  annexed  to  a  corporation  duly 
created ;  but  they  are  such  only  as  are  necessary  to  carry  into  effect 
the  purposes  for  which  it  was  established.  The  specification  of  certain 
powers  operates  as  a  restraint  to  such  objects  only,  and  is  an  implied 
prohibition  of  the  exercise  of  other  and  distinct  powers,  A  contrary 
doctrine  would  be  productive  of  mischievous  consequences,  especially 
with  us,  where  charter  privileges  have  been  so  alarmingly  rmiltiplied. 
*     *     *     I  am,  accordingly,  of  opinion  that  the  defendants  are  un- 

1 1  R.  S.  712. 


Il8  PEOPLE   V.    UTICA    INSURANCE   COMPANY.  §22 

authorized,  by  law,  to  enter  into  such  business,  and  that  judgment  of 
ouster  ought  to  be  rendered  against  them. 

Spencer,  J.  Two  questions  have  been  brought  forward  in  the  ar- 
gument :  ( I )  Whether  an  information  in  the  nature  of  quo  warranta 
will  lie  in  this  case.  (2)  Whether  the  defendants  have  authority, 
under  the  act  incorporating  the  Utica  Insurance  Company,  to  carry  on 
banking  operations  in  the  mariner  set  forth  in  their  plea. 

The  statute  (i  N.  R.  L.  108)  (3  R.  S,  581)  gives  this  writ  against 
any  person  who  shall  usurp,  intrude  into  or  unlawfully  hold  and  execute 
any  office  or  franchise  within  this  state  ;  and  if  the  right  set  up  by  the 
defendants  is  a  franchise,  and  the  act  under  which  they  claim  to  exercise 
it  does  not  confer  it,  then  the  defendants  are  subject  to  this  prosecution. 

A  fi'anchise  is  a  species  of  incorporeal  hereditainent ;  it  is  defined 
by  Finch  (164)  to  be  a  royal  privilege,  or  a  branch  of  the  king's  pre- 
rogative subsisting  in  the  hands  of  a  subject ;  and  he  says  that  fran- 
chises being  derived  from  the  crown,  they  must  arise  from  the  king's 
grant,  or,  in  some  cases,  may  be  held  by  prescription,  which  presup- 
poses a  grant ;  that  the  kinds  are  various,  and  almost  infinite,  and 
they  may  be  vested  in  natural  persons  or  in  bodies  politic. 

All  the  elementary  writers  agree  in  adopting  Finch's  definition  of  a 
franchise,  that  it  is  a  royal  privilege  or  branch  of  the  king's  preroga- 
tive, subsisting  in  the. hands  of  a  subject. 

An  information,  in  the  nature  of  a  writ  of  quo  warranto ^  is  a  sub- 
stitute for  that  ancient  writ,  which  has  fallen  into  disuse ;  and  the 
information  which  has  superseded  the  old  writ  is  defined  to  be  a 
criminal  method  of  prosecution,  as  well  to  punish  the  usurper  by  a 
fine  for  the  usurpation  of  the  franchise,  as  to  oust  him,  and  seize  it  for 
the  crown.  It  has,  for  a  long  time,  been  applied  to  the  mere  puipose 
of  trying  the  civil  right,  seizing  the  franchise  or  ousting  the  wrongful 
possessor,  the  fine  being  nominal  only.  (3  Inst.  281,  pi.  13;  3  Burr. 
1817,  4  Term  Rep.  381,  i  Bulst.  55.) 

If  there  are  certain  immunities  and  privileges  in  which  the  public 
have  an  interest,  as  contra-distinguished  from  private  rights,  and 
which  can  not  be  exercised  without  authority  derived  from  the  sover- 
eign power,  it  would  seein  to  me  that  such  iminunities  and  privileges 
must  be  franchises ;  and  the  act  for  rendering  the  proceedings  upon 
writs  of  mandamus,  and  informations  in  the  nature  of  quo  warranto, 
more  speedy  and  effectual,  presupposes  that  there  are  franchises,  other 
than  offices,  which  may  be  usurped  and  intruded  into. 

If  in  England^  a  privilege  in  the  lands  of  a  subject,  which  the  king 
alone  can  grant,  would  be  a  franchise,  with  us  a  privilege,  or  immun- 
ity of  a  public  nature,  which  can  not  legally  be  exercised  without 
legislative  grant,  would  be  a  franchise.  The  act  commonly  called  the 
restraining  law  (sess.  27,  ch.  114),  (i  R.  S.  712)  enacts,  that  no  per- 
son, unauthorized  by  law,  shall  subscribe  to,  or  become  a  member  of, 
any  association,  or  proprietor  of  any  bank  or  fund,  for  the  purpose 
of  issuing  notes,  receiving  deposits,  making  discounts  or  transacting 
any  other  business  which  incorporated  banks  do,  or  may  transact,  by 
virtue  of  their  respective  acts  of  incorporations. 


§  22  THE    CORPORATION  AS   A  FRANCHISE.  I  1 9 

Taking  it  for  granted,  at  present,  for  the  purpose  of  considering 
whether  the  remedy  adopted  is  appropriate,  that  the  defendants  have 
exercised  the  right  of  banking,  without  authority,  and  against  the 
provisions  of  the  restraining  act,  they  have  usurped  a  right  which  the 
legislature  have  enacted  should  only  be  enjoyed  and  exercised  by 
authority  derived  from  them.  The  right  of  banking,  since  the  re- 
straining act,  is  a  privilege  or  immunity  subsisting  in  the  hands  of 
citizens,  by  grant  of  the  legislature.  The  exercise  of  the  right  of 
banking,  then,  with  us,  is  the  assertion  of  a  grant  from  the  legisla- 
ture to  exercise  that  privilege,  and  consequently  it  is  the  usurpation 
of  a  franchise,  unless  it  can  be  shown  that  the  privilege  has  been 
granted  by  the  legislature.  An  information,  in  the  nature  of  a  writ 
of  quo  warranto ^  need  not  show  a  title  in  the  people  to  have  the  par- 
ticular franchise  exercised,  but  calls  on  the  intruder  to  show  by  what 
authority  he  claims  it,  and  if  the  title  set  up  be  incomplete,  the  peo- 
ple are  entitled  to  judgment.    (2  Kyd  on  Corp.,  399 ;   4  Burr.  2146-7.) 

This  position  is  illustrated  by  the  nature  and  form  of  the  informa- 
tion ;  the  title  of  the  king  is  never  set  forth ;  but  after  stating  the  fran- 
chise usurped,  the  defendant  is  called  upon  to  show  his  warrant  for 
exercising  it. 

This  consideration  answers  the  argument  urged  by  the  defendant's 
counsel,  that  banking  was  not  a  royal  franchise  in  England^  and  that 
it  is  not  a  franchise  here  which  the  people,  in  their  political  capacity, 
can  enjoy ;  for  if  their  title  to  enjoy  it  need  not  be  set  out  in  the  infor- 
mation, it  is  not  necessary  that  it  should  exist  in  them  at  all.  In  the  case 
of  The  King  v.  Nicholson  and  Others  (i  Str.  303),  it  appeared  that 
by  a  private  act  of  parliament  for  enlarging  and  regulating  the  port  of 
Whitehaven,  several  persons  were  appointed  trustees,  and  a  power 
was  given  to  them  to  elect  others  upon  vacancies  by  death  or  other- 
wise. The  defendants  took  upon  them  to  act  as  trustees  without  such 
an  election ;  and  upon  motion  for  an  information  in  the  nature  of  a 
quo  warranto  against  them,  it  was  objected,  by  the  counsel  for  the  de- 
fendants, that  the  court  never  grants  these  informations  but  in  cases 
where  there  is  usurpation  upon  some  franchise  of  the  crown ;  whereas, 
in  that  case  the  king  alone  could  not  grant  such  powers  as  are  exer- 
cised by  the  trustees,  the  consequence  of  which  was,  that  this  author- 
ity was  no  prior  franchise  of  the  crown.  To  this  it  was  answered, 
and  resolved  by  the  court,  that  the  rule  laid  down  was  too  general,  for 
that  informations  had  been  constantly  granted  when  any  new  jurisdic- 
tion or  public  trust  was  exercised  without  authority ;  and  leave  to  file 
an  information  was,  accordingly,  granted.  This  case  is  a  strong  au- 
thority in  favor  of  this  proceeding. 

Many  cases  might  be  cited,  in  which  informations,  in  the  nature  of 
quo  -warranto^  have  been  refused,  whei-e  the  right  exercised  was  one 
of  a  private  nature  to  the  injury  only  of  some  individual.  In  the 
present  case,  the  right  claimed  by  the  defendants  is  in  the  nature  of  a 
public  trust;  they  claim,  as  a  corporation,  the  rights  of  issuing  notes, 
discounting  notes  and  receiving  deposits.  The  notes  they  issue,  if 
their  claim  be  well  founded,  are  not  obligatory  on  the  individuals  who 


I20  SPRING  VALLEY  WATER-WORKS  V.  SCHOTTLER.  §  23 

compose  the  direction  or  are  proprietors  of  the  stock  of  the  corpora- 
tion. These  notes  pass  currently,  on  the  ground  that  the  corporation 
have  authority  to  issue  them,  and  that  they  are  obligatory  on  all  their 
funds :  the  right  claimed  is  one,  therefore,  of  a  public  nature,  and,  as 
I  conceive,  deeply  interesting  to  the  community ;  and  if  the  defendants 
can  not  exercise  these  rights  without  a  grant  from  the  legislature ;  if 
they  do  exercise  them  as  though  they  had  a  grant,  they  are,  in  my 
judgment,  usurping  an  authority  and  privilege  of  a  public  kind  ;  and 
we  perceive  that  it  is  not  necessary  that  the  right  assumed  should  be  a 
prior  franchise  of  the  crown,  or  of  the  people  of  the  state. 

Had  the  defendants  claimed  and  exercised  the  right  of  banking  as 
private  individuals,  I  agree  that  an  information  would  not  lie  against 
them ;  they  would  have  been  subject  only  to  the  penalties  inflicted  by 
the  act;  but  they  claim  the  privilege  as  a  corporation,  and  under  a 
grant  from  the  legislature.  If  they  have  not  that  grant,  they  have 
exercised  and  usurped  a  franchise,  and  the  remedy  pursued  is  well 
adapted  to  the  case.     *     *     * 

Judgment  of  ouster. 

Note.  See  1896,  Meadowcroft  v.  People,  163  111.  66,  54  Am.  St.  447 ;  State  v. 
Woodmansee,  1  N.  Dak.  246.  But  see  1892,  State  v.  Scougal,  3  S.  Dak.  55,  44 
Am.  St.  R.  756,  holding  that  "Banking  was  not  a  franchise  at  common  law, 
and  except  as  to  the  privilege  of  issuing  notes  to  circulate  as  money,  can  not 
be  made  such  by  the  legislature.  See  also  1885,  In  Matter  of  Jacobs,  98  N.  Y. 
98,  50  Am.  Rep.  636  (act  forbidding  manufacture  of  cigars  in  certain  ways  and 
places  held  unconstitutional) ;  1885,  People  v.  Marx,  99  N.  Y.  377,  52  Am.  Rep. 
34  (prohibiting  sale  of  oleomargarine).  Also  1893,  Braceville  Coal  Co.  v. 
People,  147  111.  66,  37  Am.  S.  R.  206,  as  to  the  constitutional  restrictions  upon 
the  police  power  of  the  legislature.  As  to  corporate  franchises  particularly  see 
cases  in  addition  to  those  given  in  text:  1838,  Regents  v.  Williams,  9  Gill  & 
J.  (Md.)  365,  31  Am.  D.  72;  1886,  Appeal  of  Pittsburgh,  etc.,  R.  R.  Co.,  122 
Pa.  St.  611,  9  Am.  St.  128 ;  infra,  p.  1342 ;  1846,  Enfield  Toll  Bridge  Co.  v.  Hart 
ford,  etc.,  R.  R.  Co.,  17  Conn.  454,  44  Am.  Dec.  566;  1892,  Mayor,  etc.,  v. 
Houston,  etc.,  Rv.  Co.,  83  Tex.  548,  29  Am.  St.  R.  679;  1890,  Macon,  etc.,  R. 
R.  Co.  v.  Gibson,  85  Ga.  1,  21  Am.  St.  R.  135;  1846,  Miners'  Bank  v.  United 
States,  Morris  (Iowa)  482,  43  Am.  D.  115. 


^M  Sec.  23.    Same. 

'  SPRING  VALLEY  WATER- WORKS  v.  SCHOTTLER  Et  Ax.} 

1882.     In  the  Supreme  Court  of  California.     62  Cal.  69-119.* 

[Appeal  by  plaintiff  from  judgment  of  the  superior  court  of  the  city 
and  county  of  San  Francisco,  denying  a  writ  of  review,  and  confirm- 
ing the  action  of  the  board  of  equalization  of  that  city  and  county,  in 
raising  the  assessment  of  the  franchise  of  the  water-works  company 
from  $5,000  to  $5,000,000.  The  state  constitution  (art.  13,  §  i) 
provided:  "All  property  in  the  state  *  *  *  shall  be  taxed  in  pro- 
portion to  its  value,  to  be  ascertained  as  provided  by  law.  The  word 
'property,'  as  used  in  this  article  and  section,  is  hereby  declared  to  in- 

'  Statement  of  facts  condensed.     Parts  of  arguments  and  opinion  omitted. 
«  Affirmed  by  U.  S.  Sup.  Ct.,  Spring  Valley  W.  W.  v.  Schottler,  110  U.  S.  347. 


§  23  THE   CORPORATION  AS   A  FRANCHISE.  121 

elude  moneys,  credits,  bonds,  stocks,  dues,  franchises  and  all  other 
matters  and  things,  real,  personal  and  mixed,  capable  of  private  own- 
ership." The  water-works  company  was  organized  under  general 
acts  of  1850,  1853,  1858,  etc.,  giving  it  the  power  of  perpetual  suc- 
cession for  fifty  years,  to  sue  and  be  sued,  to  make  and  use  a  seal, 
hold,  purchase  and  convey  necessary  real  and  personal  property,  ap- 
point necessary  officers  and  agents,  divide  its  stock  into  shares,  make 
by-laws  to  regulate  its  management  and  regulate  the  transfer  of  stock; 
to  exercise  power  of  eminent  domain,  to  use  streets,  alleys,  ways,  etc., 
necessary  for  laying  its  pipes,  to  furnish  Mater  to  the  inhabitants  at 
rates  fixed  in  a  prescribed  way,  and  the  further  right  to  "all  the  privi- 
leges, immunities  and  franchises  that  might  be  thereafter  granted  to 
any  individual  or  corporation  relating  to  the  introduction  of  fresh 
water  into  any  city  or  town  of  the  state  for  the  use  of  the  inhabitants 
thereof."  The  state  constitution  also  provided  (art.  xi,  §  19):  "In 
cities  where  there  are  no  public  works  owned  by  the  municipality  *  *  * 
any  individual  or  company  duly  incorporated  for  that  puipose  shall 
(subject  to  certain  provisions  as  to  damages)  have  the  privilege  of 
using  the  streets  for  laying  down  pipes,  etc."] 

jFox  <&  Kellogg^  for  appellant,  argued  : 

*  *  *  In  making  up  the  assessment,  the  revenue'  officers  seem  to 
have  taken  it  for  granted  that  because  franchises  may  be  property,  they 
are  ex  necessitate  liable  to  assessment ;  and  to  have  overlooked  the  pro- 
vision of  the  constitution  and  the  statute,  that  they  can  only  be  prop- 
erty and  subject  to  taxation  when  "capable  of  private  ownership." 
According  to  their  theory,  the  elective  franchise,  the  freedom  of  speech, 
the  freedom  of  the  press,  the  most  valuable  of  all  franchises,  are  liable 
to  assessment  and  subject  to  taxation.  But  these  and  a  hundred  other 
franchises  are  not  "capable  of  private  ownership,"  and  therefore  not 
"property,"  and,  not  being  property,  are  not  subject  to  taxation. 

We  submit  that  nothing  but  "property"  is  subject  to  assessment  and 
taxation,  in  the  form  now  under  consideration,  under  the  constitution 
or  laws  of  this  state.  Only  those  "franchises"  can  be  classed  as 
"property  *  *  *  capable  of  private  ownership,"  which  are  de- 
fined by  the  supreme  court  of  the  United  States,  in  Bank  of  Augusta 
V.  Earle,  13  Pet.  519,  as  being  "special  privileges  conferred  by  gov- 
ernment on  individuals,  which  do  not  belong  to  the  citizens  of  the 
country  generally,  or  by  common  right."  Wherever  we  find  a  fran- 
chise held  to  be  property,  we  find  it  to  be  of  the  class  thus  clearly 
defined  by  the  highest  tribunal  in  the  land.  Of  these  are  street  rail- 
roads, turnpike  roads,  bridges,  ferries,  wharves  and  the  like. 

But  the  appellant  in  this  case  possesses  no  such  franchise.  There 
is  no  right  or  privilege  which  it  can  name,  or  upon  which  it  can  place 
its  hand  and  say,  "This  is  mine;"  none  that  is  or  can  be  held  by 
it  in  "private  ownership."  It  owns  no  franchise;  it  simply  enjoys 
the  privileges  conferred  by  law.  Its  privileges  are  these  and  these 
onlv:  (i)  The  rig-ht  of  corporate  existence.  This  is  a  privilege 
granted  by  the  legislature  to  all  the  people  of  the  state,  and  any  five 
of  its  inhabitants  may  enjoy  that  franchise  at  any  time,  when  they  see 


122  SPRING  VALLEY  WATER-WORKS  V.  SCHOTTLER.  §  23 

fit  to  incorporate  for  any  purpose  for  which  men  may  contract  or  asso- 
ciate themselves  together.  (Civil  Code,  §  286.)  (2)  The  rig-ht  to 
acquire  property,  when  it  is  absolutely  necessary,  and  can  not  other- 
wise be  acquired  for  certain  of  its  corporate  uses,  by  condemnation. 
This  is  a  right  which  can  never  be  exercised  without  enormous  cost, 
proportioned  to  the  value  of  the  thing  acquired,  and  which  is  not,  and 
can  not  be  held  in  private  ownership. 

It  is  a  right  held  in  common  by  all  corporations  organized  for  the 
purpose  of  supplying  cities  and  towns  with  water  as  well  as  many 
others,  and  there  is  no  limit  to  the  number  of  corporations  which 
may  organize  and  actually  engage  in  the  business  of  supplying  the 
same  city  or  town.  (See  Statute,  1858,  p.  218;  Code  of  Civil  Pro- 
cedure, §  1237.)  (3)  The  rig-ht  to  lay  and  maintain  pipes  in  the  streets 
and  to  collect  water  rates.  Like  the  two  preceding,  so  of  this.  It 
is  not  a  right  which  is  or  can  be  held  "in  private  ownership."  By 
the  statute  of  1858,  above  cited,  and  under  which  the  appellant  is 
organized,  it  is  a  right  guaranteed  to  every  corporation  organized 
for  the  pui'pose  of  supplying  water  in  cities  and  towns,  with  no  limi- 
tation upon  the  number  that  may  engage  in  the  same  business  in  the 
same  city  or  town.  By  the  codes  the  same  right  is  also  guaranteed  to 
any  corporation  organized  for  such  purpose;  but  under  them  it  could 
only  be  exercised  when  thereunto  authorized  by  ordinance  of  the  city. 
But  by  the  same  section  of  the  code,  the  city  authorities  were  pro- 
hibited from  granting  any  exclusive  privilege  of  the  kind.  (See  Civil 
Code,  §§  548,  549.)  But  since  the  passage  of  both  the  statute  and 
the  code,  the  people,  in  the  majesty  of  their  power,  have  taken  away 
even  the  limitations  of  those  laws,  by  which  the  right  to  exercise  the 
privilege  was  limited  to  corporations,  and  now  it  is  a  right  common 
to  every  person  in  the  state  whether  incorporated  or  not. 

[After  quoting  provisions  of  art.  xi,  §  19,  of  the  constitution  above  given:] 

Thus  it  will  be  seen  that  under  the  constitution  of  the  state  it  is  im- 
possible that  there  should  be  a  franchise  of  this  kind — that  is  "capable 
of  private  ownership."  It  is  one  which  belongs  to  everybody,  and 
whoever  sees  fit  to  use  it  need  not  even  say  to  the  municipal  author- 
ities, "by  your  leave."  All  they  have  to  do  is  to  be  subject  to  gen- 
eral regulations  for  damages  and  indemnity  for  damages,  and  to 
supervision  of  the  street  superintendent,  as  to  the  mode  and  manner 
of  using  the  street.  It  is  true  that  article  xiv  of  the  constitution 
declares  the  right  to  collect  water  rates  to  be  a  franchise  which  can 
only  be  exercised  by  authority  and  in  the  manner  prescribed  by  law. 
But  that  does  not  militate  against  the  proposition  that  it  is  a  privilege 
common  to  all,  and  not  "capable  of  private  ownership."  It  is 
declared  to  be  a  franchise  solely  for  the  purpose  of  making  it  subject 
to  regulation  by  law,  and  without  giving  it  the  character  of  property 
or  private  ownership.  These  are  all  the  franchises,  if  they  can  be 
called  such,  enjoyed  by  the  appellant.  They  are  all  franchises  which  are 
enjoyed  by  every  inhabitant  of  the  state, which  are  not  "capable  of  private 
ownership,"  and  therefore  not  liable  to  assessment  under  the  law. 


§  23  THE    CORPORATION  AS    A  FRANCHISE.  1 23 

F.  G.  JVewland,   for  appellant,  argued : 

The  term  '■'■franchise^'"  in  its  broad  sense ^  means  '■'■exemption  from 
constraint  or  oppression ,  liberty,  freedom . "  (  Webster. )  In  this  sense 
the  right  to  vote  is  termed  a  '•'•franchise;''  so  also  the  right  of  trial  by 
jury,  freedom  of  speech  and  freedom  of  the  press  are  termed  '•'franchises. ' ' 
The  declaration  of  the  constitution  that  the  word  ^'■property'''  includes 
^franchises,''  certainly  was  not  intended  to  apply  to  those  general  privi- 
leges and  rights  which  society  has  guaranteed  and  secured  to  individuals. 
The  '•'•franchises"  declared  by  the  constitution  to  be  property ,  must  be 
those  special  privileges,  exclusive  in  their  nature,  conferred  by  the  gov- 
ernm,ent  on  individuals,  and  having  the  incidents  and  attributes  of 
property;  that  is  to  say,  they  m.ust  be  capable  of  private  ownership,  of 
assignment  and  of  being  i7ihcrited.  In  this  sense  they  are  included  in 
that  division  of  property  called  ^''incorporeal  hereditaments;"  they  are 
things  without  body,  capable  of  being  inherited,  stich  as  the  right  of 
'•ferry,"  or  the  right  of  '•'•fishery,"  or  the  right  to  maintain  a  '•'•toll" 
road,  conferred  upon  the  grantee,  his  heirs  or  assigns.  It  is  evidently 
in  this  sense  that  the  word  is  used  in  the  constitution,  for  in  it  the  word 
"property"  is  declared  to  include  "moneys,  credits,  *  *  *  fran- 
chises and  all  other  matters  and  things  real,  personal  and  mixed, 
capable  of  private  ownership."  The  last  words  attach  to  and  qualify 
all  the  taxable  things  referred  to  in  the  above  quotation. 

[After  quoting  the  provisions  of  the  constitution  and  general  laws  relating 
to  the  formation  of  the  corporations:] 

Under  these  acts  the  petitioner  has  the  following  rights  and  privileges  : 
I.  The  I'ig-ht  to  be  a  corporation— that  is  to  say,  the  right  as  an  arti- 
ficial being,  to  act  under  an  artificial  name,  and  to  exercise  certain 
powers  and  duties  of  a  natural  person,  among  others,  to  sue  and  be 
sued,  and  to  purchase,  hold,  sell  and  convey  real  and  personal  prop- 
erty. Under  the  act  of  1853,  any  three  or  more  persons  could  asso- 
ciate themselves  together  and  form  a  water-company,  by  signing  and 
filing  the  proper  certificate.  This  was  a  privilege  made  by  the  laws 
of  common  right  and  general  enjoyment.  All  persons  could  exercise 
it.  Under  the  civil  code,  section  386,  "Private  corporations  may  be 
formed  for  any  purpose  for  which  individuals  may  lawfully  associate 
themselves,"  and  any  five  persons  may  associate  themselves  together 
and  form  such  corporation. 

It  appears,  then,  that  the  right  to  be  a  corporation  is  simply  a 
privilege  conferred  by  the  general  law  upon  any  number  of  persons,  not 
less  than  three  in  the  one  case  or  five  in  the  other,  whoever  they  may 
be,  who  may  wish  to  associate  themselves  together,  to  exercise,  as  an 
associated  body,  under  an  artificial  name,  certain  powers  and  perform 
certain  duties  of  a  natural  person.  In  other  words,  a  corporation  js  a 
bundle  of  faculties.  Could  the  faculty  of  a  natural  person  to  sue  and 
be  sued,  or  his  faculty  to  acquire  and  possess  property,  be  assessed  as 
property.?  The  right  to  the  things  sued  for,  which  constitute  choses 
in  action,  or  the  property  acquired  and  possessed  could  be  assessed 
both  to  natural  and  artificial  beings,  but  not  mere  faculties  or  pow- 
ers.    The  right  to  be  a  corporation  is  simply  the  right  to  exist  at  the 


124  SPRING  VALLEY  WATER-WORKS  V.  SCHOTTLER.  §  23 

will  of  the  creator.      Can  the  right  to  exist  either  as  a  natural  or  arti- 
ficial being  be  valued  as  property  ? 

2.  Under  the  act  of  1858  water  companies  are  granted  the  privilege 
of  exercising  the  power  of  eminent  domain;  but  they  exercise  this  privi- 
lege simply  as  the  agents  of  the  state,  for  the  pui'pose  of  serving  a 
public  use,  to  which  their  powers  and  property  are  delegated.  This 
agency  may  be  revoked  at  any  time.  It  is  a  naked  power — not  a 
power  coupled  with  an  interest.  Can  the  agency  of  the  agent,  whether 
natural  or  artificial,  be  assessed  as  property?     ♦     *     * 

3.  The  only  other  right  or  privilege  conferred  by  the  general  law  of 
1858,  upon  water  companies,  is  the  rigfht  of  laying-  down  pipes  in  the 
streets  of  the  city,  and  supplying  the  inhabitants  with  water  at  rates 
fixed  by  law ;  but  this  right  is  not  only  common  to  all  water  corr^- 
panies,  but  is  also  confen-ed  by  art.  xi,  §  19,  and  art.  xiv,  of  the  new 
constitution,  on  all  individuals,  so  that  this  right  which,  if  granted 
absolutely  and  exclusively  to  a  single  individual  or  a  single  corpora- 
tion, and  his  or  its  assigns,  might  be  regarded  as  property,  has  been 
by  the  fundamental  law  of  the  state  made  a  matter  of  common  right 
and  general  enjoyment.  It  is  true  that  everybody  does  not  exercise 
this  right  or  privilege,  just  as  everybody  does  not  exercise  the  rights  to 
vote,  but  eveiybody  has  the  right  to  exercise  it,  and  it  is  even  more 
unlimited  and  general  than  the  right  to  vote,  for  the  latter  right  is 
conferred  only  upon  native-boi'n  inhabitants  over  twenty-one  years 
of  age,  and  upon  naturalized  citizens,  whilst  the  former  right  can 
be  exercised  by  anybody,  whether  adult  or  minor,  citizen  or  alien. 
This  right  or  privilege  has  none  of  the  incidents  of  ownership ;  no  one 
can  sell  it,  for  every  body  has  it,  and  no  person  can  gain  by  the  acces- 
sion of  the  right  of  another. 

We  have  thus  classified  all  the  rights  and  privileges  of  water  com- 
panies under  the  general  law,  and  the  constitution  of  the  state,  and  we 
find  that  they  are  all  subject  to  alteration  and  entire  revocation  by  the 
state ;  they  are  privileges  enjoyed,  not  property  owned.  Webster  de- 
fines property  to  be :  "4.  The  exclusive  right  of  possessing,  enjoy- 
ing and  disposing  of  a  thing,  ownership.  6.  An  estate,  whether  in 
lands,  goods  or  money."  Blackstone,  book  i,  page  138,  speaks  of 
property  as  an  absolute  right  "which  consists  in  the  free  use,  enjoy- 
ment and  disposal  of  all  his  acquisitions  without  any  control  or 
diminution  save  only  by  the  laws  of  the  land,"  and  in  another  place, 
book  2,  page  2,  speaks  of  the  right  of  property  as  "that  sole  and  de- 
spotic dominion  which  one  man  claims  and  exercises  over  the  exter- 
nal things  of  the  world  in  total  exclusion  of  the  right  of  any  other 
individual  in  the  universe."  Bouvier,  in  his  Law  Dictionary,  in  de- 
fining the  word  property,  says:  "It  is  the  right  to  enjoy  and  to  dis- 
pose of  certain  things  in  the  most  absolute  manner,  *  *  *  so 
that  property,  considered  as  an  exclusive  right  to  things  contains  not 
only  a  right  to  use  those  things,  but  a  right  to  dispose  of  them,  either 
by  exchanging  them  for  other  things,  or  by  giving  them  away  to  any 
other  person  without  any  consideration,  or  even  throwing  them  away." 

Can  it  be  said  that  any  of  the  rights  or  privileges  conferred  on  the 


§  23  THE   CORPORATION  AS    A  FRANCHISE.  125 

petitioner  by  general  laws,  subject  to  alteration,  amendment  or  repeal, 
come  within  the  definition  of  the  term  "property"  ?  *  «  »  Under' 
the  new  constitution  it  is  impossible  to  grant  a  franchise,  in  the  property 
sense  of  that  term,  to  either  natural  or  artificial  persons,  for  it  declares 
(art.  1,  §  2i);  "No  special  privileges  or  immunities  shall  be  granted 
which  may  not  be  altered,  revoked  or  repealed  by  the  legislature. 
Nor  shall  any  class  of  citizens  be  granted  privileges  or  immunities 
which  upon  the  same  terms  shall  not  be  granted  to  all  citizens."  And, 
again  (art.  4,  §  25)  :  "The  legislature  shall  not  pass  local  or  special 
laws  in  any  of  the  following  enumerated  cases,  that  is  to  say :  Grant- 
ing to  any  corporation,  association  or  individual  any  exclusive  right, 
privilege  or  immunity  in  all  cases  where  a  general  law  may  be  made 
applicable." 

It  is  evident,  therefore,  that  the  day  of  "franchises"  as  property  is 
over.  The  whole  tendency  of  the  civilized  government,  is  to  do  away 
with  special  or  exclusive  privileges,  and  wherever  a  right  is  extended  by 
the  government  to  make  it  common  to  all.  Equality  of  right,  equality  of 
privilege,  and  equality  of  burden,  are  now  the  crowning  franchises  of 
all  persons,  natural  and  artificial,  in  this  state.  The  great  diflJiculty 
in  construing  a  word  like  "franchise,"  which  has  figured  extensively 
in  the  evolution  of  government,  is  that  the  attributes  of  a  by-gone  age 
are  likely  to  be  given  to  it  notwithstanding  the  modifications  that  may 
have  taken  place  in  its  character,  and  scope. 

As  already  stated  the  power  of  society  over  the  individual  is  abso- 
lute. It  is  called  the  power  of  government,  or  the  police  power. 
Every  privilege  which  the  individual,  either  specially  or  as  a  member 
of  a  class  or  in  common  with  all  other  individuals  enjoys,  may  be 
regarded  in  one  sense  as  a  grant  from  the  government. 

The  despot  who  rules  with  the  consent  or  by  the  sufferance  of  society 
has  absolute  power  over  the  vocation  of  life.  He  can  grant  to  a  cer- 
tain individual  the  right  to  pursue  a  special  trade  exclusively,  or  he  can 
throw  open  such  trade  or  occupation  to  all.  When  such  a  grant  is 
made  to  an  individual,  his  heirs  and  assigns,  it  may  be  regarded  as 
his  property,  and  when  such  a  grant  is  made  to  all  individuals  it  is  no 
less  a  franchise;  it  is  a  freedom,  a  liberty,  but  not  "property."  If 
we  look  back  to  the  times  of  Elizabeth,  James  I  and  Charles  I,  we 
will  find  many  examples  of  special  grants  which  partook  of  the  nature 
of  property.  Hallam,  in  his  Constitutional  History  of  England,  vol. 
I,  ch.  V,  speaking  of  the  reign  of  Elizabeth,  says:  "The  crown  either 
possessed  or  assumed  the  prerogative  of  regulating  almost  all  matters 
of  commerce  at  its  discretion." 

"Patents  to  deal  exclusively  in  particular  articles,  generally  of  for- 
eign growth,  but  reaching  in  some  instances  to  such  important  neces- 
saries of  life  as  salt,  leather  and  coal,  had  been  lavishly  granted  to  the 
courtiers,  with  little  direct  advantage  to  the  revenue.  They  sold  them 
to  companies  of  merchants,  who,  of  course,  enhanced  the  price  to  the 
utmost  ability  of  the  purchaser." 

"In  1601  parliament  made  a  bolder  and  more  successful  attack  on 
the  administration  than  this  reign  had  witnessed.     The  grievance  of 


126  SPRING  VALLEY  WATER-WORKS  V.  SCHOTTLER.  §  2$ 

monopolies  had  gone  on  continually  increasing ;  scarce  any  article 
was  exempt  from  these  oppressive  patents.  When  the  list  of  them 
was  read  over  in  the  house  a  member  exclaimed :  'Is  not  bread  among 
the  number?'  The  house  seemed  amazed.  'Nay,'  said  he,  'if  no 
remedy  is  found  for  these,  bread  will  be  there  before  the  next  parlia- 
ment.''" 

It  was  in  those  times  that  the  East  India  Company  was  organized 
under  letters  patent  from  the  crown,  and  vested  with  the  exclusive 
right  to  trade  in  India.  Monopolies  were  granted  by  letters  patent, 
conferring  the  exclusive  right  to  deal  in  necessaries  of  life,  such  as 
coal,  iron,  soap,  salt,  leather,  tobacco,  beer,  hops,  linen,  etc.  (Bright's 
English  Hist.,  vol.  ii,  p.  629.)  Rights  of  ferry,  rights  of  wharfage, 
rights  of  fishing,  rights  of  chase  and  of  toll-roads,  etc.,  were  also 
granted.  All  these  grants,  as  a  rule,  were  made  by  letters  patent, 
running  to  an  individual,  his  heirs  or  assigns,  and  exclusive  in  their 
nature.  They  were  protected  by  the  courts  as  property,  and  it  was 
held  by  the  courts  that  no  grant  could  be  made  by  the  sovereign 
which  would  interfere  with  or  impair  the  exercise  of  the  previous 
grant.  They  were  therefore  termed  incorporeal  hereditaments,  and, 
Kent,  in  speaking  of  such  franchises,  says  (Kent's  Com.,  vol.  3,  page 
45S):  ''Another  class  of  incorporeal  hereditaments  are  franchises, 
being  certain  privileges  conferred  by  grant  from  government,  and 
vested  in  individuals.  In  England  they  are  very  numerous  and  are 
understood  to  be  royal  privileges  in  the  hands  of  a  subject.  They 
contain  an  implied  covenant  on  the  part  of  the  government  not  to 
invade  the  rights  vested.  *  «  *  The  government  can  not  resume 
them  at  pleasure  or  do  anv  act  to  impair  the  grant  without  a  breach  of 
contract.  »  *  •  ^^  estate  in  such  a  franchise  and  an  estate  in 
law  rest  upon  the  same  principle,  being  equally  grants  of  a  right  or 
privilege  for  an  adequate  consideration.  If  the  creation  of  a  franchise 
be  not  declared  to  be  exclusive,  yet  it  is  necessarily  implied  in  the 
grant,  as  in  the  case  of  the  grant  of  the  ferrv'.  bridge,  or  turnpike,  or 
railroad,  that  the  government  will  not,  either  directly  or  indirectly, 
interfere  with  it,  so  as  to  destroy  or  materially  impair  its  value. 
Every  such  interference,  whether  it  be  bv  the  creation  of  a  rival  fran- 
chise or  otherwise,  would  be  in  violation  or  in  fraud  of  the  grant." 

Such  was  the  nature  of  franchises  in  England,  and  also  in  this 
country  at  the  time  Chancellor  Kent  wrote.  In  the  celebrated  case 
of  Dartmouth  College  v.  Woodward,  4  Wheaton  519,  it  was  decided 
that  the  charter  granted  by  the  British  Crown  to  Dartmouth  College 
was  a  contract,  and  that  an  act  of  the  legislature  of  New  Hampshire 
altering  the  charter  was  an  act  impairing  the  obligation  of  a  contract, 
and  was  unconstitutional  and  void.  Justice  Washington  said  (page 
657):  "To  this  grant  or  this  franchise  the  parties  are  the  king,  and 
the  {>erson  for  whose  benefit  it  is  created  or  trustees  for  them.  The 
assent  of  both  is  necessary.  The  subjects  of  the  g^ant  are  not  only 
privileges  and  immunities,  but  property.  *  •  *  Certain  obliga- 
tions are  created,  binding  both  on  the  grantor  and  grantee.  On  the 
part  of  the  former,  it  amounts  to  an  extinguishment  of  the  king's  pre- 


§  23  THE  CORPORATION  AS  A  FRANCHISE.  12/ 

rogative  to  bestow  the  same  identical  franchise  on  another  corporate 
body,  because  it  would  prejudice  his  prior  gjant.  It  implies,  diere- 
fore,  a  contract  not  to  reassert  the  right  to  grant  the  franchise  to  an- 
other, or  to  impair  it." 

Justice  Story  says  (p.  700) :  '*In  respect  to  corporate  franchises 
they  are,  properly  speaking,  legal  estates  vested  in  the  corporation  it- 
self as  soon  as  it  is  in  esse.  They  are  not  mere  naked  powers  granted 
to  the  corporation,  but  powers  coupled  with  an  interest." 

Mr.  Webster,  in  his  memorable  argument  in  that  case  said:  "Hume 
gives  the  reason :  It  is  that  such  franchises  were  regarded  in  a  most 
emphatic  sense  as  private  property.  If  it  could  be  made  to  appear 
that  the  trustees  and  the  president  and  professors  held  their  oflSces  and 
franchises  during  the  pleasure  of  the  legislature  and  that  the  property 
holden  belonged  to  the  state,  then  indeed  the  legislature  have  done  no 
more  than  they  had  a  right  to  do.  But  this  is  not  so.  The  charter  is 
a  charter  of  privileges  and  immunities,  and  these  are  holden  by  the 
trustees  expressly  against  the  state  forever." 

The  decision  of  this  case  attracted  great  attention.  Its  effect  was 
feared ;  it  placed  the  creature  beyond  the  power  of  the  creator,  and  as 
a  result  of  it  the  various  states  adopted  constitutional  amendments, 
providing  for  the  formation  of  corporations  under  general  laws,  which 
should  be  subject  to  alteration,  amendment  or  ref)eal.  The  courts 
themselves  in  a  measure  shrank  back  from  the  doctrine  of  that  case, 
and  in  a  subsequent  case,  argued  in  the  supreme  court  of  the  United 
States,  entitied  Charles  River  Bridge  v.  Warren  Bridge  et  al.  (ii 
Peters  420),  they  modified  the  doctrine  which  had  previously  existed 
as  to  the  exclusiveness  of  franchises,  and  declared  '*that  a  franchise 
conferred  by  the  government  was  not  exclusive  unless  so  expressed  in 
the  grant."  This  remained  the  settied  doctrine  of  the  American 
courts  since  that  decision. 

It  will  be  obser\'ed,  therefore,  that  the  tendency  of  the  people,  act- 
ing through  constitutional  conventions  and  representative  legislatures 
and  of  the  courts,  has  been  to  modify  the  doctrine  of  the  Dartmouth 
College  case,  and  to  make  powers  conferred  by  the  government  upon 
persons,  natural  or  artificial,  mere  privileges  enjoyed,  not  property 
owned.  This  tendency  has  reached  its  highest  development  in  our 
state,  where  the  legislature  is  not  permitted  to  grant  any  special  privi- 
lege to  any  person,  natural  or  artificial,  and  where  all  privileges  con- 
ferred by  the  sovereign  power  are  made  of  common  right  and  general 
enjo3rment.     *     *     ♦ 

The  only  case  which  has  been  called  to  our  attention  in  which  a 
tax  has  been  imposed  upon  the  franchise  of  a  corporation  as  property, 
separate  and  apart  from  the  property  in  connection  with  which  it  is 
exercised  is  the  case  of  Exchange  Bank  of  Columbus  v.  Hines,  3 
Ohio  St.  7,  in  which  the  court  declared  the  tax  invalid,  in  the  follow- 
ing language :      *     •     * 

Does  a  corporate  franchise,  in  sober  truth  and  reality,  possess  the 
essential  qualities  of  property?  It  is  said  that  the  corporate  franchise 
of  a  bank,  conferring  a  peculiar  legal  capacity,  and  the  high  function 


128  SPRING  VALLEY  WATER-WORKS  V.  SCHOTTLER.  §  23 

of  making  and  circulating  paper  money,  is  valuable — indeed,  a  thing 
of  great  value.  But  value  is  not  the  distinguishing  attribute  of  prop- 
erty. The  right  of  suffrage  is  esteemed  valuable ;  a  public  office, 
with  its  emoluments,  is  valuable ;  a  license  to  keep  a  tavern,  as 
formerly  granted  in  this  state,  or  a  license  to  carry  on  any  special 
business  vv^hich  is  prohibited  without  a  special  grant  of  authority  from 
the  government,  may  be  valuable,  and  a  right  to  either  of  these  things 
may  be  asserted  and  maintained  in  a  court  of  justice,  yet  neither  of 
them  possesses  the  essential  qualities  which  constitute  property.  Our 
right  to  the  free  use  and  enjoyment  of  things  which  are  in  common, 
such  as  air,  light,  water,  etc.,  is  valuable;  and  our  right  to  the  free 
use  of  the  public  highways,  and  to  many  of  the  privileges  and  ad- 
vantages derived  from  the  government  may  be  valuable,  and  may  be 
maintained  by  legal  process.  Yet  none  of  these  things  come  within 
the  denomination  of  property.  Those  things  which  constitute  the  sub- 
ject-matter of  private  property  are  such  as  the  owner  may  exercise 
exclusive  dominion  over,  in  the  use,  enjoyment  and  disposal  of  them, 
without  any  control  or  diminution  save  only  by  the  laws  of  the  land, 
(i  Wend.  Blackstone,  138.)  It  is  a  fundamental  principle  that  prop- 
erty considered  as  an  exclusive  right  to  things  contains  not  only  a  right 
to  use  those  things,  but  a  right  to  dispose  of  them,  either  by  exchang- 
ing them  for  other  things,  or  by  giving  them  away  to  any  other  person, 
without  any  valuable  consideration  in  return,  or  even  of  throwing" 
them  away,  which  is  usually  called  relinquishing  them."  (Ruther- 
ford's Institutes  20;  Puffendorff,  c.  9,  b.  7.) 

"It  is  said  that  capability  of  alienation,  or  disposal,  either  by  sale, 
devise,  or  abandonment,  is  an  essential  incident  to  propei'ty. "  (2 
Kent's  Com.  317.)  "^  corporate  franchise^  therefore^  being  a  mere 
privilege^  or  grant  of  authority  by  the  government^  is  not  property 
of  any  description^  and  consequently  not  subject  to  taxation  under 
the  above  provision  of  the  constitution.^''      *     *     * 

The  constitution  not  only  provides  that  "all  property  shall  be  taxed 
in  proportion  to  its  value,"  but  that  such  value  is  "to  be  ascertained 
as  provided  by  law."  The  only  rule  laid  down  in  the  Political  Code 
for  the  assessment  of  property  is  that  contained  in  section  3637,  to  wit: 
"All  taxable  property  must  be  assessed  at  its  full  cash  value,"  which 
latter  term  is  defined  (§  3617,  subd.  5)  as  follows:  "The  terms 
value  and  cash  value  mean  the  amount  at  which  the  property  would 
be  taken  in  payment  of  a  just  debt  due  from  a  solvent  debtor."     *     * 

The  rule  applied  was  one  which  it  was  declared  had  the  approval 
of  the  supreme  court,  in  the  case  of  San  Jose  Gas  Co.  v.  January, 
viz.,  by  ascertaining,  first,  the  market  value  of  the  stock  of  the 
corporation ;  and  secondly,  the  assessed  value  of  the  property  thereof, 
and  deducting  the  latter  from  the  former,  the  difference  was  declared 
to  be  the  value  of  the  franchise.     *     *     * 

The  rule  applied  does  not  operate  equally  and  uniformly  upon  all 
franchises,  for  in  the  case  of  a  franchise  enjoyed  by  an  individual, 
there  would  be  no  stock  from  the  aggregate  market  value  of  which 
could  be  deducted  the  value    of  the   tangible    property   in    order   to 


§  23  THE   CORPORATION  AS   A  FRANCHISE.  129 

ascertain  the  value  of  the  franchise,  nor  is  it  an  equal  or  uniform 
rule  in  any  sense,  for  it  applies  only  to  corporations,  whereas  the 
business  of  private  individuals  and  firms  should  be  subjected  to 
the  same  mode  of  assessment.  A  mercantile  firm  may  have  a  stock 
of  goods  on  hand  worth  $100,000,  and  yet  its  business,  the  good  will, 
so  called,  with  the  advantages  which  years  of  skillful  and  honorable  at- 
tention to  business  united  with  fortunate  circumstances  may  have  given, 
mav  be  worth  five  times  as  much  as  the  stock,  and  yet  the  assessor  asses- 
ses only  the  tangible  property,  and  lets  the  good-will  go  free.  The  law 
provides  that  "private  corporations  may  be  formed  for  any  purpose 
for  which  individuals  may  lawfully  associate  themselves."  (C.  C, 
§  286.)  Such  a  mercantile  firm  could,  if  it  chose,  form  itself  into  a 
mercantile  corporation.  With  a  stock  of  goods  on  hand  never  ex- 
ceeding $100,000  it  might  earn,  with  a  skill  and  ability  of  its  mem- 
bers through  the  large  custom  acquired,  a  liberal  rate  of  interest 
on  $500,000,  and  the  stock  would  sell  in  the  market  for  that  sum.  In. 
such  cases,  the  assessor,  pursuing  the  rule  contended  for  here,  would 
determine  the  value  of  the  franchise  to  be  $400,000;  whereas,  as  a 
matter  of  fact,  the  right  to  be  a  corporation  would  be  utterly  valueless 
to  a  firm,  and  the  difference  between  the  mai-ket  value  of  the  stock 
and  the  value  of  the  tangible  property  would  simply  be  the  good-will 
of  the  business ;  this  would  exist  whether  the  concern  was  incorpo- 
rated or  not ;  and  yet  the  difference  is  assessed  only  to  corporations 
and  not  to  individuals. 

A  more  glaring  instance  of  the  absurdity  of  the  rule  applied  is 
that  of  a  newspaper  whose  value  is  almost  entirely  made  up  of  skill, 
ability,  enterprise  and  good-will.  Take  the  case  of  the  two  leading 
newspapers  of  this  city,  the  Chronicle  and  Call,  owned  by  private  pro- 
prietors. Each  is  valued  at  about  $300,000,  and  probably  yields  its 
proprietors  a  liberal  interest  upon  that  amount.  Probably  the  only 
property  connected  with  either  of  these  papers  which  the  assessor  would 
assess  are  the  printing  presses  and  fixtures,  worth,  say,  $30,000 ;  but 
if  either  paper  should  be  incorporated  into  a  joint-stock  company, 
with  a  capital  stock  of  $300,000,  its  stock  would  probably  sell  for 
that  amount,  as  the  value  of  the  stock  in  the  market  is  largely  de- 
termined by  the  rate  of  interest  paid  as  dividends  upon  it.  The  as- 
sessor then,  in  that  case,  would  assess  the  franchise,  that  is,  the  privi- 
lege of  conducting  the  same  business  in  the  name  of  an  artificial  being, 
at  the  difference  between  the  value  of  the  printing  press  and  fixtures, 
and  the  market  value  of  the  stock,  namely:  $270,000.  So  the  mere 
change  in  the  conduct  of  the  business  of  such  a  newspaper,  from  the 
hands  of  a  natural  person  to  those  of  an  artificial  person,  would  result 
in  an  assessment  upon  the  latter  ten  times  greater  than  upon  the  for- 
mer, and  yet  this  artificial  person  is  a  purely  business  corporation ;  it 
does  not  have  the  power  of  eminent  domain,  or  exercise  the  royal 
prerogative  of  collecting  tolls ;  the  only  franchise  it  possesses  is  the 
right  to  be  a  corporation.      ♦     •     » 

Thornton,  J.  «  »  *  Blackstone  says,  in  relation  to  franchises: 
9— WiL.  Casks. 


130  SPRING  VALLEY  WATER-WORKS  V.   SCHOTTLER.  §  23 

"Franchises  and  liberty  are  used  as  synonymous  terms,  and  their  defini- 
tion is  a  royal  privilege,  or  branch  of  the  king's  prerogative,  subsisting 
in  the  hands  of  a  subject.  Being,  therefore,  derived  from  the  crown, 
they  must  arise  from  the  king's  grant,  or  in  some  cases  may  be  held 
by  prescription,  which,  as  has  been  frequently  said,  presupposes  a 
grant.  The  kinds  of  them  are  various  and  almost  infinite,"  and  adds 
"that  they  may  be  vested  in  either  natural  persons  or  bodies  politic, 
in  one  man  or  in  many."  And  again  on  this  subject  he  says:  "To  be 
a  county  palatine  is  a  franchise,  vested  in  a  number  of  persons.  It 
is  likewise  a  franchise  for  a  number  of  persons  to  be  incorporated^ 
and  subsist  as  a  body  politic^  with  a  power  to  maintain  perpetual 
succession^  and  do  other  corporate  acts ;  each  individual  member  of 
such  corporation  is  also  said  to  have  a  franchise  or  freedom."  (2  Bl. 
Com.  37.) 

Kent  defines  franchises  as  "privileges  conferred  by  grant  from  gov- 
ernment, and  vested  in  individuals."  (3  Kent's  Com.  458.)  He 
also  says:  "Corporations  or  bodies  politic  are  the  most  usual  fran- 
chises known  in  our  law."      (Id.  459.) 

In  Pierce  v.  Emery,  32  N.  H.  507,  Perley,  C.  J.,  speaking  for  the 
court,  remarks:  '■'■A  corporation  is  itself  a  franchise  belonging  to 
the  members  of  the  corporation;  and  a  corporation^  being  itself  a 
franchise^  may  hold  other  franchises  as  rights  and  franchises  of  the 
corporation.^^  And  further:  '•'•A  corporation .^  being  itself  a  fran- 
chise., consists  and  is  made  up  of  its  rights  and  franchises." 

In  City  of  Bridgeport  v.  N.  Y.  &  N.  H.  R.  Co.,  36  Conn.  266, 
Butler,  J.,  speaking  for  the  court,  uses  this  language  in  regard  to  a 
railroad  corporation:  "The  term  'franchise'  has  several  significations, 
and  there  is  some  confusion  in  its  use.  The  better  opinion  deduced 
from  the  authorities  seems  to  be  that  it  consists  of  the  entire  privileges 
embraced  in  and  constituting  the  grant."  (See  title  "Franchise"  in 
Abbott's  Law  Diet.,  and  cases  there  cited.) 

It  is  true  that  the  privileges  so  granted  by  the  government  do  not 
pertain  to  the  citizens  of  the  state  by  common  right.  But  what  is  the 
"common  right"  here  referred  to?  Is  it  not  a  right  which  pertains  to 
the  citizens  by  the  common  law,  the  investiture  of  which  is  not  to  be 
looked  for  in  any  special  law,  whether  established  by  a  constitution 
or  an  act  of  the  legislature?  Coke  says:  '■'•De  commun  droit — of 
common  right — this  is  by  the  common  law,  because  the  common  law 
is  the  best  and  most  common  birthright  that  the  subject  hath  for  the 
safeguard  and  defense  not  only  of  his  goods,  lands  and  revenues,  but 
of  his  wife  and  children.  *  *  *  This  common  law  of  England  is 
sometimes  called  right,  sometimes  common  right,  and  sometimes  com- 
munis justitia."  (Coke's  Inst.  142a.)  The  definition  of  franchises 
as  special  privileges  conferred  by  government  upon  individuals,  and 
which  do  not  belong  to  the  citizens  of  the  country  generally  of  com- 
mon right,  had  its  origin  in  Bank  of  Augusta  v.  Earle,  13  Pet.  575. 
A  very  learned  and  accurate  writer,  Mr.  Emory  Washburn,  in  his 
work  on  Real  Property  (2d  vol.  267),  adopts  this  definition,  and  cites 
as  authority  the  case  above  referred  to  from  13  Peters.     The  same 


§  23  THE   CORPORATION  AS   A  FRANCHISE,  I31 

definition  is  quoted  by  Angell  &  Ames,  in  their  work  on  Corporations, 
from  the  case  referred  to.     (See  Ang.  &  Ames  on  Corp.,  §  4.) 

In  the  case  in  13  Peters  it  was  contended  that  under  the  laws  and 
constitution  of  Alabama  the  right  of  banking  was  a  franchise.  The 
court  refused  to  so  hold,  on  the  ground  that  the  right  of  banking,  at 
common  law,  belonged  to  every  citizen.  (See,  also,  Curtis  v.  Leavitt, 
15  N.  Y.  170,  opinion  of  Shanklin,  J.)  The  discussion  on  the  point 
in  the  opinion  shows  clearly  that  "common  right"  is  used  with  the 
signification  of  common  law." 

We  are  of  opinion  that  the  common  right  refers  to  the  right  of  citi- 
zens, generally  at  common  law.  Such  rights  of  citizens,  though 
frequently  spoken  of  as  franchises,  are  not  the  franchises  here 
meant ;  and  it  ma}'  be  conceded  that  where  such  rights  are  granted 
to  corporations,  they  are  not  franchises.  But  independent  of  the  right 
to  exist  as  a  corporation,  and  to  exercise  powers  in  its  corporate  ca- 
pacity, there  are  privileges  granted  to  the  water-works,  which  do 
not,  by  the  common  law,  belong  to  citizens  generally ;  such  as  the 
right  to  lay  down  pipes  in  the  streets,  ways  and  alleys  of  a  city,  and 
to  collect  rates  for  water  furnished,  which  was  held  to  be  a  franchise 
in  San  Francisco  v.  Spring  Valley  Water-Works,  48  Cal.  493,  and  in 
San  Jose  Gas  Co.  v.  January,  57  Cal.  616.  Conceding  for  the  argu- 
ment that  the  constitution,  by  section  19  of  article  xi,  grants  this  right 
to  every  person,  it  does  not  follow  that  it  is  not  a  franchise.  They 
are  vested  by  a  grant  of  the  sovereign  power,  and  not  by  the  common 
law ;  and  the  generality  of  the  grant  does  not  deprive  them  of  the 
character  of  franchises. 

The  right  to  collect  rates  for  use  of  water  supplied  to  the  city  and 
county  of  San  Francisco,  or  the  inhabitants  thereof,  which  the  appel- 
lant has  possessed  at  least  ever  since  the  act  of  1858  went  into  effect, 
is  expressly  declared  to  be  a  franchise  by  the  constitution  of  the  state 
in  the  second  section  of  article  xiv,  thereof.  As  has  been  said  above, 
the  very  existence  of  a  corporation  as  such  is  a  franchise,  and  it  exer- 
cises its  franchise  in  every  act  which  it  performs  as  a  corporation.  In 
the  Bank  of  Augusta  v.  Earle,  above  cited,  the  supreme  court  of  the 
United  States,  speaking  through  Taney,  C.  J.,  in  relation  to  the 
making  of  contracts  by  corporations,  which,  by  common  right,  indi- 
viduals could  make,  said:  "/«  making  such  contracts,  a  corporation, 
no  doubt,  exercises  its  corporate  franchise.  But  it  must  do  this 
whenever  it  acts  as  a  corporation,  for  its  existence  is  a  franchise. ^^ 

A  corporation,  whose  existence  is  a  franchise,  may  possess  powers 
and  privileges,  which,  in  themselves,  are  not  franchises  (such  as  the 
right  to  bank,  discussed  in  Bank  of  Augusta  v.  Earle,  above  cited,  or 
the  right  to  buy  and  sell  property,  real  and  personal),  but  it  usually 
owns,  along  with  such  privileges,  some  that  are  franchises;  but 
whether  the  powers  be  entirely  of  the  kind  which  are  franchises  or 
not,  its  existence  and  right  to  employ  its  corporate  powers  is  a  fran- 
chise.    This  we  think  abundantly  established  by  the  cases  above  cited. 

We  have  no  doubt  that  it  was  the  intention  of  those  who  framed 
and  ratified  the  constitution  to  place  such  franchises  in  the  category  of 


132  SPRING  VALLEY  WATER-WORKS  V.  SCHOTTLER.  §  23 

property  to  be  taxed.  The  word  "franchises, "as  used  hi  the  first 
section  of  article  13,  is  used  generally  without  any  qualifying"  words, 
and  is  intended  to  embrace  all  franchises  of  the  character  above  re- 
ferred to,  whether  vested  in  individuals  or  bodies  politic.  A  fran- 
chise conferred  on  an  individual  to  lay  down  pipes  in  the  streets  of  a 
city  and  to  collect  rates  for  water  furnished  a  city  or  its  inhabitants  is 
to  be  taxed  in  the  same  way  as  when  vested  in  corporations.  The  law 
in  this  respect  is  the  same  in  regard  to  all  persons,  whether  natural  or 
artificial. 

It  is  contended  that  the  clause,  "and  all  other  matters  and  things 
real,  personal  and  mixed,  capable  of  private  ownership,"  in  section  i 
of  article  13,  qualifies  the  word  "franchises"  which  precedes  it.  We 
do  not  think  so.  The  structure  of  the  sentence  forbids  any  such  con- 
struction. What  is  said  before  the  employment  of  these  words  is 
complete  of  itself,  and  needs  nothing  to  show  what  was  signified. 
The  words  used  show  clearly  that  they  were  intended  to  add  some- 
thing to  what  preceded  them,  to  refer  to  kinds  of  property  not  pre- 
viously mentioned,  not  to  qualify  anything.  They  w^ere  doubtless  in- 
serted out  of  abundant  caution  to  show  that  all  kinds  of  property, 
whether  specifically  enumerated  or  not,  were  intended  to  be  included 
in  the  property  to  be  taxed,  though  not  embraced  in  the  specific 
classes  previously  mentioned.  They  constitute  a  declaration  that  in 
enumerating  the  property  to  be  taxed  it  was  not  intended  to  confine 
the  enumeration  to  "moneys,  credits,  bonds,  stocks,  dues,  franchises," 
but  to  include  all  other  kinds  of  property,  and  that  by  no  construction 
of  the  word  property,  as  used  in  the  section,  were  any  kinds  of  prop- 
erty to  be  left  out. 

But  it  is  immaterial  whether  these  words  qualified  "franchises"  or 
not,  for  the  reason  that  the  franchises  so  referred  to  are  capable  of 
private  ownership.  To  hold  that  a  private  corporation  does  not  own 
its  franchise  right,  power  and  privileges  would  be  both  novel  and  un- 
tenable. Admitting  that  under  the  law  of  the  state  there  may  be  leg- 
islation which  might  impair  their  value,  it  does  not  follow  that  it  is 
not  owned  as  property,  with  all  the  rights  which  attach  thereto.  All 
these  rights  exist  until  the  legislative  authority  has  acted  so  as  to  im- 
pair them  or  take  them  away ;  and  until  such  legislation  is  enacted 
the  rights  of  property  remain  unimpaired.  There  has  been  no  legis- 
lation yet  of  the  character  as  regards  the  appellant  that  has  been  called 
to  our  attention,  or  that  we  have  been  able  to  discover. 

This  franchise  of  a  corporation  is  sometimes  classed  as  real  estate — 
of  that  kind  styled  incorporeal  hereditam^ents.  (Enfield  Toll  Bridge  Co. 
V.  Hartford  and  New  Haven  R.  Co.,  17  Conn.  40;  s.  c,  17  Conn. 
462;  Price  V.  Price's  Heirs,  6  Dana  107;  i  Blackstone's  Com.,  20— 
22,  37,  38.)  In  the  case  cited  from  17  Conn.  40,  this  was  said  of  a 
bridge  corporation.  The  shares  of  stock  of  the  water- works  are  by 
statute  made  personal  estate.  (See  act  of  1853.)  But  whether  real 
or  personal  estate,  they  are  property.  Such  franchises,  as  long  as 
they  exist,  are  protected  as  property  by  the  guarantee  universal  in  the 
states  of  the  Union,  which  forbids  their  being  taken  except  for  public 


§  23  THE   CORPORATION  AS   A  FRANCHISE.  1 33 

purposes  and  on  compensation  being  made,  (i  Cooley's  Con.  Lim., 
4th  ed.,  655,  and  cases  cited  in  note  4.)  During  their  existence  tliey 
are  as  fully  protected  by  law  as  any  other  species  of  property.  On 
this  subject  see  Wilmington  R.  Co.  v.  Reid,  13  Wall.  268;  3  Kent's 
Com.  458;  Hamilton  County  v.  Massachusetts,  6  Wall.  633;  People 
V.  Selfridge,  52  Cal.  331  ;  T.  &  T.  R.  Co.  v.  Campbell,  44  Cal.  89; 
O.  R.  Co.  V.  O.  B.  &  F.  V.  R.  Co.,  45  Cal.  365.  (See  cases  just 
above  cited  from  17  Connecticut,  and  Norwich  Gas-light  Co.  v.  Nor- 
wich City  Gas  Co.,  25  Conn.  36.) 

The  franchise  of  a  corporation  is  and  can  be  ivell  defined  to  be  the 
right  of  the  corporation  to  exist  and  exercise  the  powers  and  privi- 
leges vested  in  it  by  its  charter.  (Burr,  on  Tax.,  §  83.)  The  fran- 
chise is  the  faculty  of  the  corporation.  As  said  by  Redfeld  in  his 
work  on  railways:  '•'•The  faculty  of  a  corporation  is  its  organic 
life;  its  corporate  existence  by  which  it  is  enabled  to  carry  on  busi- 
ness; that  which  it  derives  from  its  charter  of  incorporation  its  cor- 
porate franchise.^^  (2  Redf.  on  Railways,  3d  ed.,  452.)  In  this 
state ^  the  charter  is  the  statute  or  statutes  granting  and  defining  the 
powers  of  the  corporation^  under  which  it  is  constituted  and  exists, 
together  with  the  instruments  required  to  be  executed  by  the  provis- 
ions of  such  statute  or  statutes.  These  are  sometimes  called  the  constat- 
ing instruments.  (Field  on  Corp.,  §  34,  n.  3.)  Such  franchises  are 
legal  estates.,  not  mere  naked  powers  ^  and  are  powers  coupled  with  an  in- 
terest, which  vest  in  the  corporation  by  virtue  of  its  charter  or  constat- 
ing instruments.  (Society  for  Savings  v.  Coite,  6  Wall.  606  ;  Provi- 
dent Institution  v.  Massachusetts,  6  Wall.  622  ;  Hamilton  Co.  v.  Massa- 
chusetts, 6  Wall.  638;  Porter  V.  R.  R.  I.  &  St.  L.  R.  Co.,  76  111. 
561.)  That  the  state  has  full  power  to  tax  them,  see  same  cases, 
and  State  R.  R.  Tax  Cases,  92  U.  S.  603.  In  the  case  from  76 
Illinois,  above  cited,  it  is  said:  "It  is  clear  upon  authority  that  the 
franchise  of  a  corporation  is  property,  and  as  such  it  may  be  a  proper 
object  of  taxation."  (P.  573.)  In  Veazie  Bank  v.  Fenno,  8  Wall. 
547,  Chase,  C.  J.,  used  this  language:  "Franchises  are  property, 
often  very  valuable  and  productive  property,  and  seem  to  be  as 
properly  objects  of  taxation  as  any  other  property."  Daniel,  J.,  de- 
livering the  opinion  of  the  court  in  West  River  Bridge  Co.  v.  Dix  et 
al.,  6  How.  529,  said:  "We  are  aware  of  nothing  peculiar  to  a 
franchise  which  can  class  it  higher,  or  render  it  more  sacred  than 
other  property.  A  franchise  is  property,  and  nothing  more."  (See 
also  Wilmington  R.  Co.  v.  Reid,  13  Wall.  264,  and  Monroe  Savings 
Bank  v.  The  City  of  Rochester,  37  N.  Y.  367.)  In  this  last  case 
Fullerton,  J.,  delivering  the  opinion  of  the  court,  said,  in  regard  to  a 
statute  declaring  the  privileges  and  franchises  granted  by  the  legisla- 
ture to  savings  banks  or  institutions  for  savings,  personal  property, 
and  liable  to  taxation  as  such:  "In  declaring  the  privileges  and 
franchises  of  a  bank  to  be  personal  property,  the  legislature  has 
adopted  no  novel  principle  of  taxation.  The  powers  and  privileges 
which  constitute  the  franchise  of  a  corporation  are  in  a  just  sense 
property,  and  quite  distinct  and  separate  from  the  property,  which. 


134  SPRING  VALLEY  WATER-WORKS  V.  SCHOTTLER.  §  23 

by  the  use  of  such  franchise^  the  corporation  may  acquire.  They  are 
so  regarded  by  the  law^  and  so  regarded  by  co7nmon  acceptation.'^ 

That  such  franchises  can  be  taxed  according  to  the  valuation  arrived 
at  through  an  assessment  is  recognized  in  the  case  of  the  Freight  Tax, 
15  WalL  282,  and  in  the  case  of  the  State  Tax  on  Railway  Gross 
Receipts,  15  Wall.  296.  In  the  case  of  the  State  Railroad  Tax  Cases, 
above  cited  from  92  U.  S.  Reports,  a  tax  on  the  assessed  value  of 
franchise  and  capital  stock  by  the  state  of  Illinois  was  sustained, 
approving  the  decision  to  that  effect  in  Porter  v.  R.  R.  I.  &  St.  L. 
R.  R.  Co.,  above  cited  from  76  Illinois.  (See  also  Gordon  v.  Appeal 
Tax  Court,  3  How.  (U.  S.)  133,  and  Judge  Redfield's  comment  on 
this  case  in  2  Redf.  on  Railways,  453.)  As  to  the  extent  of  the  power 
of  the  state  to  tax,  see  Providence  Bank  v.  Billings,  4  Pet.  562,  and 
Hamilton  Co.  v.  Massachusetts,  6  Wall.  639.  In  the  case  in  4  Pet- 
ers, Marshall,  C.  J.,  said:  "All  powers  *  *  *  over  which  the 
sovereign  power  of  a  state  extends  are  subjects  of  taxation.  The 
sovereignty  of  a  state  extends  to  everything  which  exists  by  its  author- 
ity, or  is  introduced  by  its  permission."  (4  Pet.  563.)  The  same 
doctrine  was  declared  in  Osborne  v.  Bank  of  the  United  States,  9 
Wheat.  738.  From  the  foregoing  cases,  it  would  seem  that  there 
can  be  no  doubt  of  the  power  of  a  state  to  tax  the  franchise  at  its 
assessed  value.  There  may  be  more  difficulty  in  an'iving  at  its  value 
than  that  of  a  parcel  of  land  or  personal  chattels,  but  still  its  value  may 
be  estimated.  When  it  is  condemned  for  public  use,  the  compen- 
sation to  be  paid  can  be  fixed.  As  is  justly  said  in  Porter  v.  R.  R.  I. 
&  St.  L.  R.  R.  Co.,  76  111.  578:  "We  have  never  known  it  to  be  as- 
serted that  the  value  of  a  franchise  is  so  indefinite  and  uncertain  that 
it  can  not  be  made  the  measure  of  a  recovery  when  it  is  wrongfully 
invaded ;  or  that  when  it  is  taken  and  condemned  for  pubic  use,  it  can 
not  be  ascertained  what  compensation  shall  be  made  to  its  owner.  It 
is  recognized  in  those  respects  as  being  capable  of  a  definite  valuation. 
*  *  *  If  its  value  may  be  ascertained  for  those  purposes,  it  may  as 
readily  be  ascertained  for  the  purposes  of  taxation."  As  to  value  of 
franchises,  and  that  they  possess  a  value  beyond  that  belonging  to  the 
tangible  property  of  the  corporation,  see  cases  just  above  cited. 
(Commonwealth  v.  Hamilton  Mfg.  Co.,  12  Allen  298,  and  Com- 
monwealth V.  Cary  Improvement  Co.,  98  Mass.  23.) 

In  this  state,  the  constitution  having  declared  that  franchises  are 
property,  and  that  all  property  in  the  state  not  exempt  from  taxation 
shall  be  assessed  in  proportion  to  its  value,  to  be  ascertained  as  pro- 
vided by  law  (Const.,  r.rt.  xiii,  §  i),  it  would  seem  to  follow  that  the 
tax  must  be  according  to  the  valuation  made  by  the  officer  appointed 
for  that  purpose.  If  the  state  can  impose  a  tax  on  the  franchise  of  a 
corporation  in  the  nature  of  an  excise  or  duty,  it  does  not  exclude  the 
taxation  by  a  valuation  made  by  an  assessor. 

That  such  a  franchise  as  that  held  by  the  appellant  was  taxable  in 
this  state,  we  think  has  been  held  by  this  court  in  two  cases :  Burke 
V.  Badlam,  57  Cal.  594;  and  San  Jose  Gas  Company  v.  January,  57 
Cal.  614.     *     *     * 


§  23  THE    CORPORATION   AS    A  FRANCHISE.  I35 

When  the  matters  in  controversy  in  Burke  v.  Badlam  originated, 
the  legislature  had  acted  in  regard  to  the  assessments  of  property,  and 
enacted  as  follows: 

"Shares  of  stock  in  corporations  possess  no  intrinsic  value  over  and 
above  the  actual  value  of  the  property  of  the  corporation  which  they 
stand  for  and  represent,  and  the  assessment  and  taxation  of  such 
shares  and  also  of  the  corporate  property  would  be  double  taxation. 
Therefore  all  property  belonging  to  corporations  shall  be  assessed  and 
taxed,  but  no  assessment  shall  be  made  of  shares  of  stock;  nor  shall 
any  holder  thereof  be  taxed  therefor."  (Pol.  Code,  §  3608.)  (It 
may  be  remarked  here  that  the  constitutional  validity  of  this  section 
was  affirmed  in  Burke  v.  Badlam.  (See  57  Cal.  602.)  *  *  ♦ 
"The  terms  'value'  and  'full  cash  value'  mean  the  amount  at  which 
the  property  would  be  taken  in  payment  of  a  just  debt  due  from  a 
solvent  debtor;"  and  "the  term  'personal  property'  includes  every- 
thing which  is  the  subject  of  ownership  not  included  within  the  mean- 
ing of  the  term  real  estate." 

[Each  person  (including  corporations)  also  must  furnish  a  state- 
ment of  all  property  (including  franchises)  to  the  assessor,  who  is  to 
enter  the  franchise  and  its  value  separate  from  the  other  property ;  the 
assessor  is  to  turn  this  statement  over  to  the  board  of  supervisors,  who 
is  to  equalize  all  assessments.]      *     *     * 

It  appears  from  the  record  in  this  case  that  the  board  of  supervisors, 
in  the  exercise  of  its  power  of  equalization,  assessed  the  franchise  of 
the  water-works  by  taking  the  aggregate  of  the  market  value  of  the 
shares  of  stock  in  the  company  on  the  7th  of  March,  1881,  and  de- 
ducting therefrom  the  value  of  the  real  and  personal  property  of  the 
company,  and  held  the  difference  to  be  the  value  of  the  franchise. 
The  market  value  of  the  shares  was  shown  to  the  board  by  the  testi- 
mony of  witnesses.  Such  a  mode  of  arriving  at  the  value  of  the  fran- 
chise appears  to  have  been  adopted  by  the  assessor  in  San  Jos^  Gas 
Co.  V.  January,  57  Cal.  614,  and  this  mode  was  held  to  be  within  the 
powers  vested  in  the  assessor.  It  was  also  impliedly  approved  as  a 
correct  mode  in  Burke  v.  Badlam,  above  cited.  (See  Commonwealth 
V.  Hamilton  Mfg.  Co.,  12  Allen  306.)     *     *     * 

There  is  a  further  point  which  we  think  it  proper  to  notice.  It  is 
contended  that  good-will  enters  into  and  forms  an  element  in  the 
value  of  the  shares  of  stock.  No  case  has  been  produced  to  us,  nor 
have  we  been  able  to  find  any  holding  or  even  intimating  that  this  is 
so.  We  find  no  such  element  of  value  in  the  least  hinted  at,  by  any 
one  who  has  written  on  the  subject,  nor  has  any  such  been  called  to 
our  attention.  We  can  not  recognize  any  such  element  as  giving  value 
to  shares  in  a  trading  corporation.  It  would  be  strange  to  predicate  good- 
will as  pertaining  to  or  extending  to  an  abstraction,  to  an  "artificial 
being,  invisible,  intangible,  and  existing  only  in  contemplation  of  law." 

Our  conclusion  is  that  the  board  of  supervisors,  in  its  capacity  of  a 
board  of  equalization,  had  jurisdiction  of  the  person  and  subject-mat- 
ter in  the  matters  involved  in  this  cause,  and  the  judgment  of  the  court 
below  is  affirmed. 


136         THE    STATE   V.    THE    GEORGIA   MEDICAL   SOCIETY.  §  24 

Ross,  Myrick,  McKinstry,  McKee  and  Sharpstein,  JJ.,  con- 
curred. 

Morrison,  C.  J.,  took  no  part  is  this  decision. 

Note.     See  South  Pacific  R.  Co.  v.  Orton,  32  Fed.  Rep.  457,  infra,  p.  354, 
an.  1  §§441-3,  680-1,  «t/ra. 


Sec.  24.  (2)  And  particularly:  This  primary  franchise  belongs 
to  the  members  in  their  individual  capacity  rather  than  to  the 
corporation  itself,  and  is  inalienable  except  by  consent  of  the 
state. 

THE  STATE,  Ex  Rel.  J.  WARING,  Plaintiff  in  Ekeor,  v.  THE  GEOR- 
GIA MEDICAL  SOCIETY,  Defendant  in  Error.^ 

1869.     In  the  Supreme  Court  of  Georgia.     38  Ga.  608-631 ;  95 

Am.  Dec.  408. 

[Waring  filed  a  petition  for  writ  of  mandamus,  to  restore  him  to 
membership  in  the  Georgia  Medical  Society,  upon  the  ground  that 
the  action  of  the  society  "in  expelling  him  from  membership  and  de- 
priving him  of  his  right  and  franchise  as  a  corporator  in  said  corpo- 
ration is  unconstitutional  and  contrary  to  law."  The  society  had 
authority  to  make  such  a  constitution  and  by-laws  not  repugnant  to  the 
laws  of  the  state  or  the  United  States,  and  these  provide  (among  other 
things)  that  members  "shall  be  gentlemen  of  respectable  social  posi- 
tion;" and  "any  member  who  shall  be  guilty  of  ungentlemanly  con- 
duct during  the  session  of  the  society,  or  who  shall  conduct  himself, 
out  of  the  society,  in  such  a  manner  as  would  render  him  ineligible 
to  membership,  shall  be  expelled  from  the  society  according  to  the 
wishes  of  two-thirds  of  the  members  of  the  society  present,  provided 
that  in  every  instance  specific  charges  be  set  forth  and  handed  to  the 
individual  at  least  one  month  before  the  society  takes  action  thereon." 
The  charges  made  were  that  Waring  had  become  surety  for  Richard 
White,  0.  person  of  color,  under  indictment  for  larceny,  who  had  been 
elected  clerk  of  the  court,  in  opposition  to  the  wishes  of  the  entire  re- 
spectable community;  and  that  he  had  also  become  surety  for  certain 
other  persons  of  color,  who  were  charged  with  riot,  in  such  manner 
as  would  render  him  ineligible  to  membership ;  also  for  charging  for 
a  dispensary  prescription,  which  was  allowed  gratis  by  the  city ;  also 
consulting  with  a  physician  not  a  member  of  the  society,  contrary  to 
one  of  the  rules  forbidding  this.  Dr.  Waring  was  given  proper  notice 
and  expelled  by  the  proper  vote.  The  society  answered,  claiming  the 
court  had  no  jurisdiction,  and  also  setting  forth  the  facts  as  to  the 
charges,  notice  and  expulsion,  as  above  given.  Waring  moved  to 
quash  this  answer  as  being  insufficient ;  the  lower  court  overruled  the 
motion,  and  Waring  sued  out  his  bill  of  exceptions  to  this  court.] 

*  Statement  of  facts  condensed ;  arguments  omitted. 


§  24  THE   CORPORATION  AS   A  FRANCHISE.  1 37 

Brown,  C.  J.  i.  It  was  insisted,  in  this  case,  that  the  Georgia 
Medical  Society  was  in  existence  long  before  it  was  incorporated, 
and  that  its  objects  were  in  no  way  changed  by  its  application  for  and 
acceptance  of  its  present  charter  from  the  state.  This  may  be  very 
true,  but  its  legal  responsibilities  were  changed  by  the  acceptance  of 
the  charter.  While  it  remained  a  voluntary  society,  the  courts  had  no 
jurisdiction  over  it,  if  it  violated  no  law  of  the  state,  and  its  members 
had  no  property  in  their  membership  which  the  law  could  protect. 
But  its  acceptance  of  the  charter  subjected  it  to  the  supervision  of  the 
proper  legal  authorities  having  jurisdiction  in  such  cases:  4  Wheat. 
674-5,  6  Conn.  544-5. 

3.  When  the  voluntary  society  accepted  the  charter,  it  became  a 
private,  civil  corporation,  and  the  corporators,  then  in  being,  ac- 
quired a  property  in  the  franchise,  and  every  person  who  has  since 
become  a  corporator  has  acquired  a  like  property.  The  property 
which  the  corporator  acquires  is  not  visible,  tangible  property;  but  it 
is  none  the  less  property,  because  it  is  invisible  and  intangible.  It  is 
not  a  corporeal  hereditament;  but  it  is  incorporeal.  Blackstone,  in  his 
Commentaries,  volume  2,  page  21,  says:  That  incorporeal  heredita- 
ments are  divided  into  ten  sorts;  one  of  these  consists  of  franchises. 
Bouvier,  in  his  Law  Dictionary,  volume  i,  page  593,  says  the  word 
franchise  has  several  meanings,  one  of  which  he  gives  as  follows: 
"  It  is  a  certain  -privilege  conferred  by  grant  from  the  government 
and  vested  in  individuals.  Corporations  or  bodies  politic  arc  the 
most  usual  franchise  known  to  our  law.^'  The  law  books  are  full  of 
the  doctrine  that  persons  may  have  a  property  in  incorporeal  heredita- 
ments, franchises,  etc.  Property,  says  Bouvier,  volume  2,  page  381, 
is  divided  into  corporeal  and  incorporeal.  The  former  comprehends 
such  property  as  is  perceptible  to  the  senses,  as  lands,  houses,  goods, 
merchandise  and  the  like ;  the  latter  consists  in  legal  rights  as  choses 
in  action,  easements  and  the  like.  Blackstone  says,  volume  2,  page  37, 
it  is  likewise  a  franchise  for  a  number  of  persons  to  be  incorporated 
and  subsist  as  a  body  politic,  with  power  to  maintain  perpetual  suc- 
cession, and  to  do  other  corporate  acts,  and  each  individual  member 
of  such  corporation  is  also  said  to  have  a  franchise  of  freedom.  We 
think  it  well  settled  by  these  and  other  authorities ^  that  a  corporator 
in  a  private^  civil  corporation,  has  a  property  in  the  franchise.,  of 
which  he  can  not  be  deprived  without  due  process  of  law. 

3.  It  was  insisted  by  the  learned  counsel  for  the  plaintiff  in  error, 
that  the  ninth  by-law  of  this  corporation  is  unauthorized  by  the  char- 
ter, and  that  the  corporation  is  not  justifiable  in  expelling  a  member 
for  its  violation ;  that  to  deprive  a  corporator  of  his  property  in  the 
franchise  under  it  is  to  deprive  him  of  his  property  without  due  pro- 
cess of  law.  We  think  the  ninth  by-law  a  proper  one  in  view  of  the 
objects  of  the  society,  and  we  hold  that  the  charter  conferred  upon  the 
corporation  the  power  to  ordain  and  establish  it,  and  that  they  have 
the  power  to  expel  a  member  when  a  proper  case  arises  under  it. 

But  we  hold  that  the  society  has  not  an  uncontrollable  discretion  in 
its  construction  and  enforcement.     They  can  not,  under  pretext  of 


138  THE   STATE   V.    THE    GEORGIA    MEDICAL    SOCIETY.  §  24 

enforcing  this  mle,  take  personal  or  private  revenge,  or  make  it  the 
instrument  of  religious  intolerance,  or  political  proscription.  When 
a  member  feels  that  he  is  aggrieved  or  injured  by  the  illegal  or  op- 
pressive action  of  the  body,  it  is  his  right  to  appeal  to  the  courts  for 
redress  and  protection ;  and  it  is  the  right  and  duty  of  the  court  to  in- 
vestigate such  charges,  when  properly  before  it,  and  to  judge  of  the 
legality  of  the  action  of  the  society  in  expelling  a  member  or  depriv- 
ing him  of  any  other  legal  right. 

4.  The  rule  of  law  on  this  subject  is  thus  stated  by  Judge  Black- 
stone,  volume  I,  page  381.  The  king  being  thus  constituted  by  law, 
visitor  of  all  civil  corporations^  the  law  has  also  appointed  the  place 
where  he  shall  exercise  this  jurisdiction,  which  is  the  court  of  king's 
bench,  where,  and  where  only,  all  misbehaviors  of  this  kind  of  corpo- 
rations are  inquired  into  and  redressed,  and  all  their  controversies 
decided.  In  this  state  the  same  visitorial  power  of  correcting  the  mis- 
behaviors of  these  corporations,  and  deciding  their  controversies,  is 
vested  in  the  superior  courts  of  the  counties  where  they  are  located, 
which  in  England  belongs  to  the  king's  bench.     See  5  John.  Ch,  R. 

335- 

It  was  contended,  with  much  zeal   and  ability,  by  the  able  counsel 

for  the  defendant  in  error,  that  mandamus  is  not  the  proper  remedy, 
even  if  we  admit  that  the  rights  of  Dr,  Waring  have  been  infringed,  or 
that  he  has  been  deprived  of  them  by  the  illegal  action  of  the  society. 
The  rule,  as  laid  down  by  this  court  in  a  number  of  cases  is  that  a 
person  having  a  clear  legal  right,  under  the  laws  of  this  state,  is  en- 
titled to  the  writ  of  mandamus,  if  he  has  no  other  remedy  to  enforce 
it,     4  Ga.  26  and  116,  12  Ga,  170,  26  Ga,  665, 

But  it  is  insisted  that  the  code,  section  3143,  has  changed  this  rule, 
and  that  mandamus  does  not  now  lie  as  a  private  remedy  between  in- 
dividuals to  enforce  private  rights.  We  do  not  think  this  section  of  the 
code  was  intended  to  deny  the  writ  to  the  corporator,  who  is  deprived 
of  his  rights  by  the  corporation,  when  he  has  no  other  adequate  remedy 
for  their  enforcement,  A  corporation  having  been  created^  invested 
with  certain  powers,  and  charged  with  certain  duties  to  be  performed 
for  the  benefit  of  the  public,  is  not  a  private  individual  in  the  sense 
of  the  word  as  used  in  said  section  of  the  code,  and  a  corporator 
whose  rights  are  withheld  or  violated  by  the  corporation,  who  is  with- 
out other  remedy,  is  entitled  to  the  writ. 

In  the  Commonwealth,  ex  rel,,  etc.,  v.  The  Mayor  of  Lancaster, 
5  Watts  152,  Gibson,  C.  J.,  says:  "An  action  to  enforce  the  right 
could  not  be  maintained  against  the  corporation  because  performance 
of  a  corporate  function  is  not  a  duty  to  be  demanded  by  action,  and 
unless  recourse  could  be  had  to  the  functionary  in  the  first  instance, 
the  relator  might  have  a  cause  for  redress  without  a  remedy."  See 
4  Ga,  44, 

Here  the  discharge  of  a  corporate  duty  is  treated  as  an  office  or 
function,  and  the  corporation  as  a  functionary.  In  this  sense,  no 
doubt,  the  legislature,  in  the  adoption  of  the  Code,  intended  to  treat 
them. 


§  24  THE   CORPORATION  AS    A  FRANCHISE.  I39 

The  object  of  this  society,  as  cited  in  their  charter,  was  "for  the 
purpose  of  lesseninj^  the  fatality  induced  by  climate  and  incidental 
causes,  and  improving  the  science  of  medicine."  The  whole  com- 
munity have  an  interest  in  the  success  of  this  laudable  undertaking; 
and  if  the  functions  conferred  by  th'e  charter,  for  the  benefit  of  the 
public,  are  not  faithfully  performed,  and  one  of  the  corporators,  who 
has  no  other  adequate  redress,  is  injui*ed  by  the  conduct  of  the  cor- 
poration (the  functionary),  the  courts  will  grant  him  relief  by  manda- 
mus. 

6.  The  record  in  this  case  shows  no  sufficient  cause  to  justify  the 
society  in  expelling  Dr.  Waring  from  his  rights  and  privileges  as  a 
corporator.  He  was  expelled  for  doing  that  which  the  law  of  this 
state  not  only  authorizes  but  encourages.  His  offending  consists  in 
the  fact  that  he  became  one  of  the  sureties  on  the  official  bond  of  a 
colored  citizen  of  his  county,  who  had  been  elected  clerk  of  the  superior 
court  of  the  county,  by  a  majority  of  the  legal  votes  cast  at  the  elec- 
tion for  that  office,  and  in  the  further  fact  that  he  became  surety  on 
the  bonds  of  certain  other  colored  citizens  who  were  charged  with  the 
offence  of  riot,  for  their  appearance  at  court  to  answer  the  charge  as 
the  law  directs.  The  very  fact  that  the  law  requires  the  clerk  of  the 
superior  court  to  give  bond  and  security  for  the  faithful  discharge  of 
his  duties,  is  sufficient  to  justify  any  citizen  of  the  county  in  becoming 
one  of  his  sureties,  and  to  protect  him,  in  contemplation  of  law,  from 
the  imputation  of  having  forfeited  his  position  as  a  gentleman  by  so 
doing. 

Again,  it  is  not  the  object  of  law  to  punish  citizens  of  this  state, 
whether  white  or  black,  by  imprisonment,  for  offenses  of  which  they 
have  never  been  convicted.  When  they  are  charged  with  violations 
of  the  penal  code,  the  requirement  of  the  law  is,  that  they  appear  at 
the  proper  time  and  place,  and  answer  the  charge ;  and  to  secure  such 
appearance,  they  are  required  to  give  bond  and  security,  and  it  is  only 
on  failure  to  give  the  bond  that  they  can  be  imprisoned.  As  inno- 
cent persons  are  often  confined  in  prison  under  charges,  because  of 
their  inability  to  give  bond,  the  law  favors  bail  whenever  the  offense 
is,  by  law,  bailable.  And  the  law  favors  this  even  in  the  case  of  the 
guilty,  till  the  trial.  This  is  not  only  best  for  the  public,  as  it  saves 
the  tax-payers  the  expense  of  keeping  them  in  jail,  but  is  just  to  the 
accused,  who  receive  the  legal  punishment  for  their  crimes,  if  guilty, 
under  the  sentence  of  the  court  after  legal  conviction.  How,  then, 
does  a  citizen  forfeit  his  corporate  rights  as  a  member  of  a  civil  corpo- 
ration, or  his  position  as  a  gentleman,  by  doing  an  act  that  is  not  only 
encouraged  by  the  laws  of  his  state,  but  is  a  positive  public  benefit? 

But  it  is  said  Dr.  Waring  was  not  expelled  from  becoming  surety 
on  the  bonds  above  mentioned,  but  for  ungentlemanly  conduct  in  the 
presence  of  the  society.  What  ungentlemanly  conduct.?  The  ninth 
by-law  requires  that  "specific  charges"  be  set  forth  and  handed  to  the 
accused  at  least  one  month  before  the  society  takes  action  thereon. 
What  specific  charges  of  ungentlemanly  conduct  in  presence  of  the 
society,  were  ever  handed  to  Dr.  Waring?     What  did  he  say  or  do  in 


I40         THE    STATE    V.    THE    GEORGIA    MEDICAL   SOCIETY.  §  24 

the  presence  of  the  society,  to  forfeit  his  position  as  a  gentleman? 
The  record  is  silent.  That  silence  is  significant.  That  which  is  ma- 
terial and  is  not  averred  by  the  society  in  their  answer  is  presumed 
not  to  exist.  No  ungentlemanly  conduct  in  presence  of  the  society  is 
set  forth  in  their  response,  and  this  court  must  presume  none  existed. 

Dr.  Waring  was  convicted  of  the  charges  first  mentioned  in  refer- 
ence to  the  suretyship,  and  brought  formally  before  the  society  and 
censured.  To  this  illegal  and  unauthorized  proceeding  he  submitted. 
But,  not  satisfied  with  this,  at  the  next  meeting  of  the  society  he  was 
again  brought  up,  and  his  resignation  demanded,  and  he  was  given 
till  the  succeeding  meeting  to  comply  with  the  imperious  and  unau- 
thorized demand.  This  he  declined  to  do.  And  a  preamble  and 
resolutions  were  then  passed,  setting  a  future  day  when  the  society 
would  vote  on  his  expulsion  for  refusing  to  resign,  and  for  discourteous 
behavior  towards  the  society  at  two  former  meetings.  In  what  the 
discourteous  behavior  consisted  we  are  not  informed  by  the  record. 
In  the  meantime,  however,  the  gracious  privilege  of  avoiding  ex- 
pulsion by  resignation  was  still  held  out  to  Dr.  Waring.  When  the 
time  came  for  the  much-cherished  object  by  the  infliction  of  the  ex- 
treme penalty  of  expulsion.  Dr.  Waring  was  at  home  sick,  and  unable 
to  attend,  but  he  wrote  the  society,  disclaiming  all  intentional  dis- 
courtesy to  it  or  its  members,  and  protested  against  the  irregularity 
and  illegality  of  the  course  resolved  upon,  as  set  forth  in  said  pre- 
amble and  resolutions.  But  all  to  no  effect.  His  expulsion  was  pre- 
determined, and  that  determination  was  executed.  A  more  illegal 
or  unjustifiable  proceeding  has  seldom  been  brought  before  a  court. 

After  argument  had,  and  a  thorough  examination  of  this  case,  it  is 
the  unanimous  judgment  of  this  court  that  the  judgment  of  the  court 
below  be  reversed,  and  the  judge  of  the  superior  courts  of  said  county 
is  hereby  instructed  and  ordered  to  grant  a  peremptory  mandamus, 
commanding  and  compelling  the  said  "The  Georgia  Medical  Society" 
to  restore  the  said  Dr.  James  J.  Waring  to  all  his  rights  and  privi- 
leges as  a  corporator  in  said  society. 

Note.  See,  infra,  p.  1171 ;  Evans  v.  Philadelphia  Club,  50  Pa.  St.  107-127,  and 
cases  cited;  and  Belton  v.  Hatch,  109  N.  Y.  593,  4  Am.  St.  495,  infra,  p.  178. 
Also  1896,  Board  of  Trade  of  Chicago  v.  Nelson,'  162  111.  431,  44  N.  E."  743; 
1892,  Spilman  v.  Supreme  Council  of  Home  Circle,  157  Mass.  128;  1887, 
Pitcher  v.  Board  of  Trade,  121  111.  412;  1844,  Commonwealth,  ex  reh,  v.  Pike 
Beneficial  Soc,  8  W.  &  S.  (Pa.)  247;  1883,  Medical  &  Surg.  Soc.  of  Mont.  Co. 
V.  Weatherlv,  75  Ala.  248,  253;  1875,  Meyer  v.  Johnson,  53  Ala.  237,  325; 
1878,  Board  of  Trade  v.  People,  91  111.  80;  1863,  Sayre  v.  Louisville,  etc..  As- 
sociation, 1  Duval  (Kv.)  143,  85  Am.  Dec.  613;  1864,  National  M.  F.  Ins.  Co. 
V.  Yeomans,  8  R.  I.  25,  86  Am.  Dec.  610 ;  1855,  Hiss  v.  Bartlett,  3  Gray  468, 
63  Am.  Dec.  768,  note  773;  1857,  Austin  v.  Searing,  16  N.  Y.  112,  69  Am.  Dec. 
665,  note  677;  1866,  Society  v.  Commonwealth,  ex  rel.,  52  Pa.  St.  125,  91  Am. 
Dec.  139;  1866,  Dane  v.  Derby,  54  Maine  95,  89  Am.  Dec.  722,  note  736. 


§  25  THE   CORPORATION  AS   A  FRANCHISE.  I4I 

Sec.  25.  Same. 

FIETSAM  V.  HAY  Et  Al.» 

1887.     In  the  Supreme  Court  of  Illinois.     122  111.  293-297,  3 

Am.  St.  R.  492. 

Appeal  from  the  circuit  court  of  St.  Clair  county. 

Mr.  Justice  Mulkey  delivered  the  opinion  of  the  court: 

The  People's  Bank  of  Belleville,  incorporated  under  a  special  act 
of  legislature,  approved  and  in  force  March  27,  1869,  having  become 
insolvent  on  the  17th  of  April,  1878,  made  a  general  assignment  of 
all  its  property  and  effects  for  the  benefit  of  creditors.  The  assignee 
presented  a  petition  to  the  county  court  of  St.  Clair  county,  at  its 
March  term,  1887,  for  leave  to  sell  "all  the  rights,  privileges,  powers 
and  immunities  which  were  granted  by  the  said  act  incorporating 
said  bank."  The  judge  of  the  county  court  being  interested  in  the 
result  of  the  proceeding,  the  venue  was  changed  to  the  circuit  court 
of  St.  Clair  county,  where,  upon  due  consideration  of  the  petition, 
that  court  entered  an  order  dismissing  the  same.  The  present  appeal 
is  from  the  order  of  dismissal. 

The  correctness  of  the  decision  of  the  circuit  court  depends  entirely 
upon  whether  the  title  to  the  franchise  created  and  conferred  by  the 
bank  charter  passed  as  an  asset  of  the  bank,  to  the  assignee,  under 
the  assignment.  That  its  language  is  sufficiently  comprehensive,  and 
adequate  to  pass  the  franchise  to  the  assignee,  if,  as  matter  of  law, 
the  bank  could  transfer  it  at  all,  we  have  no  doubt.  This  is  not  ques- 
tioned. The  question,  therefore,  is  whether  a  corporate  franchise, 
in  the  absence  of  statutory  authority,  is  in  law  capable  of  being  as- 
signed or  transferred.  Differently  put,  the  question,  as  formulated 
by  the  parties  themselves,  is,  "did  the  franchise  of  the  said  bank  pass 
with  the  deed  of  assignment  to  the  assignee  as  a  salable  asset  of  the 
said  bank?" 

The  word  '■''franchise^''  is  often  used  in  the  sense  of  privileges  gen- 
erally^ hut  in  its  more  appropriate  and  legal  sense  the  term  is  co7i- 
jined  to  such  rights  and  privileges  as  are  conferred  upon  corporate 
bodies  by  legislative  grant.  It  is  in  the  latter  sense,  alone,  the  word 
is  now  to  be  considered. 

The  franchise  proposed  to  be  sold  is  a  corporate  franchise,  and  the 
artificial  body  or  political  entity  to  which  it  pertains  is  what  is  known 
to  the  law  as  an  aggregate  corporation.  Such  a  corporation  has  been 
well  defined  to  be  "an  artificial  being  created  by  law,  and  composed 
of  individuals  who  subsist  as  a  body  politic  under  a  special  denomina- 
tion, with  the  capacity  of  perpetual  succession,  and  of  acting,  within 
the  scope  of  its  charter,  as  a  natural  person."  Now,  a  franchise  is 
nothing  more  than  the  right  or  privilege  of  being  a  corporation,  and 
of  doing  such  things,  and  such  things  only,  as  are  authorized  by  the 

*  Arguments  omitted. 


142  FIETSAM    V,    HAY.  §  25 

corporation' s  charter.  This  right  of  a  body  of  men  to  be  and  act  as 
an  artificial  person,  without,  as  a  general  rule,  incurring  individual 
responsibility,  is  declared  by  Blackstone  to  be  "a  royal  privilege,  or 
branch  of  the  king's  prerogative,  subsisting  in  the  hands  of  a  subject." 
(2  Blackstone,  37.)  Such  right  or  franchise  is  defined  by  Bouvier 
to  be  "a  certain  privilege  conferred  by  grant  from  government,  and 
vested  in  individuals."  (i  Bouvier,  545.)  Noiv^  it  is  clear  from 
these  definitions  ^  and  from  the  very  nature  of  a  corporation^  Oiat  a 
franchise  or  the  right  to  be  and  act  as  an  artificial  body .,  vests  in  the  in- 
dividualswho  compose  the  corporation  .and  not  in  the  corporation  itself. 
This  fact,  we  think,  is  not  without  significance  in  reaching  a  conclu- 
sion upon  the  main  question  to  be  determined,  outside  of  the  numer- 
ous authorities  bearing  directly  on  the  subject. 

It  will  be  kept  in  mind  that  the  corporate  body,  for  purposes  of 
ownership,  and,  indeed,  for  most  purposes,  has  a  distinct  iden- 
tity from  that  of  the  individual  corporators.  The  latter  may  be 
wealthy,  when  at  the  same  time  the  former  is  insolvent,  and  vice  versa. 
The  corporation  has  no  right  to  appropriate.,  sell  or  otherwise  dispose 
of  any  of  the  property  or  effects  of  a  corporator.  The  relation  of  debtor 
and  creditor  may  subsist  between  them  in  the  same  manner  as  be- 
tween the  company  and  other  persons.  The  company's  entire  prop- 
erty may  be  swept  away  from  it  by  sequestration,  or  other  means,  and 
yet  its  franchises  will  remain  vested  in  the  corporators,  until  they  are 
either  abandoned  or  forfeited  to  the  state.  All  these  propositions  are 
familiar  to  the  courts  and  the  profession,  and  are  all  well  sustained 
by  authority. 

If,  then,  the  franchise  is  vested  in  and  belongs  to  the  corporators, 
and  not  to  the  corporation  itself,  how  could  the  latter  transfer  or  as- 
sign it  to  another?  On  the  plainest  of  principles  this  covild  not  be 
done  without  legislative  authority  for  that  purpose,  and  we  find  noth- 
ing, either  in  the  statute  or  the  company's  charter,  conferring  such 
authority.  While  it  is  conceded  the  legislature  might  confer  on  the 
artificial  body  the  power  to  sell  or  assign  the  franchise  to  strangers, 
yet  this  would  be,  in  effect,  to  authorize  it  to  commit  a  species  of  sui- 
cide, for  it  is  manifest  the  coiporation  could  not  exist  a  moment  after 
the  franchise  conferred  upon  its  members  had  been  transferred  to 
others.  Indeed,  when  we  consider  the  attributes  and  essential  ele- 
ments of  corporate  existence,  resulting  from  the  grant  of  the  fran- 
chise, and  without  which  the  artificial  body  could  not  accomplish  the 
objects  of  its  creation  or  perform  the  duties  imposed  upon  it  by  law, 
the  sale  or  assignment  of  the  franchise  without  special  legislative  au- 
thority would  seem  to  be  wholly  inadmissible.  It  is  proposed  here, 
it  will  be  noted,  to  sell  simply  the  franchise  of  the  bank.  Assuming 
this  can  be  done,  the  question  arises  what  would  be  the  effect  of  such 
a  sale  ?  It  clearly  could  not  have  the  effect  of  making  the  purchasers, 
if  more  than  one,  an  aggregate  corporation,  with  the  general  banking 
powers  conferred  by  the  bank  charter.  To  assert  such  a  proposition 
would  be  simply  startling;  and  yet,  if  in  such  case  the  purchasers 
would  take  anything  at  all,  they  certainly  could  not  take  less  than  the 


§  26  THE   CORPORATION  AS   A  FRANCHISE.  I43 

right  to  be  a  banking  corporation,  with  all  the  powers  and  privileges 
conferred  by  the  charter,  for  these  rights  are  of  the  very  essence  of 
the  franchise ;  and  consequently  the  one  could  not  be  thus  acquired 
without,  by  the  same  act,  securing  the  others — a  view  which,  as  already 
indicated,  has  no  sanction  in  reason  or  authority. 

While  statements  are  to  be  found  on  this  subject  in  some  of  the  text- 
books, as  well  as  in  some  of  the  decided  cases,  which  can  not  be  recon- 
ciled with  the  conclusion  we  have  reached,  yet  we  are  clearly  of 
opinion  that  a  corporation,  in  the  absence  of  statutory  authority,  has 
no  right  to  sell  or  transfer  its  franchise  or  any  property  essential  to  its 
exercise,  which  it  has  acquired  under  the  law  of  eminent  domain. 
This  proposition,  in  our  judgment,  is  sustained  both  by  reason  and 
the  decided  weight  of  authority.  Black  et  al.  v.  Delaware  and  Rari- 
tan  Canal  Co.,  24  N.  J.  Eq.  455;  Freeman  on  Executions,  §§  179, 
180;  Pearce  on  Railroads,  496—1  ;  Jones  on  Mortgages,  §  161  ;  Rorer 
on  Judicial  Sales  (2d  ed.),  222;  Archer  v.  Terre  Haute  and  Indian- 
apolis R.  Co.,  102  111.  493;  Bruffett  v.  Great  Western  R.  Co.,  25 
111.  353;  Chicago  and  Rock  Island  R.  Co.  v.  Whipple,  22  111.  105; 
Ottawa,  Oswego  and  Fox  River  Valley  R.  Co.  v.  Black,  79  111.  262. 

The  circuit  court  having  reached  this  conclusion,  its  order  and  judg- 
ment will  be  affirmed. 

Judgment  affirmed. 

Note.  1867,  Cleveland,  etc.,  R.  Co.  v.  Speer,  56  Pa.  St.  325,  94  Am.  Dec. 
84;  1869,  Miner's  Ditch  Co.  v.  Zellerbach,  37  Cal.  543,  99  Am.  Dec.  300;  1887, 
Chicago  Gas  Light  Co.  v.  People's  Gas  L.  Co.,  121  111.  530,  2  Am.  St.  124; 
1864,  Caldwell  v.  Alton,  33  111.  416,  85  Am.  Dec.  282;  1863.  Storv  v.  Plank 
Road  Co.,  16  N.  J.  Eq.  13,  84  Am.  Dec.  134;  1862,  People  v.  Railroad  Co.,  24 
N.  Y.  261,  82  Am.  Dec.  295;  1859,  Coe  v.  Railroad  Co.,  10  Ohio  St.  372,  75 
Am.  Dec.  518;  1825,  Ammant  v.  Turnpike  Road,  13  S.  &  R.  (Pa.)  210,  15  Am. 
Dec.  593;  1877,  Hudson  v.  Cuero  Land,  etc.,  Co.,  47  Tex.  56,  26  Am.  Rep. 
289;  1865,  Commonwealth  v.  Smith,  10  Allen  (Mass.)  448,  87  Am.  Dec.  672, 
infra,  p.  1070;  1862,  Bardstown  &  L.  R.  Co.  v.  Metcalfe,  4  Met.  (Ky.)  199,  81 
Am.  Dec.  54 >,  infra,  p.  1074;  1893,  Brunswick  G.  L.  &  Co.  v.  United  Gas,  etc., 
Co.,  85  Me.  532,  35  Am.  St.  R.  385,  note,  p.  390;  Jones  v.  Guarantee  Co.,  101 
U.  S.  622,  infra,  p.  1078;  1872,  State  of  Ohio,  ezrel.,  etc.,  v.  Sherman,  22  Ohio 
St.  411,  infra,  p.  1082;  1892,  Overton  Bridge  Co.  v.  Means,  33  Neb.  857,  29  Am. 
St.  R.  614. 


Sec.    26.     (  3 )    The  secondary  franchises  and  privileges  as  well  as 
I  i  Ifh^^^  other  rights  except  the  primary  franchise,  belong  to  the 
i^/^  corporation,  or  artificial  being,  rather  than  to  the  individual 
members. 

MEMPHIS  AND  LITTLE  ROCK  RAILROAD  COMPANY  v.  RAILROAD 

COMMISSIONERS.' 

1884.     In  THE  Supreme  Court  OF  THE  United  States,     i  12 U.S. 

609-623. 

[This  was  a  bill   in  equity  filed  in  the  chancery  court  of  Pulaski 
county,  Arkansas,  seeking  to  enjoin  the  board  of  railroad    commis- 


Statement  of  facts  condensed,  arguments  omitted. 


144      MEMPHIS,  ETC.,  R.  CO.  V.  RAILROAD  COMMISSIONERS.      §26 

sioners  of  the  state  from  appraising',  for  the  purposes  of  taxation,  any 
part  of  the  property  of  the  plaintiff  in  error,  on  the  ground  that  it  is 
exempted  from  taxation  by  a  contract  with  the  state  contained  in  its 
charter  of  incorporation.  The  supreme  court  of  the  state,  on  appeal, 
affirmed  the  decree  of  the  chancery  court  dismissing  the  bill.  That 
decree  of  the  supreme  court  was  brought  here  by  writ  of  error,  for 
review,  on  the  allegation  that  it  enforced  a  law  of  the  state  impairing 
the  obligation  of  a  contract  in  violation  of  the  rights  of  the  plaintiff 
in  error  under  the  constitution  of  the  United  States. 

The  Memphis  and  Little  Rock  Railroad  Company  was  incorporated 
in  1853,  with  power  to  borrow  "money  on  the  credit  of  the  company, 
and  on  the  mortgage  of  its  charter  and  works"  (§  9)  ;  and  its  capital 
stock  was  to  be  exempt  from  taxation  until  its  road  paid  a  dividend  of 
6  per  cent.,  and  its  road,  fixtures,  etc.,  were  to  be  exempt  from  taxes 
until  twenty  years  after  it  was  completed.  (Sec.  28.)  At  the  time 
of  its  incorporation  the  constitution  of  Arkansas  permitted  coipora- 
tions  to  be  created  by  special  acts,  and  there  was  no  restriction  as  to 
the  power  to  exempt  such  corporations  from  taxation.  The  supreme 
court  of  the  state,  in  Oliver  v.  Memphis  and  Little  Rock  Railroad  Com- 
pany, 30  Ark.  128,  had  held  that  the  exemption  from  taxation  in  the 
charter  of  this  road  was  a  contract  between  it  and  the  state,  that  was 
not  to  be  impaired.  The  railroad  company  in  i860  issued  its  bonds, 
secured  by  mortgage  covering  "the  charter  by  which  said  company 
was  incorporated  and  under  which  it  was  organized,  and  all  the  rights 
and  privileges  and  franchises  thereof,"  and  also  all  lands,  etc.,  be- 
longing to  said  company.  October  13,  1874,  a  new  constitution  of 
the  state  went  into  effect  providing  that  corporations  should  be  formed 
only  under  general  laws,  and  no  special  act  should  be  passed  confer- 
ring corporate  powers ;  that  all  property  should  be  taxed  according  to 
its  true  value  ;  that  all  laws  exempting  from  taxation  (except  churches, 
etc.,  especially  named  and  not  including  railroad  companies)  should 
be  void ;  that  the  power  so  to  tax  corporations  should  never  be  sur- 
rendered or  suspended  by  any  contract  on  the  part  of  the  state,  and 
that  the  legislature  shall  not  pass  any  general  or  special  law  for  the 
benefit  of  any  corporation  then  existing,  except  upon  condition  that 
such  corporation  should  thereafter  hold  its  charter  subject  to  the  pro- 
visions of  the  constitution. 

December  9,  1874,  the  legislature  passed  a  law  "whereby  the  pur- 
chasers of  a  railroad  of  any  corporation  of  the  state,  and  their  asso- 
ciates, acquiring  title  thereto  by  virtue  of  a  judicial  sale,  or  of  a  sale 
under  a  power  contained  in  a  mortgage  or  deed  of  trust,  were  author- 
ized to  organize  themselves  into  a  body  corporate,  vested  with  all  the 
corporate  rights,  liberties,  privileges,  immunities  and  franchises  of 
and  concerning  the  railroad  so  sold,  not  in  conflict  with  the  constitu- 
tion of  the  state,  as  fully  as  the  same  were  held,  exercised  and  en- 
joyed by  the  corporation  before  such  sale."  A  certificate  of  such 
organization  was  to  be  filed  with  the  secretary  of  state.  The  road 
was  not  completed  till  November,  1874.  In  1876,  a  bill  to  foreclose 
the  mortgage  was  brought  by  the  trustees  under  the  same,  and   a  de- 


§  26  THE    CORPORATION  AS   A  FRANCHISE.  I45 

cree  rendered,  ordering  a  sale  embracing  the  property,  franchises 
and  charter  of  said  Memphis  and  Little  Rock  Railroad  Company, 
and  a  sale  was  so  made  to  certain  trustees  for  the  bondholders.  In 
April,  1877,  these  bondholders  organized  themselves  into  a  company 
under  the  name  of  "The  Memphis  and  Little  Rock  Railroad  Com- 
pany as  reorganized,"  and  a  few  days  later,  the  trustees  named  in 
the  sale,  conveyed  to  said  reorganized  company  "the  property  and 
franchises,  including  the  charter  of  1853,"  and  under  this  it  claims 
exemption  fi'om  taxation  in  any  way  different  from  the  provisions  of 
the  charter  of  1853.] 

Mr.  Justice  Matthews  delivered  the  opinion  of  the  court.  [After 
reciting  the  facts  substantially  as  above  stated,  he  continued:] 

The  case  of  the  plaintiff  in  error  rests  entirely  upon  the  words  of 
the  ninth  section  of  the  act  of  incorporation  of  the  Memphis  and  Little 
Rock  Railroad  Company  of  January  11,  1853,  by  which  it  was  em- 
powered to  borrow  money  "on  the  credit  of  the  company  and  on  the 
mortgage  of  its  charter  and  works."  It  is  argued  that  these  words 
confer  power  upon  the  company  to  convey  to  its  bondholders,  by  way 
of  mortgage  and  on  foreclosure,  to  purchasers  absolutely,  all  the  prop- 
erty of  the  company,  and  all  its  franchises,  including  the  franchise  of 
becoming  and  being  a  corporation,  in  the  sense  of  acquiring  the  right 
to  organize  as  such  under  the  act  as  successor  to,  and  substitute  for, 
the  original  company,  precisely  as  if  the  act  had  named  them  as  cor- 
porators and  endowed  them  with  the  corporate  faculty.  And  this 
being  assumed,  it  is  thence  inferred  that  the  exemption  contained  in 
section  28  of  the  act  applies  to  the  substituted  corporation  as  though 
no  change  of  corporate  existence  had  taken  place ;  and  thus,  it  is  in- 
sisted, the  case  is  taken  out  of  rule  of  decision  established  in  Morgan 
V.  Louisiana,  93  U.  S.  217;  Wilson  v.  Gains,  103  U.  S.  417,  and 
Louisville  and  Nashville  R.  Co.  v.  Palmes,  109  U.  S.  244.  Accord- 
ing to  the  principle  of  those  decisions,  the  exemption  from  taxation 
must  be  construed  to  have  been  the  personal  privilege  of  the  very  cor- 
poration specifically  referred  to,  and  to  have  perished  with  that,  unless 
the  express  and  clear  intention  of  the  law  requires  the  exemption  to 
pass  as  a  continuing  franchise  to  a  successor.  This  salutary  rule  of  in- 
terpretation is  founded  upon  an  obvious  public  policy,  which  regards 
such  exemptions  as  in  derogation  of  the  sovereign  authority  and  of 
common  right,  and,  therefore,  not  to  be  extended  beyond  the  exact 
and  express  requirement  of  the  grants,  construed  stridissimi  juris . 

It  is  not  claimed  that  the  assignment  of  the  charter,  by  way  of  mort- 
gage and  subsequent  judicial  sale,  constituted  the  purchasers  to  be  the 
identical  corporation  that  the  mortgager  had  been  ;  for  that  would  in- 
volve an  assumption  of  its  obligations  and  debts  as  well  as  an  acqui- 
sition of  its  privileges  and  exemptions ;  but,  it  is  insisted,  that  it  re- 
sulted in  another  corporation  in  lieu  of  the  original  one,  entitled  to 
all  the  provisions  of  the  charter,  by  relation  to  its  date,  as  though  it 
had  been  originally  organized  under  it. 

But  such  a  construction  of  the  words,  authorizing  a  mortgage  of  the 
10— WiL.  Cases. 


146      MEMPHIS,  ETC.,  R.  CO.  V.  RAILROAD  COMMISSIONERS.      §  26 

charter  and  works  of  the  company,  is,  in  our  opinion,  beyond  the 
intention  of  the  law  and  altogether  inadmissible. 

There  is  no  express  grant  of  corporate  existence  to  any  new  body. 
At  the  time  when  this  charter  was  granted,  in  1853,  there  was  no 
general  law  in  existence  in  Arkansas  authorizing  the  formation  of 
corporations.  All  such  grants  were  by  special  act.  Neither  was 
there  any  law  authorizing  the  purchasers  of  railroads  at  judicial  sale 
under  mortgages  of  the  property  and  franchises  of  the  company,  to 
organize  themselves  into  corporate  bodies,  such  as  was  first  passed  in 
1874.  There  is  not  in  the  act  of  January  11,  1853,  for  the  incorpo- 
ration of  the  Memphis  and  Little  Rock  Railroad  Company,  any  refer- 
ence to  such  a  right  as  vested  in  the  mortgage  bondholders  or  other 
purchasers  at  a  sale  under  a  foreclosure  of  the  mortgage,  nor  is  there 
any  mode  or  machinery  prescribed  in  the  act  for  such  an  organization. 
The  desired  conclusion  rests  entirely  on  the  inference  deduced  from 
the  mortgage  of  the  charter,  and  is  an  attempt  to  create  a  corpora- 
tion by  a  judicial  implication.  But,  as  was  said  by  this  court  in  Cen- 
tral Railroad  and  Banking  Co.  v.  Georgia,  92  U.  S.  665,  670,  "it  is 
an  unbending  rule  that  a  grant  of  corporate  existence  is  never  implied. 
In  the  construction  of  a  statute  every  presumption  is  against  it." 

The  application  of  this  rule  is  not  avoided  by  the  claim  that  the 
present  is  not  the  case  of  an  original  creation  of  a  corporate  body,  but 
the  transfer,  by  assignment  of  a  previously  existing  charter  and  of  the 
right  to  exist  as  a  corporation  under  it.  The  difference  is  one  of 
words  merely.  The  franchise  of  becoming  and  being  a  corporation, 
in  its  nature,  is  incommunicable  by  the  act  of  the  parties  and  incapa- 
ble of  passing  by  assignment.  "The  franchise  to  be  a  corporation," 
said  Hoar,  J.,  in  Commonwealth  v.  Smith,  10  Allen  448,  455, 
"clearly  can  not  be  transferred  by  any  corporate  body  of  its  own  will. 
Such  a  franchise  is  not,  in  its  own  nature,  transmissible."  In  Hall 
V.  Sullivan  Railroad  Co.,  21  Law  Reporter  138  (2  Redfield's  Am. 
Railway  Cases  621  ;  i  Brunner's  Collected  Cases  613),  Mr.  Justice 
Curtis  said:  "The  franchise,  to  be  a  corporation,  is,  therefore,  not  a 
subject  of  sale  and  transfer,  unless  the  law,  by  some  positive  provis- 
ion, has  made  it  so,  and  pointed  out  the  modes  in  which  such  sale 
and  transfer  may  be  effected."  No  such  positive  provision  is  con- 
tained in  the  act  under  consideration,  and  no  mode  for  effecting  the 
organization  of  a  series  of  corporations  under  it  is  pointed  out,  either  in 
the  act  itself  or  in  any  other  statute  prior  to  that  of  December  9,  1874. 

The  franchise  of  being  a  corporation  need  not  be  implied  as  neces- 
sary 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  rail- 
road could  as  well  be  exercised  by  natural  persons.  The  essential 
properties  of  corporate  existence  are  quite  distinct  from  the  frati- 
chises  of  the  corporation.      The  franchise  of  being  a  corporation  be- 


§  26  THE   CORPORATION  AS    A  FRANCHISE.  147 

longs  to  the  corporators^  while  the  'powers  and  privileges .^  vested  in 
and  to  be  exercised  by  the  corporate  body  as  such,  are  the  franchises 
of  the  corporation.  The  latter  has  no  power  to  dispose  of  the  fran- 
chise of  its  members,  which  may  survive  in  the  mere  fact  of  corpo- 
rate existence,  after  the  corporation  has  parted  with  all  its  property 
and  all  its  franchises.  If,  in  the  present  instance,  we  suppose  that  a 
mortgage  and  sale  of  the  charter  of  the  railroad  company  created  a  new 
corporation,  what  becomes  of  the  old  one?  If  it  abides  for  the  pur- 
pose of  responding  to  obligations  not  satisfied  by  the  sale,  or  of  own- 
ing property  not  covered  by  the  mortgage  nor  embraced  in  the  sale, 
as  it  may  well  do,  and  as  it  must  if  such  debts  or  property  exist,  then 
there  will  be  two  corporations  coexisting  under  the  same  charter. 
For,  "after  an  act  of  disposition  which  separates  the  franchise  to 
.maintain  a  railroad  and  make  profit  from  its  use,  froirf  the  franchise 
of  being  a  corporation,  though  a  judgment  of  dissolution  may  be 
authorized,  yet,  until  there  be  such  judgment,  the  rights  of  the  cor- 
porators and  of  third  persons  may  require  that  the  corporation  be 
considered  as  still  existing."  Coe  v.  Columbus,  Piqua  and  Indiana 
Railroad  Co.,  lo  Ohio  St.  372,  386,  per  Gholson,  J. 

If,  as  required  by  the  argument  for  the  plaintiff  in  error,  we  regard 
and  treat  the  franclaise  of  being  a  corporation  as  an  incorporeal  hered- 
itament, and  an  estate  capable  of  passing  between  parties  by  deed, 
or  of  being  charged  by  way  of  mortgage  and  of  being  sold  under  a 
power  or  by  virtue  of  judicial  process,  the  logical  consequences  will 
be  found  to  involve  insuperable  difficulties  and  contradictions.  In 
the  present  case,  for  example,  after  the  execution  of  the  first  mort- 
gage, we  should  have  the  railroad  company  continuing  as  a  corpora- 
tion «'«  esse,  and  the  trustees  for  the  bondholders,  or  their  beneficiaries, 
or  assigns,  a  corporation  in  posse;  and,  after  condition  broken,  the 
company  would  hold  the  title  to  its  own  existence  as  a  mere  equity  of 
redemption.  That  equity  it  makes  the  subject  of  a  second  mortgage, 
and,  in  default,  the  beneficiaries  under  the  power  of  sale  became  pur- 
chasers of  the  franchise,  and  organize  themselves,  by  virtue  of  it,  into 
the  Memphis  and  Little  Rock  Railway  Company.  The  latter  can 
hardly  claim  the  status  of  a  corporation  at  law,  as  the  legal  title  to 
the  franchise  of  being  a  corporation  had  never  passed  to  it,  on  the 
supposition  that  it  might  pass  by  a  private  grant ;  and,  if  a  corpora- 
tion at  all,  it  could  only  be  regarded  as  the  creature  of  equity,  accord- 
ing to  the  analogy  of  equitable  estates,  a  nondescript  class  hitherto 
unknown  in  any  system  of  law  relating  to  the  subject. 

It  finally  was  displaced  by  the  judicial  sale,  under  which  the  plaint- 
iff in  error  organized  as  successor  to  both.  In  the  meantime,  the 
original  corporation  has  never  been  dissolved,  and,  for  all  purposes 
not  covered  by  the  mortgage,  still  maintains  an  existence  as  a  corporate 
body,  capable  of  contracting,  and  of  suing  and  being  sued.  A  concep- 
tion which  leads  to  such  incongruities  must  be  essentially  erroneous. 

If  we  concede  to  the  argument  for  the  plaintiff  in  error  the  position, 
that  the  language  used,  which  authorizes  the  mortgage  of  the  charter, 
may  be  taken  in  a  literal  sense,  still  the  assignment  would  transfer  it, 


148      MEMPHIS,  ETC.,  R.  CO.  V.  RAILROAD  COMMISSIONERS.      §  26 

in  the  very  state  in  which  it  might  be  at  the  date  of  the  transfer.  But 
at  that  date  the  only  corporation  which  the  charter  provided  for  had 
already  been  organized.  The  only  powers  conferred  upon  corpora- 
tors to  that  end  had  already  been  exercised  and  exhausted.  The  bond- 
holders, under  the  mortgage,  and  their  assignees,  the  purchasers  at 
the  sale,  therefore  took,  and  could  take,  nothing  else  than  the  charter, 
so  far  as  it  remained  unexecuted,  with  such  franchises  and  powers  as 
were  capable  of  future  enjoyment  and  activity,  and  not  such  as,  hav- 
ing already  spent  their  force  by  having  been  fully  exerted,  could  not 
be  revived  by  a  conveyance.  This  would  include,  by  the  necessity  of  the 
case,  the  franchise  to  organize  a  corporation,  which  can  only  be  exerted 
once  for  all ;  for  the  simple  act  of  organization  exhausts  the  authority, 
and,  having  once  been  effected,  is  legally  incapable  of  repetition. 

It  is  a  inistake,  however,  to  suppose  that  the  mortgage  and  sale  of 
a  charter  by  a  corporation,  in  any  proper  sense  which  can  be  legally 
imputed  to  the  words,  necessarily  conveys  every  power  and  authority 
conferred  by  it,  so  far,  at  least,  as  to  vest  a  title  in  them,  as  franchises, 
irrevocable  by  reason  of  the  obligation  of  a  contract.  In  many,  if 
not  in  most,  acts  of  incorporation,  however  special  in  their  nature, 
there  are  various  provisions  which  are  matters  of  general  law  and  not 
of  contract,  and  are,  therefore,  subject  to  modification  or  repeal. 

Such,  in  our  opinion,  would  be  the  character  of  the  right  in  the 
mortgage  bondholders,  or  the  purchasers  at  the  sale  under  the  mort- 
gage, to  organize  as  a  corporation,  after  acquiring  title  to  the  mort- 
gaged property,  by  sale  under  the  mortgage,  if,  in  the  charter  under 
consideration,  it  had  been  conferred  in  express  terms,  and  particular 
provision  had  been  made  as  to  the  mode  of  procedure  to  effect  the 
purpose.  It  would  be  matter  of  law,  and  not  of  contract.  At  least, 
it  would  be  construed  as  conferring  only  a  right  to  organize  as  a  cor- 
poration, according  to  such  laws  as  might  be  in  force  at  the  time  when 
the  actual  organization  should  take  place,  and  subject  to  such  limita- 
tions as  they  might  impose.  It  can  not,  we  think,  be  admitted  that  a 
statutory  provision  for  becoming  a  corporation  in  futuro  can  become 
a  contract,  in  the  sense  of  that  clause  of  the  constitution  of  the  United 
States  which  prohibits  state  legislation  impairing  its  obligation,  until 
it  has  become  vested  as  a  right  by  an  actual  organization  under  it, 
and  then  it  takes  effect  as  of  that  date,  and  subject  to  such  laws  as 
may  then  be  in  force.  Such  a  contract,  so  far  as  it  seems  to  assume 
that  form,  is  a  provision  merely  that,  at  the  time,  or  on  the  happen- 
ing of  the  event  specified,  the  parties  designated  may  become  a  cor- 
poration according  to  the  laws  that  may  then  be  actually  in  force. 
The  stipulation,  whatever  be  its  form,  must  be  construed  as  subject 
and  subordinate  to  the  paramount  policy  of  the  state,  and  to  the  sov- 
ereign prerogative  of  deciding,  in  the  meantime,  what  shall  constitute 
the  essential  characteristics  of  corporate  existence.  The  state  does 
not  part  with  the  franchise  until  it  passes  to  the  organized  corpora- 
tion; and,  when  it  is  thus  imparted,  it  must  be  what  the  government 
is  then  authorized  to  grant  and  does  actually  confer. 

It  is  immaterial  that  the  form  of  the  transaction  is  that  of  a  mort- 


§  26  THE   CORPORATION  AS   A  FRANCHISE.  I49 

gage,  sale  or  other  transfer  inter  partes  of  the  franchise  to  be  a  cor- 
poration. "The  real  transaction,  in  all  such  cases  of  transfer,  sale 
or  conveyance,"  as  was  said  by  the  supreme  court  of  Ohio  in  the  case 
of  The  State  v.  Sherman,  23  Ohio  St.  411,  428,  "in  legal  effect,  is 
nothing  more  or  less,  and  nothing  other,  than  a  surrender  or  aban- 
donment of  the  old  charter  by  the  corporators,  and  a  grant  de  novo  of 
a  similar  charter  to  the  so-called  transferees  or  purchasers.  To  look 
upon  it  in  any  other  light,  and  to  regard  the  transaction  as  a  literal 
transfer  or  sale  of  the  charter,  is  to  be  deceived,  we  think,  by  a  mere 
figure  or  form  of  speech.  The  vital  part  of  the  transaction,  and  that 
without  which  it  would  be  a  nullity,  is  the  law  under  which  the  trans- 
fer is  made.  The  statute  authorizing  the  transfer  and  declaring  its 
effect  is  the  grant  of  a  new  charter  couched  in  a  few  words,  and  to 
take  effect  upon  condition  of  the  surrender  or  abandonment  of  the  old 
charter ;  and  the  deed  of  transfer  is  to  be  regarded  as  mere  evidence 
of  the  surrender  or  abandonment." 

It  is,  of  course,  the  law  in  force  at  the  time  the  transaction  is  con- 
summated and  made  effectual  that  must  be  looked  to  as  determining 
its  validity  and  effect.  This  is  the  principle  on  which  this  court  pro- 
ceeded in  deciding  the  case  of  Railroad  Co.  v.  Georgia,  98  U.  S. 
359.  The  franchise  to  be  a  corporation  remained  in,  and  was  exer- 
cised by,  the  old  corporation,  notwithstanding  the  mortgage  of  its 
charter,  until  the  new  corporation  was  formed  and  organized ;  it  was 
then  surrendered  to  the  state,  and  by  a  new  grant  then  made  passed  to 
the  corporators  of  the  new  corporation,  and  was  held  and  exercised  by 
them  under  the  constitutional  restrictions  then  existing. 

Our  conclusions,  then,  are  that  the  exemption  from  taxation  con- 
tained in  the  28th  section  of  the  act  of  January  11,  1853,  was  intended 
to  apply  only  to  the  Memphis  and  Little  Rock  Railroad  Company  as 
the  original  corporation  organized  under  it ;  that  it  did  not  pass  by 
the  mortgage  of  its  charter  and  works,  as  included  in  the  transfer  of 
the  franchise  to  be  ai  corporation,  to  the  mortgagees  or  purchasers  at 
the  judicial  sale ;  that  the  franchises  embraced  in  that  conveyance  were 
limited  to  those  which  had  been  granted  as  appropriate  to  the  con- 
struction, maintenance,  operation  and  use  of  the  railroad  as  a  public 
highway  and  the  right  to  make  profit  therefrom  ;  and  that  the  appellant, 
not  having  become  a  corporate  body  until  after  the  restrictions  in  the 
constitution  of  1874  took  effect,  was  thereby  incapable  in  law  of  having 
or  enjoying  the  privilege  of  holding  its  property  exempt  from  taxation. 

The  decree  of  the  supreme  court  of  Arkansas  is  accordingly  affirmed. 

NoU..  Power  to  mortgage  franchises  must  he  expressly  given,  or  it  does  not  ex- 
ist. 1856,  Pierce  v.  Emery,  32  N.  H.  484;  1859,  Coe  v.  C,  C,  etc.,  R.  Co.,  10 
O.  S.  372;  1858,  Lauman  v.  Lebanon  Val.  R.,  30  Pa.  St.  42;  infra,  p.  1081; 
1875,  Daniels  v.  Hart,  118  Mass.  543;  1888,  People  v.  Cook,  110  N.  Y.  443; 
1890,  Snell  v.  City,  133  111.  413,  8  L.  R.  A.  858,  24  N.  E.  632;  contra,  1867, 
Hall  v.  Sullivan  R.,  11  Fed.  Cas.  257  (No.  5,948)  ;  1863,  Miller  v.  Rutland,  etc., 
R.  Co.,  36  Vt.  452;  1862,  Bardstown,  etc.,  R.  Co.  v.  Metcalfe,  4  Met.  (Ky.) 
199,  infra,  p.  1074. 

The  legislature  may  expressly  authorize  the  mortgage  of  the  franchise.  1864, 
Atkinson  v.  Marietta,  etc.,  R.  Co.,  15  O.  S.  21  ;  1866,  East  Boston,  etc.,  R. 
Co.  V.  East.  R.  Co.,  13  Allen  (Mass.)  422. 


I50  WALES    V.    STETSON.  §  2/ 

Exemption  from  taxation,  effect  of  transfer.  1896,  Pearsall  v.  R.  Co.,  161  U.  S. 
646;  iH/'-a.P- 1413;  1894,  Keokuk  R.  Co.  v.  Missouri,  152  U.  S.  301;  1888,  Rail- 
road Company  v.  Commw.,  87  Ky.  661 ;  1884,  Railroad  Co.  v.  Berry,  44  Ark.  1 7. 

Sec.  27.  (4)  When  a  franchise  is  offered  by  the  state  and  ac- 
cepted by  those  to  whom  it  is  offered,  it  is  in  the  nature  of  a 
grant  or  executed  contract. 

1789,  BuLLER,  J.,  in  King  v.  Passmore,  3  T.  R.  246.  "And  I 
do  not  know  how  to  reason  on  this  point  better  than  in  the  manner 
urged  by  one  of  the  relator's  counsel,  who  considered  the  grant  of 
incorporation  to  be  a  compact  between  the  crown  and  a  certain  num- 
ber of  subjects,  the  latter  of  whom  undertake,  in  consideration  of  the 
privileges  which  are  bestowed,  to  exert  themselves  for  the  good  gov- 
ernment of  the  place.  Now,  if  those  persons  have  so  far  violated  their 
trust  by  negligence  or  misconduct  that  they  are  no  longer  capable  of 
governing  the  place,  there  is  an  end  of  the  compact.  The  ground  of 
the  charter  was  the  government  of  the  place,  and  when  that  can  not 
be  carried  on,  I  see  no  reason  why  the  crown  can  not  grant  another 
charter  to  a  different  set  of  persons." 

Note.  See  also :  1694,  Philips  v.  Bury,  1  Ld.  Raym.  6,  s.  c.  2  T.  R.  346 ;  1815» 
Terrett  v.  Taylor,  9  Cranch  (U.  S.)  43. 

Sec.  28.    Same. 

WALES,  Treasurer,  Etc.,  v.  STETSON.^ 

1806.     In  the  Supreme  Judicial  Court  of  Massachusetts.     2 
Mass.  143-146,  3  Am.  Dec.  39. 

The  declaration  was  in  trespass  and  contained  two  counts.  The 
first  was  for  passing  the  turnpike  gate  without  payment  of  the  legal 
toll ;   and  the  second  was  for  cutting  down  the  gate. 

The  parties  submitted  the  cause  to  the  court  on  a  statement  of  facts, 
in  substance  as  follows: 

That  the  corporation  was  duly  authorized  by  law  to  make  the  road, 
and,  when  made  and  approved  by  the  court  of  sessions  for  the  county 
of  Norfolk,  to  erect  a  gate  thereon,  near  the  dwelling-house  of  Joseph 
Hunt ;  that  the  road  was  so  made  and  approved ;  that  by  the  act  of 
incorporation,  "If  any  person  shall  cut,  break  down,  or  otherwise  in- 
jure or  destroy  the  said  turnpike  gate,  or  shall  forcibly  pass,  or  attempt 
to  pass,  by  force  without  first  paying  the  legal  toll  at  such  gate,  such 
person  shall  forfeit  and  pay  a  fine  not  exceeding  $50,  nor  less  than 
$5,  to  be  recovered  by  the  treasurer  of  said  corporation,  to  their  use 
in  an  action  of  trespass." 

That  the  gate  was  erected  on  a  part  of  the  turnpike  road  where  was 
before  an  ancient  public  highway;  that  it  was  near  the  house  of 
Joseph  Hunt,  but  that  it  might  have  been  placed  nearer  to  the  said 
house,  and  in  a  part  of  the  turnpike  road  which  was  not  before  a 
public  highway. 

That  said   Stetson  did,  on  the   twenty-ninth   day  of   March,  1806, 

^  Arguments  omitted. 


§  28  THE   CORPORATION  AS   A  FRANCHISE.  151 

forcibly  pass  the  said  gate  without  payment  of  toll,  and  in  the  even- 
ing of  said  day  did  cut  down  said  gate. 

If,  upon  these  facts,  the  court  are  of  opinion  that  the  corpora- 
tion had  a  right  by  law  to  erect  said  gate  at  the  place  where  it  was 
erected,  then  the  defendant  agrees  to  be  defaulted;  if  otherwise  the 
plaintiff  is  to  become  nonsuit. 

The  opinion  of  the  court  was  delivered  by  Parsons,  C.  J.  After 
considering  the  several  points  made  in  this  cause  by  the  counsel,  we  are 
satisfied  that  the  question  submitted  must  be  decided  according  to  the 
legal  construction  of  the  act  incorporating  the  proprietors  of  this  turn- 
pike. We  are  not  prepared  to  deny  a  right  in  the  general  court  to 
discontinue  by  statute  a  public  highway.  It  is  an  easement  common 
to  all  the  citizens,  who  are  represented  in  the  legislature.  The  au- 
thorizing of  the  erection  of  bridges  over  navigable  waters  is,  in  fact,  an 
exercise  of  a  similar  right.  We  are  also  satisjied  that  the  rights  le- 
gally vested  in  this,  or  in  any  corporation^  can  not  be  controlled  or 
destroyed  by  any  subsequent  statute^  unless  a  -power  for  that  purpose 
be  reserved  to  the  legislature  in  the  act  of  incorporation. 

In  the  consideration  of  the  provisions  of  any  statute,  they  ought  to 
receive  such  a  reasonable  construction,  if  the  words  and  subject-mat- 
ter will  admit  of  it,  as  that  the  existing  rights  of  the  public,  or  of  in- 
dividuals, be  not  infringed.  And  we  are  of  opinion  that  this  act  of 
incorporation  reasonably  admits  such  construction.  The  corporation 
had  a  right  to  make  the  turnpike  over  such  parts  of  the  old  road  as  lay 
in  their  way.  This  affects  no  existing  rights,  as  the  easement  re- 
mains. But  before  we  construe  the  statute  as  giving  an  authority  to  ob- 
struct a  former  highway  by  erecting  a  gate  thereon,  it  should  appear 
that  such  construction  is  necessary  to  give  a  reasonable  effect  to  the 
statute.  In  this  case  no  such  necessity  appears;  but  from  the  case 
as  stated  it  appears  that  the  corporation  might  have  exercised  their 
right  to  erect  a  gate,  and  to  receive  the  toll,  as  empowered  by  the 
statute,  without  impeding  the  travel  on  the  old  highway.  The  stat- 
ute authorizes  the  corporation  to  erect  a  gate  on  the  turnpike  road 
near  the  dwelling-house  of  Joseph  Hunt ;  and  it  is  agreed  in  the  case 
that  a  gate  might  have  been  erected  on  the  turnpike,  and  near  the 
dwelling-house  of  J.  Hunt,  and  not  upon  any  part  of  the  old  highway. 
This  gate  being  on  the  old  highway  is  a  public  nuisance,  and  the  de- 
fendant had  a  right  to  abate  it.      Let  the  plaintiff  be  called. 

Note,.  1853,  State  Bank  of  Ohio  v.  Knoop,  16  How.  (U.  S.)  369;  1854, 
Thorpe  v.  Rutland  &  Bur.  R.  Co.,  27  Vt.  140;  1819,  Dartmouth  College  v. 
Woodward,  4  Wheat.  (U.  S.)  518,  tn/ra,  p.  708;  1857,  Nichols  v.  Somerset, 
etc.,  R.  Co.,  43  Me.  356;  1805,  Trustees  v.  Foy,  1  Murphy  (N.  C.)  58,  3  Am. 
Dec.  672,  supra,  p.  34;  1865,  Dodge  v.  Woolsey,  18  How.  (U.  S.)  331,  supra, 
p.  88;  1867,  Zabriskie  v.  Hackensack,  etc.,  R.  Co.,  18  N.  J.  Eq,  178,  90  Am.  Dec. 
617,  infra,  p.  1466;  1850,  Commonwealth  v.  Cullen,  13  Pa.  St.  133,  53  Am.  Dec. 
450,  infra,  p.  417;  1862,  Durfee  v.  Old  Colony  R.  Co.,  5  Allen  (Mass.)  230,  in- 
fra, p.  1462;  1872,  Yeaton  v.  Bank  of  Old  Dominion,  21  Grattan  (Va.)  593, 
infra,  p.  750;  1872.  Tomlinson  v.  Jessup,  15  Wallace  (U.  S.)  454,  infra,  p.  754; 
1864,  Hawthorne  v.  Calef,  2  Wallace  (U.  S.)  10,  infra,  p.  752;  1856,  White 
Mountain  li.  Co.  v.  Eastman,  34  N.  H.  124,  infra,  p.  758.  Compare,  1809,  Cur- 
rie  V.  Mut.  Ass.  Soc,  4  Henning  &  Munf.  (Va.)  315. 


152  HIGGINS   V.    DOWNWARD.  §29 


Sec.    29.     (S  )    These  franchises  are  property,  and  can  not  be  taken 
without  cause,  but  may  be  forfeited  for  misuser  or  nonuser. 

1691.  Holt,  J.,  in  King  v.  Mayor  of  London,  Show.  280.  "I 
am  of  the  opinion  that  a  corporation  may  be  forfeited,  if  the  trust  be 
broken,  and  the  end  for  which  it  is  instituted  be  perverted." 

HIGGINS  Et  Al.  v.  DOWNWARD.^ 

1888.     In  the  Court  of  Errors  and  Appeals  of  Delaware.     8 
Hous.  (Del.)  227-257,  40  Am.  St.  Rep.  141. 

Saulsbury,  Chancellor.  "A  corporation  is  an  artificial  being,  in- 
visible, intangible  and  existing  only  in  contemplation  of  law.  Being 
the  mere  creature  of  law,  it  possesses  only  those  properties  which  the 
charter  of  its  creation  confers  upon  it,  either  expressly  or  as  inciden- 
tal to  its  very  existence.  These  are  such  as  are  supposed  best  calcu- 
lated to  effect  the  object  for  which  it  was  created.  Among  the  most 
important  are  immortality,  and,  if  the  expression  may  be  allowed, 
individuality ;  properties  by  which  a  perpetual  succession  of  many 
persons  are  considered  as  the  same,  and  may  act  as  the  single  indi- 
vidual. They  enable  a  corporation  to  manage  its  own  affairs,  and  to 
hold  property  without  the  perplexing  intricacies,  the  hazardous  and 
endless  necessity  of  perpetual  conveyance  for  the  purpose  of  trans- 
mitting it  from  hand  to  hand.  It  is  chiefly  for  the  purpose  of  cloth- 
ing bodies  of  men  in  succession  with  these  qualities  and  capacities 
that  corporations  were  invented  and  are  in  use."  Chief  Justice  Mar- 
shall's opinion  in  the  case  of  College  v.  Woodward,  4  Wheat.  626. 
A  franchise  is  a  certain  privilege  conferred  by  grant  from  the  govern- 
ment, and  vested  in  individuals.  Corporations  or  bodies  politic  are 
the  most  usual  franchises  known  to  our  law.  Bouv.  Law  Diet.,  545. 
By  section  17,  article  2,  of  the  constitution  of  this  state,  it  is  declared 
that  "no  act  of  incorporation,  except  for  the  renewal  of  existing  cor- 
porations, shall  be  hereafter  enacted  without  the  concurrence  of  two- 
thirds  of  each  branch  of  the  legislature,  and  without  a  reserved  power 
of  revocation  by  the  legislature ;  and  no  act  of  incorporation  which 
may  be  hereafter  enacted  shall  continue  in  force  for  a  longer  period 
than  twenty  years  without  the  re-enactment  of  the  legislature,  unless 
it  be  an  incorporation  for  public  improvement." 

The  Wilmington  and  Reading  Railroad  Company  was  a  private 
corporation  for  public  improvement,  and  therefore  its  existence  was 
not  limited  to  the  period  of  twenty  years  under  this  provision  of  the 
constitution.  There  was  no  time  fixed  by  positive  provision  in  the 
charter  of  the  Wilmington  and  Reading  Railroad  Company  when  the 
corporation  should  cease  to  exist.  Had  there  been,  the  corporation, 
in  the  absence   of  a  renewal  of  its  charter  before  that  period,  would 

^  Facts  suflSciently  stated  in  the  opinion  of  the  court.  Arguments,  and  opin- 
ion of  Comegys,  J.,  concurring,  omitted. 


§  29  THE   CORPORATION  AS    A  FRANCHISE.  153 

have  become  dissolved  without  either  a  representative  or  the  possibil- 
ity of  one,  as  no  provision  is  made  by  our  laws  for  a  representative  in 
such  a  case ;  and  at  the  instance  of  its  dissolution  the  debts  due  to  it 
would  have  become  extinguished,  not  the  right  to  or  the  remedy  for 
the  debts  suspended,  merely,  but  the  debt  itself  annihilated.  Bank 
V.  Lockwood's  Adm'r,  2  Har.  (Del.)  14.  A  judgment,  being  No.  181 
to  the  November  term,  1869,  was  recovered  by  the  Wilmington  and 
Reading  Railroad  Company,  a  corporation  then  existing  under  the 
laws  of  Delaware  and  Pennsylvania,  against  the  defendants.  Kji.fa. 
was  issued,  being  No.  224  to  the  November  term,  1870,  on  this  judg- 
ment, and  levy  made  on  goods  and  chattels.  Subsequent  executions 
were  issued  on  this  judgment,  the  last  being  an  alias  vend,  exp.^ 
No.  92,  to  September  term,  1887.  On  May  29,  1886,  the  judgment 
was  marked  for  the  use  of  the  Wilmington  and  Northern  Railroad 
Company,  by  the  direction  of  the  attorney  of  the  plaintiff,  and  the 
judgment  was  afterwards,  on  June  12,  1886,  marked  for  the  use  of 
John  C.  Higgins  by  direction  of  the  president  of  the  Wilmington  and 
Northern  Railroad  Company.  The  defendants  allege  that  at  or  about 
the  year  1877  the  Wilmington  and  Reading  Railroad  Company  had 
ceased  to  have  any  legal  existence  as  a  corporation,  or  any  right  to 
perform  or  do  any  act  whatever,  and  that  the  said  judgment  which 
had  been  recovered  by  it  became  void  and  of  no  effect. 

The  sixth  reason  assigned  for  setting  aside  the  sheriff'-s  sale  is  that 
the  transfers  or  assignments  alleged  to  have  been  made  by  indorse- 
ments on  the  record,  and  by  and  through  which  the  said  John  C.  Hig- 
gins claims  title  thereto,  were  illegal,  unauthorized  and  void,  and 
ineffectual  to  vest  in  said  John  C.  Higgins  any  right  or  title  what- 
ever. This  reason,  so  far  as  it  relates  to  the  authority  of  the  attorney 
directing  the  judgment  to  be  marked  to  the  use  of  the  Wilmington 
and  Northern  Railroad  Company  is  not  before  us.  exceptions  thereto 
having,  for  the  sake  of  expediting  the  hearing  of  the  questions  re- 
served, been  abandoned,  so  that  the  real  and  only  question  before  us 
is,  was  the  Wilmington  and  Reading  Railroad  Company  dissolved  by 
the  act  in  relation  thereto  passed  February  22,  1877?  Or,  in  other 
words,  did  the  legislature,  by  passing  that  act,  revoke  the  charter  of 
the  Wilmington  and  Reading  Railroad  Company.?  On  the  3d  of 
March,  1868,  the  Wilmington  and  Reading  Railroad  Company  exe- 
cuted a  mortgage  upon  its  road,  etc.,  for  the  payment  of  money.  A 
suit  was  afterward  instituted  in  the  United  States  Circuit  Court  for  the 
foreclosure  of  this  mortgage.  The  final  decree  in  the  case  was  made 
April  25,  1876,  directing  the  sale  by  the  trustees  of  the  railroad  and 
property.  The  sale  was  made  under  the  decree  November  4,  1876. 
The  deed  made  by  the  trustees  to  the  purchasers  conveyed  "the  rail- 
road of  the  Wilmington  and  Reading  Railroad  Company,  extending 
from  a  point  on  the  Philadelphia  and  Reading  Railroad  at  or  near 
Birdsboro,  in  the  county  of  Berks,  state  of  Pennsylvania,  to  the  city 
of  Wilmington,  in  the  state  of  Delaware,  with  all  the  rights,  privi- 
leges, immunities  and  franchises  of  the  said  Wilmington  and  Reading 
Railroad  Company,  under  any  and  all  grants  of  the  state  of  Pennsyl- 


154  HIGGINS   V.    DOWNWARD.  §  29 

vania,  but  exclusive  of  the  franchises  granted  by  the  state  of  Dehi- 
ware."  These  franchises  granted  by  the  state  of  Delaware  were  not 
included  in  the  mortgage  for  which  foreclosure  was  decreed,  and,  of 
course,  were  not  included,  but  excluded,  by  the  decree  of  foreclosure. 
They  were  not  sold  by  the  trustees  to  the  purchasers  of  said  road.  Of 
course,  therefore,  the  purchasers  of  said  Wilmington  and  Reading 
Railroad  did  not  by  such  sale  become  entitled  to  said  franchises  granted 
by  the  state  of  Delaware. 

On  the  22d  of  February,  1877,  the  legislature  of  Delaware  passed 
an  act  to  incorporate  the  purchasers  of  the  Wilmington  and  Reading 
Railroad.  This  act,  after  reciting  in  its  preamble  that  the  railroad  of 
the  Wilmington  and  Reading  Railroad  Company,  with  its  appurte- 
nances, was  sold  in  pursuance  of  a  mortgage  executed  by  said  com- 
pany under  authority  of  laws  of  this  state,  and  that  it  was  necessary 
to  the  proper  enjoyment  of  the  rights  acquired  by  said  sale  that  the 
purchaser  should  be  incorporated  with  authority  to  consolidate  with  any 
company  organized  or  to  be  organized  under  the  laws  of  the  state  of 
Pennsylvania,  operating  such  portion  of  the  road  so  sold  as  is  situated 
within  the  state  of  Pennsylvania,  incorporated  the  persons  purchasing 
the  said  Wilmington  and  Reading  Railroad,  under  a  decree  of  the  circuit 
court  of  the  United  States  for  the  eastern  district  of  Pennsylvania,  a  body 
politic  and  corporate,  by  the  name  of  the  "Wilmington  and  Northern 
Railroad  Company."  By  this  act  the  company  were  vested  with  all 
the  right,  title,  interest,  property,  possession,  claim  and  demand  at 
law  or  in  equity  of,  in  and  to  such  railroad,  to  v/it,  the  railroad  of  the 
Wilmington  and  Reading  Railroad  Company,  with  its  appurtenances, 
and  with  all  the  rights,  powers,  immunities,  privileges  and  franchises 
of  the  corporation  as  whose  property  the  same  was  sold,  and  which 
may  have  been  granted  thereto  or  conferred  thereupon  by  any  act  or 
acts  of  assembly  whatsoever  in  force  at  time  of  such  sale.  These 
franchises,  granted  by  the  state  of  Delaware,  not  being  included  in 
the  mortgage  executed  by  the  Wilmington  and  Reading  Railroad 
Company,  and  consequently  not  sold  under  the  decree  of  foreclosure 
thereof  made  by  the  circuit  court  of  the  United  States  for  the  eastern 
district  of  Pennsylvania,  the  purchasers  at  such  sale  acquired  no  title 
thereto,  and  no  property  therein.  If  they  acquired  any  such  title  or 
property  it  could  only  have  been  vmder  and  by  virtue  of  the  act  to  in- 
corporate the  purchasers  of  the  Wilmington  and  Reading  Railroad 
before  referred  to.  This  act  purported  to  vest  such  purchasers,  among 
other  things,  with  the  privileges  and  franchises  of  the  corporation  as 
whose  property  the  same  was  sold,  and  which  may  have  been  granted 
thereto  or  conferred  thereupon  by  any  act  or  acts  of  assembly  what- 
ever in  force  at  time  of  such  sale. 

The  condition  of  a  corporation  whose  charter  has  expired  is  not 
the  same  as  that  of  a  corporation  which  has  failed  to  elect  its  officers, 
and,  as  the  consequence  of  that  failure,  is  rendered  inactive.  The 
life  of  the  one  is  out  of  it  by  its  own  constitution,  and  not  from  a  fail- 
ure to  do  what  its  charter  enabled  them  to  do,  to  give  them  active 
being ;  the  other  was  entitled  by  its  charter  to  a  continued  active  life, 


§  29  THE   CORPORATION  AS    A   FRANCHISE.  1 55 

but  It  has  failed  to  continue  that  activity  by  the  election  of  its  neces- 
sary officers.  Its  active  powers,  but  not  its  being,  are  gone.  The  one 
is  dead;  the  other  is  dormant.  The  principles  of  law  which  apply 
to  the  rights  of  a  corporation  thus  dormant  or  disabled  are  not  the 
same  as  those  which  are  applicable  to  the  rights  of  a  corporation 
which  is  dissolved,  or  civilly  dead.  In  the  former  case  debts  due 
are  extinguished;  not  so  in  the  latter  case.  No  judgment  of  ouster 
or  other  similar  judgment,  or  judgment  of  like  effect,  has  ever  been 
judicially  declared  against  the  Wilmington  and  Reading  Railroad. 
The  act  to  incorporate  the  purchasers  of  the  Wilmington  and  Reading 
Railroad  did  not  in  express  terms  revoke  the  charter  of  the  Wilming- 
ton and  Reading  Railroad,  nor  necessarily  deprive  the  latter  of  its 
franchises  granted  by  the  acts  of  assembly  of  the  state  of  Delaware. 
The  Wilmington  and  Reading  Railroad  had  never  forfeited  its  char- 
ter as  judicially  ascertained  by  any  judgment  of  a  court  of  law;  and 
even  the  former  act  did  not  so  declare.  A  franchise  is  property^ 
and  it  can  not  wantonly  or  of  -whim  be  taken  away  by  a  legislative 
act  a?td  transferred  to  another. 

The  act  of  February  22,  1877,  must  receive  areasonable  interpre- 
tation. It  must  be  interpreted  to  mean  that  which  the  legislature  of 
the  state  of  Delaware  had  a  right  to  do,  and  not  that  which  the  legisla- 
ture had  not  a  right  to  do.  The  rights,  powers,  immunities,  privi- 
leges and  franchises  conferred  by  the  legislature  on  the  purchasers  of 
the  Wilmington  and  Reading  Railroad  must  be  interpreted  to  be  such 
rights,  powers,  immunities,  privileges,  and  franchises  as  those  con- 
ferred by  the  legislature  on  the  Wilmington  and  Reading  Railroad  by 
any  act  or  acts  of  the  general  assembly  which  the  Delaware  legislature 
had  the  right  to  confer,  and  to  vest  the  same  in  said  purchasers, 
because  the  legislature  had  the  right  to  make  such  a  grant ;  but  the 
legislature  had  no  authority  to  take  from  the  Wilmington  and  Read- 
ing Railroad  rights^  powers^  immunities ^  privileges  and  franchises^ 
the  saffie  never  having  been  judicially  declared  forfeited ^  nor  revoked 
constitutionally  by  legislative  authority .  If  the  legislature  had  re- 
voked the  charter  of  the  Wilmington  and  Reading  Railroad ^  it  could 
have  granted  rights^  powers,  i7nmunities  ^  privileges  and  franchises 
of  the  same  nature  and  kind  as  those  which  the  Wilmington  and 
Reading  Railroad  had  theretofore  possessed,  but  not  the  same  iden- 
tical rights,  powers,  immunities,  privileges  and  franchises,  be- 
cause the  charter  being  revoked,  it  would  follow  that  the  rights,  powers., 
immunities ,  privileges  and  franchises  ceased  and  determined ,  and 
were  not  the  subject  of  transference  to  another  company  by  legislative 
grant.  The  words,  "of  the  corporation  as  whose  property  the  same 
was  sold,  and  which  may  have  been  gianted  thereto  or  conferred 
thereupon  by  any  act  or  acts  of  assembly  whatsoever  in  force  at  the 
time  of  such  sale,"  must  be  interpreted  as  having  relation  to  what 
was  sold,  and  not  to  that  which  was  not  sold,  and  could  not  have  been 
legally  sold  under  the  said  decree  of  foreclosure.  According  to  this 
interpretation,  the  words  used  would  have  force  and  effect.     A  con- 


156  HIGGINS    V.    DOWNWARD.  §  29 

trary  interpretation,  would  render  the  words  of  the  act  of  assembly 
inoperative  and  void. 

It  appears  from  the  case  stated  that  the  judgment  in  respect  to 
which  controversy  exists  in  this  case  was  on  May  29,  1886,  marked 
for  the  use  of  the  Wilmington  and  Northern  Railroad  Company  by 
Victor  Du  Pont,  attorney  for  plaintiff,  and  on  June  12,  i886,  for  the 
use  of  John  C.  Higgins,  by  direction  of  H.  A.  Du  Pont,  president  of 
the  Wilmington  and  Northern  Railroad  Company.  It  also  appears 
in  like  manner  that  there  had  been  no  meeting  of  the  stockholders  of 
the  Wilmington  and  Reading  Railroad  Company  after  the  sale 
thereof  under  the  decrees  of  foreclosure  aforesaid.  If  these  facts  be 
so,  the  Wilmington  and  Reading  Railroad  as  a  corporation  was  not 
dead,  nor  the  debts  due  it  extinguished,  so  far,  at  least,  as  it  existed 
under  the  laws  of  the  state  of  Delaware.  In  this  respect  it  was  only 
dormant;  capable  of  being  revived,  but  incapable  of  action  without 
such  revival.  Its  life  or  death  rested  with  the  legislature.  The 
views  above  expressed  in  reference  to  extinct  and  dormant  corpora- 
tions are  in  accordance  to  the  opinion  of  the  court  in  the  case  of  Bank 
V.  Lockwood's  Adm'r.  "There  is,"  says  Morawetz  (Priv.  Corp., 
§§  1002,  1003),  "a  broad  and  fundamental  distinction  between  the 
dissolution  of  the  corporation  and  the  loss  of  its  franchise  or  legal 
right  to  exist.  Much  confusion  may  be  avoided,"  he  says,  "by  bear- 
ing in  mind  this  distinction."  Again,  he  says:  "If  the  charter  of  a 
corporation  limits  its  existence  to  a  definite  period  of  time,  the  fran- 
chise or  right  to  exist  would  expire  at  the  time  limited."  Again: 
* '  The  franchise  to  exist  and  carry  on  business  as  a  corporation  con- 
tinues hidefinitely  unless  the  time  of  its  duration  is  expressly  limited  in 
ike  grant. ' '  If  the  corporation  should  be  guilty  of  any  wrongful  act, 
or  neglect  of  duty,  which  would  give  the  state  a  right  to  declare  the 
franchise  forfeited ,  the  franchise  would  nevertheless  continue  until  the 
forfeiture  has  been  claim-ed  and  enforced  by  the  state  through  the  proper 
legal  proceedings^  The  commission  of  a  wrongful  act  or  neglect  of  duty 
by  a  corporation  would  evidently  not  per  se  put  an  end  to  the  actual  ex- 
istence of  the  corporate  association.  After  a  long -continued  non-user 
it  may  be  presumed  that  a  corporation  has  surrendered  its  franchises  to 
the  state;  but  the  mere  fact  that  a  corporation  has  been  without  officers 
or  organization,  and  has  performed  no  corporate  acts  during  a  number 
of  years,  does  not  put  an  end  to  its  franchises ,  although  this  may  be  a 
good  ground  for  declaring  them,  forfeited  by  judicial  proceedings.'' 

The  charter  of  a  corporation  does  not  expire  by  reason  of  the  omis- 
sion or  commission  of  acts  on  the  part  of  the  company  for  declaring 
a  forfeiture,  but  the  franchises  continue  in  full  force  until  the  penalty 
of  forfeiture  is  claimed  by  the  state  granting  the  franchise,  and  this 
can  be  done  only  through  a  legal  proceeding  by  which  the  cause  of 
forfeiture  is  judicially  ascertained,  and  not  in  a  purely  collateral  pro- 
ceeding. Says  Pierce  (R.  R.  11):  "The  non-use  or  misuse  of  its 
franchises  by  a  corporation,  or  its  breach  of  the  conditions  on  which 
its  duration  is  by  the  law  of  its  creation  made  to  depend,  is  a  cause  of 
forfeiture.     Such  defaults,  however,  do   not  of  themselves  work  a 


§29  THE 'CORPORATION    AS   A    FRANCHISE.  1 57 

forfeiture,  but  they  take  effect  only  when  judicially  determined  in  a 
direct  proceeding  instituted  for  the  purpose.  A  non-user  or  mis- 
user is  a  ground  of  forfeiture,  although  not  expressly  declared  to  be 
such  by  statute."  The  same  writer  says :  "A  cause  of  forfeiture  which 
has  not  been  judicially  declared  in  a  direct  proceeding  can  not  be 
taken  advantage  of  collaterally."  The  legal  modes  of  proceeding 
against  a  corporation  for  usurpation — non-user  or  misuser  of  a  fran- 
chise— is  scire  facias^  or  an  information  in  the  nature  of  a  quo  war- 
ranto, each  prosecuted  at  the  instance  and  on  behalf  of  the  state. 

What  becomes  of  the  corporate  property  of  a  corporation  in  the 
event  of  its  dissolution.''  The  court  in  the  case  of  Bank  v.  Lockwood's 
Admr's,  before  referred  to,  say  that  on  the  dissolution  of  a  corpora- 
tion as  by  the  expiration  of  the  period  of  its  charter,  its  real  estate  re- 
verts to  the  grantor,  its  personal  estate  to  the  people,  and  the  debts 
due  to  it  are  extinguished.  This  is  doubtless  so  at  the  common  law, 
and  in  a  proceeding  at  law  as  a  scire  facias  on  a  judgment;  but  the 
more  modern  doctrine  upon  this  subject  seems  to  be  that  the  capital 
of  a  corporation  becomes  upon  its  dissolution  a  fund  to  be  adminis- 
tered in  equity  for  the  payment  of  its  creditors,  and  afterwards  for 
distribution  among  its  stockholders.  The  creditors  have  a  lien  on  the 
assets,  and  may  follow  them  into  the  hands  of  stockholders  and  per- 
sons who  are  indebted  to  the  corporation.  The  rights  of  stockholders 
in  the  assets  are  subordinate  to  those  of  creditors.  See  Pierce  R.  R. 
13,  and  authorities  cited.  In  my  opinion,  when  the  constitution  of 
this  state  speaks  of  the  reserved  power  of  revocation  of  a  corporation 
by  the  legislature,  it  means  an  express  revocation  by  the  legislature, 
and  not  otherwise. 

It  will  be  seen  from  what  I  have  already  said  that  the  judgment  set 
forth  in  the  case  stated,  being  No.  181  to  the  November  term.  1869, 
of  the  superior  court,  whether  it  be  a  valid  and  subsisting  judgment  or 
not,  did  not  pass  to  the  Wilmington  and  Northern  Railroad  Company 
by  virtue  of  the  acts  of  assembly,  mortgage  foreclosure  proceeding, 
sale  and  conveyance  recited  in  the  case  stated,  so  as  to  give  the  said 
Wilmington  and  Northern  Railroad  Company  the  right  to  enforce  said 
judgment  by  execution  issued  against  the  defendants,  and  that  John 
C.  Higgins,  who  claims  to  be  the  assignee  of  said  company  to  said 
judgment,  has  not  the  right  to  enforce  said  judgment  against  the  de- 
fendants.    *     *     * 

Note.  See  1886,  Appeal  of  Pittsburgh  R.  Co.,  122  Pa.  St.  511.  9  Am.  St. 
R.  128;  infra,  p.  1342;  1887,  Fietsam  v.  Hay,  122  111.  293;  3  Am.  St.  R.  492, 
supra,  p.  141;  1844,  State  v.  Real  p]state  Bank,  5  Ark.  595,  41  Am.  Dec.  109; 
infra,  p.  1298;  1890,  People  v.  North  Riv.  Sug.  Ref.  Co.,  121  N.  Y.  582,  18  Am. 
St.  R.  843,  supra,  p.  100;  1889,  State  v.  Minnesota  Thresher  Co.,  40  Minn.  213, 
27  Am.  &  E.  C.  Cas.  286;  1892,  People  v.  Buffalo,  etc.,  Co.,  131  N.  Y.  140; 
1888,  State  v.  Madison,  etc.,  R.,  72  Wis.  612,  40  N.  W.  487;  1891,  People  v. 
Broadway  R.,  125  N.  Y.  29;  1884,  State  v.  Railway  Co.,  40  O.  S.  504  . 


NOTES   TO   ARTICLE   IV. 


Corporation  as  a  franchise.— Pollock  and  Maitland,  History  of  English 
Law,  p.  493,  say:     "Between  [the  universities]  and  the  boroughs,  however. 


158  NOTES   TO   ARTICLE   IV.      * 

there  was  just  this  likeness :  neither  the  borough  nor  the  university  was  to 
any  great  degree  an  owner  of  lands  or  of  goods ;  on  the  other  hand  it  was 
a  holder  of  franchises.  *  *  *  The  English  temporal  corporations,  when 
they  first  appear  as  ideal  persons,  appear  not  in  the  character  of  mere  private 
persons,  but  in  the  character — we  may  almost  say  it — of  governmental  oflBcers 
and  magistrates  who  hold  property  in  right  of  their  offices.  Their  lands,  their 
goods  are  few;  what  they  own  is  jurisdiction,  governmental  powers  and 
fiscal  immunities.  This  is  a  characteristic  feature  of  our  temporal  corpora- 
tions in  the  first  stage  of  their  existence  ;  the  artificial  person  comes  into  being 
in  order  that  he  may  govern  and  do  justice.  *  *  *  This  is  well  marked 
in  the  history  of  Oxford.  *  ♦  *  This  is  so  also  with  the  merchant  gilds. 
They  look  to  a  modern  eye  now  like  voluntary  associations  of  traders,  and 
now  like  organs  of  municipal  government.  *  *  *  "We  may  well  suppose 
that  the  juristic  person  made  its  appearance  at  a  comparatively  early  time  in 
the  gild  hall  of  the  brethren.  Not  that  the  gild  was  a  trading  corporation  in 
the  modern  sense.  In  mercantile  transactions  with  outsiders  it  appears  rather 
as  a  societas  than  a  universitas.  It  had  no  property  engaged  in  trade.  *  *  * 
But  the  main  property  of  the  gild,  as  of  the  university,  consists  not  of  lands 
and  goods,  but  of  franchises,  jurisdictional  powers  and  fiscal  immunities." 

In  argument,  Serjeant  Pemberton,  in  King  v.  London,  1  Show.  275,  6,  1692, 
said:  "A  corporation  is  an  artificial  body,  consisting  of  particular  persons, 
as  members  constituent  thereof,  and  like  unto  a  natural  body  to  many  pur- 
poses; that  which  doth  unite  them  is  the  liberties  and  privileges  granted  for 
that  purpose.  It  is  but  a.  franchise  granted  originally  to  them  by  king  or  par- 
liament. In  all  concessions  of  liberties  and  franchises,  there  is  a  tacit  condi- 
tion annexed  to  them,  that  they  use  them  well ;  which  upon  doing  otherwise 
determines  them;  an  abuse  forfeits  them  all.  20  Ed.  4,  pi.  5,  pi.  6,  2  Inst. 
222.  The  way  for  the  king  to  take  an  advantage  of  such  an  abuser  is  a  quo 
warranto,  or  information  in  nature  of  it,  that  is  the  king's  writ  of  right;  here 
these  abusers  are  examined,  and  then  judgment  is  either  given  for  acquittal 
or  for  the  king."  "But  here  [after  judgment  of  seizure]  it  is  otherwise,  and 
therefore  I  conclude  that  the  franchise  by  which  they  claim  to  be  a  corpora- 
tion was  out  of  them,  and  in  the  king,  as  extinct;  for  it  is  such  a  franchise 
as  the  king  can  not  have  by  way  of  user,  and  therefore  it  must  be  gone,  and 
determined,  and  if  so,  the  corporation  is  dissolved ;  that  which  ties  them 
together  is  their  franchise;  take  away  that,  and  they  are  so  many  single 
persons;  for  the  franchise  not  only  unites  them,  but  distinguishes  them,  one 
as  mayor,  and  another  as  an  alderman,  and  the  like;  then  that  being  gone, 
none  of  them  are  such."     20  Ed.  4,  pi.  5,  pi.  6,  2  Inst.  222. 

In  Carth.  217,  this  same  argument  is  said  to  have  stated  these  views  as  fol- 
lows: "A  corporation  is  an  artificial  body,  composed  of  divers  constituent 
members,  ad  instar  corporis  humani,  and  the  ligaments  of  this  body  politic  or 
artificial  body  are  the  franchises  and  liberties  thereof,  which  bind  and  unite 
all  its  members  together;  and  the  whole  essence  and  frame  of  the  corporation  con- 
sist therein." 

Blackstone  says:  "It is  likewise  a  franchise  for  a  number  of  persons  to  be 
incorporated  and  subsist  as  a  body  politic ;  with  power  to  maintain  perpetual 
succession,  and  do  other  corporate  acts;  and  eacti  individual  member  of  such 
corporation  is  also  said  to  have  a  franchise  or  freedom."  Commentaries, 
Book  II,  p.  *37,  1766.  Judge  Cooley,  in  his  note  to  this  statement,  in  his  edi- 
tion of  Blackstone's  Commentaries,  1870,  p.  *40  note,  says:  "Among  the 
most  important  of  modern  franchises  are  the  franchise  to  be  a  corpora- 
tion. *  *  *  And  not  only  is  the  right  to  be  a  corporation  a  franchise,  but 
so'is  every  particular  right  or  privilege  possessed  by  a  corporation  under  its 
charter,  which  could  only  he  exercised  by  legislative  permission."  Blackstone 
says  further,  citing  Finch  164  (1613) :  "Franchises  and  liberty  are  used  as 
synonymous  terms;  and  their  definition  is,  a  royal  privilege  or  branch  of  the 
king's  prerogative,  subsisting  in  the  hands  of  the  subject  *  *  *  they  may 
be  vested  in  either  natural  persons  or  bodies  politic;  in  one  man,  or  in  many; 
but  the  same  identical  franchise  that  has  before  been  granted  to  one  can  not 


THE   CORPORATION   AS   A   FRANCHISE.  1 59 

be  bestowed  on  another,  for  that  would  prejudice  the  former  grant."  (But  as 
to  this,  see,  Piscataqua  Bridge  v.  N.  H.  Bridge,  7  N.  H.  35,  infra,  p.  309,  contra.) 

Mr.  Kyd,  Law  of  Corporations,  p.  14  ( 1793),  says:  "A  corporation  has  also 
been  called  a  franchise ;  the  propriety  of  this  appellation  depends  on  the 
more  or  less  extensive  meaning  in  which  the  word  'franchise'  is  used;  in  its 
most  extensive  sense  it  expresses  every  political  right  which  can  be  enjoyed 
or  exercised  by  a  freeman ;  in  this  sense  the  right  of  being  tried  by  a  jury, 
the  right  a  man  may  have  to  an  office,  the  right  of  voting  at  elections,  may, 
with  propriety,  be  called  franchises ;  and  in  this  sense  the  right  of  acting,  as  a 
corporation,  may  be  called  a  franchise,  existing  collectively  in  all  the  individuals 
of  whom  the  corporation  is  composed ;  in  this  sense,  and  in  this  sense  alone, 
'the  franchise  of  being  a  corporation'  can  have  any  precise  meaning. 

"In  a  less  general  and  more  appropriate  sense,  the  word  'franchise'  means 
a  royal  privilege  in  the  hands  of  a  subject,  by  which  he  either  receives  some 
profit  or  has  the  exclusive  exercise  of  some  right ;  of  the  first  kind  are  the  goods 
of  felons,  waifs,  estrays,  wrecks  or  the  like ;  of  the  second  are  courts,  gaols,  re- 
turn of  writs,  fairs,  markets  and  many  others.  They  are  estates  and  inheritances, 
which  may  be  granted  and  conveyed  from  one  to  another,  as  other  estates, 
which  is  not  the  case  with  a  corporation ;  in  this  sense  a  corporation  can  not 
be  called  a  franchise ;  the  latter  is  a  privilege,  or  liberty,  which  can  have  no 
existence  without  reference  to  some  person  to  whom  it  may  belong;  the 
former  is  a  political  person,  capable,  like  a  natural  person,  of  enjoying  a 
variety  of  franchises ;  it  is  to  a  franchise  as  the  substance  to  its  attribute ;  it 
is  something  to  which  many  attributes  belong,  but  is  itself  something  dis- 
tinct from  those  attributes." 

Justice  Washington,  in  Dartmouth  College  v.  Woodward,  4  Wheat.  (TJ.  S.) 
518,  1819,  on  p.  657,  says:  "A  corporation  is  defined  by  Mr.  Justice  Black- 
■  stone,  2  Bl.  Com.  37,  to  be  a  franchise.  It  is,  says  he,  "a  franchise  for  a 
number  of  persons  to  be  incorporated  and  to  exist  as  a  body  politic,  with  a 
power  to  maintain  perpetual  succession  and  to  do  corporate  acts,  and  each 
individual  of  such  corporation  is  also  said  to  have  a  franchise,  or  freedom." 
This  franchise  like  other  franchises  is  an  incorporeal  hereditament  issuing 
out  of  something  real  or  personal,  or  concerning  or  annexed  to,  or  exercisable 
within  a  thing  corporate.  To  this  grant  or  this  franchise,  the  parties  are  the 
king,  and  the  persons  for  whose  benefit  it  is  created,  or  trustees  for  them. 
The  assent  of  both  is  necessary."  (See  Skelly  v.  The  JeSerson  Bank,  9  Ohio 
St.  606,  on  623,  where  the  court  shows  how  this  definition  of  a  franchise  was 
used  in  the  decision  of  the  Dartmouth  College  case.) 

In  People  v.  Tibbets,  4  Cow.  (N.  Y.)  358,  380  ( 1825),  it  is  said :  "To  be  a 
corporation  is  a  franchise  (2  Bl.  Com.  37),  for  the  usurpation  of  which  an  in- 
formation always  lies  (citing  People  v.  IJtica  Ins.  Co.,  15  Johns.  (N.  Y.)  386, 
389,  supra,  p.  113;  R,  v.  Nicholson  et  al.,  1  Str.  299).  And  the  question  is 
whether  the  intrusion  into  offices  created  for  the  government  or  exercise  of 
the  franchise  is  equally  within  the  act  as  an  usurpation  of  the  franchise 
itself?"  Held,  it  was,  and  that  quo  warranto  would  be  allowed  against  persons 
who  intrude  themselves  into  the  office  of  directors  of  an  insurance  company. 
(To  same  effect  see:  1833,  State  v.  Buchanan,  Wright  (Ohio)  233;  State  v. 
Harris,  3  Ark.  570;  1862,  Smith  v.  State  Bank,  18  Ind.  327;  1837,  Common- 
wealth v.  Gill,  3  Whart.  (Pa.)  228;  1881,  Creek  v.  State,  77  Ind.  180;  1887, 
State  V.  Mayor,  etc.,  10  Atl.  (N.  J.)  377. 

Kent,  Commentaries,  vol.  ii,  p.  267,  1827,  says:  "A  corporation  is  a  fran- 
chise possessed  by  one  or  more  individuals,  who  subsist,  as  a  body  politic, 
under  a  special  denomination,  and  are  vested  by  the  policy  of  the  law,  with 
the  capacity  of  perpetual  succession,  and  of  acting  in  several  respects,  how- 
ever numerous  the  association  may  be,  as  a  single  individual."  He  says, 
also,  vol.  iii,  p.  458,  "Another  class  of  incorporeal  hereditaments  are  fran- 
chises, being  certain  privileges  conferred  by  grant  from  government,  and 
vest«d  in  individuals.  In  England  they  are  very  numerous,  and  are  under- 
stood to  be  royal  privileges  in  the  hands  of  a  subject.  They  contain  an  im- 
plied covenant  on  the  part  of  the  government  not  to  invade  the  rights  vested, 
and  on  the  part  of  the  grantees  to  execute  the  conditions  and  duties  prescribed 


l6o  NOTES   TO    ARTICLE    IV. 

in  the  grant,  *  *  and  they  are  necessarily  exclusive  in  their  nature.  The 
government  can  not  resume  them  at  pleasure,  or  do  any  act  to  impair  the 
grant,  without  a  breach  of  contract."     (But  as  to  this,  see  infra,p. 309,  contra.) 

The  exclusive  nature  of  corporate  franchises  (in  these  cases  to  build  and 
maintain  a  bridge)  was  the  subject  of  much  discussion  in  the  cases  of  Charles 
Eiver  Bridge  v.  Warren  Bridge,  7  Pick.  (Mass.)  344,  on  520  (1829 1,  where  the 
nature  of  franchises  are  discussed.  The  supreme  court  of  the  United  States 
in  the  same  case,  11  Peters  (U.  S.)  420  (1837),  determined  that  the  mere  grant 
of  a  franchise  did  not  make  it  exclusive.  In  Enfield  Bridge  Company  v.  The 
Connecticut  River  Company,  7  Conn.  28,  it  was  held  the  state  could  not  grant 
to  another  company  the  right  to  erect  a  bridge  in  the  exact  location  previously 
granted  to  another  company.  In  the  Americant  Jurist,  vol.  6,  p.  87  et  seq. 
(1831),  there  is  an  article  discussing  these  two  cases,  and  going  into  the  nature 
of  franchises  somewhat  in  detail.  In  Trustees  of  Maysville  v.  Boon,  etc.,  2 
J.  J.  Marsh.  ( Ky.)  225,  on  228,  it  is  said :  "A  ferry  is  a  franchise  real,  and  may 
be  forfeited  for  non-user."  See,  also,  Trustees  of  New  Gloucester  School  Fund 
v.  Bradbury,  11  Maine  118,  on  124,  26  Am.  Dec.  515,  on  518  (1834),  where 
justice  Washington's  statement  in  Dartmouth  College  Case  (supra)  is  given 
and  relied  on. 

In  Price  v.  Price's  Heirs,  6  Dana  (Ky.)  107,  it  is  said:  "The right  conferred 
upon  each  shareholder  [in  a  railroad  company]  is  unquestionably  an  incor- 
poreal hereditament.  It  is  a  right  of  perpetual  duration ;  and  though  it 
springs  out  of  personalty,  as  well  as  lands  and  houses,  this  matters  not.  It 
is  a  franchise  which  has  ever  been  classed  in  that  class  of  real  estate  denom- 
inated an  incorporeal  hereditament."  "It  will  descend  as  realty,  and  is  sub- 
ject to  dower  as  such."  Citing  2  Bl.  20,  1,  2,  37-8;  Co.  Litt.  19,  20.  Com. 
Digest,  Franchise. 

In  Montpelier  Academy  v.  George,  14  La.  395,  33  Am.  Dec.  585,  on  590 
(1840),  Carleton,  J.,  says,  as  to  the  franchise,  after  quoting  Blackstone: 
"There  is  a  grantor  and  grantee  whose  assent  is  necessary ;  the  king  parts 
from  his  prerogative  under  an  implied  promise  not  to  bestow  the  same  fran- 
chise on  another  corporate  body.  It,  therefore,  involves  a  contract  not  to  re- 
assert the  right,  grant  it  to  another,  or  impair  it."  Citing  King  v.  Passmore, 
3T.  R.  246;  Fletcher  v.  Peck,  6  Cranch  (U.  S.)  87;  Philips  v.  Bury,  1  Ld. 
Raym.  5,  s.  c.  2  T.  R.  346,  1  Kyd  Corp.  25.  To  the  same  effect  substantially  is 
Regents  of  Univ.  of  Md.  v.  Williams,  9  Gill  &  J.  (Md.)  366,  on  407,  31  Am. 
Dec.  95  (1838). 

In  Enfield  Toll  Bridge  Co.  v.  Hartford  &  N.  H.  R.  Co.,  17  Conn.  454, 44  Am. 
Dec.  556  (1846),  the  bridge  company  had  the  exclusive  right  to  build  and 
maintain  a  bridge  over  the  Connecticut  river  at  Enfield,  and  collect  the  tolls. 
After  the  bridge  had  been  taken  by  the  railroad  company  under  the  power  of 
eminent  domain,  the  bridge  company  claimed  that,  though  this  could  be  done, 
there  still  existed  "something  beyond  the  bridge  franchise  which  had  been 
invaded, — a  contract  has  been  impaired."  The  court,  by  Church,  J.,  replied: 
"The  contract  constitutes  the  franchise.  All  franchises  emanating  from  the 
government  are  the  results  of  contracts  between  the  state  and  individuals. 
To  say,  therefore,  that  although  such  franchises  may  be  taken  for  public  use 
upon  compensation,  and  at  the  same  time  to  insist  that  the  contract  or  cove- 
nant by  which  thev  are  created  is  unconstitutionally  impaired,  is  an  absur- 
dity. 

That  a  contract  may  as  well  exist  between  the  state  and  corporate  bodies 
as  between  individuals,  which  are  beyond  their  franchises,  and  beyond  legis- 
lative control,  is  true;  but  the  contract  creating  the  corporation  and  defining  its 
powers  and  privileges,  is  not  of  this  character.  This  is  identical  with  the  franchise 
itself,  and  subject  to  the  same  laws." 

In  Yarmouth  v.  North  Yarmouth,  34  Maine  411,  on  418,  56  Am.  Dec.  666,  on 
670  (1852).  it  seemed  funds  derived  from  the  sale  of  a  school  farm  were 
vested  in  trustees  who  were  incorporated,  in  trust  for  school  purposes  in 
North  Yarmouth.  Afterward  the  legislature  divided  this  town  into  two,  Yar- 
mouth and  North  Yarmouth,  the  former  of  which  claimed  part  of  the  funds, 
under  the  act  of  the  legislature  which  directed  the  funds  to  be  so  divided. 


THE   CORPORATION   AS   A   FRANCHISE.  l6l 

The  trustees  resisted  and  it  was  held,  Howard,  J. :  "This  fund  was  never  in 
the  town,  but  was  vested  by  the  act,  in  the  trustees  as  a  corporation  for  the 
use  mentioned,  forever.  They  did  not  constitute  a  municipal,  or  pubHc  cor- 
poration, ahhough  the  object  of  its  creation  might  have  been  a  pubHc  benefit. 
Their  charter  was  a  grant  from  the  state,  partaking  of  the  nature  of  a  contract, 
which  they  accepted,  and  in  which  the  government  had  no  interest.  This  was 
a  franchise,  which  involved  the  right  to  possess  and  control  property,  and  the  right 
to  perpetuate  a  corporate  immortahty.  2  Bl.  Com.  37.  Though  springing 
from  the  grant,  the  franchise  and  the  rights  flowing  from  it  were  no  more 
subject  to  the  control  or  interference  of  the  legislature  than  were  private 
rights  of  property,  unless  on  default  of  the  corporation  judicially  determined." 
Cites:  Co.  Litt.,  §413;  Viner's  Abr.  Corp.  A.  2;  PhiHps  v.  Bury,  2  T.  R.  346; 
Allen  V.  McKean,  1  Sumn.  276;  Dartmouth  Col.  v.  Woodward,  4  Wheat.  518 
infra,  p.  708;  People  v.  Morris,  13  Wend.  325  (infra,  p.  229) ;  Penobscot  Boom, 
etc.,  V.  Lamson,  16  Maine  224  (infra,  p.  283).' 

In  Toledo  Bank  v.  Bond,  1  O.  S.  623  (1853),  Bartley,  J.,  says :  "The  franchise 
of  a  private  corporation  is  a  trust  of  civil  authority,  which,  under  our  system 
of  government,  must  remain  at  all  times  subservient  to  the  public  welfare,  the 
chief  end  and  object  of  the  delegation  of  all  civil  power  by  the  people,  and  is, 
therefore,  not  the  legitimate  subject-matter  of  contract  Or  sale." 

See  also  State,  ex  rel.,  etc.,  v.  Medical  Society,  38  Ga.  608,  95  Am.  Dec.  408 
(1869),  supra,  p.  136,  where  the  nature  of  the  members'  right  in  a  corpora- 
tion is  called  a  franchise.  Compare  with  Board  of  Trade  v.  People,  91  111.  80, 
below. 

In  Morgan  v.  Louisville,  93  U.  S.  217,  on  223  (1876),  Justice  Field  says: 
"Much  confusion  of  thought  has  arisen  in  this  case  and  in  similar  cases  from 
attaching  a  vague  and  undefined  meaning  to  the  term  franchises.  It  is  often 
used  as  synonymous  with  rights,  privileges,  and  immunities,  though  of  a  per- 
sonal and  temporay  character;  so  that,  if  any  one  of  these  exists,  it  is  loosely 
termed  a  "franchise,"  and  is  supposed  to  pass  upon  a  transfer  of  the  fran- 
chises of  the  company.  But  the  term  must  always  be  considered  in  connec- 
tion with  the  corporation  or  property  to  which  it  is  alleged  to  appertain.  The 
franchises  of  a  railroad  corporation  are  rights  or  privileges  which  are  essential 
to  the  operations  of  the  corporation,  and  without  which  its  road  and  works 
would  be  of  little  value ;  such  as  the  franchise  to  run  cars,  to  take  tolls,  to  ap- 
propriate earth  and  gravel  for  the  bed  of  its  road,  or  water  for  its  engines, 
and  the  like.  They  are  positive  rights  or  privileges,  without  the  possession 
of  which  the  road  of  the  company  could  not  be  successfully  worked.  Im- 
munity from  taxation  is  not  one  of  them.  The  former  may  be  conveyed  to  a 
purchaser  of  the  road  as  a  part  of  the  property  of  the  company ;  the  latter  is 
personal,  and  incapable  of  transfer  without  express  statutory  direction."  To 
the  same  effect  are  Wilson  v.  Gaines,  103  U.  S.  417  ;  Louisville  &  N.  R.  Co.  v. 
Palmes,  109  U.  S.  244 ;  Memphis  R.  Co.  v.  Commissioners,  112  U.  S.  609  (supra, 
p.  143). 

In  Smith  v.  Mayor,  etc.,  of  New  York,  68  N.  Y.  562,  on  556  (1877),  the 
court,  in  distinguishing  a  franchise  from  property  held  under  a  franchise,  said : 
"Under  the  laws  of  our  state  a  mere  franchise  or  incorporeal  hereditament  of 
any  kind  is  not  taxable,  except  by  special  statute.  The  plaintiflE  has  a  fran- 
chise to  construct  and  maintain  this  pier,  and  take  wharfage  for  its  use.  The 
pier  itself  is  a  structure  built  under  his  franchise.  It  is  tangible,  bulky  prop- 
erty, and  in  no  sense  incorporeal.  It  is  not  like  a  mere  right  or  privilege, 
which  has  no  physical  existence.  A  person  may  have  a  franchise  to  build  and 
maintain  a  bridge,  and  take  toll  for  its  use.  The  bridge,  as  a  structure,  is  not 
a  franchise.  He  may  not  be  taxed  on  his  franchise,  but  he  can  be  taxed  upon 
the  structure  or  real  estate." 

See,  also,  Spring  Valley  Water  Works  v.  Schottler,  62  Cal.  69,  106  (supra, 
p.  120). 

1878,  The  Board  of  Trade  of  Chicago  v.  The  People,  91  111,  80.  Relator 
was  expelled  from  the  board  of  trade  and  brought  mandamus  to  compel  that 
body  to  restore  him  to  membership;  a  peremptory  mandamus  was  issued,  and 
11 — WiL.  Cases. 


1 62  NOTES   TO   ARTICLE   IV. 

the  respondent  brings  the  suit  directly  to  the  supreme  court,  under  a  statu- 
tory provision  that  "Appeals  and  writs  of  error  shall  lie  from  final  orders  of 
tlie  circuit  court  to  the  supreme  court  in  cases  involving  a  franchise  or  a  free- 
hold." Relator  moved  to  dismiss  as  no  franchise  was  involved.  The  court, 
by  Mr.  Justice  Scott,  says:  "The  inquiry,  then,  must  be,  does  the  member- 
ship of  the  relator  come  within  the  definition  of  a  franchise  as  that  term  is 
used  in  the  statute?  Our  conclusion  is,  it  does  not."  After  quoting  Black- 
stone's  definition,  which  was  adopted  in  73  111.  541,  and  several  other  cases 
cited,  to  the  effect  that  "corporate  franchises  in  the  American  states  emanate 
from  the  government  or  sovereign  power,  owe  their  existence  to  a  grant,  or, 
as  at  common  law,  to  prescription,  which  presupposes  a  grant,  and  are 
vested  in  individuals  or  a  body  politic,"  the  court  continues:  "It  must  have 
been  in  this  restricted  sense  the  term  "franchise"  was  used  by  the  general 
assembly  in  the  statute  we  are  considering,  and  not  in  that  broad  sense  con- 
tended for.  No  doubt  the  word  "franchise"  is  sometimes  used  as  synony- 
mous with  privileges  and  immunities  of  a  personal  character;  but  in  law  its 
appropriate  meaning  is  understood  to  be  something  which  the  citizen  can  not 
enjoy  without  legislative  grant.  Many  of  our  religious,  benevolent,  literary 
and  scientific  societies  and  associations  are  incorporated  under  general  or 
special  laws,  but  it  was  never  understood  that  members  of  such  societies  or  as- 
sociations possessed  or  exercised  any  franchise.  What  they  obtain  is  what  is 
most  appropriately  termed  "membership,"  which  means  freedom  of  the  priv- 
ilege it  confers,  and  nothing  more.  That  is  precisely  the  case  at  bar.  Rela- 
tor had  membership  in  this  corporation  and  the  freedom  of  its  privileges, 
whatever  they  were,  but  in  no  just  sense  did  he  exercise  any  franchise  granted 
to  him  or  the  corporation  by  the  general  assembly.  It  is  lawful  for  any  per- 
son or  association  of  persons  to  transact  commercial  business  without  legisla- 
tive grant  for  that  purpose.  A  corporation  for  such  purposes  is  a  mere  con- 
venience and  nothing  more.  A  member  of  such  corporation  exercises  no 
other  right  in  the  buying  or  selling  of  commodities  than  what  any  citizen  of 
common  right  may  do,  except  as  in  the  present  instance,  by  virtue  of  his 
membership  he  may  transact  such  business  in  a  room  belonging  to  the  corpo- 
ration, which  is  a  mere  privilege  and  not  a  franchise,  in  the  sense  that  term  is 
used  in  the  statute.  One  test  that  might  well  be  applied  is  that  in  case  of  the 
non-user  or  misuser  by  the  party  owning  membership  in  such  a  corporation 
an  information  would  not  lie  against  him  at  the  suit  of  the  people." 

In  Memphis  &  L.  R.  Co.  v.  Berry,  112  U.  S.  609,  on  619  (18841,  supra,  p.  143, 
Mr.  Justice  Matthews  gives  a  description  of  corporate  franchises,  and  shows 
that  "the  franchise  of  becoming  and  being  a  corporation,  in  its  nature,  is  in- 
communicable by  the  act  of  the  parties,  and  incapable  of  passing  by  assign- 
ment," citing  Commonwealth  v.  Smith,  10  Allen  448,  455;  Hall  v.  Sullivan 
R.  Co.,  2  Redfield's  Am.  Ry.  Cases  621,  and  Coe  v.  Columbus,  P.  &  I.  R.  Co., 
10  O.  S.  372,  386. 

In  New  Orieans,  S.  F.  &  L.  Co.  v.  Delamore,  114  U.  S.  501  (1885),  it  is  said : 
"A  franchise  to  use  and  occupy  the  streets  of  a  municipality  by  a  railroad 
corporation,  granted  by  the  municipality,  is  such  a  franchise  as  may  be  mort- 
gaged and  pass  to  the  purchaser  at  a  sale  under  foreclosure  of  the  mortgage." 

So.  too,  in  State  v.  East  Fifth  St.  R.  Co.,  140  Mo.  539,  62  Am.  St.  R.  742,  38 
Xi.  R.  A.  218,  infra,  p.  706  (1897),  quo  warranto  was  brought  in  the  lower  court 
to  oust  the  street  railway  company  of  its  privilege  of  operating  its  railway 
upon  certain  streets  in  Kansas  City,  because  of  non-user,  the  city  having  un- 
der authority  of  the  state  granted  the  privilege  to  said  company.  The  de- 
fense was  no  franchise  of  the  state,  if  any  franchise  at  all,  had  been  violated 
by  the  non-user.  The  court  of  review  says:  "It  may  be  said  that  corporate 
existence  is  as  much  a  franchise  as  the  franchises  of  the  corporation.  The 
former  is  not  property  in  the  ordinary  acceptation  of  the  term,  can  not  be 
transferred  by  ordinary  conveyance  or  sale  under  execution,  unless  the  stat- 
utes of  the  state  so  provide;  while  corporate  franchises  are  property,  can  be 
transferred  by  voluntary  conveyance  or  by  sale,  under  execution  against  the 
corporation."  Held,  suit  was  properly  brought  by  the  state,  and  ouster  was 
declared.     Compare  People,  ex  rel.  Jackson,  v.  Suburban  R.  Co.,  178  111.  694 


THE   CORPORATION   AS   A    FRANCHISE.  163 

(1899);  Tower  v.  Tower  &  S.  S.  R.  Co.,  68  Minn.  500,  64  Am.  St.  R.  493 
(1897) ;  Wright  v.  Milwaukee  Elec.  R.,  etc.,  Co.,  95  Wis.  29,  60  Am.  St.  R. 
74  (1897);  Milwaukee  Electric  R.  Co.  v.  Milwaukee,  95  Wis.  39,  60  Am.  St. 
R.  81  (1897);  Belleville  v.  Citizens'  Home  R.  Co.,  152  111.  171,  26  L.  R.  A.  681 
(1894),  and  People  v.  Mutual  Gas  L.  Co.,  38  Mich.  154  (1878). 

In  New  Orleans  Water- Works  Co.  v.  Rivers,  115  U.  S.  674  (1885),  the  court 
says:  "An  exclusive  franchise  granted  by  the  legislature  to  supply  water  to 
the  inhabitants  of  a  municipality  by  means  of  pipes  and  mains  laid  through 
the  public  streets  is  violated  by  a  grant  to  an  individual  in  the  municipality 
of  the  right  to  supply  his  premises  with  water  by  means  of  a  pipe  or  pipes  so 
laid,  and  is  a  contract  protected  by  the  United  States  constitution."  To  the 
same  effect  in  regard  to  gas  pipes  for  lighting,  etc.,  are  Louisville  Gas  Co.  v. 
Citizens'  Gas  L.  Co.,  115  U.  S.  683,  and  New^  Orleans  Gas  Co.  v.  Louisiana 
Light  Co.,  115  U.  S.  650. 

Perhaps  the  best  definition  of  franchises  is  that  given  by  Bradley,  J.,  in 
California  v.  Central  Pacific  R.  Co.,  127  U.  S.  1,  on  40  (1887),  as  follows: 
"What  is  a  franchise?  Under  the  English  law,  Blackstone  defines  it  'as  a 
royal  privilege,  or  branch  of  the  king's  prerogative  subsisting  in  the  hands  of 
a  subject,'  2  Bl.  Com.  37.  Generalized  and  divested  of  the  special  form  which 
it  assumes  under  a  monarchical  government  based  on  feudal  traditions,  a 
franchise  is  a  right,  privilege,  or  power  of  public  concern,  which  ought  not  to 
be  exercised  by  private  individuals  at  their  mere  will  and  pleasure,  but  should 
be  reserved  for  public  control  and  administration,  either  by  the  government 
directly,  or  by  public  agents,  acting  under  such  conditions  and  regulations  as 
the  government  may  impose  in  the  public  interest,  and  for  the  public  security. 
Such  rights  and  powers  must  exist  under  every  form  of  society.  They  are 
always  educed  by  the  laws  and  customs  of  the  community.  Under  our  system, 
their  existence  and  disposal  are  under  the  control  of  the  legislative  depart- 
ment of  the  government,  and  they  can  not  be  assumed  or  exercised  without 
legislative  authority.  No  private  person  can  establish  a  public  highwaj%  or  a 
public  ferry,  or  railroad,  or  charge  tolls  for  the  use  of  the  same,  without 
authority  from  the  legislature,  direct  or  derived.  These  are  franchises.  No 
private  person  can  take  another's  property,  even  for  a  public  use,  without 
such  authority;  which  is  the  same  as  to  say  that  the  right  of  eminent  domain 
can  only  be  exercised  by  virtue  of  legislative  grant.  This  is  a  franchise.  No 
persons  can  make  themselves  a  body  corporate  and  politic  without  legislative  author- 
itij.     Corporate  capacity  is  a  franchise.^' 

Mr.  E.  R.  A.  Seligman,  in  his  Essays  on  Taxation,  ch.  vii,  p.  180,  criticises 
this  definition  as  being  too  narrow,  since,  in  his  judgment,  it  unduly  em- 
phasizes the  element  of  public  control  and  public  interest.  He  defines  a  fran- 
chise as  "simply  a  right  conferred  by  government  of  conducting  an  occupation 
either  in  a  particular  way  or  accompanied  with  particular  privileges."  We 
prefer  the  definition  of  the  supreme  court,  as  given  by  Justice  Bradley,  and 
believe  it  is  desirable  to  emphasize  the  element  of  public  control. 

A  very  short  but  clear  definition  is  given  by  Justice  Field  in  Home  Ins.  Co. 
V.  New  York,  134  U.  S.  594  on  599  (1889),  as  follows:  By  the  term  corporate 
franchise,  we  understand  is  meant  the  right  or  privilege  given  by  the  state  to 
two  or  more  persons  of  being  a  corporation,  that  is,  of  doing  business  in  a 
corporate  capacity,  and  not  the  privilege  or  franchise  which,  when  incorpo- 
rated, the  company  may  exercise.  The  right  or  privilege  to  be  a  corporation, 
or  to  do  business  as  such  body,  is  one  generally  deemed  of  value  to  the  corpo- 
rators, or  it  would  not  be  sought  in  such  numbers  as  at  present." 

In  Macon,  etc.,  R.  Co.  v.  Gibson,  85  Ga.  1,  21  Am.  St.  R.  135  (1890),  under 
the  Geoi^ia  Code  providing  that,  "In  all  cases  of  private  charters  hereafter 
granted,  the  state  reserves  the  right  to  withdraw  the  franchise,  unless  such 
right  was  expressly  negatived  in  the  charter,"  the  court  said:  "It  is  quite 
too  narrow  a  definition  of  the  word  'franchise^  used  in  this  statute  to  hold  it 
as  meaning  only  the  right  to  be  a  corporation.  The  word  is  generic,  covering 
all  the  rights  granted  by  the  legislature.^' 

So,  too,  in  State  v.  Boston,  etc.,  R.  Co.,  25  Vt.  442,  it  is  said:  "All  the 
functions  of  a  corporation  are  in  one  sense  franchises.    The  right  to  hold 


\ 


164  NOTES   TO   ARTICLE   IV. 

property  in  the  corporate  name,  to  sue  and  be  sued  in  that  capacity,  to  have 
and  use  a  corporate  seal,  and  by  that  to  contract,  and  some  others,  perhaps, 
are  franchises,  which  constitute  the  very  definition  of  a  corporation."  Simi- 
larly in  Pierce  v.  Emery,  32  N.  H.  507,  it  is  said :  "The  different  powers  of  a 
private  corporation,  like  the  right  to  hold  and  dispose  of  property,  are  its 
franchises."  Compare  State  v.  Minnesota  T.  M.  Co.,  40  Minn.  213  (1889). 
For  other  definitions  and  statements  describing  franchises,  see  State,  Kan- 
sas V.  Corrigan  Con.  St.  R.,  85  Mo.  263,  55  Am.  R.  361;  Homestead  St.  R. 
Co.  V.  Pittsburgh  &  H.  E.  St.  R.  Co.,  166  Pa.  St.  162,  27  L.  R.  A.  383; 
Detroit  Citizens'  St.  R.  v.  Detroit,  22  U.  S.  App.  570,  64  Fed.  R.  628,  26  L.  B. 
A.  667;  People  v.  O'Brien,  111  N.  Y.  1,  2  L.  R.  A.  255;  Wilmington  Water 
Power  Co.  v.  Evans,  166  111.  548;  M.  &  S.  Societv  of  Montgomery  County 
V.  Weatherly,  75  Ala.  248,  253;  Port  of  Mobile  v.  Louisville  &  N.  R. 
Co.,  84  Ala.  119;  Williams  v.  Citizens'  R.  Co.,  130  Ind.  71, 15  L.  R.  A.  64; 
Baltimore  Trust  G.  Co.  v.  Baltimore,  64  Fed.  R.  153;  Wheat  v.  Alexandria, 
88  Va.  743;  Bank  of  Augusta  v.  Earle,13  Pet.  (U.S.)  519,  595;  Huff  v.  Winona^ 
etc.,  R.  Co.,  11  Minn.  180,  192;  Chesapeake,  etc..  Canal  Co.  v.  B.&  O.  R.  Co., 
4  Gill  &  J.  (Md.)  1,  191 ;  Society  for  Sav.  v.  Coite,  6  Wall.  (U.  S.)  594,  606; 
Adams  v.  Yazoo  &  M.  V.  R.  Co.,  24  So.  (Miss.,  1898)  200.  Also  particularly 
Justice  Story's  and  Justice  Washington's  opinions  in  Dartmouth  College  v. 
Woodward,  4  Wheat.  518,  infra,  pp.  723-741. 

Mr.  Morawetz,  Treatise  on  Law  of  Private  Corps.,  2d  Ed.,  1886,  says,  §  8: 
"Under  the  common  law  of  England  and  the  United  States,  a  corporation 
can  not  be  formed  like  a  partnership,  merely  by  a  contract  between  the  in- 
dividuals composing  it.  The  right  of  forming  a  corporation  and  of  acting  in  a 
corporate  capacity  must  be  treated  as  a  franchise,  or  special  privilege,  which 
may  not  be  assumed  without  a  grant  of  authority  from  some  governing 
power,"  In  §  922,  he  says:  "The  word  'franchise'  is  generally  used  to  des- 
ignate a  right  or  privilege  conferred  by  law.  Thus,  when  the  legislature 
grants  a  charter  of  incorporation,  it  confers  upon  the  grantees  of  the  charter 
the  right  or  privilege  of  forming  a  corporate  association,  and  of  acting  within 
certain  limits  in  a  corporate  capacity,  and  this  right  or  privilege  is  called  the 
corporate  franchise."  In  §923:  "What  is  called  the  franchise  of  forming  a 
corporation  is  really  but  an  exemption  from  a  general  rule  of  common  law 
prohibiting  the  formation  of  corporations.  In  former  times,  this  exemption 
was  granted  only  in  exceptional  cases,  by  a  special  charter  in  each  instance. 
It  was,  therefore,  looked  upon  as  something  valuable — as  a  gift  of  a  special 
privilege  to  the  grantees  of  the  charter — and  was  called  a  franchise.  At  the 
present  day,  however,  the  prohibition  of  the  common  law  has  been  in  a  great 
measure  repealed  by  the  general  incorporation  laws.  What  was  formerly 
the  exception  has  now  become  the  general  rule.  All  persons  have  now  the 
right  of  forming  corporate  associations,  upon  complying  with  the  simple 
formalities  prescribed  by  statute.  The  right  of  forming  a  corporation  and  of 
acting  in  a  corporate  capacity,  under  the  general  incorporation  laws,  can  be 
called  a  franchise,  only  in  the  sense  in  which  the  right  of  forming  a  limited 
partnership  or  of  executing  a  conveyance  of  land  by  deed  is  a  franchise."  In 
note  3,  §  922,  he  says:  "The  corporate  franchises  are  sometimes  said  to  be- 
long to  the  corporation;  but  this  is  not  accurate.  They  belong  to  the  share- 
holders." See  also  §§  648,  649,  650,  651,  652,  653.  These  views  of  Morawetz 
are  cited  approvinglv  in  State  v.  Western  Irrigating  Canal  Co.,  40  Kan.  96, 
10  Am.  St.  R.  166  (1888),  holding  that  the  sale  of  the  franchise  of  being  a 
corporation  is  inoperative  to  invest  the  purchaser  with  corporate  power. 

Judge  Thompson,  Commentaries  on  Corporations,  section  5353  (1895), 
says:  "In  respect  to  the  pfower  of  a  corporation  to  alien  its  franchises,  a  dis- 
tinction has  been  taken  by  the  courts  between  what  may  be  regarded  as  pri- 
mary and  what  as  secondary  franchises.  The  franchise  of  being  a  corporation 
— of  having  a  corporate  existence— is  a  franchise  of  the  former  character;  and 
the  franchise  of  carrying  on  a  particular  business  or  holding  particular  prop- 
erty is  of  the  latter  character.  *  *  *  jjo  one  but  the  sovereign  can  create 
a  corporation  ;  and  hence  one  corporation  can  not  create  another,  by  selling 
to  the  latter  its  own  privilege  of  having  a  corporate  existence;  though,  as  al- 


THE   CORPORATION    AS   A    FRANCHISE.  165 

ready  seen,  the  members  who  compose  the  corporation  may,  after  it  has  been 
organized  and  its  shares  have  been  issued,  by  transferring  their  shares  to 
others,  introduce  a  totally  new  membership  into  the  corporate  body  and  re- 
tire therefrom  themselves.  *  *  *  The  rule  had  a  very  substantial  value 
when  the  franchise  to  be  a  corporation  was  generally  granted  by  the  king  in 
his  council  *  *  *  when  such  grants  could  not  be  obtained  except  in  con- 
sideration of  the  rendition  of  important  services  to  the  king  or  to  the  state. 
But  under  our  American  constitutions,  under  which  a  body  of  co-adventurers 
may  freely  organize  themselves  into  a  corporation  by  complying  with  certain 
statutory  forms  and  paying  a  moderate  tax,  the  franchise  of  being  a  corpora- 
tion is  scarcely  more  valuable  than  the  franchise, — if  there  could  be  such  a 
thing, — of  being  a  partnership.  It  is  a  myth ;  and  the  rule  under  considera- 
tion would.be  the  silliest  casuistry  except  for  its  value  as  a  rule  of  interpre- 
tation of  railwaj/  and  other  corporate  mortgages." 

Judge  Elliott  in  his  Law  of  PriVate  Corporations  (1900),  devotes  one 
chapter  (5)  to  "Franchises  and  privileges,"  giving  an  excellent  condensed 
view  of  the  subject. 

It  is  submitted  that  the  above  statements  of  Judge  Thompson  and  Mr. 
Morawetz  in  regard  to  the  corporate  franchise  are  very  much  overdrawn,  if 
not  entirely  incorrect.  It  might  be  pertinent  to  inquire,  why  is  it,  if  the  right 
to  be  a  corporation  is  of  no  value,  that  so  many  corporations  are  formed?  Why 
is  it  that  four-fifths  of  the  wealth  of  the  United  States  is  held  under  corporate 
organization?  Why  is  no  great  enterprise  undertaken  except  under  a  cor- 
porate form  of  organization?  The  franchise  of  being  a  corporation  is  valuable; 
the  fact  that  the  state  makes  it  easy  to  obtain  this  franchise  does  not  take 
from  its  value,  any  more  than  the  fact  that  every  male  over  twenty-one  can 
vote  makes  the  right  to  vote  of  no  value.  The  corporate  form  of  organiza- 
tion is  the  most  efficient  form  of  business  organization  yet  discovered  by  the 
business  world,  and  is  consequently  considered  the  most  valuable  by  busi- 
ness men.  It  furnishes  the  greatest  possibility  of  concentration  of  means,  the 
completest  unity  of  management,  and  the  least  individual  personal  responsi- 
bility both  financially  and  morally  of  any  business  machine  yet  invented,  to 
say  nothing  of  the  possibility  of  fraud,  speculation,  and  exploitation  that  lax 
corporation  laws,  both  now  and  heretofore,  have  made  possible  if  not  actually 
invited. 

But,  after  all,  are  our  general  incorporation  laws  a  mere  repeal  of  the  com- 
mon law — a  mere  exemption  from  the  common  law  prohibition  of  forming 
corporations  without  consent  of  the  king  or  state?  Or  was  a  special  charter 
itself  a  mere  repeal  of  or  exemption  from  such  rule  of  the  common  law?  The 
legal  theory — the  doctrine  of  the  legislature,  or  the  doctrine  of  the  courts,  is 
not  so,  and  never  has  been  so,  and  it  is  hoped  never  will  be  so.  The  common 
law  prohibition  is  not  repealed,  or  in  fact  modified  in  any  essential  particular, 
but  is  the  same  as  it  was  in  Blackstone's  time  or  before.  A  franchise  at  com- 
mon law  was  something  more  than  a  license— it  could  not  be  revoked  by  the 
king  after  granting  it,  except  for  a  justifiable  cause  judicially  determined.  It 
was  something  more  than  a  law,  also ;  it  was  an  estate  or  interest  like  an  estate 
in  land ;  a  repeal  of  the  law  granting  it  did  not  take  it  away  in  any  other  way 
than  the  repeal  of  a  law  granting  land,  by  the  transcendent  power  of  parlia- 
ment, took  away  the  estate  in  the  land — that  is,  by  a  forfeiture  or  bill  of  at- 
tainder, or  something  of  that  kind.  A  franchise  to  be  a  corporation  was  of  the 
same  character — a  grant  of  a  privilege — might  be  many,  or  only  one,  but  at 
least  one,  that  is,  the  right  to  do  the  designated  business  under  the  corporate 
form  of  organization.  But  it  was  still  more  than  this:  it  was  a  grant  upon  a 
condition,  a  kind  of  condition  subsequent — the  condition  being  the  faithful 
performance  of  the  business  to  be  conducted  under  the  corporate  form  of  or- 
ganization— in  other  words,  that  there  be  no  "non-user,  misuser  or  abuser"  of 
the  privilege.  It  was  very  much  the  same  as  the  condition  always  annexed  to 
the  grant  of  a  freehold  estate  in  land — it  was  in  the  theory  of  the  common  law 
always  held  from  the  king  upon  the  condition  that  the  holder  do  not  commit 
treason  or  felony ;  if  he  did,  the  land  would  then  be  forfeited  upon  conviction 
after  indictment  and  trial  in  the  king's  bench.   So,  too,  the  corporate  franchise 


1 66  NOTES   TO   ARTICLE   IV. 

was  held  upon  a  like  condition — non-user  or  misuser  led  to  forfeiture  upon  judg- 
ment in  scire  facias  or  quo  warranto  proceedings  in  the  king's  bench.  This 
theory  of  a.  franchise  yet  remains  with  us,  and  is  in  no  way  repealed.  Under 
our  United  States  constitution,  and  the  decisions  of  the  supreme  court,  the 
transcendent  power  of  parliament  to  declare  forfeitures  of  either  land  or  fran- 
chises, is  taken  from  our  legislative  bodies — of  the  states  at  least  (Fletcher  v. 
Peck,  6  Cranch  87,  and  Dartmouth  College  v.  Woodward,  4  Wheat.  518).  But 
the  right  to  forfeit  franchises  for  misuser  or  non-user,  in  the  proper  judicial 
proceedings,  yet  remains.  It  perhaps  matters  but  little  to  the  state  whether 
A.,  B.  and  C.,  either  separately,  jointly,  or  in  a  partnership,  refine  sugar  or 
petroleum.  If  they  engage  in  this  business  they  may  do  so  when  and  where 
they  please,  stop  when  they  please,  or  agree  not  to  make  any  more — the 
latter  contract,  under  some  circumstances  being  simply  unenforcible,  but  not 
a  cause  of  forfeiture  or  punishment.  But  if  A.,  B.,  C.,  D.,  etc.,  form  a  corpo- 
ration for  making  or  refining  sugar  or  oil,  the  case  is  different;  the  business 
is  not  different — it  is  neither  more  nor  less  public,  nor  more  nor  less  a  fran- 
chise than  it  was  before;  the  privilege  is  not  in  making  sugar  or  oil,  but 
bringing  into  existence  and  using  in  this  business  the  valuable,  efficient,  im- 
personal and  in  many  ways  morally  less  responsible,  agency  or  organization 
known  as  the  corporation;  this  is  the  privilege,  a  privilege  of  "public  concern," 
a  franchise,  always  having  as  an  inseparable  incident,  always  granted  upon 
the  implied  condition  that  it  will  not  be  misused  or  abused.  For  not  making 
oil,  or  sugar,  or  even  agreeing  not  to  do  so,  the  charter,  the  franchise  of  being 
a  corporation  for  such  purpose,  can  be  taken  away  by  the  state.  (See  People  v. 
North  River  Sugar  Ref.  Co.,  121  N.  Y.  682,  18  Am.  St.  R.  843,  supra,  100;  State 
V.  Standard  Oil  Co.,  49  O.  S.  137.)  Herein  lies  the  essential  difference  between 
a  corporation  and  a  partnership  or  joint  stock  company.  (See  Gleason  v. 
McKay,  134  Mass.  419,  infra,  p.  167. 

The  franchise  to  conduct  any  business  as  a  corporation,  or  through  a  corpo- 
rate organization,  is  now,  and  has  always  been  since  the  time  of  the  Romans, 
"a  matter  or  pnvilege  of  public  concerti,"  given  by  the  state  only  on  condition 
that  it  be  not  abused.  Kent  says:  "Solon  permitted  private  companies 
to  institute  themselves  at  pleasure,  provided  they  did  nothing  contrary  to 
the  public  law.  But  the  Romans  were  not  so  indulgent  as  the  Greeks. 
They  were  very  jealous  of  such  combinations  of  individuals,  and  they  7-e- 
strained  those  that  icere  not  especially  authorized,  and  eveiy  corporation  was 
illicit  that  was  not  ordained  by  a  decree  of  the  senate  or  emperor.  Collegia 
lieita,  in  the  Roman  law  were,  like  our  incorporated  companies,  societies 
of  men  united  for  some  useful  business  or  purpose  with  power  to  act  like  a 
single  individual,  and  if  they  abused  their  right,  or  assembled  for  any  other 
purpose  than  that  expressed  in  their  charter,  they  were  deemed  illicita,  and  many 
laws  from  the  time  of  the  Twelve  Tables  down  to  the  times  of  the  emperors 
were  passed  against  all  illicit  or  unauthorized  companies.  In  the  age  of 
Augustus,  certain  corporations  had  become  nurseries  of  faction  and  disorder : 
and  that  emperor  interposed,  as  Julius  Caesar  had  done  before  him,  and 
dissolved  all  but  the  ancient  and  legal  corporations.  *  *  *  And  the  Em- 
peror Trajan,  in  refusing  to  incorporate  a  fire  company,  said,  'that  societies  of 
that  sort  had  greatly  disturbed  the  peace  of  the  cities;  and  whatever  name  lie 
gave  them,  or  for  whatever  purpose  they  might  be  instituted,  they  would  not 
fail  to  be  mischievous,'"  citing  Taylor's  Elements  of  Civil  Law,  567-570; 
Suetonius,  Ad.  Aug.  32,  and  J.  Caesar  42,  vol.  2,  pp.  268-9. 

Does  not  this  experience  of  the  old  Romans,  the  experience  of  England  in 
the  early  part  of  the  last  century,  with  John  Law's  schemes  and  the  South  Sea 
Bubble,  and  the  experience  of  our  own  day  attest  the  wisdom  of  the  common 
law  rule  that  the  "right  to  be  a  corporation  is  a  franchise  of  public  concern, 
held  upon  the  implied  condition  that  it  will  not  be  abused,  under  penalty  of 
forfeiture,"  and  that  it  is  well  to  hold  fast  to  such  rule?  It,  of  course,  has  been 
the  policy  of  corporations  and  corporation  counsel  to  minimize  the  franchise 
as  much  as  possible,  under  nearly  every  circumstance,  except  where  they 
have  had  to  fight  for  their  existence;  and  the  above  expression.^  of  the  lead- 
ing text  writers  of  the  day  have  helped  (perhaps  unwittingly)  to  make  ob- 


§  30  CORPORATION    AND    PARTNERSHIP.  1 6/ 

scure  this  wholesome  doctrine,  both  in  the  minds  of  the  people  and  of  many 
judges  as  well.  The  legislatures,  too,  of  several  states  have  substantially  abdi- 
cated the  power  of  the  state  to  retain  control  over  the  creatures  of  its  bounty 
by  authorizing  the  formation  of  joint-stock  companies  with  nearly  all  the 
powers  of  corporations,  without  the  liability  to  render  an  account  at  the  hands 
of  the  state  in  quo  warranto  proceedings.  The  older  writers— Blackstone,  Kyd, 
Kent,  Angell  &  Ames  and  Grant— all  hold  fast  to  these  old  and  tried  doctrines, 
and  are,  therefore,  better  guides  in  these  matters  than  later  writers. 


XE    V. 


ARTICtE    V.       CORPORATIONS   AS    DISTINGUISHED   FROM    OTHER    INSTI- 
TUTIONS, 

Sec.  30.    (i)    From  partnerships. 

GLEASON  V.  McKAY.i 

1883.     In   the   Supreme    Judicial    Court   of    MassacSusetts. 
134  Mass.  419-426. 

[In  1866  McKay  was  the  owner  of  certain  letters-patent  for  improve- 
ments in  machinery  used  in  the  manufacture  of  shoes  ;  from  the  pro- 
ceeds of  the  business  he  had  built  a  machine  shop  for  the  manufacture 
of  these  machines.  He  was  the  legal  owner,  but  others  were 
equitably  interested  in  various  amounts.  He  executed  an  instrument 
of  trust,  declaring  himself  to  hold  the  business  in  trust  for  all  who 
were,  or  might  become,  interested  therein,  upon  condition  that  those 
so  interested  who  accepted  the  declaration  of  trust  and  had  a  certain 
certificate  evidencing  their  interest,  should  constitute  and  be  an  associa- 
tion, to  be  known  as  the  McKay  Machine  Association,  but  no  member 
shall  have  any  right  or  authority  to  make  any  contract  or  bargain,  or 
transact  any  business  whatever  for  the  association,  without  special 
authority ;  it  was  to  continue  thirty  years ;  death  of  members  was  not 
to  dissolve  or  have  any  effect  on  the  association,  except  that  those 
who  succeeded  to  ovvnership  of  shares  should  succeed  to  the  rights  of 
the  decedent ;  that  the  association  should  be  the  equitable  owner  of 
the  business,  which-  was  to  be  divided  into  50,000  shares,  to  be  dis- 
tributed among  the  members  in  proportion  to  their  interests,  which 
were  to  be  evidenced  by  certificates  indicating  the  number  of  shares, 
the  same  to  be  transferable,  by  assignment  in  writing  and  surrender 
to  the  trustee,  who  was  to  issue  a  new  certificate,  keeping  record  of 
the  same  ;  the  general  management  was  to  be  in  an  executive  committee 
of  three  or  five,  to  be  chosen  by  the  whole  body  of  shareholders ;  and 
this  committee  was  to  divide  proceeds  from  time  to  time  in  proportion 
to  the  respective  interests ;  provision  was  also  made  whereby  the 
business  might  be  transferred  to  a  corporation,  when  a  majority  should 
so  determine,  and  thereafter  no  member  was  to  have  or  claim  any 
right  to  the  property  or  business,  and  the  declaration  of  trust  was  to 
cease ;  provision  was  also  made  for  choosing  a  new  trustee  in  case  of 
death  or  resignation  of  McKay.     McKay  was  taxed,  as  trustee  of  said 

'  f^tatement  of  facts  condensed,  and  compiled  partly  from  Hoadley  v.  County 
Commissioners  of  Essex,  105  Mass.  519;  arguments  omitted. 


1 68  GLEASON   V.    M'KAY.  §  30 

association,  upon  its  real  estate,  machinery,  tools  and  all  personal 
property.  The  commonwealth,  in  addition  to  the  foregoing  taxes, 
sought  to  collect  a  tax  upon  the  aggregate  value  of  the  shares  of  the 
association.     This  was  resisted.] 

Morton,  C.  J.  The  principal  question  in  this  case  is  whether  the 
statute  of  1878,  chapter  275,  as  applied  to  the  defendant,  is  constitu- 
tional. The  first  section  of  the  statute  provides  that  "chapter  283  of 
the  acts  of  the  year  1865,  and  the  acts  in  amendment  thereof,  are 
hereby  extended  to  apply,  so  far  as  applicable  to  companies,  copart- 
nership and  other  associations  having  a  location  or  place  of  business 
within  this  commonwealth,  in  which  the  beneficial  interest  is  held  in 
shares  which  are  assignable  "without  consent  of  the  other  associates 
specifically  authorizing  such  transfer.  And  the  tax  provided  for  in 
said  chapter  283  shall  be  paid  by  such  company,  copartnership  or  as- 
sociation upon  the  aggregate  value  of  the  shares  of  said  capital  stock, 
in  the  manner  provided  in  said  chapter  for  taxes  upon  corporations." 

The  power  of  taxation,  using  the  word  in  its  generic  sense  as  in- 
cluding all  rates  and  impositions  laid  or  levied  upon  the  people,  is 
conferred  upon  the  legislature  by  the  constitution,  and  is  to  be  held 
and  exercised  subject  to  the  limitations  imposed  by  the  constitution. 
Oliver  V.  Washington  Mills,  ii  Allen  268.  The  legislature  is  given 
the  power  "to  impose  and  levy  proportional  and  reasonable  assess- 
ments, rates  and  taxes  upon  all  the  inhabitants  of,  and  persons  resident, 
and  estates  lying  within  the  said  commonwealth,"  and  also  power  "to 
impose  and  levy  reasonable  duties  and  excises  upon  any  produce, 
goods,  wares,  merchandise  and  commodities  whatsoever,  brought 
into,  produced,  manufactured  or  being  within  the.  same."  Const,  of 
Mass.,  chap,  i,  art.  4. 

It  is  clear  that  the  statute  in  question  was  not  intended  to  lay  a  tax 
upon  property  within  the  first  of  these  clauses.  It  does  not  purport 
to  do  this.  It  merely  extends  to  certain  copartnerships  and  associa- 
tions the  provisions  of  the  St.  of  1865,  c.  283,  which  chapter  has  been 
held  to  levy  an  excise  upon  corporate  franchises,  and  not  to  lay  a 
tax  on  property,  and  which  chapter  can  be  sustained  as  constitutional 
only  upon  the  ground  that  it  levies  an  excise.  Murray  v.  Berkshire 
Ins.  Co.,  104  Mass.  586.  Commonwealth  v.  Hamilton  Manfg.  Co., 
12  Allen  298.  Regarded  as  a  tax  on  property,  the  tax  we  are  con- 
sidering would  be  invalid  because  not  proportional ;  it  would  be  an 
imposition  upon  certain  property  at  a  rate  different  from  that  to  which 
other  property  in  the  commonwealth  is  subject.  But,  as  we  have 
said,  it  does  not  purport  to  be  a  tax  on  property.  In  levying  an  im- 
position under  this  statute,  no  inquiry  is  made  as  to  what  property 
liable  to  taxation  any  copartnership,  or  other  association  which  comes 
within  its  terms,  has.  Such  property  remains  liable  to  taxation  under 
the  general  laws.  This  imposition  is  based  "upon  the  aggregate 
value  of  the  shares  of  said  capital  stock."  Such  shares,  if  they  can  be 
said  to  be  property,  are  not  the  property  of  the  copartnership  or  asso- 
ciation which  is  taxed,  but  of  the  individual  partners  or  shareholders. 
It  is  very    clear   that   this   was  intended    as    an    excise    upon    some 


§  30  CORPORATION  AND  PARTNERSHIP.  1 69 

franchises  or  privileges  sought  to  be  held  by  the  copartnerships  or 
associations  in  supposed  analogy  to  the  franchises  of  coiporations. 
And  the  question  is  whether  this  imposition  can  be  upheld  as  such 
excise  within  the  second  clause  of  the  constitution,  cited  above.  In 
this  clause,  there  are  two  limitations  upon  the  power  of  the  legislature 
in  imposing  excises.  They  must  be  reasonable,  and  they  must  be 
excises  upon  some  produce,  goods,  wares,  merchandise  or  commodi- 
ties, brought  into,  produced,  manufactured  or  being  within  the  com- 
monwealth. 

It  will  not  be  seriously  contended  that  the  privileges  or  rights  which 
are  taxed  by  this  statute  can  be  properly  described  as  either  pro- 
duce, goods,  wares  or  merchandise.  Do  they  fairly  come  within 
the  term  "commodities,"  in  the  sense  in  which  it  is  used  in  the  con- 
stitution.-' Ever  since  the  adoption  of  the  constitution,  the  legisla- 
ture in  its  practice,  and  this  court  in  its  adjudications,  have  given  a 
very  broad  and  extensive  meaning  to  this  term.  It  has  been  repeat- 
edly held  that  corporate  franchises  enjoyed  by  grant  from  the  govern- 
ment are  commodities,  and  subject  to  an  excise.  So  with  corporate 
franchises  granted  by  a  foreign  government,  which  by  comity  are 
permitted  to  be  exercised  within  this  commonwealth.  So  where  the 
legislature  has  thought,  upon  considerations  of  public  policy,  that 
certain  occupations  or  callings,  of  a  public  or  quasi  public  character, 
should  be  carried  on  under  governmental  regulation  it  has  been  usual 
to  impose  a  reasonable  fee  for  a  license.  Portland  Bank  v.  Apthorp, 
12  Mass.  252;  Commonwealth  v.  People's  Five  Cents  Saving  Bank, 
5  Allen  428;  Commonwealth  v.  Hamilton  Manuf.  Co.,  ubi  supra; 
Commonwealth  v.  Cary  Improvement  Co.,  98  Mass.  19;  Connecti- 
cut Ins.  Co.  V.  Commonwealth,  133  Mass.  161. 

This  imposition  is  clearly  not  in  the  nature  of  a  license  fee,  but  is 
an  excise  upon  a  franchise  or  privilege.  The  right  to  levy  excises 
upon  franchises  has  never  been  extended  further  than  to  corporate 
franchises  specially  granted  by  the  government,  or  enjoyed  and  ex- 
ercised by  its  permission. 

The  defendant  in  this  case  is  not  a  corporation.  It  is  merely  a 
partnership,  with  all  the  incidents  and  responsibilities  of  a  partnership. 
The  firm  property  is  taxable  at  its  business  domicile.  Hoadley  v. 
County  Commissioners,  105  Mass.  519.  It  enjoys  no  franchises  con- 
ferred upon  it  by  the  legislature.  It  does  not  ask  for  or  enjoy  any 
corporate  or  special  privileges .  It  has  constituted  its  partnership 
under  its  common  law  rights  and  such  legal  agreements  as  it  chooses 
to  make.  The  peculiar  feature  that  the  interest  of  each  m.em.ber  may 
be  transferred  without  the  special  assent  of  the  other  members^  is  cre- 
ated by  agreement  of  the  partners  under  their  natural  rights  at  com- 
mon law.  We  do  not  see  how  this' peculiar  feature  can  be  called  a 
commodity ^  subject  to  a  special  excise^  any  more  than  the  agreement 
of  copartnership  itself  or  any  clause  or  part  of  it^or  any  other  agree- 
ment, right  or  mode  of  transacting  any  business,  can  be  called  a  com- 
modity, and  so  liable  to  taxation  at  the  will  of  the  legislature. 

If  this  tax  can  be  upheld,  it  seems  to  us  that  the  necessary  result 


I/O 


GLEASON   V.    M'KAY. 


§  30 


will  be  that  the  legislature  has  the  power  to  select  any  business,  occu- 
pation or  calling  carried  on,  or  any  natural  right  enjoyed,  under  the 
protection  of  our  laws,  and  impose  upon  it  at  its  will  a  special  tax  or 
excise.  This  would  be  extending  the  meaning  of  the  word  "com- 
modities" beyond  any  reasonable  limits.  Its  effect  would  be  to  break 
down  the  limitations  which  the  constitution  intended  to  impose  upon 
the  power  of  the  legislature,  for  the  purpose  of  securing  the  end  that 
all  sums  necessary  for  the  defense  and  support  of  the  government 
should,  as  far  ag  practicable,  be  raised  by  the  equal  taxation  of  the 
people. 

We  are  therefore  of  opinion  that  the  statute  of  1878,  chapter  275, 
so  far  as  it  applies  to  the  defendant,  is  unconstitutional. 

Judgment  for  the  defendant. 

Note.  See  1830,  Pratt  v.  Bacon,  10  Pick.  (Mass.)  123;  1833,  Russell  v.  Mc- 
Lellan,  14  Pick.  (Mass.)  63;  1888,  Pittsburg  Melting  Co.  v.  Reese,  118  Pa. 
St.  355 ;  and  see  Warner  v.  Beers ;  People  v.  Coleman,  Thomas  v.  Dakin ; 
Edgeworth  v.  Wood,  supra,  pp.  2,  15,  19,  28. 

The  word  partner  is  a  contracted  form  of  partitioner,  and  this  indicates 
somethingof  its  meaning.  Partnershipswere  known  to  the  Roman  law  underthe 
name  of  Societas,  which  was  a  contract  based  on  the  law  which  "natural  rea- 
son establishes  between  all  men,"  i.  e.,  the  j?ts  gentium.  Most  of  the  Roman 
law  of  the  subject  is  found  in  Dig.  xvii,  tit.  2,  Pro  Socio.  Title  25,  Book  iii 
of  Justinian's  Institutes  relates  to  partnerships,  and  part  of  that  is  found  in 
Gaius  iii,  148-154.  The  trade  or  commercial  partnerships  were  the  most  com- 
mon, though  other  kinds  were  recognized.  The  Roman  laws  of  partnership, 
so  far  as  trade  is  conducted  now  as  then,  are  still  applicable.  In  England 
the  partnership  law  was  introduced  by  the  merchants  as  a  part  of  the  law  or 
custom  of  merchants,  being  one  of  the  particular  customs  of  the  realm,  some- 
what in  derogation  of  the  common  law,  and  consequently  allowed,  where  the 
rights  of  others  were  involved,  only  upon  strict  proof  of  the  existence  and 
knowledge  of  the  custom.  In  this  way,  many  of  the  rules  of  the  common 
law  were  made  applicable  to  partnerships.  But  the  peculiar  doctrines  of  no 
survivorship;  of  the  partners'  act  being  that  of  all,  if  in  reference  to  partner- 
ship matter;  and  of  dissolution  by  death  of  a  partner,  were  from  the  law  mer- 
chant, and  through  it  from  the  Roman  law,  and  were  contrary  to  the  common 
law  rules  of  joint  tenancy,  and  tenancy  in  common.  The  same  difference  be- 
tween a  partnership  and  a  corporation,  i.  e.,  that  the  latter  is  a  distinct  entitj' 
having  rights  and  owing  duties  as  such,  as  now  recognized,  was  made  in  the 
Roman  law,  and  continued  throughout  the  development  of  the  common  law 
of  England. 

These  differences  perhaps  can  be  classified  as  follows : 


As  to  creation : 

As  to  franchise : 
As  to  management : 


As  to  powers: 


Corporation. 

Only  under  special  au- 
thority of  the  state. 

Has  a  franchise. 

Only  in  the  way  indicated 
by  law  of  its  creation, 
and  by  the  agents  there 
provided  for. 

Has  none,  except  neces- 
sary to  carry  out  purpose 
indicated  in  charter,  and 
this  can  not  be  changed 
except  by  consent  of  the 
state. 


Partnership. 
By  contract  alone. 

Has  no  franchise. 

Each  member  has  au- 
thority to  bind  with- 
in the  limits  oi  the 
purpose. 

May  be  enlarged,  or  di- 
minished, at  any- 
time, or  extended  to 
any  other  business, 
by  consent  of  all  cnn- 
cerned. 


§  31 


CORPORATION   AND   JOINT   STOCK    COMPANY. 


171 


Corporation. 
Has  no  effect  on  corpo- 
rate existence. 


As  to  succession  of  mem 

bership,   death,    with' 

drawal,  or  insolvency : 
As  to  property,  owner-    In  the  corporation 

ship: 
As  to  conveyance : 
As  to  suits,  by  or  against 


As  to  shares : 


Ab  to  liability  of  mem- 
bers: 
As  to  termination : 


By  the  corporation  only. 

In  name  of  corporation 
only. 

Transferable  without  con- 
sent of  corporation. 


Limited. 

Only  upon  surrender  by 
consent  of  the  state,  loss 
of  integral  part,  or  for 
non  use  or  misuse  of 
franchise  on  complaint 
of  the  state. 


Partnership. 
Dissolves. 


In  the  members. 

By  the  members  only. 

In  name  of  members 
only. 

Not  transferable  with- 
out consent  of  others, 
or  if  so,  dissolves 
partnership. 

Unlimited. 

At  the  option  of  all  the 
parties  or  by  the 
death  or  withdrawal 
of  any  member, — not 
by  the  state  except 
for  illegal  acts. 


Sec.  31.      (2)    From  joint-stock  companies. 
EDWARDS  V.  WARREN  LINOLINE  AND  GASOLINE  WORKS. 


1897.     In  the  Supreme  Judicial  Court  of  Massachusetts. 
Mass.  Rep.  564-569,  38  Lawyer's  Rep.  Ann.  791. 


168 


Trustee  Process.  The  principal  defendant  was  described  in  the 
writ  as  "a  joint-stock  company  organized  under  the  laws  of  Pennsyl- 
vania." The  trustee,  which  was  a  Massachusetts  corporation,  filed 
an  answer  setting  forth  reasons  why  it  should  not  be  charged,  and,  on 
interrogatories  propounded  by  the  plaintiff,  made  answers,  the  nature  of 
which  appears  in  the  opinion.  The  trustee  moved  that  it  be  discharged. 
The  superior  court  allowed  the  motion,  discharged  the  trustee  with 
costs,  and  dismissed  the  action  ;  and  the  plaintiff  appealed  to  this  court. 

The  case  was  argued  at  the  bar  in  November,  1896,  and  afterwards 
was  submitted  on  briefs  to  all  the  justices. 

Lathrop,  J.  It  is  conceded  by  the  plaintiff  that,  as  the  jurisdic- 
tion of  the  court  depends  upon  charging  the  Walworth  Manufacturing 
Company  as  trustee,  inasmuch  as  there  was  no  service  upon  the 
principal  defendant,  the  action  was  properly  dismissed  upon  discharg- 
ing the  trustee. 

The  question  then  is  whether  the  trustee  was  properly  discharged, 
and  this  depends  upon  whether  the  principal  defendant,  an  association 
formed  under  the  laws  of  the  state  of  Pennsylvania,  is  a  partnership 
or  a  corporation. 

The  trustee's  answers  to  interrogatories  refer  to  Brightly's  Purdon's 
Digest  (i2th  ed),  1086-1088,  and  to  the  cases  of  Eliot  v.  Himrod, 
108  Pa.  St.  569,  and  Sheble  v.  Strong,  12S  Pa.  St.  315,  as  containing 
the  law  relative  to  the  statement  in  the  answer,  that  the  principal  de- 
fendant was  a  partnership  and  not  a  corporation. 

From  the  digest  it  appears  that  such  an  association  is  styled  a  "part- 


172  EDWARDS  V.  WARREN    LINOLINE,  ETC.,  WORKS.  §  3  I 

nership  association,"  and  not  a  corporation.  By  the  terms  of  the  various 
acts  which  have  been  passed  upon  the  subject,  such  an  association 
may  be  formed  by  three  or  more  persons.  The  capital  is  alone  to  be 
liable  for  the  debts.  There  is  no  personal  liability  of  the  members, 
except  to  the  extent  of  any  unpaid  subscription,  if  certain  provisions 
of  the  act  are  complied  with.  "Interests  in  such  partnership  associa- 
tions" are  declared  to  be  personal  estate  and  are  transferable,  under 
such  rules  and  regulations  as  shall  from  time  to  time  be  prescribed; 
but  if  there  are  no  such  rules  and  regulations,  the  transferee  of  any 
interest  in  any  such  association  is  not  entitled  to  any  participation  in 
the  subsequent  business  of  the  association,  unless  elected  to  member- 
ship therein  by  a  vote  of  a  majority  of  the  members  in  number  and 
value  of  their  interests.  The  business  is  to  be  conducted  by  a  board 
of  managers.  The  duration  of  the  association  may  be  fixed  by  the 
articles  of  association,  but  is  not  to  exceed  twenty  years. 

Power  to  adopt  and  use  a  common  seal  is  given  in  case  the  associa- 
tion has  occasion  to  execute  a  deed  of  conveyance  or  bonds  and  inort- 
gages.  Land  sold  to  the  association,  or  by  it,  is  required  to  be 
conveyed  in  the  name  of  the  association.  It  is  further  provided: 
"Said  association  shall  sue  and  be  sued  in  their  association  name ; 
and  when  suit  is  brought  against  any  such  association,  service  thereof 
shall  be  made  upon  the  chairman,  secretary  or  treasurer  thereof,  which 
service  shall  be  as  complete  and  effective  as  if  made  upon  each  and 
every  member  of  such  association."  In  Eliot  v.  Himrod,  io8  Pa.  St. 
569,  580,  it  is  said  by  Mr.  Justice  Trunkey,  in  delivering  the  opinion 
of  the  court:  "The  formation  of  a  limited  partnership  association  is 
materially  different  from  the  creation  of  a  coiporation.  Such  association 
is  treated  in  the  statute  as  a  partnership  which,  upon  the  performance 
of  certain  acts,  shall  possess  specified  rights  and  immunities.  In  con- 
templation that  the  association  may  consist  of  many  members,  for 
convenience  it  is  clothed  with  many  of  the  features  and  powers  of  a 
corporation,  such  as  the  right  to  sue  and  be  sued,  grant  and  receive 
in  the  association  name.  But  no  man  can  purchase  the  interest  of  a 
member  and  participate  in  the  subsequent  business,  unless  by  a  vote 
of  a  majority  of  the  members  in  number  and  value  of  their  interests. 
No  charter  is  granted  to  the  persons  who  record  their  statement." 
Sheble  v.  Strong,  128  Pa.  St.  315,  318,  is  to  the  same  effect. 

If  the  question  presented  were  an  open  one  in  this  commonwealth, 
it  might  well  be  held  that  such  association  could  be  considered  to  have 
so  many  of  the  characteristics  of  a  corporation  that  it  might  be  treated 
as  one. 

At  common  law,  a  joint-stock  company  formed  for  business  pur- 
poses is  considered  in  this  commonwealth  merely  as  a  partnership. 
Tappan  v.  Bailey,  4  Met.  529;   Tyrrell  v.  Washburne,  6  Allen  466. 

The  same  rule  has  been  applied  to  joint-stock  associations  formed' 
under  the  laws  of  the  state  of  New  York,  which  do  not  differ,  in  any 
essential  respect,  from  the  laws  of  Pennsylvania.     Taft  v.  Ward,  106 
Mass.  518,  and  iii  Mass.  518;   Bodwell  v.  Eastman,  106  Mass.  525, 
526;   Gott  v.  Dinsmore,  11 1  Mass.  45,  51 ;   Boston  and  Albany  Rail- 


§  31  CORPORATION    AND   JOINT    STOCK   COMPANY.  1/3 

road  V.  Pearson,  128  Mass.  445.  See,  also,  Frost  v.  Walker,  60 
Maine  468 ;  Dinsmore  v.  Philadelphia  and  Reading  Railroad,  32  Leg. 
Int.  388,  and  11  Phila.  483. 

In  Taft  V.  Ward,  106  Mass.  518,  524,  speaking  of  the  New  York 
statutes,  it  was  said  by  Chief  Justice  Chapman : 

"These  statutes  provide,  in  substance,  that  any  association,  con- 
sisting of  seven  or  more  shareholders  or  associates,  may  sue  and  be 
sued  in  the  name  of  the  president  or  treasurer;  that  in  such  suit  a 
judgment  may  be  rendered  against  the  company;  and  until  an  execu- 
tion is  issued  against  the  company  and  returned  unsatisfied,  no  action 
shall  be  maintained  against  individuals.  These  statutes  seem  to  apply 
to  all  copartnerships  consisting  of  seven  or  more  members.  The 
members  of  such  companies  are  authorized  to  hold  their  interests  in 
shares,  which  are  assignable  like  shares  of  stock  in  a  corporation,  and 
the  action  against  the  members  is  regarded  as  supplementary  to  the 
action  against  the  company.  Waterbury  v.  Merchants'  Union  Ex- 
press Co.,  50  Barb.  157;  Robbins  v.  Wells,  i  Robertson  666. 

"So  far  as  these  statutes  relate  to  the  procedure  in  courts  for  the 
recovery  of  debts,  they  are  limited  to  the  state  of  New  York ;  for 
each  state  adopts  its  own  forms  of  remedy.  Story  Confl.  Laws, 
sections  556—558.  The  plaintiff  could  not  in  this  commonwealth 
bring  an  action  against  the  president  or  secretary,  and  obtain  a 
judgment  against  the  company  by  its  name ;  nor  could  he  bring  an 
action  against  the  members,  or  any  of  them,  as  a  supplement  to  such 
an  action.  In  order  to  do  so,  we  must  hold  that  the  statutes  of  New 
York  prescribing  forms  of  action  are  in  force  here.  In  this  common- 
wealth, such  a  company  is  a  mere  copartnership." 

There  is  nothing  inconsistent  with  an  association  being  a  partner- 
ship that  it  has  shares,  or  that  the  shares  are  transferable,  or  that  the 
death  of  a  member  shall  not  work  a  dissolution  of  the  partnership. 
Phillips  V.  Blatchford,  137  Mass.  510.  See,  also,  Hoadley  v.  County 
Comms.,  105  Mass.  519;   Gleason  v.  McKay,  134  Mass.  419. 

The  case  mostly  relied  upon  by  the  plaintiff  is  Liverpool  Ins.  Co. 
V.  Massachusetts,  10  Wall.  566,  which  was  taken  to  the  supreme 
court  of  the  United  States  on  a  writ  of  error  from  this  court.  See 
Oliver  v.  Liverpool  and  London  Ins.  Co.,  100  Mass.  531.  It  was  a 
bill  in  equity,  filed  by  the  treasurer  of  the  commonwealth  under  the 
statute  of  1862,  c.  224,  section  11,  to  restrain  the  defendant  from 
prosecuting  its  business  until  the  tax  assessed  upon  it  by  section  2 
of  the  statute  had  been  paid.  This  section  provided  that  "each  fire, 
marine,  and  fire  and  marine  insurance  company  incorporated  or  as- 
sociated under  the  laws  of  any  government  or  state  other  than  one  of 
the  United  States,"  should  annually  pay  a  certain  tax.  The  defend- 
ant was  an  English  company  formed  for  the  business  of  insurance, 
and  organized  under  a  deed  of  settlement.  Its  property  was  divided 
into  transferable  shares.  It  had  power  to  sue  and  be  sued  by  the  name 
of  its  chairman,  and  a  suit  did  not  abate  by  reason  of  the  death  of 
such  officer.  The  company  could  sue  its  own  members,  and  be  sued 
by  them.     Execution  on   any  judgment  recovered  against  the  com- 


174  EDWARDS  V.  WARREN    LINO  LINE,  ETC.,  WORKS.  §  3  I 

pany  could  be  issued  against  any  proprietor.  The  statute  under  which 
it  was  formed,  and  subsequent  statutes  declared  that  it  should  not  be 
deemed  to  be  incorporated.  The  company  was  composed  in  part  of 
British  subjects  and  in  part  of  citizens  of  the  state  of  New  York. 

This  court,  after  stating  that  it  was  not  a  pure  corporation  nor  a 
pure  partnership,  but  was  an  association  intermediate  between  corpo- 
rations known  to  the  common  law  and  ordinary  partnerships,  and  was 
so  far  clothed  with  corporate  powers  that  it  might  be  treated,  for  the 
purposes  of  taxation,  as  an  artificial  body,  proceeded  to  say:  "We 
think  the  defendants  are  an  association  of  the  kind  to  which  the  statute 
of  1862  was  expressly  intended  to  apply,  as  well  as  to  bodies  wholly 
corporate  in  their  character,  and  that,  being  permitted  by  the  comity 
of  our  laws  to  exercise  their  functions  within  this  commonwealth,  they 
can  claim  no  exemption  from  regulations  appropriate  to  their  collective 
action  on  account  of  the  citizenship  or  nationality  of  their  individual 
members." 

In  the  supreme  court  of  the  United  States  the  decree  of  this  court 
was  affirmed  on  the  ground  that  the  company  was  a  foreign  corpora- 
tion, but  Mr.  Justice  Bradley,  while  agreeing  in  the  result,  differed 
on  the  question  whether  the  company  was  a  coiporation.  He  was  of 
opinion  that  it  was  one  of  those  special  partnerships  called  joint-stock 
companies,  and  that  it  could  not  sue  or  be  sued  in  this  country  with- 
out legislative  aid. 

This  view  of  Mr.  Justice  Bradley  is  in  accord  with  the  view  of  this 
court,  and  we  are  not  aware  that  the  view  taken  by  the  supreme  court 
of  the  United  States  has  been  followed  in  this  commonwealth.  The 
decisions  which  we  have  already  cited  show  that  a  foreign  joint-stock 
company  is  considered  as  an  association  or  partnership,  and  not  as  a 
corporation. 

An  examination  of  the  statutes  further  shows  that  the  legislature 
has  clearly  recognized  the  distinction  between  foreign  corporations 
and  associations ;  and  that  where  it  has  deemed  it  best  that  an  act 
should  apply  to  an  association  as  well  as  to  a  corporation,  it  has  said 
so  in  plain  language.  Thus,  the  statute  of  1882,  c.  106,  relating  to  the 
taxation  of  foreign  mining,  quarrying,  and  oil  companies,  and  requiring 
the  appointment  of  an  agent  here  upon  whom  process  may  be  served, 
uses  the  language,  "every  corporation,  company,  or  assopiation." 

The  statute  of  1887,  c.  214,  in  section  i,  provides:  "When  con- 
sistent with  the  context,  and  not  obviously  used  in  a  different  sense, 
the  term  '  company '  or  '  insurance  company '  as  used  herein  includes 
all  corporations,  associations,  partnership,  or  individuals  engaged  as 
principals  in  the  business  of  insurance."  The  language  is  the  same 
in  the  statute  of  1894,  c.  522,  section  i. 

By  the  statute  of  1888,  c.  429,  section  11,  "fraternal  beneficiary 
corporations,  associations,  or  societies,"  organized  under  the  laws  of 
another  state  and  then  doing  business  here,  were  allowed  to  continue 
business  without  incorporation  under  the  act.  But  by  the  statute  of 
1892,  c.  40,  section  i,  this  was  amended  by  striking  out  the  words 
"associations  or  societies." 


§   31  CORPORATION    AND   JOINT   STOCK   COMPANY.  1 75 

The  statute  of  1884,  c.  330,  requires  "  Every  corporation  established 
under  the  laws  of  any  other  state  or  foreign  country,"  and  hereafter 
having  a  usual  place  of  business  here,  before  doing  business,  to  appoint 
in  writing  the  commissioner  of  corporations,  or  his  successor  in  office, 
to  be  its  true  and  lawful  attorney,  upon  whom  process  might  be  served. 

The  statute  of  1888,  c.  321,  allows  "Manufacturing  corporations 
established  under  the  laws  of  other  states,"  which  have  complied  with 
the  provisions  of  the  statute  of  1884,  c.  330,  to  purchase  and  hold 
such  real  estate  here  as  may  be  necessary  for  conducting  their  busi- 
ness. 

By  the  statute  of  1895,  ^'  S^^*  "Foreign  corporations  engaged  in 
the  business  of  selling  or  negotiating  bonds,  mortgages,  notes  or  other 
choses  in  action,"  are  made  subject  to  the  provisions  of  the  statute 
of  1884,  c.  330. 

The  statute  of  1896,  c.  391,  section  i,  contains  a  provision  relating 
to  the  personal  liability,  under  certain  circumstances,  of  "the  officers 
and  members  or  stockholders  in  any  corporation  established  under  the 
laws  of  any  other  state  or  foreign  country."    See  also  St.  1895,  c.  157. 

Many  other  instances  of  legislation  might  be  given  where  the  dis- 
tinction between  a  corporation  proper  and  a  mere  association  or 
organization  is  shown  to  be  clearly  in  mind. 

Unless  the  principal  defendant  can  be  considered  a  corporation^ 
it  can  not  be  sued  here  under  the  name  which  the  laivs  of  Pennsyl- 
vania authorize  it  to  use.  Such  laws  have  no  extra-territorial  force 
or  effect.      The  trustee,  therefore.,  was  properly  discharged. 

In  the  opinion  of  a  majority  of  the  court,  the  order  discharging  the 
trustee  and  dismissing  the  action  must  be  affirmed. 

Note.  Joint  stock  companies  with  transferable  shares  perhaps  could  be 
formed  at  common  law,  or  under  the  law  merchant,  without  special  authority. 
(See  Harrison  v.  Heathorn,  6  M.  &  6.  79;  Mexican  &  S.  A.  Co.,  5  Jur.  N.  S. 
615,  27  Beav.  480.)  But  it  has  been  said  that  acting  as  a  corporation,  without 
authority,  was  an  indictable  offense  at  common  law.  (Kinder  v.  Taylor,  3  L. 
J.  68;  Duvergier  v.  Fellows,  5  Bing.  248,  5  M.  &  P.  403,  4  Am.  &  E.  Enc.  185, 
note  2.)  But  acting  a.s  a  corporation  a\so  included  the  idea  of  a  limited  lia- 
bility of  members,  and  so  far  as  innocent  third  parties  were  affected,  this  could 
not  be  done  without  authority.  By  the  Bubble  act  of  1719  (6  Geo.  1,  c.  18), 
joint  stock  companies  were  declared  to  be  common  nuisances,  members  were 
subjected  to  penalties,  and  it  was  an  offense  for  brokers  to  deal  in  their  shares. 
This  act  was  repealed  in  1825  (6  Geo.  IV,  ch.  91),  though  perhaps  not  often,  if 
ever,  enforced  for  a  long  period  before.  In  1826,  banking  companies  were 
allowed  to  sue  in  the  name  of  a  certain  officer,  after  complying  with  certain 
rules,  and  in  1834,  the  crown  was  permitted  to  extend  this  privilege  generally 
to  joint-stock  companies.  In  1844  (7  &  8  Vict.,  c.  110)  all  companies  were 
allowed  to  be  incorporated,  but  the  partnership  liability  was  continued,  but  in 
1855,  they  were  permitted  to  organize  with  a  limited  liability  (18  &  19  Vict., 
and  19  &  20  Vict.,  c.  47).  In  1862,  all  former  acts  relating  to  companies  were 
consolidated  into  one  act  for  the  incorporation  of  companies,  which,  with  some 
modifications,  is  still  the  law  in  England.  In  the  United  States,  most  of  the 
states  have  provided  for  joint  stock  companies,  with  transferable  shares,  and 
in  some  cases  with  limited  liability,  but  the  rules  of  partnership  are  applied 
so  far  as  possible  where  the  statutes  under  which  they  are  formed  are  silen!. 

1.  As  to  suits— 1896,  State  v.  Adams  Express  Co.,  66  Minn.  271,  38  L.  R. 
A.  225,  (Service  of  summons  may  be  made  on  local  agent  of  such  foreign 


1 76  LEWIS   V.    liLTON.  §  32 

joint  stock  company)?  1889,  Imperial  Ref.  Co.  v.  Wyman,  38  Fed.  Rep.  574,  3 
L.  R.  A.  503  (limited  partnership  created  in  Pennsylvania  can  not  sue  in 
the  United  States  courts,  as  a  "citizen"  of  that  state,  citizens  of  other  states) ; 
1881,  Fargo  v.  L.,  N.  A.  &  C.  R.  Co.,  6  Fed.  R.  787  (is  a  citizen  of  state  cre- 
ating for  purpose  of  suing  and  being  sued  in  United  States  courts) ;  1876,  Maltz 
V.  American  Ex.  Co.,  1  Flip.  (U.  S.)  611,  Fed.  Cas.  9002,  3  C.  L.  J.  784  (is  a 
citizen  of  creating  state  for  purpose  of  being  sued  in  United  States  courts)  ; 
1875,  Wescott  v.  Fargo,  etc.,  Co.,  61  N.  Y.  542  (president  of  such  an  institu- 
tion is  a  corporation  sole  for  purpose  of  suits.) 

2.  As  to  failure  to  comply  strictly  with  statute— 1896,  Staver,  etc.,  A. 
Mfg.  Co.  V.  Blake,  111  Mich.  282,  38  L.  R.  A.  798  (technical  non-compliance 
with  law  does  not  make  members  liable  as  general  partners,  but  see  next 
case)  ;  1889,  Vanhorn  v.  Corcoran,  127  Pa.  St.  255,  4  L.  R.  A.  386  (failure  to 
comply  makes  members  liable  as  general  partners). 

3.  As  to  taxation — 1886,  State  v.  State  Board  of  Assessors,  47  N.  J.  L.  36, 
27  L.  R.  A.  684,  13  Am.  &  Eng.  Corp.  Cas.  403,  31  Atl.  220  (Pennsylvania 
partnership  association  may  be  taxed  in  New  Jersey  as  foreign  corporation)  ; 
1892,  People,  etc.,  v.  Coleman,  133  N.  Y.  279,  16  L.  R.  A.  183,  37  Am.  &  Eng. 
Corp.  Cas.  1,  supra,  p.  15  (joint-stock  companies  in  New  York,  are  not  cor- 
porations for  purposes  of  taxation)  ;  1889,  People,  etc.,  v.  Wemple,  117  N.  Y. 
136,  6  L.  R.  A.  303,  29  Am.  &  Eng.  C.  C.  610  (the  United  States  Express 
Company,  a  joint  stock  company,  may  be  taxed  in  New  York  as  an  incorpo- 
rated company.) 

4.  As  to  status  generally — 1896,  Rouse,  Hazard  &  Co.  v.  Detroit  C.  C.  Co., 
Ill  Mich.  251,  38  L.  R.  A.  794;  1891,  Allen  v.  Long,  80  Texas  261,  26  Am.  St. 
Rep.  735,  38  Am.  &  Eng.  Corp.  Cas.  68  (joint  stock  companies  are  governed 
by  general  principles  of  partnership)  ;  1890,  Oliver's  Estate,  136  Pa.  St.  43,  20 
Am.  St.  Rep.  894  (partnership  association  is  an  artificial  person,  members  do 
not  own  the  property,  and  death  of  member  does  not  dissolve).  See  also,  1890, 
Fifth  Avenue  Bank  v.  Colgate,  120  N.  Y.  381,  8  L.  R.  A.  712;  1889,  Abbott  v. 
Hapgood,  150  Mass.  248, 5  L.  R.  A,  586,  22  N.  E.  Rep.  907 ;  1889,  Tilge  v.  Brooks, 
124  Pa.  St.  178,  2  L.  R.  A.  796 ;  1888,  Jennings'  Appeal,  2  Monaghan  184  (Pa.), 
2  L.  R.  A.  43. 


Sec.  32.     (3)   From  fraternity  or  society. 

LEWIS  v.  TILTON  Et  Al. 

1884.    In  the  Supreme  Court  of  Iow^a.    64  lov^^a  220-223,  5^  Am. 

Rep.  436. 

The  petition,  as  amended,  states  that  the  defendants  and  others 
formed  a  benevolent  society  for  the  prevention  and  suppression  of  in- 
temperance, known  and  designated  as  the  Ottumv^^a  Temperance  Re- 
form Club,  and  that  they  were  chosen  to  represent  such  society  as  its 
executive  committee;  that  in  March,  1878,  the  defendants  entered  into 
a  written  contract  of  lease  with  plaintiff,  by  the  terms  of  which  said 
Ottumwa  Temperance  Reform  Club  was  to  and  did  occupy  the  prem- 
ises described  in  said  lease,  at  the  yearly  rental  of  fifteen  hundred  dol- 
lars (a  copy  of  said  lease  is  attached  to  the  petition)  ;  that  by  virtue 
of  said  lease  the  defendants,  and  the  society  of  which  they  were  mem- 
bers, occupied  said  premises  from  March  i,  1878,  to  July  i,  1879, 
and  enjoyed  all  the  benefits  resulting  from  such  occupancy;  that  these 
defendants  verbally  contracted  with  the  Ottumwa  Gas  Light  Company 
to  furnish  said  Ottumwa  Temperance  Reform  Club  the  gas  required 


§  32  CORPORATION  AND  FRATERNITY.  177 

to  light  said  opera  house  and  rooms  thereunder ;  that  by  virtue  of  said 
verbal  understanding  the  gas  company  did  from  time  to  time,  and  as 
required,  furnish  said  club  a  large  amount  of  gas;  that  said  club  was 
not  incorporated  at  the  time  the  above  contracts  were  made,  and  is 
not  now  ;  and  that  said  account  for  gas  has  been  assigned  to  plaintiff. 
Upon  the  grounds  above  stated,  the  plaintiff  sought  to  make  the 
defendants  individually  liable.  To  the  petition  there  was  a  demurrer, 
which  was  sustained,  and  the  plaintiff  filed  an  amended  petition, 
stating  various  acts  and  things  done,  and  reaffirming  all  the  allega- 
tions of  the  petition,  and  thereupon  asked  judgment  against  the 
defendants  individually.  To  the  amended  petition  the  defendants  de- 
murred. The  demurrer  was  sustained,  and  the  plaintiff  excepted, 
and,  electing  to  stand  thereon,  appealed. 

Seevers,  J.  I.  As  we  understand  the  petition,  the  verbal  contract 
entered  into  with  the  gas  company  is  an  original  undertaking  on  the 
part  of  the  defendants.  At  their  request  the  gas  was  furnished  the 
club,  and,  of  course,  it  seems  to  us  the  defendants  are  bound  to  pay 
for  the  gas  so  furnished.  It  matters  not  to  whom  it  was  furnished. 
The  gas  company  had  the  right  to  expect  that  the  defendants  would 
pay  for  whatever  was  furnished  at  their  request.  There  is  no  allega- 
tion that  credit  was  extended  to  the  club,  and  the  only  presumption 
which  can  be  indulged  in  is  that  the  credit  was  extended  to  the  de- 
fendants.    As  they  contracted,  they  must  pay. 

2.  The  more  serious  question  is  whether  the  defendants  are  indi- 
vidually liable  under  the  lease,  which,  on  its  face,  shows  that  it  was 
entered  into  between  the  plaintiff,  as  party  of  the  first  part,  and  the 
Ottumwa  Temperance  Reform  Club,  party  of  the  second  part,  and  is 
signed  by  the  plaintiff,  and  by  the  defendants  as  follows : 

rR.  L.  Tilton, 

"Executive  Committee  of  the  Ottumwa     J  S.  B.  Thrall, 

Temperance  Reform  Club,  j  David  Eaton, 

[Joseph  Sloan." 
It  is  insisted  that  the  lease  shows  that  credit  was  extended  to  the 
club,  and  that  the  contract  was  made  with  it;  that  the  principal  was 
named,  and  therefore  the  defendants  can  not  be  made  individually 
liable.  This  line  of  argument  possibly  would  be  conclusive  if  there 
was  a  principal.  But  there  is  none.  The  club  is  a  myth.  It  has 
no  legal  existence^  and  never  had.  It  can  not  sue  or  be  sued.  The 
defendants  contracted  in  the  name  of  a  supposed  principal ;  that  is, 
they  claimed  there  was  a  principal  for  whom  they  were  acting,  but 
it  now  appears  that  there  was  no  principal  known  to  the  law.  But, 
under  the  allegations  of  an  amended  petition,  it  should  be  assumed, 
we  think,  that  there  was,  as  a  matter  of  fact,  a  body  of  men  associated 
together  for  a  benevolent  purpose,  who  had  assumed  the  name  above 
stated,  for  the  avowed  purpose,  by  their  united  efforts,  of  suppressing 
intemperance.  There  is,  however,  some  doubt  in  our  minds  whether 
it  can  be  said  that  the  plaintiff  extended  credit  to  an  organization  that 
had  no  legal  existence.  As  the  law  does  not  recognize  such  an  organ- 
12— WiL.  Cases. 


178  BELTON    V.    HATCH.  §  33 

ization,  we  are  at  a  loss  to  know  how  or  why  it  can  be  said  as  a  mat- 
ter of  law  that  the  plaintiff  contracted  with  and  extended  credit  to  a 
mere  myth.  In  legal  parlance,  the  organization  can  not  be  named. 
It  has  no  habitation  or  place  of  abode. 

It  is  also  insisted  that  a  fund  was  provided  for  the  payment  of  debts, 
and  hence  it  must  be  presumed  that  the  plaintiff  contracted  in  reliance 
upon  such  fund,  and  therefore  the  defendants  can  not  be  made  indi- 
vidually liable.  What  the  fact  may  be  we  are  not  advised,  but  cer- 
tainly this  does  not  appear  on  the  face  of  the  petition,  and  we  have 
looked  into  the  lease,  and  there  is  no  provision  in  it  from  which  such 
an  inference  can  be  drawn. 

It  is  also  insisted  that  there  is  no  known  legal  principle  or  rule  un- 
der "which  the  defendants  can  be  made  liable.  It  is  said  that  they  are 
not  parties.  This  is  true;  that  is  to  say^  these  defendants  could  not 
bind  any  other  members  of  the  organization  as  a  partner  in  a  joint 
enterprise.,  or  a  contract  as  to  which  he  had  no  knowledge.,  and  to 
which  he  did  not  assent.  But  we  think  "those  who  engaged  in  the 
enterprise  (that  is,  became  members  of  the  organization)  are  liable 
for  the  debts.  They  contracted,  and  all  are  included  in  such  liability 
who  assented  to  the  undertaking  or  subsequently  ratified  it."  It  was 
so  held  in  Ash  v.  Guie,  97  Pa.  St.  493;  Fredendall  v.  Taylor  et  al., 
26  Wis.  286;  and  this  rule  is  supported  to  some  extent  by  what  was 
said  by  this  court  in  Keller  v.  Tracy,  1 1  Iowa  530,  and  Drake  v.  The 
Board  of  Trustees,  1 1  Iowa  54. 

But,  it  is  said,  these  defendants  did  not  contract.  They  certainly 
represented  that  they  had  a  principal  for  whom  they  had  authority  to 
contract.  They,  for  or  on  behalf  of  an  alleged  principal,  contracted 
that  such  principal  would  do  and  perform  certain  things.  As  we  have 
said,  there  is  no  principal,  and  it  seems  to  us  that  the  defendants  should 
be  held  liable.,  and  that  it  is  immaterial  whether  they  be  so  held  be- 
cause they  held  themselves  out  as  agents  for  a  principal  that  had  no 
existence.,  or  on  the  ground  that  they  must.,  under  the  contract.,  be  re- 
garded as  principals.,  for  the  simple  reason  that  there  is  no  other 
principal  in  existence.  We  think  the  demurrer  should  have  been 
overruled. 

Reversed. 

Note.    See  cases  cited  under  White  v.  Brownell,  infra,  p.  187. 


Sec.  33.     (4)    From  stock  exchange. 

BELTON  v.  HATCH. 

1888.     In  the  Court  of  Appeals  of  New  York.     109  New  York 
593-594>  4  Am.  St.  R.  495. 

Appeal  from  judgment  of  the  general  term  of  the  supreme  court  in 
the  first  judicial  department,  entered  upon  an  order  made  May  29, 
1885,  which  affirmed  a  judgment  in  favor  of  defendant,  entered  upon 
an  order  overruling  a  demurrer  to  certain  portions  of  the  answer. 


§  33  CORPORATION   AND   STOCK   EXCHANGE.  1/9 

Gray,  J.  Plaintiff,  as  the  assignee  of  one  Des  Marets,  formerly  a 
member  of  the  New  York  Stock  Exchange,  sues  to  recover  the  pro- 
ceeds received  by  that  organization  from  a  sale  of  the  membership, 
or,  as  it  is  sometimes  technically  termed,  the  seat  of  said  Des  Marets. 
It  is  alleged  by  plaintiff  in  his  complaint  that  Des  Marets,  for  many 
years  a  member  of  the  New  York  Stock  Exchange,  in  October,  1883, 
became  insolvent,  and,  under  the  laws  governiivg  that  body,  was  sus- 
pended ;  that  subsequently  its  governing  committee  determined  that 
the  failure  was  caused  by  doing  business  in  a  reckless  and  unbusiness- 
like manner,  and  resolved  that  Des  Marets  was  ineligible  for  re- 
admission,  and  in  December  following  the  failure  the  stock  exchange, 
pursuant  to  its  constitution  and  by-laws,  disposed  of  his  membership 
and  seat  for  the  sum  of  $25,000,  which  sum  it  retained  and  refused 
to  pay  over  to  plaintiff,  who  demanded  'A  as  Des  Marets'  assignee. 
The  complaint  also  alleges  ':hat  the  New  York  Stock  Exchange  is  an 
unincorporated  association,  organized  and  located  in  New  York  city ; 
that  its  members  have  voluntarily  established  certain  rules,  conditions 
and  articles  of  association  or  copartnership,  which  are  designated  as 
their  constitution  and  by-laws,  which  are  signed  and  consented  to  by 
the  members  and  which  govern  them,  their  officers  and  committees, 
and  which  control  in  the  conduct  of  the  transactions  and  concerns  of 
the  association  and  are  binding  and  obligatory  upon  the  members. 

The  answer  of  the  defendant,  after  admitting  the  allegations  of  the 
complaint  which  I  have  mentioned,  sets  forth  much  of  the  constitu- 
tion and  by-laws  of  the  exchange,  and  alleges  the  distribution  of  the 
proceeds  of  the  sale  of  Des  Marets'  membership  to  have  been  made 
among  his  creditors  in  the  exchange,  pursuant  to  their  provisions. 
The  plaintiff  demurred  to  this  portion  of  the  answer  on  the  ground 
that  it  was  insufficient  in  law  upon  its  face.  Although  this  matter 
was  not  stated  as  a  separate  defense,  totidem  verbis^  yet  as  it  was 
affirmative  in  its  nature  and  constituted  the  defense  and  justification  of 
the  association  in  disposing  of  Des  Marets'  membership  and  in  retain- 
ing the  proceeds  arising  from  such  disposition,  we  shall  not  consider 
the  demurrer  as  improperly  interposed  and  will  dispose  of  the  ques- 
tions raised  by  these  pleadings. 

Their  decision  involves  the  legal  relations  to  each  other  of  the  mem- 
bers composing  the  association  of  the  New  York  Stock  Exchange,  and 
the  extent  and  validity  of  the  powers  reserved  by  its  constitution  and 
by-laws,  and  conferred  upon  its  officers  and  committees  in  the  man- 
agement of  its  affairs  and  in  the  control  over  a  member.  The  New 
York  Stock  Exchange  is  a  voluntary  association  of  individuals, 
united,  without  a  charter,  in*  an  organization  for  the  purpose  of  afford- 
ing to  the  members  thereof  certain  facilities  for  the  transaction  of  their 
business  as  brokers  in  stocks  and  securities,  and  a  convenient  exchange 
or  sales-room  for  the  conduct  of  such  transactions.  It  can  not  be 
said  to  be  strictly  a  copartnership,  for  its  objects  do  not  come  within 
the  definition  of  one.  A  copartnership  results  from  a  contract  be- 
tween the  parties  by  -which  they  agree  to  combine  their  property  or 
labor,  or  both,  in  some  common  enterprise  and  for  a  common  profit, 


l80  BELTON   V.    HATCH.  §  35 

to  be  shared  in  the  proportion  stated  in  their  agreement.  The  objects 
of  a  voluntary  association  of  brokers  do  not^  however.,  involve  any  stick 
combination .1  or  any  communion  of profts from  the  business  trans- 
acted by  the  members.  Like  a  business  club,  its  principal  object  is  the 
promotion  of  the  convenience  of  its  members  by  furnishing  facilities 
which  aid  them  in  doing  their  business,  and  are,  therefore,  of  benefit 
to  them.  It  may  be  said,  however,  that  the  rights  of  the  associates 
are  not  substantially  different  from  those  of  partners,  so  far  as  their 
rights  in  the  property  of  the  association  are  concerned.  The  interest 
of  each  member  in  the  property  of  the  association  is  equal,  but  it  is 
subject  to  the  constitution  and  by-laws,  which  are  the  basis  on  which 
is  founded  the  association.  They  express  the  contract  by  which  each 
member  has  consented  to  be  bound,  and  which  measures  his  duties, 
rights  and  privileges  as  such. 

It  seems  most  clear  to  me  that  this  constitution  and  the  by-laws  de- 
rive a  binding  force  from  the  fact  that  they  are  signed  by  all  the  mem- 
bers, and  that  they  are  conclusive  upon  each  of  them  in  respect  of  the 
regulations  of  the  mode  of  transaction  of  his  business,  and  of  his 
right  to  continue  to  be  a  member.  Whatever  are  the  rights  acquired 
by  a  member  and  created  by  his  admission  to  membership,  the  rules 
by  which  the  membership  is  created  or  dissolved,  and  which  control 
the  affairs  of  the  organization  and  the  relations  of  members,  entered 
into  those  rights  when  created  and  remained  a  part  of  them.  In  this 
proposition  there  is  nothing  against  public  policy,  for  the  reason  that 
whatever  a  member  acquires  is  subject  to  the  self-imposed  condition 
that  his  title  and  the  rights  which  accrue  from  his  membership  are 
regulated  by,  and  are  dependent  upon,  the  laws  adopted  by  the  asso- 
ciation, and  expressly  consented  to  by  him  when  he  joined.  When 
Des  Marets,  plaintiff's  assignor,  joined  the  exchange,  it  may  be  per- 
fectly true  that  he  acquired  property ;  but  it  was  property  given  by 
the  act  of  those  who,  in  giving  it,  accompanied  the  gift  with  conditions 
which  were  incident  to  and  a  part  of  the  property ;  and  it  was  in  no 
sense  property  created  by  the  individual's  act.  I  consider  that  there 
is  an  obvious  distinction  between  property  of  the  individual's  own 
creation,  to  which  he  attaches  conditions,  or  in  the  disposal  of  which 
he  exerts  a  direction,  whereby  the  claims  of  others  are  affected,  and 
property  which  comes  to  him  subject  to  conditions  which  may  deprive 
him  of  its  use  or  enjoyment.  And  so  here,  if  the  constitution,  which 
forms  the  basis  of  this  association,  appropriates  to  his  creditors  in  the 
association,  or  to  any  of  its  corporate  objects,  the  peculiar  property  of 
the  member,  who,  by  force  of  constitutional  provisions,  has  lost  his 
membership,  that  w^as  an  incident  entering  into  his  title  to  it.  When 
membership  and  the  rights  belonging  to  that  status  were  conferred 
upon  him.,  the  gift  was  accompanied  by  a  condition  that  the  rights,  of 
whatever  nature.,  should  revert  to  the  association  upon  the  happening 
of  certain  events,  and  he  can  not  be  heard  to  complain  ;  nor  can  third 
persons.,  claiming  to  derive  under  him.  He  should  be  held  to  his 
contract,  which  was  reasonable,  and  when  entered  into  prejudiced  no 
rights  of  others,   nor  conflicted   with   any  statutory  or  common-law 


§  33  BELTON   V.    HATCH.  l8l 

right.  A  person  acquires  by  his  admission  to  membership  only  such 
rights  as  the  constitution  and  by-laws  of  the  association  give  him. ; 
and  upon  ceasing  to  be  a  member ^  by  the  competent  judgment  of  the 
governing  committee,  he  ceases  to  have  any  further  coftcern  or  interest 
in  the  association,  except  it  is  given  by  its  laws. 

The  New  York  Stock  Exchange,  by  the  accumulation  of  a  great  fund 
from  a  large  membership,  by  the  wise  and  successful  management  of 
the  members,  and  by  the  acquisition  of  valuable  facilities  for  the 
transaction  of  business,  has  given  to  membership  an  important  pecun- 
iary value.  It  is  fair  to  presume  that  this  prosperity  and  success  were, 
in  an  important  degree,  due  to  the  regulations  adopted  looking  to  the 
conduct  by  a  member  of  his  business,  and  the  restraints  imposed  upon 
reckless  or  dishonest  methods.  Membership  may  be  property;  but  it 
is  not  property  in  every  sense.  If  it  is  property,  it  is  incumbered 
with  conditions  when  purchased,  without  which  it  could  not  be 
obtained.      (Hyde  v.  Woods,  94  U.  S.  523.) 

By  the  constitution  of  this  association,  the  powers  of  government 
are  vested  in  a  governing  committee,  whose  decision,  after  the  trial 
of  a  member  for  offenses  under  its  laws,  is  final.  Standing  committees 
are  appointed  by  them,  and  the  committee  on  insolvencies  is  charged 
with  the  duty  of  immediately  investigating  every  case  of  insolvency 
and  of  reporting  whether  the  same  was  occasioned  by  reckless  dealing 
or  by  doing  business  for  improper  parties.  Should  the  governing 
committee,  upon  this  report,  determine  that  a  member's  failure  was 
caused  by  doing  business  in  a  reckless  and  unbusinesslike  manner, 
he  may  be  declared  ineligible  for  readmission  by  a  majority  vote  of 
the  entire  governing  committee.  By  section  2  of  article  13  of  the 
constitution,  it  is  provided  that  "in  every  case  where  a  member  is 
deprived  of  his  membership,  or  declared  ineligible  for  readmission  by 
the  governing  committee  by  reason  of  any  offense  against  or  under 
the  laws  of  the  exchange,  his  membership  may  be  disposed  of  forth- 
with by  the  committee  on  admissions." 

The  plaintiff,  appellant,  contends  that  in  such  a  case  as  this  of  Des 
Marets'  severance  from  membership,  there  was  no  power  under  the 
constitution  to  distribute  the  proceeds  arising  from  the  sale  of  his 
membership,  and  that,  in  the  absence  of  some  express  reservation  of 
the  right  to  dispose  of  those  proceeds,  they  are  the  property  of  the 
member.  The  vice  in  plaintiff's  argument  is  in  the  assumption  that 
a  member  has  any  absolute  property  of  his  own  in  such  a  case.  As 
we  have  before  seen,  the  rules  of  the  association  were  an  incident  to 
the  rights  acquired  by  a  person  upon  admission ;  and  one.  of  those 
rules  was  that  for  conviction  of  an  offense  against  or  under  the  laws 
of  the  exchange,  a  suspended  member  might  be  deprived  of  right  to 
readmission  to  membership.  When  expelled  he  ceases  to  have  any 
interest  in  the  association.  His  privilege  to  transact  his  business  at 
that  place  has  been  lost.  The  association  may  fill  the  vacancy  caused 
by  his  expulsion,  or  not,  as  they  please.  They  can  not  be  compelled 
to  do  so;  but  if  they  elect  to  admit  a  new  member,  and  can  derive, 
from  so  doing,  any  profit,  that  is  their  unquestionable  right,  with  the 


r82  SKILLMAN   V.    LACHMAN.  §  34 

exercise  of  which  others  are  not  concerned.  They  may  do  with  their 
own  as  they  like.  As  I  construe  section  2  of  article  13,  above  cited, 
its  effect  is  that  of  an  express  reservation  of  the  right  to  deprive  a 
member,  found  guilty  of  an  offense  under  its  provisions,  of  all  rights, 
interest  and  claim  whatever. 

The  right  is  given  to  a  member  in  good  standing  to  propose  for  ad- 
mission in  his  stead  some  one  acceptable  to  the  committee  on  admis- 
sions, and  any  profit  he  derives  from  his  negotiations  with  the  candi- 
date is  his.  So  if  a  member  becomes  honestly  insolvent  and  fails  to 
qualify  under  the  rules  for  readmission,  or  if  he  dies,  after  the  claims 
of  the  association  are  discharged,  the  proceeds  may  be  paid  to  him  or 
his  legal  representatives,  as  the  case  may  be.  But  in  the  case  of  a 
member  who,  by  misconduct  cognizable  by  the  laws  of  the  association, 
forfeits  his  right  to  continue  to  remain  a  member,  there  is  resei-ved 
by  the  constitution  the  right  to  dispose  of  his  membership.  These 
rules  are  reasonable,  and  do  not  contravene  any  rule  of  public  policy, 
and  having  been  consented  to  by  the  plaintiff's  assignor,  deprived  him 
of  any  interest  or  rights  in  the  association,  of  which  he  had  ceased  to 
be  a  member.  These  views  lead  to  an  affirmance  of  the  judgment 
appealed  from. 

All  concur. 

Judgment  affirmed. 

Note.  See  Board  of  Trade  of  Chicago  v.  Nelson,  162  111.  431,  53  Am.  St.  312 ; 
American  Live  Stock  CJo.  v.  Chicago  Live  Stock  Exchange,  143  III.  210,  32  N. 
E.  Rep.  274;  Green  v.  Board,  etc.,  174  111.  586,  51  N.  E.  Rep.  599  (and  see 
Evans  v.  Phil.  Club,  infra,  p.  1165,  and  note). 


Sec'  34.    (5)   From  cost  book  mining  companies. 

SKILLMAN  V.  LACHMAN  Et  Al.» 

1863.     In   the  Supreme    Court  of    California.     23    California 

198-208. 

Appeal  from  the  county  court,  Nevada  county. 
The  facts  are  stated  in  "the  opinion  of  the  court. 

Crocker,  J.,  delivered  the  opinion  of  the  court — Norton,  J.,  con- 
curring, and  Cope,  C.  J.,  concurring  specially. 

This  is  an  action  upon  a  promissory  note  for  $102,  with  interest  at 
3  per  cent,  per  month,  against  the  defendants,  as  members  of  the 
"Gold  Hill  Company,"  originally  brought  before  a  justice  of  the 
peace,  where  a  judgment  was  rendered  against  the  defendants,  from 
which  they  appealed  to  the  county  court,  where  judgment  was  again 
rendered  against  them  for  $260.46  cents,  besides  costs,  that  sum  being 
the  principal  and  interest  of  the  note,  and  from  which  they  appeal  to 
this  court.     »     *     * 

*  Arguments  and  opinion  of  the  court  on  question  of  jurisdiction  omitted. 


§  34      CORPORATION  AND  COST  BOOK  COMPANY.        1 83 

The  principal  point  raised  by  the  appellant  is  that  the  owners  of  the 
claim  are  tenants  in  common  and  not  partners ;  that  Sprout  was  one 
of  the  owners,  and  that  one  co-tenant  can  not  bind  his  co-tenants  bj 
a  note  given  in  the  name  of  the  company.  This  question  of  the  re- 
lation which  exists  between  persons  owning  several  interests  in  a  mine, 
and  engaged  in  working  the  same,  is  a  very  important  one.  What- 
ever may  be  the  rights  and  liabilities  of  tenants  in  common  of  a  mine 
not  being  worked,  it  is  clear  that  where  the  several  owners  unite  and 
co-operate  in  working  the  mine,  then  a  new  relation  exists  between 
them,  and,  to  a  certain  extent,  they  are  governed  by  the  rules  relating 
to  partnerships.  They  form  what  is  termed  a  mining  partnership, 
which  is  governed  by  many  of  the  rules  relating  to  ordinary  partnerships, 
but  which  has  also  some  rules  peculiar  to  itself — one  of  which  is  that 
one  person  may  convey  his  interest  in  the  mine  and  business,  without 
dissolving  the  partnership.  (Ferreday  v.  Wightwick,  i  Russ.  &  Mylne 
49.)  Still,  there  may  be  a  partnership  in  the  working  of  the  mine, 
subject  to  the  rules  relating  to  an  ordinary  partnership  in  trade.  (Story 
on  Part.,  §  82.)  And  this  relation  of  partnership  may  be  constituted 
either  by  express  stipulation  or  by  implication  deduced  from  the  acts 
of  the  parties.  (Rockw.  on  Mines,  575.)  But  in  the  case  of  an  ordi- 
nary mining  partnership,  something  more  will  be  required  to  raise  the 
presumption  of  liability  arising  from  persons  holding  themselves  out 
to  the  world  as  partners  than  would  be  necessary  in  the  case  of  an  or- 
dinary partnership.  Such  persons,  in  the  absence  of  other  circum- 
stances, can  not  fairly  be  presumed  to  have  intended  to  render  them- 
selves liable  to  all  consequences  of  a  commercial  partnership.  (Rockw. 
on  Mines,  575.)  The  same  author  concludes  his  examination  of  this 
question  as  follows:  "If  the  works  are  carried  on  by  persons  as  mere 
owners  of  land,  concurring  in  a  general  system  of  management  for 
their  common  benefit,  the  shares  of  each  person  will  only  be  liable  for 
his  individual  engagement,  and  to  the  payment  of  debts  contracted  by 
himself,  or  his  authorized  agent,  without  interfering  with  the  shares 
of  the  other  tenants  in  common."     (Rockw.  on  Mines,  579.) 

There  have  been  several  decisions  relative  to  the  rights  and  liabilities 
of  shareholders  in  mining  companies  to  the  public  and  among  them- 
selves, which  it  may  be  well  to  examine.  In  the  case  of  Vice  v.  Lady 
Anson  (7  B.  &  C.  409),  which  was  an  action  for  goods  sold  and 
materials  furnished  for  working  a  mine,  in  which  the  defendant  held 
one  share,  evidenced  only  by  a  certificate  issued  by  the  secretary  of 
the  company,  the  plaintiff,  at  the  time  he  furnished  the  goods,  had  no 
knowledge  that  she  was  a  shareholder.  She  had  paid  the  deposit  on 
some  shares,  and  had  spoken  and  written  of  herself  (in  private  letters) 
as  a  shareholder  of  the  company.  The  judge  held  that  the  plaintiff 
did  not  actually  give  credit  to  the  defendant,  and  was  not  misled  by 
her,  and  that  she  never  held  herself  out  to  the  world  as  a  partner,  and 
therefore  she  could  only  be  chargeable  on  the  ground  of  being  really 
interested.  The  fact  that  she  thought  she  had  an  interest  did  not 
make  her  interested;  and  he  held  that  the  certificate  conveyed  no 
interest  in  the  mine,  and  therefore  she  was  not  liable.     The  correct- 


1 84  SKILLMAN   V.    LACHMAN.  §  34 

ness  of  this  decision,  that  it  was  necessary  to  prove  a  conveyance  of 
an  interest  in  the  mine,  has  been  doubted. 

The  case  of  Dickinson  v.  Valpy  (10  B.  &  C.  128)  was  an  action 
by  an  indorsee  of  a  bill  of  exchange,  drawn  and  accepted  by  a  mining 
company,  against  the  defendant  as  a  member  of  the  company.  The 
defendant  had  applied  for  and  obtained  shares  in  the  company,  on 
which  he  had  paid  several  installments.  The  business  of  the  company 
was  transacted  by  a  board  of  directors,  and  the  bill  had  been  drawn 
and  accepted  in  pursuance  of  a  resolution  passed  by  them.  It  was 
held  necessary  for  the  plaintiff  to  show  that  the  directors  had  power 
to  bind  the  shareholders  by  drawing  bills  of  exchange ;  and  for  that 
purpose,  evidence  should  have  been  given  of  the  nature  and  character 
of  the  business  of  the  company,  to  show  that  in  order  to  carry  into 
effect  the  purposes  for  which  it  was  instituted  the  drawing  and  accept- 
ing of  bills  was  necessary,  or  to  show  from  the  practice  of  similar 
companies  that  it  was  usual  to  draw  such  bills.  It  was  also  held^ 
that  although  in  ordinary  trading  ■partnerships  the  law  implied  that 
one  partner  had  power  to  bind  another  by  drawing  and  accepting 
bills^  yet  that  rule  did  not  apply  to  minitig  partnerships^  without 
showing  that  it  was  necessary  to  carry  on  its  business. 

In  Judson  v.  Bourne  (6  M.  &  W.  461),  it  was  held  that  the  mem- 
bers of  a  mining  company  have  authority  by  law  (in  the  absence  of 
any  proof  of  a  more  limited  authority)  to  bind  each  other  by  dealings 
on  credit  for  the  purpose  of  working  the  mines,  if  that  appears  to  be 
necessary  or  usual  in  the  management  of  the  mines.  In  Hawtayne  v. 
Boui'ne  (7  M.  &  W.  595),  the  managing  agent  of  the  mining  company 
had  borrowed  money  from  a  bank  to  pay  debts  due  to  laborers  who 
had  levied  distress  warrants  upon  the  materials  of  the  mine,  and  it 
was  held  that  there  was  no  rule  of  law  that  such  an  agent  could,  even 
in  case  of  an  emergency  suddenly  arising,  raise  money  and  pledge  the 
credit  of  his  principals  for  its  repayment;  that  the  authority  of  the 
agent  was  only  that  he  should  conduct  and  carry  on  the  affairs  of  the 
mine  in  th^  usual  manner,  and  there  was  no  proof  of  express  authority 
to  borrow  money,  or  that  it  was  necessary  in  the  ordinary  course  of  the 
undertaking. 

A  joint-stock  company  was  formed  to  work  a  mine,  in  which  the 
defendant  became  a  shareholder  and  took  part  in  its  proceedings.  The 
prospectus,  issued  on  the  formation  of  the  company,  stated  that  all 
supplies  for  the  mine  were  to  be  purchased  at  cash  prices,  and  no  debt 
was  to  be  incurred,  and  the  scrip  certificates  also  bore  an  indorsement 
to  the  same  effect.  The  plaintiff  supplied  goods  for  the  necessary 
working  of  the  mine  on  the  order  of  a  resident  agent  appointed  by  the 
directors  to  manage  the  mine,  which  was  the  customary  course  in  such 
concerns.  Held,  that  the  defendant  was  liable  to  the  plaintiff  for  the 
price  of  such  goods,  notwithstanding  the  statements  in  the  prospectus 
and  certificates,  imless  it  were  shown  that  the  agent  had,  in  fact,  no 
authority  from  the  defendant,  and  that  the  plaintiff  had  notice  thereof. 
(Hawkin  v.  Bourne,  8  M.  &  W.  703.) 

Where  a  defendant  is  charged  with  a  debt  in  an  action  for  work  and 


§  34      CORPORATION  AND  COST  BOOK  COMPANY.        1 85 

labor  as  a  partner  in  a  mining  company,  but  is  not  shown  to  have 
either  contracted  such  debt  personally  or  represented  himself  to  the 
plaintiff  as  a  partner,  the  fact  of  his  having  been  partner  may  never- 
theless be  shown  by  evidence  short  of  strict  proof  that  he  had  executed 
a  deed  of  copartnership,  or  was  legally  interested  in  the  mine.  The 
fact  may  be  proved  by  his  admission  made  before  or  after  the  debt 
was  incurred.  (Ralph  v.  Hai"vey,  i  Q.  B.  845.)  One  of  several  co- 
adventurers  in  a  mine  has  not,  as  such,  any  authority  to  pledge  the 
credit  of  the  general  bo^y  for  the  money  borrowed  for  the  purposes 
of  the  concern.  And  the  fact  of  his  having  the  general  management 
of  the  mine  makes  no  difference,  in  the  absence  of  circumstances  from 
which  an  implied  authority  for  that  purpose  can  be  inferred.  (Ricketts 
V.  Burnett,  4  Q.  B.  686.) 

Such  is  the  uncertainty  of  mining  operations  that  few  are  willing 
to  risk  all  their  means  in  such  undertakings ;  and  it  is  therefore  cus- 
tomary for  a  number  of  persons  to  unite  in  the  enterprise ;  and  often 
the  interests  owned  by  each  differ  greatly  in  amount,  according  as 
each  is  able  to  furnish  means,  or  is  willing  to  take  the  risk.  As  a 
general  rule^  it  is  impracticable  for  each  proprietor  to  work  his  in- 
terest in  the  mine  separate  from  the  others^  hence  arises  the  necessity 
for  an  organization  of  some  kind  to  work  the  mines ^  such  as  a  corpo- 
ration^ joint  stock  company^  or  mining  partnership.  The  company  in 
the  present  case  is  one  of  the  latter  class.  As  each  owner  has  a  right 
to  sell  and  convey  his  interest  at  any  time.,  and  as  in  ordinary  part- 
nerships such  sale  would  dissolve  the  partnerships  and  compel  a 
-winding  up  and  settlement  of  the  business^  which  would  be  most  dis- 
astrous to  the  mining  enterprise,  it  has  become  an  established  princi- 
ple that  such  sale  does  not  dissolve  a  mining  partnership,  but  it  con- 
tinues on  as  before.  Such  a  radical  change  in  the  law  of  partner- 
ship necessitates  other  changes.  One  result  is,  that  nczv  m.embers 
are  thus  introduced  into  the  company  without  the  consent,  and  often 
against  the  wishes,  of  the  other  jnembers  ;  and  it  would  be  most  unjust 
to  subject  each  proprietor  to  personal  liabilities,  which  might  sweep 
away  all  his  property,  created  against  his  consent,  by  those  who  be- 
came mefnbers  against  his  wishes.  Hence  arises  the  necessity  of 
establishing  new  rules  for  such  partnerships,  differing  from  those 
regulating  ordinary  partnerships,  especially  those  relating  to  the 
power  of  any  one  member,  or  a  majority  of  the  members,  or  of  the 
superintendent  or  managing  agent,  to  make  contracts  binding  upon 
the  company  or  its  members,  and  also  regulating  the  extent  and  na- 
ture of  the  liability  of  each  proprietor  for  the  company  debts,  as  be- 
tween themselves  and  third  persons.  The  rules  regulating  ordinary 
partnerships,  will,  to  some  extent,  form  a  proper  guide,  but  do  not 
necessarily  determine  these  questions.  It  is  impossible  to  lay  down  a 
perfect  code  of  rules  upon  this  subject;  but,  like  other  legal  rules, 
they  must  be  settled  as  they  arise  in  cases  requiring  their  determina- 
tion. Such  rules  must  be  governed  by  the  peculiar  condition  and 
circumstances  of  the  country,  and  must  be  founded  upon  sound  prin- 
ciples of  justice,  and  such  as  will  protect  the  rights  of  individual  pro- 


1 86  SKILLMAN   V.    LACHMAN.  §  34 

prietors  against  the  unauthorized  acts  of  others,  and  at  the  same  time 
properly  secure  the  claims  of  creditors  and  insure  the  successful  work- 
ing of  the  mine. 

In  the  present  case  it  appears  that  the  defendant  Lachman,  for  a 
long  time  prior  and  up  to  June  25,  1858,  held  a  mortgage  on  the  in- 
terest in  the  mine  of  one  Prior ;  that  on  that  day  he  took  a  conveyance 
of  that  interest  in  satisfaction  of  the  mortgage,  and  conveyed  the  same 
interest  to  one  of  the  defendants.  Sprout,  on  the  twenty-eighth  day  of 
June,  and  received  a  mortgage  on  Sprout's  interest  in  the  mine  to  se- 
cure payment  of  the  purchase-money.  This  appears  to  be,  in  fact,  all 
the  interest  he  had ;  but  it  was  proved  that  both  prior  to  and  after  the 
date  of  the  note,  which  was  dated  June  20,  he  admitted  to  two  per- 
sons, one  of  whom  was  a  brother  of  the  plaintiff,  and  who  delivered 
most  of  the  lumber,  that  he  owned  an  interest  in  the  mine.  It  does 
not  appear  that  any  of  these  statements  of  Lachman  were  the  means 
of  inducing  the  plaintiff  to  sell  or  deliver  the  lumber.  These  state- 
ments of  the  defendant  Lachman  do  not  operate  as  an  estoppel  upon 
him,  unless  it  appears  that  the  plaintiff  was  induced  thereby  to  sell  and 
deliver  the  lumber  to  the  company.  Neither  the  evidence  nor  the 
findings  of  the  court  contain  any  facts  or  evidence  establishing  this 
point. 

But  there  is  still  a  more  important  objection  to  the  findings  and 
judgment  in  this  case.  There  was  no  evidence  of  any  authority  hav- 
ing been  given  by  the  company,  or  Lachman,  to  Sprout,  a  member  of 
the  company  and  the  managing  agent,  or  foreman,  to  execute  a  prom- 
issory note  in  the  name  of  and  binding  the  company  for  the  indebted- 
ness due  the  plaintiff,  or  any  general  authority  to  that  effect.  In  fact, 
several  members,  including  Lachman,  testified  that  they  never  gave 
him  any  such  authority.  It  is  clear  that  the  law  does  not,  in  the  case 
of  mining  partnerships,  imply  any  such  authority  either  to  a  member 
of  such  partnership  or  to  its  managing  agent.  In  this  respect  the  rule 
of  law  is  different  from  that  of  ordinary  commercial  partnerships.  It 
was  clearly  the  duty  of  the  plaintiff  to  prove  that  the  person  executing 
the  note  in  the  name  of  the  company  had  power  and  authority  to  do 
so.  He  might  have  had  power  to  purchase  the  lumber  for  the  use  of 
the  mine,  but  that  is  very  different  from  authorizing  him  to  execute  a 
note  in  the  name  of  the  company,  bearing  interest  at  the  rate  of  3  per 
cent,  per  month.  In  this  case  the  county  court  failed  to  draw  the 
proper  distinction  between  the  liability  of  members  of  a  mining  part- 
nership and  ordinary  trading  partnerships,  and  in  this  it  erred. 

The  judgment  is,  therefore,  reversed  and  the  cause  remanded. 

Cope,  C.  J.  I  think  the  conclusion  arrived  ac  ty  Justice  Crocker 
is  correct,  and  I,  therefore,  concur  in  the  judgment. 

Note.  1884,  Bissell  v.  Foss,  114  U.  S.  252  on  261;  1880,  Kahn  v.  Smelting 
Co..  102  U.  S.  641 ;  1871,  Jones  v.  Clark.  42  Cal.  180 


§  35       CORPORATION  AND  UNINCORPORATED  ASSOCIATION.        1 8/ 

Sec.  35.     (6)   From  unincorporated  associations. 

WHITE  V.  BROWNELL,  President,  Etc.,  Et  Al.» 

i868.    In  the  Court  of  Common  Pleas,  City  and  County  of  New 
York.     General  Term.     2  Daly  (New  York  Common  Pleas) 

329-366. 

Appeal  to  general  term  from  an  order  dissolving  an  injunction  to 
restrain  the  Open  Board  of  Brokers  from  interfering  with  plaintiff's 
privileges  as  a  member  of  that  board. 

By  the  court,  Daly,  F.  J.  The  organization  known  as  the  Open 
Board  of  Stock  Brokers,  which  the  plaintiff  asks  this  court  to  restrain 
from  depriving  him  of  his  rights  and  privileges  as  a  member  of  it,  is 
not  a  partnership,  and  the  plaintiff  is  not  entitled,  as  has  been  argued, 
to  the  equitable  remedies  which  courts  afford  for  the  protection  of  the 
rights  of  a  copartner.  It  is  not  a  union  of  persons  joining  together 
property,  labor  or  skill  for  their  common  benefit,  in  any  pursuit  or 
business  having  a  communion  of  profit  and  loss,  and  distinguishable 
by  the  feature  that,  if  earned,  there  is  to  be  a  division  of  gains.  It 
may  be  described  as  an  association  of  persons  engaged  in  the  same 
kind  of  business,  who  have  organized  together  for  the  purpose  of  es- 
tablishing certain  rules,  by  which  each  agrees  to  be  governed  in  the 
conduct  and  management  of  his  separate  transactions  or  business; 
which  is  not  a  partnership. 

The  objects  of  the  organization  are  set  forth  in  the  articles  of  asso- 
ciation, which  declare  that  greater  facilities  are  requisite  for  the  ex- 
change and  negotiation  of  commercial  securities,  a  business  which  can 
be  successfully  transacted  only  where  there  is  the  utmost  confidence ; 
that,  as  such  confidence  is  begotten  only  by  public,  open,  fair  and  up- 
right transactions,  so  that  each  party  interested  can  know  not  only 
where,  but  how  such  business  is  done,  the  spirit  of  the  age  demands 
for  such  transactions  a  great  public  mart,  open  to  all ;  and  that,  for 
the  purpose  of  supplying  these  requirements,  the  persons  signing  their 
names  associate  themselves  together,  and  adopt  a  constitution  for  an 
association  to  be  known  as  the  Open  Board  of  Stock  Brokers,  each 
pledging  himself  to  abide  by  the  constitution,  and  by  all  by-laws, 
rules  and  resolutions  which  may  be  passed  by  the  board.  To  carry 
out  this  object,  the  constitution  provides  that  there  shall  be  a  room 
where  the  members  of  the  board  shall  have  seats  and  desks,  conveni- 
ently inclosed  within  a  railing,  and  that  outside  the  railing,  and  in  a 
gallery,  seats  shall  be  provided  for  the  public;  certain  officers  are 
designated  who  are  to  call  stocks  at  the  board,  and  a  standing  com- 
mittee to  arrange  the  order  in  which  such  securities  are  called.  A 
record  is  to  be  kept  by  the  secretary  of  all  sales  and  purchases  made 

'  Statement  of  facts  except  as  given  in  opinion  omitted.  Arguments  omitted 
and  only  a  part  of  the  opinion  given. 


1 88  WHITE   V.    BROWNELL.  §  35 

at  the  board.  He  is  required  to  prepare  an  account  of  the  same  for 
the  newspapers,  and  no  fictitious  sales  are  to  be  allowed.  It  is,  in  fact, 
the  creation  of  a  public  mart  for  the  sale  of  stocks  or  other  commercial 
securities,  each  purchase  or  sale  of  which  is  not  for  the  joint  benefit  of 
the  body,  but  is,  as  it  would  be  in  any  other  place,  an  individual  trans- 
action between  the  parties  making  it.  It  is  analogous  to  what,  in 
other  branches  of  commerce,  has  long  been  familiarly  known  by  the 
word  "change,"  a  fixed  place,  where  merchants  meet  at  certain  hours 
for  the  transaction  of  business  with  each  other,  subject  to  such  general 
rules  or  understanding  as  they  think  proper  to  be  governed  by.  There 
may  be  property  belonging  to  this  body,  derived  from  the  payment  of 
dues  or  fines,  or  consisting  of  the  furniture  of  the  room  where  the 
board  meets ;  but  the  possession  of  it  is  a  mere  incident,  and  not  the 
main  purpose  or  object  of  the  association.  A  member  has  no  sev- 
erable proprietary  interest  in  it,  or  a  right  to  any  proportionable  part 
of  it  upon  withdrawing.  He  has  merely  the  enjoyment  and  use  of  it 
while  he  is  a  member,  but  the  property  remains  with  and  belongs  to 
the  body  while  it  continues  to  exist,  like  a  pew,  the  ultimate  and  dom- 
inant property  in  which  is  in  the  congregation,  and  not  in  the  pew- 
holder;  and  when  the  body  ceases  to  exist,  those  who  may  then  be 
members  become  entitled  to  their  proportionate  share  of  its  assets. 
(In  re  The  St.  James  Club,  13  Eng.  Law  and  Eq.  Rep.  592  ;  Fassett 
V.  The  First  Parish  in  Boylston,  19  Pick.  361.)  This  board  of  stock 
brokers  is,  in  fact,  analogous  to  the  organization  which  came  under 
consideration  in  Caldicott  v.  Griffith  (8  Exchq.  Rep.  898),  called  The 
Midland  Counties  Guardian  Society  for  the  Protection  of  Trade, 
which  was  decided  not  to  be  a  partnership. 

So  far,  therefore,  as  the  plaintiff  claims  the  equitable  interference 
of  this  court  upon  the  assumption  that  this  association  is  a  co-partner- 
ship, or  upon  the  ground  that  the  rules  which  regulate  the  action  of 
courts  of  equity  in  cases  of  partnership  are  to  be  applied  to  it,  the 
claim  can  not  be  supported. 

It  is  not  an  incorporated  body,  and  as  a  number  of  cases  have  been 
cited  upon  the  argument  in  which  courts  of  equity  have  interfered  and 
restored  a  member  of  a  corporation  who  had  been  expelled  or  ob- 
structed in  the  exercise  of  his  franchise  by  the  acts  of  the  corporation, 
which  are  relied  upon  by  the  plaintiff  as  authorities  applicable  to  the 
present  case,  it  will  be  necessary  to  inquire  into  the  reasons  why  cor- 
porations can  not  expel  members  except  in  certain  extreme  cases,  and 
to  show  that  these  reasons  do  not  apply  to  a  voluntary  unincorporated 
body,  which  comes  into  existence  by  the  mutual  agreement  of  the  per- 
sons forming  it,  and  is  thereafter  carried  on  under  rules  which  the  body 
adopts  for  "its  government.  A  member  of  a  corporation^  -whether  it 
be  municipal^  eleemosynary  or  private^  is  in  the  enjoyment  of  a  fran- 
chise^ the  right  to  which  is  not  derived  from  the  body,  but  is  created 
by  statute,  or  exists  by  prescription,  and  therefore  can  not  be  taken 
away  by  the  act  of  the  corporation,  except,  as  I  have  said,  in  certain 
extrejne  cases.  As  it  is  a  right  conferred  by  statute,  or  derived  from 
imfnemorial  custom,  which  implies  the  existence  of  a  grant,  it  can 


§35       CORPORATION  AND  UNINCORPORATED  ASSOCIATION.        1 89 

neither  be  taken  away  by  the  act  of  the  corporation  or  withheld  by  the 
act  of  the  corporation^  from  any  one  eligible  to  the  enjoyment  of  it. 
Thus,  in  The  People  v.  The  Medical  Society  of  the  County  of  Erie 
(32  N.  Y.  R.  187),  an  incorporated  medical  society  was  compelled 
by  mandamus  to  admit  a  licensed  physician  to  membership,  who  was 
excluded  under  a  by-law  which  had  been  adopted  by  the  corporation. 

In  a  corporation,  there  is  a  distinction  between  what  is  called  amo- 
tion^ or  the  right  to  remove  an  officer,  which  is  a  power  inherent  in 
every  coiporation,  and  disfranchisement.  The  former  may  be  exer- 
cised without  interfering  with  the  franchise,  as  the  officer,  when  re- 
moved, still  continues  a  inember;  but  disfranchisement  is  an  absolute 
expulsion  of  the  member  from  the  body,  and  the  taking  away  of  his 
franchise,  which  can  not  be  done  unless  the  power  is  given  by  the 
charter  creating  the  coi-poration,  or  the  member  has  been  guilty  of 
crime,  a  conviction  of  which  would  work  a  forfeiture  of  all  civil  rights, 
including  the  corporate  franchise,  or  has  committed  acts  which  tend  to 
the  destruction  of  the  corporation,  such  as  the  defacing  of  its  charter, 
the  obliteration  or  alteration  of  its  records,  or  other  acts  tending  to  im- 
pair or  destroy  its  title  to  its  rights  or  privileges;  in  which  case,  the 
expulsion  of  the  member  is  but  the  exercise  of  a  power  incident  to  the 
right  of  self-preservation.  Evans  v.  The  Philadelphia  Club,  50  Pa. 
St.  R.  107;^  Bagg's  Case,  11  Coke  R.  93;  Earle's  Case,  Carthew's 
R.  173;  Commonwealth  v.  St.  Patrick's  Benevolent  Society,  2  Bih- 
ney  R.  441 ;  Fuller  v.  The  Trustees  of  Plainfield  Academy,  6  Conn. 
532  ;  People  v.  The  Medical  Society  of  Erie,  24  Barb.  570;  Willcock 
on  Mimicipal  Corporations,  270;  Grant  on  Corporations,  pp.  263, 
264,  265,  266). 

But  in  an  unincorporated  voluntary  association^  like  the  one  now 
under  consideration^  the  privilege  of  membership  is  not  given  by 
statute  or  derived  through  prescription^  as  in  a  corporation^  but  is 
created  by  and  conferred  by  the  organization  itself.  It  is  not  a 
franchise — a  franchise  bcitig  a  partictilar  privilege  vested  in  in- 
dividuals^ which  is  conferred  by  grant  from  a  sovereign  or  gov- 
ernment (Finch's  Law,  164;  3  Kent's  Com.,  458)  ;  while  on  the  con- 
trary^ the  privilege  of  membership  in  a  voluntary  association  is  de- 
rived exclusively  from  the  body  that  bestows  it,  and  may  be  conferred 
or  withheld  at  its  pleasure.  The  law  can  not  compel  such  an  organ- 
ization to  admit  an  individual  to  membership,  as  may  be  done  in  the 
case  of  a  corporation,  nor  can  it  interfere  to  restore  a  member  who 
has  been  deprived  of  the  privilege  for  not  complying  with  the  condi- 
tions upon  which  the  enjoyment  of  it  was  made  to  depend.  A  mem- 
ber of  a  body  of  this  description  has,  as  such,  undoubtedly,  rights  which 
the  law  will  protect,  but  they  do  not  rest  upon  the  same  ground,  and 
are  by  no  means  coextensive  with  the  franchise  enjoyed  by  a  mem- 
ber of  a  corporation.  They  depend  upon  the  nature  of  the  organiza- 
tion, upon  the  object  for  which  it  was  formed,  and  upon  the  rules, 
regulations,  constitution  or  by-laws  which  are  explanatory  of  its  pur- 
pose, and  which  the  body  has  adopted  for  its  government. 

^  Infra,  p.  1165. 


I90  WHITE   V.    BROWNELL,  §  35 

Individuals  who  form  themselves  together  into  a  voluntary  associa- 
tion for  a  common  object  may  agree  to  be  governed  by  such  rules  as 
they  think  proper  to  adopt,  if  there  is  nothing  in  them  in  conflict  with 
the  law  of  the  land ;  and  those  who  become  members  of  the  body  are 
presumed  to  know  them,  to  have  assented  to  them,  and  they  are  bound 
by  them  (Innes  v.  Wylie,  i  Car.  &  Kir.  R.  262  ;  Brancker  v.  Roberts, 
7  Jur.  N.  S.  1 185;  Hopkinson  v.  The  Marquis  of  Exeter,  London 
Times,  Dec.  31st,  1867,  Law  R.,  5  Eq.  Ca.  63). 

Such  an  organization  may  prescribe  the  conditions  upon  which  per- 
sons will  be  admitted  to  membership,  as  well  as  the  conditions  upon 
which  the  continuance  of  membership  will  depend ;  and  where  they 
have  no  regulation  upon  the  subject,  they  may  expel  a  member  by  a 
vote  of  the  majority,  if  he  has  been  notified  of  the  charge  against  him, 
and  afforded  an  opportunity  of  being  heard  in  his  defense  (Innes  v. 
Wylie,  I  Car.  &  Kir.  R.  262).  Voluntary  bodies  of  this  kind  will  be 
held  to  the  fair  and  honest  administration  of  the  rules  which  are  in 
force  when  any  proceeding  is  instituted  against  a  member ;  but  where 
a  member  is  expelled  in  conformity  with  the  rules,  and  the  proceed- 
ings are  regular  and  in  good  faith,  it  is  final,  and  no  judicial  tribu- 
nal can  interfere.  (The  Commonwealth  v.  The  Pike  Beneficial  So- 
ciety, 8  Watts  &  Serg.  350).  The  only  question,  therefore,  that  can 
arise  in  the  present  case  is  whether  the  plaintiff  was  suspended  from 
the  privileges  of  a  member  of  this  Open  Board  of  Stock  Brokers  in 
accordance  with  the  constitution  and  by-laws  which  that  body  has 
adopted  for  its  government;  for  if  he  was,  he  has  no  ground  of  com- 
plaint. 

[The  court  held  that  plaintiff  was  expelled  in  accordance  with  the 
by-laws,  and  so  affirmed  the  decree  dissolving  the  injunction.] 

Note.  1887,  Davison  v.  Holden,  55  Conn.  103,  10  Atl.  Rep.  515;  1881,  Ash 
V.  Guie,  97  Pa.  St.  493,  39  Am.  Rep.  818;  1855,  Pipe  v.  Bateman,  1  Iowa  (1 
Clarke)  369 ;  1893,  Burt  v.  Oneida  Community,  137  N.  Y.  346,  33  N.  E.  Rep. 
307,  19  L.  R.  A.  297;  1893,  McDowell  v.  Joice,  149  111.  124;  1888,  Liggett  v. 
Ladd,  17  Ore.  89,  21  Pac.  Rep.  133;  1891,  Crawford  v.  Gross,  140  Pa.  St.  297, 
21  Atl.  Rep.  356;  1891,  Wicks  v.  Monihan,  130  N.  Y.  232,  14  L.  R.  A.  243,  29 
N.  E.  Rep.  139;  1889,  Lawler  v.  Murphy.  58  Conn.  294,  8  L.  R.  A.  113,  20  Atl. 
Rep.  457;  1896,  Cheney  v.  Goodwin,  88  Maine  563,  34  Atl.  Rep.  420;  1895, 
Society  of  Shakers  v.  Watson,  68  Fed.  Rep.  730,  15  C.  C  A. 632,  37  U.  S.  App. 
141 ;  1893,  Grand  Rapids  Guard  v.  Bulkley,  97  Mich.  610,  57  N.  W.  Rep.  188; 
1883,  Ray  v.  Powers,  134  Mass.  22;  1883,  Burt  v.  Lathrqp,  52  Mich.  106;  1883, 
Heath  v.  Goslin,  80  Mo.  310,  50  Am.  Rep.  505 ;  1843,  Eichbaum  v.  Irons,  6 
Watts  &  S.  (Pa.)  67,  40  Am.  Dec.  540;  1841,  Todd  v.  Emly,  7  M.  &  W.  427,  s. 
'^.  8  M.  &  W.  505. 


§  36  CORPORATION  AND    STATE   INSTITUTIONS.  I9I 

Sec.  36.     (7)    From  state  institutions. 

NEIL  V.  THE  BOARD  OF  TRUSTEES  OF  THE  0.  A.  &  M.  COLLEGE.' 

1876.     In  the  Supreme  Court  of  Ohio.     31  Ohio  State,  15-23. 

Motion  for  leave  to  file  a  petition  in  error  to  reverse  the  judgment 
of  the  district  court  of  Franklin  county. 

[Action  in  lower  court  by  the  college  board  of  trustees  to  collect 
subscription  made  by  Rudisill  and  others  and  guaranteed  by  Neil,  to 
contribute  to  a  fund  to  be  raised  in  order  to  secure  the  location  of 
the  college  in  Franklin  county,  the  sums  subscribed  to  be  paid  to  the 
treasurer  of  the  college  at  the  times  indicated.  The  college  was  lo- 
cated in  Franklin  county,  as  proposed,  and  the  board  sued  for  the 
sums  so  subscribed.  Neil  demurred  to  the  petition  on  the  ground 
(among  others)  that  the  board  of  trustees  had  not  the  legal  capacity 
to  sue.] 

BoYNTON,  J.  *  *  *  It  is  claimed  by  the  plaintiff  that  the  board  of 
trustees  of  the  college  has  not  legal  capacity  to  sue,  and,  therefore,  that 
the  judgment  was  improperly  rendered  in  its  favor.  It  is  not,  however, 
denied  that  the  fourth  section  of  the  act  establishing  the  college  (6"] 
Ohio  L.  20)  expressly  confers  upon  the  board  the  "right  of  suing  and 
being  sued,  of  contracting  and  being  contracted  with;"  but  it  is  con- 
tended that  such  act,  "in  so  far  as  it  attempts  to  constitute  the  defend- 
ant in  error  the  board  of  trustees  of  said  college,  and  clothe  it  with 
the  power  therein  mentioned,"  is  in  conflict  with  the  first  section  of  the 
thirteenth  article  of  the  constitution,  which  declares  that  the  "general 
assembly  shall  pass  no  special  act  conferring  corporate  powers,"  the 
claim  being  that  the  board  is,  to  all  intents  and  purposes,  created  a 
corporation  and  clothed  with  corporate  functions  and  privileges.  We 
are  not  able  to  yield  our  assent  to  this  construction  of  the  statute.  The 
act  is  entitled  "An  act  to  establish  and  maintain  an  agricultural  and 
mechanical  college  in  Ohio."  It  creates  a  board  of  tnistees,  to  be  ap- 
pointed by  the  governor,  by  and  with  the  advice  and  consent  of  the 
senate,  and  commits  to  such  board  the  government,  control  and  gen- 
eral management  of  the  affairs  of  the  institution ;  and  while  the 
statute  authorizes  the  board  to  make  contracts  for  the  benefit  of  the 
college,  and  to  maintain  actions,  if  necessary,  to  enforce  them,  and  to 
exercise  other  powers  similar  to  those  conferred  on  bodies  corporate, 
it  does  not  assume  to,  nor  does  it  in  fact,  create  or  constitute  such 
board  of  trustees  a  corporation,  and  hence  does  not  clothe  it  with 
corporate  functions  or  powers.  The  State,  ex  rel.  the  Attorney-Gen- 
eral, V.  Davis,  23  Ohio  St.  434.  The  college  is  a  state  institution, 
designed  and  well  calculated  to  promote  public  educational  interests, 

'  Arguments  of  counsel  ana  opinion  of  court  on  other  points  omitted.  State- 
ment of  facts  condensed. 


192  NEIL   V.    THE   BOARD.  §  36 

established  for  the  people  of  the  whole  state,  to  be  managed  and  con- 
trolled by  such  agencies  as  the  legislature  in  its  wisdom  may  provide. 
Similar  powers,  but  perhaps  less  extensive,  because  less  required,  are 
conferred  on  the  tiustees  of  the  various  hospitals  for  the  insane  (73 
Ohio  L.  80),  and  on  the  board  of  managers  of  the  Ohio  Soldiers'  and 
Sailors'  Orphans'  Homes  (67  Ohio  L.  53),  and  other  institutions  of 
the  state.  The  powers  thus  conferred  are  essentially  necessary  to  ac- 
complish the  objects  for  which  these  institutions  were  established. 
The  power  to  establish  them  is  found  clearly  granted  in  the  seventh 
article  of  the  constitution. 
Leave  refused. 

Note.  There  is  considerable  difficulty  in  determining  the  character  of  these 
institutions,  whether  they  are  corporations  or  not.  Several  cases  hold  they 
are,  and  several  hold  they  are  not.  Perhaps,  it  is  not  improper  to  call  them 
public  corporations,  but  they  are  obviously  not  the  same  as  municipal  cor- 
porations, or  public  quasi  corporations  such  as  counties,  townships,  school 
boards,  etc.  (See  infra,  pp.  214,  221,  222,  229.)  They  have,  in  the  case  of 
banks,  at  least  in  one  state,  been  held  to  be  private  corporations.  (See  infra, 
p.  221.)  The  fullest  information  to  be  had  on  the  character  of  these  institu- 
tions is  to  be  found  in  a  note  to  State  v.  Regents  of  Univ.  of  Kan.,  55  Kan. 
389  (1895),  in  29  Lawyer's  Rep.  Ann.,  p.  378.  Here  information  is  given  un- 
der the  heads  Banks,  Educational  Institutions,  Other  State  Institutions — Lia- 
bilities of  Such,  and  Directors,  Trustees  and  Officers  of  Such. 

1.  Universities,  etc.  Regents  of  University  of  Maryland  v.  Williams,  9 
Gill  &  J.  (Md.)  365,  31  Am.  Dec.  72;  Oklahoma  Agr.  &  M.  Coll.  v.  Willis 
(Minn.),  40  L.  R.  A.  677;  State  v.  Carr,  111  Ind.  335  (University  of  Indiana 
is  not  a  public  corporation);  State  v.  White,  82  Ind.  278,  42  Am.  Rep.  496 
(Pardue  University  is  subject  to  mandamus);  State  v.  Regents  of  University, 
55  Kan.  389  (subject  to  quo  warranto);  Weary  v.  State  University,  42  Iowa 
335  (University  is  not  a  corporation) ;  University  of  Alabama  v.  Winston,  5 
Stew.  &  P.  (Ala.)  17  (University  of  Alabama  is  a  public  corporation) ;  Lewis 
V.  Whittle,  77  Va.  415  (Medical  College  of  Virginia  is  a  public  corporation); 
Tulane  Ed.  Fand  v.  Board  of  Assessors,  38  La.  Ann.  292  (University  of  Louisi- 
ana is  a  corporation) ;  Regents  of  University  of  Michigan  v.  Det.  Bd.  of  Ed., 
4  Mich.  213  (University  is  a  public  corporation)  ;  to  same  effect.  Regents  of 
University  of  Michigan  v.  Y.  M.  Society,  12  Mich.  138;  Sterling  v.  Regents 
of  University  of  Michigan,  110  Mich.  369,  34  L.  R.  A.  150;  Regents  of  Uni- 
versity of  Nebraska  v.  McConnell,  5  Neb.  423  (University  of  Nebraska  is  a 
public  corporation)  ;  University  of  North  Carolina  v.  Maultsby,  43  N.  C.  (8  Ir. 
Eq.)  257  (University  of  North  Carolina  is  a  public  corporation);  State  v. 
Knowles,  16  Fla.  577  (Florida  Agricultural  College  is  a  public  corporation); 
Dunn  V.  University  of  Oregon,  9  Ore.  357  (Directors  of  University  of  Oregon 
are  a  corporation)  ;  State  v.  Lindsley,  3  Wash.  125  (University  of  Washington 
Is  a  state  institution) ;  Butler  v.  Regents  of  University  of  Wisconsin,  32  Wis. 
124  (University  is  a  state  institution);  State  Institutions,  9  Colo.  626  (Agri- 
cultural College  and  School  of  Mines  are  state  institutions  by  the  constitution 
and  can  not  be  moved)  ;  Lundy  v.  Delmas,  104  Cal.  655,  26  L.  R.  A.  651  (Re- 
gents not  individually  liable  for  damages). 

2.  Banks,  state.  See  Bank  of  Tennessee  v.  Woodson,  5  Coldw.  (Tenn.) 
176;  Bank  of  Kentucky  v.  Wister,  27  U.  S.  (2  Pet.)  318;  Briscoe  v.  Bank  of 
Commonwealth  of  Kentucky,  36  U.S.  (11  Pet.)  257  ;  Woodruff  v.  Trapnall,  51 
U.  S.  (10  How.)  190;  Darrington  v.  Branch  Bank  of  Alabama,  54  U.  S.  (13 
How.)  12;  Curran  v.  Arkansas,  56  U.  S.  (15  How.)  304;  Barings  v.  Dabney, 
86  U.  S.  (19  Wall.)  1;  Jones  v.  Bank  of  Tennessee,  8  B.  Mon.  122,  46  Am. 
Dec.  540;  McFarland  v.  State  Bank,  4  Ark.  44,*  37  Am.  Dec.  761;  Linn  v. 
State,  2  111.  87,  25  Am.  Dec.  71. 

3.  Other  institutions.    Cleaveland  r.  Stewart,  3  Ga.  283 ;  Illinois  Board  of 


§  37  SOLE  AND   AGGREGATE   CORPORATIONS.  193 

Education  v.  Greenebaum,  39  111.  610 ;  Downing  v.  State  Board  of  Agriculture, 
129  Ind.  443,  12  L.  R.  A.  664;  Liggett  v.  Ladd,  23  Ore.  26  (Ag.  Soc.) ;  Selinas 
V.  Vermont  Agricultural  Society,  60  Vt.  249;  Hern  v.  Iowa  State  Agricul- 
tural Society,  91  Iowa  97,  24  L.  R.  A.  655.  See,  especially,  the  full  notes  upon 
the  subject  of  state  institutions  generally,  in  29  L.  R.  A.  378,  and  40  L.  R.  A. 
677. 


ARTICLE    VI.       CLASSES    OF    CORPORATIONS. 

Sec.  37.  Every  body  politike,  or  corporate,  is  either  ecclesiastical 
or  lay;  ecclesiastical,  either  regular,  as  abbots,  priors,  etc., 
or  secular,  as  bishops,  deans,  archdeacons,  parsons,  vicars, 
etc. ;  lay,  as  maior  or  communaltie,  baylifes  and  burgesses, 
etc.  *  *  *  And  againe  it  is  either  sole,  or  aggregate  of 
many.  *  *  *  And  this  body  politike,  or  corporate, 
aggregate  of  many,  is  by  the  civilians  called  collegeium  or 
universitas 

Coke's  Littleton,  §  413,  c.  1613. 

(a)    As  to  number  of  members,  corporations  are: 

1.  Sole. 

2.  Aggregate. 

OVERSEERS  OF  THE  POOR  OF  THE  CITY   OF  BOSTON  v.   SEARS 

Et  Ux.i 

1839.     In  the  Supreme  Judicial  Court  of  Massachusetts.     22 
Pickering  (Mass.)  Rep.  122-135. 

[Writ  of  right  by  plaintiff  against  defendants  to  recover  certain  lands 
in  Boston,  claiming  upon  the  seizin  of  ihovc  predecessors  Wx^kixn  the 
last  forty  years.     Defendants  demurred.] 

Shaw,  C.  J.,  delivered  the  opinion  of  the  court.  It  is  a  well-settled 
rule  of  law,  applicable  to  real  actions,  that  it  is  not  necessary,  as  in 
personal  actions,  to  plead  a  statute  of  limitations,  and,  therefore,  if  it 
appear,  on  the  face  of  the  record,  that  the  action  is  not  brought  within 
the  time  limited  by  law,  the  tenant  may  avail  himself  of  it  by  general 
demurrer.     Holmes  v.  Holmes,  2  Pick.  23. 

By  statute  1786,  ch.  13,  §  3,  no  person  or  body  politic  shall  sue  or 
maintain  any  action,  for  any  lands,  upon  his  or  their  own  seizin  or  pos- 
session therein,  above  thirty  years  next  before  the  teste  of  the  same 
writ.  And  by  statute  1807,  ch.  75,  §  i,  no  person  shall  sue  or  main- 
tain any  writ  of  right  to  any  lands,  upon  the  seizin  of  his  or  their  an- 
cestor or  predecessor,  beyond  the  term  of  forty  years  next  before  the 
teste  of  the  same  writ. 

*  Arguments  and  part  of  opinion  omitted.    Statement  of  facts  condensed. 
13— WiL.  Cases. 


194  OVERSEERS,    ETC.,    V.    SEARS.  §  37 

It  is  therefore  manifest  that  if  this  writ  is  taken  to  be  one  on  which 
the  plaintiff  corporation  count  on  their  own  seizin ;  or,  if  they  consti- 
tute a  corporation  of  such  a  character  that  they  could  have  no  prede- 
cessor in  legal  contemplation,  and,  of  course,  could  not  count  on  the 
seizin  of  predecessors,  then  this  action  can  not  be  maintained.  This 
distinctly  presents  the  question  for  consideration.  On  the  part  of  the 
tenant^,  it  is  contended,  that  this  is  a  common  case  of  a  corporation 
aggregate,  consisting  of  many  persons,  with  the  usual  incidents  of  an 
aggregate  corporation,  that  as  such  they  must  declare  upon  their  own 
seizin  within  thirty  years.  On  the  contrary,  it  is  contended  by  the  de- 
mandants, that  although  the  plaintiff  corporation  is  composed  of  many 
persons,  yet  that  is  more  analogous  to  the  case  of  a  sole  corporation, 
particularly  in  this,  that  they  do  not  elect  the  members  of  their  own 
body,  that  they  all  go  out  at  once  and  new  members  come  in  at  once, 
as  the  necessary  consequence  of  an  annual  election  by  others,  and, 
therefore,  that  the  corporation  of  one  year  and  that  of  another,  when 
an  election  has  intervened,  bear  to  each  other  the  legal  relation  of  pred- 
ecessor and  successor. 

It  becomes,  therefore,  necessary  to  distinguish  with  some  care  be- 
tween these  different  kinds  of  corporations.  "The  first  division  of 
corporations,"  says  Blackstone,  "is  into  aggregate  and  sole.  Corpo- 
rations aggregate  consist  of  many  persons  united  together  into  one 
society^  and  are  kept  up  by  a  perpetual  succession  of  ?)iembers,  so  as 
to  continue  forever.  Corporations  sole  consist  of  one  person  only, 
and  his  successors,  in  some  particular  station,  who  are  incorporated 
by  law  in  order  to  give  them  some  legal  capacities,  particularly  that 
of  perpetuity. ^^  We  are  not  aware  that  there  is  any  instance  of  a 
sole  corporation  in  this  commonwealth  except  that  of  a  person  who 
may  be  seized  of  parsonage  lands  to  hold  to  him  and  his  successors,  in 
the  same  office,  in  right  of  his  parish.  There  are  some  instances  in 
which  certain  public  officers  are  empowered  by  statute  to  maintain 
actions,  as  successors,  such  as  judges  of  probate,  county  and  town 
treasurers ;  but  it  is  only  where  expressly  provided  by  statute.  "There 
are,"  says  Chancellor  Kent,  2  Commentaries  (3d  ed.),  273,  274, 
"very  few  points  of  corporation  law,  applicable  to  a  coi-poration  sole." 
"The  corporations  generally  in  use  with  us  are  aggregate  or  the  union 
of  two  or  more  individuals  in  one  body  politic,  with  a  capacity  of  suc- 
cession and  perpetuity." 

It  becomes  then  necessary  to  consider  what  are  the  distinctions  estab- 
lished by  law,  between  a  sole  and  an  ag-greg^ate  corporation.  The  first 
and  the  most  important  is  that  a  corporation  aggregate  has  a  perpetual 
existence  without  change,  so  that  an  estate  once  vested  in  it  continues 
vested  without  interruption.  Whereas,  when  a  bishop  or  parson, 
holding  estate  as  a  sole  corporation,  dies  or  resigns  his  office,  the  fee 
is  in  abeyance  until  a  successor  is  appointed.  From  this  flows  one 
necessary,  but  obvious  legal  consequence,  which  is  that  a  grant  to  an 
aggregate  corporation  carries  a  fee  without  the  word  "successors"; 
but  a  grant  to  a  corporation  sole,  without  including  successors,  carries 
a  life  estate  only  to  the  actual  incumbent,  who  is  the  first  taker.     Co. 


§37  SOLE  AND   AGGREGATE   CORPORATIONS.  195 

Lit.,  83,  9<5,  94^;  4  Cmise's  Dig.,  442.  A  life  estate  to  an  ideal 
being  having  a  perpetual  and  uninterrupted  existence  must  be  coex- 
tensive with  a  fee  or  perpetuity,  and  words  of  limitation  could  not  ex- 
tend it.  But  where  property  vests  in  a  bishop,  parson  or  other  sole 
corporation,  he  holds  it  to  his  own  use  and  benefit  whilst  he  holds  the 
office,  and  afterward  the  estate  and  the  enjoyment  of  it  go  together  to 
his  successor  when  established.  The  transmission  of  the  estate  is  per- 
petual, but  the  beneficial  enjoyment  changes  at  each  succession. 

Another  well  settled  distinction  is  that  by  the  common  law  a  sole 
corporation  can  not  take  personal  property  in  succession,  and  that  its 
corporate  capacity  is  confined  to  real  estate.  2  Kent's  Com.,  273, 
An  aggregate  corporation  may  take  personal  property  for  themselves 
and  successors.  The  reason  why  a  sole  corporation  can  not,  says 
Blackstone,  is  that  such  movable  property  is  liable  to  be  lost  or  em- 
bezzled, and  would  raise  a  multitude  of  disputes  between  the  succes- 
sor and  executor,      i  Comm.,  477. 

There  are  a  great  variety  of  other  particulars,  in  which  the  incidents 
and  characteristics  which  are  considered  essential  to  an  aggregate  cor- 
poration do  not  extend  to  a  sole  corporation  because  by  the  reason  and 
nature  of  their  respective  modes  of  operation  they  do  not  apply ;  upon 
the  principle  that  when  the  reason  of  a  inle  ceases  the  inale  ceases. 

All  aggregate  corporation  may  have  and  use  a  common  seal  by  which 
the  will  of  the  body  is  expressed  and  its  acts  executed ;  they  are  to 
take  and  grant  by  their  appropriate  corporate  name ;  may  take  and 
hold  real  and  personal  property ;  may  make  by-laws  for  the  regulation 
of  all  matters  within  the  scope  of  their  authority,  not  contrary  to  the 
law  of  the  land  or  repugnant  to  the  provisions  of  the  charter  or  act  of 
incorporation ;  they  must  perform  all  corporate  acts,  by  deed  under 
their  common  seal,  by  vote  or  by  the  agency  of  officers  or  agents  duly 
authorized  for  the  purpose ;  they  must  appear  by  attorney  and  can  not 
appear  in  person ;  the  will  of  the  majority,  orderly  taken  at  a  meeting 
duly  called  and  held,  .is  the  will  of  the  body  and  must  govern  unless 
otherwise  provided  by  charter  or  by-law;  they  must  regularly  keep  a 
record,  journal  or  other  written  account  of  their  votes  and  proceed- 
ings, which  is  the  proper  evidence  of  their  acts,  and  may  elect  and 
qualify  a  clerk  or  secretary  for  that  purpose ;  they  may  elect  a  presi- 
dent or  head,  a  treasurer,  managers,  directors  and  other  suitable  offi- 
cers, with  such  powers  as  the  terms  import,  and  such  as  may  be  spe- 
cially conferred  upon  them  by  vote  or  deed  to  manage  their  affairs; 
they  may  elect  members  to  fill  vacancies  when  it  is  not  otherwise  pro- 
vided by  the  charter.  Indeed  this  last  qualification  must  be  added  in 
regard  to  almost  all  these  enumerated  powers,  and  it  may  be  remarked 
generally  that  when  these  are  denominated  incidents  to  an  aggregate 
corporation,  it  is  to  be  understood  that  they  are  the  most  common  and 
usual  characteristics  of  such  a  corporation,  and  that  they  exist  by  im- 
plication, in  cases  where  it  is  not  otherwise  provided  in  the  charter; 
but  that  its  constitution  and  organization,  the  mode  in  which  individu- 
als may  become  and  cease  to  be  members,  and  also  its  action  in  all 
respects,  the  manner,  times,  places  and  occasions  on  which  meetings 


196  OVERSEERS,    ETC.,    V.    SEARS.  §3/ 

may  be  held,  the  members  or  particular  individuals  who  must  be 
present  and  vote  to  constitute  a  valid  act,  the  officers  who  may  or  must 
be  chosen,  the  property  they  may  hold,  the  powers  they  may  exercise, 
the  duration  of  their  existence,  may  all  be  modified  and  regulated  ad 
libitum^  by  the  power  which  constitutes  the  corporation.  Nothing- 
seems  essential  to  a  corporation  but  a  capacity  to  have  perpetual  suc- 
cession, under  a  special  denomination  and  in  an  artificial  form,  a  ca- 
pacity to  take,  hold  and  grant  property,  to  sue  and  be  sued  by  its  cor- 
porate name,  and  in  common  to  exercise  powers  and  enjoy  franchises- 
and  immunities.     2  Kent's  Com.,  277. 

In  all  these  respects  the  distinction  between  an  aggregate  and  sole 
corporation,  growing  out  of  their  different  modes  of  constitution  and 
forms  of  action,  is  striking  and  obvious.  A  bishop  or  parson  acting 
in  a  coi-porate  capacity,  and  holding  property  to  him  and  his  successor 
in  right  of  his  office,  has  no  need  of  a  corporate  name ;  he  requires  no 
peculiar  seal ;  he  performs  all  legal  acts  under  his  own  seal,  in  his  own 
name  and  name  of  office ;  his  own  will  alone  regulates  his  acts,  and  he 
has  no  occasion  for  a  secretary,  for  he  need  not  keep  a  record  of  his 
acts ;  no  need  of  a  treasurer,  for  he  has  no  personal  property,  except 
the  rents  and  proceeds  of  the  corporate  estate,  and  these  he  takes  to 
his  own  use  when  received.  By-laws  are  unnecessary,  for  he  regu- 
lates his  own  action,  by  his  own  will  and  judgment,  like  any  other  in- 
dividual acting  in  his  own  right.  But  it  is  not  necessary  to  pursue  the 
comparison  into  all  its  details ;  the  points  suggested  are  sufficient  to 
show  the  legal  distinctions  between  the  two  classes  of  corporations. 

With  these  views  of  the  characters  of  these  two  kinds  of  corpora- 
tions, it  becomes  necessary  to  examine  the  act  under  which  the  de- 
mandants were  made  a  corporation,  and  under  which  they  act,  in 
order  to  ascertain  their  legal  character  and  rights.  This  act  was 
passed  by  the  provincial  government  shortly  before  the  revolution,  in. 
1772.  It  recites  that  many  charitably  disposed  persons  had  given 
sums  of  money  and  other  interest  and  estate  to  the  poor  of  Boston, 
and  others  were  well  inclined  to  make  such  charitable  donations,  but 
the  overseers  of  the  poor  of  the  same  town,  not  being  incorporated, 
such  good  intentions  had  been  fiiistrated,  or  not  earned  into  full 
effect;  it  then  enacts  that  the  said  overseers  for  the  time  being,  be 
made  and  incoi^porated  into  a  body  politic  by  the  name,  etc.,  and  that 
they  and  their  successors  in  said  office  have  a  perpetual  succession  by 
said  name.  The  second  section  provides  that  all  money  and  estate, 
real  or  personal,  before  given,  or  which  should  be  afterwards  given 
to  the  poor  of  said  town,  not  exceeding  the  amount  and  value  therein 
limited,  should  be  vested  in  the  same  overseers,  and  their  successors 
in  their  said  corporate  capacity ;  and  they  were  enabled  to  receive 
and  manage  the  same  for  the  use  of  said  poor.  The  third  section 
authorizes  them  to  take  and  hold  moneys,  securities  and  personal 
property  to  the  amount  of  sixty  thousand  pounds  and  no  more.  The 
fourth  section  again  declares  that  the  said  overseers  and  their  succes- 
sors in  said  office,  by  the  said  name,  shall  have  perpetual  succession 
and  power,  by  their  said  corporate  name,  to  purchase  and  hold  lands. 


§  37  SOLE   AND   AGGREGATE   CORPORATIONS.  19/ 

not  exceeding  five  hundred  pounds  annual  income,  to  manage,  lease 
and  sell  the  same,  and  do  all  other  acts,  as  natural  persons  may,  as 
they  shall  judge  best  for  the  use  and  advantage  of  said  poor.  The 
fifth  section  authorizes  them  to  have  a  common  seal,  to  make  by-laws, 
to  choose  a  treasurer,  clerk  and  other  subordinate  officers,  and  at 
pleasure  to  displace  them.  The  sixth  and  last  section  declares  that  all 
instruments  executed  under  their  common  seal,  and  all  acts  done  or 
matters  passed  upon  by  consent  of  a  major  part  of  said  overseers  for 
the  time  being,  shall  bind  said  corporation  and  be  valid  in  law. 

Here  are  all  the  characteristics  and  incidents  of  a  complete,  full, 
aggregate  corporation.  It  was  to  be  composed  of  several  persons. 
They  were  to  hold  personal  as  well  as  real  estate,  to  make  by-laws 
for  their  government,  to  have  a  common  seal,  to  have  perpetual  suc- 
cession, and  to  act  by  the  vote  of  a  majority.  Indeed  it  is  not  denied 
that  they  are  literally  an  aggregate  corporation,  consisting  of  many 
persons,  in  contradistinction  to  a  sole  corporation ;  but  it  is  contended, 
that  as  they  have  no  power  of  electing  their  own  members,  and  thereby 
perpetuating  their  own  existence,  but  all  come  in  by  annual  election 
and  go  out  at  the  end  of  the  year,  they  constitute  a  body  more  analog- 
ous to  a  sole  corporation  than  to  an  aggregate  one.  But  this  analogy 
is  not  such  as  wholly  to  change  the  character  of  such  a  corporation. 
Indeed,  the  analogy  even  in  this  respect  is  rather  slight. 

The  strong  argument  is,  that  in  this  corporation  there  is  no  provis- 
ion that  the  body  shall  perpetuate  itself  by  an  election  of  new  mem- 
bers in  place  of  those  who  die  or  resign.  But  this  mode  of  perpetu- 
ating its  existence  is  not  essential ;  all  that  is  essential  is,  that  some 
mode  be  provided  by  the  charter,  or  act  by  which  it  is  constituted,  by 
means  of  which  it  shall  be  so  perpetuated.  Blackstone,  in  the  defini- 
tion already  cited,  says,  that  "corporations  aggregate  consist  of  many 
persons,  united  together  into  one  society,  and  are  kept  up  by  a  per- 
petual succession  of  members,  so  as  to  continue  forever."  i  Comm., 
469.  If  such  a  succession  is  effectually  provided  for,  it  is  all  that  is 
requisite.  Here  we  are  to  consider  that  the  legislature,  in  framing 
this  act  of  incorporation,  had  in  their  view  the  general  laws  of  the 
government,  and  the  manner  in  which  towns  in  general,  and  the  town 
of  Boston  in  particular,  were  organized.  Those  laws  provided,  that 
that  town  should  annually  choose  twelve  persons  to  be  overseers  of 
the  poor,  and  the  general  laws  provided,  that  if  overseers  were  not 
specially  chosen,  the  selectmen  should  act  as  overseers.  Towns  were 
of  themselves  corporations,  having  perpetual  succession,  consisting  of 
all  persons  inhabiting  within  certain  territorial  limits,  so  that  by  the 
ordinary  operation  of  the  laws,  a  perpetual  succession  of  overseers 
was  secured.  The  better  opinion  is,  that  town  officers  thus  annually 
chosen  hold  their  offices  until  others  are  chosen  and  qualified  in  their 
place.  But  this  is  not  essential  to  the  argument ;  it  is  made  the  duty 
of  towns  to  choose  officers  annually,  it  being  for  their  interest  to  do 
so;  and  when  chosen,  they  become,  by  force  of  the  statute,  members 
of  the  corporation,  and  thus  all  the  purposes  contemplated  by  the  in- 
corporation would  be  attained.     And  this  mode  of  continuing  a  sue- 


198  OVERSEERS,    ETC.,    V.    SEARS.  §  37 

cession  of  members,  without  election  by  the  corporation  itself,  applies 
to  the  great  majority  of  corporations  in  this  commonwealth.  In  all 
quasi  corporations,  as  cities,  towns,  parishes,  school  districts,  mem- 
bership is  constituted  by  living  within  certain  limits.  In  all  bridge, 
railroad  and  turnpike  companies,  in  all  banks,  insurance  companies, 
manufacturing  companies,  and  generally  in  corporations  having  a  cap- 
ital stock,  and  looking  to  profit,  membership  is  constituted  by  a  trans- 
fer of  shares,  according  to  the  by-laws,  without  any  election  on  the 
part  of  the  corporation  itself.  In  some,  the  assent  of  the  corporation 
is  made  necessary  to  such  transfer  and  consequent  membership.  In 
some  instances  more  nearly  resembling  the  present,  all  the  members 
of  the  corporation  are  chosen,  annually  or  otherwise,  by  a  body  other 
than  itself,  as  tnistees  of  ministerial  funds,  chosen  by  the  parish,  dea- 
cons of  Congregational  churches  and  wardens  and  vestry  of  Episcopal 
churches,  by  the  members  of  those  churches ;  and  in  the  latter  case, 
the  corporators  are  elected  by  persons  not  themselves  being  a  corpo- 
ration, and  having  a  perpetual  existence  as  voluntary  associations, 
only  by  the  ancient  and  established  usages  of  the  country.  St.  1785, 
ch.  51.      . 

In  the  present  case  abundant  provision  was  made  for  perpetuating 
fthe  corporation.  Supposing  the  act  to  be  framed  with  reference  to 
the  established  and  perpetual  laws  then  in  force,  it  was  equivalent  to 
declaring  that  those  persons,  who  were  then  overseers  of  the  poor, 
and  those  who  should  thereafter  be  annually  and  successively  chosen 
by  the  town,  forever,  as  such  overseers,  should  be  a  body  corporate 
and  have  perpetual  succession.  And  this  was  an  ample  provision 
made  in  the  act,  for  the  perpetual  succession  of  members,  declared  by 
the  act  itself.  It  was  stated  in  the  argument  for  the  demandants,  on 
the  authority  of  Lord  Coke,  that  by  the  ancient  law  an  abbot  or  con- 
vent would  not  take  as  an  aggregate  corporation,  because,  though 
consisting  of  many,  it  had  not  power  to  perpetuate  itself  by  election, 
but  the  abbot  comes  in  by  appointment.  But  this  argument  is  not 
sustained  by  the  authority.  The  reason  assigned  by  Lord  Coke  is 
that  the  abbot  only  is  capable  of  taking ;  the  convent  or  monks  are 
dead  persons  in  law,  and  for  that  reason  the  estate  vests  in  the  abbot 
alone  as  a  sole  corporation.      Co.  Lit.,  94^,  94^. 

Some  cases  were  cited  from  the  New  York  Reports,  supposed  to 
have  a  bearing  on  this  subject,  in  which  it  was  held  that  overseers 
might  sue  and  be  sued  upon  the  acts  of  their  predecessors.  Todd  v. 
Birdsall,  i  Cowen  260;  Grant  v.  Fancher,  5  Cowen  369.  These 
cases  have  very  little  bearing  upon  the  present  question.  They  de- 
pend upon  general  statute  provisions,  very  different  from  ours.  These 
cases  went  on  the  ground  that  the  overseers  were  not  corporations,  but 
exercised  certain  public  trusts  and  duties,  which,  when  done  within 
the  scope  of  their  authority,  devolved  upon  their  successors  in  the 
same  trust,  in  the  nature  of  corporate  obligations.  Whatever  may  be 
the  relation  of  the  overseers  of  the  poor  in  this  commonwealth,  by  the 
general  laws,  in  this  respect,  these  demandants  were  specially  incor- 
porated for  the  purpose  of  taking  and  holding  property,  for  the  use  of 


§  37  SOLE   AND    AGGREGATE   CORPORATIONS.  199 

the  poor,  and  their  rights  and  duties,  in  this  respect,  do  not  depend 
upon  these  general  laws. 

If  the  legislature  who  granted  this  act  of  incorporation,  knew  and 
recognized  the  distinction  between  an  aggregate  and  sole  corporation, 
it  is  very  clear  that  they  intended  to  constitute  an  aggregate  corpora- 
tion, to  take  and  hold  personal  property,  and  provided  for  the  appoint- 
ment of  a  treasurer  for  that  purpose.     *     *     * 

If  it  be  asked  what  reason  can  be  assigned  why  a  sole  corporation 
shall  have  forty  years  to  bring  a  writ  of  right,  counting  on  the  seizin 
of  a  predecessor,  and  why  an  aggregate  corporation  generally,  or  such 
a  coiporation  as  the  demandants,  in  particular,  shall  have  only  thirty 
years,  in  addition  to  the  technical  reasons  already  assigned,  we  think 
that  there  are  some  others  bearing  more  directly  on  the  merits. 

A  parson,  acting  in  the  capacity  of  a  sole  corporation,  comes  to  the 
estate  of  his  predecessor,  as  an  heir  does  to  his  inheritance,  a  stranger. 
He  is  usually  a  young  clergyman,  knowing  nothing  of  the  parsonage, 
till  about  the  time  of  his  settlement.  He  is  dependent  on  the  duty  and 
courtesy  of  the  representative  of  his  predecessor,  to  be  furnished  with 
the  title  deeds.  Considerable  time  may  elapse  before  he  can  become 
acquainted  with  the  amount  and  condition  of  the  estate,  which  he  is 
bound  to  preserve  and  defend  for  the  benefit  of  himself,  his  parish, 
and  his  successors.  The  condition  of  a  corporation  aggregate,  situated 
like  the  demandants,  vested  with  corporate  powers  for  the  better 
executing  of  a  public  trust,  is  altogether  different.  Looking  at  the 
matter  practically,  as  the  legislature  may  be  presumed  to  have  done, 
many,  perhaps  most  of  the  overseers,  will  be  re-chosen,  and  the  board 
will  change  gradually.  But  suppose  an  entire  new  board  comes  in, 
the  records,  votes,  and  muniments  of  title  are  all  in  the  hands  of  their 
clerk ;  the  money,  securities  and  personal  property  are  held  by  the 
treasurer;  confidential  officers,  the  performance  of  whose  duty  is 
usually  secured  by  oath  and  bond.  They  are  in  as  good  a  condition 
to  execute  the  tnjsts  reposed  in  them,  in  regard  to  these  charitable 
funds,  as  to  understand  and  perform  the  other  duties  confided  to  them. 
They  are  in  the  same  condition  with  all  other  city  and  town  officers, 
and  indeed  all  officers  of  the  state  government,  and  of  all  corporations, 
where  they  come  in  by  annual  election.  In  most  cases  of  aggregate 
coiporations,  the  trustees,  directors,  managers  and  executive  officers, 
all  those  who  are  charged  with  the  duty  of  investigating  and  maintain- 
ing the  rights  of  such  corporations,  either  to  real  or  personal  property, 
come  into  office  by  annual  election,  and  yet  they  have  but  thirty  years, 
within  which  to  commence  writs  of  right. 

On  the  whole,  the  court  are  all  of  opinion  that  the  demandants 
were  constituted  an  aggregate  corporation,  with  perpetual  and  con- 
tinued succession ;  that  a  grant  to  them  of  real  estate  would  have 
carried  a  fee  without  being  to  their  successors ;  that  in  a  writ  of  right 
they  can  count  only  upon  their  own  seizin,  within  thirty  years  next 
before  the  commencement  of  the  action,  and  that,  not  having  so 
counted  in  the  present  case,  the  demurrer  is  well  taken. 

Note.     1807,  Weston  v.  Hunt,  2  Mass.  500,  (Parson  as  to  parsonage  lands  is 


200  OVERSEERS,    ETC.,    V.    SEARS.  §  37 

a  corporation  sole)  ;  1811,  Brunswick  v.  Donning,  7  Mass.  445-7,  (Same)  ;  1889, 
Archbishop  v.  Shipnian,  79  Cal.  288,  (Roman  Catholic  bishop  holding  church 
lands  is  a  corporation  sole) ;  1875,  Westcott  v.  Fargo,  61  N.  Y.  642,  (Presi- 
dent and  treasurer  of  a  joint  stock  company  for  purposes  of  suits  under  stat- 
utes are  substantially  corporations  sole) . 

1.  Officers.  What  were  formerly  classed  as  corporations  sole  in  the  old 
digests  with  us  are  now  usually  classed  as  officers,  and  found  under  that  title 
in  digests. 

The  King  of  England  (Co.  Lit.  43,  1  Bl.  Com.  469,  1  Kyd  20),  the  cham- 
berlain of  the  city  of  London  for  purpose  of  taking  certain  bonds  to  himself 
and  successors  (Fulwood's  Case,  4  Coke  64;  Cro.  Eliz.,  464);  minister  of  a 
parish  seized  of  its  freehold  (Pawlet  v.  Clark,  9  Cranch,  U.  S.  292)  ;  the  gov- 
ernor of  the  state  (The  Governor  v.  Allen,  8  Humph.  (27  Tenn.)  176,  infray 
p.  270);  and  certain  county  officers,  in  taking  bonds,  recognizances,  etc. 
(Kinney  v.  Sanders,  3  Ired.  (N.  C.  )"360;  McDowell  v.  Hemphill,  60  N.  C. 
(1  Winst.  Law)  96,  have  been  held  to  be  corporations  sole.  In  Louisville 
Banking  Co.  v.  Eisenman,  94  Ky.  83,  42  Am.  St.  Rep.  335,  it  is  said  there  is 
no  such  being  as  a  sole  corporation  in  this  state,  and  none  such  allowed  to  be 
created  by  the  statute.  This  was  said  concerning  a  corporation  in  which  one 
member  had  become  the  owner  of  all  the  shares,  and  in  some  measure  mis- 
conceived the  difference  between  a  corporation  sole  and  a  corporation  aggre- 
gate, the  latter  being  one  in  which  there  is  the  capacity  of  having  more  than 
one  member  at  a  time,  and  the  former  one  in  which  there  is  the  capacity  of 
having  only  one  member  at  a  time. 

2.  One  man  companies.  In  corporations  with  shares  of  stock,  one  man 
may  become  the  owner  of  all  the  shares  of  stock,  but  this  does  not  convert 
the  corporation  into  a  corporation  sole,  for  there  is  yet  the  capacity  to  sell 
shares  by  the  owner,  and  bring  in  other  members.  For  most  purposes,  as 
Mr.  Cook  says  (§  709),  "the  existence,  relations  and  business  methods  of  the 
corporation  continue."  But  in  Maryland  and  Kentucky  it  is  held  that  the 
corporate  existence  or  franchise  is  suspended  while  one  owns  all  the  stock  to 
the  extent  that  the  corporate  property  becomes  liable  for  the  debts  of  the  sole 
owner  in  the  same  way  as  his  own ;  but  on  the  other  hand,  the  sole  owner 
does  not  become  individually  liable  for  debts  created  for  the  corporation  and 
in  its  name.  (Swift  v.  Smith,  65  Md.  428,  57  Am.  Rep.  336;  Louisville  Bank- 
ing Co.  V.  Eisenman,  94  Ky.  83,  42  Am.  St.  Rep.  335,  19  L.  Rep.  A.  684.)  But 
such  distinction  has  not  usually  been  made.  See  1897,  Salomon  v.  Salomon, 
etc.,  L.  R.  App.  Cas.  22;  1897,  Harrington  v.  Connor,  51  Neb.  214,  70  N.  W. 
Rep.  911;  1897,  Randall  v.  Dudley,  111  Mich.  437,  69  N.  W.  Rep.  729;  1896, 
Parker  V.  Bethel  Hotel  Co.,  96  Tenn.  252,  31  L.  R.  A.  706;  1896,  National 
Water- Works  Co.  v.  Kansas  City,  78  Fed.  Rep.  428;  1895,  Bank  v.  Macon 
Construction  Co.,  97  Ga.  1 ;  1892,  Union  Pacific  R.  v.  Chicago,  etc.,  R.,61  Fed. 
Rep.  309;  1891,  Humphreys  v.  McKissock,  140  U.  S.  304;  1889,  Farmers,  etc., 
Trust  Co.  V.  Chicago,  P.  &  S.  R.  Co.,  39  Fed.  Rep.  143;  1886,  England  v. 
Dearborn,  141  Mass.  590;  1884,  Button  v.  Hoffman,  61  Wis.  20,  60  Am.  Rep. 
131. 

See  note,  pp.  889,  890. 


§38  ECCLESIASTICAL   AND    LAY    CORPORATIONS.  201 

Sec.    38.     Same,     {b)    As  to  purpose,  corporations  are: 
(i)    Ecclesiastical,  or  religious. 
(2)    Lay,  which  are  (a)    Eleemosynary,  or  (b)    Civil. 

HARDIN  V.  TRUSTEES  OF  SECOND  BAPTIST  CHURCH. 

1883.    In   the  Supreme  Court  of  Michigan,  51  Mich.  Reports, 
PP-  137-139,  47  Am.  Rep.  555. 

Error  to  Wayne.      (Jennison,  J.)     June  13.     June  22. 
Case.     Plaintiff  brings  eiTor.     Affirmed. 

CooLEY,  J.  The  preliminary  objection  to  the  maintenance  of  this 
action  is  so  unmistakably  fatal  that  there  can  be  no  occasion  or  excuse 
for  considering  any  other. 

The  plaintiff,  who,  previous  to  February  2,  1881,  was  a  member  in 
good  standing  of  the  Second  Baptist  Church  of  Detroit,  brings  suit 
against  the  defendant  to  recover  damages  for  having  been  on  that  day 
unwarrantably  and  without  trial  upon  charges  expelled  from  member- 
ship. The  suit  is  against  the  corpoi^ate  body  known  in  law  as  "The 
Trustees  of  the  Second  Baptist  Church  of  Detroit,"  and  which  was 
organized  by  voluntary  association  under  authority  conferred  by  the 
Revised  Statutes  of  1S38.  The  provision  contained  in  that  code  is 
substantially  the  same  which  has  always  existed  in  this  state,  and 
which  is  simple  and  easily  understood.  Persons  desirous  of  forming 
themselves  into  a  religious  society  sign  articles  of  association  for  the 
purpose,  agree  upon  a  name,  elect  trustees  and  put  their  articles  on 
record  when  duly  perfected.  They  thereby  become  a  corporation  by 
the  name  agreed  upon,  and  may  take,  hold  and  convey  property  and 
exercise  the  ordinary  functions  of  corporate  bodies.  The  associates 
are  not  necessarily  professors  of  any  particular  belief  or  faith,  or  mem- 
bers of  any  church ;  and  corporate  succession  is  kept  up  by  conferring 
the  privileges  of  corporators  on  all  who  regularly  attend  worship  in 
the  society  and  contribute  to  its  support.  And  the  trustees  who  are 
to  manage  the  temporal  affairs  of  the  corporation  may  or  may  not  be 
church  members. 

Connected  with  the  corporation  the  statute  contemplates  that  there 
will  be  a  church,  though  possibly  this  may  not  be  essential.  In  this 
case  there  is  one.  The  church  has  its  members^  who  are  supposed  to 
hold  certain  beliefs  and  subscribe  some  covenant  -with  each  other ^  if 
such  is  the  usage  of  the  denomination  to  which  the  church  is  at- 
tached. The  church  is  not  incorporated^  and  has  nothing  whatever 
to  do  with  the  temporalities.  It  does  not  control  the  property  or  the 
trustees;  it  can  receive  nobody  into  the  society  and  can  expel  nobody 
from  it.  On  the  other  hand^  the  corporation  has  nothing  to  do  with 
the  churchy  except  as  it  provides  for  the  church  wants.  It  can  not 
alter  the  church  faith  or  covenant ;  it  can  not  receive  members ;  it 
can  not  expel  members ;    it  can  not  prevent  the  church  receiving  or 


202  HARDIN    V.    TRUSTEES,    ETC.  §  38 

expelling  ■whomsoever  that  body  shall  see  jit  to  receive  or  expel.  This 
concise  statement  is  amply  sufficient  to  show  that  this  suit  has  no 
foundation.  The  corporation  is  sued  for  a  tort  which  it  neither  com- 
mitted nor  had  any  power  to  prevent,  and  which  has  occurred  in  a 
proceeding  where  the  interference  of  the  corporation  would  have  been 
an  impertinence. 

But  it  is  said  that  the  church  is  an  integral  part  of  the  corporation,  or 
rather,  that  it  is  the  corporation  in  its  spiritual  capacity.  Its  being  an 
integral  part  of  the  corporation  proves  nothing.  Counties,  towns  and 
school  districts  are  integral  parts  of  the  state,  but  the  state  is  not  for 
that  reason  liable  for  their  torts.  And  as  to  spiritual  capacity,  the 
corporation  has  none  ;  it  is  given  capacity  in  respect  to  temporalities 
only.  If  the  corporation  had  assumed  to  expel  this  plaintiff  from  the 
church,  she  might  treat  its  action  with  contempt.  But  as  she  makes 
no  complaint  of  wrongful  corporate  action,  we  must  assume  that  the 
corporation  has  never  invaded  her  rights.  If  the  church  has  done  so,, 
the  church  alone  is  culprit. 

The  distinction  between  church  and  corporation  in  these  cases  is 
sufficiently  explained  in  the  following  authorities:  Baptist  Church  v. 
Witherell,  3  Paige  296,  s.  c.  24  Am.  Dec.  223;  Lawyer  v.  Cip- 
perly,  7  Paige  281  ;  Robertson  v.  Bullions,  1 1  N.  Y.  243;  Bellportv. 
Tooker,  29  Barb.  256,  and  21  N.  Y.  267;  Burrel  v.  Associate  Re- 
formed Church,  44  Barb.  282;  Miller  v.  Gable,  2  Denio  492;  Fer- 
raria  v.  Vasconcellos,  31  111.  25;  Calkins  v.  Cheney,  92  111.  463; 
Keyser  v.  Stansifer,  6  Ohio  363 ;  Shannon  v.  Frost,  3  B.  Mon.  253 ; 
German,  etc.,  Cong.  v.  Pressler,  17  La.  Ann.  127;  O'Hara  v.  Stack, 
.90  Pa.  St.  477 ;  Sohier  v.  Trinity  Church,  109  Mass.  i ;  Walrath  v. 
Campbell,  28  Mich.  11 1.     See,  also.  Hale  v.  Everett,  53  N.  H.  9. 

The  judgment  must  be  affirmed  with  costs. 

The  other  justices  concurred. 

Note.  1765,  Rex  v.  Chancellor  of  Cambridge,  3  Burr.  1656,  s.  c.  1  W.  Black. 
560;  1815,  Pawlet  v.  Clark,  9  Cranch  292;  1868,  Hale  v.  Everett,  53  N. 
H.  9,  16  Am.  Rep.  82;  1883,  Sale  v.  First  Regular  Baptist  Church,  etc.,  62 
Iowa  26,  49  Am.  Rep.  136;  1883,  Landis  v.  Campbell,  79  Mo.  433, 49  Am.  Rep. 
239;  1890,  Lillv  v.  Tobbein,  103  Mo.  477,  23  Am.  St.  Rep.  887;  1895,  Russia  v. 
Brazzell,  128  "Mo.  93,  49  Am.  St.  Rep.  542;  1832,  First  Baptist  Church  v. 
Witherell,  3  Paige  Ch.  (N.Y.)296,24  Am.  Dec.  223;  1890,  Connelly  v.  Masonic, 
etc..  Association,  58  Conn.  552,  18  Am.  St.  Rep.  296;  1894,  Reorganized 
Church  of  Jesus  Christ  of  Latter  Day  Saints  v.  Church  of  Christ,  60  Fed.  Rep. 
937,  45  Am.  &  Eng.  Corp.  Cas.  529;  1894,  Auracher  v.  Yerger,  90  Iowa558,  45 
Am.  &  Eng.  Corp.  Cas.  554;  1883,  White  Lick  Quarterly  Meeting,  etc.,  v. 
White  Lick  Quarterly  Meeting,  etc.,  89  Ind.  136,  4  Am.  &  Eng.  Corp.  Cas.  87; 
1894,  Buettnerv.  Frazer,  100  Mich.  179,  58  N.  W.  Rep.  834;  1891,  Winnepe- 
saukee  Camp  Meeting  Ass'n  v.  Gordon,  67  N.  H.  98,  45  Am.  &  Eng.  Corp. 
Cas.  576;  1883,  Whitecar  v.  Michenor,  37  N.  J.  Eq.  6,  1  Am.  &  Eng.  Corp. 
Cas.  268;  1888,  Liggett  v.  Ladd,  17  Ore.  89,  27  Am.  &  Eng.  Corp.  Cas.  406. 


§  39  ECCLESIASTICAL   AND    LAY   CORPORATIONS.  20$ 

Sec.  39.    Same. 

ROBERTSON  Et  Al.  v.  BULLIONS  Et  Al.» 

1850.     In  the  Supreme  Court  of  New  York.     9  Barbour  (N.  Y.) 

Rep.,  pp.  64-150. 

[In  equity.  Appeal  from  the  vice-chancellor.  In  1754  "the  As- 
sociate Presbytery  of  Pennsylvania,"  subordinate  to  the  Associate 
Synod  of  Scotland,  was  organized  out  of  the  American  congregations 
of  the  Associate  Church.  In  1785,  a  church  known  as  the  Associate 
Congregation  of  Cambridge,  N.  Y.,  adhering  to  the  Associate  Pres- 
bytery of  Pennsylvania,  was  formed.  In  1803,  connection  with  Scot- 
land was  dissolved,  and  the  Pennsylvania  Presbytery  was  terminated 
by  being  divided  into  four  presbyteries,  one  being  called  the  Associate 
Presbytery  of  Cambridge,  and  a  synod  called  "Associate  Synod  of 
North  America,"  organized.  Local  churches  were  called  congrega- 
tions. In  1826  the  Cambridge  Associate  Congregation  became  in- 
corporated. In  1786  certain  land  was  conveyed  by  F.  to  seven  per- 
sons designated  as  trustees  of  the  Associate  Congregation  of  Cambridge, 
"adhering  to  the  Associate  Presbytery  of  Pennsylvania,"  and  to  their 
successors  forever.  F/s  wife  failing  to  join  in  the  conveyance  of 
1786,  in  1 8 10  a  new  deed  was  made  to  fourteen  persons  (three  being 
the  same  as  formerly)  described  as  trustees  of  the  same  congregation, 
"adhering  to  the  principles  of  the  Associate  Synod  of  North  America, 
and  now  under  the  inspection  of  the  Associate  Presbytery  of  Cam- 
bridge, belonging  to  the  said  synod,  and  whereof  the  Rev.  Alexander 
Bullions  is  the  present  pastor,"  for  the  use  and  in  trust  for  those  who 
then  were  or  should  thereafter  be  in  full  communion,  and  should  com- 
pose the  said  Associate  Congregation. 

In  1786,  a  church  was  built  on  this  property,  and  in  1833,  a  new 
one.  In  1808,  Dr.  Bullions  was  called  as  pastor  "by  the  elders  and 
other  members  of  the  Associate  Congregation  of  Cambridge,  in  full 
communion,  as  professed  by  the  Associate  Presbytery  of  Cambridge, 
as  subordinate  to  the  Associate  Synod  of  North  America."  And  Dr. 
Bullions  on  ordination  promised  to  submit  himself  to  the  admonition  of 
the  Cambridge  Presbytery.  In  1838,  he  was  deposed  and  excommuni- 
cated by  this  Presbytery ;  its  action  was  affirmed  by  the  Synod  of 
North  America,  the  pastorate  declared  vacant,  and  other  pastors  sent 
by  the  Synod  to  preach  temporarily,  but  a  majority  of  trustees  refused 
to  allow  them  to  preach,  but  permitted  Dr.  Bullions  to  continue.  The 
bill  prayed  that  the  offending  trustees  be  required  to  allow  a  clergy- 
man in  good  standing  to  preach,  that  they  be  enjoined  from  using  the 
church  or  its  funds  in  support  of  any  other,  be  required  to  account  for 
all  money  so  expended,  that  they  be  removed,  and  Dr.  Bullions  re- 
strained from  acting  as  minister.  The  answer  alleged  that  the  greater 
part  of  the  subscriptions  by  which  the  new  church  was  built  was  con- 

'  Statement  of  facts  condensed.  Arguments  and  much  of  the  opinion  omit- 
ted. Dissenting  opinion  of  Cady,  J.,  omitted.  See  decision  of  court  of  ap- 
peals, affirming  the  decree  rendered  by  the  supreme  court,  11  N.  Y.  243. 


204  ROBERTSON    V.    BULLIONS.  §  39 

tributed  by  supporters  of  Dr.  Bullions,  of  whom  there  were  340,  in- 
cluding 221  communicants,  all  the  elders  and  all  the  trustees  at  that 
time,  while  the  complainants  were  only  75  persons  including  60  com- 
municants ;  that  Dr.  Bullions  had  been  wrongfully  deposed  by  the 
Presbytery,  which  was  illegally  constituted,  and  that  neither  he  nor 
his  supporters  had  departed  from  the  principles  of  the  Associate 
church.  The  vice-chancellor  held  that  the  property  was  vested  in  the 
trustees  for  the  use  of  the  congregation,  in  accordance  with  the  dis- 
cipline and  government  of  the  Associate  church  of  North  America, 
which  did  not  allow  excommunicated  preachers  to  act  as  minister, 
and  the  appropriation  of  the  property  for  .such  use  would  be  enjoined. 
Also  that  the  tiiistees  be  removed,  and  new  ones  be  elected  by  those 
who  adhered  to  the  Associate  Presbytery  of  Cambridge,  including 
those  who  statedly  worshiped  with  them ;  also  that  there  be  an  ac- 
counting for  the  use  of  the  pi'operty. 

The  statute  under  which  the  corporation  was  formed  provided : 
"That  it  shall  be  lawful  for  the  male  persons  of  full  age,  belonging 
to  any  church,  congregation,  or  religious  society,  now  or  hereafter 
to  be  established  in  this  state,  and  not  already  incorporated,  to  assem- 
ble at  the  church,  meeting-house,  or  other  place  where  they  statedly 
attend  for  divine  worship,  and  by  plurality  of  voices,  to  elect  any 
number  of  discreet  persons  of  their  church,  congregation  or  society, 
not  less  than  three  nor  exceeding  nine  in  number,  as  trustees,  to  take 
charge  of  the  estate  and  property  belonging  thereto,  and  to  transact 
all  affairs  relative  to  the  temporalities  thereof;  and  that  at  such  elec- 
tion every  male  person  of  full  age,  who  has  statedly  worshiped  with 
.such  church,  congregation  or  society,  and  has  formerly  been  con- 
sidered as  belonging  thereto,  shall  be  entitled  to  vote ;  and  the  said 
election  shall  be  conducted  as  follows:  the  minister  of  such  church, 
congregation  or  society,  or  in  case  of  his  death  or  absence,  one  of  the 
elders  or  deacons,  church  wardens  or  vestrymen  thereof,  and  for  want 
of  such  officers,  any  other  person  being  a  member  or  a  stated  hearer 
in  such  church,  congregation  or  society,  shall  publicly  notify  the  con- 
gregation of  the  time  when,  and  place  where,  the  said  election  shall 
be  held,  at  least  fifteen  days  before  the  day  of  election  ;  that  the  said 
notification  shall  be  given  for  two  successive  Sabbaths,  or  days  on 
which  said  church,  congregation  or  society,  shall  statedly  meet  for 
public  worship,  preceding  the  day  of  election;  that  on  the  day  of  said 
election,  two  of  the  elders  or  church  wardens,  and  if  there  be  no  such 
oflficers,  then  two  of  the  members  of  the  said  church,  congregation  or 
society,  to  be  nominated  by  a  majority  of  members  present,  shall  pre- 
side at  such  election,  receive  the  votes  of  the  electors,  be  the  judges 
of  the  qualifications  of  such  electors,  and  the  officers  to  return  the 
names  of  the  persons  who  by  plurality  of  voices  shall  be  elected  to 
serve  as  trustees  for  the  said  church,  congregation  or  society,  and  the 
said  returning  officers  shall  immediately  thereafter  certify  under  their 
hands  and  seals  the  names  of  the  persons  elected  to  serve  as  trustees 
for  such  church,  congregation  or  society,  in  which  certificate  the  name 
or  title  by  which  the  said  trustees  and  their  successors  shall  forever 


§  39  ECCLESIASTICAL   AND    LAY    CORPORATIONS.  20$ 

thereafter  be  called  and  known,  shall  be  particularly  mentioned  and 
described ;  which  said  certificate  being  proved  or  acknowledged  as 
above  directed  shall  be  recorded  as  aforesaid ;  and  such  trustees  and 
their  successors  shall  also  thereupon  by  virtue  of  this  act  be  a  body 
coiporate  by  the  name  or  title  expressed  in  such  certificate." 

The  law  also  empowered  the  trustees  to  take  into  their  custody  and 
control  all  the  temporalities  belonging  to  the  church,  congregation  or 
society,  to  sue  and  be  sued,  to  purchase  and  hold  property  for  the  use 
of  the  same,  to  make  repairs,  to  regulate  the  renting  of  pews,  etc., 
and  all  other  matters  relating  to  the  temporal  concerns  and  revenues 
of  such  church.  Appoint  clerk,  treasurer,  etc.  The  law  provided 
that  no  one  but  such  as  "shall  have  been  a  stated  attendant  on  divine 
worship  in  said  church,  and  shall  have  contributed  to  support"  of 
same,  shall  be  an  elector.  Another  section  provided  that  the  salary  of 
the  minister  should  be  fixed  by  a  majority  of  electors,  at  a  meeting 
called  for  that  purpose ;  provision  was  also  made  for  reducing  the 
number  of  trustees  to  not  less  than  three ;  for  reporting  yearly  reve- 
nues to  the  chancellor,  for  selling  all  the  property  in  certain  contin- 
gencies, and  upon  dissolution,  "for  the  religious  society  which  was 
connected  with  such  corporation  to  reincorporate"  in  a  way  prescribed.] 

Hand,  j,  *  *  *  Then  what  kind  of  corporations  are  they  ?  The 
answer  to  this  inquiry  may  be  of  some  importance  in  this  case.  Chan- 
cellor Kent,  in  his  Commentaries,  denominates  them  "ecclesiastical  cor- 
porations," and  Angel  &  Ames,  in  their  valuable  work  on  corpoi'ations, 
upon  this  authority  adopt  the  same  application.  (2  Kent,  274;  Angel 
&  Ames  on  Corporations,  33.)  Neither  cites  any  decision.  Consid- 
ering the  high  authority  from  whence  the  remark  emanates,  I  express 
a  dissent  with  much  timidity ;  but  with  deference,  I  think  it  correct. 
I  doubt  whether,  in  a  technical  sense,  there  are  any  ecclesiastical  cor- 
porations in  this  state,  particularly  under  the  third  section  of  this  act. 
As  an  ecclesiastical  body  they  have  no  legal  existence ;  they  have  no 
ecclesiastical  power.  They  are  not  controlled  by  and  can  not  control 
the  church,  or  any  church  judicatory,  or  interfere  in  spiritual  concerns. 
Their  object  and  purpose  is  to  manage  the  temporalities  of  the  society. 
"Ecclesiastical  corporations,"  says  Blackstone,  "are,  where  the  mem- 
bers who  compose  it  are  entirely  spiritual  persons,  such  as  bishops, 
certain  deans  and  prebendaries ;  all  archdeacons,  parsons  and  vicars, 
which  are  sole  corporations ;  deans  and  chapters  at  present,  and  for- 
merly prior  and  convent,  abbots  and  monks,  and  the  like,  bodies 
aggregate."  And  in  describing  the  class  of  lay  corporations,  known 
as  eleemosynary,  he  adds:  "And  all  these  eleemosynary  corporations 
are,  strictly  speaking,  lay,  and  not  ecclesiastical,  even  though  com- 
posed of  ecclesiastical  persons,  and  although  they  in  some  things  par- 
take of  the  nature,  privileges  and  restrictions  of  ecclesiastical  bodies." 
(i  Bl.  470.  And  see  Phillips  v.  Bury,  i  Ld.  Ray.  6;  Cawdrey's 
Case,  5  Co.  fol.  15;   2  Bac.  Abr.,  2;    i  Kyd,  22.) 

It  is  not  the  profession  of  piety  by  the  individuals  that  renders  the 
corporation,  of  which  they  are  the  members,  ecclesiastical.  The  cor- 
poration must  be  spiritual  \rv  a  legal  and  not  in  a  popular  or  scriptural 


2o6  ROBERTSON   V.    BULLIONS.  §  39 

sense.  Lay  corporations  may  be  for  the  advancement  of  religion,  and 
the  members  may  all  be  clergymen,  even,  but  that  does  not  make  the 
corporation  ecclesiastical.  The  king  is  said,  inCawdrey's  case,  to  be 
"vicar  of  the  highest  of  kings,"  and  he  is  a  corporation,  but  I  believe 
he  is  not  considered  an  ecclesiastical  corporation.  And  if  he  were, 
it  would  be  because  he  is  the  head  of  the  church,  an  ecclesiastical  body 
in  law.  Dartmouth  College  is  an  lay  and  not  an  ecclesiastical  corpo- 
ration, and  would  be  if  the  individual  members  were  all  ecclesiastical 
persons.  (Dartmouth  College  v.  Woodward,  4  Wheat.  518.  See 
the  opinion  of  Mr.  J.  Story,  Ang.  &  Ames,  34.)  And  one  distinctive 
feature  of  ecclesiastical  corporations  is,  that  they  are  subject  to  the  ju- 
risdiction of  the  ecclesiastical  courts  or  the  visitatorial  power  of  the 
ordinary,     (i  B1.47r,n.  i ;  Toml.Dic,  436;  i  Kyd,  22;  Holt,  C.  J., 

1  Show.  252.)  Our  religious  coi-porations  have  no  such  amenabilities. 
There  the  ordinary  is  the  visitor  of  ecclesiastical  corporations,  and 
from  him  there  is  an  appeal.  The  king,  as  the  "supreme  ordinary," 
visits  the  metropolitan,  and  the  metropolitan  the  bishop.  Church 
wardens  (in  England)  are  said  to  be  lay  corporations,  although  insti- 
tuted for  the  benefit  and  advancement  of  religion  and  to  suppress  pro- 
faneness  and  immorality,  and  to  see  that  public  worship  be  performed 
with  due  decency  and  reverence ;  and  are  elected  by  the  parish  or  the 
minister  and  parish,  (i  Bac.  Abr.,  597;  Dawson  v.  Fowle,  Hardr. 
378.  Holt,  C.  J.,  in  Rex  v.  Rees,  12  Mod.  116.  Toml.Dic. 
"Churchwardens."  i  Lill.  Abr.  "Church  wardens: "  i  Bum's  Eccl. 
L.,  378.)  It  may  be  added,  that  our  corporations  have  power  to  build 
school-houses  and  dwellings  for  the  minister,  and  other  buildings,  etc. 
If  these  were  ecclesiastical  corporations,  there  would  be  no  visitor,  for 
the  reason  that  no  person  or  officer,  with  us,  has  any  such  jurisdiction. 
That  system  is  a  part  of  the  ecclesiastical  polity  of  England,  and  does 
not  apply  to  our  religious  corporations.      (2  Kent,  304.) 

If  lay  corporations  then  they  are  either  eleemosynary  or  civil.  If 
the  former,  the  visitatorial  power  is  with  the  founders  or  their  heirs ; 
unless  it  has  been  delegated  by  them  to  some  other  person.  If  a-civil 
corporation,  they  are  not  subject  to  this  species  of  visitation  at  all. 
(2  Kent,  304.)  Perhaps,  for  the  purpose  of  ascertaining  the  power 
of  a  court  of  chancery  in  this  case,  it  is  not  important  to  decide 
whether  they  are  eleemosynary  or  civil ;  for  that  court  has  no  visita- 
torial power  over  a  private  eleemosynary  corporation.  Where  there 
is  a. failure  or  want  of  a  visitor  in  such  cases,  in  England,  the  crown 
becomes  the  visitor,  and  that  power  is  exercised  by  the  court  of  king's 
bench  if  not  a  charity  (Rex  v.  Gregory,  4  T.  R.  240,  i,  n.),  and  if  a 
charity,  within  the  statute  of  charitable  uses  (43  Eliz.,  ch.  4),  by  a 
petition  to  the  great  seal  and  not  by  bill  or  information ;  and  then  the 
lord  chancellor  acts  in  his  visitatorial  capacity.    (Ex  parte  Wrangham, 

2  Ves.  Jr.  609;  Attorney-General  v.  Earl  of  Clarendon,  17  Ves.  Jr. 
499;  Attorney-General  v.  Dixie,  13  Ves.  Jr.  519;  Attorney-General 
V.  Smart,  I  Ves.  Sen.  92;  In  re  Bedford  Charity,  2  Swanst.  524; 
Dann,  Ex  parte,  9  Ves.  547,  3  Atk.  109,  i  Jac.  i;  Hill  on  Trustees, 
460.)     His  jurisdiction  over  charities,  it  is  said,  is  a  personal  author- 


§  39  ECCLESIASTICAL   AND    LAY    CORPORATIONS.  20/ 

ity  of  the  chancellor,  and  not  within  the  ordinary  powers  of  equity. 
(Corporation  of  Bedford  v.  Lenthall,  2  Atk.  553.)  I  am  aware  of 
the  conflict  of  opinion  in  the  English  courts  as  to  the  extent  of  the 
jurisdiction  of  the  king's  bench  in  cases  of  private  eleemosynary 
foundations.  (King  v.  Cath.  Hall,  4  T.  R.  233;  Eden  v.  Footer,  2 
P.  Wms.  326,  12  Mod.  116,  F.  N.  B.'42;  King  v.  Bishop  of  Ches- 
ter, 2  Str.  797;  Rex  V.  Gregory,  4  T.  R.  240,  i,  n. ;  Green  v.  Ruther- 
food,  I  Ves.  Sen.  471;  King  v.  Bishop  of  Ely,  2  T.  R.  339;  Ex 
parte  Wrangham,  supra.')  Visitatorial  power,  perhaps,  is  not  now 
professional  language  when  speaking  of  the  law  courts;  but  the  king's 
bench  has  a  superintendent  authority  where  other  jurisdictions  are  de- 
ficient. And  at  all  events,  the  power  where  it  exists  on  the  other  side 
of  the  courts  belongs  to  the  great  seal  and  not  to  chancery  as  a  court 
of  equity  jurisdiction,  except  on  the  ground  of  ti"ust. 

But  I  am  inclined  to  the  opinion  that  these  corporations  are  not 
eleemosynary,  although  occasionally  so  called.  Eleemosynaiy  corpora- 
tions "are  constituted  for  the  perpetual  distribution  of  the  free  alms  or 
bounty  of  the  founder  of  them,  to  such  persons  as  he  has  directed," 
(i  Bl.,  471);  and  are  of  two  general  descriptions ;  hospitals  for  the 
maintenance  and  relief  of  poor  and  impotent  persons,  and  colleges  for 
the  promotion  of  learning,  and  the  support  of  persons  engaged  in 
literary  pursuits.  Blackstone  says,  that  the  universities  of  Cambridge 
and  Oxford  are  not  eleemosynary  corporations,  "though  stipends  are 
annexed  to  particular  magistrates  and  professors,  any  more  than  other 
corporations  where  the  acting  officers  have  standing  salaries,  for  these 
are  rewards  pro  opere  et  labore,  not  charitable  donations  only,  since 
every  stipend  is  preceded  by  service  and  duty."  No  writer  upon 
elementary  law  uses  the  term  in  a  different  sense  than  that  given  by 
Blackstone,  which  also  accords  with  its  etymology.  (2  Kent,  274;  i 
Wooddes.,  §474;  I  Kyd  on  Corp.,  25;  Phillips  v.  Bury,  i  Ld.  Ray.  5, 
s.  c.  2  T.  R.  346,  s.  c.  Holt,  724;  Webst.  Die.  tit.  Eleemosynary; 
Babb  V.  Reed,  5  Rawle  151.)  Those  institutions  are  considered  of 
this  kind,  where  the  plan  is  one  of  bounty,  charity,  and  benevolence 
to  others ;  not  those  which  are  for  the  use  of,  and  beneficial  and  make 
return  to,  the  donors.  Even  a  school,  unless  it  be  a  free  school,  does 
not  come  within  the  statute  of  charitable  uses,  43  Eliz.  (Attorney- 
General  V.  Hewer,  2  Vern.  387.)  In  this  very  case,  the  land  was  pur- 
chased and  paid  for  by,  and  conveyed  to  the  society  for  their  own  use, 
and  the  attorney-general  is  not  a  necessary  party.  Religious  societies 
may  be  the  means  of  dispensing  the  richest  bounties,  but  the  bene- 
ficiaries are,  in  a  great  measure,  the  founders  themselves. 

If,  then,  these  corporations  are  not  ecclesiastical  nor  eleemosynary, 
they  fall  into  the  remaining  class,  private  and  civil.  I  think  they 
possess  the  nature  and  qualifications  of  private,  civil  corporations, 
created  mainly  for  the  purpose  of  aiding  in  the  promotion  and  enjoy- 
ment of  religion  by  managing  the  property  of  the  church.  Civil  cor- 
porations are  subject  to  no  visitation,  except  in  England  by  the  king, 
who  exercises  this  power  in  the  king's  bench,  which  is  his  representa- 
tive, by  mandamus  or  quo  warranto  ;  and  here  this  power,  in  a  degree, 


208  ROBERTSON   V.    BULLIONS.  §  39- 

belongs  to  the  government  and  was  exercised  in  our  supreme  court, 
which  is  the  representative,  in  our  judicial  system,  of  the  king's  bench, 
and,  in  the  same  manner,  if  such  power  did  formerly  exist  here  at  all, 
as  the  king's  bench  superintends  the  civil  corporations  of  the  kingdom. 
(3  BL,  42  ;  2  Kyd  on  Corp.,  174;  2  Kent,  304;  Ordinance  of  1704, 
establishing  our  Supreme  Court;  2d  R.  L.  App.  6.)  Our  statutes 
now  give  certain  powers  over  corporations  to  the  supreme  court  and 
the  court  of  chancery,  but  religious  corporations  are  expressly  ex- 
cepted from  their  operation,  (i  R.  S.  603,  §  5,  605,  §  11 ;  2  R.  S. 
462,  §§  33,  35  ;  466,  §  57.)  So  the  law,  as  to  these,  remains  as  be- 
fore. The  king  of  England  and  the  legislature  here,  as  founders  in  a 
certain  sense  of  all  civil  corporations,  are  said  to  have  visitatorial  ca- 
pacity; and  they  are  visited  and  inspected,  where  no  statute  interposes, 
in  the  court  of  king's  bench  according  to  the  rules  of  common  law, 
and  not  elsewhere  or  by  other  authority,  (i  BL,  481 ;  Attorney-Gen- 
eral v.  Utica  Ins.  Co.,  2  John  Ch.  Rep.  371  ;  Auburn  Academy  v. 
Strong,  Hopk.  R.  278;  2  Kent,  300.)  But  whether  ecclesiastical, 
eleemosynary  or  civil,  our  court  of  chancery  has  no  jurisdiction  as 
visitor  over  these  religious  corporations.      *     *     * 

Another  important  inquiry  is,  who  are  the  corporators?  This  is  not 
without  difficulty.  Chancellor  Walworth,  in  Lawyer  v.  Cippei^ly, 
says  that  the  statute  of  1784  recognized  three  distinct  classes  or  bodies 
existing  in  a  religious  corporation;  "the  church  or  spiritual  body, 
consisting  of  the  office-bearers  and  communicants;  the  congregation 
or  electors,  embracing  all  the  stated  hearers  or  attendants  on  divine 
worship  who  are  competent  to  vote  for  trustees;  and  the  trustees  of 
the  corporation."  (7  Paige,  285.  See  16  Mass.  503,4;  10  Pick. 
193;    II  Pick.  494.)       *      *     » 

The  chancellor  adds,  in  The  Baptist  Church  in  Hartford  v.  With- 
erell,  that,  although  a  church  or  body  of  professing  Christians  is  almost 
uniformly  connected  with  such  a  society  or  congregation,  the  members 
of  the  church  have  no  other  or  greater  rights  than  any  other  members 
of  the  society  who  statedly  attend  with  them  for  the  purposes  of  divine 
worship.  (3  Paige,  301.)  If  it  be  one  of  the  integral  parts  of  the 
corporation,  and  the  church  should  become  extinct,  the  corporation 
would  be  dissolved.  That  was  so  settled  in  the  well-considered  case 
of  King  V.  Pasmore  (3  T.  R.  199).  This  would  be  so  clearly,  unless 
the  corporators  have  power  to  restore  the  church.  A  neglect  to  elect 
trustees  is  provided  for  by  the  statute,  and  is,  perhaps,  more  properly 
a  suspension.  (Phillips  v.  Wickham,  i  Paige  590.  And  see  Angel 
&  Ames  on  Corporations,  464,  734,  5.)  The  language  of  the  third 
section  is  that  it  shall  be  lawful  for  the  "male  persons  belonging  to 
any  other  church,  congregation  or  religious  society"  to  choose  the 
trustees.  The  whole  statute  has  reference  to  religious  associations.  A 
"church"  (ecclesia)  may  be:  First,  a  temple  or  building  consecrated 
to  the  honor  of  God  and  religion ;  or  second,  an  assembly  of  persons 
united  by  the  profession  of  the  same  Christian  faith,  met  together 
for  religious  worship.  (Jac.  Law  Diet.  "Church;"  Toml.  Die. 
"Church ;"  5  Petersd.  Abr.,  409  ;  Town  of  Pawlet  v.  Clark,  9  Cranch 


§  39  ECCLESIASTICAL   AND    LAY   CORPORATIONS.  209 

292.)  These  give  the  legal,  though  the  word  has  various  popular,  defi- 
nitions. (Webster's  Die.  "Church.")  In  our  statute  I  think  it  is  used 
in  the  sense  of  the  second  definition  above.  "Congregation"  has  per- 
haps no  settled  legal  signification.  The  pleadings  in  this  case  state  and 
admit  that  in  the  Associate  Church  it  is  used  to  designate  a  local  church, 
and  it  w^ould  seem  that  the  word  "church"  with  them  implies  the 
church  of  that  denomination  in  its  aggregate  capacity,  the  same  as  the 
term  "Church  of  England,"  which  is  not  a  corporation.  (Town  of 
Pawlet  v.  Clark,  9  Cranch  292,  Stoiy,  J. ;  Comm.  v.  Green,  4  Whart. 
531.)  The  word  "congregation"  occurs  frequently  in  the  books 
made  exhibits  in  this  suit.  (See  the  Ordination  Vows,  in  the  book  con- 
taining the  Narrative  and  the  Declaration  and  Testimony,  174  et  seq.; 
the  Form  of  Church  Government,  "Of  Particular  Congregations,"  p. 
572;  Perdivan,  b.  i,  tit.  i,  and,  indeed,  throughout;  2  Gib's  Display 
76,  and  Church  Government,  art.  3.)  "Congregation"  was  an  ap- 
pellation given  to  the  Protestants  in  Scotland  in  1559,  from  their 
imion.  (Robertson's  History  of  Scotland,  b.  2.)  The  term  is  used 
in  the  penal  laws  of  England  against  disturbing  public  worship,  par- 
ticularly those  to  protect  the  worship  of  Protestant  dissenters.  ( i  W. 
&  M.,  ch.  18.)  .  But,  as  used  in  this  statute,  a  congregation,  I  take 
it,  is  an  assembly  met,  or  a  body  of  persons  who  usually  meet  in  some 
stated  place  for  the  worship  of  God  and  religious  instruction,  and 
may  or  may  not  include  a  church  or  spiritual  body. 

And  the  same  may  be  said  of  the  term  "religious  society,"  used  in 
the  same  connection  in  the  third  section.  The  church,  congregation 
or  society  must,  to  organize,  have  stated  "divine  worship,"  for  the 
electors  must  have  attended  the  same  to  constitute  them  such  by  the 
third  and  seventh  sections.  Whether  religion  and  divine  Tvorship  in 
their  broadest  sense,  or  Christian  sects  only,  are  intended,  it  is  not 
necessary  now  to  inquire.  The  statute  declares  that  the  persons 
chosen  trustees  shall  be  a  body  corporate.  Most  of  our  statutes,  in 
similar  cases,  use  different  expressions;  as  in  the  acts  for  the  incor- 
poration of  literary,  manufacturing,  and  medical  societies,  cities  and 
villages,  etc.  And  the  13th  and  i6th  sections  speak  of  the  corpora- 
tion being  dissolved  (not  suspended)  and  authorizes  the  "religious 
society  which  was  connected  therewith"  to  reincorporate.  But  the 
9th  section  permits  a  religious  corporation  to  reduce  the  number  of 
trustees,  and  the  congregation  or  society,  I  think,  is  there  intended. 
The  nth  section  speaks  of  the  "society,  to  which  the  real  estate 
so  sold  did  belong;"  and  the  act  of  1826  declares  that  if  there  be  an 
omission  to  elect  trustees,  the  church,  congregation  or  religious  society 
shall  not  be  deemed  thereby  to  have  been  dissolved.  Several  ambigu- 
ous expressions  of  this  nature  are  found  in  the  statute.  Upon  the 
whole,  I  am  inclined  to  think,  all  of  the  electors  are  corporators. 
They  elect  the  trustees  and  from  their  own  body,  and  these  are  the 
officers  of  the  society.  It  is  true,  a  right  of  election  is  often  vested  in 
others  besides  the  corporators.  This  is  almost  invariably  so  with  sole 
corporations.  Church  wardens,  who  are  a  corporation  for  certain  pur- 
14— WiL.  Casks. 


2IO  ROBERTSON    V.    BULLIONS.  §  39 

poses,  are  elected  by  the  parish,  or  by  the  minister  and  parish.  But 
several  opinions  concur  in  the  position  that  the  electors  are  corpo- 
rators. Those  of  Chancellor  Walworth  in  the  Baptist  Church  v. 
Witherell,^  and  Lawyer  v.  Cipperly,^  have  been  stated.  A.  V.  Ch. 
Sandford  seems  to  have  entertained  the  same  opinion.  (Cammeyer 
V.  United  German  Lutheran  Churches,  2  Sandf.,  ch.  186),  and  so 
I  infer  did  Gardiner,  president,  in  Miller  v.  Gable,  in  the  court  for 
the  correction  of  errors.  (2  Denio  548.)  The  persons  entitled  to  vote 
are  designated  by  the  statute.  At  the  first  election,  for  the  purpose 
of  organizing,  they  must  be  male  adults,  belonging  to  the  church, 
congregation  or  society,  and  must  have  statedly  worshiped  with  the 
same,  or  have  formerly  been  considered  as  belonging  thereto.  And 
after  the  first  election  they  must  have  been  stated  attendants  on  divine 
worship  in  said  church,  congregation  or  society,  at  least  one  year 
previous,  and  have  contributed  to  the  support  of  the  church,  congre- 
gation or  society,  according  to  its  usages  and  customs. 

The  statute,  therefore,  declares  who  are  the  corporators,  and  the  court 
of  chancery  can  not  indii'ectly  disfranchise  a  member  by  declaring  that 
he  does  not  possess  the  necessary  qualifications.  That  power  is  ex- 
pressly given  to  others  by  the  act,  and  law  courts,  in  case  of  contro- 
versy, alone  can  review  the  matter,  if  that  can  be  done  by  any  tribunal. 

If  the  foregoing  views  are  correct,  then  those  parts  of  the  decree 
appealed  from  in  this  case,  which  removed  some  of  the  defendants  as 
trustees  or  ofllicers  of  the  corporation,  and  which  declare  that  the  ad- 
herents of  Dr.  Bullions  are  not  members  of  the  corporation,  and  who 
are  electors  therein,  and  which  provide  for  a  new  election  of  trus- 
tees, are  erroneous;  the  court  of  chancery  having  no  power  of  amotion 
of  an  officer  of  these  corporations,  or  to  disfranchise  a  member  thereof , 
or  interfere  with  or  control  the  election  of  its  officers. 

But,  although  a  court  of  chanceiy  has  no  jurisdiction  with  regax'd  to 
the  election  or  amotion  of  corporators,  it  may,  in  some  cases,  where  a 
corporation  is  a  trustee,  take  from  it  the  trust  fund,  if  the  trust  be 
abused.     *     *     * 

In  this  case  the  corporation,  together  with  four  of  the  six  trustees, 
and  Dr.  Bullions,  claiming  to  be  and  officiating  as  minister,  are  made 
defendants.  It  is  admitted  that  the  legal  estate  is  in  the  corpora- 
tion. The  officers  of  the  corporation,  as  individuals,  have  no  more 
beneficial  interest  than  any  other  corporators.  It  was  said  in  Ver- 
plank  V.  The  Mer.  Ins.  Co.  that  the  relation  of  cestui  que  trust  and 
trustee  does  not  exist  between  the  corporation  and  stockholders  of  an 
incorporated  company,  (i  Edw.  Ch.  Rep,  47,  per  McCoun,  V.  C.) 
But  the  vice-chancellor  further  added,  that  a  relation  was  created  be- 
tween the  stockholders  and  those  directors,  who  in  their  character  of 
trustees  become  accountable  for  any  dereliction  of  duty  or  violation  of 
the  trust  reposed  in  them.  And  he  saw  no  objection  to  the  exercise 
of  an  equity  power  over  such  persons,  in  the  same  manner  as  it  would 
be  exercised  over  any  other  trustees.  Now  a  trustee  is  a  "person  in 
whom  some  estate,  interest  or  power,  in  or  affecting  property  of  any 

13  Paige  296.  »7  Paige  281. 


§39  ECCLESIASTICAL   AND    LAY   CORPORATIONS.  211 

description,  is  vested  for  the  benefit  of  another."  (Hill  on  Trustees, 
411.)  In  The  People  v.  Runkle  the  congregation  are  said  to  be  the 
constituents  of  the  tinistees.  (9  John.  156.)  In  the  case  of  the 
Dutch  Church  in  Garden  Street  v.  Mott,  the  chancellor  speaks  of  the 
legislature  having  power  to  "transfer  the  legal  title  from  the  naked 
trustees  to  the  cestui  que  trusty  after  the  latter  were  incorporated." 
(7  Paige  82.)  In  Gable  v.  Miller,  the  chancellor  decided  that  the 
property  of  the  coi-poration  was  held  in  trust  for  the  support  of  the 
worship  of  God  by  a  church  to  be  in  a  particular  connection ;  and  for 
teaching  certain  particular  doctrines.  (10  Paige  649.)  Senator 
Porter,  in  the  same  cause,  in  deliving  an  opinion  in  the  court  for  the 
correction  of  eiTors,  in  favor  of  sustaining  the  decree,  considered  those 
members  of  the  church  who  had  remained  faithful  to  their  allegiance 
to  the  government  of  the  church  as  "the  rightful  members  of  the  church, 
and  the  only  ccstuis  que  trust  of  the  property  held  for  the  use  of  the 
church."  (3  Denio  568.)  In  Bowden  v.  McLeod,  Vice-Chancellor 
McCoun  thought  equity  would  exercise  jurisdiction  over  the  property 
of  religious  societies,  as  being  trust  property.  In  that  case,  by  a 
special  act,  the  minister,  elders  and  deacons  were  constituted  trustees  for 
life,  (i  Edw.  Ch.  Rep.  588.  And  see  16  Mass.  495,  505,  510.)  By 
the  fourth  section  of  the  statute  under  which  religious  societies  are  in- 
corporated, the  trustees,  as  we  have  seen,  take  possession  of  and  hold  all 
the  estate,  whether  real  or  personal,  and  whether  befoi-e  held  directly 
by  the  church,  congregation  or  society,  or  by  some  other  person  to 
their  use,  and  however  acquired,  or  by  whomsoever  held;  and  they 
may  purchase  and  demise,  lease  and  improve  the  same  for  the  use  of 
the  church,  congregation  or  society,  or  other  pious  uses.     *     *     * 

The  legal  estate  is  clearly  in  the  trustees,  and  they  are  to  manage 
the  same,  and  regulate  and  order  all  matters  relating  to  the  temporal 
concerns  and  revenues  of  the  church,  congregation  or  society.  It  is 
said  they  hold  the  property  in  trust,  and  this  is  so  stated  in  the  plead- 
ings. But  I  think  not  in  the  ordinary  sense  of  that  expression.  They 
too,  individually,  are  usually  cestuis  que  trusty  only  holding  the  legal 
estate  while  in  office,  but  in  the  management  of  it,  and  in  everything 
relating  to  their  responsibility,  they  are  upon  the  same  footing  with 
the  officers  of  any  incorporated  company,  and  liable  for  fraud  or  neg- 
ligence, or  gross  mismanagement.  Mere  trustees  are  liable  for  these, 
but  in  this  case  the  trustees  are,  as  to  the  management  of  the  prop- 
erty, more  properly  officers  or  agents,  and  with  a  broader  discretion 
in  some  respects  than  mere  trustees.  (Ang.  &  Ames  on  Corp., 
306—7.)     *     *     * 

This  brings  us  to  the  great  question  in  this  cause :  are  the  defend- 
ants, or  any  of  them,  violating  the  trust  reposed  in  them,  or  their 
duty,  by  adhering  to  and  supporting  Dr.  Bullions.?  For,  if  that  is  so, 
although  a  court  of  chancery  can  not  remove  then\  and  can  not  divest 
them  of  this  property,  it  can  compel  them  to  do  their  duty  in  relation 
to  it.     *     *     * 

Upon  this  examination  of  the  subject,  it  seems  to  me  that  certain 
general  rules  are  applicable  to  these  institutions  when  incorporated 


212  ROBERTSON    V.    BULLIONS.  §  39 

under  the  third  section  of  the  act — that  chancery  has  no  power  to  dis- 
franchise one  of  the  members,  nor  to  remove  the  trustees  or  declare 
their  election  void ;  nor  direct  who  shall  vote ;  or  in  any  way  interfere 
with  their  election.  This  I  have  already  very  fully  considered ;  that 
the  trustees  may  be  restrained  from  wasting  the  property,  and  from 
such  management  of  it  as  the  court  can  clearly  see,  unreasonable  and 
unconscientiously  deprives  the  society,  or  some  part  of  it,  of  its  enjoy- 
ment ;  and  also  from  applying  it  to  the  promotion  of  tenets  clearly  op- 
posed and  adverse  to  the  fundamental  principles  of  the  faith  and  doc- 
trine professed  by  the  church  or  society  at  the  time  the  corporation 
purchased  the  property.  But  the  exercise  of  this  jurisdiction  should 
generally  be  restrictive,  and  not  mandatory ;  for  the  statute  is  their 
guide  and  authority  for  the  future,  and  gives  a  very  broad  margin  for  the 
exercise  of  discretion  and  religious  freedom.  (Lord  Cottenham  in 
The  Attorney-General  v.  Shore,  ^  in  the  House  of  Lords  ;  Lord  Broug- 
ham in  Milligan  v.  Mitchell;^  Lane  v.Newdigate,  loVes.  193;)  that  the 
support  of  particular  doctrines,  or  systems  of  worship  or  government, 
or  a  connection  with  some  particular  judicatory,  may  be  made  a  con- 
dition in  a  grant  or  donation,  but  if  no  such  condition  be  expressed, 
none  should  be  implied,  except  as  to  cardinal  points.  This  last  prin- 
ciple, I  think,  may  be  deduced  from  the  cases  already  cited,  particu- 
larly The  Attorney-General  v.  Pearson,^  The  Attorney-General 
V.  Shore,  ^  The  Attorney-General  v.  Drummond,*  Craigdallie  v. 
Aikman,*  Milligan  v.  Mitchell,*  Porter  v.  Clark,^  Miller  v.  Gable, ^ 
Baptist  Church  v.  Witherell,*  Lawyer  v.  Cipperly,®  The  Presbyte- 
rian Church  v.  Johnston.^"  It  is  hardly  necessary  to  remark  that, 
in  Deun  v.  Bolton, ^^  the  office  bearers  of  the  church  were, 
by  statute,  ex  officio  trustees,  and  of  course  a  deposition  of 
the  former  would  be  an  amotion  of  the  latter.  Another  general 
rule  is,  that  the  church  or  spiritual  body  is  authorized  to  call  the  min- 
ister, either  by  itself  or  by  some  other  mode,  according  to  usage.  In 
order  to  reach  the  revenues  of  the  corporation,  that  call  must  be  rati- 
fied by  the  congregation  or  body  entitled  to  elect  trustees,  by  fixing 
the  salary  of  the  minister ;  and  then  the  trustee  may  apply  the  reve- 
nues to  his  support.      *     *     ♦ 

But  whether  the  use  of  the  house  by  a  majority  of  the  congrega- 
tion under  the  ministry  of  the  defendant,  Dr.  Bullions,  is  such  an  act 
as  that  the  minority  can  complain  in  this  court,  and  ask  for  restrictive 
measures,  is  a  point  of  much  difficulty.  *  *  *  It  must  be  remem- 
bered that  this  associate  church  adheres  to  the  presbyterial  form  of 
government.  (Dec.  and  Tes.,  p.  3,  art.  8,  Ch.  Gov.  andDis.,p.  i, 
art.  4;  p.  3,  art.  12.)  And  after  the  cases  of  Diefendorf  v.  Re- 
formed Calvinistic Church,^*  and  The  Dutch  Church  v.  Bradford,^*  I 

J  7  Sim.  309  n,  9  CI.  &  F.  R.  355.  ' 2  Denio  492. 

n  Myl.  &  K.  446,  S  Myl.  &  C.  72,  "3  Paige  296. 

433,511.  97  Paige  281. 

*  7  Sim.  290.  "1  Watts  &  S.  9. 

*  1  Con.  &  L.  210.  "  7  Halst.  206. 
» 1  Dew's  P.  C.  1.  "  20  John.  12. 

«  2  Sim.  520.  "  8  Cowen  457. 


§  39  ECCLESIASTICAL   AND    LAY    CORPORATI(3NS.  213 

do  not  see  how  we  can  look  beyond  the  decision  of  the  synod.  All  the 
authorities  agree  that  the  civil  courts  can  not,  upon  the  merits,  over- 
hale  the  decisions  of  ecclesiastical  judicatories  in  matters  properly 
within  their  province.  Dr.  Bullions  hinnself  took  the  case  to  the  synod, 
and  the  deposition  of  a  minister  is  purely  an  ecclesiastical  matter ; 
though  the  effect  of  that  deposition  upon  civil  rights  is  quite  another 
thing.  The  church  judicatories  had  power  to  depose  him,  but  they 
could  not  sequester  the  property  of  the  corporation,  nor  compel  the 
congregation,  against  the  will  of  a  majority,  and  the  trustees,  to  re- 
ceive a  minister.  The  defendants,  in  their  answer,  admit  that  a  min- 
ister who  is  under  rightful  sentence  of  excommunication  can  not  be 
permitted  to  occupy  the  pulpit  or  administer  divine  ordinances.  Our 
courts  have,  as  we  have  seen,  declared  that  such  dissolution  of  the 
connection  between  pastor*  and  flock  discharges  the  civil  contract, 
even  the  individual  subscriptions  for  the  support  of  the  former.  It  is 
true,  a  majority  of  the  church  in  those  cases  were  probably  opposed 
to  the  minister,  but  the  decisions  were  not  put  upon  that  ground.  Dr. 
Bullions  must,  for  the  purpose  of  this  case,  be  deemed  deposed  from 
the  office  of  the  holy  ministry;  and,  notwithstanding  a  large  majority 
of  this  enlightened  society  still  consider  him  in  good  standing,  a  mi- 
nority of  the  corporators  are  of  the  opposite  opinion,  and,  giving  full 
effect  to  proceedings  against  him,  insist  that  his  employment  is  a  griev- 
ance that  deprives  them  of  a  reasonable  enjoyment  of  the  corporate 
property,  which  can  be  redressed  in  this  court.  And  with  much  hesi- 
tation, I  have  come  to  the  conclusion  that,  upon  this  point,  the  law  is 
with  them.     *     *     * 

There  must  be  a  decree  restraining  the  defendants  from  using  the 
temporalities  of  the  corporation  for  the  support  of  Dr.  Bullions'  min- 
istry as  long  as  he  is  under  sentence  of  deprivation.  All  the  other 
portions  of  the  decree  which  have  been  appealed  from  must  be  re- 
versed. Neither  party  can  have  costs  against  the  other  on  this 
appeal.  The  complainants  have  asked  too  much,  and  neither  side  is 
free  from  blame.  The  rule  is,  where  both  parties  have  claimed  what 
they  are  not  entitled  to,  and  each  has  succeeded  as  to  part  of  the  mat- 
ters in  litigation  between  them,  to  give  costs  to  neither.  (Crippen  v. 
Hermance,  9  Paige  211.)  Nor  am  I  disposed  to  burden  the  corpo- 
rate funds  with  the  costs,  except  the  costs  of  putting  in  the  answer  by 
the  corpofation.     Each  party  must  in  all  other  respects  bear  their  own. 

It  was  stated  on  the  argument  that  the  complainants,  under  the 
vice-chancellor's  decree,  had  taken  possession  of  and  occupied  the 
church  edifice.  The  defendants,  who  were  trustees  at  the  time  of  the 
commencement  of  the  suit,  and  their  successors,  are  entitled  to  the 
possession  of  the  property  of  the  corporation,  but,  under  all  the  cir- 
cumstances of  this  case,  there  should  be  no  accounting  for  the  mere 
use  of  the  property. 

If  there  has  been  waste  or  destruction  of  property,  that  should  be 
made  good. 

Paige,  P.  J.,  concurred. 

(Dissenting  opinion  of  Cady,  J.,  omitted.) 


214  THE   BOARD,    ETC.,  V.    MIGHELS.  §  4O 

Note.  See  particularly  1819,  Dartmouth  College  v.  Woodward,  4  Wheat. 
518,  infra,  p.  708;  1815,  Phillips  Academy  v.  King,  12  Mass.  546;  1823,  Society 
for  Propagating  the  Gospel  v.  New  Haven,  8  Wheat.  (U.  S. )  464;  1864,  Board 
of  Education  v.  Greenbaum,  39  111.  610 ;  1893,  Bakewell  v.  Board  of  Education, 
(111.),  33  N.  E.  Rep.  186;  1879^  Magdalen  Hospital  v.  Knotts,  4  App. 
Cas.  324;  1872,  Gooch  v.  Association  for  Relief  of  Aged  Females,  109  Mass. 
558;  1895,  Hibernian  Benev.  Soc.  v.  Kelly,  28  Ore.  173,  52  Am.  St.  Rep.  769; 
1894,  Philadelphia  v.  Masonic  Home,  160  Pa.  St.  572,  40  Am.  St.  Rep.  736; 
1880,  Hennepin  Co.  v.  Brotherhood,  etc.,  27  Minn.  460,  38  Am.  Rep.  298; 
1874,  Mitchell  v.  Treasurer  of  Franklin  Co.,  25  Ohio  St.  143;  1890,  Wagner 
Free  Institute  v.  Philadelphia,  132  Pa.  St.  612,  19  Am.  St.  Rep.  613;  1888, 
Fire  Ins.  Patrol  v.  Boyd,  120  Pa.  St.  624,  6  Am.  St.  R.  745;  1822,  American 
Asvlum  V.  Phoenix  Bank,  4  Conn.  172,  10  Am.  D.  112;  1876,  McDonald  v. 
Massachusetts  Gen'l  Hospital,  120  Mass.  432,  21  Am.  Rep.  529;  1883,  Coit  v. 
Comstock,  51  Conn.  352,  50  Am.  Rep.  29;  1893,  Sears  v.  Chapman,  158  Mass. 
400,  35  Am.  St.  Rep.  502;  1889,  Coe  v.  Washington  Mills,  149  Mass.  543 ;  1886, 
Howe  V.  Wilson,  91  Mo.  45,  60  Am.  Rep.  226;  '1880,  Rhymer's  Appeal,  93  Pa. 
St.  142,  39  Am.  Rep.  736,  n.  738;  1881,  Manners  v.  Philadelphia  Library  Co., 
93  Pa.  St.  165,  39  Am.  Rep.  741,  note  748;  1882,  Bangor  v.  Masonic  Lodge,  73 
Me,  428,  40  Am.  Rep.  369. 


Sec.  40.    Same.     Civil  corporations  are : 

1.  Quasi. 

2.  Pure  or  complete. 

THE    BOARD    OF    COMMISSIONERS    OF    HAMILTON    COUNTY    v. 

MIGHELS.i 

1857.     In  the  Supreme  Court  of  Ohio.     7  Ohio  State  Reports 

109-125. 

In  error  to  the  superior  court  of  Cincinnati. 

Brinkerhoff,  J.  The  defendant  in  error  brought  suit  in  the 
superior  court  of  Cincinnati  against  the  plaintiffs  in  error,  and,  on  the 
14th  of  May,  1855,  filed  therein  the  following  petition,  to  wit:  "The 
plaintiff,  a  citizen  of  the  state  of  Ohio,  and  a  resident  of  the  county  of 
Hamilton,  says  that  the  defendants,  the  board  of  county  commission- 
ers of  the  county  of  Hamilton,  in  the  state  of  Ohio,  being  authorized 
by  law,  in  the  exercise  of  their  discretion,  to  erect  a  good  and  con- 
venient court-house,  upon  such  plan  as  they  might  project,  in  the  city 
of  Cincinnati,  the  seat  of  justice  of  such  county,  were,  on  the  eleventh 
and  twelfth  days  of  December,  1854,  engaged  in  the  erection  of  such 
court-house,  in  the  city  of  Cincinnati,  which  building  was  designed 
and  then  used  for  the  holding  of  the  courts  of  the  county  of  Hamil- 
ton, and  for  the  offices  of  the  sheriff,  clerk  of  the  courts  and  certain 
other  county  officers,  under  the  direction  and  sanction  of  the  defend- 
ants. On  the  eleventh  and  twelfth  days  of  December,  1854,  the 
rooms  of  the  northwest  corner  of  said  building,  on  the  first  floor,  were 
used,  under  the  direction  of  the  defendants,  for  the  holding  of  the 
criminal  court  of  Hamilton  county,  and  a  certain  trial  was  then  and 
there  had,  at  which  the  plaintiff  was  required,  by  a  writ  of  subpena, 
to  appear  and  testify,  and  was  detained  under  the  order  of  the  court,  as 
such  witness,  till  night.     In  the  erection  of  such  court-house,  upon  the 

*  Arguments  and  part  of  opinion  omitted. 


§  40  QUASI   AND    COMPLETE    CORPORATIONS.  21$ 

plan  projected  by  the  defendants,  there  was  a  certain  stairway  from  the 
first  to  the  second  floor,  opposite  to  the  main  entrance  into  the  building, 
which  persons  in  their  egress  from  the  said  court-room  by  the  usual 
passages  into  the  street  must  necessarily  pass,  and  under  said  stair- 
way was  a  large  opening  into  the  cellar,  which  the  defendants  wrong- 
fully and  unjustly  permitted  to  remain  open,  unprotected  and 
uncovered,  and  wrongfully  and  negligently  omitted  in  any  manner  to 
guard  the  same,  so  as  to  prevent  persons  passing  along  said  passage 
from  falling  into  such  opening,  and  wholly  omitted  to  light  the  same 
at  night,  by  reason  whereof,  and  for  want  of  such  light  and  protection 
over  said  opening,  the  plaintiff,  being  such  witness  required  to  be 
in  such  building,  and  necessarily  detained  there  in  obedience  to  the 
order  of  said  criminal  court  of  Hamilton  county,  till  after  nightfall  on 
the  twelfth  day  of  December,  1854,  in  passing  along  said  passages  on 
his  way  from  the  court-room  to  the  street,  necessarily  and  unavoidably 
slipped  and  fell  into  said  opening,  and  thereby  the  thigh  and  two  ribs 
of  the  plaintiff  were  fractured  and  broken,  and  the  plaintiff  became 
sick,  lame  and  disordered,  and  so  remained  for  a  long  space  of  time, 
during  all  which  time  he  suffered  great  pain,  and  was  prevented  from 
attending  to  and  transacting  his  necessary  and  lawful  business,  and 
was  obliged  to  expend  and  did  expend  a  large  sum  of  money  in  en- 
deavoring to  get  healed  of  said  wound,  sickness  or  disorder.  The 
plaintiff,  therefore,  demands  judgment  against  the  defendants  for 
$10,000  damages." 

To  this  petition  the  defendants  below  demurred  on  the  ground  that 
it  did  not  state  facts  suflScient  to  constitute  a  cause  of  action.  On 
hearing,  the  demurrer  was  overruled  and  leave  was  taken  to  answer. 
An  answer  was  filed,  admitting  a  part  of  the  material  facts  alleged 
in  the  petition,  and  denying  the  remainder.  The  case  was  tried  by  a 
jury  who  found  the  issues  in  favor  of  the  plaintiff  below,  and  assessed 
his  damages  at  $7,750.  After  motions  for  a  new  trial,  and  in  arrest 
of  judgment  were  made,  heard  and  overruled,  judgment  was  entered 
on  the  verdict.  No  bill  of  exceptions  was  taken  to  any  ruling  of  the 
court  below  on  the  trial. 

The  case  having  been  reviewed  on  error  by  the  superior  court  at 
general  term,  and  the  judgment  there  affirmed,  a  petition  in  error  is 
filed  here  to  reverse  that  judgment  of  aflSrmance. 

All  the  errors  assigned  or  assignable  on  the  record  present  but  the 
single  question  which  was  originally  made  by  the  demurrer  to  the 
petition,  i.  e.,  does  the  petition  state  facts  sufficient  to  constitute  a 
cause  of  action  }  If  it  does,  there  is  no  error  apparent  on  this  record ; 
if  it  does  not,  the  judgment  is  erroneous  and  must  be  reversed. 

It  will  be  noticed  that  this  is  an  action  brought  by  an  individual 
plaintiff  against  the  commissioners  of  a  county  in  their  oflicial  or 
quasi  corporate  capacity,  to  recover  damages  resulting  from  the  negli- 
gence and  misconduct  of  those  officers.  No  claim  is  made  against 
those  officers  as  individuals,  but  the  recovery  is  sought  against  the 
county,  and  if  this  judgment  can  be  maintained,  it  must  in  somfe  way 
be  met  and  paid  by  the  people  of  Hamilton  county.     And  thus  we 


2l6  THE   BOARD,    ETC.,  V.    MIGHELS.-  §  ^O 

are  presented  with  the  question,  is  a  county,  or,  in  other  words,  the 
people  of  a  county,  liable  in  an  action  sounding  in  tort,  for  the  per- 
sonal misconduct  or  negligence  of  the  county  commissioners  while  in 
the  performance  of  their  official  functions  ? 

If  a  county  be  thus  liable,  that  liability  must  be  derived  either  ex- 
pressly or  by  necessary  implication  from  the  provisions  of  some  statute, 
or  must  rest  on  the  principles  of  the  common  law. 

[After  holding  there  was  no  statutory  liability  proceeds:] 

2.  Is  the  action  maintainable  on  the  principles  of  the  common  law? 
In  entering  on  this  inquiry,  it  is  but  justice  to  ourselves  to  say,  that, 
assisted  by  the  researches  of  diligent  counsel,  we  have  given  it  an  un- 
usual share  of  labor  and  attention ;  and  this  not  only  because  of  the 
importance  of  the  question  itself,  but  for  the  reason  that  the  conclusion 
to  which  our  minds  have  been  compelled  is  in  conflict  with  a  case 
(Commissioners  of  Brown  County  v.  Butt,  2  Ohio  Rep.  348)  decided 
by  judges  for  whose  judgment  we  entertain  that  degree  of  respect 
which  renders  even  involuntary  and  irresistible  dissent  from  their  con- 
clusions reluctant  and  self-distrustful. 

For  the  purpose  of  maintaining  this  action,  an  effort  has  been  made 
in  argument  to  assimilate  counties  to  natural  persons  and  municipal 
and  other  corporations  proper.  Now  it  is  conceded,  that  if  the  neg- 
ligence, and  consequent  injury  to  the  plaintiff  below  had  been  the  act 
of  a  natural  person  in  the  construction  of  a  private  building,  to  which 
the  plaintiff  below  had  been  invited,  the  party  guilty  of  the  negligence 
would  properly  be  liable  in  damages.  So,  also,  it  now  seems  to  be 
well  settled  that,  had  the  defendants  below  been  the  agents  of  a  muni- 
cipal or  other  corporation  proper,  and  had  the  plaintiff  below  been 
injured  through  like  negligence  and  under  like  circumstances,  the  cor- 
poration might  be  held  to  answer  for  the  injury.  And  why?  Because 
where  there  is  a  wrong  there  ought  to  be  a  remedy ;  persons,  whether 
natural  or  artificial,  are  bound  so  to  use  their  own  property  and  con- 
duct their  own  affairs  as  not  to  injure  others ;  and  where  an  act  is 
done  to  the  injury  of  another  by  a  natural  person  in  the  pursuit  of  his 
own  interests,  or,  through  its  agents,  by  an  artificial  person,  a  corpo- 
ration proper,  which  is  called  into  existence,  either  at  the  direct  solici- 
tation or  by  the  free  consent  of  the  persons  composing  it,  for  the  pro- 
motion of  their  own  local  and  private  advantage  and  convenience, 
and  which  can  work  only  through  agents,  such  natural  or  artificial 
person  is,  on  every  principle  of  justice  and  enlightened  reason,  bound 
to  rectify  the  consequence  of  his  own  misfeasance.  And  it  is  freely 
admitted  that  if  counties  are  in  all  material  respects  like  municipal 
corporations  proper,  and  may  be  fairly  classed  with  them,  then  this 
action  ought  to  be  maintained.  But  how  is  the  fact  ?  This  question 
is  vital,  and  on  its  solution  the  case  must  depend. 

As  before  remarked,  municipal  corporations  proper  are  called  into 
existence,  either  at  the  direct  solicitation  or  by  the  free  consent  of  the 
people  who  compose  them. 

Counties  are  local  subdivisions  of  a  state  created  by  the  sovereign 
power  of  the  state,  of  its  own  sovereign  will,  without  the  particular 


■§40  QUASI   AND    COMPLETE    CORPORATIONS.  21/ 

solicitation,  consent  or  concurrent  action  of  the  people  who  inhabit 
them.  The  former  organization  is  asked  for,  or  at  least  assented  to 
by  the  people  it  embraces ;  the  latter  is  super-imposed  by  a  sovereign 
and  paramount  authority. 

A  municipal  corporation  proper  is  created  mainly  for  the  interest, 
advantage  and  convenience  of  the  locality  and  its  people ;  a  county 
organization  is  created  almost  exclusively  with  a  view  to  the  policy  of 
the  state  at  large,  for  the  purposes  of  political  organization  and  civil 
administration,  in  matters  of  finance,  of  education,  of  provision  for 
the  poor,  of  military  organization,  of  the  means  of  travel  and  trans- 
port, and  especially  for  the  general  administration  of  justice.  With 
scarcely  an  exception,  all  the  powers  and  functions  of  the  county 
organization  have  a  direct  and  exclusive  reference  to  the  general  policy 
of  the  state,  and  are,  in  fact,  but  a  branch  of  the  general  administration 
of  that  policy.  Ward  v.  County  of  Hartford,  12  Conn.  406;  Boalt  v. 
Commissioners  of  Williams  County,  18  Ohio  Rep.  16;  C.  W.  &  Z. 
Railroad  v.  Commissioners  of  Clinton  County,  i   Ohio  St.  Rep.  89. 

The  idea  that  the  board  of  county  commissioners  is  the  agent  of  the 
county  or  of  its  people  is  prominently  advanced  and  pressed  on  our 
attention.  That  board  is,  in  some  sort,  the  agent  of  the  county,  it  is 
tme ;  inasmuch  as  it  alone  is  authorized  to  sue  and  be  sued  in  respect 
to  contracts  growing  out  of  the  county  organization.  There  is  an  ad- 
ministrative necessity  that  some  name  should  be  employed  as  the  rep- 
resentative of  the  public  interests  involved  in  such  suits ;  and  that  of 
the  board  of  county  commissioners  has,  by  law,  been  designated  for 
that  purpose ;  but  the  name  of  the  county  auditor,  or  the  name  of  the 
county  itself,  had  the  legislature  chosen  so  to  prescribe,  would  have 
answered  the  same  purpose  quite  as  well ;  and,  in  fact,  we  think,  has 
no  special  weight  or  significance. 

But,  it  is  said,  the  members  of  the  board  of  county  commissioners 
are  chosen  by  the  electors  of  the  county,  and  hence  the  board  is  to  be 
regarded  as  the  agents  of  the  county,  for  whose  torts  in  the  perform- 
ance of  artificial  duties  the  county  ought  to  be  responsible.  True,  the 
people  of  the  county  elect  the  board  of  county  commissioners ;  but 
they  also  elect  the  sheriff  and  treasurer  of  the  county.  Are  the  peo- 
ple of  the  county,  therefore,  responsible  for  the  malfeasance  in  office 
of  the  sheriff,  or  for  the  official  defalcations  of  the  county  treas- 
urer? This  will  not  be  pretended.  And  yet,  if  this  case  is  to  rest  on 
the  principles  governing  the  relation  of  principal  and  agent,  wherein  is 
the  distinction  between  the  case  at  bar  and  the  case  supposed.?  We 
confess  our  inability  to  discover  any  such  distinction.  In  the  case  of 
municipal  corporations  proper,  the  electors  are,  mediately  or  immedi- 
ately, invested  with  very  ample  control  over  their  agents,  not  only  as 
to  what  shall  be  done,  but  how  it  shall  be  done,  and  by  whom  it  shall 
be  done ;  they  may  exact  such  guarantees  as  they  deem  proper  for 
their  own  indemnity,  and  may  prescribe  by-laws  for  their  government. 
As  between  the  commissioners  and  the  electors  of  a  county  all  this  is 
wanting.  All  his  powers  and  duties  are  prescribed  by  the  supreme 
legislature ;  and  the  electors  can  exercise  no  control  over  him  whatso- 


2l8  THE   BOARD,    ETC.,  V.    MIGHELS.  §40 

ever,  except  such  as  springs  from  the  bare  fact  of  election ;  and  to  this 
extent  they  can  control  a  sheriff  or  treasurer  as  well  as  a  commissioner. 

Chancellor  Kent  (i  Com.  572-3)  says,  that  "a  great  proportion  of 
the  rules  and  maxims  which  constitute  the  code  of  the  common  law, 
grew  into  use  by  the  application  of  the  dictates  of  natural  justice  and 
cultivated  reason  to  particular  cases;"  and  that  "the  best  evidence" 
of  what  that  law  is,  "is  to  be  found  in  the  decisions  of  courts  of  jus- 
tice, contained  in  books  of  reports,  and  in  the  treatises  and  digests  of 
learned  men." 

Now,  on  what  principles  of  "natural  justice,"  or  of  "cultivated 
reason,"  aside  from  positive  statute,  the  people  of  a  county  should  be 
held  responsible  for  the  personal  or  official  misconduct  of  a  county 
commissioner,  we  are  wholly  unable  to  perceive. 

But  how  stands  the  case  upon  authority,  "by  the  decision  of  courts 
of  justice,  and  the  treatises  of  learned  men?" 

The  county  organization,  substantially  similar  in  all  its  general 
features  and  functions,  has  existed  in  England  from  the  earliest  times, 
and  in  all  the  states  of  this  Union,  with  perhaps  one  or  two  exceptions, 
more  nominal  than  real,  from  the  period  of  their  settlement;  yet  the 
researches  of  diligent  counsel  have  failed  to  furnish  a  single  case 
where  an  action  has  been  maintained  against  a  county  in  a  case  like 
the  one  before  us,  except  that  of  the  Commissioners  of  Brown  County 
V.  Butt,  before  cited,  and  which  was  recognized  as  authoritative  in 
Richardson  v.  Spencer,  6  Ohio  Rep.  13,  but,  apparently  without  any 
particular  examination  of  the  principles  on  which  it  was  based,  or  of 
the  authorities  bearing  upon  them. 

It  is  said  that  the  court  below  sustained  the  action  in  the  case  before 
us,  on  the  authority  of  Commissioners  of  Brown  County  v.  Butt ;  and 
we  concur  with  the  court  below  in  the  opinion  that  if  that  case  was 
properly  decided  this  action  must  be  maintained.  We  have  looked  in 
vain  for  any  substantial  distinction  between  them.  In  that  case,  the 
debtor,  having  been  surrendered  by  his  appearance  bail,  and  commit- 
ted to  the  custody  of  Butt,  who  was  sheriff  of  Brown  county,  escaped 
by  reason  of  there  being  no  jail  in  Brown  county,  and  the  sheriff  not 
being  by  law  at  liberty  to  imprison  the  debtor  elsewhere  than  in  the 
jail  of  the  county.  The  creditor  having  recovered  against  him,  as 
sheriff,  for  the  escape.  Butt  brought  his  action  on  the  case  against  the 
board  of  commissioners  of  the  county  to  recover  the  damages  he  had 
thus  sustained  by  reason  of  its  neglect  of  duty  to  provide  a  jail.  The 
court,  Burnet,  J.,  dissenting,  held  the  action  to  be  well  brought,  on 
the  ground  that  the  commissioners  were  the  agents  and  representatives 
of  the  county.  In  that  opinion,  for  the  reason  before  indicated,  as 
well  as  on  the  authorities  about  to  be  noticed,  we  find  ourselves  unable 
to  concur.  We  can  not  but  think  that  county  commissioners  are  not 
agents  or  representatives  of  the  county  in  any  such  sense  or  manner 
as  to  render  the  people  of  the  county  justly  answerable  for  their  neg- 
lect. The  reported  opinion  of  the  majority  of  the  court  in  that  case 
may  furnish  veiy  abundant  reason  why  the  utter  neglect  of  county 
commissioners  to  furnish  a  jail,  and.  the  sheriff  himself  being  in  no 


§  40  QUASI   AND  ^COMPLETE   CORPORATIONS.  219 

fault,  a  plea  of  these  facts  ought  to  be  held  a  good  bar  to  an  action 
for  an  escape,  and  the  creditor  turned  over  to  an  action  against  the 
commissioners  personally,  or  why,  if  such  plea  be  held  bad,  the  sheriff 
might  maintain  his  action  against  the  county  commissioners  in  their 
individual  capacity,  for  the  personal  injury  resulting  to  him  from  their 
neglect — and  as  to  these  alternatives,  the  question  not  being  directly 
before  us,  we  express  no  opinion — but  it  affords  to  our  minds  no  satis- 
factory reason  why  the  people  of  a  county  should  be  held  pecuniarily 
responsible  for  the  delinquencies  of  officers  over  whose  acts  that  peo- 
ple have  no  supervision  or  control  whatsoever.  And  the  case  itself, 
as  before  remarked,  stands  alone.  At  the  time  it  was  made  it  was 
unsupported  by  any  reported  case ;  and,  so  far  as  we  can  ascertain,  it 
remains  still  unsupported  by  any  case  outside  of  Ohio,  while  the  cases 
on  the  other  side  are  uniform  and  so  numerous  as  to  render  a  particu- 
lar notice  of  all  of  them  too  tedious  to  be  attempted. 

The  leading  case  on  this  subject  seems  to  be  that  of  Russell  v.  The 
Men  of  Devon,  2  T.  R.  667,  which  was  an  action  on  the  case  against 
the  men  dwelling  in  the  county  of  Devon  ^  to  recover  satisfaction  for  an 
injury  done  to  a  wagon  of  the  plaintiff  in  consequence  of  a  bridge 
being  out  of  repair,  which  ought  to  have  been  repaired  by  the  county ; 
to  which  two  of  the  inhabitants,  for  themselves  and  the  rest  of  the 
men  dwelling  in  that  county,  appeared  and  demurred  generally.  On 
hearing,  the  court  of  king's  bench  unanimously  sustained  the  demur- 
rer;  and  this,  apparently,  on  three  grounds:  (i)  That  there  was 
no  precedent  for  such  an  action.  (2)  By  reason  of  the  inconvenience 
resulting  from  the  multiplicity  of  actions  for  contribution  to  which 
a  recovery  and  levying  of  the  judgment  upon  the  inhabitants  of  the 
county  would  give  rise  ;  and,  (3)  That  the  county  of  Devon  had  no 
fund  out  of  which  satisfaction  could  be  made.  And  this  last  reason, 
it  seems  to  us,  applies  with  great  weight  to  the  case  in  hand.  It  is 
true,  counties  in  Ohio  have  a  treasuiy,  and  in  it  various  funds.  But 
those  funds  are  all  raised  for  specific  purposes  ;  to  those  purposes  they 
must  be  devoted ;  the  commissioners  are  authorized  to  levy  no  tax,  ex- 
cept for  such  purposes  as  are  authorized  by  statute ;  and  we  have 
no  statute  authorizing  the  levy  of  a  tax  to  satisfy  such  a  judgment  as 
this.  And  in  Boalt  v.  Commissioners  of  Williams  County,  before 
cited,  it  was  decided  that  a  bill  in  chancery  would  not  lie  against  a 
county  to  subject  equities,  and,  in  the  opinion  of  the  court  in  that 
case,  it  is  assumed,  arguendo^  as  indisputable,  that  county  bridges, 
court-house,  public  offices,  jail  or  poor-house,  can  not  be  sold  on  exe- 
cution at  law. 

In  Riddle  v.  The  Proprietors  of  the  Locks  and  Canals  on  Merri- 
mack River,  7  Mass.  Rep..  169,^  Parsons,  C.  J.,  delivering  the  opin- 
ion of  the  court,  clearly  lays  down  the  principle  on  which  we  proceed. 
He  says :  "We  distinguish  between  proper  aggregate  corporations,  and 
the  inhabitants  of  any  district  who  are  by  statute  invested  with  particular 
powers  without  their  consent.  These  are  in  the  books  sometimes  called 
quasi  corporations.     Of  this  description  are  counties   and  hundreds  in 

'  f^'nra,  p.  47. 


220  THE   BOARD,    ETC.,  V.    MIGHELS.  §40 

England  ;  and  counties,  towns,  etc.,  in  this  state.  Although  quasi  cor- 
porations are  liable  to  information  or  indictment,  for  a  neglect  of 
public  duty,  imposed  on  them  by  law ;  yet  it  is  settled  in  the  case  of 
Russell  et  al.  v.  Inhabitants  of  the  County  of  Devon,  that  no  private 
action  can  be  maintained  against  them  for  a  breach  of  their  corporate 
duty,  unless  such  action  be  given  by  statute.  And  the  sound  reason  is 
that  having  no  corporate  fund  and  no  legal  means  of  obtaining  one, 
each  corporator  is  liable  to  satisfy  any  judgment  rendered  against  the 
corporation.  This  burden  the  common  law  will  not  impose,  but  in 
cases  where  the  statute  is  an  authority,  to  which  every  man  must  be 
considered  as  assenting.  But  in  regular  corporations,  which  hav'e,  or 
are  supposed  to  have,  a  corporate  fund,  this  reason  does  not  apply." 

The  same  doctrine  is  asserted  by  the  same  court  in  Mower  v.  In- 
habitants of  Leicester,  9  Mass.  Rep.  247 ;  and  is  recognized  as  settled 
law  by  Angell  &  Ames  on  Corporations,  section  630,  note.  So  in 
South  Carolina,  2  Nott  &  McCord  537 ;  Young  v.  Commissioners  of 
the  Roads;  and  White  v.  City  Council,  2  Hill's  Rep.  571.  So  in 
Connecticut,  Ward  v.  The  County  of  Hartford,  12  Conn.  404.  The 
case  of  the  Freeholders  of  Sussex  County  v.  Strader,  3  Harr.  N.  J. 
Rep.  158,  before  alluded  to,  was  an  action  broughtby  Strader  against 
the  county  of  Sussex,  New  Jersey,  to  recover  damages  for  an  injury 
to  a  team  of  the  plaintiff,  on  account  of  a  defect  in  a  public  bridge 
which  the  chosen  freeholders  of  the  county  were  bound  to  keep  in 
repair.  In  that  case  the  court  not  only  sustain  the  doctrine  and  dis- 
tinction laid  down  "in  the  Men  of  Devon,  and  by  Chief  Justice  Parsons 
in  7th  Mass. ;  but  Chief  Justice  Hornblower,  in  delivering  his  opinion, 
supposes,  and  remarks  upon  almost  the  very  case  before  us.  He  says : 
"It  is  the  duty,  for  instance,  of  the  board  of  freeholders,  to  erect  and 
keep  in  repair  court-houses  and  jails ;  a  neglect  to  do  so  may  occasion 
great  inconvenience,  perhaps  positive  loss  or  injury,  to  some  individual 
whose  business  or  duty  requires  his  attendance  at  court ;  the  building, 
by  being  old  and  out  of  repair,  may  give  way,  and  break  a  man's 
limbs,  or  occasion  him  an  injury  in  some  other  way,  but  no  one  will 
pretend  that  in  such  a  case  an  action  would  lie  by  the  person  injured 
against  the  county." 

The  same  doctrine  was  recognized  and  applied  in  Illinois,  in  Hedges 
V.  The  County  of  Madison,  i  Oilman's  Rep.  567,  by  the  supreme 
court  of  the  United  States  in  Fowle  v.  Common  Council  of  Alexan- 
dria, 3  Peters  409,  and  is  also  applied  and  strongly  urged  and  approved 
by  the  supreme  court  of  New  York  in  the  able  opinion  of  Selden, 
J.,  in  Morey  v.  The  Town  of  Newfane,  8  Barb.  S.  C.  Rep.  645. 

It  is  undoubtedly  competent  for  the  legislature  to  make  the  people 
of  a  county  liable  for  the  official  delinquencies  of  the  county  commis- 
sioners, and,  if  they  think  it  wise  and  just,  without  any  power  in  the 
people  to  control  the  acts  of  the  commissioners,  or  to  exact  indemnity 
from  them ;  but  this  has  not  yet  been  done,  and  we  think  that  such  lia- 
bility can  not  be  derived  from  the  relation  of  the  parties  either  on  the 
principles  or  the  precedents  of  the  common  law. 

In  conclusion,  and  at  the  risk  of  the  penalties  of  tautology,  I  repeat, 


§  41      PUBLIC,  QUASI-PUBLIC  AND  PRIVATE  CORPORATIONS.      221 

that  while,  both  upon  principle  and  authority,  we  find  ourselves  com- 
pelled to  overrule  the  case  of  The  Commissioners  of  Brown  County 
V.  Butt,  as  having  been  erroneously  decided,  we  do  so  with  extreme 
reluctance,  and  with  all  respect  for  the  judgment  and  veneration  for 
the  memory  of  the  judges  who  decided  it,  but,  with  our  convictions, 
we  could  not  do  otherwise,  and,  in  overruling  it,  we  are  satisfied  we 
are  contributing  to  place  the  law  of  Ohio  upon  a  footing  of  sound 
principle,  as  well  as  in  harmony  with  that  of  other  states  whose  juris- 
prudence, like  our  own,  rests  on  the  basis  of  common  law. 

Judgment  reversed. 

Bartley,  C.  J.,  and  Swan,  Bowen  and  Scott,  JJ.,  concurred. 

Note.  1816,  Rumford  School  District  v.  Wood,  13  Mass.  193 ;  1823,  Todd  v. 
Birdsall,  1  Cowen  (N.  Y.)  260;  1834,  Andrews  v.  Estes,  11  Maine  267,  26  Am. 
Dec.  521 ;  1835,  McLoud  v.  Selby,  10  Conn.  390,  27  Am.  Dec.  689;  1837,  Chase 
v.  Merrimac  Bank,  19  Pick.  (Mass.)  564,  31  Am.  Dec.  163;  1841,  Connell  v. 
Woodward,  5  How.  (Miss.)  665,  37  Am.  Dec.  173;  1843,  Gaskill  v.  Dudley,  ft 
Met.  (Mass.)  546,  39  Am.  Dec.  750;  1873,  Whitney  v.  Stow,  111  Mass.  368; 
1878,  Talbot  Co.  v.  Queen  Anne  Co.,  50  Md.  245.  Joint  stock  companies  are 
sometimes  called  private  quasi  corporations,  i.  e.,  they  have  some  of  the  feat- 
ures of  corporations,  but  not  all.  Morawetz  Corp.,  §  6,  and  cases  cited. 
See  case  cited  supra,  p.  110. 


Sec.  41.    {c)    Corporations  in  their  relation  to  the  state  are: 

1.  Purely  public. 

2.  Quasi-Fuhlic. 

3.  Private. 

THE   BANK   OF  THE  STATE  OF   SOUTH  CAROLINA  v.  GIBBS, 

Executor. 

1825.    In  the  Court  of  Appeals  of  South  Carolina.    3  McCord 
(S.  Car.)  Reports  *377. 

The  question  in  this  case  was,  whether  a  simple  contract  debt  due 
to  the  Bank  of  the  State  of  South  Carolina  was  a  debt  due  to  the 
public,  within  the  provisions  of  the  executor's  act  (Pub.  Laws,  494), 
and  as  such  entitled  to  a  preference,  as  a  public  debt. 

NoTT,  J. — The  act  of  the  legislature,  upon  the  construction  of 
■which  the  decision  of  this  case  depends,  directing  the  order  in  which 
the  debts  due  by  a  testator  or  intestate  shall  be  paid,  provides,  "that 
the  funeral  and  other  expenses  of  the  last  sickness,  charges  of  probate 
of  the  will,  or  of  letters  of  administration,  shall  be  first  paid ;  next, 
debts  due  to  the  public,"  etc. 

The  question  now  is,  whether  the  debt  in  this  case  is  in  the  sense 
of  the  act  a  debt  due  to  the  public.  There  is  nothing  on  the  face  of 
the  proceedings  which  will  authorize  us  to  view  it  in  that  light,  for  we 
must  look  beyond  the  case  itself  to  see  that  the  state  has  any  interest 
in  it.  It  is  not  then  a  debt  due  to  the  public ;  but  it  is  due  to  the  cor- 
poration, though  the  money,  when  received,  may  be  for  the  use  of 
the  state.  In  the  case  of  the  United  States  Bank  against  the  Planters' 
Bank  of  Georgia  (9  Wheat.  907),   Chief  Justice  Marshall,  who  de- 


222  M'KIM    V.    ODOM.  §  42 

livered  the  opinion  of  the  court,  said:  "The  suit  is  against  a  corpo- 
ration, and  the  judgment  is  to  be  satisfied  by  the  property  of  the  cor- 
poration and  not  by  that  of  the  corporators.  The  state  does  not,  by 
becoming  a  corporator,  identify  itself  with  the  corporation.  The 
Planters'  Bank  of  Georgia  is  not  the  state  of  Georgia,  although 
the  state  holds  an  interest  in  it.  It  is,"  he  says,  "a  sound  principle, 
that  when  a  government  becomes  a  partner  in  a  trading  company,  it 
divests  itself,  so  far  as  concerns  the  transactions  of  that  company,  of 
its  sovereign  character,  and  takes  that  of  a  private  citizen."  I  can 
not  distinguish  that  case  from  the  one  now  under  consideration.  It  is 
true,  the  state  of  Georgia  held  but  a  part  of  the  interest  in  that  bank, 
and  the  state  of  South  Carolina  owns  the  whole  in  this.  But,  never- 
theless, we  may,  with  truth,  say,  in  the  language  of  that  opinion,  the 
Bank  of  the  State  of  South  Carolina  is  not  the  state  of  South  Caro- 
lina ;  it  is  only  a  corporation  created  for  particular  purposes,  possess- 
ing the  same  powers  and  privileges  of  other  corporations,  and  no 
more.  The  state  did  not  transfer  any  portion  of  its  sovereignty  to 
this  corporation,  nor  communicate  to  it  any  of  its  privileges  or  prerog- 
atives, but  has  placed  it  on  the  same  level  with  other  corporate  bodies, 
with  the  same  privilege  of  suing,  and  liability  of  being  sued,  as  an  in- 
cident to  such  corporations.  I  am  of  opinion,  therefore,  that  the 
same  principle  by  which  the  case  referred  to  was  governed  is  appli- 
cable to  this  case,  and  that  the  bank  is  not  entitled  to  any  such  prefer- 
ence as  is  contended  for — and  that  is  the  opinion  of  the  court. 
The  motion  is  therefore  refused. 

Note.     See  cases  cited  to  People  v.  Morris,  infra,  pp.  229,  234. 

Sec.  42.    Same. 

McKIM  v.  ODOM.i 

1831,     In  the  High  Court  of  Chancery  of  Maryland.     3  Bland 
Chancery  (Md.)  407-433. 

[This  bill  was  filed  on  the  23d  of  June,  1827,  by  William  S.  Moore 
and  John  McKim,  Jr.,  John  Odom,  George  Law,  William  G.  Har- 
rison, William  F.  Anderson  and  the  president  and  directors  of  the 
Franklin  Bank  of  Baltimore.  The  bill  states  that  the  plaintiff,  Moore, 
and  the  defendant,  Odom,  being  joint  and  equal  owners  of  the 
schooner  Beauty,  sent  her  on  a  voyage  from  Baltimore  to  Montevideo, 
under  Odom  as  master ;  that,  for  the  better  management  of  the  con- 
cerns of  their  vessel,  they  employed  the  defendants,  Law  &  Harrison, 
then  partners  in  trade,  as  her  ship's  husband ;  that  it  was  agreed  by 
these  owners,  before  their  vessel  sailed,  that  she  might  be  sold,  and 
she  was  sold  accordingly,  at  Montevideo,  for  about  $12,000;  and 
there  were  remitted  in  specie,  by  the  United  States  ship  Cyane,  as  a 
part  of  the  proceeds  of  sale,  about  $9,000,  with  a  bill  of  lading  for 

*  Statement  of  facts  abridged.    Arguments  omitted ;  much  of  the  opinion 
omitted. 


§  42      PUBLIC,  QUASI-PUBLIC  AND  PRIVATE  CORPORATIONS.      223 

the  defendant  Law;  that  on  the  loth  of  April,  1826,  the  plaintiff 
Moore  assigned  all  his  interest  in  the  schooner  and  her  earnings  to  the 
plaintiff  IVfcKim,  of  which  Law  was  duly  notified  ;  that  afterward  and 
immediately  on  the  arrival  of  the  ship  Cyane,  the  defendant  Law,  by 
means  of  his  bill  of  lading,  obtained  possession  of  the  specie  remitted, 
had  it  exchanged  in  Philadelphia,  and  thence  transmitted  to  Baltimore, 
where  he  had  the  greater  part  of  it  deposited  in  the  Franklin  Bank, 
in  the  name  of  the  defendant  Anderson,  in  trust  for  his.  Law's,  use; 
that  the  object  of  the  defendant  Law  in  withholding,  and  thus  secretly 
depositing  the  proceeds  of  sale,  was  fraudulently  to  compel  the 
plaintiff  McKim  to  submit  to  certain  unjust  and  improper  charges, 
which  he.  Law,  as  ship's  husband,  claimed  a  right  to  have  allowed 
and  deducted  from  those  proceeds.  Upon  which  the  plaintiffs  prayed 
relief  and  an  injunction  to  stay  the  money  so  deposited  in  the  hands 
of  the  bank.     An  injunction  was  granted  accordingly. 

On  the  1 2th  of  December,  1828,  the  plaintiffs,  by  their  petition, 
stated  that  the  president  and  directors  of  the  Franklin  Bank  of  Balti- 
more had  been  regularly  returned  summoned,  and  had  refused  to 
answer  the  amended  bill,  whereupon  the  plaintiffs  prayed  that  a 
distringas  might  be  issued  against  that  corporation.] 

Bland,  Chancellor.  *  *  «  xhe  mode  of  proceeding  against 
contumacious  natural  persons,  who  neglect  or  refuse  to  answer,  is  w^ell 
established  and  sufficiently  energetic,  but  the  course  of  proceeding  for 
that  purpose  against  artificial  bodies  or  corporations  is  different,  more 
feeble  and  much  more  tardy,  there  being  no  legislative  provision  for 
enforcing  an  appearance  or  answer  from  such  defendants. 

So  far  as  I  have  been  able  to  ascertain,  this  is  the  first  instance  of 
an  application  to  this  court  for  coercive  process  against  a  body  politic. 
Coi"porations  have  latterly  become  very  numerous,  and  new  ones  are 
created  at  almost  every  session  of  the  legislature ;  the  matter  now  sub- 
mitted for  determination,  therefore,  has  an  importance  much  above 
the  interests  of  the  case  out  of  which  it  arises,  and  requires  to  be  care- 
fully considered  with  a  view  to  the  course  of  proceeding  in  future. 

Under  the  provincial  government  corporations  were  framed  and  called 
into  existence,  as  in  England,  either  directly  by  or  with  the  immedi- 
ate sanction  of  the  lord  proprietary  or  the  monarch.  But,  however 
they  may  have  been  originated  formerly  or  elsewhere,  it  is  certain 
that  they  can  now  only  be  established  here  by  the  authority  of  the 
legislature.  The  multitude  of  bodies  politic  that  have  been  created 
either  by  the  government  of  the  province  or  of  the  republic,  most  of 
which  still  subsist,  may  be  considered,  in  reference  to  their  objects,  as 
belonging  to  one  or  other  of  three  distinct  classes. 

[Public]  The  first  kind  are  such  as  relate  merely  to  the  public  police, 
which,  by  assuming  upon  themselves  some  of  the  duties  of  the  state, 
in  a  partial  or  detailed  form,  and  having  neither  power  nor  property 
for  the  purposes  of  personal  aggrandizement,  can  be  considered  in  no 
other  light  than  as  the  auxiliaries  of  the  government  of  the  Republic; 
and  consequently,  as  the  secondary  and  deputy  trustees  and  servants 
of  the  people.     The  right  to  establish,  alter  or  abolish  such  corpora- 


224  M'KIM    V.    ODOM.  §  42 

tions  seems  to  be  a  principle  evidently  inherent  in  the  very  nature  of 
the  institutions  themselves,  since  all  mere  municipal  regulations 
must,  from  the  nature  of  things,  be  subject  to  the  absolute  control  of 
the  government.  These  institutions,  being,  in  their  nature,  the  auxil- 
iaries of  the  government  in  the  great  business  of  municipal  rule,  can 
not  have  the  least  pretention  to  sustain  their  privileges,  or  their  exist- 
ence, upon  any  thing  like  a  contract  between  them  and  the  govern- 
ment, because  there  can  be  no  reciprocity  of  stipulation,  and  because 
their  objects  and  duties  are  incompatible  with  everything  of  the  na- 
ture of  such  a  compact. 

The  power  of  acquiring  and  holding  property,  although  almost 
always  given,  is  by  no  means  a  necessary  incident  to  corporations  of 
this  class;  they  may  be  established  without  any  such  capacity;  as 
in  the  instance  of  the  commissioners  for  emitting  bills  of  credit.^ 
The  preservation  of  morals,  and  the  administration  of  justice  are  the 
chief  ends  for  which  government  has  been  instituted ;  and  infancy, 
insanity,  infirmity  and  helpless  poverty  have  an  undoubted  claim 
upon  the  protecting  care  of  the  republic.'^  Bodies  politic  of  this 
class,  having  these  objects  in  view,  are  city  corporations;*  levy 
courts;*  county  schools  for  the  provincial  or  state  government;* 
public  colleges;®  hospitals;^  trustees  of  the  poor  of  several  coun- 
ties,* etc. 

[Private.]  The  second  class  of  corporations  are  such  as  have  no  con- 
cern whatever  with  the  duties  of  the  republic;  nor  in  any  manner 
bound  to  perform  any  acts  for  its  benefit ;  but  whose  only  object  is 
the  personal  emolument  of  its  members.  The  corporators  in  such  in- 
stitution may  also,  in  some  sense,  be  considered  as  trustees ;  but  then, 
even  in  that  character,  they  are  the  mere  factors  of  individuals ;  and, 
therefore,  their  resignation  or  removal  can  not  divest  or  alter  any  of  the 
rights  of  the  individuals  they  represented.  Each  member  of  such  an 
aggregation  either  was  a  proprietor  at  the  commencement,  or  became 
so  during  the  existence  of  its  incorporation ;  and  consequently,  unless 
he  has  aliened  his  right,  must  continue  to  be  so  after  its  dissolution. 
A  corporation  not  being,  like  a  natural  person,  one  of  the  elements  of 
society,  of  which  government  is  formed,  can  only  be  considered  as  a 
creature  of  the  law.  It  is  the  law  alone  which  gives  to  it  a  personality 
distinctfrom  that  of  each  of  its  members,  and  confers  on  it  the  right  to 
act  by  its  president,  directors,  or  agents,  in  a  manner  analogous  to 
that  in  which  the  government  itself  acts  by  its  regularly  constituted 
functionaries.  This  individuality  of  character,  and  the  right  so  to 
act  is,  then,  nothing  more  than  a  portion  of  the  power  of  the  govern- 
ment with  which  it  has  been  invested.  It  is  this  power  which  is  given 
by  the  creation  of  a  body  politic,  and  which,  by  its  extinguishment,  is 
resumed,    and  nothing  more ;    the  rights   of  property  vested   in    its 

1 1769,  ch.  14,  §  6.  5 1696.  ch.  17 ;  1723,  ch.  19. 

•Montesq.  Sp.  Laws,  b.  23,  ch.  29.  « April,  1782,  ch.  8. 

•1708,  ch.  7;  1796,  ch.  68.  '1797,  ch.  102;  1816,  ch.  156. 

« 1804,  ch.  73.  « 1768,  ch.  29 ;  1786,  ch.  15. 


§  42      PUBLIC,  QUASI-PUBLIC  AND  PRIVATE  CORPORATIONS.      22$ 

several  members,  in  all  other  respects,  remain  unaffe-ted  by  its  dis- 
solution. 

It  is  remarkable  that  there  is  no  instance  of  the  creation  of  any 
body  politic  of  this  description  under  the  provincial  government;  but 
since  the  establishment  of  the  republic  they  have  increased  and  multi- 
plied to  a  very  large  and  still  rapidly  growing  family.  The  examples 
of  this  class  of  corporations  are  the  insurance  companies;^  the  Free 
Mason  societies ; ^  the  banks;*  the  manufacturing  companies;*  the 
library  companies,*  etc. 

[Quasi-public]  The  third  species  of  corporations  partake,  in  many 
respects,  of  the  nature  of  the  first  two  classes;  and  are  such  as  have  a 
concern  with  some  of  the  expensive  duties  of  the  state,  the  trouble  and 
charge  of  which  are  undertaken  and  defrayed  by  them,- in  considera- 
tion of  a  certain  emolument  allowed  and  secured  to  their  members. 
In  cases  of  this  kind  there  is  certainly  many  of  the  material  features 
of  a  contract  between  the  government  and  the  corporation ;  there  is 
manifestly  a  quid  ■pro  quo.  But  this  contract,  if  it  be  so,  is,  and  of  ne- 
cessity must  be,  like  all  others  to  which  a  government  or  state  is  a 
party,  one  of  imperfect  obligation  as  regards  the  state;®  and,  as  such, 
subject  to  be  dealt  with  by  the  government  of  the  state  as  the  public  good 
may  require,  on  making  a  just  compensation  for  any  private  property 
which  maybe  taken  for  a  public  use.  No  bodies  politic  of  this  descrip- 
tion were  ever  created  under  the  provincial  government ;  but  since  our 
independence,  a  great  number  of  them  have  been  called  into  existence ; 
such  as  canal  companies;'  bridge  companies;*  turnpike  road  com- 
panies;® etc. 

In  regard  to  the  Irrepealable  nature  of  an  act  of  ineorporation,  it  may 
be  well  not  only  to  bear  in  mind  the  distinctions  as  explained  above  in 
the  text,  according  to  which  it  is  quite  obvious  that  at  least  two  out  of 
the  three  kinds  of  corporations,  there  described,  may  be  modified  or  re- 
pealed at  the  pleasure  of  the  legislature,  without  the  slightest  interference 
with  the  rights  of  private  property  of  any  kind,  but  that  there  must  also 
be  a  variety  of  cases  in  which  corporations  of  the  third  class,  such  as  turn- 
pike roads,  may  have  their  stock,  even  considering  it  as  private  property,  in- 
definitely depreciated,  or,  in  effect,  totally  annihilated,  without,  in  the  opin- 
ion of  any  one,  giving  rise  to  a  claim  for  compensation,  as  in  cases  where 
mere  private  property  is  taken,  by  virtue  of  the  government's  power  of  emi- 
nent domain,  for  public  use.  Without  going  into  an  argument,  it  will  be  suflB- 
cient  to  state  a  case  which  has  occurred.  By  the  act  of  1812,  chapter  78,  the 
legislature  incorporated  a  company  for  making  a  turnpike  road  from  Balti- 
more to  Washington ;  under  which  the  road  was  made,  and  the  stock  yielded 
a  considerable  dividend  annually.  After  which  the  legislature,  by  the  act  of 
1830,  chapter  158,  authorized  the  construction  of  a  railroad  between  the  same 
cities,  and  nearly  parallel  with  the  turnpike  road,  which  was  accordingly  put 
in  operation.     In  consequence  of  which  the  annual  dividends  on  the  rtock  of 

»  April,  1787,  ch,  20. 

*  1821,  ch.  147. 

*  1790,  ch.  5. 

*  1808,  ch.  49. 
« 1797,  ch.  36. 

*  Vattel  Law  Nation,  Prelim.,  §  17. 
'  November,  1783,  ch.  23. 

«1795,  ch.  62. 
9 1797.  ch.  65. 

16 — WiL.  Casks. 


226  M'KIM    V.    ODOM.  §  42 

The  right  and  capacity  to  sue  and  be  sued  is  an  incident  to  bodies 
politic  of  all  descriptions ;  ^  even  to  those  which  have  been  incor- 
porated by  and  are  located  in  another  state  or  in  a  foreign  country.^ 
It  is  held  to  be  incumbent  upon  every  body  politic,  not  being  incor- 
porated by  a  public  law  of  which  the  court  is  bound  to  take  notice, 
which  comes  into  a  court  of  justice  as  a  plaintiff,  if  required,  even 
upon  the  general  issue  only  being  pleaded,  to  show  the  authority 
under  which  it  has  assumed  to  act  as  a  corporation.*  When 
called  on  as  a  defendant  its  corporate  capacity  is  thus  admitted,  and 
it  appears  by  attorney  and  responds  under  its  seal,  or  in  the  manner 
specially  prescribed  to  it.*  But  there  is  no  legislative  enactment 
which  directs  in  what  mode  a  corporation  of  any  kind  may  be  com- 
pelled to  answer  in  case  it  should  neglect  or  refuse  to  do  so. 

It  is  admitted  on  all  hands  that  in  a  suit  against  a  corporation  none 
of  its  members  can  be  taken  or  personally  punished,  except,  perhaps, 
as  a  last  resort,  on  account  of  any  contumacy  in  their  corporate 
capacity.  The  only  mode  of  proceeding,  either  to  enforce  an  answer 
or  obedience  to  a  decree,  is  by  a  distringas  and  sequestration  of 
the  property  of  the  body  politic.^  The  state  itself  is  regarded 
in  many  respects  as  a  mere  body  politic;^  and  in  the  various 
instances  where  it  becomes  necessary  to  have  it  made  a  party  to 
the  litigation,  it  is  represented  by  its  attorney-general ;  in  which  cases 
the  course  of  the  court  merely  allows  that  he  should  be  attended  with 
a  copy  of  the  bill ;  but  he  can  not  be  forced  to  answer  in  any  manner 
whatever;'  and  therefore,  if  the  bill  can  not  be  taken  fro  confesso 
against  the  state,*  the  further  progress  of  the  case  must  await  his 
good  pleasure. 

Eveiy  corporation  is  and  must  be  composed  of,  and  conducted  by, 
natural  persons ;  yet  the  distinction  between  the  natural  and  artificial 
capacities  and  liabilities  of  its  members  has  been  drawn  in  such  a  man- 
ner as  to  create  the  most  serious  inconvenience.  A  body  politic,  it 
has  been  quaintly  said,  has  no  soul ;  and  therefore  can  not  be  called  on 
to  answer  under  the  obligation  of  an  oath  by  which  a  natural  person 
may  be  bound.  ^     To  avoid  this  difficulty  the  court  of  chancery  has 

the  turnpike  road  have  been  very  materially  diminished.    Carrie  v.  The  Mu- 
tual Assurance  Society,  4  Hen.  &  Mun.  315. 
» 1  Blac.  Com.  475. 

*  1  Blac.  Com.  385;  4  Com.  Dig.  487;  Henriques  v.  Dutch  West  India  Com- 
panv,  2  Ld.  Raym.  1532;  The  National  Bank  of  St.  Charles  v.  De  Bernales, 
11  Com.  Law  Rep.  475. 

'  4  Com.  Dig.  487 ;  McMechen  v.  The  Mayor  of  Baltimore,  2  H.  &  J.  41 ; 
Agnew  v.  The  Bank  of  Gettysburg,  2  H.  &  G.  479. 

*  1804,  ch.  73,  §  6. 

^Bac.  Abr.  tit.  Corporations,  E.  2;  Lynch  v.  The  Mechanic's  Bank,  13 
Johns.  127. 

« 1785,  ch.  36. 

'  WilUs  Eq.  Plea.  7. 

«  2  Mad.  Pr.  Chan.  335 ;  1  Fowl.  Exch.  Prac.  401 ;  Nabob  of  the  Carnatic  v. 
The  East  India  Companv,  1  Ves.,  Jun.,  371;  8.  c.  1  Hoven.  Supp.  149. 

9  The  case  of  Sutton's  Hospital,  10  Co.  33. 


§  42      PUBLIC,  QUASI-PUBLIC  AND  PRIVATE  CORPORATIONS.      22/ 

had  recourse  to  a  singular  shift,  which  it  is  admitted  rests  on  very 
questionable  principles ;  it  allows  the  secretary,  bookkeeper  or  some 
one  or  more  of  the  chief  members  of  the  body  politic  to  be  made  co- 
defendants  for  the  express  purpose  of  obtaining  an  answer  on  oath, 
which  answer,  contrary  to  the  general  rule  in  other  cases,  is  received 
as  evidence  against  the  corporation  itself.^  Thus  allowing  the 
plaintiff  to  select  from  among  the  corporators  such  one  or  more  of 
them  as  he  may  think  proper  to  make  witnesses,  and  to  extract  from 
them  only  such  proof  as  may  be  entirely  responsive  to  his  case. 

It  is  said,  in  one  of  the  very  respectable  treatises  on  equity  plead- 
ing, that,  in  the  case  of  a  corporation  aggregate,  where  the  answer  is 
under  the  common  seal,  the  bill  must  pray  that  a  writ  called  a  writ 
of  distringas  may  issue  under  the  great  seal,  which  is  for  the  pur- 
pose of  distraining  them  by  their  goods  and  chattels,  rents  and  profits, 
until  they  obey  the  summons  or  direction  of  the  court.*.  What  is 
here  said,  however,  as  to  the  prayer  of  the  bill,  is  certainly  wrong, 
the  authorities  cited  warrant  no  such  assertion.^  And  it  has  also 
been  said,  that  a  subpena  is  not  the  proper  original  process  against  a 
corporation,  because  it  has  no  conscience.*  This  is  also  an  error, 
for,  in  all  cases,  where  a  corporation  is  made  defendant,  the  first  and 
proper  process  for  calling  it  in  to  appear  and  answer  is  the  same  as 
that  used  for  summoning  a  natural  person,  that  is,  a  subpena;  and 
accordingly  the  bill  prays  for  a  subpena,  and  no  other  process.* 
The  bill,  it  is  true,  must  always  ask  for  that  original  process  which 
is  suited  to  the  nature  of  the  case ;  against  natural  and  artificial  per- 
sons a  subpena  is  prayed  for;  against  non-residents  an  order  of  pub- 
lication made  the  substitute  of  a  subpena,  is  asked,  and  against  the 
attorney-general  it  is  prayed  that  he  may  be  attended  with  a  copy  of 
the  bill;*  which  form  of  prayer,  as  against  the  attorney-general, 
appears  to  be  recognized  by  several  acts  of  assembly,^  with  only 
two  exceptions,  in  which  he  is  directed  to  be  summoned,  or  served 
with  a  subpena.^  These  prayers  are  indispensably  necessary,  be- 
cause it  is  an  established  rule,  that  no  one  is  to  be  considered  a  party 
to  the  suit,  against  whom  no  process  or  publication  is  prayed  and 
served  with  it,  or  the  publication  made.* 

If  the  body  politic  neglects  or  refuses  to  appear  as  required  by  the 
subpena  which  has  been  served  on  the  mayor,  president  or  any  director 
or  manager,  or  other  officer,  then  the  next  process  is  a  distringas ,  the 

*  Fenton  v.  Hughes,  7  Ves.  289;  Dummer  v.  Corporation  of  Chippenham, 
14  Ves.  253. 

«  Coop.  PI.  Eq.  16. 

'Harvey  v.  East  India  Company,  2  Vem.  395;  s.  c.  Prec.  Cha.  128. 

*  Com.  Dig.  tit.  Franchises,  F.  19. 

«  Willis  Eq.  Plea.  8 ;  Lowten  v.  The  Mayor  of  Colchester,  2  Meriv.  396. 

8  Willis  Eq.  Plea.  7;  2  Mad.  Pra.  Chan.  202. 

'  1785,  ch.  72,  8.  29,  and  eh.  78,  s.  1 ;  April,  1787,  oh.  30,  s.  4;  1799,  eh.  79, 
S.  7. 

8  1786,  ch.  49,  8.  8 ;  1794,  ch.  60,  s.  6. 

'Windsor  v.  Windsor,  2  Dick.  707;  Reilly  v.  Ward,  5  Bro.  P.  C.  495; 
Lingan  v.  Henderson,  1  Bland  245, 


228  M'KIM    V.    ODOM.  §  42 

form  of  which  writ  is  substantially  the  same  at  law  as  in  equity.^ 
By  this  writ  the  sheriff  is  commanded  to  make  a  distress  upon  the 
lands  and  tenements,  goods  and  chattels  of  the  corporation ;  and  it  is 
indorsed  thus:  "By  the  court  at  the  suit  of  A.  B.  for  want  of  an  ap- 
pearance (or  answer,  as  the  case  may  be)."  But  in  England  upon  the 
first  writ  the  sheriff  generally  levies  forty  shillings  issues ;  upon  the 
alias  distringas^  four  pounds ;  on  the  -pluries  distringas  he  levies  the 
whole  property ;  and  on  the  return  of  the  pluries  a  sequestration  is 
granted.^  Thus  far  there  appears  to  be  not  the  slightest  difference 
to  be  found  in  the  books,  either  as  to  the  form  of  the  process,  or  in 
reference  to  the  character  of  the  corporation  to  be  affected  by  it. 

I  can,  therefore,  feel  myself  at  liberty  to  make  no  other  alteration 
than  to  settle  the  amount  in  reference  to  the  present  value  of  money, 
and  to  declare,  that  upon  the  first  distringas  to  compel  an  appearance 
or  answer,  the  sheriff  shall  take  issues  or  personal  property  of  the 
corporation,  to  the  amount  of  twenty  dollars ;  and  upon  the  alias  dis- 
tringas he  shall  levy  forty  dollars ;  and  on  the  pluries  distringas  he 
shall  distrain  the  whole  of  the  personal  estate,  together  with  the  rents 
and  profits  of  the  lands.  ^ 

If  it  shall  be  ascertained  by  the  return  of  all  these  successive  writs 
that  the  corporation  has  no  property  upon  which  a  distringas  may  be 
levied,  or  which  can  be  taken  under  a  sequestration,  then  the  bill  may 
be  taken  pro  confosso^  and  the  plaintiff  may  obtain  relief  accord- 
ingly;* or  if,  having  no  property,  or  after  all  its  property  has 
been  sequestered,  it  still  stands  out,  and  refuses  to  appear  and  answer, 
then,  according  to  what  seems  to  be  the  better  and  more  reasonable 
opinion,  the  plaintiff  may  have  an  attachment  against  the  members, 
or,  at  least,  those  of  them  who  have  been  duly  summoned,  or  served 
with  the  subpena^  and  thus  notified    of  the  institution    of  the    suit.* 

If,  after  a  decree,  the  corporation  neglects  to  comply  therewith, 
upon  being  served  with  a  copy  of  it  according  to  the  ancient 
practice,®  as  recognized  by  the  act  of  assembly,^  now  dis- 
pensed with,*  the  plaintiff  may  obtain  a  distringas  to  enforce 
obedience  to  it,  and  after  the  return  of  the  first  writ  of  distringas  he 
may  have  a  sequestration,^  and  if  the  sheriff  returns  that  the  body 
politic  has  nothing  upon  which  the  distringas  can  be  levied,  then  the 
members  of  the  corporation  may  be  attached,  or  such  other  proceed- 
ings had  according  to  the  nature  of  the  case,  and  having  proper  re- 

»2  Harr.  Ent.  674;  1  Harri.  Pra.  Chan.  264;   1832,  ch.  306,  s.  5. 

« 1  Harr.  Prac.  Chan.  264. 

'  East  India  Company's  case,  1  Salk.  191. 

*  Salmon  v.  The  Hamborough  Company,  1  Ca.  Chan.  204 ;  Curson  v.  African 
Company,  1  Vern.  121. 

*  Rex  V.  Gardner,  Cowp.  86;  London  v.  Lynn,  1  H.  Blac.  206. 
6  2  Mad.  Pr.  Chan.  466. 

'  1785,  ch.  72,  s.  25. 
8 1818,  ch. 193,  S.4. 

'  Harvey  v.  East  India  Company,  2  Vern.  395;  8.  c.  Prec.  Chan.  129;  Com, 
Dig.  tit.  Franchises,  F.  19. 


■§  43  PUBLIC   AND    PRIVATE   CORPORATIONS.  229 

gard  to  the  extent  of  the  liability  of  the  members  of  the  body  politic 
as  may  be  deemed  proper  and  lawful.^ 

Whereupon  it  is  ordered  that  a  writ  of  distringas  be  issued  as 
prayed  by  the  said  petition  of  the  plaintiffs,  which  writ  is  hereby 
directed  to  be  indorsed  and  levied  as  above  prescribed. 

[Soon  after  the  president  and  directors  of  the  Franklin  Bank  of 
Baltimore  put  in  their  answer,  and,  after  hearing,  the  bill  of  complaint 
was  dismissed  as  to  them.] 

(See  cases  cited  to  People  v.  Morris,  infra,  p.  234.) 

Sec.  43.    Same. 

THE  PEOPLE  V.  MORRIS.' 

1835,    In  the  Supreme  Court  of  New  York.    13  Wendell  (N.Y.) 

325-337- 

[Error  from  the  St.  Lawrence  oyer  and  terminer.  The  defendant 
was  tried  on  an  indictment  for  selling  spirituous  liquors  and  "permit- 
ting the  same  to  be  drank  in  his  grocery  store,  without  having  ob- 
tained a  license  as  a  tavern  keeper. 

The  village  charter  of  1824  authorized  the  trustees  to  regulate  and 
"license  grocers,  and  keepers  of  victualing  houses,  where  fruit  victuals 
and  liquor  shall  be  sold  to  be  eaten  or  drank  in  such  houses  or  grocer- 
ies." In  1830  the  revised  statutes  went  into  effect  and  provided 
that  only  certain  excise  commissioners  could  grant  licenses  to  sell 
liquors  and  wines  to  tavern  and  inn-keepers  to  be  drank  in  their 
houses,  and  licenses  to  grocers  should  be  granted  to  sell  only  in  five- 
gallon  quantities  or  over,  but  not  to  be  drank  in  their  houses.  De- 
fendant had  obtained  his  license  from  the  village  authorities  under  the 
charter,  and  admitted  the  selling  in  his  grocery  to  be  drank  there,  after 
the  revised  statutes  went  into  effect.] 

By  the  court.,  Nelson,  J.  The  defendant  insists  that  the  stat- 
ute under  which  he  has  been  convicted  is  inoperative,  upon  the 
grounds,  ( i )  That  the  power  or  franchise  of  the  corporation  of  the 
village  of  Ogdensburgh  to  grant  licenses  to  grocers  to  sell  spirituous 
liquors  to  be  drank  in  their  houses  is  a  vested  rights  and  can  not  be 
impaired  or  taken  away;  and  (2)  That  if  .such  power  can  be  taken 
away,  it  can  be  done  only  by  bill  having  the  assent  of  two-thirds  of 
the  members  elected  to  each  branch  of  the  legislature,  in  conformity 
to  the  ninth  section  of  the  seventh  article  of  the  constitution  of  the 
state. 

As  to  the  first  objection  urged  by  the  defendant,  the  only  limita- 

^2  Mad.  Pr.  Chan.  466;    Salmon  v.  The  Hamborough  Company,  1  Cha. 
Cas.  204;  Adley  v.  The  Whitestable  Company,  17  Ves.  324;  s.  c.  1  Meriv.  107. 
^  Statement  of  facts  abridged.    Much  of  the  opinion  omitted. 


230  THE   PEOPLE  V.  MORRIS.  §  43 

tion  to  the  powers  of  the  legislative  department  that  can  exist  must  be 
found  either  in  the  constitution  of  the  United  States  or  of  this  state, 
or  in  the  natural  and  inherent  rights  of  the  citizens,  which  they  can  not 
part  with  or  be  deprived  of  by  the  society  to  which  they  belong.    *    * 

Vested  rights  are  indefinite  terms,  and  of  extensive  signification, 
not  unfrequently  resorted  to  when  no  better  argument  exists,  in  cases 
neither  within  the  reason  nor  spirit  of  the  principle.  Rights  in  one 
sense  vested,  that  is,  vested  as  it  regards  every  other  body  or  power 
except  the  government,  are  numerous,  and  the  subject  of  common 
regulation  and  even  abrogation.  All  general  and  local  laws,  restrain- 
ing the  free  action  of  the  citizen  as  to  person  or  property,  the  imposi- 
tion of  burthens  and  of  duties,  partake  more  or  less  of  this  character, 
and  may  be  referred  to  in  illustration  of  the  remark.  Government  was 
instituted  for  the  purpose  of  modifying  and  regulating  these  rights  with  a 
view  to  the  general  good,  and  under  the  constitution  the  mode  by  which 
it  was  thought  this  great  object  might  best  be  attained  was  left  to  the 
wisdom  and  direction  of  the  people  themselves,  acting  through  the 
medium  of  their  representatives.  We  may  concede  to  the  defendant 
that  if  any  rights  vested  under  the  national  or  state  constitutions,  or 
others  inherent  and  inalienable,  and,  therefore,  also  vested,  have  been 
violated  by  any  provision  of  the  revised  statutes,  such  provision  is  in- 
operative and  void.  But  if  such  rights  have  not  been  violated,  we  do 
not  perceive  how  its  penalties  can  be  eluded.  Now  the  defendant's 
rights  are  in  no  way  improperly  interfered  with  by  the  revised  stat- 
utes, except  so  far  as  there  may  be  an  infraction  of  the  corporate 
privileges  of  the  village,  because  it  will  not  be  pretended  that  the 
right  to  sell  spirituous  liquors  falls  within  the  most  extended  class  of 
vested  rights.  Nor  can  it  be  claimed  that  the  right  of  any  corporator, 
in  his  individual  capacity,  has  been  at  all  touched  by  this  statute.  It 
acts  solely  and  exclusively  upon  the  powers  and  privileges  previously 
conferred  upon  the  whole  or  aggregate  body  of  citizens  by  the  village 
charter.  It  is  this  power,  thus  previously  granted  to  the  corporation, 
which  the  revised  statutes  intended  to  modify,  not  the  private  rights 
of  an  individual  member  of  it. 

What  was  the  power  thus  conferred  by  the  village  charter  ?  We 
answer  that  it  was  wholly  political.  Instead  of  prescribing  at  their 
discretion  every  duty  to  be  performed,  and  forbidding  every  act  to  be 
avoided,  in  a  word,  directing  the  whole  system  of  government  to  be 
observed  and  executed,  the  legislature  have  merely  defined  the  out- 
lines and  leading  principles,  and  conferred  upon  the  inhabitants, 
within  the  bounds  of  the  corporation,  the  power  at  discretion  to  fill 
up  and  carry  them  into  operation.  Strictly  speaking,  individual 
rights  or  private  interests  are  no  more  involved  in  the  arrangement 
than  they  are  in  the  general  laws  passed  with  reference  to  the  govern- 
ment of  a  town,  a  county  or  the  state.  Their  rights,  as  citizens  of  the 
government,  subject  to  its  control,  and  to  be  so  regulated  and  directed 
as  to  harmonize  with  the  general  good,  are  those  and  those  only, 
within  the  contemplation  of  the  charter.     *     *     * 


§43  PUBLIC   AND    PRIVATE   CORPORATIONS.  23  I 

[The  constitution,  article  7,  section  9,  provided:  "The  assent  of 
two-thirds  of  the  members  elected  to  each  branch  of  the  legislature 
shall  be  requisite  to  every  bill,  etc.,  creating,  continuing,  altering, 
or  renewing  any  body  politic  or  corporate."] 

We  are  of  the  opinion  the  constitutional  provision  does  not  apply  to 
public  corporations.'  That  the  village  of  Ogdensburgh  is  "a  body 
politic  and  corporate,"  is  not  denied.  The  charter  falls  within  the 
definition  of  Lord  Coke  and  of  other  approved  authors.  "A  body 
politic,"  he  says,  "is  a  body  to  take  in  succession,  framed  as  to  its 
capacity  by  policy,  and  therefore  is  called  by  Littleton  (section  413)  a 
body  politic;  and  it  is  called  a  corporation  or  body  corporate  because 
the  persons  are  made  into  a  body,  and  are  of  capacity  to  take,  grant, 
etc.,  by  a  particular  name."  Viner's  Abr.  Corp.  (a2).  A  public 
corporation  is  also  defined  to  be,  "an  investing  the  people  of  the 
place  with  the  local  government  thereof."  This  latter  description  is 
the  most  appropriate,  and  is  justified  by  the  history  of  these  institu- 
tions, and  the  nature  of  the  powers  with  which  they  were  and  are  in- 
vested.    ♦     *     * 

The  fact  conceded  that  they  are  "bodies  politic  and  corporate,"  is 
■not,  by  fair  reasoning,  necessarily  conclusive.  So  are  towns  and 
counties,  for  they  come  within  one  or  other  of  the  above  or  most  ap- 
proved definitions.  They  possess  every  requisite  to  constitute  them 
corporations,  besides  being  declared  to  be  so  by  statute,  as  are  also 
superintendents  of  the  poor  and  trustees  of  school  districts,  i  R.  S. 
337,  42  id.  364,  486,  617,  498.  Each  town,  as  a  body  corporate,  has 
capacity  to  sue  and  be  sued ;  to  purchase  and  hold  real  estate ;  to 
make  such  contracts  and  hold  such  personal  property  as  may  be  neces- 
sary to  its  corporate  and  administrative  powers ;  and  to  make  such 
order  for  the  disposition,  regulation  and  use  of  its  public  property  as 
may  be  conducive  to  the  interests  of  the  inhabitants.  Large  powers 
are  also  conferred,  as  has  already  appeared,  in  respect  to  their  munic- 
ipal and  domestic  regulations.  So  in  respect  to  superintendents  of  the 
poor.  It  is  expressly  declared  (i  R.  S.  617,  §16)  "they  shall  be  a 
corporation  by  the  name  of  the  superintendents  of  the  poor  of  the 
county  for  which  they  shall  be  appointed,  and  shall  possess  the  usual 
powers  of  a  corporation  for  public  purposes."  Large  powers  are 
conferred  upon  them  also  to  enable  them  to  execute  their  trust,  and 
especially  for  the  "good  order  and  government  of  the  place  and  poor- 
houses  belonging  to  the  county,  for  the  employment,  relief,  manage- 
ment and  government  of  the  persons  placed  under  their  care."  The 
trustees  elected  in  a  town  having  lands  belonging  to  it  for  the  support 
of  the  gospel,  or  of  schools,  or  both,  "shall  be  a  corporation  for  the 
purposes  of  their  oflRce,  by  the  name  of  the  'Trustees  of  the  Gospel 
and  School  Lot,'  "  in  the  town  in  which  they  are  elected.  They  shall 
have  power,  "besides  the  ordinary  powers  of  a  corporation,"  to  man- 
age these  lots,  as  particularly  set  forth  in  the  statute,  i  R.  S.  497,  8. 
Other  cases  might  be  referred  to.  That  they  come  within  the  letter 
of  the  provision  is  not  enough,   unless   the  different   bodies  above 

'  The  subsequent  case  of  Purely  v.  People,  4  Hill  (N.  Y.)  384,  held  that  this 
constitutional  provision  applied  to  public  as  well  as  private  corporations. 


232  THE    PEOPLE  V.  MORRIS.  §  43 

alluded  to  are  also  included,  which  probably  will  not  be  pretended; 
for,  if  so,  most  of  the  legislation  of  the  state  must  be  in  conformity 
to  this  provision  of  the  constitution. 

Are  they  within  the  evil  this  provision  was  designed  to  remedy  ? 
No  one,  I  think,  acquainted  with  the  history  of  the  times,  or  with  the 
introduction  of  this  clause  into  the  constitution,  will  venture  upon  this 
ground.  It  may  be  fortunate  for  truth,  and  what  is  deemed  a  sound 
exposition  of  this  provision,  that  all  who  may  desire  to  examine  it  can 
recur  to  his  own  recollection  and  challenge  that  of  others  upon  this 
point.  We  think  we  hazard  nothing  in  asserting  that  the  multiplica- 
tion of  cities  or  villages  by  the  legislature  has  at  no  time  been  a  sub- 
ject of  complaint.  Only  Jvur  of  the  former  existed  in  the  state  at  the 
adoption  of  the  constitution.  The  latter,  which  were  somewhat  numer- 
ous, have  always  been  viewed  by  the  people  of  the  state  as  a  matter 
in  which  the  inhabitants  of  the  village  were  exclusively  interested,  and 
to  be  left  to  their  option.  But  private  incorporations  had  multiplied 
to  an  extent  that  had  attracted  public  attention,  especially  banking  in- 
stitutions. These  had  been  sought  for  with  zeal,  and  their  enactment 
attended  with  circumstances  that  awakened  public  suspicion  and 
alarm.  So  extreme  had  the  evil  become  at  one  period  of  our  history, 
that  the  chief  magistrate  of  the  state  felt  it  his  duty  to  exercise  the 
power  then  existing  in  the  constitution,  of  proroguing  the  legislature, 
and  was  triumphantly  sustained  by  the  people  in  the  execution  of  this 
high  and  delicate  trust.  The  fact  affords  strong  evidence  of  the  deep 
impression  made  upon  the  public  mind  as  to  these  and  similar  private 
corporations,  and  of  the  scope  and  purpose  of  the  clause  on  this  sub- 
ject. If  we  resort  to  the  history  of  its  introduction  into  the  new  con- 
stitution, the  above  view  will  be  confirmed.  Mr.  King,  chairman  of 
the  committee  of  the  legislative  department,  reported  the  section;  and 
when  it  came  under  consideration,  said  that  the  committee  had  looked 
upon  the  multiplication  of  corporations  as  an  evil;  they  had  been 
created  for  a  great  variety  of  purposes ;  they  were  exceptions  to  the 
common  law ;  they  could  not  be  proceeded  against  in  the  ordinary  way 
of  prosecutions  against  individuals  in  courts  of  justice ;  they  ought  not 
to  be  increased,  but  should  be  diminished  as  far  as  could  be  done  con- 
sistently with  the  preservation  of  vested  rights.  It  is  obvious,  though 
the  language  used  in  the  clause  in  question  is  general,  that  the  honor- 
able chairman  had  in  his  mind  (and  he  spoke  for  the  committee)  the 
case  of  private  corporations ;  that  the  great  inducement  to  the  adoption 
of  the  clause  was  a  check  upon  them ;  and  that  the  organization  of 
communities,  and  the  investing  them  with  the  privileges  of  mere 
municipal  jurisdiction  and  authority,  were  not  at  all  in  contempla- 
tion. 

The  distinction  between  public  and  private  corporations  is  strongly 
marked,  and,  as  to  all  essential  purposes,  they  correspond  only  in 
name.  We  speak  of  the  erection  of  a  town  or  a  county,  and  the 
term  would  be  just  as  appropriate  when  applied  to  cities  or  villages. 
They  are  severally  political  institutions,  erected  to  be  employed  in  the 


§43  PUBLIC    AND    PRIVATE   CORPORATIONS.  233 

internal  government  of  the  state.  There  is  no  contract  between  the 
government  and  governed,  for  but  one  party  is  concerned — the  public; 
and  the  inhabitants  upon  whom  the  powers  and  privileges  are  con- 
ferred are  mere  trustees,  who  hold  and  exercise  such  powers  for  the 
public  good.  The  only  interest  involved  is  the  public  interest,  and  no 
other  is  concerned  in  their  creation,  continuance,  alteration  or  renewal. 
The  nature  and  operation  of  these  corporations  repudiate  the  idea  of 
vested  rights,  and,  therefore,  no  evil  arising  out  of  them  could  have 
influenced  the  convention.  We  know  of  no  vested  rights  of  political 
power^  in  any  citizen  or  body  of  citizens^  except  those  conferred  by 
the  constitution.  That  is  our  bill  of  rights,  and  is  analogous  to  those 
granted  to  kingdoms  or  minor  communities,  such  as  towns  and 
cities,  by  princes  and  superior  lords  on  the  continent,  or  by  the  crown 
of  England. 

Private  corporations  are  the  private  property  of  the  corporators. 
They  are  designed  to  regulate  private  interests.  Large  investments 
are  made  in  pursuance  of  their  authority,  and  the  tenure  by  which 
such  corporate  property  is  held  is  like  that  of  an  individual  to  his 
farm  or  personal  estate ;  and  an  invasion  of  such  corporate  power  is 
like  a  violation  of  private  right.  One  of  the  strongest  reasons  why 
these  private  corporations  should  be  cautiously  granted  arises  from 
the  inviolability  of  the  rights  acquired  under  them  ;  for  notwithstand- 
ing the  reserved  power  in  the  charter  to  modify  or  repeal,  an  inter- 
ference seriously  affecting  this  species  of  property  is  calculated  to 
shake  public  confidence  in  the  security  of  these  corporations  gener- 
ally, and  might  and  probably  would  be  immediately  disastrous  to 
the  property  invested  under  their  faith,  in  the  particular  instance  in 
which  the  legislature  exercised  its  reserved  power.  This  wide  dis- 
tinction was  well  known  to  the  members  of  the  convention,  and  shows 
that  the  clause  in  the  constitution  may  be  fully  satisfied  by  confining 
its  operation  to  the  case  of  private  corporations.  Nor  can  it  be  ad- 
mitted that  it  was  intended  to  restrict  the  action  of  the  legislature,  in 
the  municipal  regulations  of  the  state,  as  to  one  place  more  than  an- 
other, or  that  less  latitude  was  to  be  given  to  such  regulations  in  the 
government  of  the  citizens  residing  within  the  bounds  of  cities  and 
villages  than  of  those  residing  in  towns  and  counties.  The  nature 
and  object  of  the  power  exercised  and  the  claims  of  those  concerned, 
are  alike,  and  it  is  difficult  to  discover  any  solid  reason  for  the  dis- 
tinction. All  our  public  laws,  civil  and  criminal,  however  impor- 
tant or  severe  their  operation,  enacted  for  the  good  government  of 
the  people  throughout  the  state,  are  passed  by  majority  votes ;  and 
it  would  be  inconceivably  strange  if  laws  passed  with  a  view  to  a 
more  perfect  government  of  a  particular  place  (laws  better  adapted 
to  the  organization  of  society  and  the  business  and  conditions  of  the 
governed  residing  in  small  districts),  should  depend  upon  a  different 
and  greatly  restricted  rule  of  action  on  the  part  of  the  legislature. 

Judgment  affirmed. 


234        THE   STATE   V.    THE   STANDARD    LIFE   ASSOCIATION.       §  44 

Note.  1898,  State  v.  Maryland  Institute,  etc.,  87  Md.  643,  41  Atl.  Rep.  126; 
1897,  United  States  v.  Trans.  Mo.  Frt.  Assn.,  166  U.  S.  290,  on  320-2;  1894, 
Chicago,  etc.,  R.  Co.  v.  Wabash,  St.  L.,  etc.,  R.,  61  Fed.  Rep.  993;  1891, 
Downing  v.  Ind.  St.  Bd.  of  Ag.,  129  Ind.  443,  35  Am.  &  Eng.  C.  C.  216;  1890, 
Wolfe  V.  Underwood,  91  Ala.  523,  8  So.  Rep.  774;  1889,  State  v.  District  of 
Narragansett,  16  R.  I.  424,  24  Am.  &  Eng.  C.  C.  131;  1889,  Appeal  of  Pitts- 
burgh, 123  Pa.  St.  374,  25  Am.  &  Eng.  C.  C.  364;  1888,  Turlock  Irrigation 
Dist.  V.  Williams,  76  Cal.  360,  22  Am.  &  Eng.  C.  C.  198 ;  1888,  Wambersie  v. 
Orange  Humane  Soc,  84  Va.  446,  28  Am.  &  Eng.  C.  C.  83;  1885,  Hockett  v. 
State,  105  Ind.  250;  1883,  Pierce  v.  Commonwealth,  104  Pa,  St.  150;  1876, 
Munn  V.  Illinois,  94  U.  S.  113;  1869,  Miners'  Ditch  Co.  v.  Zellerbach,  37  Cal. 
543,  99  Am.  Dec.  300;  1868,  Foster  v.  Fowler,  60  Pa.  St.  27;  1866,  Commonw. 
V.  Lowell  Gas  Co.,  12  Allen  (Mass.)  75 ;  1862,  State  of  Iowa  v.  Wapello  Co.,  13 
Iowa  388,  on  400-403;  1850,  Mills  v.  Williams,  11  Ire.  (N.  C.)  Law  558; 
1842,  Inhabitants  of  Worcester  v.  Western  R.  Co.,  4  Met.  (Mass.)  564;  1841, 
Ten  Eyck  v.  Canal  Co.,  18  N.  J.  L.  200;  1819,  Dartmouth  College  v.  Wood- 
ward, 4  Wheat.  518,  infra,  p.  708. 


Sec.  44.    Same.    (1)    Private  corporations,  as  to  the  method  of 

acquiring  or  losing  membership,  are: 

1.  Stock,  or 

2,  Non-stock. 

.   THE  STATE  v.  THE  STANDARD  LIFE  ASSOCIATION.* 

1882.    In  the  Supreme  Court  of  Ohio.    38  Ohio  State  Reports 

281-299. 

[Quo  Warranto  :  The  object  of  this  action  is,  to  oust  the  defend- 
ant, a  corporation  organized  under  section  3630  of  the  Revised 
Statutes,  from  its  franchise  to  do  business,  as  an  insurance  company, 
on  the  co-operative  or  assessment  plan,  as  authorized  by  said  section. 
The  ground  alleged  is  misuser  of  its  corporate  privileges,  and  the 
exercise  of  rights  and  privileges  not  conferred  by  law.  Among  other 
things  it  is  specified  as  grounds  for  the  judgment  of  ouster,  that  this 
company  has  issued  certificates  of  membership  for  the  payment  of 
stipulated  sums  of  money  for  the  member's  benefit,  instead  of  the 
benefit  of  his  family  or  heirs  as  the  law  authorizes ;  that  it  has  issued 
such  certificates  to  very  aged  and  infirm  persons  without  regard  to 
their  prospects  of  life ;  that  it  has  issued  them  for  the  benefit  of 
cousins,  sons-in-law,  and  other  relatives  who  are  not  of  the  family  or 
heirs  of  such  member ;  that  it  has  delayed  the  approval  of  proofs  of 
death,  and  making  the  proper  assessments  to  pay  in  case  of  death ; 
and  that  it  has  treated  others  than  the  family  or  heirs  as  beneficiaries, 
making  assessments  against  them,  and  looking  to  them  and  not  to  the 
member  for  the  payment. 

'  Statement  of  facts  abridged,  part  of  opinion  omitted. 


§44  STOCK   AND    NON-STOCK    CORPORATIONS.  235 

The  answer  puts  in  issue  these  allegations,  and  avers  that  the  defend- 
ant is  doing  a  business  authorized  by  law.] 

Johnson,  J.  This  association  was  incorporated  September  i,  1880. 
The  record  of  the  company  shows  that  seven  persons,  to  wit:  D.  R. 
Johnston,  W.  H.  Carter,  J.  B.  Netscher,  Jerry  Shank,  George  W. 
Cole,  S.  W.  Anderson  and  John  F.  Wood,  met  on  that  day  in  Mans- 
field for  the  purpose,  as  is  stated,  of  organizing  an  association  "to 
furnish  mutual  protection  and  relief  to  its  members,"  under  section 
3630  of  the  Revised  Statutes ;  Mr.  Anderson  was  made  chairman  of 
the  meeting,  and  he  thereupon  presented  a  plan  of  operations,  which 
was  unanimously  adopted.  What  that  plan  was  does  not  appear  from 
the  record  of  the  company,  but  is  subsequently  disclosed  in  the  pro- 
ceedings and  acts  of  the  association. 

At  the  same  meeting,  those  present  drew  up,  and  five  of  them  ex- 
ecuted, articles  of  incorporation,  which  were  subsequently  authenticated 
and  filed  with  the  secretary  of  state,  under  which  they  became  a  body 
corporate. 

Before  adjourning,  and,  of  course,  before  they  had  become  incor- 
porated, these  seven  persons  proceeded  to  elect  themselves  "officers 
and  trustees"  of  the  association  for  one  year,  giving  to  each  an  office, 
and  also  appointed  an  executive  committee  from  among  themselves. 
It  appears  that  by-laws  were  also  adopted,  but  the  record  of  the  trus- 
tees is  silent  as  to  their  provisions.  This  record  and  the  books  of  the 
association  show  they  proceeded  to  transact  business  as  a  corporation 
soon  after. 

The  certificate  of  corporation,  after  stating  the  name  and  place  of 
business,  states  the  purpose  of  the  association  to  be  "to  receive 
money,  either  by  voluntary  donation  or  contribution,  or  to  collect  the 
same  by  assessment  of  its  members,  and  to  distribute  and  appropriate 
the  same  to  the  families  or  heirs  of  its  deceased  members,  in  such 
manner  as  may  be  prescribed  by  the  rules  and  regulations  of  the  asso- 
ciation, not  inconsistent  with  the  laws  of  Ohio,  and  so  as  to  carry  out 
the  objects  and  purposes  of  the  association  as  above  expressed."  The 
section  of  the  Revised  Statutes  authorizing  such  a  corporation  is  as 
follows : 

"Section  3630.  A  company  or  association  may  be  organized  for 
the  mutual  protection  and  relief  of  its  members,  and  for  the  pay- 
ment of  stipulated  sums  of  money  to  the  families  or  heirs  of  the  de- 
ceased members  of  such  company  or  association,  and  may  receive 
money,  either  by  voluntary  donation  or  contribution,  or  collect  the 
same  by  assessment  on  its  members,  and  may  distribute,  invest  and 
appropriate  the  same  in  such  manner  as  it  may  deem  proper;  but  the 
aggregate  sum  stipulated  to  be  paid  to  the  family  or  heirs  of  any 
member  at  his  decease  shall  in  no  case  excfeed  $7,000,  nor  shall  any 
assessment  on  account  of  the  death  of  any  member  be  made  against 
any  surviving  member  exceeding  one-fifth  of  one  per  centum  stipu- 
lated to  be  paid  to  such  survivor  at  his  decease,  and  such  association 
shall  not  be  subject  to  the  preceding  sections  of  this  chapter." 


236       THE    STATE   V.    THE    STANDARD    LIFE   ASSOCIATION.       §  44 

It  will  be  noticed  that  this  section  authorizes  such  corporation  for 
the  mutual  protection  and  relief  of  its  members,  and  also  for  the  pay- 
ment of  stipulated  sums  of  money  to  the  family  or  heirs  of  the  de- 
ceased members.  The  certificate  of  incorporation  is  silent  as  to 
furnishing  mutual  protection  and  relief  to  members.  It  limits  the 
scheme,  so  far  as  relief  is  concerned,  to  the  distribution  of  its  funds  to 
the  family  or  heirs  of  deceased  members. 

It  does  not  purport,  therefore,  to  afford  any  relief  or  protection  to 
its  members,  but  only  to  provide  for  their  family  or  heirs  after  their 
decease.  It  is  in  no  sense,  therefore,  according  to  the  charter,  a  mutual 
aid  association  to  members,  but  a  mutual  insurance  company  of 
members,  for  the  benefit  of  the  family  or  heirs  of  members. 

It  has  issued  what  are  termed  certificates  of  membership,  but  the 
real  nature  of  the  contract  is  that  of  insurance. 

The  so-called  member,  for  in  fact  he  is  not  treated  as  a  member  of 
the  corporate  body,  contracts  to  pay  an  admission  fee,  and  annual 
dues  of  specified  amounts,  and  a  stated  assessment  for  each  death  in 
the  class  to  which  he  belongs,  in  consideration  of  which  the  company 
agrees  to  pay  his  beneficiary  named  the  assessment  collected  (less  the 
deductions  stated  hereafter),  not  exceeding  the  amount  of  insurance 
named  in  the  certificate,  which  is  either  $2,000  or  $3,000. 

In  Commonwealth  v.  Wetherbe,  105  Mass.  149,  it  was  held,  that 
such  a  contract  was  one  of  insurance,  whatever  be  the  terms  of  pay- 
ment of  the  consideration  by  the  assured,  or  the  mode  of  payment  of 
the  sum  to  be  paid  in  the  event  of  loss,  and  although  the  object  of  the 
insurer,   in  making  the  contract,  is  benevolent  and  not  speculative. 

It  was  further  held  in  that  case  that  it  was  none  the  less  a  contract 
of  mutual  insurance  because  the  amount  to  be  paid  is  not  a  gross  sum, 
but  one  graduated  by  the  number  of  members,  nor  because  a  por- 
tion of  the  premiums  are  to  be  paid  upon  uncertain  periods  of  the 
death  of  members,  nor  because  in  case  of  non-payment  of  assessments 
the  contract  provides  no  mode  of  enforcing  payment  thereof  but 
merely  declares  the  contract  forfeited. 

From  the  specific  terms  of  the  charter,  as  well  as  from  the  tenor  of 
certificates  of  membership,  the  contract  entered  into  is  one  of  insur- 
ance on  the  lives  of  members,  and  not  one  for  the  mutual  protection 
and  relief  of  its  members. 

Whether  it  is  competent  to  become  a  corporation  for  that  single 
purpose  when  the  statute  authorizes  such  corporations  for  the  double 
purpose  of  mutual  protection  and  relief  of  its  members,  and  also  for 
life  insurance  for  the  benefit  of  the  family  or  heirs  of  such  members, 
is  a  question  we  need  not  now  stop  to  answer,  as  the  petition  admits 
that  the  association  was  duly  incorporated. 

Section  3630  provides,  however,  that  these  corporations  shall  not 
be  subject  to  the  preceding  sections  of  the  chapter,  relating  to  life 
insurance  companies  "on  the  mutual  or  stock  plan."  Chapter  10, 
sections  3587  to  3629,  Revised  Statutes. 

This  leads  to  the  inquiry,  to  what  extent  they  are  regulated  by  law, 


§  44  STOCK   AND   NON-STOCK   CORPORATIONS.  23/ 

and  to  what  extent  such  associations  may  adopt  their  own  rules  and 
regulations  ? 

Though  not  subject  to  the  provisions  relating  to  life  insurance  in 
chapter  lo,  they  are  subject  to  the  general  provisions  relating  to  cor- 
porations found  in  chapter  i  of  title  1 1  of  the  Revised  Statutes. 

That  chapter  provides  for  two  classes  of  corporations,  (i)  those  for 
frojit^  which  must  have  a  capital  stock,  and  (2)  those  not  for  profit, 
which  need  not  have  a  capital  stock. 

If  it  is  of  the  first  kind,  its  name  must  begin  with  "The,"  and  end 
with  "Company,"  and  in  each  kind  the  place  of  business  and  purpose 
for  which  it  is  formed  must  be  stated  in  the  certificate.  R.  S.,  sec- 
tion 3226.  By  section  3240  a  majority  of  the  subscribers  to  the  arti- 
cles of  incorporation  of  a  corporation,  other  than  for  profit,  may  elect 
not  less  than  five  trustees,  who  shall  hold  their  offices  until  the  next 
election,  or  until  their  successors  are  elected  and  qualified.  In  the 
case  at  bar,  the  incorporators  elected  seven  trustees  for  one  year. 

By  section  3246,  unless  the  regulations  otherwise  provide,  the  annual 
election  for  trustees  or  directors  shall  be  held  (this  section  applies  as 
well  to  corporations  not  for  profit  as  those  for  profit)  on  the  first 
Monday  in  January  of  each  year.  It  further  contemplates  that  the 
elective  body  consists  of  the  "members"  of  the  corporation  in  those 
not  for  profit,  and  the  "stockholders,"  in  those  for  profit. 

Section  3249  provides  that  every  corporation  may  adopt  a  code  of 
regulations  for  its  government,  not  inconsistent  with  the  laws  of  the 
state. 

Section  3250  authorizes  the  trustees  or  directors  of  a  corporation  to 
adopt  a  code  of  by-laws  for  their  government  not  inconsistent  with 
the  regulations  of  the  corporation,  or  the  constitution  and  laws  of  the 
state,  and  may  change  them  at  pleasure,  but  section  3251  requires  that 
regulations  may  be  adopted  or  changed  by  the  assent  in  writing  of  two- 
thirds  of  the  stockholders,  or,  if  there  is  no  capital  stock,  of  the  mem- 
bers, or  by  a  majority  of  the  stockholders  or  members,  at  a  meeting 
held  for  that  purpose,  of  which  due  notice  is  given. 

By  section  3252,  a  corporation,  by  its  regulations,  when  no  other 
provision  is  especially  made  in  this  title,  may  provide,  first,  for  the 
time,  place,  etc.,  of  meetings;  second,  the  number  of  stockholders  or 
membeis  to  make  a  quorum;  third,  the  time  for  the  election  of  trus- 
tees or  directors;  fourth,  the  duties  and  compensation  of  officers; 
fifth,  the  mode  of  fillirg  and  tenure  of  all  offices  other  than  trustees 
or  directors  ;  and,  sixth,  the  qualification  of  members  when  the  corpo- 
ration is  not  for  profit. 

By  section  3261,  the  trustees  of  corporations,  other  than  for  profit, 
are  made  personally  liable  for  all  debts  by  them  contracted. 

These  are  the  chief  provisions  of  the  statute  relating  to  corporations 
other  than  for  profit. 

We  are  of  opinion  ( i )  That  associations  incorporated  for  the  pur- 
poses named   in  section  3630  are  corporations  other  than  for  profit, 


238        THE   STATE   V.    THE    STANDARD    LIFE   ASSOCIATION.       §  44 

and  hence  any  plan  or  scheme  which  is  intended  to  earn  profits  for  its 
trustees,  managers  or  agents,  is  in  violation  of  law. 

(2)  That  the  members  of  such  a  corporation,  and  not  the  incorpo- 
rators nor  the  first  board  of  trustees,  elected  by  them,  are  the  elective 
body.  These  members,  and  not  the  trustees  or  incorporators,  are  au- 
thorized to  elect  trustees,  and  adopt  regulations  for  the  government 
of  the  corporation  in  the  transaction  of  its  business.  Hence  the  trus- 
tees are  the  chosen  agents  of  the  members.  They  have  no  authority 
to  adopt  or  alter  regulations,  nor  to  prescribe  their  terms  of  office, 
though  they  may  make  by-laws  for  their  government  and  change  them 
at  pleasure. 

The  facts  in  this  case  show  that  this  association  has  been  organized 
and  is  doing  business  in  direct  violation  of  these  provisions  of  law. 

I.  The  members  of  the  corporation  have  had  no  voice  in  the  elec- 
tion of  trustees  or  in  the  management  of  its  affairs.  The  incorporators, 
at  the  first  meeting  to  organize,  elected  themselves  trustees  for  one 
year.  At  the  end  of  that  year  these  same  trustees  re-elected  them- 
selves; the  meeting,  as  the  record  shows,  was  the  annual  meeting  of 
the  trustees,  and  all  being  present. 

On  January  25,  1882,  they  adopted  a  new  code  of  "by-laws,  rules 
and  regulations,"  by  which  they  provided  that  they  should  hold  office 
during  life^  and  in  case  of  vacancy  by  death  or  resignation,  or  re- 
moval for  good  cause,  which  could  be  done  by  a  majority  vote,  such 
vacancy  should  be  filled  by  the  remaining  trustees.  Thus  they  arro- 
gated to  themselves  all  authority.  They  made  regulations,  and  con- 
ducted the  whole  businesss  on  the  theory  that  the  members  had  no 
voice.  They  were  under  no  obligations  to  become  members,  and 
most  of  them  were  not. 

They  thus  became  a  perpetual  body,  invested  with  all  the  franchises 
and  powers  which  the  statute  vested  in  the  members. 

II.  The  plan  upon  which  the  business  has  been  done,  was  to  make 
money  for  these  trustees  and  their  agents. 

These  self-constituted  trustees  clothed  themselves  with  supreme 
and  perpetual  power,  and  then  proceeded  to  manage  this  self-imposed 
trust  for  their  own  interest,  and  at  the  expense  of  their  over-confiding 
members,  or  their  speculative  beneficiaries.  I  am  aware  this  is  a 
serious  charge,  but  it  is  not  made  without  the  most  convincing  evi- 
dence, taken  from  the  books  and  papers  of  the  company.     *     *     « 

This  is  not  the  case  of  exceptional  excess  of  corporate  power. 
The  whole  plan  of  operations,  and  their  practical  exemplification, 
manifest  a  carefully  formed  purpose  to  make  money  for  the  trustees. 
It  is  a  speculative  insurance  company,  in  a  most  objectionable  form. 
To  prolong  its  existence  and  thus  enable  the  trustees  to  continue  in 
such  business,  would  be  a  failure  of  duty  on  the  part  of  the  court. 

Judgment  of  ouster. 

Okky,  C.  J.,  took  no  part  in  the  decision  of  this  case. 

Note.  1868,  Union  Insurance  Co.  v.  Hoge,  21  How.  (62  IT.  S.)  35;  1871, 
Bryant  v.  Ohio  Dental  College,  1  Cin.  Sup.  Ct.  Rep.  (Ohio)  67,  307 ;  1887, 


§  45  CORPORATIONS   DE  JURE.  239 

Ohio  College  of  Dental  Surgery  v.  Rosenthal,  45  Ohio  St.  183;  1889,  Crawford 
V.  Gross  (Pa.  Com.  PI.),  7  Pa.  Co.  Ct.  Rep.  419,  7  R.  &  Corp.  L.  J.  123.  See 
beJow,  The  Corporate  Funds,  p.  7G0;  Lindley's  rurtnershij),  vol.  1,  p.  5,  etseq. ; 
"Stoct,  Its  Nature  and  Transfer,'*"  by  Henry  Budd,  Jr., "7"  So.  Law  Rev.  430. 
It  seems  that  originally  the  idea  of  a  stock  company  was  one  in  which  each 
member  traded  on  his  individual  stock,  but  in  accordance  with  rules  laid 
down  by  the  company.  The  East  India  Company,  incorporated  in  1600,  was 
of  this  character  originally — each  voyage  to  the  East  Indies  was  on  a  separate 
joint-stock,  to  which  each  member,  if  he  wished,  might  contribute  such  sum 
as  he  chose ;  each  took  shares  in  each  voyage,  as  had  been  the  immemorial 
shipping  customs  of  merchants.  But  in  1612  it  was  determined  by  the  com- 
pany that  it  would  have  one  joint-stock — the  aggregate  of  the  subscriptions  of 
the  members — all  to  be  managed  by  the  governor  and  directors  of  the  com- 
pany. Most  of  the  trading  companies  afterward  were  either  organized  upon 
or  changed  to  this  plan.  See  Cunningham's  Growth  of  Eng.  Indus.,  Modern 
Times,  pp.  124,  162,  225.  In  1731  the  colony  of  Connecticut  incorporated  the 
New  London  Society  for  Trade  and  Commerce  United,  with  a  capital  stock  to 
be  controlled  by  members  voting  in  proportion  to  their  shares. 


Sec.  45.    Same.     (2)   Private  corporations,  as  to  the  perfection 
of  their  organization,  are : 

1.  De  jure. 

2.  De  facto. 

3.  By  estoppel. 

CAPPS  &  McCREARY  v.  HASTINGS  PROSPECTING  COMPANY.» 

1894.     In  the  Supreme  Court  of  Nebraska.     40  Nebraska  Re- 
ports, 470-478. 

Error  from  district  court  of  Adams  county. 

Ragan,  C.  J.  The  Hastings  Prospecting  Company  sued  Lucius  J. 
Capps  and  Willis  P.  McCreary,  co-partners,  doing  business  under 
the  name,  firm  and  style  of  Capps  &  McCreary,  in  the  district  court 
of  Adams  county,  on  a  subscription  or  writing  obligatory  signed  by 
them,  in  words  and  figures,  as  follows:  "For  the  purpose  of  organiz- 
ing a  corporation,  with  a  capital  stock  of  $15,000,  to  bore  for  gas, 
oil  or  coal,  at  or  near  the  city  of  Hastings,  Adams  county,  Nebraska, 
and  to  buy  or  lease  the  land  to  experiment  thereon  for  such  purposes, 
and  to  buy,  lease  or  hire  the  necessary  machinery  and  labor  for  such 
purposes,  we,  the  undersigned,  agree  to  subscribe  and  pay  for  the 
amount  of  stock  set  opposite  our  names,  said  stock  to  be  paid  for  in 
the  manner  following,  to  wit :  Ten  per  cent,  within  thirty  days  from 
the  organization  of  said  corporation,  and  the  balance  at  the  call  of  the 
directors;  provided,  that  said  directors  shall  not  have  power  to  call 
for  more  than  10  per  cent,  of  said  stock  at  any  one  time ;  and,  pro- 
vided further,  that  payment  shall  not  be  called  for  oftener  than  once 

*  Arguments  omitted. 


240       CAPPS    &    M'CREARY  V.  HASTINGS    PROSPECTING   CO.       §  45 

a  month.  Names,  Capps  &  McCreary ;  number  of  shares,  ten  shares; 
dollars,  $100.00."  The  case  was  tried  to  the  court,  a  jury  being^ 
waived,  resulting  in  a  finding  and  judgment  in  favor  of  the  prospect- 
ing company,  and  Capps  &  McCreary  bring  the  case  here  for  review. 

The  only  errors  assigned  are  that  the  finding  and  judgment  of  the 
court  are  contrary  to  the  evidence  and  the  law.  The  undisputed  evi- 
dence in  the  case  is  that  the  plaintiffs  in  error  and  a  number  of  other 
citizens  signed  the  subscription  paper  quoted  above ;  that  after  the 
$15,000  of  stock  had  been  subscribed  the  subscribers,  or  some  of 
them,  met  and  elected  a  boai'd  of  directors,  adopted  articles  of  incor- 
poration, and  filed  a  copy  of  the  same  in  the  office  of  the  secretary  of 
state  and  the  original  in  the  office  of  the  register  of  deeds  of  Adams 
county,  the  county  in  which  the  principal  place  of  business  was  fixed 
by  the  articles  of  association.  This  incorporation,  or  attempted  in- 
corporation, occurred  on  the  15th  day  of  April,  1889.  The  articles  of 
incoi-poration  were  never  filed  in  the  office  of  the  county  clerk  of 
Adams  county.  We  have  hei^e  then  the  questions:  First,  whether 
the  prospecting  company  failed  to  become,  as  it  attempted,  a  corpora- 
tion de  jure  by  neglecting  to  file  in  the  office  of  the  county  clerk  its 
articles  of  incorporation;  second,  and  if  it  did,  whether  such  default 
or  failure  on  the  part  of  the  prospecting  company  is  available  as  a  de- 
fense to  the  plaintiffs  in  error.?  The  first  inquiry  which  presents  itself 
is  as  to  the  nature  of  the  agreement  which  the  plaintiffs  in  error  signed. 
What  did  they  promise  to  do  ?  We  think  a  fair  construction  of  the 
writing  signed  by  them  amounts  to  this :  That  they  agreed  to  accept 
and  pay  for  ten  shares  of  the  capital  stock  of  the  corporation  the  sub- 
scribers to  the  enterprise  of  boring  for  gas  should  organize,  such  pay- 
ment to  be  made  within  thirty  days  after  such  corporation  should  be 
organized.  The  next  inquiry  is,  what  is  meant  by  the  expression, 
"when  the  corporation  shall  be  organized".''  It  must  be  remembered 
that  the  plaintiffs  in  error  agreed  to  become  stockholders  in  the  corpo- 
ration that  should  be  formed,  and  a  fair  construction  of  this  promise 
is  that  they  meant  to  become  stockholders  in  a  corporation  de  jure 
and  not  a  corporation  de  facto.  A  de  jure  corporation  is  one  whose 
right  to  exercise  a  corporate  function  would  prove  invulnerable  if  as- 
sailed by  the  state  in  quo  warranto  proceedings.  The  plaintiffs  in 
error  might  have  been  willing  to  invest  a  part  of  their  capital  towards 
a  public  enterprise  and  take  their  chances  of  the  investment  being  re- 
munerative, if  no  further  liability  would  attach  to  them  than  that  of 
stockholders  in  a  de  jure  corporation,  when  they  would  not  have  em- 
barked the  same  money  for  the  same  purpose  in  a  partnership  or  a 
de  facto  corporation,  where  they  would  assume  liabilities  greater  than 
those  of  stockholders  in  a  de  jure  corporation.  We  hold,  then,  that 
by  the  subscription  signed  by  the  plaintiffs  in  error  they  promised  to 
take  and  pay  for  ten  shares  of  the  capital  stock  of  such  de  jure  corpo- 
ration as  might  be  formed  for  the  purpose  for  which  the  subscription 
was  made. 

Is  the  Hastings  Prospecting  Company,  or  has  it  ever  been,  a  de  jure 


§  45  CORPORATIONS    DE   JURE.  24I 

corporation?  It  is  admitted  that  it  did  not  file  in  the  office  of  the 
county  clerk  of  Adams  county,  that  being  the  county  in  which  its 
articles  of  incorporation  fixed  its  principal  place  of  business,  its  articles 
of  incorporation.  Did  this  default  prevent  the  Hastings  Prospecting 
Company  from  becoming  a  corporation  de  jure?  The  authorities  are 
not  entirely  in  harmony  on  this  question,  but  the  weight  of  authority 
is,  that  where  the  statute  requires  the  articles  of  incorporation  to  be 
filed  with  some  public  oflScer  before  the  commencement  by  the  pro- 
posed corporation  of  the  business  for  which  it  is  organized,  such  filing 
is  a  condition  precedent  to  the  right  of  such  corporation  to  perform 
any  corporate  function  ;  consequently,  until  a  compliance  with  the 
statute,  the  corporation  has  no  valid  existence  as  a  de  jure  corporation. 
Morawetz,  Private  Corporations,  section  27,  says,  "A  substantial 
compliance  with  all  the  terms  of  a  general  incorporation  law  is  a  pre- 
requisite of  the  right  of  forming  a  corporation  under  it.  Thus  where 
it  is  provided  that  a  certificate  or  articles  of  association,  setting  forth 
the  purposes  of  the  corporation  about  to  be  formed,  the  amount  of  the 
capital,  and  other  details,  shall  be  filed  with  some  public  officer,  a 
performance  of  this  requirement  is  essential ;  and  until  it  has  been 
performed,  the  association  will  have  no  right  whatever  to  assume  cor- 
porate franchises."  Cook  on  Stock  and  Stockholders,  section  231, 
speaking  to  this  same  subject,  says:  "Occasionally,  however,  it 
happens  that  this  certificate  is  not  fully  made  out,  as  required  by  the 
statute,  or  is  not  filed,  or  some  other  step  prescribed  by  law  is  not 
complied  with.  The  corporation  is  then  not  duly  incorporated ;  and 
the  state,  by  quo  "warranto^  may  oust  it  from  its  user  of  corporate 
franchises."  In  Doyle  v.  Mizner,  42  Mich.  332,  it  was  ruled:  "All 
private  corporations  must  be  organized  under  general  laws,  and  can 
be  valid  only  when  strictly  conforming  to  all  the  conditions  imposed 
on  their  completion."  The  court  says:  "The  incorporation  was 
sought  to  be  shown  by  asking  Doyle,  on  cross-examination,  concern- 
ing the  signing  of  a  paper  purporting  to  be  articles  of  incorporation 
which  had  been  filed  in  the  Detroit  city  clerk's  office  April  6,  1875. 
This  paper  was  not  acknowledged,  and  was  not  filed  in  the  county 
clerk's  office.  *  *  *  Xhe  statute  concerning  manufacturing  cor- 
porations expressly  requires  that  the  articles  shall  be  'acknowledged 
before  some  person  authorized  by  the  laws  of  this  state  to  take 
acknowledgment  of  deeds.'  *  *  ♦  That  before  any  such  corpora- 
tion shall  commence  business,  the  articles  should  be  filed  with  the 
secretary  of  state  and  county  clerk  ; ' '  and  the  court  held  that  by  reason 
of  the  failure  to  acknowledge  and  file  in  the  office  of  the  county  clerk 
the  articles  of  incorporation,  the  association  did  not  become  a  corpo- 
ration de  jure.  To  the  same  effect  are  Stowe  v.  Flagg,  72  111.  397 ; 
Bigelow  V.  Gregory,  73  111.  197;  Utley  v.  Union  Tool  Co.,  11  Gray 
(Mass.)  139;  Unity  Ins.  Co.  v.  Cram,  43  N.  H.  636;  Childs  v. 
Smith,  46  N.  Y.  34;  Harris  v.  McGregor,  29  Cal.  125. 

Section     126,  chapter     16,    Compiled    Statutes,     1893,    provides: 

16— WiL.  Cases. 


242        CAPPS    &    M'CREARY  V.  HASTINGS    PROSPECTING   CO.       §  45 

"Every  corporation,  previous  to  the  commencement  of  any  business 
except  its  own  organization,  when  the  same  is  not  foi'med  by  legisla- 
tive enactment,  must  adopt  articles  of  incorporation  and  have  them 
recorded  in  the  office  of  the  county  clerk  of  the  county  *  *  *  jn 
which  the  business  is  to  be  transacted."  *  *  *  Section  132  of 
said  chapter  provided:  "Any  corporation  formed  without  legislative 
enactment  may  commence  business  as  soon  as  its  articles  of  incorpo- 
ration are  filed  by  the  county  clerks  of  the  counties  as  required  by 
this  subdivision,  and  shall  be  valid  if  a  copy  of  its  articles  be  filed  in 
the  office  of  the  secretary  of  state,  and  the  notice  required  be  pub- 
lished within  four  months  from  the  time  of  filing  such  articles  in  the 
clerk's  office."  These  two  sections  of  the  statute,  read  together, 
leave  little  room  for  doubt  that  the  filing  of  the  articles  of  incorpora- 
tion in  the  office  of  the  county  clerk  is  one  of  the  things  required  to 
make  the  corporation  one  de  jure.  To  organize  a  corporation  there 
must  be  subscribers  to  the  stock ;  a  meeting  of  said  subscribers,  or 
some  of  them ;  the  adoption  of  articles  of  association  for  the  govern- 
inent  of  the  proposed  corporation,  and  such  articles  must  be  filed  in 
the  office  of  the  county  clerk  of  the  county  in  which  is  fixed  the  cor- 
poration's principal  place  of  business.  These  sections  of  the  statute 
quoted  above  were  construed  by  this  court  in  Abbott  v.  Omaha 
Smelting  and  Refining  Co.,  4  Neb.  416,  and  it  was  there  said:  "In 
this  state  the  filing  of  articles  of  incorporation  with  the  county  clerk 
is  a  condition  precedent  to  the  existence  of  any  corporate  franchise. 
The  law  and  the  articles  so  filed,  taken  together,  are  considered  in 
the  nature  of  a  grant  from  the  state  and  constitute  the  charter  of  the 
company."  A  corporate  franchise  is  a  privilege,  a  power,  aright. 
It  is  a  very  different  thing  from  the  performance  of  any  step  necessary 
to  the  organization.  In  Indianapolis  Furnace  and  Mining  Co.  v. 
Herkimer,  46  Ind.  142,  the  question  we  are  considering  arose  and 
was  decided  by  the  supreme  court  of  Indiana,  under  a  statute  sub- 
stantially like  the  one  we  have  quoted  above,  and  the  court  said: 
"The  signing  of  articles  of  association  by  parties  proposing  to  form  a 
manufacturing  corporation  does  not  create  such  corporation.  The 
subscribers  must  also  make,  sign,  and  acknowledge  the  certificate  of 
incorporation  prescribed  (by  the  statute)  and  must  file  the  same  in 
the  recorder's  office  of  the  proper  county."  We  think,  therefore, 
that  the  Hastings  Prospecting  Company,  the  name  of  the  corporation 
attempted  to  be  organized  by  the  subscribers  who  signed  the  subscrip- 
tion on  which  the  plaintiffs  in  error  are  sued,  is  not,  and  has  never 
been,  a  corporation  de  jure. 

Is  that  fact  available  to  the  plaintiffs  in  error  as  a  defense  to  this 
suit.-*  It  is  to  be  borne  in  mind  that  the  plaintiffs  in  error  did  not  sub- 
scribe for  the  stock  of  any  corporation,  €\\}i\Qr  de  facto  ox  de  jure,  then 
in  existence ;  and  there  is  a  distinction  as  to  the  liability  of  parties  for 
subscriptions  to  a  corporation,  or  an  association  which  assumes  to  be 
and  is  acting  as  a  corporation,  and  the  liability  for  subscriptions  made 
by  the  parties  for  the  purpose  of  organizing  a  corporation  from  among 


§  45  CORPORATIONS    DE   JURE.  243 

.the  subscribers.  If  the  subscription  made  by  Capps  &  McCreary  had 
been  made  to  the  Hastings  Prospecting  Company  when  it  was  acting 
as  a  corporation,  when  it  was  exercising  the  functions  of  a  corpora- 
tion, when  it  was  claiming  to  be  a  corporation,  and  had  their  agree- 
ment been  to  pay  such  corporation  certain  sums  of  money  for  certain 
shares  of  its  stock,  it  seems  that  they  would  then  be  estopped  from  set- 
ting up  as  a  defense  that  the  prospecting  company  was  not  a  corpora- 
tion de  jure.  (Cook  Stock  and  Stockholders,  §  i86,  and  cases  cited.) 
Morawetz  on  Private  Corporations,  section  67,  thus  lays  down  the 
rule  in  such  cases:  "Every  subscription  (to  the  stock  of  a  corpora- 
tion to  be  organized)  by  implication  refers  to  and  incorporates  the 
terms  of  the  charter  or  general  law  under  which  the  corporation  is 
to  be  formed  ;  and  eveiy  subscriber  agrees  to  become  associated  with  the 
others  only  upon  condition  that  the  formalities  prescribed  by  the  char- 
ter shall  be  obsei*ved  in  making  the  mutual  contract.  Thus,  if  certain 
preliminaries,  such  as  the  filing  of  a  certificate,  are  required  to  be  per- 
formed after  the  articles  of  association  have  been  subscribed,  but  be- 
fore the  corporation  shall  be  in  existence,  the  contract  of  membership 
does  not  go  into  effect  until  these  formalities  are  complied  with,  and 
a  subscriber  to  the  articles  can  not  until  then  be  made  to  contribute 
the  amount  of  his  subscription."  In  Rikhoff  v.  Brown's  Rotaiy 
Shuttle  Sewing  Machine  Co.,  68  Ind.  388,  it  was  held:  "A  subscrip- 
tion of  stock  to  preliminary  articles  of  association,  not  purporting  to 
be  a  contract  with  an  existing  corporation,  does  not  estop  the  sub- 
scriber to  afterward  deny  the  existence  of  the  corporation  in  a  suit 
upon  the  subscription."  See,  also,  Indianapolis  Furnace  and  Mining 
Co.  v.  Herkimer,  46  Ind.  142,  where  it  is  said:  "Until  the  statutory 
requirements  to  organize  a  corporation  have  been  complied  with,  a  sub- 
scriber to  the  articles  of  association  is  not  estopped  to  deny  the  exist- 
ence of  the  corporation."  (See,  also,  Dorris  v.  Sweeney,  60  N.  Y. 
463.)  We  think  these  authorities  are  decisive  of  the  case  under  con- 
sideration. The  rule  they  lay  down  is  sound  law,  good  sense  and 
exact  justice. 

If  the  plaintiffs  in  error  are  to  pay  for  the  stock  subscribed,  it,  of 
course,  follows  that  they  become  entitled  to  the  stock.  This  would 
make  them  stockholders  in  a  de  facto  corporation  and  liable  as  co- 
partners, whereas  their  contract  was  to  become  liable  as  stockholders. 
The  plaintiffs  in  error  have  not  broken  their  promise.  The  judgment 
of  the  district  court  is  reversed. 

NoU.    See  infra,  Conditions  precedent  to  d«  jurt  existence,  p.  585. 


244  GIBBS'    ESTATE.       HALLSTEAD'S   APPEAL.  §  46 

Sec.  46.  Same. 

GIBBS'  ESTATE.     HALLSTEAD'S  APPEAL. 

1893.     In  the  Supreme  Court  of  Pennsylvania.      157  Pennsyl- 
vania State  Reports  59-74;   22  L.  R.  A.  276. 

Appeal  by  Hallstead,  guardian  of  Mary  E.  Clapp  et  al.,  from  de- 
cree of  orphan's  court  dismissing  exceptions  to  auditor's  report  in 
estate  of  Henry  Gibbs,  deceased. 

Exceptions  to  report  of  auditor  on  exceptions  to  administrator's  ac- 
count. Before  Metzger,  P.  J.,  twenty-ninth  judicial  district,  specially 
presiding. 

The  case  was  referred  to  Stanley  W.  Little,  Esq.,  as  auditor.  Before 
the  auditor,  W.  F.  Hallstead,  guardian  of  Mary  E.  Clapp  et  al., 
claimed  to  recover  from  the  estate  of  decedent,  Henry  Gibbs,  the  sum 
of  $2,900.46,  the  amount  of  a  deposit  in  the  Home  Savings  Bank,  of 
which  decedent  was  a  stockholder.  The  claim  was  made  on  the 
ground  that  the  bank  was  a  general  partnership,  and  that  its  stock- 
holders were  liable  as  partners  for  its  debts. 

The  auditor  reported  in  part  as  follows : 

"The  exceptants  to  the  account  of  the  administrator  ask  to  take  out 
of  the  funds  for  distribution  the  sum  of  $36,167.53  and  interest.  This 
request  is  based  on  the  position  that  the  'Home  Savings  Bank'  was 
not  a  corporation,  or  a  limited  partnership,  or  a  joint  stock  association, 
and  therefore  was  a  common  partnership.  That,  being  a  common 
partnership,  and  Henry  Gibbs  having  been  a  stockholder  therein,  his 
individual  estate  is  liable  for  the  entire  amount  of  money  deposited  in 
said  bank  during  the  time  said  Gibbs  was  a  member  thereof,  and  un- 
paid, with  what  interest  may  be  due  thereon. 

"This  statement  of  the  case  at  once  discloses  its  importance  to  the 
parties  concerned.  The  industry  of  counsel  and  the  research  of  the 
auditor  have  failed  to  find  much  authority  in  this  state  to  aid  in  the 
solution  of  the  question  which  distinguishes  this  case.  All  fair  minds 
must  agree  that  a  party  seeking  to  divert  so  large  a  fund  from  its 
ordinary  channel  into  the  pockets  of  strangers,  should  present  a  case 
strong  in  the  fact  and  clear  in  the  law. 

"As  a  starting  point  in  this  investigation  the  auditor  can  find  nothing 
better  than  the  opinion  of  Mr.  Justice  Williams,  in  the  case  of  Hall- 
stead V.  Coleman,  143  Pa.,  at  page  364,  in  these  words:  'Now  the 
important  question  in  this  case,  which  lay  at  the  threshold  of  plaintiff's 
cause  of  action,  was  whether  this  bank  was  a  partnership.  The  plaint- 
iff alleged  it  and  claimed  to  recover  against  the  defendants  as  mem- 
bers of  the  banking  firm.  The  burden  of  proving  the  partnership 
was  on  him,  and  until  this  proof  was  given  the  defendants  were  not 
called  upon  to  enter  upon  their  defense.'  Applying  this  law  to  this 
case,  which  involves  questions  very  similar  to  those  in  the  case  just 
mentioned,  the  first  question  is,  have  the  exceptants  proved  this  was 


§  46  CORPORATIONS    DE    FACTO.  245 

a  partnership,  of  which  Henry  Gibbs  was  a  member  at  the  time  they 
deposited  their  money  in  this  bank,  and  for  all  the  debts  and  defalca- 
tions of  which  his  estate  is  liable? 

"The  evidence  offered  by  them  shows  that  in  September,  1873,  a 
bank  was  opened  at  South  Waverly,  in  this  state ;  that  it  had  over  its 
door  the  name  'The  Home  Savings  Bank;'  that  it  organized  by  elect- 
ing a  board  of  directors  and  a  president  and  cashier ;  that  its  capital 
stock  was  divided  into  shares  of  $100;  that  to  each  holder  of  stock  it 
issued  certificates  of  stock,  saying  upon  their  face  that  the  bank  was  or- 
ganized under  act  of  the  legislature  of  Pennsylvania ;  that  its  authorized 
capital  was  $100,000 ;  that  these  certificates  had  on  their  back 
blank  powers  of  attorney  for  transfer,  and  in  all  respects  were  in  the 
form  and  style  usually  adopted  by  banks ;  (that  these  certificates  when 
issued  were  signed  by  the  president  and  cashier,  and  to  some  of  them 
the  seal  was  affixed;)  (17)  (that  it  had  a  seal,  which  was  affixed  to 
all  cashier's  checks;)  (18)  that  said  bank  registered  in  the  office  of 
the  auditor-general  under  section  i  of  act  of  June  7,  1879 ;  that  it 
filed  these  separate  reports  in  said  office  of  its  net  earnings  or  income 
under  the  tenth  section  of  said  act;  (that  it  also  filed  in  said  ofiice  at 
least  six  reports  for  publication,  covering  the  four  quarters  of  the  year, 
in  accordance  with  the  requirements  of  the  acts  of  April  16,  1850, 
and  April  17,  1861;)  (19)  that  it  paid  dividends  to  its  stockholders; 
that  it  failed  and  passed  into  the  hands  of  a  receiver ;  that  none  of  the 
certificates  of  stock,  certificates  of  deposit,  books  of  account  with  cus- 
tomers, bills,  letters,  checks  or  drafts  bore  upon  their  face  the  names 
of  any  member  other  than  the  president  and  cashier,  and  the  person  to 
whom  addressed  or  issued ;  that  the  transfer  of  any  stockholder's  in- 
terest was  at  his  own  option,  and  neither  such  transfer,  nor  the  death 
of  any  stockholder  worked  any  change  in  the  name  or  conduct  of  the 
business ;  that  so  slight  was  the  effect  upon  the  business  of  the  death 
of  Mr.  Gibbs  that  a  large  amount  of  claims  have  been  presented  be- 
fore the  auditor  for  allowance  for  money  deposited  after  his  death, 
or  deposited  before  and  re-deposited  and  new  certificates  therefor 
issued  after  his  death.  (What  is  there  in  all  this  evidence  from  be- 
ginning of  the  business  to  the  failure  tending  to  prove  a  partnership.? 
What  in  it  all  inconsistent  with  a  corporate  existence  ?  Only  one 
thing  has  been  urged  upon  the  auditor,  and  that  is  to  be  found  in  the 
form  of  the  reports  made  by  the  bank  to  the  auditor-general  of  its  net 
earnings  or  income  under  section  10  of  act  of  1879;  (20)  and  the 
position  was  taken  that  the  provisions  of  this  section  only  apply  to  un- 
incorporated banks.  While  it  is  true  that  in  the  printed  portion  of 
these  reports  the  word  'firm'  is  used  instead  of  'corporation,'  yet, 
remembering  that  these  printed  forms  were  not  made  by  the  bank, 
but  were  sent  to  it  from  the  auditor-general's  office,  and  that  they 
were  made  and  returned  under  an  act  which  is  not  applicable  solely  to 
unincorporated  banks,  but  applies  to  those  which  are  incorporated  as 
well  (and  as  at  most  was  only  the  declaration  of  one  member  in 
the  absence  of  and  without  the  knowledge  of  any  others,  the  auditor 
does  not  deem  this  single  fact  sufficient  to  overcome  the  preceding 


246  GIBBS'    ESTATE.       HALLSTEAD'S   APPEAL.  §  46 

evidence  of  incorporation,  or,  more  accurately,  to  prove  the  partner- 
ship) (21). 

"This  comprises  the  affirmative  evidence  of  the  exceptants.  It  is 
supplemented  by  some  of  a  negative  character,  showing  that  searches 
in  the  office  of  the  recorder  of  deeds  in  this  county  have  failed  to  find 
any  record  of  this  bank  as  a  limited  partnership ;  and  that  searches  in 
the  auditor-general's  office  have  proved  equally  futile  in  finding  any 
record  of  its  incorporation.  From  these  two  negatives  the  auditor  is 
urged  to  find  an  affirmative.  In  other  w^ords,  as  no  record  can  be 
found  showing  this  bank  to  have  been  a  limited  partnership  or  a  cor- 
poration, it  must  have  been  a  simple  partnership. 

"Upon  the  certificates  issued  to  Mr.  Gibbs  each  time  he  acquired 
stock  in  this  bank,  it  declared  it  was  organized  under  'act  of  the  leg- 
islature of  Pennsylvania.'  If  this  was  true,  a  search  among  those 
local  acts  of  the  legislature  which  filled  our  pamphlet  laws  prior  to 
1874  might  have  been  better  rewarded. 

"(But  is  it  true  that  if  this  was  not  a  corporation  or  a  limited  part- 
nership, it  follows  necessarily  that  it  was  a  common  partnership.'* 
This  has  been  urged  with  much  force,  and  the  auditor  admits  that  he 
entertained  that  belief  at  the  outset  of  this  case ;  but  from  authority 
consulted,  and  reflection,  he  has  come  to  a  different  conclusion.  A 
partnership  inter  se  can  not  result  from  any  aggregation  of  negatives. 
The  formation  of  such  a  partnership  is  a  positive  action  and  can  not 
exist  without  an  agreement  of  some  kind  among  all  its  members.) 
(22)  Parsons  in  his  w^ork  on  Partnership,  in  discussing  who  are  liable 
as  partners,  says:  'The  first  thing  to  be  remembered  is  that  persons 
may  be  charged  as  partners  of  a  firm,  on  either  one  or  two  perfectly 
distinct  grounds ;  one  of  them  is  that  the  person  actually  is  a  partner, 
the  other  is  that  he  has,  with  his  own  knowledge  and  consent,  held 
forth  as  a  partner  to  the  person  having  a  claim,  or  to  the  public  gen- 
erally.' (Upon  which  of  these  two  distinct  grounds  can  Mr.  Gibbs 
be  charged  as  a  partner  in  this  case.''  Certainly  not  updn  the  first, 
for  no  articles  of  partnership  and  no  agreement  to  be  partners,  and 
no  agreement  of  any  kind  existed  between  Mr.  Gibbs  and  the  other 
stockholders,  and  no  person  can  be  a  partner  in  fact  in  a  partnership 
having  no  existence.  If,  then,  this  estate  is  to  be  charged  it  must  be 
upon  the  second  ground  above  mentioned.  But  the  evidence  fails  to 
show  any  holding  forth  of  him  as  a  partner  by  the  bank  or  by  himself. 
His  name  nowhere  appears  in  any  business  transaction  of  the  bank 
with  others;  he  took  no  part  in  its  management  or  control;  he  never 
held  any  official  position  therein  ;  no  one  of  these  claimants  knew  that 
he  was  a  stockholder  therein  at  the  time  of  depositing  their  money ; 
the  bank  never  represented  to  any  one  of  them  that  it  was  a  partner- 
ship, and  none  of  them  dealt  with  it  as  such,  and  the  evidence  does 
not  show  that  Mr.  Gibbs  had  any  knowledge  of  the  transactions  be- 
tween the  bank  and  these  claimants,  or  had  a  personal  acquaintance 
with  them.  But,  on  the  contrary,  the  weight  of  the  evidence  tends 
to  show  that  this  bank  held  itself  out  to  the  world  and  to  Mr.  Gibbs 
as  a  corporation  and  nothing  else.)  (23.) 


§  46  CORPORATIONS    DE    FACTO.  247 

"But  it  is  said  Mr.  Gibbs  took  dividends  on  his  stock,  and  hence 
his  estate  is  liable  in  this  case.  (As  tending  to  discharge  the  burden 
resting  upon  the  claimants,  to  prove  that  this  bank  was  a  partnership 
instead  of  a  corporation,  the  fact  of  the  receipt  of  dividends  does  not 
go  far;)  (24)  because  the  taking  of  dividends  is  as  consistent  with 
the  corporate,  as  with  the  partnership  relation. 

"(Nor  does  this  fact,  standing  alone  and  disconnected  with  any 
agreement  between  the  stockholders,  or  any  holding  forth  of  Mr. 
Gibbs  as  a  partner  by  the  bank  or  by  himself,  or  with  any  credit  given 
to  the  bank  by  the  claimants  knowing  Mr.  Gibbs  to  be  in  any  way 
connected  therewith,  make  his  estate  liable)  (25)  in  the  opinion  of 
the  auditor.  The  old  doctrine  enunciated  in  Waugh  v.  Carver,  2 
H.  Bl.  235,  that  one  taking  a  share  of  profits  shall,  by  operation  of 
law,  be  made  liable  to  losses,  upon  the  principle  that,  by  taking  a 
part  of  the  profits,  he  takes  from  the  creditors  a  part  of  that  fund 
which  is  the  proper  security  to  them  for  the  payment  of  their  debts, 
is  not  the  accepted  law  to-day  in  England,  and,  as  the  auditor  thinks, 
is  not  in  accordance  with  the  weight  of  authority  in  this  country : 
Edwards  v.  Tracy,  62  Pa.  380.  (Profits  can  only  exist  after  pay- 
ment of  all  liabilities ;  and  how  any  one  who  shares  only  in  what  may 
remain  after  all  creditors  are  secured  takes  from  them  any  security 
is  not  quite  plain.)  (26)  This  is  especially  true  of  the  banking 
business.  (Every  man  buying  stock  in  a  bank  that  is  conducted  upon 
usual  and  sound  banking  principles,  as  he  has  a  right  to  expect  it  will 
be,  knows  that  he  will  get  no  dividends,  only  such  as  may  remain  after 
all  liabilities  are  deducted.)  (27)  When  a  person  induces  others  to 
credit  a  firm  upon  the  assurance  or  belief  that  he  is  a  member  thereof, 
his  property  should  make  good  any  loss  thereby  sustained  by  such 
creditor,  whether  such  person  receives  any  dividend  or  not ;  (but  to 
hold  one  who  puts  money  into  a  business  and  draws  out  no  part  of 
the  principal,  and  but  a  small  part  of  the  interest,  liable  for  all  debts, 
should  rest  on  better  reason  than  that  he  has  reduced  the  creditor's 
security.  Mr.  Gibbs'  purchase  of  this  stock  and  the  receipt  of  divi- 
dends thereon,  did  nothing  to  lessen  the  amount  these  exceptants 
may,  or  have  realized  on  their  claims.  He  put  in  $6,000,  and  drew 
out  $1,820,  thereby  making  the  fund  for  creditors  $4,180  larger.) 
(28)  That  this  fund  was  diverted  or  misappropriated,  does  not  make 
him  liable ;  it  not  having,  been  done  by  him  or  by  any  agent  of  his, 
in  fact  or  in  law. 

"It  has  been  said  in  support  of  these  claims  that  there  must  be  a 
liability  somewhere,  that  persons  doing  business  in  this  state  must  do 
it  subject  to  the  liability  either  of  incorporators,  partners  or  individ- 
uals. Suppose  this  is  admitted.  Is  there  a  want  of  allliability  here? 
If  this  bank  were  solvent  to-day,  and  these  claimants  brought  suit 
against  it  as  a  corporation,  what  would  prevent  their  recovery? 
(Having  declared  to  the  world  for  nearly  eighteen  years  that  it  was  a 
corporation,  and  having  induced  these  parties  to  trust  it  as  such,  what 
court  would  now  permit  it  to  defend  on  the  ground  that  it  was  not 
incorporated,    and    thereby    allow    it   to   benefit    by    its  own  fraud? 


248  GIBBS'    ESTATE.       HALLSTEAD'S    APPEAL.  §  46 

Clearly  it  would  be  estopped.)  (29)  Spahr  v.  Farmers'  Bank,  Car- 
lisle, 94  Pa.  429,  and  authorities  there  cited.  The  inability  of  claim- 
ants to  get  their  pay  seems  to  result  more  from  a  want  of  ability  than 
liability  on  the  part  of  the  bank ;  a  want  from  which  this  estate  has 
suffered  in  common  with  these  parties. 

"(The  auditor  is  therefore  of  the  opinion  that  the  demand  of  the 
claimant  is  not  sustained;)  (30)  and  dismisses  the  exceptions,  feeling 
satisfaction  in  the  knowledge  that  his  decision,  if  erroneous,  can  be 
corrected  in  a  higher  court.  In  coming  to  this  conclusion  the  auditor 
has  been  influenced  to  some  extent  (he  hopes  not  too  far)  by  the 
opinion  of  Judge  Martin  of  the  supreme  court  of  New  York,  and  the 
many  authorities  cited  by  him  in  the  case  of  the  Merchants'  National 
Bank  of  Binghamton,  New  York,  v.  Charles  E.  Pendleton  et  al.,^ 
which  is  attached  to  this  report ;  which  opinion  has  been  recently 
affirmed  by  the  court  of  appeals  of  the  same  state." 

Exceptions  among  others  to  above  findings  in  brackets  were  dis- 
missed.    Whereupoij  exceptant  appealed. 

Errors  assigned  vioxe.  (18—30)  dismissal  of  exceptions,  quoting  them. 

Opinion  by  Mr.  Justice  Williams,  October  2,  1893. 

This  case  involves  substantially  the  same  question  that  was  heard 
and  determined  in  Hallstead  v.  Coleman,  143  Pa.  354.  The  appell- 
ant seeks  to  charge  the  estate  of  Henry  Gibbs  with  money  deposited 
by  him,  as  guardian,  in  the  Home  Savings  Bank,  located  at  South 
Waverly,  on  the  theory  that  the  bank  was  a  general  partnership  and 
that  the  decedent  was  one  of  the  partners.  The  appellees  deny  that 
the  Home  Savings  Bank  was  a  partnership,  and  assert  that  the  dece- 
dent purchased  shares  of  the  stock  in  the  bank,  as  and  for  the  shares 
of  the  stock  in  an  incorporated  bank,  and  not  otherwise.  At  this  point 
it  seems  desirable  to  define  the  words  over  which  this  contest  extends. 

First.  What  is  a  corporation?  The  several  answers  given  by  text 
writers  may  be  reduced  to  the  following  formula  :  A  corporation  is  an 
artificial  person  created  by  the  law  as  the  representative  of  those  per- 
sons, natural  or  artificial,  who  contiibute  to,  or  become  holders  of 
shares  in,  the  property  entrusted  to  it  for  a  common  purpose.  As  it 
is  the  creature  of  positive  law,  its  rights,  powers  and  duties  are  pre- 
scribed by  the  law.  Beyond  the  legitimate  purposes  which  it  was 
created  to  serve,  and  the  lines  of  limitation  the  law  has  drawn  around 
it,  it  is  without  power  to  act  or  capacity  to  take.  Thus  a  banking  cor- 
poration, while  fully  competent  to  do  what  is  usual  and  necessary  in 
its  own  business,  may  not  own  and  operate  a  railroad  or  engage  per- 
manently in  any  other  business  than  that  for  which  it  was  created.  It 
has  neither  the  legal  capacity,  nor  the  right,  to  do  so ;  and  if  it  under- 
takes to  go  in  any  direction  beyond  its  corporate  powers  its  acts  are 
ultra  vires.  The  creation  of  a  corporation  is  not  within  the  power  of 
the  individuals  who  subscribe  to  its  stock.  It  is  exclusively  the  work 
of  the  law ;  and  the  best  evidence  to  the  existence  of  a  corporation  is 
the  grant  of  corporate  powers  by  the  commonwealth. 

Second.     What  is  a  corporation  de  facto?     It  is  an  apparent  cor- 

^  20  St.  Rep.  891. 


§  46  CORPORATIONS    DE   FACTO.  249 

f  orate  organization  ^  asserted  to  be  a  corporation  by  its  members  and 
actually  acting  as  such,  but  lacking  the  creative  Jiat  of  the  lavj.  In 
Taylor  on  Private  Corporations,  145,  it  is  said  that  a  de  facto  corpo- 
ration may  exist  "when  a  body  of  men  are  acting  as  a  corporation 
under  color  of  apparent  organization,  in  pursuance  of  some  charter  or 
enabling  act."  Their  organization  may  be  imperfect,  so  that  upon  a 
quo  warranto  they  could  not  show  a  sufficient  compliance  with  the 
law  to  justify  the  exercise  of  corporate  powers,  but,  as  to  parties  deal- 
ling  with  them,  and  as  to  each  other,  they  are  estopped  to  deny  that 
they  are  what  they  hold  themselves  out  to  be.  In  a  recent  case  in 
Minnesota,  Finnegan  v.  The  Knights  of  Labor  Building  Association,^ 
it  was  held  that  a  de  facto  corporation  exists  when  these  three  things 
concur,  viz. :  A  law  under  which  the  alleged  corporation  might  be 
created ;  an  attempt  to  organize  under  the  law ;  an  assumption  and 
exercise  of  corporate  powers  under  such  attempted  organization.  In 
Church  V.  Pickett,  19  N.  Y.  482,  only  two  things  were  held  necessary, 
viz  :  "The  existence  of  a  charter  or  law  under  which  a  corporation  with 
the  powers  assumed  might  be  lawfully  created ;  and  the  user  by  the 
party  to  the  suit  of  the  rights  claimed  to  be  conferred  by  such  a  charter 
or  law."  Where  there  has  been  a  substantial  compliance  with  the 
law  the  corporation  is,  of  course,  de  jure.  Where  there  has  been  no 
substantial  compliance,  but  there  has  been,  nevertheless,  an  assump- 
tion and  exercise  of  corporate  powei's  in  pursuance  of  an  attempted 
organization,  the  alleged  corporation  is  such  de  facto  only.  The 
Minnesota  courts  hold  the  correct  rule,  and  three  things  are  necessary 
to  create  the  liability,  a  law  or  charter  under  which  an  organization 
de  jure  might  be  effected,  an  attempt  to  organize  which  falls  so  far 
short  of  the  requiretnents  of  the  law  or  charter  as  to  be  ineffectual , 
an  assumption  and  exercise  of  corporate  powers  notwithstanding  the 
failure  to  comply  with  the  law  or  charter. 

Third.  What  is  a  partnership}  Perhaps  the  best  definition  is 
that  given  by  Story :  a  relation  created  by  a '•'•contract  between  two 
or  m.ore  persons  to  place  their  money,  effects,  labor,  or  skill,  or  some 
or  all  of  them,  in  lawful  cotnmerce  and  divide  the  profits  betwee?t 
them."  Its  foundation  is  a  contract  express  or  implied.  It  results 
from  the  act  of  the  parties,  not  from  the  act  of  the  law.  Hedge's 
App.,  63  Pa.  273,  17  Am.  &  Eng.  Ency.  of  Law  829.  See,  also,  8 
W.  &  S.  63;  16  Ohio  166;  14  Johns.  318;  49  111.  437.  But  as  to 
third  parties  one  may  be  held  liable  as  a  partner  by  implication  of 
law  arising  upon  his  own  acts,  contrary  even  to  his  own  intention. 
Thus  the  officers  and  acting  members  of  a  corporation  de  facto  may 
be  liable  as  partners  if  their  conduct  has  led  others  to  trust  the  con- 
cern upon  that  basis.  47  Conn.  443.  But  without  a  contract  of  part- 
nership, or  such  acts  and  declarations  as  lead  others  to  infer  its  exist- 
ence and  to  extend  credit  on  that  basis,  there  is  no  foundation  on 
which  liability  as  a  partner  can  rest.  The  best  evidence  of  the  exist- 
ence of  a  partnership  is  the  contract  creating  it.  If  proof  of  the 
contract  is  not  within  reach,  its  existence  may  be  inferred  from  proof 

'/re/ra,  p.  614. 


250  GIBBS'    ESTATE.       HALLSTEAD'S   APPEAL.  §  46 

of  contribution  to  the  partnership  stock.  If  dii'ect  proof  of  contribu- 
tion can  not  be  had,  it  may  be  inferred  from  participation  in  profits. 
In  the  absence  of  all  this,  the  acts  and  declarations  of  the  parties 
sought  to  be  charged  may  be  resorted  to.  Participation  in  profits  is 
not  conclusive  proof  of  the  existence  of  the  partnership  relation. 
Edwards  v.  Tracy,  62  Pa.  374.  But  both  in  England  and  in  this 
country  it  is  cogent  evidence  upon  the  question,  It  puts  the  defendant 
upon  his  proofs  explanatoiy  of  the  fact.  If  he  is  able  to  show  that 
such  participation  vv^as  referable  to  some  other  reason,  such  as  com- 
pensation for  services  rendered  by  an  agent,  broker,  salesman  or  other- 
wise, "Ca^  prima  fades  is  overcome.  So,  if  the  participation  in  the 
profits  is  referable  to  some  other  relation  other  than  that  of  partner- 
ship between  the  participants,  such  as  membership  in  a  joint-stock 
association  or  a  corporation,  the  effect  of  proof  of  participation  will 
be  overcome. 

In  the  light  of  these  well  settled  rules,  let  us  consider  briefly  the 
position  of  the  parties  and  the  important  findings  of  fact  made  by  the 
learned  auditor  in  this  case.  The  claimant's  right  to  share  in  the  fund 
in  court  rested  on  the  theory  that  the  Home  Savings  Bank,  in  which 
the  money  of  his  wards  had  been  deposited,  was  a  partnership,  and 
that  the  decedent  was  a  partner.  The  burden  of  proving  the  fact  that 
the  bank  was  a  partnership  was  on  him ;  and  as  was  said  in  Hallstead 
v.  Coleman,  143  Pa.  364,  "until  that  proof  was  given,  the  defendants 
were  not  called  upon  to  enter  upon  their  defense."  The  proof  made 
upon  this  subject  showed  the  organization  of  a  bank  under  the  name 
of  the  Home  Savings  Bank,  with  a  president,  cashier,  and  a  board  of 
directors.  This  is  the  mode  of  organization  usually  adopted  by  cor- 
porations, and  did  not  tend  to  prove  a  partnership.  It  was  then  shown 
that  the  decedent  bought  and  held  certificates  of  stock  in  the  bank, 
after  its  organization,  which  recited  not  the  formation  of  a  partnership, 
but  the  organization  of  a  bank  under  the  laws  of  the  state,  and  the 
division  of  its  capital  into  shares  of  one  hundred  dollars  each.  This 
is  not  the  usual  way  in  which  partnerships  are  created  and  partners 
admitted.  It  is  the  usual  way  in  which  stocks  are  issued  and  trans- 
ferred in  corporations.  Proof  was  then  made  of  the  receipt  by  the 
decedent  of  several  dividends  upon  his  stock.  These  did  not  purport 
to  be  shares  in  the  profits  of  firm  business,  but  dividends,  declared  in 
the  manner  usual  among  corporations,  upon  the  stock  of  the  bank ; 
and  were  paid  by  dividend  checks  drawn  under  the  authority  of  the 
board  of  directors.  The  only  other  evidence  was  the  returns  made 
by  the  officers  of  the  bank  under  the  tax  law  of  1879,  which  threw 
very  little  light  upon  the  character  of  the  organization  of  the  bank. 
Upon  this  proof  the  questions  for  the  auditor  were  whether  the  bank 
was  shown  to  be  a  partnership,  and  the  decedent  a  partner.  The 
bank  did  business  for  a  number  of  years  and  then  failed.  Its  books 
and  papers  were  in  the  hands,  or  subject  to  the  control,  of  the  receiver. 
The  manner  of  its  organization  was  not  shown  ;  the  partnership  agree- 
ment, if  any  such  existed,  was  not  produced. 

No  proof  was  given  that  the  officers  or  stockholders  claimed  or  held 


§46  CORPORATIONS    DE    FACTO.  2$  I 

out  to  the  public  that  the  stockholders  were  partners  or  the  bank  a 
partnership  enterprise.  It  is  not  alleged  that  the  decedent  participated 
in  any  manner  in  the  business,  or  exercised  any  control  over  it.  The 
whole  case  against  him  rested  on  the  fact  that  he  had  purchased  shares 
in  a  bank,  then  organized  and  doing  business,  and  received  dividends 
declai"ed  by  the  directors  and  paid  to  him  in  a  cashier's  check.  We 
are  not  surprised  that  the  auditor  was  led  to  ask,  "What  is  there  in  all 
this  evidence  from  the  beginning  of  the  business  to  the  failure  tend- 
ing to  prove  a  partnership?"  Nor  that  he  answered  his  own  question 
by  holding  that  this  proof  was  insufficient  to  establish,  prima  facie^ 
the  existence  of  the  partnership  relation.  On  the  other  hand,  there 
was  much  tending  to  show  that  Henry  Gibbs  understood  that  he  was 
the  holder  of  stock  in  an  incorporated  bank,  and  that  the  bank  assumed 
and  exercised  corporate  powers;  and  was  dealt  with  by  the  public  as 
a  corporation.  The  form  of  its  certificates,  the  manner  of  their  trans- 
fer, the  election  of  directors  by  the  stockholders,  the  management  of  the 
business  of  the  bank  by  the  directors  and  the  officers  elected  by  them, 
the  mode  of  declaring  and  paying  dividends,  were  all  suggestive  of  a 
corporation.  They  were  not  suggestive  of  a  partnership.  We  are 
unable,  therefore,  to  say  that  the  auditor  erred  in  finding  that  the  bank 
was  not  shown  to  be  a  partnership.  The  learned  judge  who  heard 
the  exceptions  to  this  report  seems  to  have  concurred  with  the  auditor, 
and  we  require  imder  such  circumstances  to  be  satisfied  that  a  mistake 
was  made  before  interfering  with  the  findings.  We  are  not  so  satis- 
fied ;  but  are  of  opinion  that  the  state  of  the  evidence  justified  the 
auditor's  conclusion.     This  disposes  of  the  whole  case. 

It  is  said  with  earnestness  and  energy  that  this  is  a  case  in  which 
the  depositors  deserve  protection.  We  assent  to  this  proposition. 
We  can  extend  protection  to  them,  however,  in  accordance  with  the  es- 
tablished rules  of  law,  and  in  no  other  manner.  What  the  Home  Sav- 
ings Bank  was  in  its  organization,  in  what  capacity  those  who  held 
its  stock  were  liable  to  its  depositors  are  questions  not  now  before  us. 
It  may  have  been  a  corporation  de  jure^  a  corporation  de  facto^  a  joint- 
stock  association  or  a  general  partnership  so  far  as  we  are  able  to  de- 
clare. What  we  say  is  that  the  evidence  in  this  case  is  not  sufficient  to 
make  a  case,  prima  facie,  against  Henry  Gibbs  as  a  partner,  or  the 
bank  as  a  general  partnership.  It  does  not  appear  that  the  bank  was 
organized  as  a  partnership,  conducted  business  as  a  partnership,  or 
held  itself  out  to  the  public  as  such.  It  does  not  appear  that  Gibbs 
understood  the  bank  to  be  other  than  what  his  certificates  of  stock  in- 
dicated ;  or  that  he  treated  the  business  of  the  bank  as  that  of  a  firm, 
or  exercised  the  slightest  control  over,  or  influence  upon  it,  or  mislead 
the  appellant  or  any  other  depositor  by  act  or  word  as  to  his  relation 
to  it.  What  does  appear  is  that  he  purchased  shares  of  stock  in  the 
usual  manner,  and  received  some  dividends  thereon.  These  circum- 
stances are  naturally  referable  to  the  relation  of  a  stockholder  to  a 
corporation;  and  standing  alone,  arci  not  proof,  prima  facie^  of  the 
appellant's  proposition  that  the  bank  was  organized  as  a  partnership, 
and  that  the  purchase  of  shares  of  stock  made  Gibbs  a  partner.     If  he 


252  GIBBS'    ESTATE.       HALLSTEAD'S   APPEAL.  §  46 

had  received  profits  from  the  business  apparently  conducted  by  a 
partnership,  he  would  have  been  put  upon  his  explanation,  and,  fail- 
ing to  make  one,  v^'ouldhave  been  held  to  be  a  partner.  The  burden 
in  that  case  would  have  been  on  him.  Having  received  dividends  de- 
clared by  a  board  of  directors  upon  the  stock  into  which  the  capital  of 
the  bank  was  divided,  he  could  rest  securely  upon  the  apparent  char- 
acter of  the  transaction  and  the  inferences  naturally  to  be  drawn  from 
it.  The  burden  of  explanation  necessary  to  give  another  character  to 
the  dividend  declared,  and  to  the  stock  on  which  it  was  paid,  was  on 
him  who  asserted  that  such  other  was  the  true  character  of  these  cir- 
cumstances. 

It  was  also  said  in  the  argument  that  the  recitals  in  the  stock  cer- 
tificates are  not  evidence  of  actual  incorporation  as  against  a 
stranger.  This  must  be  granted.  They  do  not  prove  incorporation. 
But  the  appellees  are  not  bound,  upon  the  evidence  in  this  case,  to 
prove  incorporation.  The  significant  question  is,  where  is  the  proof 
that  this  bank  was  organized  or  conducted  as  a  partnership  concern .? 
The  certificates  do  not  prove  that,  but  the  inferences  naturally  drawn 
from  them  tend  the  other  way.  It  will  not  do  for  the  appellants  to 
say:  "We  have  shown  that  the  decedent  was  a  stockholder  in  this 
bank  and  received  dividends  upon  his  stock,  now  you  must  shovi^  that 
the  bank  was  incorporated  or  be  liable  to  us  as  a  general  partner." 
This  is  attempting  to  change  the  burden  of  proof.  Again  the  learned 
counsel  says:  "This  is  the  sole  fact  (the  form  of  the  certificate)  that 
is  before  the  court,  and  if  it  is  sufficient  to  authorize  a  court  to  find  an 
incorporation  in  this  case,  why  is  it  not  in  any  other  .f"'  The  court 
below  did  not  find  that  the  bank  was  a  corporation.  That  question 
was  not  before  it.  It  was  alleged  by  the  appellant  to  be  a  paitner- 
ship,  but  the  auditor  and  the  judge  of  the  court  below  regarded  the 
evidence  in  support  of  that  allegation  insufficient  to  justify  a  finding 
that  the  bank  was  not  "organized  by  act  of  the  legislature  of 
Pennsylvania,"  as  its  certificates  alleged,  but  by  the  parties  as  co- 
partners. The  appellant  failed,  not  because  the  bank  was  held  to  be 
a  corporation,  but  because  it  was  not  shown  to  be  a  partnership.  Until 
evidence  in  support  of  the  appellant's  position  is  given  sufficient  to 
lead  fairly  to  the  conclusion  that  the  bank  was  organized  as  a  partner- 
ship, or  that  Henry  Gibbs  contracted  to  become  a  partner  when  he 
bought  his  stock,  or  that  he  led  the  public  by  his  acts  and  declara- 
tions to  deal  with  him  or  the  bank  on  the  basis  of  his  being  a  partner, 
there  is  nothing  that  makes  it  the  duty  of  his  representatives  to  enter 
upon  a  defense,  or  that  makes  it  possible  for  the  court  to  decide  upon 
the  character  of  the  bank.  In  such  a  state  of  the  evidence  the  court 
can  only  say,  as  the  court  below  said  in  this  case,  "It  is  not  shown 
that  the  bank  is  a  partnership,"  and  for  that  reason  the  claimant  fails. 

The  assignments  of  error  are  not  sustained,  and  the  decree  is  af- 
firmed. 

Note.    See  infra,  Conditions  precfedent  to  de  facto  existence,  p.  614 


bSEPH 


§  47  CORPORATIONS   BY   ESTOPPEL.  253 

Sec.  47.    Same. 

McCarthy  v.  lavasche. 

1878.     In  the  Supreme  Court   of   Illinois.     89   111.  Rep.  270- 
277,  31  Am.  R.  83. 

Appeal  from  the  superior  court  of  Cook  county,  the  Hon.  J 
E.  Gary,  Judge,  presiding. 

Mr.  Justice  Walker  delivered  the  opinion  of  the  court. 

The  National  Loan  and  Trust  Company  was  organized  under  an 
act  of  the  general  assembly,  approved  on  the  9th  of  March,  1867. 
Under  the  provisions  of  an  act  adopted  and  approved  the  26th  of 
March,  1872,  the  corporation  changed  its  name  to  the  "Bank  of  Chi- 
cago," and  appellee,  being  a  creditor  of  the  bank,  brought  an  action 
of  debt  against  appellant  for  its  recovery. 

The  declaration  avers  that  the  corporation  was,  among  other  things, 
authorized  to  borrow  money,  to  receive  money  on  deposit,  to  loan 
money  and  make  discounts,  etc. ;  that  on  the  26th  of  August.  1873, 
the  bank  owed,  and  was  and  still  is  indebted  to  appellee  in  the  sum 
of  $100  for  money  received  of  appellee  on  deposit;  that  appellant 
then  was,  and  still  is,  a  stockholder  and  the  owner  of  one  share  of 
$100  in  the  bank;  that  the  bank  had  become,  and  still  is,  utterly  in- 
solvent, and  that  appellant  had  not  assigned  or  transferred  his  stock  in 
the  bank. 

The  declaration  further  avers  that  the  charter  of  the  corporation 
contains  this  provision:  "And  each  stockholder  shall  be  liable  to 
double  the  amount  of  the  stock  held  or  owned  by  him,  and  for  three 
months  after  giving  notice  of  transfer,  as  hereinafter  mentioned,"  and 
that,  by  virtue  of  this  provision  of  the  act  of  incorporation,  appellant 
as  such  stockholder,  was  individually  liable  to  the  creditor  or  credit- 
ors of  the  bank  in  double  the  amount  of  the  stock  held  by  him,  where- 
by he  became  liable  to  pay  appellee. 

A  demurrer  was  filed  to  the  declaration,  which  the  court  overruled, 
and  appellant  abided  by  his  demurrer;  and  the  court  thereupon  ren- 
dered judgment  in  favor  of  plaintiff,  and  assessed  the  damages  and 
rendered  judgment  for  $110.50,  and  defendant  appeals,  and  assigns 
errors. 

It  is  urged  that  the  corporation  was  never  legally  organized,  as  the 
act  under  which  the  stockholders  incorporated  was  unconstitutional 
and  void ;  that  if  not,  then  the  clause  in  the  charter  rendering  stock- 
holders liable  is  too  vague  to  render  them  liable  to  the  individual 
creditors  of  the  company ;  or  if  it  shall  be  held  that  they  are  so  liable 
then  the  remedy  is  in  equity,  against  all  the  stockholders. 

On  the  other  hand,  it  is  contended  that  the  law  does  not  contravene 
the  constitution ;  but  if  it  should  be  so  held,  the  stockholders  having 
organized  the  corporation,  and  held  themselves  out   to   the  world  as 


2  54  m'carthy  v.   LAVASCHE.  §  47 

such,  and  thereby  obtained  credit  and  incurred  indebtedness,  they  are 
estopped  to  deny  the  validity  of  the  act  of  their  organization  under  it, 
and  that  a  reasonable  and  fair  construction  of  the  clause  of  the  act 
quoted  renders  the  shareholders  individually  liable  to  each  and  every 
creditor,  and  that  the  remedy  for  a  recovery  on  the  liability  is  com- 
plete at  law.  These  are  the  questions  raised  and  discussed  on  this 
record. 

Even  if  the  law^  is  unconstitutional,  can  the  promoters  and  those 
engaged  in  its  operation  be  heard  to  say  that  they  may  relieve  them- 
selves from  liability,  and  from  all  their  engagements,  because  the  law 
under  which  they  have  acted  is  prohibited  by  the  organic  law  ?  May 
shrewd,  intelligent  persons  go  to  the  general  assembly  and  procure  an 
act  that  they  should  know  is  prohibited  by  the  fundamental  law,  avail 
themselves  of  its  benefits,  obtain  the  money  of  the  uninformed  and 
the  confiding,  and  then  be  heard  to  say,  we  are  not  incoi-porated,  our 
charter  and  organization  are  void,  and  we  will  hold  your  money.''  Or, 
may  those  who  promoted  the  enterprise  by  becoming  shareholders,  to 
enable  the  company  to  organize,  and  to  procure  other  people's  mone}-, 
be  heard  to  interpose  such  a  defense  ?  The  presumption  is,  that  each 
subscriber  for  stock  knew  at  the  time  of  the  subscription  that  the  char- 
ter contained  the  provision  rendering  him  liable  for  double  the  sum  he 
subscribed,  and  such  persons  could  not  but  have  known  that  this  pro- 
vision would  contribute  largely  to  give  credit  to  the  concern  and  greatly 
augment  its  business. 

The  subscribers  for  shares  of  the  stock,  no  doubt,  expected  to  reap 
large  profits,  and  expected  those  profits  to  be  greatly  enhanced  by  this 
provision.  It  enabled  them  to  point  to  it  and  assure  individuals  and 
the  public  that  the  institution  was  safe,  as,  if  the  business  was  not 
lucrative,  all  the  stockholders  were  severally  liable  for  double  the 
amount  of  their  subscriptions.  They  thus,'  no  doubt,  did  increase 
their  business,  and  thus  obtained  money  and  credit,  which  now,  when 
the  institution  has  proved  a  failure,  they  endeavor  to  avoid  paying  by 
urging  that  their  organization,  and,  consequently,  their  subscriptions  to 
its  stock,  were  void.  Fair  dealing  would  say  that  they  should  be 
estopped  from  interposing  such  a  defense. 

The  question  is  by  no  means  new  in  the  jurisprudence  of  this  coun- 
try. The  question  has  been  frequently  considered  in  the  courts,  in 
the  form  here  presented  or  in  analogous  cases.  See  Baker  v.  Bran- 
nan,  6  Hill  47;  Embry  v.  Conner,  3  N.  Y.  511  ;  Eaton  v.  Aspin- 
wall,  19  N.  Y.  119;  Mead  v.  Keeler,  24  Barb.  25;  Ferguson  v. 
Landran,  5  Bush  (Ky.)  230.  These  were  all  cases  where  the  parties 
were  held  to  be  estopped  from  insisting  that  the  organization  was 
illegal,  or  a  law  unconstitutional,  because  of  the  acts  or  consent  of  the 
parties  urging  the  objections. 

In  our  own  court  analogous  questions  have  been  presented  and  de- 
termined. In  the  case  of  Tarbell  v.  Page,  24  111.  46,  it  was  held  that 
in  a  suit  by  a  creditor  against  a  stockholder,  the  former  could  not 
show  that  the  corporation  had  failed  to  file  a  certificate  of  organiza- 


§  47  CORPORATIONS   BY   ESTOPPEL.  255 

tion  with  the  secretary  of  state ;  that  in  a  collateral  proceeding  the 
regularity  of  the  corporate  organization  could  not  be  questioned.  And 
this  is  a  rule  of  uniform  application.  If,  then,  the  plaintiff,  by  con- 
tracting with  a  body  exercising  the  franchises  of  a  corporation,  is 
estopped  from  denying  the  legality  of  its  organization,  the  same  rea- 
son must  apply  with  increased  force  to  prevent  a  stockholder  in  such 
an  organization  from  questioning  the  legality  of  the  corporation. 

That  the  legality  of  an  incorporation  can  not  be  attacked  collater- 
ally, see  Rice  v.  Rock  Island  and  Alton  Railroad  Co.,  21  111.  93. 
Goodrich  v.  Reynolds  et  al.,  31  111.  490,  and  numerous  subsequent 
cases.  In  fact,  the  books  abound  in  adjudged  cases  which  hold  that 
a  person  doing  an  act  or  making  a  statement  which  misleads  another 
to  his  injury  shall  not  be  permitted  to  question  the  act  or  the  truth  of 
the  statement.  So,  on  the  same  principle,  appellant  should  be  estopped, 
as  his  acts  contributed  to  the  organization  of  this  company,  and  he 
held  himself  out  to  the  world  as  a  stockholder  therein,  and  liable  to 
the  extent  of  double  the  amount  of  his  subscription.  Had  the  com- 
pany not  been  organized,  appellee  would  not  have  lost  his  money, 
and  appellant  thus  contributed  to  that  loss. 

In  Ferguson  v.  Landran,  supra,  appellants  denied  the  validity  of  a 
tax  levied  under  a  local  law,  but  the  court  held  they  were  estopped 
to  deny  the  validity  of  the  law,  because  they  had  approved  it  and 
availed  of  its  benefits  and  aided  in  procuring  its  passage.  The  court 
held  the  law  unconsitutional,  but  enforced  the  tax.  The  court  says, 
"parties  are  estopped  from  denying  the  constitutionality  of  a  local 
statute  by  participating  in  the  procurement  of  its  passage,  and  by 
ratifying,  acquiescing  in,  or  approving  it  after  its  passage,  and  by 
becoming  recipients  of  benefits  under  it ;  and  all  such  persons  are  held 
to  be  liable  to  the  tax  authorized  by  such  enactment,  although  it  is 
unconstitutional  and  invalid  to  all  other  persons." 

//ere,  appellant  approved  of  the  act,  and  availed  himself  of  its 
benefits  by  subscribing  for  stock  and  becoming  entitled  to  exercise  all 
the  rights  and  privileges  of  a  stockholder  in  the  corporation.  Justice, 
morality,  public  policy  and  precedent  all  demand  that  appellant 
should  be  estopped  from  denying  the  constitutionality  of  the  law, 
/f  stockholders  might  shoiv  the  law  unconstitutional,  and  their 
organization  void,  and  all  their  acts  unauthorized,  then  all  persons 
engaged  in  the  organization  of  the  corporation  should  be  held  liable 
for  the  consequences  of  their  illegal  and  unauthorized  acts,  inde- 
pendent of  the  clause  in  their  charter.  So  they  should,  in  no  event, 
escape  liability  for  obtaining  money  without  authority. 

Suppose  these  stockholders  had  formed  a  partnership,  with  articles 
of  partnership  containing  precisely  the  same  provisions  that  are  con- 
tained in  their  charter,  and  had  put  in  capital  stock  to  the  same  ex- 
tent, and  the  same  amounts  they  each  subscribed  in  shares,  would  any 
one  question  the  legality  of  the  organization,  or  the  legal  liability  of 
each  of  the  members  of  the  firm  ?  We  apprehend  these  propositions 
would  be  conceded.     And  if  so,  in  principle,  what  distinction  can  be 


256  m'carthy  v.  lavasche.  §47 

taken  between  the  supposed  case  and  the  one  at  bar?  Had  the  share- 
holders wi'itten  under  the  charter  a  statement  that  it  was  unconstitu- 
tional and  void  as  a  law,  but  that  they  adopted  it  as  articles  of  partner- 
ship, and  that  each  would  be  bound  by  its  terms  and  conditions,  and 
would  pay  in,  for  capital  stock,  the  sums  set  opposite  their  several 
names,  and  they  had  signed  it,  and  specified  the  sum  to  be  paid  in, 
could  it  be  doubted  that  each  member  would  have  been  liable,  under 
the  articles  thus  executed?  And  if  so,  when  stripped  of  mere  form, 
and  substance  is  alone  considered,  this  organization  is  in  effect  the 
same.  We  can  perceive  no  well-grounded  distinction.  We  are 
therefore  of  opinion  that,  independent  of  all  constitutional  questions, 
each  shareholder  became  liable  under  the  charter  as  articles  of  part- 
nership, as  it  operated  as  an  agreement  by  each  subscriber  to  be  liable 
to  creditors  to  double  the  amount  each  subscribed. 

It  is  urged  that  under  the  language  of  the  third  section  of  the  char- 
ter, although  a  liability  may  be  created  to  double  the  amount  of  the 
stock,  still  it  is  to  the  corporation  and  not  to  the  creditors.  The  ob- 
vious purpose  of  the  general  assembly  was  to  secure  the  creditors  of 
the  institution.  And  if  so,  why  make  a  provision  which  the  creditor 
could  not,  and  the  directors  would  not,  in  all  probability  enforce? 
On  their  refusal  the  creditor,  if  that  construction  is  to  be  given, 
would  be  compelled  to  proceed  by  mandamus^  had  the  law  been 
valid,  to  compel  suits  to  be  brought  by  the  corporation  against  share- 
holders, and  then  in  all  probability,  after  years  of  delay  in  litigation, 
to  get  the  money  into  their  hands,  a  further  delay  would  be  liable  to 
ensue  until  a  recovery  could  be  had  against  the  bank  and  the  money 
realized  at  the  end  of  a  long,  obstinate  and  expensive  litigation.  Such 
a  course  could  not,  we  think,  have  been  intended.  Such  a  require- 
ment would  greatly  iitipair  if  it  did  not  render  the  security  worthless. 
We  must  therefore  conclude,  that  as  the  provision  was  intended  to 
secure  the  creditor,  it  was  intended  that  his  remedy  should  be  direct 
and  effective,  and  that  he  might  sue  in  his  own  name  and  at  law. 

If  this  association  only  amounted  to  a  partnership,  as  we  have  seen 
it  was,  then  the  firm  could  not  sue  one  of  its  members  to  compel  the 
payment.  Nor  do  we  perceive  how  the  firm  could  maintain  a  bill  for 
the  purpose.  Hence  we  must  conclude  that  it  was  intended  that  the 
liability  should  be  direct  to  the  creditor  and  not  to  the  firm. 

It  is  next  urged  that  a  remedy  is  in  equity  and  not  at  law.  Actions 
at  law  were  maintained  in  the  cases  of  Culver  v.  Third  National  Bank, 
64  111.  528,  and  Corwith  v.  Culver,  69  111.  502,  under  a  statute  creat- 
ing a  liability  of  the  stockholders.  It  was  then  urged  that  the  remedy 
was  in  equity,  but  we  held  that  it  was  a  legal  liability  and  could  be 
enforced  by  an  action  at  law.  That  statute  did  not  determine,  in 
terms,  in  which  forum  the  remedy  should  be  sought.  But  it  being  a 
legal  right,  the  remedy  was  held  to  be  at  law. 

It  is  urged  that  the  liability  should  be  construed  to  be  joint  against 
all  the  stockholders.  To  do  so  would,  we  think,  do  violence  to  the 
language  of  the  statute;  the  language  is,  "each  stockholder  shall  be 


§  47  CORPORATIONS    BY    ESTOPPEL.  2  5/ 

liable  to  double  the  amount  of  stock  held  or  owned  by  him,  for  three 
months  after  giving  notice  of  transfers,  as  hereinafter  mentioned." 
This  language  renders  the  stockholders  severally  and  individually 
liable. 

The  judgment  of  the  court  below  must  be  affirmed. 

Judgment  affirmed. 

Note.    See  infra,  Conditions  precedent  to  existence  by  estoppel,  p.  630. 
17— Wiii.  Casbs. 


PART  II. 

THE   BODY  CORPORATE,  ITS   PARENTAGE,  CONCEP- 
TION, BIRTH,  ANATOMY,  LIFE  AND  DEATH. 


Title  I.     Parentage — The  State  and  Promoters. 
Subdivision  I.     The  State,  Its  Power  to  Create. 


CHAPTER  2. 
NATURE  OF  THE  POWER  AND  METHODS  OF  EXERCISE.    ' 

ARTICLE    I.       NATURE    OF    THE    POWER. 

Sec.  48.  "The  State  creates  the  corporation  upon  the  application 
of  individuals,  who  are  called  incorporators.  The  incorpo- 
rators then  organize  the  corporation.  The  functions  of  the 
incorporators  thereupon  cease,  and  the  stockholders  proceed 
to  contribute  the  capital  and  elect  directors.  The  directors 
then  start  and  continue  to  keep  in  operation  the  powers  of  the 
corporation."  i  Cook  on  Stock  and  Stockholders,  §  2,  3d 
ed.,  p.  4. 

(a)  The  power  to  create  is  an  incident  of  sovereignty,  and  the 
sovereign's  consent  is  essential.  A  corporation  is  the  creature  of 
the  sovereignty  that  creates  it,  and  to  that  alone  is  it  amenable  for 
violation  or  usurpation  of  its  purely  corporate  authority. 

STATE  OF  CONNECTICUT,  Ex  Rel.  WILCOX,  v.  CURTIS.* 

1868.     In  the  Supreme  Court  of  Errors  of  Connecticut.     35 
Conn.  374-384,  95  Am.  Dec.  263. 

[Information  in  the  nature  of  a  quo  warranto  upon  the  relation  of 
Wilcox,  who  claimed  to  have  been  duly  elected  a  director  of  the  First 
National  Bank  of  Meriden,  Conn.,  but  who  claimed  to  have  been  de- 
prived of  exercising  the  franchises  thereof  by  Curtis,  who,  without 
warrant,  exercised  the  same  and  wrongfully  excluded  the  relator.  The 
suit  was  brought  in  the  superior  court  for  the  county  of  New  Haven. 

*  Statement  of  facts  abridged.    Arguments  omitted. 

(258) 


§  48  state's  power  to  create.  259 

Defendant  demurred,  and  the  case  was  reserved  for  the  advice  of  the 
supreme  court.] 

Butler,  J.  The  power  to  create  a  corporation  is  an  attribute  oj 
sovereignty ;  and  the  government  of  the  United  States  created  the 
corporation  in  question^  in  the  exercise  of  that  independent  and  su- 
preme sovereign  power  which  the  people  delegated  to  it  by  the  consti- 
tution. It  is,  therefore,  the  creature  of  that  sovereignty ,  and  amena- 
ble to,  and  cotttrollable  by  it,  and  by  none  other. 

An  inlormation  in  the  nature  of  a  quo  warranto  against  a  corpora- 
tion lies  only  at  the  instance  and  in  the  name  of  the  sovereign  power 
which  created  it.  (5  Wheaton  291.)  The  original  writ  so  lay  against 
any  person  who  usurped  any  franchise  or  liberty  against  the  king,  or 
for  misuser  or  non-user  of  franchises  or  privileges  granted  by  him. 
The  information  in  the  nature  of  a  quo  warranto,  authorized  by  the 
statute  of  the  9th  Anne,  at  the  relation  of  any  person  against  any 
other  person  usurping,  intruding  into,  or  unlawfully  holding  any  fran- 
chise or  office  in  any  corporation,  is  but  an  extension  and  simplifica- 
tion of  the  ancient  writ,  and  is  grantable  only  where  that  would  lie. 
In  England  it  lies  in  the  name  of  the  sovereign  against  those  who 
usurp  such  franchises,  because  such  usurpation  is  in  derogation  of  the 
rights  of  the  crown.  In  this  country  it  lies  in  the  name  of  the  gov- 
ernment, against  those  who  usurp  such  franchises,  because  grantable 
or  granted  by  the  commonwealth. 

'•'•The  state,  or  commonwealth,^^  says  Mr.  Angell  in  his  work  on 
corporations,  '■'•stands  in  the  place  of  the  king,  and  has  succeeded  to 
all  the  prerogatives  and  franchises  proper  to  a  republican  government. 
With  us  therefore  to  assume  a  power  which  can  not  be  exercised 
■without  a  grant  from  the  sovereign  authority,  or  to  intrude  into  the 
office  of  a  private  corporation,  contrary  to  the  provisions  of  the  stat- 
ute which  creates  it,  is,  in  a  large  sense,  to  invade  the  sovereign  pre~ 
rogative  and  to  assume  or  violate  a  sovereign  franchise.''''  And  the 
cases  cited  fully  sustain  his  positions.  Upon  the  same  principles  the 
information  can  lie  only  in  the  name  of  the  United  States  and  in  the 
federal  courts,  against  those  who  invade  a  franchise  grantable  or 
granted  by  the  national  government. 

As  then  the  corporation  in  question  is  the  creature  of  federal  sover- 
eignty, and  in  respect  to  its  internal  organization,  operation  and  con- 
tinual existence  is  amenable  to  and  controllable  by  that  sovereignty 
alone ;  and  as  the  writ  in  question  is  properly  grantable  by  that  sover- 
eignty alone  whose  franchise  has  been  invaded  and  violated,  it  would 
seem  upon  principle  too  clear  for  argument  (if  thei-e  be  nothing  more 
in  the  case)  that  the  relator  has  erred  in  invoking  the  interference  of 
another  uninvaded  and  unviolated  sovereignty,  and  the  court  below 
have  erred  in  assuming  jurisdiction  and  granting  the  writ. 

Such  is  the  obvious  prima  facie  character  of  the  case  before  us. 
But  the  plaintiff  insists  that  there  is  no  eiTor  and  makes  several 
claims,  founded  upon  the  complex  character  of  sovereignty  as  it  ex- 
ists in  this  country,  divided  between  the  national  and  state  govern- 
ments. 


26o  THE    STATE   V.    CURTIS.  §  48 

1.  He  insists  in  the  first  place  that  this  institution  is  amenable  to 
state  sovereignty,  because  it  is  located  and  its  officers  discharge  their 
duties  and  perform  their  Junctions  within  this  state.  This  claim  is 
groundless. 

It  is  indeed  true,  in  the  language  of  the  supreme  court  of  the  United 
States  (2  Howard  555),  that  a  "corporation  created  by  a  state  to  per- 
form its  functions  under  the  authority  of  that  state,  and  only  suable 
there,  though  it  may  have  members  out  of  the  state,  is  a  person, 
though  an  artificial  one,  inhabiting  and  belonging  to  that  state,  and, 
therefore,  entitled — for  the  purpose  of  suing  and  being  sued — to  be 
deemed  a  citizen  of  the  state. "  But  this  is  not  such  a  corporation.  It  was 
not  created  by  us ;  it  does  not  perform  its  functions  under  our  au- 
thority^ and  it  is  the  creature  of  and  controllable  by  another  and  su- 
perior sovereignty.  That  other  sovereignty  is  exercised  over  the  whole 
country  irrespective  of  state  lines  or  state  authority.  It  places  its 
officers,  agents  and  instruments  wherever  its  necessities  or  its  interests 
require,  and  necessarily  within  the  limits  of  the  states.  With  those 
officers,  and  agents,  and  instruments,  in  the  exercise  of  their  functions, 
state  authority  can  in  no  way  interfere.  The  national  banks  are  its 
instruments^  by  which  it  performs  its  functions  in  establishing  a  na- 
tional currency ;  on  that  fact  their  constitutionality  is  placed^  and  in 
the  exercise  of  the  powers  conferred  upon  them  they  are  as  indepen- 
dent of  state  control  as  the  army,  or  navy,  or  the  officers  of  the  sub- 
treasury  and  custom-house,  or  any  other  instrumentality  by  which  the 
functions  of  the  federal  government  are  performed.  No  other  view  is 
compatible  with  the  principles  of  our  own  jurisprudence,  or  those 
recognized  and  declared  by  the  supreme  court  of  the  United  States  in 
numerous  cases,  and  particularly  in  the  exhaustive  opinion  of  Chief 
Justice  Marshall  in  McCulloch  v.  Maryland,  4  Wheat.  316. 

2.  The  relator  insists,  in  the  second  place,  that  the  superior  court 
has  jurisdiction  of  the  defense  set  forth  in  the  information,  because 
the  judicial  power  of  the  federal  and  state  governments  is  exercised 
concurrently  by  the  courts  of  either,  unless  congress  has  conferred 
exclusive  jurisdiction,  in  respect  to  the  subject-matter,  on  the  federal 
courts,  and  no  such  exclusive  jurisdiction  has  been  conferred  in  rela- 
tion to  this.      This  claim  is  equally  unfounded. 

It  is  undoubtedly  true  that  the  state  courts  retain  jurisdiction  over 
some  matters,  to  which,  by  the  constitution  and  laws  of  the  United 
States,  jurisdiction  is  given  to  the  federal  government  and  courts,  and 
in  respect  to  which  jurisdiction  appertained  to  and  was  exercised  by 
the  state  courts  prior  to  the  adoption  of  that  constitution.  On  that 
subject  the  rule  seems  to  be,  that  the  state  courts  retain  the  jurisdic- 
tion which  they  had  before  that  event  except  where  it  was  taken  away  by 
an  exclusive  constitutional  grant  of  jurisdiction  to  the  federal  govern- 
ment, or  congress  have  made  the  jurisdiction  exclusive  in  the  federal 
courts,  or  the  exercise  of  the  jurisdiction  is  repugnant  to,  and  incom- 
patible with  such  exercise  by  those  courts. 

But  the  cases  where  such  concurrent  jurisdiction  can  be  entertained 


§  48  state's  power  to  create.  261 

by  the  courts  of  the  states  are  few.  Most  of  those  where  such  jurisdic- 
tion has  been  sustained  by  the  supreme  court  of  the  United  States, 
and  all  to  which  we  have  been  particularly  referred,  were  cases  of  a 
criminal  character  where  the  act  was  an  offense  against  both  sover- 
eignties, and  punished  by  the  law  of  the  state.  Here  there  could  be 
no  jurisdiction  anterior  to  the  adoption  of  the  constitution.  Nor  has 
there  been  any  invasion  of  the  sovereignty  of  this  state  or  violation 
of  its  laws,  or  any  offense  which  the  state  is  called  upon  to  redress  in 
its  own  behalf.  It  is  a  clear  principle  that  where  there  has  been  no 
offense  there  can  be  no  judicial  jurisdiction;  and  equally  clear  that  a 
state  has  no  authority  to  enforce  a  national  law  in  behalf  of  the  na- 
tional government. 

And  this  is  one  of  that  class  of  cases  where  jurisdiction  in  the  state 
court  is  utterly  incompatible  with  the  necessary  jurisdiction  of  the 
national  government.  The  corporation  in  question  being  the  creature 
and  instrument  of  that  government  must  necessarily  be  subject  to  that 
alone.  By  the  common  law,  and  by  our  statute,  an  information  of 
this  character  lies  as  well  to  deprive  a  corporation  of  its  charter  as  to 
determine  the  rights  of  its  competing  officers ;  and  if  the  relator  is 
right  in  this  claim,  its  charter  can  be  taken  away  and  its  franchises 
seized  by  the  courts  of  the  state.  Nothing  could  be  more  repugnant 
in  character  than  such  an  unauthorized  interference,  for  such  a  pur- 
pose, or  for  any  purpose. 

3.  The  plaintiff  claims  in  the  third  place,  that  concurrent  jurisdic- 
tion of  the  subject-matter  is  conferred  upon  the  state  courts  by  the 
amended  currency  act  of  1864,  section  57,  which  provides,  "that  suits, 
action  and  proceedings  against  any  association,  under  this  act,  may 
be  had  in  any  circuit,  district,  or  territorial  court  of  the  United  States, 
held  within  the  district  in  which  such  association  may  be  established ; 
or  in  any  state,  county  or  municipal  court  in  the  county  or  city  in 
which  said  association  is  located,  having  jurisdiction  in  similar  cases. 
Provided,  however,  that  all  proceedings  to  enjoin  the  comptroller 
under  this  act  shall  be  had  in  a  circuit,  district  or  territorial  court  of 
the  United  States  held  in  the  district  in  which  association  is  located." 
To  this  claim  also  we  find  it  impossible  to  assent. 

The  information  in  the  nature  of  a  quo  warranto^  although  grant- 
able  to  determine  a  private  right  to  an  office  in  a  corporation,  between 
party  and  party,  as  well  as  to  determine  the  right  of  the  corporation 
to  the  franchise  assumed,  and  a  civil  proceeding  must  be  filed  and 
issued  in  the  name  of  the  sovereignty  which  created  the  corporation, 
and  is  still  so  far  forth  a  prerogative  writ.  Congress,  in  the  exercise 
of  its  authority  to  apportion  the  judicial  power  among  the  inferior  fed- 
eral courts,  has  been  very  cautious  in  conferring  the  power  to  grant 
prerogative  writs.  That  power  is  nowhere  conferred,  in  express 
terms,  upon  the  circuit  or  any  other  federal  court  located  in  the  states. 
They  did  attempt  to  confer  the  power  to  grant  a  mandamus  upon  the 
supreme  court,  as  a  matter  of  original  jurisdiction,  but  that  court,  in 
Marbury  v.  Madison,  held  the   act  unconstitutional,  on  the  ground 


262  THE    STATE   V.    CURTIS.  §48 

that  it  was  not  competent  for  congress  to  increase  the  original  jurisdic- 
tion of  the  supreme  court.  By  the  eleventh  section  of  the  judiciary 
act  of  1789  jurisdiction  was  given  to  the  circuit  courts  of  all  suits  of  a 
civil  nature  at  common  law  and  in  equity  to  the  amount  of  $500  or 
more  between  certain  parties.  This  writ,  though  in  its  nature  grant- 
able  at  the  discretion  of  the  court,  is  one  of  right,  and  constitutes  a  suit 
within  the  meaning  of  that  term  as  used  in  the  act,  but  it  is  not  of  the 
character,  or  between  the  parties  contemplated  by  it. 

The  14th  section  also  authorizes  the  circuit  and  other  federal  courts 
"to  issue  writs  of  habeas  corpus  and  all  other  writs  not  specially 
provided  for  by  statute,  which  may  be  necessary  for  the  exercise 
of  their  respective  jurisdictions^  and  agreeable  to  the  principles  and 
usages  of  law."  .  But  the  supreme  court,  in  Mclntire  v.  Wood  (7 
Cranch  504),  and  M'Lung  v.  Silliman  (6  Wheaton  598),  and  Ken- 
dall v.  The  United  States  (12  Peters  524),  held  that  the  circuit 
courts,  within  the  states,  had  not  power  under  those  sections  to  grant 
a  mandamus^  which  is  one  of  those  writs,  unless  necessary  for  the 
exexxise  of  their  juris<Jiction  within  the  limits  prescribed,  although  the 
power  was  sustained  in  the  latter  case,  as  having  been  given  to  the 
circuit  court  of  the  District  of  Columbia.  The  granting  of  those 
writs  undoubtedly  appertains  to  the  judicial  power  of  the  government, 
but  that  part  of  the  power  seems  not  to  have  been  conferred  by  con- 
gress upon  any  of  the  courts  but  that  of  the  District  of  Columbia,  in 
prescribing  their  jurisdiction,  except  as  incident  to  and  necessary  for 
the  exercise  of  the  other  special  powers  with  which  they  are  clothed. 
The  circuit  court  of  the  United  States  for  this  district  has  not  the 
power,  therefore,  to  issue  a  quo  warranto  in  a  case  like  this,  by  virtue 
of  any  general  jurisdiction.  And  is  it  to  be  assumed  that  congress, 
having  been  thus  cautious  of  entrusting  the  federal  courts  with  that 
power,  intended  nevertheless  to  confer  it  by  the  language  quoted,  and 
not  only  on  the  federal,  but  upon  the  state  courts;  to  delegate  to  the 
state  courts  a  part  of  their  sovereignty;  to  submit  a  corporation — a 
creature  of  their  creation,  and  an  instrument  by  which  they  perform 
one  of  their  functions — to  the  absolute  and  unrestrained  supei-vision 
and  control  of  the  courts  of  another  sovereignty,  especially  when  by 
the  act  which  created  it  they  reserved  to  Jtheir  own  officers  unusual 
supervisory  power  and  control.?  I  think  not.  And  if  the  case  turned 
upon  that  question  alone,  I  should  be  strongly  inclined  to  the  opinion 
that  congress  intended  by  the  clause  quoted  to  provide  a  more  con- 
venient forum  for  determining  the  ordinary  questions  which  must 
naturally  arise  between  the  corporations  and  others  in  the  course  of 
their  business,  and  intended  no  more. 

But  there  is  another  and  conclusive  objection  to  this  claim  of  the 
plaintiff.  The  section  in  question  authorizes  suits  against  the  cor- 
poration only.  This  is  not  a  suit  against  the  corporation,  but  a  pro- 
ceeding by  one  individual  against  another  individual  competing  for 
the  office  of  director  of  it,  and  it  is  not  within  the  letter  or  spirit  of 
the  act. 


§  49  THE   STATE   ONLY   CAN    CREATE.  263 

For  these  reasons  we  advise  that  the  information  is  insufficient  and 
the  demurrer  should  be  sustained. 

In  this  opinion  the  other  judges  concurred. 

1809,  Commonwealth  v.  Union  Ins.  Co.,  5  Mass.  230,  4  Am.  Dec.  50;  1824, 
Commonwealth  v.  Murray,  11  Serg.  &  R.  (Pa.)  73,  14  Am. Dec.  614;  1836, Peo- 
ple V.  Rensselaer,  etc.,  R.  Co.,  15Wend.  113,  30  Am.  Dec.  33,  note  44;  1841, 
State  V.  Harris,  3  Ark.  570,  36  Am.  Dec.  460;  1841,  State  v.  Evans,  3  Ark.  586, 
36  Am.  Dec.  468 ;  1864,  People  v.  River  Raisin,  etc.,  R.  Co.,  12  Mich.  389, 86  Am. 
Dec.  64;  1867,  Commonwealth  v.  Cluley,  56  Pa.  St.  270,  94  Am.  Dec.  75;  1888, 
Moore  v.  Brooklyn,  etc.,  R.,  108  N.  Y.  98;  1892,  Pickett  v.  Abney,  84  Texas 
645 ;  1893,  Republican  Mountain  Silver  Mines  v.  Brown,  58  Fed.  Rep.  644,  24 
L.  R.  A.  776;  1897,  Madden  v.  Penn.  Elec.  L.  Co.,  181  Pa.  St.  617,  38  L.  R.  A. 
638;  1898,  Coquard  v.  National  L.  O.  Co.,  171  111.  480,  49  N.  E.  Rep.  563;  1899, 
Clark  V.  Mutual  Res.  F.  L.  Ass'n,  14  App.  Cas.  (D.  C.)  154,    43  L.  R.  A.  390. 


Sec.  49.    {b)  None  but  the  sovereign  can  create. 

THE  MEDICAL  INSTITUTION  OF  GENEVA  COLLEGE  v.  PATTER- 
SON.' 

1845.     In  the  Supreme  Court  of  New  York,     i  Denio  (N.  Y.) 

61-69. 

[Suit  by  the  medical  institution  upon  a  note  given  by  defendant  pay- 
able to  the  Medical  Institution  of  Geneva  College.  Special  verdict 
raising  the  question  as  to  the  plaintiff's  corporate  existence.  ] 

By  the  Court:  Bronson,  C.  J.  If  "The  Medical  Institution  of  Ge- 
neva College"  is  not  a  corporation  it  has  no  capacity  to  sue,  and  the 
defendant  is  entitled  to  judgment.  This  is  the  only  question  made 
by  the  special  verdict.  The  principal  argument  for  the  plaintiffs  de- 
pends upon  maintaining  the  following  propositions:  I.  Each  of  the 
English  Universities  of  Oxford  and  Cambridge  has  the  power  of  creat- 
ing subordinate  corporations,  such  as  colleges  for  giving  instruction 
in  the  liberal  arts  and  sciences.  2.  Columbia  College,  in  the  city  of 
New  York,  has  the  same  power  in  this  respect  as  the  English  uni- 
versities. 3.  Geneva  College  has  the  same  powers  as  Columbia 
College,  and,  4.  Geneva  College,  thus  having  the  power,  has  created 
a  corporation  by  the  name  of  "The  Medical  Institution  of  Geneva 
College."  If  any  one  link  in  this  chain  is  broken,  the  whole  argument 
falls  to  the  ground. 

[By  the  charter  Geneva  College  was  given  all  the  corporate  rights 
and  privileges  of  Columbia  College,  the  governors  of  which  were 
empowered  by  their  charter  from  the  king  to  appoint  a  president, 
professors  and  other  officers,  who  could  exercise  their  office,  as  freely 
and  fully  as  any  of  the  like  officers  in  the  English  universities;  the 
governors  also  had  the  power  to  make  laws  and  ordinances  for  the 
government  of  the  college  and  students,  and  to  grant  degrees  the  same 
as  English  universities.] 

^  Statement  of  facte  abridged.    Arguments  and  part  of  opinion  omitted. 


264  THE   CASE   OF   SUTTON'S    HOSPITAL.  §  50 

These  are  all  the  provisions  of  the  charter  to  which  we  have  been 
referred  in  support  of  the  plaintiff's  case ;  and,  whatever  may  be  the 
powers  of  the  English  universities,  I  think  it  entirely  clear  that  Co- 
lumbia College  has  no  power  to  create  corporations  of  any  kind,  or 
for  any  purpose.  It  can  not  be  necessary  to  discuss  the  question.  It 
is  enough  to  say  that  there  is  nothing  in  the  charter  which  looks  like 
a  license  or  authority  to  erect  corporations.  The  chancellor  of  the 
university  of  Oxford  has  power  by  charter  to  erect  corporations. 
( I  Kyd  on  Corp.  50 ;  i  Black.  Comm.  474.)  But  Columbia  College  has 
no  chancellor.  Its  principal  officer  is  a  president,  who  has  no  greater 
powers  than  are  usually  conferred  on  the  presidents  of  other  colleges. 
They  can  not  make  corporations. 

Although  it  is  now  settled  that  the  king  may  delegate  his  authority 
to  create  corporations ;  or,  in  other  words,  may  exercise  the  power  by 
another  as  his  instrument,  on  the  principle  qui  facit  ^er  alium^  facit 
fer  se,  I  find  no  authority  for  the  position  that  a  general  power  to 
erect  corporations  has  ever  been  delegated  to  either  of  the  English 
universities.     But,  however  that  may  be,  I  think  there  is  no  color  for 

saying  that  such  a  power  has  been  conferred  upon  any  of  our  colleges. 

«     «     » 

Judgment  for  defendant. 

Note.  1830,  People  v.  Trustees  of  Geneva  College,  5  Wend.  (N.  Y.)  211; 
1894,  State  v.  International  Ins.  Co.,  88  Wis.  512,  43  Am.  St.  Rep.  920;  1697, 
Robinson  v.  Groscot,  Comberbach  372;  1704,  Cuddon  v.Eastwick,  1  Salk.  192; 
1829,  McKim  v.  Odom,  3  Bland  Ch.  (Md.)  407,  supra,  p.  222;  1852,  Pennsyl- 
vania R.  V.  Comm'rs,  21  Pa.  St.  9;  1853,  Franklin  Bridge  Co.  v.  Wood,  14  Ga. 
80,  infra,  p.  279;  1859,  State  v.  Bradford,  32  Vt.  50;  1870,  Hoadley  v.  Essex 
Co.,  105  Mass.  519;  1874,  Stowe  v.  Flagg,  72  111.  397.  Also  cases  infra,  on 
conditions  precedent  to  corporate  existence,  dejure,  de  facto  and  by  estoppel. 


ARTICLE  II.     METHODS  OF  EXERCISE EVIDENCE    OF  SOVEREIGN  S  CON- 
SENT. 

Sec.  50.    (a)  In  general. 

THE  CASE  OF  SUTTON'S  HOSPITAL. 
1613.      10  Coke,  23a,  30a,  30*5,  31a. 

(^Mxtracts  from  the  Report. ) 

44 «  «  *  And  it  is  to  be  known,  that  every  corporation  or  incor- 
poration, or  body  politic  or  incorporate,  which  are  all  one,  either 
stands  upon  one  sole  person^  as  the  king,  bishop,  parson,  etc.,  or 
aggregate  of  many,  as  mayor,  commonalty,  dean  and  chapter,  etc., 
and  these  are  in  the  civil  law  called  universitas  sive  collegium.  Now 
it  is  to  be  seen  what  things  are  of  the  essence  of  a  corporation,  i. 
Lawful  authority  of  incorporation  ;  and  that  may  be  by  four  means, 
sc.  by  the  common  law.,  as  the  king  himself,  etc.,  by  authority  oi  par- 
liament; by  the  king's  charter  (as  in  this  case),  and  hy  prescription. 
The  2d,  which  is  of  the  essence  of  the  incorporation,  are  persons  to 


§  50  METHODS    OF   CREATING.  265 

be  incorporated^  and  that  in  two  manners,  sc.  persons  natural,  or 
bodies  incorporate  and  political.  3.  A  name  by  -which  they  are  in- 
corporated^ as  in  this  case  governors  of  the  lands,  etc.  4,  Of  a  place^ 
for  without  a  place  no  incoi-poration  can  be  made ;  here  the  place  is 
the  charter-house  in  the  county  of  Middlesex.  Vide  3  Hen.  VI 
'Det.,'  20  ;  17  Edw.  Ill  59<5,  and  45  Edw.  Ill  17.  5.  By  words  suf- 
Jicient  in  law^  but  not  restrained  to  any  certain  legal  and  prescript  form 
of  words.  And  for  as  much  as  good  pleading  is  lapis  lydius^  the 
touch-stone  of  the  true  sense  and  knowledge  of  the  common  law,  the 
form  of  pleading  of  a  corporation  by  prescription  is  to  be  observed,  for 
in  such  case  he  ought  to  prescribe  in  everything  which  is  of  the  essence 
of  the  incorporation.  *  ♦  #  jj-  appears  that  incorporo,  or  any 
derivative  thereof,  is  not  in  law  requisite  to  create  an  incorporation, 
but  other  equivalent  words  are  sufficient,  as  nominati  and  cogniti', 
and  therewith  agree  44  Assizes,  p.  9.  In  Prior  of  Plimpton's  Case 
and  4  Edw.  IV  7^,  in  the  case  of  Abbot  of  Glastenbury,  and  in  none 
of  these  books  or  records  was  any  mention  made  of  these  words, 
fundo^  erigo,  etc.,  or  any  other  like  words,  for,  as  it  hath  been  said, 
they  are  only  declaratory  words,  and  the  effect  of  them  may  be  done  by 
the  owner  of  the  land  without  any  grant.  And  it  was  well  observed 
that  in  old  time  the. inhabitants  or  burgesses  of  a  town  or  borough 
were  incorporated  when  the  king  granted  to  them  to  have  gildam 
mercatoriam .  ♦  *  *  Vide  for  this  word  guild  or  fraternity  in  the 
Book  of  Entries,  68  ;  37  Edw.  Ill,  c.  5  ;  15  Rich.  II,  c.  5  ;  the  statute 
of  I  Edw.  VI  of  Chantries.  In  which  three  things  were  obsei-ved. 
I .  How  prudens  antiquitas  did  always  comprehend  much  matter  in 
a  narrow  room.  2.  That  to  the  creation  of  an  incoi-poi-ation  the  law 
had  not  restrained  itself  to  any  prescript  and  incompatible  words.  3. 
That  when  a  corporation  is  duly  created,  all  other  incidents  are  tacite^ 
annexed.  And  for  direct  authority  in  this  point,  in  22  Edw.  IV 
Grants,  30,  it  is  held  by  Brian,  chief  justice,  and  Choke,  that  corpora- 
tion is  sufficient  without  the  words  to  implead  and  to  be  impleaded, 
etc.,  and  therefore  divers  clauses  subsequent  in  the  charters  are  not  of 
necessity,  but  only  declaratory,  and  might  well  have  been  left  out. 
As  I.  By  the  same  to  have  authority,  ability  and  capacity  to  purchase, 
but  no  clause  is  added  that  they  may  alien,  etc.,  and  it  need  not,  for  it  is 
incident.  2.  To  sue  and  be  sued,  implead  and  be  impleaded.  3. 
To  have  a  seal,  etc. ;  that  is  also  declaratory,  for  when  they  are  in- 
coi-porated,  they  may  make  or  use  what  seal  they  will.  4.  To  restrain 
them  from  aliening  or  demising  but  in  certain  form ;  that  is  an  ordi- 
nance testifying  th'e  king's  desire,  but  it  is  but  a  precept,  and  doth  not 
bind  in  law.  5.  That  the  survivors  shall  be  the  corporation  ;  that  is  a 
good  clause  to  oust  doubts  and  questions  which  might  arise,  the  number 
being  certain.  6.  If  the  revenues  increase,  that  they  shall  be  employed 
to  increase  the  number  of  poor,  etc.  ;  that  is  but  explanatory,  as  appears 
in  the  Case  of  Thetford  School,  in  the  eighth  part  of  my  Reports 
(f.  3irt').  7.  To  be  visited  by  the  governors,  etc.  ;  that  is  also  explana- 
tory, *  *  *  for  if  no  visitor  had  been  appointed  bv  the  charter,  the 
governors  should  visit ;  and  the  books  in  8  Edw.  Ill  28,  and  8  Assizes, 


266  RUTTER   V,    CHAPMAN.  §  5  I 

29,  do  not  gainsay  it,  where  it  is  held,  that  if  the  hospital  be  lay,  the 
patron  shall  visit,  and  if  spiritual  the  bishop  shall  visit,  so  that  every 
hospital  is  visitable;  it  is  tnae,  but  in  the  case  at  the  bar  the  poor  of 
the  hospital  are  not  incorporated,  and  so  no  legal  hospital.  8.  To 
make  ordinances  ;  that  is  requisite  for  the  good  order  and  government 
of  the  poor,  etc.,  but  not  to  the  essence  of  the  incorporation.  9.  The 
exemption  from  the  ordinary  is  but  declaratory,  for  being  a  lay  incoi'- 
poration  he  neither  can  nor  ought  to  visit.  10.  The  license  to  pur- 
chase in  mortmain  is  necessary  for  the  maintenance  and  support  of 
the  poor,  etc.,  for  w^ithout  I'evenues  they  can  not  live,  and  without  a 
license  in  mortmain  they  can  not  lawfully  purchase  revenues,  and  yet 
that  is  not  of  the  essence  of  the  corporation,  for  the  coi"poi-ation  is 
perfect  without  it,  so  that  by  what  has  been  said,  it  appears  what 
things  in  genere  are  requisite  to  a  complete  body  incorporate,  and 
which  are  verba  operativa  in  this  case  (which  are  necessary  to  be 
known  in  every  case),  in  the  resolution  whereof  it  appears  how 
necessary  it  is  that  the  law  and  experience  should  join  with  their 
hands  tog^her.      *     *     *  " 

Note.    See  cases  following,  pp.  266,  270,  275,  279. 


Sec.  51.    Same.     (<5)   King's  or  Queen's  Charter. 

EUTTER  v.  CHAPMAN.i 

1841.    In  the  English  Exchequer  Chamber.    8  Mees.  &  W.  (Ex- 
chequer) i-i  17. 

[This  was  a  controversy  between  two  coroners.  The  plaintiff  had 
been  one  of  the  coroners  of  the  county  palatine  of  Lancaster,  and 
had  been  entitled  to  hold  inquests,  and  receive  the  fees  therefrom. 
Upon  the  sudden  death  of  Bridget  Garratty,  within  the  territory  form- 
erly within  the  jurisdiction  of  the  plaintiff,  he  claimed  the  right  to 
hold  the  inquest,  but  was  prevented  from  doing  so  by  the  defendant 
who  claimed  to  be  a  properly  selected  coroner  by  the  council  of  Man- 
chester, which  he  claimed  was  a  borough  duly  incorporated,  by  the 
queen's  charter,  with  jurisdiction  over  the  territory  where  the  death 
occurred.  By  act  of  parliament  it  had  been  provided  that  the  queen, 
upon  petition  from  the  inhabitant  householders  of  any  town  or 
borough,  by  advice  of  the  privy  council,  might  extend  to  such  inhabi- 
tants "within  the  district  to  be  set  forth  in  such  charter,  all  the  powers 
and  privileges"  given  to  municipal  corporations,  by  the  5  and  6 
William  IV,  c.  76,  which  included  several  powers  that  were  beyond 
the  prerogative  of  the  queen  to  grant  without  parliamentary  authority. 
A  petition  agreed  upon  at  a  meeting  of  the  rate-payers  of  the  parlia- 
mentary borough  of  Manchester,    convened   by  advertisement,   and 

^  Statement  of  facts  abridged.     Only  part  of  opinion  of  Bosanquet,  J.,  is 
given,  all  others  omitted. 


§  51  EXISTENCE    BY   KING'S    CHARTER.  26/ 

attended  by  i,ooo  persons,  which  petition  was  signed  by  4,000  house- 
holders of  the  borough,  was  presented  to  the  queen  asking  for  a  char- 
ter incorporating  such  borough  with  the  powers  and  privileges  of  the 
act  of  5  and  6  William  IV.  Afterwards  and  before  the  petition  was 
acted  upon  a  counter  petition  was  presented,  signed  by  6,000  house- 
holders, praying  the  queen  not  to  grant  the  charter.  The  whole  num- 
ber of  householders  was  48,000.  The  queen  nevertheless  granted  the 
charter  and  the  corporation  was  organized  by  election  of  mayor, 
council,  etc.,  and  Chapman  as  coroner  for  the  territory  where  the  death 
occurred.  The  plaintiff  claimed  the  queen  could  not  create  the  cor- 
poration, except  in  strict  compliance  with  the  act  of  parliament,  and 
that  required  a  majority  of  householders  to  petition  to  be  incorpo- 
rated. The  lower  court  found  for  defendant,  holding  that  the  queen 
by  her  prerogative  could  create  a  corporation  without  authority  of 
parliament.] 

BosANQUET,  J. —  *  *  *  The  next  head  of  objection  is,  that, 
in  granting  the  charter,  the  various  provisions  of  the  municipal  cor- 
poration act  with  respect  to  times  and  modes  of  proceeding  have  not 
been  pursued. .  But  there  is  no  provision  in  the  act  which  requires  that 
this  should  be  done.  All  the  matters  contained  in  that  act  related  to 
corporations  then  in  existence,  whose  constitutions  were  to  be  altered 
by  authority  of  parliament,  in  carrying  which  object  into  effect  it  was 
necessary  that  all  the  provisions  prescribed  should  be  strictly  ad- 
hered to. 

But  when  a  new  corporation  is  to  be  erected  by  the  authority  of  the 
crown,  the  constitution  of  such  new  corporation  originates  in  the  will 
of  the  sovereign ;  subject,  however,  to  the  assent  or  dissent  of  the  new 
corporations  by  their  acceptance  or  non-acceptance  thereof.  And 
such  a  grant,  made  by  the  known  prerogative  of  the  crown,  requires 
no  petition  from  any  particular  description  of  persons,  as  a  condition 
precedent  to  its  validity. 

It  has  been  contended,  however,  that  the  queen  has  exceeded  the 
powers  which  she  derived  from  her  common  law  prerogative,  as  well 
as  those  conferred  on  her  by  the  act  of  parliament,  in  delegating  her 
authority  to  others,  in  matters  respecting  the  selection  of  persons  who 
are  to  constitute  the  burgesses  of  the  corporation,  particularly  David 
Price,  who  is  empowered  to  make  out  the  burgess  list,  and  Edward 
Rushton  to  revise  it.  Now  I  take  it  to  have  been  long  settled  bylaw, 
that  the  queen,  in  erecting  a  corporation,  may  name,  of  her  own 
authority,  all  the  officers  and  all  the  corporators,  or  may  empower  a 
subject  to  do  so  in  her  stead.  And  although  no  one  but  the  queen 
can  make  a  corporation,  yet  when  it  is  made  under  her  authority,  it  is 
deemed  in  law  to  have  been  made  by  herself. 

"When  the  king,"  says  Lord  Coke,  in  the  case  of  Sutton's  Hospital, 
10  Rep.  33,  "reserves  as  well  the  nomination  of  the  persons  as  the 
name  of  incorporation  to  a  person  who  shall  be  the  founder,  then  he 
ought  to  name  the  parties  and  declare  by  what  name  they  shall  be  in- 
corporated, and  when  he  has  done  so  in  writing,  according  to  his 
authority,  they  are  incorporated  by  the  king's  letters  patent   and  not 


268  RUTTER   V.    CHAPMAN.  §  $1 

by  the  common  person,  for  he  is  but  an  instrument,  and  the  king 
makes  the  corporation,  in  such  case,  in  the  same  manner  as  if  all  had 
been  comprehended  in  the  letters  patent  themselves.  It  is  true,"  he 
adds,  "that  none  but  the  king  can  make  a  corporation,  as  it  is  held, 
49  Ed.  3,  4,  29  Ass.  8;  but  qui  per  alium  facit^  perse  ipsu7n  facer e 
videtur."  So  it  is  said  in  Bro.  Abr.  Prerogative,  53:  "Ao/«,  the 
king,  by  his  charter,  may  by  express  words  grant  to  a  corporation  or 
commonalty  to  make  another  corporation  or  commonalty."  Again,  in 
Jenkins'  Centuries  88,  p.  270,  it  is  said:  "Only  the  king  can  make 
a  corporation;"  but,  presently  after,  "the  king  may  give  power  to 
name  a  corporation,  and  where  it  is  named  it  is  the  king's  corpora- 
tion." 

In  Com.  Dig.,  Franchise  (F.  5),  citing  i  Roll.  Abr.  512,  it  is  said 
that  a  subject  may  choose  the  person,  invent  the  name,  etc.,  for  the 
king,  also,  the  king  by  charter  to  the  East  India  Company  may  enable 
them  to  constitute  such  persons  as  shall  be  incorporated.  lb.  In 
Bacon's  Abr.  Corporations  (B),  it  is  said:  "The  king,  by  virtue  of 
his  prerogative,  is  the  only  person  that  can  erect  either  an  ecclesiasti- 
cal or  lay  corporation  ;  yet  the  king  may  grant  power  to  a  common 
person  to  name  the  corporation,  and  the  persons  of  whom  it  is  to  con- 
sist, but  when  he  has  done  so,  the  corporation  does  not  take  its  essence 
from  the  common  person,  but  from  the  king." 

I  am  not  aware  that  the  proposition  laid  down  in  these  authorities 
has  ever  been  disputed  since  the  second  Hen.  7.  Blackstone,  vol.  i, 
p.  474,  says,  "The  king,  it  is  said,  may  grant  to  a  subject  the  power 
of  making  corporations  (Bi'o.  Abr.,  tit.  Frerog.  53;  Vin.  Abr. 
Prerog.  88,  pi.  16),  although  the  contrary  was  formerly  held  (Year 
Book,  2  H.  7,  13),  that  is,  he  may  permit  the  subject  to  name  the 
persons  and  powers  of  the  corporation  at  his  pleasure ;  but  it  is  really 
the  king  that  erects,  and  the  subject  is  but  the  instrument ;  for  though 
none  but  the  king  can  make  a  corporation,  yet  qui  facit  alium  facit 
per  se.  In  this  manner  the  chancellor  of  the  University  of  Oxford  has 
power  by  charter  to  erect  corporations,  and  has  actually  often  exerted 
it,  in  the  erection  of  several  matriculated  companies,  now  subsisting, 
of  tradesmen  subservient  to  the  students."  The  same  doctrine  will 
be  found  in  Kyd  on  Corporations,  50.  No  distinction  is  made  in  these 
authorities  between  ecclesiastical  and  lay,  eleemosynary  and  munici- 
pal corporations.  I  refer  to  these  authorities  for  the  purpose  of  show- 
ing in  what  broad  terms  the  authority  of  the  crown  to  delegate  the 
nomination  of  corporations  and  corporate  officers  has  been  recognized. 
But  it  is  not  necessary  to  rely  upon  them  to  their  full  extent  in  this 
case ;  for  no  discretionary  power  of  choice  or  appointment  is  given 
either  to  Mr.  Price  or  to  Mr.  Rushton.  The  constitution  of  the  cor- 
poration and  the  qualification  of  the  burgesses  are  fixed  by  the  char- 
ter ;  and  these  persons  are  only  required  to  make  a  list  of  those  who 
have  such  qualifications. 

It  is  to  be  observed,  that  no  method  of  proceeding  is  pointed  out  by 
the  5  and  6  Will.  4,  c.  4,  or  i  Vict.,  c.  78,  for  setting  the  corporation 
in   motion:   these   acts  simply  provide,  that  it  shall  be  lawful  for  her 


§51  EXISTENCE   BY    KING'S   CHARTER.  269 

majesty,  under  the  advice  of  her  privy  council,  to  extend  to  the  in- 
habitants of  any  town  or  borough,  within  the  district  to  be  set  forth 
in  such  charter,  the  powers  and  provisions  in  the  act  contained ;  and 
I  know  no  mode  by  which  the  crown  can  confer  them  except  by  char- 
ter. If  the  crown  be  authorized  to  grant  the  powers  in  question 
(which  without  the  authority  of  the  act  could  not  have  been  done), 
must  it  not  by  necessary  inference  be  authorized  to  prescribe  the 
means  by  which  they  are  to  be  made  effective ;  provided  at  least  that 
the  means  adopted  are  not  at  variance  with  those  which  might  be  re- 
sorted to  in  a  common-law  charter  of  incorporation.  Many  of  the  regu- 
lations of  the  municipal  corporation  act  are  inapplicable  to  a  new 
corporation.  David  Price  is  appointed  to  make  out  the  burgess  list 
instead  of  the  overseers,  who,  under  the  municipal  corporation  act, 
are  required  and  compelled  to  make  out  such  a  list,  but  these  officers 
would  not  be  compellable  to  make  out  a  burgess  list  for  a  new  cor- 
poration. For  the  purpose,  therefore,  of  securing  the  attainment  of 
the  end  contemplated  by  the  act,  the  crown  has  nominated  a  person, 
of  whose  willingness  to  undertake  the  duty  it  may  be  assured ;  Edward 
Rushton  is  appointed  to  revise  the  burgess  list  instead  of  a  revising 
barrister  appointed  by  the  senior  judge  of  assize  ;  no  power  to  any 
judge  to  appoint  such  a  barrister  being  given  by  the  act,  after  the 
year  which  had  elapsed  at  the  grant  of  this  charter.  And  to  have 
given  authority  to  any  other  person  to  appoint  a  revising  barrister  would 
be  at  least  as  objectionable  as  a  direct  appointment  by  the  queen  herself. 

It  has  been  contended,  indeed,  that  if  the  act  of  parliament  be 
defective  in  prescribing  the  proper  means  of  carrying  its  object  into 
effect,  the  object  can  not  be  effected  ;  but  the  more  reasonable  inter- 
pretation of  the  act  in  such  cases  appears  to  be,  that  where  no  particu- 
lar means  are  prescribed,  the  crown  may  proceed  to  accomplish  the 
object  by  the  same  means  which  it  is  authorized  by  the  common  law 
to  employ  in  conferring  the  usual  powers  upon  a  new  corporation, 
namely,  by  letters  patent  under  the  great  seal.     *     *     * 

Judgment  affirmed. 

Viner's  Abr.  Corp.  B.  1,  5;  Y.  B.  2  Henry  VII,  13;  1613,  Sutton's  Hospital 
Case,  10  Coke  27,  supra,  p.  264;  1819,  Dartmouth  College  v.  Woodward,  4 
Wheat.  518,  infra,  p.  708;1815,  Terrett  v.  Taylor,  9  Cranch  (U.  S.)  43;  1816, 
Town  of  Pawlet  v,  Clark,  9  Cranch  (U.  S.)  292;  1817,  Denton  v.  Jackson,  2 
Johns.  Ch.  (N.  Y.)  320;  1828,  N.  Hempstead  v.  Hempstead,  2  Wend.  (N.  Y.) 
109;  1830,  Society  for  Propagation  of  Gospel  v.  Town  of  Pawlet,  4  Pet.  (U.  S.) 
480;  1831,  McKim  v.  Odom,  3Bland  Ch.  (Md.)  407,  note,  p.  416;  1889,  Baeder 
v.  Jennings,  40  Fed.  R.  199. 

1.  The  king''s  power  formerly.  It  is  said  that  both  before  and  for  some 
time  after  the  Norman  conquest,  many  nobles  claimed  and  exercised  the  right 
of  creating  corporations  within  their  own  territories.  So  also  the  Pope  exer- 
cised the  privilege  of  creating  university  corporations  on  the  continent,  and 
claimed  a  like  right  in  England,  which,  though  exercised,  was  not  recognized 
as  conferring  legitimate  corporate  existence.  (Greystock  College  Case,  Dyer, 
81,  pi.  64,1553.)  Bracton  (c.  1263)  says:  "Those  things  called  privileges,  al- 
though they  pertain  to  the  crown,  may  nevertheless  be  separated  from  the 
crown  and  be  transferred  to  private  persons,  but  only  with  the  special  grace 
of  the  king;  whose  grace  and  special  grant  if  it  have  not  intervened,  time 
does  not  exclude  the  king  from  such  a  claim,  for  no  time  runs  against  a  dona- 


2/0       THE  GOVERNOR  V.  ALLEN  AND  M'MURDIE.       §  52 

tion  of  the  king's  or  contrary  to  it.  *  *  *  But  this  kind  of  liherties,  when 
they  have  been  granted  by  the  king,  are  as  it  were  possessed,  and  he  to  whom 
they  are  granted  *  *  *  will  be  in  possession  *  *  *  until  he  has  lost 
it  from  abuse  ornon-user."  1  Bract.  Twiss's  Trans.,  p.  55.  By  the  time  of 
Edward  III,  the  absolute  necessity  of  the  king's  consent  to  the  erection  of  a 
corporation  seems  to  be  fully  established,  49  Edward  III,  4;  49  Ass.  8;  Viner 
Corp.  B. ;  1  Kyd  Corp.  42,  44;  Bro.  Corp.  15;  Angell  &  Ames,  §  67.  By  the 
civil  laio  the  sovereign's  consent  was  necessary  also,  either  by  statute,  senatiis 
consultum,  or  constitution  of  the  emperor.  Digest  47,  Lib.  22,  23;  also  3,  4,  1 ; 
Hunter's  Roman  Law,  314;  1  Brown  Civil  Law,  101,  102;  1  Domat,  Civ.  Law, 
Title  II,  §  2,  No.  15. 

2.  At  the  present  time.— In  England,  the  king  or  queen  alone,  when  a  cor- 
poration is  intended  with  privileges,  which,  by  the  principles  of  the  English 
law,  may  be  granted  by  the  king,  is  qualified  to  create  a  corporation  by  his 
or  her  sole  charter.  Thus  the  city  of  Annapolis,  in  Maryland,  was  incorpo- 
rated by  a  charter  from  Queen  Anne,  when  she  held  the  government  of  the 
province.  When,  on  the  other  hand,  it  is  intended  to  establish  a  corporation 
vested  with  powers  which  the  king  can  not  himself  grant,  recourse  must  be 
had  to  an  act  of  parliament;  as  if  it  be  intended,  for  example,  to  grant  the 
power  of  imprisonment,  as  in  the  case  of  the  College  of  Physicians;  or  to 
confer  a  monopoly,  as  in  the  case  of  the  East  India  Company ;  or  when  a 
court  is  erected,  with  a  power  to  proceed  in  a  manner  contrary  to  the  rules  of 
the  common  law.     Angell  &  Ames  Corp.,  §68. 

There  seems  now  to  be  the  following  methods  of  creating  corporations  in 
England : 

1.  By  royal  chartei",  now  usually  exercised  by  the  king,  by  virtue  of  his 
prerogative  in  foreign  affairs,  for  creating  companies  for  governing  and  trad- 
ing with  the  colonial  possessions  in  Africa  and  the  East  Indies.  Recent 
creations  of  this  sort  are  the  North  Borneo  Company,  1881  (State  Papers,  vol. 
Ixxiii,  p.  932) ;  The  Royal  Niger  Company,  1886  ^Hertslet,  Treaties,  vol.  xvii, 
p.  118) ;  Imperial  British  East  Africa  Company,  1889  (State  Papers,  vol.  Ixxix, 
p.  641) ;  and  the  British  South  Africa  Company,  1889  (Hertslet,  Treaties,  vol. 
xviii,  p.  134^.  These  are  quite  similar  to,  though  differing  in  some  respects 
from,  the  Virginia  (1609),  Massachusetts  Bay  (1629),  and  Hudson's  Bay,  Com- 
panies (1670),  for  colonizing  and  trading  in  North  America,  and  the  East  India 
Company  (1600),  for  a  like  purpose  in  India. 

2.  By  parliament, — public  companies,— such  as  railways,  canals,  water- 
works, etc., — those  engaged  in  a  public  undertaking  that  requires  the  exercise 
of  the  power  of  eminent  domain.  These  are  incorporated  by  special  act  of 
parliament  in  each  case  after  investigation  and  report  upon  the  necessity,  but 
are  regulated  (unless  expressly  excepted)  by  the  general  provisions  of  the 
Companies  Clauses  Acts  of  1845. 

3.  By  reg"istration. — All  private  business,  social,  or  benevolent  companies 
having  more  than  twenty  members  (or  if  banking,  more  than  ten  members), 
under  the  general  incorporation  law  of  1862,  called  the  Companies  Act.  See 
Ency.  of  Laws  of  Eng.,  Companies,  Chartered,  vol.  iii,  p.  148 ;  Company,  p.  162, 
and  Public  Company,  vol.  x,  p.  545;  also.  Railways,  vol.  xi,  p.  1. 


See.  52.     Same,     {c)    Common  law. 

THE  GOVERNOR  v.  ALLEN  AND  McMTJRDIE.> 

1847.    In  the  Supreme  Court  of  Tennessee.    8  Humphrey  (27 
Tennessee)  176-184. 

TuRLEY,  J.,  delivered  the  opinion  of  the  court. 
On  the   i8th  day  of  August,    1843,   G.   A.  Davie,  who  had  been 
elected  trustee  for  the  county  of   Montgomery,  executed  his   bond, 

*  Arguments  omitted. 


§  52  EXISTENCE    BY    COMMON    LAW.  27 1 

with  G.  P.  Allen  and  Robert  McMurdie  his  sureties,  to  the  governor 
in  and  over  the  state  of  Tennessee,  in  the  penal  sum  of  $3,000,  to  be 
void  upon  condition  that  he  received  and  securely  kept  and  paid  over 
the  school-funds  of  said  county,  as  the  law  directs.  This  bond  was 
acknowledged  in  open  court  at  the  August  term,  1843,  of  the  county 
court  of  Montgomery.  The  condition  of  this  bond  being  broken,  a 
suit  thereon  was  commenced  at  the  July  term,  1846,  of  the  circuit 
court  of  Montgomery,  in  the  name  of  Aaron  V.  Brown,  governor,  in 
and  over  the  state  of  Tennessee,  against  G.  P.  Allen  and  Robert 
McMurdie,  two  of  the  obligors.  To  the  declaration  the  defendants 
filed  a  general  demurrer,  which  was  sustained  by  the  circuit  judge,  and 
judgment  given  accordingly,  from  which  an  appeal  in  error  is  prose- 
cuted to  this  court. 

The  question  presented  for  consideration  upon  this  demurrer  is 
whether  a  suit  at  law  can  be  maintained  upon  this  bond,  in  the  name 
of  the  governor  of  the  state.  By  the  43d  section  of  the  act  of  1838,  ch. 
148,  and  the  41st  section  of  the  act  1840,  ch.  38,  the  trustees  of  the 
different  counties  of  this  state,  before  the  reception  of  the  portion  of 
common  school  fund  belonging  to  their  counties  under  the  general 
law  for  distributing  it  to  them,  are  required  to  enter  into  bond,  with 
two  or  more  securities,  for  the  proper  performance  of  their  duties  in 
.relation  thereto,  to  the  superintendent  of  public  instnaction  and  his 
successors  in  office.  The  bond  sued  on  then,  in  this  action,  is  not  a 
good  statutory  bond,  according  to  all  the  decisions  of  the  state  courts 
upon  such  subjects  and  the  question  necessarily  is  whether  it  can  be 
held  to  be  a  good  common  law  bond  to  be  sued  upon  in  the  name  o^ 
the  governor  of  the  state. 

Before  entering  into  a  general  investigation  of  this  subject  we  deem 
it  proper  to  premise  that  the  bringing  this  suit  in  the  name  of  Aaron 
V.  Brown,  governor  and  successor  of  James  C.  Jones,  gives  no  addi- 
tional strength  to  the  action  which  it  would  not  have  had,  provided 
the  suit  had  been  brought  merely  in  the  name  of  the  governor  of  the 
state,  and  that  the  question  must  be  examined  as  if  it  had  been  so 
brought,  for  if  the  bond  be  not  a  good  common  law  bond  when  made 
payable  to  the  office  of  the  governor  as  such,  the  making  it  payable 
to  a  particular  governor  described  eo  nor^ine  and  his  successors  could 
not  sustain  the  action,  for  in  such  case,  the  suit  would  not  enure  to 
his  successors,  but  must  be  brought  in  his  name  if  alive,  and  if  not, 
in  the  name  of  his  personal  representative.  The  bond  in  this  case, 
in  point  of  fact,  was  not  executed  to  any  particular  governor,  eo 
nomine^  but  to  the  governor  in  and  over  the  state  of  Tennessee,  then 
can  an  action  at  law  be  maintained  upon  it.''  The  solution  of  this  ques- 
tion depends  upon  the  fact  whether  a  bond  can  upon  common  law 
principles  be  executed  to  the  governor  of  the  state.  In  the  case  of 
Polk  V.  Plummer  and  others,  2  Humph.  506,  Judge  Reese,  who  de- 
livered the  opinion  of  the  court,  says,  "that  when  a  statute  directs  a 
bond  for  the  public  benefit  to  be  made  payable  to  the  governor  or 
other  functionary  having  legal  succession,  the  office  is  the  payee,  and 
the  successor,  whether  described  eo  nomine^  either  in  the  statute  or 


2/2       THE  GOVERNOR  V.  ALLEN  AND  M'MURDIE.       §  52 

bond,  or  not,  may  yet  maintain  the  action,  such  officer  being  made 
by  form  of  the  statute  and  for  the  public  benefit,  quod  hoc,  a  corpora- 
tion sole."  There  is  no  reason  whatever,  for  questioning  the  general 
truth  of  this  proposition ;  it  is  sustained  by  the  judgment  of  the 
supreme  court  of  North  Carolina  in  the  case  of  the  Justices  of  Cum- 
berland V.  John  Armstrong  and  others,  3  Dev.  284,  where  it  is 
held  that  the  acts  of  assembly  which  direct  the  justices  of  the  county 
courts  to  take  bonds  to  themselves  in  their  official  capacity  confer 
on  them,  as  to  such  bonds,  a  corporate  character. 

But  it  must  be  admitted  in  both  these  cases  that,  if  they  be  only 
quoad  corporations,  and  the  bonds  be  not  within  the  statute  authoriz- 
ing them,  they  will  not  enure  by  succession.  But  is  a  governor  of  a 
state  only  quoad  a  corporation  sole .''  We  think  not.  It  is  true  it  is  held 
in  the  case  of  Polk  v.  Plummer  and  others  to  be  quoad  that  particular 
transaction  a  corporation  sole,  but  that  was  all  that  it  was  necessary 
to  hold  him  in  that  case;  but  it  is  not  determined  that  he  is  not  a  cor- 
poration sole  for  other  purposes  besides  those  in  which  bonds  are 
directed  by  statute  to  be  made  payable  to  him.  Blackstone,  in  the 
first  volume  of  his  Commentaries,  page  469,  says:  '■'•A  corporation 
sole  consists  of  one  person  only,  and  his  successors  in  some  particu- 
lar station,  who  are  incorporated  by  law,  in  order  to  give  them  sole 
legal  capacities  and  advantages ,  particularly  that  of  perpetuity ,  which 
in  their  natural  persons  they  could  not  have  had.^'  In  this  view  the 
king  is  a  sole  corporation;  so  is  a  bishop,  and  so  is  every  parson  and 
vicar. 

Now  the  governor  constitutes  the  executive  department  of  the  state  ; 
he  is  vested  by  the  constitution  of  the  state  with  great  and  important 
powers  to  be  executed  for  the  benefit  of  the  state,  and  it  is  absolutely 
necessary  that  there  should  be  no  interregnum  in  his  office,  to  avoid 
many  and  great  inconveniences ;  this  can  not  be  unless  we  apply  to 
him  the  maxim  of  the  common  law,  applicable  to  the  king,  that  he  never 
dies;  this  maxim  of  the  common  law  (like  most,  if  not  all,  of  them)  is 
based  upon  wise  conceptions,  and  not  upon  any  foolish  reverence  for 
kings  or  belief  in  their  sanctity  or  immunity  from  the  common  lot  of 
mankind,  but  upon  the  necessary  assumption  that  the  state,  which 
protects  and  cares  for  all,  never  ceases  to  exist,  but  that  it  is  always 
alive  and  active  in  the  performance  of  its  duties  to  the  citizen. 
The  state,  being  an  ideality,  can  only  be  conceived  of  through  the 
public  functionaries  who  constitute  the  different  departments  by  which 
it  exists;  therefore,  to  hold  that  it  never  dies  is  necessarily  to  hold  that 
those  who  co,nstitute  its  necessary  departments  never  die.  The  depart-  . 
ments  by  which  the  government  of  Great  Britain  exists  are  the  king  and 
houses  of  parliament;  the  king  is  the  executive  of  the  nation,  and 
he  and  the  two  houses  of  parliament  are  the  legislature  ;  there  is  never 
in  contemplation  of  law  an  interregnum  in  either  of  these  depart- 
ments, for  the  law-making  and  the  law-executing  power  being  abso- 
lutely necessary  to  the  existence  of  the  state,  if  they  cease  to  be,  the 
state  pro  tem.pore  ceases  to  exist,  which  would  be  a  solecism  in  a  gov- 


§52  EXISTENCE   BY   COMMON    LAW.  2/3 

emment  not  destroyed    by  invasion  or   rebellion,  and  thrown   back 
upon  the  primitive  principles  of  society. 

The  governor  of  this  state  is  the  executive  of  it;  it  is  one  of  his 
duties^  among  many  others.,  to  see  that  the  laws  of  the  state  are  exe- 
cuted and  obeyed;  this  is  a  great  and  fundamental  duty,  without  the 
proper  observance  of  which  society  might  and  would  necessarily  be 
greatly  distracted,  and  the  proper  security  of  life,  liberty  and  property 
seriously  endangered  for  the  purpose  of  enforcing  the  execution  of 
tlie  laws,  and  the  protection  of  the  state  from  rebellion  and  invasion ; 
he  is  the  commander  of  the  forces  of  the  state ;  to  hold  that  there  can 
be  an  interregnum  in  this  office  would  be  to  hold  to  the  tempo- 
rary anarchy  of  the  state.,  and  in  order  to  hold  that  there  is  no  such  in- 
terregnum we  must  hold  that  the  governor,  as  such,  never  dies;  to  do 
this  he  must  be  a  corporation  sole,  with  succession  in  office.  Such 
we  think  he  is,  constituted  so  by  the  organization  of  our  state  govern- 
ment, and  not  by  any  particular  statute  or  statutes ;  and  therefore 
when  bonds  are  directed  to  be  made  payable  to  him  in  his  official  ca- 
pacity, they  arc  payable  to  him  in  his  capacity  as  a  corporation  sole 
quoad  that  particular  transaction. 

If  the  governor  of  the  state  be  a  corporation  sole,  then  he  may  be  a 
trustee,  and  that,  too,  in  things  not  connected  with  his  office ;  for  it  is 
well  settled  that  corporations,  both  aggregate  and  sole,  may  be  trus- 
tees for  others.  A  bond,  then,  executed  to  a  governor  of  a  state  vol- 
untarily, which  violates  no  public  policy  or  private  morality,  but  on 
the  contrary  is  made  to  secure  a  public  right,  maybe  sued  upon  at  law 
in  the  name  of  the  governor,  for  the  benefit  and  use  of  those  inter- 
ested in  it,  and  that,  too,  though  there  be  no  express  statute  author- 
izing it.     There  is  no  case  to  be  found  contradicting  this  position. 

In  the  case  of  The  United  States  v.  Thos.  Tingley,  5  Pet.  1 14,  it 
was  held  "that  a  bond  voluntarily  given  to  the  United  States,  and  not 
prescribed  by  law,  is  a  valid  instrument,  upon  the  parties  to  it,  in 
point  of  law,  because  the  United  States  have  in  their  political  capacity 
a  right  to  enter  into  a  contract,  or  take  a  bond  not  previously  pro- 
vided by  law,  and  the  United  States,  being  a  body  politic,  may  within 
the  sphere  of  the  constitutional  power  granted  to  it  enter  into  con- 
tracts not  prohibited  by  law  and  appropriate  to  the  just  exercise  of 
those  powers." 

In  the  case  of  Hibbits  v.  Canada  et  al.,  10  Yerg.  465,  it  was  held 
by  this  court  that  when  an  administration  bond  was  made  payable  to 
James  Hibbits,  chairman  of  Smith  county,  and  his  successors  in  office, 
instead  of  the  governor,  as  is  directed  by  law,  "that  no  action  at  law 
could  be  maintained  on  the  bond  in  the  name  of  a  successor,  but  that 
the  bond  was  valid  at  common  law  as  a  voluntary  bond,  and  that  a  suit 
at  law  might  be  maintained  upon  it  in  the  name  of  the  personal  rep- 
resentative of  Hibbits."  The  chairman  of  the  county  court  is  not  a 
corporation  sole,  and,  therefore,  upon  his  death  he  has  no  successor,  and 
a  bond  executed  to  him  without  authority  by  statute  necessarily  descends 
to  his  personal  representative,  and  must  be  sued  upon  in  his  name. 
18— WiL.  Casks. 


2/4       THE  GOVERNOR  V.  ALLEN  AND  M'MURDIE.       §  52 

The  case  of  Polk,  Governor,  v.  Plummer  etal.,  in  2  Humph.  500, 
holds,  as  we  have  seen,  in  a  too  restricted  sense,  that  the  governor  is 
a  corporation  sole  when  a  bond  has  been  executed  to  him  by  statutory 
provision.  In  the  case  of  Jones,  Governor,  v.  Wiley  et  al.,  4 
Humph.  146,  a  bond  was  taken  from  the  clerk  of  Roane  county 
court,  payable  to  Newton  Cannon  and  his  successors  in  office,  but 
taken  before  the  wrong  tribunal,  it  was  held  that  the  bond  was  not  a 
good  statutory  bond,  but  that  it  was  a  good  common  law  bond,  and 
might  be  sued  upon  in  the  name  of  Cannon's  personal  representative, 
but  not  in  the  name  of  his  successor.  But  Newton  Cannon  was  not 
a  corporation  sole,  and,  therefore,  could  have  no  successors,  and  even 
if  the  bond  had  been  made  payable  to  him  calling  him  governor,  it 
is  probable  it  would  have  been  held  to  be  a  description  personal  only. 

In  the  case  of  The  Justices  of  Carroll  County  Court  v.  Buchanan,  2 
Murph.  40,  it  is  held  by  the  supreme  court  of  North  Carolina  that  a 
guardian  bond  made  payable  to  the  justices  of  Carroll  county  is  void 
at  common  law,  because  it  was  held  that  the  justices  of  the  county 
court  are  not  a  corporation,  and  their  individual  names  were  not  used 
in  the  bond  or  suit ;  but  it  may  be  doubted  whether,  if  the  bond  was 
executed  in  pursuance  of  the  statute,  the  justices  would  not,  under  the 
authority  of  the  case  of  The  Justices  of  Cumberland  v.  Armstrong,  3 
Dev.,  be  considered  a  corporation  quoad  that  transaction. 

In  the  case  of  the  governor  for  use  of  the  State  Bank  v.  Twitty  et 
al.,  I  Dev.  153,  it  was  held  by  the  supreme  court  of  North  Carolina 
that  a  sheriff's  bond  in  a  sum  different  from  that  directed  by  law, 
made  payable  to  John  Branch,  governor,  and  his  successors  was  not 
a  good  statutory  bond,  and  could  not  be  sued  upon  in  the  name  of 
Gabriel  Holmes,  governor,  and  his  successors.  This  case  is  the  same 
with  that  of  Jones,  Governor,  v.  Wiley  et  al.,  4  Humph.  46,  and  was 
decided  as  that  was,  for  the  same  reason,  to  wit,  that  the  bond  is 
payable  to  the  governor  as  an  individual  eo  nomine^  and  not  to  his 
office,  and,  therefore,  descends  to  his  personal  representative.  These 
are  all  the  cases  to  which  we  have  been  referred  as  conflicting  with 
•the  view  we  have  taken  of  this  case.  We  think,  as  we  have  endeav- 
ored to  show,  that  they  are  not  in  conflict  with  it. 

Upon  the  whole,  then,  we  are  of  opinion  that  the  execution  of  this 
bond  being  voluntary,  and  for  the  purpose  of  securing  a  fund  belong- 
ing to  the  county  of  Montgomery,  donated  to  it  by  the  state,  and  for 
which  the  trustee  of  the  county  was  bound  to  enter  into  bond  and 
security  before  he  received  it,  the  mistake  of  the  county  court  in  not 
taking  this  bond,  payable  to  the  superintendent  of  public  instruction, 
but  to  the  governor  of  the  state,  though  it  vitiates  it  as  a  statutory 
bond,  does  not  avoid  it  at  common  law,  but  that  the  governor  of  the 
state  being  a  corporation  sole,  a  suit  may  be  maintained  upon  it  in  his 
name  for  the  benefit  of  the  county  of  Montgomery. 

We  therefore  reverse  the  judgment  of  the  circuit  court,  overrule  the 
demurrer  and  remand  the  case  for  further  proceeding. 

Note,.  It  is  frequently  said  that  corporations  do  not  exist  by  common  law 
with  us.    That,  perhaps,  is  true  in  regard  to  private  corporations ;  but  so  far 


^53  EXISTENCE   BY   PRESCRIPTION.  2/5 

as  public  oflScers,  or  the  state  itself,  or  the  National  Government  are  cori)ora- 
tions  they  are  so  by  common  law. 

1.  As  to  officers,  see  supra,  p.  200. 

2.  The  United  States  is  a  corporation.— 1878,  Dickson  v.  United  States, 
125  Mass.  311,  28  Am.  Eep.  230;  United  States  v.  Maurice,  2  Brock  (U.  S.) 
96,  109;  Cotton  v.  United  States,  11  How.  (U.  S.)  229,  231;  United  States  v. 
Tingey,  5  Pet.  (U.  S.)-115,  128. 

3.  The  states  are  corporations  also.— 1843,  State  of  Indiana  v.  Woram,  6 
Hill  (N.  Y.  )33,  40  Am.  Dec.  378;  People  v.  Utica  Insurance  Company,  15 
Johns.  (N.  Y.)  358,  8  Am.  Dec.  243;  People  v.  Assessors  of  Watertown,  1 
Hill  (N.  Y.)  620. 


Sec.  53.     Same,     (d)     Prescription. 

GREENE  Et  Al.  v.  DENNIS.* 

1826.     In  the  Supreme  Court  of  Errors  of  Connecticut.     6 
Conn.  292—305,  16  Am.  Dec.  58. 

[This  was  an  action  of  ejectment,  for  a  tract  of  land  in  Pomfret, 
tried  at  Brooklyn,  September  term,  1825,  before  Bristol,  J. 

The  plaintiffs  claimed  title  to  the  demanded  premises,  as  the  heirs 
at  law  of  Sylvester  Wickes ;  and  the  defendant,  as  the  lessee  of  the 
Yearly  Meeting  of  the  people  called  Quakers,  who  claimed  to  be  de- 
visees of  Wickes  and  the  lessee  of  Rowland  Greene,  who  claimed  as 
a  residuary  devisee.  To  prove  his  title,  the  defendant  exhibited  in 
evidence  the  last  will  and  testament  of  Wickes,  dated  the  17th  of 
January,  1822.  The  clause  of  the  will  comprising  the  demanded 
premises  was  in  these  words:  "I  give  the  Yearly  Meeting  of  the  peo- 
ple called  Quakers,  of  New  England,  my  farm  in  Pomfret,  that  I 
bought  of  Clark  and  Nightingale,  the  net  income  of  which  is  to  be 
appropriated  in  aid  of  the  charitable  fimd  of  the  boarding  school  es- 
tablished by  Friends  in  Providence,  to  them  the  said  people  called 
Quakers,  and  their  successors  in  the  same  faith  forever."  After  making 
numerous  other  devises  and  bequests,  the  testator  disposed  of  the  resi- 
due in  the  following  terms:  "Also,  I  give  to  my  said  nephew,  Row- 
land Greene,  all  the  rest  and  residue  of  my  estate,  of  what  kind  or 
nature  it  may  be,  or  wherever  found  not  herein  or  otherwise  disposed 
of  on  condition  that  he,  the  said  Rowland,  pay  or  cause  to  be  paid, 
all  my  just  debts,  the  foregoing  legacies,  funeral  charges  and  expense 
of  settling  my  estate."  The  testator  died  soon  afterward,  and  his 
will  was  duly  proved  and  approved.  The  defendant  also  proved  who 
the  members  of  the  Yearly  Meeting  were,  viz.,  Benjamin  Freeborn 
and  thirty-two  others,  whose  names  were  specified.  To  prove  that 
the  Yearly  Meeting  was  a  corporation,  capable  of  taking  and  holding 
lands  by  devise,  the  defendant  adduced  in  evidence  certain  votes  and 
proceedings  from  the  records  of  that  body,  beginning  in  1683  and  ex- 
tending to  the  commencement  of  this  suit.     ♦     •     * 

*  Arguments  omitted.  Statement  of  facts  abridged.  Parts  of  opinion  on 
other  points  omitted. 


276  GREENE  V.  DENNIS.  §  55 

The  judge  instructed  the  jury  that  the  members  of  the  Yearly  Meet- 
mg  could  not  take  and  hold  the  farm,  as  individuals,  for  the  purposes 
mentioned  in  the  will ;  that  the  votes  and  acts  done  by  the  society, 
how^ever  long  their  continuance,  would  not  authorize  the  presumption 
of  a  charter  of  incorporation,  with  power  to  purchase  and  hold  real 
estate,  unless  they  were  such  acts  of  the  society  as  they  could  not  per- 
form without  being  incorporated ;  that  if  such  devise  to  the  Yearly 
Meeting  was  void  for  uncertainty,  or  because  the  society  was  not  in- 
corporated, the  farm  would  descend  to  the  heirs  at  law  of  the  testator, 
would  not  pass  by  the  residuary  clause  in  the  will  to  Rowland  Greene. 
The  jury  returned  a  verdict  for  the  plaintiffs,  and  the  defendant  moved 
for  a  new  trial  on  the  ground  of  misdirection.] 

HosMER,  Ch.  J.  *  *  *  2.  The  next  question  that  arises  in  the 
case  is,  whether  the  Yearly  Meeting  was  a  corporation,  capable  of 
holding  land  in  trust. 

By  a  corporation  it  is  understood,  in  contradistinction  from  a  volun- 
tary association  of  individuals,  a  society  created  by  the  sovereign 
power. 

At  the  trial  of  this  cause  no  charter  of  incorporation  was  exhibited. 
It,  however,  was  contended,  from  a  long  and  continued  exercise  of 
certain  acts,  that  an  incorporation  ought  to  be  presumed. 

That  a  grant  of  charter  is  presumable  from  the  long  continued  ex- 
ercise of  authority  is  indisputable,  and  has  not  been  disputed,  and  all 
the  cases  cited  by  the  defendant's  counsel  tend  only  to  prove  this  un- 
questionable principle.  The  inquiry  in  this  case  involves  no  question 
of  law,  and  turns  entirely  on  a  point  of  fact.  Admitting  all  the  acts 
done  by  the  Yearly  Meeting  for  more  than  a  century  to  have  been 
lawful,  do  they  warrant  the  presumption  that  they  were  incorporated? 
This  is  the  precise  inquiry,  and  in  his  charge  to  the  jury,  the  judge, 
recognizing  the  law  of  presumptions,  instructed  them  that  the  acts 
done  must  have  been  such  as  an  unincorporated  Yearly  Meeting  could 
not  have  performed.  When  fairly  construed,  the  following  was 
virtually  the  opinion  expressed :  If  the  acts  done  by  the  Yearly  Meet- 
ing bear  on  the  face  of  them  the  impress  of  corporate  acts,  such  as 
individuals  can  not,  and  a  corporation  alone  is  competent  to  perform, 
you  may  presume  the  Yearly  Meeting  to  be  a  corporation.  But  if 
their  acts  were  within  the  competency  of  individuals  to  perform,  they 
furnish  no  ground  to  presume  that  they  were  other  than  the  acts  of 
individuals.  The  inference  to  be  drawn  by  the  jury  was  a  fact  in- 
quired after  from  facts  established,  and  their  reasoning  was  to  be  from 
the  effect  to  the  cause.  The  law  made  no  inference  on  the  subject, 
nor  gave  to  the  testimony  a  technical  efficacy  beyond  the  simple  and 
natural  operation.  The  principle  had  before  been  recognized  in  Hart 
V.  Chalker,  5  Conn,  Rep.  311.  "A  usage,"  said  the  court,"  sup- 
posed to  be  founded  on  a  grant  or  agreement,  determines  the  extent 
of  the  supposed  grant  or  agreement.  The  right  granted  is  supposed 
to  be  commensurate  with  the  right  enjoyed.  They  are  different  media, 
proving  precisely  the  same  fact ;  and  it  is  because  of  this  indentity  of 
proof  that  the  usage  is  supposed  to  evince  the  grant.     In  short,  like 


^  53  EXISTENCE   BY    PRESCRIPTION.  2/7 

a  seal  with  its  correspondent  impression,  the  grant  and  the  usage  are 
in  a  point  of  proof,  precisely  and  identically  the  same." 

The  principle  declared  by  the  judge  was  unquestionably  correct; 
and  the  verdict  of  the  jury  necessarily  implies  that  the  Yearly  Meet- 
ings was  not  a  corporation. 

From  the  evidence  exhibited,  and  spread  on  the  motion  before  us, 
my  mind  is  led  to  the  same  results.  Every  act  of  the  Yearly  Meeting 
is  entirely  reconcilable  with  the  belief  that  it  was  done  by  persons,  not  by 
virtue  of  corporate  authority, but  as  a  voluntary  association  of  individuals. 
Let  it  be  supposed  that  the  members  of  the  Yearly  Meetings  were  a 
delegation,  to  whom  was  confided  the  supervision  of  the  spiritual  con- 
cerns of  the  people  called  Quakers ;  that  by  voluntary  contributions  of 
their  constituents  and  others,  they  were  invested  with  funds  to  this 
end ;  and  that  they  directed  the  general  concerns  and  the  application  of 
their  funds,  by  joint  agreement,  and  with  no  more  of  compulsion  than 
is  implied  in  the  voluntary  and  cheerful  acquiescence  of  those  whose 
interests  they  are  pursuing.  Superadd  to  this,  that  they  kept  records 
of  their  proceedings ;  that  they  appointed  a  clerk  and  treasurer ;  that 
they  held  lands,  as  individuals,  for  the  general  advantage,  that  they 
advised  the  payment  of  money  and  sent  to  the  respective  quarterly 
meetings  for  their  proportion  ;  that,  in  fact ^  they  celebrated  marriages, 
had  burying  places  and  admitted  members  of  their  Meeting  or  dis- 
carded them.  Every  one  of  these  acts  might  be  done  by  them  as  in- 
dividuals without  corporate  authority  and  without  coercion  except  over 
their  own  funds.  Their  organization  for  the  transaction  of  business 
and  disposing  of  their  property,  with  a  president  at  their  head  (which 
I  believe  did  not  exist),  with  their  clerk  and  treasurer,  and  minutes  of 
their  proceedings,  were  nothing  more  than  is  usually  done  by  an  un- 
incorporated library  company  or  bible  society  or  other  voluntary  as- 
semblies. It  does  not  appear  that  land  or  property  of  any  kind  was 
held  by  the  Yearly  Meeting,  imless  as  tenants  in  common,  or  that  a  tax 
was  laid  by  them  other  than  an  appointment  for  a  voluntary  contribu- 
tion;  nor  is  there  exhibited  in  their  constitution,  organization  or  pro- 
ceedings, one  mark  or  indicium  of  a  corporation.  Nothing  was  done 
by  them  beyond  the  competency  of  individuals. 

So  far  as  the  testimony  adduced  may  be  relied  on,  the  members  of 
the  Yearly  Meeting  have  never  exercised  one  of  those  incidents  which 
necessarilly  and  inseparably  are  annexed  to  every  corporation.  They 
have  no  perpetual  succession,  the  primary  object  of  corporate  author- 
ity; there  has  been  no  suing  or  being  sued,  no  granting  and  receiving, 
no  holding  of  lands  or  estate  for  their  own  use,  or  that  of  others,  as  a 
corporation;  no  common  seal,  by  which  the  intention  of  a  corporate 
body  is  manifested,  and  no  by-laws  for  the  better  government  of  them- 
selves. They  appear  to  have  had  the  capacity  of  agreeing,  of  advis- 
ing, and  of  disposing  of  their  own,  as  individuals;  and  beyond  this,  no 
capacity  of  theirs  is  discerned. 

The  inference  from  such  premises,  that  the  Yearly  Meeting  was 
incorporated,    would  be    as   groundless    as  the    supposition    that    an 


2/8  GREENE  V.   DENNIS.  §  55 

individual,  by  virtue  of  his  personal  acts,  gives  proof  of  his  being  a 
corporation. 

It  is  not  sufficient  for  the  defendant  to  show  that  the  Yearly  Meet- 
ing was  a  corporation,  but  he  must  proceed  further,  and  prove  that  it 
is  authorized,  by  virtue  of  its  corporate  powers,  to  hold  property  in 
trust  for  others.  Such  confidence  is  not  incidental  to  every  corpora- 
tion, but  in  general,  it  is  foreign  to  the  end  of  its  institution.  Hence 
a  corporation  can  not  be  seized  of  land  to  the  use  of  another  (Bro. 
Abr.  tit.  Feoffment.  D.  Cruise  on  Uses  22)  unless  it  has  explicit 
authority  for  this  purpose.  Now  what  act  was  ever  exercised  by  the 
Yearly  Meeting  from  which  this  power  may  be  presumed?  No  such 
act  appears ;  and  hence  the  presumption  of  the  corporate  power  in 
question  can  not  be  made. 

I  conclude,  then,  that  the  Yearly  Meeting  never  was  a  corporation ; 
and  if  it  were,  that  it  never  had  the  capacity  of  becoming  a  trustee  for 
others.      *     *     * 

The  other  judges  were  of  the  same  opinion. 

New  trial  not  to  be  granted. 

Note.  See  1774,  Kingston  upon  Hull  v.  Horner,  1  Cowper  102;  1807,  Dil- 
lingham V.  Snow,  3  Mass.  276;  1809,  Dillingham  v.  Snow,  5  Mass.  547;  1815, 
Stoekbridge  v.  West  Stockbridge,  12  Mass.  400;  1820,  Hagerstown  Turnpike 
Co.  V.  Creeger,  5  Har.  &  J.  (Md.)  122,9  Am.  Dec.  495;  1823,  Craft  of  Mercers, 
etc.,  V.  Hart,  12  Eng.  C.  L.  76,  1  Car  &  P.  *113;  1829,  River  Tone  v.  Ash,  21 
Eng.  C.  L.  152,  10  Bar.  &  C.  *349;  1841,  State  v.  Miami  Exporting  Co.,  11 
Ohio  126;  1844,  New  Boston  v.  Dunbarton,  15  N.  H.  201 ;  1844,  People  v.  Oak- 
land County  Bank,  1  Doug.  (Mich.)  282;  1857,  Bow  v.  Allenstown.  34  N.  H. 
351,69  Am.  Dec.  489;  1861,  Robie  v.  Sedgwick,  35  Barb.  (N.  Y.)  319;  1862, 
State  ex  rel.,  etc.,  v.  Bailey,  19  Ind.  452;  1868,  Calkins  v.  State,  18  Ohio  St. 
366;  1876,  Douthitt  v.  Stinson,  63  Mo.  268;  1882,  State,  ex  rel.  Sleeth,  v.  Gor- 
don, 87  Ind.  171 ;  1885,  Society  Rerun  v.  Cleveland,  43  Ohio  St.  481.  See  cases 
below  on  estoppel  to  deny  corporate  existence,  p.  630,  et  seq. 

Collier,  C.  J.,  in  Selma  and  Tennessee  Railroad  Co.  v.  Tipton,  5  Alabama 
Reports  787  (1843),  on  page  804,  s.  c.  39  American  Decisions  344,  on  page 
353,  says: 

"It  is  said  that  presumptions  are  applicable  as  well  to  corporations  as  indi- 
viduals ;  that  persons  acting  publicly  as  officers  of  the  corporation  are  pre- 
sumed rightfully  in  office,  and  all  necessary  steps  presumed,  in  order  to  make 
a  corporate  act  legally  operative.  So  a  charter,  from  the  long  exercise  of  cor- 
porative rights,  or  acceptance  of  a  new  charter  from  the  acts  of  the  corporate 
officers,  as  well  as  many  other  things,  may  be  presumed  from  circumstances. 
(Bank  of  the  United  States  v.  Dandridge,  12  Wheat.  Rep.  70,  et  post;  The 
State  V.  Carr,  5  New  Hamp.  Rep.  367;  Hagerstown  T.  P.  Comp.  v.  Creeger, 
5  Har.  &  J.  R.  125.  See  also,  1  Pick.  Rep.  279;  1  Pick.  372;  17  Mass.  Rep.  1 
and  479.)  The  court  say:  'Where  a  corporation  has  gone  into  operation,  and 
rights  have  been  acquired  under  it,  every  presumption  should  be  made  in 
favor  of  the  legality  of  its  existence.'  (See  also,  Trott  v.  Warren,  2  Fairf. 
(11  Me.)  Rep.  227.)  So,  in  All  Saint's  Church  v.  Lovett,  1  Hall's  Rep.  (N.  Y. 
Superior  Ct.)  191,  it  is  held  that  where  there  had  been  a  corporate  body  de 
facto,  for  a  considerable  time  claiming  to  be  a  corporation  and  holding  and 
enjoying  property  as  such,  it  will  be  presumed  that  all  merely  formal  re- 
quisites to  the  due  creation  of  a  corporation  have  been  complied  with.  (See 
also,  U.  S.  v.  Amedy,  11  Wheat.  Rep.  392.)" 


§  54  EXISTENCE   BY    LEGISLATIVE   ACT.  2/9 

Sec.  54.    Same,    (e)  Legislative  acts,  which  are,  as  to  the  power: 
(i)  Inherent. 

MONTGOMERY  BELL  v.  THE  BANK  OF  NASHVILLE. 

1823.     In  the  Supreme  Court  of  Errors  and  Appeals  of  Ten- 
nessee.    Peck's  (Tenn.)  Rep.  269. 

Haywood,  J.,  delivered  the  opinion  of  himself,  Judges  White  and 
Brown,  Judge  Peck  being  absent. 

The  declaration  states  that  on  the  7th  day  of  August,  1819,  a  bill 
single  was  made  and  signed  by  Whitesides,  his  agent,  duly  authorized, 
by  which  he  undertook  in  sixty  days  to  pay  at  the  bank  of  Nashville 
to  Whitesides,  who  indorsed  to  Alfred  Balch,  who  indorsed  to  the 
bank,  that  on  the  last  day  of  grace  it  was  presented  for  payment  and 
was  not  paid,  whereby  an  action  accrued,  etc.  To  this  there  was  a 
demurrer  for  several  causes,  all  which  were  overruled  but  two,  and 
these  two  are  now  to  be  decided  by  this  court.  The  first  of  these  two 
questions  is  this:  Could  the  legislature  of  Tennessee  create  a  bank- 
ing corporation.'*  To  which  the  answer  is,  i/iai  the  legislature  of 
Tennessee^  like  the  legislatures  of  all  other  sovereign  states,  can  do 
all  things  not  prohibited  by  the  constitution  of  this  state  or  of 
the  Untied  States^  and^  amongst  other  things^  may  establish  a  bank- 
ing corporation  with  a  capacity  to  sue  and  be  sued,  and,  of  course,  to 
institute  and  maintain  this  action. 

A  second  question  made  is,  whether  the  bank  had  power  to  dis- 
count this  bill  single,  and  sue  upon  it.  By  the  act  of  1807,  ch.  103, 
§  I,  art.  14,  the  bank  is  not  to  trade  in  any  sort  of  stock  except  bank 
bills,  etc.,  but  by  section  19,  bonds,  notes  and  bills  shall  not  be  re- 
ceived at  the  bank  unless  made  payable  there,  which  implies  that  bills 
made  so  payable  may  be  received  there.  This  bill  single  is  of  that 
description ;  the  bank  may  receive,  discount  and  sue  upon  it. 

Judgment  of  the  circuit  court  affirmed. 


Sec.  55.     Same.     (2)     Exclusive. 

THE  FRANKLIN  BRIDGE  COMPANY,  Plaintiffs  in  Ebboe,  v.  YOUNG 

WOOD,  Defendant. 

1853.     In  the  Supreme  Court  of  Georgia.     14  Ga.  80-86. 

Assumpsit  in  Heard  superior  court.  Tried  before  Judge  Hill,  May 
term,  1853. 

The  Franklin  Bridge  Company  was  incorporated  under  the  act  of 
the  legislature  of  1843,  to  prescribe  the  mode  of  incorporating  com- 
panies for  certain  purposes,  by  an  order  of  the  inferior  court  of  Heard 
county. 

The  company  sued  the  defendant,  Wood,  for  his  subscription  to 
their  stock. 

The  defendant  pleaded  that  the  company  was  not  legally  incorpo- 


280  THE    FRANKLIN    BRIDGE   CO.  V.  WOOD.  §  55 

rated;  contending  that  the   act  of  the  legislature,  referred  to,  was  un- 
constitutional and  void. 

Upon  argument,  the  court  held  that  the  act  aforesaid  was  uncon- 
stitutional, and  non-suited  the  plaintiffs. 

To  this  decision  plaintiff  excepted. 

By  the  court. — Lumpkin,  J.,  delivering  the  opinion. 

Is  the  act  of  1843,  and  that  of  1845,  amendatory  thereof,  pointing 
out  the  manner  of  creating  certain  corporations  and  defining  their 
rights,  privileges  and  liabilities,  unconstitutional.'' 

By  the  first  section  of  the  act  of  1843,  it  is  provided:  "That  when 
the  persons  interested  shall  desire  to  have  any  church,  camp-ground, 
manufacturing  company,  trading  company,  ice  company,  fire  company, 
theater  company,  or  hotel  company,  bridge  company  and  ferry  com- 
pany, incorporated,  they  shall  petition  in  writing  the  superior  or  infer- 
ior court  of  the  county  where  such  association  inay  have  been  formed, 
or  may  desire  to  transact  business  for  that  purpose,  setting  forth  the 
object  of  their  association,  and  the  privilege  they  desire  to  exercise, 
together  w^ith  the  name  and  style  by  which  they  desire  to  be  incorpo- 
rated ;  and  said  court  shall  pass  a  rule  or  order.,  directing  said  petition 
to  be  entered  of  record  on  the  minutes  of  said  court." 

Section  2  enacts  "That  when  such  rule  or  order  is  passed,  and  said 
petition  is  entered  of  record,  the  said  companies  or  associations  shall 
have  power  respectively,  under  and  by  the  name  designated  in  their 
petition,  to  have  and  use  a  common  seal ;  to  contract  and  to  be  con- 
tracted with ;  to  sue  and  be  sued ;  to  answer  and  to  be  answered 
unto  in  any  court  of  law  or  equity ;  to  appoint  such  officers  as  they 
may  deem  necessary,  and  to  make  such  rules  and  regulations  as  they 
may  think  proper  for  their  own  government,  not  contrary  to  the  laws 
of  this  state,  but  shall  make  no  contracts  or  purchase,  or  hold  any 
property  of  any  kind  except  such  as  may  be  absolutely  necessary  to 
carry  into  effect  the  object  of  their  incorporation.  Nothing  herein 
contained  shall  be  so  construed  as  to  confer  banking  or  insurance  privi- 
leges on  any  company  or  association  herein  enumerated ;  and  the  in- 
dividual members  of  such  manufacturing,  trading,  theater,  ice  and  hotel 
companies  shall  be  bound  for  the  punctual  payment  of  all  the  contracts 
of  said  companies,  as  in  case  of  partnership." 

The  third  section  declares  that  "No  company  or  association  shall 
be  incorporated  under  this  act  for  a  longer  period  than  fourteen  years ; 
but  the  same  may  be  renewed  whenever  necessary,  according  to  the 
provisions  of  the  first  section  of  this  act." 

The  fourth  section  confers  upon  the  superior  and  inferior  courts, 
respectively,  the  power  to  change  the  names  of  the  individuals. 

Section  5.  "For  entering  any  of  said  petitions  and  orders,  and  fur- 
nishing a  certified  copy  thereof,  the  clerk  shall  be  entitled  to  a  fee  of 
five  dollars;  except  in  cases  of  applications  by  individuals  for  the 
change  of  names — in  which  case,  the  clerk  of  said  court  shall  be  en- 
titled to  the  fee  of  one  dollar — and  that  such  certified  copy  shall  be  evi- 
dence of  the  matters  therein  stated  in  any  court  of  law  and  equity  in 
this  state.     (Cobb's  Digest,  542-3.) 


^  55  EXISTENCE   BY    LEGISLATIVE   ACT.  28  I 

By  the  act  of  1845,  the  provisions  of  the  act  of  1843  are  extended 
to  all  associations  and  companies  whatever,  except  banks  and  insur- 
ance companies ;  and  the  individual  members  of  all  such  incorporations 
are  made  personally  liable  for  all  the  contracts  of  said  associations  or 
companies.     (Cobb's  Digest,  542-3.) 

The  argument  against  the  validity  of  the  charter  of  the  Franklin 
Bridge  Company,  created  under  these  statutes,  is  this : 

(i)  That  in  England  corporations  are  created  and  exist  by  prescrip- 
tion, by  royal  charter  and  by  act  of  parliament.  With  us,  they  are 
created  by  authority  of  the  legislature  and  not  other-wise.  That  to  es- 
tablish a  corporation  is  to  enact  a  law,  and  that  no  power  but  the 
legislative  body  can  do  this. 

(2)  That  legislative  power  is  vested  under  our  constitution,  in  the 
general  assembly,  to  consist  of  a  senate  and  house  of  representatives, 
to  be  elected  at  stated  periods  by  the  citizens  of  the  respective  coun- 
ties. 

(3)  And  that  the  general  assembly  is  bound  to  exercise  the  power 
of  making  laws,  thus  conferred  upon  them,  by  the  people,  in  the 
primordial  compact,  in  the  mode  therein  prescribed,  and  in  none 
other,  and  that  a  law  made  in  any  other  mode  is  unconstitutional  and 
void.  That  the  legislature  is  but  the  agent  of  their  constituents,  and 
that  they  can  not  transfer  authority  delegated  to  them  to  any  other 
body,  corporate  or  otherwise — not  even  to  the  judiciary,  a  co-ordinate 
department  of  the  government,  unless  expressly  empowered  by  the 
constitution  to  do  so.  That  to  do  this  would  be  to  violate  one  of  the 
fundamental  maxims  of  jurisprudence,  as  well  as  of  political  science, 
namely:  delegata  potestas,  non  potest  delegari.  That  to  do  this 
would  not  only  be  to  disregard  the  constitutional  inhibition,  which  is 
binding  upon  the  representative,  but  by  shifting  responsibility,  in- 
troduce innovations  upon  our  system,  which  would  result  in  the  over- 
throw and  ultimate  destruction  of  our  political  fabric. 

The  constitutional  inquiry  thus  presented  is  an  exceedingly  grave 
one.  It  reaches  far  beyond  the  case  made  in  the  bill  of  exceptions, 
and  extends  to  the  whole  range  of  topics  which  fall  under  legislative 
cognizance.  In  the  view  we  take,  however,  of  the  statutes  before  us, 
no  such  proposition  as  that  which  has  been  discussed  is  presented  for 
our  adjudication.  And  we  rejoice  that  it  is  so,  not  only  on  account 
of  the  delicacy  of  the  task  in  pronouncing  an  act  of  the  legislature  un- 
constitutional and  void,  one  which  is  never  justifiable,  unless  the  case 
is  clear  and  free  from  doubt;  and  even  then  one  might  almost  be  for- 
given for  shrinking  from  the  performance  of  the  duty,  which  would  be 
productive  of  such  incalculable  mischief  and  confusion.  Bridges  have 
been  built  at  a  heavy  expense,  manufacturing  and  innumerable  other 
associations  have  been  formed  in  Georgia,  and  are  in  full  operation, 
under  charters  incorporated  under  this  law.  And  in  view  of  the  con- 
sequences any  court  might  hesitate,  unless  the  repugnance  between 
the  statute  and  the  constitution  was  so  palpable  as  to  admit  of  no 
doubt,  and  produce  a  settled  conviction  of  their  incompatibility  with 
each  other. 


282  THE   FRANKLIN    BRIDGE   CO.  V.  WOOD.  §  55 

(4)  It  was  formerly  asserted  that  in  England  the  act  of  incorpora- 
tion must  be  the  im7uediate  act  of  the  king  himself,  and  that  he  could 
not  grant  a  license  to  another  to  create  a  coi-poration.  (10  Rep. 
27.)  But  Messrs.  Angell  &  Ames,  in  their  Treaties  on  Corporations, 
state  that  the  law  has  since  been  settled  to  the  contrary,  and  that  the 
king  may  not  only  grant  a  license  to  a  subject  to  erect  a  particular 
corporation,  but  give  a  general  power,  by  charter,  to  erect  corpora- 
tions indefinitely,  on  the  principle  that  qui  facit  per  alium^  facit  per 
se;  that  the  persons  to  whom  the  power  is  delegated,  of  establishing 
corporations,  are  only  an  instrument  in  the  hands  of  the  government, 
(i  Kyd  50,  I  Black.  Comm.  Ang.  &  Am.  63.) 

Before  the  revolution,  charters  of  incoi-porations  were  granted  by 
the  proprietaries  of  Pennsylvania,  under  a  derivative  authority  from 
the  crown,  and  those  charters  have  since  been  recognized  as  valid. 
(3  Wilson's  Lectures  409.)  A  similar  power  has  been  delegated  by 
the  legislature  of  Pennsylvania  with  regard  to  churches.  (7  S.  & 
R.  517.)  The  acts  of  the  instrument  in  these  cases  become  the  acts 
of  the  mover  under  the  familiar  maxim  above  mentioned.  (See,  also, 
I  Mo.  Rep,  5.) 

(5)  Our  opinion  is,  that  no  legislative  power  is  delegated  to  the 
courts  by  the  acts  under  consideration.  There  is  simply  a  ministerial 
act  to  be  performed — no  discretion  is  given  to  the  courts.  The  duty 
of  passing  the  rule  or  order,  directing  the  petition  of  the  corporators 
to  be  entered  of  record  on  the  minutes  of  the  court,  setting  forth  to 
the  public  the  object  of  the  association,  and  the  privilege  they  desire 
to  exercise,  together  with  the  name  and  style  by  which  they  are  to  be 
called  and  known,  is  made  obligatory  upon  the  courts;  and  should 
they  refuse  to  discharge  it,  a  mandamus  would  lie  to  coerce  them.  It 
is  true,  the  legislature  has  seen  fit  to  use  the  courts  for  the  purpose  of 
giving  legal  form  to  these  companies.  But  it  might  have  been  done 
in  any  other  way.  Under  the  free  banking  law  of  1838,  instead  of 
petitioning  the  court,  and  having  the  order  passed  and  entered  upon 
its  minutes,  the  certificate,  specifying  the  name  of  the  association,  its 
place  of  doing  business,  the  amount  of  its  capital  stock,  the  names 
and  residence  of  the  shareholders,  and  the  time  for  which  the  com- 
pany was  organized,  is  required  merely  to  be  proven,  and  acknowl- 
edged, and  recorded  in  the  office  of  the  clerk  of  the  superior  court, 
where  any  office  of  the  association  is  established,  and  a  copy  filed 
with  the  comptroller  general.      (Cobb's  Digest,  107—8,) 

And  so  under  the  act  of  1847,  authorizing  the  citizens  of  this 
state,  and  such  others  as  they  may  associate  with  them,  to  prosecute 
the  business  of  manufacturing  with  corporate  powers  and  privileges. 
The  persons  who  propose  to  embark  in  that  branch  of  business  are 
required  to  draw  up  a  declaration,  specifying  the  objects  of  their  asso- 
ciation, and  the  particular  branch  of  business  they  intend  carrying  on, 
together  with  the  name  by  which  they  will  be  known  as  a  corpora- 
tion, and  the  amount  of  capital  to  be  employed  by  them;  which 
declaration  is  required  to  be  first  recorded  in  the  clerk's  office  of  the 
superior  court  of  the  coimty  where  such   corporation  is  located   and 


§  56  EXISTENCE    BY   LEGISLATIVE   ACT,  283 

published  once  a  week  for  two  months  in  the  two  nearest  gazettes, 
which  being  done,  it  is  declared  that  said  association  shall  become  a 
body  corporate  and  politic,  and  known  as  such,  without  being  spe- 
cially pleaded  in  all  courts  of  law  and  equity  in  this  state,  to  be  gov- 
erned by  the  provisions,  and  be  subject  to  the  liabilities  therein  speci- 
fied.    (Cobb's  Digest,  439,  440.) 

In  these  two  instances,  and  in  others  which  might  be  cited,  the  leg- 
islature have  dispensed  with  the  action  of  the  courts,  or  of  any  other 
agency,  to  carry  out  their  enactments,  with  regard  to  these  various 
associations,  which  have  become  the  usual  and  favorite  mode  of  con- 
ducting the  industrial  pursuits  of  the  civilized  world  in  modem  times. 

All  these  statutes  were  complete  as  laws  when  they  came  from  the 
hands  of  the  legislature ;  and  did  not  depend  for  their  force  and  effi- 
cacy upon  the  action  or  will  of  any  other  power.  It  is  true  that  they 
could  only  take  effect  upon  the  happening  of  some  event,  such  as  the 
filing  the  petition  or  declaration,  and  giving  publicity  to  the  purpose 
of  the  association,  and  the  mode  prescribed  by  the  act.  But  if  this 
w^ere  a  good  reason  for  regarding  these  statutes  as  invalid,  then  how 
few  corporations  could  abide  the  test.  For  it  requires  the  acceptance 
of  the  charter  to  create  a  corporate  body,  for  the  government  can  not 
compel  persons  to  become  an  incoi-porated  body  without  their  consent. 
And  this  consent,  either  express  or  implied,  is  generally  subsequent, 
in  point  of  time,  to  the  creation  of  the  charter.  And  yet,  no  charter 
that  we  are  aware  of  has  been  adjudged  invalid,  because  the  law  cre- 
ating it  and  previously  defining  its  powers,  rights,  capacities  and  lia- 
bilities, did  not  take  effect  until  the  acceptance  of  the  corporate  body, 
or  at  least  a  majority  of  them,  was  signified. 

The  result,  therefore,  of  our  deliberation  upon  this  case  is,  that  the 
acts  of  1843  and  1845,  vesting  in  all  associations,  except  for  banking 
and  insurance,  the  power  of  self-incorporation,  do  not  impugn  the  con- 
stitution ;  and  that  the  charter  of  the  Franklin  Bridge  Company  and 
all  others,  created  under  them,  and  in  conformity  to  their  provisions, 
are  legal  and  valid.  With  the  policy  of  these  statutes,  we  have  noth- 
ing to  do.  The  province  of  this,  and  all  other  courts,  is  jus  dicere^ 
not  JUS  dare. 

Judgment  reversed. 

—I 

Sec.  56.     Same.     (3)    Plenary. 

PENOBSCOT  BOOM  CORPORATION  v.  WILLIAM  P.  LAM80N  Et  Al.» 

1839.     ^N  THE  Supreme  Judicial  Court  of  Maine.     16  Maine  (4 
Shepley)  224-233,  33  Am.  Dec.  656. 

Exceptions  from  the  court  of  common  pleas,  Perham,  J.,  presiding. 

Assumpsit  for  boomage  of  logs,  asserted  to  belong  to  the  defend- 
ants. The  writ  was  dated  December  21,  1835,  the  action  was 
entered  at  January  term,  1836,  and  continued  to  October  term  follow- 

'Arguments  omitted.    Part  of  opinion  omitted. 


284  PENOBSCOT    BOOM    CORPORATION    V.    LAMSON.  §  56 

ing,  when  the  defendants  called  for  the  right  of  the  attorneys  acting 
for  the  corporation  to  appear  and  act  therefor.  The  judge  ruled  that 
it  was  unnecessary.  The  action  came  on  for  trial  at  January  term, 
1837,  when  the  general  issue  was  pleaded,  and  a  brief  statement  was 
filed,  denying  the  existence  of  the  corporation  then  or  at  any  time ; 
alleging  that  the  charter  by  and  under  -which  the  plaintiffs  claimed 
a  corporate  existence  had  been  forfeited  by  non-user ;  that  there  had 
been  no  organization  under  the  same ;  that  it  was  dissolved  by  a  total 
loss  of  all  its  members ;  and  that  it  had  never  complied  with  the  pro- 
visions of  the  act  of  its  incorporation  by  a  total  neglect  to  choose  any 
officers  under  said  act.  To  support  the  action,  the  act  incorporating 
the  Penobscot  Boom  Corporation,  February  13,  1832,  Spec.  Laws,  c. 
236;  a  bill  of  sale  from  Rufus  Dwinal,  named  in  the  act,  to  Samuel 
Veazie,  dated  February  17,  1832,  conveying  one-half  of  the  charter, 
booms,  and  property;  and  another  bill  of  sale  from  Dwinal  to  Veazie, 
dated  April  i,  1833,  conveying  the  other  half;  were  introduced. 
Also,  a  book  called  and  offered  as  the  records  of  the  corporation,  but 
not  verified  by  the  oath  of  any  one;  "to  the  sufficiency,  of  which,  to 
prove  the  organization,  as  well  as  to  the  introduction  of  all  the  testi- 
mony offered  by  plaintiff,  the  defendants'  counsel  objected.  The 
objection  was  overruled,  and  a  part  of  the  book  was  read  to  the  jury. 
The  defendants'  counsel  having  called  for  the  records."  The  char- 
ter and  the  bills  of  sale  were  copied  into  this  book,  and  the  following 
vote  appeared  therein:  "Bangor,  April  2,  1833,  I,  Samuel  Veazie, 
being  the  only  owner  of  the  Penobscot  Boom  Corporation,  have  this 
day  had  a  meeting  of  said  corporation  at  my  house,  and  appointed 
myself  to  the  office  of  president  of  said  corporation,  and  clerk  of  said 
meeting,  with  full  powers  to  make  all  records  and  to  transact  all  busi- 
ness that  may  be  necessary  for  carrying  said  corporation  into  full  effect 
and  to  receive  and  collect  all  tolls  that  may  be  due  from  time  to  time, 
and  pay  all  bills  against  the  said  corporation,  and  to  continue  until 
some  person  is  chosen  or  appointed  in  my  stead.  A  true  record.  At- 
test, Samuel  Veazie,  clerk."  The  plaintiff  then  proved  that  the  logs 
were  surveyed  in  the  boom  by  Davis  &  Young  scalers,  appointed  by 
the  surveyor-general  of  the  county  of  Penobscot,  under  the  statute  of 
March  2,  1833,  Spec.  Laws,  c.  373.  Young  also  testified  that  he  took 
charge  of  the  boom  in  the  spring  of  1833,  and  had  retained  it  since; 
that  a  large  amount  had  been  expended  on  the  boom  by  Veazie,  and 
that  the  witness  is  the  general  agent  of  Veazie  at  Oldtown,  and  drew 
on  him  for  money  and  paid  him  money  received  for  boomage,  and 
knew  nothing  of  the  corporation  of  his  own  knowledge.  It  was 
proved  that  the  boom  was  erected  in  the  spring  of  1832,  under  the 
direction  of  Dwinal,  and  has  been  in  operation  ever  since.  The  de- 
fendants requested  the  court  to  order  a  non-suit,  but  the  judge  refused. 
The  defendants  then  proved  that  the  boom,  when  full,  prevented  the 
free  passage  of  rafts  and  logs.  The  counsel  for  the  defendants  re- 
quested the  judge  to  instruct  the  jury  that  there  was  no  such  corpora- 
tion as  alleged;  that  there  was  no  vote  or  direction  of  the  Penobscot 
Boom  Corporation,  at  any  regular  meeting  of  the  corporation,  author- 


§  56  EXISTENCE   BY    LEGISLATIVE   ACT.  2S5 

izing  the  erection  of  the  boom,  and  that  the  action  was  not  maintain- 
able. The  judge  did  not  thus  instruct  them,  but  directed  them  to 
inquire,  if  the  evidence  submitted  to  them  proved  the  existence  of  such 
a  corporation  as  is  named  in  the  writ;  and  if.  not,  they  would  return 
a  verdict  for  the  defendants.  But  if  such  corporation  had  been 
proved,  it  not  being  denied  that  the  sum  claimed  in  this  action  was 
due,  if  the  contents  of  the  logs  had  been  legally  ascertained,  they 
would  find  for  the  plaintiff.  They  were  also  directed  to  inquire  if 
the  boom  had  been  erected  and  continued  by  authority  of  the  Penob- 
scot Boom  Corporation.  The  jury  returned  a  verdict  for  the  plaintiff, 
and  being  inquired  of  at  the  request  of  the  counsel  for  the  defendants, 
stated  that  they  found  the  boom  to  have  been  erected  and  continued 
by  the  authority  of  the  Penobscot  Boom  Corporation.  The  defend- 
ants excepted. 

Shepley,  J.  *  *  *  Xhe  existence  of  such  a  corporate  body  is 
denied,  and  it  is  said  that  it  does  not  come  within  the  legal  description  of 
a  corporation,  either  sole  or  aggregate,  as  defined  by  any  code  of  laws. 
Corporations  originating  according  to  the  rules  of  the  common  law 
must  be  governed  by  it  in  their  mode  of  organization,  in  the  manner 
of  exercising  their  powers,  and  in  the  use  of  the  capacities  conferred. 
And  when  one  claims  its  origin  from  such  a  course,  its  rules  must  be 
regarded  in  deciding  upon  its  legal  existence.  The  legislature  mayy 
however^  create  a  corporation^  not  only  'without  conforming  to  such 
rules ^  but  in  disregard  of  them^  and  -when  a  corporation  is  thus 
created^  its  existence^  powers^  and  capacities ^  the  mode  of  exer- 
cising them,  must  depend  upon  the  law  of  its  creation.  It  was  the 
pleasure  of  the  legislature  in  this  case  to  create  a  corporate  body, 
without  requiring  a  conformity  to  the  usual  mode  of  organization 
known  to  the  law.  The  grant  is  to  one  person  who  was  at  liberty  to 
associate  others,  or  to  have  a  succession  without  it.  No  provision  is 
made  for  a  division  of  the  property  allowed  to  be  held  into  shares,  or 
for  the  call  of  any  meeting,  or  the  choice  of  a  clerk,  or  any  other  pffi- 
cer,  or  the  keeping  of  any  records,  or  any  mode  of  organization.  And 
yet  many  important  powers  and  privileges  are  granted  with  an  evi- 
dent design  to  permit  their  exercise.  The  grant  being  to  one  person 
and  without  any  such  provisions,  the  inference  necessarily  is  that  it 
was  the  intention  of  the  legislature  to  permit  that  one  person  or  his 
successor  to  exercise  all  the  corporate  powers,  and  to  make  his  acts 
when  acting  upon  the  subject-matter  of  the  corporation  and  within  its 
sphere  of  action  and  grant  of  power  the  acts  of  the  corporation. 

There  does  not  appear  to  be  any  other  mode  of  carrying  into  effect 
the  intention  of  the  legislature.  And  if  there  are  doubts  whether  the 
person  controlling  the  corporation  has  acted  in  behalf  of  the  corpora- 
tion, they  are  necessarily  to  be  solved  by  proof.  And  if  any  evils 
have  arisen  or  shall  arise  from  any  proceedings  under  the  act,  the  leg- 
islature may  provide  a  remedy.  The  answer  to  the  arguments  against 
its  existence  arising  from  a  want  of  organization  and  choice  of  officers 
is,  that  the  act  requires  them.  In  the  case  of  Day  v.  Stetson,  8 
Greenl.  365,  where  a  charter  was  granted   to  one,  and  provision  was 


286  PENOBSCOT    BOOM    CORPORATION   V.    LAMSON,  §  56 

made  for  taking  associates  and  calling  a  meeting  of  them,  it  was  de- 
cided that  it  was  a  condition  subsequent,  and  that  the  neglect  would 
not  prevent  the  act  taking  effect,  or  the  exercise  of  the  powers  granted 
by  it.  ■  The  case  finds  that,  "it  was  proved  that  the  boom  was  erected 
under  the  direction  of  R.  Dwinal^  and  went  into  operation  in  the 
spring  of  1832,  and  continued  so  ever  since,"  and  this  sufficiently 
proves  that  the  acceptance  of  the  act  of  incorporation,  for  it  could  not 
be  lawfully  done  but  by  virtue  of  the  act,  and  the  presumption  of  the 
law  is  that  one  acts  lawfully  when  he  may  do  so  by  a  special  grant  of 
authority  for  that  purpose.  There  is  not  the  same  finding  in  all  the 
other  cases,  but  there  is  sufficient  testimony  to  prove  that  the  boom 
was  erected,  and  that  it  has  been  maintained  by  the  one  professing  to 
own  the  franchise  and  to  act  under  it.  And  the  acceptance  may  be 
presumed  from  the  exercise  of  the  corporate  powers.  Bank  of  the 
United  States  v.  Dandridge,  12  Wheat.  71;  Trott  v.  Warren,  2 
Fairf.  227.  And  the  act  of  incorporation,  with  proof  of  the  exercise 
of  the  corporate  powers  since  1832,  was  sufficient  evidence  of  the  exist- 
ence of  the  corporation.  Utica  Ins.  Co.  v.  Caldwell,  3  Wend.  296; 
Day  V.  Stetson,  8  Greenl.  365.  There  being  no  provision  for  the 
call  of  any  meeting,  or  for  the  choice  of  any  officer,  when  a  sale  of 
part  of  the  franchise  to  Veazie  required  some  evidence  of  the  as- 
sent of  two  minds  to  perform  a  corporate  act,  there  might  be  more 
difficulty  in  proving  the  acts  of  the  corporation,  but  it  is  not  perceived 
that  the  mode  of  proof  would  be  changed. 

It  is  contended,  also,  that  if  the  corporation  has  existed,  it  has  been 
dissolved.  In  what  manner  corporations  may  be  dissolved,  and  what 
will  not  operate  as  a  dissolution,  has  been  determined  in  many  decided 
cases.  A  corporation  will  not  be  dissolved  by  a  sale  of  the  franchise, 
or  of  all  the  corporate  property  and  a  settlement  of  all  its  concerns 
and  a  division  of  the  surplus,  or  by  a  cessation  of  all  corporate  acts, 
or  by  any  neglect  of  corporate  duty,  or  any  abuse  of  corporate  pow- 
ers, or  by  doing  acts  which  cause  a  forfeiture  of  the  charter,  without  a 
judgment  declaring  such  forfeiture.  Such  dissolution  can  take  place 
only:  i.  By  an  act  of  the  legislature,  where,  as  in  this  state,  power  is 
reserved  for  that  purpose.  2.  By  a  surrender,  which  is  accepted,  of 
the  charter.  3.  by  a  loss  of  all  its  members,  or  of  an  integral  part,  so 
that  the  exercise  of  the  corporate  functions  can  not  be  restored.  4.  By 
forfeiture,  which  must  be  declared  by  judgment  of  court.  Slee  v. 
Bloom,  5  Johns.  Ch.  Rep.  367 ;  Trustees  of  Vernon  Society  v.  Hills, 
6  Cowen  23;  Bank  of  Niagara  v.  Johnson,  8  Wend.  645;  Wilde  v. 
Jenkins,  4  Paige  481 ;  Canal  Company  v.  Railroad  Company,  4  Gill. 
&  Johns.  121;  Russell  v.  McLellan,  14  Pick.  63;  Revere  v.  Boston 
Copper  Company,  15  Pick.  351 ;  Porter  v.  Kendall,  6  B.  &  C.  703; 
2  Kent  312.     *     *     ♦ 

Exceptions  overruled. 

Note.  1  Hamilton's  Works  iii;  1819,  McCulloch  v.  Maryland,  4  Wheat. 
(U.  S.)  316;  Osborn  v.  Bank  of  U.  S.,  9  Wheat.  738;  1840,  Falconer  v.  Camp- 
bell, 2  McLean  195,  infra,  p.  287;  1844,  Green  v.  Graves,  1  Doug.  (Mich.)  351, 
infra,  p.  292;  1844,  People  v.  Marshall,  6  III.  672;    1851,  Myers  v.  Manhattan 


§  57  POLICY   OF   GENERAL    LAWS.  28/ 

Bank,  20  Ohio  283;  1873,  Robinson  v.  Jones,  14  Fla.  256;  1874,  Stowe  v. 
Flagg,  72  111.  397;  1874,  Hadlev  v.  Freedman's  Sav.  &  T.  Co.,  2  Tenn.  Ch.  122, 
126;  1874,  United  States  v.  Ins.  Co.,  22  Wall.  (U.  S.)  99;  1876,  Mayor  of 
Mobile  V.  Moog,  53  Ala.  561 ;  1876,  Cotton  v.  Mississippi  Boom  Co.,  22  Minn. 
372;  1876,  Gordon  v.  Association,  etc.,  12  Bush  (Ky.)  110;  1876,  Williams 
V.  Creswell,  61  Miss.  817,  822;  1878,  Nelson  v.  McArthur,  38  Mich.  204. 


Sec.  57.    Same.     As  to  form  of  exercising  such  authority : 
( I )    Special  or  general  law. 
(a)    Policy  of  general  laws. 

FALCONER  AND  HIGGINS  v.  HENRY  M,  CAMPBELL  Et  Al.» 

1840.    In  the  Circuit  Court  of  the  United  States,  7th  Circuit. 
2  McLean's  Reports  (U.  S.  Circuit  Ct.)  195-213. 

Action  against  the  directors  of  the  Detroit  bank  to  recover  the 
amount  of  bill  of  exchange,  drawn  by  the  bank  in  favor  or  the  plaint- 
iffs on  a  New  York  bank,  and  protested  for  non-payment.  The 
declaration  set  forth  the  organization  of  the  bank  under  the  general 
banking  law  of  1838.  The  defendants  filed  a  general  demurrer  rais- 
ing-the  questions  (among  others)  stated  below. 

Opinion  by  McLean,  J.     *     *     * 

First :  Are  the  associations  authorized  by  the  general  law  corpora- 
tions } 

Second :    Had  the  legislature  power  to  pass  such  a  law  ? 

The  act  in  question  is  entitled  "an  act  to  organize  and  regulate 
banking  associations."  The  first,  second,  third,  fourth,  fifth,  sixth 
and  seventh  sections  provide  in  what  mode  the  associations  shall  be 
formed.  Application  is  to  be  made,  in  writing,  to  the  treasurer  and 
clerk  of  the  county,  where  the  business  is  to  be  transacted,  stating  the 
amount  of  capital  proposed.  Of  this  application  public  notice  is  re- 
quired to  be  given.  Bond,  in  the  sum  of  thirty  thousand  dollars,  to 
be  approved  of  by  the  treasurer  and  clerk,  must  be  entered  into.  The 
capital  stock  is  limited,  and  the  subscriptions  are  to  be  received  and 
apportioned,  etc.-  Ten  per  cent,  on  shares  subscribed  are  required  to 
be  paid. 

And  when  the  capital  stock  of  the  proposed  association  shall  be 
subscribed  and  ten  per  cent,  paid,  on  notice  being  given  to  the  stock- 
holders, they  are  authorized  to  meet  and  elect  nine  directors,  a  major- 
ity of  whom  are  authorized  to  manage  the  affairs  of  the  association. 
They  are  required  to  elect  one  of  their  number  president;  and  in  the 
ninth  section  it  is  provided,  that  "all  such  persons  as  shall  become  stock- 
holders of  any  such  association  shall,  on  compliance  with  the  provisions 
of  the  act,  constitute  a  body  corporate  and  politic  in  fact  and  in  name,  ynd 
by  such  name  as  they  shall  designate  and  assume  to  themselves,  etc., 
and  by  such  name  they  and  their  successors  shall  and  may  have  con- 
tinued succession,  and  shall,  in  their  corporate  capacity,  be  capable 

*  Arguments  and  part  of  opinion  omitted. 


288  FALCONER   AND   HIGGINS   V.    CAMPBELL.  §  57 

of  suing  and  being  sued,  pleading  and  being  impleaded,  etc.,  in  all 
courts  whatsoever ;  and  that  they  and  their  successors  may  have  a 
common  seal,  and  by  such  name  as  they  shall  designate,  adopt  and 
assume  as  aforesaid,  shall  be  in  law  capable  of  purchasing,  holding 
and  conveying  any  estate,  real  or  personal,"  etc.  By  the  15th  section 
the  directors,  for  the  time  being,  or  a  majority  of  them,  have  power 
to  make  by-laws. 

The  ordinary  powers  of  a  corporation  are — i.  Perpetual  succes- 
sion. 2.  To  sue  and  to  be  sued,  and  to  receive  and  grant  by  their 
corporate  name.  3.  To  purchase  and  hold  lands  and  chattels.  4. 
To  have  a  common  seal;  and  5.    To  make  by-laws. 

Some  of  these  powers  are  incidents  to  a  corporation,  but  they  are 
all  generally  expressly  given  by  a  statute  in  this  country,  and  these 
powers  are  all  given  in  the  act  under  consideration.  It  expressly  pro- 
vides that  the  association  authorized  by  the  act,  when  formed,  shall 
"constitute  a  body  corporate  and  politic  in  fact  and  in  name." 

The  act  not  only  gives  in  terms  all  the  requisites  to  co.nstitute  a  cor- 
poration, but  the  body,  when  formed,  is  technically  designated  by  it 
as  such.  Where  then  is  the  ground  for  argument  or  doubt  on  the 
subject?  Did  not  the  legislature  comprehend  the  force  of  the  lan- 
guage they  used  .-*  They  have  created  an  artificial  being,  giving  to  it 
in  well  defined  terms  its  just  proportions  and  powers,  and  have 
called  it  by  its  appropriate  and  technical  name.  Could  the  legislature 
in  language  more  clear  and  forcible  have  created  a  corporation  .>*  Not 
a  quasi  corporation,  not  a  joint  stock  company,  or  a  limited  partner- 
ship, but  substantially  and  technically  a  corporation. 

In  illustration  of  this  act  of  the  legislature,  it  is  unnecessary  to  refer 
to  the  mode  of  creating  corporations  in  England  by  grant  from  the 
crown,  or  point  out  the  distinction  which  may  exist  between  a  body 
thus  created  and  one  created  by  a  statutory  grant,  or  between  an 
ancient  and  modern  being  of  this  sort.  It  is  enough  to  know  that 
it  is  not  essential  to  the  character  of  a  corporation,  that  its  powers 
should  be  equal  to  any  similar  association,  either  ancient  or  modem. 
It  is  sufficient  if  in  its  corporate  name  it  exercises  the  powers  and 
rights  of  a  natural  person,  in  the  management  of  its  concerns. 

We  can  entertain  no  doubt  that  the  associations  authorized  under 
the  above  act  were  intended  to  be,  and  are,  in  fact,  corporations. 

Had  the  legislature  power  to  pass  this  law  .-*  This  is  the  great  ques- 
tion in  the  case,  and  it  is  fully  and  fairly  presented  by  the  demurrer. 

The  second  section  of  the  twelfth  article  of  the  constitution  of 
Michigan  declares  that  "the  legislature  shall  pass  no  act  of  incorpora- 
tion, unless  with  the  assent  of  at  least  two-thirds  of  each  house."  And 
it  is  earnestly,  ingeniously  and  ably  contended  that  this  is  an  inhibition 
of  the  creation  of  corporations  by  a  general  law.  That  corporate 
powers,  under  it,  can  only  be  conferred  by  express  enactment  in  each 
case.     *     ♦     * 

We  are  told  that  the  people  of  Michigan  were  jealous  of  monop- 
olies, and  especially  of  bank  monopolies,  and  that  by  the  introduction 
of  the  above  section  into  their  constitution  they  intended  to  restrict  the 


§   57  EXISTENCE    BY    LEGISLATIVE   ACT.  289 

powers  of  the  legislature  in  making  such  grants.  That  such  was  their 
intention  is  clear  from  the  language  of  the  section.  A  law  which 
confers  corporate  powers  can  only  be  passed  by  a  vote  of  two-thirds 
of  the  members  of  each  house.  But  must  each  coiporation  be  created 
by  a  separate  act?  This  is  the  ground  taken  in  support  of  the  de- 
murrer. No  act  of  incorporation  shall  be  passed  by  the  legislature, 
unless  with  the  assent  of  at  least  two-thirds  of  each  house,  are  the 
words  of  the  section.  The  word  act  is  used  in  the  singular,  but  does 
it  necessarily  iinport  that  not  more  than  one  corporation  can  be  created 
in  the  same  act.'' 

Suppose  ten  distinct  applications  w-ere  made  to  the  legislature  for 
bank  incoiporations  at  the  same  session,  and  the  legislature  were  dis- 
posed to  grant  each  application,  must  they  pass  ten  acts  of  incorpora- 
tion, or  may  not  the  ten  corporations  be  granted  in  the  same  act.'' 
Would  not  such  a  law  be  within  the  letter  and  spirit  of  the  constitu- 
tion ?     Of  this  there  would  seem  to  be  little  doubt. 

As  distinctive  a  character  may  be  given  to  each  corporation  in  such 
an  act  as  if  it  were  established  by  a  special  law.  In  1834  an  act  was 
passed  by  the  legislative  council  of  the  territory  of  Michigan,  entitled 
"An  act  to  establish  branches  of  the  Bank  of  Michigan,  Farmers'  and 
Mechanics'  Bank  of  Michigan,  and  Bank  of  the  River  Raisin."  Such 
acts  are  common,  and  it  is  believed  never  to  have  been  supposed  that 
the  legislative  power  might  not  be  exercised  in  this  mode.  The  re- 
striction in  the  constitution  does  not  prohibit  it. 

And  if  this  may  be  done  luider  the  constitution,  then  the  construc- 
tion, that  each  corporation  must  be  created  by  a  special  law,  can  not 
be  sustained.     »     *     » 

At  the  time  the  constitution  of  Michigan  was  adopted,  in  many  of 
the  states  and  in  this  territory,  it  was  the  ordinary  course  of  legislation 
to  create  corporations  by  a  general  law.  This  was  the  case  in  Ohio, 
and  in  many  of  the  other  states.  And  it  can  be  of  no  importance 
whether  banking  or  other  associations  were  thus  incorporated.  The 
power  was  exercised.  Does  the  constitution  prohibit  the  exercise  of 
this  power.? 

It  has  already  been  shown  that  an  act  which  shall  establish  several 
banking  corporations  is  not  repugnant  to  the  constitution.  And  this 
reduces  the  objections  to  the  law  under  consideration  to  two  points: 

First.  That  a  corporation  being  a  grant  must  be  made  to  a  person 
or  persons  in  esse. 

Second.  The  indefinite  number  of  banking  corporations  which, 
under  the  law,  may  be  established. 

The  first  objection  on  examination  will  be  found  to  have  but  little 
force. 

The  creation  of  a  corporate  existence  can  never  take  effect  until 
the  association  be  formed  and  the  organization  completed .  Commis- 
sioners are  generally  designated  in  the  act .^  ivho  are  to  superintend 
the  opening  of  the  books  and  receive  the  subscriptions  of  stock.  And 
ivhen  the  amount  shall  be  subscribed  and  the  necessary  payments 
19— WiL.  Cases. 


290  FALCONER   AND    HIGGINS   V.    CAMPBELL.  §  57 

made^  the  stockholders  elect  directors  who  appoint  a  president  and 
cashier.  The  organization  being  completed ^  existence  is  given  to 
the  artificial  beings  and  its  agency  cojmnences.  It  is  fioiu  in  esse^ 
but  before  this  it  was  tiot.  Vitality  is  given  to  it  by  the  voluntary 
association  and  organization  of  its  members.  Had  they  remained 
passive  the  law  could  have  had  no  effect. 

In  this  case  then,  the  grant  of  the  franchise  is  not  made  to  a  person 
or  persons  in  esse.  The  commissioners  did  not  constitute  the  corpo- 
ration, nor  was  the  franchise  in  any  form  or'degree  vested  in  them. 

This  is  the  general  mode  in  which  corporations  are  created,  and  it 
has  stood  the  test  of  time,  and  of  legal  scrutiny.  No  valid  objection 
is  perceived  to  it. 

In  regard  to  this  objection  the  act  under  consideration  rests  upon 
the  same  ground  as  other  and  more  special  acts  on  the  same  subject. 
The  franchise  is  not  vested  in  either  until  the  organization  be  com- 
pleted, and  this  depends  upon  the  voluntary  association  of  indi- 
viduals. 

In  a  special  act  commissioners  are  named  to  open  the  books  and  re- 
ceive subscriptions  of  stock ;  in  the  act  under  consideration  the  clerk 
and  treasurer  of  each  county  are  required  to  perform  this  duty.  They 
are  commissioners  for  this  purpose ;  and,  so  far  as  the  grant  is  con- 
cerned, if  it  be  valid  under  one  law  it  must  be  so  under  the  other. 

We  come  now  to  consider  the  objection,  that  an  indefinite  num- 
ber of  banking  corporations  are  authorized  by  the  general  law,  and 
this,  it  is  supposed,  is  not  only  repugnant  to  the  policy,  but  the  ex- 
press provision  of  the  constitution. 

It  can  not  be  said  that  this  law  violates  any  express  provision  of  the 
constitution.  The  extent  of  the  provision  referred  to  is  that  no  act  of 
incorporation  shall  be  passed,  except  by  at  least  a  majority  of  two-thirds 
of  each  branch  of  the  legislature. 

Now,  this  does  not  limit  the  number  of  corporations  which  shall  be 
established,  nor  the  number  which  may  be  created  in  one  act.  The 
act  must  be  passed  by  a  majority  of  two-thirds,  and  this  is  the  only 
express  restriction  on  the  subject.  If  the  range  of  legislative  power 
be  restricted  beyond  this,  it  must  be  done  by  construction. 

There  may  be  a  wide  distinction  between  the  policy  of  a  general 
and  a  special  banking  law,  but  this  is  not  the  qnestion  for  judicial 
cognizance.  Is  there  such  a  difference  in  principle,  as  to  make  the 
one  constitutional  and  the  other  unconstitutional .''  This  is  the  inquiry 
now  to  be  made. 

As  it  regards  the  power  of  the  legislature,  it  is  unquestionable, 
whether  they  establish  one  or  fifty  banking  institutions.  The  same 
power  which"  may  establish  one  bank,  under  the  constitution,  may 
establish  fifty. 

In  the  general  law,  as  above  observed,  commissioners  are  appointed, 
the  county  clerk  and  treasurer,  to  receive  subscriptions  of  the  stock 
the  same  as  in  a  special  act.  And  the  mode  of  organization,  under 
both  acts,  is  substantially  the  same. 

The  only  difference  seems  to  be  that  in  the  special  act  the  number 


§   57  EXISTENCE   BY    LEGISLATIVE   ACT.  29I 

of  corporations  is  limited,  whilst  under  the  general  act  they  are  in- 
definite. 

And  here  it  is  contended  that  the  legislature  have,  in  substance, 
conferred  the  power  to  form  corporations  by  voluntary  associations, 
without  exercising  that  special  scnitiny,  in  each  case,  as  is  required 
by  the  constitution. 

But  is  this  a  sound  and  practical  view  of  the  case? 

It  may  be  admitted  that  it  derives  great  force  from  the  disastrous 
results  which  have  been  realized  under  this  law;  but  these  have  noth- 
ing to  do  with  the  "question  of  power  under  consideration.  Suppose 
the  results  had  been  as  beneficial  as  they  have  been  injurious,  how 
changed  would  have  been  the  argument.  But  the  question  remains 
unaffected  by  the  good  or  evil  which  resulted  from  the  law. 

The  legislature^  in  the  exercise  of  their  discretion^  seem  to  have 
concluded  that^  by  requiring  securities  on  real  estate^  and  subjecting 
the  directors  to  certain  liabilities.,  it  "would  be  good  policy  to  multiply 
the  banking  institutio?ts  of  the  state.  And  in  order  to  avoid  the 
charge  of  monopoly .,  -which  had  been  so  liberally  applied  to  banking 
incorporatio7is  by  a  general  law.,  they  held  out  to  the  community  at 
large  equal  privileges  in  forming  such  associations.  The  act  which 
thus  sanctions  an  indefinite  number  of  banks,  depending  upon  volun- 
tary associations,  is  passed  by  the  requisite  majority  of  two-thirds  of 
both  houses  of  the  legislature. 

Now,  what  is  the  pi^actical  operation  of  this  law.-"  It,  in  effect,  de- 
clares that  the  clerk  and  treasurer  of  each  county  in  the  state  shall 
be  authorized  to  open  books  and  receive  subscriptions  of  stock,  and 
when  the  associations,  thus  formed,  shall  become  organized,  they  shall 
be  in  fact  and  in  name  bodies  corporate  and  politic.  The  law  acts  as 
directly  upon  associations  thus  formed  as  if  it  had  been  passed  ex- 
pressly to  incorporate  each  association.  It  is  special  to  each.  And 
the  difference  between  a  general  and  a  special  law  of  this  character., 
in  this  respect.,  seems  to  be  that  the  one  is  passed  on  the  special  ap- 
plication of  a  few  individuals.,  whilst  the  other  is  enacted  under  the 
influence  of  a  general  policy.  But  the  question  of  power  is  the 
same. 

May  not  the  legislature  determine  the  number  of  banks  that  shall 
be  established?  This  will  not  be  controverted.  And  if  they  may  do 
this,  may  they  not,  under  the  constitution,  pass  an  act,  by  a  majority 
of  two-thirds  of  each  house,  to  establish  voluntary  associations  with- 
out limiting  their  number? 

Suppose  the  general  law  had  limited  the  number  of  banks  to  be 
established  under  it  to  ten,  could  their  power  to  pass  the  law  have 
been  doubted  ?  They  throw  around  the  institutions,  thus  to  be  organ- 
ized, all  the  guards  and  checks  which  they  deem  necessary  for  the 
public  interest.  The  law  acts  as  directly  and  distinctly  upon  each 
association  as  if  it  had  been  the  only  one  established  under  it.  And, 
in  passing  the  law,  the  legislature  exercise  the  same  scrutiny  as  if  they 
were  about  to  incorporate  only  one  bank.  Such  a  law  would  be 
within  the  letter  and  spirit  of  the  constitution.     And  if  the  legislature 


292  GREEN   V.    GRAVES.  §   57a 

may  do  this,  may  they  not  fix  on  a  greater  number  of  banks  than  ten, 
or  may  they  not,  in  the  exercise  of  their  discretion,  authorize  the 
establishment  of  an  indefinite  number?  Whether  the  number  shall 
be  large  or  small  is  a  question  of  policy  and  not  of  constitutional 
power.  If  a  large  or  indefinite  number  of  corporations  may  be  created 
in  the  same  act,  under  as  salutary  restrictions  as  the  creation  of  one, 
is  the  policy  of  the  constitution  disregarded  ? 

It  is  contended  that  the  general  law  throws  off  the  restraints  im- 
posed by  the  constitution.  But  is  this  so  ?  There  is  not  a  restriction 
in  the  exercise  of  corporate  powers,  which  can  be  imposed  by  a  special 
law,  that  may  not  be  imposed  under  a  general  law.  And  the  power 
of  the  legislature  acts  as  directly  in  the  one  case  as  in  the  other.  In 
the  general  law,  then,  there  is  no  disregard  of  the  restraints  of  the 
constitution.  Having  the  power  to  establish  more  than  one  corpora- 
tion in  the  same  act,  the  legislature  may  establish  many,  or  an  in- 
definite numoer. 

The  number,  whether  indefinite  or  limited,  does  not  render  the  law 
repugnant  to  the  constitution.  If  it  has  been  passed  by  the  constitu- 
tional majority,  it  is  within  the  restriction. 

By  the  thirty-sixth  section  of  this  law  the  legislature  reserve  "the 
power  to  alter  or  amend  the  act,  and  to  dissolve  any  association  to  be 
incorporated  under  its  provisions,  by  a  vote  of  two-thirds  of  each 
house." 

Here  is  a  power  not  usually  reserved  in  granting  franchises.  And 
it  would  seem  that,  so  far  as  the  policy  of  the  law  may  be  considered, 
this  reservation  of  power  gives  to  the  legislature  as  salutary  a  control 
over  these  grants,  for  the  public  good,  as  would  have  been  exercised 
in  acting  on  special  applications  for  charters.  And  the  presumption 
is,  that  if  the  general  law  had  not  passed,  the  number  of  banks,  under 
special  laws,  would  have  been  as  great,  and  the  consequences  not  less 
disastrous. 

The  evil  is  not  to  be  found  in  the  constitution,  or  in  the  construc- 
tion of  the  constitution,  but  in  the  elements  of  which  the  government 
is  composed.  The  time  remedy  is  found  in  the  sober  reflection,  ex- 
perience and  intelligence  of  the  community.     *     *     * 

Demurrers  withdrawn,  and  leave  to  plead,  etc. 


Sec.  57a.    Same. 

WHIPPLE,  J.,  IN  GREEN  v.  GRAVES, 

1844,  I  Douglass  (Mich.)  Reports,  p.  351  (on  pp.  363-367),  says 
upon  substantially  the  same  facts  as  in  Falconer  v.  Campbell,  supra, 
p.  287,  in  regard  to  the  policy  of  the  general  banking  law  of  Michi- 
gan: 

Let  me  now  advert  to  some  of  those  "circumstances  extrinsic  of  the 
act,"  for  the  purpose  of  discovering  the  reason  or  "cause  of  the  act." 
The   constitution   of   Michigan  was   formed   in   1835.     -^^^  who  art. 


§   5/3  EXISTENCE   BY    LEGISLATIVE   ACT.  293 

familiar  with  the  history  of  that  period  will  bear  testimony  to  the  fact 
that  a  strong  public  feeling  existed  against  corporations,  and  especially 
in  respect  to  those  possessing  banking  powers.  It  may  be  said  to 
have  been  the  absorbing  question  of  the  day.  The  community  were 
alarmed  at  the  vast  increase  of  corporations.  They  feared  the  power 
which  such  institutions  were  capable  of  wielding.  The  belief  was 
entertained  that  this  power  had  actually  been  wielded  for  bad  pur- 
poses. It  was  argued  that  all  corporations  were,  in  a  greater  or  less 
degree,  monopolies,  and  hence  the  prejudices  of  the  community  were 
arrayed  against  them.  It  was  alleged  that,  notwithstanding  the  gross 
cormptions  and  fraudulent  conduct  of  banking  corporations,  they 
could  not  be  reached,  or  be  made  amenable  to  justice  and  the  violated 
laws  of  the  country.  It  was  boldly  charged  that  bribery  and  corrup- 
tion had  been  resorted  to  for  the  purpose  of  procuring  or  perpetuating 
charters.  Regarded  as  contracts  between  the  state  and  the  company, 
they  could  not  ordinarily  be  affected  by  legislative  interference.  Im- 
munity was  offered  to  the  persons  and  property  of  the  coi-porators, 
not  invested  in  the  corporate  stock.  Such  were  some  of  the  circum- 
stances under  which  the  provision  was  incorporated  into  our  constitu- 
tion, circumstances  well  calculated  to  challenge  the  attention  of  the 
convention,  and  induce  that  body  to  devise  new  guards  by  which  the 
community  might  be  protected  against  the  evils  growing  out  of  legisla- 
tion in  respect  to  corporations.  But  the  object  they  had  in  view  could 
not  be  achieved,  unless  some  statutory  check  was  imposed,  by  which 
to  prevent  the  multiplication  of  corporations.  This  was  the  crying 
evil ;  for,  in  proportion  as  they  increased,  in  just  that  proportion  would 
the  evils  to  which  I  have  adverted  increase  also. 

Chancellor  Kent,  who  was  a  member  of  the  convention  that  re- 
vised the  constitution  of  New  York  in  1821,  says  that  the  convention 
"endeavored  to  check  the  improvident  increase  of  corporations,  by  re- 
quiring the  assent  of  two-thirds  of  the  members  elected  to  each  branch  of 
the  legislature,  to  every  bill  for  creating,  continuing,  altering  or  renew- 
ing any  body  politic  or  corporate."  2  Kent's  Com.  271.  Mr.  King,  who 
was  also  a  member  of  the  convention,  and  chairman  of  the  committee 
on  the  legislative  department,  in  reporting  the  section  embodied  in  the 
constitution  referred  toby  Chancellor  Kent,  remarked  that  "the  cpm- 
mittee  looked  upon  the  multiplication  of  corporations  as  an  evil,"  and 
that  "they  ought  not  to  be  increased,  but  should  be  diminished  as  far 
as  could  be  done  consistently  with  the  preservation  of  vested  rights." 
If  such  were  "the  extrinsic  circumstances,"  and  the  reasons  which  in- 
duced the  convention  that  framed  our  constitution  to  impose  the  re- 
striction, is  it  not  indisputable  that  we  can  give  full  effect  to  the  inten- 
tion of  the  framers  of  the  constitution,  and  of  the  people  by  whom  it 
was  ratified,  only  by  insisting  upon  such  a  construction  as  the  words 
themselves  justify;  and  that  to  affirm  the  general  banking  law  of  this 
state  constitutional  would  be  warranting  an  interpretation  at  war  both 
with  the  letter  and  spirit  of  that  instrument.''  Indeed,  Chief  Justice 
Nelson,  in  the  case  of  Thomas  v.  Dakin,  admits  that  the  intention 
of  the  framers  of  the  constitution   of  New  York  would  be  best  ful- 


294  GREEN   V.    GRAVES.  §   57a 

filled  by  the  construction  contended  for  by  the  defendant.  If  such  be 
the  case,  and  the  letter  of  the  clause  in  question  not  only  wan'ants, 
but  demands  a  literal  construction,  I  know  of  no  power  less  potent 
than  that  of  the  people  competent  to  change,  alter,  or  modify 
the  clause.  We  are  the  mere  creatures  of  the  constitution,  bound 
by  the  highest  motives  to  presei-ve  it  iniimpaired,  as  it  came  from 
the  hands  of  those  by  whom  it  was  ordained  and  established.  We 
do  not  sit  here  to  make  constitutions  and  laws,  but  to  expound 
them.  Who  that  is  familiar  with  the  opinions  of  the  conven- 
tion, or  has  consulted  the  journal  of  its  proceedings  upon  the 
subject  of  corporations,  can  hesitate  as  to  the  true  construction  of  the 
clause  relating  to  this  subject?  Those  opinions  were  hostile  to  the 
multiplication  of  corporations.  Not  only  is  this  manifest  from  the 
clause  itself,  which  requires  a  vote  of  two-thirds  of  each  house  to  pass 
an  act  of  incorporation,  but  the  journal  shows  that  the  clause  was 
unanimously  adopted.  That  member  would  have  been  regarded  as 
insane  who  should  have  offered  a  separate  proposition,  or  a  proviso 
to  the  clause  as  it  now  stands,  granting  to  the  legislature  a  power  to 
pass  a  general  law,  for  the  erection  of  moneyed  corporations,  at  the 
will  of  any  twelve  inhabitants  of  the  state.      *     *     * 

And  yet  it  has  been  gravely  argued  that,  notwithstanding  the  inhi- 
bition in  the  constitution,  that  law  can  be  sustained  which  violates  its 
letter  and  spirit ;  that  law  which  gave  birth  in  twelve  short  months  to 
some  forty  banks,  with  an  aggregate  capital  of  nearly  $4,oc>o,cxxD, 
while  there  were  in  existence  eighteen  chartered  banks,  with  an  ag- 
gregate capital  of  over  $2,000,000;  that  law  whose  history  was  black- 
ened with  frauds  and  perjuries ;  under  the  operation  of  which  indi- 
vidual and  state  credit  staggered  and  at  last  fell;  a  law  which  brought 
odium  and  reproach  upon  the  state  within  a  year  after  its  enactment. 
I  have  not  been  unmindful  of  the  fact  that  the  policy  of  the  act  was 
attempted  to  be  vindicated,  upon  the  ground  that,  vmder  the  system 
of  creating  private  corporations,  which  prevailed  before  the  adoption 
of  the  constitution,  but  comparatively  a  small  number  of  the  commu-' 
nity  could  participate  in  the  rights,  privileges  and  profits  of  banking ; 
whereas  under  the  general  law,  the  many  might  have  privileges  which 
before  were  enjoyed  by  the  few;  and  hence  the  doctrine  of  equal  rights 
and  equal  privileges,  so  much  cherished  by  the  people,  was  respected. 
In  other  words,  that  the  law  stnjck  a  death  blow  at  the  monopoly 
which  previously  existed.  This  reasoning  is  plausible ;  but  is  it 
sound.-*  All  corporations  are,  to  a  certain  extent,  monopolies.  In 
the  language  of  Mr.  Justice  McLean,  in  the  case  of  Beaty  v.  Knowles, 
4  Pet.  168,  the  "exercise  of  the  corporate  franchise  is  restrictive  of 
individual  rights."  If  so,  it  is  difficult  to  sustain  the  construction 
contended  for  by  the  plaintiff,  on  the  ground  of  policy ;  for  in  propor- 
tion as  corporations  are  created,  in  the  same  proportion  are  the  rights 
of  individuals  restricted ;  so  that,  although  more  individuals  would, 
under  the  general  banking  law,  become  members  of  banking  corpo- 
rations, yet  the  consequences  would  be  an  increase  of  institutions  ad- 
mitted to  be  monopolies  and   restrictive  of  individual   rights.     The 


§   57b  EXISTENCE   BY    LEGISLATIVE   ACT.  295 

remedy  for  the  mischief,  then,  would  certainly  be  worse  than  the  mis- 
chief itself;  and  I  think  a  community,  like  an  individual,  should  en- 
dure a  lesser  evil,  if,  in  attempting  to  cure  it,  a  greater  one  would  be 
entailed  upon  them.     *     *     * 

[This  case  held  the  Michigan  banking  act  to  be  unconstitutional.] 

See  note,  supra,  p.  32. 


Sec.  57b.    Same. 

DEADY,  J.,  IN  WELLS,  FARGO  &  CO.  v.  NORTHERN  PACIFIC  RY. 

COMPANY, 

1884,  Circuit  Court  of  Oregon,  23  Fed.  Rep.  469,  on  pp.  473-4, 
in  a  suit  by  the  Wells  Fargo  Express  Company,  organized  under  a 
special  act  of  the  territory  of  Colorado,  to  constrain  the  railway  com- 
pany to  furnish  it  with  express  facilities  in  Oregon,  says: 

Another  objection  is  made  to  the  relief  demanded  in  this  bill  on 
the  ground  of  the  inability  of  the  plaintiff  to  exercise  the  powers 
claimed  by  it  in  Washington  Territory,  and  that  is  that  it  is  created  by  a 
special  act  of  Colorado.  This  objection  is  founded  upon  section  1889, 
of  the  Revised  Statutes,  which  is  applicable  to  all  territories,  and 
reads  as  follows: 

"The  legislative  assemblies  of  the  several  territories  shall  not  grant 
private  charters  or  special  privileges ;  but  they  may,  by  general  incor- 
poration acts,  permit  persons  to  associate  themselves  together  as  bodies 
corporate  for  mining,  manufacturing  and  other  industrial  pursuits,  or  the 
construction  or  operation  of  railroads,  wagon  roads,  irrigating  ditches, 
and  the  colonization  and  improvement  of  lands  in  connection  there- 
with, or  for  colleges,  seminaries,  churches,  libraries,  or  any  other 
benevolent,  charitable  or  scientific  association." 

Now,  it  is  argued,  first,  that  because  a  corjooration  can  not  be 
organized  in  Washington  Territory  by  a  special  act  of  the  legislature, 
but  must  be  organized  under  a  general  law;  thei'efore,  a  corporation 
existing  before  this  restriction  was  made,  under  a  special  act  of  a  sister 
state  or  territory,  can  not  come  into  that  ten'itoiy  and  exercise  the  pow- 
ers, although  they  are  in  no  way  excluded  by  the  law  of  the  land,  or 
contrary  to  the  public  policy.  The  ground  is  that  it  is  not  brought 
into  being  in  the  peculiar  or  particular  way  in  which  the  general  law 
now  requires  corporations  to  be  formed  in  Washington  Territory;  but 
I  can  not  see  that  there  is  anything  in  this  objection.  There  is  noth- 
ing in  this  section  ( 1889)  to  prevent  any  coiporation  exercising  its 
powers  in  Washington  Territory  in  particular  cases.  Everybody  ivho 
is  fa7)nliar  at  all  -with  the  history  of  the  growth  and  organization 
of  corporations  in  the  United  States  knows  that  this  rtile,  requiring 
corporations  to  be  organized  tinder  a  general  law^  is  the  growth  of 
some  years,  and  has  gro^vn  otit  of  the  confusion^  corruption,  the 
partial  and  inequitable  legislation  that  was  the  result  of  allowing 
parties  to  go  before  the  legislature  and  ask  for  a  special  charter. 
The  time  of  the  legislature  was  unnecessarily  consumed  by  it;  the  in- 
tegrity of  the  members  of  the  legislature  was  unduly  exposed  ;    or, 


296   MOKELUMNE  HILL  CANAL,  ETC.,  CO.  V.  WOODBURY.   §  58 

through  the  ignorance  or  carelessness  of  the  legislature,  and  the 
astuteness  and  diligence  of  designing  and  overreaching  men,  there 
were  constantly  coming  to  light  obscure  clauses  in  these  acts  of  the 
legislature,  giving  powers  and  granting  privileges  w^hich  w^ere  unjust, 
inequitable,  and  which  would  never  have  been  done  with  the  knowl- 
edge of  the  legislature. 

Therefore,  owing  to  the  evils  resulting  to  the  territory  of  Washing- 
ton, to  the  people  and  to  the  legislature,  this  act  was  passed,  and  has 
no  reference  whatever  to  the  fact  whether  a  corporation,  othei-wise 
formed,  might  exercise  powers  in  that  territory  not  prohibited  or  con- 
trary to  its  public  policy.  It  is  a  matter  of  no  moment  whatever  to 
Washington  Territory  that  corporations  in  Colorado  are  created  by 
special  acts.  The  people  of  the  latter  territory  are  not  corrupted  by 
it ;  the  legislature  is  not  corrupted  by  it ;  their  time  is  not  taken  up 
with  it.  The  only  interest  that  they  have  in  the  matter  is  the  interest 
that  any  portion  of  the  people  of  the  United  States  have  in  the  wel- 
fare of  all  the  other  people  in  the  United  States.  See,  also,  on  this 
point,  the  remarks  of  Mr.  Justice  Field  in  Cowell  v.  Springs  Co.,  100 
U.  S.  59. 

Note.     1879,  Cowell  v.  vSprings  Company,  100  U.  S.  55. 


Sec.  58.     Same,      {b)    Difference  between  method  by  general  and 
by  special  laws. 

MOKELUMNE  HILL  CANAL  AND  MINING  CO.  v.  WOODBURY .^ 

1859.     In  The  Supreme  Court  OF  California.      14  Cal.  424-428; 

73  Am.  Dec.  658. 

Cope,  J.,  delivered  the  opinion  of  the  court,  Baldwin,  J.,  and 
Field,  C.  J.,  concurring. 

It  is  alleged  in  the  complaint  that  the  plaintiff  is  a  corporation,  and 
this  allegation  being  denied  in  the  answer,  the  case  was  tried  in  the 
court  below  upon  that  issue  alone.  The  plaintiff  dates  its  corporate 
existence  as  far  back  as  1852,  and  claims  to  have  been  duly  and  reg- 
ularly incorporated  under  the  general  act  of  1850,  providing  for  the 
formation  of  corporations  for  manufacturing,  mining,  mechanical  and 
chemical  purposes.  Section  122  of  that  act  provides  that  any  three  or 
more  persons,  who  may  desire  to  form  a  company  for  either  of  these 
purposes,  "may  make,  sign  and  acknowledge  before  some  officer 
competent  to  take  the  acknowledgment  of  deeds,  and  file  in  the  office 
of  the  clerk  of  the  county  in  which  the  business  of  the  company  shall 
be  carried  on,  and  a  duplicate  thereof  in  the  office  of  the  secretary  of 
state,  a  certificate  in  writing,"  etc.  Section  123  provides,  that  "when 
the  certificate  shall  be  filed  as  aforesaid,"  the  persons  executing  the 
same  and  their  successors,  shall  be  a  body  politic  and  corporate.  Sec- 

^  Arguments  omitted. 


§   58  EXISTENCE   BY    LEGISLATIVE   ACT.-  29/ 

tion  130  provides,  that  "the  copy  of  any  certificate  of  incorporation 
filed  in  pursuance  of  this  act,  certified  by  the  county  clerk  or  his 
deputy,  to  be  a  true  copy,  and  of  the  whole  of  such  certificate,  shall 
be  received  in  all  courts  and  places  as  presumptive  legal  evidence  of  the 
facts  therein  stated.  On  the  trial  of  the  case,  it  was  shown  that  a  certifi- 
cate, in  conformity  with  the  requirements  of  the  act  had  been  filed  in 
the  office  of  the  clerk  of  the  proper  county,  and  a  certified  copy  there- 
of was  produced  and  read  in  evidence,  but  it  was  not  shown  that  a 
duplicate  had  been  filed  in  the  ofl!ice  of  the  secretary  of  state.  It  ap- 
peared in  proof  that  the  company  had  been  doing  business  as  a  corpo- 
ration since  1853,  but  the  court  held,  that  as  it  was  not  shown  that  a 
duplicate  had  been  filed  as  required  by  the  act,  the  evidence  did  not 
establish  the  fact  of  incorporation. 

The  general  rule  is,  that  the  existence  of  a  corporation  viay  be 
proved  by  producing  its  charter,  and  showing  acts  of  user  under  it; 
but  this  rule  has  no  application  to  a  corporation  formed  under  the  pro- 
visions of  a  general  statute,  requiring  certain  acts  to  be  performed 
before  the  corporation  can  be  considered  in  esse,  or  its  transactions 
possess  any  validity.  The  existence  of  a  corporation  thus  formed 
must  be  proved  by  showing  at  least  a  substantial  compliance  with  the 
requirements  of  the  statute.  But  there  is  a  broad  and  obvious  distinc- 
tion between  such  acts  as  are  declared  to  be  necessary  steps  in  the  process 
of  incorporation,  and  such  as  are  required  of  the  individuals  seeking 
to  become  incorporated ,  but  which  are  not  made  prerequisites  to  the 
assumption  of  corporate  powers.  In  respect  to  the  fortner,  any  ma- 
terial ojnission  will  be  fatal  to  the  existence  of  the  corporation,  and 
may  be  taken  advantage  of,  collaterally,  in  any  form  in  which  the 
fact  of  incorporation  can  properly  be  called  in  question.  In  respect 
to  the  latter,  the  corporation  is  responsible  only  to  the  government, 
and  in  a  direct  proceeding  to  forfeit  its  charter.  The  right  of  the 
plaintiff  to  be  considered  a  corporation,  and  to  exercise  corporate 
powers,  depends  upon  the  fact  of  the  performance  of  the  particular 
acts  named  in  the  statute  as  essential  to  its  corporate  existence.jf  Un- 
der the  issues  presented  in  the  pleadings,  there  is  no  doubt  that  per- 
formance of  these  acts  should  have  been  shown,  and  if  the  filing  of 
the  duplicate  of  the  certificate  of  incorporation  is  to  be  regarded  as 
one  of  them,  the  court  below  properly  held  that  the  existence  of  the 
corporation  had  not  been  established.  But  we  do  not  see  upon  what 
principle  such  a  construction  of  the  statute  is  admissible.  It  is  cer- 
tainly not  justified  by  the  natural  and  ordinary  import  of  the  language 
used,  which  must  furnish  the  rule  of  construction,  unless  a  contrary 
intention  clearly  appear.  Section  122  of  the  act  provides,  as  we  have 
seen,  for  the  filing  of  a  certificate  with  the  clerk,  and  a  duplicate  with 
the  secretary  of  state;  but  section  123  declares  that  when  the  certifi- 
cate shall  be  filed,  the  persons  executing  the  same  and  their  successors, 
shall  be  a  body  politic  and  corporate.  The  intention  of  the  legislature 
clearly  was,  that,  so  far  as  individuals  are  concerned,  the  corporation 
should  acquire  a  valid  legal  existence  upon  the  filing  of  the  certificate. 


298  DUNN   V.    THE   UNIVERSITY   OF   OREGON.  §   59 

The  filing  of  the  duplicate  is  exclusively  a  matter  between  the  corpo- 
ration and  the  state.  The  rights  and  privileges  conferred  by  the  stat- 
ute vest  in  the  corporation  upon  the  filing  of  the  certificate,  and  can 
be  divested  only  by  a  direct  proceeding  for  that  purpose.  If  the 
duplicate  has  not  been  filed,  the  assumption  of  the  corporate  povi^ers 
amounts  simply  to  a  usurpation  of  the  sovereign  rights  of  the  state, 
the  remedy  for  which  rests  with  the  state  alone. 

Judgment  reversed,  and  cause  remanded  for  a  new  trial. 

Note..  See  below,  cases  upon  Conditions  Precedent  to  Valid  Corporate  Ex- 
istence, pp.  585,  614,  630;  When  Does  Corporate  Existence  Begin?  pp.  565- 
585;  also,  Schemes  of  Organization. 


Sec.   59.      (2)      Same.      By  implication. 

DUNN  Et  Al.  v.  THE  UNIVERSITY  OF  OREGON.* 

1 88 1.     In  the  Supreme  Court  of  Oregon.     9  Oregon    Reports 

357-362. 

This  suit  was  brought  by  respondents  in  the  circuit  court  for  Lane 
county,  to  set  aside  a  conveyance  of  real  property  situated  in  said 
county,  from  the  Union  University  Association  to  the  said  board  of 
directors  of  the  University  of  Oregon,  executed  on  or  about  Decem- 
ber 31,  1873,  upon  the  ground  of  fraud,  and  to  subject  such  property 
to  the  payment  of  certain  judgments,  which  had  been  recovered  in 
said  court  by  respondents  against  said  association. 

The  complaint  alleges  the  due  incorporation  of  the  Union  University 
Association  as  a  private  corporation  under  the  laws  of  Oregon,  and 
the  creation  of  the  board  of  directors  of  the  University  of  Oregon  by 
act  of  the  legislature,  approved  October  19,  1872,  subsequently 
changed  to  the  "Regents  of  the  University,"  by  act  of  the  legislature 
October  21,  1876.  It  also  shows  that  in  the  year  1873,  and  prior  to 
the  conveyance  sought  to  be  impeached,  the  Union  University  As- 
sociation became  indebted  to  the  respondents  severally  in  large  amounts 
which  have  never  been  paid.  That  at  the  time  said  indebtedness  ac- 
crued, and  prior  thereto,  said  association  was  the  owner  in  fee-simple 
of  certain  real  property  in  Eugene  City,  in  said  county,  worth  $50,000, 
and  gives  a  description  of  it  by  metes  and  bounds.  That  said  real 
estate  was  all  the  property  owned  by  said  association,  and  that  by 
conveying  it  to  the  board  of  directors  of  the  University  of  Oregon,  it 
made  itself  insolvent,  and  thereupon  became  and  has  ever  since  re- 
mained wholly  unable  to  pay  its  debts.  That  said  conveyance  was 
executed  in  fraud  of  the  rights  of  the  respondents,  and  for  the  purpose 
of  hindering  and  delaying  them  in  collecting  their  said  debts,  and  that 
there  was  no  consideration  therefor,  and  these  facts  were  fully  within 

*  Arguments  omitted.    Parts  of  opinion  omitted. 


§   59  EXISTENCE   BY   IMPLICATION.  299 

the  knowledge  of  said  board  of  directors  when  they  received  said  con- 
veyance. 

Prior  to  instituting  this  suit  the  respondents  severally  duly  recov- 
ered judgments  against  the  Union  University  Association  upon  their 
said  claims,  in  said  circuit  court,  and  caused  them  to  be  duly  docketed 
in  said  county,  and  executions  to  be  issued  and  placed  in  the  hands 
of  the  sheriff  for  service,  which  were  duly  returned  by  him  wholly 
vmsatisfied. 

The  board  of  regents  demurred,  and  the  court  below  overruled 
the  demurrer,  and  upon  their  failing  to  answer,  rendered  a  decree  for 
respondents  as  prayed  for  in  their  complaint.  From  this  decree  the 
board  of  regents  have  brought  this  appeal. 

By  the  court,  Watson,  J. : 

That  the  state  university  itself  was  incorporated  under  the  provis- 
ions of  the  act  of  October  19,  1872,  entitled  "an  act  to  create,  organ- 
ize and  locate  the  university  of  the  state  of  Oregon,"  is  not  claimed; 
but  that  the  "board  of  directors"  created  by  that  act  was  an  incor- 
porated body  can  hardly  be  denied.  Section  2  declares:  "The  gen- 
eral government  and  superintendence  of  the  university  shall  vest  in  a 
board  of  directors,  to  be  denominated  the  board  of  directors  of  the 
imiversity  of  Oregon,"  to  consist  of  nine  members,  all  of  whom  shall 
be  citizens  and  permanent  residents  of  the  state  of  Oregon." 

Section  4  provides:  "The  board  of  directors  shall  have  the 
custody  of  the  books,  records,  buildings  and  all  other  property  of  the 
university.  All  lands,  money,  bonds,  securities  and  other  property 
which  shall  be  donated,  transferred  or  conveyed  to  the  said  board  of 
directors  by  gift,  devise  or  otherwise,  for  the  use  and  benefit  of  the 
university,  shall  be  taken,  received,  held  and  managed,  invested  and 
reinvested,  sold,  transferred  and  in  all  respects  managed,  and  the 
proceeds  thereof  used,  bestowed  and  invested  in  the  manner,  for  the 
purpose  and  under  the  terms  and  conditions  respectively  prescribed 
by  the  act  or  gift,  devise  or  other  act  in  the  respective  cases.  They 
shall  have  power,  and  it  shall  be  their  duty,  to  enact  by-laws  for  the 
government  of  the  university ;  to  elect  a  president  of  the  university, 
and  the  requisite  number  of  professors,  instructors  and  employes,  and 
to  fix  their  salaries  and  the  term  of  office  of  each,  and  to  do  all  other 
acts  necessary  and  proper  to  carry  out  the  design  of  this  act." 

Sections  ii  and  12  provide,  that  on  or  before  January  i,  1874, 
"The  Union  University  Association  of  Eugene  City,  Ore.,  shall  secure 
a  site  for  said  university  at  or  in  the  vicinity  of  Eugene  City,  and 
erect  thereon  and  furnish  a  building  for  the  use  of  the  state  uni- 
versity, on  a  plan  to  be  approved,  and,  after  the  erection  of  the 
same,  to  be  accepted  by  the  board  of  commissioners  for  the  sale  and 
management  of  the  school  and  university  lands,  and  for  the  invest- 
ment of  the  funds  arising  therefrom  ;  said  building  and  furniture  to 
be  of  not  less  value  than  $50,000;  and  to  convey  the  said  site  and 
building,  in  fee-simple,  free  from  all  incumbrances,  to  said  board  of 
directors,  on  or  before  said  Januaiy  i,  1874." 

By  an  amendatory  act,  passed  October  16,  1874,  the  time  was  ex- 


300  DUNN    V.    THE    UNIVERSITY    OF   OREGON.  §   59 

tended  to  January  i,  1S77,  for  securing  such  site  and  building  and 
conveying  them  to  the  board  of  directors. 

While  it  can  not  be  denied  that  some  of  these  powers  might  be  ex- 
ercised by  a  board  of  directors  in  their  collective  capacity,  v^^ithout 
being  incorporated,  it  is  equally  undeniable  that  some  of  them  could 
not.  The  capacity  and  power  to  take  conveyances  of  lands  and  hold 
and  dispose  of  them  for  the  use  and  benefit  of  the  university,  accord- 
ing to  the  various  and  diverse  trusts  imposed  upon  them  by  their 
donors,  and  to  transmit  title  to  lands  to  their  successors  in  office  in 
perpetual  succession,  without  intermediate  conveyances,  could  not  be- 
long to  this  board  of  dii-ectors  unless  incorporated. 

It  is  true  the  legislature  has  not  declared  it  to  be  a  corporation  in 
express  terms,  but  this  was  not  essential.  (Angell  &  Ames  on  Cor- 
porations, §  76;   Thomas  v.  Dakin,  22  Wend.  70,  103,  106.) 

'■'■It  is  indeed  a  principle  of  law  which  has  been  often  acted  on ^ 
that  -where  rights^  privileges  and  powers  are  granted  by  law  to  an 
association  of  persons  by  a  collective  natne,  and  there  is  no  mode  by 
which  such  rights  can  be  enjoyed^  or  such  powers  exercised^  without 
acting  in  a  corporate  capacity^  such  associations  are,  by  implication, 
a  corporation,  so  far  as  to  enable  than  to  exercise  the  rights  and 
powers  granted.''    (Angell  &  Ames  on  Corporations,  §  78.)    *     *     * 

The  decree  of  the  court  below  is  affirmed  with  costs. 

Decree  affirmed. 

Note.  Creation  by  implication.  1.  No  precise  words,  such  as  found,  erect, 
establish,  create,  or  incorporate,  are  necessary,  provided  the  legislative  in- 
tent be  manifest.  1613,  Sutton's  Hospital,  10  Coke  30,  swpra,  p.  264;  1817, 
Denton  v.  Jackson,  2  Johns.  Ch.  (N.  Y.)  320;  1828,  North  Hempstead  v. 
Hempstead,  2  Wend.  (N.  Y.)  109;  1829,  River  Tone  v.  Ash,  21  E.  C.  L.  152,  10 
Barn.  &  C.  349;  1839,  Thomas  v.  Dakin,  22  Wend.  9  on  94,  supra,  p.  19;  1857, 
Bow  v.  Allenstown,  34  N.  H.  351,  69  Am.  D.  489;  1869,  O.  &  V.  R.  R.  Co.  v. 
Plumas  Co.,  37  Cal.  354  (contra)  ;  1870,  Liverpool  Ins.  Co.  v.  Mass.,  10  Wall. 
(U.  S.)  566;  1881,  Cent.  Ag.  &  Mech.  Assn.  v.  Ala.  G.  L.  Ins.  Co.,  70  Ala. 
120,  3  Am.  &  Eng.  C.  C.  78;  1884,  Walsh  v.  Trustee  N.  Y.  &  B.  Bridge,  96 
N.  Y.  427,  6  Am.  &  E.  C.  C.  45;  1889,  People,  ex  rel.,  v.  Wemple,  52  Hun 
<N.  Y.)  434;  1894,  Shields  v.  CHfton  Hill  L.  Co.,  94  Tenn.  123,  45  Am.  St.  R. 
700 ;  1896,  Edgworth  v.  Wood,  58  N.  J.  L.  463,  supra,  p.  29 ;  1898,  Andrews 
Bros.  V.  Youngstown  Coke  Co.,  86  Fed.  R.  585. 

2.  The  implication  may  arise  from  legislative  recognition  or  ratification. 
1830,  Society  for  Propagation  of  Gospel  v.  Town  of  Pawlet,  4  Peters  (U.  S.) 
480,  502;  1839,  Mclntyre  Poor  School  v.  Zanesville,  9  Ohio  203;  1841,  Will- 
iams V.  Union  Bank,  2  Humph.  (Tenn.)  339;  1864,  People  v.  Farnham,  35  111. 
562;  1867,  Toledo  P.  &  W.  R.  R.  v.  Town  of  Chenoa,  43  111.  209;  1884,  Walsh 
v.  Trustees,  96  N.  Y.  427,  6  Am.  &  Eng.  C.  C.  45;  1894,  Shields  v.  Chfton  Hill 
L.  Co.,  94  Tenn.  123,  45  Am.  St.  R.  700;  1894,  Andes  v.  Ely,  158  U.  S.  312. 

3.  Or  by  a  grant  of  lands  to  be  held  as  a  corporation  holds  lands.  1468, 
"If  the  king  granted  land  to  the  men  or  inhabitants  of  D.  to  their  heirs  and 
successors,  rendering  rent  therefor,  as  to  everything  touching  this  land  they 
are  a  corporation,  but  for  no  other  purpose."  Rolle's  Abr.  Corp.  F,  cit- 
ing Y.  B.  7  Ed.  4,  30;  1817,  Denton  v.  Jackson,  2  Johns.  Ch.  (N.  Y.)  320; 
1828,  North  Hempstead  v.  Hempstead,  2  Wend.  (N.  Y.)  109;  1830,  Society  for 
Prop,  of  Gospel,  etc.,  v.  Town  of  Pawlet,  4  Peters  (U.  S.)  480;  1840,  Commis- 
sioners of  Bath  V.  Bovd,  1  Ired.  Law  (N.  C.)  194;  1855,  People  v.  Schermer- 
horn,  19  Barb.  (N.  Y.")  540. 

4.  Or  by  grants  of  powers.    1154-89,  "Of  ancient  times  the  inhabitants  of 


§   59a  EXISTENCE   BY   IMPLICATION.  3OI 

a  vill  were  incorporated  when  the  king  granted  to  them  to  have  a  merchant 
guild."  Rolle,  Abr.,  Corporations  F,  p.  513,  citing  Register  of  "Writs,  219,  10 
Co.  30.  But  seel  Kyd,  64.  (The  first  printed  edition  of  the  Register  was  in 
1531,  but  Coke  claims  to  have  had  edition  containing  entries  of  writs  used  prior 
to  the  Norman  Conquest.  Preface,  10  Rep.  The  Register  is  usually  consid- 
ered as  dating  in  the  reign  of  Henry  II,  1154-1189.)  1831,  Justices  of  Cum- 
berland V.  Armstrong,  3  Dev.  (N.  C.)  284;  1839,  Thomas  v.  Dakin,  22  Wend. 
(N.  Y.)  9  on  94,  supra,  ^.  19;  1844,  Proprietors,  etc.,  of  Southhold  v.  Horton,  6 
Hill  (N.  Y.)501;  1857,  Bow  v.  Allenstown,  34  N.  H.  351;  1870,  Liverpool  Ins. 
Co.  V.  Mass.,  10  Wall.  (U.  S.)  566;  1896,  Edgworth  v.  Wood,  58  N.  J.  L.  463, 
stipra,  p.  29;  1898,  Andrews  Bros.  v.  Youngstown  C.  C,  86  Fed.  Rep.  585. 

5.  By  grant  to  successors.  1829,  Conservators  of  River  Tone  v.  Ash,  10 
Barn.  &  C.  349. 

6.  But  in  order  that  a  grant  of  powers  will  have  the  effect  to  create  a  cor- 
poration by  implication,  they  must  be  really  corporate  powers,  and  not 
merely  such  as  could  as  well  be  exercised  by  unincorporated  persons  or 
associations.  1830,  Stebbins  v.  Jennings,  10  Pick.  (Mass.)  172;  1858,  Shelton 
V.  Banks,  10  Gray  (Mass.)  401. 


Sec.  59a.  (3)  Same.  By  consolidation.     See  infra,  pp.  984-1007. 


CHAPTER  3. 

LIMITS  ON  THE  POWER  OF  THE  STATE  TO  CREATE. 
ARTICLE    I.       FROM     THE    NATURE    OF     LEGISLATIVE    AUTHORITY. 

Sec.  60*  (a)  Delegation:  General  rule:  There  can  be  no 
general  delegation  of  legislative  authority  to  create  corpora- 
tions. 

See  Franklin  Bridge  Company  v.  Wood,  supra,  p.  279,  and  note  below, 
p.  304. 


Sec.  61.     (b)  Exceptiojts,  or  apparent  exceptions: 
I.     Territorial  legislatures. 
RIDDICK,  Chairman,  Etc.,  v.  AMELIN  Et  Al. 

182 1.     In  the  Supreme  Court  of  Missouri,      i  Missouri  Reports 

5-7- 

Cook,  J.,  delivered  the  opinion  of  the  court.  This  is  a  writ  of 
error,  prosecuted  to  reverse  the  judgment  of  the  circuit  court  of  St. 
Louis  county  in  an  action  of  debt  instituted  by  the  plaintiff,  Riddick, 
as  chairman  of  the  board  of  trustees  of  the  town  of  St.  Louis,  on  a 
bond  executed  by  said  defendants  to  said  chairman.  To  which  the 
defendants  plead  that  said  Riddick  and  others,  trustees  of  said  town, 
fraudulently  represented  that  they  had  legal  right  to  lease  a  certain 
ferry,  and  that  said  Riddick,  as  chairman  of  the  board  of  trustees, 
was  authorized  to  make  and  execute  such  lease,  and  that  said  bond 
was  executed  in  consideration  of  a  lease  so  made  by  said  chairman  to 
the  defendant,  Amelin.  To  this  plea  the  plaintiff  replied:  The  act 
of  the  territorial  legislature,  authorizing  the  incorporation  of  towns ; 
the  order  of  the  court  of  St.  Louis  county  incorporating  the  town  of 
St.  Louis ;  the  act  of  said  legislature  authorizing  said  corporation  to 
license  and  regulate  ferries  therein,  and  the  ordinance  of  said  corpo- 
ration authorizing  the  chairman  thereof  to  let  and  license  such  ferries. 
To  which  replication  the  defendants  agreed  to  demur  generally,  and 
except  to  the  legal  force  and  effect  of  the  statute  authorizing  the  in- 
corporation of  towns,  and  to  the  right  of  said  trustees  to  have  of  and 
from  any  person  licensed  to  keep  a  ferry  in  said  town  more  than 
one  hundred  dollars  for  such  license. 

In  support  of  the  first  point,  it  is  insisted  by  the  defendants  that 
nothing  short  of  sovereign  power  can  create  a  corporation ;   that  the 

(302) 


§  6 1  LIMITS   ON    POWER   TO    CREATE.  303 

'■erritorial  legislature  was  not  sovereign,  and  hence  draw  the  con- 
clusion that  the  act  of  that  legislature  had  not  the  force  and  effect  of  a 
law.  That  the  power  which  creates  a  corporation  must  be  sovereign 
as  to  that  matter  is  a  principle  which  seems  to  be  well  settled ;  but 
sovereignty  may  be  either  general  or  limited,  absolute  or  controllable. 
If  this  be  not  true,  sovereignty  could  exist  nowhere  but  with  the  orig- 
inal power  of  making  laws,  which  alone  is  absolute.  The  power  to 
legislate  on  any  subject  is  sovereign  as  to  that  matter,  and  to  general 
sovereignty  is  incident  the  power  of  general  legislation.  It  remains 
then  only  to  ascertain  the  power  of  the  territorial  legislature,  under 
the  act  of  congress  creating  that  body,  and  vesting  it  with  legislative 
.powers.  It  seems  to  be  admitted  that  congress  possessed  the  power 
of  legislating  for  the  territory,  with  no  other  limitations  than  such  as 
were  imposed  by  the  federal  constitution,  and  it  has  not  been  denied 
that  the  establishment  of  the  territorial  government  with  legislative 
powers  was  a  constitutional  exercise  of  the  powers  of  congress.  If 
congress  could  impart  to  the  territorial  legislature  a  power  to  legislate 
on  any  subject  in  relation  to  the  government  of  the  people  of  the  ter- 
ritory, that  power  might,  by  the  same  authority,  be  made  as  general 
as  the  legislative  powers  of  congi-ess  over  such  territory;  and  that 
congress  intended  to  vest  the  territorial  legislature  with  general  pow- 
ers, for  the  government  of  the  inhabitants  thereof,  is  manifest,  the 
terms  of  the  provisions  being  general,  with  a  restrictive  proviso,  that 
no  law  should  be  passed  inconsistent  with  the  constitution  of  the 
United  States. 

The  territorial  legislature,  then,  had  power  to  make  all  laws  which 
they  might  deem  conducive  to  the  good  government  of  the  inhabitants 
of  said  territory,  and  the  right  being  reserved  by  congress  to  disap- 
prove and  thereby  revoke  any  law  passed  by  said  legislature,  does  not 
render  the  power  of  such  legislature  less  sovereign  in  relation  to  one 
subject  of  their  legislation  than  another;  it  is  sovereign  as  to  all,  sub- 
ject to  the  control  of  congress.  On  the  second  part,  it  was  contended 
by  the  plaintiff's  counsel  that  the  corporation  was  not  limited  by  law 
as  to  the  sum  which  they  may  demand  for  ferry  license  within  the 
limits  of  their  corporation,  and  if  they  are,  the  defendants  having  ex- 
ecuted their  bond  to  the  chairman,  can  not  avoid  it  by  showing  that  it 
was  given  for  the  payment  of  a  sum  which  the  trustees  had  no  right 
to  demand. 

The  fourth  section  of  the  act  extending  certain  powers  to  said 
trustees  (Acts  of  i8i4-'i5)  provides  that  said  trustees  shall  have  full 
power  to  license  and  regulate  ferries  established  within  their  limits, 
and  to  apply  the  license  money  to  the  use  of  the  town.  Here  the 
court  see  no  other  power  vested  in  the  trustees  than  such  as  had 
been  given  by  law  to  the  courts  of  the  several  counties  on  that  sub- 
ject. On  the  last  point  the  court  can  not  see  the  propriety  of  the 
reasoning  why  this  is  assimilated  to  an  individual  transaction  not  regu- 
lated by  special  enactment.  It  is  the  statute  which  authorizes  the 
trustees  to  license  and  regulate  ferries  within  their  limits.  The  terms 
of  such  license  and  manner  of  such  regulations  were  prescribed  by 


304  REGENTS    OF    UNIVERSITY   OF   NEW   YORK.  §  62 

law,  and  not  left  to  the  discretion  of  the  trustees  who  were  to  exercise 
those  powers.  It  is  the  opinion  of  the  court  that  the  trustees  were 
not  authorized  by  law  to  demand,  or  exact  of  any  person,  more  than 
one  hundred  dollars  for  any  such  license,  and  that  any  obligation  or 
promise  for  the  payment  of  a  greater  sum  for  such  license  is  void 
and  not  obligatoiy  on  the  party  making  it.  It  is,  therefore,  consid- 
ered and  adjudged,  that  the  said  judgment  of  the  circuit  court  of  the 
county  of  St.  Louis  be  affirmed,  and  that  said  defendants  recover  of 
the  said  Thomas  F.  Riddick,  chairman  as  aforesaid,  their  costs  by 
them  about  their  defense  of  this  writ  of  error  expended,  etc. 

Note,    See  below,  Note  on  delegation  of  power  to  create  corporations. 


Sec.  62.     Same,  (2)   Regents  of  University  of  New  York: 

2  Rev.  St.  N.  Y.,  p.  1474.     Laws  of  1892,  c.  378,  provides: 

§  37.  Charters. — The  regents  [of  the  University  of  New  York, 
established  in  17S4]  may,  "by  an  instrument  under  their  seal  and 
recorded  ni  their  office,  incorporate  any  university,  college,  academy, 
library,  museum  or  other  institution  or  association  for  the  promotion 
of  science,  literature,  art,  history  or  other  department  of  knowledge, 
under  such  name,  with  such  number  of  trustees  or  other  managers, 
and  with  such  powers,  privileges  and  duties,  and  subject  to  such  limi- 
tations and  restrictions  in  all  respects  as  the  regents  may  prescribe  in 
conformity  to  law."  (As  Am.  by  L.  1893,  c.  859,  going  into  effect 
June  I,  1895.) 

Note.     Delegation  op  power  to  create  corporations. 

1.  In  England:  Although  it  was  early  stated  that  the  king  could  not  dele- 
gate his  power  to  create  a  corporation  (2  Henry  VII,  13,  10  Coke  Kep.  27)  it 
has  been  settled  otherwise  on  the  theory  of  the  maxim  qui  facit  per  alium  facit 
perse.  This  authority  has  been  delegated  for'the  creation  of  a  single  corpora- 
tion, or  for  an  indefinite  number.  (1  Kyd  50;  1  Bl.  Com.  473.)  The  chancel- 
lor of  the  university  of  Oxford  has  a  general  power  by  charter  to  create 
corporations,  and  has  created  many,  including  trading  corporations,  to  serve 
the  students.  (1  Bl.  Com.  474;  Angell  &  A.,  §  74.)  The  lords  and  proprie- 
tors of  Maryland  (McKim  v.  Odom,  3  Bland  Ch.  416,  supra,  p.  222)  and  of 
Pennsylvania  (3  Wils.  Lect.  409)  exercised  such  delegated  authoritv  (Ang.  & 
Ames,  §  74). 

Parliament,  in  theory  not  exercising  delegated  but  original  sovereign 
authority,  and  not  hampered  bj"^  constitutional  restrictions,  can  delegate, 
either  generally  or  specially,  its  power  to  create  corporations.  Morawetz 
Corp.,  §  15;  Am.  &  Eng.  Ency.,  vol.  7,  p.  645  C2d  ed.). 

2.  In  the  United  States:  (a)  In  g-eneral.  For  the  reasons  that  there  is  no 
executive  with  authority  to  create  corporations  in  the  United  States,  that  this 
function  pertains  to  legislative  bodies  exclusively,  and  these,  with  us,  exercise 
only  delegated,  and  not  original  power,  and  that  the  creation  of  a  corporation 
is  the  enactment  of  a  law  that  requires  the  exercise  of  discretion,  it  is 
held' that  there  can  be  no  general  delegation  of  the  power  to  create  corpora- 
tions in  this  country,  on  the  maxim,  delegatus  delegare  non  potest.  Franklin 
Bridge  Co.  v.  Wood,  14  Ga,  80,  supra,  p.  279;  1884,  State  v.  Simons,  32  Minn. 


LIMITS    ON    POWER   TO    CREATE.  30$ 

540;  1821,  Cohen's  v.  Virginia,  6  Wheat  (U.  S.)  264,  442;  1822,  In  re  St.  Mary's 
Church,  7  S.  &  R.  (Pa.)  517;  1843,  Case  of  Borough  of  West  Philadelphia,  5 
Watts  &  S.  281 ;  1856,  State  v.  Armstrong,  3  Sneed  (Tenn.)  634;  1858,  Mayor, 
V.  Shelton,  1  Head  (Tenn.)  24;  1885,  Factors'  &  Traders'  Ins.  Co.  v.  N.  H.  P. 
Co.,  37  La.  Ann.  233;  1889,  Heiskell  v.  Chickasaw  Lodge  No.  8,  87  Tenn.  668. 
What  violates  and  what  does  not  violate  this  doctrine  are  well  illustrated  by 
the  two  cases  of  State  v.  Armstrong,  3  Sneed  (Tenn.)  634,  and  Mayor  v.  Shel- 
ton, 1  Head  (Tenn.)  24,  to  the  effect  that  "when  the  extent,  character  of  pow- 
ers and  objects  of  incorporation  are  fixed  by  the  legislature,"  and  not  left  to 
the  persons  themselves  seeking  incorporation,  or  the  body  to  whom  certain 
ministerial  acts  are  delegated,  there  is  no  delegation  of  legislative  powers. 

(ft)  Apparent  exceptions:  (1)  The  power  of  the  regents  of  the  University 
of  New  York,  as  above  indicated,  however,  is  discretionary  to  a  great  extent; 
and  Mr.  Morawetz  (§  15,  note  5)  considers  this  a  valid  delegation  of  power. 
Thomas  v.  Dakin,  22  Wend.  110.  The  power  to  create  churches  under  the 
Pennsylvania  act  of  1791  (3  Pa.  Laws  40)  was  largely  discretionary,  to  be  ex- 
ercised by  those  seeking  incorporation,  and  the  courts  and  attorney-general. 
(Case of  St.  Mary's  Church,  7  S.  &  R.  (Pa.)  517.) 

(2)  Ministerial  functions,  such  as  certifying  compliance  with  laws,  re- 
cording articles,  etc.,  can  be  delegated — the  creative  power  in  such  cases  is 
that  of  the  legislature.  1853,  Franklin  Bridge  Co.  v.  Wood,  14  Ga.  80,  supra, 
p.  279 ;  1877,  In  re  New  York  Elevated  R.  Co.,  70  N.  Y.  327 ;  1883,  Heck  v.  Mc- 
Ewen,  12  Lea  (Tenn.)  97;  1888,  Granby  Min.  &  S.  Co.  v.  Richards,  95  Mo. 
106.  There  seems  to  be  no  inherent  incapacity  in  the  nature  of  legislative 
power  that  prevents  its  delegation,  and  there  has  always  been  a  well  recog- 
nized exception  in  the  case  of  municipal  ordinances,  and  the  tendency  is  to 
extend  the  sphere  of  delegating  legislative  functions.  Am.  &  Eng.  P^ncy., 
vol.  6,  p.  1022  (2d  ed.) ;  Cooley's  Const'l  Lim.,  p.  *120,  n.  1 ;  Oberholtzer,  The 
Referendum  in  America,  17. 

(3)  Congress  and  the  territorial  legislatures:  It  seems  never  to  have  been 
questioned  that  congress  could  not  delegate  a  general  power  to  create  corpo- 
rations to  the  territorial  legislatures,  on  the  ground  that  such  was  a  delega- 
tion of  delegated  powers.  Perhaps  aside  from  the  constitutional  power  to 
legislate  for  the  territories,  it  might  be  held  that  congress  does  not  exercise 
delegated  powers  in  its  purely  national  or  international  relations,  outside  of 
the  states  of  the  Union,  but  that  it  is  sovereign  in  those  particulars,  much  as 
the  parliament  of  England,  so  far  as  wavs  and  means  are  concerned. 

See,  1821,  Douglas  v.  State  Bank,  1  Mo.  24;  1831,  Williams  v.  Bank  of 
Michigan,  7  Wend.  (N.  Y.)  539;  1844,  People  v.  Marshall,  1  Gilm.  (6  III.)  672; 
1851,  Myers  v.  Manhattan  Bank,  20  Ohio  283;  1852,  Vincennes  v.  University 
of  Indiana,  14  How.  (U.  S.)  268;  1864,  Allen  v.  Pegram,  16  Iowa  163;  1888, 
Carver  Mercantile  Co.  v.  Hulme,  7  Mont.  566;  1894,  Bashford-Burm.  Co.  v. 
Agua  Fria  C.  Co.,  35  Pac.  (Ariz.)  983. 

Territorial  corporations  become  state  corporations  upon  admission  of  the 
territory  to  the  Union,  as  a  state.  1820,  Vance  et  al.  v.  Farmers'  and  M. 
Bank,  1  Blackf.  (Ind.)  80;  1823,  Bank  of  Vincennes  v.  State,  1  Blackf.  (Ind.) 
267;  1884,  Kansas  Pac.  R.  Co.  v.  A.,  T.  &  S.  F.  R.  Co.,  112  U.  S.  414.  But 
see,  1851,  Myers  v.  Manhattan  Bank,  20  Ohio  283. 

They  are  subject  to  the  power  of  congress  to  control  or  abolish.  1887, 
United  States  v.  Church  of  Jesus  Christ,  5  Utah  361;  1889,  Mormon  ChurclL 
\ .  United  States,  136  U.  S.  1,  infra,  p.  906. 

See  below:    Limits  on  power  of  territorial  legislatures,  p.  332. 

By  the  present  New  Jersey  law  "The  certificate  of  incorporation  may  also- 
'ontain  any  provision  which  the  incorporation  may  choose  to  insert  *  *  * 
reating  *  *  *  the  powers  of  the  corporation,  the  directors  and  the  stock- 
lolders    ♦    *    *    not  inconsistent  with  this  act."     N.  J.  L.  1896,  Am.  1898,  §8. 

See  Ellerman  v.  Chicago  Junct.  Ky.  Co.,  49  N.  J.  Eq.  217,  holding  that  the 
■  ertifioflte  of  incorporation  is  equivalent  to  special  act  of  the  legislature. 

Similar  provisions  exist  in  tiie  Delaware,  Connecticut  and  North  Carolina 
laws.     Such  provisions,  it  would ^seeni,  can  hardly  be  supported  under  the 
early  holdings.    Thev  do  not  seem  to  have  been  passed  upon. 
20-WiL.  Cases. 


306  ELLIS   V.    MARSHALL.  §  63 


ARTICLE  n.       LIMITS  ON   LEGISLATIVE  AUTHORITY,  FROM  THE  NATURE 

OF    A    FRANCHISE. 

Sec  63.      («)   Can  not  be  forced  on  any  one. 

ELLIS  V.  MARSHALL.! 

1807.     In  the  Supreme  Judicial  Court  of  Massachusetts.     2 
Mass.  Reports,  269-279;   3  Am.  Dec.  49. 

[Ejectment  by  plaintiff,  claimed  under  a  sale,  by  the  Front  Street 
Corporation,  of  the  defendant's  land  to  pay  an  assessment  for  con- 
structing a  street.  The  corporation  was  composed  of  sundry  persons 
described  as  being  "owners  and  proprietors  of  the  land  over  which 
the  street  will  pass,"  the  defendant  being  one  of  such  proprietors,  and 
named  in  the  act  of  incorporation,  which  had  been  passed  upon  peti- 
tion by  a  majority  of  said  proprietors.  Marshall  had  not  been  one  of 
such  petitioners,  and,  although  a  public  notice  of  a  time  for  a  hearing 
by  all  persons  interested  was  given  by  the  general  court,  Marshall  did 
not  appear.  The  proprietors  were  duly  incorporated  and  authorized 
to  make  the  improvement,  levy  the  cost  upon  the  adjoining  lands,  and 
upon  failure  to  pay  the  assessment  made,  seize  and  sell  the  land.] 

Parker,  J.  From  the  foregoing  facts  and  the  arguments  thereon 
by  the  counsel,  it  appears  that  all  the  proceedings  of  the  corporation 
relative  to  the  assessment  and  sale  were  coiTect,  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, 
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. 

1.  That  by  the  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. 

2,  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 

'  Statement  of  facts  abridged.  Arguments  omitted.  Part  of  opinion 
omitted. 


§  63  LIMITS   ON    POWER   TO    CREATE.  30/ 

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  incoiporations  to  make  turnpikes, 
canals  and  bridges  must  be  so  considered. 

Can  then  one,  whose  name  is  by  mistake  or  misrepresentation  inserted 
in  such  an  act,  refuse  the  privileges  it  confers  and  avoid  the  burdens 
it  imposes?  If  he  can  not,  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  by  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 
judge  for  himself  on  points  of  this  nature.  The  fact,  therefore,  in 
the  case,  that  Marshall  is  benefited  equally  with  the  other  owners  by 
the  making  of  this  street,  is  of  no  importance.  In  Bagg's  Case,  Rolle's 
Reports,  224,  it  seems  to  be  agreed  by  the  court  that  a  patent  pro- 
cured by  some  persons  of  a  corporation  shall  not  bind  the  rest,  unless 
they  assent.  And  in  Brownlow's  Reports,  100,  there  is  this  passage: 
"It  was  said  that  inhabitants  of  a  town  can  not  be  incorporated  with- 
"out  the  consent  of  the  major  part  of  them,  and  an  incorporation 
"without  their  consent  is  void." 

In  Comberbach  316,  Holt,  speaking  of  a  new  charter  made  to  the 
city  of  Norwich  by  Henry  IV  and  confirmed  by  Charles  II,  says  the 
new  charter  had  been  void,  if  the  corporation  had  refused  it,  but 
when  they  accept  it,  and  put  it  in  execution,  it  is  good. 

If  these  principles  were  correct  in  England  in  times  when  preroga- 
tive ran  high,  and  the  crown  or  the  parliament  could  not  force  char- 
ters or  patents  upon  the  subject  without  his  assent,  surely  in  this  free 
country,  where  the  legislature  derives  its  power  from  the  people,  such 
authority  can  not  be  contended  for. 

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  inquire  into  the  second  point,  viz., 
whether  the  facts  agreed  upon  in  this  case  furnish  evidence  of  such 
assent. 

It  is  contended  that  the  act  itself,  as  it  contains  Marshall's  name, 


308  ELLIS    V.    MARSHALL.  §  63 

furnishes  such  evidence,  since  it  must  be  presumed  that  the  legislature 
were  satisfied  on  this  point  before  they  passed  the  act. 

This  argument  would  have  great  weight,  if  its  force  were  not  im- 
paired by  the  facts  stated  in  the  case.  It  appearing  that  Marshall 
did  not  sign  the  petition  ;  that  he  did  not,  in  word  or  writing,  assent 
to  it,  or  to  the  act  founded  upon  it;  that  he  did  not  attend  before  the 
committee,  and  that  in  the  only  transaction,  in  which  he  noticed  the 
corporation,  he  protested  against  its  authority  over  him,  the  presump- 
tion arising  from  his  name  being  in  the  act  is  weakened,  if  not  de- 
stroyed. 

It  is  then  said  that,  public  notice  having  been  given  of  the  hearing 
intended  by  the  committee,  his  silence  is  evidence  of  his  tacit  assent 
to  the  passage  of  the  act.  As  we  are  bound  to  presume  everything 
in  favor  of  the  doings  of  the  legislature,  we  should  think  this  a  strong, 
if  not  a  conclusive  argument,  if  the  notice  given  had  been  such  as 
necessarily  to  signify  to  Marshall  that  he  was  to  be  included  in  the 
act  prayed  for.  But  on  perusing  the  petition,  which  probably  was 
published  in  the  papers,  we  find  nothing  in  it  from  which  we  could 
infer  that  his  property  or  rights  were  to  be  affected  in  the  manner 
contemplated  by  this  act.  He  may  be  considered  as  notified  that  a 
street  was  intended  to  be  built  over  his  ground :  and  all  that  he  could 
infer  from  this  was  that  so  much  of  his  land  as  the  street  would  pass 
over  would  be  taken  for  this  purpose,  and  that  he  would  receive  in- 
demnity for  it  in  the  usual  way,  and  that  any  opposition  to  it  would 
be  unavailing.  He  certainly  could  never  have  understood  that  it  was 
intended  to  make  him  a  member  of  the  corporation  without  his  con- 
sent. There  is  therefore  no  evidence,  even  of  a  tacit  consent,  before 
the  passing  of  the  act,  and  his  conduct,  after  it  passed,  amounts  to  a 
direct  disavowal  of  all  the  doings  of  the  corporation,  as  they  respected 
him  or  his  property. 

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  the  sale  of  his  land 
was  without  authority  of  law  and  is  void.      *     *     * 

Plaintiff  non-suit. 

Note.  1.  While  the  granting  of  a  charter  is  the  enactment  of  a  law,  it  is  a 
law  of  a  peculiar  character;  it  is  one  made  to  take  effect  upon  any  one  only 
after  its  acceptance  by  those  to  whom,  or  for  whose  use,  it  is  granted.  It  does 
not  become  binding  upon  them  or  any  one  till  accepted,  but  when  accepted 
by  the  grantees  it  then  becomes  the  law  of  the  corporate  existence,  binding 
upon,  not  only  those  who  accept,  but  also  upon  all  others  who  may  have  any 
dealings  with  or  be  affected  by  the  existence  of  the  corporation  thereby  cre- 
ated. It  then  becomes  a  law  of  the  state,  the  same  as  any  other  law,  and  the 
maxim  that  "ignorance  of  the  law  excuses  no  one,"  applies  in  this  case  as  in 
all  others,  not  only  to  the  corporators  and  members,  but  others  as  well.  Not 
only  this,  bat  after  its  acceptance  it  becomes  an  executed  grant  upon  a  condi- 
tion subsequent — i.  e.,  that  it  will  be  used  properly  under  penalty  of  forfeiture 
for  abuse — but  otherwise  not  the  subject  of  revocation  or  amendment  without 
consent  of  the  grantees,  unless  the  power  to  do  so  is  reserved  at  the  time  of 


§  64  LIMITS   ON    POWER   TO    CREATE.  309 

the  grant.     See  infra,  capes  on  the  subject,  acceptance  of  the  charter,  contracts 
contained  in  the  charter,  pp.  409,  707. 

See  1765,  Rex  v.  Chancellor  of  Cambridge,  3  Burr.  1661;  1787,  Rex  v. 
Amery,  1  T.  R.  575;  1789,  King  v.  Passmore,  3  T.  R.  240;  1819,  Dartmouth 
College  V.  Woodward,  4  Wheat.  (U.  S.)  518,  infra,  p.  708;  1820,  Lincoln,  etc., 
Bank  v.  Richardson,  1  Greenleaf  (Me.)  79;  1825,  Rex  v.  Westwood,  4  B.  & 
C.  781 ;  1833,  Fire  Department  v.  Kip,  10  Wend.  266;  1840,  Falconer  v.  Camp- 
bell, 2  McLean  (U.  S.  C.  C.)  196,  supra,  p.  287;  1840,  Coffin  v.  Collins,  17  Me. 
440;  1842,  Bailey  v.  Mayor  of  N.  Y.,  3  Hill'lN.  Y.)  531;  1847,  Haslett  v. 
Wotherspoon,  1  Strob.  Eq.  (S.  C.)  209;  1854,  New  Orleans  J.  &  G.  N.  R.  v. 
Harris,  27  Miss.  517;  1861,  State  v.  Dawson,  16  Ind.  40,  infra,  p.  412;  1883, 
McKav  V.  Beard,  20  S.  C.  156;  1885,  Smith  v.  Silver  Valley  M.  Co.,  64  Md. 
85;  1889,  Be  Metropolitan  Transit  Co.,  Ill  N.  Y.  588;  1891,  Demarest  v. 
Flack,  128  N.  Y.  205;  1892,  Welsh  v.  Plumas  Co.,  94  Cal.  368;  1896,  Quinlan 
V.  Houston,  etc.,  Ry.,  89  Tex.  356. 


Sec.  64.  {b)  May  be  exclusive,  but  not  so  unless  expressly  made 
so.  But  even  when  made  exclusive  may  be  appropriated  to 
a  public  use  under  the  power  of  eminent  domain,  upon  com- 
pensation being  made. 

THE  PROPRIETORS  OF  THE   PISCATAQUA   BRIDGE  v.  THE  NEW 
HAMPSHIRE  BRIDGE  Et  Al.^ 

1834.     In  the  Superior  Court  of  the  Judicature  of  New  Hamp- 
shire.    7  N.  H.  Rep.  35-72. 

[Bill  in  chancery  to  restrain  defendants  from  erecting  a  bridge  across 
the  Piscataqua  river  at  any  place  between  Nanny's  Island  and  Wal- 
ton's Point.  In  1793  plaintiffs  were  incorporated  to  build  a  bridge 
between  Bloody  Point  and  Furbur's  Ferry  (as  stated  in  the  title),  the 
preamble  stating  that  a  bridge  at  the  place  above  named  would  be  of 
public  utility.  The  third  section  of  the  act  authorized  the  bridge  to 
be  built  anywhere  between  Bloody  Point  and  Furbur's  Ferry,  inclu- 
sively, while  the  sixth  section  provided  that  the  "exclusive  right  of  build- 
ing and  maintaining  a  bridge  across  said  Piscataqua  river,  anywhere 
between  Walton's  Point,  so  called,  being  easterly  of  Knight's  or 
Bloody  Point  Ferry  and  Nanny's  Island,  so  called,  laying  at  the  bot- 
tom of  Great  Bay,  above  Furbur's  Ferry,  be  and  the  same  is  fully 
granted  to  said  petitioners,  and  such  as  are  or  may  be  associated  with 
them,  and  become  proprietors,  their  heirs  and  assigns."  In  1853, 
the  defendants  were  incorporated  with  authority  to  build  and  main- 
tain a  bridge  across  the  same  river  between  Newington  and  Durham. 
Plaintiff's  bridge  was  erected  in  1794  between  these  towns.  It  was 
conceded  that  the  place  where  the  defendants  proposed  to  erect  this 
bridge  was  within  the  limits  stated  in  the  sixth  section  of  plaintiff's 
charter,  but  not  within  the  limits  set  forth  in  the  title,  preamble  and 
third  section.] 

'  Statement   of   facts     abridged.    Arguments  omitted.     Part  of   opinion 
omitted. 


3IO  PISCATAQUA  BRIDGE  V.  NEW  HAMPSHIRE  BRIDGE.  §  64 

Parker,  J.  *  *  *  The  answer  admits  that  defendants  are  about  to 
erect  a  bridge  at  the  place  specified,  and  claims  a  right  so  to  do  under 
tlie  authority  of  the  legislature,  and  we  must,  therefore,  proceed  to  in- 
quire whether  its  erection  will  infringe  the  rights  of  the  plaintiffs,  and 
be  the  means  of  such  injustice  to  them  as  should  be  prevented  by  a  writ 
of  injunction. 

It  is  objected,  on  the  part  of  the  defendants,  that  the  charter  of 
the  plaintiffs  does  not  give  them  such  limits  that  the  erection  of  a  pro- 
posed bridge,  by  the  defendants,  will  interfere  with  their  exclusive 
rights.  It  is  said  that  by  the  terms  of  their  charter  the  plaintiffs  had 
no  right  to  build  a  bridge  anywhere,  except  between  Bloody  Point 
and  Furbur's  Feriy,  and  that,  taking  the  title  of  the  act,  together  with 
the  section  cited,  all  the  exclusive  rights  of  the  plaintiffs,  if  they  have 
any  beyond  the  place  occupied  by  their  bridge,  must  be  limited  to 
Bloody  Point  on  the  one  hand  and  Furbur's  Ferry  on  the  other;  that 
if  they  have  any  claim  of  right  above  Furbur's  Ferry,  it  can  be  only 
a  right  to  preclude  others  from  building  a  bridge,  not  to  build  one 
themselves,  that  this  can  not  be  a  franchise,  and  that  their  exclusive 
limits  can  not  extend  beyond  the  limits  in  which  they  might  erect  a 
bridge.  And  if  this  be  the  true  construction  of  the  plaintiffs'  rights, 
the  defendants  allege  that  they  can  accomplish  all  they  are  attempting 
to  do  without  any  violation  of  the  rights  or  franchises  of  the  plaintiffs. 

But  we  can  not  restrict  the  grant  to  the  plaintiffs  by  the  title  and 
preamble  of  the  act.  If  we  find  within  the  body  of  the  act  an  ex- 
press and  unequivocal  grant  of  powers  and  rights  not  mentioned  in 
the  title  or  preamble,  we  can  not  restrict  the  grant  of  those  rights 
merely  because  the  terms  of  such  grant  are  more  extensive  than 
the  terms  of  the  title  and  preamble.     7  Pick.  455. 

If  the  title  had  been  an  act  to  incorporate  certain  persons  for  the 
purpose  of  building  a  bridge  at  Fox  Point,  the  place  where  the  plaint- 
iffs erected  their  bridge,  and  the  act  itself  granted  to  the  corporation, 
in  explicit  terms,  the  right  to  build  between  Walton's  Point  and 
Nanny's  Island,  the  grant  could  not  be  construed  to  be  of  the  right 
mentioned  in  the  title  alone. 

The  sixth  section  of  the  plaintiffs'  charter  gave  them,  in  terms,  the 
exclusive  right  of  building  and  maintaining  a  bridge  across  the  Pisca- 
taqua  river,  anyw^here  between  Walton's  Point  and  Nanny's  Island ; 
and  there  is,  in  this  section,  no  reference  to  any  other  part  of  the 
charter  by  which  this  grant  of  power  and  right  is  to  be  restricted. 

On  the  supposition  that  by  the  charter  the  plaintiffs  were  obliged  to 
erect  this  bridge  within  the  limits  between  Bloody  Point  and  Furbur's 
Ferry,  as  specified  in  the  third  section,  we  see  no  reason,  if  the  legis- 
lature may  grant  exclusive  rights,  to  doubt  their  power  to  grant  to  the 
plaintiffs  exclusive  limits,  connected  with  the  grant  of  their  bridge 
even  beyond  the  limits  in  which  their  bridge  must  be  erected. 

Such  right  of  exclusion  might  be  essentially  necessary  to  ensure  the 
erection  and  maintenance  of  the  bridge,  notwithstanding  the  bridge 
itself  might  be  required  to  be  erected  within  smaller  limits,  or  at  a 
definite  place — and  if  so  it  was  competent  for  the  legislature  to  make 


§  64  LIMITS   ON    POWER   TO    CREATE.  3 1  I 

such  a  grant,  attached  to  the  grant  of  the  bridge,  if  they  might  law- 
fully grant  any  exclusive  limits. 

It  might,  perhaps,  admit  of  question  whether  the  sixth  section  did 
not  give  the  plaintiffs  power  to  erect  their  bridge  anywhere  within 
the  exclusive  limits  designated  in  that  section,  but  this  is  not  material 
to  the  present  case. 

It  is  further  contended  that  the  plaintiffs'  charter  gave  them  only 
the  exclusive  right  of  selecting  a  site  for  their  bridge  within  certain 
limits,  and  that,  having  made  their  selection  and  erected  their  bridge, 
the  place  of  erection  becomes  thenceforth  the  only  exclusive  right 
which  they  can  claim  under  their  charter. 

But  we  can  not  adopt  this  construction  of  the  grant,  not  only  be- 
cause such  are  not  the  terms  in  which  the  grant  is  made,  but  because 
it  is  apparent  that  such  construction  would  defeat  the  object  which 
must  have  been  in  contemplation  in  procuring  and  making  the  grant 
of  an  exclusive  right. 

The  charter  of  the  plaintiffs,  then,  confers  upon  them  by  its  terms 
the  exclusive  right  of  building  and  maintaining  a  bridge  between 
Walton's  Point  and  Nanny's  Island,  and  it  is  conceded  that  these 
limits  cover  the  whole  ground  upon  which  the  defendants  claim  a 
right  to  erect  their  bridge. 

The  next  question  is  whether  this  was  a  constitutional  and  valid 
grant. 

The  answer  alleges  that  at  the  time  of  this  grant  one  Levi  Furbur 
had  a  right  of  ferry  within  those  limits;  that  no  compensation  was 
provided  for  Furbur,  and  that  the  grant  is  unconstitutional  and  void. 

That  Furbur  was  in  the  occupation  of  a  ferry  at  the  time  of  the 
grant  of  the  plaintiffs,  which  was  within  the  exclusive  limits  granted 
to  them,  seems  to  be  conceded.  What  his  right  was,  or  how  it  orig- 
inated, does  not  appear. 

There  is  nothing  to  show  that  his  ferry  was  not  set  up  by  him 
without  any  authority. 

On  the  supposition  that  he  occupied  under  a  grant,  it  is  not  to  be 
inferred  of  course  that  the  grant  extended  beyond  the  place  he  occu- 
pied. 

If  Furbur  had  had  the  grant  of  a  ferr^',  generally,  we  should  pause 
before  holding  that  the  legislature  could  not  grant  a  bridge,  or  even 
another  ferry,  so  near  as  to  be  consequentially  injurious  to  him.  Upon 
this  subject  different  opinions  have  been  entertained ;  and  it  may  be 
Tvell  questioned  whether  the  grantee  of  a  ferry ^  or  of  a  right  to  erect 
and  maintain  a  bridge  at  a  particular  place  ivithout  any  terms  of 
exclusion  in  the  grants  can  set  up  that  right  in  avoidance  of  any 
other  grant  -which  is  not  directly  injurious  itt  its  operation,  but  in- 
jurious merely  in  its  remote  consequences  by  diverting  travel  and 
tolls.     Callender  v.  Marsh,  i  Pick.  432. 

It  would  seem  to  have  been  the  understanding  in  this  state,  at  least, 
that  if  the  party  intended  to  secure  himself  from  competition  of  this 
character  he  must  obtain  a  provision  to  that  effect  in  his  grant ;  and 
if  no  such  provision  is  found,  it  may  well  be  held  that   the  grant  was 


312  PISCATAQUA  BRIDGE  V.  NEW  HAMPSHIRE  BRIDGE.         §  64 

taken  with  a  reliance  on  the  wisdom  and  discretion  of  the  legislature 
to  protect  the  gi'antee  from  injurious  competition,  by  refusing  to 
authorize  any  other  enterprise  of  a  similar  character  in  the  immediate 
vicinity,  unless  required  by  an  imperious  necessity;  and  with  an  assent 
on  the  part  of  the  grantee  that,  whenever  the  legislature  should  deem 
it  expedient,  they  might  make  other  grants  remotely  affecting  the 
former,  so  long  as  the  right  and  privilege  conferred  by  the  terms  of 
the  grant  were  not  infringed.  But  it  is  not  important  to  settle  that  ques- 
tion here. 

If  it  was  shown  that  Furbur  had  an  exclusive  right  of  ferry  within 
certain  limits,  we  are  not  prepared  to  hold  that  the  legislature  might 
not  lawfully  grant  a  right  to  erect  a  bridge  within  those  limits  if  the 
locus  in  quo  occupied  by  him  for  his  ferry  was  not  taken,  and  he  was 
left  to  the  enjoyment  of  an  exclusive  right  of  ferry  as  before. 

The  erection  of  a  bridge  near  his  ferry  might  be  consequentially 
injurious  to  him.  It  might  deprive  him  of  the  profits  of  his  ferry ; 
and  yet  if  his  right  of  ferry  was  not  infringed,  how  could  the  act  be 
held  to  be  unconstitutional  ? 

The  grant  of  an  exclusive  right  of  ferry  is  certainly  not  an  exclusive 
right  of  all  modes  of  transportation  and  conveyance. 

Whatever  Furbur's  rights  may  have  been,  he  does  not  appear  to 
have  complained  of  the  erection  of  the  plaintiffs'  bridge;  and  whether 
they  purchased  his  consent,  or  he  abandoned  his  ferry  without,  the  de- 
fendants are  in  no  way  connected  with  him,  nor  would  the  state,  by 
an  extinguishment  of  his  right  of  ferry,  gain  a  right  to  grant  a  bridge 
within  the  exclusive  limits  for  a  bridge  already  granted  to  the  plaint- 
iffs ;  although  the  legislature  might  perhaps  for  that  reason  grant  an- 
other ferry  at  the  same  place. 

It  is  further  contended  that  the  legislature  which  granted  the  char- 
ter of  the  plaintiffs'  had  no  power  to  grant  such  an  exclusive  right, 
and  that  the  act,  therefore,  so  far  as  it  purports  to  give  exclusive  lim- 
its, is  void. 

By  the  constitution  of  this  state,  full  power  and  authority  are  given 
and  granted  to  the  general  court  "from  time  to  time  to  make,  ordain 
and  establish  all  manner  of  wholesome  and  reasonable  orders,  laws, 
statutes,  ordinances,  directions  and  instructions,  either  with  penalties 
or  without,  so  as  the  same  be  not  repugnant  or  contrary  to  this  consti- 
tution, as  they  may  judge  for  the  benefit  and  welfare  of  the  state," 
etc.     N.  H.  Laws  7. 

There  is  certainly  no  express  provision  of  the  constitution  authoriz- 
ing, in  so  many  words,  a  grant  of  this  character.  It  is  equally  certain 
that  there  is  no  express  prohibition  of  such  an  act.  "When,"  says 
Chief  Justice  Kent,  "the  people  erect  a  single  entire  government,  they 
grant  at  once  all  the  rights  of  sovereignty.  The  powers  granted  are 
indefinite  and  incapable  of  enumeration.  Everything  is  granted  that  is 
not  expressly  reserved  in  the  constitutional  charter,  or  necessarily  re- 
tained as  inherent  in  the  people."  Livingston  v.  Van  Ingen,  9 
Johns.  574. 


§  64  LIMITS    ON    POWER   TO    CREATE.  313 

It  will  not  be  necessary  to  resort  to  any  principle  so  broad  as  this 
to  show  that  the  legislature  may  make  a  grant  of  this  character. 

The  constitution  nowhere  gives  the  legislature,  in  terms,  the  power 
to  make  a  grant  of  land,  or  a  charter  of  incorporation,  or  to  confer  a 
right  to  make  bridges,  turnpikes  or  canals,  but  such  power  has  always 
been  exercised,  and  no  one  doubts  the  right  to  make  such  grants. 
Fletcher  v.  Peck,  6  Cranch  128. 

If  this  is  conceded,  the  legislature  may  certainly  make  exclusive 
grants. 

They  may  gi*ant  land  in  fee-simple,  and  the  grantee  will  have  an 
exclusive  right.  '•'Cujus  est  solum  ejus  est  usqtie  ad  caelum^  et  ad  in- 
feros'^— and  he  has  this  to  him,  and  his  heirs  and  assigns  forever. 
Nothing  can  well  be  imagined  more  exclusive  than  this. 

They  may  grant  a  bridge  across  a  navigable  river.  No  one  can 
justify  such  erection  without  a  grant.  But  such  grant  is  necessarily 
exclusive  to  a  certain  extent.  So  far  as  the  structure  itself  extends, 
so  far  the  right  must  be  exclusive.  No  one  will  contend  that  a  sub- 
sequent legislature  could  regard  such  grant  as  void,  and  for  that  rea- 
son authorize  the  building  of  another  upon  the  same  foundation,  or 
one  which  should  occupy  a  part  of  the  space  already  in  the  possession 
of  the  grantee. 

The  legislature  then  has  power  to  grant  a  right  to  build  and  main- 
tain a  bridge,  and  the  right  will  be  exclusive  to  the  extent  occupied 
by  the  bridge,  which  may  be  of  greater  or  less  dimensions,  according 
to  the  grant. 

What  limits  the  power  of  the  legislature  to  the  positions  occupied 
by  the  wood  and  stone  used  in  the  construction  of  the  work  } 

If  the  legislature  may  grant  a  right  which  will  be  exclusive  to  the 
extent  of  forty  feet  or  sixty  feet,  or  what  number  of  feet  or  rods,  shall 
we  fix  the  limits  of  the  power  so  that  all  beyond  is  void? 

If  it  be  necessary,  in  order  to  effect  the  object,  that  the  grant  should 
be  exclusive  to  the  usual  width  of  the  bridge,  it  may  be  equally 
necessary  to  the  accomplishment  of  the  purpose,  that  the  limits 
should  be  still  more  extensive.  It  may  be  necessary  to  lay  the  foun- 
dation much  broader.  It  may  be  necessary  to  erect  works  above  and 
below  for  the  preservation  of  the  stnacture. 

If  the  legislature  may  grant  the  right  to  build  the  bridge,  and  may 
grant  exclusive  power  over  space  sufficient  for  its  erection,  because 
otherwise  the  grant  could  not  be  carried  into  effect,  why  may  they 
hot  grant  such  power  over  space  sufficient  in  other  respects  to  insure 
its  erection  ?  Why  may  they  not  make  a  grant  of  such  extent  that 
the  grantees  will  think  the  prospect  of  remuneration  sufficient  to  in- 
duce them  to  undertake  the  work.? 

Again  the  legislature  may  undoubtedly  grant  with  reference  to  the 
preservation  of  <:he  bridge.  Such  is  one  of  the  objects  in  granting  a 
toll.  If  they  may  grant  powers  and  rights  with  a  view  to  preserve  it 
from  floods,  by  the  erection  of  works  of  security  above  or  below; 
and  if  they  may  grant  tolls  in  order  to  preserve  it  from  decay,  why 


314  PISCATAQUA  BRIDGE  V.  NEW  HAMPSHIRE  BRIDGE.  §  64 

may  they  not  extend  the  exclusive  right  so  far  that  these  tolls  will 
furnish  adequate  means  for  keeping  it  in  repair? 

It  is  not  our  province  to  judge  how  extensive  the  grant  to  the  plaint- 
iffs ought  to  have  been.  It  was  said  in  the  argument  that  the  neces- 
sity of  the  act  authorizing  the  defendants  to  erect  a  bridge  is  conclu- 
sively proved  by  the  grant  itself — that  the  court  are  not  to  inquire  into 
that  necessity.  And  so  of  the  plaintiffs'  exclusive  limits — the  neces- 
sity of  their  extent  in  order  to  effect  the  object  was  for  the  considera- 
tion of  the  legislature  and  not  for  us. 

Charters  with  exclusive  privileges  have  been  repeatedly  granted 
here  and  elsewhere.  9  Wheat.  97,  note  a.  They  have  been  deemed 
necessary  to  the  promotion  of  entei'prises  of  public  utility,  and  have 
in  many  instances  oj^erated  greatly  to  the  convenience  of  the  com- 
munity, as  the  means  of  accomplishing  public  improvements  which 
would  not  otherwise  have  been  undertaken,  or  must  have  been  delayed 
to  a  much  later  period. 

The  right  to  make  such  exclusive  grants  has  been  supported  by 
some  of  the  most  eminent  counsel  in  the  United  States,  and  has  not 
been  contested  by  others  zvho  would  not  have  failed  to  deny  it  had  it 
been  deemed  of  a  questionable  character .  It  has  received  the  sanc- 
tion of  some  of  the  jnost  learned  tribunals  in  the  Union.,  and  we  see 
no  reason  to  doubt  the  soundness  of  the  principle.  Proprietors  of 
Charles  River  Bridge  v.  Warren  Bridge,  7  Pick.  393,  440,  448,  456, 
465,  473,  476,  492,  519;  Livingston  v.  Van  Ingen,  9  Johns.  525, 
55I'  559>  5^3'  573»  5^4;  Ogden  v.  Gibbons,  4  Johns.  C.  R.  150; 
17  Johns.  488;   Gibbons  v.  Ogden,  9  Wheat.  74,  143. 

It  has  not  been  contended  that  there  is  anything  in  the  provision  of 
the  constitution  of  the  United  States  authorizing  congress  to  regulate 
commerce,  or  in  any  act  of  congress  which  militates,  in  any  degree, 
with  the  power  of  granting  an  exclusive  right  of  building  a  bridge 
within  the  territory  of  a  state,  and  there  seems  to  be  no  ground  for 
any  such  supposition.  North  River  Steamboat  Co.  v.  Livingston, 
3  Cowen  733,  754,  9  Wheat.  19,  203,  235;  The  People  v.  Babcock, 
II   Wendell  590;  2  Peters  S.  C.  R.  245. 

It  has  been  urged  in  the  argument  that  if  the  legislature  may  grant 
exclusive  rights  of  this  character,  a  legislature  opposed  to  manufac- 
tures, to  internal  improvements  or  to  banking  might  grant  a  small 
cotton  factory,  with  the  exclusive  right  of  manufacturing  within  the 
state,  or  a  short  railroad  or  a  single  bank,  with  exclusive  privileges, 
and  the  public  thus  suffer  great  injuiy. 

It  will  be  in  time  to  consider  whether  grants  of  such  a  character 
are  within  the  constitutional  exercise  of  the  legislative  power  and 
whether  they  may  or  may  not  be  avoided,  when  a  case  is  presented 
to  us  in  which  it  is  apparent  that  a  fraud  must  have  been  practiced  in 
obtaining  the  grant,  or  the  circumstances  under  which  it  was  made 
show  that  it  was  merely  colorable,  and  intended  to  effect  other  pur- 
poses than  those  which  appear  upon  the  face  of  it. 

There  is  nothing  in  this  case  to  lead  to  a  supposition  that  this  grant 
was  not  fairly  obtained — that  the  public  good  did  not  require  a  grant 


§  64  LIMITS   ON    POWER   TO    CREATE.  315 

of  the  powers  and  rights  contained  in  the  charter — or  that  the  consid- 
eration on  the  part  of  the  grantees,  in  providing  a  great  public  high- 
way for  the  convenience  of  the  citizens,  was  not  fully  adequate  to  all 
the  rights  and  privileges  they  received.  It  appears  that  the  grantees 
did  not  overreach  the  legislature.  The  enterprise  was  one  of  great 
public  utility ;  and  while  the  community  have  had  all  the  benefit  which 
was  contemplated  from  the  grant,  the  grantees,  it  is  not  denied,  were 
subjected  to  great  loss — the  expenditure  far  exceeding  the  estimates. 

Cases  may  exist  where,  owing  to  a  change  in  the  population,  busi- 
ness and  intercourse  of  the  country,  the  public  interest  may  require 
the  opening  of  new  avenues  within  the  limits  of  such  exclusive  grants, 
and  in  which  the  individual  right  should  be  made  subservient  to  the 
public  use  ;  but  this  maybe  done  without  a  violation  of  the  public  faith. 
Whatever  the  public  requires  they  are  able  to  pay  for — and  it  is  not 
for  the  public  interest  that  the  grants  of  the  government  should  be 
held  good  so  long  only  as  there  is  no  desire  to  interfere  with  them — 
good  while  they  are  onerous  to  the  grantee,  and  invalid  when  others 
may  wish  to  participate  in  the  benefits  derived  from  them. 

It  is  argued  that  the  only  pretended  right  of  the  plaintiffs  is  a  prom- 
ise not  to  give  liberty  to  others  to  build  a  bridge ;  but  we  do  not  view 
it  in  that  light.  The  charter  of  the  plaintiffs  contains  a  grant  of  a 
franchise — an  incorporeal  hereditament.  The  grant  of  an  exclusive 
right  is  part  of  that  franchise — granted  in  connection  with  their  right 
to  build  a  bridge,  and  in  aid  of  that  right — holden  with  that  right — 
capable  of  being  used  by  the  erection  of  a  bridge  elsewhere  than  in  its 
present  location — may  be  attached  with  the  rest  of  the  franchise,  and 
taken  on  execution — and  under  it  the  plaintiffs  may  grant  a  license  to 
build  a  bridge  within  those  limits  to  any  one  who  has  obtained  a  grant 
of  authority  from  the  legislature  to  erect  such  bridge. 

The  plaintiffs  have  a  property  in  their  exclusive  grant  and  it  is  not 
a  mere  stipulation  on  the  part  of  the  legislature  that  no  other  liberty 
to  erect  a  bridge  shall  be  granted. 

The  plaintiffs  then  having  an  exclusive  grant  to  the  extent  set  forth 
in  their  bill,  the  next  inquiry  is,  whether  the  defendants,  by  virtue  of 
their  charter,  can  lawfully  proceed  to  erect  another  bridge  within 
those  limits? 

It  is  urged  that  if  the  charter  of  the  plaintiffs  is  a  contract,  it  is 
subject  to  the  implied  condition  of  yielding  to  the  public  necessity 
and  convenience — that  if  their  grant  be  property,  it  may,  like  other 
property,  be  taken  for  public  use,  and  that  although  no  compensation 
is  provided  here,  that  does  not  make  the  grant  to  the  defendants 
void,  but  the  plaintiffs  may  have  an  action. 

The  charter  of  the  defendants  is  not  unconstitutional  or  void.  Of 
itself  it  impairs  no  rights.  As  a  grant  to  the  individuals  named  in  it 
to  be  a  corporation,  it  is  cortceded  to  be  good.  As  against  the  pub- 
lic, it  contains  a  valid  grant  of  a  right  to  build  a  bridge  and  to  take 
tolls,  and  if  the  defendants  can  agree  with  the  plaintiffs,  we  see  no 
objection  with  their  proceeding  under  their  charter,  and  enjoying  all 
the  privileges  it  purports  to  confer. 


3l6  PISCATAQUA  BRIDGE  V.  NEW  HAMPSHIRE  BRIDGE.  §  64 

If  the  charter  itself  was  an  unconstitutional  act,  it  would  be  wholly 
void,  and  the  defendants  could  not  rightfully  build  a  bridge  and  de- 
mand tolls,  on  purchasing  of  the  plaintiffs  a  right  or  license  to  erect 
one  within  their  limits,  which  it  is  admitted  they  might  do. 

But  can  they  lawfully  proceed  to  erect  such  bridge  without  the  con- 
sent of  the  plaintiffs? 

We  are  of  opinion  that  if  the  charter  of  the  defendants  had  made 
proper  provision  for  a  compensation  to  the  plaintiffs,  the  legislature 
might  have  authorized  the  building  of  another  bridge  within  their  ex- 
clusive limits,  even  without  their  consent. 

In  such  case  the  gi'ant  itself  would  furnish  plenaiy  evidence  that 
the  public  interest  required  the  taking  of  private  property  for  public 
use ;  and  we  see  no  objection  to  taking  a  part  of  the  plaintiffs'  fran- 
chise. 

That  franchise,  as  we  have  said,  is  property.  "No  part  of  a 
man's  property  shall  be  taken  from  him  or  applied  to  public  uses, 
without  his  own  consent,  or  that  of  the  representative  body  of  the 
people."     N.  H.  Bill  of  Rights,  Art.  12. 

This  has  always  been  understood  necessarily  to  include,  as  a  matter 
of  right,  and  as  one  of  the  first  principles  of  justice,  the  further  limi- 
tation, that  in  case  his  property  is  taken  without  his  consent,  due  com- 
pensation must  be  provided,  i  Black.  Com.  139;  Gardner  v.  Vil- 
lage of  Newburgh,  2  Johns.  C.  R.  166,  and  authorities  there  cited. 

It  is  not  supposed  here  that  even  the  consent  of  the  representative 
body  of  the  people  could  give  authority  to  take  the  property  of  indi- 
vidual citizens  for  highways,  bridges^  ferries  and  other  works  of  in- 
ternal improvement  without  the  assent  of  the  owner,  and  without 
any  indemnity  provided  by  law.  Such  a  power  would  be  essentially 
tyrannical  and  in  contravention  of  other  articles  in  the  bill  of  rights. 

This  defense  is  not  attempted  to  be  supported  upon  any  such  prin- 
ciple. 

But  if  adequate  compensation  is  provided,  in  a  proper  manner,  it 
is  admitted  that  private  property  may  be  taken  without  the  special 
consent  of  the  owner  in  each  particular  case. 

No  distinction  is  made  in  the  constitution  between  property  of  one 
description  and  that  of  another ;  and  if  a  franchise  is  property  we  do 
not  discover  upon  what  ground  it  claims  an  exemption  from  the  same 
liabilities  to  which  other  property  is  subjected. 

If  the  government  had  been  the  owner  of  the  land  along  the  Piscat- 
aqua  river,  and  had  granted  to  the  plaintiffs  a  tract  of  land  co-exten- 
sive with  their  exclusive  limits,  the  legislature  might,  afterwards,  have 
authorized  the  taking  of  a  portion  of  the  land  so  granted,  making  pro- 
vision for  compensation  to  the  grantee — notwithstanding  the  exclusive 
nature  of  the  grant. 

If  instead  of  a  corporeal  hereditament,  the  legislature  have  granted 
an  incorporeal  hereditament  of  such  a  nature  that  it  may  afterwards 
be  necessary  that  the  property,  or  a  part  of  it,  be  taken  for  public  use, 
"why  is   not  that  subjected  to  the  public  servitude,   and   in  the  same 


§  64  LIMITS    ON    POWER   TO    CREATE.  317 

manner?  There  seems  to  be  no  substantial  difference  between  the  two 
which  requires  the  adoption  of  a  different  rule  in  this  respect. 

Had  the  legislature  granted  merely  the  right  to  build  and  main- 
tain a  bridge  from  point  to  point,  and  take  tolls,  and  the  public  neces- 
sities afterward  required  that  a  portion  or  even  the  whole  of  that 
bridge  should  be  taken  for  other  public  purposes,  is  there  any  ques- 
tion that  this  might  have  been  done,  if  due  compensation  was  pro- 
vided for  the  owners?  We  think  not.  7  Pick.  459,  500.  Yet,  as 
has  been  before  stated,  the  grantees  would  most  unquestionably  have 
had  an  exclusive  right  in  their  bridge  and  tolls.  Where,  then,  is  the 
difference  between  a  grant  exclusive  in  its  effect,  and  one  exclusive  in 
its  terms  ?     The  latter  is  no  more  than  exclusive. 

If  the  grant  had  been  of  the  "exclusive"  right  of  building  a  bridge 
from  point  to  point,  without  any  extended  limits,  the  property  of  the 
bridge  when  built  would  be  no  more  exclusive,  nor  the  right  more 
exclusive  than  it  would  be  if  the  grant  had  been  made  without  the 
use  of  the  term  "exclusive ;"  and  if  the  property  is  subject  to  be  taken 
for  public  use  in  the  one  case  it  must  be  so  in  the  other.  If  these 
extended  limits  of  exclusion  are  added,  how  does  that  change  the 
nature  of  the  case  ? 

If  the  grant  amounts  to  an  extinguishment  of  the  right  of  the  legis- 
lature to  bestow  the  same  identical  franchise  upon  another  corporate 
body,  and  implies  a  contract  not  to  reassert  the  right  to  grant  the  fran- 
chise to  another,  or  to  impair  it  (4  Wheat.  658,  682),  there  is  the 
same  extinguishment  of  the  right  of  the  grantor,  and  the  same  implied 
contract  not  to  reassert  that  right  in  a  grant  of  lands.  6  Cranch  137. 
The  grantee  of  a  fee-simple  takes,  under  a  contract,  an  absolute 
estate  in  some  respects,  but  subject  to  an  implied  condition  or  limita- 
tion, by  zvhich  the  lands  may  afterwards  be  taken  for  public  use — 
for  turnpikes,  railroads,  canals,  bridges,  etc.,  whenever  the  public 
necessities  demand  it;  and  a  '•'•grant  of  franchises  is  not  in  point 
of  principle  distinguishable  from  a  gratit  of  any  other  property J*^ 
4  Wheat.  684. 

The  grant  under  which  the  plaintiffs  took  this  property  is  admitted 
to  be  a  contract,  and  that  contract  is  inviolable.  The  legislature  can 
not  annul  that  contract,  or  in  any  way  impair  its  obligation.  The 
plaintiffs  have  taken  and  received  all  the  legislature  contracted  to 
give.  It  is  an  executed  contract  (4  Wheat.  690),  and  the  plaintiffs 
entitled  to  be  protected  in  the  enjoyment  of  the  property  acquired  un- 
der it,  to  as  great  an  extent  as  they  are  protected  in  the  enjoyment  of 
any  other  species  of  property. 

It  does  not  impair  that  contract  to  hold  that  the  property  acquired 
under  it  may  be  taken  for  public  use — that  it  is  liable  to  be  subjected 
to  the  public  servitude  and  the  public  burdens.  Fletcher  v.  Peck, 
6  Cranch  145;  Green  v.  Biddle,  8  Wheat.  89,  loi  ;  Providence  Bank 
V.  Billings,  4  Peters  S.  C.  R.  563. 

The  grant  contains  no  covenant,  in  terms,  that  the  state  will  never 
grant  another  bridge  within  those  limits,  nor  do  we  think  that  any 
such  covenant  is  to  be  implied,  and  of  course  no  obligation  to  that 


3l8  PISCATAQUA  BRIDGE  V.  NEW  HAMPSHIRE  BRIDGE.         §  64 

effect  is  imposed.  Sturgis  v.  Crowninshield,  4  Wheat.  197;  Jackson 
V.  Lamphire,  3  Peters  289. 

The  terms  and  object  of  the  grant  are  satisfied  without  any  such 
stipulation.  The  grantees  have  all  the  state  professed  to  grant — the 
exclusive  right.  They  have  a  property  in  this,  and  no  part  of  it  can 
be  taken  from  them  except  for  public  use,  and  upon  adequate  com- 
pensation being  made. 

If  a  grant  of  a  franchise  is  like  other  grants  of  property,  why  should 
a  covenant  be  implied  extending  the  right  of  property  in  a  franchise 
of  this  character  beyond  the  rights  of  the  holders  of  other  property, 
and  enabling  the  grantees  to  resist  all  public  improvements,  and  deny 
all  public  wants  entirely,  or  until  such  compensation  as  they  please  to 
demand  shall  be  made  to  them? 

When  the  legislature  shall  have  granted  land,  with  a  covenant  that  no 
highway,  canal  or  railroad  shall  ever  be  made  through  it, — or  a  bridge, 
with  a  stipulation  that  no  other  bridge  shall  ever  be  erected  within  a 
certain  distance,  it  may  deserve  inquiry  whether  such  a  contract  is 
within  the  scope  of  its  constitutional  power.? — whether  the  right  to 
provide  for  the  public  necessities,  and  to  take  property  for  public 
use  whenever  those  necessities  require  it,  making  therefor  an  ade- 
quate compensation,  are  not  inherent  rights  of  sovereignty  which  no 
legislature  can  part  with  or  control  by  any  stipulation  so  as  to  bind 
the  people  or  their  successors  who  represent  the  people  ? 

How  far  the  case,  New  Jersey  v.  Wilson,  7  Cranch  164,  may  coun- 
tenance the  supposition  that  the  legislature  may  even  make  a  contract 
of  that  character,  need  not  be  considered.  It  may  be  remarked  that 
the  question,  whether  the  legislature  had  the  power  to  make  a  contract 
which  would  bind  the  state  not  to  tax  the  lands  after  they  came  into  the 
possession  of  the  citizens,  does  not  seem  to  have  been  brought  into  dis- 
cussion. But  it  must  have  been  involved  in  the  decision,  the  inquiry 
being  whether  the  act  of  exemption  was  a  contract. 

Whether  upon  reconsideration  the  principle  of  that  case  can  be  sup- 
ported, and  if  it  may,  whether  it  is  to  be  extended  beyond  the  decis- 
ion itself,  we  do  not  inquire.      4  Peters'  S.  C.  R.  561. 

We  conclude,  then,  that  the  legislature  might  lawfully  authorize  the 
taking  of  a  portion  of  the  plaintiffs'  franchise  for  public  use,  making 
a  just  compensation  ;  but  have  they  done  so  in  the  present  instance  ? 

It  is  not  pretended  that  the  defendants'  charter  provides  for  any 
indemnity  to  the  Piscataqua  Bridge  corporation  ;  and  the  position  that 
the  defendants  may  take  their  property  because  the  plaintiffs  will  have 
a  right  of  action  can  not  be  supported. 

Kad  the  plaintiffs  seen  fit  to  suffer  their  property  to  be  taken,  and 
sought  redress  for  the  injury  by  action,  it  might  have  been  sustained; 
but  this  is  not  the  compensation  intended  by  the  law  when  property  is 
taken  for  public  use.  Gardner  v.  The  Village  of  Newburgh,  2  Johns. 
C.  R.  162;  Perry  v.  Wilson,  7  Mass.  393;  Callender  v.  Marsh  i 
Pick.  430;  Proprietors  of  Charles  River  Bridge  v.  Wan-en  Bridge, 
6  Pick.  404. 

It  is  not  by  way  of  damages  to  be  obtained  in  an  action  for  an  in- 


§  64  LIMITS   ON   POWER  TO    CREATE.  319 

jury  done  that  the  party  is  entitled  to  be  indemnified  for  property  thus 
lawfully  taken. 

There  is  a  dictum  in  Stevens  v.  The  Proprietors  of  Middlesex 
Canal,  I2  Mass.  Rep.  408,  implying  that  the  act  of  taking  may  be 
lawful,  and  yet  an  action  sustained  for  the  injury,  but  this  evidently 
had  not  been  fully  considered,  i  Pick.  430,  435.  Such  a  proposi- 
tion may  be  said  to  be  felo  de  se. 

The  plaintiffs  have  a  grant  of  certain  exclusive  limits.  The  de- 
fendants claim  a  right  to  erect  a  bridge  within  those  limits,  upon  the 
ground  that  their  charter  give  them  a  right  to  erect  such  bridge,  and 
that  the  plaintiffs  may  have  compensation  for  the  injury  done  to  them 
by  a  suit  at  law.  But  if  the  defendants  have  a  right  to  erect  a  bridge, 
what  wrong  or  injury  is  done?  If  the  plaintiffs  might  have  an  action 
on  the  case  for  the  injury,  which  was  the  form  in  Chadwick  v.  The 
Proprietors  of  Haverhill  Bridge,  cited  in  support  of  the  position,  that 
negatives  the  idea  of  a  right.  It  presupposes  an  interference  contrary 
to  law.  The  legislature  can  not  empower  any  one  to  do  a  wrong, 
and  a  right  to  take  by  wrong  would  be  a  solecism.  So  far  as  the  de- 
fendants may  act  lawfully  under  their  charter,  they  will  not  subject 
themselves  to  an  action  for  an  injury.  So  far  as  they  can  not  lawfully 
act,  they  ought  to  refrain  from  acting. 

Whenever  lawful  authority  is  given  to  take  property  for  public  use, 
tne  act  of  taking  is  justifiable.  There  is  no  injury  to  the  rights  of  the 
party,  and  no  action  as  for  a  tort  can  accrue.  Recompense  is  made 
for  what  is  legally  taken,  and  the  party  can  not  complam  that  a  wrong 
is  done,  for  his  property  has  been  taken  according  to  the  laws  of  the 
land. 

It  might  have  been  sufficient,  in  this  case,  to  have  said  that  the 
charter  of  the  defendants  does  not  purport  to  give  them  any  right  to 
interfere  with  the  property  of  the  plaintiffs  without  their  consent.  It 
authorizes  them  to  purchase  real  estate,  and  hold  it  in  fee-simple.  It 
does  not  authorize  the  taking  of  any  property  whatever,  except  by 
agreement  with  the  owners ;  and  there  is,  of  course,  no  evidence  of 
any  public  necessity  requiring  that  the  property  of  others  should  be 
taken,  except  by  their  own  consent. 

The  defendants,  therefore,  in  attempting  to  build  their  bridge  with- 
out the  consent  of  the  plaintiffs,  can  not,  for  this  reason,  rely  upon 
their  charter ;  and  we  might  have  waived  any  discussion  of  some  of  the 
questions  raised  in  the  case ;  but  the  interest  of  these  parties,  and  per- 
haps of  others,  rendered  it  expedient  for  us  to  consider  all  the  points 
which  have  been  suggested. 

It  has  been  said  that  equity  will  not  relieve  against  a  statute.  The 
authority  cited  only  goes  to  establish  the  position,  that  equity  can  not 
disregard  the  provisions  of  a  valid  law,  and  relieve  against  it.  Of  this 
there  is  no  question.  It  is  not  pretended  that  we  can  restrain  the  de- 
fendants from  doing  a  lawful  act. 

But  if  the  principle  was,  that,  sitting  as  a  court  of  equity,  we  would 
not  decide  in  this  mode  against  the  constitutionality  or  validity  of  a 
statute  or  grant,  which  we  find  nowhere  sustained,  there  is  nothing  in 


320  LUXTON   V.    NORTH    RIVER    BRIDGE   CO.  §  65 

the  facts  in  this  case  that  would  bring  us  in  conflict  with  such  a  prin- 
ciple. 

The  question  is,  whether  we  shall  enjoin  the  defendants  from  doing 
an  act  under  color  of  their  charter,  which  it  does  not  authorize  them 
to  do,  and  we  are  all  of  opinion  that  the  right  being  clear,  the  relief 
sought  by  the  bill  must  be  granted,  and  an  injunction  issued  to  restrain 
the  defendants  from  building  a  bridge  at  any  place  within  the  limits  of 
the  exclusive  grant  to  the  plaintiffs,  without  their  consent. 

Injunction  issued. 

Note.  See  1835,  Dyer  v.  Tuskaloosa  Bridge  Co.,  2  Porter  (Ala.)  296,  27  Am. 
Dec.  665;  1837,  Charles  River  Bridge  v.  Warren  Bridge,  11  Peters  (U.  S.)  420; 
1840,  Tuckahoe  Canal  Co.  v.  Tuckahoe,  11  Leigh  (Va.)  42,  36  Am.  Dec.  374^ 
1845,  Enfield  Toll  Bridge  Co.  v.  H.  &  N.  H.  R.  Co.,  17  Conn.  40,  454,  42  Am. 
Dec.  716,  note  728,  44  Am.  Dec.  556;  1848,  West  River  Bridge  v.  Dix,  6  How. 
(47  U.  S.)  507,  531;  1859,  LaFayette  Plank  Road  Co.  v.  N.  A.  &  S.  R.,  13  Ind. 
90,  74  Am.  Dec.  246;  1863,  Bridge  Proprietors  v.  Hoboken,  1  Wall.  (68  U.  S.) 
116;  1865,  The  Binghampton  Bridge,  3  Wall.  (70  U.  S.)  51;  1872,  Eastern  R. 
V.  Boston,  etc.,  R.,  Ill  Mass.  125,  15  Am.  Rep.  13;  1877,  Hudson  v.  Caero 
Land  &  Em.  Co.,  47  Tex.  56,  26  Am.  Rep.  289;  1885,  Louisville  Water  Works 
Co.  V.  Rivers,  115  UT  S.  674 ;  infra,  p.  1416 ;  1885,  New  Orieans  Gas  L.  Co.  v.  L. 
L.  &  H.  P.  Co.,  115  U.  S.  650;  1888,  Appeal  of  Pittsburgh  J.  R.,  122  Pa.  St. 
511.  9  Am.  St.  Rep.  128;  infra,  p.  1342;  1888,  Rockland  Water  Co.  v.  Camden 
&  R.  W.  Co.,  80  Maine  544,  25  Am.  &  Eng.  C.  C.  423. 


ARTICLE  III.       CONSTITUTIONAL    LIMITS. 

(a)   In  the  National  Constitution. 

Sec.  65.    (i)   On  congress. 

LUXTON  v.  NORTH  RIVER  BRIDGE  COMPANY. 

1894.    In  the  Supreme  Court  of  the  United  States.     153  U.  S 
Reports  525-534;    14  Sup.  Ct.  Rep.  891. 

This  was  a  petition  by  the  North  River  Bridge  Company,  incorpo- 
rated by  the  act  of  congress  of  July  11,  1890,  ch.  669,  for  the  appoint- 
ment under  that  act  of  commissioners  to  assess  damages  for  the  appropri- 
ation and  condemnation,  for  the  approaches  to  its  bridge  across  the 
Hudson  or  North  River,  between  the  states  of  New  York  and  New  Jer- 
sey, of  land  of  Sarah  Luxton  in  the  city  of  Hoboken  and  the  county  of 
Hudson,  in  the  latter  state.  Upon  the  order  of  the  circuit  court,  appoint- 
ing commissioners,  she  sued  out  a  writ  of  error,  which  was  dismissed 
by  this  court,  at  the  last  term,  because  that  order  was  not  a  final  judg- 
ment. 147  U.  S.  337.  The  commissioners  afterwards  made  an 
award  and  report,  assessing  her  damages  at  the  sum  of  $3,000,  to  the 
acceptance  of  which  she  objected,  upon  the  grounds  that  the  act  of 
congress  was  unconstitutional,  and  particularly  that  congress  could  not 
confer  the  right  of  eminent  domain  upon  the  company.  But  the  court 
overruled  the  objection,  and  adjudged  that  the  award  be  approved  and 
confirmed,  and  remain  on  record  in  the  office  of  its  clerk,  and  that, 
upon  payment  or  tender  of  the  sum  awarded,  the  company  might 


§  65  LIMITS   ON    POWER   TO    CREATE.  321 

enter  upon  and  take  possession  of  the  land  for  the  purpose  for  which 
it  was  condemned.     She  thereupon  sued  out  this  writ  of  error. 

Mr.  Justice  Gray,  after  stating  the  case,  delivered  the  opinion  of 
the  court. 

The  validity  of  the  act  of  congress  incorporating  the  North  River 
Bridge  Company  rests  upon  principles  of  constitutional  law,  now 
established  beyond  dispute. 

The  congress  of  the  United  States  being  empowered  by  the  con- 
stitution to  regulate  commerce  among  the  several  states,  and  to  pass 
all  laws  necessary  or  proper  for  carrying  into  execution  any  of  the 
powers  specifically  conferred,  may  make  use  of  any  appropriate 
means  for  this  end.  As  said  by  Chief  Justice  Marshall,  ''the  power 
of  creating  a  corporation,  though  appertaining  to  sovereignty,  is  not, 
like  the  power  of  making  war,  or  levying  taxes,  or  of  regulating  com- 
merce, a  great  substantive  and  independent  power,  which  can  not  be 
implied  as  incidental  toother  powers,  or  used  as  a  means  of  executing 
them.  It  is  never  the  end  for  which  other  powers  are  exercised,  but  a 
means  by  which  other  objects  are  accomplished."  Congress,  there- 
fore, may  create  corporations  as  appropriate  means  of  executing  the 
powers  of  government,  as,  for  instance,  a  bank  for  the  purpose  of 
carrying  on  the  fiscal  operations  of  the  United  States,  or  a  railroad 
corporation  for  the  purpose  of  promoting  commerce  among  the  states. 
McCulloch  V.  Maryland,  4  Wheat.  316,  411,. 422;  Osborn  v.  Bank 
of  United  States,  9  Wheat.  738,  861,  873;  Pacific  Railroad  Removal 
Cases,  115  U.  S.  I,  18;  California  v.  Pacific  Railroad,  127  U.  S.  i, 
39.  Congress  has  likewise  the  power  exercised  early  in  this  century 
by  successive  acts  in  the  case  of  the  Cumberland  or  National  Road 
from  the  Potomac  across  the  Alleghenies  to  the  Ohio,  to  authorize 
the  construction  of  a  public  highway  connecting  several  states.  See 
Indiana  v.  United  States,  148  U.  S.  148.  And  whenever  it  becomes 
necessary  for  the  accomplishment  of  any  object  within  the  authority 
of  congress,  to  exercise  the  right  of  eminent  domain  and  take  private 
lands,  making  just  compensation  to  the  owners,  congress  may  do  this 
with  or  without  a  concurrent  act  of  the  state  in  which  the  lands  lie. 
Van  Brocklin  v.  Tennessee,  117  U.  S.  151,  154,  and  cases  cited; 
Cherokee  Nation  v.  Kansas  Railway,  135  U.  S.  641,  656. 

From  these  premises^  the  conclusion  appears  to  be  inevitable  thaty 
although  congress  may^  if  H  sees  jit ^  and  as  it  has  often  done,  recog- 
nize and  approve  bridges  erected  by  authority  of  two  states  across 
navigable  -waters  bet-ween  them,  it  w«y,  at  its  discretion,  use  its  sover- 
eign porwers,  directly  or  through  a  corporation  created  for  that  ob- 
ject, to  construct  bridges  for  the  accommodation  of  interstate  com- 
merce by  land,  as  it  undoubtedly  may  to  intprovc  the  navigation  of 
rivers  for  the  convenience  of  interstate  commerce  by  -water,  i  Hare's 
Constitutional  Law,  248,  249.  See  acts  of  July  14,  1862,  ch.  167,  \z 
Stat.  569;  February  17,  1865,  ch.  38,  13  Stat.  431;  July  25,  1866, 
ch.  246,  14  Stat.  244;  March  3,  1871,  ch.  i2i,  §  5,  16  Stat.  572, 
573;  June  16,  1886,  ch.  417,  24  Stat.  78. 

The  judicial  opinions  cited  in  support  of  the  opposite  view  are  not, 
21— WiL.  Cases. 


322  LUXTON    V.    NORTH    RIVER    BRIDGE   CO.  §  65 

having  regard  to  the  facts  of  the  cases  in  which  they  were  uttered,  of 
controlling  weight. 

Mr.  Justice  McLean,  indeed,  in  an  opinion  delivered  by  him  in  the 
circuit  court,  by  which  a  bill  by  the  United  States  to  restrain  the  con- 
struction of  a  bridge  across  the  Mississippi  River  was  dismissed,  no 
injury  to  property  of  the  United  States  and  no  substantial  obstruction 
to  navigation  being  shown,  and  there  having  been  no  legislation  by 
congress  upon  the  subject,  took  occasion  to  remark  that  "neither  under 
the  commercial  power,  nor  under  the  power  to  establish  post  roads, 
can  congress  construct  a  bridge  over  a  navigable  water;"  that  "if 
congress  can  construct  a  bridge  over  a  navigable  water,  under  the 
power  to  regulate  commerce  or  to  establish  post  roads,  on  the  same 
principle  it  may  make  turnpike  or  railroads  throughout  the  entire 
country;"  and  that  "the  latter  power  has  generally  been  considered 
as  exhausted  in  the  designation  of  roads  on  which  the  mails  are  to  be 
transported ;  and  the  former  by  the  regulation  of  commerce  upon  the 
high  seas  and  upon  our  rivers  and  lakes,"  United  States  v.  Railroad 
Bridge  Co.,  6  McLean  517,  534,  525. 

The  same  learned  justice  repeated  and  enlarged  upon  that  idea  in 
his  dissenting  opinion  in  Pennsylvania  v.  Wheeling  Bridge,  18  How. 
421,  442,  443,  where,  after  the  Wheeling  Bridge,  constructed  across 
the  Ohio  river  under  an  act  of  the  state  of  Virginia,  had  by  a  decree 
of  this  court,  at  the  suit  of  the  state  of  Pennsylvania,  been  declared  to 
be  in  its  then  condition  an  unlawful  obstruction  of  the  navigation  of 
the  river,  and  in  conflict  with  the  acts  of  congress  regulating  such 
navigation,  and  therefore  ordered  to  be  elevated  or  abated,  congress 
passed  an  act  declaring  the  bridge  to  be  a  lawful  structure  in  its  then 
position  and  elevation,  establishing  it  as  a  post  road  for  the  passage 
of  the  mails  of  the  United  States,  authorizing  the  corporation  to  have 
and  maintain  the  bridge  at  that  site  and  elevation,  and  requiring  the 
captains  and  crews  of  all  vessels  and  boats  navigating  the  river  to 
regulate  the  use  thereof,  and  of  any  pipes  or  chimneys  belonging 
thereto,  so  as  not  to  interfere  with  the  elevation  and  construction  of 
the  bridge.     Act  of  August  31,  1852,  ch.  1 1 1,  sees.  6,  7,  10  Stat.  112, 

But  the  majority  of  this  court  in  that  case  held  that  "the  act  of  con- 
gress afforded  full  authority  to  the  defendants  to  reconstruct  the 
bridge."  18  How.  436.  Mr.  Justice  Nelson,  in  delivering  its  opin- 
ion, said:  "We  do  not  enter  upon  the  question  whether  or  not  con- 
gress possess  the  power  under  the  authorit}'  of  the  constitution  to 
establish  post  offices  and  post  roads,  to  legalize  this  bridge,  for  con- 
ceding that  no  such  powers  can  be  derived  from  this  clause,  it  must 
be  admitted  that  it  is,  at  least,  necessarily  included  in  the  power  con- 
ferred to  regulate  commerce  among  the  several  states.  The  regula- 
tion of  commerce  includes  intercourse  and  navigation,  and,  of  course, 
the  power  to  determine  what  shall  or  shall  not  be  deemed  in  judg- 
ment of  law  an  obstruction  to  navigation ;  and  that  power,  as  we 
have  seen,  has  been  exercised  consistently  with  the  continuance  of 
the  bridge."  18  How.  431.  And  Mr,  Justice  Daniel,  in  a  concur- 
ring  opinion,  sustaining  the  validity  of  the  act   of    congress,    said: 


§  65  LIMITS   ON    POWER   TO    CREATE.  323 

"They  have  regulated  this  matter  upon  a  scale  by  them  conceived 
to  be  just  and  impartial,  with  reference  to  that  commerce  which  pur- 
sues the  course  of  the  river,  and  to  that  which  traverses  its  channel, 
and  is  broadly  diffused  through  the  country.  They  have  at  the  same 
time,  by  what  they  have  done,  secured  to  the  government  and  to  the 
public  at  large  the  essential  advantage  of  a  safe  and  certain  transit 
over  the  Ohio."  18  How.  458.  A  similar  decision  was  made  in  the 
Clinton  Bridge,  10  Wall.  454.  See  also  Miller  v.  New  York,  109 
U.  S.  385. 

In  the  cases  cited  at  the  bar,  of  The  Passaic  Bridges,  3  Wall.  App. 
782,  decided  by  Mr.  Justice  Grier  in  the  circuit  court,  and  of  Gil- 
man  v.  Philadelphia,  3  Wall.  713,  and  Wright  v.  Nagle,  loi  U.  S. 
791,  in  this  court,  the  bridge  in  question  had  been  erected  under 
authority  of  a  state,  and  was  wholly  within  the  state,  and  no  question 
arose  or  was  considered  as  to  the  power  of  congress,  in  regulating  in- 
terstate commerce,  to  authorize  the  erection  of  bridges  between  two 
states. 

But  in  Stockton  v.  Baltimore  and  New  York  Railroad,  32  Fed. 
Rep.  9,  Mr.  Justice  Bradley,  sitting  in  the  circuit  court,  upheld  the 
constitutionality  of  the  act  of  congress  of  June  16,  1886,  ch.  417,  au- 
thorizing a  corporation  of  New  York  and  one  of  New  Jersey  to  build 
and  maintain  a  bridge,  as  therein  directed,  across  the  Staten  Island 
Sound  or  Arthur  Kill.     24  Stat.   78. 

The  reasons  upon  which  the  decision  in  that  case  rested  were,  in 
substance,  the  same  as  were  stated  by  that  eminent  judge  in  two  opin- 
ions afterwards  delivered  by  him  in  behalf  of  this  court,  in  which  the 
power  of  congress,  by  its  own  legislation,  to  confer  original  authority 
to  erect  bridges  over  navigable  waters,  whenever  congress  considered 
it  necessary  to  do  so  to  meet  the  demands  of  interstate  commerce  by 
land,  is  so  clearly  demonstrated  as  to  render  further  discussion  on  the 
subject  superfluous. 

In  Willamette  Bridge  v.  Hatch,  125  U.  S.  i,  in  which  it  was  held 
that  section  2  of  the  act  of  February  14,  1859,  ch.  33  (11  Stat.  383), 
for  the  admission  of  Oregon  into  the  Union,  providing  that  "all  the  nav- 
igable waters  of  the  said  state  shall  be  common  highways,  and  forever 
free,  as  well  to  the  inhabitants  of  said  state  as  to  all  other  citizens  of 
the  United  States,"  did  not  prevent  the  state,  in  the  absence  of  legis- 
lation by  congress,  from  authorizing  the  erection  of  a  bridge  over 
such  a  river,  Mr.  Justice  Bradley,  speaking  for  the  whole  court,  said : 
"^'And  although,  until  congress  acts,  the  states  have  the  plenary  power 
supposed,  yet,  when  congress  chooses  to  act,  it  is  not  concluded  by 
anything  that  the  states,  or  that  individuals  by  its  authority  or  ac- 
quiescence, have  done,  from  assuming  entire  control  of  the  matter, 
and  abating  any  erections  that  may  have  been  made,  and  preventing 
any  others  from  being  made,  except  in  conformity  with  such  regula- 
tions as  it  may  impose.  It  is  for  this  reason,  namely,  the  ultimate 
(though  yet  uncxerted)  power  of  congress  over  the  whole  subject- 
matter,  that  the  consent  of  congress  is  so  frequently  asked  in  the  erec- 
tion of  bridges  over  navigable  streams.     It  might  itself  give  original 


324  LUXTON    V.    NORTH    RIVER   BRIDGE   CO.  §  65 

authority  for  the  erection  of  such  bridges,  when  called  for  by  the  de- 
mands of  interstate  commerce  by  land;  but  in  many,  perhaps  the 
majority,  of  cases  its  assent  only  is  asked,  and  the  primary  authority  is 
sought  at  the  hands  of  the  state."      125  U.  S.  12,  13. 

In  California  v.  Pacific  Railroad,  127  U.  S.  i,  it  was  directly  ad- 
judged that  congress  has  authority,  in  the  exercise  of  its  powers,  to 
regulate  commerce  among  the  several  states,  to  authorize  corporations 
to  construct  railroads  across  the  states  as  well  as  the  territories  of  the 
United  States;  and  Mr.  Justice  Bradley,  again  speaking  for  the  court, 
and  referring  to  the  acts  of  congress  establishing  corporations  to  build 
railroads  across  the  continent,  said:  "It  can  not  at  the  present  day 
be  doubted  that  congress  under  the  power  to  regulate  commerce 
among  the  several  states,  as  well  as  to  provide  for  postal  accommoda- 
tions and  military  exigencies,  had  authority  to  pass  these  laws.  The 
power  to  construct  or  to  authorize  individuals  or  corporations  to 
construct  national  highways  and  bridges  fro7n  state  to  state  is  essen- 
tial to  the  cotnplete  control  and  regulation  of  interstate  commerce. 
Without  authority  in  congress  to  establish  and  fuaintain  such  high- 
ways and  bridges^  it  would  be  without  authority  to  regulate  one  of 
the  most  imfortatit  adjuncts  of  commerce.  This  power  in  former 
times  was  exerted  to  a  very  limited  extent,  the  Cumberland  or  Na- 
tional road  being  the  most  notable  instance.  Its  exertion  was  but 
little  called  for,  as  commerce  was  then  mostly  conducted  by  water, 
and  many  of  our  statesmen  entertained  doubts  as  to  the  existence  of 
the  power  to  establish  ways  of  communication  by  land.  But  since, 
in  consequence  of  the  expansion  of  the  country,  the  multiplication  of 
its  products  and  the  invention  of  railroads  and  locomotion  by  steam, 
land  transportation  has  so  vastly  increased  a  sounder  consideration  of 
the  subject  has  prevailed  and  led  to  the  conclusion  that  congress  has 
■plenary  power  over  the  whole  subject.  Of  course,  the  authority  of 
congress  over  the  territories  of  the  Unites  States,  and  its  power  to 
grant  franchises  exercisible  therein,  are,  and  ever  have  been,  un- 
doubted. But  the  wider  power  was  very  freely  exercised,  and  much 
to  the  general  satisfaction  in  the  creation  of  the  vast  system  of  rail- 
roads connecting  the  east  with  the  Pacific,  traversing  states  as  well  as 
territories,  and  employing  the  agency  of  state  as  well  as  Federal  cor- 
porations."     127  U.  S.  39,  40. 

The  act  of  congress  now  in  question  declares  the  construction  of 
the  North  River  Bridge  between  the  states  of  New  York  and  New 
Jersey  to  be  "in  order  to  facilitate  interstate  commerce,"  and  it  makes 
due  provision  for  the  condemnation  of  lands  for  the  construction  and 
maintenance  of  the  bridge  and  its  approaches,  and  for  just  compensa- 
tion to  the  owners,  which  has  been  accordingly  awarded  to  the 
plaintiff  in  error. 

In  the  light  of  the  foregoing  principles  and  authorities,  the  objec- 
tion made  to  the  constitutionality  of  this  act  can  not  be  sustained. 

Judgment  affirmed. 

Note.  National  corporations.  See  generally  16  Am.  &  Eng.  Ency.  216; 
24  Am.  &  Eng.  R.  Cas.  21;   21  Am.  L.  R.  258;  Angell  &  Ames,  §§  72,  73; 


§  65  LIMITS   ON    POWER   TO    CREATE.  325 

Beach,  §§  3-6;  Clark,  p.  39,  et  seq. ;  Cook,  §  1001  ;  Elliott,  §  28;  Field,  §  13;  1 
Morawetz,  §  9;  Taylor,  H67;  1  Thompson,  §§065-685. 

1.  In  the  District  of  Columbia:  Chapter  15  of  tlie  Compiled  Statutes  of  the 
District  of  Columbia  relates  to  the  formation  of  corporations  within  the  Dis- 
trict. The  following  are  provided  for:  Institutions  of  learning,  religious  so- 
cieties, benevolent,  educational,  etc.,  societies,  manufacturing,  agricultural, 
mining,  mechanical,  insurance,  transportation,  market,  savings  banks,  ceme- 
tery associations,  boards  of  trade,  trust  companies,  insurance  and  vestries. 
This  is  under  the  constitutional  provision  giving  congress  exclusive  legisla- 
tive authority  within  the  District.     Art.  i,  §  8,  cl.  17. 

Such  corporations  may  act  in  the  states  by  their  consent  and  that  of  con- 
gress. Hadley  v.  Freedman's  Trust  Co.,  2  Tenn.  Ch.  122;  Williams  v.  Cres- 
well,  51  Miss.  817.  Congress  has  authorized  a  District  insurance  company  to 
do  business  in  the  states,  with  their  consent,  15  St.  at  L.  184;  also  authorizes 
National  Trades'  Unions  with  power  to  establish  branches  in  the  states,  1 
Supp.  R.  S.  498  (1886).  The  Freedman's  Saving  &  Trust  Co.  was  authorized 
by  13  St.  at  L.  510;  National  Asylum  for  Disabled  Volunteers,  14  St.  at  L.  10; 
Centennial  Board  of  Finance,  17  St.  at  L.  203.  Societies  for  benevolent  pur- 
poses, R.  S.  §§  546;  1  Supp.  R.  S.  425. 

2.  In  the  Territories :  Congress  has  .general  legislative  authority  over  the 
territories,  and  can,  therefore,  create  corporations  within  the  territories,  or 
authorize  the  territorial  legislatures  to  create  corporations.  It  has  provided 
for  the  territorial  legislatures  to  do  so  by  a  general  act.  U.  S.  Const.,  art.  iv, 
§  3,  cl.  2 ;  Rev.  Stat.,  §  1889,  infra,  p.  332. 

3.  In  the  States:  Substantially  all  the  authorities  upon  this  point  are  cited 
in  the  Luxton  case.  The  U.  S.  bank  was  chartered  in  1791,  by  1  St.  at  L. 
191,  and  in  1816,  3  St.  at  L.  266;  the  present  national  banking  system  was 
established  in  1863  by  12  St.  at  L.  666;  the  Union  Pacific  Rv.  in  1862,  12  St. 
at  L.  489;  Northern  Pacific  Ry.,  1864,  13  St.  at  L.  365;  Atlantic  and  Pacific 
Rv.,  1866, 14  St.  at  L.  292;  Texas  and  Pacific  Ry.  in  1871,  16  St.  at  L.  573,  and 
1872,  17  St.  at  L.  59.  Sections  5263-5269,  Revised  Statutes,  authorize  state  in- 
corporated telegraph  companies  to  construct  their  lines  on  all  post  roads.  See 
Pensacola  Tel.  Co.  v.  W.  U.  Tel.  Co.,  96  U.  S.l,  infra,  p.  326. 

Such  a  corporation  is  not  a  foreign  corporation  within  any  state.  1881, 
Commonwealth  v.  Texas,  etc.,  R.,  98  Pa.  St.  90;  1882,  Market  National  Bank 
v.  Pacific,  etc..  Bank,  64  How.  Pr.  (N.  Y.)  1  ;  1879,  Eby  v.  Northern  Pac.  Rv. 
Co.,  36  Leg.  Int.  164,  s.  c.  6  Weekly  N.  C.  385. 

Such  corporation  may  exercise  the  power  of  eminent  domain  within  the 
states.  1875,  Kohl  v.  United  States,  91  U.  S.  367;  1890,  Searl  v.  Dist.  No.  2, 
133  U.  S.  553;  1890,  Cherokee  Nation  v.  R.  Co.,  135  U.  S.  641 ;  1890,  Ryan  v. 
U.  S.,  136  U.  S.  69;  1892,  Bellaire  v.  R..C0.,  146  U.  S.  117. 

Such  corporation  is  exempt  from  state  taxation  or  control,  so  far  as  the 
same  might  impair  its  efficiency  as  an  instrument  of  the  national  government. 
1869,  National  Bank  v.  Commw.,  9  Wall.  (U.  S.)  353 ;  1869,  Thomson  v.  Pacific 
R.  R.,  9  Wall.  (U.  S.)  579;  1873,  Railroad  Co.  v.  Peniston,  18  Wall.  (U.  S.)  5. 
But  state  taxation  of  national  banks  is  provided  for  by  U.  S.  Rev.  Stats., 
§5219. 

A  national  corporation  has  a  right  to  sue  and  be  sued  in  the  United  States 
courts.     1897,  Texas,  etc.,  R.  v.  Cody,  166  U.  S.  606;  infra,  p.  1098. 

4.  To  operate  outside  of  the  territory  of  the  United  States:  In  1889  congress 
chartered  the  Maritime  Canal  Company  of  Nicaraugua  (25  St.  at  L.  673).  The 
company  also  has  a  charter  from  the  state  of  Vermont.  Beach  Corp.,  §  6,  n. 
2,  p.  10. 

5.  Dissolution:  The  constitutional  provision  (art.  i,  §  10,  cl.  1)  forbidding 
the  states  from  passing  any  law  impairing  the  obligation  of  contracts,  does 
not  apply  to  congress.  Hence,  congress  may  repeal  a  corporate  charter 
created  by  itself  or  the  territorial  legislatures,  prior  to  the  territory  becoming 
a  state.  1890,  Corpofation  of  Church  of  Jesus  Christ,  etc.,  v.  United  States, 
136  U.  S.  1,  infra,  p.  906.  But  see  1878,  United  States  v.  Union  Pacific  Rail- 
road Co.,  98  U.  S.  569,  and  1878,  The  Sinking  Fund  Cases,  99  U.  S.  700.  But 
in  the  early  bank  charters,  the  creating  congress  pledged  the  faith  of  the 


326        PENSACOLA   TEL.    CO.  V.  WESTERN    UNION   TEL.  CO.       §  66 

government  not  to  repeal  the  charter  before  the  charter  period  elapsed.   See  1 
St.  at  L.  191 ;  3  St.  at  L.  266. 


Sec.  66.      (2)   On  state  legislatures. 

PENSACOLA    TELEGRAPH    COMPANY  v.   WESTERN  UNION  TELE- 
GRAPH COMPANY.! 

1877.     In  the  Supreme  Court  of  the  United  States.     96  U.  S. 

Reports    1—24. 

Appealed  from  the  circuit  court  of  the  United  States  for  the  north- 
ern district  of  Florida. 

In  1859  an  association  of  persons,  known  as  the  Pensacola  Tele- 
graph Company,  erected  a  line  of  electric  telegraph  upon  the  right  of 
way  of  the  Alabama  and  Florida  Railroad  from  Pensacola,  in  Flor- 
ida, to  Pollard,  in  Alabama,  about  six  miles  north  of  the  Florida  line. 
The  company  operated  the  whole  line  until  1863,  when,  upon  the 
evacuation  of  Pensacola  by  the  confederate  forces,  the  wire  was  taken 
down  for  twenty-three  miles,  and  Cooper's  Station  made  the  southern 
terminus.  In  1864  the  whole  was  abandoned,  as  the  section  of  the 
country  in  which  it  was  situated  had  fallen  into  the  possession  of  the 
United  States  troops. 

On  the  1st  of  December,  1865,  the  stockholders  met,  and  it  appear- 
ing that  the  assets  of  the  company  were  insufficient  to  rebuild  the  line, 
a  new  association  was  formed  for  that  pui*pose,  with  the  old  name, 
and  new  stock  to  the  amount  of  $5 ,000  subscribed.  A  resolution  was 
adopted  by  the  new  company  to  purchase  the  property  of  the  old,  at  a 
valuation  put  upon  it  in  a  report  submitted  to  the  meeting,  and  a 
new  board  of  directors  was  elected, 

A  meeting  of  the  directors  was  held  on  the  2d  of  Januaiy,  1866,  at 
which  the  president  reported  the  completion  of  the  line  to  Pensacola, 
and  a  resolution  was  adopted,  authorizing  the  purchase  of  wire  for  its 
extension  to  the  navy  yard.  The  attorneys  of  the  company  were  also 
instructed  to  prepare  a  draft  for  a  charter,  to  be  presented  to  the  legis- 
lature for  enactment. 

On  the  24th  day  of  July,  1866,  congress  passed  the  following  act: 

"An  act  to  aid  in  the  construction  of  telegraph  lines,  and  to  secure 
to  the  government  the  use  of  the  same  for  postal,  military  and  other 
purposes. 

"Be  it  enacted  by  the  senate  and  the  house  of  representatives  of  the 
United  States  of  America  in  congress  assembled.  That  any  telegraph 
company  now  organized,  or  which  may  hereafter  be  organized,  under 
the  laws  of  any  state  in  this  Union,  shall  have  the  right  to  construct, 
maintain  and  operate  lines  of  telegraph  through  and  over  any  portion 
of  the  public  domain  of  the  United  States  over  and  along  any  of  the 
military  or  post  roads  of  the  United  States  which  have  been  or  may  be 
hereafter  declared  such  by  act  of  congi'ess,  and  oyer,  under  or  across 
the  navigable  streams  or  waters  of  the  United  States :  Provided^  That 
such  lines  of  telegraph  shall  be  so  constructed  and  maintained  as  not 
*  Arguments  and  dissenting  opinions  of  Justice  Field  and  Hunt  omitted. 


§  66  LIMITS   ON    POWER   TO    CREATE.  32/ 

to  obstruct  the  navigation  of  »uch  streams  and  waters,  oi  interfere 
with  the  ordinary  travel  on  such  military  or  post  roads.  And  any  of 
said  companies  shall  have  the  right  to  take  and  use  from  such  public 
lands  the  necessary  stone,  timber  and  other  materials  for  its  posts, 
piers,  stations  and  other  needful  uses  in  the  constniction,  maintenance 
and  operation  of  said  lines  of  telegraph,  and  may  pre-empt  and  use 
such  portion  of  the  unoccupied  public  lands  subject  to  pre-emption 
through  which  its  said  lines  of  telegraph  may  be  located  as  may  be 
necessary  for  its  stations,  not  exceeding  forty  acres  for  each  station ; 
but  such  stations  shall  not  be  within  fifteen  miles  of  each  other. 

"Sec.  2.  And  be  it  further  enacted.  That  telegraphic  communica- 
tions between  the  several  departments  of  the  government  of  the  United 
States  and  their  officers  and  agents  shall,  in  their  transmission  over 
the  lines  of  any  of  said  companies,  have  priority  over  all  other  busi- 
ness, and  shall  be  sent  at  rates  to  be  annually  fixed  by  the  postmaster- 
general. 

"Sec.  3.  And  be  it  further  enacted,  That  the  rights  and  privileges 
hereby  granted  shall  not  be  transferred  by  any  company  acting  under 
this  act  to  any  other  corporation,  association  or  person :  Provided, 
however,  That  the  United  States  may  at  any  time  after  the  expiration 
of  five  years  from  the  date  of  the  passage  of  this  act,  for  postal,  mil- 
itary or  other  purposes,  purchase  all  the  telegraph  lines,  property 
and  effects  of  any  or  all  of  said  companies  at  an  appraised  value,  to  be 
ascertained  by  five  competent  disinterested  persons,  two  of  whom  shall 
be  selected  by  the  postmaster-general  of  the  United  States,  two  by 
the  company  interested,  and  one  by  the  four  so  previously  selected. 

"Sec.  4.  And  be  it  further  enacted,  That,  before  any  telegraph  com- 
pany shall  exercise  any  of  the  powers  or  privileges  conferred  by  this 
act,  such  company  shall  file  their  written  acceptance  with  the  post- 
master-general of  the  restrictions  and  obligation  required  by  this  act." 
14  Stat.  221  ;  Rev.  Stat.,  §  5263,  et  seq. 

All  railroads  in  the  United  States  are  by  law  post  roads.  Rev. 
Stat.,  §'3964;  17  Stat.  308,  §  201. 

On  the  nth  of  December,  1S66,  the  legislature  of  Florida  passed 
an  act  incorporating  the  Pensacola  Telegraph  Company,  and  grant- 
ing it  "the  sole  and  exclusive  privilege  and  right  of  establishing  and 
maintaining  lines  of  electric  telegraph  in  the  counties  of  Escambia 
and  Santa  Rosa,  either  from  different  points  within  said  counties,  or 
connecting  with  lines  coming  into  said  counties,  or  either  of  them, 
from  any  point  in  this  (Florida)  or  any  other  state."  The  capital 
stock  was  fixed  at  $5,000,  with  privilege  of  increasing  it  to  such  an 
amount  as  might  be  considered  necessary.  The  company  was  author- 
ized to  locate  and  construct  its  lines  within  the  counties  named, 
"along  and  upon  any  public  road  or  highway  or  across  any  water,  or 
upon  any  railroad  or  private  property  for  which  permission  shall  first 
have  been  obtained  from  the  proprietors  thereof."  In  this  act  all  the 
stockholders  of  the  new  association  which  had  rebuilt  the  line  were 
named  as  corporators.  No  meeting  of  the  directors  was  held  until 
January   2,    1868,   when   the    secretary  was   instructed   to    notify  the 


328        PENSACOLA   TEL.    CO.  V.  WESTERN    UNION   TEL.  CO.       §  66 

stockholders  "that  the  charter  drawn  up  by  Messrs.  Campbell  &  Perry, 
attorneys,  as  per  order  of  board,  January  2,  1866,"  had  been  passed. 

On  the  5th  of  June,  1867,  the  directors  of  the  defendant,  the  West- 
ern Union  Telegraph  Company,  a  New  York  corporation,  passed 
the  following  resolution,  which  was  duly  filed  with  the  postmaster- 
general  : 

'•'•Resolved^  That  this  company  does  hereby  accept  the  provisions 
of  the  act  of  congress,  entitled  'An  act  to  aid  in  the  constmction  of 
telegraph  lines,  and  to  secure  to  the  government  the  use  of  the  same 
for  postal,  military  and  other  purposes,'  approved  July  24,  1866,  with 
all  the  powers,  privileges,  restrictions,  and  obligations  conferred  and 
required  thereby ;  and  that  the  secretary  be,  and  he  is  hereby  author- 
ized and  directed  to  file  this  resolution  with  the  postmaster-general  of 
the  United  States,  duly  attested  by  the  signature  of  the  acting  presi- 
dent of  the  company  and  the  seal  of  the  corporation,  in  compliance 
with  the  fourth  section  of  said  act  of  congress." 

In  1872  the  property  of  the  Alabama  and  Florida  Railroad  Com- 
pany, including  its  right  of  way  and  railroad,  was  transferred  to  the 
Pensacola  and  Louisville  Railroad  Company;  and  on  the  14th  of  Feb- 
ruary, 1873,  the  legislature  of  Florida  passed  an  act,  which,  as 
amended  February  18,  1874,  authorized  the  last  named  company  "to 
construct,  maintain  and  operate  a  telegraph  line  from  the  Bay -of  Pen- 
sacola along  the  line  of  the  said  (its)  road  as  now  located,  or  as  it 
may  hereafter  be  located,  and  along  connecting  roads  in  said  county 
to  the  boundary  lines  of  the  state  of  Alabama,  and  the  said  lines  may 
connect  and  be  consolidated  with  other  telegraph  companies  within  or 
without  the  state,  and  said  company  may  pledge,  mortgage,  lease,  sell, 
assign  and  convey  the  property  appertaining  to  the  said  telegraph 
lines,  and  the  rights,  privileges  and  franchises  conferred  by  this  act, 
with  full  power  in  such  assignees  to  construct,  own  and  operate  such 
telegraph  lines,  and  enjoy  all  the  privileges,  rights  and  franchises 
conferred  by  this  act,  but  in  such  case  the  said  railroad  company 
shall  be  responsible  for  the  proper  performance  of  the  duties  and  obli- 
gations imposed  by  this  act." 

This  was  within  the  territory  embraced  by  the  exclusive  grant  to 
the  Pensacola  Telegraph  Company. 

On  the  24th  of  June,  1874,  the  Pensacola  and  Louisville  Railroad 
Company  granted  to  the  Western  Union  Telegraph  Company  the 
right  to  erect  a  telegraph  line  upon  its  right  of  way,  and  also  the 
rights  and  privileges  conferred  by  the  acts  of  February,  1873  and  1874. 
The  Western  Union  Company  immediately  commenced  the  erection 
of  the  line,  but  before  its  completion,  to  wit,  July  27,  1874,  the  bill 
in  this  case  was  filed  by  the  Pensacola  Telegraph  Company  to  enjoin 
the  work  and  the  use  of  the  line,  on  account  of  the  alleged  exclusive 
right  of  that  company  under  its  charter.  Upon  the  hearing,  a  decree 
was  passed  dismissing  the  bill,  and  this  appeal  was  taken. 

Mr.  Chief  Justice  Waite  delivered  the  opinion  of  the  court. 

Congress  has  power  "to  regulate  commerce  with  foreign  nations 
and  among  the  several  states"  (Const.,  art.  i,  §8,  par.  3),  and  "to 


§  66  LIMITS   ON    POWER   TO    CREATE.  329 

establish  post-offices  and  post  reads."  (Const. ,  art.  i,  §  8,  par.  7.)  The 
constitution  of  the  United  States  and  the  laws  made  in  pursuance 
thereof  are  the  supreme  law  of  the  land.  Art.  vi,  par.  2.  A  law  of 
congress  made  in  pursuance  of  the  constitution  suspends  or  overrides 
all  state  statutes  with  which  it  is  in  conflict. 

Since  the  case  of  Gibbons  v.  Ogden  (9  Wheat,  i),  it  has  never 
been  doubted  that  commercial  intercourse  is  an  element  of  commerce 
which  comes  within  the  regulating  power  of  congress.  Post-offices 
and  post  roads  are  established  to  facilitate  the  transmission  of  intel- 
ligence. Both  commerce  and  the  postal  service  are  placed  within  the 
power  of  congress,  because,  being  national  in  their  operation,  they 
should  be  imder  the  protecting  care  of  the  national  government. 

The  powers  thus  granted  are  not  confined  to  the  instrumentalities 
of  commerce,  or  the  postal  service  known  or  in  use  when  the  consti- 
tution was  adopted,  but  they  keep  pace  with  the  progress  of  the  coun- 
tiy,  and  adapt  themselves  to  the  new  developments  of  time  and 
circumstances.  They  extend  from  the  horse  with  its  rider  to  the  stage 
coach,  from  the  sailing  vessel  to  the  steamboat,  from  the  coach  and 
the  steamboat  to  the  railroad,  and  from  the  railroad  to  the  telegraph, 
as  these  new  agencies  are  successively  brought  into  use  to  meet  the 
demands  of  inci-easing  population  and  wealth.  They  were  intended 
for  the  government  of  the  business  to  which  they  relate,  at  all  times 
and  under  all  circumstances.  As  they  were  intrusted  to  the  general 
government  for  the  good  of  the  nation,  it  is  not  only  the  right,  but 
the  duty,  of  congress  to  see  to  it  that  intercourse  among  the  states  and 
the  transmission  of  intelligence  are  not  obstructed  or  unnecessarily 
encumbered  by  state  legislation. 

The  electric  telegraph  marks  an  epoch  in  the  progress  of  time.  In 
a  little  more  than  a  quarter  of  a  century  it  has  changed  the  habits  of 
business,  and  become  one  of  the  necessities  of  commerce.  It  is  indis- 
pensable as  a  means  of  inter-communication,  but  especially  is  it  so  in 
commercial  transactions.  The  statistics  of  the  business  before  the  re- 
cent reduction  in  rates  show  that  more  than  eighty  per  cent,  of  all  the 
messages  sent  by  telegraph  related  to  commerce.  Goods  are  sold  and 
money  paid  upon  telegraphic  orders.  Contracts  are  made  by  tele- 
graphic correspondence,  cargoes  secured,  and  the  movements  of  ships 
directed.  The  telegraphic  announcement  of  the  markets  abroad  reg- 
ulates prices  at  home,  and  a  prudent  merchant  rarely  enters  upon  an 
important  transaction  without  using  the  telegraph  freely  to  secure  in- 
formation. 

It  is  not  only  important  to  the  people,  but  to  the  government.  By 
means  of  it  the  heads  of  the  departments  in  Washington  are  kept  in 
close  communication  with  all  their  various  agencies  at  home  and 
abroad,  and  can  know  at  almost  any  hour,  by  inquiry,  what  is  trans- 
piring anywhere  that  affects  the  interests  they  have  in  charge.  Under 
such  circumstances,  it  can  not  for  a  moment  be  doubted  that  this  pow- 
erful agency  of  commerce  and  inter-communication  comes  within  the 
controlling  power  of  congress,  certainly  as  against  hostile  state  legisla- 
tion.    In  fact,  from  the  beginning,  it  seems  to  have    been  assumed 


330        PENSACOLA   TEL,    CO.  V.  WESTERN   UNION   TEL.  CO.       §  66 

that  congress  might  aid  in  developing  the  system,  for  the  first  tele- 
graph line  of  any  considerable  extent  ever  erected  was  built  between 
Washington  and  Baltimore,  only  a  little  more  than  thirty  years  ago, 
with  money  appropriated  by  congress  for  that  purpose  (5  Stat.  618), 
.  and  large  donations  of  land  and  money  have  since  been  made  to  aid 
in  t^e  construction  of  other  lines.  (12  Stat.  489,  772  ;  13  Stat.  365  ;  14 
Stat.  292.)  It  is  not  necessary  now  to  inquire  whether  congress  may 
assume  the  telegraph  as  part  of  the  postal  sei-vice,  and  exclude  all  oth- 
ers from  its  use.  The  present  case  is  satisfied,  if  we  find  that  con- 
gress has  power,  by  appropriate  legislation,  to  prevent  the  states  from 
placing  obstructions  in  the  way  of  its  usefulness. 

The  government  of  the  United  States  within  the  scope  of  its  pow- 
ers operates  upon  every  foot  of  territory  imder  its  jurisdiction.  It 
legislates  for  the  whole  nation,  and  is  not  embarrassed  by  state  lines. 
Its  peculiar  duty  is  to  protect  one  part  of  the  country  from  encroach- 
ments by  another  upon  the  national  rights  which  belong  to  all. 

The  state  of  Florida  has  attempted  to  confer  upon  a  single  corpora- 
tion the  exclusive  right  of  transmitting  intelligence  b}'^  telegraph  over 
a  certain  portion  of  its  territory.  This  embraces  the  two  western 
most  counties  of  the  state,  and  extends  from  Alabama  to  the  Gulf. 
No  telegraph  line  can  cross  the  state  from  east  to  west,  or  from  north 
to  south,  within  these  counties,  except  it  passes  over  this  teiritory. 
Within  it  is  situated  an  important  seaport  at  which  business  centers, 
and  with  which  those  engaged  in  commercial  pursuits  have  occasion 
more  or  less  to  communicate.  The  United  States  have  there  also  the 
necessary  machinery  of  the  national  government.  They  have  a  navy- 
yard,  forts,  custom-houses,  courts,  post-offices,  and  the  appropriate 
officers  for  the  enforcement  of  the  laws.  The  legislation  of  Florida, 
if  sustained,  excludes  all  commercial  intercourse  by  telegraph  between 
the  citizens  of  the  other  states  and  those  residing  upon  this  territory, 
except  by  the  employment  of  this  corporation.  The  United  States 
can  not  communicate  with  their  own  officers  by  telegraph  except  in 
the  same  way.  The  state,  therefore,  clearly  has  attempted  to  regulate 
commercial  intercourse  between  its  citizens  and  those  of  other  states, 
and  to  control  the  transmission  of  all  telegraphic  correspondence 
within  its  own  jurisdiction. 

It  is  unnecessary  to  decide  how  far  this  might  have  been  done  if 
congress  had  not  acted  upon  the  same  subject,  for  it  has  acted.  The 
statute  of  July  24,  1866,  in  effect,  amounts  to  a  prohibition  of  all  state 
monopolies  in  this  particular.  It  substantially  declares,  in  the  interest 
of  commerce  and  the  convenient  transmission  of  intelligence  from 
place  to  place  by  the  government  of  the  United  States  and  its  citi- 
zens, that  the  erection  of  telegraph  lines  shall,  so  far  as  state  inter- 
ference is  concerned,  be  free  to  all  who  will  submit  to  the  conditions 
imposed  by  congi'ess,  and  that  corporations  organized  imder  the  laws 
of  one  state  for  constructing  and  operating  telegraph  lines  shall  not  be 
excluded  by  another  from  prosecuting  their  business  within  its  juris- 
diction, if  they  accept  the  terms  proposed  by  the  national  government 
for  this  national  privilege.     To  this  extent,  certainly,  the  statute  is  a 


§  66  LIMITS   ON    POWER   TO    CREATE.  33 1 

I'jgitimate  regulation  of  commercial  intercourse  among  the  states,  and 
is  appropriate  legislation  to  carry  into  execution  the  powers  of  con- 
gress over  the  postal  service.  It  gives  no  foreign  corporation  the 
right  to  enter  upon  private  property  without  the  consent  of  the  owner 
and  erect  the  necessary  structures  for  its  business;  but  it  does  pro- 
vide that,  whenever  the  consent  of  the  owner  is  obtained,  no  state 
legislation  shall  prevent  the  occupation  of  post  roads  for  telegraph 
purposes  by  such  corporations  as  are  willing  to  avail  themselves  of  its 
privileges. 

It  is  insisted,  however,  that  the  statute  extends  only  to  such  military 
and  post  roads  as  are  upon  the  public  domain;  but  this,  we  think,  is 
not  so.  The  language  is,  "Through  and  over  any  portion  of  the  pub- 
lic domain  of  the  United  States,  over  and  along  any  of  the  military 
or  post  roads  of  the  United  States  which  have  been  or  may  hereafter  be 
declared  such  by  act  of  congress,  and  over,  under  or  across  the  navi- 
gable streams  or  waters  of  the  United  States."  There  is  nothing  to 
indicate  an  intention  of  limiting  the  effect  of  the  words  employed, 
and  they  are,  therefore,  to  be  given  their  natural  and  ordinary  signifi- 
cation. Read  in  this  way,  the  grant  evidently  extends  to  the  public 
domain,  the  military  and  post  roads,  and  the  navigable  waters  of  the 
United  States.  These  are  all  within  the  dominion  of  the  national  gov- 
ernment to  the  extent  of  the  national  powers,  and  are,  therefore,  sub- 
ject to  the  legitimate  congressional  regulation.  No  question  arises  as 
to  the  authority  of  congress  to  provide  for  the  appropriation  of  pri- 
vate property  to  the  uses  of  the  telegraph,  for  no  such  attempt  has 
been  made.  The  use  of  public  property  alone  is  granted.  If  pri- 
vate property  is  required,  it  must,  so  far  as  the  present  legislation  is 
concerned,  be  obtained  by  private  arrangement  with  its  owner.  Na 
compulsory  proceedings  are  authorized.  State  sovereignty  under  the 
constitution  is  not  interfered  with.  Only  national  privileges  are 
granted. 

The  state  law  in  question,  so  far  as  it  confers  exclusive  rights  upon 
the  Pensacola  Company,  is  certainly  in  conflict  with  this  legislation  of 
congress.  To  that  extent  it  is,  therefore,  inoperative  as  against  a 
corporation  of  another  state  entitled  to  the  privileges  of  the  act  of 
congress.  Such  being  the  case,  the  charter  of  the  Pensacola  Com- 
pany does  not  exclude  the  Western  Union  Company  from  the  occu- 
pancy of  the  right  of  way  of  the  Pensacola  and  Louisville  Railroad 
Company  under  the  arrangement  made  for  that  purpose. 

We  are  aware  that,  in  Paul  v.  Virginia  (8  Wall.  16S),  this  court 
decided  that  a  state  might  exclude  a  corporation  of  another  state  from 
its  jurisdiction,  and  that  corporations  are  not  within  the  clause  of  the 
constitution,  which  declares  that  "the  citizens  of  each  state  shall  be 
entitled  to  all  privileges  and  immunities  of  citizens  of  the  several 
states."  Article  4,  section  2.  That  was  not,  however,  the  case  of  a 
corporation  engaged  in  interstate  commerce ;  and  enough  was  said 
by  the  court  to  show  that,  if  it  had  been,  very  different  questions 
would  have  been  presented.  The  language  of  the  opinion  is,  "It  is 
undoubtedly  true,  as  stated  by  counsel,  that  the  power  conferred  upon 


332  REVISED    STATUTES    OF   UNITED    STATES,   §    1 889.  §  67 

congress  to  regulate  commerce  includes  as  well  commerce  carried  on 
by  corporations  as  commerce  carried  on  by  individuals.  *  *  * 
This  state  of  facts  forbids  the  supposition  that  it  was  intended  in  the 
grant  of  power  to  congress  to  exclude  from  its  control  the  commerce 
of  corporations.  The  language  of  the  grant  makes  no  reference  to 
the  instrumentalities  by  which  commerce  may  be  carried  on ;  it  is 
general,  and  includes  alike  commerce  by  individuals,  partnerships, 
associations  and  corporations.  *  *  *  The  defect  of  the  argument 
lies  in  the  character  of  their  (insurance  companies)  business.  Issuing 
a  policy  of  insurance  is  not  a  transaction  of  commerce.  *  *  * 
Such  contracts  (policies  of  insurance)  are  not  interstate  transactions, 
though  the  parties  are  domiciled  in  different  states." 

The  questions  thus  suggested  need  not  be  considered  now  because 
no  prohibitory  legislation  is  relied  upon,  except  that  which,  as  has 
already  been  seen,  is  inoperative.  Upon  principles  of  comity,  the 
corporations  of  one  state  are  permitted  to  do  business  in  another,  un- 
less it  conflicts  with  the  law  or  unjustly  interferes  with  the  rights  of  the 
citizens  of  the  state  into  which  they  come.  Under  such  circumstances, 
no  citizen  of  a  state  can  enjoin  a  foreign  corporation  from  pursuing 
its  business.  Until  the  state  acts  in  its  sovereign  capacity,  individual 
citizens  can  not  complain.  The  state  must  determine  for  itself  when 
the  public  good  requires  that  its  implied  assent  to  the  admission  shall 
be  withdrawn.  Here,  so  far  from  withdrawing  its  assent,  the  state  by 
its  legislation  of  1874,  in  effect,  invited  foreign  telegraph  corporations 
to  come  in.  Whether  that  legislation,  in  the  absence  of  congressional 
action,  would  have  been  sufficient  to  authorize  a  foreign  corporation 
to  construct  and  operate  a  line  within  the  two  counties  named,  we 
need  not  decide ;  but  we  are  clearly  of  the  opinion  that  with  such  ac- 
tion and  a  right  of  way  secured  by  private  arrangement  with  the 
owner  of  the  land,  this  defendant  corporation  can  not  be  excluded  by 
the  present  complainant. 

Decree  affirmed. 


Sec.  67.    (3)   On  territorial  legislatures. 

The  Revised  Statutes  of  the  United  States  provide:  "The  legis- 
lative assemblies  of  the  several  territories  shall  not  grant  private  char- 
ters or  special  privileges,  but  they  may,  by  general  incorporation  acts, 
permit  persons  to  associate  themselves  together  as  bodies  corporate 
for  mining,  manufacturing  and  other  industrial  pursuits,  and  for  con- 
ducting the  business  of  insurance,  banks  of  discount  and  deposit  (but 
not  of  issue),  loan,  tnast  and  guarantee  associations,  and  for  the  con- 
struction or  operation  of  railroads,  wagon  roads,  irrigating  ditches, 
and  the  colonization  and  improvement  of  lands  in  connection  there- 
with, or  for  colleges,  seminaries,  churches,  libraries  or  any  other 
benevolent,  charitable  or  scientific  association."^ 

1  Revised  Statutes  of  the  United  States,  1873-74  (§  1889),  as  amended  July 
30,  1886,  ch.  818,  §  5  (24  St.  170). 


§  68  LIMITS   ON    POWER   TO    CREATE.  333 

Statute  June  8,  187S,  ch.  168  (20  St.  loi)  provided  that  the  fore- 
going section  should  not  be  so  construed  as  to  present  the  territorial 
legislatures  from  creating  municipal  corporations  either  by  a  general 
or  special  act,  subject  to  amendment  or  repeal  at  any  time. 

Note.  Territorial  charter  is  binding  on  the  state  legislature  after  the  state 
is  organized.  1822,  State  v.  N.  O.  N.  Co.,  11  Martin  (La.)  309;  1831,  Will- 
iams V.  Bank  of  Michigan,  7  Wend.  (N.Y.)  539.  But  see,  1851,  Myers  v.  Man- 
hattan Bank,  20  Ohio  283. 

(^)    In  the  State  Constitutions. 
Sec.  68.     (i)    General  and  special  laws,  what  are. 

"The  legislature  shall  pass  no  special  act  creating  corporations  or 
conferring  corporate  powers,  but  they  shall  provide  by  general  law 
for  the  creation  and  formation  of  corporations,  but  all  such  laws  shall 
be  subject  to  ameridment,  alteration  or  repeal  at  the  will  of  the  legis- 
lature." 

THE  STATE,  Ex  Rel.  JACOB  J.  VAN  RIPER  Et  Al.,   v.  CHARLES  H. 

PARSONS  Et  Al.i 

1878.     In  the  Supreme  Court  of  Judicature  of  New  Jersey. 
40  N.  J.  L.  Rep.  i-ii. 

On  demurrer. 

By  the  charter  of  Jersey  City,  passed  in  1871,  provision  was  made 
for  the  appointment  by  the  senate  and  general  assembly,  in  joint 
meeting,  of  a  fire  board,  and  certain  other  municipal  boards. 

On  March  6,  1877  (Laws  1877,  p.  54),  an  act  was  passed  entitled 
"An  act  concerning  commissioners  to  regulate  municipal  affairs," 
which  provided  for  abolishing  all  laws  in  reference  to  legislative  com- 
missioners, and  terminating  the  offices  of  the  legislative  commission- 
ers then  in  existence,  and  for  substituting  therefor  new  boards,  to  be 
elected  by  the  people. 

Under  this  latter  act  an  election  was  held  in  Jersey  City,  and  the 
defendants  were  elected  members  of  the  fire  board  in  lieu  of  the  legis- 
lative commissioners.  There  was  no  question  made  with  respect  to 
the  fairness  and  formality  of  this  election. 

The  present  proceeding  is  an  information  in  the  name  of  the  attor- 
ney-general, in  the  nature  of  a  quo  -warranto.,  charging  that  the  de- 
fendants usurp  the  office  to  which  they  were  thus  elected. 

Argued  at  November  term,  1877,  before  Beasley,  chief  justice,  and 
Justice  Depue,  Van  Syckel  and  Knapp. 

The  opinion  of  the  court  was  delivered  by  Beasley,  chief  justice. 

*  Part  of  opinion  relating  to  another  point  omitted. 


334  STATE   V.    PARSONS.  §  68 

The  purpose  of  this  proceeding  is  to  test  the  constitutionality  of  the 
act  of  the  legislature  passed  on  the  6th  day  of  March,  in  the  year  of 
1877,  entitled  "An  act  concerning  commissioners  to  regulate  munici- 
pal affairs." 

The  law  thus  brought  under  our  cognizance  is  composed  of  two 
sections,  the  first  of  which  declares  "that  such  parts  of  all  public,  spe- 
cial and  local  laws  as  provide  for  the  appointment  of  commissions  or 
commissioners,  by  the  senate  and  general  assembly  of  the  legislature, 
in  joint  meeting,  to  regulate  municipal  affairs  in  any  city  in  this  state, 
be  and  the  same  are  hereby  repealed,"  and  the  second  section  pro- 
vides "that  in  all  cases  where  the  above  repealing  section  shall  oper- 
ate in  any  city  in  this  state,  there  shall  be  substituted,  in  lieu  of  each 
of  the  existing  boards  of  said  commissions  or  commissioners,  to  exer- 
cise all  the  powers  heretofore  conferred  upon  such  commissions  or 
commissioners,  a  board  to  consist  of  six  persons,  namely,  one  shall  be 
chosen  by  the  electors  in  each  aldermanic  district  in  said  city,  who 
shall  be  a  qualified  voter  of  said  city."  The  rest  of  this  latter  section 
consists  of  regulations  touching  the  mode  of  canvassing  the  votes  at 
the  election  thus  authorized,  or  designating  the  terms  of  office  and  the 
salaries  of  the  officers  thus  to  be  chosen. 

Against  this  law  thus  summarized,  the  principal  exception  that  has 
been  urged  is,  that  it  is,  in  substance  and  effect,  special  and  local,  and 
consequently  is  in  conflict  with  one  of  the  recent  amendments  of  the 
constitution  of  the  state.  The  provision  of  the  primary  law  thus  in- 
voked in  clause  2,  section  7  of  article  iv,  and  which,  so  far  as  relates 
to  the  present  subject,  is  in  these  words,  viz.,  "The  legislature  shall 
not  pass  private,  local  or  special  laws  in  any  of  the  following  enumer- 
ated cases,  that  is  to  say:  *  *  *  Regulating  the  internal  affairs 
of  towns  and  counties  ;  appointing  local  officers  or  commissions  to  reg- 
ulate municipal  affairs,"  and,  again,  subsequently,  in  the  same  clause, 
the  words  are,  "the  legislature  shall  pass  no  special  act  conferring  cor- 
porate powers,  but  they  shall  pass  general  laws,  under  which  corpo- 
rations may  be  organized  and  corporate  powers  of  every  nature  ob- 
tained, subject,  nevertheless,  to  repeal  or  alteration  at  the  will  of  the 
legislature.     *     *     *  " 

First,  then,  is  this  statute,  obviously  and  upon  judicial  view  of  its 
contents,  a  local  or  special  law? 

In  point  of  form  it  is  manifest  that  this  act  does  not  belong  to  such 
a  category.  It  imports  generality  of  provision  in  all  its  parts ;  its  title 
is  general,  embracing  all  commissioners  appointed  by  the  legislature 
to  regulate  municipal  affairs,  so,  in  its  body,  it  repeals  such  parts  of 
all  public,  special  or  local  laws  as  provide  for  the  appointment  of 
such  commissioners,  and  substitutes  for  such  officers  others,  to  be  se- 
lected by  the  people.  Upon  the  face  of  this  law,  therefore,  the  re- 
pealer is  general,  and  the  substitution  of  other  agencies  is  equally  so. 

But  it  is  said  that,  although  such  is  the  frame  and  aspect  of  this 
statute,  still  it  must  be  regarded  as  local  and  special,  as  of  necessity 
it  can  be  applicable  to  but  a  few  places  of  the  state,  inasmuch  as  it  is 
well  known  that  but  few  localities  in  the  state  have  been  subjected  to 


§  68  LINflTS    ON    POWER   TO    CREATE.  335 

the  rule  of  legislative  commissions.  This  contention  assumes  the 
truth  of  the  hypothesis  that  a  law  that  embraces  but  a  few  localities, 
or  a  small  number  of  objects,  is  not  a  general,  but  a  special  or  local 
law.  But  I  think  there  is  a  mistake  in  this.  The  term  "general 
law"  does  not  import  universality  in  the  subjects  or  operation  of  such 
law.  The  constitutional  clause  in  question  calls  for  the  enactment^ 
in  this  particular  field  of  legislation,  of  general  acts,  but  such  so- 
called  general  acts  are,  for  the  most  part,  special  and  local  in  their 
effect  and  applicability,  provided  we  put  the  widest  possible  signifi- 
cation on  the  terms  special  and  local.  But  these  two  latter  terms  do 
not  carry  with  them  such  a  compass  of  meaning  as  this,  as  they  stand 
in  the  clause  of  the  constitution  now  under  consideration.  If  such 
were  their  scope,  they  would  render  almost  every  attempt  at  useful 
legislation  abortive.  A  law  settling  the  methods  by  which  all  rail- 
roads should  become  incorporated  would  be  special  in  the  sense  that 
it  would  be  confined  in  its  operation  to  but  a  single  kind  of  corpo- 
ration, and  so  a  law  would  be  local,  by  this  same  test,  that  should 
provide  for  the  organization,  under  c^ie  system,  of  all  the  municipal 
governments  in  the  state,  as  such  a  law  would  manifestly  have  a 
restricted  effect  with  respect  to  locality.  But  who,  conversant  with 
the  usage  touching  these  terms,  would  venture  the  assertion  that  such 
statutes  as  these  would  not  be  general  laws  ?  All  legislation  is  based 
of  necessity  on  a  classification  of  its  subjects,  and  when  such  classifi- 
cation is  fairly  made,  and  the  legislation  founded  upon  it  is  appropri- 
ate to  such  classification,  such  legislation  is  as  legitimate  now  as  it 
would  have  been  prior  to  the  recent  amendments  to  the  constitution. 
My  theory  is,  that  if  a  set  of  objects  be  fairly  classified^  a  law  embrac- 
ing them  ivill  be  a  general  one^  and  in  all  respects  unobjectionable ; 
but  undoubtedly  if  the  classification  be  illusive ^  being  contrived  with 
a  view  of  escaping  the  constitutional  restriction^  it  can  lend  no  sup- 
fort  to  the  legislation  connected  with  it.  As,  for  example,  a  statute 
declaring  that  all  cities  containing  a  population  over  a  certain  number 
shall  have  a  given  number  of  voting  places,  and  all  cities  containing  a 
lesser  number  shall  have  a  prescribed  lesser  number,  would  be,  to  my 
mind,  obviously  legal,  because  the  classes  of  persons  thus  distinguished 
from  each  other  would  naturally  stand  upon  a  different  footing  with 
respect  to  the  particular  subject  to  which  such  legislation  related ; 
but  if  a  law,  based  on  the  same  classifications,  should  provide  that  the 
former  of  such  classes  should  have  a  certain  system  of  laying  out 
streets,  and  the  latter  a  different  system,  such  a  classification  would  be 
clearly  illusive,  inasmuch  as  the  law  thus  enacted  would  bear  no  affin- 
ity to  the  qualities  or  attributes  forming  the  basis  of  classification.  In- 
terdicted local  and  special  laws  are  all  those  that  rest  on  a  false  or 
deficient  classification ;  their  vice  is  that  they  do  7iot  embrace  all  the 
class  to  which  they  are  naturally  related ;  they  create  preference  and 
establish  inequalities ;  they  apply  to  perso?is^  things  or  places  pos- 
sessed of  certaift  qualities  or  situations ^  and  exclude  from  their 
effect  other  persons  ^things  or  places  which  are  not  dissimilar  in  these 


336  STATE   V.    PARSONS.  §  68 

respects.  The  present  law  therefore  is  not  objectionable  on  the  former 
of  the  grounds  assigned — that  in  its  operation  it  must  necessarily  be 
confined  to  certain  localities.  As  it  does  not  exclude  from  its  sway  or 
effect  any  place  or  subject  belonging  to  the  class  to  which  it  relates,  it 
is,  upon  its  face,  a  general,  and  not  a  local  or  special  law,  within  the 
clause  of  the  constitution  now  under  consideration. 

The  second  objection  above  noted  to  the  statute  in  question  is  that, 
in  point  of  fact,  it  applies  to  but  a  single  place,  that  is,  to  Jersey 
City,  and  therefore,  being  thus  local  and  special,  it  is  invalid  for  the 
want  of  a  notice  of  an  intention  to  apply  for  its  passage. 

In  laboring  this  point  in  their  argument  the  counsel  of  the  relators 
seemed  to  incline  to  the  conclusion  that  a  special  or  local  law  could 
in  no  case  be  passed,  the  purpose  of  which  was  to  regulate  the  in- 
ternal affairs  of  any  municipality.  But  I  can  not  agree  to  this 
view.  According  to  my  reading  of  the  constitutional  clause  in  ques- 
tion, its  purpose  was  not  to  limit  legislation,  but  to  forbid  only  the 
doing,  by  special  or  local  laws,  those  things  that  can  be  done  by  gen- 
eral laws.  The  provision  relgtes  to  the  methods  and  not  to  the  sub- 
stance of  legislation,  and  the  substitution  of  general  laws  in  the  stead 
of  those  that  are  special  or  local,  necessarily  indicates  the  limits  and 
extent  of  the  prohibition,  for  as  the  mandate  is  to  do,  by  general  leg- 
islation, that  which  is  interdicted  to  special  or  local  legislation,  it 
seems  unavoidably  to  follow  that  it  is  only  those  things  that  can  be 
accomplished  by  the  former  method  that  are  forbidden  to  the  latter 
method.  The  intent  here,  I  think,  is  perfectly  plain,  and  was  to  require, 
within  this  department,  all  things  that  could  be  effected  by  general 
statutes,  to  be  effected  in  that  way,  but  there  was  no  intent  to  abro- 
gate the  legislative  power  outside  of  this  field.  The  opposite  inter- 
pretation would  be  full  of  impracticabilities,  not  to  say  absurdities. 
By  its  prevalence,  the  peculiar  imperfections  inherent  in  the  frame  of 
any  existing  public  corporation  would  at  once  be  made  unalterable 
and  irremediable ;  the  boundary  of  every  city,  township  and  county 
would  become  insusceptible  of  change,  and  the  constitution  of  such 
bodies,  with  respect  to  matters  unique,  and  therefore  not  to  be  reached 
by  general  laws,  would  be  beyond  the  hand  of  improvement  or  modi- 
fication. Indeed,  the  present  case,  if  we  assume  that  this  statute 
applies  to  Jersey  City  alone,  and  is  on  that  account  to  be  regarded  as 
special  and  local  and  consequently  forbidden,  would  stand  as  a  con- 
spicuous example  of  the  evils  that  would  result,  for  although  in  this 
same  constitutional  provision,  the  ruling  of  particular  places  by  leg- 
islative commissions  is  denounced  in  the  form  of  a  prohibitory  clause, 
the  success  of  the  view  set  up  would  be  to  establish  such  a  mode  of 
government,  so  long  as  our  organic  law  should  retain  its  present 
characteristics  in  the  only  place  in  which  it  is  said  at  present  to  exist. 
The  correct  interpretation  of  the  passage,  as  already  denoted,  keeps 
it  clear  of  any  such  hurtful  efficiency. 

But  it  is  further,  and  in  the  last  place,  urged  that  as  this  statute  can 
apply  to  Jersey  City  alone,  it  is,  at  all  events,  special  and  local 
within  the  effect  of  that  other  provision  of  the  constitution  which  ex- 


§  68  LIMITS   ON    POWER   TO    CREATE,  337 

acts  a  notice  of  an  intention  to  make  application  to  the  legislature  for 
bills  of  this  character.  Article  iv,  §  7,  pi.  9.  But  unfortunately,  it  is 
in  this  information  assumed  without  the  necessary  showing  of  facts, 
that  this  law  has  this  singleness  of  applicability.  This  pleading  shows 
that  the  defendants  are  clothed  with  office  by  force  of  a  popular  elec- 
tion duly  held  in  accordance  with  this  legislative  act,  and  as  under 
such  circumstances  the  regularity  and  validity  of  such  act  will  be 
strongly  implied,  the  facts  necessaiy  to  vacate  it  must  be  set  forth  in 
a  direct  and  traversable  form.  This  has  not  in  this  case  been  done. 
An  allegation  that  the  statute  is  special  and  local  as  to  Jersey  City  is 
not  the  statement  of  a  fact,  but  a  naked  inference  as  to  the  law.  The 
question,  therefore,  that  was  discussed,  and  which  was  founded  on 
the  assumption  that  the  present  law  was  operative  in  but  a  single 
place,  can  not  be  considered  or  disposed  of  upon  the  record  as  it  «is 
now  presented  to  our  attention. 

As  the  pleadings  at  present  stand,  the  demurrer  must  be  sustained. 

Note.  General  and  special  laws.  It  has  been  said  that  a  statute  which 
relates  to  persons  or  things  as  a  class,  is  a  general  law ;  while  one  which  re- 
lates to  particular  things  or  persons  of  a  class,  is  special.  1876,  Wheeler  v. 
Philadelphia,  77  Pa.  St.  338;  1884,  Ewing  v.  Hoblitzelle,  85  Mo.  64;  1892, 
Smith  V.  McDermott,  93  Cal.  421. 

So,  a  general  law  need  not  operate  upon  all  classes  of  persons  or  things  in 
a  state,  but  if  it  relates  to  or  operates  uniformly  upon  the  whole  of  any 
class  it  is  general.     1890,  Abeel  v.  Clark,  84  Cal.  226. 

And  "a  law  which  applies  only  to  an  individual  or  to  a  number  of  individ- 
nals,  selected  out  of  any  class  to  which  they  belong,  is  a  special  law."  1880, 
State  V.  California  Min.  Co.,  15  Nev.  234. 

"Public  statutes  are  those  which  concern  the  government,  or  the  public  in- 
terest, or  all  persons,  or  the  whole  of  any  class  of  persons."  Robinson's 
Elementary  Law,  §  10.  Citing,  1  Bl.  Com.  86;  1  Kent  Lect.,  20;  Bac.  Abr. 
Stat.  F.  L. ;  Potter's  Dwarris  on  Stat.,  62;  Sedgwick  Stat.  &  Const.  L.,  30. 

See,  also,  1897,  Wanser  v.  Hoos,  60  N.  J.  Law  482,  64  Am.  St.  Rep.  600; 
1895,  State  v.  Bargus,  53  Ohio  St.  94.  53  Am.  St.  Rep.  628;  1892,  State  v.  Sher- 
iff, 48  Minn.  236,  31  Am.  St.  Rep.  650,  n.  653;  1890,  State  v.  Ellett,  47  Ohio 
St.  90,  21  Am.  St.  Rep.  772,  n.  780,  et  seq.;  1889,  Town  Council  v.  Pressley,  33 
S.  C.  56,  26  Am.  St.  Rep.  659;  1889,  Allen  v.  Pioneer  Press  Co.,  40  Minn.  117, 
12  Am.  St.  Rep.  707,  n.  716;  1888,  People  v.  Squire,  107  N.  Y.  693,  1  Am.  St. 
Rep.  893,  n.  903. 

See,  further,  on  the  general  topic  of  creation  under  general  and  special 
laws.  1  Abb.  Digest  362, 4  Am.  &  Eng.  Ency.  194, 1st  ed. ;  7  Am.  &  Eng.  Encyc. 
639,  et  seq.,  2d  ed. ;  Baldwin's  Polit.  Inst.,  ch.  6,  Freedom  of  Incorporation";  1 
Beach,  §§  9-12;  Boone,  §§  21-23;  Clark,  §§19-20;  Cook,  §§2,231-235;  Elliott, 
§§  32-50;  Field,  §  13;  2  Kent.  Comm.  *272,  n.,  a,  b,  c,  12th  ed. ;  1  Morawetz, 
§§26-30;  Taylor,  §461;  1  Thompson,  §§  35-249.  For  statutory  provisions, 
see  infra,  Schemes  of  Organization,  pp.  426,  660;  American  Corp.  Legal  Man- 
ual, vol.  7,  1899,  and  previous  volumes;  2  Stimson's  Am.  Statute  Laws,  ch.  1 ; 
Annotated  Corporation  Laws  of  all  the  states,  by  Cumming,  Gilbert  &  Wood- 
ward, 1899;  Appendix. 

22— WiL.  Cases. 


338  WALLACE   V.    LOOMIS.  §  69 

Sec.  69.     (2)    Creating. 

"The  legislature  shall  pass  no  special  or  local  act  creating  cor- 
porations,"' 

WALLACE  V.  LOOMIS.i 

1877.     In  the  Supreme  Court  of  the  United  States.     97  U.  S. 

Reports  146—163. 

Appeal  from  the  circuit  court  of  the  United  States  for  the  south- 
em  district  of  Alabama. 

The  facts  are  stated  in  the  opinion  of  the  court. 

Mr.  Justice  Bradley  delivered  the  opinion  of  the  court. 
•This  suit  was  instituted  by  a  bill  in  equity  filed  May  30,  1872,  by 
Francis  B.  Loomis,  John  C.  Stanton  and  Daniel  N.  Stanton,  trustees 
of  what  is  known  as  the  first  mortgage  of  the  Alabama  and  Chatta- 
nooga Railroad  Company,  for  the  purpose  of  procuring  a  foreclosure 
and  sale  of  the  mortgaged  premises,  being  the  railroad  of  said  com- 
pany, with  its  appurtenances  and  rolling-stock,  situated  in  Tennessee, 
Georgia,  Alabama  and  Mississippi,  but  principally  in  Alabama.  A 
further  object  of  the  bill  was  to  remove  the  cloud  from  the  title  caused 
by  the  bankruptcy  of  said  company,  the  seizure  of  its  property  by  the 
governor  of  Alabama,  and  the  sale  thereof  by  the  assignees  in  bank- 
ruptcy; also  to  protect  and  preserve  the  property  from  waste  and 
dilapidation  until  it  could  be  applied  to  the  satisfaction  of  the  mort- 
gage.   *     *     * 

In  February,  1873,  by  leave  of  the  court,  Wallace  was  made  a  de- 
fendant, and  thereupon  filed  an  answer  and  cross-bill,  claiming  to  be 

the  holder  and  owner  of  five  second  mortgage  bonds  for  $1,000  each. 

«     «     * 

The  answer  alleges  that  the  Alabama  and  Chattanooga  Railroad 
Company  was  not  a  corporate  body,  and  the  decree  affirms  the  contrary. 
The  cross-bill  states  at  large  the  reason  for  the  allegation  of  the  answer. 
It  is,  that  the  company  had  its  alleged  corporate  existence  alone  in 
virtue  of  a  special  act  of  the  legislature  of  Alabama,  passed  the  17th 
of  September,  1868,  which  act  upon  its  face  was  a  violation  of  the 
constitution  of  the  state,  which  declares  that  '■'•corporations  may  be 
formed  under  general  laws,  but  shall  not  be  created  by  special  act, 
except  for  municipal  pur  poses. ^^  The  act  referred  to  is  set  out  in 
full  as  an  exhibit  to  the  cross-bill.  It  authorizes  the  Wills  Valley 
Railroad  Company  (a  pre-existing  corporation)  to  purchase  the  rail- 
road and  franchises  of  the  Northeast  and  Southwestern  Alabama  Rail- 
road Company  (another  pre-existing  corporation),  and  after  doing  so, 
to  change  its  own  name  to  that  of  the  Alabama  and  Chattanooga  Rail- 
road Company. 

We  are  unable  to  see  anything  in  this  legislation  repugnant  to  the 
constitutional  provision  referred  to.  That  provision  can  not  surely  be 
construed  to  prohibit  the  legislature  from  changing  the  name  of  a  cor- 

*  Only  so  much  of  the  case  is  given  as  relates  to  the  single  point. 


§   70  LIMITS    ON   POWER   TO    CREATE.  339 

poration,  or  from  giving  it  power  to  purchase  additional  property, 
and  this  was  all  that  it  did  in  this  case.    No  new  corporate  powers  ol 
franchises  were  created.     *     *     ♦ 
Decree  affirmed. 


Sec.  70.  Same. 

GEORGE  GREEN  v.  KNIFE  FALLS  BOOM  CORPORATION. 

1886.     In    the  Supreme    Court   of    Minnesota.     35    Minnesota 

Reports  155-162. 

Plaintiff  brought  this  action,  in  the  district  court  for  St.  Louis 
county,  to  recover  possession  of  certain  logs,  alleged  to  be  wrongfully 
detained  by  the  defendant.  The  answer  admits  the  detention  of  the 
logs  by  the  defendant,  and  justifies  such  detention  under  claim  of  a 
lien  for  boomage  in  accordance  with  the  provisions  of  Sp.  Laws  1872, 
ch.  106.  On  plaintiff's  motion  judgment  on  the  pleadings  was  directed 
by  Stearns,  J.,  on  the  ground  that  Sp.  Laws  1872,  ch.  106,  is  uncon- 
stitutional. 

Defendant  appeals  from  the  judgment. 

The  cause  was  argued  at  the  April  term,  and,  by  order  of  the  court, 
was  reargued  at  the  October  term,  1885. 

Vanderburgh,  J.  The  defendant,  it  appears,  first  organized  as  a 
boom  corporation  under  the  general  law.  The  original  articles  of 
incorporation  are  not  disclosed  by  the  record,  but  it  is  manifest  (and 
it  is  not  disputed)  that  the  organization  must  have  been  made  under 
Gen.  St.,  ch.  34,  tit.  2,  and  that  the  powers  and  privileges  thereby 
acquired  could  not  include  either  the  right  to  exercise  the  power  of 
eminent  domain,  or  to  take  tolls,  or  to  obstruct  the  navigable  portion 
of  the  St.  Louis  river,  where  the  defendant's  booms  and  works  are 
located,  so  as  toprevent  the  free  passage  of  the  logs  of  other  owners. 
Stevens  Point  Boom  Co.  v.  Reilly,  44  Wis.  295,  305  ;  s.  c.  46  Wis. 
237,  242.  It  was,  by  virtue  of  its  original  articles  of  incorporation, 
entitled  only  to  the  same  rights  in  the  river  as  other  riparian  owners, 
and  to  erect  and  maintain  booms  in  connection  with  the  navigation  of 
the  stream,  for  its  own  use,  and  the  use  of  others  who  might  contract  for 
its  services.  It  was  merely  a  private  boom  corporation.  Soon  after 
such  organization  under  the  general  laws,  the  legislature  passed  an  act 
entitled  "An  act  relating  to  the  Knife  Falls  Boom  Corporation"  (Sp. 
Laws  1872,  ch.  106),  which  purports  to  confer  new  and  independent 
franchises  and  enlarge  powers  upon  the  defendant  corporation,  within 
the  vSt.  Louis  river,  and  over  the  navigation  and  use  thereof,  as  respects 
the  passage  of  logs,  including  the  right  of  eminent  domain,  the  right 
to  charge  compensation  for  boomage,  in  the  nature  of  tolls,  prescribed 
by  the  act,  upon  all  logs  passing  through  their  works,  and  to  receive 
and  take  the  entire  charge  and  control  of  all  logs  and  timber  which 
might  nm.  come  or  be  driven  within  the  same,  and  to  boom,  scale 
and  deliver  them  as  provided  in  such  act.     Osborne  v.  Knife  Falls 


340  GREEN   V.    KNIFE    FALLS    BOOM    CORPORATION.  §  "JO 

Boom  Co.,  33  Minn.  412  (21  N.  W.  Rep.  704).  And  the  corpora- 
tion is  also  thereby  granted  a  lien  upon  all  such  logs  or  timber  for 
their  compensation,  which  may  be  enforced  by  a  sale. 

The  detention  of  the  plaintiff's  logs,  taken  and  held  in  invitum  by 
defendant  under  a  claim  of  lien  for  the  boomage  allowed  by  this  act, 
brings  up  the  question  of  its  constitutionality  in  this  case.  This  ques- 
tion was  not  suggested  or  mooted  in  the  case  of  Osborne  against  the 
defendants,  just  cited,  but  the  question  there  determined  was  as  re- 
spects the  power  of  the  legislature  to  authorize  such  improvements  in 
the  use  of  a  navigable  river.  The  question  which  is  raised  here,  and 
which  has  been  elaborately  argued  by  counsel,  is  the  constitutional 
power  of  the  legislature  to  so  amend  the  charter,  and  to  confer  upon 
an  existing  corporation  additional  special  powers  and  privileges  of 
the  character  described,  under  the  provisions  of  article  10,  section  2, 
of  the  constitution^  forbidding  the  formation  of  corporations  by  spe- 
cial acts.  The  discussion  by  counsel  at  the  bar  embraced  the  ques- 
tion of  the  proper  original  construction  of  this  clause,  and  the  inten- 
tion of  the  framers  of  the  constitution  in  inserting  it,  and  also  the  ques- 
tion of  the  construction  thereof  which  has  in  fact  prevailed  and  been 
acted  on  in  this  state,  and  the  effect  which  the  court  ought  to  give 
to  such  construction  in  considering  this  case. 

I.  The  charter  of  a  corporation  represents  a  twofold  contract: 
(a)  The  executed  grant  by  the  state  of  a  portion  of  its  sovereignty, 
irrevocable  in  its  nature^  when  once  accepted  and  acted  on;  (b)  the 
mutual  compact  between  the  corporators  or  stockholders  among  them- 
selves. And  in  the  absence  of  constitutional  restraints,  a  corporation 
might  be  endowed  with  new  and  enlarged  powers  by  legislative  grant, 
and  its  original  character,  object  and  business  might  thereby  be  changed, 
with  the  consent  of  the  stockholders,  for  any  lawful  purpose.  If  the 
clause  under  consideration  was  intended  simply  to  prohibit  special 
acts  establishing  corporate  entities  or  granting  original  charters,  then 
it  is  clear  that  an  existing  corporation  may  receive  the  grant  of  new 
and  extensive  privileges  and  franchises,  and  the  amendment  to  the 
defendant's  charter  by  the  act  in  question  may  undoubtedly  be  upheld 
as  a  valid  exercise  of  legislative  power.  But  the  respondent  contends 
that  this  provision  of  the  constitution  has  a  wider  significance,  and 
was  intended  to  restrain  all  grants  of  corporate  privileges  and  fran- 
chises by  special  acts  of  the  legislature,  and  this  is,  in  the  opinion  of 
the  writer,  the  proper  construction.  A  corporation,  created  or  formed 
by  special  acts,  could  only  be  so  formed  by  means  of  the  grant  of  a 
charter  conferring  essential  corporate  powers  or  franchises.  "Fran- 
chises" are  defined  to  be  special  privileges  conferred  by  government 
upon  individuals,  and  which  do  not  belong  to  the  citizens  of  the  coun- 
try, generally,  of  common  right.  Bank  of  Augusta  v.  Earle,  13  Pet. 
519.  The  grant  of  such  a  franchise  is  the  essential  thing  in  a  charter, 
and  whether  given  to  new  corporators,  or  those  already  organized,  or 
in  an  original  or  amended  charter,  the  grant  of  a  corporate  franchise 
is,  as  between  the  sovereign  and  the  corporators,  so  far  the  grant  of 
a  charter,  or  the  grant    of    a   "franchise   by  act   of    incorporation." 


§  70  LIMITS   ON    POWER   TO    CREATE.  34 1 

Attorney-General  v.  Railroad  Cos.,  35  Wis.  425,  560.  Such  grants, 
I  think,  it  was  clearly  the  purpose  of  the  framers  of  the  constitution 
to  prohibit  by  special  acts. 

It  is  true,  the  right  to  be  a  corporation  is  itself  a  franchise,  but  all 
franchises  granted  to  a  corporation  become  corporate  franchises,  and 
essential  portions  of  its  charter  or  act  of  incorporation,  and  the 
chief  value  of  the  charter  in  order  to  accomplish  the  purposes  of 
the  corporate  organization.  The  constitutional  provision  requires 
that  corporations^  except  for  municipal  purposes^  shall  be  formed 
under  general  latvs,  and  not  under  or  by  special  acts.  This  can  not, 
I  think,  mean  that  a  portion  of  the  franchises  or  privileges  in  a  pro- 
posed charter  might  be  obtained  under  a  general  laTV,  and  the  re- 
mainder by  special  enactments ;  or,  in  other  words,  that  a  general  law 
might  be  a  mere  enabli?ig  act  to  confer  corporate  existence,  leaving 
the  door  open  to  the  corporation  thereafter  to  apply  to  the  legislature 
for  additional  franchises.  Such  construction  must  be  given  to  the 
provision  in  question  as  will  manifestly  be  in  harmony  with  its  spirit, 
and  give  effect  to  the  intent  and  purpose  of  its  framers.  The  object 
being  to  restrict  the  granting  of  charters  to  general  laws,  the  courts 
can  not  sanction  an  evasion  by  limiting  the  application  of  the  princi- 
ple to  the  case  of  original  charters  or  corporate  organizations.  The 
object  of  this  constitutional  restriction  was,  as  it  is  well  understood,  to 
correct  an  existing  evil,  and  prevent  favoritism  and  abuses  in  secur- 
ing grants  of  special  charters,  and  to  establish  uniform  rules  for  the 
endowment  of  corporations  with  chartered  privileges.  Any  special 
legislation  affecting  the  charters  of  corporations  should  therefore  be 
strictly  construed,  so  as  to  give  full  effect  to  the  leading  object  of  the 
provision,  i  Dill.  Mun.  Corp.,  §  17;  Atkinson  v.  Marietta,  etc.  R. 
Co.,  15  Ohio  St.  21,  35. 

Charters,  then,  since  the  adoption  of  the  constitution,  are  to  be  ac- 
quired under  general  laws,  and  to  them  must  we  look  to  ascertain 
what  franchises  may  be  conferred  by  charter  upon  corporations. 
Every  new  grant  of  special  powers  must,  as  between  the  sovereign 
and  a  corporation,  be  regarded,  as  respects  the  exercise  of  such 
powers,  in  the  light  of  a  new  charter,  and  especially  since,  when  ac- 
cepted, the  new  or  amended  charter  becomes  a  contract  irrevocable, 
unless  the  power  of  amendment  or  repeal  is  reserved  in  the  grant. 
Every  new  grant  of  a  portion  of  its  sovereignty  by  the  state  through 
the  legislature  must,  in  principle,  be  within  the  prohibition,  and  be 
equivalent  to  the  grant  of  a  charter  de  novo.  In  accordance  with  this 
view,  the  legislature  accordingly,  upon  the  adoption  of  the  constitu- 
tion, enacted  general  laws  for  the  formation  of  corporations  for  the 
various  purposes  required  in  the  commonwealth,  and  carefully  defined 
their  powers  and  obligations,  and  made  them  of  uniform  application. 
These  general  provisions  have  been  amended  from  time  to  time,  as 
the  public  needs  have  required,  and  general  laws  have  been  passed 
applicable  alike  to  corporations  of  the  same  kind,  and  proper  provis- 
ions made  for  amended  articles  of  incorporation.  The  general  pro- 
visions of  law  applicable  to  any  class   of  corporations,  together  with 


342  GREEN    V.    KNIFE   FALLS    BOOM    CORPORATION.  §  70 

the  articles  of  association,  constitute  the  charter  of  any  particular  cor- 
poration. The  general  character  of  this  legislation  is  entirely  in  har- 
mony with  the  construction  that  corporations  under  general  laws  must 
derive  their  essential  powers  therefrom.  We  lay  no  stress  upon  the 
use  of  the  word  "formed"  instead  of  "create"  in  the  constitution; 
the  distinction  is  immaterial  in  respect  to  the  matter  of  the  grants  of 
corporate  franchises.  The  supreme  court  of  Wisconsin,  upon  a  care- 
ful consideration  of  the  question,  while  determining  that  the  charters  of 
pre-existing  corporations  were  subject  to  altei'ation  or  amendment 
under  the  power  expressly  reser\-ed  in  the  constitution  of  that  state, 
hold  that  there  is  no  distinction,  as  respects  the  constitutional  inhibi- 
tion, between  a  grant  of  corporate  powers  and  privileges,  and  the 
grant  of  corporate  charters  de  novo.  Attorney-General  v.  Railroad 
Cos.,  35  Wis.  425,  560;  Kimball  v.  Town  of  Rosendale,  42  Wis. 
407,  416;  Stevens  Point  Boom  Co.  v.  Reilly,  44  Wis.  295,  301.  And 
the  same  doctrine  is  also  affirmed  in  San  Francisco  v.  Spring  Valley 
Water- Works,  48  Cal.  493,  507;  Spring  Valley  Water- Works  v. 
Bryant,  52  Cal.  132,  140. 

2.  The  defendant  also  makes  the  point  that  it  was  competent  for 
the  state  to  invest  a  corporation,  as  it  might  an  individual,  with  the 
power  and  duty  to  assume  an  agency  in  behalf  of  the  public  to  make 
the  improvements  and  transact  the  business  authorized  by  the  amend- 
ment to  the  charter  here  in  question  for  the  purpose  of  facilitating  the 
business  of  driving,  handling  and  assorting  logs  in  the  common  in- 
terest. But  the  nature  of  the  agency  and  business  thereby  created 
and  authorized  does  not  affect  the  application  of  the  rule.  The  pre- 
cise point  was  raised  in  Stevens  Point  Boom  Co.  v.  Reilly,  44  Wis. 
295,  301,  where  the  plaintiff  was  organized  under  a  general  law,  and 
subsequently  granted  powers  similar  to  those  conferred  on  this  plaint- 
iff by  the  act  in  controversy,  and  the  court,  by  Ryan,  C.  J.,  said: 
"The  court  was  not  indisposed,  if  it  could,  to  construe  the  sections 
of  the  latter  statute  relied  on  as  an  employment  of  an  existing  corpo- 
ration to  impi'ove  the  navigation  of  the  river  in  the  public  right,  and 
provide  a  compensation  for  it ;  but  the  argument  of  the  learned  coun- 
sel for  the  appellant  appears  to  be  conclusive  against  such  a  view. 
His  position  was  that  corporate  franchises  are  always  supposed  to 
be  granted  on  some  public  consideration,  with  corresponding  benefit 
to  the  grantees ;  and  that  to  hold  the  sections  in  question  a  valid  grant 
of  power  on  the  ground  suggested  would  open  the  door  indefinitely 
to  special  grants  to  corporations  under  general  laws,  so  far  nullifying 
the  constitutional  amendment  and  continuing  the  evils  which  the 
amendment  was  intended  to  obviate."  Such  powers  -when  conferred 
upon  a  corporation^  become  corporate  powers  or  franchises^  and 
hence,  subject  to  the  same  objection  as  in  other  cases  where  a  fran- 
chise which  may  lawfully  be  conferred  upon  an  individual  by  spe- 
cial act  can  not  be  so  conferred  upon  a  corporation.  Ames  v.  Lake 
Superior  and  Mississippi  R.  Co.,  21  Minn.  241,  258. 

3.  It  is  unnecessary  to  consider  whether  there  is  any  distinction 
between   corporations  formed  under  general  laws  and  corporations 


§  70  LIMITS    ON    POWER   TO    CREATE.  343 

created  by  special  charters  prior  to  the  adoption  of  the  constitution, 
as  respects  the  effect  of  subsequent  special  legislation.  It  has  been 
the  habit  of  the  legislature,  in  both  classes  of  cases,  and  especially 
in  the  latter  class,  to  amend  and  alter  charters,  by  special  acts,  ever 
since  the  constitution  was  adopted ;  but  I  have  not  been  able  to  dis- 
cover that  there  are  many  other  instances  like  the  case  at  bar,  wherein 
such  new  and  important  grants  of  power  have  been  made  to  pre-ex- 
isting corporations.  The  legislation  in  such  cases  is  more  generally, 
as  I  understand  it,  confined  to  amendments  and  alterations  relating  to 
matter  of  form,  or  affecting  the  remedy,  or  the  method  and  details  of 
the  management  of  the  corporate  business,  or  the  mutual  relations, 
rights  or  interests  of  the  corporators  among  themselves,  in  the  exercise 
of  franchises  already  possessed  by  them,  which  legislation  might  be 
had,  with  the  consent  of  the  corporators,  without  any  new  or  further 
grant  of  corporate  powers  by  the  state.  This  court,  in  the  several 
cases  which  have  been  before  it  for  adjudication,  has  always  recog- 
nized the  restrictive  force  of  the  constitution  as  respects  such  grants, 
though  it  has  never  attempted  to  define  the  exact  limits  of  such  legis- 
lation, or  to  formulate  any  rule  on  the  subject;  and  while  some  of  the 
cases  have  recognized  and  sustained  departures  from  the  strict  rule  we 
have  attempted  to  lay  down,  none  of  them,  I  think,  lend  any  sanction 
to  so  wide  a  departure  therefrom  as  would  be  necessary  to  sustain  the 
grant  of  the  special  charter  in  this  case.  But  no  case  seems  to  have 
gone  farther  in  upholding  a  grant  of  new  powers  than  the  limits  sug- 
gested in  Ames  v.  Lake  Superior  and  Mississippi  R.  Co.,  21  Minn. 
341,  286,  where  the  court,  while  not  assumingto  accurately  define  the 
limits  of  the  constitutional  restriction,  indicate  very  clearly  that  a  law 
authorizing  such  additions  or  changes  in  the  business  of  a  corpora- 
tion as  to  constitute  substantially  a  new  enter-prise^  to  which  its  old 
business  would  be  a  mere  incident^  would  be  unconstitutional ;  and 
the  legislature  has  not  generally  transcended  such  limits  in  amend- 
ments made  to  corporate  charters.  In  exceptional  cases,  like  the  one 
under  consideration,  the  corporators  should  be  deemed  to  have  ac- 
cepted and  acted  under  the  charter  amendments  assumed  to  be  granted, 
at  their  peril. 

It  would  not,  in  my  judgment,  be  a  reasonable  construction  of  this 
act  to  hold  that  the  new  business  authorized  was  incidental  to  the 
original  enterprise,  or  a  mere  extension  or  enlargement  of  it ;  nor  do 
I  think  that  public  interests  would  be  seriously  affected  by  a  construc- 
tion that  should  defeat  legislation  of  this  kind.  I  think  that  the  diffi- 
culties and  inconvenience  likely  to  result  could,  in  a  great  measure, 
be  remedied  through  the  operation  of  general  laws,  as  was  the  case  in 
Stevens  Point  Boom  Co.  v.  Reilly,  supra,  and  see  People  v.  Perrin, 
56  Cal.  345. 

In  San  Francisco  v.  Spring  Valley  Water-Works,  48  Cal.  493,  533, 
the  court,  in  the  face  of  similar  arguments  and  considerations,  re- 
versed what  was  held  to  be  an  erroneous  construction  of  a  similar 
clause  in  a  state  constitution,  in  an  earlier  case,  decided  eleven  years 


344  GREEN   V.    KNIFE   FALLS    BOOM    CORPORATION.  §  70 

before,  and  which  upheld  legislative  grants  of  new  franchises,  and 
adopted  the  strict  rule  contended  for  by  the  respondent  here. 

4.  The  majority  of  the  courts  however^  do  not  agree  to  the  views 
above  expressed  in  respect  to  the  character  of  the  special  law  in  ques- 
tion^ and  the  effect  to  be  given  to  it,  and  are  of  the  opinion  that  it 
ought  not  be  held  unconstitutional.  They  hold  that  the  strict  rule 
forbidding  the  grant  of  additional  powers  or  franchises,  while  it 
may  be  the  more  logical  and  satisfactory ,  treated  as  an  original  question, 
has  never  in  fact  been  recognized  or  adopted  by  the  legislature  or 
courts  of  the  state;  that  this  constitutional  provision  was  open  to  con- 
struction, and,  during  a  long  course  of  legislation,  the  practical  cort- 
struction  placed  upon  it  by  the  legislature  and  people  has  been  a 
liberal  one  in  respect  to  amendments,  and  that  the  court  should  be 
very  slow  to  change  it,  at  this  late  day,  for  the  reason  that  the  ex- 
tensive and  varied  legislation  affecting  corporate  charters,  so  long  con- 
tinued, has  come  to  involve  veiy  large  public  and  private  interests. 
Considering  the  amount  and  character  of  such  legislation,  and  in  view 
of  the  decisions  of  this  court,  it  would  often  be  difficult  to  accurately 
define  the  boundary  line  between  valid  and  void  acts,  leaving  many 
cases  in  doubt  and  uncertainty  until  actually  adjudicated. 

Under  these  circumstances  the  constitutional  amendment  of  1881  was 
adopted  (laws  1881,  c.  3),  which,  in  direct  and  plain  terms,  forbids 
special  legislation  of  the  character  complained  of.  The  language  of 
this  amendment  is:  "The  legislature  is  prohibited  from  enacting 
any  special  or  private  laws  in  the  following  cases:  *  *  *  (y)  For 
granting  corporate  powers  or  privileges,  except  to  cities."  This 
amendment,  in  their  opinion,  indicates  a  change  of  policy,  and  un- 
questionably inaugurates  or  restores  the  strict  rule  of  construction  as 
to  all  subsequent  legislation  affecting  the  charters  of  existing  corpo- 
rations. Its  language  and  meaning  are  too  clear  to  call  for  construc- 
tion, and  there  will  be  no  ground  upon  which  to  build  any  subsequent 
erroneous  legislation  or  popular  construction. 

My  brethren  are  also  of  the  opinion  that  the  act  in  question  does 
not,  within  the  rule  laid  down  in  Ames  v.  Lake  Superior  and  Missis- 
sippi R.  Co.,  supra,  work  such  a  change  in  the  character  of  the  cor- 
poration as  to  constitute  it  essentially  a  new  or  different  corporation, 
though  it  enlarges  its  business,  and  grants  the  necessary  incidental 
powers  to  make  such  enlargement  practical  and  effective,  and  that 
for  these  reasons  the  act  should  not  be  held  void. 

Judgment  reversed. 

See  1899,  Bank  of  Commerce  v.  Wiltsie,  153  Ind.  460,  47  L.  R.  A.  489. 


A\>' 


xt> 


71  LIMITS   ON    POWER   TO    CREATE.  345 


Sec.  71.    Same. 

THE  CITY  AND  COUNTY  OF  SAN  FRANCISCO  v.  THE  SPRING  VAL- 
LEY  WATER- WORKS.' 

1874.     In   the   Supreme   Court  of  California.     48   Cal.  Rep. 

493-535- 

[Appeal  from  the  district  court.  The  general  law  providing  tor 
the  incorporation  of  water-works  companies  took  effect  April  22, 
1858.  The  next  day  the  legislature  enacted  the  "Ensign  Act,"  per- 
mitting one  Ensign  and  his  associates,  upon  becoming  incorporated 
under  the  general  corporation  laws,  to  supply  water  to  San  Francisco, 
use  the  city  streets  therefor,  charge  certain  rates,  have  certain  privi- 
leges, and  be  subject  to  certain  burdens,  not  included  in  the  general 
hiw  relating  to  the  incorporation  of  water  companies.] 

By  the  court,  Crockett,  J.  On  the  former  appeal,  and  at  the  first 
hearing  of  the  present  appeal,  it  was  assumed,  by  both  court  and 
counsel,  that  the  rights  and  obligations  of  the  defendant  were  to  be 
ascertained  by  reference  to  the  act  of  April  23,  1858,  authorizing 
Ensign  and  his  associates  to  lay  down  water-pipes  in  the  streets  of 
San  Francisco.  But  on  the  rehearing  the  point  is  made  for  the  first 
time  by  the  defendant  that  the  Ensign  act  is  unconstitutional  and  void, 
and  consequently  can  confer  no  rights  on  the  plaintiff  nor  impose  any 
duties  on  the  defendant.  The  eighth  section  of  the  act  is  in  these  words : 
"This  act  shall  not  take  effect  unless  the  parties  named  in  section  i 
shall,  within  sixty  days  after  its  passage,  duly  organize  themselves  in 
conformity  with  the  existing  laws  regulating  corporations  now  in  force 
in  this  state." 

It  is  contended  that  this  is  an  attempt  to  confer  corporate  rights  by 
a  special  act  upon  Ensign  and  his  associates,  in  violation  of  section  31, 
article  4,  of  the  constitution,  which  provides  that  '•'■corporations  may 
be  formed  under  general  laws^  but  shall  not  be  created  by  special  act 
except  for  municipal  purposes.  All  general  laws  and  special  acts 
'Passed  pursuant  to  this  section  may  be  altered  from  time  to  time  or 
repealed.''^  The  act  in  question  does  not  purport  to  organize  Ensign 
and  his  associates  as  a  corporation.  On  the  contrary,  it  requires  them 
to  "organize  themselves  in  conformity  with  the  existing  laws  regulate 
ing  corporations,"  as  a  condition  on  which  they  shall  become  entitled 
to  the  benefits  and  privileges  enumerated  in  the  act.  It  is  clear,  there- 
fore, that  the  corporation,  when  formed,  did  not  derive  its  corporate 
existence  from  the  Ensign  act;  nor  could  it  have  done  so  under  the 
constitution.  But  it  is  claimed  that  under  this  provision  of  the  con- 
stitution, corporations  must  not  only  be  formed  under  general  laws, 
but  that  their  rights,  duties  and  obligations  must  be  prescribed  in  the 
same  method,  and  can  not  be  created  by  special  acts.     On  the  other 

'  Statement  of  facts  abridged.  Arguments  omitted.  Opinions  of  McKin- 
Btry  (concurring)  and  Rhodes,  J.,  dissenting,  omitted. 


346  CITY,  ETC.,  V.  SPRING   VALLEY   WATER-WORKS.  §  7 1 

hand,  it  is  insisted  that  the  constitution  is  wholly  silent  as  to  the 
powers  and  duties  of  corporations,  and  goes  no  further  than  to  require 
that  they  shall  be  "formed"  under  general  laws,  and  prohibits  them 
from  being  "created  by  special  act;"  but  left  the  legislature  free  to 
confer  upon  them,  by  either  general  laws  or  special  acts,  such  powers 
as  it  shall  see  fit.  If  this  theory  be  correct,  the  constitutional  pro- 
vision has  imposed  upon  the  legislature  only  the  duty  of  providing  by 
general  laws  the  formulas  by  which  corporations  may  be  formed — the 
mere  routine  by  which  an  artificial  entity  may  be  created — but  has  in 
no  degree  limited  the  power  of  the  legislature  to  confer  upon  it  by 
special  grant,  at  its  discretion,  any  powers  or  privileges  of  whatso- 
ever nature.  On  this  construction,  it  would  be  competent  for  the  leg- 
islature to  provide,  by  a  general  law,  that  any  number  of  persons 
might  become  a  body  corporate,  on  filing  a  certificate  stating  their 
intention  to  that  effect,  and  the  name  of  the  corporation ;  and  the 
legislature  might  then,  by  special  grant,  confer  on  the  corporation 
any  powers,  however  great,  and  any  privileges,  however  diversified. 
It  might  authorize  it  to  construct  railroads,  to  transact  the  business  of 
banking  or  insurance,  deal  in  lands  and  establish  steamship  lines. 
There  would  be  no  limit  to  its  power  in  this  respect.  Nor,  when  once 
granted  by  special  act,  could  these  privileges  be  recalled  or  modified 
by  the  legislature.  The  grant,  and  its  acceptance  by  the  corporation, 
would  have  created  a  contract,  the  obligation  of  which  could  not  be 
impaired  by  any  subsequent  legislation. 

Long  prior  to  the  adoption  of  our  constitution,  experience  had  de- 
monstrated the  enormous  evils  resulting  from  legislation  of  this  char- 
acter. By  means  of  hasty  or  corrupt  legislation,  great  monopolies 
had  been  created,  which  were  beyond  legislative  control. 

Capital  was  aggregated  in  the  hands  of  large  corporations  with 
peculiar  and  oppressive  privileges,  frequently  procured  through  venal 
legislation.  There  was  no  uniformity  in  the  powers  exercised  by 
corporations  pursuing  the  same  business.  So  long  as  they  derived 
their  powers,  privileges  and  immunities  from  special  legislative  grants, 
these,  of  course,  varied  according  to  the  temper  of  the  legislature,  and 
the  result  was  that  each  succeeding  corporation  had  greater  or  less 
powers  than  its  predecessors.  With  no  limitation  upon  the  discretion 
of  the  legislature  in  respect  to  the  particular  powers  and  privileges 
to  be  granted  to  each,  nor  as  to  the  innumerable  purposes  for  which 
corporations  might  be  formed,  nor  as  to  the  term  of  their  duration, 
gross  abuse  necessarily  resulted  from  such  a  system.  Extraordinary 
privileges,  oppressive  powers,  and  onerous  monopolies  were  con- 
ferred upon  some  and  denied  to  others  engaged  in  the  same  business. 
Their  powers  were  frequently  enlarged,  and  the  terms  of  their  dura- 
tion extended  by  special  grant.  Under  this  system  there  was*  danger 
that  large  aggregations  of  capital  would  so  practice  upon  the  credu- 
lity or  venality  of  legislative  bodies  as  to  secure  the  most  oppressive 
monopolies,  and  seriously  interfere  with  the  enterprise  and  industry 
of  the  individual  citizen.  One  of  the  latest  and  most  startling  illus- 
trations of   this  danger   is  to  be  found   in  an  act  of  the   legislature  of 


§  71  LIMITS   ON    POWER   TO    CREATE.  347 

Louisiana,  passed  in  the  year  1869,  by  which  a  corporation  was  cre- 
ated by  special  grant,  with  the  exclusive  right  to  establish  and  main- 
tain slaughter-houses  and  landings  for  cattle  for  a  period  of  twenty- 
five  years  in  the  city  of  New  Orleans  and  several  of  the  contiguous 
parishes.  The  constitution  of  Louisiana  contains  no  limitation  on 
the  power  of  the  legislature  to  confer  corporate  rights  by  special  act, 
and  the  validity  of  this  statute  has  been  upheld  by  the  supreme  court 
of  the  state  and  of  the  United  States. 

But  this  unrestricted  power  to  endow  corporations  with  peculiar  and 
exclusive  privileges  would  be  less  dangerous  if  a  succeeding  legis- 
lature could  correct  the  abuses  practiced  by  its  predecessor,  and  abolish 
or  restrict  the  privileges  once  granted.      *     «     » 

It  was  the  special  purpose  of  the  framers  of  our  constitution  to 
guard  against  these  abuses  by  providing  that  "corporations  may  be 
formed  under  general  laws,  but  shall  not  be  created  by  special  act, 
except  for  municipal  purposes."  Nor  were  they  content  to  leave  it 
doubtful  whether  the  legislature  would  have  power  to  modify  or  abro- 
gate these  general  laws  or  special  acts  to  create  municipal  corpora- 
tions so  as  to  affect  the  rights  of  existing  corporations.  Hence,  the 
constitution  contains  the  further  provision  that  all  general  laws  and 
special  acts  "passed  pursuant  to  this  section  may  be  altered  from  time 
to  time,  or  repealed."     «     *     * 

Under  these  provisions  the  source  from  which  private  corporations 
must  derive  their  powers  and  immunities  is  perfectly  apparent.  They 
can  only  "be  formed  under  general  laws,"  and  can  exercise  no 
powers,  except  such  as  are  derived  from  general  laws.  If  this  provis- 
ion means  nothing  more  than  that  the  legislature  shall  prescribe  the 
mere  formula  by  which  a  corporate  entity  may  be  called  into  life, 
and  may  then  proceed  to  confer  upon  it  by  special  act,  at  its  discre- 
tion, extraordinary  powers  and  privileges  which  it  could  not  after- 
wards revoke  or  modify,  because  they  were  granted  under  special  and 
not  general  laws,  then,  indeed,  has  the  constitution  signally  failed  to 
provide  a  remedy  for  the  abuses  already  adverted  to.  On  this  con- 
struction, when  a  railroad  corporation  is  once  formed  under  a  general 
law,  the  legislature,  by  special  grant,  may  confer  upon  it  extraordinary 
powers,  greatly  in  excess  of  those  exercised  by  other  similar  corpora- 
tions. It  may  authorize  it  to  engage  in  banking,  mining  or  any  other 
business  enterprise,  or  to  charge  higher  rates  of  fare  then  are  permitted 
to  other  competing  roads.  In  like  manner  it  might  discriminate  in 
favor  of  a  particular  banking  corporation,  or  confer  special,  or  per- 
haps, exclusive  privileges  on  a  particular  mining,  insurance  or  manu- 
facturing corporation.  But,  on  the  other,  and  the  true  construction 
of  this  constitutional  provision,  all  private  corporations  must  derive 
their  powers  from  general  laws,  and  not  from  special  statutes.  The 
general  laws  under  which  they  were  formed,  and  such  others  as  shall 
afterward  be  enacted,  must  alone  define  their  rights  and  powers.  On 
this  theory,  all  private  corporations,  formed  for  similar  purposes,  will 
stand  upon  the  same  footing,  enjoy  the  same  rights,  and  be  subject  to 


348  CITY,  ETC.,  V.   SPRING  VALLEY  WATER-WORKS.  §71 

the  same  burdens,  which  can  not  be  increased  or  diminished  except 
by  general  laws,  applicable  to  all.     *     *     ♦ 

Nothing  short  of  some  imperative  rule  of  constitutional  construction 
would  justify  us  in  holding  at  this  late  day,  that,  though  corporations 
must  be  "formed"  under  general  laws,  it  is,  nevertheless,  competent 
for  the  legislature,  by  special  grant,  to  confer  upon  a  corporation 
once  organized,  any  powers,  however  extraordinary^.  We  think,  on 
the  contrary,  that  no  corporate  rights  or  powers  can  be  conferred  by 
special  grant,  but  must  all  be  derived  under  general  laws. 

This  brings  us  to  the  consideration  of  the  Ensign  act,  so-called.  The 
first  seven  sections  confer  upon  Ensign  and  his  associates  certain  privi- 
leges, and  impose  upon  them  certain  duties  in  respect  to  furnishing 
the  city  and  county  of  San  Francisco  with  water  for  the  extinguish- 
ment of  fires  and  other  municipal  uses.  Section  8,  already  quoted, 
provides  that  "this  act  shall  not  take  effect  unless  the  parties  named 
in  section  i  shall,  within  sixty  days  after  its  passage,  duly  organize 
themselves  in  conformity  with  the  existing  laws  regulating  corpora- 
tions now  in  force  in  this  state."  The  grant,  therefore,  was  not  to 
take  effect  until  Ensign  and  his  associates  had  become  a  corporation 
under  existing  laws.  It  took  effect  as  a  grant,  not  to  Ensign  and  his 
associates  as  private  individuals,  but  to  the  corporation  when  formed. 
It  was  an  attempt  by  the  legislature  to  confer,  by  special  grant,  upon 
a  private  corporation  about  to  be  formed,  certain  peculiar  privileges, 
and  to  subject  it  to  certain  duties  not  common  to  other  corporations 
formed  under  the  same  general  law.  For  the  reasons  already  stated, 
this  was  not  within  the  constitutional  power  of  the  legislature. 

Judgment  and  order  affirmed. 

The  foregoing  opinion  was  delivered  at  the  April  term,  1874,  and 
a  rehearing  having  been  applied  for,  the  following  opinion,  denying 
the  same,  was  delivered  at  the  July  term,  1874. 

In  the  former  opinion  on  this  appeal,  we  held  that  the  act  of  April 
23,  1858,  known  as  the  "Ensign  Act,"  is  in  violation  of  art.  iv,  §  31 
of  the  constitution,  which  provides  that  "corporations  may  be  formed 
under  general  laws,  but  shall  not  be  created  by  special  act,  except  for 
municipal  purposes."  A  rehearing  is  asked,  partly  on  the  ground 
that  this  clause  of  the  constitution  has  received  a  different  construc- 
tion in  the  case  of  the  California  State  Telegraph  Company  v.  Alta 
Telegraph  Company  (22  Cal.  398),  and  that  this  decision  has  become 
a  rule  of  property  in  this  state,  and  ought  not  now  to  be  disturbed, 
even  though  it  was  erroneous.  After  a  careful  examination  of  that 
case,  I  am  satisfied  that  it  can  not  be  sustained,  either  on  reason  or 
authority.  Mr.  Justice  Crocker,  in  delivering  the  opinion  of  the 
court,  refers  to  several  adjudged  cases  as  supporting  the  conclusions 
at  which  he  arrived,  but  an  examination  of  these  cases  shows  that 
they  were  misapprehended  by  the  court,  and  do  not  support  the  de- 
cision.     ♦     *     » 

[After  discussing  the  cases  of  Aurora  v.  West,  9  Ind.  85  ;  Gifford  v. 
New  Jersey  R.  &  T.  Co.,  2   Stockton  Ch.  R.  171 ;  C,  P.  &  A.  R. 


§  71  LIMITS   ON    POWER  TO   CREATE.  349 

V.  Erie,  27  Pa.  St.  380,  relied  upon  by  Justice  Crocker  in  the  former 
decision,  and  holding  they  did  not  involve  the  question  here  proceeds :] 

The  only  remaining  case  referred  to  was  the  Syracuse  City  Bank  v. 
Davis  (16  Barb.  188).  The  constitution  of  Nevv^  York  provides  that 
"the  legislature  shall  have  no  powder  to  pass  any  act  granting  any  spe- 
cial charters  for  banking  purposes ;  but  corporations  or  associations 
may  be  formed  for  such  purposes  under  general  laws."  The  Syra- 
cuse City  Bank  was  organized  under  the  general  law ;  but  in  some 
trifling  particulars,  the  forms  prescribed  by  the  general  law  were  not 
complied  with,  and  the  legislature  passed  a  curative  act,  to  the  effect 
that  the  bank  should  be  deemed  a  valid  corporation,  and  to  have  been 
duly  incorporated  notwithstanding  these  informalities.  The  court  held 
the  curative  act  to  be  valid,  on  the  ground  that  it  did  not  create  a  cor- 
poration, but  only  remedied  defects  in  the  organization  of  one  already 
created.  That  proposition  has  no  analogy  to  the  question  involved 
here,  which  relates  to  the  power  of  the  legislature  to  confer  upon  an 
existing  corporation,  by  special  act,  other  powers  than  those  derived 
from  the  general  law.  These  are  the  only  cases  referred  to  by  Mr. 
Justice  Crocker,   and    none  of   them  support  his  ruling.      «     «     * 

On  the  other  hand,  authorities  are  not  wanting  in  support  of  the 
opposite  construction  of  the  clause  of  the  constitution.  In  Low  v. 
The  City  of  Marysville  (5  Cal.  214)  the  question  was  whether  it  was 
competent  for  the  legislature,  by  special  act,  to  authorize  the  city 
(a  municipal  corporation)  to  subscribe  for  stock  in  a  steamboat 
company  organized  to  establish  a  line  of  steamers  plying  between 
that  city  and  San  Francisco.  In  delivering  the  opinion  of  the 
court.  Chief  Justice  Murray  holds  that  "  the  powers  of  municipal  cor- 
porations must  be  confined  strictly  to  police  or  governmental  pur- 
poses," and  that  the  power  conferred  upon  the  corporation  to  sub- 
scribe for  stock  in  a  railroad  could  not  be  granted  by  special  act ; 
"for  as  it  would  have  been  in  violation  of  the  constitution  to  create 
an  incorporation  by  special  act,  for  other  than  municipal  purposes,  it 
follows  that  it  would  be  equally  unconstitutional  to  confer  special 
power  on  a  corporation  already  created.  In  other  words,  it  would 
be  doing  by  two  acts  that  which  the  legislature  could  not  do  by  one, 
and  corporations  for  almost  every  purpose  might  be  created  by  special 
act,  by  first  incorporating  the  stockholders  as  a  municipal  body."  This 
reasoning,  I  think,  is  unanswerable,  and  the  decision  is  a  direct  ad- 
judication upon  the  question  involved  here. 

The  constitution  of  Ohio  contains  these  clauses: 

"Section  i.  The  general  assembly  shall  fass  no  special  act  con- 
ferring corporate  powers. 

"Section  2.  Corporations  may  be  formed  under  general  laws;  but 
all  such  laws  may,  from  time  to  time,  be  altered  or  repealed." 

In  Atkinson  v.  The  M.  &  C.  R.  Co.,  15  Ohio  St.  Rep.  35,  the 
court,  in  construing  these  clauses,  says:  "Constitutional  provisions 
would  be  of  little  value  if  they  could  be  evaded  by  a  mere  change  of 
forms.  These  provisions  of  the  constitution  are  too  explicit  to  admit 
of  the  least  doubt  that  they  are  intended  to  disable  the  general  assem* 


350  CITY,  ETC.,  V.  SPRING  VALLEY  WATER-WORKS.  §  /I 

bly  from  either  creating  corporations  or  conferring  upon  them  corpo- 
rate powers  by  special  acts  of  legislation.  It  was  intended  to  correct 
an  existing  evil,  and  to  inaugurate  the  policy  of  placing  all  corpora- 
tions of  the  same  kind  upon  a  perfect  equality  as  to  all  future  grants 
of  power;  of  making  such  laws  applicable  to  all  parts  of  the  state, 
and  thereby  securing  the  vigilance  and  attention  of  its  whole  repre- 
sentation, and,  finally,  of  making  all  judicial  constructions  of  their 
powers,  or  the  restrictions  imposed  upon  them,  equally  applicable  to 
all  corporations  of  the  same  class."     *     ♦     * 

The  constitution  of  Iowa  provides  that  '•'•the  general  assembly 
shall  not  pass  local  or  special  laws  in  the  following  cases: 
*  *  *  for  the  incorporation  of  cities  and  towns ^"  and  for  other 
specified  purposes.  '•'•In  all  the  cases  above  enumerated^  aitd  in  all 
other  cases  where  a  general  law  can  be  made  applicable ^  all  laws  shall 
be  general  and  of  uniform  operation  throughout  the  state." 

The  legislature  passed  a  special  act  to  amend  the  charter  of  the  city 
of  Davenport,  a  municipal  corporation,  and  in  Ex  parte  Pritz  (9 
Iowa  30),  the  question  before  the  court  was,  whether  the  legislature, 
by  a  special  act,  could  amend  the  charter  of  a  municipal  corporation, 
and  thereby  place  it  upon  a  different  footing  from  other  municipal 
corporations,  organized  under  the  general  law.  In  considering  this 
point,  the  court  says  the  intention  of  the  constitution  was  "to  prevent 
special  or  local  legislation ;  to  require  that  the  legislature  should  pass 
general  laws  upon  all  the  subjects  named,  and  in  all  other  cases  where 
such  general  laws  could  be  made  applicable.  There  can  be  no  ques- 
tion but  that  it  was  designed  to  confine  the  legislature  to  general  legis- 
lation, and  leave  the  people,  in  their  municipal  capacity,  to  organize 
and  carry  out  their  government  under  such  general  laws.  If  this  be 
so,  then  to  say  that  the  legislature  may  not  pass  a  law  to  incorporate 
a  city,  but  may,  to  amend  an  act  of  incorporation  in  existence  before 
the  adoption  of  the  constitution,  or  charters  formed  under  the  general 
law,  would  make  this  provision  of  the  constitution  practically  amount 
to  nothing.  For  if  they  may  amend,  they  may,  to  the  extent  of  pass- 
ing an  entire  new  law,  except  as  to  one  section.  Or  they  may  at  one 
session  amend  half  the  law,  and  the  next  the  other  half,  and  thus  the 
plain  and  positive  prohibition  of  the  fundamental  law  be  evaded.  By 
such  a  construction  the  evil  sought  to  be  remedied  would  continue,  if 
possible,  in  a  more  objectionable  form." 

The  same  principle  was  substantially  decided  in  the  Town  of 
McGregor  v.  Bauliss  (19  Iowa  43).  It  will  be  observed  that  by  the 
constitution  of  Iowa,  the  prohibition  of  the  constitution  was  against 
special  laws,  "for  the  incorporation  of  cities  and  towns;"  whilst  in 
our  constitution  the  provision  is  that  corporations,  except  for  munici- 
pal purposes,  shall  not  be  "created"  by  special  act.  In  neither  is 
the  legislature  in  express  terms  prohibited  from  conferring  additional 
powers  upon,  or  amending  the  charter  of  an  existing  corporation 
formed  under  the  general  law.  The  reasoning  of  the  supreme  court 
of  Iowa,  however,  is  conclusive  on  the  point  that,  under  our  con- 
stitution,  the  legislature,  by  special  act,   can  not  either  amend  the 


§  71  LIMITS   ON    POWER   TO    CREATE.  35 1 

charter  of  an  existing  corporation,  or  confer  upon  it  powers  and  im- 
munities  not  granted   by   the  general  law.      *     *     * 

In  the  case  of  the  Dartmouth  College  v.  Woodward  (4  Wheat.  519) 
it  had  been  decided  by  the  supreme  court  of  the  United  States  that 
privileges  secured  by  special  acts  of  incorporation  constituted  con- 
tracts, which  were  protected  by  that  clause  of  the  constitution  of  the 
United  States,  which  prohibits  a  state  from  passing  laws  impairing 
the  obligation  of  contracts.  That  case  was  followed  by  numerous  other 
decisions  of  like  import,  in  the  same  court,  and  in  almost  every  state 
of  the  Union,  including  New  York,  Massachusetts,  New  Hampshire, 
Pennsylvania,  Michigan,  Iowa,  Indiana,  Illinois  and  Virginia. 

In  his  work  on  Constitutional  Limitations  (page  279),  Judge  Cooley 
says:  "It  is  under  the  protection  of  the  decision  in  the  Dartmouth 
College  case  that  the  most  enormous  and  threatening  powers  in  our 
country  have  been  created,  some  of  the  great  and  wealthy  corpora- 
tions actually  having  greater  influence  in  the  country  at  large,  and 
upon  the  legislation  of  the  country,  than  the  states  to  which  they  owe 
their  corporate  existence.  Every  privilege  granted  or  right  conferred, 
no  matter  by  what  means  or  on  what  pratense,  being  made  inviolable 
by  the  constitution,  the  government  is  frequently  found  stripped  of 
its  authority  in  very  important  particulars  by  unwise,  careless  or  cor- 
rupt legislation ;  and  a  clause  of  the  federal  constitution  whose  pur- 
pose was  to  preclude  the  repudiation  of  debts  and  just  contracts,  pro- 
tects and  perpetuates  the  evil.  To  guard  against  such  calamities  in 
the  future,  it  is  customary  now  for  the  people  in  framing  their  consti- 
tutions to  forbid  the  granting  of  corporate  power,  except  subject  to 
amendment  and  repeal,  but  the  improvident  grants  of  an  early  day 
are  beyond  their  reach."  In  view  of  these  calamities,  the  framers  of 
our  constitution  were  not  content  merely  to  reserve  to  the  legislature 
the  power  of  amendment  and  repeal,  but  prohibited  in  terms  the 
power  to  create  corporations,  except  for  municipal  purposes  by  spe- 
cial act,  and  almost  every  state  which  has  recently  amended  its  con- 
stitution has  followed  our  example.  In  the  face  of  these  facts  it  is 
altogether  incredible  that  in  forbidding  corporations,  except  for  munici- 
pal purposes,  to  be  "created"  by  special  act,  it  was  intended  to  pro- 
vide only  that  the  mere  forms  by  which  corporate  entity  was  created 
should  be  prescribed  by  the  general  laws ;  but  that  when  thus  formed, 
it  may  be  endowed  by  special  act  with  any  powers  however  diversi- 
fied, at  the  discretion  of  the  legislature.     *     *     * 

It  is  claimed,  however,  that  the  introduction  of  water  in  a  city  for 
the  use  of  the  inhabitants  and  of  the  corporate  authorities,  is  a  "mu- 
nicipal purpose"  within  the  sense  of  the  constitution,  and  that  private 
corporations  may  be  created  by  special  act  for  such  purposes.  In 
Low  V.  Marysville,  supra^  it  was  decided  that  the  term  "municipal 
purposes,"  as  employed  in  this  section  of  the  constitution,  referred 
only  to  governmental  and  police  powers,  and  that  the  legislature  is 
prohibited  from  conferring  even  upon  a  municipal  corporation  by 
special  act,  any  powers  except  for  police  and  governmental  purposes." 
But  however  this  may  be  in  respect  to  the  corporation  itself,   it  is 


352  CITY,  ETC.,  V.  SPRING  VALLEY  WATER-WORKS.        .    §71 

clear  that  the  right  to  introduce  water  into  a  city  can  not  be  conferred 
upon  a  private  corporation  by  special  act,  upon  the  plea  that  it  was 
a  corporation  organized  for  "municipal  purposes"  in  the  sense  of  the 
constitution.  If  the  legislature,  by  special  act,  can  confer  such  pow- 
ers upon  a  private  corporation  for  supplying  a  city  with  water,  it  can 
confer  similar  powers  upon  all  corporations  for  similar  purposes.  It 
might  by  special  act  incorporate  a  gas  company  to  furnish  the  inhabitants 
with  gas,  or  a  coal  or  wood  company  to  furnish  them  with  fuel,  or  a  pav- 
ing company  to  pave  the  streets,  or  a  slaughter-house  company  to  furnish 
the  people  with  meat,  or  a  milling  company  to  supply  them  with  bread. 
Every  county  in  the  state  is  a  quasi  municipal  corporation,  and  it  is 
the  duty  of  the  corporation  to  see  that  proper  roads,  bridges  and  pub- 
lic buildings  are  provided  for  the  use  of  the  inhabitants.  On  this 
theory,  the  legislature,  by  special  act,  might  organize  private  corpo- 
rations for  all  these  purposes,  and  endow  them  with  peculiar,  oppres- 
sive, and,  perhaps,  exclusive  powers  and  privileges.  In  this  way  the 
constitutional  prohibition  would  be  frittered  away,  and  would  prac- 
tically amount  to  nothing.      *     *     * 

It  is  further  claimed  that  the  decision  in  the  case  of  The  California 
State  Telegraph  Co.  v.  The  Alta  Telegraph  Co.  has  become  a  rule  of 
property,  and  ought  not  now  to  be  disturbed,  even  though  it  be  con- 
ceded to  be  erroneous.  In  support  of  this  proposition  we  have  been 
referred  to  numerous  statutes  claimed  to  be  similar  to  the  Ensign  act, 
under  which  it  is  said  great  property  rights  have  grown  up.  It  may 
be  that  some,  but  I  think  no  serious,  injury  will  result  to  property 
rights  from  overruling  that  decision.  If  it  shall  be  found  that  serious 
inconvenience  would  otherwise  result,  the  legislature  may  amend  the 
general  law  regulating  corporations,  so  as  to  obviate  the  difficulties 
that  would  otherwise  arise,  and  allow  these  corporations  to  reincor- 
porate under  the  new  law.  But,  in  any  event,  it  is  better  that  some 
temporary  inconvenience  should  be  submitted  to  rather  than  that  one 
of  the  most  valuable  provisions  of  the  fundamental  law  should  be 
practically  obliterated.  No  greater  calamity  could  befall  this  state 
than  to  open  wide  the  door  leading  to  careless  or  corrupt  legislation 
in  the  form  of  special  acts  granting  peculiar  and  onerous  privileges  to 
private  corporations.      *     *     * 

It  has  been  suggested  that  the  grant  to  the  Spring  Valley  Water- 
Works  under  the  Ensign  act  was  not  a  grant  of  corporate  rights,  but 
only  an  easement  permitting  the  company  to  lay  its  pipes  through  the 
streets,  subject  to  the  performance  of  certain  duties  imposed  by  the 
act.  The  argument  is  that  an  easement  of  this  character  is  property, 
which  it  was  in  the  power  of  the  state  to  grant  to  an  existing  corpo- 
ration as  it  might  grant  property  to  any  corporation,  coupled  with  such 
conditions  as  it  saw  fit  to  impose ;  and  that  this  is  not  a  grant  of  cor- 
porate rights  within  the  purview  of  the  constitution.  It  is  a  conclu- 
sive answer  to  this  proposition  that  the  Ensign  act  did  not  grant  to 
the  Spring  Valley  Water- Works  any  easement  of  this  character  which 
it  did  not  already  possess  under  the  general  law,  under  which  it  was 
incorporated.     By  the  fifth  section  of  the  general  act  (Statutes  1858, 


§  71  LIMITS   ON    POWER   TO    CREATE.  353 

p.  219^,  the  company  had  the  absolute  right  "to  use  so  much  of  the 
streets,  ways,  and  alleys  in  any  town,  city  or  county,  or  any  public 
road  therein,  as  may  be  necessary  for  laying  pipes  for  conducting 
water  into  any  such  town,  city,  or  city  and  county,  or  through  or  into 
any  part  or  parts  thereof."  The  corporation  already  having  this 
right,  under  its  act  of  incorporation,  it  is  clear  that  the  Ensign  act  con- 
ferred upon  it  no  additional   privileges  in  this  respect. 

When  the  state  grants  to  a  -private  corporation  an  easement  over 
the  streets^  not  common  to  the  public  at  large,  it  acts  in  its  sovereign 
capacity  and  grants  a  franchise,  which  enters  into  and  forms  an  es- 
sential element  in  the  corporate poxvers  oj" the  corporation;  which  be- 
comes entitled  to  the  right,  not  because  the  state  has  parted  with  any 
proprietary  interest  in  the  land,  but  because  in  its  sovereign  capacity , 
having  the  control  of  public  highways,  it  has  granted  to  the  corpora- 
tion a  franchise,  entitling  it  to  an  easement  over  the  streets  not  com- 
mon to  the  general  public.  This  is  purely  a  grant  of  corporate  power, 
and  nothing  more  or  less,  and,  as  we  have  already  seen,  such  rights 
can  not  be  conferred  by  special  act.  But  even  if  it  be  conceded  that 
the  right  to  the  use  of  the  streets  may  be  granted  by  special  act,  still 
the  Ensign  act  must  fail,  because  the  right  to  use  the  streets  is  insep- 
arably blended  with  the  grant  of  other  rights,  and  the  imposition  of 
certain  burdens,  which  are  in  plain  violation  of  the  constitution.  As, 
for  example,  the  right  in  a  certain  contingency  to  charge  higher  rates 
for  water  than  other  corporations  organized  under  the  same  general 
law,  and  the  imposition  of  greater  burdens  upon  the  company,  than 
are  imposed  by  the  general  law.  It  is  a  well-settled  rule,  that  where 
a  portion  of  an  act  is  constitutional  and  another  portion  is  unconstitu- 
tionalj  if  the  two  are  so  inseparably  blended  together  as  to  make  it 
clear  that  either  clause  would  not  have  been  enacted  without  the  other, 
the  whole  act  must  fall.  It  is  perfectly  clear  that  such  is  the  condi- 
tion of  this  act,  and  that  all  its  provisions  must  stand  or  fall  together. 

We  are  satisfied  that  these  views  are  in  strict  accordance  with  the 
letter  and  spirit  of  the  constitution.  On  the  opposite  theory  the  leg- 
islature, by  special  act,  may  grant  to  a  railroad  corporation  the  right 
to  lay  down  its  tracks  in  the  streets  on  condition  that  it  supply  the 
inhabitants  with  water  or  gas,  or  keep  the  streets  in  repair  at  a  spec- 
ified price,  thus  opening  the  door  to  corrupt  and  vicious  legislation, 
against  which  the  constitution  has  so  carefully  guarded. 

Rehearing  denied. 

See  note,  p.  706. 
23— WiL.  Cases. 


354  SOUTHERN    PACIFIC    R.    CO.    V.    ORTON.  §  72 

Sec.  72.    Same. 

SOUTHERN  PACIFIC  R.  CO.  v.  ORTON.» 

1879.     In  the  Circuit  Court  of  the  United  States,  District 
OF  California.     32  Fed.  Rep.  457-480. 

[Action  to  recover  lands.  Plaintiff  claimed,  under  congressional 
grant,  to  aid  Southern  Pacific  Railroad.  Patent  had  issued.  De- 
fendant claimed  by  pre-emption.  The  railroad  company  was  incor- 
porated by  the  state  of  California  in  1861. 

On  April  4,  1870,  the  legislature  of  California  passed  an  act  as 
follows:  "Whereas,  by  the  provisions  of  a  certain  act  of  congress 
of  the  United  States  of  America,  entitled  'An  act  granting  lands 
to  aid  in  the  construction  of  a  railroad  and  telegraph  line  from  San 
Francisco  to  the  eastern  line  of  the  state  of  California,'  approved 
July  27,  1866,  certain  gi-ants  were  made  to,  and  ceilain  rights,  privi- 
leges, powers  and  authority  were  vested  in  and  conferred  upon 
the  Southern  Pacific  Railroad  Company,  a  corporation  duly  organized 
and  existing  under  the  laws  of  the  state  of  California;  therefore,  to 
enable  the  said  company  to  more  fully  and  completely  comply  with 
and  perform  the  requirements,  provisions  and  conditions  of  the  said 
act  of  congress,  and  all  other  acts  of  congress  now  in  force  or  which 
may  hereafter  be  enacted,  the  state  of  California  hereby  consents  to 
said  act;  and  the  said  company,  its  successors  and  assigns  are  hereby 
authorized  and  empowered  to  change  the  line  of  its  railroad  so  as  to 
reach  the  eastern  boundary  line  of  the  state  of  California  by  such  route 
as  the  company  shall  determine  to  be  the  most  practicable,  and  to  file 
new  and  amendatory  articles  of  association ;  and  the  right,  power 
and  privilege  is  hereby  granted  to,  conferred  upon  and  vested  in  them, 
to  construct,  maintain  and  operate,  by  steam  or  other  power,  the  said 
railroad  and  telegraph  line  mentioned  in  said  acts  of  congress,  hereby 
confirmmg  to  and  vesting  in  the  said  company,  its  successors  and  as- 
signs, all  the  rights,  privileges  and  franchises,  power  and  authority 
conferred  upon,  granted  to  or  vested  in  said  company  by  the  said  acts 
of  congress,  and  any  act  of  congress  which  may  be  hereafter  enacted."] 

Sawyer,  j.  *  ♦  *  But  it  is  insisted  that  this  act  was  passed  in 
violation  of  the  provisions  of  section  31  of  article  iv  of  the  constitution 
of  California,  which  reads:  "Corporations  may  he  Jvrmed  under  gen- 
eral laws,  but  shall  not  be  created  by  special  act  except  for  municipal 
purposes."  After  a  careful  consideration  of  the  question,  I  am,  myself 
unable  to  perceive  wherein  that  portion  of  the  act,  at  least,  which  au- 
thorizes the  company  to  change  the  line  of  its  road,  and  to  accept  the 
grant  made  by  and  to  build  the  road  provided  for  in  the  act  of  con- 
gress is  in  contravention  of  this  provision  of  the  constitution.  It  is 
unnecessary  to  consider  the  provision  of  this  act  authorizing  the  cor- 

'  Only  that  part  of  the  case  relating  to  construction  of  constitutional  pro- 
vision given. 


^  72  LIMITS    ON    POWER   TO    CREATE.  355 

poration  to  file  amended  articles  of  association,  for,  if  that  be  con- 
ceded to  be  in  excess  of  the  legislative  power,  it  can  be  separated 
from  the  others,  and  does  not  vitiate  the  other  provisions.  I  do  not 
perceive  that  any  amendment  of  the  articles  was  necessary,  for  the 
corporation  was  already  formed  or  created,  was  already  in  existence 
with  all  the  essential  faculties  that  go  to  make  up  a  corporation  for 
building  a  railroad,  and  the  act  authorizing  the  change  of  line  and 
acceptance  of  the  congressional  grant  with  its  conditions,  only  granted 
to  an  existing  person  permission  to  do  a  thing  which  had  no  necessary 
relation  to  the  corporate  grantee,  and  was  not  at  all  essential  to  the 
existence  of  the  legal  entity  created  by  law,  or  to  any  other  person, 
natural  or  artificial.  But  if  an  amendment  to  the  articles  was  neces- 
sary, it  was  already  authorized  and  provided  for  by  the  prior  act  of 
March  i,  1870,  and  it  was  not  necessary  to  repeat  the  authority  in 
this  act,  and  the  act  of  March  i  is  a  general  act,  and,  therefore,  not 
obnoxious  to'  the  objection  urged  against  the  said  act  of  April  4,  1870. 
The  settled  rule  of  construction  of  stace  constitutions  is  that  they  are 
not  special  grants  of  power  to  legislative  bodies,  like  the  constitution 
of  the  United  States,  but  general  grants  of  all  the  usually  recognized 
powers  of  legislation  not  actually  prohibited  or  expressly  excepted. 
In  the  language  of  Mr.  Justice  Shafter  in  Bourland  v.  Hildreth,  26 
Cal.  183:  "The  constitution  is  not  a  grant  of  power  or  an  enabling 
act  to  the  legislature.  It  is  a  limitation  on  the  general  powers  of  a 
legislative  character,  and  restrains  only  so  far  as  the  restriction  ap- 
pears either  by  express  terms  or  by  necessary  implication,  and  the 
delicate  office  of  declaring  an  act  of  the  legislature  unconstitutional 
and  void  should  never  be  exercised  unless  there  be  a  clear  repug- 
nancy between  the  statute  and  the  organic  law."  See,  also,  Bour- 
land v.  Hildreth,  26  Cal.  215,  225,  et  seq.;  People  v  Sassovich,  29 
Cal.  482  ;  Railroad  Co.  v.  City  of  Stockton,  41  Cal.  161.  And  it  is 
equally  well  settled  that  the  exception  must  be  strictly  construed.  In 
the  language  of  Mr.  Chief  Justice  Wallace  in  the  last  case  cited: 
"The  construction  is  '■strict  against  those  who  stand  upon  the  excep- 
tion and  liberal  in  favor  of  the  government  itself.'  "  Railroad  Co. 
V.  City  of  Stockton,  41  Cal.  162.  And  in  Sharpless  v.  Mayor  of 
Philadelphia,  21  Pa.  St.  160,  Mr.  Chief  Justice  Black  said  upon 
the  same  subject:  "The  federal  constitution  confers  powers  expressly 
.enumerated,  that  of  the  state  contains  ?l general  grant  of  all  powers 
not  excepted.  The  construction  of  the  former  instrument  is  strict 
against  those  who  claim  under  it,  the  interpretation  of  the  latter  is 
strict  against  those  who  stand  upon  the  exceptions^  and  liberal  in 
favor  of  the  government  itself;  the  federal  government  can  do  noth- 
ing but  what  is  authorized  expressly,  or  by  clear  implication  ;  the  state 
may  do  whatever  is  not  prohibited. '^ 

The  authorities  establishing  this  canon  of  construction  are  numer- 
ous, and,  so  far  as  I  know,  uniform.  Bearing  this  rule  of  construc- 
tion in  mind,  what  does  the  constitutional  prohibition  relied  on  mean? 
The  only  prohibitory  words  are  that  corporations  of  the  class  in  ques- 
tion "shall  not  be  created  by  special  act."     The  word  "create"  has 


356  SOUTHERN   PACIFIC    R.    CO.    V.    ORTON.  §  72 

a  clear,  well-settled,  and  well-understood  signification.  It  means  to 
bring  into  being,  to  cause  to  exist,  to  produce,  to  make,  etc.  To 
my  apprehension,  it  appears  to  be  one  thing  to  create,  or  bring  into 
being,  a  corporation,  and  quite  another  to  deal  with  it  as  an  existing 
entity,  a  person,  after  it  is  created  by  regulating  its  intercourse,  rela- 
tions and  acts  as  to  other  existing  persons,  natural  and  artificial.  "A 
corporation  is  a  franchise  possessed  by  one  or  more  individuals,  who 
subsist  as  a  body  politic,  under  a  special  denomination,  and  are  vested, 
by  the  policy  of  the  law,  with  the  capacity  of  perpetual  succession, 
and  of  acting  in  several  respects,  however  numerous  the  association 
may  be,  as  a  single  individual."  2  Kent  Comm.  (9th  ed.)  306;  Rail- 
road Co.  V.  Commissioners,  112U.  S.  609,  5  Sup.  Ct,  Rep.  299.  The 
ordinary  incidents  to  a  corporation  are  to  have  perpetual  succession, 
and  the  power  of  electing  or  otherwise  providing  members  m  the  place 
of  those  removed  by  death  or  otherwise,  to  sue  and  to  be  sued,  to  grant 
and  receive  and  to  purchase  and  hold  lands  and  chattels  by  their  cor- 
porate name;  to  have  a  common  seal ;  to  make  by-laws  for  the  gov- 
ernment of  the  corporation,  and  sometimes  the  power  of  amotion  or 
removal  of  members.  "The  essence  of  a  corporation  consists  only  of 
a  capacity  to  have  perpetual  succession  under  a  special  denomination, 
and  an  artificial  form,  and  to  take  and  grant  property,  contract  obliga- 
tions, and  sue  and  be  sued  by  its  corporate  name,  and  to  receive  and 
enjoy  in  common  grants  of  privileges  and  immunities."  Railroad  Co. 
V.  Commissioners,  112  U.  S.  609,  3  Sup.  Ct.  Rep.  325. 

The  creative  act  necessarily  extends  only  to  the  bringing  into  being 
of  an  artificial  person,  with  the  capacities  stated,  among  which  is  "or 
capacity  to  receive  and  enjoy  in  common  grants  and  privileges,  and 
immunities;"  that  is  to  say,  a  capacity  to  receive  and  enjoy  such 
grants,  privileges,  and  immunities  as  may  be  made  either  at  the  time 
of  the  creation  or  any  other  time.  The  creation  of  the  being  with  the 
capacity  to  receive  grants  is  one  thing;  the  granting  of  other  privi- 
leges and  immunities,  which  it  has  the  capacity  to  receive  when  created, 
is  another.  When  such  a  being  is  brought  into  existence,  a  corporation 
has  been  created.  A  legal  entity,  a  person,  has  been  created,  with  a 
capacity  to  do  by  its  corporate  name  such  things  as  the  legislative 
power  may  permit,  and  receive  such  grants  of  such  rights  and  privi- 
leges, and  of  such  property,  as  the  legislature  itself  or  private  persons 
with  the  legislative  permission  may  give.  But  I  do  not  understand 
that  every  right,  privilege,  or  grant  that  can  be  conferred  upon  a  cor- 
poration must  be  given  simultaneously  with  the  creative  act  of  incor- 
poration. On  the  contrary,  I  suppose  the  artificial  being  must  be  cre- 
ated with  a  capacity  to  receive  before  anything  can  be  received.  The 
right  to  be  a  corporation  is  itself  a  separate,  distinct,  and  independ- 
ent franchise,  complete  within  itself.  And  a  corporation  having  been 
created,  enjoying  this  franchise,  may  receive  a  grant  and  enjoy  other 
distinct  and  independent  franchises,  such  as  may  be  granted  to  and 
enjoyed  by  natural  persons  ;  but  because  it  enjoys  the  latter  franchises, 
they  do  not,  therefore,  constitute  a  part  of  the  distinct  and  independ- 
ent essential  franchise, — the  right  to  be  a  corporation.     They  are  ad- 


§  ^2  LIMITS   ON    POWER   TO    CRKATE.  357 

ditional  franchises  given  to  the  corporation,  and  not  parts  of  the  cor- 
poration itself, — not  of  the  essence  of  the  corporation. 

Natural  persons,  with  certain  physical  capacities,  being  brought 
into  existence  through  the  process  appointed  by  nature,  may  be  pro- 
hibited by  law  from  doing  one  thing  and  permitted  to  do  another; 
may  enjoy  one  franchise  and  be  excluded  from  the  enjoyment  of  an- 
other ;  but  these  permissions  and  prohibitions  constitute  no  part  of  the 
person,  and  were  in  no  manner  connected  with  the  creative  act.  So, 
with  reference  to  corporations,  being  once  created,  they  have  the 
physical  capacity,  through  their  officers,  to  do  anything  that  a  natural 
person  may  do;  such  as  building  a  church,  a  steamship  or  a  railroad. 
But,  being  created,  they  may  be  prohibited  from  doing  one  thing  and 
permitted  to  do  another,  like  natural  persons ;  but  this  permission  or 
prohibition  is  not  a  creative  act,  but  an  act  regulating  the  conduct  of 
the  corporation,  and  determining  its  rights  and  relations  to  the  public, 
and  to  other  existing  persons,  natural  and  artificial.  Corporate  pow- 
ers, strictly  speaking,  I  suppose,  are  those  peculiar  and  essential  to  a 
corporation — not  those  which  are  or  may  be  possessed  in  common 
with  natural  persons ;  and  they  are  very  few  in  number,  embracing 
those  which  pertain  to  the  essence  of  the  corporation.  The  term  is, 
luidoubtedly,  often  and  conveniently  used  in  a  broader  sense,  but  it  is 
not  found  in  the  constitutional  provision  in  question.  Section  33, 
article  4,  defines  the  term  "corporation"  as  used  in  the  constitution, 
and  says  it  "shall  be  construed  to  include  all  associations  and  joint- 
stock  companies  having  <2«y  of  the  powers  of  corporations  not  possessed 
by  individuals  or  partnerships.^^  Of  course,  it  excludes  all  associa- 
tions that  do  not  have  any  powers  other  than  those  possessed  by  indi- 
viduals and  partnerships.  And  this  provision  is  a  recognition  of  the 
idea  that  corporate  powers  are  only  such  as  are  not  possessed  in  com- 
mon with  individuals  and  partnerships — or  natural  persons. 

The  power  to  create  a  corporation,  as  the  terms  are  used  in  section 
33,  extends,  therefore,  to  the  bringing  into  being  of  a  legal  entity, 
having  powers  and  privileges  not  possessed  by  individuals;  that  is  to 
say,  possessing  the  powers,  which,  as  before  stated,  constitute  the 
essence  of  a  corporation,  or  corporate  powers,  strictly  speaking,  and 
has  no  reference  to  the  legislative  dealings  with  that  artificial  person 
after  its  creation.  I  suppose  the  constitution  might  have  devolved  the 
power  of  creating  a  corporation  on  some  other  body,  as  the  supreme 
court,  and  the  power  to  deal  with  it  after  its  creation — to  regulate  its 
conduct  and  relations  to  the  public,  and  to  prescribe  its  rights,  powers, 
and  duties  other  than  those  strictly  corporate,  to  the  legislature.  Had 
it  been  so  provided,  there  can  be  no  doubt  that  such  powers  would 
have  been  wholly  distinct  and  independent.  I  do  not  perceive  that 
they  are  any  the  less  so  because  exercised  by  the  same  body.  The 
act  of  creating  a  corporation  by  conferring  upon  an  association  of  in- 
dividuals certain  strictly  corporate  powers,  embracing  only  powers 
and  privileges  not  possessed  by  individuals  and  partnerships,  and  then 
granting  to  it  other  privileges,  enlarging  or  restricting  its  right  to  the 
enjoyment  of  other  franchises  that  may  be  possessed  in  common  with 


358  SOUTHERN    PACIFC    R.    CO.    V.    ORTON.  §  72 

natural  persons,  and  regulating  its  external  relations  are,  to  my  mind, 
distinct  and  independent,  and  I  find  nothing  in  the  constitution  pro- 
hibiting the  latter  power  to  the  legislature.  There  are  numerous  dis- 
tinct, independent  franchises,  any  one  or  more  of  which  may  be 
granted  indifferently  either  to  natural  persons  or  existing  corporations, 
and,  in  my  judgment,  the  constitution  no  more  prohibits  the  granting 
of  any  one  of  those  franchises,  except  such  as  are  expressly  prohibited, 
to  corporations,  by  special  act,  than  to  individuals.  It  only  prohib- 
its the  creation  of  a  corporation  by  special  act ;  that  is  to  say,  that  the 
creating  or  granting  of  the  particular  franchise  cotistituting  a  corpo- 
ration shall  not  be  by  special  act.  The  prohibition  applies  to  no  other 
of  the  numerous  franchises  which  are  subjects  of  legislative  grant. 

In  this  case  there  was  a  corporation — a  railroad  corporation — duly 
created  under  the  general  act,  for  the  purpose  of  building  a  railroad 
in  a  southeastern  direction  through  the  state  of  California  to  the  east- 
ern line  of  the  state,  to  intersect  with  a  road  which,  it  was  supposed, 
would  soon  be  built  to  the  eastern  states,  the  route  of  which  was  still 
undetermined  and  uncertain.  It  had  all  the  faculties  physically  neces- 
sary to  enable  it  to  build  any  railroad.  Afterward  congress  authorized 
the  building  of  a  road  across  the  continent  on  or  near  the  thirty-fifth 
parallel  of  latitude  to  intersect  the  line  of  the  state  at  a  point  different 
from  that  designated  in  the  articles  of  association  of  said  corporation, 
and  made  a  grant  to  the  corporation  on  condition  that  it  should  build 
a  road  from  a  point  of  intersection  with  said  transcontinental  road, 
near  the  eastern  line  of  the  state,  to  San  Francisco,  and  the  legisla- 
ture, by  special  act,  authorized  the  said  corporation,  already  in  exis- 
tence, with  authority  and  capacity  to  build  a  railroad,  to  build  its  road 
upon  said  line,  and  accept  and  receive  said  grant.  In  my  judgment, 
this  is  in  no  sense  an  act  creating  a  corporation,  or  a  new  corporate 
power,  or  new  corporate  franchise  within  the  proper  meaning  of  the 
term,  hnt  a  dealing  with  a  corporation  already  in  existence  authorized 
to  build  a  road  in  the  same  general  direction,  with  the  same  object  in 
view;  that  the  change  of  line  was  a  matter  of  detail  only,  and,  if  not, 
but  on  the  contrary,  the  grant  of  an  independent  right,  and  an  addi- 
tional privilege  or  franchise,  it  was  still  one  entirely  competent  for 
the  legislature  to  confer  upon  the  existing  corporation,  as  well  as  on 
any  natural  person,  and  in  no  way  obnoxious  to  the  provision  prohib- 
iting the  creation  of  a  corporation  for  such  purpose  by  special  act. 
To  reach  any  other  conclusion  would  be  to  violate  the  canon  of  con- 
stitutional construction  before  stated ;  to  disregard  the  plain  meaning 
of  the  terms  used  in  the  constitution,  and  upon  imaginary  grounds  in- 
terpolate into  that  instrument  language  which  the  people  have  not  seen 
fit  to  place  there  themselves.  As  said,  in  substance,  by  Mr.  Justice 
Crocker,  in  Telegraph  Co.  v.  Telegraph  Co.,  22  Cal.  425,  to  give 
the  constitution  any  such  construction  as  claimed  we  would  have  to 
make  it  read  thus:  "Corporations  may  be  formed,  and  other  fran- 
chises and  special  privileges  granted^  under  general  laws,  but  shall 
not  be  created,  nor  shall  other  franchises  or  special  privileges  be 
granted  by  special  act,  except  for  municipal  purposes."     He  well  re- 


§  72  LIMITS   ON   POWER   TO    CREATE.  359 

marks:  "If  such  had  been  the  meaning  intended  by  the  framers  of 
the  constitution,  they  could  easily  have  expressed  it  in  apt  words. 
The  language  used  by  them  is  clear,  and  they  well  knew  that  it  in- 
cluded 6ui  one  of  the  numerous  class  of  franchises  the  subject  of  leg- 
islative grant,  and  that  a  regulation  of  c»«^  could  not  by  any  reasonable 
implication  be  extended  to  others  not  mentioned.''^     ♦     *     * 

I  should  have  contented  myself  with  the  simple  reference  to  this 
authority  without  any  discussion  of  the  question,  but  for  the  fact  that 
defendant  has  cited  the  case  of  San  Francisco  v.  Water-Works,  48 
Cal.  493,  decided  by  the  supreme  court  of  the  state,  in  which  it  is 
held  that  corporations  can  exercise  no  powers  except  such  as  are  con- 
ferred by  the  general  laws  under  which  they  are  formed,  and  that  the 
legislature  can  not  confer  on  -such  corporations  any  powers,  or  grant 
them  any  privileges  by  special  act.     *     *     * 

In  1863,  the  same  question  arose  in  Telegraph  Co.  v.  Telegraph 
Co.,  22  Cal.  398,  and  was  elaborately  considered.  It  was  then  held 
that  the  legislature  might  confer  upon  existing  corporations  by  special 
act  a  direct  grant  of  special  privileges  and  franchises  ;  and  that  there  was 
no  restriction  upon  the  power  imposed  by  the  constitution,  except  as 
to  the  particular  privileges  therein  specified.     *     *     * 

Of  the  six  justices  of  the  supreme  court,  who  have  considered 
the  question,  three  took  one  view  and  three  the  other,  so  they  stand 
in  number  equally  balanced.  The  able  and  eminent  justice  who 
delivered  the  opinion  of  the  ■  court  in  the  last  case,  for  whose 
opinion  I  entertain  profound  respect,  very  ably  presented  the  same 
views  adopted  in  his  opinion,  in  his  argument  as  counsel  in  the 
former  case,  so  that  the  court  in  the  first  case  did  not  overlook,  but,  on 
the  contrary,  fully  considered  them.  Had  the  justices  who  have 
passed  upon  the  question  in  the  two  cases  sat  as  one  court,  there  would 
have  been  no  decision  of  the  question.  Thus,  the  matter  stands 
equally  balanced,  the  only  difference  as  authority  being  that  the  decis- 
ion against  the  constitutionality  of  the  power  is  last.     *     *     * 

For  these  reasons,  under  the  following  authorities,  I  feel  at  liberty 
to  adopt  my  own  and  the  views  of  the  United  States  supreme  court, 
which  accord  with  the  first  case  decided  by  the  supreme  court  of  Cali- 
fornia, and  not  with  the  second.  Insurance  Co.  v.  Debolt,  16  How. 
431,  432;  Gelpcke  V.  City  of  Dubuque,  i  Wall.  206.  But  this  case 
falls  within  the  principle  decided  in  the  two  cases  cited,  as  well  as 
others,  in  another  particular.  The  act  in  question  was  passed  and 
acted  upon  by  the  railroad  company  four  years  before  the  decision  in 
San  Francisco  v.  Water- Works,  and  rights  have  become  vested  under 
it.  During  all  that  time  it  was  the  settled  construction  of  the  consti- 
tutional provision  in  question  that  such  legislation  was  valid.  The 
act,  therefore,  became  a  contract  between  the  state  and  the  company, 
under  which  the  latter  entered  upon  the  construction  of  its  road  in 
pursuance  of  the  terms  of  the  several  statutes  mentioned. 

In  the  last  case  cited  the  court,  quoting  from  the  opinion  in  the 
next  preceding  case,  says:  "The  sound  and  true  rule  is,  that  if  the 
contract,  when  made,  was  valid  by  the  laws  of  the  state,  as  then  ex- 


36o  STATE   V.    THE   CITY   OF   CINCINNATI.  §  73 

pounded  by  all  the  departments  of  the  government  and  administered 
in  its  courts  of  justice^  its  validity  and  obligation  can  not  be  impaired 
by  any  subsequent  legislation,  or  decision  of  its  courts  altering  the 
construction  of  the  law.  The  same  principle  applies  when  there  is 
a  change  of  judicial  decision  as  to  the  constittitional  power  of  the 
legislature  to  enact  the  law.  To  this  rule  we  adhere.  It  is  the  law 
of  this  court.  It  rests  upon  the  plainest  principles  of  justice.  To 
hold  otherwise  would  be  as  unjust  as  to  hold  that  rights  acquired  un- 
der statutes  may  be  lost  by  repeal.  The  rule  embraces  this  case." 
I  Wall.  206.      And  so  it  does  the  case  now  in  hand.      *     *     * 

I,  therefore,  hold  the  act  of  April  4,  1870,  authorizing  the  defend- 
ant to  build  its  road  upon  the  line  indicated  in  the  plat  filed  with  the 
commissioner  of  the  general  land  office,  and  to  accept  the  congres- 
sional grant,  was  a  valid  act,  and  at  the  time  of  its  passage  conferred 
the  rights  and  powers  indicated  upon  the  Southern  Pacific  Railroad 
Company.      *     *     * 

Judgment  for  plaintiff. 

Note.  Supporting  this  view  see:  1880,  Attomey-Greneral  v.  North  Am.  L. 
Ins.  Co.,  82  N.  Y.  172;  1881,  Central  Ag.  &  Mech.  Assn.  v.  Ala.  G.  L.  Ins. 
Co.,  70  Ala.  120;  1884,  Attorney-General  v.  Joy,  55  Mich.  94;  1887,  Wilev  v. 
Bluffton,  111  Ind.  152;  1891,  St.  Joseph  and  Iowa  R.  Co.  v.  Shambaugh,' 106 
Mo.  557;  1898,  Indianapolis  v.  Navin,  151  Ind.  139,  47  N.  E.  Rep.  525. 


Sec.  73.      ( 3  )    Conferring  corporate  powers. 

"The  legislature  shall  pass  no  special  or  local  act  conferring  cor- 
porate powers." 

THE  STATE  OF  OHIO,  Ex  Rel.  ATTORNEY-GENERAL,  v.  THE  CITY 

OF  CINCINNATI.' 

1870.     In  the  Supreme  Court  of  Ohio.     20  Ohio  State  Reports, 

18-37. 

Brinkerhoff,  C.  J.  [This  is  an  information  in  the  nature  of  a 
■writ  of  quo  warranto.,  filed  in  this  court  by  the  attorney-general  for 
the  purpose  of  testing  and  contesting  the  validity  of  certain  extensive 
annexations  of  outlying  territory  and  incorporated  villages  claimed  by 
the  city  to  have  been  made  to  it  under  the  authority  and  in  accordance 
with  the  provisions  of  the  act  of  the  i6th  of  April,  1870,  to  prescribe 
the  corporate  limits  of  Cincinnati.      67  Ohio  L.  141. 

The  city,  by  plea,  set  out  the  statute,  and  relied  upon  it  for  her  au- 
thority in  annexing  the  territory  and  exercising  her  jurisdiction  over 
it.  The  state  filed  a  reply,  to  which  the  city  demurred,  and  thereby 
raised  the  legal  sufficiency  of  all  the  preceding  pleadings,  the  main 

'  Statement  of  facts  abridged.     Arguments  and  part  of  opinion  omitted. 


§  73  LIMITS    ON    POWER   TO    CREATE.  36 1 

point  being  the  constitutionality  of  the  act.     The  constitution,  article 
xiii,  provides: 

"Sec.  I.  The  general  assembly  shall  pass  no  special  act,  confer- 
ring corporate  powers." 

"Sec.  2.  Corporations  may  be  formed  under  ^e«era/ laws,  but  all 
such  laws  may,  from  time  to  time,  be  altered  or  repealed." 

"Sec.  6.  The  general  assembly  .y^a// provide  for  the  organization 
of  cities  and  incorporated  villages  by  general  laws,  and  restrict  their 
power  of  taxation,  assessment,  borrowing  money,  contracting  debts 
and  loaning  their  credit  so  as  to  prevent  the  abuse  of  such  power."] 

In  looking  at  these  provisions  of  our  constitution — and  indeed,  in 
looking  over  all  the  provisions  of  our  constitution  from  beginning  to 
end — it  will  be  seen  that  they  make  no  distinction  as  respects  legisla- 
tive power  in  the  creation  of  them,  and  in  the  conferring  of  powers 
upon  them  between  any  classes  of  corporations  proper.  They  make 
no  distinction  between  private  corporations  such  as  railroad,  manu- 
facturing or  mining  corporations  or  the  like  and  public  municipal 
corporations,  such  as  cities  and  villages.  On  the  contrary,  and  as  if 
to  preclude  the  hypothesis  of  any  such  distinction,  the  sixth  section  of 
the  thirteenth  article  assumes  the  imperative  form  of  expression  and 
declares  that  "the  general  assembly  5/^a// provide  for  the  organization 
of  cities  and  incorporated  villages  by  general  laws."  In  respect  to 
corporations  proper,  whether  private  or  municipal,  the  provisions  of 
section  i,  article  xiii,  are  all  comprehensive.  "The  general  assembly 
shall  pass  no  special  act  conferring  corporate  powers."  These  pro- 
visions of  the  constitution  are  as  imperative,  as  comprehensive  and 
emphatic  as  if  the  people,  speaking  through  their  constitution,  had 
said:  "The  bane  and  curse  of  our  legislation,  as  it  existed  under  the 
latitudinarian  provisions  of  the  constitution  of  1802,  is  in  future  utterly 
and  absolutely  prohibited.  Henceforth,  the  laws  conferring  corporate 
powers  shall  be  general^  affecting  or  liable  to  affect  the  interests  of 
the  constituency  of  every  individual  member  of  the  general  assembly 
and  so  by  powerful  motives  calling  his  attention  to  the  effect  of  pro- 
posed enactments  upon  his  own  immediate  constituency  as  well  as 
upon  the  people  of  other  localities."  This  is  the  policy  and.  intent 
of  the  provisions  of  the  constitution  above  quoted,  and  they  are  as 
clearly  apparent  as  if  they  had  been  expressed  in  so  many  words. 
No  one  who  has  read  the  proceedings  and  debates  of  the  convention 
which  presented  to  the  people  of  Ohio  the  framework  of  the  consti- 
tution which  the  latter  by  their  votes  established  and  adopted,  or  is 
old  enough  to  remember  the  apprehensions  of  evil  consequences  with 
which  the  conferring  of  corporate  powers  by  special  acts  were  re- 
garded, can  fail  to.  see  that  it  was  one  of  the  ends  and  aims  of  the 
constitutional  convention  and  of  the  people  who  adopted  the  frame- 
work of  a  constitution  which  that  convention  presented  for  their  adop- 
tion or  rejection,  to  cut  up  by  the  roots  at  once  and  forever,  all  capac- 
ity of  the  general  assembly  to  confer  by  special  act  any  powers  what- 
soever upon  any  corporate  body  whatsoever. 

At  one  time,  indeed,  an  attempt  was  made  to  escape  the  effect  of 


362  STATE   V.    THE   CITY   OF   CINCINNATI.  §  73 

these  constitutional  restrictions  on  legislative  power,  on  the  theory 
that  the  phrase  "conferring  corporate  powers"  meant  simply  the  con- 
ferring of  corporate  existence — the  creation  of  a  corporation,  so  that 
if  corporations  were  only  created  under  general  laws,  the  legislature 
might  then  pi'oceed  by  special  acts  to  confer  upon  existing  corpora- 
tions as  many  and  as  varied  powers  as  it  pleased.  Such  a  construc- 
tion would  leave  a  door  wide  open  for  the  re-introduction  of  all  the 
evils  of  special  legislation  which  these  restrictions  and  mandatory  pro- 
visions of  the  constitution  were  obviously  designed  to  guard  against 
and  prevent.  Accordingly  such  a  construction  was  distinctly  repudi- 
ated by  this  court  in  the  carefully  considered  case  of  Atkinson  v.  The 
Marietta,  etc.,  R.  Co.,  15  Ohio  St.  21.  In  that  case  Ranney,  J., 
delivering  the  opinion  of  the  court,  and  referring  to  the  first  and  sec- 
ond sections  of  the  thirteenth  article  of  the  constitution  above  quoted, 
says:  "These  provisions  of  the  constitution  are  too  explicit  to  admit 
of  the  least  doubt  that  they  were  intended  to  disable  the  general  as- 
sembly from  either  creating  corporations  or  conferring  upon  them 
corporate  powers  by  special  acts  of  legislation.  It  was  intended  to 
correct  an  existing  evil,  and  to  inaugurate  the  policy  of  placing  all 
corporations  of  the  same  kind  upon  a  perfect  equality  as  to  all  future 
grants  of  power,  of  making  such  law  applicable  to  all  parts  of  the 
state,  and  thereby  securing  the  vigilance  and  attention  of  its  whole 
representation,  and  finally,  of  making  all  judicial  constructions  of 
their  powers,  or  the  restrictions  imposed  upon  them,  equally  applicable 
to  all  corporations  of  the  same  class.  We  must  give  such  a  construc- 
tion to  the  constitution  as  will  preserve  its  leading  objects  intact." 
I  think  the  following  propositions  to  be  impregnable : 

1.  The  general  assembly  can  not,  by  a  special  act,  create  a  corpo- 
ration. 

2.  It  can  not,  by  special  act,  confer  additional  powers  upon  corpo- 
rations already  existing. 

3.  In  the  purview  of  these  propositions  and  of  the  constitutional 
provisions  on  which  they  are  based,  there  is  no  distinction  between 
private  and  municipal  corporations. 

Now  for  the  application  of  these  propositions  to  the  case  before 
us.  The  act  of  the  general  assembly  under  which  the  corporate  au- 
thorities of  Cincinnati  proceeded  to  make  the  annexations  of  outside 
territory  which  they  claimed  to  have  made  and  consummated,  is  "a 
special  act. ^^  It  does  not  purport  to  be  otherwise.  Its  language  is: 
"Be  it  enacted  by  the  general  assembly  of  the  state  of  Ohio,  that  the 
corporate  limits  of  the  city  of  Cincinnati  shall  be  as  follows:  Com- 
mencing at  the  mouth  of  the  Little  Miami  river,  thence  northeast- 
wardly," etc.  And  now  but  one  question  remains.  Does  this  special 
act  assume  to  confer  upon  the  corporation  of  the  city  of  Cincinnati 
additional  corporate  powers — powers  which,  as  a  municipal  corpora- 
tion, she  did  not  previously  possess?  The  answer  is  plain.  It  does 
assume  to  confer,  on  certain  prescribed  conditions,  the  power  of  mu- 
nicipal government,  the  power  of  police  regulation,  the  power  of 
judicial  jurisdiction,  and  the  powers  of  assessment  and  taxation,  over 


§   74  LIMITS    ON    POWER    KJ    CREATE.  363 

a  number  of  outlying  suburban  incorporated  villages,  and  of  other 
territory  hitherto  subjected  to  no  jurisdiction  except  such  as  belongs 
to  the  township,  county  and  state  organizations. 

A  majority  of  the  court  are  of  opinion  that  the  act  is  clearly  in 
contravention  of  the  restrictive  provisions  of  the  constitution,  and, 
therefcffe,  of  no  binding  force  and  validity. 

Ami  here  I  might  properly  stop ;  yet,  for  the  purpose  of  excluding 
a  possible  conclusion,  I  will,  on  my  own  individual  responsibility,  say 
one  word  more.  It  may  be  asked.  Do  we  intend  to  include  township 
and  county  organizations  in  the  category  with  municipal  and  other 
corporations  proper?  The  question  is  not  involved  in  the  present 
case,  and  so  it  is  not  properly  before  us ;  but,  if  it  were,  I  apprehend 
the  answer  to  it  would  readily  be  found  in  the  case  of  the  Commis- 
sioners of  Hamilton  County  v.  Mighels,  7  Ohio  St.  109,^  where  it  is 
held  that  a  county  is  not  properly  a  corporation,  but  that  "it  is  at 
most  but  a  local  organization,  which,  for  purposes  of  civil  administra- 
tion, is  invested  with  a  few  functions  characteristic  of  a  corporate  ex- 
istence." 

Judgment  of  ouster. 

Scott,  Welch  and  Day,  JJ.,  concurred. 

White,  J.,  did  not  concur. 

Note.  See,  1878,  State  v.  Maloy  (City  of  Council  Grove),  20  Kan.  619;  1880, 
School  Districtv.  Insurance  Co.,  103  U.S.  707;  McGregor  v.  Baylies,  19  Iowa  43. 


Sec.  74*     (4)      Title  and  special  privileges . 

"The  legislature  shall  pass  no  bill  embracing  more  than  one 
subject,  and  that  shall  be  expressed  in  the  title;  nor  shall  any  pri- 
vate or  local  bill  be  passed  granting  to  any  corporation,  association 
or  individual  any  special  or  exclusive  right,  privilege,  immunity  or 
franchise  whatsoever. ' ' 

JOHN   JACOB   ASTOR  Et  Al.,  Respondents,  v.  THE    ARCADE  RAIL- 
WAY COMPANY,  Appellant.'' 

1889.     In   the  Court   of   Appeals   of   New   York.     113  New 
York  Reports  93-1 15. 

Appeal  from  an  interlocutory  judgment  of  the  general  term  of  the 
supreme  court  in  the  first  judicial  department,  entered  upon  an  order 
made  May  18,  1888,  which  reversed  a  judgment  of  special  term  sus- 
taining a  demurrer  to  the  complaint  herein  and  dismissing  said  com- 
plaint, and  which  overruled  said  demurrer.  (Reported  below,  48 
Hun  562.) 

This  action  was  brought  by  plaintiffs,  who  are  the  owners  bf  the 

^  Supra,  p.  214. 

*  Arguments  omitted. 


364  ASTOR   V.  THE   ARCADE    RY.    CO.  §  74 

property  fronting  upon  Broadway  and  Madison  avenue,  in  the  city  of 
New  York,  to  restrain  the  construction  by  defendant  of  a  railway 
under  the  surface  of  said  streets,  which  the  complaint  alleged  de- 
fendant was  about  to  attempt  to  do,  claiming  authority  under  the  act 
(ch.  312,  Laws  of  1886),  which  act  the  complaint  alleged  to  be  un- 
constitutional and  void. 

Earl,  J.  The  sole  question  for  our  determination  is  whether  the 
defendant  has  legal  authority  to  construct  and  operate  a  railway  under 
Broadway  and  Madison  avenue  in  the  city  of  New  York.  The  de- 
fendant traces  its  corporate  existence  to  the  act,  chapter  842  of  the  laws 
of  1868,  entitled  "An  act  to  provide  for  the  transmission  of  letters, 
packages  and  merchandise  in  the  cities  of  New  York  and  Brooklyn 
and  across  the  North  and  East  rivers  by  means  of  pneumatic  tubes, 
to  be  constructed  beneath  the  surface  of  the  streets  and  public  places 
in  said  cities  and  under  the  waters  of  said  rivers."  The  first  section 
of  the  act  authorized  and  empowered  Alfred  E.  Beach  and  other  per- 
sons named,  and  their  assigns,  "to  lay  down,  construct  and  maintain 
one  or  more  pneumatic  tubes  in  the  soil  beneath  the  surface,  squares, 
avenues  and  public  places,  in  the  cities  of  New  York  and  Brooklyn 
and  under  the  bed  of  the  waters  of  the  East  river  between  the  said 
cities,  and  also  under  the  bed  of  the  w^aters  of  the  North  river  from  the 
city  of  New  York  to  the  shore  of  New  Jersey,  but  at  such  depth  as 
not  to  interfere  with  navigation ;  and  to  convey  letters,  parcels,  pack- 
ages, mails,  merchandise  and  property  in  and  through  said  tubes  for 
compensation,  by  means  of  vehicles  to  be  run  and  operated  therein  by 
the  pneumatic  system  of  propulsion ;  and  to  the  end  that  the  public 
convenience  may  be  promoted  in  the  operation  of  said  vehicles,  the 
said  persons  and  their  assigns  are  also  hereby  authorized  and  required 
to  erect  upon  the  sidewalks  of  the  said  streets,  squares,  avenues  and 
public  places  suitable  ornamental  lamp-posts,  boxes,  pillars  or  recept- 
acles, not  exceeding  thirty  inches  in  diameter,  connected  with  said 
pneumatic  tubes  for  the  deposit  of  letters,  packages  and  property  to 
be  transmitted  therein."  And  it  provided  that  the  tubes  should  not 
extend  through  any  vault,  nor  under  any  sidewalk  fronting  on  private 
property,  without  the  consent  of  the  owners  of  such  private  property, 
and  compensation  to  them,  which  should  be  ascertained  and  deter- 
mined, in  case  the  parties  could  not  agree,  in  the  manner  provided  in 
the  general  railroad  act  of  1850.  Section  2  provided  that  the  pneu- 
matic tubes  should  be  so  constructed  as  to  have  a  mean  interior  diam- 
ter  of  not  exceeding  fifty-four  inches. 

Section  5  authorized  the  persons  named  in  the  act  to  hold  a  meet- 
ing and  determine  the  terms  and  conditions  upon  which  the  powers, 
privileges  and  franchises  conferred  by  the  act  might  be  transferred  to 
a  corporation  to  be  organized  as  provided  in  the  next  section,  and  sec- 
tion 6  provided  that  in  case  the  persons  attending  the  meeting  named 
in  the  prior  section  should  so  determine,  they  might  organize  them- 
selves into  a  corporation  in  the  manner  specified  in  the  general  manu- 
facturing act  of  1848,  and  the  acts  amendatory  thereof,  "  for  the 
purpose  of  constructing  and  maintaining  the   pneumatic  tubes  afore- 


§  74  LIMITS   ON    POWER   TO    CREATE.  365 

said  and  using  and  operating  the  same  as  hereinbefore  authorized," 
and  that  the  corporation  so  organized  shall  "possess  all  the  powers 
and  privileges  conferred  by  said  acts  and  be  subject  to  all  the  duties 
and  obligations  imposed  therein,  not  inconsistent  with  the  provisions 
of  this  act." 

In  August,  1868,  in  pursuance  of  the  powers  conferred  by  the  act, 
the  persons  therein  named  organized  themselves  into  a  corporation  by 
the  name  of  "The  Beach  Pneumatic  Transit  Company,"  and  in  the 
certificate  executed  and  filed  by  them,  they  declared  that  the  object 
of  the  corporation  was  "to  construct  and  operate  pneumatic  railroads 
in  the  cities  of  New  York  and  Brooklyn  and  under  the  waters  of  the 
North  and  East  rivers,  and  to  exercise  all  the  powers,  privileges  and 
franchises  conferred  upon  said  corporation  by  the  act"  of  1868,  that 
the  capital  stock  should  be  $5,000,000  and  that  the  corporation  should 
continue  in  existence  for  the  term  of  fifty  years.  The  certificate  could 
give  the  corporation  no  greater  powers  than  were  conferred  by  the  act 
of  1868,  and  to  that  act  we  must  look  for  the  scope  and  measure  of 
its  powers. 

The  act  did  not  confer  railroad  powers  upon  the  corporation,  and 
did  not  subject  it  to  any  of  the  railroad  acts,  except  for  the  purpose 
of  ascertaining  the  compensation  to  be  paid  to  the  owners  of 
property  interests  .in  the  streets.  It  authorized  the  formation  of  a 
manufacturing  corporation,  with  the  incidents,  powers  and  duties  of 
such  a  corporation,  so  far  as  they  were  consistent  with  the  purposes 
of  the  act.  The  corporation  formed  was,  in  fact,  a  manufacturing 
corporation,  not,  however,  with  the  general  power  to  engage  in  any 
manufacturing  business,  but  for  the  sole  purpose  of  constructing, 
maintaining,  using  and  operating  the  pneumatic  tubes.  The  forma- 
tion of  such  a  corporation  was  a  matter  fairly  embraced  within  the 
title  of  the  act.  It  was  an  appropriate  instrumentality  to  accomplish 
the  purposes  of  the  act,  and  in  no  sense  a  new  and  independent  sub- 
ject. The  legislature,  having  authorized  the  construction  and  opera- 
tion of  the  pneumatic  tubes,  could,  in  the  act  itself,  have  created  the 
corporation,  or  could  have  authorized  its  organization  under  any  of 
the  general  laws  of  the  state  adapted  to  the  formation  of  any  business 
corporation ;  and  the  formation  of  such  a  corporation  would  be  ger- 
mane to  the  main  purpose  of  the  act  as  indicated  by  its  title.  While 
the  general  manufacturing  laws  regulated  the  corporation  as  to  its 
mode  of  existence,  its  manner  of  action  and  its  corporate  life  and 
being  generally,  yet  all  its  powers  and  duties  related  and  were  con- 
fined to  the  construction,  maintenance,  use  and  operation  of  the  pneu- 
matic tubes;  and,  therefore,  section  16  of  article 3  of  the  constitu- 
tion^ Tvhich  provides  that  '■'■no  private  or  local  bill  which  may  be 
passed  by  the  legislature  shall  embrace  more  than  one  subject^  and 
that  shall  be  expressed  in  the  title^^^  was  not,  as  contended  on  behalf 
of  the  plaintiffs,  violated. 

What  do  the  words  pneumatic  tubes  mean  ?  They  convey  to  our 
minds  no  other  meaning  than  that  of  tubes  for  the  transmission  of 
parcels  operated  by  atmospheric  pressure  applied  within  the  tubes. 


366  ASTOR    V.  THE   ARCADE   RY.    CO.  §  74 

The  parcels  may  be  transmitted  outside  the  tubes  upon  vehicles  at- 
tached to  a  piston  operated  within  the  tubes  by  atmospheric  pressure, 
or  they  may  be  transmitted  within  the  tubes  by  atmospheric  pressure 
applied  behind  them.  But  they  are  in  no  sense  railways.  Such  a 
tube  may  contain  vehicles  placed  upon  wheels,  and  the  wheels  may 
run  upon  rails  or  in  grooves,  and  yet  the  structure  could  not,  accord- 
ing to  the  popular  sense,  or  in  any  legal  sense,  be  what  is  generally 
known  as  a  railway.  The  tubes  may  be  so  constructed  that  in  a  tech- 
nical or  scientific  sense  the  structure  might  be  called  a  railway ;  and 
so,  too,  any  structure  upon  which  vehicles  may  be  moved  upon  rails, 
however  peculiar  or  small,  may  in  some  limited  sense  be  called  a  rail- 
way, and  yet  it  may  not  be  a  railway  within  the  meaning  of  the  constitu- 
tion and  the  general  laws  of  the  state.  When  they  speak  of  railways  they 
always  mean  railways  either  for  the  general  caniage  of  property  or 
of  passengers,  or  of  both,  and  a  railway  which  may  be  operated  in 
small  pneumatic  tubes  by  atmospheric  pressure  for  the  transmission  of 
small  packages  is  not  within  such  meaning. 

Such  was  the  character  and  status  of  the  corporation  organized  un- 
der the  act  of  1868.  That  act  was  amended  by  the  act,  chapter  512, 
of  the  laws  of  1869,  entitled  "An  act  supplementary  to  chapter  842, 
of  the  laws  of  i868,  in  relation  to  carrying  letters,  packages  and  mer- 
chandise by  means  of  pneumatic  tubes  in  New  York  and  Brooklyn," 
but  there  is  nothing  in  that  act  pertinent  to  the  present  discussion. 

From  1868  to  the  commencement  of  this  action  in  1886,  so  far  as 
this  record  discloses,  nothing  whatever  was  done  by  the  corporation 
except  to  change  its  name  several  times  and  to  procure  acts  of  the 
legislature  purporting  to  enlarge  its  powers  and  extend  its  corporate 
life.  No  pneumatic  tubes  have  been  constructed,  and  it  is  a  fair  in- 
ference from  the  admitted  facts  that  the  system  for  the  pneumatic 
transmission  of  property  was  before  the  year  1873  found  to  be  im- 
practicable. It  had  been  tried  in  various  parts  of  Europe,  but  had 
proved  a  failure,  and  for  the  general  transmission  of  property  or  pas- 
sengers was  in  the  year  1873  nowhere  in  use.  (Chamber's  Encyclo- 
pedia, titles,  "Atmospheric  Railway"  and  "Pneumatic  Dispatch," 
Encyclopedia  Britannica,  title  "Atmospheric  Railway,"  Appleton's 
Cyclopedia,  title  "Atmospheric  Railway,"  Johnson's  Cyclopedia, 
title,  "Pneumatic  Transmission.") 

In  1873  the  persons  interested  in  the  corporation,  as  we  inay  infer, 
being  aware  of  its  insufficiency  for  any  practical  purpose,  concluded 
to  procure  an  enlargement  of  its  powers,  and  a  radical  change  in  its 
character  and  purposes,  and,  therefore,  they  obtained  the  passage  of 
the  act  (chapter  185),  entitled  "an  act  supplemental  to  and  amenda- 
tory of  chapter  842  of  the  laws  of  1868,  an  act  entitled  'an  act  to 
provide  for  the  transmission  of  letters,  packages  and  merchandise  in 
the  cities  of  New  York  and  Brooklyn,  and  across  the  North  and  East 
rivers  by  means  of  pneumatic  tubes,  to  be  constructed  beneath  the  sur- 
face of  the  streets,  squares,  avenues  and  public  places,  in  said  cities, 
and  under  the  waters  of  said  rivers,'  passed  June  i,  1868,  and  of  chap- 
ter 512  of  the  laws  of  1869,  entitled  'an  afct  supplementary  to  chapter 


§  74  LIMITS    ON    POWER   TO    CREATE.  367 

S42  of  the  laws  of  1868  in  relation  to  carrying  letters,  packages  and 
merchandise  by  means  of  pneumatic  tubes  in  New  York  and  Brook- 
lyn, and  to  provide  for  the  transportation  of  passengers  in  said 
tubes.'  "  The  last  phrase  of  this  title  "and  to  provide  for  the  trans- 
portation of  passengers  in  said  tubes"  did  not  appear  in  the  title  of 
the  act  of  1869,  and  yet  in  the  act  in  all  its  stages  through  the  legis- 
lature, as  approved  by  the  governor,  filed  .in  the  office  of  the  secre- 
tary of  state  and  printed  in  the  session  laws,  the  quotation  marks  are 
so  placed  as  to  make  the  phrase  appear  to  be  a  part  of  that  title.  The 
title  of  the  act,  therefore,  was  well  calculated  to  deceive  any  persons 
to  whose  attention  it  came  while  the  act  was  under  consideration  in 
the  legislature.  But  we  will  assume  that  this  title  is  to  have  the  same 
force  and  effect  as  if  that  of  the  act  of  1869  had  been  properly  quoted, 
and  then  the  only  addition  to  the  titles  of  the  prior  acts  is  the  final 
phrase  above  quoted,  and  the  only  subject  expressed  in  the  title  is 
the  transportation  of  property  and  passengers  in  pneumatic  tubes. 

This  title  is  assailed  by  the  plaintiffs  as  not  in  compliance  with  sec- 
tion 16  of  article  3  of  the  constitution  above  quoted.  A  particular 
examination  of  the  provisions  of  the  act  is,  therefore,  necessaiy.  The 
first  section  provides  that  it  shall  be  lawful  for  the  Beach  Pneumatic 
Transit  Company  "to  construct,  maintain  and  operate  an  underground 
railway  for  the  transportation  of  passengers  and  property,"  under 
Broadway  and  Madison  avenue,  "by  means  of  tubes  of  enlarged  in- 
terior diameters  sufficient  for  the  constnjction  of  a  railway  or  railways 
therein,  and  for  the  running  of  cars  and  the  carrying  of  passengers 
therein,  and  also  to  construct,  in  connection  with  said  tubes,  two  or 
more  tracks  of  railway  with  the  necessary  turnouts  and  stations  for  the 
ingress  and  egress  and  accommodation  of  the  passengers,  and  for  the 
receipt  and  discharge  of  packages  and  freight  and  said  company  shall 
have  the  right  and  privilege,  subject  to  the  approval  of  the  board  of 
engineer  commissioners  hereinafter  provided  for,  to  make  connection 
with  the  Harlem  and  connecting  railroads  at  any  point  deemed  best, 
at  or  above  Forty-second  street,  and  also  to  make  connection  with  the 
Hudson  River  Railroad  at  any  point  northerly  of  Fifty-ninth  street." 

Section  2  provides  that  the  passenger  tubes  shall,  as  far  as  practica- 
ble, follow  the  center  line  of  the  streets,  and  shall  not  occupy  in  the 
aggregate  a  greater  space  than  thirty-one  feet  in  width  by  eighteen 
feet  in  height,  exterior  measurement,  and  that  they  shall  be  laid  and 
constructed  under  the  supervision  of  a  board  of  three  engineer  com- 
missioners, whose  duty  it  is  to  see  that  the  "passenger  tubes  and  rail- 
ways" are  constructed  in  a  thorough  and  workmanlike  manner;  and 
that  they  shall  constitute  a  board  of  commissioners,  a  majority  of 
whom  "shall  determine  whether  the  pneumatic  system  or  other  mo- 
tive power  shall  be  adopted  by  said  corporation  for  the  propulsion  of 
the  cars  running  within  said  passenger  tubes." 

Section  4  authorizes  the  corporation  to  acquire  the  title  to  such  real 
estate  or  interest  therein  as  may  be  necessary  to  enable  it  to  construct, 
operate  and  maintain  "said  tubes  and  railways,"  and  to  construct  and 
maintain  the  proper  platforms,  stations  and  buildings  at  such  points 


-368  ASTOR   V.  THE   ARCADE   RY.    CO.  §  74 

along  the  route  of  its  tubes  as  may  be  convenient  and  suitable  for  the 
ingress  and  egress  of  its  passengers  and  for  the  receipt  and  discharge 
of  freight  and  packages,  and  necessary  for  the  successful  operation  of 
"said  tubes  and  railway,  and  for  the  proper  connections  between  said 
tubes  and  railways,  platform,  stations  and  buildings;"  and  in  case  the 
corporation  is  unable  to  agree  with  the  owners  of  real  estate  for  the 
purchase  and  use  thereof,  it  is  authorized  to  acquire  the  title  to  the 
same  in  the  manner  provided  in  the  general  railroad  act  of  1850;  and 
in  all  cases  the  use  of  the  streets,  avenues,  squares,  grounds  and  pub- 
lic places,  and  the  right  of  way  under  the  same  for  the  purpose  of 
"said  tubes  and  railway  or  railways  therein,"  shall  be  considered  and 
is  declared  to  be  a  public  use. 

Section  5  provides  that  "it  shall  be  lawful  for  said  corporation  to 
convey  passengers  on  said  railway  or  railways  through  said  tubes  for 
hire,"  and  regulates  the  rate  of  fare  that  may  be  charged. 

Section  6  provides  that  the  coi'poration  shall  commence  active  oper- 
ations in  the  construction  of  its  works  within  six  months  after  the 
passage  of  the  act,  and  shall  complete  the  section  of  passenger  tubes 
with  two  railway  tracks  from  Bowling  Green  to  Fourteenth  street 
within  three  years,  and  shall  complete  the  remainder  of  the  passenger 
tubes,  as  authorized,  within  five  years  thereafter. 

Section  7  provides  that  the  corporation  shall  not  construct  any  sta- 
tion, depot  or  other  building,  or  work  above  the  surface  of  any  land 
belonging  to  the  city  of  New  York,  either  in  its  own  right  or  as  a 
trustee,  without  the  consent  of  the  mayor  and  aldermen,  but  that 
nothing  in  the  act  shall  be  construed  to  authorize  the  mayor  and  alder- 
men to  donate,  lease  or  sell  any  portion  of  any  of  the  ground  surface 
of  any  public  park  in  the  city  beyond  what  may  be  absolutely  neces- 
sary for  the  exit  from  and  entrance  to  the  railroad. 

Section  9  provides  that  the  corporation  shall  possess  "all  the  pow- 
ers and  be  subjected  to  all  the  duties  and  liabilities  imposed  on  rail- 
road corporations  by  the  laws  of  this  state  not  inconsistent  with  the 
charter  of  this  company  or  the  purposes  of  its  incorporation," 

Here  we  read  nothing  of  pneumatic  tubes  or  of  propulsion  by  atmos- 
pheric pressure,  or  even  pneumatic  railways.  We  read  of  passenger 
tubes,  but  we  must  not  be  deceived  by  the  juggle  of  words.  We  find 
authorized  a  grand  underground  railway,  not  less  than  fifteen  miles 
long,  with  two  or  more  tracks,  turn-outs,  platforms,  stations,  buildings 
and  other  appurtenances,  with  power  to  connect  with  surface  steam 
railroad,  to  be  operated  through  passage-ways  called  tubes,  eighteen 
feet  in  height  and  thirty-one  feet  in  width,  exterior  measurements;  in 
fact,  tunnels  which  could  not  be  operated  by  atmospheric  pressure. 
What  was  before  a  manufacturing  corporation  was  converted  into  a 
railroad  corporation,  or,  at  least,  had  superadded  the  powers,  privi- 
leges, duties  and  liabilities  of  railroad  corporations  under  the  general 
laws  of  the  state,  with  authority,  by  the  consent  of  the  engineer — 
commissioners,  to  use,  for  the  movement  of  its  cars,  horses,  steam  or 
any  other  motive  power.  The  construction  of  such  a  railway  by  such 
a  corporation  is  certainly  a  subject  not  expressed  in  the  title  of  the 


§  74  LIMITS    ON    POWER   TO    CREATE.  369 

act.  The  only  subject  there  indicated  is  the  transportation  of  pas- 
sengers and  property  through  pneumatic  tubes  by  atmospheric  pressure. 
A  title  purporting  that  an  act  provides  for  pneumatic  transportation 
would  not  be  sufficient  for  an  act  authorizing  the  construction  and 
operation  of  a  horse  railway  or  a  steam  railway,  as  a  title  purporting 
that  an  act  authorizes  a  line  of  omnibuses  for  the  transportation  of 
passengers  would  not  be  sufficient  for  an  act  authorizing  the  construc- 
tion of  a  railway  for  the  same  purpose. 

The  constitutional  provision  referred  to  has  been  deemed  by  states- 
men and  jurists^  conditores  legutn^  of  so  much  importance  that  it  is 
found  in  the  fundamental  laws  of  most  of  the  states.  Its  purpose  is 
to  prevent  fraud  and  deception  by  concealment^  in  the  body  of  acts^ 
subjects  not  by  their  titles  disclosed  to  the  general  public  and  to  legis- 
lators who  may  rely  upon  them  for  information  as  to  pending  legis- 
lation. When  the  subject  is  expressed^  all  matters  fairly  and  reason- 
ably connected  with  it.  and  all  measures  which  will  or  may  facilitate 
its  accomplishment.,  are  proper  to  be  incorporated  in  the  act  and  are 
germane  to  the  title.  The  title  must  be  such.,  at  least.,  as  fairly  to 
suggest  or  give  a  clue  to  the  subject  dealt  with  in  the  act.,  and  unless 
it  comes  up  to  this  standard  it  falls  below  the  constitutional  require- 
ment. (Mayor,  etc.,  v.  Colgate,  12  N.  Y.  146;  People  v.  Hills,  35 
N.  Y.  449,  452;  Matter  of  New  York,  etc..  Bridge,  72  N.  Y.  527; 
Matter  of  Application  of  Department  of  Public  Parks,  86  N.  Y.  439 ; 
People  V.  Whitlock,  92  N.  Y.  191 ;  Matter  of  Knaust,  loi  N.  Y.  188; 
Cooley's  Constitutional  Limitations  141.)  Here  the  only  subject  sug- 
gested by  the  title  is  the  transportation  of  passengers  and  property 
through  pneumatic  tubes,  by  atmospheric  pressure,  and  everything  ap- 
propriate and  germane  to  that  subject  could  be  provided  for  in  the  act. 

But  a  person  reading  the  title  alone  would  have  no  clue  whatever 
to  the  great  railway  scheme  actually  authorized  by  the  act ;  and  so  the 
corporators  themselves  evidently  regarded  the  act,  for,  finding  that 
the  corporation  had  outgrown  its  name,  "The  Beach  Pneumatic  Tran- 
sit Company,"  they,  by  the  act,  chapter  503  of  the  laws  of  1874,  had 
it  changed  to  "The  Broadway  Underground  Railway  Company, "  and 
in  that  act  what  were  before  called  "tubes"  are  called  "tunnels;" 
and  ten  years  later,  by  an  order  of  the  proper  court,  the  name  was 
again  changed  to  the  "New  York  Arcade  Railway  Company." 
While  by  the  acts  of  1874,  chapter  454  of  1881  and  chapter  312  of 
1886,  the  charter  of  the  corporation  was  amended  and  its  powers 
greatly  enlarged,  pneumatic  tubes,  propulsion  by  atmospheric  pressure 
and  pneumatic  railways  are  nowhere  mentioned,  and  all  that  is  left  as  a 
result  of  all  the  legislation  is  a  grand  scheme  for  underground  railways 
operated  by  any  motive  power  except  such  as  shall  emit  "smoke,  gas  or 
cinders"  which,  if  carried  into  effect,  would,  doubtless,  be  one  of  the 
marvels  of  the  world.  But  if  it  is  as  desirable  and  safe  as  it  is  mar- 
velous, it  should  be  placed  upon  a  constitutional  basis  and  make  an 
undisguised  appeal  upon  its  merits  for  the  public  sanction. 

Our  conclusion,  therefore,  is  that  the  act  of  1873  for  the  insufficiency 
24— WiL.  Casks. 


370  ASTOR   V.  THE   ARCADE   RY.    CO.  t  §  74 

of  its  title  is  unconstitutional  and  void,  and  hence  all  subsequent  legis- 
lation based  upon  that  act  must  fall  with  it.  When  the  act  of  1886 
was  passed,  under  which  the  defendant  proposes  to  lay  down  its  tracks 
and  to  construct  its  underground  railways,  it  had  no  power  to  con- 
struct an  underground  railway  for  the  transportation  of  passengers  and 
general  freight  through  tunnels,  and,  therefore,  that  act  is  in  conflict 
with  section  18  of  article  3  of  the  constitution,  which  forbids  the  legis- 
lature to  pass  a  private  or  local  bill  granting  to  any  corporation  the 
right  to  lay  down  railroad  tracks  or  to  construct  a  street  railroad,  ex- 
cept upcfn  conditions  mentioned  in  that  section.  (Matter  of  N.  Y.  Dis- 
trict R.  Co.,  107  N.  Y.  42.) 

We  need  go  no  further.  The  conclusion  already  reached  renders 
it  unnecessary  to  solve  the  various  other  questions  argued  with  much 
ability  and  learning  by  the  able  counsel  who  appeared  before  us. 

The  judgment  should  be  affirmed  with  costs. 

Grav,  J.  I  concur  with  Earl,  J.,  in  his  opinion  that  the  act  of 
1873  was  unconstitutional  and  void,  in  that  it  failed  to  comply  with 
section  16  of  article  3  of  the  constitution.  But  I  am  further  of  the 
opinion,  assuming  that  the  act  of  1873  was  valid,  and  that  there  was  an 
acceptance  of  and  a  valid  compliance  with  its  conditions,  and  that 
there  was  a  waiver  of  causes  of  forfeiture  by  the  passage  of  the  act  of 
1886,  that  the  latter  act  was  in  violation  of  the  provisions  of  the  consti- 
tutional amendment,  which  went  into  effect  on  January  i,  1875.  By 
that  amendment  ^/ie  legislature  was  inhibited  from  'passing  a  pri- 
vate or  local  bill^  granting  to  any  corporation  the  right  to  lay  down 
railroad  tracks,  or  any  exclusive  privilege,  immunity  or  franchise 
whatever.  The  act  of  1886,  under  which  the  appellant  claims  to  have 
acquired  its  present  rights,  can  not,  in  my  view  of  what  it  gran^,  be 
upheld  as  legislation  which  merely  regulates  the  exercise  of  powers 
formerly  granted  to  and  possessed  by  an  existing  corporation.  It 
went  far  beyond  that.  It  was,  in  fact,  a  new  grant  of  substantive 
rights,  in  addition  to  and  differing  from  what  might  have  been  claimed 
under  the  act  of  1873.  By  the  act  of  1873  the  company  would  have 
had  a  right  to  construct  a  railway  in  tubes,  which  should  not  oc- 
cupy a  greater  space  than  thirty-one  feet  in  width,  by  eighteen  feet  in 
height,  exterior  measurements.  The  company  could  not  have  ap- 
proached within  two  feet  of  the  curb  line,  nor  within  eighteen  feet  of 
the  building  line.  These  restrictions  must  be  deemed  to  be  important 
limitations  and  wholesome  provisions,  designed  for  the  protection  of 
the  rights  of  the  abutting  property-owners  and  to  secure  to  the  public 
the  rightful  enjoyment  of  the  streets  as  such.  By  the  act  of  1886  they 
would  possess  the  right  to  excavate  for  their  railways  a  space  of  forty- 
four  feet,  inside  measurements,  in  width,  and  without  any  limitation 
as  to  depth.  They  might  construct  railways  without  the  use  of  tubes 
or  tunnels,  and  use  any  motive  power  which  would  not  permit  of  the 
emission  of  smoke,  gas  or  cinders. 

I  think  we  have  here  a  pretty  wide  departure  from  the  rights  and 
powers  to  be  enjoyed  under  the  act  of  1873.  The  pneumatic  tube 
of  a  diameter  of  fifty-four  inches,  for  the  transportation  of  packages 


§  74  LIMITS   ON   POWER   TO    CREATE.  3/1 

and  merchandise,  authorized  under  the  original  charter  of  1868,  and 
which  was  transmuted  by  the  act  of  1873  into  a  tubular  passenger 
and  freight  railway,  has  now  wholly  disappeared,  and  in  its  place  ap- 
pears a  scheme  for  what  amounts  to  a  complete  occupation  of  the 
street  for  railway  purposes,  except  so  far  as  it  leaves  a  roof  over  the 
excavation  to  take  the  place  of  the  street  surface.  This  grant  of  right 
to  excavate  the  street  to  an  extent  practically  unlimited,  and  the  per- 
mission to  abandon  tubes  and  to  construct  railways  in  the  excavations 
are  matters  of  grant  too  serious  in  their  nature  and  consequences,  un- 
der the  circumstances  of  the  case,  to  be  passed  over  as  in  mere  regu- 
lation of  an  existing  franchise.  To  allow  such  legislation  is,  in  my 
opinion,  to  nullify  the  beneficial  and  protective  objects  aimed  at  by 
the  constitutional  amendment  of  1875. 

Under  the  guise  of  an  amendment,  there  was  a  legislative  grant  to 
this  company  of  franchises  and  privileges  beyond  any  naturally  fol- 
lowing upon,  or  flowing  from,  those  granted  under  the  act  of  1873, 
not  in  harmony  with  the  spirit  of  that  grant,  and  of  necessity,  exclu- 
sive in  their  nature.  It,  therefore,  fell  within  the  prohibition  of  the 
constitutional  amendment. 

When  the  people  have,  by  amending  the  constitution,  restricted  the 
powers  of  their  respresentatives  in  the  legislature  to  pass  private  or 
local  bills,  which  grant  the  right  to  lay  down  railroad  tracks,  or  any 
exclusive  privileges  or  franchises  to  a  corporation,  the  courts  should 
see  to  it  that  the  constitutional  limitation  is  not  evaded,  under  the 
pretense  of  an  amendment  of  the  charter.  They  should  scrutinize 
the  legislative  act  complained  of,  not  with  the  idea  of  seeking  the 
way  to  a  construction  adverse  to  its  constitutionality,  but  rather  to  up- 
hold it,  if  possible.  But  if  the  scrutiny  reveals  a  real  and  serious 
violation  of  the  constitutional  provisions,  they  must  condemn  the  act 
as  invalid. 

It  is  said,  however,  that  a  scope  of  action  is  offered  for  the  legisla- 
ture, with  respect  to  corporations  already  in  the  possession  of  corpo- 
rate rights,  acquired  under  statutes  passed  before  the  adoption  of  the 
constitutional  amendment.  As  a  general  proposition  this  is  true. 
Conceding  to  the  legislature  its  full  measure  of  authority  to  legis- 
late^ under  the  general  grant  of  power  by  the  constitution  of  the  state, 
we  hold  that  such  authority ,  when  now  exercised  by  a  private  bill  in 
behalf  of  a  corporation,  can  not,  under  the  guise  of  measures  for 
the  regulation  of  the  exercise  of  the  corporate  powers  and  franchises , 
be  upheld  by  the  court,  when,  by  a  practical  construction,  the  act  per- 
mits what  the  amendment  to  the  constitution  prohibits.  A  regulation 
of  these  powers  and  franchises,  when  the  act  touches  them  so  as 
to  alter  them,  means  their  restriction  rather  than  their  enlargement. 
If  enlargement  of  powers  may  be  sometimes  consistent  with  the  con- 
stitutional limitations,  it  may  not  go  to  the  extent  of  trenching  on  the 
territory  of  private  and  public  rights,  over  which  the  constitution 
was  plainly  intended  to  operate  in  its  limitations.  When  enlarge- 
ment of  corporate  powers  becomes  indistinguishable  from  a  grant  of 
new  substantive  rights,  within  the  purview  of  the  section  in  question, 


372  ASTOR    V.  THE   ARCADE   RY.    CO.  §  74 

then  the  mischief  is  accomplished,  to  prevent  which  the  constitutional 
amendment  was  designed. 

In  the  Matter  of  the  Gilbert  Elevated  Railway  Company  (70  N.  Y. 
361),  Church,  Ch.  J.,  in  discussing  the  changes  of  structure,  etc., 
made  by  the  commissioners  under  the  provisions  of  the  rapid  transit 
act,  said  the  changes  were  restrictive  in  their  character.  "By  the 
charter  the  whole  street  was  to  be  covered  by  the  structure ;  by  the 
conditions  imposed  only  a  portion  of  some  streets  could  be  oc- 
cupied." And  he  says  in  that  connection:  "I  can  not  accede  to  the 
proposition  that  any  change  in  the  structure  and  in  the  manner  of  oc- 
cupying the  streets,  however  restrictive  upon  the  company,  or  bene- 
ficial to  the  public  in  the  use  of  the  streets,  constitutes  a  fresh  grant 
of  the  right  to  lay  down  railroad  tracks.  It  is  a  misnomer  to  call  such 
restrictions  graitts  of  any  right  whatever.  As  well  might  the  cutting 
down  of  a  fee  to  a  life  estate  be  termed  a  grant  of  land."  Again  he 
says:  "No  exclusive  right  or  franchise  was  granted  to  the  respondent 
corporation  upon  any  construction  of  the  clause.  Every  substantial 
right  existed  before  the  passage  of  the  act,  and  the  conditions  imposed, 
embracing  changes  of  structure  and  manmer  of  occupying  streets, 
should  be  regarded  as  restrictive  of  existing  rights,  and  not  grants^  of 
rights  or  franchises  within  the  constitutional  sense.  *  *  *  This 
series  of  amendments  designed  to  restrict  the  powers  of  the  legislature 
in  matters  of  detail,  under  general  phrases  and  undefined  words,  is 
experimental  in  this  state.  They  must  be  sustained  and  applied  by  a 
rational  and  practical  construction,  so  as  to  subserve  the  purposes  in- 
tended, and  prevent  the  evils  designed  to  be  remedied ;  but  not,  by  an 
artificial  and  technical  construction,  to  extend  their  application  to 
cases  never  contemplated." 

I  think  the  meaning  of  the  decision  is  clear.  If  the  legislative  act 
operates  upon  a  charter  in  the  direction  of  a  regulation,  an  adjust- 
ment or  a  restriction  of  powers  possessed,  it  could  not  be  objection- 
able. Within  its  reserved  powers  the  legislature  may,  at  all  times, 
amend  or  alter  the  charter,  but  the  constitutional  amendment  will  not 
permit  it  by  a  private  bill  to  make  any  new  grant  of  rights,  compre- 
hended within  those  specified  by  the  amendment.  I  do  not  think  that 
it  can  be  said,  in  the  present  case,  that  every  substantial  right  given 
by  the  act  of  1886  existed  previously. 

For  the  reasons  I  have  briefly  given,  I  think  the  act  of  1886  prac- 
tically gave  to  this  corporation  a  right  to  lay  down  railroad  tracks, 
which  it  could  not  have  exercised  under  the  act  of  1873,  and,  also, 
gave  what  are  practically  exclusive  privileges.  I  think  it  contravened 
the  constitution,  in  the  letter  and  in  the  spirit,  and  is  therefore  void. 

All  concur  with  Earl,  J. ;  Ruger,  Ch.  J.,  Danforth  and  Peck- 
ham,  JJ.,  Concur  with  Gray,  J. 

Judgment  affirmed. 


§75  LIMITS    ON    POWER   TO    CREATE.  373 

Sec.  75.    (5)  Two-thirds  vote  required. 

"The  assent  of  two-thirds  of  the  members  elected  to  each  branch 
of  the  legislature  shall  be  requisite  to  every  bill  creating,  continu- 
ing, altering  or  renewing  any  body  politic  or  corporate." 

Note.    See  Warner  v.  Beers,  Thomas  v.  Dakin,  Falconer  v.  Campbell  and 
Green  v.  Graves,  supra,  pp.  2,  19,  287,  292,  and  notes  there  given. 


\\\\^\ 


3 


Subdivision  II.     The   Body   Corporate,  Its   Parentage — The 

Promoters.^ 


CHAPTER  4. 
FUNCTIONS  AND  CLASSES  OF  PROMOTERS. 
Sec.  76.    Definitions. 

In  the  English  Companies  Act,  7  and  8  Vict.,  c.  120  (1844),  the 
expression  "promoter"  or  "promoter  of  a  company"  (is  declared)  to 
apply  to  every  person  acting  by  whatever  name  in  the  forming  and  es- 
tablishing of  a  company  at  any  period  prior  to  the  company  obtaining 
a  certificate  of  complete  registration  provided  for.  The  same  act  pro- 
vided that  before  proceeding  to  make  public,  either  by  prospectus, 
hand-bill  or  advertisement,  any  intention  or  proposal  to  form  any  com- 
pany, it  should  be  the  duty  of  the  promoters  to  make  to  the  registra- 
tion office  returns  as  Xp  the  name  of  the  proposed  company,  its  pur- 
pose and  the  names,  occupation,  place  of  business  and  place  of  resi- 
dence of  the  promoters  ;  the  promoters  were  also  to  file  a  written  state- 
ment consenting  to  become  such  promoter,  and  a  written  contract  en- 
tered into  with  some  one  or  more  persons  as  trustees  for  the  company, 
to  take  one  or  more  shares;  also,  afterward  to  file  a  statement  as  to 
provisional  place  of  meeting,  names  of  members  of  the  committee  in 
the  formation  of  the  company,  names  of  the  officers  of  the  company, 
names  of  subscribers,  copy  of  prospectus,  etc. 

The  method  of  formation  of  English  companies  now,  under  the 
companies  act  of  1862  (25  and  26  Vict.,  c.  89),  is  much  the  same  as 
was  provided  by  the  act  of  1844,  although  "promoter"  is  not  defined 
or  used  in  the  act  of  1862.  See,  also.  Directors'  Liability  act  of  1890, 
53  and  54  Vic,  c.  64,  §  3,  ch.  2. 

1892.  In  2  Stimson's  American  Statute  Law,  art.  802,  §  8021,  it 
is  said  "the  petition  for  incoi-poration  or  articles  may  be  made  by  a 
number  of  persons.  *  *  *  Such  persons  are  in  this  work  termed 
the  promoters ;  in  some  states  they  are  called  petitioners^  in  other  co/;z- 
missioners. ' ' 

"A  promoter  is  a  person  who  brings  about  the  incorporation  and 
organization  of  a  corporation.  He  brings  together  the  persons  who 
become  interested  in  the  enterprise,  aids  in  procuring  subscriptions, 
and  sets  in  motion  the  machinery  which  leads  to  the  formation  of  the 

'  Upon  the  subject  of  promoters  generally,  their  relation  to  each  other,  to 
the  corporation,  to  the  members  and  to  third  parties,  see  infra,  pp.  1646-1558, 
1767-1769. 

(374) 


§   'j'J  FUNCTIONS    OF    PROMOTERS.  375 

corporation  itself."     2  Cook  Stock  and  Stockholders,  §  651,  3d  ed., 
p.  910. 

'•The  constitution  of  a  company  is  merely  a  means  to  an  end, — 
the  carrying  on  by  the  company  of  some  business,  the  building  of  a 
pier  or  a  railway.  *  *  *  It  is  the  person  called  a  promoter  who 
determines  what  this  end  shall  be,  and  who  sets  the  statutory  ma- 
chinery of  formation  in  motion.  Promoter  is  a  term  not  of  law,  but 
of  business,  summing  up  a  number  of  business  operations  familiar  to  the 
commercial  world  by  which  a  company  is  generally  brought  into  ex- 
istence. «  «  »  Preparing  or  settling  the  prospectus,  forming  the 
company,  negotiating  agreements  between  vendors  and  a  proposed 
company,  providing  directors,  making  contracts  for  the  company  or 
otherwise  actively  engaging  either  alone  or  in  co-operation  with  others 
in  the  formation  of  a  joint  stock  company  will  make  a  man  a  promo- 
ter. *  *  *  The  promoter  has  in  his  hands  the  creation  and  mould- 
ing of  the  company.  He  has  the  power  of  defining  how  and  when, 
and  in  what  shape  and  under  what  supervision  it  shall  start  into  exist- 
ence and  begin  to  act  as  a  trading  corporation."  3  Ency.  of  the 
Laws  of  England,  p.  182.  ^ 

See  4  Am.  and  Eng.  Ency.,  201;  Beach,  §§269,  270;  Clark,  eh.  iv;  Cook, 
§§650.  705;  Elliott,  §§51-62;  Morawetz,  §§234,  291,545;  Taylor,  ch.  v;  1 
Thompson,  §§  415-490,  vii  lb.,  §§  8282-8291 ;  1828,  Frankfort  S.  T.  Co.  v. 
Churchill,  6  T.  B.  Mon.  (Ky.)  427,  17  Am.  D.  159;  1846,  Revnell  v.  Lewis, 
15  Mees.  &  W.  517;  1877,  Bagnall  v.  Carlton,  6  Ch.  D.  371;  1877,  Er- 
langer  v.  New  Sombrero  P.  C,  6  Ch.  D.  73,  3  App.  C.  1218;  1878,  Emma  Silver 
Mining  Co.  v.  Grant,  11  Ch.  D.  918;  1879,  Emma  Silver  Mining  Co.  v.  Lewis, 
L.  R.  4  C.  P.  D.  396;  1884,  Perry  v.  Little  Rock,  etc.,  R.,  44  Ark.  383;  1891, 
South  Jopl in  L.  Co.  v.  Case,  104  Mo.  572;  1892,  Bosher  v.  Richmond,  etc., 
Co.,  89  Va.  455,  37  Am.  St.  R.  879;  1894,  Yale  Gas  S.  Co.  v.  Wilcox,  64  Conn. 
101.  25  L.  R.  A.  90;  1895.  Whetstone  v.  Crane  Bro.,  1  Kan.  App.  320,  41  Pac. 
211;  1896,  Fountain  Spring  Park  Co.  v.  Roberts,  92  Wis.  345,  53  Am.  St.  R. 
917;  1898,  Gaines  v.  McAlister,  122  N.  C.  340;  1898,  Milwaukee  Cold  8.  Co. 
v.  Dexter,  99  Wis.  214;  1898,  Benton  v.  Minneapolis  T.,  etc.,  Co..  73  Minn. 
498,  76  N.  W.  265;  1898,  Exter  v.  Sawyer,  146  Mo.  302,  47  S.  W.  951;  1898, 
Loudenslager  v.  Woodbury  H.  L.  Co.,  56  N.  J.  Eq.  411,  41  Atl.  1115;  1899, 
Hudson  v.  West,  189  Pa.  St.  491,  42  Atl.  190;  1899,  Honsucle  v.  Ruppin,  172 
Mass.  420,  52  N.  E.  538;  1900,  Hay  ward  v.  Leeson,  176  Mass.  310,  49  L.  R.  A. 
725. 

Sec.  77.     Self-constituted.     Functions  generally.     Illustration. 

THE  ST.  LOUIS,  FORT  SCOTT  AND  WICHITA  RAILROAD  COMPANY 
V.  FRANCIS  TIERNAN.» 

1887.     In  the  Supreme  Court  of  Kansas.     37  Kansas  Reports 

606-636. 

[Error  from  district  court.  Action  by  Tieman  against  the  corpo- 
ration on  a  note  for  $10,000,  and  an  account  for  $4,600,  all  for  salary 
as  president  and  general  manager  of  the  railroad  company.    Judgment 

'  Statement  of  facts  abridged.  Only  that  part  of  opinion  relating  to  pro- 
moters given. 


3/6  ST.    LOUIS,    ETC.,    R.    CO.  V.    TIERNAN.  §  7/ 

in  the  lower  court  for  plaintiff.     Motion  for  new  trial  overruled,  and 
defendent  brings  error.] 

Opinion  by  Simpson,  J,  *  *  *  Condensing  the  documentary  and 
oral  evidence  into  a  brief  summary,  and  reciting  both  in  chronological 
order,  the  material  facts  are  as  follows :  The  note  sued  upon  by  the 
plaintiff  below  was  executed  by  the  president  of  the  railroad  company, 
and  it  was  claimed  that  this  was  done  in  pursuance  of  a  resolution  of 
the  board  of  directors,  adopted  at  a  meeting  held  on  the  loth  day  of 
March,  1882.  The  authority  of  the  president  to  execute  the  note  is 
denied  by  a  verified  answer.  As  this  is  one  of  the  most  vigorously  con- 
tested questions  in  the  case,  we  pass  it  for  the  present.  The  residue  of 
the  plaintiff's  demand  against  the  railroad  company  consisted  of  a  claim 
for  salary  as  president  and  general  manager  from  March  7,  1882,  to 
March  7,  1884,  at  an  established  rate  of  $5,000  per  year;  and  about 
this  part  of  the  claim  there  does  not  seem  to  be  much  controversy.  The 
answer  of  the  defendant  below  alleges  that  Tieman  and  Ayers  were 
promoters,  incorporators  and  directors  of  the  railroad  company,  and 
that  Tiernan  was  its  president  and  active  manager;  that  while  acting 
in  that  capacity,  he  and  Ayers,  on  the  12th  of  January,  1881,  pur- 
chased from  one  M.  S.  Carter,  a  road-bed  of  a  defunct  railroad  cor- 
poration extending  from  Fort  Scott  to  Humboldt,  at  its  full  value  for 
$15,000,  and  then,  in  collusion  with  other  certain  officers  and  directors 
of  the  St.  Louis,  Fort  Scott  and  Wichita  Railroad  Company,  sold  it 
to  that  company  for  the  sum  of  $200,000  cash  or  its  equivalent,  and 
$3,600,000  of  the  capital  stock  of  said  company;  that  this  was  done 
in  violation  of  their  obligations  and  duties  as  officers  of  said  railroad 
company,  and  that  the  stock  was  of  par  value,  and  defendant  prays 
for  a  judgment  against  Tiernan  for  $3,804,600.95. 

For  some  years  before  the  organization  of  the  St.  Louis,  Fort 
Scott  and  Wichita  Railroad  Company,  there  had  been  graded  a  road- 
bed with  some  bridges  built  on  it  from  Fort  Scott  to  a  little  distance 
beyond  Humboldt,  by  an  organization  known  as  the  Fort  Scott, 
Humboldt  and  Western  Railroad  Company.  The  length  of  this 
road-bed  was  about  forty-four  miles.  The  company  which  had 
graded  the  road-bed  and  built  the  bridges  had  failed,  and  one  M.  S.f". 
Carter  had  foreclosed  the  mortgage  against  it,  and  bid  in  its  prop-\ 
erty,  consisting  of  the  road-bed  and  bridges,  and  had  become  the  \ 
absolute  owner  thereof.  On  the  17th  of  February,  1880,  Carter  sold 
this  road-bed  to  Francis  Tieman  and  Alexander  M.  Ayers,  together 
with  all  maps  and  profiles  in  the  possession  or  in  the  control  of  Car- 
ter, of  said  line  of  road  between  Fort  Scott  and  Humbolt,  and  thence 
westward  or  southwestward  through  the  state  of  Kansas.  The 
consideration  of  this  sale  was  the  sum  of  $15,000  to  be  paid  as  fol- 
lows: One  thousand  dollars  within  ninety  days,  and  $14,000  within 
one  year,  and  the  additional  agreement  that  the  said  Tiernan  and 
Ayers  were  to  commence  within  thirty  days  to  procure  the  unsecured 
right  of  way  over  which  the  said  road-bed  or  line  of  railroad  was 
originally  surveyed,  established  and  partially  graded,  and  all  deeds 


§  ^7  FUNCTIONS   OF    PROMOTERS.  3/7 

and  contracts  for  the  right  of  way,  side  tracks  and  switches,  depot 
grounds,  tanks  and  stock  yards  were  to  be  taken  in  the  name  of  M. 
S.  Carter,  and  were  to  inure  to  his  benefit  and  to  be  absolutely  his 
until  Tiernan  and  Ayers  paid  in  accordance  with  the  terms  herein 
specified,  and  Tiernan  and  Ayers  agreed  that  within  ninety  days 
they  would  use  their  best  endeavors  to  secure  aid  to  said  road,  by 
procuring  bonds  to  be  voted  by  the  various  municipalities  through 
which  said  line  would  pass  in  Boin-bon  and  Allen  counties,  and  that 
all  such  aid  procured  in  the  constioiction  of  a  railroad  from  Fort 
Scott  to  Humboldt  should  acci-ue  to  the  benefit  of  Carter  and  become 
his  property  if  they  should  fail  to  pay  him  as  specified.  The  terms 
of  this  agreement  were  reduced  to  writing  and  signed  by  the  parties 
on  the  17th  day  of  February,  1880.  The  first  $1,000  was  paid  on 
the  14th  of  May  following.  On  the  23  day  of  February,  1880,  the 
charter  of  the  St.  Louis,  Fort  Scott  and  Wichita  Railroad  Company 
was  filed  in  the  office  of  the  secretary  of  state.  It  was  signed  and 
acknowledged  by  Francis  Tiernan  and  Alexander  M.  Ayers  in  Cham- 
paign county,  Illinois,  on  the  20th  day  of  January,  1880.  On  the 
30th  day  of  February,  1880,  the  company  was  organized  at  Fort 
Scott  by  the  election  of  Francis  Tiernan  as  president,  Alexander 
M.  Ayers  as  vice-president  and  Ira  D.  Bronson  as  secretary. 

On  the  17th  day  of  April,  1880,  Tiernan  and  Ayers  sold  to  John  J. 
Franklin,  of  Philadelphia,  one-third  interest  in  the  road-bed  known 
and  called  the  Fort  Scott,  Humboldt  and  Western  Railroad,  com- 
mencing at  Fort  Scott  and  running  to  Humboldt,  the  estimated  dis- 
tance being  forty- four  miles,  for  the  consideration  of  $25,000.  Of 
that  amount  $5,000  was  to  be  paid  as  soon  as  Franklin  could  examine 
the  title  and  approve  it,  and  the  sum  of  $20,000  was  to  be  paid  within 
eight  months.  When  Franklin  paid  the  $5,000  he  was  to  be  elected 
treasurer  of  the  St.  Louis,  Fort  Scott  and  Wichita  Railroad  Company. 
Some  time  during  the  month  of  May,  1880,  the  St.  Louis,  Fort  Scott 
and  Wichita  Railroad  Company  made  an  agreement  to  purchase  the 
old  road-bed  of  the  Fort  Scott,  Humboldt  and  Western  Company, 
and  it  is  this  agreement  which  is  hereafter  referred  to  in  the  minutes 
of  the  meeting  of  the  directors  of  the  St.  Louis,  Fort  Scott  and  Wichita 
Railroad,  held  on  November  12,  1880.  On  the  12th  day  of  Novem- 
ber, 1880,  the  directors  of  the  St.  Louis,  Fort  Scott  and  Wichita  Rail- 
road adopted  a  resolution  approving  and  confirming  the  contract  of 
Tiernan,  Ayers  and  Franklin,  of  the  sale  by  them,  and  the  purchase 
by  the  company,  of  the  road-bed,  etc.,  ordering  the  issue  and  delivery 
of  the  stock,  and  the  execution  and  delivery  of  orders  for  cash  or  first 
mortgage  bonds,  as  provided  in  the  agreement  of  sale.  On  the  3d 
day  of  December,  1880,  Franklin  sold  to  Ira  J.  Bronson  all  his  right, 
title,  interest  and  claim  in  and  to  the  St.  Louis,  Fort  Scott  and  Wichita 
Railroad  Company,  and  the  old  road-bed,  etc.  On  the  6th  day  of 
March,  1881,  at  a  meeting  of  the  stockholders  of  the  St.  Louis,  Fort 
Scott  and  Wichita  Railroad  Company,  the  following  resolution  was 
adopted,  by  a  vote  of  all  the  stockholders  present,  in  its  favor: 
•    "Be  it  resolved,  That  all  actions  of  the  board  of  directors  of  the 


378  ST.    LOUIS,    ETC.,    R.    CO.  V.    TIERNAN.  §  // 

St.  Louis,  Fort  Scott  and  Wichita  Railroad  Company,  in  relation  to 
selling  and  disposing  of  the  capital  stock  of  said  railroad,  and  receiv- 
ing payment  therefor  in  the  manner  and  kind  in  which  such  payments 
were  made,  be  and  they  are  hereby  approved  and  ratified," 

The  road-bed  w^as  paid  for  by  issuing  to  Francis  Tiernan,  Alexan- 
der M.  Ayers  and  Ira  J.  Bronson,  or  his  assignee,  each  $1,200,000 
of  paid-up  capital  stock,  and  an  order  on  the  railroad  company  in 
favor  of  each  one  of  these  persons  for  %66.666.66y2  in  cash,  or  first 
mortgage  bonds,  but  the  order  for  cash  or  bonds  was  in  no  manner  to 
become  a  lien  on  that  part  of  the  road  running  from  Fort  Scott  to  a 
point  where  it  crosses  the  Kansas  City,  Lawrence  and  Southern  Kan- 
sas Railroad  in  Allen  county.  At  the  time  of  these  various  transac- 
tions about  the  old  road-bed  there  had  been  no  amount  of  the  capital 
stock  of  the  railroad  company  issued,  the  first  being  issued  to  one  L. 
M.  Bates,  of  New  York,  in  December,  1880.  Bates  was  an  assignee 
of  Ira  J.  Bronson  for  a  part  of  Bronson' s  share  of  the  stock  of  the 
purchase  of  the  road-bed.     *     *     ♦ 

Plaintiff  in  error  contends  {inter  alia)  : 

Fourth.  Tiernan  and  Ayers,  occupying  the  positions  hereinbefore 
recited,  bought  an  old  road-bed  which  the  company  needed,  for  $15,- 
000,  and  for  the  purpose  and  with  the  intention  of  selling  it  to  the 
company,  with  an  agreement  among  themselves,  Bronson  and  Hill, 
divided  the  profits  of  the  transactions,  sold  it  to  the  company  for  $300,- 
000  cash  and  $3,600,000  of  the  company's  capital  stock,  and  then 
carried  out  their  agreement  about  the  division  of  profits.  The  com- 
pany is  entitled  to  recover  of  Tiernan  the  difference  between  the  price 
paid  by  him  and  Ayers  for  the  road-bed  and  that  at  which  they  sold  it 
to  the  company. 

Fifth.  Tiernan  and  Ayers  did  not  disclose  to  any  of  their  associ- 
ate directors,  except  Bronson  and  Hill,  the  price  paid  by  them  for  the 
road-bed,  and  the  other  five  directors  had  no  knowledge  on  that  sub- 
ject. Such  a  transaction  will  not  be  upheld  when  it  is  challenged  in 
a  proper  action  by  the  company. 

Sixth.  Tiernan  took  $3,600,000  of  the  company's  capital  stock  in 
the  manner  above  set  forth,  and  in  a  proper  action  by  the  company 
he  is  answerable  to  it  for  the  par  value  of  the  stock,  and  judgment 
should  be  rendered  against  him  accordingly. 

Seventh.  Tiernan  was  a  director  from  the  time  of  the  organization 
of  the  company  down  to  the  time  of  the  commencement  of  the  action 
to  recover  for  the  matters  hereinbefore  referred  to,  and,  as,  during  all 
that  time  he  was  trustee  for  the  company,  statutes  of  limitation  did 
not  commence  to  run  as  long  as  that  relation  continued.  *  *  * 
)(  I.  Some  very  important  questions  grow  out  of  the  purchase  of  the 
road-bed  by  Tiernan  and  his  associates,  and  their  sale  of  it  to  the  rail- 
road company.  It  is  alleged  in  the  answer  of  the  railroad  company, 
that  at  the  time  the  purchase  was  made  Tiernan  was  one  of  the  in- 
corporators and  directors  of  the  company,  and  occupied  such  a  position 
toward  the  company  that  whatever  dealings  he  had  respecting  the 
road-bed  resulted  to  the  benefit  of  the  corporation,  or  that,  if  this  is 


§  'j'j  FUNCTIONS   OF   PROMOTERS.  379 

not  so,  then  if  he  made  the  sale  to  the  company  while  acting  in  the 
capacity  of  president  and  director,  he  was  bound  to  disclose  the  price 
he  paid,  the  profit  he  was  making  and  that  the  whole  transaction 
must  be  characterized  by  fair,  open  and  unmistakable  candor  in  all 
its  features.  The  first  question  we  shall  discuss  is  were  the  defend- 
ants in  error,  Tiernan  and  Ayers,  corporate  fiduciaries  at  the  time 
they  purchased  the  road-bed  ?  They  signed  and  acknowledged  the 
charter  of  the  St.  Louis,  Fort  Scott  and  Wichita  Railroad  Company 
on  the  20th  day  of  January,  1880,  at  Champaign  county,  state  of 
Illinois.  It  was  filed  with  the  secretary  of  state  on  the  23d  day  of 
February,  1880.  The  contract  of  purchase  of  the  road-bed  was  made 
on  the  17th  day  of  February,  1880.  It  thus  appears  that  the  road-bed 
was  purchased  before  the  railroad  company  had  any  existence.  Sec- 
tion 10,  chapter  33,  of  the  Compiled  Laws  of  Kansas,  1885,  being 
the  act  concerning  private  corporations,  is  as  follows:  "Section  10. 
The  existence  of  the  corporation  shall  date  from  the  time  of  filing 
the  charter,  and  the  certificate  of  the  secretary  of  state  shall  be  evi- 
dence of  the  time  of  such  filing."  This  express  statutory  declaration 
determines  the  fact  that  the  railroad  company  had  no  existence  prior 
to  the  23d  day  of  February.  Important  legal  consequences  flow  from 
this  determination.  The  legislature  has  prescribed  the  act  that  gives 
life  to  a  corporation,  and  the  date  of  the  performance  of  that  act  is 
the  birthday  of  its  creation.  From  the  moment  of  the  filing  of  the 
charter  with  the  secretary  of  state,  the  duties  and  obligations  of  those 
named  as  its  first  directors  began.  There  would  not  have  existed 
any  fiduciary  relations  before  that  time,  because  there  was  no  corpo- 
ration in  existence  to  create  them.  It  is  clear,  then,  that  at  the  time 
they  made  the  purchase  of  the  road-bed  they  were  not  directors,  and 
did  not  occupy  such  a  relation  of  confidence  and  trust  to  this  railroad 
company  that  this  purchase  was  presumably  for  its  benefit,  or  by 
operation  of  law  resulted  in  its  favor.  All  such  theories  and  consid- 
erations are  swept  out  of  our  pathway  by  the  vigorous  terms  of  the 
statute. 

It  is  sometimes  the  case  that  parties  who  are  dealing  with  each 
other  about  the  organization  of  a  corporation  make  such  declarations 
or  give  such  pledges  respecting  its  future  creation  that  causes  of  action 
arise  between  them  which  must  be  settled  in  accordance  with  the  recog- 
nized rules  of  law  with  reference  to  contracts,  agency  or  partnership. 
There  is  nothing  developed  in  the  record  which  justifies  the  assertion 
that  such  causes  of  action  arose  against  Tiernan  and  his  associates  on 
behalf  of  others  who  participated  in  the  organization.  We  do  not  be- 
lieve that  any  one  would  seriously  contend  for  a  single  moment  that 
there  is  such  a  statement  of  facts  in  the  record  that,  if  Tiernan  had 
refused  to  sell  his  road-bed  to  the  railroad  company,  it  could  have  en- 
forced the  sale.  To  make  him  responsible  in  this  action  there  must  be 
an  affirrhative  showing  that  at  the  time  he  made  the  purchase  he  was 
either  acting  for  and  on  behalf  of  the  company,  or  that  he  so  assumed 
to  act,  or  that  he  occupied  such  a  relation  of  tnist  and  confidence  with 
respect  to  the  company  that  his  purchase  resulted  to  its  benefit,  and 


38o  ST.    LOUIS,    ETC.,    R.    CO.  V.    TIERNAN.  §  'JJ 

not  to  his  own  profit.  The  first  we  regard  as  impossible,  because  at 
that  time  the  company  had  no  existence,  and  hence  he  could  not  have 
acted  on  its  behalf  or  authority,  and  for  the  same  reason  he  could  not 
have  assumed  to  act  for  a  corporation  when  there  was  none  in  being. 

2.  It  is  alleged  in  the  answer  of  the  railroad  company  that  Tiernan 
was  a  promoter  of  the  railroad  company,  and  the  same  statement  is 
repeated  in  the  briefs  with  italicized  vigor,  and  great  stress  seems  to 
be  laid  upon  the  assumed  fact.  This  word  promoter  had  its  origin 
in  the  methods  by  which  joint-stock  companies  were  formed  in  Eng- 
land^ where,  by  law,  they  were  declared  partnerships.  Subsequently, 
when  the  era  of  railroad  building  began  in  that  country,  the  busi- 
ness of  promoting  the  organization  of  such  companies  assumed  defi- 
nite form.  The  ordinary  proceeding  was  this :  The  promoter  in- 
troduced the  enterprise  to  the  notice  of  persons  of  wealth  in  the 
locality  through  which  the  line  of  the  road  was  proposed  to  be  located, 
informing  them  of  its  nature  and  prospects,  and  furnishing  an 
estimate  of  its  probable  cost.  These  persons  were  solicited  to  aid  by 
their  influence,  or  subscriptions,  or  both.  Enough  persons  were 
secured  to  constitute  a  provisional  committee,  and  then  this  commit- 
tee appointed  from  their  number  a  managing  committee,  which 
issued  a  prospectus,  announcing  the  nature  and  probable  profts  of 
the  scheme,  the  proposed  means  to  carry  it  out,  the  amount  of  capital 
required,  the  number  and  price  of  shares  and  other  details  to  which 
■were  generally  attached  the  names  of  the  promoters,  with  references 
to  the  names  of  those  persons  constituting  the  provisional  committees. 
If  all  this  resulted  in  fair  probabilities  of  success,  application  was 
then  made  to  parliament  for  a  bill  of  incorporation.  If  the  scheme 
failed,  the  expenses  incurred  gave  rise  to  litigation,  and  many  ques- 
tions as  to  the  liability  of  these  committees  and  of  the  promoters  were 
determined.  If  the  incorporation  was  secured  by  the  action  of  parlia- 
ment, then  another  class  of  questions  arose  as  to  what  acts  of  the 
promoters  could  be  ratified  by,  and  what  acts  resulted  to  the  benefit 
of,  the  incorporation,  and  Tnany  others  growing  out  of  the  cofidition 
of  affairs;  that  that  has  no  resemblance  to  our  method  of  organizing 
corporations.  It  is  true  that  the  word  has  been  found  to  have  its 
uses  in  our  jurisprudence,  but  in  a  much  m.ore  restricted  sense  than 
that  used  in  the  English  reports. 

The  American  cases  upon  this  subject  are  not  very  numerous,  and 
most  all  of  them  will  be  found  in  the  i6  American  Law  Review,  and 
in  Morawetz  on  Coi-porations,  vol.  i,  p.  545.  Assuming  that  a  pro- 
moter is  a  person  who  organizes  a  corporation,  and  that  he  intends  to 
sell  it  property,  or  to  subscribe  for  its  stock,  or  to  take  an  active  part 
in  its  management,  and  business,  let  us  inquire  whether  there  are  suf- 
ficient facts  recited  in  this  record  to  determine  that  the  fiduciaiy  re- 
lation of  promoter  of  this  corporation  was  ever  assumed  by  Tiernan, 
or  whether  his  acts  in  respect  to  its  organization  were  such  that  a  re- 
lation of  this  character  could  fairly  be  inferred.  To  start  on,  there  is 
not  one  single  word  of  pai'ol  testimony  which  can  be  fairly  said  to  au- 
thorize an  inference   that  Tiernan  was  the  promoter  of  the  corpora- 


§  J7  FUNCTIONS   OF   PROMOTERS.  38 1 

tion.  It  does  not  appear  that  he  ever  advised  or  suggested  the 
organization  of  the  company.  In  the  next  place,  there  is  nothing  in 
very  many  voluminous  written  instruments  in  the  record  that  justifies 
any  such  inference.  The  charter  itself  would  seem  to  rebut  any  such 
conclusion  so  far  as  Tiernan  was  concerned,  as  it  was  signed  and  ac- 
knowledged by  him  in  the  state  of  Illinois.  There  is  nothing  to  jus- 
tify the  allegation  in  the  answer  of  the  railroad  company,  or  the  as- 
sumption of  its  counsel  in  their  briefs,  that  Tiernan  was  a  promoter  of 
the  company. 

There  is  in  the  written  agreement  between  Tiernan,  Ayers  and 
Franklin,  whereby  a  one-third  interest  in  the  road-bed  purchased  by 
them  from  Carter  was  sold  to  Franklin,  an  understanding  on  the  part 
of  Franklin  that  if  Tiernan  and  Ayers  wish  to  sell  the  road-bed  to  the 
St.  Louis,  Fort  Scott,'  and  Wichita  Railroad  Company,  Franklin  will 
join  in  the  conveyance  of  it  to  the  company,  if  his  share  of  the  pur- 
chase-money is  not  less  than  $40,000,  but  this  agreement  was  made 
on  the  7th  day  of  April,  1880,  after  the  purchase  by  Tiernan  and 
Ayers,  and  after  the  organization  of  the  company ;  so  that  we  can  not 
utilize  this  fact  to  establish  a  relation  as  existing  before  the  railroad 
company  had  any  corporate  life.  There  is  no  evidence  that  Tiernan 
was  a  promoter. 

3.  At  the  time  of  the  sale  of  the  road-bed  to  the  railroad  company 
Tiernan  was  part  owner  of  the  road-bed,  and  was  a  director  and 
president  of  the  railroad  company,  and  hence  it  is  very  properly  said 
that  the  sale  must  be  a  fair,  open  one  in  all  respects,  the  price  paid 
by  Tiernan  and  his  associates  must  have  been  disclosed  to  the  dii'ectors 
of  the  company,  and  the  whole  transaction  must  not  only  be  for  the 
evident  interests  of  the  company,  but  it  must  have  been  conducted  in 
all  its  stages  in  the  utmost  good  faith  on  the  part  of  the  directors,  and 
with  a  complete  knowledge  of  the  time  when,  the  circumstances  under 
which,  and  the  exact  amount  paid  by  Tiernan  at  the  date  of  his  pur- 
chase, to  be  relieved  of  that  suspicion  with  which  courts  of  justice 
universally  regard  a  transaction  in  which  the  seller  and  the  buyer  are 
represented  by  one  and  the  same  person.  It  has  been  decided  that  a 
director  is  not  prohibited  from  dealing  with  his  company ;  he  can  sell 
it  real  estate  or  any  other  kind  of  property,  but  there  are  certain  rules 
strictly  applicable  to  him  that  do  not  operate  upon  a  person  entirely 
disconnected  with  the  corporation,  and  these  he  must  faithfully  ob- 
serve to  make  his  contract  of  sale  one  that  the  law  will  uphold.  (Hotel 
Company  v.  Wade,  97  U.  S.  13;  Morawetz  on  Corporations,  §§  297, 
521,  545;  Simmons  v.  Vulcan  Oil  Co.,  61  Pa.  St.  202  ;  Van  Cott  v. 
Van  Brunt,  82  N.  Y.  535  ;  Parker  v.  Nickerson,  137  Mass.  487.) 

It  has  been  decided,  time  and  time  again,  that  the  owner  of  a  mine, 
an  oil  well  or  a  valuable  patent,  can  organize  a  corporate  company  to 
develop  mineral  or  oil,  or  to  manufacture  the  patented  article,  take  a 
very  large  amount  of  stock  in  payment  of  his  mine,  oil  well  or  patent, 
and  trust  to  the  value  given  the  stock  by  the  success  of  the  corporation 
for  payment  of  his  labor  and  discovery.  In  this  class  of  cases  there 
is  a  mere  transfer  of  the  status  of  the   mine,  oil  well  or  patent.      It 


382  ST.    LOUIS,    ETC.,    R.    CO.  V.    TIERNAN.  ^'J'J 

ceases  to  be  personal  property,  and  becomes  corporate  property,  and 
each  individual  interest,  as  well  that  of  the  owner,  discoverer  or  pat- 
entee, is  represented  by  shares  of  stock. 

It  is  now  decided  in  this  case  that  the  owners  of  a  graded  railroad- 
bed  can  sell  the  same  to  a  railroad  company  whose  officers  and  directors 
are  composed  of  the  same  identical  persons  who  own  the  road-bed, 
and  issue  the  capital  stock  of  the  railroad  company  in  payment  thereof, 
at  a  time  when  those  who  sell  the  road-bed  and  own  and  control  the 
railroad  corporation  are  the  absolute  owners  of  all  the  stock  issued  by 
the  railroad  company,  and  when  the  terms  of  sale  and  the  issue  of 
stock  are  matters  of  record  on  the  books  of  the  railroad  company, 
and  when  this  transaction  occurs  months  before  any  other  or  additional 
stock  is  issued  by  the  company,  that  parties  owning  an  old  railroad 
grade  with  culverts  and  some  bridges  erected  thereon,  and  who  organ- 
ize, control,  manage  and  own  a  railroad  company,  whose  stock  at  the 
time  of  the  issue  has  no  market  but  only  a  nominal  value,  can  trans- 
fer the  railroad  grade  to  the  railroad  company  and  issue  the  stock  of 
the  company  in  the  payment  therefor,  they,  and  they  alone,  at  that 
time  being  the  only  persons  interested  in  the  road-bed  and  in  the  rail- 
road company.  At  the  time  of  the  sale  of  the  railroad  grade  or  old 
road-bed  it  was  owned  by  Tiernan,  Ayers,  Bronson  and  Hill,  and 
they  in  fact  constituted  the  railroad  company.  There  were  some  other 
directors,  but  the  evidence  is  that  just  sufficient  stock  was  placed  in 
the  name  of  the  other  directors  to  authorize  them  to  act  as  such,  and 
this  transfer  was  but  temporary,  and  for  that  sole  purpose.  This  sale 
was  ratified  by  the  directors  of  the  railroad  company,  and  subsequently 
by  the  stockholders,  but  the  directors,  stockholders  and  owners  of  the 
road-bed  were  one  and  the  same  persons.  By  this  transaction  the 
value  of  the  road-bed  was  represented  by  the  stock  of  the  railroad 
company,  instead  of  remaining  as  the  personal   estate  of  the  owners. 

At  the  time  of  the  sale,  and  when  the  board  of  directors  ordered 
the  issue  of  the  obligations  and  stock  of  the  company  in  payment  of 
the  purchase-price  of  the  road-bed,  the  record  affirmatively  shows 
that  all  the  persons  who  had  any  interest  of  any  kind  or  character 
whatever  in  the  railroad  company,  except  Bates,  the  assignee  of  part  of 
Bronson's  stock,  were  Tiernan,  Ayers,  Bronson  and  Hill.  They  owned 
the  road-bed,  they  constituted  the  railroad  company,  they  sold  the  road- 
bed to  the  railroad  company  and  took  the  stock  of  the  railroad  company 
in  payment,  at  a  time  when  witnesses  on  both  sides  concede  that  the  stock 
had  only  a  nominal  value.  The  developments  in  this  record  abun- 
dantly show  that  the  title  to  and  possession  of  the  road-bed  were  of 
great  pecuniary  benefit  to  the  railroad  company.  .  It  alone  enabled 
the  company  to  construct  the  first  fifty  miles  of  its  road,  and  to  make 
such  a  beginning  that  its  future  success  and  final  accomplishment 
were  assured.  The  record  does  not  show  that  there  has  ever  been  any 
other  stock  issued  by  the  railroad  company,  except  small  amounts  to 
municipalities  through  whose  territory  the  line  was  built,  and  that  it 
is  owned,  managed  and  controlled  to-day  by  the  amount  of  stock 
issued  to  pay  for  this  road-bed.     Tiernan  and  his  associates  sold  their 


§  yS  FUNCTIONS   OF    PROMOTERS.  383 

stock  to  Gould,  in  August,  1882,  for  a  consideration  of  $100,000,  so 
that  now,  so  far  as  it  appears,  the  value  of  the  stock  issued  represent- 
ing a  completed  road  one  hundred  and  fifty  miles  in  length,  is  much 
less  than  the  actual  cost  of  the  road-bed.  The  railroad  company,  in 
this  action,  represents  this  stock,  and  it  seeks  to  retain  it.  It  has  the 
use  and  enjoyment  of  the  road-bed,  and  wants  to  recover  from  Tier- 
nan  the  par  value  of  the  stock,  being  the  sum  of  $3,600,000. 

It  is  useless  to  pursue  the  discussion  further,  as  it  is  not  controlled, 
or  governed,  or  affected  in  any  degree  by  those  self-evident,  equitable 
principles  and  unyielding  rules  of  law  that  govern  in  all  cases  where 
persons  sustain  fiduciary  relations  to  corporations,  or  to  other  persons, 
by  reason  of  their  being  representatives  of  their  pecuniary  interests. 
This  case  involves  the  proposition  as  to  whether  or  not  the  absolute 
owners  of  property  can,  when  it  seems  to  them  to  be  to  their  profit, 
so  change  the  relation  of  their  property  as  to  make  it  stock  in  a  cor- 
poration. Whoever  succeeded  to  the  rights  of  Tiernan  and  his  asso- 
ciates as  the  holders  of  the  stock,  did  so  with  all  the  facts  showing  the 
sale  and  purchase  of  the  road-bed  and  the  issue  of  the  obligations  and 
stock  of  the  railroad  company  spread  upon  its  record,  and  have  now 
no  right  to  complain,  however  different  the  case  may  be  if  they  had 
then  an  interest  in  the  corporation.  This  same  issue  in  its  most  im- 
portant features  has  very  recently  been  tried  and  decided  by  the  cir- 
cuit court  of  the  United  States  for  the  district  of  Kansas,  in  the  action 
of  E.  R.  Stewart  v.  The  St.  Louis,  Fort  Scott  and  Wichita  Railroad 
Company,  a  manuscript  opinion  of  Judge  Foster's  having  been  fur- 
nished us.  Stewart  brought  his  action  to  recover  on  several  promis- 
sory notes  issued  by  the  railroad  company,  aggregating  $85,000. 
These  notes  constituted  a  part  of  the  $200,000  that  was  to  be  paid  in 
cash,  or  its  equivalent,  for  the  road-bed,  and  a  $5,000  note  issued  to 
Hill  for  salary  as  general  manager.  The  same  defenses  which  are 
inade  here  were  set  up  in  that  action.  The  circuit  court  rendered 
judgment  for  the  full  amount  claimed  byStewart,  overruled  all  the  de- 
fenses and  discussed  very  many  of  the  questions  alluded  to  in  this 
opinion,  with  the  same  result. 

We  see  no  material  error  in  the  record,  and  recommend  that  the 
judgment  of  the  district  court  be  affirmed. 

By  the  Court:     It  is  so  ordered.     All  the  justices  concurring. 

See  note  supra,  p.  375* 


Sec.  78.  Same. 

MARCHAND  v.  THE  LOAN  AND  PLEDGE  ASSOCIATION. 

1874.     In  the  Supreme  Court  of  Louisiana.     26  La.  Ann.  Re- 
ports 389-90. 

Appeal  from  the  fifth  district,  parish  of  Orleans. 
Wyly,  J.     Plaintiff   sued   defendant  for  the   sum   of  $4,000  for 
services,  etc.,  as  alleged,  viz: 


384  MARCHAND   V.    THE   LOAN,    ETC.,    ASSOCIATION.  §  78 

"That,  as  a  preliminary  to  the  formation  of  said  corporation,  your 
petitioner,  at  the  instance  of  the  stockholders  and  members  thereof, 
visited  the  cities  of  New  York,  Philadelphia  and  Boston  for  the  pur- 
pose of  acquainting  himself  with  the  proper  formation  and  efficient 
management  and  practical  operation  of  similar  institutions  in  said 
cities,  and  that  in  order  to  do  so  he  was  compelled  to  expend  for  his 
traveling  expenses,  for  consultation  with  counsel  and  for  obtaining  in- 
formation considerable  sums  of  money,  and  that  he  is  entitled  to  be 
paid  for  the  value  of  his  time  and  services  expended  during  said  visit, 
which  consumed  some  eight  weeks,  and  that  said  expenses  and  said 
loss  of  time  and  services  amount  to  the  sum  of  $1,000. 

"That  petitioner  furnished  the  charter  for  said  corporation  and  gave 
zealous  and  efficient  aid  in  presenting  the  same  to  the  legislature,  in 
obtaining  subscribers  to  the  capital  stock  thereof,  in  organizing  said 
corporation,  in  putting  it  in  successful  operation,  in  fitting  up  its  place 
of  business,  in  the  purchase  and  erection  of  fixtures  therefor,  and  in 
the  performance  of  its  business  and  management  of  its  affairs  for  one 
month  after  it  commenced  operations,  and  that  his  services  in  that  be- 
half are  well  worth  the  further  sum  of  $3,000." 

The  answer  is  a  general  denial,  and  the  averment  that  the  associa- 
tion is  not  liable  for  services  rendered  before  it  went  into  operation  as- 
a  corporation. 

The  court  gave  judgment  for  the  plaintiff  for  $208.33,  ^^^  value 
of  one  month's  service  as  president  in  organizing  the  company.  From 
this  judgment  plaintiff  appeals. 

We  see  no  error  in  the  judgment.  A  claim  for  money  expended 
and  time  employed,  before  the  incorporation  of  the  Loan  and  Pledge 
Association,  can  not  be  regarded  as  a  debt  of  the  institution. 

How  the  defendant,  a  juridical  person,  incurred  a  debt  before  its 
existence  we  can  not  imagine. 

Besides,  it  is  shown  that  $1,000  of  the  plaintiff's  claim  was  for 
cash  advanced  to  S.  F.  Casanave  for  the  purpose  of  influencing  legis- 
lation ;  that  is,  bribing  the  legislature  to  pass  the  act  incorporating  the 
Loan  and  Pledge  Association. 

For  the  recovery  of  money  thus  expended  this  court  can  give  no 
relief.  The  guilty  suitor  must  be  left  where  his  immorality  has  placed 
him. 

Judgment  affirmed. 

Ifote.  See,  also,  1889,  Minneapolis  T.  M.  Co.  v.  Davis,  40  Minn.  110,  41  N. 
"W.  1026,  12  Am.  St.  Rep.  701,  3  L.  R.  A.  796,  infra,  p.  492,  and  note,  supra^ 
p.  375. 


§   ;9  FUNCTIONS   OF   PROMOTERS.  385 

Sec.  79.    Statutory.      Commissioners. 

WALKER  V.  DEVEREAUX  Et  Al.» 

1833.     In  the  Court  of  Chancery  of  New  York.     4   Paige's 
Chancery  (New  York)  Reports  229—257. 

[Application  for  an  injunction  to  restrain  defendants  from  holding 
an  election  of  directors  of  the  Utica  and  Schenectady  Railroad  Com- 
pany, and  also  from  disposing  of  stock  which  had  been  apportioned 
to  them,  or  in  which  they  were  interested.  The  defendants  were 
commissioners  named  in  the  act  to  incorporate  the  railroad  company, 
to  open  books,  receiv^e  subscriptions  to  the  stock,  distribute  the  same, 
and  call  a  meeting  for  the  election  of  directors,  the  act  providing  that: 
All  persons  who  shall  become  stockholders  pursuant  to  this  act  shall 
be  and  they  are  hereby  constituted  a  body  corporate  by  the  name, 
etc.  (Laws  of  1833,  p.  462,  et  seq.)  There  were,  within  the  time 
limited,  2909  subscriptions  received,  and  the  stock  was  distributed  to 
only  1423  of  those  who  subscribed,  and  the  others  were  notified  to 
receive  back  the  preliminary  deposit  paid.  Plaintiff  had  received  his 
money  back.  Some  of  the  shares  that  had  been  distributed  had  been 
sold  to  bona  Jide  purchasers.  The  complaint  was  that  the  commis- 
sioners had  wrongfully  recognized  themselves  as  subscribers  and  had 
arbitrarily  distributed  the  stock  to  themselves  and  their  friends.] 

The  Chancellor  (Walworth).  The  act  under  which  the  com- 
missioners opened  books  of  subscription  to  the  capital  stock  of  the 
Utica  and  Schenectady  Railroad  Company  did  not  create  a  corpora- 
tion, eo  instantly  when  that  act  took  effect  as  a  law.  It  only  consti- 
tuted such  persons  a  body  corporate  as  should  thereafter  become 
stockholders  in  the  manner  prescribed  in  the  act.  If  the  whole  cor- 
porate stock,  and  no  more,  had  been  subscribed  within  the  three  days 
during  which  the  commissioners  were  bound  to  keep  the  books  open, 
then  those  persons  who  had  thus  subscribed  and  paid  their  money  to 
the  commissioners  would  have  acquired  legal  rights  as  corporators. 
And  they  would  also  have  had  the  right  to  call  upon  the  commission- 
ers, not  as  their  agents  or  trustees,  but  as  agents  or  officers  of  the 
public,  to  notify  an  election  of  directors,  and  to  preside  as  inspectors 
thereof,  by  a  committee  of  their  body,  as  directed  by  the  act.  But  in 
the  event  which  has  happened,  of  an  excess  of  subscriptions,  no  per- 
son can  be  a  stockholder  of  the  corporation,  neither  does  any  corp>o- 
ration  exist,  nor  has  any  person  any  interest  in  the  stock,  as  the  legal 
owner  thereof,  so  as  to  authorize  him  to  vote  upon  it,  or  to  transfer  it 
as  stock,  until  a  majority  of  the  commissioners  have  proceeded  to  ap- 
portion the  same,  and  to  designate  the  persons  who  are  to  be  the 
stockholders,  and  the  amount  which  each  is  to  receive.  It  is  evident, 
therefore,  if  the  counsel  for  the  complainant   are  right  in  supposing 

'  Statement  of  facts  abridged.     Argumente  and  part  of  opinion  omitted. 
26— WiL.  Casks. 


386  WALKER   V.    DEVEREAUX.  §  79 

that  the  distribution  in  this  case  was  absolutely  void,  and  not  merely 
voidable,  that  the  election  of  directors,  which  they  now  seek  to  re- 
strain by  injunction,  can  not  possibly  affect  the  rights  of  their  client. 
As  there  could  be  neither  a  corporation  nor  stockholders  in  existence 
until  after  the  stock  was  apportioned,  the  commissioners  did  not  hold 
the  stock,  nor  did  they  act  in  the  character  of  officers,  servants,  agents 
or  trustees  of  the  corporation  or  of  the  subscribers.  But  they  acted 
merely  as  officers  or  agents  of  the  government,  appointed  by  the  leg- 
islature to  assist  in  the  organization  of  a  coi-poration  and  to  create  a 
stock  in  the  same.  The  legislature  might,  by  law,  have  designated 
the  stockholders,  as  they  had  done  in  the  case  of  other  corporations, 
or  they  might  have  delegated  that  portion  of  their  authority  to  others. 
But  as  they  did  not  delegate  that  power  to  the  courts,  neither  this  or 
any  other  court  has  the  power  to  create  a  coiporation  by  designating 
who  shall  be  the  persons  to  hold  stock  in  the  same. 

The  appropriate  tribunal,  however,  upon  a  proper  application,  may 
compel  the  commissioners  to  open  books,  to  apportion  the  stock  in 
the  manner  prescribed  by  law,  and  to  notify  and,  by  a  committee  of 
their  body,  preside  at  the  election  of  the  directors.  Such  a  tribunal 
may  also  decide  as  to  the  proper  constioiction  of  the  act  of  incorpora- 
tion, and  can  enforce  a  compliance  with  such  decision.  If  the  ap- 
portionment of  the  stock  in  this  case  was  absolutely  void,  as  the 
complainant  insists  it  was,  he  has  mistaken  his  remedy.  He  should, 
in  that  case,  have  applied  to  the  supreme  court  for  a  mandamus  to 
compel  these  public  officers,  or  agents  of  the  legislature,  to  distribute 
the  stock,  as  required  by  the  statute.  And  if  it  was  necessary  to  apply 
to  this  court,  either  for  a  discovery  or  an  injunction,  in  aid  of,  or  as 
ancillary  to  his  remedy  at  law,  he  should  have  stated  in  the  bill  either 
that  he  had  applied,  or  that  he  intended  to  apply  to  the  legal  tribunal 
for  relief.     (Jones  v.  Jones,  3  Meriv.  Rep.  173.) 

I  apprehend,  however,  the  complainant  is  under  a  mistake  in  sup- 
posing that  the  apportionment  of  stock  in  this  case  was  absolutely 
void.  It  was,  at  the  most,  voidable,  even  upon  the  principles  upon 
which  the  complainant  supposes  it  was  absolutely  void.  And  if  any 
portion  of  the  stock  has  been  apportioned  to  persons  who  ought  not 
to  hold  it,  or  if  any  one  has  received  more  than  his  share,  under  cir- 
cumstances which  would  amount  to  a  fraud  upon  the  commissioners,  or 
upon  the  law,  such  persons  must  be  deemed  to  hold  it  for  the  benefit 
of  all  or  some  of  the  subscribers  who  have  received  no  stock,  or  who 
have  not  received  stock  to  the  extent  of  their  subscriptions.     *     *     * 

It  was  not  necessary  in  this  case  that  the  commissioners  should  give 
to  each  subscriber  an  equal  or  any  other  amount  of  stock.  Where  a 
distribution  or  apportionment  is  to  be  made  between  or  among  any 
number  of  persons,  or  a  class  of  individuals,  and  no  discretion  is 
vested  in  those  who  are  to  execute  the  power  of  making  the  distribu- 
tion or  apportionment,  each  individual  of  the  whole  number,  or  class 
of  persons  named,  is  entitled  to  an  equal  share.  But  if  the  designa- 
tion of  a  class  or  number  of  persons  is  made  merely  for  the  purpose  of 


§  79  FUNCTIONS    OF   PROMOTERS.  38/ 

pointing  out  those  from  whom  the  selection  is  to  be  made,  giving  to 
the  person  intrusted  with  the  power  a  discretionary  right  of  distribut- 
ing among  that  particular  class  as  he  shall  think  proper,  then  the 
whole  may  be  allotted  to  one  or  more  of  that  class,  to  the  exclusion  of 
the  others.  Formerly  the  question  as  to  the  right  of  the  person  in- 
trusted with  the  power  to  exclude  any  one  of  the  class  designated,  by 
giving  what  was  called  an  illusory  portion,  was  frequently  agitated  in 
the  courts,  and  produced  much  litigation.  But  the  Revised  Statutes 
have  forever  put  that  question  at  rest  in  this  state. 

By  the  98th  and  99th  sections  of  the  article  relative  to  powers,  it  is 
declared,  that  where  a  disposition  under  a  power  is  directed  to  be 
made  to,  or  among,  or  between  several  persons,  without  any  specifi- 
cation of  the  share  or  sum  to  be  allotted  to  each,  all  the  persons 
designated  shall  be  entitled  to  an  equal  portion.  But  when  the  terms 
of  the  power  import  that  the  estate  or  fund  is  to  be  distributed  be- 
tween the  persons  so  designated  itt  such  manner  or  proportions  as  the 
trustee  of  the  -power  shall  think  proper,  the  trustee  may  allot  the 
whole  to  any  one  or  more  of  such  persons,  in  exclusion  of  the  others. 
(i  R.  S.  774,  and  Revisors'  Report  on  ch.  i,  pt.  2,  p.  61.)  Al- 
though the  power  in  the  present  case  was  to  be  exercised  by  these 
commissioners  as  the  officers  or  agents  of  the  public,  and  not  strictly 
in  the  character  of  mere  trustees  of  a  power  in  trust,  yet,  as  the  leg- 
islature had  established  this  general  principle  as  one  of  the  fundamen- 
tal rules  of  construction  in  reference  to  powers,  I  must  presume  they 
meant  the  same  rule  of  construction  should  be  adopted  in  relation  to 
the  power  granted  to  or  conferred  upon  these  commissioners.  The 
only  restriction  imposed  upon  them,  therefore,  was  that  they  should 
exercise  the  power  according  to  the  best  of  their  judgment,  and  appor- 
tion the  stock  to  such  of  the  subscribers,  and  in  such  proportions,  as  a 
majority  of  them  should  deem  most  advantageous  to  the  interests  of 
the  corporation.  And  there  is  no  allegation  in  this  bill  from  which  I 
have  a  right  to  infer  that  the  complainant  believes  they  have  not  distrib- 
uted the  stock  in  this  manner.  Although  it  is  alleged  that  the  com- 
plainant is  informed,  and  believes,  they  have  distributed  the  stock 
principally  among  themselves  and  their  relatives  and  friends,  it  would 
only  be  in  accordance  with  the  principles  of  human  nature,  were  we 
to  conclude,  from  that  circumstance  alone,  they  honestly  believed 
that  they  and  their  friends  would  be  more  likely  to  appoint  directors 
who  would  manage  the  concerns  of  the  corporation  well,  than  others 
would  if  the  control  of  the  coiporation  should  be  given  to  their  oppo- 
nents. In  this,  perhaps,  they  may  have  acted"  under  a  mistake,  but 
that  alone  is  not  sufficient  to  authorize  an  interference  with  their  dis- 
tribution. Where  a  discretion  is  to  be  exercised  according  to  certain 
fixed  legal  principles,  especially  when  that  discretion  is  to  be  exer- 
cised by  a  person  or  body  acting  as  a  court  of  justice,  if  the  person  or 
body  intrusted  with  the  power  has  mistaken  the  law,  or  violated  such 
fixed  legal  principles,  it  may  be  a  proper  case  for  review  and  correc- 
tion by  the  appropriate  tribunal. 


388  A^ALKER   V.    DEVEREAUX.  §  79 

But  if  the  legislature  has  intrusted  the  exercise  of  the  power  to  the 
sole  judgment  and  discretion  of  a  particular  person  or  body  of  indi- 
viduals, no  court  is  authorized  to  interfere  with  or  control  that  discre- 
tion, provided  it  is  exercised  in  good  faith.  In  the  recent  case  of 
The  King,  ex  rel.  Scales,  v.  The  Mayor  and  Aldermen  of  London  (3 
Barn.  &  Adolph.  Rep.  271),  the  late  Lord  Tenterden  says,  "if  a 
matter  is  left  to  the  discretion  of  any  individual  or  body  of  men,  who 
are  to  decide  according  to  their  own  conscience  and  judgment,  it 
would  be  absurd  to  say  that  any  other  tribunal  is  to  inquire  into  the 
grounds  and  reasons  on  which  they  have  decided,  and  whether  they 
have  exercised  their  discretion  properly  or  not."  The  same  principle 
is  recognized  in  the  case  of  The  King  v.  The  Justices  of  Norfolk  ( i 
Neville  &  Man.  Rep.  (i^")^  and  in  a  variety  of  cases  in  our  own 
courts.  This  point  was  also  expressly  decided  by  the  vice-chancellor 
of  the  first  circuit  in  the  case  of  The  Brooklyn  Bank  ( i  Edwards'  Ch, 
Rep.  371)  where  the  powers  of  the  commissioners  were  the  same, 
substantially,  as  in  the  present  case.  Chancellor  Sanford  also  ad- 
mitted the  correctness  of  this  principle  in  the  case  which  was  before 
him  relative  to  the  distribution  of  the  stock  in  the  Commercial  Bank 
of  Albany ;  although  he  very  properly  decided  that  it  was  not  applica- 
ble to  the  case  then  under  consideration.  (Meades  v.  Walker,  i 
Hopkins'  Rep.  591.)  It  is  not  necessary  for  the  decision  of  the  pres- 
ent motion  that  I  should  consider  the  question  whether  the  commis- 
sioners could  themselves  become  subscribers  for  the  stock  of  the  cor- 
poration. But  as  that  question  has  been  fully  argued,  it  may  save 
expense  to  the  parties,  and  prevent  further  litigation  in  this  case,  if  I 
proceed  to  dispose  of  that  objection  to  the  distribution  at  this  time. 

The  general  principles,  that  a  trustee  can  not  traffic  in  the  subject 
of  his  trust,  that  no  person  shall  be  a  judge  in  his  own  cause,  and  that 
a  public  officer  can  not  do  an  act  which  is  inconsistent  with  the  duty 
he  owes  to  another,  or  to  the  public,  are  well  understood.  And  it 
certainly  does  seem  to  be  inconsistent  with  these  principles  that 
the  legislature  should,  in  any  case,  permit  commissioners  for  the  dis- 
tribution of  stocks  to  decide  between  themselves  and  others  what  por- 
tion of  such  stock  shall  belong  to  the  commissioners  and  what  part 
they  shall  award  to  other  subscribers.  It  certainly  would  better  ac- 
cord with  these  leading  principles  of  law  were  the  legislature  to  state, 
in  express  terms,  what  portion  of  the  whole  stock  each  commissioner 
should  be  permitted  to  take,  and  to  prohibit  him  from  taking,  either 
directly  or  indirectly,  any  greater  share,  except  in  a  case  of  deficiency 
in  the  amount  subscribed.  But  where  it  was  in  the  power  of  the  legis- 
lature to  give  all  the  stock  to  certain  individuals  who  had  already  be- 
come subscribers  therefor,  as  was  the  case  in  relation  to  many  of  the 
early  acts  creating  joint-stock  companies,  the  legislature  might  un- 
questionably confer  the  power  upon  such  individuals  of  deciding  how 
much  of  such  stock  they  would  keep  themselves  and  how  much  they 
would  apportion  to  others.  The  question  here  is,  whether  the  legis- 
lature, in  the  case  now  under  consideration,  expected  or  intended  that 


§   79  FUNCTIONS    OF    PROMOTERS.  389 

these  twenty-one  commissioners  named  in  the  act  of  incorporation 
should  be  permitted  to  subscribe  for  and  receive  a  part  of  the  stock  of 
this  company. 

The  fundamental  principle  to  be  observed  in  the  construction  of 
statutes,  is  to  discover,  if  possible,  the  true  intention  of  the  law-giver. 
And  when  that  intention  is  ascertained,  the  court  is  bound  to  give 
effect  to  such  intention,  whatever  opinion  the  judge  may  entertain  as 
to  the  wisdom  or  policy  of  the  law ;  provided  such  intention  does  not 
contravene  any  principle  of  the  constitution  or  transcend  the  powers  of 
the  legislature.  *  *  *  It  is  therefore  proper  to  refer  to  the  provisions 
of  the  several  acts  authorizing  commissioners  and  others  to  receive  sub- 
scriptions for  and  to  distribute  the  stock  of  moneyed  and  other  corpo- 
rations, and  to  the  known  usage  under  such  statutes,  for  the  purpose, 
of  ascertaining  whether  the  legislatui'e  intended  that  the  commission- 
ers in  this  case  should  be  excluded  from  subscribing 'or  receiving  any 
portion  of  the  stock,  on  account  of  the  peculiar  nature  of  their  official 
duties  in  the  distribution  of  the  stock  in  case  of  an  excess.  The  case 
of  Haight  et  al.  v.  Day  et  al.  (i  Johns.  Ch.  Rep.  18),  came  before  this 
court,  in  18 14,  upon  a  complaint  against  the  commissioners  for  the 
distribution  of  the  stock  in  the  Catskill  Bank,  under  a  provision  in  the 
act  of  incorporation  very  similar  to  that  which  is  now  under  consider- 
ation. The  complaint  in  that  case  was  that  there  was  a  gross  in- 
equality in  the  apportionment  among  the  subscribers ;  and  that  the 
distribution  was  principally  confined  to  the  commissioners  themselves, 
their  relations  and  favorites^  The  bill  also  charged  that  the  appor- 
tionment was  unjust,  fraudulent  and  corrupt.  Yet,  upon  the  answer 
of  the  defendants  merely  denying  that  they  were  governed  by  any 
improper  motive  in  the  execution  of  their  trust,  and  alleging  that  they 
had  apportioned  the  stock  as  they  deemed  discreet  and  proper.  Chan- 
cellor Kent  dissolved  the  injunction  and  permitted  them  to  proceed, 
and  to  elect  themselves  directors  to  control  and  manage  the  institu- 
tion. 

It  is  suggested  by  the  complainant's  counsel  that  it  does  not  appear 
by  the  report  of  that  case  that  the  objection  was  there  raised  that  it 
was  inconsistent  with  their  character  as  commissioners  to  distribute 
the  stock — to  subscribe  for  and  apportion  a  part  thereof  to  themselves. 
It  appears  to  me,  however,  impossible  to  suppose  the  chancellor  could 
have  overlooked  this  general  principle,  if  he  had  considered  it  as  ap- 
plicable to  the  case,  for,  upon  looking  into  the  pleadings  in  that  cause, 
on  file  in  the  register's  office,  a  more  appropriate  case  for  the  enforce- 
ment of  that  principle  can  hardly  be  conceived.  The  whole  stock  to 
be  distributed  was  6,000  shares ;  and  more  than  six  times  that  amount 
was  actually  subscribed  by  one  hundred  and  twenty -three  persons, 
including  the  twenty-two  complainants,  who  subscribed  between  five 
and  six  thousand  shares.  Yet  the  four  commissioners  took  about  one-half 
of  the  stock  to  themselves,  and  gave  all  the  residue,  except  108  shares, 
to  nine  of  their  nearest  relatives  by  blood  and  marriage,  and  to  two  or 
three  other  persons  connected  with  them  in  business.     And  they  dis- 


390  WALKER   V.    DEVEREAUX.  §  79 

tiibuted  the  io8  shares  among  the  complainants  and  others,  by  giving 
one  share  to  each.  In  a  case  so  glaring,  I  can  not  believe  my  learned 
and  now  venerable  predecessor  would  have  forgotton  or  have. hesi- 
tated to  apply  this  principle,  if  he  had  not  been  satisfied  from  the 
course  of  legislation  which  had  been  adopted  in  relation  to  the  distri- 
bution of  the  stocks  of  incorporated  companies,  that  there  was  some- 
thing which  took  the  case  of  commissionei's  and  tnistees  for  the  dis- 
tribution of  such  stocks  out  of  the  operation  of  the  general  rule. 
Whether  he  was  right  in  his  construction  of  the  law  as  to  the  powers 
of  the  commissioners  in  such  a  case,  it  is  useless  now  to  inquire,  as 
his  decision  has  been  received  and  acted  on  as  law  ever  since  that 
time.  And  the  numerous  prohibitions  contained  in  subsequent  acts 
of  incorporations,  restricting  the  commissioners  as  to  the  number  of 
shares  they  shall  be  permitted  to  distribute  to  themselves,  but  with- 
out giving  them  in  terms  the  power  to  take  any,  show  the  understand- 
ing of  the  legislature  that  such  was  the  established  law. 

I  must,  therefore,  conclude,  from  these  circumstances,  and  also 
from  the  fact,  of  public  notoriety,  that  commissioners  have  always 
been  in  the  habit  of  apportioning  a  part  of  the  stock  to  themselves ; 
that  the  legislature  did  not  intend  the  commissioners  in  this  case  should 
be  excluded  from  a  participation  in  the  stock  of  the  company.  As  to 
the  amount  taken  by  them,  they  have  restricted  themselves  far  below 
the  smallest  maximum  which  has  ever  been  adopted  by  the  legislature 
in  a  similar  case.  I  can  not,  therefore,  say  they  have  abused  the 
right  of  appropriating  a  portion  of  the  capital  stock  of  the  company 
to  themselves.     *     *     * 

Injunction  denied. 

Note.  See  particularly :  1839,  Crocker  v.  Crane,  21  Wend.  (N.  Y.)  211,  34 
Am.  Dec.  228;  Beach,  §  519;  Cook,  §  57;  Elliott,  §  363;  Morawetz,  §§64-68; 
Taylor,  §  91 ;  1  Thompson,  §§  1204-1250 ;  2  Thompson,  §§  1368, 1540 ;  5  Thomp- 
son, §§  5908,  6570. 

Authority  and  functions  of  commissioners, — 1.  Their  functions  are  of  a 
public  character,  and  action  will  be  compelled  by  mandamus.  1833,  Walker 
V.  Devereaux,  4  Paige  Ch.  (N.  Y.)  229,  supra;  1851,  In  re,  White  River  Bank, 
23  Vt.  478. 

2.  As  to  those  dealing  with  them,  their  authority  is  similar  to  that  of  an 
agent  with  a  special  power  of  attorney.  1871,  Nippenose  Mfg.  Co.  v.  Stadon, 
68  Pa.  St.  256. 

3.  As  to  the  corporation,  and  subscribers,  they  are  trustees,  subject  to  con- 
trol by  courts  of  equity.  1831,  Attorney -General  v.  Stevens,  1  N.  J.  Eq. 
(Saxt.)  369,  22  Am.  Dec.  526. 

4.  Their  power  is  visually  of  a  discretionary  character.  1858,  Thomas  v.  Cit- 
izens' Pass.  E.  Co.,  15  Leg.  Int.  (Pa.)  189;  1858,  Brower  v.  Pass.  R.  Co.,  3 
Phil.  (Pa.)  161 ;  generally  so,  in  apportioning  or  allotting  excessive  subscrip- 
tions. 1814,  Haight  v.  Day,  1  Johns.  Ch.  (N.  Y.)  18;  1832,  Clarke  v.  Brook- 
lyn Bank,  1  Edw.  Ch.  (N.  Y.)  361;  but  sometimes  it  is  not  so:  1850,  Van 
Dyke  v.  Stout,  8  N.  J.  Eq.  (4  Halst.)  333;  1856,  Buffalo  &  N.  Y.  C.  R.  v.  Dud- 
ley, 14  N.  Y.  (4  Kern.)  336.  When  ministerial  it  can  be  delegated:  1848, 
Lohman  v.  N.  Y.  &  E.  R.,  2  Sandf.  (N.  Y.)  39;  1872,  Saugatuck  Bridge  Co.  v. 
Westport,  39  Conn.  337,  but  see  1861,  Shurtz  v.  Schoolcraft,  etc.,  R.,  9  Mich. 
269,  contra. 

5.  They  usually  act  as  a  board,  and  a  majority  controls.    1839,  Crocker  v. 


§   8o  FUNCTIONS    OF   PROMOTERS.  391 

Crane,  21  Wend.  (N.  Y.)  211,  34  Am.  Dec.  228;  1856,  Penobscot  R.  Co.  v. 
White,  41  Maine  512,  66  Am  Dec.  257.  Acts  of  de  facto  boards,  however, 
making  allotment  to  themselves  only,  have  been  held  to  be  void.  1895,  Shel- 
lenberger  v.  Patterson,  168  Pa.  St.  30,  31  Atl.  943. 

6.  Their  authority  continues  till  the  subscription  tsco?n/)iefed.  1836,  Lallandev. 
Louisiana  State  Ins.  Co.,  9  La.  326.  But  ceases  as  soon  as  the  subscription  is 
completed  and  organization  takes  place.  1854,  Smith  v.  Bangs,  15  111.  399; 
ia')8,  Ellison  v.  Mobile  &  O.  R.  Co.,  36  Miss.  572;  1858,  James  v.  C,  H.  &  D. 
R.Co.,  2  Disney  (Ohio)  261. 

7.  In  some  states  it  is  held  the  commissioners  have  exclusive  authority  to  receive 
subscriptions.  1811,  Essex  Turnpike  Corp.  v.  Collins,  8  Mass.  292;  1861, 
Shurtz  V.  Schoolcraft  &  T.  R.  Co.,  9  Mich.,  269;  1875,  Parker  v.  Northern 
Cent.  M.  R.  Co.,  33  Mich  23.  But  in  other  states  it  is  held  that  any  one  may 
take  a  subscription,  provided  it  is  accepted  by  the  corporation.  1857,  North- 
eastern R.  Co.  V.  Rodrigues,  10  Rich.  Law  (S.  C.)  278;  1857,  Walker  v.  Mobile 
&  O.  R.  Co.,  34  Miss.  245 ;  1876,  Scarlett  v.  Academy  of  Music,  etc.,  46  Md.  132. 


Sec.  80.    Incorporators  under  general  statutes. 
NICKUM  V.  BURCKHARDT.i 

1897.     In  the  Supreme  Court  of  Oregon.     30  Oregon  Reports 
464-477,  60  Am.  St.  R.  822,  47  Pac.  R.  888. 

Opinion  by  Mr.  Justice  Wolverton. 

This  is  an  action  to  recover  for  assessments  levied  upon  unpaid 
capital  stock  of  a  private  corporation.  About  June  18,  1893,  some 
thirteen  persons,  among  whom  were  Guy  Posson,  who  signed  for  two 
shares;  J.  E.  Juston,  for  four;  F.  C.  Barnes,  for  ten;  and  H.  Pease, 
for  three — subscribed  the  following  agreement,  each  placing  opposite 
his  name  the  number  of  shares  presumably  intended  to  be  taken :  "We, 
the  undersigned,  each  in  consideration  of  the  promise  of  the  other, 
agree  to  subscribe  for  and  take  the  number  of  shares  of  the  capital 
stock  set  opposite  our  respective  names  of  a  company  to  be  incor- 
porated for  the  purpose  of  operating  a  fertilizer,  feeding  and  fatten- 
ing stock  and  poultry,  and  if  obtainable,  collecting  and  disposing  of 
swill,  and  other  purposes  of  like  nature;  said  company  to  be  incor- 
porated in  accordance  with  the  laws  of  the  state  of  Oregon,  with  a 
capital  stock  of  $15,000,  divided  into  150  shares  of  the  value  of  $100 
each."  There  were  seventy-eight  shares  subscribed  for  upon  this 
paper,  representing  $7,800.  On  the  7th  day  of  October,  1*693,  three 
of  the  subscribers  executed,  duly  acknowledged,  and  caused  to  be 
filed  and  recorded  in  the  proper  offices,  articles  of  incorporation,  in- 

'  Opinion  on  rehearing  upon  the  point  as  to  estoppel  omitted. 


392  NICKUM   V.    BdRCKHARDT.  §  8o 

corporating  the  Oregon  Fertilizing  Company  specifying  the  object  and 
business  thereof  to  be  "to  transport  wood,  produce  and  garbage  and 
to  cremate  such  garbage,  or  te  use  the  same  for  feed  or  fertilizing 
purposes."  A  little  later,  all  the  subscribers  to  said  instrument,  ex- 
cept the  four  above  named,  signed  with  others  the  following  writing, 
which  is  contained  in  a  minute  book  kept  for  the  purpose  of  record- 
ing the  proceedings  of  the  corporation  to  wit:  "We,  the  under- 
signed, hereby  subscribe  for  the  number  of  shares  of  capital  stock  of 
the  Oregon  Fertilizing  Company  set  opposite  our  respective  names, 
and  agree  to  pay  for  the  same  at  such  time  or  times  as  may  be  ordered 
by  the  board  of  directors  hereafter  to  be  elected."  Only  sixty-nine 
shares  of  the  capital  stock  were  subscribed  for  upon  this  latter  instru- 
ment. Subsequently  all  the  subscribers  to  this  instrument,  together 
with  Posson  and  Juston,  signed  an  agreement  to  hold  the  first  meet- 
ing of  the  stockholders  on  October  14,  1893,  waiving  the  thirty  days' 
notice  required  by  law,  and  in  pursuance  thereof  the  meeting  was 
held,  all  said  signers  being  present,  either  in  person  or  by  proxy,  but 
no  others,  and  participated  in  the  election  of  directors  and  other  busi- 
ness. The  corporators  having  certified  to  the  result  of  the  election, 
the  directors  elected  took  the  oath  of  office,  and  at  once  organized  by 
electing  the  officers  of  the  board.  To  abate  the  action,  the  defend- 
ants plead  that  the  plaintiff  company  is  not  an  incorporation. 

It  was  urged  at  the  hearing  that  the  defendants  ought  to  be  estopped 
from  alleging  that  the  Oi'egon  Fertilizing  Company  is  not  a  corpora- 
tion duly  incorporated  and  organized  in  all  respects  as  contemplated 
by  law,  inasmuch  as  they  are  subscribers  or  purchasers  of  stock 
subsequent  to  the  alleged  completed  organization  of  the  company; 
that  having  dealt  with  the  company  in  its  corporate  capacity,  and  hav- 
ing entered  into  contractual  relations  with  it,  they  have  recognized 
its  existence  as  a  body  corporate,  and  that  now,  when  sued  upon  their 
obligation  to  it  as  such  a  body,  they  should  not  be  permitted  to  deny 
its  legal  existence.  The  doctrine  here  contended  for  is  undoubtedly 
well  grounded  in  the  law,  but  it  can  not  be  invoked  in  this  case  be- 
cause not  pleaded.  The  opportunity  was  afforded  for  setting  up  the 
supposed  estoppel  in  the  reply,  but  it  was  not  done,  and  it  is  now  too 
late  to  assert  it.  It  is  said  that  "if  a  party  who  has  an  opportunity  to 
plead  an  estoppel  upon  which  he  relies  fails  to  do  so,  but  goes  to  issue 
on  the  fact,  he  thereby  waives  the  estoppel,  puts  the  matter  at  large, 
and  the  jury  may  disregard  the  estoppel,  and  are  at  liberty  to  find 
the  truth."  Note  to  Tyler  v.  Hall,  106  Mo.  313,  27  Am.  St.  Rep. 
337—346,  15  S.  W.  319.  To  the  same  effect  are  Bruce  v.  Phoenix 
Ins.  Co.,  24  Ore.  486,  34  Pac.  16;  and  Bays  v.  Trulson,  25  Ore.  109, 
46  Am.  &  Eng.  Corp.  Cas.  386,  35  Pac.  26. 

This  question  disposed  of,  we  come  to  another,  more  complex  in  its 
nature,  and  that  is  whether  there  has  been  an  organization  of  the 
plaintiff  corporation  under  and  in  pursuance  of  the  general  statutes 
providing  therefor.  The  regularity  of  the  execution  and  filing  of  the 
articles  of  incorporation  is  conceded.      The  persons  subscribing  the 


§  80  FUNCTIONS    OF   PROMOTERS.  393 

articles  are  known  as  the  incorporators^  and  their  ■powers  and  duties 
are  purely  statutory.  They  may  open  books  and  receive  subscriptions 
to  the  capital  stock;  ^Hhey  shall  give  notice  to  the  subscribers  to  vieef^ 
at  such  time  and  place  as  they  may  designate  for  the  purpose  of  elect- 
ing directors;  they  shall  act  as  inspectors  at  the* first  meeting  for 
that  purpose^  certifx  who  are  elected^  and  appoint  the  time  and  place 
of  their  first  meeting.  This  enumeration  comprises  the  substance  of 
their  powers  (See  section  3222^  HilVs  Code).  These  are  all  acts  neces- 
sary to  and  in  furtherance  of  the  completion  of  the  organization.  The 
organization  is  completed  only  when  directors  have  been  elected.,  and 
they  have  elected  a  president  and  secretary.,  which  it  is  contettiplated 
they  shall  do  at  their  frst  meeting.  From  the  time  of  the  first  jneet- 
iftg  of  the  directors.,  that  is  to  say.,  from  the  time  of  the  organization 
of  the  board,  '•'■the  powers  vested  in  the  corporation  are  exercised  by 
them.,  or  by  their  officers  or  agents  under  their  direction"^  (HilVs 
Code.,  sec.  3225).,  thus  relieving  the  incorporators  of  further  duty  or 
power  in  the  premises .,  or.,  rather,  their  functions  then  cease,  because 
their  duties  have  been  fulfilled  and  their  powers  executed.  From 
the  date  of  its  completed  organization  the  incorporation  may  begin 
the  prosecution  of  its  enterprise  or  business.  It  may  then  sue  and  be 
sued,  contract  and  be  contracted  with,  and  exercise  any  of  the  other 
statutory  powers  incident  to  its  organization  and  the  enterprise,  busi- 
ness, pursuit  or  occupation  adopted.  The  corporation  may  elect  its 
board  of  directors  when  one-half  of  the  capital  stock  has  been  sub- 
scribed. Hill's  Code,  §  3222;  Fairview  R.  Co.  v.  Spillman,  23 
Ore.  587,  32  Pac.  688.  And  one  question  here  is,  whether  one-half 
of  the  capital  stock  had  been  subscribed  when  the  board  was  elected. 
It  seems  to  be  supposed  that  in  order  to  constitute  a  person  a  sub- 
scriber to  the  capital  stock  of  a  corporation  he  must  have  subscribed 
to  the  stock  books  of  the  concern  after  its  articles  of  incorporation 
have  been  perfected  and  filed,  and  Coyote  Mining  Co.  v.  Ruble,  8 
Or.  284,  is  cited  as  authority.  Boise,  J.,  at  page  294,  says,  in  effect, 
that  to  put  a  person  in  the  position  of  a  subscriber  to  the  capital  stock 
it  must  be  shown  by  the  stock  book  signed  by  him,  or  evidence  equiv- 
alent to  such  signing.  This  would  seem  to  support  the  proposition, 
but  at  another  place  (page  298)  he  says:  "It  is  necessaiy  for  the 
corporation  to  prove  the  subscription  by  producing  the  supscription 
signed  by  Ruble,  either  by  himself  or  by  another  for  him  with  his  au- 
thority, or  by  some  acts  of  his  which  are  equivalent  to  a  subscription." 
So  that  the  case  does  not  decide  either  that  the  primary  subscription 
must  be  made  upon  the  stock  book,  or  that  it  shall  have  been  made 
subsequent  to  the  execution  of  the  articles  of  incorporation.  In  a  late 
case  (Balfour  v.  Baker  City  Gas  Co.,  27  Ore.  307,  41  Pac.  165), 
Bean,  C.  J.,  speaking  for  this  court,  says:  "From  an  extended  ex- 
amination of  the  authorities  we  take  the  law  to  be  that  when  the  pro- 
posed corporation  is  formed  as  contemplated  in  the  preliminary  sub- 
scription, and  within  a  reasonable  time  thereafter,  the  subscription, 
iniless  revoked  in  the  manner  authorized  by  law,  becomes  irrevocable, 


394  NICKUM   V.    BURCKHARDT.  §  8o 

the  subscriber  becomes  a  shareholder,  and  liable  as  such  without  any 
further  act  on  his  part."  And  this  seems  to  be  so,  although  the  statute 
may  provide  for  the  opening  of  stock  books  by  designated  persons  after 
the  articles  are  filed.  Balfour  v.  Baker  City  Gas  Co.,  27  Ore.  307,  41 
Pac.  165;  I  ThomijDSon  on  Coi-porations,  §§  1152,  1166;  Buffalo  R. 
Co.  V.  Gifford,  87  N.  Y.  294.  Nor  is  the  distinction  taken  in  some 
of  the  cases  between  a  present  subscription  and  an  agreement  to  sub- 
scribe to  the  stock  of  a  corporation  thereafter  to  be  created  thought  to 
be  sound,  i  Cook  on  Stocks  and  Stockholders,  §  75  ;  Knox  against 
Childersburg  Land  Co.,  86  Ala.  180-184,  5  South.  578;  Athol  Music 
Hall  Co.  V.  Carey,  116  Mass.  471. 

Now,  it  appears  that  by  the  preliminary  subscription  seventy-eight 
shares  of  the  capital  stock  were  signed  for,  three  more  than  was  neces- 
sary for  the  completion  of  the  organization  by  the  election  of  directors. 
Four  of  the  individuals  signing  this  paper,  representing  nineteen 
shares,  did  not  sign  the  later  agreement,  to  which  sixty-nine  shares 
only  were  subscribed.  All  those  subscribing  the  latter  paper,  to|rether 
with  Guy  Posson  and  J.  E.  Juston,  who  signed  the  preliminary  sub- 
scription, signed  the  consent  agreement,  for  holding  the  first  meeting, 
and  participated  therein,  and  Juston  was  elected  a  director.  So  it  will 
be  seen  that  if  the  two  shares  of  Posson  and  the  four  of  Juston  are 
added  to  the  sixty-nine  shares  signed  to  the  second  paper,  one-half  of 
the  capital  stock  was  represented  at  such  meeting.  But  the  question 
arises,  Were  they  subscribers  to  the  capital  stock.?  We  think  that, 
having  signed  the  preliminary  subscription  and  the  consent  agreement 
for  the  first  meeting,  and  having  participated  therein,  they  became 
bound  in  that  capacity,  and  must  be  so  considered.  They 
certainly  are  estopped  by  their  acts  from  denying  that  they  are 
subscribers,  and,  this  being  so,  the  law  requiring  a  subscription 
of  one-half  of  the  capital  stock  before  organization  was  substantially 
complied  with. 

Incidental  to  this  question,  it  is  argued  that  the  purposes  designated 
in  the  articles  of  incorporation  do  not  correspond  with  those  set  forth 
in  the  preliminary  subscription,  and,  therefore,  that  Posson  and  Jus- 
ton can  not  be  held  to  be  subscribers.  We  presume  that  ordinarily  a 
material  departure  in  this  respect  will  avoid  the  original  agreement, 
but  in  this  case  the  persons  named  have  construed  the  purposes  to  be 
one  and  the  same  by  participation  in  the  organization  under  the  articles 
of  incorporation,  or,  rather,  to  speak  more  concisely,  they  have  as- 
sented to  the  departure,  if  such  it  may  be  termed.  Knox  v.  Childers- 
burg Land  Co.,  86  Ala.  180,  5  So.  Rep.  578. 

Again  it  is  urged  that  if  the  primary  subscription  is  suflScient  to 
bind  the  subscribers  to  the  capital  stock  of  the  concern,  then  Barnes 
and  Pease  not  being  present,  and  having  no  notice  of  the  first  meet- 
ing, and  not  having  waived  the  same  by  writing  or  otherwise,  the 
election  of  directors  was  irregular  and  void.  We  are  not  to  be  un- 
derstood as  passing  upon  the  sufficiency  of  this  paper  within  itself, 
but  that,  considering  the  subscription  thereto  of  Posson  and  Juston, 


§   80  FUNCTIONS   OF    PROMOTERS.  395 

in  connection  with  their  subsequent  acts  they  were  properly  recog- 
nized as  stockholders,  and  hence,  that  one-half  of  the  capital  stock  was 
represented  at  the  organization  of  the  company.  The  fact  that  Barnes 
and  Pease  had  not  been  notified  of  the  meeting  could  not  furnish 
grounds  for  objection  by  those  subscribers  present  and  participating 
therein,, they  have  not  suffered  by  the  omission,  and  are  not  in  a  posi- 
tion to  object  as  to  others:  Schenectady  R.  Co.  v.  Thatcher,  11  N. 
Y.  102.  See,  also,  Handley  v.  Stutz,  139  U.  S.  422,  11  Sup.  Ct. 
530 ;  Morawetz  on  Private  Corporations,  §  399.  Thus  we  have  an 
organization  perfected  by  persons  bound  as  subscribers,  and  repre- 
senting fully  one-half  of  the  capital  stock  as  fixed  by  the  articles  of 
incorporation,  and  all  bound  by  its  proceedings.  We  think  the 
organization  valid,  although  Barnes  and  Pease  were  not  notified.  As 
to  how  they  would  be  affected  by  want  of  notice  it  is  not  for  us  to 
determine  at  this  time ;  it  is  sufficient  to  say  that  those  subscribers  par- 
ticipating can  not  object  on  that  account. 

The  defendants,  if  subscribers  to  the  capital  stock,  became  such 
after  the  organization,  and  the  want  of  notice  to  Barnes  and  Pease 
could  not  affect  them ;  so  that  they  are  in  no  better  position  to  object 
to  the  regularity  of  the  organization  on  that  account  than  those  partic- 
ipating in  the  first  meeting.  The  result  is  that,  in  so  far  as  they  are 
concerned,  the  company  was  duly  incorporated,  and  this  result  is 
reached,  not  because  they  are  estopped  by  having  dealt  with  it,  but 
because  it  was  legally  organized  prior  to  their  subscription  to  the  cap- 
ital stock.  For  the  purpose  of  estopping  the  plaintiff  from  asserting 
its  due  and  legal  organization,  it  is  alleged  in  the  answer  in  abatement 
that  plaintiff  had,  theretofore,  instituted  an  action  in  a  justice's  court 
against  Guy  Posson  for  assessments  made  by  the  company  upon  his 
alleged  subscription  to  the  capital  stock;  that  a  trial  was  had  upon  the 
sole  issue  whether  Posson  was  a  svibscriber  at  the  date  of  the  attempted 
organization ;  and  that  it  was  determined  by  the  judgment  that  he  was 
not.  It  is  claimed  that,  as  the  same  question  is  necessarily  involved 
in  determining  in  this  action  whether  the  plaintiff  was  duly  organized, 
the  plaintiff  is  estopped  to  assert  its  truth,  the  judgment  having  gone 
against  him  in  the  justice's  court.  The  plea  is  argumentative,  and 
avers  in  effect  that,  as  the  judgment  in  the  justice's  court  estops  the 
plaintiff  to  now  assert  that  Posson  is  a  subscriber,  therefore  it  can  not 
be  affirmed  that  the  corporation  is  duly  organized.  That  this  is  an 
action  upon  a  different  cause  from  the  one  against  Posson  can  not  be 
gainsaid ;  the  inquiry,  therefore,  to  which  the  estoppel  is  pertinent  must 
be  confined  to  the  point  or  question  actually  determined  in  the  Posson 
case.  Cromwell  v.  County  of  Sac,  94  U.  S.  353.  Thus  far,  the 
plea  is  apparently  within  the  rule.  But  a  very  important  essential  to 
the  estoppel  is  wanting  in  that  this  cause  and  the  one  adjudicated  in 
the  justice's  court  are  not  between  the  same  parties  in  the  same  right 
or  capacity,  or  their  privies  claiming  under  them.  This  objection  is 
fatal  to  the  plea,  i  Freeman  on  Judgments,  §  252.  The  judgment 
of   the   court  below  must,  therefore  be  reversed,  and  the  cause  re- 


396  NICKUM   V.    BURCKHARDT.  §  8o 

manded  for  such  further  proceedings  as  maybe  deemed  proper  not  in- 
consistent with  this  opinion. 
Reversed. 

Note.  See  schemes  of  organization,  infra,  pp.  426,  560 ;  In  In  re  Lady  Bryan 
Co.,  1  Sawyer  (U.  S.  C.  C.)  349, 14  Fed.  Cas.  926  (1870) ,  it  was  said  that  "corpora- 
tors" m  the  Bankrupt  Act,  meant  the  stockholders.  But  so  far  as  organiza- 
tion is  concerned  "corporators  exist  before  stockholders,  and  do  not  exist 
with  them.  When  stockholders  come  in,  corporators  cease  to  be."  Chase  v. 
Lord,  77  N.  Y.  1,  11  (1879).  Corporators  or  incorporators  need  not  become 
members  of  the  corporation  by  subscribing  for  stock,  unless  the  law  expressly 
so  provides :  1870,  Densmore  Oil  Co.  v.  Densmore,  64  Pa.  St.  43 ;  1890,  Welch 
V.  Importers',  etc..  Bank,  122  N.  Y.  177;  1898,  Bristol  Bank  &  T.  Co.  v.  Jones- 
boro  B.  &  T.  Co.,  101  Tenn.  545,  48  S.  W.  228. 


Title  II.     The  Body  Corporate  :    Its  Formation,  or  Its  Con- 
ception AND  Incubation. 


CHAPTER  5. 

THE  CORPORATE  CHARTER.* 

article  I.     nature  and  purpose  of  the  charter. 

Sec.  81.  In  general.  The  conception  of  a  corporation  consists  in 
the  offer  and  acceptance  of  a  charter,  wherein  is  set  forth  the 
terms  and  conditions  upon  which  the  state  will  permit  an  in- 
dividual or  association  of  individuals  to  exercise  a  part  of  the 
sovereign  franchises  of  the  state.  When  the  offer  is  made 
and  accepted  there  results  a  contract  between  the  state,  the 
corporation,  and  those  who  accept  it,  authorizing  them  to  con- 
vert themselves,  or  others,  or  an  association  of  other  persons, 
by  organization,  into  a  body  corporate,  having  the  powers 
and  privileges  set  forth  expressly,  or  necessarily  implied  from 
those  set  forth,  in  the  charter. 

Sec.  82.  More  particularly ,  the  charter  is  both  a  law  and  a  con- 
tract. 

"A  charter  of  incorporation  is  the  written  instrument  by  which  the 
crown  institutes  the  body  politic,  and  conveys  to  it  its  peculiar  constitu- 
tion, its  rights,  privileges,  powers  or  estates,  etc.,  imposes  a  name  upon 
the  corporation,  defines  its  objects  and  purposes,  and  assigns  such  con- 
ditions and  limitations  upon  the  exercise  of  the  powers,  privileges,  etc., 
conferred,  as  to  the  crown  seems  fit."  Grant,  Corporation,  *i3 
[Am.  ed.  p.  25,  1854]. 

"The  charter  of  a  corporation  serves  a  twofold  purpose;  it  operates 
as  a  law  conferring  upon  the  corporators  the  right  or  franchise  of  act- 
ing in  a  corporate  capacity,  and,  furthermore,  it  contains  the  terms  of 
the  fundamental  agreement  between  the  corporators  themselves." 
Morawetz,  Private  Corporations,  §  316. 

"The  charter  of  a  private  business  corporation  or  incorporated  com- 
pany operates  primarily  as  a  law  repealing  the  common  law  prohibi- 

» See,  generally,  1  Abbott's  Digest,  146;  4  Am.  &  Eng.  Enc,  193-4;  Angell 
&  Ames,  ch,  ii,  iii;  Beach,  §§11,  13,  15,  17-36;  Boone,  ch.  ii ;  Clark,  ch.  ii; 
Cook,  §§  2,  3,  492-503,  640;  Elliott,  §§  21-50,  89-120;  Field,  §§  9-36;  Grant, 
pp.  ♦9-*47;  Morawetz,  §§  8-27,  38,  39,  318-759,  760, 1046-1050;  Taylor,  §§  118, 
147,  195,  227,  264,  438,  448,  496-504;  1  Thompson,  §§35-218. 

(397) 


398  PLANK-ROAD   V.    WOODHULL.  §  82 

tion  against  the  formation  of  corporate  associations,  and  enabling  the 
members  of  the  company  legally  to  accomplish  the  purposes  for  which 
they  have  associated.  *  *  *  After  the  corporation  has  been 
formed  pursuant  to  such  a  charter  or  incorporation  law,  it  fulfills  a 
second  equally  important  function.  It  contains,  in  whole,  or  in  part, 
the  terms  of  the  contract,  or  articles  of  agreement,  by  which  the  share- 
holders or  members  of  the  corporation  are  bound  together,  and  indi- 
cates the  purposes  for  which  they  have  contributed  or  agreed  to  con- 
tribute the  company's  capital."  Morawetz,  Private  Corporations. 
§  1046. 

"The  constitution  of  a  corporation  is  of  a  dual  nature;  it  is  law  in 
that  it  consists  of  rules  for  conduct  set  by  a  political  superior  to  polit- 
ical inferiors,  and  it  embodies  a  contract  the  obligation  of  which  is  the 
selfsame  constitution  regarded  as  law.  The  contract  embodied  in  the 
constitution  always  subsists  among  the  corporators  as  parties  thereto, 
and  it  may  subsist  between  the  corporation  and  the  state,  for  the  state 
is  sometimes  a  party  to  it."     Taylor,  Private  Corporations,  §  438. 


Sec.  83.    Same.     The  charter  as  a  law  and  as  a  contract. 

FLINT  AND  FENTONVILLE  PLANK- ROAD  v.  WOODHULL. 
1872.  In  the  Supreme  Court  of  Michigan.   25  Mich.  Rep.  99-1 13, 

CooLEY,  J.  The  legislature  of  1848  passed  an  act  incorporating 
the  Flint  and  Fentonville  Plank-road  Company,  with  power  to  lay  out, 
establish  and  construct  a  plank-road,  and  all  necessary  buildings, 
from  the  village  of  Flint  to  the  village  of  Fentonville.  The  act  was 
to  remain  in  force  sixty  years  from  and  after  its  passage,  but  the  fourth 
section  provided  that  "the  legislature  may  at  any  time  alter,  amend, 
or  repeal  this  act  by  a  vote  of  two-thirds  of  each  branch  thereof ;  but 
such  alteration,  amendment,  or  repeal  shall  not  be  made  within  thirty 
years  of  the  passage  of  this  act,  unless  it  shall  be  made  to  appear  to 
the  legislature  that  there  has  been  a  violation  by  the  company  of 
some  of  the  provisions  of  this  act."  The  fifth  section  made  the  gen- 
eral plank-road  act  of  1848  a  part  of  this  special  charter.  Laws  1848, 
p.  404. 

The  corporators  appear  to  have  organized  under  their  charter,  and 
to  have  constructed  the  road  provided  for  by  it,  a  part  of  which  they 
now  keep  up  and  maintain.  In  1871,  the  legislature  passed  an  act  to 
repeal  this  charter.  This  act  is  very  brief,  has  no  preamble,  contains 
no  recitals,  and  simply  declares  that  the  act  first  above  named  "be 
and  the  same  is  hereby  repealed."  Sess.  L.  1871,  vol.  iii,  p.  167. 
No  notice  was  given  to  the  company  or  to  any  of  its  officers,  of  the 
intention  to  adopt  or  to  propose  any  such  repeal,  or  to  enter  upon  any 
investigation  of  a  violation  by  the  company  of  any  of  the  provisions 


§  83         CHARTER  AS  A  LAW  AND  CONTRACT.         399 

of  its  charter;  neither  the  journals  of  the  legislature,  nor  the  files  or 
records  in  the  office  of  the  secretary  of  state,  shovv  that  any  investiga- 
tion was  ever  had,  nor  is  it  claimed  or  suggested  that  there  is  evidence 
anywhere  that  any  tribunal,  legislative  or  judicial,  has  passed  upon 
the  question  of  such  a  violation,  and  adjudged  it  to  have  taken  place, 
unless  the  repealing  act  itself  affords  such  evidence.  The  company 
denies  the  validity  of  this  act,  and  the  defendant,  having  treated  it  as 
valid,  and  acted  upon  it  adversely  to  their  interests,  an  issue  has  been 
made,  which  is  now  before  us  for  decision. 

It  is  not  disputed  on  the  part  of  the  defendant  that  the  charter  of  a 
private  corporation  is  to  be  regarded  as  a  contract,  whose  provisions 
are  binding  upon  the  state,  and  can  not  be  set  aside  at  the  will  of  the 
legislature.  Such  a  charter  is  a  law^  but  it  is  also  something  7nore 
than  a  law^  in  that  it  contains  stipulations  which  are  terms  of  com- 
pact between  the  state  as  the  one  party ^  and  the  corporators  as  the 
other ^  which  neither  party  is  at  liberty  to  disregard  or  repudiate^ 
and  which  are  as  much  removed  froin  the  modifying  and  controlling 
power  of  legislation  as  would  be  the  contracts  of  private  parties. 
But  the  defendant  insists  that  the  repealing  act  in  this  case  is  one  con- 
templated and  justified  by  the  contract  itself ;  and  no  attempt  is  made 
to  defend  it,  except  upon  what  the  defendant  regards  as  a  just  con- 
struction of  the  original  charter.  The  positions  taken  by  the  defend- 
ant may  be  succinctly  stated  as  follows : 

1 .  The  legislature  had  a  right  to  repeal  the  charter  whenever  the 
fact  should  be  made  to  appear  that  a  violation  of  the  charter  had 
taken  place. 

2.  The  inquiry  into  the  fact  of  violation  would  be  an  inquiry  for 
the  purpose  of  enabling  the  legislature  to  exercise  its  legitimate  jxjw- 
ers,  and  would,  therefore,  be  legislative  in  character,  and  might  be 
entered  upon  in  any  manner  and  through  any  channels  the  legislative 
wisdom  might  devise  or  see  fit  to  employ,  untrammeled  by  any  of  the 
rules  which  govern  the  action  of  judicial  tribunals. 

3.  The  repealing  act  is  not  only  of  itself  a  determination  that  the 
violation  of  charter  has  taken  place,  but  it  is  evidence,  also,  that  the 
legislature  has  first  informed  itself  of  the  facts;  and  no  court  or  other 
authority  is  at  liberty  to  assume  that  it  has  acted  improvidently  or 
without  due  inquiry. 

.  4.  But,  although  all  presumptions  favor  the  legislative  action,  it  is 
conceded  that  the  parties  concerned  are  entitled  to  a  judicial  investi- 
gation afterwards,  and,  upon  an  issue  properly  framed  for  that  pur- 
pose, may  show  the  act  invalid  by  establishing  the  fact  that  no 
violation  of  the  charter  has  taken  place,  and  that  the  legislature  must 
have  acted  under  mistake  or  in  misapprehension  of  the  facts. 

The  first  of  these  positions  must  be  conceded.  The  right  of  the 
legislature  to  repeal,  when  it  was  properly  made  to  appear  that  a 
breach  of  the  charter  had  taken  place,  can  n6t  be  questioned. 

The  second  will  be  equally  indisputable,  if  the  main  point  be  estab- 
lished, that  the  inquiry  to  determine  the  violation  of  the  charter  is 
legislative  in  character.     The  legislature  will  not  Only  choose  its  own 


400  PLANK-ROAD   V.    WOODHULL.  §  85 

modes  of  collecting  information  to  guide  its  legislative  discretion,  but 
from  due  courtesy  to  a  co-ordinate  department  of  the  government,  we 
must  assume  that  those  methods  were  the  suitable  and  proper  ones, 
and  that  they  led  to  correct  results.  And  if  the  records  show  no  in- 
vestigation, we  must  still  presume  the  proper  information  was 
obtained ;  for  we  must  not  suppose  the  legislature  to  have  acted  im- 
properly, unadvisedly,  or  from  any  other  than  public  motives,  under 
any  circumstances,  when  acting  within  the  limits  of  its  authority. 
Baltimore  v.  State,  15  Md.  376;  Lusher  v.  Scites,  4  W.  Va.  11; 
People  V.  Draper,  15  N.  Y.  545,  555;  Wright  v.  Defrees,  8  Ind. 
302  ;  Ex  Parte  McCardle,  7  Wall.  514;  Bradshaw  v.  Omaha,  i  Neb. 
16;  Humboldt  Co.  v.  Churchill  Co.  Com'rs,  6  Nev.  30. 

The  third  point  must  also  be  conceded  to  this  extent ;  that  the  leg- 
islative act,  not  violative  of  any  constitutional  principle,  must  be  its 
own  sufficient  and  conclusive  evidence,  when  assailed,  of  the  justice, 
propriety,  and  policy  of  its  passage.  We  ourselves  acted  upon  this 
principle  in  People  v.  Mahaney,  13  Mich.  484,  and  it  is  not  dis- 
puted anywhere  so  far  as  we  are  aware. 

But  there  lies  at  the  basis  of  all  these  propositions  the  question 
whether  the  determination  that  the  charter  has  been  violated  is  in 
truth  legislative  in  character.  The  defendant  affirms  that  it  is ;  the 
plaintiff  insists  that  it  is  properly  and  essentially  judicial.  This  point 
decided  one  way,  disposes  of  the  case ;  decided  the  other,  it  is  followed 
by  other  of  a  difficult  and  somewhat  delicate  nature,  which  would  neces- 
sarily be  considered  before  a  conclusion  could  be  reached  on  the  merits. 
Now  it  must  be  conceded  that,  if  the  act  in  question  is  not  judicial 
in  character,  it  is  at  least  strikingly  analogous.  There  is  a  question 
v/hich  is  or  may  be  disputed,  there  are  adverse  parties,  there  are  pri- 
vate interests  involved,  there  is  evidence  to  be  received,  there  is  the 
fact  to  be  found,  there  is  punishment  to  be  inflicted,  there  is  a  forfeit- 
ure to  be  enforced.  Legislative  action  does  not  often,  to  say  the  least, 
include  all  or  many  of  these  elements.  It  may  affect  private  rights 
incidentally,  but  it  does  not  often  proceed  to  pass  directly  upon  the 
controversies  between  the  state  and  individuals.  In  some  cases  the 
legislature  has  judicial  power,  because  it  is  incident  and  essential  to 
the  discharge  of  legislative  functions.  Such  is  the  power  to  deter- 
mine upon  the  election  and  qualification  of  its  members  and  the  powers 
to  punish  for  contempts  of  its  authority.  In  these  cases  it  is  entitled  to  all 
the  presumptions  which  support  the  action  of  courts,  and  having  no  au- 
thority set  over  it,  to  review  its  determinations,  they  must  be  accepled 
everywhere  as  correct  and  conclusive.  People  v.  Mahaney,  13  Mich. 
481  ;  Anderson  v.  Dunn,  6  Wheat.  204;  Hiss  v.  Bartlett,  3  Gray,  468; 
Burnham  v.  Morrissey,  14  Gray,  226;  State  v.  Matthews,  37  N.  H. 
450;  State  V.  Jarrett,  17  Md.  309;  Lamb  v.  Lynd,  44  Pa.  St.  336. 
But  every  judgment  must  have  something  preceding  it  to  put  the  judi- 
cial body  in  motion ;  the  sentence,  by  any  authority  pronounced, 
however  august  or  powerful,  will  be  a  mere  idle  fulmination  if  there 
was  no  lis  mota  to  base  it  upon.  The  order  of  a  legislative  body  for 
the  punishment  of  an  individual  would  be  merely  idle  and  void,  un- 


§  83         CHARTER  AS  A  LAW  AND  CONTRACT.         4OI 

less  somewhere  in  the  record  there  appeared  a  cause  alleged  which 
subjected  him  to  its  jurisdiction  for  such  punishment. 

It  is  conceded  in  the  present  case  that  the  fact  of  corporate  abuse 
was  to  be  found  before  the  charter  could  be  taken  away.  The  re- 
pealing act,  however,  is  only  a  sentence.  It  inflicts  the  penalty  of 
corporate  death,  without  in  any  way  declaring  or  intimating,  except 
by  the  penalty,  that  the  corporation  has  been  found  worthy  of  death. 
It  is  precisely  such  an  act  as  might  have  been  passed  had  the  legisla- 
tive power  been  unlimited  and  untrammeled.  The  legislature  had 
power  to  repeal  for  cause,  and  was  prohibited  from  repealing  without 
cause ;  it  repeals,  expressing  no  cause,  and  it  is  said  the  cause  must  be 
inferred.  Then  comes  what  is  to  have  the  effect  of  punishment, 
though  it  does  not  purport  to  be  such,  and  only  on  its  face  appears  to 
be  the  withdrawal  of  a  privilege  ;  and  yet,  as  there  was  a  right  assured 
and  no  mere  privilege  to  be  withdrawn,  it  is  supposed,  we  must  infer, 
Jirst,  that  a  punishment  was  designed,  and  then,  from  the  punishment 
infer  the  guilt,  the  accusation,  the  trial,  and  the  conviction.  Having 
thus  assumed  the  conclusion  to  begin  with,  we  must  next,  from  the 
conclusion,  assume  that  the  premises  existed  to  deduce  it  from.  This 
is  certainly  much  more  than  can  be  assumed  in  support  of  the  action 
of  any  court.  In  the  courts,  there  must  at  least  be  an  accusation  and 
a  condemnation,  before  there  can  be  the  infliction  of  any  penalty.  To 
infer  cause  where  none  is  assigned  in  the  taking  away  of  private  rights, 
is  to  take  up  and  adopt  the  arguments  in  favor  of  the  arbitrary  arrests 
under  the  command  of  Charles  I.  His  warrants  assigned  no  cause, 
and,  therefore,  it  was  argued  sufficient  cause  must  be  presumed.  If 
this  repealing  act  is  good  as  a  judgment  of  abuse  of  corporate  privi- 
leges, then  Sir  Nicholas  Hyde  was  correct  in  holding  that  he  could 
not  release  on  habeas  corpus  the  parties  committed  to  prison  by  the 
special  command  of  the  king  for  refusing  to  submit  to  his  illegal  exac- 
tions. The  king  had  power  to  order  a  committal  for  cause ;  no  cause 
was  expressed ;  therefore  a  sufficient  cause  was  to  be  assumed.  Dar- 
nel's Case,  3  State  Trials  i  ;  Broom's  Const.  L.,  162. 

The  defendant  refers  to  certain  cases  in  support  of  his  positions,  of 
which  The  Miner's  Bank  v.  The  United  States,  Morris,  482,  s.  c, 
I  Greene  (Iowa)  553,  goes  to  the  full  extent  of  holding  that  such  a 
legislative  act  is  not  only  valid,  but  is  conclusive  that  cause  existed 
for  its  passage.  This  case,  however,  stands  alone,  and  was  not  very 
much  insisted  upon  on  the  argument.  The  cases  of  Crease  v.  Bab- 
cock,  23  Pick.  334,  and  Erie  &  N.  E.  R.  R.  Co.  v.  Casey,  26  Penn. 
St.  287,  are  more  relied  upon  as  laying  down  the  correct  rule.  The 
Pennsylvania  case  is  most  directly  in  point,  and  as  it  appears  to  have 
been  carefully  considered,  the  conclusion  is  entitled  to  great  respect, 
notwithstanding  those  eminent  jurists,  Mr.  Chief  Justice  Lewis  and 
Mr.  Justice  Woodward  dissented.  In  that  case,  the  corporation  was 
protected  by  a  clause  in  its  charter,  similar  to  the  one  under  consider- 
ation here,  and  the  legislature  had  thought  proper  to  act  upon  it  by  re- 
pealing the  charter,  without  any  preliminary  judicial  investigation.   In 

26— WiL.  Casks. 


402  PLANK-ROAD   V.    WOODHULL.  §  83 

stating  the  position  assumed  in  support  of  the  repealing  act,  Mr.  Jus- 
tice Black  says:  "For  the  defendant,  it  is  insisted  that  the  repealing 
act  is  itself  not  only  evidence,  but  conclusive  evidence,  that  the  com- 
pany had  previously  committed  some  abuse  or  misuse  which  justified 
the  repeal.  No  case  has  been  cited  which  denies  this  doctrine  ic 
terms ;  and  it  was  held  for  the  true  rule  by  the  supreme  courts  of 
Iowa  (i  Greene  561)  and  of  New  York  (19  Barb.  81).  But  I  do 
not  see  clearly  the  principle  on  which  it  can  stand.  A  legislative 
body  in  a  matter  like  this  is  known  to  proceed  without  formal  notice, 
without  specific  accusation,  and  without  opportunity  to  answer.  There 
is  no  confronting  of  the  parties  with  the  witnesses,  nor  anything  that 
can  be  called  a  hearing  or  trial.  It  would,  therefore,  seem  unjust  to 
hold  that  a  legislative  act  is,  like  a  judicial  sentence,  conclusive  of 
every  fact  which  ought  to  have  been  found  before  it  was  passed.  It 
might  more  plausibly  be  likened  to  an  award  made  by  an  umpire  to 
whom  both  parties  have  agreed  that  the  subject  should  be  referred." 
"For  myself,"  he  says,  "I  incline  to  the  opinion  that,  when  the  con- 
stitutional power  of  the  legislature  to  pass  a  law  depends  on  matter 
of  fact,  the  party  to  be  affected  by  it  ought  to  have  an  opportunity 
afterward  of  showing  how  the  fact  is."  E.  &  N.  E.  R.  R.  Co.  v. 
Casey,  26  Fenn.  St.  316. 

Having  thus  expressed  the  opinion  that  legislative  conclusions  on 
questions  of  fact  were  subject  to  review  in  the  courts,  the  learned 
judge  goes  further,  and  proceeds  to  lay  down  rules  for  the  legislative 
guidance  in  determining  the  causes  which  are  to  justify  the  legislature 
in  acting  at  all.  The  legislature  is  not  to  judge  finally  for  itself  what 
is  abuse  or  misuse  of  corporate  privileges  by  a  company ;   but, 

1.  The  illegal  act  must  be  positive.  A  mere  omission,  like  the 
failure  of  a  bank  to  make  its  annual  returns,  is  not  enough. 

2.  A  disregard  of  the  charter,  which  is  injurious  only  to  private 
interests,  and  which,  therefore,  admits  of  private  compensation,  is 
not,  he  thinks,  within  the  fair  meaning  of  the  words.  It  must  be 
some  conduct  which  infringes  upon  a  right  reserved  by  a  state  for  the 
benefit  of  the  public. 

3.  It  must  be  willful;  that  is,  not  involuntary,  accidental,  or  the 
consequence  of  mere  mistake  of  fact. 

4.  It  must  not  be  the  mere  transgression  of  the  act  of  incorpora- 
tion by  a  subordinate  officer,  or  agent  without  authority,  express  or 
implied,  from  the  board  of  directors.  E.  &  N.  E.  R.  Co.  v.  Casey, 
26  Pa.  St.  319. 

Thus  the  majority  of  the  supreme  court  of  Pennsylvania  lays  down 
the  rules  of  law  which  are  to  control  the  legislature  in  the  exercise  of 
its  legislative  authority,  and  at  the  same  time  declares  the  right  of 
the  court  to  review  the  conclusions  of  the  legislative  body  in  matters 
of  fact.  With  great  respect  to  the  eminent  tribunal  we  are  unable  to 
understand  why  this  is  not  a  setting  of  the  court  above  the  legislature, 
as  an  appellate  tribunal  in  matters  both  of  law  and  of  fact,  in  a  man- 
ner which  wholly  ignores  the  divisions  of  the  powers  in  the  constitu- 
tion, and  is  quite  inconsistent  with  the  harmonious  operation  of  the 


§   83         CHARTER  AS  A  LAW  AND  CONTRACT.         403 

machinery  of  government.  It  is  not  consistent  with  legislative  inde- 
pendence and  dignity,  that  the  court  should  assert  a  right  to  sit  in 
judgment  upon  legislative  action,  or  to  attribute  to  the  legislature 
en-oneous  or  oppressive  conduct  in  the  exercise  of  any  of  its  proper 
and  legitimate  functions.  These  two  departments  of  the  government 
being  co-ordinate,  and  neither  of  them  occupying  a  position  subordi- 
nate to  the  other,  the  conclusions  of  each  must  be  accepted  by  the 
other  as  proceeding  from  good  motives,  and  as  warranted  by  the 
proper  information.  It  could  only  be  productive  of  endless  discord 
and  confusion,  not  to  say  of  jealousies  and  conflicts  of  authority,  if 
the  legislature  was  to  review  and  set  aside  the  judgments  of  the  courts, 
or  the  courts  to  allow  parties  to  appeal  to  them  from  the  conclusions 
the  legislature  had  reached  in  determining  upon  the  propriety  of  pass- 
ing or  declining  to  pass  a  proposed  law.  Careful  endeavor  has  been 
made  to  prevent  any  such  jealousies  and  conflicts  when,  in  framing 
our  constitutions,  a  line  Of  distinction  has  been  drawn  between  the 
legislative  and  judicial  functions,  and  the  departments  to  which  these 
functions  respectively  have  been  confided  have  been  entrusted  with 
no  power  to  pass  that  line.  It  is,  therefore,  in  the  highest  degree 
impertinent  and  obtrusive,  when  either  department  undertakes  to 
advise  the  other,  that  in  the  exercise  of  its  proper  functions,  it  has 
acted  unwisely  and  indiscreetly,  has  misjudged  the  facts  or  perverted 
the  law ;  and  its  action  must  be  still  more  offensive  if  it  entertains  the 
appeal  of  parties  from  the  decisions  of  the  other,  when  acting  within 
a  province  which  was  set  apart  to  be  peculiarly  under  its  jurisdiction 
and  control. 

Moreover,  there  is,  in  the  nature  of  the  case,  and  the  difference  in 
the  manner  in  which  legislative  and  judicial  functions  are  performed, 
reason  sufiicient  to  demonstrate  the  impossibility  of  a  proper  review 
by  one  department  of  the  decisions  the  other  has  made.  Legislators 
have  a  right  to  act  upon  their  own  knowledge  and  observation,  upon 
hearsay,  upon  information  derived  from  the  public  press,  upon  the 
ex  ■parte  petitions  of  interested  parties,  upon  anything,  in  short,  which 
satisfies  their  judgment ;  and  public  opinion  is  one  of  the  most  impor- 
tant facts  to  be  considered  in  determining  upon  the  propriety  or  advis- 
ability of  a  proposed  law.  Even  an  unreasonable  prejudice,  if  gen- 
eral or  widespread,  may  sometimes  very  properly  be  a  controlling 
consideration  when  the  case  is  such  that  to  the  enforcement  of  the  law 
a  strong  supporting  public  sentiment  would  be  a  necessity.  But  these 
are  things  the  courts  must  not  allow  to  influence  their  action.  With 
them  the  question  must  simply  be,  _^r5/,  what  is  the  law;  and  second  ^ 
what  are  the  facts ;  and  the  facts  they  must  reach  through  inflexible 
rules  of  evidence  laid  down  for  their  guidance.  A  review  of  a  legis- 
lative determination  by  the  courts  would,  therefore,  not  only  be 
highly  indecorous  and  objectionable,  for  the  reasons  already  stated,  but 
it  would  be  eminently  improper  also,  for  the  further  reason,  that  it  could 
not  possibly  be  had  upon  the  same  evidence.  It  is  wholly  foreign  to 
any  proper  administration  of  law  or  justice,  that  the  decision  of  the 
proper  authority  upon  any  subject  should   be  liable  to  review  by  an- 


404  PLANK-ROAD   V.    WOODHULL.  §  83 

other  tribunal,  which  in  such  review  is  shut  off  from  the  sources  of  in- 
formation to  which  the  other  had  access  So  far,  therefore,  from  the 
different  ways  the  legislature  and  the  judiciary  have  of  reaching  the 
facts  being  a  reason  why  the  latter  should  give  parties  who  have  been 
decided  against  by  the  former  a  rehearing,  they  constitute  with  us  a 
very  conclusive  reason  for  holding  that  those  cases  in  which  there  is  a 
hearing  to  be  had  on  questions  of  private  right  and  private  property, 
are,  and  must  in  their  very  nature  be,  regarded  as  exclusively  of  judi- 
cial cognizance. 

But  there  are  still  further  reasons  why  the  doctrine  declared  in  the 
Pennsylvania  case  can  not,  we  think,  be  sound.  That  doctrine  is,  to 
state  it  more  fully,  that  though  the  legislature  may  repeal  the  corpo- 
rate charter,  on  the  ground  of  abuse  or  misuse,  thereby  taking  away 
from  the  corporators  the  franchise  of  greater  or  less  property  value, 
yet  the  legislative  decision  is  only  prima  facie  correct,  and  the  par- 
ties are  entitled  to  have  it  set  aside  in  the  courts  afterward,  on  show- 
ing by  evidence  that  they  have  not  been  guilty  of  such  abuse  or  misuse. 
In  other  words,  the  legislative  act,  which  may  perhaps  be  passed 
without  any  notice,  is  to  stand  as  a  conviction  of  guilt  until  the  par- 
ties  charged  can  prove  their  innocence.  But  their  innocence  of  what? 
In  other  cases  it  would  be  thought  the  grossest  perversion  of  right 
and  justice  if,  in  any  proceeding  in  court,  the  party  was  to  be  pre- 
sumed guilty  of  any  one  specific  charge  until  he  proved  himself  inno- 
cent; but  that  case  would  be  a  much  less  serious  departure  from  the 
rules  of  justice  than  this.  The  general  plank-road  act  of  1848  was 
made  a  part  of  this  company's  charter,  and  it  contained  a  great  many 
provisions  to  be  observed  by  it,  and  for  a  violation  of  some  of  them 
specific  penalties  were  imposed.  The  company  has  been  in  opera- 
tion upward  of  twenty  years,  when  its  franchise  is  taken  away  on  a 
presumption  of  guilt,  which  is  only  to  be  removed  by  the  corporators 
proving  that  in  all  that  time  they  have  observed  every  provision  of 
their  charter  and  been  guilty  of  no  default.  It  is  safe  to  say  that  what 
is  required  of  them  is,  and  would  be  in  any  such  case,  a  simple  im- 
possibility. It  is  as  if  an  individual  should  be  charged  generally,  and 
without  further  specification,  with  an  offense  against  the  criminal 
laws,  and  the  trial-court  should  say  to  him:  "You  are  charged,  and 
■prima  facie  convicted,  of  crime,  but  you  shall  be  relieved  of  the  con- 
viction on  making  proof  that  you  have  never  disobeyed  the  law. 
Meantime,  and  until  you  do  so,  the  state  will  take  from  you  your 
property  in  punishment  for  your  presumed  guilt." 

Now,  it  is  simply  impossible  that  any  doctrine  which  leads  to  such 
results  can  be  sound.  But  the  illustrations  of  its  anomalous  and  un- 
just character  might  be  multiplied  indefinitely,  and  if  it  were  possible 
for  the  question  of  corporate  default  to  be  fairly  tried  under  it,  it  must 
be  remembered,  also,  that  as  the  question  would  or  might  arise  be- 
tween individuals  and  the  company,  as  it  has  in  this  instance,  there 
might  be  repeated  trials  of  the  same  question,  none  of  which  would 
be  conclusive  in  a  new  suit.  The  question  involved  in  each  suit 
would  be   the  validity  of   a  statute,  dependent  upon  the  facts,  and. 


§  83         CHARTER  AS  A  LAW  AND  CONTRACT.         4D5 

therefore,  submitted  to  a  jury,  and  while  the  jury  in  one  cause  might 
hold  it  valid,  another  in  a  different  case,  acting  upon  somewhat  dif- 
ferent evidence,  or  influenced  by  more  persuasive  advocates,  might 
declare  it  void,  and  thus  it  would  be  a  law  to-day  as  to  one  party  and 
no  law  to-morrow  as  to  another,  and  so  on  indefinitely,  according  to 
the  varying  views  which  different  panels  of  jurymen  might  take  of  dis- 
puted facts,  until,  perhaps,  the  state  would  be  compelled  to  interfere 
by  quo  warranto,  and  have,  after  all  these  proceedings,  the  authori- 
tative adjudication  which  sound  policy,  not  less  than  correct  principle, 
demanded  at  the  beginning.  But  we  need  hardly  say  that  a  law,  if 
valid  at  all,  must  be  valid  from  its  enactment,  and  can  not  be  made 
to  depend  upon  the  opinion  of  a  jury  as  to  the  sufficiency  of  the  rea- 
sons for  its  being  passed. 

We  are  constrained,  therefore,  from  all  these  considerations,  to  say 
that  the  determination  whether  a  corporation  has  violated  its  charter 
is  judicial  in  its  nature.  It  requires  the  action  of  those  tribunals 
which  must  hear  before  they  condemn,  and  must  proceed  upon  in- 
quiry. If  it  were  properly  legislative,  it  may  be  that  the  legislature 
must  be  presumed  to  have  given  a  hearing,  but  the  fact,  as  we  have 
seen  in  this  case,  is  otherwise,  and  the  cases  in  which  presumptions 
are  to  be  indulged  against  the  facts,  ought  not  to  be  multiplied.  It  is 
sufficient  to  say  that,  in  our  opinion,  the  case  is  one  in  which  the  party 
is  entitled  to  a  trial  of  right  in  fact,  and  can  not  be  put  off  with  one 
which  rests  exclusively  in  a  presumption  of  law,  indulged  agafnst  the 
fact.  The  violation  of  the  charter  can  not  be  legally  made  to  appear, 
except  on  trial  in  a  tribunal  whose  course  of  proceeding  is  devised  for 
the  determination  of  questions  of  this  nature. 

We  think  this  the  fair  construction  of  that  clause  of  the  charter 
which  is  in  question.  It  is  not  to  be  presumed  that  the  legislature 
designed  to  take  upon  itself  judicial  powers,  and  as  the  act  does  not 
necessarily  require  that  construction,  it  should  not  be  given  it.  We 
must  suppose  that  an  inquiry  in  some  proper  form  was  contemplated 
by  means  of  which  on  fair  trial  it  should  be  made  to  appear  to  the 
legislature  that  a  cause  existed  justifying  repeal.  Any  other  view 
renders  the  stipulation  worthless  as  a  protection,  but  this  view  pro- 
tects the  interests  of  corporators,  and  at  the  same  time  enables  the 
legislature  to  exercise  its  power  of  taking  away  the  charter,  even 
though  the  violation  of  corporate  duty  might  not  be  of  that  serious 
character  which  would  seem  to  justify  declaring  a  forfeiture  on  judi- 
cial proceedings  instituted,  independent  of  this  clause.  The  repeal- 
ing act,  it  must  be  assumed,  was  passed  through  inadvertence,  and 
probably  under  the  impression  that  the  charter,  like  many  others  in 
this  state,  was  subject  to  repeal  in  the  legislative  discretion. 

This  being  our  view,  it  follows  that  the  judgment  of  the  circuit 
court  must  be  reversed,  with  costs,  and  a  new  trial  granted. 

Christiancy,  Ch.  J.,  and  Campbell,  J.,  concurred. 

Graves,  J.,  did  not  sit  in  the  case. 


406  STATE   V.    INSURANCE   COMPANY.  §  84 

iVbfe.    The  charter  as  a  law. 

1.  The  courts  take  judicial  notice  of  general  incorporation  laws.  1861,  Heas- 
ton  V.  Cincinnati,  etc.,  R.  Co.,  16  Ind.  275. 

And  even  of  special  acts  incorporating  state  banks.  1850,  Jemison  v.  Planters', 
etc.,  Bank,  17  Ala.  754;  1860,  Davis  v.  Fulton  Bank,  31  Ga.  69;  1861,  Buellv. 
Warner,  33Vt.  570;  1862,  Gordon  v.  Montgomery,  19  Ind.  110;  Compare 
Kelly  V.  Alabama  &  Cin.  R.  Co.,  58  Ala.  489. 

Or  municipal  corporations.  1860,  Payne  v.  Treadwell,  16  Cal.  220;  1862, 
Macey  v.  Titcombe,  19  Ind.  135;  1864,  Swain  v.  Comstock,  18  Wis.  463;  1875, 
Stier  V.  Oscaloosa,  41  Iowa  353;  1877,  Albrittin  v.  Huntsville,  60  Ala.  486; 
1894,  Jones  v.  Lake  View,  151  111.  663. 

And  sometimes  railroad  companies.  1866,  Wright  v.  Hawkins,  28  Tex.  452; 
1898,  Miller  V.  Matthews,  87  Md.  464,  41  Atl.  Rep.  176.  But  not  always  or  gen- 
erally. 1872,  A.,  T.  &  S.  F.  R.  Co.  v.  Blackshire,  10  Kan.  477;  1876,  Perrv  v. 
N.  O",  etc.,  R.  Co.,  55  Ala.  413. 

2.  The  charter,  even  though  a  special  act,  is  a  law  of  the  state  creating  the 
corporation,  in  the  sense  that  'ignorance  of  the  laio  excuses  no  one;''''  hence  all 
persons  are  supposed  to  take  notice  of  its  contents.  1859,  Hoyt  v.  Thompson, 
19  N.  Y.  207;  1879,  Thomas  v.  R.  Co.,  101  U.  S.  71;  1881,  Davis  v.  Old  Colony 
R.  Co.,  131  Mass.  258,  41  Am.  R.  221 ;  1887,  Bocock  v.  Allegheny,  etc.,  Co.,  82 
Va.  913,  3  Am.  St.  R.  128;  1887,  Elevator  Co.  v.  Memphis,  etc.,  R.  Co.,  85 
Tenn.  703,  4  Am.  St.  R.  798;  1890,  Jemison  v.  Citizens'  Sav.  Bank,  122  N.  Y. 
135, 19  Am.  St.  R.  482 ;  1893,  Franco-Texan  Land  Co.y.McCormick,85Texas416, 
34  Am.  St.  R.  815;  1895,  Durkee  v.  People,  155111.  354,  46  Am.  St.  R.  340;  1897, 
Franklin  Nat'l  Bank  v.  Whitehead,  149  Ind.  560,  63  Am.  St.  R.  302.  See  par- 
ticularly Elliott,  §§  212,  213 ;  Morawetz,  §§  591 ,  592 ;  Taylor,  §  264 ;  V.  Thomp- 
son, §  5973,  et  seq. ;  VII.  Thompson,  §  8309,  et  seq. 

3.  The  charter,  as  a  law,  is  conclusive  evidence  of  its  validity,  even  though 
obtained  by  fraud;  yet  it  will  not  protect  those  who  obtained  it  by  fraud,  or 
fraudulently  organize  under  it.  1863,  Paterson  v.  Arnold,  45  Pa.  St.  410; 
1865,  Booth  V.  Bunce,  33  N.  Y.  139,  88  Am,  Dec.  372;  1894,  Davidson  v.  Hob- 
son,  59  Mo.  App.  130.     But  see  Morawetz,  §  769;  and  Taylor,  §  147. 

4.  The  charter  as  a  contract,  see,  iiifra,  pp.  707-760. 


Sec.  84.  Same.  The  charter,  or  articles  of  incorporation  or  asso- 
ciation under  a  general  law,  is  a  license  of  authority  for  the 
persons  named,  or  the  promoters,  to  convert  persons  or  an 
association  of  persons  into  the  designated  corporation  in  ac- 
cordance with  the  terms  indicated  in  the  charter,  or  general 
law. 

STATE,  Ex  Rel.,  v.  INSURANCE  COMPANY.* 

1892.     In  the  Supreme  Court  of  Ohio.     49  Ohio  State  Reports 
440-447,  16  L.  R.  A.  611,  37  A.  h  E.  C.  C.  583. 

Syllabus:  5.  The  making  and Jiling.  for  the -purpose  of -profit^  of 
articles  of  incorporation  in  the  office  of  the  secretary  of  state.,  do  not 
make  an  incorporated  company ;  such  articles  are  simply  authority  to 

*  Only  the  opinion  on  the  point  as  to  authority  to  form  corporations  is 
given. 


§  84        CHARTER  IS  A  LICENSE  TO  FORM  A  CORPORATION,         407 

do  so.  No  company  exists  "within  the  meaning  of  the  statute  until  the 
requisite  stock  has  been  subscribed  and  paid  in,  and  the  directors 
chosen. 

In  quo  warranto. 

MiNSHALL,  J.  I.  The  defendant  is  a  fidelity  and  casualty  insur- 
ance company,  organized  under  the  laws  of  the  state  of  New  York, 
and  doing,  in  this  state,  what  by  the  laws  of  New  York  is  authorized 
and  known  as  four  lines  of  such  insurance,  to  wit:  First,  against  in- 
jury, disablement  or  death,  of  persons  resulting  from  traveling,  or 
general  accidents  by  land  or  water;  second,  guaranteeing  the  fidelity 
of  persons  holding  places  of  public  or  private  trust;  third,  upon  plate 
glass  against  breakage;  fourth,  upon  steam  boilers  against  explosion, 
and  against  loss  or  damage  to  life  or  property  resulting  therefrom.  Its 
right  to  do  more  than  one  of  such  lines  of  business  in  this  state  is 
challenged  by  the  attorney-general  on  the  ground  that,  by  the  laws  of 
New  York,  no  company  incorporated  in  this  state  can  transact  in  that 
state  more  than  one  of  such  lines  of  insurance,  and,  therefore,  under 
the  provisions  of  section  282,  Revised  Statutes,  of  this  state,  it  has  no 
right  to  make  in  this  state  more  than  one  of  the  lines  of  insurance  it 
is  doing.      That  section  reads  as  follows: 

"When,  by  the  laws  of  any  other  state  or  nation,  any  taxes,  fines, 
penalties,  license  fees,  deposits  of  money,  or  of  securities,  or  other 
obligations  or  prohibitions  are  imposed  on  insurance  companies  of 
this -state,  doing  business  in  such  state  or  nation,  or  upon  their  agents 
therein,  so  long  as  such  laws  continue  in  force,  the  same  obligations 
and  prohibitions,  of  whatever  kind,  shall  be  imposed  upon  all  insur- 
ance companies  of  such  other  state  or  nation  doing  business  within 
this  state,  and  upon  their  agents  here." 

A  demurrer  to  the  petition,  objecting  to  the  jurisdiction  of  the 
court,  as  well  as  to  the  sufficiency  of  the  pleading,  having  been  over- 
ruled, the  defendant,  as  a  third  defense  to  the  petition,  answered: 
"That  under  the  laws  of  New  York,  it  is  legally  authorized  and  em- 
powered to  do,  and  is  now  doing,  the  four  lines  of  insurance  in  that 
state,  which  the  petition  charges  it  with  illegally  doing  in  Ohio ;  and 
that  under  the  laws  of  Ohio,  a  corporation  could  be  legally  incorpo- 
rated and  organized,  with  power  to  do  the  same  four  lines  of  insur- 
ance, or  any  one  or  more  of  them  therein,  but  that  no  such  company 
has  yet  been  organized  to  do  said  four  lines  of  insurance  in  Ohio,  and 
hence  no  such  company  has  yet  made,  or  could  make,  application  to 
the  proper  officers  in  New  York  for  a  license  to  do  said  four  lines 
of  insurance  in  the  state  of  New  York."  A  demurrer  to  this  de- 
fense having  been  overruled,  the  plaintiff  asked  leave  to  reply  in  sub- 
stance as  follows:  That  on  January  13,  1887,  the  requisite  number 
of  persons,  citizens  of  Cuyahoga  county,  "subscribed  and  acknowl- 
edged articles  of  incorporation,"  stating  therein  the  name,  place  of 
business,  and  capital  stock  of  the  proposed  corporation  and  its  object, 
to  wit:  Under  paragraph  2,  §  3641,  Revised  Statutes,  to  do  the  four 
kinds  of  insurance  now  being  done  by  the  defendant  in  this  state ;  and 


408  STATE    V.    INSURANCE   COMPANY.  §  84 

the  same  having  been  approved  by  the  attorney-general,  as  in  con- 
formity to  the  laws  of  the  state,  were  then  filed  and  recorded  in  the 
office  of  the  secretary  of  state  of  Ohio,  "whereby"  it  is  averred,  "an 
Ohio  corporation  was  duly  and  legally  formed  for  the  purpose  of  do- 
ing the  lines  of  insurance  mentioned  in  the  articles  of  incorporation." 

[The  court,  after  holding  it  had  jurisdiction  to  oust  the  corporation 
from  exeixising  its  franchises  in  Ohio,  and  that  the  third  defense  was 
insufficient,  because  there  was  no  Ohio  company  to  do  business  in  New 
York,  proceeded] : 

The  next  question  is,  should  leave  be  given  to  file  the  proposed 
reply  to  the  third  defense.'*  We  think  not,  for  the  reason  that  it  does 
not  show  that  an  Ohio  company  has  been  formed  to  do  the  four  lines 
of  insurance  in  which  the  defendant  is  engaged.  It  will  be  observed 
that  it  does  not  aver  that  any  officers  or  directors  have  been  chosen, 
or  that  any  of  the  stock  has  been  subscribed,  or  that  any  organization 
whatever  has  been  affected.  It  is  simply  that  "articles  of  incorpora- 
tion" have  been  made,  and  filed  and  recorded  in  the  office  of  the  sec- 
retary of  state.  ^  Articles  of  incorporation  do  not  make  an  incorpo- 
rated company^  they  are  simply  authority  to  do  so. 

Before  disposing  of  the  case,  it  may  be  well  enough  to  notice  an- 
other defense  i"elied  on  in  the  answer,  and  to  which  a  demurrer  has 
been  sustained,  and  that  is,  the  license  granted  the  defendant  to  do 
business  in  this  state  by  the  superintendent  of  insurance.  We  are  all 
of  the  opinion  that  the  issuing  of  a  license  to  a  foreign  insurance  com- 
pany to  do  business  in  this  state  is  a  ministerial  and  not  a  judicial'act, 
and,  whilst  it  will  protect  the  company  in  the  transaction  of  its  busi- 
ness during  its  continuance,  is  not  a  bar  to  a  proceeding  against  it  in 
quo  -warranto,  where  it  is  found  to  be  exercising  any  of  the  franchises 
of  the  state  without  authority  of  law.  State  v.  Fidelity  and  Casualty 
Ins.  Co.,  39  Min.  538,  and  cases  cited  in  brief  of  counsel  for  re- 
lator. 

Application  for  leave  to  reply  to  the  third  defense  of  the  answer 
overruled  and  petition  dismissed. 

^The  Revised  Statutes  of  Ohio,  §3236,  provides  that  "any  number  of 
persons,  not  less  than  five  *  *  *  desiring  to  become  incorporated  shall 
subscribe  *  *  *  articles  of  incorporation  *  *  *  which  must  contain 
[certain  enumerated  things]."  Section  3238  provides  that  "the  articles  shall 
be  filed  in  the  office  of  the  secretary  of  state."  Section  3239  provides  that 
"upon  the  filing  of  the  articles  of  incorporation,  the  persons  who  subscribed 
the  same,  their  associates,  successors  and  assigns,  by  the  name  and  style  pro- 
vided therein,  shall  thereafter  be  deemed  a  body  corporate,  with  succession 
and  power  to  sue  and  be  sued,  contract  and  be  contracted  with,"  etc.  It  will 
be  noticed  that  the  statute  seems  to  make  the  subscribers  a  corporation,  be- 
fore any  stock  is  subscribed,  or  any  organization  had,  yet  the  supreme  court 
holds  that  in  fact  the  subscribing  and  filing  articles  of  incorporation  only  re- 
sults in  a  license  to  obtain  subscription  to  stock  and  organize  a  corporation  in 
accordance  with  the  further  provisions  of  the  general  law. 

See,  also,  Walton  v.  Oliver,  49  Kan.  107,  infra,  p.  665;  1895,  Whetstone  v. 
Crane  Bros.,  1  Kan.  App.  320,  and  cases  given  under  §§  144-148,  infra. 


§  85  OFFER  AND   ACCEPTANCE   OF  THE   CHARTER.  409 


ARTICLE  11.       ITS    GENERAL    FORM AN  OFFER  AND  ACCEPTANCE. 

Sec.  85.  The  offer  may  be  by  parties,  and  an  acceptance  by  the 
state;  or  it  may  be  a  special  or  general  offer  by  the  state,  and 
an  acceptance  by  individuals,  or  an  association  of  individuals. 

PERKINS  V.  SANDERS.' 

1879.     In   the  Supreme  Court  of   Mississippl     56   Miss.  Rep. 

733-743- 

George,  C.J.  *  *  *  The  appellant  is  a  stockholder  in  the  Perkins- 
ville  Manufacturing  Company,  and  he  also  claims  to  be  its  creditor; 
and  by  his  bill  he  seeks  to  recover  from  the  other  stockholders,  under  a 
provision  of  the  charter  of  that  company,  hereinafter  to  be  set  out,  the 
amount  of  his  debt.  This  bill  is  filed  also  in  behalf  of  all  of  the 
creditors  of  the  company,  and  is  against  all  the  stockholders.  The 
company  itself  is  not  made  a  party,  which  would  have  been  the  regular 
course  in  a  bill  of  this  character  (a  creditor's  bill),  since  it  is  not 
clear,  from  the  allegations  of  the  bill,  that  the  company  is  either  dis- 
solved or  entirely  without  assets. 

The  main  point  raised  by  the  demurrer  denied  the  right  of  the  com- 
plainant, upon  the  ground  that  he  was  not  a  creditor  of  the  company, 
because  he  did  not  show  in  his  bill  that  the  company  was  sufficiently 
organized  under  its  charter  to  make  the  contract  sued  on,  at  the  time 
it  was  made.  This  position  is  founded  on  the  second  section  of  the 
charter  (Sess.  Laws  1870,  p.  194),  which  provides  "that  the  capital 
stock  of  the  said  company  shall  amount  to  $60,000,  and  may  be  in- 
creased, at  the  option  of  the  stockholders,  to  $500,000,  and  that  it 
shall  be  divided  into  shares  of  $100  each." 

The  obligation  sued  on  is  dated  in  September,  1872,  and  is  signed 
by  the  president  and  secretary  of  the  company.  The  authority  shown 
for  the  action  of  these  officers,  is  a  resolution  and  a  by-law  passed  by 
the  stockholders,  dated  in  December,  1871. 

The  bill  alleges  that  $60,000  of  stock  was  subscribed  before  the 
execution  of  this  obligation,  but  it  does  not  aver  that  this  subscription 
was  made  before  the  date  of  the  resolution  and  by-law,  which  consti- 
tute the  authority  for  making  the  contract.  The  chancellor  sustained 
the  objection,  but  in  this  we  are  unable  to  agree  with  him. 

It  will  be  here  noticed  that  this  is  not  a  bill  by  a  creditor  to  collect 
the  unpaid  balance  of  stock  due  by  a  stockholder  to  the  company,  as 
was  the  case  of  Vick  v.  Lane,^  but  a  suit  to  enforce  a  personal 
liability  of  the  stockholders  for  all  the  debts  of  the  company. 
So  that  the  only  points  to  be  decided  are,  firsts  whether  the  obliga- 
tion which  the  complainant  sued  on  is  a  valid  debt  of  the  company ; 
and.  second,  whether  the   circumstances  exist  which,  under  the  pro- 

'  Only  that  part  of  the  opinion  relating  to  acceptance  of  charter  given. 
*56  Miss.  681. 


4IO  PERKINS    v)    SANDERS.  §  85 

visions  of  the  charter,  make  the  stockholders  liable  for  the  debts  of 
the  company.  It  is,  therefore,  wholly  immaterial  whether  the  stock- 
holders were  liable  to  assessments  on  their  stock,  in  virtue  of  the  fail- 
ure of  the  subscriptions  to  amount  to  $60,000,  except  so  far  as  such 
failvire  may,  in  law,  be  an  obstacle  to  the  due  organization  of  the 
company,  and  the  creation  by  it  of  the  debt  sought  to  be  enforced. 

In  charters  which  are  mere  propositions  for  the  organization  of  a 
corporation,  and  which  require  certain  acts  to  be  performed  precedent 
to  the  existence  of  the  corporation,  no  corporation  can  exist,  and  of 
course,  no  corporate  act  can  be  performed  till  these  conditions  have 
been  complied  with.  In  all  such  cases,  where  a  certain  amount  is 
named  in  the  charter  as  necessary  to  be  subscribed  as  the  capital  stock 
of  the  company,  such  subscription  is  regarded  as  a  condition  prece- 
dent to  the  existence  of  the  corporation,  unless  otherwise  provided  in 
the  charter.  Persons,  therefore,  who  subscribe  for  stock  under  such 
a  charter  have  a  right  to  assume  that  they  will  not  be  called  upon  to 
pay  until  the  amount  named  in  the  charter  shall  be  subscribed,  and, 
accordingly,  in  that  class  of  charters  it  has  been  held  that  subscribers 
for  the  stock  are  not  liable  to  assessments  on  their  stock  until  the  full 
amount  of  the  subscription  has  been  made.  But  this  rule  does  not 
apply  if  there  be  anything  in  the  charter  which  shows  a  right  in  the 
corporation  to  make  the  assessments  before  the  full  amount  of  the  stock 
is  subscribed,  as  was  decided  in  Selma  and  Marion  Railroad  Com- 
pany V.  Anderson,  51  Miss.  829. 

The  charter  of  this  company  is  not  of  that  character.  By  the  first 
section  of  it,  it  is  provided  that  the  twenty-one  persons  named  in  it, 
"and  all  others  who  are  now  or  hereafter  become  associated  with 
them  and  their  successors  and  assigns,  be,  and  they  are  hereby,' 
created  a  body  politic  and  corporate  under  the  name  and  style  of  the 
Perkinsville  Manufacturing  Company,"  etc.  This  was  no  proposition 
to  create  a  corporation  upon  the  performance  of  precedent  conditions  ^ 
but  it  was  itself  the  creation  of  a  corporation^  requiring  no  other  act 
to  be  performed  by  the  corporators  than  their  acceptance  of  the  char- 
ter, and  this  even  was  unnecessary.,  if.  as  it  is  probable^  the  corpora- 
tors had  applied  for  the  grant  of  the  charter.,  and  thus  accepted  it 
in  advance.  Action  under  the  charter  would  be  an  acceptance  of  it. 
and  hence.,  there  never  could  be  any  question  as  to  the  existence  and  due 
organization  of  the  corporation,  when  determining  upon  the  validity 
of  a  corporate  act  done  within  its  charter  powers.,  for  the  performance 
of  the  act  itself  would  be  an  acceptance  of  the  charter. 

The  distinction  between  the  two  classes  of  charters  is  thus  seen  to 
be.,  that  in  the  first-class  the  charter  is  a  mere  permission  on  the  part 
of  the  legislature  for  the  for?7iation  of  a  corporation.,  upon  the  doing 
of  certain  acts  prescribed  in  the  charter  as  precedent  conditions.,  and., 
as  a  necessary  result.,  no  corporate  act  can  be  done  until  these  condi- 
tions have  been  performed.,  except  such  as  may  be  expressly  permitted 
by  the  charter;  and  as  to  those  acts,  it  would  be  considered  that  the 
corporation  had  an  existence  before  its  full  investiture  with  its  cor- 
porate franchises.     In  the  latter  class,  in  which   is  this  company., 


§  85  OFI-ER    AND   ACCEPTANCE   OF   THE   CHARTER.  4II 

the  corporation  is  in  existence^  for  all  the  purposes  of  its  creation^ 
from  the  beginnings  except  so  far  as  there  may  be  restraints  placed 
on  it  by  the  charter,  either  expressly  or  by  plain  implication. 

As  the  bill  alleges  that  the  $60,000  of  stock  was  subscribed  before 
the  execution  of  the  obligation  sued  on,  it  is  unnecessaiy  for  us  to  de- 
cide whether  the  charter  so  far  restricts  the  power  of  the  corporation 
to  make  contracts  within  the  scope  and  purpose  for  which  the  charter 
was  granted,  as  to  prohibit  the  making  of  this  contract  until  such 
subscription  is  made.  But  it  is  insisted  that  the  corporation  could 
not  elect  a  president  or  a  board  of  directors,  nor  confer  the  power  on 
them,  when  elected,  to  make  contracts  until  after  the  subscription  of 
$60,000  of  stock  should  be  made,  and  for  this  reason  it  is  urged  that 
the  obligation  sued  on,  and  which  was  made  by  the  president  and 
secretary  on  behalf  of  the  company,  should  be  held  as  made  without 
the  proper  authority  of  the  corporation. 

We  do  not  consider  the  position  a  sound  one.  There  is  no  restric- 
tion in  the  charter  upon  the  exercise,  by  the  corporation,  from  the 
moment  of  its  creation,  of  any  of  its  corporate  powers,  unless  it  can 
be  implied  from  the  terms  of  the  second  section,  fixing  the  amount  of 
the  capital  stock,  as  hereinbefore  quoted. 

It  has  been  seen  that  the  subscription  of  the  prescribed  amount  of 
capital  stock  is  not  a  precedent  condition  to  the  organization  of  the 
corporation, — that  the  coi-poration  was  created  by  the  very  terms  of 
the  charter,  eo  instanti  with  its  acceptance  by  the  corporators.  The 
charter  does  not  prescribe  how  nor  when  the  subscription  is  to  be 
made,  nor  the  time  at  which  the  subscription  is  to  be  made  payable, 
nor  does  it  attach  any  disability  to  the  corporation  prior  to  the  sub- 
scription. It  makes  no  provision  as  to  how  the  stock  shall  be  divided 
among  the  corporators  named,  nor  as  to  the  terms  on  which  new  cor- 
porators should  be  admitted.  All  these  were  necessarily  left  to  the  dis- 
cretion of  the  corporation,  and  the  power  to  regulate  those  matters 
was  also  expressly  granted  to  the  corporation  as  it  was  created  by  the 
charter,  by  the  provision  contained  in  the  first  section  of  that  instru- 
ment, that  the  corporation  might,  "make  all  by-laws,  rules  and  regu- 
lations for  the  management  of  its  business,  property  and  effects,  and 
the  transfer  of  its  stock,  as  to  them  may  seem  best." 

See  notes  to  State  v.  Dawson,  and  Benbow  v.  Cook,  infra,  pp.  413,  416. 
See,  also,  Angell  &  Ames,  §§81-95;  Beach.  §15;  Boone,  §§23,24;  Clark, 
§§23,24;  Cook,  §§499,  640;  Elliott,  §§23-25;  Field,  §§23-26;  Grant,  pp. 
*18-*24;  Morawetz,  §§  21-23,  25,  26,  40;  Taylor,  §449;  1  Thompson,  §§52,  e« 
seg.;  VII  Thompson,  §8160. 


412  THE   STATE   V.    DAWSON.  §  86 


Sec.  86.    The  offer  may  be  withdrawn  before  acceptance.    Accept- 
ance is  essential. 

THE  STATE,  Ex  Rel.,  v.  DAWSON. 

i86i.     In  THE  Supreme  Court  of  Indiana.     i6  Ind.  Rep.  40-43. 

Appeal  from  the  Clark  circuit  court. 

Perkins,  J.  Information  against  the  defendants,  charging  that 
they  are  pretending  to  be  a  corporation,  and  to  act  as  such,  when  they 
are  not  a  corporation.  It  charges  that  in  January^  1849,  the  legisla- 
ture of  the  state  of  Indiana  enacted  a  special  charter  of  incorporation 
(which  is  set  out  at  length)  for  a  railroad  from  Fort  JVayne,  Indiana, 
to  Jeffersonville^  to  be  called  the  Fort  Wayne  and  Southern  Rail- 
road; that  the  persons  named  in  the  charter  as  directors  did  not  ac- 
cept said  charter  \\\\  June  2,  1852,  when  they  did  meet  and  accept  the 
same,  and  organized  under  it.  It  is  alleged  that  the  defendants  are 
assuming  to  act  under  said  charter,  never  having  organized  under  any 
other.  The  court  below  sustained  a  demurrer  to  the  information,  thus 
holding  the  defendants  to  be  a  legal  corporation. 

The  present  constitution  of  Indiana  took  effect  on  November  i, 
1 85 1.      It  contains  these  provisions: 

•'All  laws  now  in  force,  and  not  inconsistent  with  this  constitution, 
shall  remain  in  force,  until  they  shall  expire  or  be  repealed."  Sched. 
(i  sub.  sec.)  of  Constitution. 

"Corporations,  other  than  banking,  shall  not  be  created  by  special 
act,  but  may  be  formed  under  general  laws."     Art.  xi,  §  13. 

"All  acts  of  incorporation  for  municipal  purposes  shall  continue  in 
force  under  this  constitution,  until  such  time  as  the  general  assembly 
shall,  in  its  discretion,  modify  or  repeal  the  same."  Sched.,  supra, 
sub.  §  4. 

The  charter  for  the  Fort  Wayne  and  Southern  Railroad  was  not  a 
charter  for  municipal  purposes,  and  hence  was  not  specially  continued 
in  existence.  Article  11,  §  13,  above  quoted,  prohibits  the  creation 
of  a  corporation  by  special  act  or  charter,  that  is,  as  we  construe  the 
prohibition,  through  or  by  virtue  of,  such  special  act  or  charter,  after 
November  i,  185 1.  The  policy  that  induced  the  prohibition,  as  well 
as  its  literal  import,  demands  this  construction.  It  is  necessary  for 
us  to  ascertain,  then,  when  the  defendants,  if  ever,  were  created  a 
corporation.  The  simple  enactment  of  the  charter  for  the  corpora- 
tion by  the  legislature,  did  not  create  the  corporation.  It  required 
one  act  on  the  part  of  the  persons  named  in  the  charter  to  do  that, 
viz. :    acceptance  of  the  charter  enacted. 

Says  Grant  in  his  work  on  corporations,  vide,  p.  13  "Nor  can  a 
charter  be  forced  on  any  body  of  persons  who  do  not  choose  to  ac- 
cept it."  And  again  at  p.  18,  he  says,  "The  fundamental  rule  is  this: 
no  charter  of  incorporation  is  of  any  effect  until  it  is  accepted  by  a  ma- 
jority of  the  grantees,  or  persons  who  are  to  be  the  corporators  under 


§   86  WITHDRAWAL   OF   OFFER.  413 

it.  Bagge's  case,  2  Brownl.  &  G.  100,  s.  c.  i  Roll.  Rep.  224;  Dr. 
Askew's  case,  4  Burr.  2200;  Rutter  v.  Chapman,  8  M.  &  W.  25; 
per  Wilmot,  J.,  Rex  v.  Vice-Chancellor  of  Cambridge,  3  Burr.  1661. 
This  is  analogous  to  the  general  rule  that  a  man  can  not  be  obliged  to 
accept  the  grant  or  devise  of  an  estate.  Townson  v.  Tickell,  3  B.  & 
Aid.  31."  See,  also,  Ang.  &  Am.,  §  83,  where  it  is  said,  if  a  charter 
is  granted  to  those  who  do  not  apply  for  it,  the  grant  is  said  to  be  in 
fieri  till  acceptance.  We  need  not  inquire  whether  this  rule  extends 
to  municipal  corporations  in  this  country.  As  to  what  may  constitute 
an  acceptance  we  are  not  here  called  on  to  decide,  as  the  information 
expressly  shows  that  there  was  none  in  this  case  till  June,  1852, 
which  fact  is  admitted  by  the  demurrer. 

The  grant  of  the  charter  in  question,  then,  to  those  who  had  not 
applied  for  it,  was  but  an  offer,  on  the  part  of  the  state ;  a  consent 
that  the  persons  named  in  the  charter  might  become  a  corporation, 
might  be  created  such  an  artificial  being  by  accepting  the  charter 
offered.  But  an  offer,  till  accepted,  may  be  withdrawn.  In  this  case, 
the  offer  made  by  the  state  in  1849  was  withdrawn  by  the  state  No- 
vember I,  185 1,  by  them  declaring  that  no  corporation,  after  that 
date,  should  be  created  except  pursuant  to  regulations  which  she,  in 
future,  through  her  legislature  would  prescribe. 

This  pretended  corporation,  then,  was  not  created  before  Novem- 
ber I,  185 1,  and  it  could  be  created  afterward  only  by  the  concurrent 
consent  of  the  state  and  the  corporators.  But,  at  that  date,  the  con- 
stitution prohibited  both  the  state  and  corporators  from  giving  consent 
to  such  a  corporation,  to  wit:  One  coming  into  existence  through  a 
special  charter;  and  hence  necessarily  prohibited  the  creation  thereof. 
This  decision  accords  with  that  of  the  supreme  court  of  the  United 
vStates  in  Aspinwall  v.  Daviess  County,  22  How.,  p.  364,  where  it 
was  held  that  the  new  constitution  prohibited  a  subscription  of  stock 
to  the  Ohio  and  Mississippi  Railroad  Company,  authorized  by  the 
charter  of  the  corporation,  granted  under  the  former  constitution  and 
actually  voted  by  the  people  of  the  county  under  that  constitution. 

Whether,  as  a  matter  of  fact,  the  charter  in  this  case  was  accepted 
under  the  old  constitution,  must  be  determined  on  a  trial  of  the  cause 
below. 

Had  the  provision  in  our  constitution,  like  that  on  this  subject  in  the 
constitution  of  Ohio,  ordained  that  the  legislature  should  "pass  no 
special  act  conferring  powers,"  the  restraint  would  clearly  have  been 
imposed  alone  upon  future  legislative  action;  but,  in  our  constitution, 
the  restraint  is  plainly  imposed  upon  the  creation,  the  organization 
of  the  corporation  itself.  See  The  State  v.  Roosa,  11  Ohio  St.  Rep.  16. 

Per  Curiam. — The  judgment  is  reversed  with  costs.  Cause  re- 
manded for  further  proceedings  in  accordance  with  this  opinion. 

Note.  The  orl^nal  act  provided  that  Allen  Hamilton  and  otherp  named 
"are  hereby  constituted  a  body  corporate,"  etc.  In  the  later  case,  State  v. 
Dawson,  22  Ind.  272  (18641,  itappeared  that  the  charter  had  been  applied  for 
by  the  corporators;  this  was  held  to  be  an  acceptance.  See  1807.  Ellis  v. 
Marshall,  2  Mass.  269,  3  Am.  Dec.  49,  supra,  p.  306;  1820,  Lincoln  &  K.  B.  v. 
Richardson,  1  Maine  (1  Greenl.)  79,  10  Am.  Dec.  34;  1839,  Thomas  v.  Dakin, 


414  BENBOW   V.    COOK.  §  87 

22  Wend,  9,  supra,  p.  19;  1842,  State  v.  B.  &  O.  R.  R.,  12  Gill  &  J.  (Md.)  399, 
38  Am.  Dec.  317;  1847,  Haslett  v.  Wotherspoon,  1  Strob.  Eq.  (S.  C.)  209; 
1859,  Cvpress  Pond  Draining  Co.  v.  Hooper,  2  Mete.  (Kv.)  350;  1870,  Lvons 
V.  Orange,  A.  &  M.  R.  Co.,  32  Md.  18;  1872,  Mason  v.  Finch,  28  Mich. '282; 
1875,  P.  W.  &  B.  R.  Co.  V.  Kent  Co.  R.  Co.,  5  Houst.  (Del.)  127;  1885,  Smith 
V.  Silver  Valley  M.  Co.,  64  Md.  85,  54  Am.  Rep.  760,  20  Atl.  1032;  1893, 
Atkinson  v.  Fennill,  14  Ky.  Law  Rep.  922.  See  references  to  text-books, 
supra,  p.  411. 


Sec.  87.    Acceptance  may  be  inferred  from  signing  articles,  hold- 
ing meetings,  organizing  and  acting  as  a  corporation. 

BENBOW  V.  COOK.» 

1894.     In  the  Supreme  Court  of  North  Carolina.     115  N.  C. 
Rep.  324-334,  44  Am.  St.  Rep.  454. 

["Plaintiff  sued  to  recover  possession  or  damages  for  non-delivery 
of  cotton  mills  machinery  claimed  under  a  mortgage  from  the  Crown 
Mills  corporation,  and  which  defendant  had  seized  as  sheriff  and  sold 
under  executions  against  the  corporation."] 

Avery,  J.  If  the  corporation  never  had  any  lawful  existence,  as 
the  defendant  contends,  of  course  it  did  not  authorize  the  execution 
of  a  mortgage  some  months  after  it  is  claimed  that  it  was  duly  organ- 
ized. The  statute,  The  Code,  §  677,  provides  that  "Any  number  of 
persons,  not  less  than  three,  who  may  be  desirous  of  engaging  in  any 
business  not  unlawful,  except  building  railroads  or  banking  or  insur- 
ance, at  any  place  within  the  state,  may,  if  it  please  them,  become 
incorporated  in  the  manner  following,"  etc.  It  seems  that  three  per- 
sons, Amos  Ragan,  O.  S.  Causey  and  R.  E.  Causey,  as  the  sole  cor- 
porators of  a  manufacturing  company,  having  ten  shares  each,  signed 
articles  of  agreement  before  the  clerk  of  the  superior  court  of  Guilford 
county,  which  were  duly  recorded.  Having  complied  with  the  re- 
quirements as  to  the  form  of  the  articles  of  agreement  and  caused  the 
proper  record  to  be  made,  the  three  persons  named  as  sole  corpora- 
tors became  a  body  politic  for  the  purposes  set  forth  in  the  agreement. 
The  Code,  §§  678,  679.  When  corporate  powers  are  granted  by  a 
special  instead  of  a  general  act  of  the  legislature,  there  must  be  evi- 
dence of  acceptance  by  the  corporators  and  compliance  with  all  con- 
ditions precedent  prescribed  by  law,  in  order  to  show  affirmatively 
that  the  corporation  is  lawfully  organized.  But  in  our  case  every 
corporator  affixed  his  hand  and  seal  to  the  articles  of  agreement  re- 
corded, and  by  such  signature  and  the  recording  of  the  instrument, 
became  invested  with  all  the  powers  which  it  was  contemplated  by  law 
to  confer  in  such  cases.  The  Code,  §  679.  Private  corporations  are 
formed  when  the  necessary  contractual  relations  are  created  between 
the  persons  clothed  by  law  with  the  powers  of  a  body  politic.  i  Mor- 
awetz  24.  The  existence  of  the  company  depends  upon  the  fact  of 
the  acceptance  of  the  privilege  (i  Morawetz  26),  and  it  was  evidently 

^  Only  the  part  of  the  decision  relating  to  acceptance  of  charter  is  given. 


§87  EVIDENCE   OF  ACCEPTANCE.  415 

the  intent  of  the  legislature  that  the  signature  to  the  articles  should  be 
deemed  an  acceptance,  leaving  no  other  condition  precedent  to  be 
performed,  except  the  recording,  this  being  a  substantial  compliance 
with  the  requirements  of  the  law.  i  Morawetz,  32,  33,  27  et  seq.  In 
such  cases  the  corporators  are  usually  constituted  only  a  quasi-cox-^o- 
ration,  "whose  sole  function  is  to  bring  into  'existence  the  corpora- 
tions consisting  of  the  real  body  of  stockholders."  But  in  our  case 
the  signers  of  the  certificate,  as  appears  from  the  recorded  articles  of 
agreement,  were  not  only  the  sole  corporators,  but  the  only  stock- 
holders, and,  as  between  themselves,  constituted  a  corporate  body, 
wanting  only  formal  organization  in  order  to  transact  business  with 
the  public. 

The  law,  intending  to  protect  the  rights  of  minorities,  requires  that 
notice  of  the  meetings  of  the  stockholders  of  a  corporation  shall  be 
given  to  every  person  who  holds  a  share  of  the  stock,  and,  if  no  other 
mode  of  notification  be  provided  in  the  charter  or  by-laws  of  a  com- 
pany, or  by  statute,  express  notice  must  be  given.  The  owner  of 
every  unit  of  interest  constituting  a  part  of  the  aggregate  body  of  stock 
is  entitled  to  the  opportunity  which  due  notice  affords  him  of  protect- 
ing it,  by  being  present  and  participating  in  meetings,  i  Cook  on 
Stockholders,  §  574.  The  reason  for  this  iiile  is  plainly  met,  so  far 
as  the  organization  of  the  company  is  concerned,  when  it  appears  that 
all  the  stockholders  assented  to  the  call  of  the  meeting,  participated 
in  it,  and  acquiesced  in  its  consequences  afterwards.  The  state  has 
not  complained  or  taken  any  steps  to  question  its  rights  or  annul  its 
powers  as  a  body  politic.  If  we  concede  that  section  665  of  The 
Code  was  intended  to  apply  in  such  a  case  as  this,  the  only  purpose 
of  the  legislature  in  enacting  it  was  to  provide  that  every  corporator 
should  have  notice  of  the  time  and  place  of  a  meeting  for  organiza- 
tion. There  was  no  necessity  for  proving  a  compliance  with  the 
statute,  when  every  person  interested  had  express  notice  and  partici- 
pated in  the  meeting.  Angell  &  Ames  on  Corporation,  §  492.  The 
strict  requirements  as  to  notice,  being  intended  to  protect  stockhold- 
ers, may  be  waived  by  them,  and  when  they  do  waive  it,  "the  meet- 
ing and  all  proceedings  are  as  valid  as  they  would  be  had  the  full 
statutory  notice  been  given."      i  Cook,  supra^  §  599. 

It  is  always  presumed  that  notice  is  given,  and  that  any  meeting  of 
which  a  minute  is  found  in  the  proceedings  of  the  stockholders  of  a 
corporation,  was  regularly  and  lawfully  held.  Cook,  §  600.  When 
a  party  assumes  the  burden  of  showing  irregularity,  and  actually 
shows  that  the  meeting  for  organization,  or  any  subsequent  one,  was 
not  called  in  the  manner  prescribed  by  law  or  the  by-laws  of  the  com- 
pany, the  action  of  the  meeting  will  nevertheless  be  declared  valid 
when  it  appears  that  every  stockholder  who  did  not  participate  in  the 
meeting  ratified  its  action  afterward.  Stutz  v.  Handly,  41  Fed.  Rep. 
531;  Nelson  v.  Hubbard,  96  Ala.  238;  Campbell  v.  Argenta,  etc., 
Co.,  51  Fed.  Rep.  i. 

If  the  three  directors,  Amos  Ragan,  O.  S.  Causey  and  R.  E.  Cau- 
sey, met  at  High  Point  without  notice,  they  being  also  the  holders  of 


4l6  BENBOW   V.    COOK.  §8/ 

all  the  stock,  it  was  a  waiver  of  the  requirements  of  the  by-laws  that 
such  meeting  should  be  called  by  the  president  or  a  majority  of  the 
directors.  Nelson  v.  Hubbard,  supra;  Jones  v.  Turnpike  Co.,  7 
Ind.  547.  Whether  the  directors  met  at  Greensboro  or  High  Point, 
and  whether  in  pursuance  of  previous  notice  or  not,  is  immaterial,  if 
in  fact  they  met  together  and  agreed  to  create  the  indebtedness  and 
authorize  the  execution  of  the  mortgage  to  secure  it,  they,  as  stock- 
holders and  directors,  constituting,  as  they  did,  the  whole  of  each 
body,  waived  objection  to  the  want  of  the  notice  prescribed  by  the 
by-laws,  and  the  failure  to  make  a  record  of  their  proceedings  at  that 
time  does  not  affect  the  validity  of  their  action.  Handly  v.  Stutz,  139 
U.  S.  417.  The  signing  of  the  minutes  at  another  time  would  not 
affect  the  validity  of  the  action  of  the  board,  if  in  fact  all  three  met, 
discussed  the  question  of  executing  the  mortgage  and  agreed  to  what 
was  afterward  entered  on  the  minutes  and  signed  by  them.  It  is  true 
that  the  assent  of  each  of  the  three,  obtained  at  different  times  or 
places,  to  a  certain  course  of  proceedings,  would  not  bind  them,  be- 
cause it  would  not  be  the  action  of  the  directors  as  a  collective  body; 
but  if,  as  a  body,  they  assemble  together  and  conferred  in  taking  cer- 
tain action  they  waived  all  objection  to  irregularities,  though  the  meet- 
ing may  have  been  informal  and  the  minutes  may  not  have  been  then 
recorded.  The  case  of  Duke  v.  Markham,  105  N.  C.  131,  is  clearly 
distinguishable  in  that  there  the  stockholders  at  no  time  assembled  as 
a  body,  but  the  assent  of  each  individual  was  asked  and  obtained, 
separately.  It  is  not  contended  that  the  consent  of  each  individual 
has  the  same  force  as  the  concurrence  of  all  assembled  together,  given 
after  an  opportunity  to  discuss  their  proceedings,  interchange  views 
and  acquire  benefit  of  such  consultation.  «  *  * 
New  trial  granted. 

Note.  See  1833,  Russell  v.  McLellan,  14  Pick.  (Maes.)  63;  1839,  Penobscot 
Boom  Corp.  v.  Lamson,  16  Maine  224,  supra,  p.  283;  1840,  Newton  v.  Carbery, 
5  Cranch  C.  C.  632,  Fed.  Cas.  10.190;  l848,  Blandford  Third  School  Dist.  v. 
Gibbs,  2  Gush.  (56  Mass.)  39;  1852,  Baldwin  v.  Hillsboro  &  C.  R.  Co.,  1  Ohio 
Dec.  532;  1855,  Taylor  v.  Newberne,  2  Jones  Eq.  (N.  C.)  141 ;  1864,  State  v. 
Dawson,  22  Ind.  272;  1872,  Lycoming  Fire  Ins.  Co.  v.  Buck,  1  Luz.  Leg.  Reg. 
(Pa.)  357;  1875,  Heath  v.  Silverthorn  Lead  M.  Co.,  39  Wis.  146;  1883,  McKay 
v.  Band,  20  S.  C.  156;  1894,  Glymont  Imp.  Co.  v.  Toller,  80  Md.  278,  30  Atl. 
651 ;  1896,  Quinlan  v.  Houston  &  T.  Ry.  89  Tex.  356,  34  S.  W.  738.  See,  also, 
I  Thompson,  §§  60,  61 ;  III  Thompson,  §  3652;  IV  Thompson,  §§  5266,  5388. 
5416;  VI  Thompson,  §  7703,  et  seq. ;  VII  Thompson,  §  8161.  And  other  text 
books  cited,  supra,  p.  397. 


§  89  ACCEPTANCE   OF   AMENDMENTS.  417 

Sec.  88.    Acceptance  must  be  within  the  state  offering  the  charter. 
MILLER  V.  EWER,  27  Maine  509,  46  Am.  Dec.  619,  infra,  p.  841. 


Sec.  89.    Renewals,  extensions  and  amendments,  must  also  be  ac- 
cepted, to  make  them  effective. 

COMMONWEALTH,  Ex  Rel.  CLAGHORN  Et  Al.  v.  CULLEN.* 

1850,     In  the  Supreme   Court  of  Pennsylvania.      13   Pa.  St. 
Rep.  133-145'  53  Am.  Dec.  450. 

Error  to  the  Common  Pleas  of  Philadelphia  county. 

An  information  in  the  nature  of  a  quo  warranto  was  filed  in  the 
court  below  on  the  19th  of  May,  1849,  by  John  W.  Claghorn  and 
others,  to  show  cause  why  Peter  CuUen  and  others  claimed  to  enjoy 
the  franchises,  etc.,  of  The  Equitable  Life  Insurance  Company,  of 
Philadelphia.  It  set  forth  that  a  charter  was  granted  in  May,  1848, 
which  provided  that  the  corporate  powers  of  the  company  should  be 
exercised  by  a  board  of  trustees,  to  consist  of  six  persons  and  a  sec- 
retary, to  be  elected  on  the  second  Monday  in  December,  annually, 
or  within  forty  days  thereafter.  Until  the  first  election  the  board  of 
trustees  was  to  consist  of  the  seventeen  persons  named  as  commis- 
sioners to  receive  subscriptions,  and  that  thereupon  the  company  went 
into  corporation,  and  Claghorn  was  elected  president;  that  on  the 
i8th  of  January,  1849,  within  the  forty  days  after  the  first  election 
should  have  been  held,  a  supplement  to  the  charter  was  passed,  which 
provided  that  the  board  of  trustees  should  thereafter  consist  of  seven- 
teen persons  and  secretary,  to  be  elected  by  the  stockholders  in  the 
rnnnner  prescribed  by  the  charter,  and  that  the  board  as  it  consisted 
on  the  1st  of  January  immediately  preceding,  should  be  continued  in 
office  until  the  next  annual  election  thereafter;  that  while  the  com- 
pany were  in  operation  under  these  two  acts,  the  passage  of  another 
supplement  was  by  some  persons  obtained  on  the  9th  of  April,  1849, 
which  declared  that  the  board  of  trustees  should  thereafter  consist  of 
seventeen  persons,  to  be  elected  in  May,  annually,  the  first  election 
to  be  held  in  May,  1849,  and  repealed  the  supplement  of  January; 
that  the  act  last  mentioned  had  been  obtained  without  the  assent  of 
the  board  of  trustees  or  of  the  company,  and  that  although  certain  of 
the  stockholders  might  have  assented  to  it,  such  assent  had  not  been 
given  by  the  trustees  nor  by  the  company  in  meeting  duly  convened, 
and  that  said  act  was  in  no  way  binding;  that  nevertheless  Peter  Cul- 
len,  vice-president  of  the  company,  called  a  general  meeting  of  stock- 
holders, to  elect  seventeen  trustees  on  the  7th  of  May ;  that  the  board 

*  Arguments  omitted. 
27— WiL.  Casks. 


41 8  COMMONWEALTH    V.    CULLEN.  §  89 

of  trustees,  before  the  day  of  election  so  named,  passed  resolutions  re- 
fusing to  accept  the  last  supplement  declaring  the  call  for  the  meet- 
ing unauthorized,  and  appointing  a  committee  to  attend  at  the  meet- 
ing of  stockholders,  to  protest  against  any  proceedings  under  that  call ; 
that  the  said  Cullen,  with  others,  still  persisted  in  convening  the 
meeting  of  stockholders  at  which  the  defendants  were  elected  trustees, 
and  the  parties  so  elected  thereupon  ejected  the  old  board  of  trustees, 
and  usurped  the  franchises  of  the  company. 

The  answer,  after  admitting  the  incorporation  of  the  company  and 
its  going  into  operation,  set  forth  that  certain  of  the  defendants  who 
were  of  the  number  of  commissioners  and,  therefore,  of  the  first  board 
of  trustees,  were  not  informed  by  the  other  members  of  the  board  of 
the  intended  passage  of  the  supplement  of  January,  1849,  in  manner 
and  form  as  set  forth,  yet  that  it  was  produced  by  Mr.  Claghom  at  a 
meeting  of  the  board  on  the  24th  of  January,  1849,  and  that,  although 
no  acceptance  thereof  was  ever  made,  either  by  the  board  or  the  stock- 
holders, that  the  trustees  continued  to  hold  their  offices  under  it;  that 
while  thus  in  office  the  supplement  of  April  was  passed,  which  was 
not  only  done  with  the  knowledge  of  a  large  number  of  the  trustees, 
but  that  the  majority  in  value  of  the  stockholders  signed  an  acceptance 
of  it  and  held  an  election  in  pursuance  of  its  provisions.  The  answer 
set  forth  at  length  the  proceedings  of  this  election.  To  this  the  relators 
demurred. 

The  court  below  decided  that  there  had  been  no  such  acceptance  of 
either  supplement  as  to  render  it  binding  on  the  corporation,  and 
made  the  following  decree: 

This  cause  came  on  to  be  heard  at  the  June  term,  and  was  argued 
by  counsel,  and  thereupon,  upon  consideration  thereof,  the  court  do 
order,  decree  and  adjudge  as  follows,  this  twenty-ninth  day  of  Sep- 
tember, A.  D.  1849,  to  wit: 

That  judgment  of  ouster  be  entered  against  the  defendants,  and  for- 
asmuch, as  in  the  opinion  of  the  court,  the  relators  are  not  entitled  to 
possess  and  enjoy  the  offices  and  franchises  of  the  said  "Equitable 
Life  Insurance  Company,"  the  court  do  order  an  election  to  be  held 
for  trustees  of  said  company  at  a  general  meeting  of  the  stockholders 
convened  for  that  purpose  by  ten  days'  public  notice  in  two  or  more 
of  the  daily  papers  of  the  city  of  Philadelphia,  on  Thursday,  the 
eleventh  day  of  October,  A.  D.  1849,  between  the  hours  of  ten  A.  m. 
and  two  p.  m.,  and  the  court  do  appoint  Frederick  Fraley,  Charles  F. 
Lex  and  William  G.  Alexander,  Esqs.,  trustees  to  take  charge  of 
said  corporation  until  others  shall  be  elected  in  their  stead,  pursuant 
to  the  laws  of  this  commonwealth,  regulating  said  corporation  and 
this  order  of  court ;  and  the  court  do  direct  that  the  tmstees  appointed 
as  aforesaid  by  this  decree,  shall  give  the  public  notice  aforesaid,  and 
shall  be  the  judges  at  said  election  and  shall  receive  the  votes  of  said 
stockholders  duly  qualified  to  vote,  and  shall  make* return  to  the  court 
on  Saturday,  October  13,  1849,  of  the  proceedings  to  be  had  by  virtue 
of  this  decree. 

The  relators  objected  to  this  decree  being  entered  on  the  ground 


§  89  ACCEPTANCE   OF   AMENDMENTS.  419 

that  the  argument  had  been  directed  to  the  validity  of  the  April  sup- 
plement, and  not  to  that  of  January.  An  argument  was  then  ordered 
by  the  court  as  to  the  efficacy  of  the  January  supplement,  and  in  the 
meantime  no  decree  was  entered.  After  this  argument  the  decree 
was  entered  as  above. 

The  relators  took  out  a  writ  of  eiTor,  of  which  they  notified  the 
three  trustees  appointed  by  the  court,  and  warned  them  not  to  pro- 
ceed with  the  election.  The  court  below,  under  the  15th  section  of 
the  act  of  13th  of  June  1836  (Pur.  990,  quo  warranto)^  then  made  a 
decree  awarding  execution  of  their  former  decree,  notwithstanding 
the  writ  of  error.  The  election  was  held  and  six  of  the  defendants 
elected  trustees.  These  proceedings  the  court  confirmed  and  author- 
ized the  delivery  of  the  property  of  the  corporation  by  the  three  trust- 
ees appointed  by  the  court,  to  the  trustees  thus  elected. 

The  relators  assigned  for  eiTor: 

1.  "That  the  court  below  erred  in  deciding  that  the  relators  were 
not  entitled  to  possess  and  enjoy  the  offices  and  franchises  of  the 
Equitable  Life  Insurance  Company. 

2.  "That  said  court  erred  in  ordering  that  an  election  for  trustees  of 
said  company  be  held  on  October  11,  1849,  and  in  appointing  Fred- 
erick Fraley,  and  others,  trustees  to  take  charge  of  the  corporation  in 
the  interim." 

Bell,  J.  So  far  as  we  may  judge  from  the  pleadings  and  accom- 
panying exhibits,  under  which  the  cause  is  brought  before  us,  it  pre- 
sents the  history  of  a  struggle  between  rival  parties  for  the  govern- 
ment of  a  private  corporation,  pending  which,  each  has  sought  the 
aid  of  special  legislation,  apparently  too  hastily  accorded  to  both. 
Such  a  course  is  usually  detrimental  to  the  best  interests  of  companies 
entrusted  with  the  management  of  capital;  and,  it  is  to  be  feared,  the 
present  instance  can  not  be  esteemed  an  exception.  Both  the  supple- 
mental acts,  here  in  question,  propose  to  graft  upon  the  original  act 
of  incorporation,  some  very  material  alterations.  Each  provides  for 
an  increase  in  the  number  of  trustees  and  for  changing  the  time  o£ 
their  election.  The  earlier  of  them  continued  in  office  for  an  addi- 
tional year  the  first  board  of  managers,  and  directs  the  election  of  a 
secretary  by  the  whole  body  of  corporators.  If,  under  the  facts  de- 
veloped, this  is  to  be  regarded  as  a  valid  amendment  of  the  charter, 
the  second  supplement  of  April,  1849,  becomes  of  decisive  impor- 
tance, not  only  because  it  fixes  a  new  time  for  the  annual  election, 
and  restores  the  appointment  of  secretary  to  the  board  of  trustees, 
but  by  force  also  of  its  repealing  clause,  is  destnictive  of  the  first 
supplement.  Should,  however,  this  be  decreed  invalid,  then  the 
changes  proposed  by  the  younger  enactment,  in  the  organization  of 
the  board,  as  originally  designed,  and  the  time  of  the  election  of  its 
members,  must  be  deemed  radical  in  their  character. 

Of  the  numerous  decisions  that  have  been  pronounced  on  this  sub- 
ject, it  is  unnecessary  to  bring  to  view  other  than  the  case  of 
Dartmouth  College  v.  Woodward,  4  Wheat.  518,  and  our  recent  deter- 
mination of  in  Brown  v.  Hummell,  6  Barr.  86,  to   prove   that  sub- 


420  COMMONWEALTH    V.    CULLEN.  §  89 

gtantive  alterations,  such  as  those  proposed  by  each  of  these  supple- 
mentary acts,  are  not  to  be  taken  as  parcel  of  a  private  charter, 
without  the  previous  concurrence  of  the  corporators,  manifested  in 
some  way  recognized  by  the  law.  Unless  so  sanctioned  they  are 
esteemed  as  unauthorized  interferences  with  a  solemn  compact  be- 
tween the  public  and  the  individuals  composing  the  corj^oration,  and, 
therefore,  obnoxious  to  the  constitutional  prohibition  touching  the 
obligation  of  contracts.  Whether  this  sanction  has  been  extended  to 
both,  or  either  of  the  supplements  of  January  and  April,  are  the  lead- 
ing questions  presented  for  decision.  Each  of  the  contending  parties 
claim  this  advantage  for  the  enactment  of  their  own  procurement,  and 
deny  it  to  the  antagonist  statute.  Neither  of  them,  however,  pretend 
that  there  was  any  express,  formal  and  recorded  act  of  acceptance,  either 
by  the  corporators  at  large  or  the  board  of  trustees,  nor,  as  will  be  pres- 
ently seen,  was  this  absolutely  necessary.  That  the  then  board  of 
trustees  tacitly  gave  their  assent  to  the  older  supplement  is  not  to  be  de- 
nied, for,  while  the  petition  in  effect  asserts  this,  the  answer  admits  it  was 
produced  as  a  recognized  act  by  the  president  of  the  board,  at  a  meet- 
ing held  on. the  24th  of  January,  1849,  ^"^  '^^^  ^^^  trustees,  including 
several  of  the  defendants,  continued  to  hold  their  offices  by  virtue  of 
the  supplement  after  the  period  for  which  they  were  first  appointed. 

Had  these  officers  been  clothed  with  power  to  accept  or  reject  this 
statute,  it  is  not  to  be  doubted,  their  silent  acquiescence  in  its  provis- 
ions and  continued  exercise  of  authority  by  virtue  of  it,  would  have 
been  sufficient  to  establish  their  assent. 

Anciently,  indeed,  it  was  supposed  that  from  the  very  nature  of 
an  artificial  corporate  body,  it  could  legally  manifest  its  acts  and  con- 
clusions only  by  the  use  of  its  corporate  seal,  affixed  to  a  deed  in  pur- 
suance of  authority  previously  given.  But  this  idea  has  long  since 
given  way  to  the  more  reasonable  doctrine  that  the  act  of  assent 
of  a  corporation  may  be  inferred  from  such  circumstances  of  com- 
mission or  omission  as  would  raise  a  similar  presumption  in  favor  of 
or  against  a  natural  person.  Corporations,  it  is  n&w  held,  may  be 
affected  by  implication,  just  as  individuals  are,  and  where  its  action 
or  acquiescence  are  the  natural  result,  or  necessary  accompaniment  of 
some  other  supposed  precedent  fact,  the  existence  of  that  fact  will  be 
assumed,  both  for  purpose  of  charge  and  discharge.  In  the  leading 
case  of  the  Bank  of  the  United  States  v.  Dandridge,  11  Wheat.  70, 
Mr.  Justice  Story  stated  the  principles  thus :  "Acts  done  by  corpora- 
tion, which  pre-suppose  the  existence  of  other  acts  to  make  them 
legally  operative,  are  presumptive  proof  of  the  latter,"  and  this  is 
true,  though  no  minute  of  them  can  be  found  among  the  records 
of  the  corporation.  By  way  of  illustration,  he  instanced  the  case 
of  one  notoriously  acting  as  cashier  of  a  bank,  and  so  recognized  by  the 
directors,  which  is  sufficient  of  itself  to  raise  a  presumption  of  his  due 
appointment,  and  his  acts  as  cashier  will  bind  the  institution,  though 
no  written  proof  of  the  appointment  can  be  produced.  Both  in 
England  and  with  us,  this  principle  has  been  liberally  extended  and 
applied,  where  the  questions  were  of  the  acceptance  of  a  charter.    In 


§  89  ACCEPTANCE   OF   AMENDMENTS.  421 

this  country,  where  private  corporations  are  very  numerous,  and  con- 
stant use  of  their  privileges  naturally  engenders  indolence  in  the  crea- 
tion of  regular  evidence  of  corporate  acts,  and  negligence  in  its  pres- 
en'ation,  the  recognition  of  presumptions,  as  legitimate  sources  of 
proof,  was  a  legal  necessity.  While,  therefore,  a  charter  granted  to 
persons  who  have  not  solicited  it,  is  said  to  be  in  jieri  until  after 
acceptance,  yet  it  is  tiot  indispensable  to  show  a  written  instrument , 
or  even  a  vote  acceding  to  the  grant,  unless  the  charter  expressly  pro- 
hibit it;  every  formality  may  be  presumed,  from  a  continual  exercise 
of  the  corporate  powers. 

This  is  also  true  of  assent  to  a  new  or  additional  charter  by  an  ex- 
isting corporation,  which  may,  in  like  manner,  be  inferred  from  acts 
or  omissions  inconsistent  with  any  other  hypothesis;  and  where  the 
new  grant  is  beneficial  in  its  aspect,  it  is  thought  very  little  is  required 
to  found  a  presumption  of  acceptance.  Bank  v.  Dandridge,  12  Wheat. 
71 ;  The  Charles  River  Bridge  v.  Essex  Bridge,  7  Pick.  334;  Trott  v. 
\Varren,  2  Fair'd  227;  Bridge  Co.  v.  Bragg,  2  N.  H.  Rep.  102; 
Riddle  v.  Proprietors  of  Canals,  7  Mass.  184;  Penobscot  Co.  v. 
Lawson,  4  Shep.  924;  Kings  v.  Avery,  i  Term  Rep.  575;  s.  c.  2 
Term  Rep.  515;   Newling  v.  Francis,  3  Term  Rep.  189. 

Nay,  a  single  unequivocal  act  may  be  potent  enough  conclusively  to 
establish  assent;  as,  for  instance,  if  a  suit  be  brought  and  persisted  in, 
where  it  could  be  sustained  only  under  the  provisions  of  the  amended 
charter.  A  similar  observation  was  made  in  deciding  the  Lincoln 
and  Kentucky  Bank  v.  Richardson,  i  Greenl.  Rep.  460,  and  the 
court  added  that  the  stockholders  of  the  bank  are  bound  by  every  act, 
which  amounts  to  an  acceptance  on  the  part  of  the  directors.  But  if 
by  this  was  meant  that  the  whole  body  of  the  corporation  may  gener- 
ally be  so  bound  by  the  acts  of  their  agents,  selected  to  administer  the 
affairs  of  the  corporation,  the  proposition  can  not  be  acceded  to. 

As  is  well  remarked  of  this  proposition  in  another  place,  it  is 
founded  upon  the  consideration  that  certain  persons  have  been  in- 
vested with  sufficient  power  to  bind  the  whole  body  by  their  accept- 
ance, for  where  it  is  otherwise  the  charter  must  be  accepted  by  a  ma- 
jority of  the  whole  number  of  the  company.  Angell  &  Ames  on  Cor- 
porations, 53.  Corporate  powers  are  usually  distinguished  into  leg- 
islative, electoral  and  administrative ;  in  private  corporations  ag- 
gregate, though  sometimes  all  the  tnembers  act  immediately  in  the  ad- 
ministration of  its  affairs,  usually ,  for  the  sake  of  convenience,  the 
direct  management  is  entrusted  by  the  cflarter  to  certain  officers,  or 
board  of  managers,  elected  by  the  members  at  large,  though  deriving 
their  ordinary  powers  from  the  act  of  incorporation.  These  offcers 
exercise  the  legislative  and  administrative  functions — the  fortner  in 
the  institution  of  by-laws  for  the  general  govcrnmc7it  of  the  company , 
the  latter  in  the  superintendence  and  execution  of  its  general  business. 
Union  Turnpike  Company  v.  Jenkins,  i  Caine  381. 

In  other  instances,  a  select  few,  representing  all  those  interested  in 
the  object  of  the  association,  are  erected  into  and  vested  with  all  the  pow- 
ers of  a  corporation,  and  sometimes  the  selected  branches  are  divided  into 


422  COMMONWEALTH    V.    CULLEN.  §  89 

distinct  classes,  as  is  the  case  in  the  corporation  of  St.  Maiy's  Church, 
in  this  city.  When  the  corporate  existence  is  devolved  on  a  board  of 
officers,  they  not  only  wield  the  whole  corporate  authority,  but  may 
apply  for  and  agree  to  radical  changes  in  the  instnament  to  which 
they  owe  their  corporate  being.  When  such  a  board  is  separated 
into  intregal  parts,  occupying  distinct  positions,  both  must  concur  in 
any  act,  having  for  its  object  an  alteration  of  the  fundamental  law, 
though  in  the  exercise  of  the  ordinary  powers  of  a  corporation,  they 
act  jointly,  and  are  governed  by  a  majority  of  the  united  bodies. 
Case  of  St.  Mary's  Church,  8  S.  &  R.  517.  But  these  and  other 
authorities  evidence  that  where  the  -whole  body  of  stockholders ^  or 
other  persons  in  interest^  compose  the  corporation^  the  right  oj"  assent- 
ing to  any  proposed  change  in  the  charter  resides  in  thein^  though 
ordinarily  represejited  by  a  board  of  directors  charged  with  the  exer- 
cise of  the  corporate  powers.  These  in  their  capacity  of  managers 
have  no  authority ^  either  to  call  for  or  assent  to  a  change  of  the  cor- 
porate constitution^  but  by  the  agreement  of  a  majority  of  the  corpo- 
rators. Being  7ieither  legislative  nor  administrative,  the  express 
assumption  of  such  authority  by  the  servants  of  the  corporation  would 
be  an  usurpation.,  for  it  is  paramount  not  only  to  every  corporate  func- 
tion, but  the  constitution  itself.,  and  as  it  may  touch  the  very  existence 
of  the  body.,  it  can  only  be  exerted  by  that  body.  It  can  not  then  be 
said  that  the  assent  of  the  original  trustees  to  the  Januaiy  supplement 
is  such  an  act  of  acceptance  as  will  bind  the  corporation.  Yet,  as  we 
have  seen,  a  long  acquiescence  by  the  members  of  the  company  in 
acts  and  declarations  of  the  trustees,  recognizing  the  supplement  as 
part  of  the  charter,  might  constitute  conclusive  evidence  of  assent  to 
it.  Was  there  here  any  such  acquiescence.?  Is  there  anything  shown 
from  which  we  can  safely  draw  the  inference  that  the  company,  know- 
ing of  the  supplement,  agreed  to  it  as  a  portion  of  their  constitution  t 

Perhaps  it  may  be  said  that  as  the  terms  of  the  additional  grant 
were  favorable  to  the  company,  slight  circumstances  would  justify  a 
presumption  of  acceptance.  But  is  there  any  ground,  however  nar- 
row, upon  which  we  can  safely  erect  such  an  hypothesis.''  I  have 
looked  with  some  solicitude,  but  in  vain,  for  a  precedent  that  might 
justify  an  affirmative  answer  to  this  proposition,  to  which  my  judg- 
ment refuses  its  assent. 

It  does  not  appear  that  the  company  was  ever  officially  notified  of 
the  enactment.  The  defendants  swear  it  was  first  produced  at  a 
meeting  of  the  board  by  Mr.  Claghorn,  then  president,  on  the  24th  of 
January.  By  the  provisions  of  the  original  charter,  the  tmstees  then 
in  office  might  legally  continue  until  about  that  time.  From  thence 
until  the  enactment  of  the  second  supplement,  was  a  little  over  two 
months.  During  this  interval  we  are  not  informed  that  the  tiTJStees 
or  their  agents  performed  any  official  act,  or  distinctly  exerted  the 
corporate  power  with  the  knowledge  of  their  constituents.  For  aught 
the  pleadings  show,  they  sat  still  with  folded  arms,  doing  nothing, 
and  requiring  nothing.  Now  it  seems  to  me,  that  the  mere  omission 
of  the  stockholders  to  assemble  in  formal  meeting  within  that  period. 


§  89  ACCEPTANCE  OF  AMENDMENTS.  423 

for  the  purpose  of  electing  other  trustees,  affords  no  presumption  of 
assent  sufficient  to  fasten  upon  them  radical  changes  of  their  charter. 
Mere  non-action  for  so  brief  a  time  ought  not  to  draw  after  it  a  con- 
sequence so  serious,  particularly  when  it  is  recollected  that  the  call  of 
such  a  meeting  would  come  most  appropriately  from  the  board  itself. 
In  answer  to  this  it  is  not  sufficient  to  suggest  that  a  failure  to  elect 
trustees  ought  to  be  received  as  strong  proof  of  acceptance ;  since, 
without  this,  a  dissolution  of  the  corporation  must  ensue.  Perhaps, 
anciently,  such  would  have  been  the  result;  but  the  present  doctrine 
is,  that  a  corporation  does  not  become  defunct  from  a  simple  neg- 
lect to  elect  officers,  while  the  capacity  to  elect  remains  in  the  mem- 
bers. Lehigh  Bridge  Co.  v.  Lehigh  C.  &  N.  Co.,  4  Rawle  24;  Slee 
V.  Bloom,  5  John.  Ch.  Rep.  336.  It  is  said  a  corporation  possesses  a 
strong  and  tenacious  principle  of  vitality  (Corp.  of  Colchester  v.  Sea- 
ber,  3  Burr.  1816),  and  it  therefore  requires  a  long  non-user  of  fran- 
chises to  induce  the  courts  to  presume  a  surrender  of  corporate  rights. 
Briggs  V.  Penniman,  i  Hopk.  Ch.  Rep.  300. 

It  follows  the  argument  derives  no  aid  from  this  source  to  establish 
a  presumption  of  assent.  But  is  there  not  evidence  of  positive  dis- 
sent.'' We  find  that  very  shortly  after  its  passage  a  sentiment  of  act- 
ive hostility  to  the  first  supplement  is  manifested  by  a  majority  in 
number  and  value  of  the  stockholders.  When  this  began,  we  are  not 
precisely  informed,  but  we  know  that  in  less  than  three  months 
after  the  date  of  the  objectionable  enactment,  the  feeling  of  opposi- 
tion led  to  its  repeal.  It  is  fair,  therefore,  to  infer  it  commenced  at 
the  moment  the  law  was  communicated  to  the  board  of  trustees.  How, 
then,  with  a  knowledge  of  this  important  fact,  can  we  regard  the  as- 
sertion that  a  majority  of  the  company  had  agreed  to  accept  it  as  an 
approved  amendment  of  the  first  act  of  incorporation  ?  It  is,  how- 
ever, claimed  that  the  supplement  of  April  recognizes  that  of  Janu- 
ary to  be  in  full  force,  because  the  latter  repeals  the  former.  The 
position  is  that  if  invalid,  a  formal  repeal  of  the  unaccepted  act  was 
unnecessary.  Admitting  this,  I  am  at  a  loss  to  perceive  how  mere 
supererogation  can  derive  an  unintended  positive  effect  from  its  non- 
usefulness.  Besides,  the  repealing  clause  is  not  the  work  of  the  dis- 
senting members  of  this  corporation.  Their  rights  are  consequently 
unaffected  by  it.  But  the  argument  in  favor  of  the  first  supplement 
is  chiefly  founded  upon  certain  passages  in  the  answer  of  the  defend- 
ants, by  which  it  is  said  they  concede  the  first  board  of  trustees  were 
continued  rightfully  in  office  by  virtue  of  this  supplement.  It  is  ob- 
vious, however,  these  passages  are  but  echoes  of  the  relator's  petition, 
introduced,  not  in  confirmation  of  it,  but  with  reference  to  the  im- 
mediately preceding  denial  of  acceptance  formally  averred,  and  thus 
putting  in  issue  the  title  of  the  relators.  It  is  replied,  this  denial  is 
not  responsive  to  the  bill,  which  does  not  distinctly  aver  acceptance. 
I  think  this  is  a  mistake.  Although  in  this  part  of  the  complaint 
there  is  no  direct  assertion  of  the  assent  of  the  company  to  the  Janu- 
ary supplement,  the  act  is  distinctly  referred  to  as  an  operative  por- 
tion of  the  charter,  which  it  could  not  be  without  acceptance.     But 


y 

424  COMMONWEALTH    V.    CULLEN.'  §  8g 

were  this  not  so,  the  counter  allegation  would  be  by  no  means  value- 
less. In  equity  proceedings,  the  distinction  seems  to  be  that  an  an- 
swer, if  responsive,  is  evidence  of  the  fact  it  alleges,  requiring  testi- 
mony to  rebut  it,  but  if  the  matter  set  forth  be  not  responsive,  it  is 
not  evidence  of  that  matter  at  all,  but  must  be  proved,  i  Smith's 
Ch.  Pr.  272,  in  note;  Clark's  Executors  v.  Van  Ramsdyk,  9  Cranch 
160;  Hart  V.  Ten  Eyk,  2  Johnson's  Ch.  Rep.  90.  But  this  is  in  fact 
a  proceeding  at  common  law.  Under  its  system,  a  new  defensive 
averment,  if  it  answers  the  plaintiff's  case,  is  admissible.  As,  under 
our  act  of  1840,  to  be  presently  more  particularly  noticed,  the  relator's 
title  may  be  put  in  issue  under  the  quo  warranto^  any  allegation 
affecting  it  may  be  material,  and  its  truth  will  be  conceded  by  a  de- 
murrer. If,  therefore,  in  this  instance,  we  adhered  strictly  to  tech- 
nical rule,  we  might,  perhaps,  be  compelled  to  say  that  the  plaintiffs, 
by  their  demurrer,  admitted  the  non-acceptance  of  the  first  settlement 
and  are  thus  concluded  now  to  deny  it.  But  as  we  think  neither 
party  contemplated  this,  when  framing  their  pleadings,  we  prefer  to 
rest  our  conclusions,  as  to  this  part  of  the  case,  on  the  absence  of 
reliable  proof  of  assent,  either  direct  or  inferential. 

This  brings  us  to  the  second  question,  whether  there  is  an  evidence 
of  the  acceptance  of  the  April  supplement?  Our  own  determination 
in  Shortz  v,  Unangst,  3  Watts  &  Serg.  45,  following  earlier  decisions, 
settles,  that  to  make  a  vote  of  acceptance  valid,  as  the  act  of  a  corpora- 
tion^ it  should  be  passed  at  a  meeting  duly  convened,  after  notice  to  all  the 
m.embers.  In  such  cases,  congregated  deliberation  is  deem.ed  essential, 
and  where  a?t  opportunity  for  this  is  afforded,  the  decision  of  a  majority 
is  binding,  if  no  other  mode  be  prescribed  by  the  charter.  The  private 
procurement  of  a  written  assent,  signed  by  the  majority  of  the  m.embers, 
will  not  supply  the  want  of  a  meeting.  Such  an  expedient  deprives 
those  interested  of  the  benefit  of  rnutual  discussion ,  and  subjects  them  to 
the  hazard  of  fraudulent  representation  and  U7idtie  influence.  Not- 
withstanding the  objection,  however,  it  seems  to  be  agreed  that  a  written 
acceptance,  though  not  executed  at  a  meeting,  m.ay  be  sufficient,  if  signed 
by  all  the  stockholders  or  parties  in  interest.  Davies  v.  Hawkins,  3 
Maul.  &  Selw.  488;  Stow  v.  Wyse,  7  Conn.  Rep.  214;  Livingston  v. 
Lynch,  4  John.  Ch.  Rep.  573 ;  St.  Mary's  Church,  6  Serg.  &  Rawle 
498.  As  this  is  not  true  of  the  paper  of  the  9th  of  April,  1849,  the 
defendants  veiy  properly  disclaim  it,  as  furnishing  evidence  of  accept- 
ance. But  they  rely  on  the  unanimous  act  of  the  majority  of  stock- 
holders at  a  meeting  convened  by  public  advertisement,  for  the  pur- 
pose of  electing  trustees,  at  which  those  now  exercising  that  office 
received  the  whole  number  of  votes  of  those  in  attendance.  I  con- 
cede there  can  scarcely  be  stronger  evidence  of  acceptance  than  that 
furnished  by  an  election  of  corporate  officers  in  pursuance  of  a  new, 
or  the  alteration  of  an  old  charter.  King  v.  Larwoad,  i  Lord  Raym. 
32;  Lewling  v.  Francis,  3  Term  Rep.  189.  Yet,  like  other  corporate 
acts,  it  is  but  presumptive  evidence  of  the  prior  assent  of  the  company, 
by  a  vote  of  its  members,  at  some  supposed  meeting,  or  at  least  of  a 


§  89  ACCEPTANCE   OF   AMENDMENTS.  425 

deliberate  waiver  of  a  vote  by  all  in  the  corporation  having  that  right. 
But  how  can  such  a  presumption  be  entertained,  in  the  face  of  a  re- 
monstrance against  the  proposed  election,  made  by  some  of  the  mem- 
bers on  the  ground  of  non-acceptance  of  the  younger  supplement? 
This  is  obviously  out  of  the  question.  The  record  shows  that  the 
same  persons  who  signed  the  written  acceptance,  also  signed  the 
requisition  for  a  new  election  of  trustees,  claiming  to  be  a  majority  of 
the  stockholders ;  and  that  the  votes  subsequently  cast  were  by  the 
same  individuals. 

All  this  was  done  in  disregard  of  a  formal  resolution,  adopted  by 
those  then  claiming  to  be  trustees,  repudiating  the  last  supplement, 
and  denouncing  as  illegal  the  election  proposed  to  be  held  under  it. 
This  resolution  was  communicated  by  a  committee  appointed  for  that 
purpose,  to  the  subsequent  electoral  meeting,  but  without  effect.  It 
will  not  do  to  say  the  resolution,  as  the  act  of  a  defunct  body,  was 
naught.  It,  at  least,  served  to  express  dissent,  entertained  and  ex- 
pressed by  a  portion  of  the  members — a  dissent  that  could  only  be 
legally  overcome  at  a  meeting  regularly  convened  to  consider  the  pro- 
posed amendment.  The  opportunity  to  deliberate,  and,  if  possible, 
to  convince  their  fellows,  is  the  right  of  the  minority,  of  which  they 
can  not  be  deprived  by  the  arbitrary  will  of  the  majority.  That  the 
call  for  an  election,  and  the  subsequent  steps  were  in  contempt  of  this 
right,  is  manifest.  The  attempt  consequently  defeats  itself.  We  have, 
therefore,  no  hesitancy  in  holding  there  is  an  entire  want  of  proof 
of  the  acceptance  of  either  supplement. 

Was  the  court  of  common  pleas  authorized,  so  to  declare  in  this 
proceeding,  and  so  decree  a  new  election  ?  The  relators  nisist  the 
only  question  before  that  court  .was  as  to  the  binding  efficacy  of  the 
April  supplement;  and  that  their  title  as  trustees  under  the  act  of 
January  was  not  in  issue.  But  this  objection  proceeds  from  too  nar- 
row an  estimate  of  the  act  of  the  13th  of  April,  1840;  though  the  I3th 
section  of  that  statute  speaks  only  of  disputes  between  persons  claim- 
ing to  be  duly  elected  to  fill  any  office,  its  purview  is  broad  enough  to 
cover  all  questions  arising  on  writs  of  quo  warranto ^  between  rival 
claimants  of  elective  offices,  though  some  of  them  may,  as  here,  claim 
to  hold  by  temporary  legislative  appointment.  The  object  of  the  stat- 
ute is  to  invest  the  court  with  power  to  settle  the  pretensions  of  all  the 
claimants  in  the  same  proceeding,  whether  they  be  complainants  or  de- 
fendants, and  whether  in  or  out  of  possession.  To  exclude  from  its  op- 
eration corporate  officers,  who,  like  these  plaintiffs,  derived  their  first 
appointment  from  the  act  of  incorporation,  in  anticipation  of  a  regu- 
lar election,  would  be  to  sacrifice  to  literal  interpretation,  the  plain 
intent  of  the  law-givers.  The  act  speaks  of  disputed  elections  between 
persons  claiming  to  be  duly  elected,  and  these,  doubtless,  were  prin- 
cipally regarded  in  passing  its  provisions.  But  cases  like  ours  are 
within  the  mischief  intended  to  be  remedied,  and  so  questionless 
within  the  equity  of  the  statute,  which,  being  highly  remedial,  ought 
to  be  so  literally  construed  as  to  secure  the  attainment  of  substantial 
justice.     Here,  then,  is  a  case  of  contested  election,  intimately  con- 


426  CHARTER    FROM   THE    KING.  §  91 

nected  with  the  title  set  up  by  the  plaintiff  and  almost  necessarily  in- 
volving an  investigation  of  it.  Being  within  the  object  of  the  act, 
which  was  to  end  disputes  at  a  blow,  that  title  was  as  open  to  inquiry 
as  the  defendants.  The  result  shows  that  neither  party  was  entitled 
to  enjoy,  and  this  put  it  within  the  authority  of  the  court  to  order  a 
new  election.  This  conclusion  leaves  to  the  company  the  right  of  de- 
termining, in  an  orderly  way,  whether  it  will  accept  of  either  supple- 
ment as  an  amendment  of  its  charter,  and  if  so,  which  of  them?  The 
dispute  now  existing  may  be  so  settled  as  to  leave  no  room  for  future 
contest — a  consummation  much  to  be  desired  by  a  business  corpora- 
tion situate  as  this  is.  It  is  gratifying  to  find  that  the  conclusions  of 
the  law  are  thus  in  harmony  with  the  best  interests  of  the  corporators, 
and  we  accordingly  recommend  that  steps  be  taken  as  soon  as  prac- 
ticable to  determine  this  unhappy  disagreement. 
Proceedings  affirmed. 

Note.  See  1854,  Troy  and  R.  Co.  v.  Kerr,  17  Barb.  (N.  Y.)  581 ;  1859,  Ban- 
gor, O.  &  M.  R.  Co.  v.  Smith,  47  Maine  34;  1866,  City  of  San  Antonio  v. 
Jones,  28  Tex.  19;  1874,  Kenton  County  Court  v.  B.  L.  T.  Co.,  10  Bush  (73 
Ky.)529;  1876,  Cincinnati,  H.  &  D.  R.  Co.  v.  Cole,  29  Ohio  St.  126;  1879, 
State  V.  Sibley,  25  Minn.  387;  1889,  Gibbs  v.  Baltimore  C.  G.  Co.,  130  U.  S. 
396,  9  Sup.  Ct.  553;  1892,  Miller  v.  Am.  Mut.  Ace.  Ins.  Co.,  92  Tenn.  167,  20 
L.  R.  A.  765;  1896,  State  v.  Taylor,  55  Ohio  St.  61,  44  N.  E.  Rep.  513. 


ARTICLE    III.        THE    CHARTER ITS    CONTENTS. 

See.  90.  In  general.  The  "means  and  instruments  effecting  in- 
corporation may  be  numerous,  consisting  of  statutes,  articles 
of  association,  deeds  of  settlement,  by-laws  and  notices,  some 
of  which  are  usually  required  to  be  recorded  and  others  pub- 
lished. The  convenience  of  using  some  short  term  to  express 
all  of  these  fundamental  acts  and  instruments  has  led  to  the 
adoption  of  'constating  instruments.^  "  Field  on  Corpora- 
tions, §  28. 

Note.     See  supra,  p.  133. 


Sec.  91.  ■  Under  special  charter  from  the  king,  illustration  : 

1769.     The  Dartmouth  College  Charter. 

After  a  preamble  setting  forth  the  circumstances  and  reasons  for  granting 
a  charter,  it  proceeds:  "Know  ye,  therefore,  that  we  *  *  *  do  of  our 
special  grace,  certain  knowledge,  and  mere  motion,  by  and  with  the  advice 
of  our  counsel  for  said  province,  by  these  presents,  will,  ordain,  grant  and  con- 
stitute that  there  be  a  college  erected  in  our  said  province  of  New  Hampshire 
by  the  name  of  Dartmouth  College,  for  the  education  and  instruction  of  youth 

Note.  See  the  full  charter  of  Dartmouth  College,  given  in  4  Wheat.  (U.  S.) 
Reports,  pp.  *519-538. 


§  92  CHARTER    UNDER    A    SPECIAL   LAW.  427 

of  the  Indian  tribes  in  this  land,  in  reading,  writing  and  all  parte  of  learning 
which  shall  appear  necessary  and  expedient  for  civilizing  and  Christianizing 
children  of  pagans,  as  well  as  in  all  liberal  arts  and  sciences,  and  also  of  En- 
glish youth  and  any  others.  And  the  trustees  of  said  college  may  and  shall  l>e 
one  body  corporate  and  politic,  in  deed,  act  and  name,  and  shall  be  called, 
named  and  distinguished  by  the  name  of  the  Trustees  of  Dartmouth  College. 

*  *  *  And  for  the  more  full  and  perfect  erection  of  said  corporation  and 
body  politic  *  *  *  we  do  by  these  presents,  for  us,  our  heirs  and  successors, 
make,  ordain,  constitute  and  appoint  our  trusty  and  well-beloved  [twelve 
persons  named,  'the  whole  number  of  said  trustees  consisting,  and  here- 
after forever  to  consist,  of  twelve  and  no  more'],  to  be  trustees  of  said  Dart- 
mouth College  *  *  *  tijat  tjje  g^jfi  trustees  and  their  successoi's  shall 
forever  hereafter  be,  in  deed,  act  and  name,  a  Ixxly  corporate,  *  *  *  by 
the  name  of  the  Trustees  of  Dartmouth  College,  *  *  *  and  by  that  name 
'shall  be  able     *      *      *      to  have,  get,  acquire,  etc.,'  property,  etc.     'And 

*  *  *  to  the  intent  that  our  said  corporation  *  *  *  may  have  perpetual 
succession  and  continuance  forever,  we  *  *  *  give  and  grant  unto  the 
Trustees  of  Dartmouth  College,  and  to  their  successors  forever,  that  there 
shall  be  once  a  year,  and  every  year,  a  meeting  of  said  trustees  held  at  said 
Dartmouth  College,  at  such  time  as  by  said  trustees  shall  be  agreed  on,  the 
first  meeting  to  be  called  by  the  said  Eleazer  Wheelock,'  etc.,  to  conduct  the 
affairs  of  the  college  j  *  *  *  'also  that  the  said  trustees  and  their  suc- 
cessors, or  the  major  part  of  any  seven  or  more  of  them,  which  shall  convene 
for  that  purpose  *  *  *  as  often  as  one  or  more  of  said  trustees  shall  die, 
or  by  removal  or  otherwise  shall,  according  to  their  judgment,  become  unfit 
or  incapable  to  serve  the  interests  of  said  college,  do,  as  soon  as  may  be  after 
the  death,  etc.,  *  *  *  elect  and  appoint  such  trustee  or  trustees  as  shall 
supply  the  place  of  him  or  them  so  dying,'  etc.     *    *     *  " 

Many  other  privileges  concerning  the  management  in  detail  of  the  college 
are  expressly  set  forth. 


Sec.  92.     Under  a  special  law  or  act  of  the  legislature,   illustra- 
tion  : 

1826.     An  act  to  incorporate  the  Baltimore  and  Ohio  Railroad  Com- 
pany. 

Section  1.  Be  it  enacted  by  the  General  Assembly  of  Maryland,  That  Isaac 
McKim  (and  eight  others  named)  be,  and.  they  are  hereby  appointed  com- 
missioners, under  the  direction  of  a  majority  of  whom,  subscriptions  may  be 
received  to  the  capital  stock  of  the  Baltimore  and  Ohio  Railroad  Company 
hereby  incorporated ;  and  they,  or  a  majority  of  them,  may  cause  books  to  be 
opened  at  such  times  and  places  as  they  may  direct,  for  the  purpose  of  receiv- 
ing subscriptions  to  the  capital  stock  of  said  company,  after  having  given  such 
notice  as  thev  may  deem  proper    *    *     * 

Sec.  2.  That  the  capital  stock  »  »  *  shall  be  $3,000,000,  in  sharee  of  $100 
each,  10,000  shares  to  be  reserved  for  subscription  to  the  state  of  Maryland, 
and  5,000  for  the  city  of  Baltimore  *  *  *  and  the  remaining  15,000  shares 
may  be  subscribed  for  by  any  other  corporation,  or  individuals;  and  as  soon 
as  10,000  shares  *  *  ♦  shall  be  subscribed,  the  subscribers  ♦  *  *  their 
successors  and  assigns  shall  be,  and  they  are  hereby  declared  to  be,  incor- 
porated into  a  company  by  the  name  of  the  Baltimore  and  Ohio  Railroad 
Company,  and  by  that  name  shall  be  capable  in  law  of  purchasing  *  *  * 
and  conveying  estates,  real  and  personal,  *  ♦  *  so  far  as  shall  be  neces- 
sary for  purposes  *  *  *  mentioned,  and  no  farther,  and  shall  have  per- 
petual succession,  and  by  said  name  may  sue  and  be  sued,  and  may  have  and 


428  CHARTER   UNDER   A    SPECIAL    LAW.  §  92 

use  a  common  seal,  which  they  shall  have  power  to  alter  or  renew  at  their 
pleasure,  etc.     *     *     * 

Sec.  3.  Provided  for  apportioning  the  stock  if  there  were  subscriptions  re- 
ceived for  more  than  15,000  shares. 

Sec.  4.  Required  one  dollar  on  each  share  to  be  paid  at  the  time  of  subscrip- 
tion, and  the  residue  in  such  installments  as  may  be  required  by  the  president 
and  directors — not  more  than  one-third  in  any  year  and  only  after  sixty  days 
notice;  and  upon  failure  to  pay,  the  stock  to  be  forfeited  to  the  company,  and 
may  be  sold  by  it. 

Sec.  5.  Provided  that  the  charter  should  become  forfeited  if  10,000  shares 
were  not  subscribed  within  one  year. 

Sec.  6.  Provided  that  when  10,000  shares  were  taken,  "the  said  commis- 
sioners or  a  majority  of  them  shall  call  a  general  meeting  of  the  subscribers, 
at  such  time  and  place  as  they  may  appoint,  and  shall  give  at  least  twenty 
days'  public  notice  thereof,  and  at  such  meeting  the  commissioners  shall 
lay  the  subscription  books  before  the  subscribers  then  and  there  present,  and 
thereupon  the  said  subscribers,  or  a  majority  of  them,  shall  elect  twelve  di- 
rectors, by  ballot  to  manage  the  affairs  of  said  company,  and  these  twelve 
directors,  or  a  majority  of  them,  shall  have  the  power  of  electing  a  president 
of  said  company  either  from  amongst  the  directors  or  others.  *  *  *  Each 
stockholder  shall  be  allowed  one  vote  for  every  share  owned  by  him,  *  *  * 
and  he  may  depute  any  other  person  to  vote  for  him  as  his  proxy,  and  the  com- 
missioners, or  any  three  or  more  of  them,  shall  be  judges  of  the  first  election 
of  directors." 

Sec.  7.  Provided  for  continuing  the  succession  of  the  president  and  direc- 
tors, by  requiring  them  to  be  chosen  annually  on  the  second  Monday  of  Octo- 
ber, the  state  of  Maryland  and  the  City  of  Baltimore  to  appoint  one  for  each 
2,500  shares  owned  by  them,  but  rfot  to  vote  for  others;  the  president  and 
directors  to  appoint  judges  of  elections  and  to  fill  vacancies  in  the  board. 

Sec.  8.  Annual  meeting  of  stockholders  to  be  held,  or  called  meetings  at 
any  time  upon  call  by  president  and  directors,  or  stockholders  holding  one- 
fourth  of  the  stock  subscribed,  on  thirty  days'  notice. 

Sec.  9.  Statement  of  affairs  of  the  company  to  be  laid  before  shareholders  at 
the  annual  meeting;  a  majority  in  value  of  stockholders  may  at  a  general 
meeting  remove  the  president  or  any  director. 

Sec.  10.  President  and  directors  to  take  oath  faithfully  to  discharge  their 
duties. 

Sec.  11.  Reserved  stock  may  be  disposed  of  by  directors  opening  books  to 
receive  subscriptions  to  the  same. 

Sees.  12-18.  Directors  were  empowered  to  appoint  all  other  officers  and  fix 
their  compensation,  make  by-laws,  increase  the  stock,  negotiate  loans,  con- 
struct the  road,  make  lateral  roads,  agree  for  land  and  materials,  or  condemn 
the  same  in  the  manner  set  forth,  cross  other  roads,  put  the  machinery  on 
the  road  and  operate  it. 

Sec.  18.  Fixed  maximum  rates  of  transportation,  forbade  all  persons  from 
traveling  upon  the  road  without  license  of  the  company,  and  exempted  shares 
from  taxation. 

Sec.  19.   Provided  for  dividends  from  the  net  profits  only. 

Sec.  20.   Provided  for  a  penalty  of  $500  for  willful  injury  done  to  the  road. 

Sec.  21.   Provided  that  the  act  should  take  effect  on  its  passage. 

Sec.  22.  Provided  that  the  road  should  be  commenced  within  two  years 
and  completed  within  ten  years. 

Sec.  23.  Reserved  a  right  to  incorporate  other  companies. 


§  93  CHARTER  UNDER  GENERAL  LAWS.  429 


Sec.  93.  Under  general  laws,  (a)  The  charter  consists  of  ( i ) 
the  provisions  of  the  general  corporation  law,  and  (2)  articles 
of  incorporation,  authorized  thereby,  and  consistent  therewith. 

OREGON  RAILWAY  CO.  v.  OREGONIAN  RAILWAY  CO.* 

1888.     In  the  Supreme  Court  of  the  United  States.     130  U.  S. 

1-39- 

[Error  to  the  United  States  circuit  court.  The  Oregonian  Co., 
organized  in  Scotland  under  the  English  Companies  Act  of  1862, 
with  authority  to  build  and  operate  a  railroad  in  Oregon,  or  sell  or 
lease  the  same,  constructed  its  road  in  Oregon,  and  then  leased 
it  to  the  Oregon  Co.  which  was  incorporated  in  Oregon  under  a 
general  law,  authorizing  the  formation  of  corporations  for  any  law- 
ful business,  enterprise,  pursuit  or  occupation.  The  articles  of  as- 
sociation provided  that  it  might  lease  another  railroad,  and  in  ac- 
cordance with  this  authority  it  leased,  through  its  president  and  sec- 
retary, by  direction  of  the  board  of  trustees,  the  road  of  the  Ore- 
gonian Co.,  which  before  had  complied  with  the  Oregon  statutes  au- 
thorizing foreign  corporations  to  do  business  in  the  state,  and  providing 
that  upon  such  compliance  such  foreign  corporation  should  have  the 
same  rights,  powers  and  privileges  as  domestic  corporations.  The 
Oregonian  Co.  had  obtained  judgment  in  the  lower  court  for  unpaid 
rentals  under  the  lease.  The  Oregon  Co.  claimed  this  judgment  was 
erroneous  for  the  reason  that  the  Oregonian  Co.  had  no  authority  to  dis- 
pose of  its  road  in  Oregon  by  lease,  and  the  Oregon  Co.  had  no  au- 
thority to  acquire  one  in  that  way.] 

Miller,  J.  *  *  *  It  may  be  considered  as  the  established  doc- 
trine of  this  court  in  regard  to  the  powers  of  corporations,  that  they 
are  such  and  such  only  as  are  conferred  upon  them  by  the  acts  of  the 
legislatures  of  the  several  states  under  which  they  are  organized.  A 
corporation  in  this  country,  whatever  it  may  have  been  in  England  at 
a  time  when  the  crown  exercised  the  right  of  creating  such  bodies,  can 
only  have  an  existence  under  the  express  law  of  the  state  or  sovereignty 
by  which  it  is  created.  And  these  powers,  where  they  do  not  relate  to 
municipal  corporations,  exercising  authority  conferred  solely  for  the 
benefit  of  the  public,  and  in  some  sense  parts  of  the  body  politic  of 
the  state,  have  in  this  country,  until  within  recent  years,  always  been 
conferred  by  special  acts  of  the  legislative  body  under  which  they 
claim  to  exist.  But  the  rapid  growth  of  corporations,  which  have 
come  to  take  a  part  in  all  or  nearly  all  of  the  business  operations  of 
the  country,  and  especially  in  enterprises  requiring  large  aggregations 
of  capital  and  individual  energy,  as  well  as  their  success  in  meeting  the 
needs  of  a  vast  number  of  most  important  commercial  relations,  have 

*  Statement  of  facta  abridged.  Arguments,  dissenting  opinion  of  Field,  J., 
and  parts  of  the  opinion  of  Miller,  J.,  onntted. 


430  OREGON    RY.    CO.    V.    OREGONIAN    RY.   CO.  §  93 

demanded  the  serious  attention  and  consideration  of  lawmakers.  And 
while  valuable  services  have  been  rendered  to  the  public  by  this  class 
of  organizations,  which  have  stimulated  their  formation  by  numerous 
special  acts,  it  came  at  last  to  be  perceived  that  they  were  attended  by 
many  evils  in  their  operation  as  well  as  much  good,  and  that  the  hasty 
■  manner  in  which  they  were  created  by  the  legislatures,  sometimes 
with  exclusive  privileges,  often  without  due  consideration  and  under 
the  influence  of  improper  motives,  frequently  led  to  bad  results. 

Whether  it  was  this  consideration,  or  mainly  the  desire  to  fix  some 
more  uniform  rule  by  which  the  rights  and  powers  of  private  corpora- 
tions, or  those  of  pecuniary  profit,  should  come  into  existence,  it  is 
certain  that  not  many  years  ago  state  constitutions  which  were  formed 
or  remodeled  came  to  have  in  them  a  provision  like  that  which  is  now 
to  be  found  in  the  constitution  of  the  state  of  Oregon,  art,  11,  §  2 : 

"Corporations  may  be  formed  under  general  laws,  but  shall  not  be 
created  by  special  laws,  except  for  municipal  purposes.  All  laws 
passed  pursuant  to  this  section  may  be  altered,  amended,  or  repealed, 
but  not  so  as  to  impair  or  destroy  any  vested  corporate  rights." 

Outside  of  the  powers  conferred  and  privileges  granted  to  those  or- 
ganizations by  the  statutes  under  which  they  exist,  they  are  in  all  the 
states  of  the  Union,  which,  like  Oregon,  have  the  common  law  as  the 
foundation  of  their  jurisprudence,  governed  by  that  common  law  ;  and 
it  is  the  established  doctrine  of  this  court,  and,  with  some  exceptions, 
of  the  states  in  which  that  common  law  prevails,  as  well  as  of  Great 
Britain,  from  which  it  is  derived,  that  such  a  corporation  can  exercise 
no  power  or  authority  which  is  not  granted  to  it  by  the  charter  under 
which  it  exists  or  by  some  other  act  of  the  legislature  which  granted 
that  charter. 

[After  citing  and  discussing  Thomas  v.  R.  Co.,  loi  U.  S.  71 ;  The 
Asbury  R.  C  &  I.  Co.  v.  Richie,  L.  R.  7  H.  L.  653  ;  The  East 
Anglian  R.  Co.  v.  Eastern  Counties  R.,  11  C.  B.  775;  Green  Bay 
&  M.  R.  Co.,  107  U.  S.  98;  Pennsylvania  R.  Co.  v.  St.  Louis, 
etc.,  R.  Co..  118  U.  S.  290,  309,  proceeds:] 

It  may  be  considered  that  this  is  the  law  of  the  state  of  Oregon,  ex- 
cept as  it  has  been  altered  or  modified  by  its  constitution  and  statutes. 

We  are  here  met  with  an  embarrassment  arising  out  of  the  circum- 
stance that  neither  the  plaintiff  nor  the  defendant  in  the  present  case 
profess  to  exercise  its  powers  under  any  special  charter  conferred  on 
it  by  the  legislature  of  Oregon.  That  state,  in  accordance  with  the 
principle  laid  down  in  its  constitution,  to  which  we  have  already  re- 
ferred, passed  general  laws  for  the  formation  of  private  corporations. 
See  laws  of  Oregon  (Deady's  Comp.)  ch.  8.  Under  title  i,  §  i, 
reads  as  follows: 

"Whenever  three  or  more  persons  shall  desire  to  incorporate  them- 
selves for  the  purposes  of  engaging  in  any  lawful  enterprise,  business, 
pursuit  or  occupation,  they  may  do  so  in  the  manner  provided  in  this 
act." 

Provision  is  then  made  for  the  manner  in  which  these  persons  shall 
constitute  themselves  a  corporation,  by  filing  articles   of  association, 


§  93  CHARTER  UNDER  GENERAL  LAWS.  431 

acknowledged  before  a  proper  officer,  in  the  office  of  the  secretary 
of  state  and  in  that  of  the  clerk  of  the  county  where  the  business  is  to 
be  carried  on.  What  these  articles  shall  contain  is  specified  with 
some  particularity.  But  title  2  of  this  same  chapter  is  more  impor- 
tant in  regard  to  the  matter  at  issue,  because  it  relates,  among  other 
things,  to  corporations  which  are  organized  for  the  construction  of 
railroads.  The  mode  of  their  formation  is  the  same  as  that  of  those 
coming  under  title  i,  but  the  declaration  of  the  powers  which  may  be 
exercised  by  railroad  corporations  may  become  important  in  the  con- 
sideration of  the  present  case. 

By  the  act  of  the  legislature  of  October  21,  1878,  Session  Laws, 
95,  it  is  provided  "that  any  foreign  corporation  incorporated  for  the 
purpose  of  constructing,  or  constructing  and  operating,  or  for  the  pur- 
poses of,  or  with  the  power  of,  acquiring  and  operating  any  railway, 
*  *  *  shall,  on  compliance  with  the  laws  of  this  state,  for  the 
regulation  of  foreign  corporations  transacting  business  therein,  have 
the  same  rights,  powers  and  privileges"  as  a  domestic  corporation 
formed  for  such  purpose,  and  no  more. 

When  we  have  found,  therefore,  what  powers  were  conferred  by 
the  laws  of  Oregon  on  the  defendant  corporation  in  this  case  we  shall 
also  have  determined  that  the  powers  of  the  plaintiff  corporation  were 
no  greater  with  regard  to  the  same  subject-matter,  so  far  as  the  stat- 
utes are  concerned,  except  as  it  may  be  shown  that  other  powers  are 
given  by  some  express  statute. 

It  may  also  be  conceded,  at  the  outset  of  the  argument,  that  the 
memorandum  made  under  the  companies  act  of  1862  by  the  plaintiff, 
and  the  articles  of  association  made  under  the  laws  of  Oregon  by  the 
defendant,  both  contain  declarations  of  the  powers  of  these  companies 
and  of  each  of  them  to  buy  or  sell  or  lease  railroads.  The  only 
question,  therefore,  to  be  considered  is  whether  this  declaration  of 
power  is  authorized  by  the  laws  of  Oregon. 

It  is  argued  that  the  articles  of  association,  under  the  Oregon  law, 
and  the  memorandum  of  association,  under  the  companies  act  of 
Great  Britain,  are  themselves  the  equivalent  of  an  act  of  incorporation 
by  the  legislature,  and  that  whatever  is  found  as  a  grant  of  power,  or 
description  of  the  purpose  of  the  company,  set  forth  in  such  articles 
or  memorandum,  is  tantamount  to  a  legislative  act.  A  phrase  in  the 
opinion  of  the  court,  in  Thomas  v.  Railroad  Co.,  supra^  is  cited  as 
supporting  this  proposition,  namely:  "The  memorandum  of  associa- 
tion, as  Lord  Cairns  said,  stands  in  place  of  a  legislative  charter." 
But  what  was  meant,  both  by  Lord  Cairns  and  by  this  court,  was  that 
anything  not  claimed,  granted  or  described  in  such  instrument  in  rela- 
tion to  the  powers  and  business  of  the  corporation  could  not  be  held 
to  be  a  part  of  them  by  construction ;  in  other  words,  that  its  powers 
could  not  exceed  those  enumerated  therein.  It  was  necessarily  im- 
plied in  such  a  remark  that  anything  in  such  articles  of  memorandum 
not  warranted  by  the  statutes  in  question,  authorizing  the  formation  of 
corporate  bodies,  was  void  for  want  of  authority. 

Of  course,  any  authority  for  the  exercise  of  corporate  powers,  de- 


432  OREGON    RY.    CO.    V.    OREGONIAN   RY.    CO.  §  95 

ilved  from  the  laws  of  Oregon,  must  be  in  accord  with  the  constitu- 
tion of  that  state  and  its  statutes  upon  that  subject.  The  constitutional 
provisions,  above  quoted,  that  corporations  shall  not  be  created  by- 
special  laws,  but  may  be  formed  under  general  laws,  implies  that  no 
private  corporation  could  be  created  thereafter  until  such  general  law 
had  been  enacted,  and  that  it  thereupon  became  the  fundamental  law^ 
of  the  state  in  regard  to  all  corporations  formed  under  it.  It  is  idle  to 
say,  therefore,  that  any  corporation  could  assume  to  itself  powers  of 
action  by  the  mere  declaration  in  its  articles  or  memorandum  that  it 
possessed  them. 

We  have  examined  with  much  care  the  two  statutes  already  referred 
to  concerning  incorporation,  enacted  in  accordance  with  that  consti- 
tutional provision,  and  do  not  find  any  express  authority  for  a  railroad 
company  to  lease  its  road  for  an  indefinite  period  or  for  it  to  take  such 
a  lease;  nor  are  we  able  to  find  any  general  language  in  those  stat- 
utes, or  either  of  them,  in  relation  to  the  powers  that  may  be  con- 
ferred upon  corporations  which  justifies  a  departure  from  the  principles 
laid  down  in  Thomas  v.  Railroad  Co. 

It  is  to  be  remembered  that  where  a  statute  making  a  grant  of  prop- 
erty, or  of  powers,  or  of  franchises  to  a  private  individual,  or  a  pri- 
vate corporation  becomes  the  subject  of  construction  as  regards  the 
extent  of  the  grant,  the  universal  rule  is  that  in  doubtful  points  the 
construction  shall  be  against  the  grantee  and  in  favor  of  the  govern- 
ment or  the  general  public.  As  was  said  in  the  case  of  Charles  River 
Bridge  v.  Warren  Bridge,  11  Pet.  420:  "In  this  court  the  principle 
is  recognized  that  in  grants  by  the  public  nothing  passes  by  implica- 
tion." See,  also,  Dubuque  and  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  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  farte;  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  what- 
ever. They  are  the  production  of  private  citizens,  gotten  up  in  the 
interest  of  the  parties  who  propose  to  become  corporators,  and  stimu- 
lated by  their  zeal  for  the  personal  advantage  of  the  parties  concerned 
rather  than  the  general  good. 

These  articles,  when  signed  by  the  corporators,  acknowledged  be- 
fore 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- 


§  93  CHARTER  UNDER  GENERAL  LAWS.  433 

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. 

These  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 
the  public  very  largely  and  very  seriously,  do  not  commend  them- 
selves to  the  judicial  mind  as  a  class  of  instniments  requiring  or  justi- 
fying any  very  liberal  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  construction  of 
the  powers  granted  therein,  with  a  due  regard  for  all  the  other  laws  of 
the  state  upon  that  subject,  and  the  rule  stated  above. 

It  is  not  urged  with  much  apparent  confidence  that  there  is  any- 
thing in  the  general  provision  of  the  laws  of  Oregon,  in  relation  to 
the  formation  of  private  corporations,  which  are  to  be  found  in  ch.  8, 
titles  I  and  2,  Deady's  Comp.,  which  by  express  terms  authorizes  a 
corporation  to  include  within  the  powers  enumerated  in  its  articles  of 
association  that  of  making  such  a  lease  as  the  one  which  is  the  sub- 
ject of  the  action.  Arguments  based  upon  these  laws  are  founded 
upon  the  implication  that  building  railroads  is,  within  the  meaning  of 
§  I  of  title  I,  a  "lawful  enterprise,  business,  pursuit  or  occupation;** 
and  the  further  inference  that  the  power  of  leasing  a  railroad,  either 
as  a  lessor  or  a  lessee,  is  one  which  is  incident  and  proper  to  the 
pursuit  of  the  lawful  business  of  constructing  and  operating  a  rail- 
road. The  same  argument  is  drawn  from  the  general  fact  that  title 
2  recognizes  the  authority  of  corporations  organized  for  the  construc- 
tion of  railroads,  macadamized  roads,  plank  roads,  clay  roads,  canals 
or  bridges,  to  appropriate  lands  for  their  necessary  uses  by  the  exer- 
cise of  the  right  of  eminent  domain,  in  the  manner  pointed  out. 

The  language  of  the  statute  of  New  Jersey  (quoted  in  Thomas  v. 
Railroad  Co.,  supra) ^  under  which  it  was  urged  that  the  railroad 
company  had  authority  to  make  the  lease  in  controversy,  was  quite 
as  general  and  as  liberal  in  its  description  of  the  powers  which  that 
corporation  was  authorized  to  exercise  as  anything  to  be  found  in  the 
Oregon  statutes.  In  fact,  in  the  authority  which  was  given  to  that 
company  in  regard  to  making  contracts  for  the  transportation  of  pas- 
sengers and  freight,  and  the  doing  of  a  general  railroad  business  with 
other  corporations  and  private  persons,  it  approaches  nearer  the 
power  to  make  leases  than  anything  which  is  to  be  found  in  the  laws 
of  Oregon ;  yet  this  court  held  that  although  it  was  a  direct  authority 
from  the  legislature  itself,  and  not  subject  to  the  restrictive  criticisms 
above  subjected,  the  lease  made  in  that  case  was  ultra  vires^  and 
without  authority  on  the  part  of  the  company. 

Another  important  consideration  to  be  observed,  peculiarly  applica- 

28.    WIL  CAB 


434  OREGON    RY.    CO.    V.    OREGONIAN    RY.    CO.  §  93 

ble  to  the  acts  of  corporations  formed  by  the  corporators  themselves, 
declaring  what  business  they  are  about  to  pursue,  and  the  powers 
which  they  propose  to  exercise  in  carrying  it  on,  is,  that  while  the 
thing  to  be  done  may  be  lawful  in  a  general  way,  there  are  and  must 
be  limitations  upon  the  means  by  which  it  is  to  be  done  or  the  pur- 
pose carried  out,  which  the  articles  of  incorporation  can  not  remove 
or  violate.  A  company  might  be  authorized  by  its  articles  to  estab- 
lish a  large  manufactory  in  a  particular  locality,  and  might  be  held 
to  be  a  valid  incorporation  with  sufficient  powers  to  prosecute  the 
business  described;  but  such  articles,  although  mentioning  the  particu- 
lar place,  would  not  empower  the  compan}',  in  the  exercise  of  the 
power  thus  conferred,  to  carry  on  a  business  injui'ious  to  the  health  or 
comfort  of  those  living  in  that  vicinity. 

Instances  might  be  multiplied  in  which  powers  described  in  general 
terms  as  belonging  to  the  objects  of  the  parties  who  thus  become  in- 
corporated would  be  valid,  but  the  corporation,  in  carrying  out  this 
general  purpose,  would  not  be  authorized  to  exercise  the  powers 
necessary  for  so  doing  in  any  mode  which  the  law  of  the  state  would 
not  justify  in  any  private  person  or  any  unincorporated  body.  The 
manner  in  which  these  powers  shall  be  exercised,  and  their  subjection 
to  the  restraint  of  the  general  laws  of  the  state  and  its  general  princi- 
ples of  public  policy  are  not  in  any  sense  enlarged  by  inserting  in  the 
articles  of  association  the  authority  to  depart  therefrom. 

[The  rest  of  the  opinion  considering  other  points  raised,  viz.,  the 
effect  of  the  words  "successors  and  assigns"  in  a  proviso  making  a 
specific  grant  to  the  corporation — a  provision  in  a  general  law  author- 
izing a  navigation  company  to  construct  a  railroad  where  portage  was 
necessary,  but  forbidding  the  lease  of  the  same,  and  a  provision  in  a 
general  corporation  act  authorizing  a  corporation  to  dissolve  itself 
and  dispose  of  its  property — and  holding  that  none  of  them  impliedly 
authorized  the  giving  or  taking  of  a  lease  by  a  railroad  company,  is 
omitted.] 

Judgment  below  reversed. 

Note.  The  charter  under  general  laws,  consists  of  the  provisions  of  the  gen- 
eral incorporation  law,  and  the  articles  of  association.  1856,  The  Eastern 
Plank  R.  Co.  v.  Vaughan,  14  N.  Y.  (4  Kern.)  546;  1866,  Society  for  Visitation 
of  Sick  v.  Commw.,  52  Pa.  St.  125,  91  Am.  Dec.  139;  1869,Van  Etten  v.  Eaton, 
19  Mich.  187;  1876,  Abbott  v.  Omaha  Smelting  Co.,  4  Neb.  416:  1882,  Gran- 
gers' Life  and  Health  Ins.  Co.  v.  Kemper,  73  Ala.  325;  1883,  Heck  v.  Mc- 
Ewen,  12  Lea  (Tenn.)  97 ;  1889,  People  v.  Chicago  Gas  Trust  Co.,  130  111.  268, 
17  Am.  St.  Rep.  319;  1891,  Ellerman  v.  Chicago  Jet.,  etc.,  Co.,  49  N.  J.  Eq. 
217;  1892,  Cronin  v.  Potters'  Co-op.  Co.,  29  W.  L.  B.  (Ohio)  52;  1893,  Repub- 
lican Mountain  Silver  Mines  v.  Brown,  58  Fed.  Rep.  644,  7  C.  C.  A.  412,  19 
U.  S.  App.  203, 24  L.  R.  A.  776 ;  1895,  Lincoln  Shoe  Mfg.  Co.  v.  Sheldon,  44  Neb. 
279,  62  N.  W.  Rep.  480;  1896,  Knights  of  Pvthias  v.  Weller,  93  Va.  605;  1898, 
North,  etc.,  R.  Co.  v.  Utah,  etc.,  R.  Co.,  16  Utah  246, 40  L.  R.  A.  851 , 52  Pac.  Rep. 
168.  Provisions  in  the  articles  inconsistent  with  the  general  law  will  be  con- 
sidered void  or  surplusage.  1856,  Tlie  Eastern  Plank  Road  Co.  v.  Vaughan,  14 
N.  Y.  546;  1883,  Heck  v.  McEwen,  12  Lea  (Tenn.)  97;  1889,  People  v.  Chi- 
cago Gas  T.  Co.,  130  111.  268,  17  Am.  St.  Rep.  319;  1893,  Republican  M.  S.  M. 
y.  Brown,  58  Fed.  Rep.  644,  19  U.  S.  App.  203,  24  L.  R.  A.  776.  But  perhaps 
in  some  cases  additional  powers  consistent  with  the  general  law  may  be  pro- 


§  95       ARTICLES  OF  INCORPORATION,  FORM  AND  CONTENTS.     435 

vided  for  in  the  articles  of  association.     1866,  Society  for  Visitation  of'  the 
Sick  V.  Corntnw.,  52  Pa.  St.  125,  91  Am.  Dec.  139;   1892,  Cronin  v.  Potters' 
C!o-op.  Co.,  29  W.  L.  B.  (Ohio)  62.    See,  also,  text-book  citations,  supra,  p.  397. 
For  rules  of  construing  charters  see  infra,  p.  934. 


Sec.  94.    (b)   Usual  provisions  in  the  general  law: 

The  general  law  usually  contains  provisions  enumerating  the  fur- 
poses  for  which  corporations  may  be  formed,  varying  greatly  in  detail 
from  "any  lawful  business  or  purpose,"  with  a  short  list  of  excep- 
tions, to  a  long  list  in  detail,  like  Michigan  and  Texas,  the  latter  of 
which  sets  forth  a  list  of  forty-seven  classes  of  purposes  for  which  pri- 
vate corporations  may  be  formed,  and  the  former  has  special  pro- 
visions made  for  each  of  fifty-six  different  classes  of  corporations.  The 
general  law  usually  contains  restrictions  concerning  the  selection  of 
the  name,  the  duration  of  the  corporation,  the  amount  of  stock — both 
a  maximum  and  minimum  limit,  the  maximum  indebtedness  allowed, 
location  of  principal  office,  place  of  keeping  corporate  books,  number 
(least  or  greatest,  or  both)  of  directors,  qualifications  of  the  same,  oath 
of  same,  other  officers  and  qualifications,  individual  liability  of  mem- 
bers, annual  meetings  and  elections,  notices  to  be  given  of  meetings, 
places  of  meeting,  voting  (number  of  votes,  ballots,  proxy,  by  trus- 
tees, pledges,  etc.),  quorum,  of  shareholders'  and  directors'  meet- 
ings, power  and  method  of  adopting  by-laws,  with  the  things  to  be 
regulated  thereby  (such  as  time  and  places  of  meeting,  quorums, 
proxy  voting,  number  of  directors,  choosing  officers,  term  of  office, 
mode  of  selling  stock  for  unpaid  assessments,  mode  of  transfer  of 
stock,  etc.),  general  powers  of  the  corporation  as  to  amount  and  kind 
of  property  it  may  own,  the  contracts  it  may  make,  etc.,  methods 
of  dissolution,  etc.,  reports  to  be  made  and  reserving  a  right  to  repeal 
or  amend  the  laws  relating  to  corporations. 


See.  95.   (c)     Articles  of  incorporation,  form  and  contents: 

General  corporation  laws  usually  provide  that  those  desiring  to 
form  a  corporation  shall  make  an  application  in  writing  to  some 
court  or  officer,  who  (in  some  cases,  after  a  formal  hearing)  is  to 
determine  whether  the  application  is  according  to  law;  and,  if  so, 
to  make  a  record  of  that  fact,  and  furnish  an  authenticated  copy 
of  the  application,  or  the  record  made,  to  those  applying;  this 
authenticated  copy  then  becomes  prima  facie  evidence  of  their  au- 
thority to  organize  and  exist  as  a  corporation.  The  statutes  vary 
much,  but  the  most  important  things  to  be  said  and  done  in  the 
various  states  are  indicated  in  the  following  table : 


436      ARTICLES  OF  INCORPORATION,  FORM  AND  CONTENTS.     §  95 

[The  student  is  advised  to  indicate  in  the  blank  columns  the  various  things 
required  by  the  law  of  his  state  to  be  done  in  preparing  articles  of  incorpora- 
tion, by  a  check-mark  opposite  the  point  noted  in  the  table.] 

Application  for  Incorporation. 


I.   How  entitled: 

1.   Application 

2.   Agreement 

3.   Articles  of  association 

4.   Articles  of  incorporation 

5.   Certificate  of  incorporation 

6.   Charter 

7.   Declaration 

8.   Deed  of  settlement 

9.   License 

10.   Memorandum  of  association 

11.  Petition 

II.   By  whom  made: 

1.   Persons,  natural 

artificial 

2.   Designation,  applicants 

corporators 

commissioners 

incorporators 

petitioners 

promoters 

subscribers 

3.  Number 

4.   Residents  of  the  state 

6.    Citizens  of  the  state 

6.   Citizens  of  the  United  States 

8    Sex.  • 

court  of  record 

secretary  of  state 

IV.    Contents: 

1.    Intention  to  form  a  corporation 

2.    Purpose,  generally 

specifically  and  definitely 

more  than  one 

3.   Nature  of  the  proposed  busir^ess 

• 

4.   Name,  any 

indicating  it  is  a  corporation 

i 

the  business 

the  place 

including  names  of  members 

not  including  names  of  members 

§  95     ARTICLES  OF  INCORPORATION,  FORM  AND  CONTENTS.       437 
Application  for  Incorpokation. 


begin  with 

end  with 

not  already  in  use 

5.   Location  of    principal    office  or  place  of 
business : 
state 

county 

city 

termini 

counties  or  states,  through  or  in  which 
it  will  operate 

6.   Duration  or  term  of  existence : 

perpetual 

fixed  by  law 

any  period  stated... 

fixed  period 



7.  Stock,  amount  allowed,  any 

minimum 

not  necessary  to  state 

to  be  paid  in 

to  begin  business 

payment,  times  of 

conditions  of 

amount  of  each 

preferred 

character  of  preference 



9.  Officers,  to  be  designated 

president 

vice-president 

secretary 

treasurer    

manager 

names  to  be  given  for  first  year 

residence  to  be  given  for  first  year... 

438     ARTICLES  OF  INCORPORATION,  FORM   AND  CONTENTS.     §  95 
Application  for  Incorporation. 


10.   Directors,  number  allowed,  any 

maximum 

minimum 

to  be  stated 

qualifications,  sbareholders 

number  of  shares 

citizens,  number.. 

residents,  number 

names  of  those  for  first  year 

residence  of  those  for  first  year.. 

11.   Applicants,  names  to  be  given 

residence  to  be  given 

shares  of  stock  subscribed  by... 

12.   Indebtedness,  amount  allowed  any 

maximum.... 

minimum.... 

to  be  stated. 

' 

13.  Such  other  matters  as  are  deemed  desirable 

V.   Execution  of: 

1.   Signed  by  applicants,  all 

majority 

number 

residents 



citizens 

subscribers  for  stock 

president 

directors 

2.  Acknowledged  by  applicants,  all 

majority 

certain  number 

residents 

citizens 

subscribers  for  stock 

president 

di  rectors 

before  judge  of  court  of  record 
clerk  of  court  of 

notary  public 

justice  of  peace 

under  seal  if  officer  has  one 

character  of  officer  to  be  certified... 

by  judge  of  court  of  record 

clerk  of  court  of  record 

under  seal 

3.  Application  to  be  sworn  to  by  applicants,  all 

maiori  ty 

certain  number 

§  95      ARTICLES  OF  INCORPORATION,  FORM  AND  CONTENTS.      439 
Application  for  Incorporation. 


subscribers  to  stock 

president 

directors 

■yi    Searing,  none  required 

if  any,  before  judge  of  court  of  record 

governor 

secretary  of  state 

attorney-general 

insurance  commissioner 

special  court  or  commission 

VII.  Finding  by  said  oflBcers, 

conforms  to  law...%. 

facts  stated  are  true 

decree  that  parties  are  incorporated 

! 

1 

VIII.  Filing  with, 

1.   Register  of  deeds  of  county  where  principal 
office  is 

2.    County  clerk  of    county   where  principal 
office  is 

3.   Clerk  of  court  of  county  where  principal 
office  is 

4.   Probate  judge  of  county  where  principal 
office  is 

5.  Same  of  each  county  where  business  is  done 

6.  Secretary  of  state 

7.   Governor 

8.  Two  or  more  of  those  named 

IX.  Becording  by  officer  with  whom  filed, 

X.   Issue  of  certificate  of  incorporation,  by 

Register  of  deeds 

Judge  of  court 

Clerk  of  court 

Secretary  of  state 

Governor ".. 

XI.  Publication: 

1.  Of  intention  to  apply  necessary 

how  long 

where 

in  what 

proof  of,  affidavit  of  printer 
applicants 

440 


DEED    OF    SETTLEMENT. 
Application  for  Incokporation, 


§  95a 


2.  Of  application,  necessary 

how  long 

where 

in  what 

proof  of,  by  printer 

by  applicants 

3.  Of  time  and  place  of  hearing,  necessary 

how  long 

where 

in  what 

proof  of,  by  printer... 
by  applicant 

4.  Of  result  of  application,  necessary 

how  long 

where 

in  what 

proof,  by  printer 

by  applicant 

6.  Of  certificate  of  incorporation,  necessary... 

how  long 

where 

in  what 

proof,  by  printer 

by  applicants 


Note.  See  particularly  the  American  Corporation  Legal  Manual  for  1899 
(and  previous  volumes  of  the  annual  publication);  the  Annotated  Corpora- 
tion Laws  of  all  the  states,  1899,  by  Cumming,  Gilbert  and  Woodward,  and 
2  Stimson's  American  Statute  Law.  For  further  steps  in  the  creation  of  the 
corporation  see  infra,  the  subscription  to  stock,  p.  459,  and  the  organization  of 
the  corporation,  infra,  p.  560. 


Sec.  95a.    {d)  Deed  of  settlement. 

The  first  general  corporation  lav^^  was  39  Eliz.,  ch.  5,  concerning  the 
erection  of  hospitals.  It  allowed  any  person  seized  of  an  estate  in  fee, 
by  a  deed  enrolled  in  chancery,  to  erect  a  hospital  for  the  poor,  needy 
and  impotent,  and  place  therein  such  head,  and  members,  and  poor 
as  he  deemed  convenient,  the  same  to  be  incorporated  with  perpetual 
succession,  under  the  name  given,  with  all  the  usual  powers  of  a  cor- 
poration, provided  it  be  endowed  with  lands  of  a  certain  yearly  value 
by  the  founder  at  the  time  of  its  creation. 

Lord  Coke,  in  his  Second  Institute,  p.  723,  gives  a  proper  form  of 
deed  for  the  formation  of  such  corporation.  The  39  Eliz.  was  to  last 
for  twenty  years,  but  it  was  made  peipetual  by  statute  of  21  James  I, 
ch.  I,  and  is  still  in  force.      6  Enc.  of  Laws  of  Eng.,  233. 

Wordsworth  on  Joint-Stock  Companies,  p.  *5,  enumerates  deeds 
of  settlement  as  one  of  the  methods  of  creating  joint-stock  companies, 
the  deed  being  operative  between  the  shareholders  themselves,  but 
not  affecting  strangers  without  notice,  the  ordinary  rules  of  partner- 
ships applying  as  to  the  relation  with  third  parties.       These  deeds  of 


§  95l^  DEED   OF   SETTLEMENT.  44 1 

settlement  were  common  even  in  the  formation  of  corporations  before 
the  present  English  companies  acts,  and  were  quite  similar  to  the 
memorandum  and  articles  of  association  now  provided  for  by  those 
!acts.  For  detailed  forms  see  Wordsworth  on  Joint-Stock  Companies, 
Part  II.  This  method  does  not  seem  to  have  been  used  much  in  this 
country  in  the  formation  of  corporations. 


Sec.  95b.     Interpretation  of  charters. 

See  Piscataqua  Bridge  Co.  v.  New  Hampshire  Bridge,  7  N.  H.  36,  supra, 
p.  309;  Thomas  v.  Railroad  Co.,  101  U.  S.  71,  infra,  p.  915;  People  v.  Pull- 
man's Palace  Car  Co.,  175  111.  125,  infra,  926;  note,  infra,  p.  933. 


CHAPTER  6. 

THE   ASSOCIATION— ITS   NECESSITY,    NATURE,   FORMS    AND 

PARTIES. 

ARTICLE  I.       NECESSITY,  NATURE,  CONSIDERATION  AND  GENERAL 
FORM  OF  THE  ASSOCIATION. 

Sec.  96.  Necessity.  An  association  of  persons  is  necessary  to, 
results  from,  or  may  result  from  the  creation  of  a  corporation 
aggregate. 

"As  the  organization  of  individuals  into  that  artificial  being  known 
as  a  business  corporation  is  not  thrust  upon  them  by  the  state, 
but  is  a  franchise  granted  to  persons,  who,  first  voluntarily  com- 
bine to  obtain  the  franchise,  some  contractual  relation  between 
the  incorporators  necessarily  precedes  the  creation  of  the  cor- 
poration. These  contractual  relations  may  be  very  simple,  in- 
formal and  transient.  They  may  on  the  other  hand  involve  ex- 
tended negotiations,  distinct  agreements,  complex  stipulations 
and  the  creating  of  obligations  and  the  securing  of  property  as 
preliminaries  to  the  final  uniting  of  the  individuals  in  initiating 
the  existence  of  the  proposed  artificial  person."  Austin  Abbott, 
Article  on  Promoter's  Contracts,  i  Am.  &  E.  C.  C.  (N.  S.) 
p.  I. 


Sec.  97.    Same. 

RAILWAY  COMPANY  v.  ALLERTON. 

1873.     In  the  Supreme  Court  of  the  United  States.     85  U.  S. 
(18  Wall.)  Rep.  233-236. 

Appeal  from  the  circuit  court  for  the  Northern  District  of  Illinois ; 
the  case  being  thus: 

The  Chicago  City  Railway  Company  was  a  corporation  owning  a 
street  railroad  in  Chicago.  The  directors  of  the  company,  without 
consulting  the  stockholders  or  calling  a  meeting  of  them,  resolved 
to  increase  the  capital  stock  of  the  company  from  $1,250,000  to 
$1,500,0000  To  this  one  AUerton,  who  was  a  stockholder,  objected, 
and  filed  a  bill  praying  for  an  injunction  to  prevent  the  increase.  His 
position  was  that  it  could  not  be  lawfully  made  without  the  concur- 

(442) 


§  97  THE   ASSOCIATION.  443 

rence  of  the  stockholders,  and,  in  support  of  this  view,  he  relied  upon 
the  constitution  of  Illinois,  adopted  in  July,  1870,  by  the  thirteenth 
section  of  the  eleventh  article  of  which,  it  is  declared  as  follows: 

"No  railroad  corporation  shall  issue  any  stock  or  bonds,  except  for 
money,  labor  or  property  actually  received  and  applied  to  the  purposes 
for  which  such  corporation  was  created,  and  all  stock-dividends  and 
other  fictitious  increase  of  the  capital  stock,  or  indebtedness  of  any 
such  corporation,  shall  be  void.  The  capital  stock  of  no  railroad 
corporation  shall  be  increased  for  any  purpose,  except  upon  giving 
sixty  days  public  notice  in  such  manner  as  may  be  provided  by  law." 

He  also  relied  on  an  act  of  the  legislature  of  Illinois,  passed  March 
26,  1872,  to  execute  and  cany  out  the  above  provision  of  the  consti- 
tution, by  which,  amongst  other  things,  it  was  enacted  that  no  corpo- 
ration should  change  its  name  or  place  of  business,  increase  or  decrease 
its  capital  stock,  or  the  number  of  its  directors,  or  consolidate  with 
other  corporations  without  a  vote  of  two-thirds  of  the  stock  at  a  stock- 
holders' meeting. 

The  railway  company,  in  its  answer,  relied  upon  its  charter,  granted 
February  14,  1859,  the  third  and  fourth  sections  of  which  were  as 
follows : 

"Sec.  3.  The  capital  stock  of  said  corporation  shall  be  $100,000, 
and  may  be  increased  from  time  to  time,  at  the  pleasure  of  said  cor- 
poration. 

"Sec.  4.  All  the  corporate  powers  of  said  corporation  shall  be 
vested  in  and  exercised  by  a  board  of  directors,  and  such  officers  and 
agents  as  said  board  shall  appoint." 

The  position  of  the  company  was  that  the  third  section  conferred 
an  unrestricted  right  to  increase  the  capital  stock  at  will,  and  that  the 
fourth  vested  this  power  in  the  board  of  directors,  and  that  the  consti- 
tutional provision  and  act  above  referred  to,  if  applied  to  this  corpo- 
ration, would  impair  the  validity  of  the  contract.  It  was  further  set 
up,  however,  that  the  said  provision  did  not  apply  to  railways  worked 
by  horse-power.  The  court  below  decreed  in  favor  of  the  complain- 
ant, and  the  company  took  the  present  appeal. 

Mr.  Justice  Bradley  delivered  the  opinion  of  the  court.  Without 
attempting  to  decide  the  constitutional  question,  or  to  give  a  construc- 
tion to  the  act  of  the  legislature,  we  are  satisfied  that  the  decree  must 
be  affirmed  on  the  broad  ground  that  a  change  so  organic  and  fimda- 
mental  as  that  of  increasing  the  capital  stock  of  a  corporation  beyond 
the  limits  fixed  by  the  charter  can  not  be  made  by  the  directors  alone, 
unless  expressly  authorized  thereto.  The  general  power  to  perform 
all  corporate  acts  refers  to  the  ordinary  business  transaction  of  the 
corporation,  and  does  not  extend  to  a  reconstruction  of  the  body  itself, 
or  to  an  enlargement  of  its  capital  stock.  A  corporation,  like  a  part- 
nerships is  an  association  of  natural  persons  "who  contribute  a  joint 
capital  for  a  common  purpose^  and^  although  the  shares  may  be  as- 
signed to  new  individuals  in  perpetual  succession,  yet  the  number 
of  shares  and  amount  of  capital  can  not  be  increased,  except  it/  the 
manner  expressly  authorized  by  the  charter  or  articles  of  association. 


444  RAILWAY   COMPANY   V.    ALLERTON,  §97 

Authority  to  increase  the  capital  stock  of  a  corporation  may  un- 
doubtedly be  conferred  by  a  law  passed  subsequent  to  the  charter ; 
but  such  a  law  should  regularly  be  accepted  by  the  stockholders. 
Such  assent  might  be  inferred  by  subsequent  acquiescence ;  but  in 
some  form  or  other  it  must  be  given  to  render  the  increase  valid  and 
binding  on  them.  Changes  in  the  purposes  and  object  of  an  associa- 
tion, or  in  the  extent  of  its  constituency  or  membership,  involving  the 
amount  of  its  capital  stock,  are  necessarily  fundamental  in  their  char- 
acter, and  can  not,  on  general  principles,  be  made  without  the  ex- 
press or  implied  consent  of  the  members.      The  reason  is  obvious. 

First,  as  it  respects  the  purpose  and  object.  This  may  be  said  to 
be  the  jinal  cause  of  the  association ^  for  the  sake  of  ivhich  it  was 
brought  into  existence.  To  change  this  without  the  consent  of  the  as- 
sociates, would  be  to  comtnit  them  to  an  enterprise  which  they  never 
embraced,  and  would  be  manifestly  unjust. 

Secondly,  as  it  respects  the  constituency ,  or  capital  and  member- 
skip.  This  is  the  next  important  and  funda?nental point  in  the  con- 
stitution of  a  body  corporate.  To  change  it  without  the  consent  of 
the  stockholders,  would  be  to  make  them  members  of  an  association  in 
which  they  never  consented  to  become  such.  It  would  change  the  re- 
lative influence,  control  and  profit  of  each  member.  If  the  directors 
alone  could  do  it,  they  could  always  perpetuate  their  own  power. 
Their  agency  does  not  extend  to  such  an  act  unless  so  expressed  in 
the  charter,  or  subsequent  enabling  act;  and  such  subsequent  act,  as 
before  said,  would  not  bind  the  stockholders  without  their  acceptance 
of  it,  or  assent  to  it  in  some  form.  Even  when  the  additional  stock 
is  distributed  to  each  stockholder  pro  rata,  it  would  often  work  injus- 
tice, because  many  of  the  stockholders  might  be  unable  to  take  their 
respective  shares,  and  might  thus  lose  their  relative  interest  and  in- 
fluence in  the  corporate  concerns. 

These  conclusions  flow  naturally  from  the  character  of  such  associa- 
tions. Of  course,  the  associates  themselves  may  adopt  or  assent  to  a 
different  rule.  If  the  charter  provides  that  the  capital  stock  may  be 
increased,  or  that  a  new  business  may  be  adopted  by  the  corporation, 
this  is  undoubtedly  an  authority  for  the  corporation  (that  is,  the  stock- 
holders) to  make  such  a  change  by  a  stockholders'  vote  in  the  regu- 
lar way.  Perhaps  a  subsequent  ratification  or  assent  to  a  change 
already  made,  would  be  equally  effective.  It  is  unnecessary  to  decide 
that  point  at  this  time.  But  if  it  is  desired  to  confer  such  a  power  on 
the  directors,  so  as  to  make  their  acts  binding  and  final,  it  should  be 
expressly  conferred. 

Where  the  stock  expressly  allowed  by  a  charter  has  not  been  all 
subscribed,  the  power  of  the  directors  to  receive  subscriptions  for  the 
balance  may  stand  on  a  different  footing.  Such  an  act  might,  per- 
haps, be  considered  as  merely  getting  in  the  capital  already  provided 
for  the  operations  and  necessities  of  the  company,  and,  therefore,  as 
belonging  to  the  orderly  and  proper  administration  of  the  company's 
affairs.     Even    in   such  case,   however,    prudent    and  fair   directors 


§  98  GENERAL   NATURE   OF  THE    ASSOCIATION.  445 

would  prefer  to  have  the  sanction  of  the  stockholders  to  their  acts. 
But  that  is  not  the  present  case,  and  need  not  be  further  considered. 
Decree  affirmed. 

Note.  See,  1899,  Mosier  v.  Perry,  60  Ohio  St.  388.  Also,  particularly,  23 
Am.  &  Eng.  Encv.  776,  et  seq.;  Angell  &  Ames,  §§  517,  et  seq.,  .530-1,  542-3; 
Cook,  §§492-8;  Elliott,  §§  95-8;  Morawetz,  §§  1,  24,  227-237;  Taylor,  §§  28- 
50;  I  Thompson,  §  1136,  III  Thompson,  §§3047,  3423;  Compare,  Clark, 
§§  27,  86. 


Sec.  98.  General  nature  of  such  contract:  An  agreement  by  each 
associate  with  his  fellows  to  organize  for  purposes  contem- 
plated, and  contribute  the  funds  agreed. 

EDINBOKC  ACADEMY  v.  ROBINSON.> 

i860.     In  the  Supreme  Court  of  Pennsylvania.     37  Pa.  St.  Re- 
ports, 210-214,  78  Am.  Dec.  421. 

Error  to  the  common  pleas  of  Erie  county. 

This  was  an  action  brought  by  Prentiss  Burlingham  and  others, 
"trustees  of  Edinboro'  Academy,"  against  Alva  Robinson,  to  re- 
cover an  installment  on  his  subscription  of  $50  to  the  following  paper: 

"We,  the  undersigned,  citizens  of  Edinboro'  and  vicinity,  feeling 
the  necessity  of  an  institution  of  learning  in  our  midst,  affording 
greater  advantages  for  education  than  common  schools,  do  hereby 
agree  to  pay  R.  W.  Gerrish,  Prentiss  Burlingham,  Josiah  J.  Comp- 
ton,  Alfred  Green,  I.  R.  Taylor,  William  Proud  and  Nelson  Clute, 
trustees,  for  the  purpose,  the  sums  severally  subscribed  by  each  of  us, 
for  the  purpose  of  erecting  a  building  in  the  borough  of  Edinboro' 
aforesaid,  to  be  used  as  an  academy  or  institution  of  learning,  said 
trustees  to  act  until  the  sum  of  $3,000  is  subscribed  for  the  purpose 
aforesaid,  and  when  so  subscribed,  public  notice  of  that  fact  to  be 
given  and  of  the  time  and  place  of  organization  of  said  stockholders, 
by  choosing  the  necessary  and  usual  officers  to  carry  into  effect  the  de- 
sign of  the  subscribers.  No  payments  to  be  made  until  the  sum  of 
$3,000  bonajide,  subscription  is  made  ;  and  when  paid  to  be  in  'quar- 
terly yearly'  payments." 

The  $3,000  subscription  was  completed  some  time  in  1856,  and  on 
the  30th  of  December,  1856,  five  of  the  trustees  named  in  the  paper 
gave  notice  of  a  meeting  to  be  held  on  he  5th  of  January,  1857, 
for  the  purpose  of  choosing  seven  trustees  to  serve  for  the  ensuing 
year. 

On  the  5th  day  of  May,  1856,  the  "Edinboro'  Academy"  was  incor- 
porated by  the  court  of  common  pleas  of  Erie  county,  which  charter 
of  incorporation  directed  that  in  all  elections  each  share  of  stock  ($5) 
should  entitle  the  holder  to  a  vote.  The  election  of  Januaiy  5,  1857, 
seems  to  have  been  held  under  the  provisions  of  the  act  of  incorpora- 
tion, 

*  Arguments  omitted. 


446  EDINBORO'   ACADEMY   V.    ROBINSON.  §  98 

There  were  thirty-three  voters,  and  163  votes  cast.  The  election 
resulted  in  the  choice  of  the  plaintiffs  in  this  suit.  The  meeting  did 
not  vote  for,  or  in  any  way  formally  adopt  the  charter  of  incorpora- 
tion. 

Many  of  the  subscribers  were  opposed  to  the  charter  as  the  basis 
of  organization,  and,  on  the  14th  of  February,  1857,  three  of  the  trust- 
ees named  in  the  subscription  paper  gave  notice  of  a  meeting  for 
organization  on  the  21st  of  Febnaary,  1857,  at  which  meeting  seven 
trustees  were  elected,  who  also  organized  and  undertook  to  collect 
the  subscriptions.  The  charter  organization  obtained  possession  of 
the  subscription  paper,  collected  the  money,  selected  the  site,  and 
erected  buildings,  and  brought  this  suit  against  the  defendant  after 
notice  given. 

The  defense  was  that  the  incorporation  of  "The  Edinboro'  Acad- 
emy" by  the  court,  without  the  assent  of  the  defendant,  released  him 
from  his  subscription.  The  evidence  on  the  part  of  the  plaintiff  was 
the  subscription  paper  with  the  signature  of  the  defendant;  that 
$3,oCK)  was  subscribed  in  good  faith ;  and  that  a  meeting  of  the  sub- 
scribers was  called  on  due  notice,  the  association  incorporated  and 
trustees  elected.  On  the  part  of  the  defendant  evidence  of  another 
organization  under  articles  of  association,  in  which  the  defendant 
and  thirty-two  other  subscribers  participated,  was  given  and  ad- 
mitted. 

The  court  instructed  the  jury  that  the  real  plaintiff  in  the  case  was  the 
"The  Edinboro'  Academy,"  in  the  incorporation  of  which  the  defend- 
ant did  not  participate,  and  that  as,  between  that  institution  in  its  cor- 
porate right,  and  the  defendant,  there  existed  no  privity  of  contract, 
the  suit  could  not  be  sustained.  The  jury,  accordingly,  found  for  the 
defendant,  and,  judgment  having  been  entered  on  the  verdict,  the 
plaintiff  removed  the  case  into  this  court,  and  assigned  for  error  the 
following  matters: 

I.  The  court  erred  in  answering  the  plaintiffs'  first  point  in  the 
negative,  which  was: 

I.  That  if  the  jury  find  from  the  evidence  that  the  defendant  signed 
the  subscription-paper  given  in  evidence,  and  thereby  promised  to 
pay  to  E.  W.  Garrish,  Prentice  Burlingham,  Isaac  R.  Taylor,  William 
Proud,  Josiah  J.  Compton,  Alfred  Green  and  Nelson  Clute,  trustees, 
for  the  purpose  of  erecting  a  building  in  the  borough  of  Edinboro',  to 
be  used  for  an  academy  or  institution  of  learning,  the  sum  of  $50; 
that  the  said  tiiistees  were  to  act  imtil  the  sum  of  $3,000  was  sub- 
scribed for  that  purpose ;  that  that  sum  was  subscribed ;  that  the  de- 
fendant's subscription  of  $50  constituted  part  of  the  $3,000;  that 
thereafter,  in  pursuance  of  a  provision  in  the  paper  so  subscribed,  pub- 
lic notice  was  given  of  the  fact  that  $3,000  had  been  subscribed,  and 
of  the  time  and  place  of  organization  of  the  stockholders ;  that  at  the 
time  and  place  at  which  such  notice  was  given  the  stockholders  met 
and  organized  and  elected  the  plaintiffs  in  this  suit  trustees;  then,  and 
in  that  case  the  plaintiffs  can  sustain  this  suit,  to  recover  an  install- 
ment of  the  5J550  due  when  the  suit  was  instituted. 


§  98  GENERAL   NATURE   OF  THE   ASSOCIATION.  447 

II.  The  court  erred  in  answering  the  plaintiffs'  second  point  in  the 
negative,  which  was  as  follows: 

2.  That  this  action  being  in  the  name  of  the  person  elected  trust- 
ees at  a  meeting  of  subscribers  called  for  the  purpose,  in  pursuance 
of  the  provisions  of  the  subscription  paper  signed  by  the  defendant, 
the  plaintiffs  are  entitled  to  recover  in  this  suit,  and  the  plaintiffs,  if 
they  are  not  the  proper  persons  to  collect  and  disburse  the  money  col- 
lected, will  be  trustees  for  those  who  are  legally  entitled  to  it. 

III.  The  court  erred  in  answering  the  plaintiffs'  third  point  in  the 
negative,  which  was  as  follows: 

3.  That  if  the  defendant  signed  the  subscription-paper  given  in  ev- 
idence, it  is  no  defense  that  the  association  contemplated  by  that  paper 
was  subsequently  incorporated  by  the  court  of  common  pleas  of  Erie 
county  after  due  public  notice,  if  the  defendant  did  not  object  to  the 
incorporation  of  the  association,  and  if  the  object  of  the  incorporation 
was  substantially  to  effect  the  same  purpose  that  was  contemplated  by 
the  subscription-paper  signed  by  him,  and  his  interests  were  not  af- 
fected or  his  responsibility  increased  by  the  act  of  incorporation. 

IV.  The  court  erred  in  not  giving  distinct  and  separate  answers 
to  each  of  the  plaintiffs'  three  points. 

V.  The  court  erred  in  charging  that,  "although  some  of  the  persons 
named  as  plaintiffs  were  made  payees  in  the  subscription-paper,  yet 
thev  are  not  necessarily  named,  but  are  so  by  surplusage ;  that  the 
real  plaintiff  is  the  'Edinboro'  Academy,'  between  whom,  in  its  corpo- 
rate right,  and  the  defendant  there  exists  no  privity  of  contract,  we 
think  they  can  not  sustain  this  suit." 

LowRiE,  C.  J.  So  soon  as  this  subscription  fwper  became  co?n- 
■plete  by  the  subscription  of  the  stipulated  amount  of  money ^  the  sub- 
scribers to  it  became  an  association  of  persons  united  for  contributing 
to  a  comynon  fund  for  a  comtnon  purpose,  to  be  carried  out  by  them- 
selves. Then  the  subscription  of  each  (^at  least  if  not  withdrawn  be- 
fore the  actual  organization  of  the  associates^  became  a  contract  by 
each  associate  with  his  fellows,  in  consideration  of  similar  contracts 
by  them,  to  contribute  to  the  common  fund  the  amount  subscribed  by 
him. 

Such  an  act  of  association  involves  an  agreement  to  organize  the 
associates  when  the  subscription  shall  be  complete,  and  in  the  present 
case  this  is  expressly  provided  for.  The  duties  created  by  the  act  of 
subscription  are  duties  to  the  association,  and  the  first  of  them  that  is 
to  be  performed  is  the  duty  of  organization,  and  when  this  is  com- 
plete, the  duty  of  paying  the  sum  subscribed  is  a  duty  to  the  organ- 
ized association.  In  a  legal  aspect,  the  most  perfect  form  of  organi- 
zation is  by  legal  incorporation,  and,  therefore,  this  when  regularly 
obtained  by  the  common  consent  of  the  associates,  must  be  regarded 
as  the  true  organization  of  the  association,  and  the  corporation  be- 
comes the  proper  legal  body  to  which  the  subscriptions  are  to  be 
paid,  and  which  is  to  sue  for  them.  There  can  be  but  one  true  organ- 
ization. 

The  court  below  was,  therefore,  in  error  in  deciding  that  the  action 


448     STEWART  V.  TRUSTEES  OF  HAMILTON  COLLEGE.     §  99 

was  improperly  brought  in  the  name  of  the  association  in  its  corpo- 
rate form.  The  decision  ought  to  have  been  that  if  the  associates 
did  organize  themselves  by  legal  incorporation,  then  the  corporation 
is  the  organized  association,  and  is  the  proper  legal  party  to  demand 
and  enforce  the  payment  of  the  subscriptions. 

The  question  of  fact  is  therefore  involved  in  the  true  decision :  did 
the  associates  organize  themselves  into  this  corporation  called  "The 
Edinboro'  Academy?" 

The  decision  of  the  court  below  excluded  this  question,  though  it 
is  the  vital  one  of  the  cause.  It  may  not  be  easily  decided,  because 
there  is  no  complete  prescribed  form  for  the  process  of  organization. 
And  so  it  is  in  the  original  organization  of  states,  and  there  we  take 
the  fact  of  the  existing  organism  as  proof  of  its  legitimacy  without  in- 
quiring into  the  regularity  of  the  formative  process.  And  in  such  a 
case  as  this,  if  we  find  the  associates  acting  as  members  of  the  organ- 
ism we  assume  the  regularity  of  its  formation  as  against  them. 

The  only  form  agreed  upon  here  for  the  process  of  organization  is, 
that  it  shall  be  by  a  meeting  of  the  associates  held  according  to  notice 
to  be  given.  If  such  a  meeting  was  held  on  reasonable  notice,  and 
if,  by  consent  of  a  majority,  the  corporate  form  of  organization  was 
adopted  or  assented  to,  the  corporation  is  the  organized  body  contem- 
plated by  the  contract  of  subscription,  and  has  the  right  to  demand 
and  receive  the  sums  subscribed. 

The  law  rather  pardons  than  approves  the  naming  of  the  trustees 
of  the  corporation  as  plaintiffs,  in  such  an  action  before  a  justice  of 
the  peace. 

In  court  the  form  ought  to  be  amended  so  as  to  let  the  plaintiff  ap- 
pear in  its  simple  corporate  name. 

Judgment  reversed,  and  a  new  trial  awarded. 

Thompson  J.,  having  been  of  counsel  in  the  case,  did  not  sit  at  the 
hearing. 

•See  note,  infra,  p.  456. 

Sec.  99.    Consideration  of  the  agreement. 

STEWART  V.  TRUSTEES  OF  HAMILTON  COLLEGE.* 

1845.     In  the  Court  of  Correction  of-  Errors,  of  New  York. 
2  Denio's  (New  York)  Reports  403—429. 

On  error  from  the  supreme  court.  The  trustees  of  Hamilton  College 
sued  Stewart  in  the  court  below  in  assumpsit^  to  recover  a  balance  of 
$600,  parcel  of  $800  subscribed  by  him  towards  a  fund  for  the  pay- 
ment of  the  salaries  of  the  officers  of  the  college,  which  subscription 
was  made  at  the  foot  of  the  paper  in  the  following  words : 

"Fund  for  Hamilton  College.     We,  the  subscribers,  hereby  bind 

'  Only  those  parts  of  the  various  opinions  relating  to  consideration  are 
given.  '  This  case  afterward  came  before  the  new  court  of  appeals,  and  was 
decided  against  the  trustees  of  the  college,  on  the  ground  that  there  was  no 
sufficient  consideration.     1  N.  Y.  581  (1848). 


§  99         CONSIDERATION  OF  THE  ASSOCIATION    CONTRACT.         449 

ourselves  to  pay  to  the  trustees  of  Hamilton  College,  the  sums  oppo- 
site to  our  respective  names,  in  four  equal  annual  payments,  the  first 
to  be  made  on  the  first  day  of  August,  1834.  The  conditions  of  the 
subscription  are  the  following: 

'^i.  That  the  moneys  collected  on  it  shall  be  permanently  invested 
as  a  productive  fund,  the  interest  of  which  shall  be  applied  to  the  pay- 
ment of  the  salaries  of  the  officers. 

"2.  That  we  shall  not  be  holden  to  pay  the  sum  subscribed  by 
us  unless  the  aggregate  of  our  subscriptions  and  of  contributions  to 
this  object  shall,  by  the  first  of  July,  1834,  amount  to  .$50,000,  nor 
until  M.  Hunt,  Esq.,  or  A.  B.  Johnson,  Esq.,  of  Utica,  shall  certify 
that,  in  his  or  their  judgment,  responsible  subscriptions  or  contributions 
amounting  to  $50,000  shall  have  been  made. 

"Dated  July  6,  1833."  The  trial  court  non-suited  the  plaintiff, 
and  the  supreme  court  set  this  aside. 

The  opinion  of  the  supreme  court  was  by, 

Nelson,  C.  J.  Two  principal  objections  have  been  taken  to  the 
right  of  the  plaintiffs  to  recover:  i.  That  the  promise  is  nudum  pac- 
tu?n,  there  being  no  consideration  to  support  it;  2.  That  if  valid,  the 
conditions  upon  which  it  was  made  have  not  been  fulfilled. 

Every  promise  for  the  breach  of  which  an  action  of  assumpsit  may 
be  sustained,  must  be  founded  upon  a  consideration  of  benefit  to  the 
defendant,  or  to  a  stranger,  or  of  damage  or  loss  to  the  plaintiff  at 
the  request  of  the  defendant ;  but  any  act  of  the  plaintiff  from 
which  the  defendant  derives  a  benefit,  or  any  labor,  detriment,  or  in- 
convenience, sustained  by  the  plaintiff,  however  small  the  benefit  or 
inconvenience,  is  a  sufficient  consideration,  if  such  act  is  per- 
formed, or  inconvenience  suffered,  at  the  instance  and  request  of  the 
defendant,  (i  Selw.  N.  P.  32,  and  cases  cited.)  It  is  not  claimed 
in  this  case  that  the  defendant  has  derived  any  benefit  from  the  contract 
upon  which  the  action  is  founded,  and  the  inquiry  will  be,  whether 
the  plaintiffs  have  sustained  any  damage  or  detriment  at  the  instance 
and  request  of  the  defendant,  or  directly  flowing  from  the  promise. 
The  substance  of  the  contract  between  the  parties,  leaving  out  the 
particulars,  is  this:  The  defendant  agrees  to  pay  the  plaintiffs,  for  the 
benefit  of  the  institution  they  represent,  $800,  in  four  annual  pay- 
ments, provided  they  will  procure  subscriptions  and  contributions^ 
which,  with  his,  shall  amount  to  $50,000  before  a  given  time,  and 
shall  afterwards  invest  the  same  as  specified.  Or,  putting  it  in  an- 
other form:  The  defendant  agrees,  if  the  plaintiffs  will  procure  sub- 
scriptions for  the  benefit  of  their  institution  to  the  amount  of  $50,000, 
including  his,  and  will  invest  the  same  as  therein  directed,  that  he  will 
pay  them  $800  in  four  annual  payments.  The  plaintiffs  consent,  and 
perform  the  conditions.  It  seems  to  me  that  the  labor  and  expense  of 
procuring  the  subscriptions  and  investing  the  fund  constitute  damage 
and  loss  to  the  plaintiffs,  which  bring  the  case  within  the  very  defini- 
tion of  a  good  consideration  for  the  promise.  In  the  case  of  Sir 
Anthony  Sturlyn  v.  Albany  (Cro.  Eliz.  67),  the  declaration  set  forth 
tnat  the  plaintiff  had  made  a  lease  of  land  to  J.  S.  for  life  rendering 

29— WiL.  Cases. 


450     STEWART  V.  TRUSTEES  OF  HAMILTON  COLLEGE.     §  99 

rent,  who  granted  all  his  estate  to  the  defendant,  the  rent  being  be- 
hind for  several  years.  The  defendant  agreed,  if  the  plaintiff  could 
show  to  him  a  deed  that  the  rent  was  due,  he  would  pay  it.  The 
plaintiff  then  averred  that  on  such  a  day,  etc.,  he  showed  to  him  the  in- 
denture of  lease  by  which  the  rent  was  due,  etc.  The  plaintiff 
recovered,  and  motion  was  made  in  arrest,  for  that  there  was  no  con- 
sideration upon  which  to  ground  the  action.  But  it  was  adjudged  for 
the  plaintiff,  the  court  observing,  that  when  a  thing  is  to  be  done  by 
the  plaintiff,  be  it  ever  so  small,  it  is  a  sufficient  consideration  for  the 
promise. 

So  in  the  case  of  Knight  v.  Rushwood,  in  the  same  book  (p.  469), 
Mrs.  R.  had  given  a  bond  for  ^^200  to  the  plaintiff,  and  afterward 
assigned  to  the  defendant  all  her  goods  to  pay  her  debts.  The  de- 
fendant insisting  that  it  had  been  read  to  the  obligor  as  a  bond  of 
;^ioo  only,  promised  the  plaintiff  to  pay  it,  if  he  and  two  witnesses 
would  swear  before  the  mayor  of  London,  that  it  was  read  to  her  as 
an  obligation  of  ^^200,  which  was  done.  The  question  was,  whether 
there  was  a  consideration  for  the  promise ;  and  the  whole  court  held, 
that  the  inconvenience  of  making  the  oaths  was  a  sufficient  considera- 
tion;  that  the  smallness  was  immaterial — if  any,  it  was  enough — and 
referred  to  the  previous  case  of  Sturlyn  v.  Albany.  (See,  also,  March 
V.  Culpepper,  Cro.  Car.  70).  So  if  A.  promises  B.  to  pay  him  a 
sum  of  money  if  he  will  call  for  it  at  a  particular  time,  and  B.  calls 
accordingly,  the  promise  is  binding;  the  calling  for  the  money  being 
sufficient  consideration  for  the  promise.  Powell  on  Cont.,  343,  5 
Pick.  384).  These  cases  are  all  referred  to  as  sound  law  in  the  mod- 
em respectable  treatises  on  the  subject.  (Comyn.  on  Cont.,  16;  i 
Sewl.  N.  P.  32;  Powell  on  Cont.,  343;  Saund.  PI.  and  Ev.,  147; 
Bac.  Ab.  Assumpsit,  C.)  and  the  principle  is  recognized  in  Brooks 
V.  Ball,  (18  Johns.  337).  It  is  laid  in  Comyn's  Dig.,  (Action  upon 
the  case  upon  Assumpsit,  B.  4),  that  proof  of  a  debt  is  a  good  con- 
sideration for  an  assumpsit,  "for  it  is  a  charge  to  the  plaintiff;  as  if  a 
-woman  in  consideration  of  the  proof  of  a  debt  due  from  her  husband, 
promise  payment.  So  if  an  heir  promise  to  pay  the  debt  of  his  an- 
cestor ;  or  if  an  executoi'  promise  upon  proof  of  the  delivery  of  goods 
to  his  testator  to  pay  for  them." 

The  case  of  McAuley  v.  Billenger  (20  John.  R.  89),  is  not  distin- 
guishable from  the  present.  That  was  an  action  to  recover  a  sum 
subscribed  by  the  defendant  below,  for  the  repairs  of  a  church.  The 
suit  was  in  the  name  of  a  committee  appointed  to  receive  subscrip- 
tions for  this  purpose,  and  to  whom  the  money  was  made  payable, 
and  who  had  subsequently  entered  into  a  contract  with  a  person  for 
the  repairs  as  contemplated  in  the  subscription  paper.  Entering  into 
this  engagment  for  the  repairs,  agreeably  to  the  understanding  of  all 
parties  concerned  in  getting  up  the  subscription  and  in  pursuance 
thereof,  was  regarded  as  a  sufficient  consideration  for  the  promise  to 
pay  by  the  subscribers.  The  case  of  Amherst  Academy  v.  Cowles 
(6  Pick.  431),  contains  similar  doctrine.  A  subscription  to  a  fund 
of  $50,000  to  be  made  a  permanent  investment  for  the  benefit  of  a 


§  99        CONSIDERATION  OF  THE  ASSOCIATION  CONTRACT.  45  I 

literary  institution,  was  held  to  be  valid  and  binding,  as  the  execution 
of  the  trust  on  the  part  of  the  trustees,  or  even  being  engaged  in  the 
process  of  execution,  afforded  a  sufficient  consideration  for  the  un- 
dertaking of  the  defendant.  And  the  case  of  The  First  Religious 
Society  of  Whitestown  v.  Stone  (7  John.  R.  112)  stands  upon  the 
same  principle. 

I  can  not  doubt,  therefore,  but  that  the  assent  of  the  plaintiffs  to 
the  proposition  contained  in  this  instrument,  and  the  fulfillment  of  its 
terms  and  conditions  on  their  part,  or  in  other  words,  the  labor  and 
expense  of  procuring  subscriptions  to  the  fund,  and  of  investing  the 
same  at  their  instance  and  request,  as  may  be  fairly  inferred  from  all 
the  circumstances  attending  the  proposition,  afford  a  sufficient  consid- 
eration for  the  undertaking  of  the  subscribers.     ♦     *     * 

The  Chancellor.  The  first  question  in  this  case,  but  which  I 
consider  of  minor  importance,  is  that  of  consideration.  The  agree- 
ment upon  which  the  suit  was  brought  was  not  by  the  terms  of  it,  nor 
was  any  part  of  it  to  be  performed  within  one  year  from  the  making 
thereof.  The  subscription  is  dated  upon  the  6th  of  July,  1833,  and 
all  the  counts  except  the  third,  which  was  not  attempted  to  be  proved, 
allege  the  agreement  to  have  been  made  by  Stewart  on  that  day.  The 
first  installment  of  the  subscriptions  was  not  to  be  paid  until  the  ist 
of  August,  1834.  The  case,  therefore,  comes  within  the  first  subdi- 
vision of  the  second  section  of  the  title  of  the  Revised  Statutes  rela- 
tive to  fraudulent  conveyances  and  contracts  in  relation  to  goods, 
chattels  and  things  in  action ;  and  the  agreement  must  not  only  be  in 
writing,  but  there  must  be  a  valid  and  sufficient  consideration  appear- 
ing upon  the  face  of  the  writing,  upon  which  the  subscribers  are  sought 
to  be  charged.  (3  R.  S.  135.)  The  language  of  the  statute  is  ex- 
plicit in  declaring  that  every  agreement  that  by  its  terms  is  not  to  be 
performed  within  one  year  from  the  making  thereof,  shall  be  void, 
unless  such  agreement,  or  some  note  or  memorandum  thereof  ex- 
pressing the  consideration  is  in  writing  and  subscribed  by  the  party 
to  be  charged  therewith.  The  consideration  stated  in  the  three  counts 
of  the  declaration,  which  were  attempted  to  be  sustained  by  proof  is, 
in  part,  at  least,  an  alleged  agreement  on  the  part  of  the  corporation 
to  procure  subscriptions  and  contributions  to  the  amount  of  $50,000 
by  the  ist  of  July,  1834.  But  upon  the  face  of  the  written  agreement 
I  find  no  evidence  of  any  undertaking  on  the  part  of  the  corporation 
that  they  will  procure  subscriptions  and  contributions  to  the  amount 
of  $50,000  or  to  any  amount  within  the  prescribed  period.  Nor  was 
their  acceptance  of  the  subscription  of  Stewart  even  an  implied  assent 
on  the  part  of  the  corporation  that  they  would  even  attempt  to  raise 
the  amount  by  circulating  a  subscription  for  the  purpose.  And  if  the 
subscription  papers  had  never  been  presented  to  any  one  after  Stew- 
art's name  was  subscribed  to  it,  he  could  not  have  complained  that 
the  corporation  had  violated  any  agreement,  either  express  or  implied, 
on  their  part. 

It  is  true  that  it  was  made  a  condition  of  the  agreement  that  it 
should  not  be  binding  upon  the  subscribers,  unless  the  aggregate  of 


452  STEWART  V.  TRUSTEES  OF  HAMILTON    COLLEGE.  §  99 

their  subscriptions  and  contributions  should  amount  to  at  least  $50.- 
000  within  the  time  specified.  But  even  in  this  condition  there  is  no 
intimation  that  the  corporation  are  to  procure,  or  to  have  any  instru- 
mentality in  procuring  such  subscriptions  and  contributions,  or  that 
they  were  to  be  even  permitted  to  expend  the  then  existing  funds  of 
the  college  for  that  puipose.  And  even  if  we  go  out  of  the  writing, 
and  examine  the  parol  proof  which  was  adduced  to  make  out  such 
a  consideration,  I  do  not  find  any  evidence  which  shows  that  there 
was  an  agreement  on  the  part  of  the  trustees  to  be  at  the  expense  of 
procuring  subscriptions.  Indeed,  upon  reading  the  written  agree- 
ment, I  should  infer  the  contrary  to  be  the  fact;  and  that  the  donors, 
or  some  of  them,  whose  names  headed  the  subscription  and  who  were 
the  friends  of  the  institution,  had  gotten  up  this  subscription  as  an 
agreement  between  themselves  to  contribute  certain  proportions  to  in- 
crease the  funds  of  the  college  at  least  $50,000  beyond  the  amount  it 
before  had ;  and  that  it  would  be  inconsistent  with  the  real  object  of 
the  donors  to  have  these  funds  reduced  by  expenditures  of  the  kind 
contemplated. 

As  a  subscription  of  a  single  individual,  agreeing  to  make  a  dona- 
tion to  another  individual  or  to  a  corporation  for  the  benefit  of  the  donee 
merely,  I  should  have  great  difficulty  in  finding  a  valid  consideration 
to  sustain  a  promise  to  give  without  any  equivalent  therefor,  and  with- 
out any  binding  agi-eement  on  the  part  of  the  donee  to  do  anything  on 
his  part  which  would  be  a  loss  or  injury  to  him.  And  it  can  hardly 
.be  said  to  be  a  consideration  to  support  a  promise  of  a  donor  to  give 
at  a  future  time,  that  the  donee  agrees  to  receive  and  invest  the  fund 
when  paid  and  to  apply  it  to  the  payment  of  his  debts  generally,  or 
any  particular  class  of  his  debts;  or  to  apply  it  to  the  payment  of  such 
sums  as  he  may  thereafter  agree  to  give  to  his  servants  for  their  serv- 
ices. In  the  case  of  The  First  Religious  Society  in  Whitestown  v. 
Stone  (7  John.  Rep.  112),  no  such  difficulty  existed,  for  there  was  a 
sufficient  consideration  stated  in  the  contract  itself.  The  agreement  in 
that  case  was  stated  to  be  in  consideration  of  $1  received  from  the 
trustees  of  the  corporation,  as  well  as  the  further  consideration  that  it 
was  to  raise  a  salary  for  a  clergyman  to  be  employed  to  preach  for 
the  benefit  of  the  subscribers. 

Neither  is  there  any  difficulty  in  my  mind  finding  a  good  and  sufficient 
consideration  to  support  a  subscription  of  this  kind  made  by  several 
individuals.  Every  member  of  society  has  an  interest  in  supporting 
the  institutions  of  religion  and  of  learning  in  the  community  where  he 
resides.  And  when  he  consents  to  become  a  subscriber  with  others 
to  raise  a  fund  for  that  purpose,  the  real  consideration  for  his  promise 
is  the  promise  which  others  have  already  made  or  which  he  expects 
them  to  make,  to  contribute  to  the  same  object.  In  other  words,  the 
mutual  promises  of  the  several  subscribers  to  contribute  towards  the 
fund  to  be  raised  for  the  specified  object  in  which  all  feel  an  interest, 
is  the  real  consideration  of  the  promise  of  each.  For  this  purpose, 
also,  the  various  subscriptions  to  the  same  paper  and  for  the  same  ob- 
ject, although  in  fact  made  at  different  times,  may  in  legal  contem- 


§  99        CONSIDERATION    OK   THE   ASSOCIATION    CONTRACT.        453 

plation  be  considered  as  having  been  made  simultaneously.  The 
consideration  of  the  promise,  thei^efore,  is  not  any  consideration  of 
benefit  received  by  each  subscriber  from  the  religious  or  literary  cor- 
poration to  which  the  amount  of  his  subscription  is  made  payable,  nor 
is  his  promise  founded  upon  any  consideration  of  injury  which  the  payee 
has  sustained  or  is  to  sustain  or  to  be  put  to  for  his  benefit.  But  the 
consideration  of  the  promise  of  each  subscriber  is  the  corresponding 
promise  which  is  made  by  other  subscribers.  Mutual  promises  have 
always  been  held  sufficient  as  between  the  parties  to  sustain  the  prom- 
ise to  each.  And  it  had  also  been  the  settled  law  from  the  time  of 
the  decision  in  the  case  of  Dutton  v.  Pool  (Freem.  Law  Rep.  471), 
in  1678,  down  to  the  present  time,  that  a  party  for  whose  benefit  a 
promise  is  made  may  sue  in  assumpsit  upon  such  promise,  although 
the  consideration  therefor  was  a  consideration  between  the  promisor 
and  a  third  pei-son.  (See  Schermerhorn  v.  Vanderheyden,  i  John. 
Rep.  139.)  Upon  this  subscription  the  several  subscribers  mutually 
promise  each  other  to  pay  to  the  trustees  of  Hamilton  College  the 
sums  subscribed  by  them  respectively,  upon  the  condition  that  the 
funds  when  collected  by  the  corporation  shall  be  invested  as  a  perma- 
nent fund,  and  the  income  thereof  applied  to  the  support  of  the  officers 
of  the  institution.  The  legal  effect  of  the  written  agreement,  there- 
fore, is  the  same  as  if  it  had  been  stated  at  length  in  the  subscription 
that  the  consideration  of  the  promise  of  each  was  the  promise  made  to 
him  by  the  other  subscribers  to  pay  to  the  corporation  the  sums  by 
them  subscribed  respectively.  And  if  this  agreement  had  been  set 
out  in  the  declaration  with  the  names  of  the  other  subscribers  thereto, 
with  the  sums  subscribed  by  them  respectively,  I  think  a  sufficient 
consideration  to  support  the  promise  to  pay  to  the  corporation  of  the 
college  would  have  appeared  to  support  the  action.     *     *     * 

Senator  Bockee.  But  there  is  another  question  of  very  great  in- 
terest and  importance,  whether  there  was  any  consideration  for  the 
defendant's  promise,  so  as  to  make  it  a  legal  obligation.  It  may  be 
assumed  as  an  axiom,  which  can  not  be  disputed,  that  a  promise 
founded  on  duties  of  imperfect  obligation  or  mere  motives  of  benevo- 
lence, or  a  desire  to  promote  the  interest  of  education,  of  charity  or 
piety,  is  nothing  more  than  the  promise  of  a  gift,  and  is  not  a  legal  con- 
tract on  which  an  action  can  be  maintained.  If  we  take  the  first  clause  of 
this  subscription-paper  by  itself,  where  the  subscribers  bind  themselves 
to  pay  certain  sums  of  money  to  the  tinistees  of  Hamilton  College,  it 
does  most  clearly  and  inevitably  oome  within  the  description  of  a  gra- 
tuitous promise,  and  is  void  for  want  of  consideration.  Do  the  con- 
ditions which  are  underwritten  vary  the  obligations  which  the  sub- 
scribers are  under  to  the  trustees  of  the  college.''  The  first  of  these 
conditions  is  merely  directory,  and  relates  to  the  investment  and  ap- 
propriation of  the  moneys  when  collected,  and  can  have  no  bearing 
upon  this  question  of  consideration.  The  second  condition  is  not,  as 
is  incorrectly  stated  in  the  second  count  of  the  plaintiffs'  declaration, 
* 'provided  that  the  -plaintiffs  should  and  would,  by  the  first  day  of 
July,  1834,  procure  subscriptions  and  contributions  to  the  amount  of 


454  STEWART  V.  TRUSTEES  OF  HAMILTON    COLLEGE.  §  99 

$50,000."  If  the  agreement  had  been  that  the  defendant  would  pay 
$800  to  the  plaintiffs,  provided  they  should  and  would  raise  $50.00  :> 
it  would  be  a  good  executory  consideration,  and  would,  in  my  view, 
entirely  change  the  nature  of  this  instmment,  and  transform  what  I 
now  consider  a  naked  promise  of  a  donation  into  a  legal  and  binding 
contract. 

The  meaning  of  this  condition  must  be  ascertained  from  the  terms 
in  which  it  is  expressed.  There  is  no  reference  to  the  plaintiffs,  and 
it  does  not  appear  from  the  instrument  that  they  are  to  perform  any 
conditions.  The  promise  is  to  pay  money  upon  a  contingency  hav- 
ing no  relation  to  any  action  on  the  part  of  the  plaintiffs.  If  the  un- 
qualified pVomise  is  void  for  want  of  consideration,  I  can  not  conceive 
that  it  is  rendered  more  obligatory  by  the  condition  contained  in  this 
subscription  paper.  The  promise  of  the  defendant  and  also  the 
promises  of  all  the  other  benevolent  and  public  spirited  gentlemen 
who  have  joined  with  him  in  the  subscription  are  voluntary  and  gra- 
tuitous donations,  and  they  are  not  less  so  because  they  are  conditional 
and  depend  upon  the  contingency  that  the  subscriptions  shall  within 
a  limited  period  be  raised  to  $50,000.  This  condition  was  doubtless 
made  as  an  inducement  to  liberal  subscriptions,  and  as  an  incentive 
to  the  friends  of  the  college  to  exert  themselves  in  raising  the  fund. 
It  is  an  arrangement  among  the  parties  who  are  subscribers,  and  the 
obvious  motive  of  each  one  is  to  make  his  own  subscription  the  means 
of  calling  into  exercise  the  liberality  of  others.  In  looking  for  a  con- 
sideration to  support  a  contract  between  these  parties,  we  qan  not  go 
beyond  the  subscription  paper.  That  is  the  only  evidence  on  which 
any  legal  claim  can  be  asserted.  We  do  not  find  in  this  paper  any 
act  or  thing  to  be  done  by  the  plaintiffs  on  the  performance  of  which 
they  can  be  legally  entitled  to  claim  as  a  debt  what  was  offered  as  a 
gift.     *     *     * 

Senator  Porter.  The  defendant  below  was  sued  upon  his  sub- 
scription to  the  fimds  of  the  Hamilton  College,  and  he  resists  the  pay- 
ment upon  a  variety  of  grounds.  It  appears  that  a  special  effort  was 
made  in  the  year  1833  to  raise  the  sum  of  $50,000  to  be  added  to  the 
permanent  funds  of  that  institution,  but  the  income  of  this  sum  was 
to  be  applied  specially  to  the  payment  of  the  salaries  of  the  officers 
of  the  college.  The  first  objection  that  I  propose  to  consider  is  that 
which  affirms  that  there  was  no  consideration  for  the  promise  made 
by  the  defendant  to  pay  the  trustees  the  amount  of  his  subscription. 

By  the  instrument  signed  by  the  defendant,  the  subscribers  prom- 
ised to  pay  to  the  trustees  of  Hamilton  College  the  sums  of  money  set 
opposite  their  respective  names,  upon  certain  conditions  therein  spec- 
ified. The  question  is,  whether  there  appears  upon  the  face  of  the 
instrument  a  consideration  to  sustain  the  promise  made  by  the  defend- 
ant. Let  us  consider  the  whole  scope  and  extent  of  this  writing,  and 
the  understanding  and  agreement  of  both  parties  at  the  time  it  was 
signed.  The  trustees  come  to  the  defendant  and  propose  to  him,  that 
if  he  and  others  will,  promise  to  pay  them  $50,003  as  a  permanent 
fund,  the  interest  of  which  shall  be  applied  to  the  payment  of  teachers 


§  99         CONSIDERATION  OF  THE  ASSOCIATION  CONTRACT.  455 

in  the  college,  they  will  incur  the  labor  and  expense  of  obtaining  the 
subscription  to  that  amount,  to  be  certified  by  Mr.  Hunt  or  Mr.  John- 
son ;  that  they  will  collect  the  same,  and  invest  the  amount  collected 
permanently,  and  in  some  safe  and  secure  manner;  that  they  will  col- 
lect, receive  and  pay  over  the  annual  interest  forever  thereafter  to  the 
teachers  of  the  college,  free  from  all  charge  upon  this  fund;  and  they 
engage  to  take  upon  themselves  the  care  and  expense  of  taking 
charge  of  the  fund,  and  preserving  it  in  all  its  integrity,  upon  a 
continued  permanent  investment,  and  of  applying  the  income  accord- 
ing to  the  designs  of  its  public  spirited,  enlightened  and  liberal  donors, 
free  from  all  abatement ;  so  that  their  charity  may  go  down  to  all 
time,  testifying  to  their  liberality,  and  enabling  this  public  institution 
to  confer  upon  the  community  that  is  interested  in  its  prosperity,  the 
blessings  of  education  and  science.  All  this,  they  say,  we  will  un- 
dertake on  our  part.  The  defendant  says,  very  well ;  if  you  wiJl 
promise  for  yourselves  and  your  successors  to  perform  this  very 
charitable  service  if  the  "subscribers  will  promise  to  pay  you  this 
amount,  I  am  content,  and  will  promise,  as  one  of  those  subscribers, 
to  pay  you  $Soo  towards  that  fund,  which  promise  is  to  be  binding 
upon  me,  if  responsible  subscriptions  are  obtained  to  that  amount  in 
the  opinion  of  Mr.  Hunt  or  Mr.  Johnson.  It  seems  to  me  that  this  is 
a  fair  and  rational  paraphrase  of  the  real  agreement  between  these 
parties.  And  if  so,  is  there  not  a  mutuality  in  it?  A  promise  on  the 
part  of  the  defendant  to  pay,  provided  the  trustees  will  promise  on 
their  part  to  perform  ?  I  think  the  promise  on  the  part  of  the  trustees 
is  valid,  and  obliges  them  to  perform  their  agreement,  and  that  there- 
fore it  furnishes  a  good  consideration  for  the  promise  of  the  defend- 
ant. There  is  a  contract  made  between  the  donors  and  the  trustees, 
for  the  donation,  security  and  disposition  of  the  fund.  The  promise 
on  the  part  of  the  trustees  they  have  assumed  and  ratified  by  accept- 
ing the  subscriptions  and  collecting  the  fund,  and  they  have  subjected 
themselves  to  a  perpetual  obligation  to  fulfill  that  promise  in  good 
faith.  This  obligation  may  be  enforced  at  all  times;  and  the  man- 
ner of  executing  the  trust  on  their  part  may  always  be  the  subject  of 
judicial  inquiry,  and  the  court  will  require  that  the  trusts  and  the  prom- 
ises are  all  fulfilled. 

In  the  case  of  the  Trustees  of  Dartmouth  College  v.  Woodward 
(4  Wheat.  518),  Ch.  J.  Marshall,  speaking  of  the  contributions  to 
the  fund  of  that  institution,  says:  "These  gifts  were  made,  not  in- 
deed to  make  a  profit  to  the  donors,  or  their  posterity,  but  for  some- 
thing in  their  opinion  of  inestimable  value,  for  something  which  they 
deem  a  full  equivalent  for  the  money  with  which  it  was  purchased. 
The  consideration  for  which  they  stipulated  is  the  perpetual  applica- 
tion of  the  fund  to  its  object,  in  the  mode  prescribed  by  themselves." 

It  is  not  important  that  the  the  consideration  of  a  promise  should  be 
plainly  expressed  in  the  writing;  it  is  enough  if  it  appears  from  the 
nature  of  the  instrument  and  the  recitals  contained  in  it.  If  it  is  man- 
ifest that  there  was  in  the  minds  of  the  parties  some  obligation  as- 
sumed, or  some  service  to  be  rendered  by  the  promisee,  as  the  equiva* 


456  NULTOxN    V.    CLAYTON.  §  lOO 

lent  asked  for  the  promise  by  the  promisor,  the  promise  is  not  void 
for  want  of  a  consideration.  The  law  upon  tliis  subject  is  well  stated, 
and  the  authorities  collected  in  Saund.  PI.  &  Ev.  147.  I  can  not 
doubt  but  that  the  promise  of  the  defendant  was  made  upon  a  good 
consideration.     *     ♦     * 

For  reversal  21,  for  affirmance  5. 

See  23  Am.  &  Eng.  Ency.  791  et  seq,;  Beach,  §  584;  Boone,  §  108;  Clark, 
§§  93-7;  Cook,  §§  71-5;  Elliott,  §  349;  Langdell's  Summary  of  Contracts, 
§§  183-7;  Morawetz,  §§  43-59;  Tavlor,  §§  62-64,  509-12;  I  Thompson, 
§§  1200-13;  VII  Thompson,  §§  8606-25. 

Note.  If  subscriptions  are  acted  upon  and  monej*  is  expended  on  the  faith 
of  them,  the  donor  or  subscriber  is  estopped  from  claiming  there  is  no  consid- 
eration. 1816,  Kidwelly  v.  Raby,  2  Price  (Eng.  Exch.)  93;  1828,  Amherst 
Academy  v.  Cowls,  6  Pick.  (Mass.)  427;  1852,  Kennebec,  etc.,  R.  R.  Co.  v. 
Palmer,  34  Maine  366;  1857,  Wesleyan  Seminary  v.  Fisher,  4  Mich.  514; 
1877,  Roche  v.  Roanoke  Classical  Sem.,  56  Ind.  198;  1877,  M.  E.  Churchy. 
Kendall,  121  Mass.  528;  1878,  Simpson  Centenary  College  y.  Brj^an,  50  Iowa 
293;  1881,  Twin  Creek,  etc.,  Co.  y.  Lancaster,  79  Ky.  552;  1885,  Osborn  y. 
Crosby,  63  N.  H.  583;  1886,  Roberts  y.  Cobb,  103  N.  Y.  600;  1897,  School  Dis- 
trict V.  Sheidley,  138  Mo.  673;  1898,  Beatty  y.  Western  College  of  Toledo,  177 
111.  280,  42  L.  R.  A.  797 ;  1899,  Lasar  y.  Johnson,  125  Cal.  549,  49  C.  L.  J.  409, 
58  Pac.  161.  Also,  see,  cases  infra,  pp.  482,  491-492.  But,  see,  Bryants  Pond, 
etc.,  Co.  y.  Felt,  87  Maine  234,  infra,  p.  474;  Hudson  Real  Estate  Co.  y.  Tower, 
161  Mass.  10,  infra,  p.  478;  Baptist  Church  y.  Cornell,  117  N.  Y.  601. 


Sec.  100.  The  general  form  of  such  contract:  As  a  rule,  the  form 
is  immaterial,  unless  the  statute  or  charter  requires  a  particu- 
lar form.  It  may  be  either  a  statutory  or  a  common  law  con- 
tract. 

NULTON  V.  CLAYTON. 

1880.     In  the  Supreme  Court  of  Iowa,     54  Iowa  Reports,  425- 
428,  37  Am.  Rep.  213. 

Action  to  recover  upon  an  alleged  subscription  to  the  stock  of  a 
banking  corporation.  The  question  arises  upon  demurrer  to  the  peti- 
tion, the  defendant  claiming  that  the  petition  does  not  show  that  the 
defendant  became  a  subscriber  to  the  stock  in  such  sense  that  he  be- 
came obligated  to  take  and  pay  for  it.  The  corporation  is  the  Farmers' 
and  Merchants'  Bank  of  Bloomfield.  The  plaintiff  is  the  assignee 
of  the  corporation.  The  petition  avers  that  the  capital  stock  was  di- 
vided into  shares  of  $100  each,  and  that  the  defendant  subscribed  for 
ten  shares.  As  constituting  the  subscription,  the  plaintiff  sets  out  as 
an  exhibit  to  his  petition  a  certain  written  statement,  and  the  articles 
of  incorporation,  both  purporting  to  be  subscribed  by  the  defendant. 
The  statement  is  in  these  words : 

"We,  the  undersigned,  having  associated  ourselves  together  for  the 
purpose  of  organizing  a  banking  association,  and  transacting  the  busi- 
ness of  banking  under  chapter  52.  of  the  revision  of  i860,  do  declare 
and  state  as  follows : 

'■'•First.  The  name  and  title  of  the  association  shall  be  The  Farm- 
ers' and  Merchants'  Bank  of  Bloomfield,  Iowa. 


§  lOO  FORM    OF   ASSOCIATION    CONTRACT.  457 

'■'■Second.  The  authorized  capital  of  said  Farmers'  and  Merchants' 
Bank  of  Bloomfield,  Iowa,  shall  be  $150,000,  which  shall.be  divided 
into  shares  of  $100  each. 

'■'■Third.  The  name  and  residence  of  the  stockholders  of  this  asso- 
ciation, with  the  number  of  shares  held  by  each,  are  as  follows: 

"J.  \V.  Clayton, 10  shares." 

The  essential  part  of  the  articles  of  incorporation  is  in  these  words : 

'■"Eighth.  Fifty  per  cent,  of  all  the  stock  subscribed  for  this  asso- 
ciation before  it  commences  business  shall  be  paid  in  at  the  time  of 
commencing  business,  and  the  balance  so  subscribed  shall  be  paid  at 
such  times  and  in  such  installments  as  the  board  of  directors  may 
prescribe." 

The  petition  avers  that  the  directors  have  called  for  full  payment 
of  all  the  stock  subscribed. 

To  the  petition  so  showing  the  defendant  demurred.  The  court 
sustained  the  demurrer.  Judgment  having  been  rendered  for  the  de- 
fendant, the  plaintiff  appeals. 

Adams,  Ch.  J.  The  action  is  brought  to  recover  one-half  of  the 
amount  of  the  alleged  subscription,  the  other  half  having  already  been 
paid.  ■  The  defendant  insists  that  it  is  not  shown  that  he  contracted 
to  pay  any  sum  whatever.  The  defendant  did  not  become  a  stock- 
holder by  subscribing  the  articles  of  incorporation.  If  he  became 
such  he  did  so  by  subscribing  what  we  have  denominated  the  state- 
ment. The  more  important  portion  of  it  is  the  third  division.  That 
is  a  declaration  purporting  to  be  made  by  the  associated  persons 
showing  each  his  respective  interest  in  the  corporation.  Is  it  a  sub- 
scription to  stock?  If  so,  the  defendant  is  liable  to  pay  for  the  num- 
ber of  shares  set  opposite  his  name,  without  a  promise  to  do  so  in  so 
many  words.     This  has  been  held  repeatedly. 

In  Spea^rs  v.  Crawford,  14  Wend.  20,^  the  writing  subscribed  was 
in  these  words : 

"We,  the  subscribers,  do  hereby  severally  agree  to  take  the  shares 
by  us  subscribed  in  the  Harlem  Canal  Company."  A  certain  num- 
ber of  shares  was  set  opposite  the  name  of  each .  subscriber.  The 
question  presented  was  whether  the  mere  agreement  to  take  shares 
rendered  the  defendant  liable  to  pay  for  them.  The  court  held  that 
it  did. 

In  Hartford  &  New  Haven  R.  Co.  v.  Kennedy,  12  Conn.  500,  the 
word  "subscriber"  was  used  in  what  was  claimed  to  be  the  subscrip- 
tion to  stock.  It  was  held  that  the  subscriber  was  liable  to  pay  for 
the  stock,  without  a  promise  to  do  so  in  so  many  words.  The  court 
said:  "It  is  time  a  promise  to  pay  in  precise  terms  does  not  appear  to 
have  been  made.  The  defendant  has  not  affixed  his  signature  to  an 
instrument  which  contains  the  words,  'I  promise  to  pay,'  but  he  has 
done  an  equivalent  act.  He  has  contracted  with  the  plaintiff  to  be- 
come a  member  of  the  corporation,  and  to  be  interested  in  its  stock." 

In  Rensselaer  &  W.  Plank  Road  Co.  v. Barton,  16  N.  Y.  460,  the 

»  28  Am.  Dec.  513. 


458  -  NULTON    V.    CLAYTON.  §    lOO 

court  said  :  "Whatever  may  be  the  form  or  language  of  a  subscription 
to  the  stock  of  an  incorporated  company,  any  person  who  in  any  man- 
ner becomes  a  subscriber  for,  or  engages  to  take  any  portion  of,  the 
stock  of  such  company,  thereby  assumes  to  pay  according  to  the  con- 
ditions of  the  charter."  See,  also,  Small  v.  Herkimer  Manufacturing 
and  Hydraulic  Co.,  2  Comst.  335;  Dayton  v.  Borst,  31  N.  Y.  437; 
Hartford  &  New  Haven  R.  Co.  v.  Croswell,  5  Hill  384;  Waukon  & 
Mississippi  R.  Co.  V.  Dwyer,  49  Iowa  121. 

Probably  the  defendant  would  not  deny  that  where  there  is  a  valid 
subscription  to  stock,  or  written  agreement  to  take  stock,  there  arises 
upon  such  subscription  or  agreement  an  obligation  to  pay  for  it.  But 
the  defendant  insists  that  the  writing  in  this  case,  whatever  it  may  be 
called,  falls  short  of  being  a- subscription  to  stock,  or  agreement  to 
take  stock. 

It  declared  that  "the  number  of  shares  held  by  each  are  as  follows: " 
Then  follow  names  and  amounts.  The  averment  of  the  petition  in 
substance  is  that  the  defendant  by  his  contract  subscribed  for  ten 
shares.  By  this  we  understand  that  the  writing  was  signed  by  the 
defendant.  The  association  purports  to  be  incorporated  under  the 
general  incorporation  law.  What  purpose  such  a  written  declai'ation 
by  the  associated  persons  could  have  if  they  were  not  thereby  to  be- 
come subscribers,  each  for  the  amount  set  opposite  his  name,  we  are 
unable  to  conceive.  It  is  suggested  that  the  written  declaration  was, 
perhaps,  designed  as  a  written  admission  of  a  previous  subscription, 
but  we  see  no  reason  for  a  formal  written  admission  of  what  must 
have  been  already  in  writing  if  there  was  a  subscription  to  be  admitted. 
It  appears  to  us  far  more  probable  that  the  declaration  was  designed 
as  a  subscription.  Now  it  matters  not  how  informal  the  ivritittg  may 
be^  if  the  intent  of  the  parties  can  be  collected  from  it.  What  the  in- 
tent was  in  this  case  we  have  no  reasonable  doubt.  The  parties  in- 
tended to  adopt  articles  of  incorporation .,  and  become  subscribers  to 
the  stock  thereunder.  If  they  did  they  became  obligated  to  pay  in 
accordance  with  the  eighth  article  to  which  they  made  themselves 
parties. 

Suppose  a  creditor  of  the  association  had  brought  an  action  upon 
his  claim  against  the  defendant,  alleging  that  he  is  a  partner.  We 
think  that  the  defendant  might,  and  would,  have  set  up  the  incorpo- 
ration and  sought  shelter  beneath  it.  There  is  no  doubt  that  he  in 
good  faith  attempted  to  become  a  member  and  limit  his  liability  by 
the  exemption  provided.  If  he  could  have  escaped  liability  as  a  part- 
ner by  setting  up  the  incorporation  and  his  membership,  he  can  no^ 
escape  the  limited  liability  incident  to  such  membership. 

We  think  that  the  demurrer  was  improperly  sustained. 

Reversed. 

Note.  For  subscriptions  to  commissioners  see  Walker  v.  Devereaux,  su^pra^ 
p.  385. 

For  subscriptions  to  incorporators,  see  Nickum  v.  Burkhardt,  supra,  p.  391. 

See,  also,  1819,  Chester  Glass  Co.  v.  Dewey,  16  Mass.  94;  1841,  Chelten- 
ham, etc.,  R.  Co.  V.  Daniel,  2  Q.  B.  281 :  1848,  Lehman  v.  N.  Y.,  etc.,  R.  Co., 
2  Sandf.  (N.  Y.)  39;  1856,  Fisher  v.  Evansville,  etc.,  R.  Co.,  7  Ind.  407;  1856, 


§101  STATUTORY    ASSOCIATION    CONTRACT.  459 

Poughkeepsie  &  S.  P.  P.  R.  v.  Griffin,  21  Barb.  (N.  Y.^  454;  1858,  Mobile  & 
O.  R.  Co.  V.  Yandall,  5  Sneed  (Tenn.)  294;  1860,  Clark  v.  Farrington,  etc., 
11  Wis.  306;  1864,  Ashtabula  &  N.  L.  R.  Co.  v.  Pmitli,  15  O.  S.  328;  1869, 
Iowa  &  M.  R.  Co.  V.  Perkins,  28  Iowa  281 ;  1873,  Peninsula  R.  Co.  v.  Dun- 
can, 28  Mich.  130,  lu/Tcf,  p. -482;  1878,  Woodruff  v.  McDonald,  33  Ark.  97; 
1882,  Wheeler  v.  Millar,  90  N.  Y.  353;  1893,  Barron  v.  Burrill,  86  Maine  72, 
29  Atl.  938;  1896,  Ventura,  etc.,  R.  Co.  v.  Collins,116Cal.  260,46Pac.  Rep.  287. 
See,  also,  23  Am.  &  P^ng.  Ency.,  p.  786,  et  se.q. ;  Beach,  §§  61-5;  Boone,  §  108; 
Cook,  §§52-3;  Elliott,  §348;  Morawetz.  §43,  et  seq.;  Taylor,  §§509-12;  I 
Thompson,  §§  1136-95;  II  Thompson,  §§  1305,  1788. 

Writing  is  not  necessary — statute  of  frauds  does  not  apply.  1853,  Chaffin  v. 
Cnmmings,  37  Maine  76;  1858,  Cookney's  Case,  3  DeG.  &  J.  170;  188H,  Col- 
fax Hotel  Co.  V.  Lvon,  69  Iowa  683;  1887.  Wemple  v.  R.  R.  Co.,  120  111.  196; 
1887,  Bullock  V.  Falmouth,  etc.,  Co.,  85  Ky.  184;  1893,  Webb  v.  R.  R.  Co.,  77 
Md.  92,  infra,  p.  528:  1894,  York  v.  Park  Building  Assn.,  39  Neb.  834;  1895, 
Shellenberger  V.  Patterson,  168  Pa.  St.  30;  1895,  Tabler  v.  Anglo-American 
Assn.,  32  S.  W.  (Ky.)  602.  See,  Cook,  §§52-3;  Elliott,  §  348;  I  Thompson, 
§§  1146-7.  Contra,  a  subscription  requires  writing,  for  s?<fcsc?nfte  literally  means 
an  underwriting.  1827,  Thames  T.  Co.  v.  Sheldon,  6  B.  &.  C.  341 ;  1858, 
Pittsburgh,  etc.,  R.  Co.  v.  Gazzam,  32  Pa.  St.  340;  1877,  Galveston  Hotel  Co. 
V.  Bolton,  46  Tex.  633;  1878,  Freeland  v.  N.  J.  Stone  Co.,  29  N.  J.  Eq.  188; 
1887,  Fanning  v.  Ins.  Co.,  37  O.  S.  339,  41  Am.  Rep.  517. 


^/« 


ARTICLE  II.       FORMS    OF    ASSOCIATION    CONTRACTS;     STATUTORY    SUB- 
SCRIPTIONS. 

Sec.  101.    An  exclusively  statutory  contract. 

THE  SEDALIA,  WARSAW  &  SOUTHERN  RY.,  Appellant,  v.  WILKER- 
SON,  Administrator.' 

1884.    In  the  Supreme  Court. of  Missouri.    83  Missouri  Reports 

235-244- 

Martin,  C.  This  is  an  action  to  enforce  an  alleged  subscription 
to  the  capital  stock  of  plaintiff.  The  demand  was  first  presented  in 
the  probate  court  for  allowance  against  the  estate  of  the  subscriber, 
and  was  taken  thence  by  appeal  to  the  circuit  court.  The  principal 
facts  in  the  case  are  set  forth  in  the  following  agreed  statement : 

It  is  hereby  stipulated  and  agreed  by  and  between  the  parties  hereto, 
that  upon  the  trial  of  this  case  the  following  facts  shall  stand  admitted, 
viz. : 

1.  That  the  plaintiff  is  a  railroad  corporation,  created  and  existing 
under  the  general  railroad  incorporation  laws  of  the  state,  under  the 
corporate  name  of  the  Sedalia,  Warsaw  and  Southern  Railway  Com- 
pany. 

2.  That  its  articles  of  association  were  filed  in  the  office  of  the 
secretary  of  state,  September  16,  1879,  the  same  having  been  pre- 

*  Arguments  omitted. 


460  THE  SEDALIA,  ETC.,  RY.  V.  WILKERSON.  §   lOI 

pared  and  signed  by  the  parties  thereto  between  the  first  day  of  Sep- 
tember, 1879,  and  the  sixteenth  day  of  September,  1879,  and  that  said 
Smith  did  not  sign  said  articles,  nor  authorize  any  one  to  sign  his 
name  thereto,  and  that  said  Smith  died  intestate  on  the  eleventh  day 
of  July,  1879. 

3.  That  in  the  year  1877,  the  defendant,  said  George  R.  Smith, 
signed  and  delivered  to  one  Cynas  Newkirk,  who  was  afterwards 
named  in  said  articles  as  one  of  the  directors  of  plaintiff  and  who  was 
then  soliciting  subscription  to  the  capital  stock  of  said  proposed  incor- 
poration, now  the  plaintiff  herein,  a  certain  written  instrument  to  be 
read  in  evidence  in  the  case. 

3^.  That  prior  to  the  bringing  of  the  suit  in  the  probate  court  of 
Pettis  county,  the  plaintiff  had  complied  with  all  the  conditions  of  said 
written  instrument  referred  to  in  the  preceding  stipulation  as  to  the 
construction  and  completion  of  said  railway,  and  that  on  October  30, 
1880,  plaintiff  made  a  call  for  payment  of  all  subscriptions  to  its  capi- 
tal stock. 

4.  That  for  the  purpose  of  this  trial  the  same  effect  shall  be  given 
to  the  instrument  referred  to  in  the  third  stipulation  as  though  the 
name  of  the  Sedalia,  Warsaw  and  Southern  Railway  Company  ap- 
peared in  the  stead  of  that  of  the  Sedalia,  Warsaw  and  Memphis  Rail- 
way Company. 

5.  That  after  said  articles  of  association  were  filed  in  the  office  of 
the  secretary  of  state,  as  aforesaid,  the  plaintiff  coi-poration  duly  or- 
ganized by  the  appointment  of  William  Gentry,  one  of  the  directors 
named  in  the  said  articles,  as  president;  also  by  the  appointment  of 
D.  H.  Smith,  another  of  said  directors,  as  vice-president ;  John  D. 
Crawford,  secretary,  and  Cyrus  Newkirk,  treasurer. 

6.  That  after  such  organization  by  plaintiff,  said  Cyrus  Newkirk 
turned  over  and  delivered  said  instiiiment  referred  to  in  the  third  stip- 
ulation to  the  secretary  of  the  plaintiff,  and  that  plaintiff  thereupon 
received  and  accepted  the  same  as  a  subscription  to  its  capital  stock, 
and  ordered  the  name  of  said  Smith  to  be  placed  upon  its  stock  books 
as  a  stockholder  of  fifty-five  shares  of  its  capital  stock,  which  was  ac- 
cordingly done. 

7.  For  the  purpose  of  this  case  the  instrument  of  writing  referred 
to  in  stipulation  No.  3  shall  be  considered  as  applying  only  to  the 
$1,000  cash  part  thereof,  which  yet  remains  unpaid,  the  remaining 
portion  having  been  heretofore  arranged  in  a  manner  not  affecting  the 
issues  in  this  case. 

8.  These  stipulations  shall  not  be  taken  as  binding  or  estopping 
either  party  hereto,  in  any  other  cause,  but  shall  be  used  in  the  trial  of 
this  case  only. 

The  plaintiff  read  in  evidence  the  subscription  paper  referred  to  in 
the  stipulation  signed  by  the  defendant's  intestate,  which  constitutes 
the  foundation  of  the  demand  against  his  estate. 

"We,  the  undersigned,  agree  each  severally  to  take  the  number  of 
shares  of  the  capital  stock  of  the  Sedalia,  Warsaw  and  Memphis 
(Southern)  Railway  Company  written  opposite  our  names  respect- 


§   lOI  STATUTORY   ASSOCIATION    CONTRACT.  46 1 

ively,  and  to  pay  for  the  same  as  soon  as  the  road  of  said  company 
shall  be  fully  completed  and  in  operation  to  the  south  line  of  Pettis 
county,  in  the  direction  of  Warsaw,  and  the  road-bed  of  said  company 
completed  from  Sedalia  to  Warsaw.  The  payment  of  our  several 
individual  subscriptions  to  be  secured  to  the  satisfaction  of  the  board  of 
directors  of  said  company  before  a  contract  for  the  building  of  said 
road  is  closed. 

"Names.                                                  Shares.  Amount. 

"George  R.  Smith,     ....     $5,500 

"On  condition  as  follows:  One  thousand  dollars  cash;  $3,000  in 
work  to  be  done  for  said  railway  company  at  the  shops  of  the  Smith 
Manufacturing  Company,  at  regular  prices;  $1,500  in  real  estate, 
consisting  of  the  three  lots  on  the  north  side  of  Fourth  street,  in  the 
city  of  Sedalia,  lying  south  of  the  lots  of  the  Smith  Manufacturing 
Company,  and  adjoining  the  M.,  K.  &  T.  railroad  on  the  west — 
above  mentioned  lots  are  numbered  14,  15  and  16,  of  block  i,  Smith 
&  Martin's  Third  Addition. 

"(Signed.)  G.  R.  Smith." 

This  being  all  the  evidence,  the  plaintiff  asked  the  court  to  declare, 
in  substance,  that  the  plaintiff,  upon  the  agreed  facts,  was  entitled  to 
recover  the  $1,000  mentioned  in  the  subscription  paper.  The  court 
refused  to  make  the  declaration  and  rendered  judgment  on  said  facts 
in  favor  of  defendant,  from  which  the  plaintiff  appeals. 

The  only  question  presented  in  the  record  is,  whether  the  defend- 
ant's intestate  by  virtue  of  his  signature  to  the  paper  submitted  in 
evidence,  which  was  preliminary  to  the  execution  of  the  articles  of 
association,  became  legally  bound  as  a  stockholder  in  the  corporation, 
subsequently  organized  under  article  2  of  chapter  21  relating  to  the 
voluntary  incorporation  of  railroads.  The  corporation  contemplated 
in  this  preliminary  paper  is  a  creature  of  the  statute.  By  complying 
with  certain  requirements  specifically  indicated  therein,  the  subscrib- 
ers of  said  paper,  or  any  one  else  desiring  the  same  thing,  might  be- 
come entitled  to  the  rights  and  be  subject  to  the  liabilities  of  stock- 
holders in  a  body  corporate. 

The  statute  which  enables  them  to  call  into  being  the  body  corpo- 
rate governs  their  relation  to  that  body.  It  is  full  and  explicit,  and 
leaves  no  excuse  for  resorting  to  the  rules  of  the  common  law  in  de- 
termining who  are  and  who  are  not  members  of  the  body.  I  accept 
this  proceeding  as  an  attempt  to  enforce  the  statutory  liability  of  the 
defendant's  intestate  as  a  member  and  stockholder  of  the  association 
contemplated  in  the  preliminary  paper. 

In  recurring  to  the  statute  it  would  seem  that  only  two  modes  are 
provided  by  which  a  person  may  become  a  subscriber  to  the  capital 
stock  of  a  corporation,  either  by  signing  the  articles  of  association 
alluded  to  in  the  first  section  of  the  second  article,  or  by  subscribing 
to  the  capital  stock  after  the  creation  of  the  corporation.  The  defend- 
ant's iatestate  died  before  the  articles  of  association  which  gave  being 


462  THE  SEDALIA,  ETC.,  RY.  V.  WILKERSON.  §   10 1 

to  the  corporation  were  executed  and  filed,  consequently  he  could  not 
have  become  a  member  by  subsequent  subscription.  If  he  did  not 
become  such  before  they  were  filed,  then  he  was  no  subscriber  or 
stockholder  at  all.  As  it  appears  from  the  agreed  statement  of  facts 
that  his  name  was  never  signed  to  the  articles  of  incorporation, 
the  argument  against  the  plaintiff  is  conclusive,  if  the  premises  are 
correct. 

That  they  are  correct,  I  think  no  one  can  doubt  after  reading  the 
provisions  of  the  statute  relating  to  the  incipient  steps  necessary  to  be 
taken  in  order  to  give  rise  to  the  relation  of  stockholder  and  corpora- 
tion. Section  764,  Revised  Statutes,  provides  that  any  number  of 
persons,  not  less  than  five,  may  form  a  railroad  company;  that  for 
such  purpose  they  may  make  and  sign  articles  of  association,  in 
which  shall  be  set  forth  the  name  of  the  company,  period  of  its  exist- 
ence, the  termini  of  its  road,  its  length,  the  counties  through  which  it 
is  to  run,  the  amount  of  capital  stock,  number  of  shares  of  stock,  and 
the  names  and  places  of  residence  of  the  directors.  It  requires  each 
member  to  subscribe  to  such  articles  by  signing  his  name  and  place 
of  residence,  and  the  number  of  shares  he  agrees  to  take.  A  certain 
amount  of  capital  stock  must  be  subscribed,  according  to  the  character 
and  length"  of  the  road,  and  five  per  cent,  of  the  amount  so  subscribed 
paid  thereon  to  the  directors  named  in  the  articles.  To  these  articles 
must  be  attached  the  certificate  of  at  least  three  directors,  under  oath, 
to  the  effect  th^t  the  conditions  relating  to  the  amount  and  payment 
of  stock  have  been  complied  with.  The  section  then  goes  on  to  say: 
"And  thereupon  the  persons  who  have  so  subscribed  such  articles,of 
association,  and  all  persons  who  shall  become  stockholders  in  said 
company,  shall  be  a  corporation  by  the  name  specified  in  such  articles 
of  association,  and  shall  possess  the  powers  and  privileges  granted  to 
corporations,  and  be  subjected  to  the  provisions  relating  thereto  con- 
tained in  this  chapter." 

I  am  unable  to  perceive  how  any  persons  of  the  requisite  number, 
desirous  of  forming  a  railroad  company  under  the  provisions  of  this 
statute,  can  do  so  in  any  other  tnode  than  the  one  pointed  out  in  it. 
In  no  other  mode  can  the  relation  of  stockholder  and  corporation , 
under  this  state,  be  established .  The  statute  neither  contemplates 
nor  alludes  to  any  preliminary  paper  of  subscription  such  as  the 
one  given  in  evidence.  The  fact  that  informal  papers  and  circular 
letters  are  commonly  signed  and  published  as  a  part  of  the  enterprise 
and  zeal  which  gives  birth  to  public  corporations,  can  make  no  dif- 
ference as  long  as  the  statute  fails  to  recognize  them  among  the  nec- 
essary and  prescribed  legal  steps  to  be  taken  by  the  incorporators  to 
create  the  body  corporate.  The  allusion  in  the  statute  to  "all  persons 
who  shall  become  stockholders  in  said  company,"  evidently  refers  to 
such  as  become  stockholders  by  subscribing  for  stock  after  the  corpo- 
ration is  established,  in  subscription  books  opened  by  the  directors, 
according  to  the  provisions  of  section  711,  Revised  Statutes. 

It  has  been  held  by  the  courts  of  New  York,  in  construing  a  stat- 
ute in  most  respects  like  our  own,  that  a  party  failing  to  sign  the  arti- 


§  lOI  STATUTORY   ASSOCIATION    CONTRACT.  463 

cles  of  association  could  not  be  subjected  to  the  liability  of  a  stock- 
holder, although  he  has  signed  a  preliminary  subscription  paper. 
Troy  &  Boston  R.  R.  V.  Tibbitts,  18  Barb.  267;  Poughkeepsie  & 
vSalt  Point  Plank  Road  Co.  v.  Griffin,  24  N.  Y.  150.  I  find  nothing 
in  the  cases  cited  by  plaintiff's  counsel  materially  conflicting  with 
this  construction.  Some  of  them  are  cases  in  which  preliminary  re- 
quests, petitions,  or  subscriptions  are  made  prior  to,  or  in  contempla- 
tion of,  the  grant  of  a  charter  by  legislative  enactment.  The  acts 
when  passed  took  effect  upon  the  petitioners  or  subscribers,  and  by 
force  of  their  terms  made  them  liable  as  members  or  stockholders,  al- 
though they  may  have  failed  to  participate  in  the  subsequent  pro- 
ceedings by  which  the  corporation  was  organized.  Others  are  cases 
in  which  the  act  of  incorporation,  either  general  or  special,  had  been 
passed,  and  the  defendants  are  held  liable  as  stockholders,  by  reason 
of  subscriptions  within  the  peculiar  meaning  and  terms  of  the  acts,  or 
because  the  acts,  imlike  the  one  before  us,  failed  to  prescribe  any  par- 
ticular method  of  subscription  by  which  a  person  might  acquire  the 
rights  and  be  subject  to  the  responsibilities  of  a  stockholder.  Tonica, 
etc.,  R.  V.  McNeely,  21  111.  71:  Johnson  v.  Ewing  Female  Univer- 
sity, 35  111.  518;  Buffalo  &  N.  Y.  City  R.  Co.  v.  Dudley,  14  N.  Y. 
336;  Hartford  &  New  Haven  R.  v.  Kennedy,  12  Conn.  500;  Tag- 
gart  V.  Western  Md.  R.,  24  Md.  663;  Penobscot  R.  Co.  v.  Dum- 
mer,  40  Maine  172;  Kennebec  &  Portland  R.  v.  Palmer,  34  Maine 
366;  Cross  V.  Pinckneyville  Mill  Co.,  17  111.  54;  Athol  Music  Hall 
Co.  V.  Cary,  116  Mass.  471. 

I  do  not  regard  the  case  of  Peninsular  R.  Co.  v.  Duncan,  28  Mich. 
130,  as  an  authority  in  point.  Without  assenting  to  the  conclusion 
reached  in  that  case  by  a  majority  of  the  court  (there  being  an  able 
dissenting  opinion  against  it),  I  need  only  remark,  for  the  purposes  of 
this  case,  that  the  construction  adopted  by  the  court  was  placed  upon 
the  peculiar  phraseology  of  the  statute  which  it  was  held  referred  to 
preliminary  subscriptions,  thereby  intending  to  make  the  signers 
thereof  members  of  the  corporation  when  established.  There  being 
no  such  reference  or  intention  contained  in  the  language  of  our  stat- 
ute, I  am  of  the  opinion  that  the  defendant's  intestate  can  not  be  held 
liable  as  a  stockholder  by  reason  of  his  signature  to  the  paper  submit- 
ted in  evidence.  Accordingly  the  judgment  of  the  court  below  is  af- 
firmed. 

Phillips,  C,  not  sitting.  Ewing,  C,  concurs.  Hough,  C.  J., 
absent. 

Note.  See  1854,  Troy  &  Boston  R.  Co.  v.  Tibbitts,  18  Barb.  (N.  Y.)  297; 
1856,  Buffalo  &  N.  Y.  R.  Co.  v.  Dudley,  14  N.  Y.  336;  1861,  Poughkeepsie  «& 
S.  R.  Co.  V.  Griffin,  24  N.  Y.  150;  1873,  Carlisle  v.  Saginaw  Valley  R.  Co.,  27 
Mich.  315;  1874,  Dutchess,  etc.,  Co.  v.  Mabbett,  58  N.  Y.  397;  1875,  Reed  v. 
Richmond,  etc.,  Co.  50  Ind.  342;  1875,  Parker  v.  N.  C.  M.  R.  Co.,  33  Mich. 
23;  1878,  Monterev,  etc.,  Co.  v.  Hildreth,  53  Cal.  123.  Beach,  §  513;  Clark, 
p.  271 ;  Cook,  §§  57-59;  Elliott,  §  344;  Morawetz,  §§  54-67;  Taylor,  §  516;  I 
Thompson,  §§  1157-1160. 


464  THE   PHILADELPHIA    SAVINGS    INSTITUTION.  §   I03 


Sec.  102.  Same.  The  statute  may  make  those  who  incorporate 
members  and  not  those  who  take  the  stock. 

THE  CASE  OF  THE  PHILADELPHIA  SAVINGS  INSTITUTION.* 

1836.     In  the  Supreme  Court  of  Pennsylvania,      i  Wharton 
(Pa.)  Rep.  461-468. 

At  the  last  term,  an  application  was  made  by  Mr.  Norris  for  a  rule 
to  show  cause  why  an  information  in  the  nature  of  a  writ  of  quo  •war- 
ranto should  not  be  filed,  to  inquire  by  what  authority  Joseph  Feinour 
and  others  exercised  the  rights  of  members  of  the  Philadelphia  Sav- 
ings Institution. 

At  the  same  time  a  rule  was  granted  upon  the  president  and  direc- 
tors of  the  same  institution,  to  show  cause  why  a  mandamus  should 
not  issue,  requiring  them  to  admit  William  C.  Bridges  to  participate 
in  the  transaction  of  the  said  institution,  at  its  meetings  of  business. 

Upon  the  return  of  these  rules,  the  following  appeared  to  be  the 
material  circumstances : 

The  Philadelphia  Savings  Institution  was  incorporated  by  an  act  of 
the  legislature  of  Pennsylvania,  passed  on  the  5th  day  of  April,  1834. 

The  first  section  declared  that  certain  persons  therein  named  (forty- 
six  in  number)  ''and  all  and  every  other  person  or  persons,  hereafter  be- 
coming members  of  the  Philadelphia  Savings  Institution,  in  the  man- 
ner hereinafter  mentioned,"  should  be  created  and  made  a  corpora- 
tion and  body  politic,  with  the  usual  powers  and  capacities. 

The  2d,  3d  and  4th  sections  were  as  follows: 

"Sec.  2.  The  object  of  this  corporation  shall  be  to  receive  from. 
time  to  time,  and  at  all  times,  from  all  persons  disposed  to  entrust 
them  therewith,  such  funds  as  may  be  deposited  with  them,  and  for 
which  they  shall  pay  to  the  depositor  such  rates  of  interest  as  may  be 
froin  time  to  time  agreed  upon  by  the  directors  of  the  said  institution: 
Provided^  That  the  said  rates  of  interest  shall  not  be  reduced  with- 
out giving  at  least  sixty  days'  notice  of  their  intention  so  to  do,  in  two 
or  more  of  the  daily  papers  of  the  city  of  Philadelphia. 

"Sec.  3.  For  the  security  of  the  depositors  of  the  said  institution, 
it  shall  be  the  duty  of  the  persons  named  in  the  first  section,  and  of 
their  associates,  to  raise  and  form  a  capital  for  the  said  institution,  of 
not  less  than  $50,000,  nor  more  than  $200,000,  in  shares  of  $25  each, 
which  capital  shall  be  at  all  times  liable  to  the  depositors  for  the 
amount  of  their  deposits  and  of  the  interest  accruing  thereon.  The 
said  shares  shall  be  transferable  on  the  books  of  the  company  in  such 
manner  as  may  be  designated  by  the  by-laws  of  the  said  institution. 

"Sec.  4.  There  shall  be  a  meeting  of  the  fuembers  of  the  said  Phila- 
delphia Savings  Institution,  on  such  a  day  in  the  month  of  May  next, 
and  at  such  place  as  the  five  persons  first  named  in  this  act,  or  any 

^  Note.    Arguments  omitted. 


§  I02  STOCKHOI.UKRS    NOT   ALWAYS    MEMBERS.  465 

three  of  them,  shall  appoint,  and  give  at  least  ten  days'  notice  of  such 
meeting  in  two  or  more  newspapers  printed  in  the  city  of  Philadelphia, 
and  on  such  day  in  the  month  of  May,  and  at  such  place  annually 
thereafter  as  the  by-laws  of  said  institution  shall  provide,  for  the  pur- 
pose of  choosing  from  among  the  viembers^  thirteen  directors  to  man- 
age the  affairs  of  the  said  institution  for  twelve  months  thereafter,  and 
until  a  new  election  shall  take  place,  and  the  five  persons  first  named 
shall  be  judges  of  the  first  election  of  directors,  and  the  judges  of  all 
future  elections  shall  be  appointed,  and  notice  of  such  elections  given 
in  such  manner  as  the  by-laws  shall  provide." 

The  fifth  section  declared  the  duties  and  powers  of  the  directors; 
among  which  it  was  provided  that  they  should  have  power  to  "pro- 
vide for  the  admission  of  jnembers,  and  furnishing  proofs  of  such  ad- 
mission," and  to  pass  all  such  by-laws  as  shall  be  necessary  to  the 
exercise  of  their  powers  and  of  the  other  powers  vested  in  the  corpo- 
ration by  the  charter;  '■'■Provided,  that  all  such  by-laws  as  shall  be 
made  by  the  directors,  may  be  altered  or  repealed  by  two-thirds  of 
the  members,  at  any  annual  meeting,  or  at  any  general  meeting  called 
in  pursuance  of  any  by-law  made  for  that  purpose ;  and  the  majority 
of  members  may,  at  any  annual  or  general  meeting,  pass  by-laws 
which  shall  be  binding  upon  the  directors." 

The  sixth  section  authorized  the  corporation  to  invest  its  funds  in 
public  stocks  of  the  state,  or  of  the  United  States,  or  in  real  securi- 
ties, or  in  the  discount  of  notes,  and  personal  securities;  provided  that 
the  rate  of  discount  should  not  exceed  one-half  per  cent,  for  thirty 
days. 

The  seventh  section  was  as  follows: 

"Sec.  7.  It  shall  be  the  duty  of  the  directors,  at  least  once  in  every 
six  months,  to  appoint  from  the  members  of  the  said  coporation,  five 
competent  persons  as  a  committee  of  examination,  whose  duty  it  shall 
be  to  investigate  the  affairs  of  the  said  corporation,  and  to  make  and 
publish  a  report  thereof  in  one  or  more  newspapers  printed  in  the  city 
of  Philadelphia — and  it  shall  also  be  the  duty  of  the  directors,  on  the 
first  Monday  of  January  and  July,  in  each  and  every  year,  to  make 
and  declare  a  dividend  of  the  interest  and  profits  of  the  said  corpora- 
tion, after  paying  its  expenses,  and  the  same  to  pay  over  to  the  stock- 
holders or  their  legal  representatives,  within  ten  days  thereafter." 

The  eighth  section  provided  that  nothing  in  the  act  contained  should 
be  so  construed  as  to  give  or  extend  any  banking  privileges  to  the  in- 
stitution, or  to  give  or  allow  any  compensation  to  the  directors  thereof. 

Shortly  after  the  act  of  incorporation,  the  directors  adopted  certain 
by-laws,  among  which  were  the  following: 

"Law  4.  Any  member  of  the  institution  may,  by  writing  addressed 
to  the  treasurer,  resign  and  relinquish  his  place  and  right  as  a  member 
of  the  institution,  and  every  member  who  shall  cease  to  be  a  stock- 
holder, shall  at  the  same  time  cease  to  be  a  member. 

"Law  5.  No  person  shall  be  eligible  as  a  member,  unless  he  shall 
have  been  a  depositor  one  year,  or   a  stockholder  six  months.     All 

30— WiL.  Cases. 


466  THE    PHILADELPHIA    SAVINGS   INSTITUTION.  §   I02 

elections  for  membership  shall  be  by  ballot  at  a  general  meeting  of 
the  institution,  at  which  the  votes  of  two-thirds  of  the  whole  number 
of  members  of  the  institution  shall  be  requisite  for  admission." 

At  a  general  meeting  held  on  the  5th  of  January,  1836,  the  old  by- 
laws were  repealed  by  the  members  and  in  lieu  of  the  above  laws, 
viz.,  law  4th  and  5th,  they  passed  the  following  by-laws: 

"Law  3,  section  3.  The  number  of  members  of  the  institution 
shall  be  limited  to  fifty,  and  in  case  of  vacancy  by  death,  resignation 
or  otherwise,  it  shall  be  the  duty  of  the  president  immediately  to  call 
a  general  meeting  of  the  institution  to  supply  such  vacancy,  and  at 
any  election  of  members  a  majority  of  the  whole  number  of  members 
shall  be  present,  and  the  person  or  persons  balloted  for  shall  have 
received  the  votes  of  at  least  two-thirds  of  the  members  present. 

Provided ^  that  no  person  shall  be  elected  a  member  who  shall  not 
have  been  nominated  at  some  meeting  previous  to  that  at  which  he 
shall  be  balloted  for. 

Sec  4.  Any  member  of  the  institution  may,  by  writing  addressed 
to  the  president,  resign  and  relinquish  his  place  and  right  as  a  mem- 
ber of  the  institution  at  any  general  meeting  of  the  members." 

The  law  No.  5  above  quoted  was  repealed. 

The  board  of  directors  afterward,  viz.,  on  the  14th  of  January, 
1836,  passed  the  following  by-law,  being  a  repeal  of  and  in  substitu- 
tion of  by-law  4  above  : 

"Law  4.  Any  member  of  the  institution  may,  by  writing  addressed 
to  the  president,  resign  and  relinquish  his  place  and  right  as  a  mem- 
ber of  the  institution  at  any  general  meeting  of  the  members." 

The  questions  submitted  to  the  court  were : 

1.  Whethef  persons  originally  members,  who  had  transferred  their 
stock  and  no  longer  possessed  any  interest  in  the  stock,  continued  to 
be  members,  with  the  right  of  voting  for  directors,  etc. 

2.  Whether  a  person  to  whom  stock  in  the  institution  was  as- 
signed— as  upon  purchase — became  a  member,  ipso  facto,  without 
admission  by  the  directors. 

Mr.  James  S.  Smith  and  Mr.  Sergeant  contended  that  none  but 
persons  having  a  pecuniary  interest  in  the  corporation  by  holding 
stock,  were  to  be  considered  as  members.  Mr.  W.  M.  Meredith  and 
Mr.  Broom,  contra. 

Rogers,  J.  The  rules  obtained  in  this  case  involve  two  questions, 
which  depend  upon  the  construction  of  the  act  of  the  5th  of  April, 
1834,  incorporating  the  Philadelphia  Savings  Institution. 

1.  Is  a  stockholder  a  member  of  the  corporation,  and  as  such  en- 
titled to  participate  in  its  business? 

2.  Does  he  cease  to*  be  a  inember  when  he  ceases  to  be  a  stock- 
holder .'' 

In  relation  to  the  power  of  admitting  members  of  a  corporation,  as  is 
said  in  Angel  and  Atnes  on  Corporations,  62,  reference  must  often  be 
had  to  the  provisions  and  spirit  of  the  charter,  and  when  the  charter 
is  silent,  we  must  look  to  the  provisions  of  the  common  law,  and  to 
the  particular  nature  and  purpose  of  the  corporation.     In  certain  cor- 


§   I02  STOCKHOLDERS   NOT   ALWAYS    MEMBERS.  467 

porations  (such,  for  example,  as  religious,  charitable  and  literary)  the 
number  of  members  is  often  limited  by  charter,  and  whenever  there 
is  a  vacancy,  it  is  usually  filled  by  a  vote  of  the  company.  As  regards 
trading  and  joint  stock  operations,  no  vote  of  admission  is  requisite, 
for  any  person  who  owns  stock  therein,  either  by  original  subscription 
or  by  conveyance,  is  in  general  entitled  to,  and  can  not  be  refused,  the 
rig'hts  and  privileges  of  a  member.  Gray  v.  Portland  (3  Mass.  364)  ; 
King  V.  Bank  of  England  (Doug.  524).  In  moneyed  institutions,  such 
as  banks,  insurance,  canal  and  turnpike  companies,  etc.,  the  mere 
owning  of  shares  in  the  stock  of  the  corporation  gives  a  right  of  vot- 
ing, and  a  stockholder  ceases  to  be  a  member  by  a  transfer  of  stock. 
There  is  then  this  marked  distinction  ai'ising  from  the  nature  of  the 
corporation.  In  the  one  case,  a  pecuniaiy  interest  is  the  evidence  of 
membership,  whilst  the  affairs  of  religious,  charitable  or  literary  in- 
stitutions are  committed  to  those  who  have  no  pecuniary  interest 
whatever  in  their  management.  If  this  were  a  corporation  of  the 
former  description,  it  would  greatly  strengthen  the  argument  of  the 
respondent's  counsel,  but  I  can  not  view  it  in  that  light,  but  look  upon 
this  and  all  institutions  of  a  like  kind  as  partaking  of  the  nature  of  a 
charity,  where  the  professed  object  is  to  advance  the  interests  of  the 
poor  and  helpless.  The  object  of  this  institution  is  declared  to  be, 
to  receive  from  time  to  time,  from  all  persons  disposed  to  entrust 
them  therewith,  such  funds  as  may  be  deposited  with  them,  and  for 
which  they  are  to  pay  the  depositors  such  rates  of  interest  as  may 
be  from  time  to  time  agreed  upon  by  the  directors.  These  deposits, 
as  is  well  known,  are  made  in  small  sums  by  the  poor,  and  the  insti- 
tution is  professed  to  be  more  especially  for  their  benefit.  In  aid  of 
this  object,  and  as  subsidiary  to  it,  the  legislature  in  the  third  section 
directs  that  for  the  security  of  the  depositors,  etc.,  it  shall  be  the  duty 
of  the  persons  before  named,  and  of  their  associates,  to  raise  a  capital, 
etc.,  of  not  less  that  $200,000,  in  shares  of  $25  each.  Which  capital 
is  to  be  at  all  times  liable  to  the  depositors  for  the  amount  of  their 
deposits  and  the  interest. 

In  other  institutions  of  the  like  kind,  the  latter  provisions  are 
omitted ;  they  were  manifestly  introduced  into  this  charter,  not  for 
the  benefit  of  the  stockholders,  but  as  an  additional  security  or  pledge 
to  the  depositors.  As  an  inducement  to  make  this  investment,  in  the 
sixth  section  the  coiporation  is  authorized  to  invest  its  funds  "in  pub- 
lic stocks  of  this  state,  or  the  United  States,  or  real  securities  or  in 
the  discount  of  notes  and  personal  securities;"  and  in  the  seventh 
section  the  directors  are  authorized  to  declare  a  dividend  of  the  inter- 
est and  profits  of  the  corporation,  after  paying  its  expenses.,  and  to 
pay  it  over  to  the  stockholders^  or  their  legal  representatives.  It  seems 
to  me  most  clear  that  the  legislature  had  no  intention  of  establishing 
a  joint  stock  company,  but  that  there  was  a  mere  modification  or 
change  in  the  provisions  usually  inserted  in  the  charters  of  savings  fund 
institutions. 

But  at  any  rate  these  rules  of  construction  only  apply  when  the 
charter  is  silent.    So  that  in  this,  as  in  every  other  case,  we  must  look 


468  THE   PHILADELPHIA    SAVINGS    INSTITUTION.  §   I02 

to  the  act  itself,  having  regard  to  the  particular  nature  and  purpose  of 
the  corporation.  In  the  charter  there  are  antagonist  interests ;  the  in- 
terest of  the  stockholders  is  in  some  measure  in  opposition  to  the 
interest  of  the  depositors.  It  is  for  the  benefit  of  the  one  to  decrease, 
and  the  other  to  increase  the  rate  of  interest  on  deposits;  and  hence, 
there  may  be  a  peculiar  propriety  in  the  legislature  to  intixist  the  con- 
trol of  the  funds  to  persons  who  have  no  pecuniary  interest  in  the  cor- 
poration. At  least  I  perceive  nothing  in  this  of  which  the  stockhold- 
ers have  any  right  to  complain.  If  the  stockholders  have  the  exclu- 
sive management  of  the  institution,  for  which  the  respondents  con- 
tend, a  temptation  is  held  out  to  divert  the  institution  from  its  original 
and  primary  object  and  convert  it  into  a  bank,  differing  only  in  the 
fact  that  it  is  a  bank  of  discount  and  deposit,  and  not  of  circulation. 
Besides,  if  a  pecuniary  interest  is  the  only  criterion  of  membership  it 
may  with  equal  plausibility  be  said  that  the  depositors  are  members 
also,  and  as  such  entitled  to  participate  in  its  management.  In  the 
first  section  it  is  enacted  "that  the  persons  therein  named,  and  all 
and  eveiy  other  person  or  persons  hereafter  becoming  members  of  the 
Philadelphia  Savings  Institution,  in  the  manner  hereinafter  men- 
tioned^ shall  be  and  are  hereby  created  and  made  a  corporation  by 
the  name  and  style  of  the  Philadelphia  Savings  Institution."  The 
manner  in  which  they  can  become  members  is  pointed  out  in  the  fifth 
section.  Among  other  matters,  the  directors  have  power  to  provide 
for  the  admission  of  members  and  furnishing  proofs  of  such  adtnis- 
sion.  This  we  conceive  to  be  inconsistent  with  the  idea  that  a  stock- 
holder is  ipso  facto  a  member  of  the  corporation ;  for  if  so  why  confer 
the  power  to  provide  for  the  admission  of  members.''  The  legislature 
does  not  confine  the  power  to  furnishing  proofs  of  the  admission  of 
members,  but  they,  in  express  words,  grant  the  power  to  admit  mem- 
bers of  the  corporation.  This  we  conceive  to  be  an  authority  to  elect 
such  persons  as  members  as  they  may  deem  best  fitted  to  carry  into 
effect  the  objects  of  the  charter.  The  respondent's  case  also  derives 
additional  strength  from  the  seventh  section.  A  distinction  is  there 
taken  between  a  member  of  the  corporation  and  a  stockholder.  It  is 
made  the  duty  of  the  directors  to  appoint  from  the  members  of  the 
corporation  five  competent  persons  as  a  committee  of  examination  to 
investigate  the  affairs  of  the  corporation ;  and  in  the  same  section  to 
declare  a  dividend,  etc.,  and  pay  the  same  over  to  the  stockholders., 
or  their  legal  representatives.  Why,  it  has  been  asked,  this  change 
of  phraseology,  if  a  stockholder,  as  such,  is  a  member  of  the  corpo- 
ration ?  It  is  also  worthy  of  remark  that  the  legislature  wholly  omit 
to  regulate  the  right  of  voting;  a  regulation  always  introduced  in  all 
joint-stock  incorporations.  It  is  the  uniform  policy  to  limit  the  num- 
ber of  votes  to  which  stockholders  may  be  entitled,  in  all  such  com- 
panies, a  limitation  which  would  not  have  been  omitted  had  the  leg- 
islature conceived  this  to  be  an  institution  of  that  description. 

Reliance  has  been  placed  on  the  word  '•'■associates.,''^  in  the  third 
section,  which  the  counsel  of  the  commonwealth  says  must  refer  to 
stockholders.     This  is  an  argument  not  without  plausibility.      This 


:    103  SIGNING    ARTICLES,  469 

section  makes  it  the  duty  of  the  persons  named  in  the  act,  and  of 
their  associates,  to  raise  a  capital  of  not  less  than  $200,000;  but  in 
what  manner  this  is  to  be  effected  is  left  to  their  discretion.  It  would 
seem  to  be  the  intention  of  the  legislature  to  give  power  to  admit 
members  before^  as  well  as  after ^  the  capital  was  raised ;  and  indeed 
they  might  have  required  the  aid  of  others  than  those  named  to  effect 
this  result.  I  see  nothing  in  the  act  which  forbids  this,  but  I  think  a 
fair  constniction  of  this  part  of  the  charter  shows  that  this  power  was 
intended  to  be  given.  If  so,  this  is  an  argument  to  show  that  a 
moneyed  interest  is  not  an  indispensable  condition  of  membership. 

It  is  said  that  the  directors  have  passed  a  by-law  that  every  mem- 
ber who  shall  cease  to  be  a  stockholder  shall  cease  to  be  a  member. 
Whether  this  is  so  or  not  is  of  little  importance ;  for  although  the 
charter  give  authority  to  the  directors  to  admit  members,  there  is  none 
given  to  disfranchise  them.  A  by-law  may  modify  and  change  the 
constitution  of  a  corporation,  but  can  not  alter  it.  It  may  regulate  in 
a  reasonable  manner,  the  exercise  of  a  right  in  the  internal  affairs  of 
a  coi-poration,  in  the  conduct  of  its  members,  or  the  mode  by  which 
a  person  is  admitted  to  the  exercise  of  a  right  to  which  it  has  an  in- 
choate title ;  but  it  can  not  take  away  a  right,  or  impose  any  unrea- 
sonable restraint  in  the  exercise  of  it.     2  Kyd  on  Corporations,  107, 

122. 

Rules  discharged. 


Sec.  103.    Same.     The  statute  may  require  signing  and  acknowl- 
edging articles  of  association  by  original  shareholders. 

COPPAGE,  Receiver,  v.  HUTTON. 

1890.     In  the  Supreme  Court  of  Indiana.      124  Indiana  Reports 
401-403,  7  L.  R.  A.  591,  24  N.  E.  Rep.  112. 

From  the  Montgomery  circuit  court. 

Elliott,  J.  The  appellant  sues  as  the  receiver  of  an  insolvent 
corporation,  and  seeks  to  recover  a  subscription  which  he  alleges  the 
appellee  made  to  the  capital  stock  of  the  corporation.  It  is  alleged  that 
the  appellee,  with  others,  signed  articles  of  association,  and  that  he 
agreed  to  take  two  shares  of  the  capital  stock,  and  pay  therefor  $100. 
The  introductory  clause  of  the  articles  of  association  reads  thus:  "We, 
the  undersigned,  agree  to  take  the  stock  in  the  amount  set  opposite 
our  names  in  a  company  to  be  organized  for  manufacturing  and  sell- 
ing the  Williamson  Straw  Stacker."  There  were  eighty-three  sign- 
ers, and  seven  of  them  acknowledged  the  execution  of  the  articles  of 
association  before  a  notary  public,  and  the  instrument  was  duly 
recorded.  It  is  also  alleged  that  $8,000  of  stock  was  subscribed,  that 
the  company  was  duly  organized  and  a  board  of  directors  elected. 

There  can  be  no  doubt  under  the  authorities  that  a  valid  subscrip- 


470  COPPAGE   V.  HUTTON.  §   IO3 

tion  to  the  capital  stock  of  a  corporation  may  be  made  by  signing  the 
preliminary  articles.  Such  a  subscription  becomes  enforcible  upon 
the  perfection  of  the  corporate  organization  according  to  the  law  un- 
der articles  of  association.  Miller  v.  Wild  Cat  G.  R.  Co.,  52  Ind. 
51 ;  Nulton  v.  Clayton,  54  Iowa  425;  Phcenix,  etc.,  Co.  v.  Badger, 
67  N.  Y.  294;  Cravens  v.  Eagle,  etc.,  Mills  Co.,  120  Ind.  6.  If  the 
promise  of  the  appellee  is  not  binding  it  must  be  for  some  other  rea- 
son than  that  it  was  made  before  the  organization  of  the  corporation 
was  fully  effected. 

The  statute  requires  that  the  persons  who  desire  to  organize  a  cor- 
poration shall  "make,  sign  and  acknowledge,  before  some  officer 
capable  to  take  acknowledgment  of  deeds,  a  certificate  in  writing, "^ 
setting  forth  therein  certain  enumerated  things.  Section  3851,  R.  S. 
188 1.  The  contention  of  the  appellee  is  that  the  promise  is  not  effect- 
ive, because  the  complaint  shows  that  only  seven  of  the  eighty-three 
signers  acknowledge  the  certificate.  It  seems  quite  clear,  under  the 
decision  of  this  court  in  Indianapolis,-  etc..  Mining  Co.  v.  Herkimer, 
46  Ind.  142,  that  the  mere  signing  of  the  paper  was  not  sufficient  to 
complete  the  obligation,  and  that,  in  order  to  make  valid  and  effective 
articles  of  association  against  all  who  sign,  all  must  acknowledge  them 
as  the  statute  requires.  Here  it  affirmatively  appears  that  seven  only 
of  the  signers  acknowledged  the  execution  of  the  instrument,  and  it 
can  not  be  inferred  that  those  who  did  not  acknowledge  it  remained 
bound  by  its  terms.  As  to  them  the  instrument  was  incomplete,  and 
it  is  quite  well  settled  that  an  incomplete  subscription  can  not  be  en- 
forced. Butchers,  etc.,  R.  Co.  v.  Mabbett,  58  N.  Y.  397;  Reed  v. 
Richmond,  etc.,  R.  Co.,  50  Ind.  342 ;  Richmond  St.  R.  Co.  v.  Reed, 
83  Ind.  9;   Williamson  v.  Kokomo,  etc.,  Ass'n,  89  Ind.  389. 

It  is,  however,  argued  by  appellant's  counsel  that  the  complaint 
does  affirmatively  show  that  the  corporation  was  organized,  but  this 
does  not  meet  the  question,  for  it  may  well  be  that  it  was  organized 
without  the  appellee  as  a  stockholder.  The  fact  that  he  did  not  ac- 
knowledge the  instrument  as  the  law  requires  implies  that  he  did  not 
become  a  stockholder,  and  there  is  nothing  in  the  complaint  which 
rebuts  or  opposes  this  implication.  It  devolved  upon  the  plaintiff 
to  remove  the  inference  if  he  could.  As  the  appellee  did  not  acknowl- 
edge the  instrument  as  the  law  requires,  he  did  not  become  a  stock- 
holder, and  if  he  were  insisting  that  he  was  entitled  to  the  number  of 
shares  set  opposite  his  name,  it  is  quite  clear  that  the  corporation 
might  successfully  resist  his  claim,  since  it  is  obvious  that  only  those 
who  acknowledge  the  articles  of  association  as  the  law  requires  can 
successfully  insist  upon  their  right  to  stock.  If  the  appellee  can  not 
be  regarded  as  a  stockholder,  then  it  seems  quite  clear  that  he  did  not 
bind  himself  bv  simply  signing  the  articles  of  association. 

Whether  a  good  complaint  can  be  framed  is  not  the  question  before 
us,  for  the  only  question  presented  by  the  record  is  as  to  the  sufficiency 
of  the  complaint  as  it  is  written. 

Judgment  affirmed. 

Note.    See  cases  cited,  supra,  p.  463. 


§   I04  AGREEMENTS   TO    SUBSCRIBE   TO    STOCK.  471 


ARTICLE      III.       FORMS      OF    ASSOCIATION    CONTRACTS,"     COMMON     LAW 
SUBSCRIPTION    CONTRACTS. 

Sec.  104.     ( I  )    Agreements  to  subscribe  for  stock  in  a  corpora- 
tion formed  or  to  be  formed. 

CHARLES  THRASHER  V.  THE  PIKE  COUNTY  RAILROAD  COMPANY.^ 

i86i.     In  THE  Supreme   Court  of  Illinois.     25  111.   Reports,  p. 
393  (Orig.  ed.)  ;  p.  340-348,  Gross's  Edition,  1876. 

Appeal  from  the  circuit  court  of  Pike  county ;  the  Hon.  J.  S. 
Bailey,  judge,  presiding. 

This  was  an  action  of  assumpsit,  by  the  Pike  County  Railroad 
Company  against  Charles  Thrasher,  upon  the  following  agreement: 

"We,  the  undersigned,  agree  to  subscribe  to  the  stock  of  the  Pike 
County  Railroad,  the  sum  set  against  our  names,  when  the  books  may 
be  opened  for  subscription. 

"Gi-iggsville,  March  19,  1856. 

"Charles  Thrasher $3,000." 

Mr.  Justice  Breese  delivered  the  opinion  of  the  court. 

The  appellee,  who  was  plaintiff  in  the  court  below,  urges  several 
reasons  justifying  a  recovery  in  this  case,  which  it  is  necessary  to  no- 
tice. The  declaration  contains  a  special  count,  averring  that  on  the 
19th  of  March,  1856,  the  plaintiffs  were  a  body  politic  and  corporate 
with  power  to  constmct  and  operate  a  railroad  within  the  county  of 
Pike,  and  authorized  by  law,  as  such  corporation,  to  secure  subscrip- 
tions to  the  capital  stock  of  the  company  to  the  amount  of  $1,000,000, 
ill  shares  of  $100  each,  and,  desiring  to  ascertain  what  amount  of  stock 
would  be  subscribed,  and  not  having  opened  regular  subscription 
books,  but  intending  so  to  do,  agreed  with  the  defendant  that  they 
would,  in  a  reasonable  time  thereafter,  open  books  for  the  purpose 
of  securing  such  subscriptions,  and  that  they  would  permit  and  allow, 
the  defendant,  when  the  book  should  be  opened,  to  subscribe  to  the 
capital  stock  of  the  company  thirty  shares  of  $100  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,  imdertook  and  prom- 
ised the  plaintiff  that  he  would  subscribe  to  the  stock  of  this  company 
the  sum  of  $3,000  when  the  books  should  be  opened  for  subscriptions ; 
that  this  promise  was  by  a  writing,  signed  by  the  defendant,  and  by 
him  delivered  to  the  plaintiff.  It  is  then  averred,  that  on  the  same 
day  subscription  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,  accompanied  by  an  averment  that  the   subscription,  when  the 

'  Only  the  part  of  the  opinion  relating  to  the  nature  of  the  agreement  to  sub- 
Bcribe  is  piven. 


4/2  THRASHER    V.  PIKE   COUNTY    R.  CO.  §104 

I 

books  were  opened,  was  due  and  payable  before  the  commencement 
of  the  suit,  and  although  notified  thereof,  the  defendant  has  refused 
to  pay  any  part  of  the  sum  of  the  $3,000.  The  common  counts  are 
added,  in  one  of  which  the  indebtedness  is  alleged  to  be  for  100  shares 
of  the  stock  of  the  Pike  County  Railroad,  before  that  time  bargained 
and  sold  to  the  defendant. 

This  is  the  cause  of   action  as  set  forth  by  the  plaintiffs,  and  it  is 
claimed  by  them  that  they  are  entitled  to  recover  as  damages  the  par 
value   of  the   stock,  or  the   amount  of  calls  made  from  time  to  time 
upon  it,  and  which,  at   the  commencement   of   the  suit,  amounted  to 
fourteen  installments,  of  five  per  cent,  each,  making,  in  all,  $2,100. 
This,  we   do  not  think,  is   a  fair  view  of  the  defendant's  liability 
upon  his  promise,  if  one  was  made  to  the  plaintiffs.    His  undertaking 
is  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  that 
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  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  property,  for  it  would 
not  be  just,  in  such  cases,  that  the  vendor  should  retain  the  property 
and  recover  also  the  value  of  it  from  the  promisor.     Some  damage 
might  result  from  the  loss  of  a  bargain,  and  to  such  the  vendor  would 
be  entitled,  if  the  extent  could  be  established.     In   many  cases  they 
would  be   merely   nominal.      On  an   agreement  for  the  sale  and  pur- 
chase of  stocks,  and  a  refusal  by  the  purchaser  to  take  the  stocks,  the 
measure  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  $3,000  would  represent  a  value  to  the 
company  equivalent  to   so  much   money,  and,  in  a  statement  of  their 
liabilities,  this  would  appear  against  the  company  as  so  much  held  by 
the  stockholders,  for  which  the  company  w'as  responsible.     If  there 
is  no   actual   subscription,  the   company  does  not  incur  this  liability. 
There  being  no  special  damage   alleged,  or  proved,  we  do  not  think 
the  plaintiffs  could  recover  under  this  declaration,  as  they  have  done, 
the  par  value  of  the  stock  the  defendant  promised  and  agreed  to  take. 
A  proper  count  might  doubtless  be  so  framed  as  to  justify  a  full  re- 
covery under  sufficient  proof.     *     ♦     * 
Reversed. 

Note.    See  note  at  the  end  of  next  case. 


§  105  AGREEMENTS   TO  SUBSCRIBE  TO  STOCK.  473' 

Sec.  105.   Same. 

STRASBURG  RAILROAD  COMPANY  v.  ECHTERNACHT.* 

1853.  In  the  Supreme  Court  of  Pennsylvania.    21  Pa.  St.  Rep. 
220-222,  60  Am.  Dec.  49. 

Certiorari  to  the  common  pleas  of  Lancaster  county. 

This  was  a  bill  in  equity  on  the  part  of  the  railroad  company,  filed 
with  the  view  of  enforcing  the  specific  performance  of  an  agreement, 
which  was  as  follows: 

"We,  the  undei'signed,  agree  to  take  the  number  of  shares  of  the 
capital  stock  of  the  Strasburg  Railroad  Company,  set  opposite  to  our 
respective  names,  the  price  per  share  to  be  $100,  provided  there  can 
be  a  charter  obtained  at  the  next  ensuing  session  of  the  legislature  of 
Pennsylvania,  granting  said  company  to  terminate  said  road  at  the 
east  end  of  the  borough  of  Strasburg,  and  connecting  with  the  state 
road  at  or  near  Lemon  Place ;  granting  also  the  said  company  to  do 
all  the  business  connected  with  the  road,  such  as  forwarding  and  re- 
ceiving produce  of  all  kinds,  coal,  lumber,  and  all  other  commodities 
as  are  transportable  over  other  railroads." 

William  Echtemacht,  the  defendant,  was  a  signer  for  five  shares. 
Application  was  made  to  the  legislature,  and  on  the  nth  of  Feb- 
ruary, 1851  (which  was  during  the  next  ensuing  session  after  the 
signing  of  the  agreement),  the  act  to  incorporate  the  Strasburg  Rail- 
road Company  was  passed  (Pam.  L.  p.  53),  the  provisions  of  which 
are  in  accordance  with  the  terms  specified  in  the  above  agreement. 

The  road  was  commenced,  and  it  was  alleged  that  the  property  of 
the  defendant  rose  in  value.  He,  however,  refused  to  subscribe  to 
the  stock  of  the  company,  and  the  bill  in  question  was  filed. 

On  the  part  of  the  defendant  the  bill  was  demurred  to.  The  facts 
stated  in  the  bill  were  not  confessed,  but  it  was  alleged  that  no  matter 
of  equity  was  stated  in  the  bill  whereon  a  decree  of  specific  perform- 
ance should  be  made. 

The  demurrer  was  sustained  by  the  court  below,  and  the  bill  was 
dismissed ;   and  to  this  error  was  assigned. 

Black,  C.  J.  Before  the  Strasburg  Railroad  Company  was  incor- 
porated the  defendant  and  others  signed  a  paper,  agreeing  that  if  it 
should  be  incorporated  with  certain  privileges,  they  would  subscribe 
the  number  of  shares  set  opposite  to  their  respective  names.  The  char- 
ter was  obtained,  and  the  defendant  refused  to  take  the  stock.  Where- 
upon the  company  brought  this  bill  in  equity  to  enforce  specific  per- 
formance of  the  contract. 

A  contract  can  not  be  made  by  one  person  alone.  It  takes  two  to 
make  a  bargain.  Before  a  promise  becomes  a  binding  obligation,  it 
must  not  only  be  made  to,  but  must  be  expressly  or  impliedly  accepted 

'Arguments  omitted. 


474  BRVANT'S    pond    steam   mill   CO.    V.    FELT.  §   io6 

by  the  party  for  whose  benefit  it  was  meant.  The  paper  before  us  is 
no  more  than  a  naked  expression  of  the  subscriber's  intention  to  pur- 
chase certain  shares  in  the  capital  stock  of  a  company  which  it  was 
expected  would  be  incorporated  by  the  legislature.  Besides  it  is 
without  any  sufficient  consideration.  It  is  not  pretended  and  can  not 
be  made  out  from  the  paper,  that  the  agreement  of  the  defendent  was 
the  motive  of  the  others  for  taking  stock.  It  is  well  settled  that  pro- 
curing legislation  of  any  kind,  is  not  a  consideration  which  will  sup- 
port even  a  direct  promise  to  pay  a  fair  compensation  for  the  labor  of 
the  promisee  about  such  a  business. 

Again:  If  there  was  a  binding  engagement,  it  was  not  made  with 
the  railroad  company,  which  did  not  exist  at  the  time. 

But,  supposing  this  to  have  been  a  valid  contract,  to  which  the 
plaintiff  was  a  party,  and  based  upon  good  consideration,  a  bill  in 
equity  is  not  the  mode  of  enforcing  it;  the  remedy  at  law  for  its  vio- 
lation being  full,  complete  and  adequate. 

Decree  affirmed. 

Note.  See,  1880,  Lake  Ontario,  etc.,  Co.  v.  Curtis,  80  N.  Y.  219 ;  1898,  Yonk- 
ers'  Gazette  Co.  v.  Taylor,  30  N.  Y.  App.  Div.  334,  on  337 ;  23  Am.  and  Eng. 
Enc,  p.  786;  Beach,  §§  61-65,  510-554;  Clark,  §  99;  Cook,  §§  52-63;  Elliott, 
§§345,  345a,  348;  Morawetz,  §47,  et  seq.;  Taylor,  §§  509-512,  1  Thompson, 
§§  1138-1145. 


8ec.  106.      (2)    Agreements  subscribing  to  stock  in  a  corporation 
to  be  formed.     Theories: 

(a)  A  mere  offer  that  may  be  withdrawn  at  any  time  before 
organization  and  acceptance  by  the  corporation. 

BRYANT'S  POND  STEAM  MILL  COMPANY  v.  JOHN  G.  FELT.' 

1895.     In  the  Supreme  Court  of  Maine.    87  Maine  Rep.  234-240, 
47  Am.  St.  R.  323. 

On  report. 

This  was  an  action  of  assumpsit  brought  to  recover  of  the  defendant 
the  sum  of  two  hundred  dollars,  as  appeared  by  his  alleged  subscrip- 
tion upon  an  original  subscription  book,  and  upon  the  outer  cover  of 
which  was  the  following  writing:  "Subscriptions  for  a  steam  mill 
to  be  erected  at  or  near  Bryant's  Pond."  The  original  agreement 
was  as  follows : 

"We,  the  undersigned,  hereby  agree  to  pay  for  the  number  of 
shares  set  opposite  our  names,  said  shares  to  be  ten  dollars  each,  and 
non-assessable,  for  the  purpose  of  erecting  suitable  buildings,  with 
steam  power,  for  the  manufacturing  of  various  kinds  of  wood  to  be 

'  Arguments  omitted. 


§   I06  AGREEMENTS   SUBSCRIBING   TO    STOCK.  475 

used  in  the  contract  of  one  C.  H.  Adams,  he  paying  three  per  cent, 
annually  as  rent  on  all  money  so  paid,  said  moneys  to  be  paid  when 
needed  for  the  purpose  above  named,  providing  the  town  will  abate 
taxes  on  said  buildings  and  stock  for  the  term  of  ten  years." 

Plea,  general  issue  and  the  following  brief  statement: 

And  for  a  brief  statement  of  special  matter  of  defense,  to  be  used 
under  the  general  issue  pleaded,  the  defendant  further  says:  That 
said  defendant  never  subscribed  for  nor  promised  to  pay  for  any  shares 
in  the  said  Bryant's  Pond  Steam  Mill  Company;  that  the  signature 
of  said  defendant  was  procured  and  affixed  to  said  paper  declared  on, 
if  at  all,  on  Sunday,  and  whatever  contract  was  made,  if  any,  was 
made  on  Sunday,  and  therefore  void ;  that  subsequent  to  the  time  his 
said  name  was  affixed  to  said  paper  and  prior  to  the  commencement 
of  this  suit,  and  prior  to  the  organization  of  this  company,  this  de- 
fendant revoked  said  subscription  and  notified  the  plaintiff  and  the 
solicitors  for  said  stock  that  he  should  not  accept  the  same,  and  re- 
quested his  name  stricken  from  the  list  of  subscribers ;  that  no  person 
is  named  in  said  subscription  paper  as  payee,  and  no  contract  was 
ever  entered  into  with  any  person  or  persons ;  that  no  sum  is  named 
in  said  paper  declared  upon  as  a  limit  to  the  amount  to  be  raised  and 
is  indefinite  and  uncertain;  that  a  sufficient  sum  was  not  raised  or 
subscribed  for  erecting  buildings  with  steam  power  for  the  manufact- 
uring of  the  various  kinds  of  wood,  as  alleged,  and  plaintiff  was 
obliged  to,  and  did,  mortgage  the  property  to  complete  the  amount; 
that  at  the  time  the  plaintiff  company  pretended  to  organize,  this  de- 
fendant was  not  recognized  as  a  subscriber,  did  not  participate  in  the 
organization,  and  is  not  named  therein  as  one  of  the  subscribers  to 
the  stock  of  the  same ;  that  there  were  conditions  attached  to  said 
subscription  paper  which  are  essential  to  be  performed,  and  which 
have  never  been  performed  on  the  part  of  this  plaintiff  or  any  other 
parties  interested  in  the  said  subscription,  or  on  the  part  of  the  town 
of  Woodstock ;  that  said  paper,  purporting  to  be  a  subscription  of 
shares  of  stock,  is  without  consideration  and  void. 

Walton,  J.  The  only  question  we  find  it  necessary  to  consider 
is  whether  a  subscriber  to  the  capital  stock  of  an  unorganized  corpo- 
ration has  the  right  to  withdraw  from  the  enterprise,  provided  he  ex- 
ercises the  right  before  the  corporation  is  organized  and  his  subscrip- 
tion is  accepted.  We  think  he  has.  Such  a  subscription  is  not  a  com- 
pleted contract.  It  takes  two  parties  to  make  a  contract.  A  non- 
existing  corporation  can  no  more  make  a  contract  for  the  sale  of  its 
stock  than  an  unbegotten  child  can  make  a  contract  for  the  purchase 
of  it. 

The  right  of  subscribers  to  the  capital  stock  of  a  proposed  corpora- 
tion to  withdraw  their  subscriptions  at  any  time  before  the  organiza- 
tion of  the  corporation  is  completed  has  been  affirmed  in  several  recent 
and  well-considered  opinions.  The  right  rests  upon  the  impregnable 
ground  of  the  legal  impossibility  of  completing  a  contract  between 
two  parties,  only  one  of  which  is  in  existence.  There  can  be  no 
meeting  of  the  minds  of  the  parties.     There  can  be  no  acceptance  of 


4/6  BRYANT'S    POND    STEAM    MILL   CO.    V.    FELT.  §   I06 

the  subscriber's  proposition  to  become  a  stockholder.  There  can  be 
no  mutuality  of  rights  or  obligations.  There  can  be  no  consideration 
for  the  subscriber's  promise.  As  said  in  one  of  our  own  decisions, 
it  is  a  mere  mcdum  pactum — a  promise  without  a  promisee — a  con- 
tractor without  a  contractee.  In  fact,  every  element  of  a  binding  con- 
tract is  wanting.  If  the  subscriber's  promise  to  take  and  pay  for  shares 
remains  unrevoked  till  the  organization  of  the  proposed  corporation  is 
effected,  and  his  promise  has  been  accepted,  then  we  have  all  the  ele- 
ments of  a  valid  contract.  Competent  parties.  Mutuality  of  duties 
and  obligations.  A  valid  consideration,  the  promise  of  one  party 
being  a  sufficient  consideration  for  the  promise  of  the  other.  A  prom- 
isee as  well  as  a  promisor.  A  contractee  as  well  as  a  contractor.  In 
fact,  all  the  elements  of  a  valid  contract  are  present,  and  the  subscrip- 
tion has  become  binding  upon  both  of  the  parties.  But,  till  the  cor- 
poration has  come  into  existence,  all  these  elements  are  necessarily 
wanting,  and  the  subscriber's  promise  amounts  to  no  more  than  an 
offer,  which,  like  all  mere  offers,  may  be  withdrawn  at  any  time  be- 
fore acceptance.  When  accepted  it  becomes  binding.  Till  accepted 
it  remains  revocable.  This  conclusion  is  sustained  by  reason  and 
authority. 

In  Starrett  v.  Rockland  Co.,  65  Maine  374,  the  plaintiff  sought  to 
recover  a  portion  of  the  dividends  of  a  successful  insurance  company. 
He  had  subscribed  for  five  shares  of  the  stock  before  the  organization 
was  effected ;  but  the  evidence  of  acceptance  of  his  subscription  by 
the  corporation  after  its  organization  was  not  satisfactory,  and  the 
court  held  that  without  such  acceptance  there  was  no  completed  or 
binding  contract;  that  the  minds  of  the  parties  never  met;  that  the 
plaintiff's  subscription,  being  made  before  the  corporation  came  into 
existence,  amounted  to  no  more  than  a  proposal  to  take  so  many 
shares — a  mere  nudum  pactutn — imposing  no  obligations  and  securing 
no  rights. 

And  in  Carr  v.  Bartlet,  72  Maine  120,  the  right  of  subscribers  to 
withdraw  from  such  undertakings  while  they  remain  inchoate  and  in- 
complete, is  recognized  and  affirmed. 

In  Muncy  Traction  Engine  Co.  v.  Green,  143  Pa.  St.  269,  13  Atl. 
Rep.  747,  decided  in  1888,  the  defendant  had  been  active  in  procur- 
ing subscribers  to  the  capital  stock  of  a  proposed  corporation,  and 
had  himself  subscribed  for  twenty  shares,  but  he  wrote  to  the  chair- 
man of  the  meeting  for  the  organization  of  the  corporation,  that,  for 
reasons  satisfactory  to  himself,  he  withdrew  his  subscription.  The 
court  nded  that  the  defendant  had  a  right  to  withdraw  his  subscrip- 
tion at  any  time  before  the  organization  of  the  corporation  was  com- 
pleted ;  and  the  juiy  having  found  as  a  matter  of  fact  that  the  with- 
drawal was  before  the  organization  of  the  corporation  was  completed, 
a  verdict  for  the  defendant  was  affirmed,  and  judgment  rendered 
thereon. 

In  Hudson  Real  Estate  Co.  v.  Tower,  156  Mass.  82  (1892),  the 
action  was  founded  on  a  subscription  to  the  capital  stock  of  an  unor- 
ganized corporation,  and  the  defense  was  based  on  an  alleged  with- 


§   I06  AGREEMENTS    SUBSCRIBING   TO    STOCK.  47/ 

drawal  of  the  subscription.  The  right  to  withdraw  was  controverted. 
The  court  held  that  at  the  time  when  the  defendant  signed  the  sub- 
scription paper  declared  on,  it  was  not  a  contract j  for  want  of  a  con- 
tracting party  on  the  other  side ;  that  while  such  a  subscription  may 
become  a  contract  after  the  corporation  has  been  organized,  still,  until 
the  organization  is  effected,  and  the  subscription  is  accepted,  it  is  a 
mere  proposition  or  offer,  which  may  be  withdrawn  like  any  other 
unaccepted  proposition  or  offer. 

It  is  urged  by  the  counsel  for  the  plaintiff  corporation  that  such  sub- 
scriptions create  binding  and  enforcible  contracts  between  the  sub- 
scribers themselves,  and  are,  therefore,  irrevocable,  except  with  the 
consent  of  all  the  subscribers;  and  some  of  the  authorities  cited  by  him 
seem  to  sustain  that  view.  But  we  find,  on  examination,  that  such 
views,  when  expressed,  are  in  most  cases  mere  dicta,  and  that  the 
cases  are  very  few  in  which  such  a  doctrine  had  been  acted  upon. 
Reason  and  the  weight  of  authority  are  opposed  to  such  a  view.  Of 
course,  subscription  papers  may  be  so  worded  as  to  create  binding 
contracts  between  the  subscribers  themselves.  But  we  are  not  now 
speaking  of  such  subscriptions ;  or  of  voluntary  and  gratuitous  sub- 
scriptions to  public  or  charitable  objects,  which,  when  accepted  and 
acted  upon,  become  binding.  We  are  now  speaking  only  of  subscrip- 
tions to  the  capital  stock  of  proposed  business  corporations.  With 
regard  to  such  subscriptions  we  regard  it  as  settled  law  that  they  do 
not  become  binding  upon  the  subscribers  till  the  corporations  have 
been  organized  and  the  subscriptions  accepted;  and  that,  till  then,  the 
subscribers  have  a  right  to  revoke  their  subscriptions.  And,  in  view 
of  the  fact  that  such  subscriptions  are  often  obtained  by  over-persua- 
sion, and  upon  sudden  and  hasty  impulses,  we  are  not  prepared  to  say 
that  the  loile  of  law  which  allows  such  a  revocation  is  not  founded  in 
wisdom.      We  think  it  is. 

In  the  present  case  an  old  man,  upwards  of  eighty  years  of  age, 
and  now  dead,  was  induced  to  subscribe  for  twenty  shares  of  stock  in 
a  proposed,  but  not  then  organized,  manufacturing  corporation;  but 
after  a  little  reflection,  he  determined  to  revoke  his  subscription  and 
withdraw  from  the  enterprise.  He  notified  the  agent  of  the  pro- 
moters, through  whom  his  subscription  had  been  obtained,  of  his  de- 
termination to  withdraw,  and  requested  him  to  take  his  name  off  the 
subscription  paper.  And  he  again  sent  word  by  his  son  to  have  his 
name  taken  off.  And  notice  of  his  withdrawal,  and  of  his  request  to 
have  his  name  taken  off  of  the  subscription  paper,  was  given  to  the 
other  subscribers  at  one  of  their  meetings,  and  before  the  corpo- 
ration was  organized.  We  think  his  withdrawal  was  legal  and  com- 
plete, and  that  no  action  to  recover  the  amount  of  his  subscription  is 
maintainable. 

Other  grounds  are  urged  in  defense  of  the  action,  but  it  is  unneces- 
sary to  consider  them. 

Judgment  for  defendant. 

Note.    See  note  at  end  of  next  case. 


478  HUDSON    REAL    ESTATE   CO.    V.    TOWER.  §  lOJ 

Sec.  107.    Same.     Notice  of  withdrawal. 

HUDSON  REAL  ESTATE  COMPANY  v.  HERMAN  C.  TOWER. 

1894.     In  the  Supreme  Judicial  Court  of  Massachusetts.     161 
Mass.  Reports  10-16,  42  Am.  St.  Rep.  379. 

Contract,  to  recover  the  amount  of  a  subscription  by  the  defendants, 
as  copartners,  for  ten  shares  of  stock  in  the  plaintiff  corporation. 
After  the  former  decision,  reported  156  Mass.  82,  the  case  was  tried 
in  the  superior  court  before  Bond,  J. 

The  jury  returned  the  verdict  for  the  defendants,  and  the  plaintiff 
alleged  exceptions.      The  facts  sufficiently  appear  in  the  opinion. 

Allen,  J.  It  was  heretofore  decided  in  this  case  that  until  the 
organization  of  the  corporation  the  defendant's  subscription  was  a 
mere  proposition  or  offer  which  might  be  withdrawn,  like  any  other 
unaccepted  offer.  156  Mass.  82.  The  principal  question  which  the 
plaintiff  now  seeks  to  present  is  whether,  upon  the  evidence  and  under 
the  ruling  of  the  court,  the  jury  were  warranted  in  finding  a  legal  with- 
drawal or  revocation  of  the  subscription. 

The  only  withdrawal  or  revocation  relied  on  occurred  in  an  inter- 
view between  one  of  the  defendants  and  Henry  Tower,  on  August  31, 
1889.  In  view  of  the  verdict  the  only  question  left  is  whether  a  notifi- 
cation of  withdrawal  given  orally  to  Henry  Tower  was  sufficient. 

It  will  be  necessary  to  state  the  situation  of  the  parties.  The  con- 
tract declared  on  is  given  below. 

"We,  the  undersigned,  hereby  subscribe  for  and  agree  to  purchase 
the  number  of  shares  set  against  our  respective  names,  of  the  capital 
stock  in  the  corporation  to  be  organized  under  the  laws  of  such  state, 
as  a  committee  hereafter  to  be  appointed  from  the  subscribers  shall 
determine,  said  shares  of  capital  stock  to  be  of  the  par  value  of  $50, 
and  the  capital  stock  of  said  corporation  to  be  not  less  than  $25,000, 
said  corporation  to  be  organized  for  the  purpose  of  purchasing  land, 
and  erecting  a  shoe  shop  thereon,  vv^ith  the  necessary  appliances  con- 
nected therewith,  in  the  town  of  Hudson,  to  be  rented,  when  com- 
pleted, to  H.  H.  Mawhinney  &  Co.,  for  a  term  of  ten  years  at  a 
rental  of  seven  per  cent,  per  annum  on  the  cost  of  the  plant  when 
completed.  Said  corporation  to  be  organized  as  soon  as  may  be,  and 
in  advance  thereof  an  agreement  in  writing  between  a  committee  of 
the  subscribers,  in  behalf  of  all,  with  said  H.  H.  Mawhinney  &  Co. 
to  be  executed,  binding  the  latter  to  take  said  plant  for  the  period 
and  at  the  terms  stated,  and  on  the  organization  of  said  corporation  to 
be  re-executed  to  bind  both  parties.  And  the  subscribers  hereto  hereby 
bind  themselves  severally  to  pay  for  said  stock  to  the  treasurer  of  said 
corporation  in  the  way  and  manner  that  the  corporation  when  organ- 
ized shall  determine.  And  we  severally  agree  that  one  seal  shall  be 
the  seal  of  each. 

"Hudson,  August  7,  1889." 


§   I07  AGREEMENTS    SUBSCRIBING   TO    STOCK.  479 

The  corporation  was  organized  under  the  laws  of  Maine.  The 
meeting  for  the  organization  was  held  at  Portland,  Maine,  August 
29,  1889,  at  which  time  the  articles  of  agreement,  having  been  signed, 
were  presented,  by-laws  were  adopted,  and  officers  chosen.  The 
necessary  papers  were  then  prepared  as  required  by  law,  and  were 
approved  by  the  attorney-general  of  Maine,  on  September  5,  were 
recorded  on  September  6,  and  were  received  and  filed  in  the  office  of 
the  secretary  of  state  on  September  7,  1889.  It  was  agreed  at  the 
argument  that,  under  the  laws  of  Maine,  the  legal  existence  of  the 
corporation  as  a  corporation,  began  on  September  7. 

On  the  31st  of  August,  Henry  Tower's  position  was  as  follows: 
It  must  be  assumed,  though  the  bill  of  exceptions  does  not  in  express 
terms  so  state,  that  he  was  one  of  the  subscribers.  One  of  the  plaint- 
iff's requests  for  instructions  assumes  that  there  was  a  contract  of  the 
firm  above  referred  to  "with  Heniy  Tower  and  others  in  behalf  of 
the  associates  for  the  purchase  of  land  and  building  a  shoe  shop  thereon, 
dated  August  19,  1889."  This  contract,  being  thus  referred  to  by 
the  plaintiff  as  an  undisputed  fact,  must  be  taken  to  show  that  Henry 
Tower  was  acting  as  the  person  first  named  on  the  committee  contem- 
plated by  the  subscription  paper,  to  obtain  an  agreement  in  writing 
binding  said  firm  to  take  a  lease  of  the  premises.  On  August  29,  at 
a  meeting  which  apparently  was  the  first  formal  step  in  the  organiza- 
tion of  the  corporation,  he  was  chosen  president.  By  the  statutes  of 
Maine,  which  it  was  agreed  we  should  refer  to,  the  choice  of  officers 
is  a  necessary  preliminary  to  the  creation  of  the  corporation.  Re- 
vised Statutes  of  Maine  of  1883,  ch.  48,  §§  17-19. 

It  is  also  obvious  that  on  August  31  he  was,  in  the  opinion  of  the 
jury,  acting  as  an  officer  in  behalf  of  the  associates,  and  not  merely 
on  account  of  his  personal  interest  as  one  of  the  subscribers.  Such  is 
the  fair  result  of  the  instructions  taken  as  a  whole.  The  judge,  in  the 
course  of  his  charge,  called  the  jury's  attention  to  this  distinction  by 
saying:  "If  Henry  Tower  was  one  of  the  officers  of  the  associates 
for  the  purpose  of  managing  their  business,  it  would  not  be  necessary 
that  any  other  notice  should  be  given  than  what  was  given  to  him ; 
but  if  he  went  there  simply  as  being  interested,  not  acting  as  an  officer, 
*  *  *  it  may  be  that  he  was  not  an  officer,  so  that  he  would  be  a 
party  authorized  to  receive  any  notice  of  withdrawal,  and  if  he  was 
not,  then  it  would  be  necessary  for  that  fact  to  be  communicated  to 
the  meeting."  It  being  pointed  out  to  the  judge,  at  the  close  of  the 
charge,  that  the  plaintiff's  records  showed  that  at  the  meeting  on  the 
29th  of  August,  Henry  Tower  was  chosen  president,  he  further  in- 
structed the  jury  that  if  he  had  been  so  chosen  president,  and  if  the 
defendants  notified  him  distinctly  that  if  a  certain  event  should  happen 
with  reference  to  the  change  of  the  policy  of  the  corporation  as  to 
mortgaging  its  property  they  would  no  longer  be  in  the  association 
and  would  not  pay  a  cent  on  their  subscription,  that  would  be  a  suffi- 
cient notification  of  their  withdrawal  if  the  event  did  happen.  The 
undisputed  testimony,  so  far  as  it  is  recited  or  disclpsed  in  the  bill  of 
exceptions,  goes  to  show  that  Heni-y  Tower,  in  that  interview,  was 


480  HUDSON    REAL    ESTATE    CO.    V.    TOWER.  §   107 

acting  in  a  representative  capacity  and  not  merely  on  his  own  personal 
account.  The  plaintiff's  requests  for  instructions  raised  no  question 
on  this  point,  but  asked  the  court  to  rule  that,  "in  order  to  constitute 
a  valid  withdrawal,  the  defendants  must  do  some  act  or  make  some 
unequivocal  or  unconditional  statement  to  the  proper  officer  or  officers 
of  the  associates  which  shall  amount  to  a  public  withdrawal  from  said 
contract."  The  instructions  were  given  with  reference  to  this  request, 
and,  as  we  understand  them,  they  amounted  to  this,  that  Mr.  Tower 
having  been  chosen  as  president,  and  acting  for  the  associates,  was, 
on  August  31,  a  proper  officer  to  be  notified  by  the  defendants  of 
their  withdrawal. 

We  think  this  instruction  was  right.  No  instruction  was  asked  at 
the  trial  that,  in  order  to  withdraw  from  the  associates,  notice  must  be 
given  to  all  of  them  individually  or  at  a  meeting  of  the  associates. 
The  plaintiff  only  contended  that  the  notice  must  be  given  to  the  proper 
officer  or  officers,  and  it  would  be  plainly  impracticable  to  require  a 
direct  personal  notice  to  them  all.  The  right  to  withdraw  would  be 
nugatory  if  this  were  necessary.  A  subscriber  who  has  a  right  to 
withdraw  may  not  know,  or  have  the  means  of  knowing,  who  all  of 
his  associates  are,  or  where  they  live.  If  he  does  know,  they  may  be 
many  in  number,  and  widely  scattered,  or  some  of  them  maybe  away 
on  a  journey.  No  general  meeting  of  them  may  be  called  which  he 
can  attend  without  leaving  the  state.  He  need  not  wait  for  a  meeting 
before  giving  hisnotice  of  withdrawal.  It  was,  indeed,  held,  in  an  early 
case  in  England,  that  all  of  the  other  subscribers  must  not  only  have 
notice,  but  must  actually  consent,  before  one  of  the  subscribers  could 
withdraw.  Kidwelly  Canal  Co.  v.  Raby,  2  Price  93.  But,  now,  in 
England,  as  well  as  here,  no  such  consent  is  necessary.  If  every  one  of 
the  other  subscribers  should  object,  yet  it  is  the  right  of  the  subscriber 
to  withdraw  before  the  corporation  is  formed.  It  is  merely  a  question 
of  giving  due  notice  of  his  withdrawal.  And  in  England  it  is  not  in- 
timated in  any  modem  case,  so  far  as  our  examination  has  gone,  that 
notice  must  be  given  to  all  the  other  subscribers,  or  at  a  meeting  of 
subscribers.  The  retraction  has  usually  been  made  to  the  same  per- 
sons to  whom  the  application  for  shares  was  made.  See  Lindl.  Part. 
(4th  ed.)  99-105,  and  numerous  cases  cited. 

In  this  country  no  case  has  been  cited,  and  we  have  found  none, 
discussing  the  question  what  notice  of  withdrawal  shall  be  sufficient. 
In  some  cases  no  attempt  to  withdraw  was  made  till  after  the  corpo- 
ration was  formed.  See,  for  examples.  International  Fair  and  Expo- 
sition Association  v.  Walker,  83  Mich.  386;  Richelieu  Hotel  Co.  v. 
International  Military  Encampment  Co.,  140  111.  248;  Ashuelot  Boot 
and  Shoe  Co.  v.  Hoit,  56  N.  H.  548;  Shober  v.  Lancaster  County 
Park  Association,  68  Pa.  St.  429.  It  is  said  in  Cartright  v.  Dickin- 
son, 88  Tenn.  476:  "Before  the  organization  of  the  corporation  and 
acceptance  of  the  subscription  »  *  «  the  promoters  might,  per- 
haps, agree  to  release  a  subscriber  by  substituting  other  names  for 
his."  This  goes  on  the  idea  that  the  subscriber  has  not  an  absolute 
right  to    withdraw,   and    that    somebody's    assent    is   necessary.     In 


§  107  AGREEMENTS    SUBSCRIBING   TO    STOCK.  48 1 

Plank's  Tavern  Co.  v.  Burkhard,  87  Mich.  182,  the  subscriber  ap- 
parently made  known  his  refusal  to  the  persons  who  brought  a  second 
paper  to  be  signed  by  him,  and  it  was  held  to  be  sufficient,  but  the 
proper  mode  of  giving  such  notice  is  not  discussed,  and  the  court  in- 
cidentally remarked  that  "the  corporators  well  knew  when  the  com- 
pany was  organized  ♦  *  *  that  the  defendants  expressly  repudiated 
the  whole  arrangement."  It  is  held  that  the  death  of  a  subscriber  be- 
fore the  formation  of  the  corporation  is  a  revocation  of  a  subscription. 
Phipps  V.  Jones,  20  Pa.  St.  260;  Wallace  v.  Townsend,  43  Ohio  St. 
537 ;  Pratt  v.  Elgin  Baptist  Society,  93  111.  475 ;  Sedalia,  Warsaw 
and  Southern  Railway  v.  Wilkerson,  83  Mo.  235.  Insanity  is  also 
held  to  be  a  revocation  in  Beach  v.  First  Methodist  Episcopal  Church, 
96  111.  177.  Death  is  a  public  fact,  of  which  all  the  world  must  take 
notice,  though  the  above  decisions  were  not  put  on  that  ground  (Mar- 
lett  V.  Jackman,  3  Allen  287),  but  insanity  is  not.  In  most  of  the 
cases  where  the  right  of  withdrawal  of  a  subscription  has  been  held 
to  exist,  there  is  nothing  to  show  that  all  the  other  subscribers  were 
notified,  and  there  has  been  no  question  as  to  the  sufficiency  of  the 
mode  in  which  the  withdrawal  was  made.  See,  in  addition  to  the 
cases  above  cited,  Auburn  Bolt  and  Nut  Works  v.  Shultz,  143  Pa.  St. 
256;  Muncy  Traction  Engine  Co.  v.  Green,  143  Pa.  St.  269;  Gar- 
rett V.  Dillsbury  and  Mechanicsburg  Railroad,  78  Pa.  St.  465 ;  Stras- 
burg  Railroad  v.  Echternacht,  21  Pa.  St.  220.  An  offer  of  reward 
made  by  public  proclamation  may  be  withdrawn  in  the  same  man- 
ner, and  the  fact  that  a  claimant  of  the  reward  was  ignorant  of 
the  withdrawal  of  the  offer  is  immaterial.  Shuey  v.  United  States, 
92  U.  S.  73.  And  if  not  withdrawn  by  any  express  notice,  a  with- 
ilrawal  is  implied  after  the  lapse  of  a  considerable  time.  Loring  v. 
Boston,  7  Met.  409. 

In  the  present  case,  it  seems  to  us  that  Henry  Tower  was  a  proper 
person  to  whom  a  withdrawing  subscriber  might  give  notice  of  his 
withdrawal.  So  far  as  appears  in  the  bill  of  exceptions,  there  was 
no  other  officer  or  person  who  so  well  or  fully  represented  the  sub- 
scribers at  large.  He  was  at  the  head  of  the  principal  committee, 
and  in  addition  to  this  he  had  been  selected  and  chosen  as  president, 
and  he  was  acting  in  behalf  of  the  subscribers.  There  is  nothing  to 
show  that  the  chairman  of  the  meetings  had  any  duties  except  merely 
as  presiding  officer  at  the  meetings.  Taking  the  case  as  it  stood, 
and  in  view  of  the  requests  for  instructions,  which  implied  that  the 
notice  of  withdrawal  would  of  course  be  given  to  some  officer,  and  of 
the  fact  that  nobody  else  was  suggested  as  the  proper  officer  or  per- 
son to  receive  the  notice,  the  ruling  of  the  court  was  right,  that  notice 
to  him  was  sufficient;  and  the  fact  that  the  association  did  not  come 
into  legal  existence  as  a  fully-formed  corporation  till  a  later  date 
docs  not  render  the  notice  to  him  insufficient,  under  the  circum- 
stances. 

The  plaintiff  requested  a  ruling  that  the  defendants  could  not 
withdraw  after  the  associates  had  taken  action  on  the  strength  of  their 

31— WiL.  Cases. 


482  PENINSULAR    R.    CO.    V.    DUNCAN.  §   I08 

subscription.  This  was  rightly  refused,  as  was  held  in  the  former 
decision. 

The  plaintiff  also  asked  an  instruction  that  the  defendants'  offer 
was  not  conditional,  and  could  not  be  made  so  by  oral  testimony. 
This  instruction  was  given. 

The  evidence  to  which  the  plaintiff  objected  was  properly  admit- 
ted for  the  piu'pose  for  which  it  was  received,  and  the  instructions  to 
the  jury  carefully  limited  it  to  that  purpose,  and  confined  the  atten- 
tion of  the  jury  to  the  single  point  of  the  defendants'  withdrawal  of 
their  subscription. 

Exceptions  overruled. 

Note.  See  the  following  cases:  1857,  Lake  Ontario,  etc.,  R.  Co.  v.  Mason, 
16  N.  Y.  451,  463;  1868,  Rose  v.  San  Antonio,  etc.,  R.  Co.,  31  Texas  49;  1875, 
Garrett  v.  Dillsburg,  etc.,  R.  Co.,  78  Pa.  St.  465;  1877,  Ga£f  v.  Flesher,  33 
O.  S.  107;  1885,  Tilsonburg,  etc.,  Co.  v.  Goodrich,  80nt.  (Q.  B.  D.)  565;  1885; 
Cook  V.Chittenden,  25  Fed.  Rep.  544;  1885,  Gulf,  etc.,  Rv.  v.  Neely,  64 
Texas  344;  1888,  Muncy  Traction  Eng.  Co.  v.  De  La  Green,  143  Pa.  St.  269; 
1891,  International  F.  Ass'n  v  Walker,  88  Mich.  62;  1893,  White  v.  Kahn,  103 
Ala.  308;  1893,  Greenbrier  Indus.  Ex.  v.  Rodes,  37  W.  Va.  738;  1893,  Lewis, 
etc.,  V.  Hillsboro,  etc.,  Co.,  23  S.  W.  (Texas)  338;  1894,  Nehema  Coal  Co.  v. 
Settle,  54  Kan.  424;  1895,  Halifax  C.  Co.  v.  Moir,  28  N.  S.45;  1896,  Providence, 
etc.,  Co.  V.  Kent,  etc.,  Co.,  35  Atl.  (R.  I.)  152 ;  1896,  Re  Hannan's,  etc.,  Co.,  74 
L.  T.  Rep.  550;  1898,  Common  v.  Matthews'  Rap.  Ind.  Quebec,  8  B.  R.  138. 
But  see,  1896,  Phil.  &  Del.  Co.  Ry.  v.  Conway,  177  Pa.  St.  364.  See,  also. 
Beach,  §§  516-517;  Clark,  §§  93-97;  Elliott,  §§  344,  345a;  Morawetz,  §§  49-51; 
Taylor,  §§  513-515;  I  Thompson,  §§  1162-1163,  VII  Thompson,  §  8606. 


See.  108.   Same. 

{b)    Offer   until  acted   upon  in  accordance  with  its  provisions, 
then  becomes  binding. 

THE  PENINSULAR  RAILWAY  COMPANY  v.  DUNCAN.* 

1873.     In  the  Supreme  Court  of  Michigan.     28  Mich.  Reports 

130-152. 

Error  to  Kalamazoo  Circuit. 

CooLEY,  J.  This  case  presents  the  question  whether  one  who  be- 
comes one  of  the  original  associates  for  the  forination  of  a  railway 
company,  and  signs  a  subscripfion  agreeing  to  take  a  certain  number 
of  shares  of  the  capital  stock  of  the  proposed  company,  and  to  pay 
therefor,  "at  such  times  and  in  such  sums  as  the  same  shall  be  as- 
sessed, demanded  and  required  to  be  paid  by  the  directors  of  the  said 
company,"  but  who  afterward  fails  for  any  reason  to  sign  the  articles 
of  incorporation,  or  to  subscribe  for  stock  on  the  commissioners'  books, 
can  be  held  liable  upon  his  preliminary  subscription,  after   the  com- 

*  Part  of  opinion  omitted,  also  all  of  dissenting  opinion  of  Campbell,  J. 


§I08  AGREEMENTS   SUBSCRIBING   TO    STOCK.  483 

pany  has  been  formed  and  assessments  been  made  and  payment  de- 
manded. 

The  question  arises  upon  the  first  section  of  the  act  for  incorpora- 
tion of  railroad  companies,  approved  February  12,  1855,  as  amended 
in  1867.  Laws  of  1867,  vol.  i,  p.  90.  The  plaintiffs  insist  that  the 
signers  of  the  preliminary  subscription,  whether  they  afterward  sign 
the  articles  or  not,  if  the  corporation  is  duly  formed,  have  the  same 
absolute  right  to  stock  therein  that  those  have  who  execute  the  articles, 
or  to  whom  stock  is  awarded  on  subscriptions  upon  the  commission- 
ers' books;  and  that  having  a  right  to  the  stock,  they  are  under  a 
corresponding  obligation  to  pay  for  it.  On  the  other  hand,  the  posi- 
tion of  the  defendants  is  that  the  preliminary  subscription,  though 
possibly  a  convenient  step  in  the  organization  of  a  corporation,  is  by 
no  means  indispensable,  but  that  the  corporation  originates  with  the 
articles  of  association,  and  that  no  one  who  previously  had  contem- 
plated becoming  a  member,  however  strongly  or  in  whatever  form  of 
words  he  may  have  expressed  his  intention  to  that  effect,  is  bound  by 
that  expression,  if,  when  the  articles  are  to  be  signed,  he  declines  to 
unite  in  them,  or  for  any  reason  fails  to  do  so,  and  thereby,  expressly 
or  by  implication,  elects  not  to  become  a  tyiember.  Up  to  that  time, 
it  is  insisted  everything  is  provisional  and  inchoate  ;  nobody  is  bound 
or  can  be  bound  without  further  voluntary  action  of  his  own. 

A  consideration  of  the  question  thus  presented  is  peculiarly  embar- 
rassing, in  consequence  of  the  totally  different  views  which  have  been 
taken  of  it  by  able  jurists  in  other  states  where  similar  statutes  exist. 
We  have  examined  the  reported  cases  with  care,  and  while  we  find 
many  of  the  opinions  able,  and  in  the  main  well  reasoned,  yet  as  it  is 
impossible  to  reconcile  them,  and  none  of  them  follows  precisely  the 
train  of  reasoning  through  which  we  have  been  led  to  our  own  conclu- 
sion, we  have  not  deemed  it  advisable  to  review  the  cases  in  this  opin- 
ion, but  shall  proceed,  with  such  brevity  as  the  case  will  admit,  to 
present  our  own  views. 

It  may  be  quite  true,  as  is  insisted  on  the  part  of  the  defense,  that 
a  preliminary  subscription  is  not  an  indispensable  requisite  in  the 
formation  of  a  corporation  under  the  general  railroad  law.  If  the 
requisite  number  of  persons  execute  the  proper  articles,  naming 
therein  their  directors,  and  attach  thereto  the  affidavit  required  by  the 
statute,  verifying  the  fact  that  they  are  subscribers  for  the  requisite 
amount  of  stock,  and  have  paid  to  the  directors  five  percentum 
thereon,  it  is  difficult  to  perceive  any  ground  upon  which  it  could  be 
plausibly  contended  that  the  corporation  was  not  duly  organized,  or 
to  suggest  any  important  function  that  the  preliminary  subccrif  tion 
could  have  performed  for  such  subscribers,  and  which  in  the  p?.r- 
ticnlar  case  has  not  been  performed  without  it.  Nevertheless,  a  very 
cursory  examination  of  the  statute  must  convince  any  one  that  such  a 
subscription,  whether  indispensable  or  not,  is  contemplated  as  a  pro- 
ceeding which  will  generally,  at  least,  take  place.  This  is  evident 
from  the  expressions  employed  in  the  statute  in  conferring  authority 
to  organize.     The  persons  who  may  incorporate  themselves  are  "any 


484  PENINSULAR    R.    CO.    V.    DUNCAN.  §   108 

number  of  persons  not  less  than  twenty-five,  being-  subscribers  to  the 
stock  of  any  contemplated  railroad."  They  are  allowed  to  do  so  "when 
stock  to  the  amount  of  $1,000  for  every  mile  of  said  road  so  in- 
tended to  be  built"  "shall  be  in  good  faith  subscribed,  and  five  per 
cent,  paid  thereon."  There  can  not  be  subscriptions  to  the  stock  un- 
til something  is  in  writing  for  the  subscribers  to  sign.  The  statute 
gives  no  form  for  such  a  subscription ;  it  indicates  no  machinery  by 
means  of  which  it  is  to  be  originated  or  signatures  obtained.  Every- 
thing is  left  to  the  voluntary  action  of  the  promoters  of  the  enterprise, 
and  whatever  form  of  writing  is  satisfactory  to  them,  and  sufficiently 
indicates  the  general  purpose  sought  to  be  accomplished,  and  the 
share  the  several  subscribers  are  to  take  in  it,  would  undoubtedly  be 
sufficient. 

By  any  such  voluntary  subscription  to  take  stock,  however,  we 
should  naturally  understand  some  mutual  agreement  by  which  the 
promoters  severally  agree  to  take  and  pay  for  certain  shares  in  the 
proposed  corporation ;  something,  in  short,  like  or  similar  to  the 
agreement  which  was  actually  entered  into  in  the  present  case.  We 
do  not  understand  that  there  would  be  any  difficulty  at  the  common 
law  in  enforcing  the  promises  contained  in  an  agreement  of  this 
general  nature  against  the  several  promisors,  where  the  object  to  be 
accomplished  was  lawful,  where  a  beneficial  purpose  was  in  view, 
and  where  it  was  possible  to  make  to  the  several  promisors  the  return 
which  their  subscriptions  called  for.  In  such  cases  the  promises  are 
mutual ;  acts  are  done  and  moneys  expended  in  reliance  upon  the  sub- 
scriptions, and  the  moment  the  promises  are  accepted  by  the  organ- 
ization and  action  of  the  corporation  to  which  they  are  provisionally 
made,  there  can  generally  be  no  difficulty  in  their  enforcement  if  the 
corporation  then  has  it  in  its  power  to  give  the  stock  subscribed  for, 
and  offers  to  do  so.  In  such  a  subscription  thus  accepted  there  would 
be  all  the  requisites  of  a  valid  contract,  proper  parties  and  a  promise 
made  upon  a  legal  and  valuable  considei'ation. 

In  this  case,  however,  the  question  involved  is  not  one  to  be  settled 
entii'ely  by  the  rules  of  the  common  law,  but  there  is  involved  a  ques- 
tion of  statutory  construction.  It  is  argued  by  the  defense  that  the 
terms  of  the  statute  are  such  as  to  make  any  preliminary  subscription 
that  may  have  been  entered  into  entirely  immaterial  and  nugatory  the 
moment  the  articles  are  executed,  and  that  promises  therein  contained 
are  incapable  of  enforcement,  because  under  the  statute  the  subscribers 
are  not  entitled  to  stock  in  the  corporation,  and,  consequently,  do  not 
receive  a  consideration  for  their  promises.  This  construction  arises 
principally  upon  one  clause  of  the  first  section  of  the  general  railroad 
act,  which,  after  providing  what  the  articles  of  association  shall  con- 
tain, and  for  their  being  subscribed  and  recorded,  declares  that  "there- 
upon the  persons  who  have  subscribed,  and  all  persons  who  shall  from 
time  to  time  become  stockholders  in  such  company,  shall  be  a  body 
corporate,"  etc.  The  argument  is  that  by  the  express  terms  of  this 
statute  only  the  subscribers  to  the  articles  and  those  who  subsequently 
become  stockholders  in  the  manner  provided  by  law — that  is  to  say. 


§   I08  AGREEMENTS    SUBSCRIBING   TO    STOCK.  485 

by  subscribing  for  stock  on  the  commissioners'  books — can  be  stock- 
holders or  entitled  to  stock,  and,  consequently,  the  subscribers  to  the 
preliminary  agreement  who  do  not  sign  the  articles  are  in  terms  ex- 
cluded. 

It  is  possible  that  a  strict  and  literal  interpretation  of  the  statute 
would  require  this  construction  to  be  put  upon  it;  but  it  does  not  nec- 
essarily follow  that  such  a  construction  would  be  proper  or  even  ad- 
missible. What  we  should  seek  here  is  the  intention  of  the  legisla- 
ture and  not  the  testing  by  nice  rules  of  art  the  language  employed. 
It  may  possibly  appear,  as  is  too  often  the  case,  that  the  legislation 
has  been  carelessly  phrased,  and  will  be  pci-verted  if  tested  by  nice 
rules.  There  are  two  very  strong  reasons  why  the  statute  should  not 
be  so  construed  as  to  make  the  articles  nullify  the  preliminary  sub- 
scription if  any  other  construction  is  admissible.  The  first  is  that  it 
nullifies  the  mutual  promises  of  the  parties  made  for  a  beneficial 
object,  and  which,  on  grounds  of  public  policy  as  well  as  mutual  good 
faith,  ought  to  be  sustained  and  enforced,  unless  abandoned  by  com- 
mon consent.  The  second  is  that,  by  rendering  the  preliminary  sub- 
scription which  the  statute  provides  for,  if  it  does  not  make  necessary, 
a  perfectly  useless  proceeding,  it  in  effect,  as  has  been  well  said  in  a 
leading  case  supporting  this  construction — Troy  and  Boston  R.  R. 
Co.  V.  Tibbits,  18  Barb.  304—305, — imputes  folly  to  the  legislature; 
an  imputation  we  ought  to  be  veiy  slow  to  make,  and  never  except 
upon  the  most  imperative  reasons. 

Our  own  view,  after  a  careful  examination  of  the  statute,  is  that  the 
construction  which  excludes  the  subscribers  to  the  preliminary  sub- 
scription from  corporate  membership,  is  rather  forced  than  otherwise. 
The  statute  does  not  say  that  the  persons  who  have  subscribed  Me  ar- 
ticles of  association^  and  those  who  shall,  fi-om  time  to  time,  become 
stockholders,  shall  be  the  corporation,  but  those  "who  have  sub- 
scribed.' '  Subscribed  what  ?  The  very  first  words  of  the  section  pro- 
vides that  the  subscribers  to  the  stock  of  a  contemplated  road  may  in- 
corporate themselves  by  complying  with  certain  conditions.  The 
subscribers  here  intended  are  unquestionably  the  subscribers  to  the 
preliminary  agreement;  and  these  subscribers^  to  use  the  words  of  the 
statute,  when  the  necessary  amount  of  stock  is  in  good  faith  subscribed 
bv  them,  are  allowed  to  organize.  These  persons,  then,  are  spoken 
of  as  persons  who  have  subscribed^  and  their  subscription  contem- 
plates that  they  are  to  have  stock  in  the  proposed  corporation.  The 
parties  to  the  articles  also  subscribe  them ;  their  subscription  is  pro- 
vided for  by  the  same  section,  and  theirs  also  contemplates  that  they  are 
to  have  stock  in  the  corporation.  It  is  after  these  different  subscrip- 
tions for  stock  are  thus  spoken  of  and  provided  for  that  the  statute 
proceeds  to  say  that  those  who  have  subscribed  shall  be  corporators. 
What  warrant  have  we  for  saying  that  one  class  of  subscribers  was 
intended  and  not  the  other? 

The  truth  is,  both  classes  were  intended,  because  in  contemplation 
of  the  statute  the  two  were  to  be  identical.  The  statute  does  not  sup- 
pose there  will  be  subscribers  to  the  preliminary  agreement  who  do 


486  PENINSULAR   R.    CO.    V.    DUNCAN.  §   Io8 

not  sign  the  articles.  It  provides  that  after  the  requisite  subscriptions 
are  obtained,  the  subscribers  may  select  directors,  "and  thereupon 
they  shall  severally  subscribe  articles  of  association."  They  are  ex- 
pected to  subscribe  the  articles,  and  not  merely  that  portion  who  may 
then,  on  considering  the  question  as  a  new  one,  decide  to  take  inter- 
ests in  the  company. 

It  is  not  assumed  that  there  will  be  any  doubt  or  question  that  all 
who  have  mutually  pledged  themselves  to  each  other  to  form  a  corpo- 
ration for  the  object  proposed  will  unite  in  the  necessary  steps  for 
that  purpose,  and  it  does  not  therefore  distinguish  between  the  sub- 
scribers to  the  two  papers  because  it  supposes  no  distinction  will 
exist. 

We  have,  nevertheless,  to  deal  with  the  case  where  a  subscriber  to 
the  one  has  neglected  or  refused  to  sign  the  other;  and  the  question 
is,  whether  such  neglect  or  refusal  precludes  the  attaching  of  any  legal 
liability.  We  have  the  case  of  a  subscription  provided  for  by  law, 
designed  to  accomplish  an  important  beneficial  purpose,  subscribed 
by  several  parties  in  reliance  upon  their  mutual  promises,  but  which 
one  perhaps  elects  to  annul  by  not  taking  a  certain  further  step  which 
the  statute  contemplates  he  will  take.  The  corporation  to  which  the 
subscriber's  promise  was  provisionally  made  has  been  called  into  being 
and  has  accepted  his  promise,  and  now  offers  to  perforin  its  part  by 
giving  the  stock  subscribed  for  if  it  has  the  power  to  do  so.  And  the 
question  is  whether,  in  this  exceptional  case  not  provided  for  or  con- 
templated by  the  statute,  the  subscriber  may  treat  his  preliminary 
promise  as  of  no  force. 

A  preliminary  question  will  perhaps  be,  whether  it  possessed  any 
force  w^hatever,  or,  on  the  other  hand,  was  to  be  looked  upon  as  mere 
nudum  pactum^  without  either  parties  or  consideration,  before  the 
articles  were  signed.  The  necessary  conclusion  froin  the  defendant's 
premises  inust  be,  as  we  think,  that  it  was  so.  We  can  not  conclude, 
however^  that  suck  preliminary  promises^  made  in  accordance  with 
the  law,  as  a  step  in  the  accomplishttzent  of  a  public  enterprise,  can 
be  regarded  as  entirely  without  legal  significance.  If  a  subscriber 
pays  his  five  per  cent,  upon  his  subscriptiojz^  and  it  is  received  and 
retained  by  the  custodian  agreed  upon  by  the  associates,  we  think  he 
has  acquired  some  rights  by  such  subscription  and  payment.  He 
has  acquired  the  important  right  to  take  part  in  the  organization  of 
the  corporation^  in  the  choice  of  directors.^  in  the  determination  of 
the  route.,  and  in  shaping  the  constitution  of  the  cotnpany.  These 
rights  are  often  of  high  value.,  and  might  even  be  more  so  in  a  pe- 
cuniary point  of  view  than  the  stock  subscribed  for  is  ever  expected 
to  be.  It  can  not  be  said  that  a  subscription  and  payfttent,  which  se- 
cure these  important  privileges,  are  of  no  force.,  nor  ought  it  to  be 
the  case  that  the  party  making  them  may  disafiirm  his  action  at  his 
own  7nere  pleasure  after  other  parties.,  more  observant  of  their  ow-n 
stipulations  ^  have  taken  further  action  which  is  unquestionably  bind- 
ing upon  thetn.,  in  reliance  upon  his  promised  assistance. 

In   the  present   case  it  does   not  become   necessary  to   discuss  the 


§   I08  AGREEMENTS    SUBSCRIBING   TO    STOCK.  487 

question  whether  a  party  who  expressly  revokes  his  subscription  be- 
fore the  corporation  is  formed  can  be  compelled  to  pay  it  afterward. 
Such  a  case  is  not,  by  the  record,  placed  before  us.  Undoubtedly  if 
the  corporation  is  never  formed^  the  subscriptio7t  becomes  a  nullity. 
No  promisee  i?t  that  case  ever  comes  into  existence.  And  if  the  subr 
scribers  are  only  tiventy-fve  in  number.,  any  one  of  them  may  defeat 
the  enterprise^  by  refusing  to  join  in  the  articles.,  because  twenty-fve 
are  made  necessary  by  the  statute.  It  may,  imder  some  circum- 
stances, be  bad  faith  in  a  subscriber  to  do  this,  but  he  would  unques- 
tionably have  the  power.  It  would  be  equally  true  if  a  larger  num- 
ber of  subscribers  should  subscribe  only  the  requisite  amoimt  of  stock, 
and  any  one  might  defeat  an  organization  by  refusing  to  sign  the  ar- 
ticles unless  a  further  subscription  could  be  obtained  from  some  other 
source.  In  these  cases  the  subscriber  is  discharged^  not  for  reasons 
personal  to  himself.,  but  because  on  grounds  of  public  policy  corpo- 
rate privileges  are  withheld  from  an  association  -which  does  not  fur- 
nish the  required  evidence  of  earnestness  and  ability  to  carry  on  the 
undertaking. 

The  case  at  bar  is  neither  of  these.  Here  the  corporation  has  not 
failed  of  organization,  but  a  subscriber  has  failed,  for  some  unex- 
plained reason,  to  sign  the  articles  with  the  others.  We  might  sug- 
gest a  great  many  possible  reasons  for  the  failure,  some  of  which, 
unquestionably,  would  discharge  him  from  all  moral,  as  well  as  legal, 
obligation  on  his  subscription.  We  might  suppose,  for  instance,  that 
the  other  subscribers  considered  him  an  undesirable  associate,  and  for 
that  reason  refused  to  allow  him  to  take  part  in  organizing,  while  willing 
enough  to  receive  his  money  afterwards.  As  already  said,  the  stock  pro- 
posed to  be  given  by  the  corporation  is  not  the  sole  consideration  for 
his  promise  to  pay,  but  he  is  entitled  to  the  valuable  privilege  of  a  voice 
in  determining  the  important  questions  to  be  settled  by  the  articles, 
and  if  denied  that  by  his  associates  he  is  absolved  from  all  responsi- 
bility. But  this  defendant,  for  aught  we  know,  may  have  had  and 
enjoyed  that  privilege,  and  then  failed  to  subscribe  the  articles  for  the 
express  purpose  of  avoiding  responsibility,  or,  on  the  other  hand,  be- 
cause when  sufficient  subscriptions  were  obtained  to  perfect  the  or- 
ganization it  was  deemed  necessary  or  important  to  obtain  further 
signatures.  But  as  we  do  not  know  the  reason,  it  is  idle  to  indulge 
in  suppositions.  It  is  sufficient  that  the  defense  plant  themselves  on 
the  broad  ground  that  no  original  subscriber  who  fails  to  sign  the 
articles  can  be  bound  by  his  subscription. 

As  it  has  already  been  seen  that  the  preliminary  subscription  is  in 
proper  form  for  obligatory  force  as  a  mutual  promise,  and  is  provided 
for  bv  the  statute,  if  one  who  signs  it  must  also  sign  the  articles  of  asso- 
ciation  in  order  to  render  himself  liable,  the  reasons  for  requiring  this 
must  be  either:  First,  reasons  personal  to  himself,  and  which  render 
it  unjust  or  inequitable  that  he  should  be  held  in  the  absence  of  any 
renewal  of  his  promise  by  an  execution  of  the  articles;  or  seconds 
reasons  resting  on  considerations  of  public  policy,  and  which,  inde- 
pendent of  any  questions  of  justice  or  equity  as  between  the  individual 


488  PENINSULAR   R.    CO.    V.    DUNCAN.  §   Io8 

and  his  associates,  require  all  subscriptions  to  the  stodk  at  the  time  of 
the  organization  to  be  represented  by  the  signatures  to  the  articles. 

There  can  be  no  reasons  of  the  first  class,  if  the  subscriber  has  par- 
ticipated in  the  organization,  or  has  had  the  opportunity  to  do  so.  In 
such  case,  with  the  right  to  the  stock,  the  subscriber  has  had,  or  might, 
at  his  option,  have  had  eveiything  promised  him  by  his  associates  or 
by  the  corporation  as  the  consideration  for  his  promise  to  pay,  and 
good  faith  to  his  associates  whose  action  his  promise  maybe  supposed 
to  have  influenced  more  or  less,  and  who  keep  on  their  part  the  prom- 
ise mutually  made,  requires  that  he  should  keep  it  also.  It  may 
safely  be  assumed  that  they  incur  expenses  for  preliminary  surveys, 
procuring  subscriptions,  pledges  of  rights  of  way,  and  such  other  mat- 
ters as  are  necessary  to  enable  them  intelligently  and  properly  to  set- 
tle the  questionswhich  are  to  be  determined  by  the  articles,  and  if  he 
allows  these  to  be  incurred  while  his  promise  stands  unrevoked  and  in 
reliance  upon  it,  the  moral  obligation  on  his  part  to  fulfill  his  prom- 
ise is  very  strong,  and  in  the  absence  of  any  imfair  dealing  on  the  part 
of  his  associates  ought  to  be  regarded  by  him  as  imperative. 

And  we  can  not  imagine  any  reasons  of  public  policy  for  requiring 
all  the  preliminary  subscribers  to  sign  the  articles,  or  for  relieving 
from  responsibility  all  who  do  not  sign.  As  the  articles  constitute  a 
more  formal  document  than  the  preliminary  subscription  usually  does, 
and  set  forth  the  definite  particulars  of  the  enterprise,  it  will  be  more 
satisfactory  and  conclusive  of  the  precise  work  the  subscribers  propose 
to  accomplish,  and  be  less  likely  to  leave  questions  open  to  dispute 
between  the  individual  associates  and  the  organization.  The  proba- 
bility, however,  that  the  preliminary  subscription  will  be  so  vague 
and  uncertain  as  to  raise  serious  questions  as  to  the  actual  intent  can 
be  no  greater  than  the  probability  of  like  questions  in  innumerable 
contracts  which  are  being  made  constantly,  and  in  which  it  has  never 
been  thought  even  wise  to  require  by  law  the  obsei'vance  of  more  for- 
mality.    ♦     *     « 

We  suppose  the  statute  to  require  the  articles  to  be  signed  by  at 
least  twenty-five  associates,  representing  subscriptions  to  the  amount 
of  a  thousand  dollars  a  mile,  upon  which  five  per  centum  shall  have 
been  paid  in,  in  order  that  mere  bubble  enterprises  shall  not  be 
allowed  the  apparent  sanction  of  a  legal  organization,  and  be  afforded 
the  opportunity,  not  only  to  embarrass  and  perhaps  preclude  more 
substantial  projects,  but  also  to  have  facilities  for  annoying  and  per- 
haps defrauding  the  public  by  exercising  the  right  of  eminent  domain, 
and  by  contracting  debts  in  apparent  execution  of  improvements  which 
the  means  at  command  give  no  assurance  of  being  carried  out.  The 
state  requires  this  evidence  of  good  faith  and  abilitv  in  the  associates 
before  it  will  endow  their  association  with  legal  entity;  but  when 
these  appear  to  the  extent  required,  the  demands  of  public  policy  in 
this  regard  are  satisfied,  and  we  do  not  see  that  the  state  has  any  con- 
cern in  the  question  whether  other  associates  representmg  more  aid 
subscribe  the  articles  or  not.  If  the  state  is  satisfied  with  subscrip- 
tions to  a  certain  amount,  but  the  projectors  have  in  fact  obtained 


§  I08  AGREEMENTS   SUBSCRIBING   TO    STOCK.  489 

more,  no  very  good  reason  can  be  suggested  why  the  state  should  im- 
pose, as  a  penalty  upon  the  corporation,  that  it  shall  not  enforce  such 
additional  subscriptions  unless  the  names  are  obtained  to  a  certain 
paper  required  for  the  purpose  of  giving  public  evidence  of  certain 
facts  already  proved  by  previous  subscriptions  to  the  full  extent  re- 
quired. And  we  are  therefore  forced  to  the  conclusion  that  when 
such  subscriptions  are  obtained  to  the  articles  as  are  necessary  for  the 
purposes  of  incorporation,  if  there  are  further  subscribers  to  the  pre- 
liminary subscription,  who,  for  reasons  of  convenience  to  themselves, 
or  because  it  was  supposed  to  be  unnecessary,  or  for  any  other  reason 
than  a  previous  withdrawal  from  the  enterprise,  shall  neglect  to  sign 
the  articles,  such  previous  subscribers  can  not,  on  any  ground  of  pub- 
lic policy,  be  held  discharged  from  any  obligation,  either  moral  or 
legal,  to  fulfill  their  promises. 

So  far  we  have  not  discussed  the  question  whether  there  can  be  any 
embarrassment  in  counting  such  preliminary  subscribers  among  the 
stockholders.  We  do  not  see  why  there  need  be.  The  subscriptions, 
together  with  the  articles  of  association,  will  pass  to  the  hands  of  the 
proper  officers,  and  they  will  furnish  all  necessary  information  to  the 
commissioners,  who  are  to  receive  further  subscriptions  for  the  bal- 
ance of  the  capital  stock,  and  apportion  it  if  there  shall  be  any  excess. 
If  we  are  warranted  in  so  construing  the  statute  as  to  include  in  the 
subscribers  who  are  to  be  counted  as  corporators  when  the  commis- 
sioners begin  their  labors,  those  who  have  subscribed  preliminary  sub- 
scriptions, as  well  as  the  subscribers  to  the  articles,  then  the  commis- 
sioners have  only  to  receive  the  subscriptions  for,  and  apportion  such 
portion  of  the  stock  as  is  not  represented  by  these  two  classes  of  sub- 
scribers. From  the  best  consideration  we  have  been  able  to  give  the 
statute,  we  think  such  a  construction  perfectly  legitimate.  Any  other 
would  make  the  preliminary  subscription  not  what  on  its  face  it  seems 
to  be,  a  provisional  offer  for  the  acceptance  of  the  coiporation  when 
formed,  but  only  a  provisional  offer  to  make  an  offer  if  the  subscriber 
at  a  subsequent  time  shall  elect  to  do  so.  We  are  unwilling  to  conclude 
that  the  legislature,  in  pointing  out  the  steps  in  the  organization  of  a 
corporation,  has  indicated  among  them  a  proceeding  so  frivolous  and 
futile.  We  think  the  subscribers,  who,  with  those  who  subsequently 
associate  themselves  with  them,  are  to  be  the  corporators,  are  the 
subscribers  to  the  original  subscription;  and  though  it  is  perfectly 
true  that  the  statute  supposes  such  subscribers  will  sign  the  articles 
also,  it  neither  takes  away  their  rights,  nor  absolves  them  from  obli- 
gations for  a  failure  to  observe  this  formality,  but  if  the  corporation 
is  duly  fortned ,  on  general  principles  applicable  to  such  undertak- 
ings as  the  preliminary  subscribers  have  entered  into^  they  are  liable 
for  the  fulfillment  thereof  in  the  absence  of  any  provision  of  the  stat- 
ute -which  expressly  or  by  necessary  implication  must  have  the  effect 
to  release  them'  therefrom.  And  our  reading  of  the  statute  discloses 
no  such  provision. 

In  our  discussion  of  the  case  so  far  we  assume  that  the  subscriber 
paid  his  five  per  cent,  on  the  subscription.    This,  or  something  equiva- 


490  PENINSULAR    R.    CO.    V.    DUNCAN.  §   Io8 

lent,  would  be  necessary  to  entitle  him  to  participate  in  the  organiza- 
tion, and  if  he  fails  to  obtain  that  privilege  the  subscription  would 
probably  be  ineffectual.  He  would  not  be  one  of  the  associates  in 
in  such  a  case.  But  if  the  requisite  amount  is  paid  by  the  other  sub- 
scribers, w^e  see  no  reason  to  doubt  that  "credit  might  be  given  to  him 
for  this  first  payment,  and  he  be  admitted  to  all  the  privileges  of  the 
rest.  What  circumstances  would  he  equivalent  to  the  giving  of  credit 
by  implication,  in  the  absence  of  any  express  understanding  to  that 
effect,  it  would  be  out  of  place  to  discuss  here.  That  there  might  be 
such  circumstances  is  undoubted.  The  present  record  assumes  that 
the  intestate  had  become  one  of  the  original  associates,  and  if  any 
question  of  fact  is  to  be  raised  upon  that  point,  it  must  be  presented 
upon  the  proper  issue. 

The  declaration  in  this  case  sets  out  the  original  subscription,  avers 
that  defendant  signed  the  same  and  agreed  to  take  $i,ooo  of  the  stock 
of  the  proposed  corporation,  but  it  does  not  expressly  say  that  he 
made  any  payment.  It  does  aver,  however,  that  the  defendant,  in 
consideration  of  his  subscription,  "and  in  consideration  that  stock  to 
the  amount  of  $i,ooo  for  every  mile  of  said  Peninsular  Railway  Ex- 
tension Company  had  been  subscribed  for  and  taken  in  good  faith, 
and  Jive  per  cent,  paid  thereon  as  required  by  said  act.,  in  considera- 
tion that  said  Peninsular  Railway  Extension  Company  was,  to  wit, 
on  the  third  day  of  January,  1868,  duly  organized  and  became  a  body 
politic  and  corporate  under  the  laws  of  the  said  state  of  Michigan,  he, 
the  said  Delamore  Duncan,  then  and  there  promised,"  etc.  We  are 
inclined  to  think  that,  under  a  demurrer  such  as  has  been  interposed 
in  this  case,  it  must  be  assumed  that  the  defendant  had  done  whatever 
was  necessary  to  perfect  his  subscription,  and  entitle  him  to  partici- 
pate as  one  of  his  associates  in  organizing,  and  that  his  failure  to  take 
part  in  that  proceeding  was  not  because  of  being  wrongfully  excluded. 
The  allegation  that  five  per  cent,  had  been  paid  on  the  subscriptions 
may  fairly  be  applied  distributively,  and  the  allegation  that  the  cor- 
poration was  duly  organized  would  imply  participation  or  the  oppor- 
tunity to  participate  in  all  the  associates.  And,  though  these  facts 
are  set  forth  by  way  of  the  recital  merely,  the  declaration  in  this  par- 
ticular would  be  good  on  general  demurrer  at  least,  and  also  oa  a 
special  demurrer  aimed  only  at  other  defects.      *     *     * 

Our  conclusion  is  that  the  demurrer  ought  to  have  been  overniled. 
The  judgment  must,  therefore,  be  reversed,  with  costs,  and  the  cause 
remanded.  And  in  view  of  the  conclusions  reached,  it  would  be 
proper  that  the  parties  respectively  have  leave  to  file  new  pleadings. 

Graves,  J.,  and  Christaincy,  Ch.  J.,  concurred;  Cambell,  J., 
dissents. 

Note.     See  cases,  supra,  §  99,  p.  456. 


§   109  AGREEMENTS    SUBSCRIBING   TO    STOCK.  49 1 

Sec.  109.    Same. 

{c)    Binding  contract  from  time  of  making. 

THE  TONICA  AND  PETERSBURG  RAILROAD  COMPANY  v.  Mc- 

NEELY. 

1859.     In  the  Supreme  Court  of  Illinois.     21  111.  Rep.  71-72. 

In  1856  a  voluntary  association,  in  the  name  and  style  of  the  plaint- 
iffs, was  formed  for  the  construction  of  a  railroad  from  Tonica  to 
Jacksonville,  in  this  state,  contemplating  an  application  to  the  next 
session  of  the  legislature  for  an  act  of  incorporation.  Said  associa- 
tion was  organized  by  the  election  of  officers,  and  subscriptions  of 
stock,  in  shares  of  one  hundred  dollars  each,  were  obtained  in  that 
year  for  a  large  amount.  The  intestate  subscribed  two  shares  and 
died  some  days  before  the. incorporation  of  the  plaintiffs.  By  consent 
of  the  parties  this  case  was  tried  by  the  court,  Harriott,  judge,  and  the 
plaintiffs  proved  on  the  trial  the  organization  of  their  company,  calls 
i)y  the  directors  for  the  whole  of  the  stock,  and  notices  to  the  stock- 
holders by  advertisements  in  two  newspapers. 

The  court  rendered  judgment  for  the  defendant  below. 

Caton,  C.J.  A  subscription  ftiade  in  contemplation  of  a  char- 
ter to  construct  a  railroad  or  to  accomplish  any  other  legitimate  object 
is  a  valid  contract  between  the  parties^  and  as  such  may  be  enforced 
the  same  as  any  other  contract.  The  object  of  the  contract  is  lawful 
and  is  founded  on  a  good  consideration,  which  is  the  mutual  promise 
expressed  in  the  contract.  Upon  the  general  principles  of  law  by 
wliich  all  contracts  are  governed,  we  are  at  a  loss  to  see  what  objec- 
tio:is  are  to  be  urged  to  the  enforcement  of  such  a  contract,  which 
could  not  be  urged  to  any  other  contract  for  the  pavment  of  a  speci- 
fied sum  of  money.  There  is  no  pretense  in  this  case  that  the  objects 
contemplated  by  the  contract  are  not  provided  for  by  the  charter,  or  that 
the  charter  which  was  obtained,  or  the  organization  or  action  under  it 
were  not  in  strict  pursuance  of  the  contract.  No  such  defense  has 
been  insisted  upon.  But  it  is  simply  claimed  that  the  contract  was 
void — a  nudum  pactum.  We  are  of  opinion  that  where  the  objects  of 
a  contract  are  lawful,  and  it  is  founded  upon  a  good  consideration,  and 
is  entered  into  by  parties  capable  of  contracting,  it  creates  a  lesfal  ob- 
li<^ation,  which  may  be  enforced  according  to  its  terms.  .  We  know 
of  no  law  against  this  proposition,  but  are  very  familiar  with  a  great 
deal  for  its  support. 

The  judgment  must  be  reversed  and  the  cause  remanded. 

Judgment  reversed. 

Note,.  See,  1816,  Kidwelly  Canal  Co.  v.  Raby,  2Price  (Eng.  Excheq.)  Rep., 
p.  93,  and  cases  cited,  supra,  §  99,  p.  456. 


492  MINNEAPOLIS   THRESHING   MACH.    CO,  V.    DAVIS.       §   IIO 


Sec.  110.    Same. 

(df)  An  offer  to  the  corporation,  and  a  binding  contract  between 
the  parties 

MINNEAPOLIS  THRESHING  MACHINE  CO.  v.  DAVIS. 

1889.     In  the  Supreme    Court  of    Minnesota.     40   Minn.    Re- 
ports, 110-117,  12  Am.  St.  Rep.  701  ,  3  L.  R.  A.  796, 
26  Am.  &  Eng.  Corp.  Cas.  61 ,  41  N.  W.  Rep.  1026. 

Plaintiff  brought  this  action  in  the  district  court  for  Hennepin 
•county,  for  instalhnents  alleged  to  be  due  from  defendant  as  a  sub- 
scriber to  its  capital  stock.  A  jury  was  waived,  and  tlie  action  tried  by 
Lorchren,  J.,  who  held  that  the  defendant  never  became  a  subscriber, 
'and  ordered  judgment  in  his  favor.  A  new  trial  was  refused,  and  the 
plaintiff  appealed.  The  facts  on  which  the  question  of  the  defend- 
ant's liability  turned  are  stated  in  the  opinfon,  the  material  parts  of 
the  subscription  paper,  exhibits  A  and  B,  therein  mentioned,  being  as 
follows: 

"Memorandum  of  agreement  made  and  entered  into  between  the 
undersigned,  citizens  of  Minneapolis,  Minn.,  each  for  himself,  par- 
ties of  the  first  part,  and  John  S.  McDonald,  of  Fond  du  Lac,  Wis., 
party  of  the  second  part.  The  party  of  the  first  part,  in  consideration 
of  the  party  of  the  second  part  moving  his  plant  and  machinery  to  the 
city  of  Minneapolis,  to  enter  into  the  manufacture  of  threshing  ma- 
chines, horse-powers  and  engines,  and  for  the  purpose  of  forming  a 
joint-stock  company  to  engage  in  the  manufacture  of  the  aforesaid 
threshers  and  other  machinery,  *  »  *  with  a  capital  stock  of 
$250,000,  the  aforesaid  citizens  of  Minneapolis,  parties  of  the  first 
part,  hereby  subscribe  to  and  severally  agree  to  take  and  pay  for,  in 
cash,  the  amount  of  capital  stock  set  opposite  their  respective  names 
in  a  company  to  be  organized  as  aforesaid  for  the  purposes  aforesaid. 
And  the  said  John  S.  McDonald,  hereby  agrees,  that  whenever  the 
amount  subscribed,  exclusive  of  his  own,  shall  reach  the  sum  of 
$190,000,  he  will  subscribe  to  said  capital  stock  the  further  sum  of 
$60,000,  payable  in  the  manner  specified  in  a  certain  proposition 
signed  by  him  and  attached  hereto.  The  conditions  upon  which  said 
subscriptions  are  made  are  as  follows,  to  wit:  First.  No  subscrip- 
tion is  to  be  binding  until  the  sum  of  $250,000  is  subscribed,  includ- 
ing the  subscription  of  John  S.  McDonald.  Second.  The  $190,000 
subscribed  by  the  citizens  of  Minneapolis  to  the  capital  stock  afore- 
said it  is  understood  and  agreed  is  to  be  paid  in  payments  as  follows, 
as  soon  as  the  company  is  organized.  *  *  *  Xhe  undersigned 
subscribe  the  amounts  set  opposite  their  respective  names  on  condition 
that  all  the  works  of  the  company  shall  be  located  at  Junction  City, 
Hennepin  county,  Minn.  John  A.  Davis,  $5,000,"  (and  others). 
"Proposition  made  by  John  S.  McDonald  referred  to  in  the  an- 
nexed memorandum:      The  said  John  S.  McDonald  is  to   subscribe 


§   no  AGREEMENTS   SUBSCRIBING   TO    STOCK.  493 

for  $60,000  of  the  capital  stock  as  follows.  *  *  *  John  S.  Mc- 
Donald." 

Mitchell,  J.  This  was  an  action  to  recover  installments  due  on 
subscriptions  to  stock  of  the  plaintiff.  The  facts  fully  appear  from 
the  findings  of  the  court,  in  connection  with  exhibits  A  and  B  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  snould  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  corpo- 
ration, acting  as  a  voluntary  solicitor,  having  with  him  the  subscrip- 
tion paper  (exhibits  A  and  B),  about  April  i,  1887,  proceeded  to 
canvass  for  subscriptions  to  the  stock  of  the  proposed  corporation,  on 
the  terms  and  conditions  embodied  in  the  paper.  He  first  applied  to 
defendant,  who  subscribed  $5,000  of  stock.  Afterwards,  and  about 
the  same  date,  other  citizens  respectively  subscribed  to  the  stock,  on 
the  same  paper,  to  the  aggregate  amount,  including  defendant's  sub- 
scription, of  $190,000,  of  which  over  $65,000  has  been  paid  in  to 
plaintiff.  Thereupon  McDonald,  in  accordance  with  his  proposition, 
subscribed  the  remaining  $60,000,  which  he  has  paid  up  in  full.  All 
the  conditions  expressed  in  the  written  subscriptions  (exhibit  A)  having 
been  fully  performed  and  complied  with,  the  proposed  corporation 
was  afterwards,  about  April  25,  1887,  organized,  and  these  subscrip- 
tions to  its  stctek  delivered  over  to  it.  The  corporation,  acting  in 
good  faith  upon  such  subscriptions,  including  that  of  defendant,  ex- 
pended large  sums  of  money  in  locating  and  constructing  its  works, 
and  entered  into  large  contracts,  and  incurred  liabilities  to  the  amount 
of  over  $75,000.  During  all  this  time,  the  corporation  had  no  notice 
or  knowledge  of  any  condition  being  attached  to  defendant's  subscrip- 
tion 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  organization  of  the  corporation,  and  never  attended  or  took  part 
in  any  of  its  meetings,  and  had  no  notice  or  knowledge  that  the  sub- 
scription paper  had  been  transferred  or  delivered  over  to  the  plaintiff, 
or  that  the  plaintiff  relied  on  it,  until  about  November,  1887,  Just 
prior  to  the  commencement  of  this  action. 

Upon  the  trial  the  defendant  was  permitted,  against  plaintiff's 
objection  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 
said  agreement  with  his  name  signed  thereto,  and  not  deliver  it  to 
any  one,  or  use  it  in  any  way,  until  certain  four  persons  should  sub- 
scribe to  the  stock,  each  in  the  sum  of  $5,000;  that  Janney  took  the 
agreement  from  defendant  on  that  express  condition  and  understand- 
ing, and  not  otherwise ;  that  none  of  these  four  persons  ever  did  sub- 
scribe to  the  stock  of  the  plaintiff,  and  that  defendant  never  author- 


494  MINNEAPOLIS   THRESHING   xMACH.    CO.   V.    DAVIS.       §   IIO 

ized  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 
accordance  with  the  testimony,  and  upon  that  ground  found  as  a  con- 
clusion of  law  that  defendant  never  became  a  subscriber  to  the  plaint- 
iff's stock.  The  competency  of  this  evidence  is  the  sole  question  in 
this  case. 

Under  the  elementary  rule  of  evidence  that  a  written  agreement  can 
not  be  varied  or  added  to  by  parol,  it  is  not  competent  for  a  sub- 
scriber to  stock  to  allege  that  he  is  but  a  conditional  subscriber.  The 
condition  must  be  inserted  in  the  writing  to  be  effectual.  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  had  been  organized  on  the  faith  of  these  subscriptions  and  upon 
its  creditors.  The  defendant,  of  course,  does  not  attempt  to  contro- 
vert 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  pre- 
requisite to  the  very  existence  of  a  contract.  His  claim  is  that  the 
subscription  paper  was  given  to  and  received  by  Janney  merely  as  an 
esci'ow,  or  as  in  the  nature  of  an  escrow,  only  to  be  delivered  or  used 
upon  the  performance  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  number  of  persons  to  the  stock  of  a  cor- 
poration to  be  thereafter  formed  by  them  has  in  law  a  double  char- 
acter:  First.  It  is  a  contract  betivee7t  the  subscribers  themselves 
to  become  stockholders  without  further  act  on  their  part  ^  imtnediately 
upon  the  formation  of  the  corporation.  As  such  a  contract  it  is 
binding  and  irrevocable  fro?n  the  date  of  the  subscription  (^at  least 
in  the  absence  of  fraud  or  mistake')^  unless  canceled  by  consent  of 
all  the  subscribers  before  acceptance  by  the  corporation.  Second. 
It  is  also  in  the  nature  of  a  continuing  offer  to  the  proposed  corpo- 
ratibn,  which.,  upon  acceptance  by  it  after  its  formation^  becomes  as 
to  each  subscriber  a  contract  between  him  and  the  corporation,  i 
Mor.  on  Priv.  Corp.,  §  47,  et  seq.;  Red  Wing  Hotel  Company  v. 
Frederich,  26  Minn.  112,  i  N.  W.  Rep.  827.  Janney,  the  promoter, 
who  solicited  and  obtained  the  subscripttons,  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  agreement  and  then  turn  it  over  to  the  company  with- 
out any  further  act  of  delivery  on  the  part  of  the  subscribers.  The 
corporation  would  then  become  the  party  to  enforce  the  rights  of  the 
whole  body  of  subscribers.  It  follows  then,  that,  considering  the 
subscription  as  a  contract  between  the  subscribers,  a  delivery  to  Janney 


§   no  AGREEMENTS    SUBSCRIBING   TO    STOCK.  495 

by  a  subscriber  was  a  complete  and  valid  delivery,  so  that  his  sub- 
scription became  eo  itistanti  a  binding  contract.  The  case  stands 
precisely  as  a  case  where  a  contract  is  delivered  by  the  obligor  to  the 
obligee.  It  can  not  therefore  be  treated  as  a  case  where  the  writing 
has  been  delivered  to  a  third  party  in  escrow. 

The  defendant,  however,  attempts  to  bring  the  case  within  the  rule 
of  Westman  v.  Krumweide,  30  Minn.  313,  15  N.  W.  Rep.  225,  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  happening 
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  doctrine,  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  con- 
dition 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  Earl, 
J.,  in  Pym  v.  Campbell,  6  El.  &  Bl.  370,  in  sustaining  such  a  de- 
fense: "I  grant  the  risk  that  such  a  defense  may  be  set  up  without 
ground,  and  I  agree  that  a  jury  should,  therefore,  look  on  such  a  de- 
fense with  suspicion."  And  in  all  the  cases  where  such  a  defense  has 
been  sustained,  so  far  as  we  can  discover,  they  have  been  cases  strictly 
between  the  original  parties,  and  where  no  one  has  changed  his  situa- 
tion 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  these  cases  have  been  careful  to  expressly 
limit  the  rule  to  such  cases.  Benton  v.  Martin,  52  N.  Y.  570;  Sweet 
v.  Stevens,  7  R.  I.  375. 

Conceding  the  rule  of  Westman  v.  Krumweide,  supra,  to  its  full 
extent,  there  are  certain  well-recognized  doctrines  of  the  law  of  equit- 
able 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 
parties,  and  from  its  very  nature  defendant  must  have  known  this. 
Each  succeeding  subscriber  executed  it  more  or  less  upon  the  faith  of 
the  subscriptions  of  others  preceding  it.  The  paper  purports  on  its 
face  to  be  a  completed  contract,  containing  all  the  terms  and  condi- 
tions which  the  subscribers  intended  it  should.  When  this  agreement 
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  Jannev  with  all  itidicia  of  authority  to  hold 
and  use  it  for  that  purpose  without  any  other  or  further  act  on  his 
part,  untrammeled  by  any  condition  oth^r  than  those  expressed  in  the 
writing.     In  reliance  upon  this,  others  have  not  only  subscribed  to  the 


496  MINNEAPOLIS    THRESHING    MACH.    (%^.   V.    DAVIS.       §   IIO 

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  hirge  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  deliv- 
ery. To  permit  defendant  to  relieve  himself  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  subscrip- 
tions, 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,  willfully  causes  another  to  believe  in  the  ex- 
istence of  a  certain  state  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  the  numerous  cases  cited  by  the  defendants' 
counsel,  and  fail  to  find  one  which,  in  our  judgment,  is  analogous  in 
its  facts,  or  the  law  of  which  will  cover  the  present  case.  The  two 
which  at  first  sight  might  seem  most  strongly  in  his  favor,  are  Beloit 
and  Madison  R.  Co.  v.  Palmer,  19  Wis.  574,  and  Ottawa,  etc.,  R.  Co.  v. 
Hall,  I  Bradw.  (111.  App.)  612.  But  an  examination  of  these  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  instnament  was  deliv- 
ered after  signature  was  a  stranger  to  it,  so  that  it  was  strictly  a  deliv- 
ery 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, 
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  circumstances  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 
L-ontract  runs.  It  may  well  be  doubted  whether  in  such  cases,  where  the 
instniment  is  complete  on  its  face,  the  courts  have  not  sometimes  ig- 
nored the  law  of  equitable  estoppel.  No  such  defense  would  be  al- 
lowed in  the  case  of  negotiable  paper,  and  it  is  not  clear  why  the  dis- 
tinction should  be  drawn  on  that  line.  The  doctrine  of  estoppel  rests 
upon  totally  different  grounds,  and  operates  independently  of  negotia- 
bility, 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. 

Order  reversed. 

Note.     See  1896  Phil.  &  D.  Co.  R.  v.  Conway,  177  Pa.  St.  364.    Also  cita- 
tions to  §  99,  supra,  p.  456. 


§   I  1 1  AGREEMENTS   SUBSCRIBING   TO    STOCK.  49/ 

Sec.    111.     (3)    Subscription   to  agent  or   trustee,  for  proposed 
corporation. 

SAN  JOAQUIN  LAND  AND  WATER  CO.  v.  WEST. 

1892.     In  the  Supreme  Court  of  California.     94  Cal.  Reports, 
399-405  ;  29  Pac.  Rep.  785. 

Appeal  from  a  judgment  of  the  superior  court  of  San  Joaquin 
county  and  from  an  order  denying  a  new  trial. 

The  following  is  a  copy  of  the  body  of  the  agreement  referred  to  in 
the  opinion  of  the  court : 

"We,  the  undersigned,  hereby  agree  with  each  other,  and  the  one 
with  the  other,  that  a  corporation  shall  be  formed  by  us  under  the 
name  of  'San  Joaquin  Land  and  Water  Company,'  for  the  purjDose  of 
procuring  water  rights  on  one  or  more  of  the  rivers  or  streams  running 
through  the  counties  of  Calaveras,  Tuolumne,  Stanislaus  and  San  Joa- 
quin, in  this  state  ;  *  *  *  that  the  capital  stock  of  said  corporation  shall 
be  $1,000,000,  divided  into  10,000  shares  of  $100  per  share  ;  and  we 
hereby  agree  with  each  other,  and  one  with  the  other,  that  we  will  take 
the  number  of  shares  of  the  capital  stock  of  said  corporation  which  ap- 
pears opposite  our  respective  names  hereunto  subscribed,  and  will  pay 
20  per  cent,  of  the  par  value  of  said  shares  so  subscribed  by  us  re- 
spectively in  five  (5)  days  after  the  articles  of  said  incorporation  shall 
have  been  filed  in  the  office  of  the  county  clerk  of  said  county  of  San 
Joaquin,  and  will  pay  the  same  to  F.  M.  West,  at  the  Stockton  Sav- 
ings and  Loan  Society  Bank  at  Stockton,  Cal.  We  hereby  constitute 
said  F.  M.  West  as  the  agent  to  collect  the  amount  which  becomes  due 
as  aforesaid.  We  further  nominate,  constitute  and  appoint  L.  U.  Ship- 
pee,  J.  L.  Beecher,  and  George  Gray,  as  our  agents,  and  the  agents  of 
the  corporation  so  to  be  formed,  to  negotiate  for  the  purchase  of  anyone 
or  more  water  rights,  canals,  reservoirs,  aqueducts,  or  water-ways  for 
said  corporation,  and  draw  from  said  West  any  or  all  moneys  that 
may  have  been  paid  to  him  by  us  respectively,  by  virtue  hereof,  and 
use  said  money  for  paying  for  same ;  and  any  and  all  contracts  which- 
our  said  agents  may  make  in  said  matter  shall  be  binding  upon  said 
corporation,  and  also  upon  us.  Our  said  agents  are  further  authorized 
to  employ  engineers  and  other  assistance,  and  have  them  survey  routes 
for  such  canals,  and  examine  proper  locations  for  dams,  and  do  such 
other  service  as  may  be,  in  their  opinion,  for  our  best  interest  and  the 
interest  of  said  corporation  to  accomplish  the  object  or  purpose  for 
which  the  same  is  to  be  formed. 

"Dated  November  19,  1887." 

Further  facts  are  stated  in  the  opinion  of  the  court. 

Harrison,  J.  The  controversy  involved  in  this  action  arises  out 
of  the  constniction  to  be  given  to  the  terms  of  an  instrument  executed 
between  the  subscribers  thereto  for  the  incorporation  of  the  plaintiff^ 

.     32— WiL.  Cases. 


498  SAN    JOAQUIN    LAND    AND    WATER    CO.  V.  WEST.         §   III 

and  preliminary  to  such  incorporation.  Th'e  instrument  itself  was  be- 
fore this  court  in  the  case  of  West  v.  Crawford,  80  Cal.  19/  and  there 
set  out  at  length.  It  was  then  held  that  West  was  authorized  to  col- 
lect in  his  own  name  twenty  per  cent,  of  the  amount  that  the  parties 
to  that  instrument  had  agreed  to  subscribe  to  the  capital  stock  of  the 
plaintiff  by  reason  of  their  express  agreement  therein  to  pay  it  to  him. 
After  that  decision  the  subscribers  paid  their  twenty  per  cent,  to  West, 
and  at  the  commencement  of  this  action  he  had  in  his  hands  of  the 
amount  so  collected  by  him  $35,861.25,  for  the  recovery  of  which 
the  plaintiff  brought  this  action,  as  money  had  and  received  by  him  to 
and  for  its  use  and  benefit.  After  the  commencement  of  the  action 
West,  under  the  order  of  the  court  therefor,  paid  the  money  to  the 
clerk  of  the  court,  to  be  held  subject  to  the  order  of  the  court,  and 
the  appellants  were  substituted  as  defendants  in  his  place,  and  answered 
the  complaint.  Upon  the  trial  of  the  issues,  the  court  rendered  judg- 
ment in  favor  of  the  plaintiff,  from  which  the  defendants  who  were 
substituted  for  West  have  appealed. 

I.  The  agreement  in  question  is  of  that  character  which  is  not  un- 
frequently  made  by  the  subscribers  to  a  corporation  prior  to  its  actual 
incorporation,  and  as  preliminary  thereto,  its  object  being  for  their 
mutual  benefit  and  protection  until  the  organization  of  the  coi-porate 
body,  and  also  for  the  ultimate  benefit  of  the  corporation.  Upon  the 
formation  of  the  corporation  such  an  agreement,  with  its  advantages 
and  rights,  inures  to  the  benefit  of  the  corporation,  irrespective  of  anv 
agreement  or  want  of  agreement  to  that  effect,  and  notwithstanding 
it  may  contain  special  provisions  for  carr^'ing  its  own  terms  into  ex- 
ecution. 

By  the  express  terms  of  this  instrument.  West  was  simply  "the 
agent  to  collect  the  amount"  which  should  become  due  to  the  plaint- 
iff by  virtue  of  the  subscription  to  its  capital  stock  which  the  parties 
to  the  instrument  should  make  in  pursuance  of  their  agreement.  By 
the  instrument  itself,  the  subscribers  agreed  to  "take,"  i.  e.,  to  sub- 
scribe for,  the  number  of  shares  set  opposite  their  names  respectively, 
and  "to  pay  twenty  per  cent,  of  the  par  value  of  said  shares  so  sub- 
scribed, and  that  they  would  pay  'the  same'  to  West  in  five  days  after 
the  articles  of  incorporation  were  filed.  The  only  money  which  the  sub- 
scribers agreed  to  pay  to  West  was  for  the  stock  which  they  should  sub- 
scribe for  to  the  plaintiff ,  and  West  was  simply  constituted  the  'agent' 
for  the  corporation,  to  collect  the  amount  which  should  become  'due' 
imder  their  subscription,  and  after  its  collection  to  hold  it  for  the  use 
and  benefit  of  the  corporation.  By  the  same  instrument,  the  sub- 
scribers appointed  the  appellants,  together  with  one  Shippee,  as  their 
'agents,'  and  'the  agents  of  the  corporation  so  to  be  formed,'  with 
authority  'to  negotiate  for  the  purchase'  of  property  'for  said  corpo- 
ration,' and  draw  from  West  anv  or  all  moneys  paid  to  him,  'and  use 
said  money  for  paying  for  same.'  "  Giving  to  this  language  its  rea- 
sonable construction,  it  was  an  authority  to  these  three  individuals,  as 
agents  of  the  subscribers  prior  to  the  organization  of  the  corporation, 

'  See  infra,  p.  500. 


§111  AGREEMENTS   SUBSCRIBING  TO   STOCK.  499 

to  mnke  negotiation  for  the  purchase  of  property,  and  that  upon  the 
formation  of  the  corporation  their  agency  for  the  subscribers  should 
cease,  and  thereafter  they  should  act  for  the  corporation.  They  could 
not  be  the  agents  of  the  subscribers  and  of  tlie  corporation  for  the 
same  purpose  at  the  same  time,  inasmuch  as  the  interests  of  the  sub- 
scribers as  individuals  would  be  adverse  to  the  interests  of  the  corpo- 
ration. The  instrument  does  not  provide  that  the  appellants  with 
Shippee  would  at  any  time  be  the  custodians  of  the  money  collected 
by  West.  They  were  only  to  "draw,'  from  him  such  money  as  the}' 
might  need  to  use  in  paying  for  any  property  that  they  should  pur- 
chase for  the  corporation,  and  as  it  is  not  claimed  that  they  have  nego- 
tiated for  the  purchase  of  any  property  for  the  corporation,  there  was 
no  occasion  for  them  to  draw  any  of  the  money  from  West,  or  for 
him  to  deliver  it  to  them.  They,  as  well  as  West,  were  at  all  times 
after  the  incorporation  of  the  plaintiff  only  its  "agents,"  and  having 
no  interest  coupled  with  their  agency,  it  was  competent  for  the  plaint- 
iff to  remove  them  at  any  time,  and  appoint  other  agents  in  their 
places,  or  itself  assume  the  custody  and  disposition  of  the  money. 
The  finding  of  the  court,  that,  upon  the  incorporation  of  the  plaintiff, 
the  appellants  not  only  ceased  to  act  as  agents  of  the  subscribers,  but 
that  "before  any  of  the  moneys  were  paid  to  West  they  repudiated 
such  agency,  and  refused  to  act  under  said  appointment,  and  wholly 
abandoned  the  same,"  fully  established  the  right  of  the  plaintiff  as 
against  their  claim  to  the  custody  of  the  money. 

The  appellants,  however,  contend  that  the  court  below  in  its  judg- 
ment disregarded  the  construction  given  to  the  agreement  by  this  court 
in  its  opinion  in  t\ve  case  of  West  v.  Crawford,  80  Cal.  19,  and  that 
it  was  then  held  that  the  plaintiff  herein  had  no  right  to  the  custody 
of  the  moneys  which  might  be  collected  by  W^t  under  that  agree- 
ment. While  there  is  some  language  in  that  opinion  that  upholds 
this  contention,  the  opinion  must  be  construed  with  reference  to  the 
case  before  the  court  for  its  determination.  That  was  merely  whether 
West  could  maintain  an  action  for  the  recovery  of  the  twenty  per  cent, 
agreed  to  be  paid  by  the  subscribers,  and  his  right  to  maintain  such 
action  was  upheld  upon  the  ground  that  the  subscribers  had  made  an 
express  promise  to  pay  it  to  him  at  a  fixed  date  after  the  filing  of  the 
articles  of  incorporation.  The  only  parties  before  the  court  were 
West  and  some  of  the  subscribers,  and  the  ultimate  right  to  the  cus- 
tody of  the  money  was  not  involved  in  the  action.  For  the  purpose 
of  meeting  the  argument  of  the  appellants  therein,  that  the  money  be- 
longed to  the  corporation,  and  could  be  collected  only  by  it  in  the 
manner  provided  by  statute  for  collecting  assessments,  it  was  stated 
in  the  opinion  that  it  did  not  appear  from  the  agreement  that  the  cor- 
poration would  ever  be  entitled  to  receive  the  money.  It  was  not  in- 
tended thereby  to  preclude  the  corporation  from  asserting  its  right  to 
the  money,  nor  could  any  statement  in  the  opinion  have  that  effect. 
The  corporation  was  not  before  the  court,  and  as  its  right  to  the  money 
had  not  been  submitted  by  it  to  the  court  for  determination,  it  could 
not  be  estopped   by  any  statement  in  the  opinion  from  subsequently 


500  WEST   V.   CRAWFORD.  §   112 

asserting  such  right,  and  any  statement  in  the  opinion  respecting  its 
right  to  the  money  would  be  only  a  dictum^  and  not  binding  either 
upon  the  court  or  the  corporation. 

2.  It  was  necessary  that  Shippee  should  have  been  made  a  party 
defendant.  The  action  was  brought  originally  against  West  to  recover 
certain  moneys  which  had  been  collected  and  were  held  by  him  for 
the  use  and  benefit  of  the  plaintiff.  This  money  was  paid  into  the 
court,  and  the  appellants  were  substituted  as  defendants  in  the  place 
of  West,  and  in  their  cross-complaint  they  asked  that  the  money  be 
paid  to  them  alone.  Inasmuch  as  West  held  the  money  for  the  use 
and  benefit  of  the  plaintiff,  he  could  not,  by  paying  that  money  into 
court,  change  or  diminish  the  right  of  the  plaintiff  to  receive  it,  nor 
was  its  right  in  any  respect  affected  by  the  substitution  of  the  appel- 
lants as  defendants  in  the  place  of  West.  The  appellants,  after 
having  repudiated  their  agency,  can  not  claim  that  Shippee's  presence 
in  court  was  essential  to  a  determination  of  the  plaintiff's  right. 
Shippee  and  the  appellants  are  in  no  respect  trustees  under  the  instru- 
ment for  the  purposes  of  carrying  into  effect  any  of  its  provisions. 
There  was  no  trust  created  by  the  instrument  other  than  such  a  trust 
as  always  exists  between  a  principal  and  his  agent,  nor  do  the  moneys 
in  question  constitute  a  trust  fund  to  be  disposed  of  under  the  direc- 
tions of  a  court  of  equity.  They  are  simply  moneys  belonging  to 
the  plaintiff,  and  which  it  has  the  right  at  any  time  to  demand  from 
its  agent. 

The  judgment  and  order  are  affirmed. 

Garoutte,  J.,  and  De  Haven,  J.,  concurred. 

Note.    See  note,  p.  482. 


Sec.  112.    Same. 

Works,  J.     Extracts  from  opinion  in  West  v.  Crawford,  8o  Cal. 

19,  on  pp.  27,  28,  29,  30,  31  and  32. 

The  action  is  not  brought  by  a  corporation,  nor  is  this  an  attempt 
to  enforce  an  assessment  made  by  a  corporation.  The  contract  sued 
on  is  two-fold — it  amounts  to  a  subscription  to  the  stock  of  a  corpora- 
tion, to  be  thereafter  organized;  and  in  addition,  it  is  an  express 
promise  to  pay  to  the  plaintiff  in  this  action  twenty  per  cent,  of  the 
amount  of  such  subscription.  The  simple  question,  then,  is,  whether 
or  not  this  promise  to  pay  the  plaintiff  can  be  enforced.  The  subse- 
quent incorporation  of  the  company  named  in  the  contract  was  a  mat- 
ter of  no  consequence,  except  that  it  fixed  the  time  when  the  money 
should  become  due  and  payable,  the  agreement  being  to  pay  five  days 
after  the  articles  of  incorporation  should  be  filed.  The  subsequent 
action  of  the  board  of  directors  ordering  the  collection  of  twenty  per 
cent,  of  the  money  subscribed  was  wholly  unimportant.  If  this  action 
is  maintainable  at  all,  it  is  not  by  reason  of  any  such  action  on  the 


§  112  AGREEMENTS   SUBSCRIBING  TO   STOCK.  501 

part  of  the  corporation,  but  by  virtue  of  the  mutual  promise  of  these 
parties  to  pay  to  the  plaintiff  the  amount  of  money  named.     •     ♦     * 

It  is  true,  as  contended  by  counsel  for  the  appellants,  that  the  mere 
signing  of  this  agreement  to  subscribe  to  the  stock  of  the  corporation 
did  not  make  the  defendants  members  of  such  corporation.  To  do  so 
the  statute  must  have  been  complied  with  by  the  signing  of  the  articles 
of  incorporation,  or  otherwise  complying  with  its  provisions.  (Troy 
and  Boston  Railroad  Co.  v.  Tibbits,  18  Barb.  297;  Eric  and  New 
York  City  Railroad  Company  v.  Owen,  32  Barb.  616;  Dorris  v. 
Sweeney,  64  Barb.  639.) 

But  it  seems  to  us  that  the  question  whether  the}-  thereby  became 
members  of  the  corporation  or  not  is  immaterial  to  this  controversy. 
The  right  to  recover  here,  as  we  have  said,  depends  wholly  upon 
their  express  promise  to  pay  the  money  to  the  plaintiff  in  this  action, 
and  if  the  suit  can  not  be  maintained  on  that  ground,  it  is  quite  clear 
to  us  that  ihe  judgment  of  the  court  below  is  erroneous.  *  *  * 
,  It  is  insisted  that  the  agreement  sued  upon  was  not  binding  until  all 
the  capital  stock  had  been  subscribed  for,  but  we  see  nothing  in  the 
agreement  indicating  such  an  intention  on  the  part  of  the  signers,  nor 
does  any  reason  occur  to  us  for  so  holding.  There  are  authorities  to 
the  effect  that  a  party  agreeing  to  subscribe  to  a  certain  number  of 
shares  of  a  corporation  to  be  organized  can  not  be  held  liable  to  pay 
assessments  on  his  subscription  until  the  whole  of  the  stock  is  taken. 
(Steamboat  Co.  v.  Seawell,  78  Maine  176;  Oldtown  and  Lincoln  R. 
Co.  V.  Veazie,  39  Maine  571  ;  Atlantic  Cotton  Mills  v.  Abbott,  9 
Cush.  423 ;  Stoneham  Branch  R.  Co.  v.  Gould,  2  Gray  277 ;  Hughes 
v.  Antietam  Mfg.  Co.,  34  Md,  316.) 

But  the  contract  under  consideration  bears  evidence  of  a  different 
intention  on  the  part  of  its  signers.  They  contract  to  pay  a  sum  of 
money  to  a  third  party  and  not  to  the  corporation.  We  must  presume 
that  they  contracted  with  knowledge  of  the  fact  that  a  valid  incorpo- 
ration of  the  company  mentioned  might  take  place  under  our  code 
without  the  whole  of  the  stock  being  subscribed.  Therefore,  it  can 
not  be  presumed  that  their  promise  to  pay  was  on  condition  that  the 
whole  of  the  stock  should  be  taken.  If  this  was  their  intention,  it 
should  have  been  expressed  in  the  agreement. 

The  parties  mutually  agreed  with  each  other,  that  is,  with  those 
who  signed  the  contract,  to  pay  a  certain  sum  of  money  to  the  plaint- 
iff. He  was  thereby  made  a  trustee  of  an  express  trust  and  author- 
ized to  collect  the  money  agreed  to  be  paid.  (Code  Civ.  Proc, 
§  369;  Winters  v.  Rush,  34  Cal.  136;  Considerant  v.  Brisbane,  22 
N,  Y,  389,) 

The  parties,  by  their  mutual  agreement,  made  the  plaintiff  their 
trustee  to  collect  and  receive  the  money  to  be  paid.  He  was  not  in 
any  sense  the  trustee  of  the  corporation.  There  is  nothing  to  indicate 
that  the  money  was  ever  to  go  to  the  corporation.  On  the  contrary, 
the  contract  shows  on  its  face  that  it  was  not.  When  collected  by  the 
plaintiff  it  was  to  go  into  the  hands  of  the  other  trustees,  to  be  used 
by  them  in  the  purchase  of  water  rights.     How  these  water  rights  are 


502      IN  RE  LICENSED  VICTUALLERS',   ETC.,  ASSOCIATION.      §   II3 

to  be  transferred  to  the  corporation,  if  at  all,  is  not  stated,  but  this 
omission  can  not  affect  the  liability  of  the  parties  to  pav  their  debt. 
Their  mutual  promise,  one  to  the  other,  was  a  sufficient  consideration 
for  the  promise  of  each,  and  the  contract  was  valid  and  binding. 
(Twin  Creek  and  Turnpike  Co.  v.  Lancaster,  79  Ky.  552;  Christian 
College  V.  Hendley,  49  Cal.  347;  George  v.  Harris,  4  N.  H.  533, 
17  Am.  Dec.  446;  Amherst  Academy  v.  Cowls,  6  Pick.  427,  17 
Am.  Dec.  387;    Funk  v.  Hough,  29  111.  145.) 

Note.  Compare  Lake  Ontario,  etc.,  R.  Co.  v.  Curtiss,  80  N.  Y.  219;  Quick 
V.  Lemon,  105  111.  578. 

See  23  Am.  &  E.  Encvc,  p.  800 ;  Beach,  §  519 ;  Clark,  p.  272 ;  Cook,  §§  57-69  y 
Elliott,  §  347  ;  Morawetz,  §§  47,  66 ;  I  Thompson,  §  1245. 


Sec.  113.     (4)   Underwriting. 

IN    RE  LICENSED    VICTUALLERS'   MUTUAL   TRADING    ASSOCIA- 
TION.   Ex  Parte  AUDAIN.^ 

1889.     Ix  THE  English  Court  of  Appeal.     L.  R.  42  Chancery 
Division,  1-8,  26  A.  &  E.  C.  C.  217. 

After  a  company  called  the  Licensed  Victuallers'  Mutual  Trading 
Association,  Limited,  had  been  formed,  but  before  its  shares  had  been 
fully  offered  to  the  public,  George  Rudall,  an  agent  of  the  company, 
applied  on  its  behalf  to  Claude  Audain,  a  stock  broker  and  financial 
agent,  who  traded  as  Holloway  &  Co.,  to  "underwrite"  a  portion  of 
its  shares,  which  were  of  the  nominal  value  oi  ^i  each,  and  an  agree- 
ment was  entered  into  between  them,  which  was  embodied  in  two 
letters  dated  the  r9th  of  March,  1888. 

The  first  of  these  letters  was  written  to  Holloway  &  Co.  by  George 
Rudall,  and  was  as  follows: 

"Gentlemen — In  consideration  of  your  underwriting  ;^  10,000 
'A'  shares  in  the  Licensed  Victuallers'  Mutual  Trading  Association, 
Limited,  at  15  per  cent,  discount,  I,  acting  on  behalf  of  the  company, 
undertake  that  all  the  applications  which  have  been  received  up  to 
the  present  time,  or  may  be  received  within  one  week  of  the  closing  of 
the  lists,  shall  be  allotted  in  full  from  the  said  10,000  shares  under- 
written by  you.  Yours  truly,  George  Rudall." 

The  second  letter  was  written  to  George  Rudall  by  Audain,  and 
was  as  follows: 

"Dear  Sir — Referring  to  your  favor  of  even  date,  copy  of  which 
we  inclose,  we  hereby  agree  to  underwrite  _;^io,ooo  'A'  shares  in  the 
Licensed  Victuallers'  Mutual  Trading  Association,  Limited,  on  the 
terms  therein  named.     Yours  faithfully,  Holloway  &  Co." 

"P.  S.  We  further  agree  to  pay  the  application  money  upon  any 
balance  of  shares  required  to  make  up  the  10,000  within  one  week's 
date.  Holloway  &  Co." 

^  Statement    of  facts  abridged ;    arguments  and  opinions  of  Lindley  and 
Bowen,  L.  JJ.,  om.itted. 


§113       -  UNDERWRITING.  503 

On  the  14th  of  April,  1888,  the  company  proceeded  to  allotment, 
and  8,555  shares  were,  in  pursuance  of  the  agreement  thus  constituted, 
and  without  any  further  application  for  them  being  made,  allotted  to 
Claude  Audain  under  the  name  of  Holloway  &  Co.  Notice  of  such 
allotment  was  given  to  him  on  the  same  day. 

On  the  17th  of  April  Claude  Audain  returned  to  the  company  the 
notice  of  allotment  which  had  been  sent  to  him,  and  at  the  same 
time  wrote  to  the  secretary  declining  to  take  the  shares. 

On  the  23d  of  May  a  resolution  was  passed  for  the  voluntary  wind- 
ing-up of  the  company,  and  on  the  i6th  of  July  an  order  was  made 
that  the  voluntary  winding-up  of  the  company  should  be  continued 
under  the  supervision  of  the  court. 

On  the  17th  of  August,  1888,  the  liquidator  settled  the  name  of 
Holloway  &  Co.  on  the  list  of  contributories  in  respect  of  these  8,555 
shares. 

Claude  Audain  then  applied  to  be  removed  from  the  list  of  contrib- 
utories, and  his  motion  for  that  purpose  came  on  before  Mr.  Justice 
Chitty  on  the  20th  of  December,  1888. 

Mr.  Justice  Chitty  considered  that  the  letter  (Mr.  Audain's  letter  of 
the  19th  of  March,  1888)  must  be  treated  as  an  application  for  so 
many  of  the  10,000  shares  to  which  the  underwriting  agreement  ex- 
tended as  might  not  be  applied  for  by  the  public,  i.  ^.,  for  the  8,555, 
and  that  whatever  question  might  have  been  raised  at  the  time,  the 
case  was  merely  the  common  case  struck  at  by  the  25th  section  of  the 
Companies  Act,  1867.  The  parties,  his  lordship  said,  were  appar- 
ently not  aware  of  the  fact  that  issuing  shares  at  a  discount  of  15  per 
cent,  was  beyond  the  powers  of  the  company;  and  he  held  that  the 
application,  not  having  been  made  until  after  the  winding  up,  must  be 
refused  with  costs. 

From  this  decision  Claude  Audain  appealed. 

Cotton,  L.  J.  This  is  an  appeal  from  the  refusal  of  Mr.  Justice 
Chitty  to  relieve  the  appellant  from  liability  in  respect  of  a  number  of 
shares  which  had  been  allotted  to  him  in  a  company  now  being  wound 
up,  as  the  balance  required  to  make  up  a  certain  number  of  10,000 
shares.  The  substantial  question  is  whether  the  appellant  is  or  is  not 
under  any  liability  at  all  in  respect  to  the  shares  so  allotted  to  him. 
That  question  tuiTisupon  the  contract,  and  the  contract,  if  any,  is  to  be 
found  in  the  underwriting  agreement  which  was  entered  into  between 
the  appellant  and  the  agent  of  the  Licensed  Victuallers*  Mutual 
Trading  Association.  From  the  evidence  which  has  been  given  as 
to  the  meaning  of  the  expression  "underwriting"  as  applied  to  shares, 
it  appears  that  an  "underwriting"  agreement  means  an  agreement  en- 
tered into  before  the  shares  are  brought  before  the  public,  that  in  the 
event  of  the  public  not  taking  up  the  whole  of  them,  or  the  number 
mentioned  in  the  agreement,  the  underwriter  will,  for  an  agreed  com- 
mission, take  an  allotment  of  such  part  of  the  shares  as  the  public  has 
not  applied  for.  That  is  what  is  meant  when  it  is  said  that  a  person 
has  agreed  to  "underwrite"  a  certain  number  of  shares  in  a  company, 
and  that  is,  in  my  opinion,  what  was  meant  by  the  term  "underwrite'* 


504  IN    RE    FLORENCE    LAND,    ETC.,    CO.  §   I  I4 

in  the  present  agreement.  "Underwriting"  is  a  well-known  thing  in 
connection  with  the  formation  of  companies.  The  appellant,  in  agreeing 
to  "underwrite"  a  certain  number  of  shares,  has  agreed  to  do  this  par- 
ticular thing,  and,  in  my  opinion,  he  is  just  as  much  bound  in  equity  as 
if  the  thing  which  he  was  to  do  had  been  set  out  at  length  in  the  con- 
tract which  was  entered  into.  (His  lordship  then  read  the  letters  of 
19th  March,  1888,  and  continued):  It  appears  to  be  the  usual  course 
that  some  formal  application  should  be  made  for  the  shares,  and  it  is 
said  that  there  should  have  been  some  formal  application  made  for 
allotment  of  the  shares  in  the  present  case.  But  the  postscript  to  the 
letter  writtten  by  the  appellant  shows  that  he  considered  that  what  he 
had  done  amounted  to  an  application,  and  that  he  himself  treated  the 
letter  not  only  as  a  guarantee,  but  as  an  application  to  take  the  balance 
of  the  shares  required  to  make  up  the  ;^io,ooo. 

A  further  question  arises  as  to  the  meaning  of  the  expression  un- 
derwriting "at  15  percent,  discount."  It  appears  from  the  evidence 
that  the  expression  "discount"  is  an  unusual  term  in  connection  with 
the  underwriting  of  shares,  and  that  it  is  not  a  term  to  which  any  mean- 
ing of  art  can  be  given ;  and  it  further  appears  that  under  an  under- 
writing agreement  a  commission  is  paid  on  all  the  shares  to  which  the 
agreement  applies,  whether  taken  by  the  public  or  by  the  underwriter 
himself.  But  the  court  must  put  a  construction  on  the  word.  And 
I  think  that  upon  the  fair  construction  of  the  words  used,  they  mean 
not  "discount"  in  the  proper  sense  of  the  term,  but  merely  "commis- 
sion," the  amount  to  be  paid  to  the  underwriter  in  respect  of  the 
shares  which  he  underwrote.  It  is  not  really  a  sum  to  be  deducted 
from  the  nominal  amount  of  the  shares  when  they  are  applied  for  and 
allotted,  but  a  sum  to  be  paid  on  all  the  shares  underwritten.  "That 
being  so,  it  was  not  an  agreement  to  allot  shares  at  15  per  cent,  dis- 
count, but  to  pay  15  per  cent,  commission  to  the  appellant  in  consid- 
eration of  his  having  made  the  contract  with  the  company.  I  think, 
therefore,  that  the  decision  of  Mr.  Justice  Chitty  was  right  in  not  re- 
moving the  appellant's  name  from  the  register  in  respect  of  these 
shares.     The  appeal  must  accordingly  be  dismissed. 

Note.    See  Cook,  §  15. 


Sec.  114.     (5)    Application,  allotment  and  notice. 

In  re  FLORENCE   LAND  AND  PUBLIC  WORKS  COMPANY,  NICOL'S 

CASE.i 

1885.     In   the  English  Court  of  Appeal.     L.  R.  29  Chancery 

Division,  421-447. 

[The  Florence  Land  and  Public  Works  Company,  Limited,  was  in- 
corporated on  the  25th  of  January,  1866,  under  the  Companies  Act, 

*  Statement  abridged.  Only  part  of  opinion  of  Chitty,  J.,  of  the  Chancery 
Division  is  given.  Arguments  and  the  opinions  of  Baggallay,  Bowen  and 
Fry,  L.  JJ.  of  Appeal,  aflBrming  Chitty's  decision,  are  omitted. 


§   114  APPLICATION   AND   ALLOTMENT.  505 

1862,  with  a  nominal  capital  of  ;^!;oo,ooo,  divided  into  25,000  shares 
of  ;^20  each.  The  object  of  the  company  was  to  purchase  a  conces- 
sion granted  to  Mr.  H.  D.  Davies  by  the  municipal  corporation  of  the 
city  of  Florence. 

Negotiations  having  been  commenced  with  the  Agra  and  Master- 
man's  Bank  to  open  a  credit  for  the  company  for  a  large  sum  of  money, 
the  bank  consented  to  the  proposal  on  condition  that  a  certain  number 
of  shares  were  bona  Jide  subscribed  for.  In  consequence  of  this  a 
memoranduin  of  agreement  was  prepared  in  the  following  terms: 

"We,  the  undersigned,  hereby  consent  and  agree  to  take  the  num- 
ber of  shares  in  the  capital  of  the  above  company  set  opposite  to 
our  names,  and  to  pay  the  sum  of  ;^8  per  share  into  the  hands  of 
the  bankers  of  the  company  on  or  before  the  ist  of  February,  1867, 
and  we  further  sjgree  to  sign  the  articles  of  association  when  required. 

"25th  January,  1866." 

This  memorandum  was  signed  by  seventy-one  persons,  among  whom 
Mr.  Tufnell  signed  for  250  shares,  Mr.  Ponsonby  for  250,  and 
Mr.  Joseph  Wilkinson  (who  was  not  a  subscriber  of  the  memorandum 
of  association)  for  100.  The  solicitor  of  the  company  having  advised 
that  this  memorandum  of  agreement  would  not  be  sufficient  to  consti- 
tute the  subscribers  shareholders  without  an  allotment  of  shares  to 
them,  a  letter  of  allotment,  signed  by  the  secretary  of  the  company, 
was  sent  by  order  of  the  board  on  the  12th  of  April,  1866,  to  each 
subscriber  in  the  follow^ing  form : 

"Sir, 

"I  beg  to  inform  you  that  the  directors  have  allotted  you shares 

in  this  company. 

"In  accordance  with  the  memorandum  of  agreement  signed  by  you, 
you  will  have  to  pay  to  the  Agra  and  Masterman's  Bank,  Limited, 
the  bankers  of  the  company,  on  or  before  the  ist  day  of  February, 
1867,  the  sum  of  £, ." 

The  total  number  of  shares  thus  allotted  was  20,220. 

The  names  of  the  allotees,  however,  were  not  entered  on  the  reg- 
ister of  members,  and  no  share  certificates  were  issued  to  them;  nor 
was  any  money  paid  by  them  in  respect  of  the  shares. 

In  June,  1866,  the  Agra  and  Masterman's  Bank  stopped  payment, 
and  the  above  mentioned  memorandum  and  letters  of  allotment  ap- 
pear to  have  been  treated  as  inoperative. 

By  an  indenture,  dated  the  23d  of  March,  1869,  and  made  be- 
tween the  company  of  the  one  part  and  H.  D.  Davies  and  J.  T.  Camp- 
bell of  the  other  part,  an  arrangement  was  made  under  which  it 
was  agreed  that  the  company  should  pay  Davies  and  Campbell 
^80,000,  and  should  allot  them  or  their  nominees  24,350  shares, 
on  which  J[^\o  each  should  be  taken  as  paid,  and  that  Davies  and 
Campbell  should  release  the  company  from  all  claims  upon  them. 
This  deed  was  registered  on  the  21st  of  April,  1869.  In  accordance 
with  this  agreement  the  board  of  directors,  on  the  6th  of  April,  1869, 


506  IN    RE    FLORENCE    LAND,    ETC.,    CO.  §   I  14 

passed   a  resolution   cancelling  the   allotment   of   20,200   shares,  and 
allotted  24,350  to  Davies  and  Campbell  and  their  nominees. 

On  the  2 1st  of  April,  1S69,  a  return  was  made  for  the  first  time  to 
the  registration  office  of  the  25,000  shares  in  accordance  with  this  al- 
lotment, and  similar  returns  were  made  in  each  year  until  the  winding 
up  of  the  company.  On  the  i6th  of  November,  1877,  an  order  for 
winding  up  of  the  company  was  made  on  a  petition  presented  in  the 
month  of  July  pi'evious.  At  that  time  the  register  of  shares  com- 
prised the  whole  capital  of  25,000  shares,  with  ;Qio  paid  on  each 
share,  w^hich  were  divided  between  fifteen  persons.  Wilkinson's 
name  did  not  appear  on  the  register. 

Wilkinson  died  in  October,  1868,  having  appointed  J.  Nicol  his 
executor. 

The  official  liquidator  now  applied  to  the  court  to  rectify  the  regis- 
ter by  striking  out  100  of  the  shares  of  H.  D.  Davies,  and  entering 
them  as  the  shares  of  Wilkinson. 

The  summons  was  heard  before  Mr.  Justice  Chitty  on  the  26th  of 
November,  1883.] 

Chitty,  J.  This  is  an  application  by  the  official  liquidator  to 
place  the  executor  of  Mr.  Wilkinson  upon  the  list  of  contributories  for 
100  shares.  Mr.  Wilkinson's  name  had  never  been  on  the  register  of 
the  members  of  the  company;  from  the  year  1869  downwards,  the 
register  of  members  has  been  filled  up,  and  all  the  shares  of  the  com- 
pany appear  to  be  held  by  members  of  whom  Mr.  Wilkinson  is  not 
one.  The  liquidator  has  proved  to  my  satisfaction  that,  in  the  year 
1866,  there  was  a  complete  contract  to  take  shares  on  the  part  of  Mr. 
Wilkinson.  The  contract  is  shown  in  this  way:  There  is  what  was 
termed  an  "agreement"  signed  by  Mr.  Wilkinson  and  other  gentle- 
men by  which  they  consented  and  agreed  to  take  a  number  of  shares 
in  the  company  set  opposite  their  names.  That,  of  itself,  of  course, 
was  not  an  agreement.  In  point  of  law  that  was  only  an  offer,  and 
the  offer  required  acceptance  on  the  part  of  the  company.  Beyond  al! 
question  the  company  accepted  it ;  they  accepted  it  possibly  by  their 
having  handed  the  document  itself  to  the  Agra  and  Masterman's 
Bank,  who  were  able  to  make  advances.  However  that  may  be,  the 
company  clearly  accepted  the  offer  in  the  manner  I  am  about  to  men- 
tion. In  the  usual  way  the  directors  met,  and  they  resolved  to  allot 
the  shares  to  the  persons  mentioned  in  what  I  have  already  called  the 
"offer,"  including  Mr.  Wilkinson,  and  they  notified  that  to  Mr.  Wil- 
kinson. Accordingly  there  was  a  complete  contract  on  the  part  of 
Mr.  Wilkinson,  also  binding  on  the  company,  to  take  100  shares. 
The  form  of  the  resolution  was,  that  the  directors  allotted  100  shares 
to  him,  and  the  argument  before  me  has  proceeded  to  a  great  extent 
on  the  meaning  of  the  word  "allot."  There  is  no  diffeience,  as  has 
been  often  pointed  out,  between  a  contract  to  take  shares  and  any 
other  contract.  What  is  termed  "allotment"  is  generally  neither 
more  or  less  than  the  acceptance  by  the  company  of  the  offer  to  take 
shares.  To  take  the  common  case,  the  offer  is  to  take  a  certain  num- 
ber of  shares,  or  such  a  less  number  of  shares  as  may  be  allotted. 


§   114  APPLICATION    AND   ALLOTMENT.  507 

That  offer  is  accepted  by  the  allotment  either  of  the  total  number 
mentioned  in  the  offer,  or  a  less  number,  to  be  taken  by  the  person 
who  made  the  offer.  This  constitutes  a  binding  contract  to  take  that 
number  according  to  the  offer  and  acceptance.  To  my  mind  there  is 
no  magic  whatever  in  the  term  "allotment"  as  used  in  these  circum- 
stances. It  is  said  that  the  allotment  is  an  appropriation  of  a  speci- 
fied number  of  shares.  It  is  an  appropriation,  not  of  specific  shares, 
but  of  a  certain  number  of  shares. 

It  does  not,  however,  make  the  person  who  has  thus  agreed  to  take 
the  number  of  shares  a  member  from  that  moment;  all  that  it  does  is 
simply  this — it  constitutes  a  binding  contract  under  which  the  com- 
pany is  bound  to  make  a  complete  allotment  of  the  specified  number 
of  shares,-  and  under  which  the  person  who  has  made  the  offer  and  is 
now  bound  by  the  acceptance  is  bound  to  take  that  particular  number 
of  shares.  In  most  cases  the  act  of  placing  the  person  who  has  agreed 
to  become  a  member  on  the  register  is  a  mere  matter  of  form,  and 
may  be  described  as  a  mere  ministerial  act;  but  it  appears  to  me  that 
in  point  of  law,  all  that  is  done  by  the  process  I  have  indicated,  and 
all  that  was  done  in  this  case,  was  to  make  a  complete  and  binding 
contract. 

As  Lord  Justice  Baggallay  said  in  In  re  Scottish  Petroleum  Com- 
pany,^ "to  constitute  a  binding  contract  to  take  shares  in  a  com- 
pany when  such  contract  is  based  upon  application  and  allotment,  it 
is  necessary  that  there  should  be  an  application  by  the  intending  share- 
holder, an  allotment  by  the  directors  of  the  company  of  the  shares  ap- 
plied for,  and  a  communication  by  the  directors  to  the  applicant  of 
the  fact  of  such  allotment  having  been  made."  There  Lord  Justice 
Ba'_^gallay  used  the  term  "allotment"  in  what  appears  to  me  to  be  the 
proper  sense  of  the  term.  It  is  only  as  constituting  one  of  the  steps 
which  go  to  form  a  complete  contract.  There  have  been  other  cases 
in  which  the  term  has  been  used  by  judges,  but  I  am  satisfied  that  all 
they  meant  was  that  there  had  been,  in  the  particular  case  before 
them,  complete  allotment;  that  is,  that  the  name  of  the  person  who 
had  "agreed  to  become  a  member,"  to  use  the  language  of  the  23d 
section  of  the  act,  had  been  entered  upon  the  register.  Where  the 
contract  exists  and  no  question  of  delay  or  acquiescence  arises,  I  re- 
peat that  the  placing  of  the  name  of  the  person  who  has  agreed  to  be- 
come a  member  upon  "the  register  is  a  mere  formal  act,  and  it  maybe 
performed  at  some  considerable  inter\al  of  time.  In  most  cases  it  is, 
of  course,  the  duty  of  the  directors  immediately  after  the  so-called 
allotment,  that  is  to  say,  the  notification  of  the  acceptance  of  the 
offer,  to  place  the  person's  name  on  the  register  of  members. 

In  this  case,  as  I  have  said,  the  register,  since  the  year  1869,  has 
been  filled  in  so  as  to  exhaust  the  total  number  of  shares  which  could 
be  taken  in  the  company,  and  Mr.  Wilkinson's  name  is  not  to  be 
found  on  the  register.  What  apparently  was  done  was  this:  In  1869 
the  directors  resolved  to  cancel  the  former  allotment,  and  made  nevv 
allotments  to  the  extent  I  have  mentioned;  and  they  made  a  complete 

1 23  Ch.  D.  413,  430. 


508  IN    RE    FLORENCE   LAND,    ETC.,    CO.  §   I  14 

allotment  by  entering  upon  the  register  the  names  of  the  persons  who 
had  thus  agreed  in  1869  to  become  members  in  respect  of  the  whole 
of  the  shares. 

The  question  really  turns  upon  the  act  of  parliament.  I  may  state 
that,  according  to  my  recollection,  the  term  "allotment"  is  not  even 
mentioned  in  the  act  anywhere.  The  term  "allotment"  is  a  popular 
term ;  it  is  not  a  technical  terin  occurring  in  the  act  of  parliament 
itself.  The  23d  section  says:  "The  subscribers  of  the  memorandum 
of  association  of  any  company  under  this  act  shall  be  deemed  to  have 
agreed  to  become  members  of  the  company  whose  memorandum  they 
have  subscribed,  and  upon  the  registration  of  the  company  shall  be 
entered  as  members  on  the  register  of  members  hereinafter  mentioned. " 
Now,  stopping  there,  the  decisions  are  quite  clear  that,,  where  a 
person  has  signed  the  memorandum,  and  afterward  the  company  have 
made  a  complete  allotment  of  all  the  shares  in  the  company  by  enter- 
ing on  the  register  the  names  of  other  persons  who  also  agreed  to  be- 
come members,  in  the  winding  up  the  court  will  not  place  even  the 
person  who  has  signed  the  memorandum  on  the  list  of  contributories. 
Why  is  that  ?  Because  the  portion  of  the  section  which  I  have  read 
makes  the  signing  of  the  memorandum  the  agi'eement,  and  then  re- 
quires the  further  proceeding  of  placing  that  pei'son's  name  upon  the 
register  as  a  member.  That  is  the  construction  which  has  been 
adopted  by  the  courts,  and  is  settled  law,  with  reference  to  the  earlier 
part  of  the  23d  section.  The  second  part  of  the  section  is  this:  "And 
every  other  person  who  has  agreed  to  become  a  member  of  the  com- 
pany under  this  act,  and  whose  name  is  entered  on  the  register  of 
members,  shall  be  deemed  to  be  a  member  of  the  company."  The 
effect  of  the  legislation  in  this  part  of  the  section  is  identical  with  the 
legislation  in  the  earlier  part,  the  only  difference  being  that  the  sign- 
ing of  the  memorandum  is  by  statutory  enactment  to  be  deemed  to  be 
a  contract  to  take  shares,  whereas  in  the  case  of  other  persons  you 
must  have  an  actual  contract  to  take  the  shares ;  and  in  both  cases  the 
name  is  to  be  entered  upon  the  register  of  members. 

It  seems  to  me  that  all  the  decisions  in  the  earlier  part  of  the  session 
apply  with  full  force  to  the  case  which  is  now  before  me.  If  any- 
thing, this  is  an  a  fortiori  case,  seeing  that  the  eigtheenth  section  of 
the  act  enacts  that  "the  subscribers  of  the  memorandum  of  associa- 
tion, together  with  such  other  persons  as  may 'from  time  to  time  be- 
come members  of  the  company,  shall  thereupon  be  a  body  corporate." 
The  persons  who  have  subscribed  the  memorandum  do  at  once  con- 
stitute a  corporate  body.  Again,  the  language  of  that  section  tallies 
•with  that  of  the  twenty-third  section.  It  is  not  "together  with  such 
other  persons  as  may  from  time  to  time  agree  to  become  members," 
but  "together  with  such  other  persons  as  may  from  time  to  time  be- 
come members." 

The  result,  therefore,  appears  to  me  to  be  quite  clear  that  the  liqui- 
dator is  in  the  position  in  which  the  company  would  have  found  itself 
if  there  had  been  no  winding  up,  and  the  company  were  endeavoring- 
to   enforce   specific  performance    of    this   contract.      The    answer,  of 


§   114  APPLICATION    AND   ALLOTMENT.  509 

course,  would  be  plain:  there  has  been  such  delay  before  the  wind- 
ing up — eight  years  or  more  having  been  allowed  to  elapse,  and  this 
application  not  having  been  made  until  within  a  recent  period — that 
the  court  would  refuse  to  enforce  specific  performance.  On  that 
ground  alone  this  application  fails.  If  the  persons  who  had  agreed 
to  become  members  had  acted  as  shareholders  the  consideration  would 
have  been  entirely  different ;  but  both  parties,  that  is  to  say,  the  com- 
pany on  the  one  side  and  Mr.  Wilkinson  on  the  other,  have  acquiesced 
in  this  state  of  things,  that  Mr.  Wilkinson  should  not  be  treated  as  a 
member.  He  has  never  on  any  occasion  attempted  to  assert  his 
right,  and  he  seems  in  the  year  1869,  when  the  act  of  cancellation 
took  place,  to  have  submitted  to  it ;  but  whether  he  submitted  to  it  or 
not,  it  is  quite  plain,  since  then,  that  he  has  acquiesced,  and  that  if  he 
or  his  executor  were  to  come  now  and  say,  ''I  am  a  member;  put  me 
on  the  list  of  contributories,  because  there  will  be  a  surplus  to  be  di- 
vided in  the  winding  up  of  this  company,"  his  application  would  be 
refused,  just  as  much  as  I  think  the  application  of  the  liquidator  ought 
to  be  refused  now. 

I  should  say,  that,  to  avoid  any  technical  question,  I  allowed  the 
summons  to  stand  over  in  order  to  serve  the  other  persons  whose 
names  appear  upon  the  register.  They  do  appear;  they  have  argued 
that  there  is  no  case  against  them  made  for  rectifying  the  register; 
they  claim  to  be  allowed  to  hold  the  shares  which  they  purport  to 
hold  for  the  long  period  I  have  mentioned,  namely,  from  1869;  and 
therefore  it  is  impossible  for  me  to  exercise  the  power  which  is  con- 
ferred upon  the  court  in  the  winding-up,  to  rectify  the  register  of 
members  as  against  them,  or,  indeed,  as  I  think,  against  Mr.  Wilkin- 
son.    The  result  is  that  the  application  fails. 

I  ought  to  say  this,  that,  although  these  directors  have  not  power  to 
accept  a  surrender  of  the  shares,  yet  they  were  the  managers  of  the 
company,  and  if  the  company  itself  have,  just  as  in  the  case  of  any 
ordinary  individual  corporation  that  has  entered  into  a  contract  of 
which  specific  performance  is  sought  either  by  them  or  against  them, 
created  an  equity  against  themselves ;  and  this  is  an  equity  in  which 
Mr.  Wilkinson,  by  resisting  what  is  in  substance  a  suit  for  specific 
performance,  is  setting  up,  and  it  appears  to  me  successfully.  There- 
fore, no  question  arises  as  to  the  act  of  the  directors  being  ultra  vires^ 
because  they  have  no  power  to  accept  surrenders.  It  appears  to  me 
that  Mr.  Wilkinson's  executor  has  succeeded,  and  I  therefore  refuse 
the  application. 

Note.  See  23  Am.  &  Eng.  Ency.  p.  791 ;  Beach,  §  514;  Cook,  §§  23-66;  El- 
liott, §351.     Re  London  and  Northern  Bank,  81  L.  T.  R.  512. 


5IO  ESTOPPEL.       FORM    OF   CONTRACT.  §   115 


Sec.  115.     (6)    Estoppel.      (See  McCarthy  V.  LaVasche,  89  111. 
270,  31  Am.  Rep.  83,  supra,  p. 2 5 3.) 

Note.  Voting  alone  is  not  sufficient  to  estop.  1882,  Burgess  v.  Seligman, 
107  U.  S.  20:  1887,  Union  Sav.  Ass'n  v.  Seligman,  92  Mo.  635,  1  Am.  St.  Rep. 
776. 

FORM  OF  SUBSCRIPTION  TO  STOCK  IN  A  CORPORATION    TO  BE  FORMED. 

The  following  is  suggested  as  a  form  for  such  subscription : 

This  agreement  entered  into  among  the  parties  whose  names  are  under- 
signed witnesseth: 

That  for  and  in  consideration  of  the  advantages  arising  to  each  of  us  from 
concert  of  action  through  the  form  of  a  corporate  organization,  and  of  the 
mutual  promises  and  agreements  herein  contained,  made  each  for  himself  and 
with  each  of  the  others  who  have  heretofore  or  who  do  hereafter  sign  this 
agreement,  subscribing  for  shares  of  stock  in  the  corporation  to  be  hereafter 
formed,  and  of  the  further  consideration  of  the  efforts  made  and  to  be  made 
by  [John  Smith,  and,  etc.,]  in  procuring  signatures  hereto  subscribing  for 
stock  in  said  proposed  corporation,  upon  the  terms  herein  contained,  and  aid- 
ing in  incorporating  and  organizing  the  same,  and  of  the  further  considera- 
tion of  $1  by  each  of  us  paid  to  each  of  the  others,  the  receipt  whereof  is  ac- 
knowledged,^ do  hereby  covenant  and  agree  to  form  a  corporation  such  as  here- 
inafter indicated,  and  do  hereby,  under  our  hands  and  seals*  (hereby  sev- 
erally agreeing  that  one  seal  shall  be  the  seal  of  each),  subscribe  to  the 
stock  of  such  corporation  the  amounts  set  opposite  our  names,  and  do  hereby 
constitute  and  appoint  the  said  [John  Smith,  etc.,]  our  agents  and  attorneya 
to  procure  such   subscriptions,  and  aid  in   organizing   such  corporation  (for 

which  services  said  Smith,  et  al.,  are  to  receive  the  sum  of dollars,  to 

be  borne  by  each  of  the  parties  hereto  in  the  proportion  the  stock  subscribed 
by  him  bears  to  the  total  stock  subscribed,  or  for  which  services  said  Smith, 

etc.,  are  to  receive shares  of  the  stock  of  such  corporation,  fully  paid 

up)  agreeing  hereby  to  pay  to  said  Smith,  etc.,  ,  or,  at  their  request,  to 

said  corporation,  the  sum  of dollars  upon  each  share  subscribed,  when 

the  sum  of  dollars  shall  be  subscribed,  or  at  such  time  thereafter  as 

they  shall  designate  upon days'  prior  notice,  for  the  purposes  herein- 
after set  forth. 

This  agreement  shall   become  operative  only  in  case  the  sum  of 

dollars  shall  be  subscribed. 

The  name  of  said  corporation  shall  be 


The  location  of  the  principal  office  shall  be 
The  purpose  of  such  corporation  shall  be 


The  amount  of  capital  stock  shall  be ,  in  shares  of dollars  each, 

to  be  paid  for  as  follows:     [ dollars  upon  request  of  agents  herein 

named  as  above  set  forth,  the  balance  upon  call  of  directors  in  such  sums  and 

at  such  time  as  the  directors  of  such  corporation  shall  designate  upon 

days'  previous  notice]. 

Said  corporation  shall  be  organized  under  the  laws  of  the  state  of . 

'  It  would  seem  that  such  a  provision  was  useless,  but  Mr.  Taylor,  Law  of 
Private  Corporations,  §  94,  does  not  think  so.     Hence  its  insertion  here. 

•^  Mr.  Taylor,  §  94,  and  Prof.  Langdell,  in  Summary  of  Contracts,  §  186, 
think  the  agreement  should  be  under  seal. 


«  ii6 


CONDITIONAL   SUBSCRIPTIONS. 


511 


Names. 

Seals. 

No.  of  Shares. 

Amount. 

For  form  of  World's  Fair  subscription  contract,  see  1  Cook  Corp.  (4th  ed.) 
p.  190. 


ARTICLE    IV.       FORMS.       CONDITIONAL    SUBSCRIPTIONS. 


Sec  116.     Conditions  may  be  express  or  implied. 

ANDERSON  Et  Al.  v.  MIDDLE  AND  E.  T.  CENTRAL  R.  C0.» 


1891.     In  the  Supreme  Court  of  Tennessee. 

S.   VV.  Rep.  803. 


91  Tenn.  44,  17 


Appeal  from  chancery  court. 

Lurton,  J.  A  number  of  subscribers  to  the  original  stock  of  the 
defendant  company  have  joined  in  filing-  this  bill  for  the  purpose  of 
enjoining  suits  at  law  upon  their  several  contracts  of  subscription. 
The  corporation,  expressly  waiving  all  questions  of  jurisdiction,  an- 
swers, and  submits  the  liability  of  complainants  to  the  judgment  of 
the  court,  and  by  cross-bill  seeks  a  recovery  against  each  of  them. 
The  learned  chancellor  was  of  opinion  that  no  liability  existed,  and 
perpetually  enjoined   suits  at  law,  and   dismissed  the   cross-bill.     In 

support  of  this  decree   a  number  of  propositions  have   been  urged. 

-*     «     * 

2.  The  capital  stock  was  fixed  by  the  corporators,  at  a  meeting 
held  for  purposes  of  organization,  at  $3,000,000.  Something  less 
than  $50,000  of  this  had  been  taken  when  this  bill  was  filed.  Com- 
plainants' contention  is  that,  until  the  whole  of  the  stock  is  taken, 
they  can  not  be  made  liable  for  calls  on  their  subscriptions.  It  is  well 
settled  that  there  is  an  implied  condition  that  the  amount  of  stock 
specified  in  the  charter,  articles  of  association,  or  contract  of  subscrip- 
tion, or  fixed  by  the  corporators  when  authorized  to  settle  same,  shall 
be  actually  taken  before  the  subscribers  shall  become  liable.  Read 
v.  Gas  Co,,  9  Heisk.  545;  Mor.  Priv.  Corp.,  §  156;  Burt  Priv. 
Corp.,  §  535.  This  implication  may,  however,  be  rebutted  by  the 
terms  of  the  charter,  or  the  provisions  of  the  enabling  act,  articles  of 
association,  action  of  stockholders  or  corporation  fixing  capital,  or  by 
the  conditions  of  the  contract  of  subscription.  So  a  subscriber  may 
waive  such  condition,  and  this  waiver  may  be  either  express  or  im- 
plied. A  waiver  will  generally  be  implied  if  the  subscriber  consents 
to  the  letting  of  contracts,  the   creation  of  debt,  or  the   doing  of  any 

'  Part  of  opinion  and  arguments  omitted. 


512  ANDERSON    V.    MIDDLE,    ETC.,    R.    CO.  §  I  l6 

corporate  act  involving  the  necessity  of  calling  in  the  subscribed  stock, 
unless  the  charter  expressly  forbid  the  doing  of  any  corporate  act  until 
the  requisite  capital  is  taken.  Mor.  Priv.  Corp.,  §  156;  Burt  Priv. 
Corp.,  §  535,  and  authorities  cited.  There  is  nothing  in  the  charter 
or  resolution  fixing  the  amount  of  capital  stock,  or  in  the  original 
contract  of  subscription,  rebutting  the  usual  implied  conditions,  and 
taking  their  contract  of  subscription  out  of  the  general  rule  of  law. 
But,  after  the  original  subscription  had  been  made,  a  majority  of  the 
subscribers  entered  into  the  following  agreement:  "For  the  purpose 
of  enabling  the  Middle  and  East  Tennessee  Central  R.  Co.  to  put 
their  road  under  constiTiction  from  the  Chesapeake  and  Nashville 
Railroad  to  Hartsville,  Tenn.,  the  undersigned  subscribers  to  the  cap- 
ital stock  of  the  said  M.  &  E.  T.  C.  R.  Co.  agree  that  they  will  pay 
their  said  subscriptions  as  fast  as  the  work  progresses,  provided  that 
not  more  than  25  per  cent,  shall  be  called  for  in  anyone  month." 
Upon  the  faith  of  this  agreement  the  directors  let  out  a  contract  for 
the  construction  of  the  very  part  of  the  projected  line  contemplated 
by  this  agreement,  being  eleven  and  one-half  miles,  and  covering  the 
route  between  the  Chesapeake  and  Nashville  road  and  the  town  of 
Hartsville.  The  contractors  w^ere  shown  this  supplementary  agree- 
ment, and,  upon  the  faith  of  it,  accepted  a  contract  to  construct  so 
much  of  the  road  as  was  agreed  to  by  that  paper,  and  had  completed 
about  70  per  cent,  of  the  work  when  this  suit  was  begun.  The  obvi- 
ous effect  of  assenting  to  this  agreement  was  to  waive  the  implied 
condition  that  the  whole  of  the  stock  should  be  raised,  and  was  an 
undoubted  agreement  that  the  work  should  begin  at  the  Chesapeake 
and  Nashville  Railroad  instead  of  the  town  of  Galladn.  Some  of 
the  complainants  did  not  sign  this  agreement,  and  are  not  shown  to 
have  assented,  by  votes  or  otherwise,  to  the  commencement  of  w^ork 
or  the  creation  of  debt.  There  is  proof  that  at  a  meeting  of  sub- 
scribers it  was  unanimously  resolved  that  the  directors  should  let  out 
a  contract  for  that  part  of  the  line  between  Gallatin  and  Carthage, 
but  it  is  not  shown  that  the  complainants  who  failed  or  refused  to  sign 
the  agreement  above  set  out  in  any  way  participated  in  this  meeting, 
or  that  their  stock  was  represented.  We  therefore  decide  that  such  of 
complainants  as  did  not  sign  the  agreement  assenting  to  the  beginning 
of  the  work  between  the  Chesapeake  and  Nashville  Railroad  and  the 
village  of  Hartsville  are  not  now  liable  to  have  their  stock  called. 
The  remainder  of  the  complainants  have  expressly  agreed  to  the  be- 
ginning of  construction  and  to  the  payment  of  their  stock  as  work 
progressed,  and  as  to  them  this  implied  condition  has  been  waived. 

3.  Certain  other  positions  remain  to  be  considered  as  to  those  of 
complainants  who  have  waived  the  condition  that  the  full  capital  stock 
should  be  raised.  It  is  said  that  the  defendant  company  is  now.  insolv- 
ent, and  that  the  original  scheme  for  a  route  froin  Gallatin  to  Knox- 
ville  can  not  be  carried  out,  and  that  the  enterprise  has  been  dwarfed 
to  a  short  link,  beginning  eight  and  one-half  miles  from  Gallatin,  and 
terminating  at  Hartsville.  It  is  urged  that  the  charter  provided  for  a 
road  beginning  at  Gallatin,  and  not  at  a  point  on  the  Chesapeake  and 


§  Il6  CONDITIONAL   SUBSCRIPTIONS.  513 

Nashville  road,  eight  and  one-half  miles  from  Gallatin,  and  that  it 
should  terminate  at  Knoxville,  and  not  at  the  town  of  Hartsville  ;  that 
complainants  are  business  men  and  property  owners  in  Gallatin,  and 
that  the  scheme  into  which  they  entered  contemplated  a  great  through 
road,  passing  through  the  coal-fields  of  the  Cumberland  Mountains, 
and  connecting  their  city  with  other  lines  of  railway  and  with  the 
flourishing  city  of  Knoxville.  They  further  insist  that  to  procure 
their  subscriptions  the  officers  and  agents  of  the  company  represented 
that  no  calls  would  be  made  upon  their  subscriptions  until  the  com- 
pany had  secured  a  contract  whereby,  if  it  should  build  to  Carthage, 
it  could  consolidate  with  a  road  thence  to  Knoxville,  to  be  built  by  a 
Mr.  Crawford,  and  that  no  call  should  be  made  until  the  Chesapeake 
and  Nashville  road  was  constructed  into  Nashville,  and  a  running  ar- 
rangement made  by  which  the  trains  of  the  defendant  company  should 
be  carried  into  Nashville  over  the  track  of  the  Chesapeake  and  Nash- 
ville; that  none  of  these  things  have  been  done,  or  are  now  possible; 
and  that,  therefore,  they  should  not  be  held  liable.  The  company, 
for  answer  to  the  objection  as  to  the  beginning  point  of  the  road  under 
construction,  interpose  an  alleged  amendment  to  the  charter,  fixing 
the  beginning  point  at  the  Chesapeake  and  Nashville  Railroad,  near 
Gallatin.  This  amendment  was  obtained  in  1884,  upon  application 
of  the  directors,  as  provided  by  the  act  of  1875,  as  amended  by  the 
act  of  1883,  ch.  163.  It  was  duly  registered  in  Sumner  county,  but 
appears  never  to  have  been  registered  with  the  secretary  of  state. 
This  neglect  makes  the  amendment,  even  if  otherwise  valid,  ineffect- 
ual and  void.  An  amendment  must  be  registered  as  the  original, 
and,  until  this  is  done,  is  subject  to  the  same  objection  which  renders 
void  a  defectively  registered  charter.  Brewer  v.  State,  7  Lea  682. 
Another  amendment  was  obtained  pending  this  suit,  changing  the 
termini  to  the  Chesapeake  and  Nashville  Railroad  near  Gallatin,  and 
the  town  of  Carthage  in  Smith  county.  This  amendment  seems  to- 
have  been  in  all  respects  properly  registered.  By  it  the  capital  stock 
was  reduced  to  $350,000.  This  reduction  does  not  help  the  case,  in- 
asmuch as  it  is  not  shown  that  even  this  has  been  taken,  to  say  noth- 
ing of  other  objections  not  necessary  to  consider.  Without  passing 
upon  the  validity  of  this  second  amendment,  we  are  of  opinion  that, 
whether  valid  or  invalid,  the  complainants  are  estopped  to  question, 
their  liability  as  subscribers.  They  expressly  agreed  that,  to  enable 
the  company  to  put  under  construction  the  line  between  the  Chesa- 
peake and  Nashville  Railroad  and  town  of  Hartsville,  they  would 
pay  their  subscriptions  as  that  work  progressed,  in  calls  of  25  per 
cent,  monthly.  It  is  too  late  now  to  say  that  the  line  has  not  been 
begun  at  Gallatin,  or  that  it  can  not  be  carried  beyond  Hartsville. 
We  know  of  no  reason  why  this  company  might  not  have  begun  the 
work  of  construction  at  any  point  on  the  line  between  Gallatin  and 
Knoxville.  If  its  finances  should  prove  insufficient  to  connect  the 
part  so  constructed  with  the  charter  termini,  this  ought  not,  in  law  or 
equity,  to  relieve  the  subscribers  who  assented  to  the  beginning  of  so 

33— WiL.  Cases. 


514  TAGGART   V.    WESTERN    MARYLAND    R.    CO.  §   II7 

great  an  enterprise  upon  so  insufficient  a  capital.  The  representations 
made  to  induce  subscriptions  were  all  made  antecedent  to  the  written 
contract  of  subscription,  and  upon  this  ground,  as  tending  to  contra- 
dict the  written  contract,  were  excluded.  This  ruling  was  doubtless 
correct.  *  *  *  Decree  reversed  as  to  all  complainants,  except 
Anderson,  Miller  and  Thompson. 

Note.  See  Denny  Hotel  Co.  v.  Schram,  6  Wash.  134,  36  Am.  St.  R.  137, 
infra,  p.  .553;  Angell  &  Ames,  §§  146,  543;  Beach,  §§  531-41  ;  Boone,  §  110; 
Ciark,  §§  107-9;  Cook,  §§  77-89;  Elliott,  §§  352-9;  Morawetz,  §§  78-93;  Tay- 
lor,  §§  517,  518-21;  I  Thompson,  §§  1235-42;  VII  lb.,  §  8612. 

That  all  stock  must  be  subscribed  before  any  subscriber,  who  is  not 
estopped  by  his  own  acts,  shall  be  called  upon  to  pay  anything  except  for 
preliminary  or  organization  expenses,  see  1827,  Salem  Mill  Dam  Corp.  v. 
Ropes,  6  Pick.  (Mass.)  23;  1854,  Stoneham  Branch  R.  Co.  v.  Gould,  2  Gray 
(Mass.)  277;  1872,  Peoria  &  R.  I.  R.  Co.  v.  Preston,  35  Iowa  115;  1876,  War- 
wick R.  Co.  V.  Cadv,  11  R.  I.  131;  1878,  Allman  v.  Havana  R.  &  E.  Co.,  88 
HI.  521;  1879,  Banty  v.  Buckles,  68  Ind.  49;  1885,  Halsev  Fire  Eng.  Co.  v. 
Donovan,  57  Mich.  318;  1886,  Rockland  Mt.  D.  &  S.  S.Co.  v.  Sewall,  78 
Maine  167;  1887,  Haskell  v.  Worthington,  94  Mo.  560;  1889,  Anvil  Mining 
Co.  V.  Sherman,  74  Wis.  226;  1891,  Association  v.  Walker,  88  Mich.  62,  49  N. 
W.  1086;  1894,  Stearns  v.  Sopris,  4  Colo.  App.  191;  1895,  McKay  v.  Elwood, 
12  Wash.  579;  1898,  Cusick  v.  Bartlet,  91  Maine  153;  1898,  McFarland  v. 
West  Side  Imp.  Assn.,  56  Neb.  277,  76  N.  W.  584.  But  see  1855,  York,  etc.,  R. 
V.  Pratt,  40  Maine  447;  1878,  Cheraw,  etc.,  R.  v.  White,  10  S.  C.  155;  1891, 
Hamilton  v.  Clarion,  etc.,  R.,  144  Pa.  St.  34. 

This  rule,  however,  does  not  applv  to  subscriptions  to  authorized  increases 
of  stock.  1856,  Nutter  v.  Lexington,  etc.,  R.,  72  Mass.  85;  1877,  Clarke  v. 
Thomas,  34  O.  S.  46;  1886,  Delano  v.  Butler,  118  U.  S.  634;  1889,  Avegno  v. 
Citizens'  Bank,  40  La.  Ann.  799;  1891,  Bank  v.  Eaton,  141  U.  S.  227;  1891, 
Port  Edwards,  etc.  R.  v.  Arpin,  80  Wis.  214. 


Sec.  117.  Express  conditions  may  be  attached  to  subscriptions 
made  (i)  before,  or  (2)  after  incorporation.  Payment  of 
deposits. 

TAGGART  v.  THE  WESTERN  MARYLAND  R.  COMPANY.* 

1866.     In  the  Court  of  Appeals  of  Maryland.     24  Md.  Re- 
ports, 563-597,  89  Am.  Dec.  760. 

Action  by  railroad  company  to  enforce  stock  subscriptions. 

Bowie,  C.  J.,  delivered  the  opinion  of  the  court. 

The  general  assembly,  at  January  session,  1852,  incorporated  "The 
Baltimore,  Carroll  and  Frederick  Railroad  Company,"  with  a  clause 
prescribing  certain  preliminaries  usually  observed  in  opening  the 
books  and  taking  subscriptions  for  stock,  prior  to  the  organization  of 
a  company,  among  others,  the  prepayment  of  $1  per  share  on  every 
share  subscribed ;  also,  requiring  the  road  therein  contemplated  to  be 
commenced  within  three  years  and  finished  within  ten  from  the  pas- 
sage of  the  act,  otherwise  the  same  should  be  null  and  void.      Books 

'  Arguments  omitted ;  statement  of  facts,  except  as  appears  in  opinion  of 
court,  omitted.    Part  of  opinion  relating  to  other  points,  omitted. 


§   117  CONDITIONAL   SUBSCRIPTIONS.  5l5 

were  opened  by  the  commissioners,  the  requisite  number  of  shares 
s  ibscribed,  a  board  of  directors  and  a  president  were  elected  and  the 
company  fully  organized. 

After  this  organization  the  appellant,  on  the  28th  of  April,  1853, 
subscribed  for  ten  shares,  in  one  of  the  subscription  books,  held  by 
Mr.  Johnson,  upon  the  terms  and  conditions  prescribed  therein  and 
the  charter,  with  this  condition  annexed:  '•'■Provided^  The  said  con- 
templated road  should  be  built  on  the  then  present  track  of  the  then 
existing  branch  to  'Green  Spring,'  of  the  Baltimore  and  Susquehanna 
Railroad,"  but  did  not  pay  the  sum  of  $1  per  share,  required  by  the 
charter  to  be  paid  to  the  commissioners,  at  the  time  of  subscribing. 

The  name  of  the  corporation  was  subsequently  changed,  by  act  of 
assembly,  to  that  of  "The  Western  Maryland  Railroad  Company." 
The  defendant's  subscription,  with  others,  was  returned  to  the  stock- 
holders, and  classified  among  the  conditional  subscriptions.  The  con- 
struction of  the  road  not  having  been  commenced  within  the  time 
prescribed  by  .the  original  charter,  the  act  of  1856,  ch.  289,  was  passed, 
waiving  all  claims  of  forfeiture,  by  reason  of  the  company's  failure  to 
comply  with  any  of  the  provisions  of  the  act  of  incoiporation,  and 
allowing  six  years  for  the  commencement,  and  twelve  from  the  pas- 
sage of  the  act  for  the  completion  of  the  road. 

The  "Green  Spring"  branch  of  the  Baltimore  and  Susquehanna 
Railroad  was  adopted  by  the  appellee  on  the  31st  of  March,  1857, 
and  the  road  put  under  contract  for  construction.  No  calls  were  made 
for  payment  of  subscriptions  until  the  25th  of  June,  1857.  The  ap- 
pellee never  indicated,  affirmatively,  any  intention  of  abandoning  the 
work  of  the  appellant;  never  affirmatively  withdrew  his  subscription, 
or  attended  any  meeting  of  the  stockholders  or  subscribers  to  the 
stock. 

Several  calls  for  installments  having  been  made  and  refused,  this 
action  was  brought  on  the  ist  of  Febniary,  1861.  The  prayers  offered 
by  the  plaintiff-  (now  appellee),  and  granted  by  the  court,  present 
three  negative  propositions: 

1.  That  the  change  in  the  corporate  name  of  the  appellee  by  the 
act  of  1853,  ch.  37,  is  not  a  bar  to  the  present  action. 

2.  That  upon  the  finding  of  the  facts  therein  before  specified,  the 
non-payment  of  $1  per  share  by  the  defendant,  at  the  time  of  his  sup- 
posed subscription,  is  not  of  itself  a  bar  to  the  present  action. 

3.  That  the  failure  to  commence  the  work  within  three  years  from 
the  act  of  incorporation  (1852,  ch.  304),  the  act  of  1856,  ch.  289,  be- 
ing duly  passed  and  accepted  by  the  stockholders  of  the  plaintiff,  is 
not  a  bar  to  this  suit. 

The  first  proposition  is  admitted,  but  the  second  and  third  propo- 
sitions are  specially  denied  by  the  pravers  of  the  defendant,  which 
were  rejected  by  the  court,  and  constitute  the  ground  of  this  appeal. 

The  first  and  third  prayers  of  the  appellant  are  the  converse  of  the 
appellee's  second;  the  appellant's  second  prayer,  of  the  appellee's 
third. 

The  learned  counsel  differ  as  to  the  range  of  the  first  and  third 


5l6  TAGGART   V.    WESTERN   MARYLAND   R.    CO.  §  117 

prayers.  The  appellee  contends  they  present  only  the  question  of  the 
effect  of  the  non-payment  of  the  cash  installment  of  $i  at  the  time  of 
the  subscribing;  on  the  other  hand,  it  is  insisted  they  embrace  the 
conditional  character  of  the  subscription,  and  the  validity  of  such.  It 
is  observable  that  these  prayers  refer  specifically  to  the  subscription,  in 
the  following  terms:  "And  that  the  defendant  made  the  subscription 
offered  in  evidence  by  the  plaintiff ^^^  etc.,  as  one  of  the  facts  upon 
which  the  proposition  of  the  defendant  was  based.  This  specific  ref- 
erence in  each  of  the  prayers  under  consideration  was  not  merely 
introductory  to  the  other  facts  connected  with  it,  but  called  for  an  ex- 
amination of  the  subscription  itself,  its  character  and  conditions. 

The  subscription  of  the  appellant  is  not  set  out  in  terms  in  the  bill 
of  exceptions,  but  referred  to  as  a  conditional  subscription.  In  the 
narr.  and  appellee's  brief,  it  is  set  out  '•'•in  totidem  verbis^"  as  therein- 
before cited. 

Assuming  that  the  evidence,  offered  by  the  plaintiff  (and  refused  to 
the  defendant  in  his  prayer),  corresponds  with  the  subscription  set  out 
in  the  narr. ,  the  legal  sufficiency  of  such  subscription  was  necessarily 
brought  before  the  court  by  the  first  and  third  prayers  of  the  defend- 
ant, whether  the  right  of  action  depended  on  the  prepayment  of  the 
deposit  or  the  conditional  character  of  the  subscription  itself.  The 
supposed  contract  being  in  writing,  its  validity  was  a  question  for  the 
court,  and  however  the  latter  view  may  have  been  overlooked  in  the 
discussion  of  the  former,  it  seems  necessarily  involved  at  the  disposal 
of  these  prayers. 

The  first  point  presented  by  the  prayers  arises  under  the  third  sec- 
tion of  the  act  of  1852,  ch.  304,  incorporating  the  appellee,  which  di- 
rects that  "upon  every  subscription,  there  shall  be  paid  at  the  time  of 
subscribing,  to  the  company  or  their  agents,  appointed  to  receive  such 
subscription,  the  sum  of  $1  on  every  share  subscribed."  As  there 
are  other  cases  involving  the  construction  of  this  section,  we  are  re- 
quested to  interpret  it,  not  only  as  it  may  operate  upon  the  facts  in 
this  case,  but  upon  subscriptions  made  to  commissioners  or  their 
agents,  prior  to  the  organization  of  the  company.  It  is  contended 
that  this  clause  applies  peculiarly  and  solely  to  the  latter  class  of  sub- 
scriptions, as  to  which,  it  is  only  directory  and  not  indispensable.  The 
class  of  cases  maintaining  the  contrary,  it  is  insisted,  originated  in  the 
decision  of  the  case  of  Jenkins  v.  The  Union  Turnpike  Company,  i 
Caine's  Cases  in  EiTor  86,  by  the  court  of  errors  in  New  York,  which 
was  contrary  to  the  better  opinion  (as  it  said)  of  the  supreme  court  of 
New  York,  and  make  only  a  '■'•suite  d'erreurs."  The  defect  or 
vice  of  the  original  decision  is  not  pointed  out,  but  it  is  impeached  as 
emanating  from  a  court,  constituted  of  laymen,  as  well  as  lawyers, 
and  of  less  authority  than  the  tribunal  whose  decision  it  reviewed  and 
reversed.  A  decision  not  universally  adopted,  but  questioned, 
doubted  and  overruled.  We  are  invoked  not  to  follow  such  prece- 
dents, upon  a  mere  comparison  of  facts,  but  to  apply  the  judicial 
mind  to  a  consideration  of  the  principles  of  law  applicable  to  them. 


§  117  CONDITIONAL   SUBSCRIPTIONS.  517 

With  the  earnest  exhortation  in  view,  we  have  examined  the  series  of 
cases  referred  to,  and  will  concisely  state  the  result. 

The  controlling  principle,  on  which  those  cases  are  founded  is,  that 
all  charters  or  acts  under  which  highways  are  erected,  and  franchise 
and  privileges  conferred,  are  deputations  of  public  power  or  authority 
to  be  strictly  construed.  The  subscription  for  stock  must  be  founded 
on  a  valid  consideration,  and  constitute  a  contract  binding  on  both 
parties  '■'-co  instanti."  The  promise  of  the  subscriber  being  based 
on  the  promise  or  expectation  of  becoming  a  stockholder,  if  the  right 
to  the  stock  is  not  consummated  by  payment  of  the  deposit,  the  obliga- 
tion to  pay  the  subscription  is  not  binding. 

Chancellor  Lansing,  treating  the  act  under  which  the  subscription 
was  made  in  that  case  as  a  public  law,  the  provisions  of  which  he 
must  notice  officially,  whether  pleaded  or  not,  thus  defines  the  duties 
of  the  commissioners: 

"From  the  record  it  appears  that  commissioners  were  appointed  by 
the  statute  to  perform  certain  duties  particularly  described.  They 
were  to  receive  subscriptions  and  to  receive  for  the  benefit  of  the  de- 
fendants (in  error)  $10  on  each  share  of  the  stock  of  their  company. 
The  plaintiff  (in  error)  subscribed,  but  it  does  not  appear  that  he 
paid.  At  the  time  these  steps  were  taken  the  corporation  described 
in  the  act  was  not  in  existence.  It  was  incapable  of  contracting.  The 
acts  to  be  performed  by  the  commissioners  were  merely  preparatory 
to  its  creation.  To  give  effect  to  their  acts,  their  power  must  be 
strictly  pursued.  «  *  *  They  were  directed  to  exact  from  the 
persons  who  were  to  be  admitted  members  of  the  corporation,  both 
subscription  and  payment,  as  a  condition  precedent  to  their  admis- 
sion. If  they  omitted  either  to  subscribe  or  to  pay,  they  did  not  come 
within  the  terms  of  admission."      i  Caine's  Cases  in  Error  94. 

Tilghman,  C.  J.,  in  the  case  of  The  Hibemia  Turnpike  Company 
v.  Henderson,  8  Serg.  &  Rawle  219^  (which  was  a  subscription  to 
commissioners  before  the  organization  of  the  corporation),  enlarged 
upon  the  principles  of  public  policy,  which  required  a  rigid  adher- 
ence to  the  letter  of  the  law  and  strict  compliance  with  the  requisi- 
tion of  prepayment  in  all  subscriptions  made  to  commissioners. 
"If  (he  says)  persons  are  permitted  to  subscribe  without  the  previous 
payment  of  $5  a  share,  large  subscriptions  may  be  made,  which  could 
not  otherwise  have  been  made,  by  those  who  are  anxious  to  give  a 
direction  to  the  road,  which  may  benefit  themselves  at  the  expense  of 
the  public.  *  *  *  The  case  will  be  reduced  to  this  simple  question: 
Can  a  contract  be  enforced  in  a  court  of  justice  which  was  made  in 
violation  of  an  act  of  assembly?  It  is  not  the  first  time  this  question 
has  been  asked  in  this  court,  and  it  has  received  but  one  answer:  it 
can  not  be  enforced."  He  refers  to  the  decision  of  the  court  of  errors 
in  New  York,  i  Caine's  Cases  in  Error,  as  settling  the  law  in  that  state. 

Gibson,  J.,  concurred,  replying  to  the  argument  (which  has  been 
urged  in  this  case),  that  prepayment  was  a  condition  which  might  be 
waived,  it  being  intended  only  for  the  benefit  of  the  corporation.    He 

» 11  Am.  Dec.  593. 


5i8  taggart  v.  western  Maryland  r.  co.  §  117 

asks,  "What  was  the  consideration  for  the  charter?  Undoubtedly  the 
benefit  which  was  expected  to  result  to  the  public,  not  the  profit  that 
might  be  made  by  the  stockholders.  The  state,  therefore,  was  a 
party,  and  had  an  interest  in  preventing  the  scheme  from  being 
turned  into  a  bubble,"  etc.,  Hibernia  Turnpike  Co.  v.  Henderson, 
8  Serg.  &  R.  p.  225.  "The  design  of  the  deposit  was  to  prevent  the 
subscription  list  from  being  filled  with  the  names  of  nominal  stock- 
holders and  the  creatures  of  others."  Id.  226.      *     *     * 

"Every  contract,  where  the  consideration  is  promise — for  promises 
must  be  obligatory  on  both  parties,  or  both  will  be  at  liberty  to  recede — 
and  the  promise  which  is  the  consideration  of  that  on  which  the  action  is 
brought,  must  be  such  as  the  plaintiff  had  power  by  law  to  perform.  I 
do  not  say  there  was  an  express  promise  here  that  the  defendant  should 
enjoy  the  rights  and  privileges  of  a  corporator ;  but  certainly  that  was 
understood  as  being  the  consideration  on  which  he  subscribed.  But 
the  company  could  introduce  no  one  as  a  member  in  anv  other  way 
than  that  pointed  out  in  the  act  of  incorporation,"  id.  p.  227;  "if  they 
could,  it  would  be  requisite  that  the  defendant's  title  should  have 
been  good  when  he  subscribed ;  otherwise  the  contract  would  be  with- 
out mutuality;  and  if  he  acquired  no  right  which  he  could  enforce 
against  the  will  of  the  plaintiffs,  he  incurred  no  responsibility,"  id.  228. 

In  Crocker  V.  Crane,  21  Wend.  211,  the  question  being  whether  the 
commissioners,  appointed  to  open  books  to  receive  subscriptions, 
were  authorized  to  receive  checks  of  subscribers  in  payment  of  the 
sum  required  to  be  paid  at  the  time  of  subscription,  Cowan,  J.,  said: 
"I  am,  therefore,  strongly  inclined  to  the  opinion  that  the  check  in 
question  was  void,  as  contrary  to  the  policy  of  the  statute.  Nor  can 
there  be  any  doubt,  I  imagine,  that  the  contemplated  corporation,  if  I 
am  right  as  to  the  facts,  failed  of  going  into  existence  for  want  of  the 
proper  payments  as  a  condition  -precedent J'''  Such  is  the  doctrine 
laid  down  by  Chancellor  Lansing,  in  Jenkins  v.  Union  Turnpike  Com- 
pany, I  Caine's  Cases  in  Error  94,  and  recognized  by  this  court  in 
Goshen  Turnpike  Co.  v.  Hurtin,  9  Johns.  Rep.  217,  and  Highland 
Turnpike  Co.  v.  McKean,  11  Johns.  Rep.  98;  Dutchess  Cotton 
Manf'y  v.  Davis,  i4johns.  Rep.  238. 

These  cases  go  further ;  each  subscriber  must  pay  as  a  condition  to 
his  own  liability  attaching.  Payment  was  a  requisite  which  the  com- 
missioners could  not  waive.     Starr  v.  Scott,  8  Conn.  Rep.  483. 

The  case  in  21  Vt.  Rep.  30/  cited  by  the  appellee,  to  the  contrary, 
has  several  peculiar  features  which  distinguish  it  from  the  class  of 
cases  requiring  prepayment  of  the  deposit,  as  essential  to  the  con- 
tract. The  defendant,  in  that  case,  was  one  of  the  original  associa- 
tors,  and  had  signed  an  instrument  prior  to  the  act  of  incorporation, 
by  which  the  subscribers  agreed  to  take,  and  did  take,  the  number  of 
shares  affixed  to  their  respective  names.  The  defendant  subscribed 
for  fifty  shares  of  the  stock.  The  note  in  question  was  given  for  the 
first  $5  payable  on  each  respective  share,  which  was  received  in  set- 
tlement of  the  first  installment ;  by  the  subscription  paper  it  appears 

*  Vermont  0.  R.  Co.  v.  Clayes. 


§11/  CONDITIONAL   SUBSCRIPTIONS.  $19 

there  were  several  subscribers  for  stock  prior  to  the  defendant,  and  by 
the  act  of  incorporation  each  subscriber  fer  5e  became  a  corporator. 

These  facts  were  deemed  sufficient  to  show  the  corporation  was  "i« 
esse  at  the  time  of  taking  the  note,  and  capable  of  taking  the  promise 
through  their  agents,  the  commissioners."  Upon  all  these  peculiar 
circumstances,  it  was  held  the  action  on  the  note  was  maintainable. 

The  learned  judge  delivering  the  opinion  of  the  court,  though  ques- 
tioning whether  the  opinion  of  the  supreme  court  or  court  of  errors, 
in  the  case  i  Caine's  Cases  86,  was  the  better  opinion,  distinguishes 
that  case  from  the  one  under  his  consideration. 

The  case  in  i6  B.  Monroe  5,^  declaring  prepayment  of  the  deposit 
to  the  commissioners,  is  not  essential  to  the  validity  of  the  subscrip- 
tion, presents  the  anomaly  of  a  decision  founded  on  a  case  previously 
and  notoriously  reversed  without  apj^arent  knowledge  of  the  reversal. 
The  judge  in  delivering  the  opinion  says:  "The  decision  of  the  court 
in  the  case  of  the  Union  Turnpike  Company  v.  Jenkins,  i  Caine's 
Rep.  381,  sustains  the  views  expressed  in  this  opinion,  and  it  is  only 
the  opinion  of  the  dissenting  judge  that  is  cited  in  Angell  &  Ames  on 
Corporations,  and  referred  to  by  the  coimsel  for  the  appellants."  He 
seems  wholly  unaware  that  the  opinion  of  the  dissenting  judge  had 
been  affirmed  by  the  court  of  errors,  and  that  of  the  majority  of  the 
supreme  court  on  which  he  relied,  overruled. 

The  20th  111.  656,^  deciding  in  the  same  way,  relies  only  on  16  B. 
Monroe  5  and  21  Vt.  Rep.  30,  which  we  have  before  shown  was 
marked  by  very  peculiar  features,  distinguishing  it  from  the  Union 
Turnpike  Company  v.  Jenkins,  and  therefore  not  in  point. 

The  case  in  17th  Ohio  191  ^  cited  to  the  same  point  by  the  appellee 
is  a  mere  dictum,  sustained  by  neither  authority  nor  reason. 

It  would  appear  from  this  comparison  of  the  cases  cited,  that  Jen- 
kins V.  the  Union  Turnpike  Company,  i  Caine's  Cases  86,  has  not 
been  overruled,  or  abandoned  in  principle,  in  succeeding  cases  within 
the  same  category;  but  it  has  been  questioned,  criticised  and  departed 
from,  where  the  facts  would  warrant  a  departure. 

It  is  still  recognized  as  a  leading  case,  not  only  in  the  state  of  New 
York,  but  in  several  other  states,  with  such  weight  of  authority  and 
reason  as  commands  our  respect  in  similar  cases. 

If  not  expressly  adopted  in  this  state,  it  has  been  referred  to  in 
terms  which  recognized  the  principles  on  which  it  was  decided  as 
properly  applied  under  the  circumstances. 

In  the  case  of  Elysville  Manufacturing  Co.  v.  Okisko  Company  *  it 
was  objected  that  the  appellant  had  no  power  under  its  charter  to 
subscribe  to  the  stock  of  the  appellee,  and  if  it  had,  the  one  before  the 
court  was  not  binding,  because  at  the  time  of  the  subscription,  the 
cash  payment  was  not  made.  In  support  of  the  latter  proposition  the 
case  I  Caine's  Rep.  381  *  was  relied  on.     This  court  said  that  case  is 

'  Wight  v.  Shelby  R.  Co.,  63  Am.  Dec.  522,  infra,  p. 536. 

*  Illinois  R.  Co.  v.  Zimmer. 

'  Heurv  v.  Vermillion  &  A.  R. 

*o  Md'lol. 

'  Union  Tump.  Co.  v.  Jenkins. 


520  TAGGART   V.    WESTERN   MARYLAND    R.    CO.  §   I  I? 

clearly  distinguishable  from  the  one  before  us.  There,  no  payment 
was  made  either  at  the  time  of  subscription  or  thereafter  by  the  per- 
son whom  it  was  attempted  to  make  responsible  on  his  subscription, 
while  here  the  whole  amount  of  the  subscription  was  paid ;  in  other 
words,  it  is  a  completely  executed  contract.  In  the  case  referred  to, 
the  court  evidently  founded  their  decision  on  the  want  of  mutuality. 
*'The  subscriber,  not  having  paid  in  conformity  with  the  authorized 
terms  of  the  subscription,  could  not  have  compelled  the  transfer  of  the 
stock  to  himself,  he  not  having  in  any  way,  in  part  or  in  whole,  per- 
formed the  contract."     5  Md.  Rep.  159. 

The  -preponderance  of  authority  in  favor  of  a  strict  compliance 
with  the  provisions  of  the  charter^  in  cases  of  subscription^  prior  to 
the  organization  of  the  company^  is  such  as  is  not  to  be  disregarded. 
This  court  has  said^  '•'■there  is  no  dotibt  that  in  general  a  strict  com- 
pliance must  be  shown  with  the  provisions  of  the  charter.,  but  insotne 
cases  a  cojnpliance  will  be  presumed  and  in  others  it  tnay  be  waived.''^ 
16  Md.  JRep.  444.^  The  distinction  between  subscriptions  prior  and 
subsequeut  to  organizati'on  is  clearly  recognized  in  g  Md.  Rep.  s68,^ 
in  this  language : 

'■'•Commissioners  are  appointed  to  receive  subscriptions  to  stock  for 
the  purpose  of  giving  the  subscribers  a  right  to  organize  as  a  cor- 
poration under  the  charter.  So  soon^  however.,  as  the  organization 
takes  place.,  the  authority  of  the  co?nmissioners  ceases ;  and  all  corpo- 
rate powers  conferred  by  the  charter.,  vest  in  the  body  politic.  Such., 
at  least,  is  the  general  rule,  applying  in  every  case  where  there  is  no 
special  provision  to  the  contrary.  It  was  further  held,  that  in  that 
case  there  were  no  provisions  requiring  the  corporation  after  organi- 
zation, to  have  subscriptions  taken  by  commissioners  and  in  no  other 
mode. ' ' 

Hence,  in  this  case  the  corporation  being  organized  by  the  subscrip- 
tion of  the  necessary  proportion  of  stock,  and  election  of  officers,  suc- 
ceeded to  the  power  previously  vested  in  the  commissioners,  to  sell  and 
dispose  of  the  remai?ting  shares,  without  regard  to  the  conditions  im- 
posed on  them.  The  act  of  the  agent  taking  the  subscription,  being 
recognized  by  the  corporation  by  receiving  and  registering  the  sub- 
scription, among  the  conditional  subscriptions,  was  equivalent  to  a 
previous  appointment  of  the  agent  for  that  purpose. 

The  objection  that  the  subscription  was  void  because  conditional 
and  contrary  to  public  policy  is  strongly  supported  by  the  authority 
cited  by  the  appellant,  i  Hill  518;*  18  Barbour  318.*  But  these  cases 
turn  upon  the  provisions  of  the  local  statutes,  and  the  subscriptions 
were  made  to  commissioners  prior  to  the  formation  of  the  companies, 
for  the  most  part.  The  first  ground  upon  which  the  validity  of  con- 
ditional subscriptions  has  been  impeached  in  the  cases  before  cited, 
viz.,  that  a  contract  to  be  binding  must  be  "concurrent  and  obliga- 
tory upon  each  at  the  same  time"  (as  decided  in  18  Barb.  318,  supra., 

'  Maltby  v.  Northwestern  Va.  R. 

«  Plank  R.  Co.  v.  Hoffman. 

'  Butternuts  T.  Co.  v.  North,  infra,  p.  525. 

•  Macedora  P.  R.  Co.  v.  Lepham. 


§   11/  CONDITIONAL   SUBSCRIPTIONS.  521 

and  21  Wend.  139  0  ^'^^  been  in  more  recent  cases  abandoned,  and  it 
is  said  that  such  a  subscription  is  a  continuing  offer  until  withdrawn. 

But  when  the  offer  was  accepted  the  minds  of  the  parties  met,  and 
the  contract  was  complete.  There  was  then  the  meeting  of  the  minds 
of  the  parties,  which  constitutes  and  is  the  definition  of  a  contract. 
The  acceptance  by  the  plaintiff  constituted  a  sufficient  legal  consider- 
ation for  the  engagement  on  the  part  of  the  defendants.  There  was 
then  nothing  wanting  in  order  to  perfect  a  valid  contract  on  the  part 
of  the  defendants.  It  was  precisely  the  same  as  if  the  parties  had 
met  at  the  time  of  the  acceptance,  and  the  offer  had  then  been  made 
and  accepted,  and  the  bargain  completed  at  once.  Boston  &  Maine 
R.  V.  Bartlett,  3  Cush.  237;  Conn.  &  Pass.  R.  v.  Baily,  24  Vt.  Rep. 
478;   Troy  Academy  v.  Nelson,  24  Vt.  Rep.  189. 

The  second  objection,  that  conditional  subscriptions  are  contrary  to 
public  policy,  is  said  to  be  peculiar  to  New  York,  and  not  followed 
in  other  states.  V^ide  Pierce  on  Railways,  p.  71.  In  15  B.  Monroe, 
235, '^  the  court  finds  the  power  of  the  corporation  to  accept  such  con- 
ditional subscriptions  under  the  clause  of  the  charter  of  the  company 
in  that  case,  authorizing  the  president  and  directors  to  dispose  of  their 
unsubscribed  stock  for  the  benefit  of  the  company,  and  declares  it  does 
not  seem  to  be  prohibited  by  sound  policy;  that  such  construction  is 
sanctioned  by  general  usage  under  similar  provisions  in  other  charters. 
Vide  also,  16  B.  M^mroe  364,^  to  the  same  effect.  This  conclusion 
seems  to  follow  necessarily,  from  the  doctrine  that  a  conditional  sub- 
scription is  but  a  continuing  offer,  which  is  final  and  absolute  when 
accepted ;  all  subscriptions  becoming  thus  ultimately  unconditiorial 
and  absolute. 

If  the  corporation  after  organization  may  dispose  of  their  stock 
•without  limitation^  except  so  far  as  expressly  restrained  by  their 
charter^  and  a  conditional  agreement  when  accepted  is  equivalent 
to  an  absolute  contract,  it  would  seetti  a  necessary  consequence  that  all 
contracts  for  stock  in  consideration  of  a  particular  location,  when 
complied  with  by  the  company ,  would  be  as  binding  on  both  parties 
as  if  the  contract  had  been  absolute  and  unconditional. 

For  however  adverse  to  public  policy  such  conditions  prior  to  the 
formation  of  the  corporation,  the  location  and  construction  of  the 
road  is  the  peculiar  province  and  duty  of  the  president  and  directors, 
and  a  contract  made  by  them  in  execution  of  their  corporate  power 
must  be  presumed  to  be  made  in  promotion  of  the  public  interest,  un- 
less shown  to  the  contrary.      ♦     *     * 

Judgment  affirmed. 

Note.  As  to  theories  in  regard  to  payment  of  deposits,  see  Boyd  v.  Peach 
Bottom  R.  Co.,  90  Pa.  St.  1<>9,  infra,  p.  622 ;  Wight  v.  Shelbv  R.  Co..  16  B.  Mon. 
(Ky.)  4,  infra,  p.  536 ;  Webb  v.  B.  &  E,  R.,  77  Md.  92,  infra,  p.  528.  There  is 
much  conflict  as  to  the  necesnity  of  paying  the  statutory  deposit  upon  mib- 
soriptions  at  the  time  the  subscriptions  are  made.  One  line  of  authorities, 
and  perhaps  the  best,  holds  that  payment  is  unnecessary,  the  theory  being  that 

>  tJtioa  &  S.  R.  Co.  V.  Brickerhoff. 

^  McMillan  v.  Maysville  &  L.  R.  Co.,  61  Am.  Dec.  181. 

*  Henderson  &  N.  R.  Co.  v.  Leavell. 


522  BOYD  V.  PEACH  BOTTOM  R.  CO.  §  Il8 

the  provision  is  for  the  benefit  of  the  corporation  onlv,  and  so  mav  be  waived 
by  it:  1843,  Red  River  Co.  v.  Young,  6  Rob.  (La.)  39;  1858,  IHinois  R.  Co. 
V.  Ziininer,  20  III.  654;  1864,  Chamberlain  v.  Painesviile,  etc.,  R.  Co.,  15  O. 
S.  225;  1874,  .Minnesota  &  St.  L.  R.  v.  Bassett,  20  Minn.  535;  1882,  Pittsburgh 
W.  &  K.  R.  Co.  V.  Applegate,  21  W.  Va.  172;  1893,  Bibb  v.  Hall,  101  Ala. 
79;  1893,  Union  Water  Co.  v.  Kean,  52  N.  J.  Eq.  HI  ;  1895,  Albright  v.  Texas, 
etc.,  R.  8  N.  M.  110,  422,  42  Pac.  73;  1898,  Yonkers  Gazette  Co.  v.  Taylor,  30 
App.  Div.  (N.  Y.)334.  On  the  other  hand,  many  other  authorities  hold  thatpay- 
ment  is  necessari/,  on  the  theory  that  the  provision  is  for  the  protection  of  the 
public  from  ^'bubbW''  schemes  by  irresponsible  parties.  1804,  Jenkins  v. 
Union  T.  P.  Co.,  1  Caines  Cas.  (N.  Y.  86;  1814,  Highland  T.  Co.  v.  McKean, 
11  Johns.  iN.  Y.)  98;  1822,  Hibernia  T  R.  Co.  v.  Henderson,  8  Serg.  &  R. 
219,  11  Am.  D.  593;  1856,  Fiser  v.  Miss.  &  T.  R.  Co.,  32  Miss.  359;  1861,  Wood 
V.  Coosa,  etc.,  R.  Co.,  32  Ga.  273;  1880,  State  Ins.  Co.  v.  Redmond,  3  Fed. 
R.  764;  1887,  Perry  v.  Hoadlev,  19  Abb.  N.  C.  (N.  Y.)  76;  1892,  Burlington 
V.  Bur.  W.  Co.,  86  Iowa  266;  1896,  Gen'l  Elec.  Co.  v.  Wightman,  3  App.  Div. 
(N.  Y)  118;  1896,  First  Nat'l  Bank  v.  Cornell,  8  App.  Div.  (N.  Y.  >  427.  See, 
also.  Beach,  §  515;  Boone,  §  112;  Clark,  §  116;  Cook,  §§  172-5;  Elliott,  §355; 
Morawetz,  §§71-2,  739,  742-3;    Taylor,   §§  98,  516;    I  Thompson,  §§  1216-32. 


^'Wc  Sec.  118. 


Same,     (i)   Prior  to  incorporation,  theories: 
(a)   Subscription  valid,  condition  void. 
BOYD  V.  PEACH  BOTTOM  RAILWAY  CO.^ 


1879.     In  the    Supreme  Court   of    Pennsylvania.     90  Pa.  St. 

Rep.  169-173. 

May  6,  1879.  Before  Sharsvvood,  C.  J. ;  Mercur,  Gordon^ 
Paxson,  Woodward,  Turnkey  and  Sterrett,  JJ. 

Error  to  the  court  of  common  pleas  of  Lancaster  county,  of  May 
term,  1879,  No.  58. 

Assumpsit  by  the  Peach  Bottom  Railway  Co.  v.  Samuel  Boyd, 
on  a  subscription  to  the  capital  stock  of  said  company.  The  com- 
pany was  incorporated  by  the  act  of  March  24,  1868,  Pamph.  L.  778, 
with  all  the  powers  and  subject  to  all  the  restrictions  prescribed  by  the 
act  regulating  railroads,  enacted  February  19,  1849.  The  proviso 
to  the  first  section  of  the  latter  act  is  as  follows: 

'•'■Provided^  always,  That  no  subscription  for  such  stock  shall  be 
valid  unless  the  party  or  parties  making  the  same  shall,  at  the  time  of 
subscribing,  pay  to  the  said  commissioners  $5  on  each  and  every  share 
subscribed,  for  the  use  of  the  company." 

Commissioners  were  named  in  the  act  of  incorporation  to  open 
books,  receive  subscriptions  and  organize  the  company.  At  the  trial 
the  plaintiff  offered  in  evidence  a  subscription  book,  in  form  as  follows: 

"We,  the  undersigned,  agree  with  one  and  another  and  bind  our- 
selves, our  heirs,  executors  and  administrators  to  the  Peach  Bottom 
Railroad  Company  to  the  number  of  shares  of  stock  set  opposite  our 
respective  names  in  the  capital  stock  of  said  company,  provided- the 

^  Arguments  omitted. 


§   Il8  CONDITIONAL   SUBSCRIPTIONS.  523 

road  be  constructed  upon  what  is  known  as  the  Northern  route,  con- 
necting with  Philadelphia  and  Baltimore  Central  Railroad  at  Oxford, 
Chester  county,  and  passing  near  Hopewell.  Pine  Grove,  White  Rock, 
King's  Bridge,  Smedley's  Mill,  Centreville,  Chestnut  Level  and  along 
Fishing  creek  to  its  mouth,  and  provided  these  subscriptions  be  spent 
on  the  east  side  of  the  Susquehanna  river.  *  *  *  Samuel  Boyd, 
two  shares." 

There  was  no  evidence  to  show  that  the  defendant  had  signed  his 
name  thereto.      The  signature  produced  was  in  ink. 

John  A.  Alexander,  the  treasurer  of  the  company,  called  by  the 
plaintiff,  testified:  "The  name,  as  it  first  appeared  there,  was  in 
leadpencil ;  there  was  a  number  of  names  written  in  leadpencil,  and 
they  were  becoming  defaced  by  carrying  the  book  in  my  pocket,  and 
I  afterward  wrote  them  in  ink  over  the  pencil  marks."  He  further 
said:  "I  went  to  Mr.  Boyd's  on  the  29th  of  October,  1870,  and  told 
him  that,  to  secure  our  letters-patent,  it  was  necesary  for  the  commis- 
sioners to  certify  to  the  governor  that  10  per  cent,  of  the  subscriptions 
were  paid  in;  that  we,  not  collecting  any  money,  and,  as  the  work 
had  not  yet  begun,  were  taking  demand  notes;  Mr.  Boyd  gave 
me  his  demand  note  for  10  per  cent,  of  his  two  shares  of  stock,  and  I 
gave  him  a  receipt  for  the  same. 

This  note  was  delivered,  by  Mr.  Alexander,  to  the  commissioners, 
and  they  afterward  certified  to  the  governor  a  list  of  subscribers, 
including  the  name  of  Samuel  Boyd  for  two  shares.  Letters-patent 
were  issued  to  the  company,  in  which  he  appeared  for  two  shares. 
Whether  Samuel  Boyd  wrote  the  leadpencil  name  or  not  was  not 
shown. 

He  never  paid  any  money  on  this  alleged  subscription,  nor  did  he 
ever  pay  said  note  or  any  part  of  it.  The  subscription  produced  con- 
tained a  condition  that  the  road  should  be  built  on  a  particular  route. 
It  was  not  built  on  this  route,  but  on  an  entirely  different  one.  The 
original  route  would  have  been  of  great  advantage  to  Boyd,  while  the 
one  on  which  the  road  was  built  was  of  no  benefit  to  him. 

The  defendants  offered  no  evidence,  but  asked  for  a  nonsuit,  which 
the  court,  Patterson,  J.,  refused  and  directed  a  verdict  for  plaintiff. 
The  defendant  took  this  writ,  alleging  that  the  court  erred:  First,  in 
overruling  the  motion  for  a  nonsuit,  and,  second,  in  directing  the  jury 
to  find  for  plaintiff. 

Mr.  Justice  Sterrett  delivered  the  opinion  of  the  court,  June  16, 

1879- 

The  commissioners  appointed  to  open  books  and  receive  subscrip- 
tions to  the  capital  stock  of  the  defendant  in  error  were  public  agents, 
clothed  with  limited  powers  and  duties  of  a  purelv  ministerial  charac- 
ter, clearly  defined  by  law.  By  the  act  of  March  24,  1868,  incorpo- 
rating the  company,  it  was  invested  with  all  the  powers,  and  made 
subject  to  all  the  provisions  and  restrictions  prescribed  by  the  general 
act  of  1849,  regulating  railroad  companies.  One  of  these  provisions 
is  that  no  subscription  shall  be  valid  unless  the  party  making  the  same 
shall,  at  the  time  of  subscribing,  pay  the  commissioners  $5  on  each 


524  BOYD    V.    PEACH    BOTTOM    R.    CO.  §   I  l8 

and  every  share,  for  the  use  of  the  company.  The  language  is  phiin 
and  emphatic,  and  the  manifest  object  of  the  requirement  was  to  pro- 
tect the  public  against  fictitious  corporations,  with  capital  stock  svib- 
scribed  perhaps  by  irresponsible  persons,  and  not  a  dollar  thereof  paid 
or  intended  to  be  paid  in.  The  commissioners,  acting  as  ministerial 
agents  of  the  public,  before  the  issuing  of  letters  patent,  had  no  au- 
thority whatever  to  dispense  with  the  actual  payment  of  the  required 
sum.  Giving  a  note  for  the  amount  was  not  payment  within  the 
meaning  of  the  law.  In  Leighty  v.  The  Turnpike  Co.,  14  S.  &  R. 
434,  under  a  similar  charter,  it  was  held  that  actual  payment  in  money 
was  required.  The  doctrine  of  that  case,  for  reasons  given  at  length 
in  the  opinion,  is  sound,  and  should  be  adhered  to.  A  demand  note, 
such  as  was  given  by  the  plaintiff  in  error  in  this  case,  is  not  money; 
it  is  only  a  promise  to  pay  money  at  a  future  time,  and  perhaps  may 
never  be  complied  with. 

The  testimony  was  quite  sufficient  to  establish  the  fact  of  defend- 
ant's subscription,  on  which  the  suit  was  based.  Afterwards,  when 
the  book  was  presented  to  him  by  Mr.  Alexander,  he  impliedly  ad- 
mitted the  subscription,  by  giving  his  note  for  the  10  per  cent,  which 
should  have  been  paid  in  cash,  but  this  was  before  the  letters-patent 
were  obtained. 

The  conditional  feature  of  the  subscription  furnished  no  ground 
of  defense.  //  is  scarcely  necessary  to  repeat  what  has  been  so  often 
said  that  a  subscription  to  the  stock  of  a  public  corporation^  made  be- 
fore letters-patent  are  issued  and  an  organization  effected^  must  be 
considered  absolute  and ,  unqualifed^  and  a?ty  condition  attached 
thereto  void.  Commissioners  have  no  authority  to  receive  conditional 
subscriptions.  If  they  do^  the  subscription  itself  is  valid  a?td  bind- 
ings and  the  condition  null  and  void.  Caley  v.  The  Railroad  Co., 
30  P.  F.  Smith  367. 

The  only  available  defense  pi"esented  in  the  court  below  was  the 
non-payment  of  the  10  per  cent,  required  by  the  act;  and  it  was  tech- 
nical, rather  than  meritorious.  Aside  from  making  the  subscription, 
in  the  first  instance,  and  afterward  giving  his  note  for  the  10  percent, 
when  called  on  by  the  collector,  the  plaintiff  in  error  appears  to  have 
been  entirely  passive.  If  he  had  acted  as  commissioner  or  director, 
or  participated  in  stockholders'  meeting,  or  performed  any  act  recog- 
nizing his  membership  of  the  company,  or  tending  to  fasten  liability 
on  other  subscribers,  he  should  be  held  to  the  payment  of  his  subscrip- 
tion, notwithstanding  the  failure  of  the  commissioners  to  exact  the 
payment  requii'ed  by  law  to  make  it  valid  and  binding;  but  he  ap- 
pears to  have  stood  aloof  and  did  nothing,  by  which  he  was  estopped 
from  insisting  on  the  technical  defense  which  he  has  seen  fit  to  inter- 
pose. Legally,  he  is  entitled  to  the  benefit  of  it;  and  the  second 
iind  third  assignments  of  error  must  be  sustained 

Judgment  reversed. 


§   119  CONDITIONAL   SUBSCRIPTIONS.  525 


Sec.   119.  Same.     Prior  to  incorporation: 

(^)  Subscription  and  condition  both  void. 

BUTTERNUTS  AND  OXFORD  TURNPIKE  COMPANY  v.  NORTH. 

1841.     In  the  Supreme  Court  of  New  York,     i  Hill's  (N.  Y.) 

Reports  518-519. 

'  Error  from  the  Chenango  common  pleas.  The  action  was  upon  a 
subscription  for  stock  of  the  plaintiffs,  containing  an  engagement  to 
take  stock  "upon  condition  that  said  road  shall  be  laid  by  Fayette 
village  and  Guildford  Centre."  The  commissioners  for  receiving 
subscriptions  had  obtained  several  signatures  to  this,  and  also  to  an- 
other absolute  in  its  terms.  The  court  below  held  that  the  defendant's 
signature  to  the  subscription  in  question  did  not  bind  him,  and  non- 
suited the  plaintiffs.  They  excepted,  and  after  judgment  in  the  court 
below,  sued  out  a  writ  of  error. 

By  the  court,  Cowen,  J.  Subscriptions  for  stock  under  the  turnpike 
act  (i  R.  S.  581,  2ded.)  to  which  the  plaintiffs  were  subject,  Sess. 
L.  of  1834,  p.  137,^  must  be  absolute.  This  act  confers  no  power  to 
make  conditions,  and  to  allow  such  a  thing  would  be  contrary  to  pub- 
lic policy.  Divers  men  would,  perhaps,  have  their  divers  routes,  and 
endeavor  improperly  to  influence  the  course  of  the  road.  If  the  gen- 
eral subscription  should  contain  a  condition  of  this  kind,  there  would 
be  no  stockholders  till  the  road  should  be  laid  out  accordingly,  and 
separate  subscriptions  containing  various  conditions  might  work  a 
fraud  upon  those  who  subscribed  absolutely.  The  court  below  de- 
cided correctly. 

Judgment  affirmed. 

Note.  To  same  effect.  1871,  People  v.  Chambers  et  al.,  42  Cal.  201.  (Pay- 
ment by  check  insufficient,  must  be  by  cash.) 

'  The  act  provided :  Sec.  2.  Each  of  the  persons,  who  shall  be  named 
*  *  *  as  a  commissioner  for  receiving  subscriptions,  shall  furnish  himself 
with  a  book  for  that  purpose,  which  shall  be  kept  open  for  two  years,  unless 
one-sixth  of  the  whole  number  of  shares  shall  be  sooner  subscribed.  Sec.  3. 
Each  subscriber  shall  pay  to  the  commissioners  receiving  his  subscription, 
and  at  the  time,  on  each  share  that  he  shall  subscribe  one-tenth  of  the  sum 
fixed  in  the  act  of  incorporation  as  the  amount  of  one  shai-e.  *  *  *  gee.  4. 
Provided  that  as  soon  as  one-sixth  of  the  whole  number  of  shares  shall  have 
been  subscribed,  the  commissioners  shall  call  a  meeting  for  election  of  di- 
rectors. Sec.  5.  That  commissioners , should  preside,  and  the  subscribers 
present,  or  their  proxies,  by  plurality  of  votes  shall  elect  directors.  Sec.  6. 
The  commissioners  shall  th^n  deliver  subscription  books  to  directors  and  pay 
over  money. 


526  ARMSTRONG  V.  KARSHNER.  §  120 

Sec.  120.    Same.      (2)    After  incorporation.     Theories: 

(«)    Valid  contract,  to  await  time  of  performance. 

ARMSTRONG  v.  KARSHNER.* 

1890.     In    the    Supreme    Court    of    Ohio.     47    Ohio   St.    Rep. 

276-30 

[Suit  by  Karshner  to  enforce  payment  of  a  subscription  which  had 
been  assigned  to  plaintiff  for  construction  of  the  railroad  mentioned 
in  the  subscription.      The  subscription  was  as  follows: 

"We,  the  undersigned,  agree  to  pay  the  number  of  shares  annexed 
to  our  respective  names,  of  fifty  dollars  each,  to  the  capital  stock  of 
the  Cincinnati,  Hocking  Valley  and  Huntington  Railway  Company, 
and  we  hereby  bind  ourselves,  our  heirs,  executors  or  administrators 
to  pay  the  same  to  the  authorized  agent  of  said  company;  but  it  is 
expressly  provided  as  follows:  That  no  part  of  said  subscription 
shall  be  due  until  a  railroad  track  shall  be  laid  ready  for  the  i-unning 
of  cars  from  some  point  of  the  Scioto  Valley  Railroad  to  a  point  at 
or  near  Adelphi,  in  Ross  county,  and  when  said  railroad  track  is  so 
laid,  we,  the  undersigned,  mutually  agree  that  we  will  each,  on  de- 
mand, pay  the  amounts  set  opposite  our  respective  names  to  such 
authorized  agent  of  said  company  in  full  payment  for  such  shares  of 
capital  stock. 

"Names. October,  1881, No.  of  shares.     Amount. 

"It  is  distinctly  agreed  and  understood  that  all  the  within  stock  sub- 
scriptions are  binding,  providing  the  road  is  built  on  the  north  of 
Adelphi,  otherwise  they  are  void. 

"Ten  shares,  $50  each,  $500.  Milton  Armstrong."] 

Williams,  J.  *  *  *  The  principal  question  in  the  case  arises  from 
the  second  defense,  the  substance  of  which  is,  that  the  defendant's  sub- 
scription is  a  conditional  one,  and,  at  the  time  it  was  made,  the  capi- 
tal stock  of  the  company  had  been  increased,  and  actual  bona  Jide 
subscriptions  to  the  amount  of  20  per  centum  of  the  capital  stock, 
so  increased,  had  not  then  been  obtained,  nor  had  10  per  centum 
of  such  capital  stock  been  expended  in  the  construction  of  the  road. 

The  claim  is,  that  the  railroad  company  had  no  corporate  power  to 
receive  the  defendant's  subscription,  because  it  had  not  then  obtained 
unconditional  subscriptions  to  the  amount  of  20  per  centum  of  its  cap- 
ital stock,  or  expended  10  per  centum  of  its  authorized  capital  in  the 
construction  of  its  road.  This  claim  is  based  upon  section  3298  of  the 
Revised  Statutes,  which  provides:  "The  directors  of  a  company  which 
has  expended  in  the  construction  of  its  road  10  per  centum  of  its  au- 
thorized capital  and  has  obtained  actual  bona  jide  subscriptions  to  its 
capital  stock  to  the  amount  of  at  least  20  per  centum  thereof,  may 
receive  subscriptions  to  its  capital  stock,  payable  in  such  installments, 
dependent  upon  the  completion  of  the  whole  or  any  part  of  its  road  so 
that  cars  may  pass  over  the   same,  as  its   directors   may  deem  expedi- 

'  Only  so  much  of  the  opinion  is  given  as  relates  to  the  character  of  the 
subscription. 


§   I20  CONDITIONAL   SUBSCRIPTIONS.  527 

ent,  and  upon  full  payment  thereof  may  issue  certificates  of  stock 
therefor." 

Unless  restrained  by  statute,  corporations  may  receive  conditional 
subscriptions  to  their  stock  at  any  time  after  their  actual  incorpora- 
tion. "A  conditional  subscription  to  stock,  taken  and  accepted  by  a 
corporation  after  its  incorporation,  is  legal  by  the  common  law  of  all 
the  states."  Cook  on  Stock  and  Stockholders,  §  82.  And  it  is  said  by 
White,  J.,  in  Ashtabula  and  New  Lisbon  R.  Co.  v.  Smith,  15  Ohio 
St.  -336,  that,  "Except  in  New  York,  conditional  subscriptions,  in  the 
absence  of  a  special  prohibition,  so  far  as  we  have  observed,  have  been 
sustained,  as  authorized,  and  not  in  conflict  with  public  policy. 

No  special  prohibition  is  found  in  section  3298  against  a  railroad 
corporation  receiving  conditional  subscriptions.  The  most  that  can 
be  claimed  from  the  section  is  that,  it  having  specified  the  cases  in 
which  such  conditional  subscriptions  may  be  received,  there  is  want 
of  authority  to  receive  them  othei-wise  than  as  therein  provided.  If 
this  be  admitted,  does  it  necessarily  follow  that  a  subscription  not  in 
all  respects  in  conformity  to  the  statute  may  not  be  enforced.''  "The 
rule  seems  well  established,"  says  Boynton,  J.,  in  Hays  v.  Galena 
Gaslight  and  Coal  Co.,  29  Ohio  St.  340,  "that  where  a  contract  has 
been  executed  and  fully  performed,  on  the  part  either  of  the  corpora- 
tion or  of  the  other  contracting  party,  neither  will  be  permitted  to 
insist  that  the  contract  and  such  performance  by  one  party  were  not 
within  the  corporate  power  of  the  company." 

Generally ^  after  the  acceptance  by  the  corporatiotz  of  a  conditional 
subscription  -which  it  is  authorized  to  take,  the  subscriber  is  bound 
until  performance  of  the  condition  to  aivait  such  performance ;  he 
can  not  withdraw  the  subscription  unless  the  performance  is  unrea- 
sonably delayed.  Cook  on  Stock  and  Stockholders,  §  84.  But  a  con- 
ditional subscription,  which  is  not  a  present  valid  contract,  may  be  a 
continuing  offer  to  subscribe  upon  the  specified  conditions,  and  when 
those  conditions  are  performed,  if  the  offer  be  not  before  withdrawn, 
it  may  then  become  an  absolute  and  imconditional  subscription.  The 
difference  between  the  two  classes  of  subscriptions  is  that  the  former 
becomes  binding  when  accepted,  and  the  latter  only  when  the  condi- 
tion is  performed,  and  it  may,  at  any  time  before  then,  be  withdrawn. 
If  not  so  withdrawn,  it  becomes  an  absolute  subscription.  In  Ash- 
tabula and  New  Lisbon  R.  Co.  v.  Smith,  supra.  White,  J.,  speaking 
of  the  conditional  subscription  to  the  capital  stock  of  the  railroad  com- 
pany involved  in  that  case,  and  the  effect  of  the  performance  of  the 
conditions  by  the  company,  said  :  "The  subscription  was  designed  as, 
and  was  in  fact,  a  standing  or  continuing  proposition,  upon  which  the 
plaintiff  was  not  expected  to  act  until  the  time  arrived  for  the  final 
location  of  its  road.  Having  been  delivered  for  this  purpose,  and 
acted  on  by  the  plaintiff,  after  the  condition  has  been  complied  with, 
it  became  an  absolute  subscription."  In  the  case  of  The  Mansfield, 
Coldwater  and  Lake  Michigan  R.  Co.  v.  Stout,  26  Ohio  St.  254,  it 
is  said  by  Mcllvaine,  J.:  "There  has  been  some  contention  whether 
the  instrument  sued  on  is  to  be  regarded  as  a  subscription  of  stock, 


528  WEBB    V.   BALTIMORE,   ETC.,   R.   CO.  §   12  1 

subject  to  a  condition  precedent,  or  as  a  mere  offer  to  subscribe,  when 
the  conditions  named  might  be  performed.  This  question  we  deem  to 
be  immaterial  in  this  case,  as  there  is  no  pretense  that  the  offer,  if  a 
mere  offer  it  be,  was  at  any  time  withdrawn.  The  important  question 
is,  have  the  conditions  been  performed.'"' 

The  conditions  expressed  in  the  defendant's  subscription,  it  is  al- 
leged in  the  petition,  were  fully  performed,  and  upon  this  no  issue  is 
raised  by  the  answer.  If  it  be  conceded,  therefore,  that  the  instru- 
ment executed  by  the  defendant  was  not,  by  reason  of  the  provisions 
of  the  statute,  a  valid  and  binding  subscription  to  the  capital  stock 
when  subscribed  and  delivered  to  the  company,  it  was,  at  least,  a 
continuing  offer  to  pay  the  amount  stipulated  upon  the  performance 
of  the  conditions  therein  specified ;  and,  while  the  defendant  at  any 
time  before  such  performance  might  have  withdrawn  his  offer,  he  did 
not,  and  the  conditions  having  been  fully  complied  with  by  the  railroad 
company,  he  can  not  now,  we  think,  defend  against  the  payment  of 
the  subscription  on  that  ground  that  the  company  was  without  corpo- 
rate authority  to  receive  it.  It  is  not  important  whether  the  subscrip- 
tion is  enforced  on  the  ground  that  on  the  performance  of  the  condi- 
tions it  became  an  unconditional  subscription,  or  on  the  ground  of  es- 
toppel.     The  legal  result  is  the  same. 

Affirmed. 

Note.     See  citations  s!<jpra,  §  116,  p.  514. 


Sec.  121.      Same.      After  incorporation. 

(<5)    Mere  offer  until  performance. 

WEBB  V.  THE  BALTIMORE  AND  EASTERN  SHORE  R.  CO. 

1893.     Ix  THE  Court  of  Appeals  of  Maryland.     77  Md.  Rep. 
92-99,  39  Am.  St.  Rep.  396,  26  Atl.  Rep.  113. 

Appeal  from  the  circuit  court  of  Dorchester  county. 

The  case  is  stated  in  the  opinion  of  the  court. 

The  cause  was  argued  before  Alvey,  C.  J.,  Robinson,  Bryan, 
Fowler,  Page,  McSherry  and  Briscoe,  JJ. 

Alvey,  C.  J.,  delivered  the  opinion  of  the  court. 

This  action  was  brought  to  recover  of  the  defendant  for  certain 
stock  subscribed  in  the  plaintiff  company.  The  declaration  contains 
several  of  the  common  indebitatus  coxints^i  but  the  fifth  count  is  special, 
and  it  alleges  that  the  defendant  subscribed  for  and  agreed  to  take 
twenty  shares  of  the  capital  stock  of  the  plaintiff  company,  and  to 
pay  $1,000  therefor  on  the  completion  of  the  railroad  of  the  company 
to  the  town  of  Vienna,  Md.,  and  that,  although  the  said  railroad  has 
long  since  been  completed  to  the  said  town  of  Vienna,  and  that  the 
said  subscription  is  due  and  demandable,  the  defendant  has  not  paid 
the  samCj  or  any  part  thereof.  By  the  pleas,  the  defendant  denied 
the  legal  existence  of  the  contract  alleged,  or  that  he  was  in  any  man- 
ner bound  thereby. 


§  121  CONDITIONAL    SUBSCRIPTIONS.  529 

The  questions  presented  on  this  appeal  are  simply  as  to  the  admis- 
sibility of  evidence  and  are  presented  by  two  bills  of  exception  taken 
by  the  defendant. 

At  the  trial  it  was  admitted  that  the  plaintiff  was  a  corporation, 
duly  organized  and  existing  under  the  laws  of  the  state,  and  that  the 
plaintiff  had  constructed  its  railroad  from  Easton  Bay,  in  Talbot 
county,  to  the  town  of  Vienna,  in  Dorchester  county,  before  the  ist 
of  January,  1891  ;  and  that,  in  the  construction  of  its  road  the  plaint- 
iff had  expended  large  sums  of  money,  and  created  a  large  indebted- 
ness, still  outstanding  at  the  time  of  this  suit  brought,  to  wit,  the  12th 
day  of  August,  189 1.  It  was  also  admitted  that  before  this  was 
brought,  the  defendant  received  from  the  secretary  of  the  plaintiff,  a 
letter  calling  on  him  to  pay  the  money  alleged  to  be  due  on  the  stock, 
and,  further,  that  before  the  bringing  of  this  suit  neither  the  plaintiff, 
nor  any  one  on  its  behalf,  ever  offered  or  tendered  the  certificates  for 
the  stock  subscribed  for  by  the  defendant.  The  plaintiff  then  offered 
in  evidence  a  subscription  book,  purporting  to  be  a  subscription  book 
for  the  stock  of  the  plaintiff,  and  proved  by  an  agent  of  the  company, 
to  whom  the  book  had  been  intrusted  to  procure  subscriptions,  that  it 
was  the  subscription  book  of  the  plaintiff,  and  that  the  entry  in  that 
book,  to  which  the  name  of  the  defendant  was  subscribed,  was  made 
and  signed  by  the  defendant.  In  that  book  there  is  this  heading: 
"We,  the  undersigned,  agree  to  subscribe  to  and  pay  for  the  number 
of  shares  of  the  capital  stock  of  the  Baltimore  and  Eastern  Shore 
Railroad  Company,  set  opposite  our  names,  provided  the  said  road 
shall  be  built  on  the  Vienna  route ;  said  shares  of  stock  to  be  of  the 
par  value  of  $50,  and  the  same  to  be  paid  for  on  installments  of  twenty 
per  cent,  as  any  ten  miles  of  road  are  completed."  This  heading  had 
appended  to  it  about  sixty  signatures;   and  then  follows  this  entry: 

"I  hereby  agree  to  take  twenty  shares  of  the  Baltimore  and  Eastern 
Shore  Railroad  Company  stock  when  completed  to  Vienna. 

"$1,000.00.  Albert  Webb." 

To  the  offer  of  this  subscription  book,  with  the  entry  therein  signed 
by  the  defendant,  the  latter  objected,  and  in  support  of  his  objection 
has  assigned  several  grounds:  First,  that  there  was  no  evidence  of  a 
tender  of  certificates  of  stock  to  the  defendant,  and  that  this  suit  could 
not  be  maintained  without  such  tender,  and  that  the  subscription  was 
invalid  because  the  statutory  installment  was  not  paid.  Secondly^ 
that  there  was  no  contract  of  a  present  subscription  for  stock,  but,  at 
most,  nothing  more  than  a  mere  promise  to  subscribe  when  the  road 
was  completed  to  Vienna.  Thirdly,  that  if  the  entry  signed  by  the 
defendant  be  treated  as  a  present  subscription  to  stock,  the  contract  is 
within  the  provisions  of  the  Statute  of  Frauds,  29  Car.  1 1,  ch.  3,  §  17, 
and  that  it  is  fatally  defective  in  omitting  to  name  the  vendor  of  the 
stock,  and  that  there  is  no  sufficient  consideration  for  the  defendant's 
undertaking  shown  on  the  face  of  the  subscription  paper.  There  is 
also  a  general  objection  taken  to  the  admissibility  of  the  subscription 

34— WiL.  Cases. 


530  WEBB    V.  BALTIMORE,  ETC.,  R.   CO.  §   121 

book  in  evidence.      The  objection  to  the  admissibility  of  the  evidence 
was  overruled. 

In  the  opinion  of  this  court  none  of  the  grounds  assigned  in  support 
of  the  objection  taken  can  be  sustained. 

1,  There  is  clearly  no  valid  ground  for  the  objection  that  the  cer- 
tificates for  the  stock  should  have  been  tendered  to  the  defendant  as  a 
condition  precedent  to  the  right  to  maintain  this  action  for  the  money 
due  on  the  subscription.  This  would  seem  to  be  well  settled,  i 
Mor.  on  Corp.,  §  6i,  and  cases  there  cited.  Scarlett  v.  Academy  of 
Music,  43  Md.  203.  Nor  is  the  objection  well  taken  that  the  subscrip- 
tion is  not  binding  upon  the  defendant  because  it  is  not  shown  that  an 
installment  of  $5  in  cash  on  each  share  of  stock  subscribed  had  been 
paid  at  the  time  of  making  the  subscription,  under  section  163  of  article 
23  of  the  code.  The  omission  of  such  payment  does  not  invalidate 
the  subscription.  That  construction  of  this  provision  of  the  statute 
has  been  settled  by  the  decision  of  this  court,  in  the  case  of  Oler  v. 
Baltimore  and  Randallstown  Railroad  Co.,  41  Md.  583.  And  with 
respect  to  the  necessity  for  showing  that  the  amount  of  the  subscrip- 
tion had  been  called  for  by  the  directors  of  the  company,  before  suit 
brought,  it  was  admitted  that  the  defendant  had  received  a  letter,  be- 
fore suit  brought,  purporting  to  be  from  the  secretary  of  the  plaintiff, 
calling  upon  him  to  pay  the  money  due  on  the  stock,  as  being  then 
due,  but  that  payment  was  refused.  Whether  that  call  or  demand 
was  made  by  the  authority  of  the  directors  of  the  company,  was  a 
question  of  fact  for  the  jury,  upon  all  the  evidence  in  the  case. 

2.  The  subscription  in  the  form  in  which  it  was  made  was  inchoate 
and  conditional.  It  was  such,  however,  as  the  company  had  a  right 
to  accept.  Taggart  v.  The  West  Maryland  Railroad  Company,  24 
Md.  595  ;  Phil.  &  West  Chester  Railroad  Co.  v.  Hickman,  28  Pa. 
St.  318.  It  was  simply  a  conditional  offer  by  the  defendant  to  be- 
come a  stockholder  after  the  condition  specified  had  been  ferfortned 
by  the  company.  The  performance  of  the  condition  precedent  on  the 
part  of  the  company  was  necessary  to  a  valid  acceptance  of  the  offer 
thus  made  by  the  subscriber ;  and  before  this  acceptance ^  by  the  per- 
formance of  the  condition  precedent ,  the  defendant  did  not,  by  vir- 
tue of  such  subscription,  beco?ne  a  ?ne?}zber  of  the  company .  His  sub- 
scription was  a  mere  offer,  and  unless  withdrawn  before  the  condi- 
tion perfor?ned  by  the  company,  it  became  fnal and  cibsolute  hnmedi- 
ately  upon  the  performance  of  the  condition;  or,  as  was  said  by  this 
court  in  Taggart  v.  West  Alaryland  Railroad  Co.,  supra,  such  con- 
ditional subscription,  upon  the  performance  of  the  condition,  thus 
became  ultimately  an  uncotiditiofial  and  absohite  subscription.  And 
that  being  the  efiect  and  operation  of  the  subscription  made  by  the  de- 
fendant, it  is  quite  clear  that  no  other  or  further  act  of  subscription  was 
necessary,  or  contemplated  by  the  parties  in  order  to  convert  the  original 
conditional  subscription  into  an  unconditional  and  absolute  subscription. 
The  defendant  appears  to  have  declined  the  conditional  terms  em- 
braced in  the  heading  of  the  preceding  subscriptions,  which  required 
the  amount  of  the  subscriptions  to  be  paid  in  installments  of   twenty 


^121  CONDITIONAL   SUBSCRIPTIONS.  531 

per  cent,  as  any  ten  miles  of  the  road  should  be  completed ;  and  he 
preferred  to  make  his  subscription  separate,  and  to  make  it  depend 
upon  the  completion  of  the  road  to  Vienna ;  and  when  the  road  was 
so  made,  which  is  admitted  to  have  been  done  before  this  action  was 
brought,  the  subscription  of  the  defendant  for  the  twenty  shares  of 
stock  became  absolute,  and  the  price  therefor  thence  became  payable 
on  demand  of  the  directors  of  the  company.  This  is  the  clear  import 
of  the  subscription  of  the  defendant.  No  particular  form  of  subscrip- 
tion is  made  essential,  and  the  present  subscription  is  not  of  a 
formal  character,  yet  there  is  enough  in  the  paper,  when  read  in  con- 
nection with  what  precedes  it  in  the  same  book,  to  show  what  was 
really  intended  by  the  parties  to  the  contract. 

3.  The  contention  that  this  contract  of  subscription  is  within  the 
statute  of  frauds,  29  Chas.  II,  ch.  3,  §  17,  is  not  maintainable,  either 
upon  reason  or  authority.  A  subscription  for  shares  of  stock  in  an 
ordinary  corporation^  is  not  a  contract  for  the  sale  of  ""^ goods ^  wares 
and  merchandise' ' ;  ivords  which  comprehend  only  corporeal  movable 
property.  Shares  of  stock  are  but  choses  inaction,  and  are  not  within 
statute ;  and  this  is  the  established  construction  of  the  statute  by  the 
English  courts,  as  shown  by  the  collection  of  cases  by  Mr.  Benjamin 
in  his  admirable  work  on  Sales,  pp.  90—91 ;  and  the  same  construction 
has  been  adopted  by  decisions  of  high  authority  in  this  country, 
(Browne  on  Statutes  of  Frauds,  §  298  ;  Ang.  &  Ames  on  Corp. ,  §  563  ; 
Clark  V.  Bumham,  2  Story  C.  C.  Rep.  15)  though  there  are  some  de- 
cisions, especially  of  an  earlier  date,  entitled  to  great  respect,  to  the 
contrary.  In  the  absence  of  a  binding  authority,  such  as  an  express 
decision  of  this  court,  we  are  not  disposed  to  adopt  and  follow  the  de- 
cisions of  the  American  courts,  holding  that  the  statute  does  apply  in 
such  cases,  being  as  they  are  in  conflict  with  the  English  courts  upon 
this  subject.  We  think  the  English  decisions  furnish  the  better  and 
more  reasonable  construction  of  the  statute. 

In  the  case  of  Colvin  v.  Williams,  3  H.  &  J.  38,^  the  only  case  in 
this  state  supposed  to  give  any  support  to  the  contention  of  the  de- 
fendant, the  question  presented  was  quite  different  from  that  presented 
in  this  case.  In  that  case  there  was  a  sale  of  bank  stock  by  a  broker, 
and  the  broker  became  the  agent  of  both  seller  and  buyer,  and  in 
whose  name  as  vendor  a  memorandum  of  sale  was  made  out  and  de- 
livered to  the  defendant,  who  filled  up  the  blank  in  the  memorandum 
with  the  number  of  shares  he  desired,  and  accepted  the  same  as  pur- 
chaser of  the  number  of  shares  sold.  Upon  this  memorandum  the 
court  below  held  the  plaintiff  to  be  entitled  to  recover ;  and  upon  ap- 
peal, this  court  held  the  court  below  right  in  its  ruling,  and  affirmed 
the  judgment.  There  was  no  opinion  delivered  ;  but  it  is  stated  at  the 
conclusion  of  the  case,  whether  by  the  authority  of  the  court  or  by  the 
reporters  of  the  case  without  such  authority,  does  not  appear,  that  it 
was  said  by  the  court  "that  the  sale  of  bank  stock  is  within  the  statute 
of  frauds ;  and  that  the  broker  was  the  common  agent  of  both  the  ap- 
pellee and   appellant."     If  such  was  the   case,  as  we  must  take   it  to 

'5  Am.  Dec.  417. 


532  RAILROAD   V.  PARKS.  §   122 

be,  it  is  very  clear  that  the  declaration  made  at  the  conclusion  of  the 
case,  "that  the  sale  of  bank  stock  was  within  the  statute  of  frauds," 
was  wholly  urmecessary  to  the  decision  of  the  case,  and  was  purely  a 
dictum,  if  in  fact  it  be  assumed  to  have  emanated  from  the  court  at 
all.  The  statute  did  not  avail  as  a  defense  to  the  defendant,  if  it  was 
in  fact  relied  on  as  a  defense,  which  does  not  appear  to  have  been  the 
case.  There  have  been  many  cases  since  that  decision  in  which  such 
defense  could  have  been  taken,  if  the  statute  was  applicable  in  such 
cases  as  this,  but  which  passed  without  question  as  to  the  application 
of  the  statute. 

Upon  both  exceptions,  therefore,  we  are  of  opinion  that  the  court 
below  was  correct  in  its  rulings,  and  that  the  judgment  appealed  from 
should  be  affirmed. 

Judgment  affirmed. 

Xote.  See  citations,  supra,  §  116,  p.  514.  As  to  statute  of  frauds,  see  1898, 
Rogers  v.  Burr.  105  Gra.  432,  70  Am.  St.  Kep.  50,  and  note,  supra,  p. 459. 

Sec.  122.    Subscriptions  may  be  upon  conditions  precedent  or  sub- 
sequent. 

RAILROAD  (Paducah  and  Memphis)  v.  PARKS.' 

i88S.     In  the  Supreme  Court  of  Texxessee.     86  Tenn.  Rep. 
554-565,  8  S.  W.  Rep.  842. 

Appeal  in  error  from  circuit  court  of  Dyer  county,  T.  J.  Flip- 
pin,  J. 

LuRTON,  J.  These  four  suits  at  law  against  subscribers  to  the  stock 
of  the  Paducah  and  ^Memphis  Railroad  Company  were  tried  by  con- 
sent together,  and,  a  jury  being  waived,  the  issues  of  law  and  fact 
were  submitted  to  the  circuit  judge,  w^ho  has  filed  his  special  findings 
of  fact  and  law  as  part  of  the  record.  There  was  a  judgment  in  favor 
of  each  of  the  defendants,  and  an  appeal  by  the  plaintiffs. 

The  contract  of  subscription  upon  which  the  suit  was  brought  was 
as  follows: 

"July  31,  1872. — ^We,  the  subscribers,  agree  and  bind  ourselves, 
our  heirs  and  legal  representatives,  to  pay  to  the  Paducah  and  Mem- 
phis Railroad  Company  the  sums  by  us  subscribed,  to  be  stock  in  said 
railroad  company,  upon  the  following  terms  and  conditions,  to  wit: 
One-fourth  to  be  paid  when  the.  road  is  completed  to  the  north  or 
south  line  of  Dyer  county,  the  remainder  of  the  amount  subscribed  to 
be  paid  in  four  equal  installments  of  four  months,  as  the  work  pro- 
gresses through  the  countv :  Provided .  The  company  establish  a  derpot 
on  said  road  within  fifteen  hundred  feet  of  G.  B.  Tinsley's  comer  store, 
supposed  to  be  the  center  of  Newbem.  It  is  further  provided  that 
certificates  of  stock  issue  to  said  subscribers  as  to  other  stockholders 
in  said  company,  upon  the  payment  of  their  subscription." 

The  proof  shows  that  there  was  a  gap  in  the  line  of  a  road  pro- 
jected between  Paducah,  Ky.,  and  Memphis,  Tenn.,  each  end  of  the 

^  Part  of  opinion,  upon  other  points,  omitted. 


§   122  CONDITIONAL   SUBSCRIPTIONS.  533 

road  being  in  operation  and  owned  by  different  companies.  The  new 
company  was  the  result  of  the  consolidation  of  the  two  old  companies, 
and  it  undertook  the  completion  of  the  missing  link.  Dyer  county, 
of  which  Newbem  is  a  flourishing  village,  would  be  crossed  by  the 
finished  road. 

The  assignments  of  errors  are  so  defective  as  to  raise  no  question 
of  fact,  but  the  second  assignment  is  sufficient  to  raise  a  question  of 
law.  We  have,  therefore,  treated  the  facts  as  found  by  the  circuit 
judge  as  the  facts  of  the  case,  and  will  test  the  soundness  of  the  result 
he  reached  by  the  law  applicable.  The  facts  necessary  to  be  stated, 
as  found  by  his  Honor,  are  as  follows: 

"That  work  was  commenced  on  said  unfinished  part  of  the  road 
early  in  1872,  and  the  Dyer  county  line  was  reached  on  the  north  in 
April,  1873,  and  on  the  28th  of  that  month  it  ran  its  train  of  cars  into 
Trimble  Station,  in  said  county.  On  the  15th  of  May  thereafter,  the 
company  made  a  call  for  one-fourth  of  the  subscription,  according  to 
contract."  This  call,  together  with  the  second  and  third  calls,  were 
likewise  paid  by  each  of  the  defendants.  "The  company  did  work 
on  the  road  in  Dyer  county  until  the  last  of  July  or  first  of  August, 
1874,  at  which  time  it  ceased  operations  and  work  of  all  sort.  The 
work  principally  done  in  Dyer  county  was  between  Dyersburg  and 
Trimble  Station ;  the  road  was  mostly  graded,  or  a  great  deal  of  it, 
from  Trimble  Station  to  Newbem,  and  between  Newbem  and  Dyers- 
burg, and  in  places  bridges  were  constructed,  and  cross-ties  were  col- 
lected in  one  or  more  places  to  be  placed  on  the  road.  The  road  was 
widened  at  the  place  where  the  depot  now  stands  (in  Newbem)  as  if 
for  side  track,  but  the  company  owned  no  property  or  land  outside 
of  the  right  of  way  upon  which  a  depot  could  be  located." 

He  further  held  that  the  proof  did  not  show  any  further  prepara- 
tions for  the  establishment  of  a  depot  at  Newbern  than  the  widening 
of  the  grade  at  that  point  for  side-track  purposes.  He  further  found 
that  shortly  after  cessation  of  work  in  August,  1874,  foreclosure  pro- 
ceedings were  instituted  by  bond  creditors,  and  the  property  and  fran- 
chises of  the  corporation  sold  at  public  sale,  and  acquired  by  the 
Chesapeake  and  Ohio  Railroad  Company,  and  this  company,  being 
an  entirely  new  and  independent  organization,  has  since  finished  the 
projected  road  through  Dyer  county.  That  to  induce  location  of  depot 
at  Newbem,  citizens  of  that  place  had  been  compelled  to  make  a  new 
contract  with  the  successor  company,  who  had  assumed  none  of  the 
contracts  or  liabilities  of  the  old  company.  He  further  found  that  the 
old  corporation  was  utterly  insolvent  at  the  time  it  abandoned  work, 
and  that  at  the  time  of  trial  it  had  no  property,  franchises,  and  prac- 
ticallv  no  existence. 

The  subscription  list  was  accepted  by  the  Paducah  and  Memphis 
Railroad  Company,  and  on  the  12th  of  September,  1S73.  after  pay- 
ment of  first  call  by  subscribers,  was  assigned  to  Childs.  Stephens  & 
Co.,  contractors  for  work  in  Dyer  county,  in  part  payment  for  work 
done  and  to  be  done  by  them.  The  suit  is  by  these  assignees  and 
creditors  of  the  insolvent  company.     Three  of  the  suits  are  for  the 


534  RAILROAD    V.   PARKS.  §   122 

fourth  call,  which  matured  in  May,  1874,  and  before  work  had  ceased^ 
and  the  fourth  defendant  is  sued  alone  upon  the  fifth  and  last  call, 
which  did  not  mature,  in  point  of  time,  until  September,  1874,  which 
was  after  all  effort  to  complete  the  road  had  been  abandoned.  The 
question  is  as  to  whether  defendants  are  liable  for  any  of  the  unpaid 
calls.  His  honor,  the  circuit  judge,  was  of  opinion  that  the  con- 
struction of  the  road  to  the  line  of  the  county  was  a  condition  precedent 
to  any  liability,  and  that  this  condition  had  been  met.  He  was  further 
of  opinion  that  the  stipulation  requiring  the  establishment  of  a  depot 
at  Newbern  was  an  independent  provision,  and  not  a  condition  prece- 
dent to  liability  upon  the  contract  of  subscription.  This  latter  pro- 
vision, he  held,  required  and  meant  the  erection  of  a  depot  building, 
with  reasonable  facilities  for  freight  and  passengers.  Upon  these 
facts,  and  upon  the  contract  as  thus  construed,  the  circuit  judge  held 
that,  although  the  stipulation  as  to  a  depot  was  not  a  condition  prece- 
dent, yet  it  was  a  part  of  the  agreement  of  the  corporation  which,  at 
some  reasonable  time,  it  was  bound  to  carry  out,  and  that  as  it  was 
now  obvious  that  the  utter  insolvency  of  the  company,  and  the  sale 
of  its  property  and  franchises,  had  rendered  the  performance  of  this 
contract  impossible,  that  it,  therefore,  followed  that  the  defendants 
were  released  from  liability  upon  their  stock,  both  as  to  calls  accruing 
before  and  after  the  abandonment  of  work  upon  the  road. 

In  this  conclusion  we  think  he  erred.  If  it  be  conceded  that  the 
proviso  concerning  a  depot  at  Newbern  is  not  a  condition  precedent, 
as  his  honor  does,  then  it  must  follow  that  a  breach  of  an  independ- 
ent covenant  will  not  discharge  the  other  party  of  the  contract,  but 
that  the  party  damaged  by  such  breach  must  rely  upon  his  remedy  at 
law  for  damages,  or  his  remedy  in  equity,  by  bill  for  a  specific  per- 
formance. Such  breach  will  not  defeat  a  right  of  action  upon  those 
parts  of  the  contract  not  dependent  upon  it.  Before  such  right  of 
action  for  a  breach  of  this  covenant  arose  the  stock  list  was  assigned 
to  creditors  of  the  company,  and  hence  such  breach  can  not,  as  against 
such  assignees,  be  set  up  to  defeat  or  abate  their  legal  right  of  recovery. 
If  the  construction  of  a  depot  had  been  made  a  condition  precedent  to 
the  subscription,  or  to  liability  for  calls  upon  stock,  then  it  would  de- 
volve upon  plaintiff  to  show  performance  of  such  precedent  condition  ; 
but,  on  the  other  hand,  if  the  parties  have  not  chosen  to  make  respon- 
sibility depend  upon  performance  of  this  stipulation,  then,  clearly,  de- 
fendants must  rely  upon  their  independent  remedy  against  the  com- 
pany. 

We  agree  with  his  honor  that  this  proviso  as  to  a  depot  was  not  a 
condition  precedent,  but  a  mere  independent  stipulation. 

The  capital  of  stock  companies  consist  of  their  stock  subscriptions. 
This  is  the  basis  of  credit,  and  an  essential  to  organization.  This  is 
a  trust-fund  for  the  benefit  of  creditors  in  case  of  insolvency.  Condi- 
tional subscriptions  to  the  stock  of  corf  orations  are  unusual^  and 
often  operate  to  defeat  subscribers  who  beco?ne  such  absolutely  and 
upon  the  faith  that  all  the  stock  is  eqtially  bound  to  contribute  to  the 
hazards  of  the  enterprise.     It  misleads  creditors,  and  is  the  fruit- 


§    122  CONDITIONAL   SUBSCRIPTIONS.  535 

ful  source  of  litigation  and  disaster.  Tending  to  the  ensnarement 
of  creditors^  atid  contrary  to  a  sound  public  policy^  conditional  sub- 
scriptions to  corporate  shares  ought  not  to  be  encouraged .  Their  va- 
lidity^ however,  is  too  firtnly  fixed  by  a  long  line  of  decisions^  to  be 
now  overturned^  yet  the  courts  xvill  not  strain^  where  creditors  are 
concerned ,  to  convert  independent  covenants  into  cotiditions precedent. 
It'  a  subscriber  desires  to  make  his  liability  depend  upon  the  perfor- 
mance of  some  stipulation  by  the  corporation,  it  is  very  easy  for  him 
to  do  so  in  express  terms.  In  the  case  now  under  consideration,  it  is 
obvious  that  the  subscribers  did  not  intend  to  make  the  building  of  a 
depot  at  Newbem  a  condition  upon  which  their  liability  should  de- 
pend. They  expressly  provide  that  one-fourth  of  their  subscriptions 
shall  fall  due  when  the  line  of  the  road  is  completed  to  the  county  line. 

Now.  this  was  a  conditiofi  precedent.,  but  when  it  was  complied 
with  the  subscription  became  absolute.,  and  one-fourth  payable  at  once, 
and  the  remainder  as  the  work  progressed  through  the  county,  in  four 
installments,  four  months  apart.  Now,  a  depot  at  Newbern  would 
be  folly  without  a  railroad  in  operation,  and  every  installment  might 
fall  due  by  lapse  of  time  and  continued  work  within  the  county,  before 
a  depot  would  be  of  any  practical  value.  The  fact  that  the  first  call 
became  payable  when  the  road  reached  the  county  line,  settles  the 
meaning  attached  to  this  stipulation.  The  acts  stipulated  to  be  done 
are  to  be  done  at  different  times.  Hence  they  are  independent  of 
each  other,  and  the  remedy  of  the  subscriber  for  breach  of  such  a  stip- 
ulation is  in  damages.     Goldsborough  v.  Orr,  8  Wheat.  217. 

The  defendants  have  pressed  upon  us  the  case  of  Railroad  v.  Curtis, 
80  N.  Y.  219,  s.  c.  I  Eng.  and  Am.  Railroad  Cases,  as  sustaining 
the  conclusion  of  the  circuit  judge. 

This  case  has  been  carefully  examined,  and  we  are  of  opinion  that 
it  in  no  way  supports  the  contention  of  defendants.  The  contract  in 
that  case  was  one  between  subscribers,  whei'eby  they  agreed  to  become 
subscribers  to  the  stock  of  the  railroad  company  upon  certain  condi- 
tions. They  did  not,  as  held  by  the  court  in  that  case,  become  share- 
holders in  prcesenti,  but  only  pledged  themselves  to  one  another  to 
thereafter  subscribe,  and  upon  condition  that  the  road  should  be  actu- 
ally constructed  by  the  Lake  Shore  Company  through  the  town  of 
Parmer.  The  court  held  that  the  actual  building  of  the  road  by  the 
Lake  Shore  Company  was  a  condition  precedent,  and  that  this  condi- 
tion had  never  been  complied  with. 

The  case  of  N.  &  N.  W.  R.  Co.  v.  Jones,  2  Cold.  574,  is  likewise 
relied  upon.  It  decides  nothing  that  is  in  conflict  with  our  view  of 
this  case.  That  case  was  action  by  the  company  against  the  sub- 
scriber who  had  subscribed  upon  the  express  stipulation  that  his  sub- 
scription should  be  void  unless  the  road  was  constructed  upon  a  cer- 
tain line.  The  directors  did  locate  the  road  upon  the  agreed  line,  but 
afterwards  abandoned  this  line  and  constructed  the  road  upon  a  to- 
tally different  line.  This  court  properly  held  that,  by  the  vciy  terms 
of  the  subscription,  it  became  void  by  this  action  of  the  company. 

The  view  we  have  taken  as  to  the  construction  of  this  contract,  and 


53*5  WIGHT   V.  SHELBY    R.  CO,  §   123 

the  effect  of  the  insolvency  of  the  company  upon  the  stipulation  as  to 
a  depot  at  Newbern,  is  supported  by  a  number  of  well-considered 
cases  in  the  courts  of  other  states. 

Berryman  v.  Trustees,  Southern  Railway,  14  Bush  755 ;  Winkler 
V.  Railroad,  29  Mo.  218;  McMillen  v.  Railroad,  15  B.  Monroe  218; 
Swartwout  v.  Railroad,  24  Mich.  389  ;  Miller  v.  Railroad,  40  Pa.  St. 
237;    Chamberiain  v.  Railroad,  15  Ohio  St.  225. 

This  brings  us  to  a  consideration  of  the  question  as  to  whether  a 
suit  for  the  last  installment  of  these  stock  subscriptions  can  be  now 
maintained.  The  subscription  provided  for  the  maturity  of  the  calls 
subsequent  to  the  first  in  the  following  language : 

"The  remainder  of  the  amount  subscribed  to  be  paid  in  four  equal 
installments  of  four  months,  as  the  work  on  the  road  progressed 
through  the  county.^''  The  work  was  progressing  at  the  time  the 
second,  third  and  fourth  calls  were  made,  and  there  can  be  no  doubt 
but  that  they  were  rightfully  called  and  properly  demanded.  But 
when  the  last  installment  was  called  all  work  had  been  abandoned  and 
has  never  been  since  resumed.  We  are  of  opinion  that  this  last  in- 
stallment has  never  matured.  The  requirement  that  the  calls  subse- 
quent to  the  first  should  be  made  in  equal  installments  "as  the  work 
progressed  through  the  county,"  is  a  condition  precedent  to  the  ma- 
turity of  each  installment;  and  the  abandonment  of  the  work  before 
it  was  finished,  and  before,  in  a  point  of  time,  the  last  call  could 
have  been  made  if  the  work  had  been  carried  on  in  good  faith,  de- 
feats the  action  of  this  installment.  No  right  to  call  for  or  sue  upon . 
this  installment  exists  by  reason  of  the  failure  of  the  company  to  show 
that  the  road  was  finished,  or  work  going  on,  within  the  county  at  the 
time  it  was  demanded.  The  objection  is  made  by  defendants  that 
these  suits  can  not  be  maintained  because  no  tender  of  stock  certifi- 
cates has  been  made. 

This  assignment  of  error  is  not  tenable.  This  is  not  a  case  of  the 
purchase  of  stock  certificates  as  negotiable  securities.  The  tender  in 
such  a  case  might  be  necessaiy  to  maintain  suit  for  the  price.  But  no 
tender  is  necessary  to  maintain  suit  upon  an  ordinary  subscription  for 
stock.    Morawetz  on  Corporations,  §§  61  and  148  (2d  ed.).      *     *     * 

Judgments  as  to  Parks  and  Harris  reversed. 

Note.     See  citations,    §116,  supra,  p.  514. 


Sec.   123.     Conditional  delivery  of  subscriptions.      Escrows,  the- 
ories of: 

(«)     Delivery  can  not  be  to  company's  agent. 

WIGHT  V.  SHELBY  RAILROAD  COMPANY.' 

1855.     In  the  Court  of  Appeals  of    Kentucky.      16  B.    Men. 
(Ky.)   Reports,  4-8,  63  Am.  Dec.  522. 

Judge  Simpson  delivered  the  opinion  of  the  court. 

As  the  same  questions  are  involved  in  both  these  cases,  and  as  the 

*  Part  of  opinion  on  other  points  omitted. 


§   123  SUBSCRIPTIONS    IN    ESCROW.  537 

-validity  of  the  defense  presented  in  both,  has  to  be  examined  in  each 
case,  we  will  proceed  to  consider  and  decide  such  questions  as  arise 
upon  the  record  in  either  case. 

The  defense  relied  upon  by  Wight,  that  the  subscription  of  stock 
made  by  him  was  left  with  one  of  the  commissioners  in  the  nature  of 
an  escrow,  is  wholly  invalid.  The  commissioners  were  the  persons 
appointed  by  the  charter  to  receive  and  accept  subscriptions  of  stock, 
a  subscription  received  by  them,  even  if  such  a  writing  could,  under 
any  circumstances,  be  made  to  assume  the  nature  and  attributes  of  an 
escrow,  could  not  take  that  character,  inasmuch  as,  when  it  was  re- 
ceived by  them,  it  became  just  as  obligatory  on  the  party  making  it 
as  a  promissory  note  would  be  upon  the  maker  who  left  it  with  the 
payee,  or  his  agent.  T'he  -well-settled  doctrine  is  that  to  make  a  ivrit- 
itig  an  escrow  merely,  it  must  be  placed  in  the  hands  of  a  third  -per- 
son by  the  party  making  it,  to  be  delivered  to  the  other  party,  on  the 
happening  of  a  specified  contingency.  Here  the  subscribers  were  the 
parties  on  one  side,  and  the  co?n?nissioners  on  the  other.  A  sub- 
scription when  made  and  received  by  the  commissioners  could  not, 
therefore,  be  a  mere  escrow,  but  became  in  law  an  absolute  under- 
taking for  the  payme?tt  of  the  stock  subscribed  according  to  the  pro- 
visions of  the  charter. 

So  far  as  the  defendants,  or  either  of  them,  alleged  that  their  sub- 
scription was  conditional,  and  was  not  to  be  obligatory  upon  them, 
unless  the  road  was  located  on  a  certain  route,  it  is  only  necessary  to 
remark  that,  the  contract  being  in  writing,  parol  proof  is  inadmis- 
sible to  alter  its  terms  or  to  show  that,  instead  of  being  absolute, 
as  it  purports  to  be,  it  was  in  reality  conditional.  The  subscribers 
might  have  annexed  a  condition  to  the  terms  of  their  subscriptions,  if 
they  had  thought  proper  to  do  so,  and  it  would  then  have  been  with 
the  commissioners  to  determine  whether  such  conditional  subscrip- 
tions of  stock  would  be  received;  but,  not  having  done  so,  they  can 
not,  according  to  the  well-established  doctrine  on  the  subject,  allege 
or  prove  that  the  contract  was  different  from  that  which  is  evidenced 
by  the  writing,  unless  they  can  establish  fraud  or  mistake  in  its  execu- 
tion.    *     *     * 

The  failure  to  pay  the  sum  of  $i  on  each  share  of  stock  subscribed 
can  not  certainly  be  relied  upon  by  the  subscribers  as  exonerating 
them  from  their  liability  for  their  subscriptions.  It  was  their  duty  to  pay 
it  at  the  time  the  stock  was  subscribed,  but  they  should  not  be  allowed 
to  take  advantage  of  their  own  wrong,  and  release  thetnselves  from 
their  whole  obligation  by  a  failure  to  perform  a  part  of  it.  Even 
if  the  commissioners  might  have  refused  to  receive  the  stock,  unless 
the  payment  had  been  made,  yet,  as  they  did  not  do  it,  the  contract 
was,  after  the  stock  had  been  received  without  the  payment,  binding 
upon  both  sides. 

The  decision  of  the  court  in  the  case  of  the  Union  Turnpike  v.  Jenkins, 
I  Caine's  Reports  381,  sustains  the  views  expressed  in  this  opinion, 
and  it  is  only  the  opinion  of  the  dissenting  judge  that  is  cited  in  Angell 
&  Ames  on  Corporations,  and  referred  to  by  the  counsel  for  the  ap- 
pellants. 


538  CASS    V.    PITTSBURGH,     ETC.,    R.    CO.  §   I24 

The  decisions  of  the  Massachusetts  courts,  on  some  of  the  questions 
involved  in  these  cases,  have  not  been  followed  by  this  court. 

In  our  opinion  none  of  the  defenses  presented  by  either  of  the  ap- 
pellants was  a  sufficient  answer  to  the  plaintiff's  action. 

Wherefore,  the  judgment  in  both  cases  is  affirmed. 

Note.     See  note  at  end  of  next  case. 


Sec.  124.  Same. 

(^)   Delivery  may  be  to  company's  agent. 

CASS  V.  PITTSBURGH,   VIRGINIA  AND   CHARLESTON  RAIL- 
WAY CO.  1 

1875.    In  the  Supreme  Court  of  Pennsylvania.  80  Pa.  St.  Rep. 

31-38. 

Mr.  Justice  Sharswood  delivered  the  opinion  of  the  court  May 
29,  1876. 

The  subscription  of  the  plaintiff  in  error  to  the  stock  of  the  defend- 
ants was  upon  condition  "that  in  the  judgment  of  the  board  of  di- 
rectors of  said  company  a  sufficient  amount  is  subscribed  to  the  cap- 
ital stock  of  said  company  on  or  before  the  first  day  of  April,  1871,  to 
grade  and  bridge  the  road,  including  the  right  of  way  from  South 
Pittsburgh  to  West  Brownsville."  The  board  of  directors,  on  the 
first  day  of  April,  1871,  passed  a  resolution,  "that,  in  the  judgment 
of  this  board,  the  conditions  named  are  fully  complied  with ;  that  suf- 
ficient stock  has  been  subscribed  to  grade  and  bridge  the  road,  includ- 
ing the  right  of  way  from  South  Pittsburgh  to  West  Brownsville, "  *  *  * 

The  third  assignment  of  error  is  to  the  rejection  of  an  offer  to  prove, 
in  substance,  that  the  agent  of  the  defendants  by  whom  the  subscrip- 
tion had  been  procured  before  it  was  reported  to  or  accepted  by  the 
company,  at  the  request  of  the  plaintiff,  agreed  to  hold  back  the  sub- 
scription until  he  should  authorize  him  to  hand  it  to  the  company,  and 
that  afterward  a  third  person,  not  a  member  of  the  board,  obtained 
possession  of  the  paper,  under  pretense  of  merely  wishing  to  look  at 
it,  put  it  into  his  pocket,'  and  without  consent  of  the  agent  or  defend- 
ant, delivered  it  to  the  company.  We  think  this  evidence  ought  to 
have  been  received.  It  is  tioie,  as  a  general  rule,  that  delivery  of  a 
bond  or  deed  as  an  escrow  can  not  be  made  to  the  obligee  or  grantee. 
That  principle,  however,  does  not  apply  in  this  case.  When  a  de- 
livery of  an  absolute  deed  is  made  to  the  party,  his  acceptance  is 
presumed  prtjna  facie.,  because  it  is  for  his  benefit.  Then  subse- 
quent acceptance  relates  to  the  first  delivery.  So  it  might  have  been 
now,  had  the  subscription  been  absolute,  but  it  is  different  when  the 
condition  imposes  a  burden  upon  the  other  party.  He  must  then  ex- 
pressly or  impliedly  accept  before  the  contract  becomes  completely 
binding  on  both  parties.     When  such  cotttract  is  made  Tvith  atz  agettt 

^Only  the  part  of  opinion  relating  to  the  one  point  given. 


§   125  SUBSCRIPTIONS   INDUCED    BY    FRAUD.  539 

he  may  -well  agree  to  hold  it  as  an  escrow.     Until  both  sides  agree,  if 
irrevocable  by  one   it  must  be  also  by  the  other.      Martin,  the  agent, 
had  no  authority  to  accept  the  conditions,  and  was  not  incapacitated 
from  making  such  an  agreement  by  his  relation  to  the  company. 
Reversed. 

Note.  See,  also,  1889,  Minneapolis  Threshing  Machine  Co.  v.  Davis,  40 
Minn.  II  J,  stipra,  p.  492;  1897.  Gilman  v.  Gross,  97  Wis.  224;  23  Am.  &  Eng. 
En.  v.,  p.  790;  Beach,  §610;  Clark.  §113;  Cook,  §  60;  Elliott,  §  357;  Mora- 
wetz,  §§  69,  851 ;  II  Thompson,  §  1263. 


ARTICLE    V.       FRAUD    AND    MISTAKE    IN    SUBSCRIPTIONS. 

Sec.  125,    Fraud. 

MARTIN  Et  Al.  v.  SOUTH  SALEM  LAND  Co.  Et  Al.> 

1896.    In  the  Supreme  Court  of  Appeals  of  Virginia.     94  Va. 
Rep.  28-59,  6  Am.  &  Eng.  Corp.  Cas.  (N.  S.)  312. 

[Suit  by  various  parties  against  the  land  company,  among  others 
being  one  by  the  Bank  of  Salem,  a  judgment  creditor  suing  on  behalf 
of  itself  and  others,  the  land  company  and  its  stockholders  to  en- 
force their  stockholders'  liability  for  unpaid  stock.  Many  of  the 
stockholders  answered  that  their  subscriptions  had  been  obtained 
fraudulently,  and  they  had  promptly  repudiated  them,  and  asked  to 
have  them  rescinded.  Decree  of  a  pro  rata  assessment  against  the 
stockholders  to  pay  the  debts  was  rendered,  from  which  an  appeal 
was  taken.] 

Buchanan,  j.  *  *  *  Another  ground  on  which  the  appellants 
claim  that  they  are  not  liable  for  their  subscription  contracts  is,  that  they 
were  induced  to  become  subscribers  by  the  false  and  fraudulent  rep- 
resentations of  the  company  or  its  agents.  One  of  the  false  and 
fraudulent  representations  which  it  is  alleged  was  made  to  certain  of 
the  appellants  was,  that  there  was  no  promoter's  fund  except  $10,000 
of  the  paid-up  stock  of  the  company,  when,  in  fact,  two  of  the  pro- 
moters of  the  scheme,  Crabtree  and  Bowman,  were  to  receive  the  sum 
of  $20,000  additional,  in  money,  and  that  they  did  receive  the  gjreater 
part  thereof.  To  others  it  was  represented  that  among  the  subscrib- 
ers to  the  stock  of  the  company  were  two  well-known  business  men,  of 
much  experience  and  large  wealth,  when,  in  fact,  one  of  them  had 
made  no  subscription  at  all,  and  the  other  had  subscribed  for  a  much 
less  sum  than  was  represented.  And  to  others  still  both  these  repre- 
sentations were  made. 

If  it  be  assumed  that  these  representations  were  made  and  relied 
on;  that  they  were  not  true,  and  were  sufficient  to  entitle  the  appel- 
lants to  have  their  contracts  rescinded,  and  the  money  paid  by  them 
refunded,  as  between  themselves  and  the  Land  Company,  did  they 

'  Statement  of  facts  abridged,  arguments  omitted  and  the  part  of  the  opin- 
ion relating  to  the  one  point  only  given. 


540  MARTIN   V.    SOUTH    SALEM    LAND    CO.  §   12 5 

show  themselves  entitled  to  such  relief  as  against  the  creditors  of  the 
Land  Company,  whose  debts  were  decreed  to  be  paid  in  the  court 
below  ? 

It  appears  that  a  meeting  of  the  stockholders  had  been  called  for 
the  17th  of  May,  1892,  to  consider  the  affairs  of  the  company.  A 
majority  of  the  stock  not  being  represented  on  that  day,  a  committee 
was  appointed  to  prepare  a  statement  in  regard  to  its  affairs,  and  the 
secretary  was  instructed  to  send  a  copy  of  that  statement  to  each  stock- 
holder, and  urge  him  to  be  present  at  an  adjourned  meeting  of  the 
company,  to  be  held  on  the  9th  of  June,  following.  Pursuant  to  that 
resolution,  the  following  statement  was  prepared  and  sent  to  the 
stockholders : 

"A  CIRCULAR  OF  INFORMATION  FOR  STOCKHOLDERS  OF  THE  SOUTH 
SALEM  LAND  COMPANY." 

"The  following  is  a  copy  of  the  prospectus  under  which  the  stock 
to  the  South  Salem  Land  Company  was  subscribed : 

"The  South  Salem  Land  Company,  of  Salem,  Virginia,  owns  306 
acres  of  land,  lying  on  the  east  side  of  the  Salem  Development  Com- 
pany, south  of  the  Salem  Improvement  Company,  and  southwest  of 
the  Riverside  Land  Company,  and  is  known  as  the  Colonel  Jack 
farm. 

"This  land  cost  the  company  $81,200  in  cash,  and  $10,000  in 
paid-up  stock.  The  capital  stock  of  the  company  is  $300,000,  di- 
vided into  shares  of  $10  each,  only  $250,000  of  which  shall  be  issued 
unless  necessary  for  the  special  betterment  of  the  land  in  the  future, 
and  $10,000  of  which  is  the  paid-up  stock  referred  to  above.  It  is 
proposed  to  sell  $240,000  of  the  stock  on  the  following  terms:  Ten 
per  cent,  payable  on  March  20,  and  ten  per  cent,  on  April  20,  1890, 
and  ten  per  cent,  payable  on  March  20,  1891.  It  is  guaranteed  that 
only  the  above-named  assessments  will  be  made. 

"We,  the  undersigned,  subscribe  to  the  amounts  opposite  our 
names  upon  the  above-named  conditions. 

"Under  the  above  prospectus  subscription  lists  were  sent  by  the  sev- 
eral agents  for  the  whole  amount  of  the  $240,000  stock,  but  only  on 
19,541  shares  have  the  three  assessments  been  nearly  all  paid.  On 
the  remaining  5,088  shares  on  the  list  nothing  has  been  paid,  and  the 
stock  advertised  and  offered  for  sale  was  withdrawn  for  want  of  bid- 
ders. While  every  effort  will  be  made  to  collect,  it  is  found  that  a 
large  per  cent,  of  the  lists  is  insolvent.  If  we  had  $3  per  share  on 
those  shares,  this  amount,  $15,440,  would  be  sufficient  for  our  neces- 
sities, and  enable  us  to  carry  on  the  affairs  of  the  company  suc- 
cessfully. 

"We  now  absolutely  need  about  $12,000  for  present  pressing 
dues.  If  this  amount  can  not  be  raised  now,  a  forced  trustee's  sale 
of  the  property  will  be  the  inevitable  result. 

"The  stockholders  can  not  be  further  assessed  by  the  company,  un- 
less the  stockholders  themselves  vote  to  make  the  assessment. 

"A  single  ten  per  cent,  assessment  would  relieve  the  condition  of 
things  now  and  secure  the  stockholders  further  advantages. 


§  125  SUBSCRIPTIONS   INDUCED    BY    FRAUD.  541 

"Be  sure  to  come  or  send  your  proxy  to  the  meeting. 

"Salem,  Va.,  June  i,  1893." 

The  indebtedness  of  the  land  company  at  that  time  was  more  than 
$40,000.  Its  assets,  independent  of  its  stock  subscriptions,  consisted 
of  the  tract  of  land  mentioned  in  the  prospectus,  which,  it  seems,  had 
never  been  assessed  for  the  purposes  of  taxation  at  more  than  $18,000, 
and  which,  when  sold  in  December,  1893,  only  brought  $10,000,  and 
upon  a  resale  in  February,  1894,  $9,000.  Upon  its  stock  subscrip- 
tions, on  which  no  part  of  the  30  per  cent,  called  for  had  been  paid, 
there  was  a  little  over  $15,000  due,  but  the  larger  part  of  it  was  due 
from  insolvent  parties.  There  was  also  a  small  balance  due  from 
stockholders  belonging  to  the  class  who  had  made  payments  on  their 
stock  subscriptions.  The  land  company  was  not  only  unable  to  meet 
its  debts  as  they  became  due,  but  assets  were  altogether  insufficient  to 
pay  its  liabilities.  Unless  the  stockholders  were  willing  to  make  ad- 
ditional payments  upon  their  stock,  which  the  company  admitted  it 
had  no  right  to  call  for  under  its  guarantee  to  them,  the  land  of 
the  company,  which  was  its  principal  asset,  and  the  development  and 
sale  of  which  was  the  chief  object  of  its  creation,  would  be  sold  at  a 
trustee's  sale  for  the  residue  of  the  purchase  price. 

No  provisions  having  been  made  by  the  company  or  its  stockholders 
to  meet  the  indebtedness,  the  tnistee  gave  notice  that  he  would,  on 
the  1 8th  day  of  August,  1892,  sell  the  land.  On  the  loth  of  that 
month  the  sale  was  enjoined  by  an  order  entered  in  the  case  of  the 
South  Salem  Land  Co.  v.  Hansbrough,  Trustee,  etc.  The  bill  in 
that  case  did  not  claim  that  the  debt  for  which  the  land  was  adver- 
tised to  be  sold  was  not  just,  due  or  unpaid,  but  alleged  that  there 
were  clouds  upon  its  title  which  ought  to  be  removed  before  sale,  and 
that  the  notice  of  sale  was  not  in  conformity  with  the  provisions  of  the 
deed  of  trust. 

At  the  October  term  following  of  the  circuit  court,  two  judgments 
were  rendered  against  the  land  company,  one  in  favor  of  the  Bank  of 
Salem,  and  the  other  in  favor  of  the  Pittsburg  Bridge  Company,  for 
sums  aggregating  more  than  $11,000.  Upon  these  judgments  execu- 
tions were  issued  and  returned  "no  property  found." 

In  December  of  the  same  year  the  Bank  of  Salem  and  the  bridge 
company  instituted  suit  against  the  land  company  and  its  stockholders 
for  the  purpose  of  subjecting  its  assets,  including  the  unpaid  subscrip- 
tion of  its  stockholders,  to  the  payment  of  their  debts  and  the  debts 
of  the  other  creditors  of  the  company  who  would  come  in  and  con- 
tribute to  the  expenses  of  the  suit. 

In  that  case  the  appellants  (except  in  three  cases,  which  will  be 
hereafter  considered)  for  the  first  time  took  steps  to  have  their  sub- 
scription contracts  rescinded. 

A  party  who  has  been  induced  to  subscribe  for  stock  in  a  corpo- 
ration by  false  or  fraudulent  representations  as  to  a  material  fact  upon 
which  he  had  the  right  to  rely,  and  did  rely,  is  entitled  to  have  the 
contract  rescinded  in  the  same  manner  as  if  the  question  had  arisen 
between  two  natural  persons,  provided  the  question  arises  between 


542  MARTIN    V.    SOUTH    SALEM    LAND    CO.  §    12$ 

the  contracting  parties  and  the  rights  of  third  persons  are  not  in- 
volved. I  Morawetz  on  Corporations,  §  io8;  2  Thompson  on 
Corporations,  §  1361  ;  i  Cook  on  Stock  and  Stockholders,  etc., 
§§  151-161. 

A  contract  procured  by  a  fraud  is  not  void,  but  voidable  only,  at  the 
option  of  the  party  defrauded.  It  is  binding  upon  him  until  rescinded, 
and,  if  before  he  exercises  the  option  to  rescind,  innocent  third  par- 
ties have,  in  reliance  of  the  fraudulent  contract,  acquired  rights  which 
would  be  prejudiced  by  its  rescission,  they  may  generally  have  it  en- 
forced for  their  benefit,  although  the  party  by  whose  fraud  it  was  pro- 
cured could  not  do  so.  Oakes  v.  Turquand,  etc.  (House  of  Lords), 
2  English  and  Irish  Appeal  Cases,  L.  R.  325 ;  Tennent  v.  City  of 
Glascow  (House  of  Lords),  4  Appeal  Cases,  L.  R.  615  ;  2  Thomp- 
son on  Corporations,  §  1363;    2  Morawetz  on  Corporations,  §  839. 

This  principle  is  founded  in  reason  and  justice.  If  one  of  two  in- 
nocent persons  must  suffer  from  the  misconduct  of  a  third,  the  burden 
must  fall  upon  the  one  whose  conduct  enabled  the  third  person  to 
perpetuate  the  wrong  complained  of. 

If  a  person  is  induced  by  fraud  to  sell  his  property,  and  it  passes 
into  the  hands  of  an  innocent  purchaser  for  value  before  his  contract 
by  which  he  sold  has  been  rescinded,  he  must  bear  the  loss  rather  than 
the  innocent  purchaser. 

In  an  ordinary  partnership  it  is  impossible  for  one  partner  to  retire 
from  or  to  repudiate  the  partnership  to  the  prejudice  of  the  partner- 
ship creditors.  He  may  have  been  induced  to  enter  into  the  partner- 
ship by  the  false  or  fraudulent  representations  of  the  other  partners, 
and  this  may  be  a  sufficient  ground  for  relief  against  them,  but  it  is 
no  ground  for  getting  rid  of  the  firm's  liabilities  to  its  creditors. 

The  shareholders  in  a  corporation  are  the  real  parties  in  interest. 
They  furnish  the  capital  and  receive  the  profits.  As  was  said  by  Mr. 
Justice  Miller,  in  Sawyer  v.  Hoag,  17  Wall.  610,  the  corporation  "is 
but  the  representative  of  its  stockholders,  and  exists  mainly  for  their 
benefit,  and  is  governed  and  controlled  by  them  through  officers 
whom  they  elect,  and  the  interest  and  power  of  legal  control  of  each 
shareholder  is  in  exact  proportion  to  his  amount  of  stock." 

In  the  case  of  Oakes  v.  Turquand,  etc.,  cited  above,  it  was  held 
by  the  House  of  Lords  that,  after  the  winding  up  of  a  joint  stock  com- 
pany had  commenced,  a  stockholder  could  not  have  his  contract  re- 
scinded for  fraud  in  its  procurement.  The  decision  was  based  upon 
the  ground  that  innocent  third  parties  acquired  rights  which  would  be 
defeated  by  the  rescission.  In  that  case  the  decision  of  Lord  Camp- 
bell, in  Henderson  v.  Royal  British  Bank  (7  E.  &  B.  356),  was  ap- 
proved. Lord  Campbell  said  in  that  case:  "This  is  an  application  by 
a  creditor,  who,  upon  the  faith  of  the  party  who  was  then  a  share- 
holder, and  who  held  himself  out  to  the  woi'ld  as  a  shareholder,  and, 
being  one,  gave  credit  to  the  bank.  He  has  obtained  judgment 
against  the  bank.  There  was  no  assets  of  the  bank  as  a  company, 
and  the  application  now  is  that  execution  may  issue  against  the  party 
individually.     It  would  be  monstrous  to  say  that  he,  having  become  a 


§  125  SUBSCRIPTIONS   INDUCED    BY   FRAUD.  543 

partner  and  a  shareholder,  and  having  held  himself  out  to  the  world 
as  such,  and  havin<]j  so  remained  until  the  concern  stopped  payment, 
could,  by  repudiating  the  shares  on  the  ground  that  he  had  been  de- 
frauded, make  himself  no  longer  a  shareholder,  and  thus  get  rid  of 
his  liability  to  the  creditors  of  the  bank,  who  had  given  credit  to  it 
upon  the  faith  that  he  was  a  shareholder.  It  would  be  a  monstrous 
injustice,  and  contrary  to  all  principle."  Tennent  v.  City  of  Glascow 
Bank,  4  Appeal  Cases  (H.  L.)  615;  Stone  v.  City  and  County 
Bank,  3  C.  P.  Div.  282;  Wright's  Case,  L.  R.  7  Chy.  60;  Pugh  & 
Sharman's  Case,  L.  R.  13  Eq.  572;  2  Thompson  on  Corp.,  §§  1441, 
1442  ;    I  Cook  on  Stock  and  Stockholders,  §  163. 

In  this  country,  in  the  absence  of  statutory  provisions  upon  the  sub- 
ject, the  rule  seems  to  be,  says  Morawetz,  in  his  work  on  Corpora- 
tions, "that  a  shareholder  whose  contract  of  subscription  was  obtained 
bv  fraud  would  be  liable  to  contribute  his  share  of  the  capital  upon 
the  insolvency  of  the  company,  so  far  as-  this  may  be  required,  in 
order  to  satisfy  those  creditors  whose  claims  attached  before  he  elected 
to  disaffirm  the  contract."     Section  840. 

Thompson  says:  "It  may  be  concluded  from  a  number  of  Ameri- 
can cases  that  no  rescission  will  be  allowed  after  the  bankruptcy  or  in- 
solvency of  the  coi"poration  has  supervened  unless  under  very  excep- 
tional circumstances,  if  at  all;  and  further,  that  the  fact  that  the 
stockholder  was  iirduced  to  take  stock  by  false  representations  is  no 
defense  in  an  action  by  judgment-creditors  of  the  corporation  on  his 
statutory  liability."     2  Thompson  on  Corp.,  §  1450. 

Cook  says  upon  this  subject:  "In  this  country  the  effect  of  corpo- 
rate insolvency  upon  the  right  of  a  subscriber  to  rescind  his  contract 
for  fraud  has  not  been  passed  upon  as  often  as  in  England.  The  de- 
cisions, however,  clearly  hold  that  corporate  insolvency  is  a  bar  to 
such  rescission."      i  Cook  on  Stocks  &  Stockholders,  §§  163,  164. 

The  decisions  of  the  courts,  we  think,  sustain  the  doctrine  laid 
down  in  the  text-books,  that  a  person  who  has,  to  all  external  appear- 
ances, become  a  stockholder,  can  not,  as  to  creditors  who  may  have 
tnisted  the  company  upon  the  faith  of  his  membership,  have  his  con- 
tract of  subscription  rescinded  upon  the  ground  of  fraud,  where  he  did 
not  repudiate  the  contract  and  take  steps  to  have  it  rescinded  before 
the  company  stojDped  payment  and  became  actually  insolvent;  cer- 
tainly not,  where  it  does  not  appear  that  he  was  diligent  in  discovering 
the  fraud,  and  prompt  in  repudiating  his  contract  after  it  was  discov- 
ered. Upton  V.  Tribilcock,  91  U.  S.  45  ;  Webster  v.  Upton,  91  U.  S. 
65;  Sanger  v.  Upton,  91  U.  S.  56;  Chubb  v.  Upton,  95  U.  S.  665; 
Ogilvie  v.  Knox  Ins.  Co.,  22  How.  380;  Tennent  v.  City  of  Glascow 
Bank,  4  Appeal  Cases  (H.  L.),  615;  Turner  v.  Granger,  etc., 
(Ga.),  38  Am.  Rep.  801;  Howard  v.  Glenn  (Ga.),  11  S.  E.  610; 
Saffold  V.  Barnes,  39  Miss.  399;   Duffield  v.  Barnum,  59  Mich.  272. 

Before  the  appellants  had  repudiated  their  contracts  the  land  com- 
pany was  insolvent.  It  was  insolvent,  whether  that  word  be  used  in 
its  restricted  sense  to  indicate  the  inability  of  an  indivithial  to  pay  his 
debts  as  they  become  due  in  the  ordinary  course  of  business,  or  in  its 


544  MARTIN    V.    SOUTH    SALEM    1,AND    CO.  §   125 

general  or  popular  meaning,  to  denote  that  the  entire  assets  of  a 
debtor  are  insufficient  to  pay  his  debts.  Toof  v.  Martin,  13  Wall. 
40.  Not  only  was  this  true,  but  its  real  estate  had  been  advertised 
for  sale  for  the  purchase-money  yet  due  upon  it,  which  was  more  than 
it  was  worth.  Judgments  had  been  obtained  against  the  company, 
as  before  stated,  executions  issued  and  returned  "no  property  found," 
and  a  creditor's  bill  filed  to  subject  its  assets  to  the  payment  of  its 
debts,  in  which  it  was  alleged  that  independent  of  its  unpaid  stock 
subscriptions  (which  the  company  admitted  it  had  no  right  to  collect, 
except  so  much  of  the  thirty  per  cent,  called  for  as  remained  unpaid) 
the  company  was  insolvent.  This  was  more  than  two  years  and  a 
half  after  their  subscriptions  had  been  made.  The  excuse  given  for 
this  delay  is  that  they  did  not  discover  the  fraud  complained  of  ear- 
lier. There  is  nothing  in  the  evidence  to  show  that  any  diligence  was 
exercised  by  them  to  discover  whether  the  alleged  false  representa- 
tions made  to  them  were  true  or  not. 

It  is  not  sufficient  in  a  case  like  this,  where  the  rights  of  creditors 
are  involved,  that  a  stockholder  should  be  prompt  in  repudiating  his 
contract  of  subscription  and  in  seeking  to  have  it  rescinded  after  the 
fraud  had  been  discovered,  but  he  must  be  diligent  also  in  discover- 
ing the  fraud.  Where  a  party  has  the  means  of  knowledge  or  dis- 
covery in  his  power,  he  will  be  deemed  to  know  all  that  with  ordi- 
nary care  and  diligence  he  might  have  obtained  knowledge  of.  A 
delay  which  might  be  of  no  consequence  in  an  ordinary  case,  may  be 
amply  sufficient  to  bar  the  title  to  relief  where  the  property  is  of  a 
speculative  character,  or  is  subject  to  contingencies,  or  where  the 
rights  and  liabilities  of  third  parties  have  been  in  the  meantime  varied. 
Parties,  it  is  said,  who  are  in  the  position  of  shareholders  in  compan- 
ies, if  they  come  to  the  court  to  be  relieved  from  their  shares  on  the 
ground  of  fraud,  must  come  with  the  utmost  diligence  and  prompti- 
tude. Kerr  on  Fraud  &  Mistake,  306,  etc.;  Morawetz  on  Corp., 
§§  108,  839;  Chubb  V.  Upton,  95  U.  S.  665;  Upton  v.  Tribilcock. 
91  U.  S.  45;  II  Thompson  on  Corp.,  §  1438,  etc.     *     *     * 

Affirmed. 

Note.  As  to  subscriptions  obtained  by  fraud,  see,  1852,  Connecticut,  etc., 
R.  Co.  V.  Bailev,  24  Vt.  465;  1856,  Hester  v.  Memphis,  etc.,  R.  Co.,  32  Miss. 
378;  1859,  Anderson  v.  New  Castle,  etc.,  R.  Co.,  12  Ind.  376,  74  Am.  Dec. 
218;  1867,  Central  R.  Co.  v.  Kisch,  L.  R.  2  H.  L.  99;  1867,  Oakes  v.  Tur- 
quand,  L.  R.  2  H.  L.  325 ;  1869,  Smith  v.  Reese  River  Co.,  L.  R.  4  H.  L.  64 ;  1874, 
Upton  V.  Englehart,  3  Dill.  (C.  C.  U.  S.)  496;  1875,  Upton  v.  Tribilcock,  91 
U.  S.  45;  1877,  Getty  v.  Devlin,  70  N.  Y.  504;  .1878;  Vreeland  v.  N.  J.  Stone 
Co.,  29  N.  J.  Eq.  188;  1878,  Jevvett  v.  R.  Co.,  34  Ohio  St.  601;  1883,  Citv 
Bank  v.  Bartlett,  71  Ga.  797;  1884.  Mont.  S.  R.  Co.  v.  Matthews,  77  Ala.  357'; 
1893,  Howard  v.  Turner,  155  Pa.  St.  349;  1893,  Ramsey  v.  Mfg.  Co.,  116  Mo. 
313;  1896,  Hunter  v.  French,  etc.,  Co.,  96  Iowa573;  1896,  Newton  Nat'l  Bank  v. 
Newzegin,  74  Fed.  Rep.  135, 33  L.  R.  A.  727 ;  1897,  Chicago  Bldg.  &  Mfg.  Co.  v. 
Suramerour,  101  Ga.  820;  1897,  Garrison  v.  Electrical  Works,  55  N.  J.  Eq. 
708;  1898,  Barcus  v.  Gates,  89  Fed.  Rep.  783,  32  C.  C.  A.  337;  1898,  Franey 
v.  Park  Co.,  99  Wis.  40;  1898,  Revener  v.  Hubbard,  56  N.  Y.  Sup.  173;  1898, 
Re  International  Soc,  etc.,  1  Ch.  110,  77  L.  T.  R.  523.  Compare,  1849,  Dodg- 
son's  Case,  3  De  G.  &  8.  85 ;  1865,  Felgate's  Case,  2  De  G.  J.  &  S.  456 ;  1869, 
Custar  v.  Titusville  Gas  &  W.  Co.,  63  Pa.  St.  381 ;  1880,  Turner  v.  Ins.  Co., 


§  126  SUBSCRIPTION    MADE   BY   MISTAKE.  545 

65  Ga.  649;  1895,  St.  John's,  etc.,  Co.  v.  Hunger,  106  Mich.  90;  1897,  Trades- 
man's Nat'l  Bank  v.  Looney,  99  Tenn.  278,  38  L.  R.  A.  837. 

See,  also,  Boone,  §  111 ;  Beach,  §§  109, 163;  Clark,  §  101 ;  Cook,  §§  136-170; 
Elliott,  ^§369-376;  Morawetz,  §§94-117;  Taylor,  §§103,623-26;  II  Thomp- 
son, §§  1360-1506 ;  VII  Thompson,  §§  8636-40. 


Sec.  126.   Mistake. 

ROCKFORD,  ROCK  ISLAND  AND  ST.  LOUIS  R»  CO.  v.  SHTJNICK.* 
1872.    In  the  Supreme  Court  of  Illinois.     65  111.  Rep.  223-230. 

Mr.  Justice  McAllister.  This  was  a  proceeding  instituted  by- 
appellant  to  condemn  the  lands  of  the  appellee  for  the  uses  of  a  rail- 
road. The  land  was  situated  in  the  township  of  Spring  Grove,  War- 
ren county,  and  this  appeal  is  from  the  judgment  of  the  circuit  court 
of  that  county  in  favor  of  appellee  for  compensation  and  damages  on 
account  of  land  taken  and  damaged. 

To  defeat  appellee's  right  to  compensation  and  damages,  appel- 
lant introduced  in  evidence  on  the  trial  a  certain  instrument  in  writ- 
ing, to  which  appellant  was  only  a  beneficial  party,  if  any,  purport- 
ing to  have  been  executed  by  fifty-seven  persons,  including  the  ap- 
pellee, and  embracing  two  distinct  subjects :  ( i )  That  of  conditional 
subscription  to  the  stock  of  appellant's  corporation.  (2)  That  of 
securing  to  appellant  the  right  of  way  through  said  township. 

The  part  of  the  instrument  relating  to  subscription  has  no  relevancy 
whatever  to  this  controversy.  But  it  is  claimed  by  appellant's  coun- 
sel that  the  other  part  of  the  supposed  agreement  cut  off  appel- 
lee's entire  claim  for  either  compensation  or  damages,  and  this  is 
urged  upon  the  ground  of  estoppel  in  pais. 

The  terms  of  this  part  of  the  agreement  are  in  substance:  That  in 
order  that  the  right  of  way  might  be  made  secure  to  said  company, 
free  of  all  charge  and  expense,  and  that  the  company  might  not  be 
delayed  in  the  construction  of  its  line  through  said  township,  in  con- 
sideration of  one  dollar  to  the  undersigned  paid,  the  receipt  thereof 
acknowledged,  they,  the  undersigned,  jointly  and  severally  agree  to 
secure  to  the  company,  free  of  charge  and  expense  to  the  same,  the 
right  of  way  on,  over,  and  across  the  lands  in  said  township,  such 
right  of  way  to  include  a  strip  of  land  one  hundred  feet  in  width,  to 
be  described  as  a  strip  of  land  fifty  feet  in  width  on  each  side  of  the 
center  line  of  the  established  suney  of  said  railroad,  on,  over,  and 
across  the  lands  in  said  township  of  Spring  Grove.     *     *     * 

The  appellant's  road  was  so  located  as  to  run  through  appellee's 
orchard  and  a  part  of  his  dwelling-house.  Appellee,  as  appears, 
without  controversy,  is  an  unlettered  man,  being  unable  to  either  read 
or  write.     While  at  work  in  his  field   he  was  approached   by  a  man 

*  Only  so  much  of  the  report  is  given  as  relates  to  the  single  point. 
35— WiL.  Casks. 


546  ROCKFORD,  ETC.,  R.  CO.  V.  SHUNICK.  §   1 26 

of  the  name  of  Holloway  w.ith  this  paper.  Holloway  knew  that  the 
man  was  imlettered.  He  did  not  read  the  paper  to  him,  and  stated 
only  that  part  which  related  to  the  subscription.  He  not  only  did  not 
read  or  state  that  part  of  the  instrument  relating  to  the  right  of 
way,  but  assured  appellee  that  he  could  obtain  compensation  for  his 
land  if  taken.  Holloway  testifies  that  he  signe^  appellee's  name  to 
the  paper  by  his  dkection.  From  this  fact  appellant's  counsel  insist 
that  Holloway  was  appellee's  agent,  and  that  being  so,  appellee  could 
not  avail  himself  of  the  misrepresentations  of  his  own  agent  to  avoid 
the  instrument.  On  this  ground  the  court  below  made  an  indefinite 
exclusion  of  the  evidence  showing  the  circumstances  under  which  the 
paper  was  executed,  but  refused  to  give  an  instruction  asked  by  ap- 
pellant directing  the  jury  to  disregard  it,  and  appellant  now  complains 
of  such  refusal.  Holloway  does  not  state  when  or  where  he  signed 
appellee's  name ;  but  only  that  he  did  it  by  his  direction.  It  must  have 
been  done  then  and  there  in  the  presence  of  appellee,  the  latter  merely 
using  Holloway's  hand,  as  it  were,  to  write  his  own  name,  or  at  some 
other  time  and  place,  in  the  absence  of  appellee,  Holloway  acting  in 
that  behalf  upon  an  alleged  authority  to  make  a  contract  for  appellee. 
If  he  so  acted  in  executing  it,  and  the  instrument  itself  amount  to  a 
contract  with  appellant,  it  was  one  virtually  for  the  sale  of  an  interest 
in  land,  and  the  authority  to  execute  it  as  agent  of  appellee  should 
have  been  in  writing.  If  the  name  was  signed  by  Holloway  in  ap- 
pellee's presence  and  at  his  request,  then  the  only  reason  which  could 
be  urged  why  it  was  not  within  the  statute  of  frauds  requiring  the  au- 
thority of  the  agent  to  be  in  writing,  would  be  that  appellee  merely 
employed  the  hand  of  Holloway  to  write  his  name,  and  that  in  such 
case  the  doctrine  of  agency  in  its  legal  sense  would  not  apply.  But 
assuming  that  to  be  the  case,  would  anybody  be  heard  to  contend  that 
although  Holloway  was  not  an  agent  in  such  sense  as  would  require 
his  authority  to  be  in  writing,  yet  he  must  be  regarded  as  one  to  the 
extent  of  precluding  appellee  from  setting  up  his  misrepresentation 
for  the  purpose  of  avoiding  the  instrument  in  the  hands  of  appellant? 
We  think  not.  Such  a  rule  would  snatch  the  shield  of  law  from  the 
wronged  and  bestow  it  upon  the  wrong-doer ;  would  take  it  froin  the 
unlettered,  who  need  it  most,  and  give  it  to  those  against  whom  it 
ought  to  be  used.  The  appellant  could  not  seek  to  take  the  fruits  of 
the  contract  without  adopting  the  means  by  which  it  was  obtained. 
Besides,  if  the  execution  of  the  instrument  was  obtained  in  the  man- 
ner disclosed  by  the  evidence,  it  was  void  ab  initio.  It  is  laid  down 
in  Pigot's  case,  11  Rep.  27,  that  if  three  distinct  bonds  are  written 
upon  one  piece  of  parchment,  and  one  of  them  only  is  read  to  the 
obligor,  and  he,  being  a  man  not  lettered,  seals  and  delivers  this  deed, 
it  is  good  for  that  which  was  read,  and  ab  initio  void  for  the  others; 
and  it  is  further  said,  "that  every  deed  ought  to  have  writing,  sealing 
and  delivering,  and  when  anything  shall  pass  from  them  who  had  not 
understanding  but  by  hearing  only,  it  ought  to  be  read  also ;  and  it  is 
true  that  he  who  is  not  lettered  is  reputed  in  law  as  he  who  can  not 
see,  but  hear  only,  and  all  his  understanding  is  by  hearing;  and  so  a 


§   127  SUBSCRIPTION    BY   INFANTS.  547 

man  who  is  lettered  and  can  not  see,  is,  as  to  this  purpose,  taken  in 
law  as  a  man  not  lettered;  and  therefore  if  a  man  is  lettered  and  is 
blind,  if  the  deed  is  read  to  him  in  any  other  manner,  he  shall  avoid 
the  deed,  because  all  his  understanding  in  such  case  is  by  hearing." 
There  is  nothing  in  the  evidence  upon  which  to  predicate  negligence 
on  the  part  of  the  appellee.  The  mind  of  the  signer  did  not  accom- 
pany the  signature,  and  the  agreement  in  the  particular  in  question, 
at  least,  was  void.     Leach  v.  Nichols,  55  111.  273. 

We  are  of  the  opinion  that  the  supposed  agreement  was  not  suffi- 
cient in  any  view  to  cut  off  appellee's  right  to  compensation  and  dam- 
ages ;  that  substantial  justice  has  been  done  and  that  the  judgment 
should  be  affirmed. 

Judgment  affirmed. 

Note.  As  to  mistake  of  fact,  generally,  see :  1431, 2  Rolle's  Abr.  28, 1.  5, 9  H.  6, 
696 ;  1506,  Keilway's  Reports,  70 ;  1584,  Throughgood's  Case,  2  Co.  Rep.  96, 
1  And.  129,  Moore  148;  1808,  Putnam  v.  Sullivan,  4  Mass.  45;  1819,  Taylor 
v.  King,  6  Munf.  ( Va.)  358;  1829,  Salem  M.  D.  Co.  v.  Ropes,  9  Pick.  (Mass.) 
187,  19  Am.  D.  363;  1858,  Cunningham  v.  Edgefield,  etc.,  R.  Co.,  2  Head  (39 
Tenn.)  23;  1858,  Diman  v.  Providence,  etc.,  R.  Co.,  5  R.  I.  130;  1S63,  Swan 
V.  North  B.  A.  Co.,  2  Hurls.  &  C.  175,  32  L.  J.  R.  (N.  S.)  Exch.  273;  1868, 
Four  Mile  Valley  R.  Co.  v.  Bailey,  18  Ohio  St.  208;  1869,  Foster  v.  McKisson, 
L.  R.  4  C.  P.  704,  38  L.  J.  R.  (N.  S.)  310;  1870,  Leach  v.  Nichols,  55  111.  273; 
1871,  Countv  of  Schuylkill  v.  Copley,  67  Pa.  St.  386;  1871,  Rovegno  v.  Def- 
ferari,  40  Cal.  459;  1873,  Payson  v.  Withers,  5  Biss.  269;  1877,  Gibson  v. 
Pelkie,37  Mich.  380;  1883,  Shelton  v.  Ellis,  70  Ga.  297;  1885,  Wood  v.  Boyn- 
ton,  64  Wis.  265;  1887,  Sherwood  v.  Walker,  66  Mich.  568;  1888,  Hechtv. 
Batcheller,  147  Mass.  335;  1893,  Brintnall  v.  Briggs,  87  Iowa  538;  1898,  Keene 
v.  Demelman,  172  Mass.  17;  1898,  Deseret  Nat'l  Bank  v.  Burton,  17  Utah  43; 
1898,  Gaffney  Mercantile  Co.  v.  Hopkins,  21  Mont.  13 ;  1898,  Rogers  v.  Pattie, 
96  Va.  498;  1899,  Hochstein  v.  Berghauser,  123  Cal.  681. 

As  to  mistakes  of  law,  see:  1822,  Storrs  v.  Barker,  6  Johns.  Ch.  (N.  Y.) 
166,  10  Am.  D.  316;  1828,  Hunt  v.  Rousmaniere,  1  Pet.  (26  U.  S.)  1;  1838, 
Bank  of  U.  S.  v.  Daniel,  12  Pet.  (37  IT.  S.)  32;  1845,  Trigg  v.  Read,  5  Humph. 
(Tenn.)  529,  42  Am.  D.  447;  1858,  New  Albanv  &  S.  R.  Co.  v.  Fields,  10  Ind. 
187;  1860,  Goodenow  v.  Ewer,  16  Cal.  461,  76  Am.  D.  540;  1872,  Bailey  v. 
Hannibal,  etc.,  R.  Co.,  17  Wall.  (U.  S.)  96;  1876,  Selma,  etc.,  R.  Co.  v.  Ander- 
son, 51  Miss.  829;  1895,  Loftus  v.  Fischer,  106  Cal.  616;  1898,  Deseret  Nat'l 
Bank  v.  Burton,  17  Utah  43,  53  Pac.  215.  See,  also,  Beach,  §  105;  Clark, 
§196;  Cook,  §196;  Morawetz,  §97;  Taylor,  §527;  II  Thompson,  §§  1379, 
1393,  1719. 


ARTICLE  VI.   PARTIES  TO  THE  AGREEMENT. 


Sec.  127.     Infants.         ^y/l/fP 


FOSTER  v.  CHASE  Et  Al. 

1896.     In  THE  United  States  Circuit  Court,  District  of  Ver- 
mont.    75  Fed.  Rep.  797. 

This  was  a  suit  in  equity  by  Edwin  L.  Foster  against  Henry  Chase 
and  others  to  recover  an  assessment  upon  the  stock  of  a  national 
bank. 


548  FOSTER   V.    CHASE,  §  \2J 

Wheeler,  District  Judge.  The  defendant  bought  stock  in  the 
names  of  his  minor  children  in  the  First  National  Bank  of  Silver  City, 
N.  M.,  of  which  the  plaintiff  is  receiver,  and  this  suit  is  brought  for 
an  assessment  upon  it  made  by  the  comptroller  of  the  currency.  The 
plaintiff  claims  that  the  defendant  made  himself  liable  for  the  assess- 
ment because  of  the  incapacity  of  his  children  to  take  the  stock  and 
make  themselves  liable  for  it.  He  insists  that  they  only  are  the  share- 
holders, and  liable,  if  any  one  is.  Assent  is  necessary  to  becoming  a 
shareholder,  subject  to  this  liability,  in  a  national  bank.  Keyser  v. 
Hitz,  133  U.  S.  138,  10  Sup.  Ct.  290.  Minors  do  not  seem  to  have 
anywhere  the  necessary  legal  capacity  for  that.  The  principles  upon 
which  this  disability  rests  are  elementary  and  universal,  i  Bl.  Comm. 
492  ;  2  Kent  Comm.  233.  In  buying  and  paying  for  this  stock,  and 
having  it  placed  on  the  books  of  the  bank,  the  defendant  acted  for 
himself;  in  having  it  placed  there  in  the  name  of  his  children,  as  with 
their  assent,  he  assumed  to  act  for  them.  As  they  could  not  them- 
selves so  assent  as  to  be  bound  to  the  liabilities  of  a  shareholder,  they 
could  not  so  authorize  him  to  assent  for  them  as  to  bind  them.  To 
the  extent  that  they  could  not  be  bound  he  acted  without  legal  au- 
thority, and  bound  only  himself.  Story  Ag.,  §  280.  This  liability 
has  been  sought  for  defendant  to  be  likened  to  that  of  married  women 
becoming  shareholders ;  but  that  has  been  incurred  where,  and  be- 
cause, the  law  of  the  place  authorized  them  to  become  such.  Keyser 
V.  Hitz,  supra;  Bundy  v.  Cocke,  128  U.  S.  185,  9  Sup.  Ct.  242. 
No  law  confers  that  capacity  upon  infants,  but  the  banking  law  seems 
to  refer  this  liability  to  their  estates  in  the  hands  of  their  guardians. 
Rev.  Stat.  U.  S.,  §  5152. 

Decree  for  plaintiff. 

Note.  Infants  as  shareholders.  In  the  case  of  Foster  v.  Wilson,  75  Fed. 
Rep.  797,  it  was  held  that  where  the  father  of  a  minor  had  subscribed  in  the 
minor's  name,  the  father  remained  liable  upon  an  assessment  made  before  the 
minor  came  of  age,  though  suit  for  its  collection  was  not  begun  till  after  he  had 
become  of  age  and  assented  to  holding  the  stock.  See,  1847,  Cork,  etc.,  R.  v. 
Cazenove,  10  Q.  B.  935 ;  1849,  Newry ,  etc.,  R.  v.  Coombe,  3  Ex.  566 ;  1850,  North- 
western R.  Co.  V.  McMichael,  5  Ex.  114;  1852,  Dubhn,  etc.,  R.  Co.  v.  Black,  8 
Ex.  181 ;  1868,  Robinson  v. Weeks,  56  Maine  102 ;  1868,  Lumsden's  Case,  L.  R.  4 
Ch.  31;  1868,  Hart's  Case,  L.  R.  6  Eq.  512;  1869,  Castello's  Case,  L.  R.  8  Eq. 
Cas.  504;  1870,  Mitchell's  Case,  L.  R.  9  Eq.  Cas.  363;  1870,  Symon's  Case, 
L.  R.  5  Ch.  App.  298;  1870,  Weston's  Case,  L.  R.  5  Ch.  App.  614;  1870, 
Ebbett's  Case,  L.  R.  5  Ch.  App.  302;  1871,  Baker's  Case,  L.  R.  7  Ch.  115; 
1872,  Gooch's  Case,  L.  R.  8  Ch.  App.  266;  1876,  Re  Nassau  Phos.  Co.,  L.  R.  2 
Ch.  D.  610;  1877,  Indianapohs  Chair  Co.  v.  Wilcox,  59  Ind.  429;  1886,  Crum- 
mey  v.  Mills,  40  Hun.  (N.  Y.)  370;  1886,  Hamilton,  etc.,  R.  v.  Townsend,  13 
Ont.  App.  534,  16  Am.  &  E.  C.  C.  645;  1889.  Chicago,  etc..  Assn.  v.  Hunt,  127 
111.  257;  1892,  Re  Globe  Mut.  Ben.  Assn.,  63  Hun.  (N.  Y.)263;  1892,  Re 
Laxon,  etc.,  Co.,  3  Ch.  D.  555.  See,  also,  10  Am.  and  Eng.  Ency.,  634,  n.  2; 
Beach,  §^  128,  138,  303;  Clark,  §98;  Cook,  §§63,  250;  Elliott,  §366;  Mora- 
wetz,  §855;  Taylor,  §§95,515  n.,  586;  I  Thompson,  §1095;  II  Thompson, 
§§  1238,  2307,  2493;  III  Thompson,  §§  3271-4;  VII  Thompson,  §§8162,  8708;  n. 
18  Am.  St.  Rep.  615. 


§  128  SUBSCRIPTION    OF   MARRIED    WOMEN.  549 

Sec.  128.     Married  women. 

HAHNS  &  BROS'.  APPEAL.^ 

1 886.     In  the   Supreme   Court   of   Pennsylvania.     15  Am.  & 
Eng.  Corp.  Cas.  537,   18  Weekly  Notes  of  Cases  294. 

[Appeal  by  complainants  from  a  decree  of  the  common  pleas  court 
dismissing  a  bill  in  equity  to  charge  defendant  Arndt  upon  unpaid 
subscription  to  the  stock  of  an  iron  company.  The  iron  company  being 
authorized  to  incres^se  its  capital  stock,  called  for  subscriptions  upon 
the  express  condition  that  .none  were  to  be  binding  unless  $175,000 
were  subscribed.  This  sum  was  subscribed,  but  $1,350  of  itwere  by 
man-ied  women.  Dr.  Arndt  had  subscribed  for  twenty  shares,  but 
had  paid  nothing  and  attended  no  meetings.] 

Trunkey,  J.  *  *  *  In  this  case  no  fraud  is  alleged.  The  subscriptions 
of  the  married  women  were  carelessly  accepted  as  valid  by  those  who 
were  active,  but  Mr.  Arndt  in  no  instance  was  an  active  party.  It  does 
not  appear  that  he  knew  that  the  amount  of  the  subscriptions  of  the  mar- 
ried women  was  necessary  to  make  up  the  requisite  sum  prior  to  the 
beginning  of  this  suit.  Married  women  can  hold  stock  and  transfer 
it,  but  the  statute  does  not  empower  them  to  contract  to  pay  for  stock. 
Their  subscriptions  create  no  obligations  on  their  part.  As  to  them 
the  contracts  are  void.      *     «     * 

Affirmed. 

Note.    See  note  to  next  case,  p.  552. 


Sec.  129.  Same. 

NATIONAL  COMMERCIAL  BANK  v.  McDONNELL.* 

1890.    In  the  Supreme  Court  of  Alabama.      92  Ala.  Rep.  387- 
399,  9  So.  Rep.  149. 

Appeals  from  the  chancery  court  of  Mobile. 

There  are  four  appeals  embraced  in  this  one  record — all  involve 
similar  questions,  are  included  in  one  cause  of  action,  and  are  de- 
cided by  one  decree  of  the  chancellor. 

The  bill  was  filed  by  the  appellees  as  creditors,  and  sought  to  sub- 
ject the  stockholders  of  the  Alabama  Gold  Life  Insurance  Company, 
an  insolvent  corporation  that  had  made  a  general  assignment,  to  a 
personal  liability  to  the  extent  of  the  stock  owned  by  them  in  said  in- 
solvent corporation.  The  answers,  contentions  and  accompanying 
facts,  as  well  as  the  effect  of  the  decree  rendered,  are  sufficiently 
shown  in  the  opinion.  The  chancellor  held  in  his  decree  that  the 
complainants  were  entitled   to  the  relief  prayed  for,  and  so  ordered. 

*Only  so  much  as  refers  to  the  single  point  is  given. 

'  Only  the  part  of  the  opinion  relating  to  the  one  point  is  given. 


5  50  NATIONAL   COMMERCIAL   BANK   V.  M'DONNELL.  §   1 29 

It  is  from  this  decree  that  the  present  appeal  is  prosecuted,  and  the 
same  is  here  assigned  as  error. 

Clopton,  J.  *  *  *  In  the  cases  of  A.  P.  Bush  and  L.  C.  Dorgan, 
the  facts  are  substantially  alike,  and  the  questions  raised  are  identical. 
The  amendment  of  the  bill,  filed  September  5,  18S7,  exhibited  a  list 
of  the  stockholders  on  October  6,  1886.  In  this  list  Mrs.  Bush,  wife 
of  A.  P.  Bush,  and  Mrs.  Dorgan,  wife  of  L.  C.  Dorgan,  appear  as 
the  holders  of  twenty  shares  each ;  and  they  were  made  parties  to  the 
amended  bill.  Having  filed  pleas  of  coverture,  the  bill  was  dismissed 
as  to  them,  and  amended  so  as  to  aver  that  the  wife  of  the  appellant, 
Bush,  did  not  own  any  of  the  property  as  her  equitable  separate  es- 
tate, and  did  not  personally  subscribe  for  or  purchase  any  of  the 
shares,  but  that  her  husband  subscribed  for  or  purchased  them,  and 
caused  them  to  be  placed  on  the  books  of  the  company  in  her  name. 
The  amendment  of  the  bill  makes  substantially  the  same  allegations 
as  to  the  shares  in  the  name  of  Mrs.  Dorgan.  The  answers  of  ap- 
pellants, which  are  sworn  to,  deny  that  they  ever  owned  the  stock 
held  by  their  wives,  or  furnished  the  money  to  pay  for  them,  and  also 
that  the  stock  was  purchased  with  funds  belonging  to  the  wife's  stat- 
utoiy  separate  estate.  It  will  be  observed  that  the  bill  fails  to  allege 
that  the  wives  had  no  statutory  separate  estate.  The  evidence  shows 
that  a  certificate  for  ten  shares  of  stock  was  issued  December  i, 
1868,  and  certificates  for  the  other  ten  shares  were  issued  February 
18,  1882,  to  Mrs.  Bush;  and  a  certificate  for  twenty  shares  was  is- 
sued April  19,  1875,  to  Mrs.  Dorgan;  which  stood  thereafter  on  the 
books  of  the  company  in  their  names,  respectively.  Bush  and  Dor- 
gan each  owned  thirty-five  shares,  for  which  certificates  were  issued 
in  their  names,  and  the  books  showed  that  they  were  the  holders  of 
such  shares.  On  the  pleadings  and  evidence,  the  chancellor  rendered 
a  decree  against  each  of  the  appellants  for  the  aggregate  amount  of 
the  stock  held  in  his  own  name,  and  that  which  stood  in  the  name  of 
his  wife.  What  follows  will  be  understood  as  the  expression  of  my 
individual  views  as  to  the  personal  liability  of  the  husbands. 

It  is  conceded  that,  at  common  law,  when  the  husband  subscribes 
for  stock  in  the  name  of  his  wife,  he  will  be  held  liable  for  the  sub- 
scription as  the  real  owner.  The  rule  rests  on  the  incapacity  of  a 
married  woman  to  subscribe  for  stock,  and  as  she  can  not  make  a 
binding  contract,  whoever  subscribes  in  her  name  becomes  personally 
liable.  At  common  law  a  married  woman  has  no  material  rights  as 
regards  shares  of  stock  subscribed  for  or  purchased  by  her.  The 
statutes  in  force  at  the  time  of  the  purchase  of  the  stock  in  question 
abrogated  the  marital  rights  of  the  husband  as  to  the  wife's  statutory 
separate  estate.  By  the  statute  her  property  was  vested  in  him,  not 
as  husband,  but  as  her  trustee,  and  as  such  he  was  clothed  with  large 
discretionary  powers  to  invest  her  funds  as  he  deemed  most  beneficial 
for  her,  and  if  he  purchased  personal  property  with  her  money,  taking 
the  title  in  her  name,  while  as  trustee  he  was  entitled  to  the  possession 
and  income,  she  was  the  legal  owner.  Evans  v.  English,  61  Ala, 
416;   Daniel  v.  Hardwick,  88  Ala.  557.     The  husband  may  invest 


§  129  SUBSCRIPTION   OF   MARRIED    WOMEN.  551 

her  money  in  the  stock  of  incorporated  companies,  which  thus  be- 
comes her  separate  estate,  as  well  as  other  personal  property. 

The  supreme  court  of  the  United  States,  in  a  recent  case,  held  that 
a  married  woman,  in  the  District  of  Columbia,  may  become  a  holder 
of  stock  in  a  national  banking  association,  assuming  all  the  liabilities 
of  a  shareholder,  though  the  consideration  may  have  proceeded  from 
the  husband,  and  that  coverture  does  not  prevent  the  recovery  of  a 
judgment  against  her  for  the  amount  of  an  assessment  levied  upon  the 
shareholders  to  pay  the  corporate  debts.  Keyzer  v.  Hitz,  133  U.  S. 
138.  This  conclusion  is  based  on  the  fact  that  the  statute  imposing 
liability  on  the  stockholders  makes  no  exception  in  favor  of  married 
women.  Whether,  under  our  statutes,  the  rules  of  the  common  law 
are  displaced  so  far  as  to  render  a  married  woman  individually  liable 
for  the  debts  of  the  corporation  and  authorize  a  personal  judgment 
against  her,  are  questions  not  before  us  and  as  to  which  we  express  no 
opinion.  In  Simmons  v.  Dent,  15  Mo.  App.  288,  it  was  held  that, 
under  a  statute  whereby  a  married  woman  may  become  a  stockholder, 
a  transfer  of  stock  from  the  husband  to  the  wife  is  valid  and  relieves 
him  from  liability  on  the  stock  the  same  as  though  he  had  transferred 
it  to  another  person. 

That  a  married  woman  may  become,  by  a  purchase  of  shares,  a 
stockholder  m  an  incorporated  company  under  our  statute,  can  not 
well  be  questioned.  The  liability  of  the  shareholders,  additional  to 
the  common  law  liability  for  unpaid  subscriptions,  is  statutory.  Im- 
posing a  liability  which  did  not  exist  at  common  law,  the  statute  will 
not  be  extended  by  construction  so  as  to  include  persons  who  are  not 
the  equitable  or  real  owners  of  the  stock,  or  in  whom  the  legal  title  is 
not  vested — who  are  not  stockholders,  neither  equitably  nor  legally. 
Cook  on  Stock  and  Stockholders,  §  214.  When  money  of  the  wife's 
statutory  separate  estate  is  invested  by  her  husband  as  a  trustee  in  the 
purchase  of  stock,  he  is  not  the  owner,  has  no  beneficial  interest  therein, 
and  enters  into  no  contractual  relations,  express  or  implied,  with  the 
corporation.  It  is  true  that,  under  the  statutes  in  force  at  the  time  of 
the  purchase  of  the  stock,  a  married  woman  "had  no  capacity  to 
make  conJ:racts  subjecting  her  to  personal  liability,  or  charging  her  stat- 
utory separate  estate.  But  whether  the  husband,  subscribing  for 
stock  in  the  name  of  his  wife,  would  be  liable  for  the  unpaid  sub- 
scriptions, is  not  the  question  presented  for  decision.  It  may  be  that 
he  would  be  liable,  under  the  rule  laid  down  in  Wilder  v.  Abernethy, 
54  Ala.  644,  that  no  title  to  property  purchased  on  her  credit  passes 
to  her,  the  contract  of  purchase  not  being  a  charge  on  her  separate 
estate,  and  if  purchased  by  the  husband  on  the  credit  of  the  wife,  it 
becomes  his  property.  A  different  question  arises  where  property  is 
purchased  with  the  separate  money  of  the  wife,  paid  for  a  real  in- 
vestment of  her  funds  by  the  husband  as  her  statutory  trustee.  In 
such  case  the  contract  of  purchase,  the  investment,  bound  the  wife. 
It  appearing  that,  in  each  case,  the  stock  was  purchased  by  the  husband 
for  the  wife  in  his  capacity  of  trustee  under  his  statutory  powers,  paid 
for  with  the  moneys  of  her  separate  estate,  the  certificates  issued  in 


552  NATIONAL   COMMERCIAL   BANK   V.  M'DONNELL.         §   130 

her  name,  standing  on  the  books  of  the  company  as  the  owner  hold- 
ing the  legal  title,  and  the  husband's  name  not  appearing  on  the 
books  as  the  owner,  or  as  holding  the  stock  in  trust,  he  can  not  be  re- 
garded, in  my  opinion,  as  a  stockholder,  in  the  meaning  of  the  consti- 
tutional and  statutory  provisions  imposing  the  additional  individual 
liability.  But  as  to  this  conclusion,  the  other  members  of  the  court 
differ  with  me,  holding  that,  as  a  married  woman  w^as  incapable  un- 
der the  statute  of  making  a  contract  binding  her  personally,  or  charg- 
ing her  statutory  separate  estate,  the  common  law  nale,  which  makes 
the  husband,  when  he  subscribes  for  stock  in  the  name  of  his  wife, 
personally  liable  on  the  subscription,  applies,  and  subjects  him  to  the 
additional  liability  imposed  by  the  statute  on  the  stockholders  to  the 
extent  of  their  stock. 

As  to  Bush  and  Dorgan,  affirmed. 

Note.  Married  women  as  shareholders.  See,  1847,  Porter  v.  Bank  of  Rutland, 
19  Vt.  410;  1849,  Angas'  Case,  1  De  G.  &  Sm.  560;  1849,  Slaymaker  v.  Bank 
of  Gettysburg,  10  Pa.  St.  373;  1850,  White's  Case,  3  De  G.  &  Sm.  157;  1853, 
Dalton  V.  Midland,  etc.,  R.,  13  C.  B.  474;  1860,  Luard's  Case,  1  De  G., 
F.  &J.  533;  1860,  In  matter  of  Reciprocity  Bank,  22  N.  Y.  9;  1864,  Hilly. 
Pine  River  Bank,  45  N.  H.  300 ;  1866,  Matthewman's  Case,  L.  R.  3  Eq.  Cas.  781 ; 
1868,  Butler  v.  Cumpston,  L.  R.  7  Eq.  Cas.  16;  1872,  Pugh  &  Sharman's  Case, 
L.  R.  13  Eq.  566;  1879,  Brown  v.  Bokee,  53  Md.  155;  1880,  Anderson  v.  Line, 
14  Fed.  Rep.  405;  1886,  Sayles  v.  Bates,  15  R.  I.  342;  1887,  Witters  v.  Sowles, 
32  Fed.  Rep.  767;  1890,  Kevser  v.  Hitz,  133  U.  S.  138;  1894,  Robinson  v.  Tur- 
rentine,  59  Fed.  Rep.  554;  1896,  Re  Married  Women's,  etc.,  18  Pa.  Co.  Ct.  492. 

See,  also,  14  Am.  &  Eng.  Ency.  680;  Beach,  §  139;  Cook,  §§66,  250,  319, 
396,  538;  Clark,  §  98;  Elliott,  §  346;  I  Thompson,  §§  1096-7;  II  lb.,  §  2493;' 
III  lb.,  §§  3103,  3211,  3275;  VII  lb.,  §§  8163,  8708. 


Sec.  130.    Aliens.    See  Regina  v.  Arnaud,    9  Adolpl.  &  E.  886, 
supra,  p.  58. 

Notes.  Aliens  as  shareholders.  See,  1806,  Ex  parte  Boussmaker,  13  Ves.  Jr. 
71;  1844,  Cammeyer  v.  U.  G.  L.  Churches,  2  Sandf.  Ch.  (N.  Y.)  186;  1847, 
Commw.  V.  O'Donnell,  Brightly  N.  P.  (Pa.)  Ill;  1869,  Hobbs  v.  Manhattan 
Ins.  Co.,  56  Maine  417,  96  Am.  Dec.  472;  1871,  In  re  Journalist's  Fund,  etc., 
SPhila.  (Pa.)  272;  1873,  In  re  Charter,  etc.,  10  Phila.  (Pa.)  19;  1879,  In  re 
Charter,  etc.,  1  Leg.  Rec.  (Pa.)  133;  1880,  Humphreys  v.  Mooney,  5  Colo.  282; 
1890,  Commw.  v.  Hemmingway,etc.,  131  Pa.  St.  614,  7  L.  R.  A.  357;  1895,  Re 
Italian  Mnt.  Ben.  Assn.,  15  Pa.  Co.  Ct.  644;  1897,  Re  Charter  St.  Ladislaus, 
19  Pa.  Co.  Ct.  25;  1899,  Blien  v.  Rand,  79  N.  W.  (Minn.)  606. 

State  statutes  frequently  provide  that  incorporators,  or  a  part  of  them,  shall 
be  citizens  of  the  state  granting  the  charter.  Such  provisions  are  undoubt- 
edly valid,  for  the  state  can  grant  or  witlihold  its  corporate  franchises  at  its 
pleasure.  It,  however,  perhaps  is  questionable  whether  a  state  can  confine 
the  stockholders  or  subscribers  to  the  stock  to  residents  or  citizens  of  the 
state  creating  the  corporation,  without  violating  section  2.  article  iv,  of  the 
United  States  constitution,  providing  that  "the  citizens  of  each  state  shall  be 
entitled  to  all   the  privileges  and  immunities   of    citizens   in   the  several 

But  see,  1890,  Commw.  v.  Hemmingway,  131  Pa.  St.  614 ;  1898,  State  v. 
Travelers'  Ins.  Co.,  70  Conn.  590;  1899,  Blien  v.  Rand,  77  Minn.  110,  79 
N.  W.  606. 


§   131  SUBSCRIPTION    BY   PRIVATE   CORPORATIONS.  553 

Sec.  131.     Private  corporations. 

THE  DENNY  HOTEL  CO.,  Appellant,  v.  JOHN  SCHRAM,  Respondent.* 

1893.    In  the  Supreme  Court  of  Washington.      6  Wash.  Rep. 
134-138,   36  Am.  St.  Rep.  130. 

Dunbar,  C.  J.  *  *  *  Second.  Can  a  corporation  under  the  laws 
of  this  state  become  an  incorporator  by  subscribing  for  shares  in 
another  corporation.''     *     *     * 

As  to  the  second  proposition,  a  corporation  can  only  be  formed  in 
the  manner  provided  by  law,  and  has  only  such  powers  as  the  law 
specially  confers  upon  it.  We  do  not  think  that  a  corporation  was 
within  the  contemplation  of  the  legislature  when  they  used  the  ex- 
pression, "two  or  more  persons,"  in  §  1498,  Gen.  Stat.  It  is  true 
that  §  1709,  Code  Proc,  provides  that  the  term  "person"  may  be 
construed  to  include  the  United  States,  this  state,  or  any  state  or  ter- 
ritory, or  any  public  or  private  corporation,  as  well  as  an  individual. 
But  it  does  not  follow,  by  any  means,  that  the  term  "person"  is  al- 
ways to  be  construed  as  a  private  corporation,  any  more  than  it  is 
always  to  be  construed  as  the  United  States. 

Morawetz  on  Private  Corporations,  §  433,  says:  "A  corporation 
can  not,  in  the  absence  of  express  statutory  authority,  become  an  in- 
corporator by  subscribing  for  shares  in  a  new  corporation ;  nor  can  it 
do  this  indirectly  through  persons  acting  as  its  agents  or  tools;"  cit- 
ing Central  R.  Co.  v.  Pennsylvania  R.  Co.,  31  N.  J.  Eq.  475.  The 
author,  continuing,  says,  "The  right  of  forming  a  corporation  is  con- 
ferred by  the  incorporation  laws  only  upon  persons  acting  individu- 
ally, and  not  upon  associations.  " 

This,  it  seems  to  us,  for  manifest  and  manifold  reasons,  is  in  accord- 
ance with  public  policy,  and  we  therefore  decide  that  under  the  ex- 
isting laws  of  this  state  one  corporation  can  not  subscribe  to  the  capi- 
tal stock  of  another  corporation.  And,  in  any  event,  in  this  case  the 
amount  of  the  capital  stock  of  the  building  company  was  so  exceed- 
ingly small,  compared  with  the  amount  of  the  liability  which  it  sought 
to  assume  (its  subscribed  stock  being  $64,000  and  its  capital  stock 
only  $54,000),  that  there  was  no  apparent  ability  to  pay  the  amount 
subscribed ;  and  while  it  may  be  true  that  a  party's  contract  will  not 
be  held  void  if  it  is  not  apparent  that  he  is  worth  the  entire  amount  of 
money  necessary  to  carry  it  out  at  the  time  it  is  made,  yet  the  disparity 
here  is  too  great,  and  there  is  not  only  not  "an  apparent  ability  to 
pay,"  but  there  is  an  apparent  inability  to  pay. 

We  find  no  error  in  the  proceediags  in  the  court  below,  and  the 
judgment  is  therefore  affirmed. 

Stit.es,  Anders  and  Scott,  JJ.,  concur. 

HoYT,  J.,  disqualified. 

Note.    See,  infra,  under  Powers  of  Corporations,  p.  1051,  et  seq. 
*Only  that  part  of  opinion  relating  to  the  one  point  given. 


554  COLE   V.    LA  GRANGE.  §  132 

Sec.  132.    Municipal  corporations. 

COLE  V.  LA  GRANGE.* 

1884.    In  the  Supreme  Court  of  the  United  States.     113  U.  S. 

Rep.  1—9. 

This  was  an  action  to  recover  the  amount  of  coupons  for  interest 
from  January  i,  1873,  to  January  i,  1880,  attached  to  twenty-five 
bonds,  all  exactly  alike,  except  in  their  numbers,  and  one  of  which 
was  as  follows : 

"United  States  op  America.  \ 

State  of  Missoltki,  City  of  La  Grange,  j 

"No.  23.  $1,000 

"Know  all  men  by  these  presents,  that  the  city  of  La  Grange  doth, 
for  a  good,  sufficient  and  valuable  consideration,  promise  to  pay  to 
the  La  Grange  Iron  and  Steel  Company,  or  bearer,  the  sum  of  $1,000 
in  current  funds,  thirty  years  after  the  date  thereof,  at  the  Third  Na- 
tional Bank,  city  of  New  York,  together  with  interest  thereon,  at  the 
rate  of  eight  per  cent,  per  annum,  payable  annually  in  current  funds 
on  the  first  day  of  each  January  and  July  ensuing  the  date  hereof,  on 
presentation  and  surrender  of  the  annexed  interest  coupons  at  said 
Third  National  Bank. 

"This  bond  is  issued  under  an  ordinance  of  the  city  council  of  the 
said  city  of  La  Grange,  passed  and  approved  September  22,  1871, 
under  and  in  pursuance  of  an  act  of  the  legislature  of  the  state  of 
Missouri,  entitled  'An  act  to  amend  an  act  entitled  an  act  to  incorpo- 
rate the  city  of  La  Grange,'  approved  March  9,  187 1,  which  became 
a  law  and  went  into  force  and  effect  from  and  after  its  said  approval. 

"This  bond  to  be  negotiable  and  transferrable  by  delivery  thereof. 

"In  testimony  whereof,  the  city  council  of  the  city  of  La  Grange 
hath  hereunto  caused  to  be  affixed  the  corporate  seal  of  said  city,  and 
these  presents  to  be  signed  by  the  mayor  and  countersigned  by  the 
clerk  of  the  city  council  of  said  city  this  14th  day  of  December,  1871. 

L^^^^J  "R.  McChesney,  Clerk." 

The  petition  alleged  that  the  city  of  La  Grange,  on  the  14th  of  De- 
cember, 1871,  executed  the  twenty-five  bonds,  and  delivered  them  to 
the  La  Grange  Iron  and  Steel  Company,  under  and  by  virtue  of  the 
authority  contained  in  section  i  of  article  vi  of  the  city  charter,  as 
amended  by  an  act  of  the  legislature  of  Missouri,  approved  March  9, 
1871  (which  section,  as  thus  amended,  was  set  forth  in  the 
petition),  and  under  and  by  virtue  of  an  ordinance  of  the  city, 
dated  September  22,  1871,  by  which  an  election  was  author- 
ized to  be  held  in  the  city  on  October  4,  1871,  to  test  the  sense 
people   of    the    city   upon    the    question    of    issuing  bonds; 


of    th 
'Arguments  omitted 


§   132  SUBSCRIPTION    BY    PUBLIC    CORPORATION.  555 

that  in  compliance  with  the  ordinance  and  with  the  city  charter,  an 
election  was  held,  at  which  the  proposition  was  adopted  by  a  two- 
thirds  vote  of  the  qualified  voters ;  and  that  on  September  i,  1872, 
the  plaintiff  bought  the  twenty-five  bonds,  for  value,  relying  upon  the 
recitals  on  their  face,  and  without  knowledge  of  any  irregularity  or 
defect  in  their  issue ;  of  all  which  the  defendant  had  notice,  by  means 
whereof  the  defendant  became  liable  and  promised  to  pay  to  the 
plaintiff  the  sum  specified  in  the  coupons,  according  to  their  tenor 
and  effect. 

The  answer  denied  all  the  allegations  of  the  petition ;  and  for 
further  answer  averred  that  the  act  of  the  legislature  mentioned  in 
the  petition,  approved  March  9,  187 1,  attempted  to  give,  and  in 
terms  did  give,  to  the  city  authority  to  make  gifts  and  donations  to 
private  manufacturing  associations  and  corporations;  that  the  city 
council,  purporting  to  act  under  such  authority,  by  an  ordinance 
adoptt'd  September  23,  1871  (which  was  referred  to  in  the  answer),  did 
sulimit  to  a  vote  of  the  citizens  a  proposition  to  give  or  donate  to  the 
La  Grange  Iron  and  Steel  Company,  a  private  manufacturing  company, 
formed  and  established  for  the  purpose  of  canying  on  and  operating  a 
rolling-mill,  the  sum  of  $200,000;  that,  in  accordance  with  that  ordi- 
nance, the  bonds  of  the  city  were  issued  to  said  manufacturing  com- 
pany, which  was  a  strictly  private  enterprise,  formed  and  prosecuted 
for  the  purpose  of  private  gain,  and  which  had  nothing  whatever  of 
a  public  character ;  and  that  it  was  incompetent  for  the  legislature  to 
grant  authority  to  cities  or  towns  to  make  donations  and  issue  bonds 
to  mere  private  companies  or  associations  having  no  public  functions 
to  perform,  and  the  act  of  the  legislature  and  the  ordinance  of  the 
city  were  void  ;  wherefore,  the  bonds  and  coupons  were  issued  with- 
out any  legal  authority,  and  were  wholly  void. 

To  this  answer  the  plaintiff  filed  a  general  demurrer,  which  was 
overruled  by  the  court,  and  the  plaintiff  electing  to  stand  by  his  de- 
murrer, judgment  was  entered  for  the  defendant.  19  Fed.  Rep. 
871.     The  plaintiff  sued  out  this  writ  of  error. 

Mr.  Justice  Gray  delivered  the  opinion  of  the  court.  He  recited 
the  facts  as  above  stated  and  continued : 

The  general  grant  of  legislative  power  in  the  constitution  of  the 
state  does  not  enable  the  legislature,  in  the  exercise  either  of  the  right 
yi  eminent  domain  or  in  the  right  of  taxation,  to  take  private  prop- 
erty, v/ithout  the  owner's  consent,  for  any  but  a  public  object.  Nor 
can  the  legislature  authorize  counties,  cities  or  towns  to  contract  for 
private  objects  debts  which  must  be  paid  by  taxes.  It  can  not,  there-* 
fore,  authorize  them  to  issue  bonds  to  assist  merchants  or  manufactur- 
ers, whether  natural  persons  or  corporations,  in  their  private  business. 
These  limits  of  the  legislative  power  are  now  too  firmly  established 
by  judicial  decisions  to  require  extended  argument  upon  the  subject. 

In  Loan  Association  v.  Topeka,  20  Wall.  655,  bonds  of  a  city, 
issued,  as  appeared  on  their  face,  pursuant  to  an  act  of  the  legislature 
of  Kansas,  to  a  manufacturing  corporation,  to  aid  it  in  establishing 
shops  in  the  city  for  the  manufacture  of  iron  bridges,  were  held  by 


556  COLE   V.    LA  GRANGE.  §   1 32 

this  court  to  be  void,  even  in  the  hands  of  a  purchaser  in  good  faith 
and  for  value.  A  like  decision  was  made  in  Parkersburg  v.  Brown, 
106  U.  S.  487.  The  decisions  in  the  courts  of  the  states  are  to  the 
same  effect.  Allen  v.  Jay,  60  Maine  124;  Lowell  v.  Boston,  11 1 
Mass.  454;  Weismer  v.  Douglas,  64  N.  Y.  91;  In  re  Eureka  Co., 
96  N.  Y.  42  ;  Bissell  v.  Kankakee,  64  111.  249 ;  English  v.  People, 
96  111.  566;  Central  Branch  Union  Pacific  Railroad  v.  Smith,  23 
Kan.  745. 

We  have  been  referred  to  no  opposing:  decision.  The  cases  of 
Hackett  v.  Ottawa,  99  U.  S.  86,  and  Ottawa  v.  National  Bank,  105 
U.  S.  342,  were  decided,  as  the  chief  justice  pointed  out  in  Ottawa 
V.  Carey,  108  U.  S.  no,  118,  upon  the  ground  that  the  bonds  in 
suit  appeared  on  their  face  to  have  been  issued  for  municipal  pur- 
poses, and  were  therefore  valid  in  the  hands  of  bona  jide  holders.  In 
Livingston  v.  Darlington,  loi  U.  S.  407,  the  town  subscription  was 
toward  the  establishment  of  a  state  reform  school,  which  was  un- 
doubtedly a  public  purpose,  and  the  question  in  controversy  was 
whether  it  was  a  corporate  purpose,  within  the  meaning  of  the  con- 
stitution of  Illinois.  In  Burlington  v.  Beasley,  94  U.  S.  310,  the  grist 
mill  held  to  be  a  work  of  internal  improvement,  to  aid  in  constmcting 
which  a  town  might  issue  bonds  under  the  statutes  of  Kansas,  was  a 
public  mill  which  ground  for  toll  for  all  customers.  See  Osborne  v. 
Adams  County,  106  U.  S.  181,  and  109  U.  S.  i;  Blair  v.  Cuming 
County,  III  U.  S.  363.  Subscriptions  and  bonds  of  towns  and  cities, 
under  legislative  authority,  to  aid  in  establishing  railroads,  have  been 
sustained  on  the  same  ground  on  which  the  delegation  to  railroad  cor- 
porations of  the  sovereign  right  of  eminent  domain  has  been  justified, 
the  accommodation  of  public  travel.  Rogers  v.  Burlington,  3  Wall. 
654;  Queensbury  V.  Culver,  19  Wall.  83;  Loan  Association  v.  To- 
peka,  20  Wall.  661,  662;  Taylor  v.  Ypsilanti,  105  U.  S.  60.  Stat- 
utes authorizing  towns  and  cities  to  pay  bounties  to  soldiers  have  been 
upheld  because  the  raising  of  soldiers  is  a  public  duty.  Middleton  v. 
Mullica,  112  U.  S.  433;  Taylor  v.  Thompson,  42  111.  9;  Hilbish  v. 
Catherman,  64  Pa.  St.  154;  State  v.  Richland,  20  Ohio  St.  362; 
Agawam  v.  Hampden,  130  Mass.  528,  534. 

The  express  provisions  of  the  constitution  of  Missouri  tend  to  the 
same  conclusion.  It  begins  with  the  Declaration  of  Rights,  the  six- 
teenth article  of  which  declares  that  "no  private  property  ought  to  be 
taken  or  applied  to  public  use  without  just  compensation."  This 
clearly  presupposes  that  private  property  can  not  be  taken  for  private 
use.  St.  Louis  County  Court  v.  Griswold,  58  Mo.  175,  193;  2  Kent 
Com.  339  note,  340.  Otherwise,  as  it  makes  no  provision  for  com- 
pensation except  when  the  use  is  public,  it  would  permit  private  prop- 
erty to  be  taken  or  appropriated  for  private  use  without  any  compen- 
sation whatever.  It  is  true  that  this  article  regards  the  right  of  emi- 
nent domain,  and  not  the  power  to  tax;  for  the  taking  of  property  by 
taxation  requires  no  other  compensation  than  the  tax-payer  receives 
in  being  protected  by  the  government,  to  the  support  of  which  he  con- 
tributes.    But,  so  far  as  respects  the  use,  the  taking  of  private  prop- 


§  132  SUBSCRIPTION    BY    PUBLIC    CORPORATION.  557 

erty  by  taxation  is  subject  to  the  same  limit  as  the  taking  by  the  right 
of  eminent  domain.  Each  is  a  taking  by  the  state  for  the  public  use, 
and  not  to  promote  private  ends. 

The  only  other  provisions  of  the  constitution  of  Missouri  having 
any  relation  to  the  subject,  are  the  following  sections  of  the  eleventh 
article : 

"Sec.  13.  The  credit  of  the  state  shall  not  be  given  or  loaned  in 
aid  of  any  person,  association  or  corporation,  nor  shall  the  state  here- 
after become  a  stockholder  in  any  corporation  or  association,  except 
for  the  purpose  of  securing  loans  heretofore  extended  to  certain  rail- 
road corporations  in  the  state. 

"Sec.  14.  The  general  assembly  shall  not  authorize  any  county, 
city,  or  town  to  become  a  stockholder  in,  or  loan  its  credit  to,  any 
company,  association  or  corporation,  unless  two-thirds  of  the  quali- 
fied voters  of  such  county,  city  or  town,  at  a  regular  or  special  eleq-' 
tion,  to  be  held  therein,  shall  assent  thereto." 

Both  these  sections  are  restrictive  and  not  enabling.  The  thirteenth 
section  peremptorily  denies  to  the  state  the  power  of  giving  or  lending 
its  credit  to  or  becoming  a  stockholder  in  any  corporation  whatever. 
The  aim  of  the  fourteenth  section  is  to  forbid  the  legislature  to  au- 
thorize counties,  cities  or  towns,  without  the  assent  of  the  tax-payers, 
to  become  stockholders  in  or  to  lend  their  credit  to  any  corporation 
however  public  its  object;  State  v.  Curators  State  University,  57  Mo. 
178;  not  to  permit  them  to  be  authorized,  under  any  circumstances, 
to  raise  or  spend  money  for  private  purposes. 

It  is  averred  in  the  answer,  and  admitted  by  the  demurrer,  that  the 
La  Grange  Iron  and  Steel  Company,  to  which  the  bonds  were  issued, 
was  "a  private  manufacturing  company,  formed  and  established  for 
the  purpose  of  carrying  on  and  operating  a  rolling-mill,"  and  "was  a 
strictly  private  enterprise,  formed  and  prosecuted  for  the  purpose  of 
private  gain,  and  which  had  nothing  whatever  of  a  j^ublic  character."* 
The  ordinance  referred  to  shows  that  the  mill  was  to  manufacture 
railroad  iron ;  but  that  is  no  more  a  public  use  than  the  manufacture 
of  iron  bridges,  as  in  the  Topeka  case,  or  the  making  of  blocks  of 
stone  or  wood  for  paving  streets.  There  can  be  no  doubt,  therefore, 
that  the  act  of  the  legislature  of  Missouri  is  unconstitutional,  and  that 
the  bonds  expressed  to  be  issued  in  pursuance  of  that  act  are  void 
upon  their  face. 

As  for  this  reason  the  action  can  not  be  maintained,  it  is  needless 
to  dwell  upon  the  point  that  the  answer  demurred  to,  besides  the  spe- 
cial defense  of  the  unconstitutionality  of  the  act,  contains  a  general 
denial  of  the  allegations  in  the  petition.  That  point  was  mentioned 
and  passed  over  in  the  opinion  of  the  circuit  court,  and  was  not 
alluded  to  in  argument  here,  the  parties  in  effect  assuming  the  general 
denial  in  the  answer  to  have  been  withdrawn  or  waived,  and  the  case 
submitted  for  decision  upon  the  validity  of  the  special  defense. 

Judgment  affirmed. 

Note.  Subscriptions  by  municipal  corporations.  There  is  no  Implied  authority 
to  subscribe.     1863,  Gelpcke  v.  Dubuque,  1  Wall.  (U.  S.)  175;  1873,  State  v. 


558  COLE   V.    LA  GRANGE.  §   133 

Saline  Co.  Ct.,  51  Mo.  350;  1880,  Weiphtman  v.  Clark,  103  U.  S.  256;  1883, 
City  of  Jonesboro  v.  Cairo,  etc.,  110  U.  S.  192;  1888,  Kelley  v.  Milan,  127 
U.  S.  139. 

Tlie   legislature  may   authorize  the    municipal   corporation   to  subscribe. 
1837,  Goddin  v.  Crump,  8  Leigh  (Va.)  120;  1852,  Slack  v.  Maysville  &  L.  R., 
13  B.  Mon.  iKv.)  1  ;   1853,  Sharpless  v.   Mavor,  etc.,  21  Pa.  St.  147,  59  Am. 
D.  759;    1858,  Knox  Co.  v.  Aspinwall,  21  How.  (U.S.)  539;    1871,  Leaven- 
worth Co.  V.  Miller,  7  Kan.  479;    1871,  Walker  v.  Cincinnati,  etc.,  21  Oiiio 
St.  14,  8  Am.  Rep.  24;  1871,  Ex  parte  Selma,  etc.,  45  Ala.  696,  6  Am.  Rep.  722 
1873,  Harcourt  v.  Good,  39  Tex.  456;    1873,  Pine  Grove  Tp.  v.  Talcott,  19 
Wall.  (86  U.  S.)  666;    1874,  Loan  Assn.  v.  Topeka,  20  Wall.  (87  U.  S.     655 
1876,  Williams  v.  Duanesburg,  66  N.  Y.  129;  1877,  Quincy,  etc.,  R.  v.  Morris 
84  111.  410;  1882,  Lyons  v.  Chamberlain,  89  N.   Y.  578;    1892,  Doon  Tp.  v 
Cummins,  142  U.  S.  366;  1893,  Barnum  v.  Okolona,  148  U.  S.  393;  1895,  Fol 
sora  V.  Ninety  Six,  159  U.  S.  611. 

But   see,    contra,   1868,  McClure  v.  Owen,  26  Iowa  243;    1870,  People  v 
Salem,  etc.,  20  Mich.  452;  1871,  People  v.  State  Treas.,  23  Mich.  499. 


Sec.  133.     State  or  national  government. 

BANK  OF  THE  UNITED  STATES  v.  PLANTER'S  BANK  OF  GEORGIA.^ 

1824.    In  the  Supreme  Court  of  the  United  States.     9  Wheat. 
(U.  S.)  Rep.  904-913. 

[Suit  by  plaintiff  upon  promissory  notes  of  defendant  payable  to  a 
person  named  or  bearer  and  duly  transferred  to  plaintiff.  The  de- 
fendant bank  pleads  to  the  jurisdiction  of  the  United  States  Circuit 
Court  of  Georgia  (where  the  case  was  tried  and  certified  to  the 
supreme  court  on  a  division  of  opinion),  alleging  that  the  state  of 
Georgia  was  a  stockholder,  and  raising  the  question  as  to  whether  the 
state  was  therefore  a  party  defendant  in  the  case.] 

Marshall,  C.  J.  *  *  *  It  is,  we  think,  a  sound  principle  that  when 
a  government  becomes  a  partner  in  any  trading  company,  it  divests 
itself,  so  far  as  concerns  the  transactions  of  that  company,  of  its 
sovereign  character  and  takes  that  of  a  private  citizen.  Instead  of 
communicating  to  the  company  its  privileges  and  its  prerogatives,  it 
descends  to  a  level  with  those  with  whom  it  associates  itself,  and 
takes  the  character  which  belongs  to  its  associates,  and  to  the  business 
which  is  to  be  transacted.  Thus,  many  states  of  this  Union,  who 
have  an  interest  in  banks,  are  not  suable  even  in  their  own  courts, 
yet  they  never  exempt  the  corporation  from  being  sued.  The  state  of 
Georgia,  by  giving  to  the  bank  the  capacity  to  sue  and  be  sued,  vol- 
untarily strips  itself  of  its  sovereign  character  so  far  as  respects  the 
transactions  of  the  bank,  and  waives  all  the  privileges  of  that  char- 
acter. As  a  member  of  a  corporation,  a  government  never  exer- 
cises its  sovereignty.  It  acts  merely  as  a  corporator  and  exercises  no 
other  power  in  the  management  of  the  affairs  of  the  corporation  than 
are  expressly  given  by  the  incorporating  act. 

^  Only  so  much  of  opinion  given  as  relates  to  the  character  of  a  state  as  a 
stockholder. 


§133  SUBSCRIPTION   BY  THE   STATE.  559 

The  government  of  the  Union  held  shares  in  the  old  Bank  of  the 
United  States  ;  but  the  privileges  of  the  government  were  not  im- 
parted by  that  circumstance  to  the  bank.  The  United  States  was  not 
a  party  to  suits  brought  by  or  against  the  bank  in  the  sense  of  the 
constitution.  So  with  respect  to  the  present  bank.  Suits  brought  by 
or  against  it  are  not  understood  to  be  brought  by  or  against  the  United 
States.  The  government,  by  becoming  a  corporator,  lays  down  its 
sovereignty  so  far  as  respects  the  transactions  of  the  corporation  and 
exercises  no  power  or  privilege  which  is  not  derived  from  the  charter. 
We  think,  then,  the  Planter's  Bank  of  Georgia  is  not  exempted  from 
being  sued  in  the  federal  courts  by  the  circumstance  that  that  state  is 
a  corporator. 


Title  III.    The  Body  Corporate,  Its  Birth  and  Organization. 


CHAPTER  7. 
ORGANIZATION  AND  COMPLIANCE  WITH  CONDITIONS.* 

article    I.        SCHEMES  OF  ORGANIZATION. 

Sec.  134.  (i)  Under  the  King' s  Charter:  This  usually  provides 
the  original  organization  in  the  charter  itself.  See  supra,  The 
Charter  of  Dartmouth  College,  p.  426,  and  infra,^^^.  711. 


Sec.  135.      (2)  In  special  acts: 

{a)  The  act  itself  provides  the  original  organization:     Illustra- 
tion,— Charter  of  Michigan  Central  R.  Co. 

"Sec.  1.  Be  it  enacted,  etc.,  That  William  Sturgess  (and  twenty-five  other 
persons  named)  and  such  other  persons  as  shall  associate  with  them  for  that 
purpose,  are  hereby  made  and  constituted  a  body  corporate  and  politic  by  the 
name  and  style  of  the  Michigan  Central  Railroad  Company,  A\ith  perpetual 
succession,  etc.  (enumerating  various  powers  conferred). 

"Sec.  22.  The  corporate  stock  *  *  *  shall  be  $5,000,000  *  *  *  divided 
into  shares  of  $100  each.  *  *  *  Provided,  The  company  may  commence 
business  whenever  $2,000,000  of  stock  shall  have  been  subscribed. 

"Sec.  23.  The  nine  persons  first  named  in  the  first  section  *  *  *  shall  be 
the  first  directors  of  said  company ;  and  at  their  first  meeting  they  shall  elect 
by  ballot  one  of  their  number  to  be  president,  a  majority  of  whom  shall  be 
competent  to  manage  the  affairs  of  the  company ;  such  first  meeting  of  the 
directors  shall  be  held  at  a  time  and  place  to  be  fixed  by  a  written  agreement 
signed  by  all  of  said  directors.     *     *     * 

"Sec.  24.  Said  directors,  or  a  majority  of  them,  may  open  books  to  receive 
subscriptions  to  the  capital  stock,  *  *  *  at  such  times  and  places  as  they  or 
a  majority  of  them  may  appoint,  etc.     *     *     * 

"Sec.  25.  To  continue  the  succession  of  president  and  directors,  nine  di- 
rectors shall  be  chosen  annually,  on  the  second  Monday  in  June,  at  such 
time  and  place  as  may  be  appointed  by  the  directors.     *     *     * 

"Sec.  27.  A  general  meeting  of  the  stockholders  of  said  company  shall  be 

'  See  Angell  &  Ames,  ch.  2  and  3;  Beach,  §§  9-16,  159-162;  Boone,  §§  26- 
34;  Clark,  §§  19-27,  41-45;  Cook,  §§  5,  183-6,  231-5;  Elliott,  §§  21-50;  Field, 
§  29;  1  Kyd,  ch.  3;  Morawetz,  ch.  2  and  9;  Taylor,  §§  72-90;  Thompson,  ch. 
1-18. 

(560) 


§  136  SCHEMES    OF   ORGANIZATION.  56 1 

holden  annually  at  the  time  and  place  appointed  for  the  election  of  direct- 
ors.   *    •    * 

"Sec.  31.  The  directors  shall  have  full  power  to  conduct  the  affairs  of  said 
company,  and  to  exercise  any  powers  which  said  company  might  exercise, 
except  where  provision  is  made  by  this  act  for  the  exercise  of  such  powers  by 
the  stockholders  at  their  annual  or  special  meetings,  or  where  the  powers  of 
the  directors  may  be  restrained  by  the  by-laws  of  said  company.  *  *  *  See  6 
Laws  of  Mich.  (1846)  No.  42,  p.  37,  et  seq. 


Sec.  136. 

(d)  The  law  provides  for  the  organization  to  be  made  by  the 
persons  subscribing  for  the  stock.  See  supra,  the  charter  of  the 
Baltimore  and  Ohio  R.  Co.,  p.  427. 


Sec.  137.     (3)   Under  general  incorporation  laws: 

(«)  By  .deed  of  settlement;  this  method,  when  used,  provided 
the  organization  in  the  deed  itself.  See  forms  in  2  Coke's  Inst. 
720,  and  Wordsworth,  Stock  Companies,  Part  II. 


Sec.  138.    Same. 

(^)  License  plan:     Illustration, — The  Illinois  law. 

This  provides  that  "whenever  any  number  of  persons,  not  less  than  threfe 
nor  more  than  seven,  shall  propose  to  form  a  corporation  ♦  *  *  they  shall 
make  a  statement  to  that  effect,  under  their  hands,  and  duly  acknowledged, 

*  *  *  setting  forth  name,  *  *  *  object,  *  *  *  capital  stock,"  shares, 
location  of  office  and  duration,  not  exceeding  ninety-nine  years,  which  state- 
ment shall  be  filed  with  the  secretary  of  state,  "who  shall  issue  to  such  per- 
sons a  license  as  commissioners  to  open  books  for  subscription  to  the  capital 
stock  of  said  corporation  at  such  times  and  places  as  they  may  determine. 

*  *  *"  As  soon  as  the  capital  stock  shall  be  fully  subscribed,  "the  com- 
missioners shall  convene  a  meeting  for  subscribers  for  the  purpose  of  electing 
directors  or  managers  and  the  transaction  of  such  other  business  as  shall 
come  before  them."  Certain  notice  of  election  is  to  be  given,  and  voting  may 
be  by  proxy  or  cumulative.  "The  commissioners  shall  make  a  full  report  of 
their  proceedings,  including  therein  a  copy  of  the  notice,  *  *  *  a  copy  of 
the  subscription  list,  *  *  *  the  names  of  the  directors  or  managers  elected, 
and  their  respective  terms  of  office,  which  report  shall  be  sworn  to  by  at  least 
a  majority  of  the  commissioners,  and  shall  be  filed  in  the  office  of  the  secre- 
tary of  state.  The  secretary  of  state  shall  thereupon  issue  a  certificate  of  the 
complete  organization  of  the  corporation,  making  a  part  thereof  a  copy  of  all 
papers  filed  in  his  office  in  and  about  the  organization  of  the  corporation,  and 
duly  authenticated  under  his  hand  and  seal  of  the  state,  and  the  same  shall 
be  recorded  in  a  book  for  that  purpose,  in  the  office  of  the  recorder  of  deeds 
of  the  county  where  the  principal  office  of  such  company  is  located.  Upon 
the  recording  of  said  copy,  the  corporation  shall  be  deemed  fully  organized, 
and  may  proceed  to  business."  Revised  Statutes  of  Illinois,  1895,  act  of  April 
18,  1872,  in  force  July  1,  1872,  §§  2,  S  and  4. 

36— WiL.  Cases. 


562  SCHEMES   OF   ORGANIZATION.  §   1 39 


Sec.  139.    Same. 

The  new  Kansas  laio  (Laws  of  1898,  ch.  10,  approved  January  7,  1899) 
creates  a  charter  board,  composed  of  the  attorney-general,  the  secretary  of 
state  and  the  state  bank  commissioner,  to  whom  apphcation  (on  blanks  to  be 
furnished)  shall  be  made.  "The  board  shall  make  a  careful  investigation  of 
each  application  with  reference  to  the  character  of  the  business  in  which  the 
proposed  corporation  is  to  engage,  and  if  the  board  shall  determine  that  the 
business  is  one  for  which  a  corporation  may  lawfully  be  formed,  and  that  ap- 
plicants are  acting  in  good  faith,  the  application  shall  be  granted,  and  the  sec- 
retary of  the  board  (the  secretary  of  state  I  shall  issue  a  certificate  setting 
forth  the  fact  that  the  persons  named  in  the  application  have  been  author- 
ized by  the  charter  board  to  form  a  private  corporation,  as  set  forth  in  the 
application,  reciting  the  proposed  name  and  cliaracter  thereof."  §§  3a-3j.  A 
charter  must  be  prepared  stating  name,  purpose,  place  of  business,  term  of 
existence,  number  of  its  directors  or  trustees  and  the  names  and  residences  of 
those  who  are  appointed  for  the  first  year,  amount  of  capital  stock,  number  of 
shares,  names  and  addresses  of  shareholders  and  number  of  shares  held  by 
each.  lb.  Charter  must  be  subscribed  and  acknowledged  by  five  persons, 
three  to  be  citizens  of  the  state,  and  shall  then  be  filed  with  the  secretary 
of  state,  and  be  recorded  by  him.    See,  also,  Alabama  Civil  Code,  §§  1139-42. 


Sec.  140.   Same. 

{c)    Organization  completed  before  application  made :     Illustra- 
tion,— Massachussets  law. 

Any  number  of  persons  may  associate  by  an  agreement  "which  shall  set 
forth  the  fact  that  the  subscribers  thereto  associate  ♦  *  *  with  the  intention 
of  forming  a  corporation,"  name,  purpose,  location,  capital  stock,  and  num- 
ber of  shares.  The  first  meeting  shall  be  called  by  a  notice  signed  by  one  or 
more  of  the  subscribers,  stating  time,  place  and  purpose,  served  seven  days 
before  time  fixed  for  meeting.  At  such  meeting  "an  organization  shall  be 
effected  by  the  choice  by  ballot  of  a  temporary  clerk,  who  shall  be  sworn, 
and  by  the  adoption  of  by-laws  and  the  election  (by  ballot  for  one  year)  of 
directors,  treasurer,  clerk  and  such  other  ofiicers  as  the  by-laws  may  provide ; 
but  at  such  first  meeting  no  person  shall  be  eligible  as  a  director  who  has  not 
subscribed  the  agreement  of  association.  The  temporary  clerk  shall  make 
and  attest  a  record  of  the  proceedings  until  the  clerk  has  been  chosen  and 
sworn,  including  a  record  of  such  choice  and  qualification."  "The  presi- 
dent, treasurer  and  a  majority  of  the  directors,  shall  forthwith  make,  sign 
and  swear  to  a  certificate  setting  forth  a  true  copy  of  the  agreement  of  asso- 
ciation with  the  names  of  the  subscribers  thereto,  the  date  of  the  first  meet- 
ing *  *  *  gj^jj  shall  submit  such  certificate  and  also  the  records  of  the 
corporation  to  the  commissioner  of  corporations,  who  shall  examine  the 
same,  and  who  may  require  such  other  evidence  as  to  the  facts  of  the  case  as 
he  may  judge  necessary.  The  commissioner,  if  it  appears  that  the  require- 
ments *  *  *  have  been  complied  with,  shall  certify  that  fact  and  his 
approval  of  the  certificate  by  indorsement  thereon.  Such  certificate  shall 
thereupon  be  filed  by  said  officers  in  the  office  of  the  secretary  of  the  com- 
monwealth, who  *  *  *  shall  issue  a  certificate."  in  a  form  prescribed, 
under  his  signature  and  the  seal  of  the  commonwealth,  and  "such  certificate 
shall  have  the  force  and  effect  of  a  special  charter,  and  shall  be  conclusive 
evidence  of  the  existence  of  such  corporation.  He  shall  also  cause  a  record 
of  such  certificate  to  be  made,  and  a  certified  copy  of  such  record  may  be 
given  in  evidence  with  like  effect  as  the  original  certificate."  Public  Stat,  of 
Mass.  1882,  ch.  106,  §§  16-21. 


§   141  PROOF   OF   ORGANIZATION.  563 

In  many  of  the  states  it  is  required  or  customary  for  the  organization  for 
the  first  year,  or  at  least  the  first  directorate,  to  be  provided  for  in  the 
articles  of  association,  when  they  are  filed  with  the  required  officer. 

See  forms  in  American  Corp.  Legal  Manual  for  1899,  Arkansas,  California, 
Colorado,  Connecticut,  District  of  Columbia,  Idaho,  Indiana,  Iowa,  Kansas, 
Maine,  Maryland,  Michigan  (Mining  Companies),  Minnesota,  Missouri, 
Montana,  Nevada,  New  Mexico,  New  York,  North  Dakota,  Oklahoma,  Penn- 
sylvania, South  Dakota,  Texas,  Utah,  Virginia,  Washington,  Wyoming, 
Dominion  of  Canada,  Prince  Edward's  Island. 


Sec.  141.    Same. 

(d)   Organization  by  subscribers  to  stock  after  the  articles  of 
incorporation  are  filed. 

See  note  to  State  v.  Fidelity,  etc.,  Ins.  Co.,  49  Ohio  St.  440,  supra,  p.  406.  In 
the  following  states,  it  seems  from  the  approved  forms  in  use  that  the  organ- 
ization is  to  take  place  after  the  stock  is  subscribed,  and  is  to  be  determined 
by  the  subscribers:  Arizona,  Delaware,  Florida,  Hawaii  (§  2028,  Civil  Code), 
Louisiana,  Nebraska,  New  Hampshire,  New  Jersey,  North  Carolina,  Ohio, 
Oregon,  Rhode  Island,  South  Carolina,  West  Virginia,  Wisconsin.  See  forms 
in  the  American  Corporation  Legal  Manual  for  1899;  Appendix,  infra,  Char- 
ter of  U.  S.  Steel  Corp. 


ARTICLE    n.       PROOF    OF    ORGANIZATION. 

Sec.   142.     General  presumption  of  regularity. 

PACKARD  Et  Al.  v.  OLD  COLONY  RAILROAD  COMPANY.^ 

1897.     In  the  Supreme  Judicial  Court  of  Massachusetts.     168 
Mass.  Rep.  92-99. 

[In  1848  the  ancestor  of  plaintiff  executed  a  deed  conveying  the  land, 
for  the  taking  of  which  damages  were  asked,  to  Perkins  and  constitut- 
ing "a  committee  of  and  in  behalf  of  Village  Cemeteiy,  a  corpora- 
tion," for  the  use  and  behoof  of  said  corporation,  "except  that  the 
ground  shall  never  be  used  for  other  purposes  than  as  a  cemeter\'." 
Respondent  introduced  the  corporation  record  book  showing  that  in 
1848  eleven  persons  desirous  of  forming  a  cemetery  corporation  under 
the  act  of  18^1,  had  a  meeting  called  according  to  the  statute,  at  which 
a  secretary,  president  and  treasurer  were  chosen  and  a  committee  ap- 
pointed to  draft  a  constitution  and  by-laws ;  the  record  did  not  show 
how  many  were  present.  In  1848  the  name  was  chosen,  and  sixteen 
meetings  in  all  were  held  prior  to  1854,  when  the  corporation  seemed 
to  become  dormant.  In  1883  a  meeting  of  the  proprietors  was  called 
to  elect  officers  and  adopt  by-laws,  and  several  meetings  followed,  at 

'  Statement  of  facts  abridged.  Only  part  of  opinion  relating  to  the  one 
point  given. 


564  PACKARD  V.  OLD  COLONY  R.  CO.         §  142 

one  of  which  it  was  suggested  that  the  original  corporation  was  illegal 
because  the  records  did  not  show  the  number  present  at  the  organiza- 
tion meeting,  and  at  a  subsequent  meeting  it  was  suggested  that  the 
legislature  be  petitioned  to  re-establish  the  corporation,  but  nothing 
was  done.  Records  showed  that  twenty-nine  burial  lots  had  been 
deeded  between  1849  and  1854.  The  act  of  1841  provided  that: 
"Any  ten  or  more  may  organize  a  corporation  for  the  purpose,"  etc., 
and,  "When  such  persons  are  organized,  etc,  they  shall  become  a 
corporation."  Plaintiff  claimed  there  had  been  no  valid  corporate 
organization.] 

Allen,  J.  It  will  be  seen  that  there  is  no  provision  in  the  statute 
requiring  the  presence  of  any  particular  number  of  persons  at  the  first 
meeting.  Eleven  persons  signed  the  application,  and  thus  expressed 
their  wish  and  intention  to  be  members  of  the  corporation.  This  was 
a  proceeding  analogous  to  the  signing  of  the  articles  of  agreement, 
which  was  deemed  essential  mostly  relied  on  by  the  petitioners.  Utley 
v.  Union  Tool  Co.,  11  Gray  139.  Having  done  this,  it  was  not  neces- 
sary that  all  should  attend  the  first  meeting. 

Moreover,  even  if  it  were  necessary  for  ten  to  be  present,  there  would 
be  a  presumption  that  this  requirement  had  been  complied  with.  The 
presumption  of  regularity  extends  to  the  proceedings  in  the  organization 
of  corporations.  In  Narragansett  Bank  v.  Atlantic  Silk  Co. ,  3  Met.  282, 
287,  it  was  said:  "The  maxim  of  law  is,  that  all  things  shall  be  presumed 
to  have  been  rightly  and  correctly  done,  until  the  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  Bank  of  United  States  v.  Dandridge,  12  Wheat. 
64,  70.  As  the  corporation  could  not  proceed  lawfully  until  duly 
organized,  and  as  they  did  proceed  to  act  as  a  corporation,  this  pre- 
sumption has  its  effect."  This  doctrine  is  often  applied,  and  it  is  to 
be  assumed  that  ten  persons  were  present  at  the  first  meeting,  if  that 
number  was  necessary.  Wallace  v.  First  Parish  in  Townsend,  109 
Mass.  263;  Piatt  v.  Grover,  136  Mass.  115;  Commonwealth  v.  Carr, 
143  Mass.  84;  Commonwealth  v.  Woelper,  3  S.  &  R.  29;  Graves  v. 
Lynchburg  &  Salem  Turnpike  Co.,  4  Rand.  378;  Lauderdale  Peer- 
age, 10  App.  Cas.  692. 

Petition  dismissed. 

Note.  1827,  United  States  Bank  v.  Dandridge,  25  U.  S.  (12  Wheat.)  64,  70.  in- 
fra, p.854;1841,  Wescott  v.  Silk  Co.,  3  Metcalf  (Mass.)  282,  287;  1844,Sasser  v. 
State,  13  Ohio  453  (criminal  suit) ;  1858,  President  and  Trustees,  etc.,  v. 
Thompson.  20  111.  197  (charter  and  user) ;  1864,  Holmes  v.  Gilliland,  41  Barb. 
(N.  Y.)  568  (general  reputation);  1872,  Wallace  v.  First  Parish,  109  Mass. 
263;  1883,  Piatt  v.  Grover,  136  Mass.  115;  1886,  Commonwealth  v.  Carr,  143 
Mass.  84;  1888,  Braintree  Water  Supply  Co.  v.  Inhabitants  of  Braintree, 
146  Mass.  482,  on  488;  1891,  Jeffries  Neck  Pasture  Propr's  v.  Ipswich,  153 
Mass  42. 

See,  also,  Angell  &  Ames,  §§  238-241,  284;  Beach,  §§873-4;  Boone,  §34; 
Clark,  pp.  34,  36,  51,  129;  Cook,  §§  606-7;  Elliott,  §§  49-50,  Morawetz,  §§  25. 
36,  324,  775;  Taylor,  §§128,  203-6,  251,  263;  I  Thompson,  §§495-500;  III 
Thompson,  §  3927;  IV  Thompson,  §  5029;  VI  Thompson,  §§  7689-7713;  VII 
Thompson,  §  8214. 


§  143  COMMENCEMENT    OF   CORPORATE   EXISTENCE.  565 

ARTICLE    III.       WHEN    DOES    CORPORATE    BIRTH    OCCUR?       THEORIES: 

Sec.  143.     {a)   Only  upon  complete  organization. 

WALTON  V.  OLIVER.! 

1892.     In  the  Supreme  Court  of  Kansas.     49  Kan.  Rep.  107- 
114,  33  Am.  St.  Rep.  355,   38  Am.  &  Eng.  C.  C.  342. 

Opinion  by  Green,  C.  This  action  was  commenced  in  the  dis- 
trict court  of  Cowley  county  by  the  defendants  in  error,  to  recover 
the  sum  of  $295  debt,  and  $45.40  costs,  from  the  plaintiffs  in  eiTor, 
who  were  alleged  to  be  the  directors  of  the  Arkansas  City  Athletic 
Association.  The  petition  charged  that,  after  making  and  filing  a 
charter  in  the  office  of  the  secretary  of  state,  the  defendants  never 
perfected  the  organization  of  the  corporation  by  opening  the  books 
for  the  purpose  of  receiving  subscriptions;  that  they  did  not  levy  and 
collect  any  money  from  themselves,  nor  adopt  any  by-laws  or  other 
rules  for  the  government  of  the  corporation ;  that  no  meeting  had 
ever  been  called  for  the  election  of  directors  or  other  officers ;  that 
the  defendants  had  failed  to  comply  with  any  of  the  requirements  of 
the  law  for  the  government  of  corporations  after  the  articles  of  incor- 
poration had  been  filed;  that  on  the  i8th  day  of  January,  1889,  the 
plaintiffs  recovered  a  judgment  against  such  corporation  for  the  sum 
of  $295  and  $45.40  costs;  that  an  execution  was  issued  upon  such 
judgment  and  returned  "no  property  found."  It  was  further  al- 
leged— 

"That  after  the  filing  of  the  said  act  of  incorporation,  the  defend- 
ants assumed  to  act  as  such  corporation,  and  for  that  purpose  leased 
real  estate  and  purchased  of  the  plaintiffs  material  and  lumber,  with 
which  they  erected  a  grand  stand  or  amphitheater  upon  said  leased 
ground  to  the  amount  and  value  of  several  hundred  dollars,  and  paid 
to  the  plaintiffs  thereon  all  but  the  amount  represented  by  the  afore- 
said judgment,  and  in  all  their  dealings  with  the  plaintiffs,  dealt  in  the 
name  of  said  judgment  defendant  hereinbefore  referred  to,  and  the 
plaintiffs  aver  that,  knowing  of  the  filing  of  the  aforesaid  articles  of 
incorporation,  and  believing  that  said  defendants  were  acting  in  good 
faith,  and  that  they  were  complying  with  the  provisions  of  the  laws 
of  Kansas,  in  such  cases  made  and  provided,  in  all  things,  and  having 
no  cause  to  think  otherwise,  on  the  faith  and  credit  of  these  men  they 
sold  said  lumber  and  building  material  to  them  and  charged  it  to  said 
corporation  of  which  they  were  the  proprietors  and  incorporators,  by 
their  direction  and  instruction  ;  that  but  for  all  of  which  the  plaintiffs 
would  not  have  furnished  them  with  said  materials  and  credit ;  that 
after  said  execution  had  been  issued  and  returned  unsatisfied,  the 
plaintiffs  applied  to  these  defendants  for  the  names  of  the  officers  and 
stockholders  of  said   corporation,   and   these   defendants  declined  to 

*  Arguments  omitted. 


566  WALTON   V.    OLIVER.  §  1 43 

furnish  either  the  names  or  the  places  of  residence,  and  insolent!}'  in- 
formed the  plaintiffs  that  there  were  no  officers,  no  books,  no  direc- 
tors, no  stockholders,  and  no  subscriptions,  and  that  if  the  plaintiffs 
thought  they  had  any  remedy  looking  to  the  collection  of  said  judg- 
ment, intei'est  and  costs  they  were  mistaken,  etc.,  and  now  refuse  to 
give  the  plaintiffs  any  information  of  any  kind  relative  thereto  what- 
soever ;  the  plaintiffs  only  learned  the  foregoing  facts  after  the  rendi- 
tion of  the  aforesaid  judgment." 

The  defendants  filed  a  demurrer  to  this  petition,  which  was  over- 
ruled by  the  court,  and  judgment  was  rendered  for  the  amount  prayed 
for  in  the  petition.  The  defendants  elected  to  stand  upon  the  demur- 
rer, and  bring  the  case  here  for  review. 

It  is  first  urged  by  the  plaintiffs  in  error  that  the  petition  did  not 
state  a  cause  of  action ;  that  the  petition  did  not  show  that  the  goods 
furnished,  for  which  the  original  judgment  was  rendered,  were  fur- 
nished at  the  request  of  the  plaintiffs  in  error  before  the  Arkansas  City 
Athletic  Association  became  a  body  corporate ;  but  that  the  petition 
showed  upon  its  face  that  the  goods  were  sold  upon  the  credit  of  the 
corporation,  and  that  part  of  the  purchase  price  of  the  goods  was  paid 
by  the  corporation.  It  is  further  insisted  that  the  Arkansas  City 
Athletic  Association  was  legally  incorporated,  and  that  the  organiza- 
tion became  complete  upon  the  filing  of  the  charter  with  the  secretary 
of  state.  This  contention  is  not  sound.  The  statute  only  provides 
that  the  existence  of  the  corporation  shall  date  from  the  time  of  filing- 
the  charter,  and  the  certificate  of  the  secretary  of  state  shall  be  evi- 
dence of  the  time  of  such  filing.  (Gen.  Stat,  of  1889,  If  1166.)  The 
statute  is  silent  as  to  the  organization.^  The  rule  is  well  estab- 
lished that  a  corporation  must  have  a  full  and  complete  organization 
and  existence  as  an  entity^  and  in  accordance  ivith  the  law  to  which 
it  owes  its  origitt^  before  it  can  assui7ie  its  franchise  or  enter  into 
any  kind  of  contract  or  transact  any  business;  and  whatever  be  the 
m-ode  prescribed  by  the  act  of  incorporation^  a  substantial  compliance 
with  all  the  provisions  of  the  law  under  which  it  is  created  is  re- 
quired before  the  corporation  can  be  said  to  have  such  an  existence  as 
will  entitle  it  to  do  business.     (4  Am.  &  Eng.  Ency.  of  Law,  197, 

^  The  statutes  under  which  this  apparent  corporation  was  formed  pro- 
vided: "^ec.  1155.  Private  corporations  may  be  created  by  the  volun- 
tary association  of  five  or  more  persons,  *  *  *  in  the  manner  mentioned 
in  the  following  sections.  Sec.  1161 .  A  charter  prepared  setting  forth  name, 
purpose,  place  of  business,  term  of  existence,  the  number  of  directors  or 
trustees  and  the  names  and  residences  of  those  who  are  appointed  for  the  first 
year,  capital  stock,  if  any,  and  the  number  of  shares.  Sec.  1164.  Charter 
must  be  subscribed  and  acknowledged.  Sec.  1165.  Such  charter  shall  there- 
upon be  filed  in  the  office  of  the  secretary  of  state,  who  shall  record  the 
same  at  length  in  a  book  kept  for  that  purpose,  and  retain  the  original  on  file 
in  his  office.  A  copy  of  the  charter,  or  of  the  record  thereof,  duly  certified  by 
the  secretary  of  state,  under  the  great  seal  of  the  state,  shall  be  evidence  of 
the  creation  of  the  corporation.  Sec.  1166.  Period  of  existence.  Sec.  10. 
The  existence  of  the  corporation  shall  date  from  the  time  of  filing  the  char- 
ter, and  the  certificate  of  the  secretary  of  state  shall  be  evidence  of  the  time 
of  such  filing.     [G.  S.  1868,  ch.  23,  §  10,  October  31.]" 


§   143  COMMENCEMENT   OF   CORPORATE   EXISTENCE.  56/ 

and  authoritie?  there  cited.)  Now  it  is  conceded  in  this  case  that 
nothing  was  done  to  perfect  the  organization  after  the  charter  was 
filed.  A  corporation  can  not  act  without  oncers  and  agents^  and  it 
is  powerless  to  do  anything  until  its  incorporators  or  promoters  give  it 
the  means  whereby  it  can  act.  The  words  ''•organize'^  or  '•'organiza- 
tion''^ have  a  well  understood  meaning ;  and  as  we  construe  them 
they  mean  the  election  of  officers^  providing  for  the  subscription  and 
payment  of  the  capital  stocky  the  adoption  of  by-laws.,  and  such  other 
steps  as  are  necessary  to  endow  the  legal  entity  with  the  capacity  to 
transact  the  legitimate  business  for  which  it  was  created.  In  this 
sense  the  corporation  was  not  fully  organized.  While  it  had  an  ex- 
istence, the  organization  was  never  completed  so  that  the  corporation 
could  do  business. 

In  the  case  of  Hurt  v.  Salisbury,  55  Mo.  310,  which  was  an  action 
brought  upon  a  note  purporting  to  have  been  executed  by  the  directors 
of  an  agricultural  association,  the  suit  was  brought  against  the  direct- 
ors, upon  the  ground  that  the  association  was  not  incorporated  at  the 
time  the  note  was  given,  and  that  the  directors  were,  therefore,  indi- 
vidually liable.  It  appeared  that  the  association  was  not  fully  incor- 
porated when  the  note  was  executed.  The  law  required  the  charter 
to  be  filed  with  the  recorder  of  the  county  where  the  corporation  was 
located,  and  also  in  the  office  of  the  secretaiy  of  state.  The  char- 
ter was  only  filed  with  the  recorder.  The  court  held  that  the 
officers  of  the  corporation  had  no  power  to  issue  the  note,  and  that  a 
note  issued  and  signed  by  them  would  bind  them  personally,  and  not 
the  corporation.  The  court  said,  in  speaking  of  the  attempted  or- 
ganization of  that  corporation: 

"It  had  organized  under  section  2,  chapter  69,  General  Statutes  of 
1865,  page  367,  by  signing  and  acknowledging,  and  recording  in  the 
recorder's  office  of  the  proper  county  the  articles  of  association.  This 
step  being  taken,  it  was  an  organized  corporation,  not  for  the  trans- 
action of  business,  but  for  the  purpose  of  taking  the  next  and  last  step 
to  complete  its  authority  to  transact  business  and  give  date  to  its  legal 
existence.  IJntil  the  officers  took  this  final  and  necessary  step  by  de- 
positing and  filing  in  the  office  of  the  secretary  of  state  a  copy  of  the 
articles  of  association,  as  they  stood  recorded  in  the  county,  this  cor- 
poration had  no  power  to  issue  the  note  sued  upon.  As  it  had  no 
power  to  issue  this  note,  the  (lefendants  are  undoubtedly  liable." 

"If  a  corporation  be  illegally  formed,  its  members  or  stockholders 
are  liable  as  partners  for  its  acts  and  contracts,  and  directors,  officers 
and  agents  acting  and  contracting  in  its  name  render  themselves  per- 
sonally liable."  (Beach  Priv.  Corp.,  §  16;  Marshall  v.  Harris,  55 
Iowa  182;  Kaiser  v.  Savings  Bank,  56  Iowa  104;  Coleman  v.  Cole- 
man, 78  Ind.  344.) 

While,  in  this  case,  the  charter  was  filed  with  the  secretary  of  state, 
the  corporation  had  no  officers  outside  of  the  directors  named  for  the 
first  year.  No  portion  of  the  capital  stock  had  been  subscribed  and 
no  books  opened,  as  required  by  \  1173  of  the  General  Statutes  of 
1889.     In  fact,  nothing  had  been  done  to  complete  the  preliminary 


568      GENT  V.  manufacturers',  etc.,  insurance  CO.     §  144 

business  of  organizing  the  corporation.  We  do  not  inderstand  that  a 
corporation  can  proceed  to  the  transaction  of  business  without  any 
portion  of  its  capital  stock  being  subscribed  or  paid.  It  may  have 
been  the  English  rule,  but  in  the  United  States  it  is  otherwise.  (Boone 
Corp.,  §  113).  The  corporation  has  no  means  or  capacity  to  act  until 
some  portion  of  the  capital  stock  named  in  the  charter  has  been  sub- 
scribed and  paid.  Some  states  have,  by  a  legislative  rule,  made  di- 
rectors of  certain  corporations  jointly  and  severally  liable  for  all  the 
debts  of  the  corporation,  until  the  whole  amount  of  the  capital  stock 
has  been  paid  in.      (Rev.  Stat,  of  Wis.  1878,  §  1901.) 

It  is  unnecessary  for  us  to  consider  the  other  assignments  of  error, 
as  the  view  we  take  of  the  liability  of  the  plaintiffs  in  error  is  not 
that  of  stockholders,  and  hence  the  rule  laid  down  in  the  case  of  Ab- 
bey v.  Dry  Goods  Company,  44  Kan.  415,  has  no  application  in  this 
case. 

The  question  as  to  whether  or  not  two  of  the  defendants  below 
were  served  with  summons  is  not  properly  raised  by  the  record.  The 
summons  is  not  in  the  record,  and  we  can  not  say  whether  these  two 
defendants  were  served  or  not. 

We  advise  an  affirmance  of  the  judgment. 

By  the  court:   It  is  so  ordered. 

All  the  justices  concurring. 

Note.  See  note  to  next  case,  and  also  to  State  v.  Fidelity  .Ins.  Co.,  49  Ohio 
St.  440,  supra,  p.  406. 


See.  144.    Same. 

GENT  v.   MANUFACTURERS'  AND  MERCHANTS'  MUTUAL  INSUR- 
ANCE COMPANY.! 

1883.    In  the  Supreme  Court  of  Illinois.    107  111.  Rep.  652-660, 
8  Am.  and  Eng.  Corp.  C.  306. 

[The  insurance  law  under  which  defendant  was  incorporated  pro- 
vided that  those  desiring  to  incorporate  should  file  with  the  auditor  of 
public  accounts  a  declaration  signed  by  them  declaring  their  inten- 
tion to  form  an  insurance  company,  and  that  no  mutual  company 
should  commence  business  until  agreements  had  been  entered  into 
with  at  least  200  applicants,  the  premiums  on  which  should  be  not 
le§s  than  $100,000,  of  w^hich  $20,000  should  be  paid  in  cash,  and 
notes  of  solvent  parties,  founded  on  bona  Jide  applications  for  insur- 
ance, should  have  been  received  for  the  remainder,  no  note  to  be  con- 
sidered as  capital  stock  unless  a  policy  for  one  year  was  issued  upon 
the  same  within  thirty  days  after  organization.  Under  this  law  a 
number  of  parties,  in  July,  1880,  met,  determining  to  form  such  a 

'  Statements  of  facts  abridged.  Arguments  omitted.  Only  so  much  of  the 
opinion  as  relates  to  the  one  point  given. 


§  144  COMMENCEMENT   OF   CORPORATE    EXISTENCE.  569 

company,  published  the  notice  required,  filed  the  declaration  with 
the  auditor,  with  copy  of  proposed  charter;  this  was  approved  and 
certified  to  the  auditor  by  the  attorney-general  on  July  7,  and  certain 
persons  were  designated  to  solicit  insurance.  Gent  agreed  to  take 
$i,cxxj  insurance,  accepted  a  draft  drawn  by  the  secretary  of  the 
company,  dated  Aug.  10,  for  $30  payable  on  demand,  and  gave  his 
note  for  $150  February  3,  18S1 ;  application  was  made  to  the  auditor 
to  have  the  notes  examined  ;  this  was  done  and  some  of  the  notes  were 
found  informal  and  rejected-  by  the  auditor;  immediately  they  pro- 
ceeded to  obtain  others,  aiUi  on  the  9th  of  February  filed  the  list  with 
the  auditor,  received  his  certificate,  and  filed  it  with  the  county  clerk 
February  11 ;  on  the  5th  of  February  plaintiff's  property  burned,  and 
he  notified  the  secretary  February  7.  Plaintiff's  note  was  among 
those  upon  which  the  company  secured  the  final  certificate  of  approval 
of  the  auditor;  on  February  11  the  company  canceled  the  note,  draft 
and  application  of  plaintiff,  who  sues  for  the  loss.] 

Mr.  Justice  Walker.  ♦  *  *  That  a  corporation  should  have  a  full 
and  complete  organization  and  existence  as  an  entity  before  it  can  enter 
into  any  kind  of  a  contract  or  transact  any  business  would  seem  to  be 
self-evident.  This  is  unconditionally  tine,  unless  the  act  of  incorpo- 
ration authorizes  the  corporators  to  perform  acts  and  enter  into  con- 
tracts to  bind  the  company  when  it  shall  be  organized.  As  well  say 
a  child  tn  ventre  sa  mere  may  enter  into  a  contract,  or  that  its  parents 
may  bind  it  by  contract.  A  corporation,  until  organized,  has  no 
being,  franchises  or  faculties.  Nor  do  those  engaged  in  bringing  it 
into  being  have  any  power  to  bind  it  by  contract,  unless  so  authorized 
by  the  charter.  Until  organized  as  authorized  by  the  charter  there  is 
not  a  corporation,  nor  does  it  possess  franchises  or  faculties  for  it  or 
others  to  exercise  until  it  acquires  a  complete  existence.  By  its  birth, 
so  to  speak,  it  for  the  first  time  acquires  its  faculties  to  transact  its  busi- 
ness and  perform  its  functions.  Then,  do  these  sections  authorize  the 
corporations  to  issue  policies  to  individuals  who  apply  for  insurance, 
and  give  their  premium  notes  ?  They  are  authorized  to  take  such  ap- 
plications and  notes  as  a  fimd  or  capital  to  authorize  the  granting  of  the 
charter,  and  to  enable  the  company  to  transact  its  business  when  or- 
ganized. This  is  manifestly  the  true  construction,  as  the  statute  pro- 
vides that  if  a  policy  of  insurance  running  at  least  twelve  months  is 
not  issued  in  thirty  days  after  the  organization  of  the  company,  the 
premium  note  shall  not  represent  a  portion  of  the  capital  stock  of  the 
company.  If  it  was  intended  that  the  application  for  the  policy  and 
the  giving  of  the  premium  note  should  constitute  a  contract  to  insure, 
such  a  provision  would  not  have  been  enacted ;  but  by  its  adoption  it 
is  manifest  that  the  general  assembly  intended  that  the  application  and 
note  should  be  held  simply  to  be  acted  upon  after  the  organization 
should  be  completed.  If  such  was  the  purpose,  and  of  it  we  have  no 
doubt,  then  there  can  be  no  claim  that  there  was  a  contract  of  insur- 
ance, but  simply  that  if  the  property  was  still  in  existence  when  the  com- 
pany should  be  organized,  the  applicant  would  be  entitled  to  a  policy 
on  the  terms  proposed.    It  was  simply  a  proposition  or  an  application 


570        GENT   V.  MANUFACTURERS',  ETC.,  INSURANCE   CO.       §   144 

for  a  policy  after  the  organization  should  be  had,  and  the  company 
authorized  to  take  risks  and  issue  policies.  Beyond  that  the  company 
had  no  power  to  bind  the  future  company.  Nor  does  the  statute 
authorize  the  corporators  to  contract  for  and  issue  policies.  Had  they 
issued  a  policy  in  form,  would  any  one  claim  that  a  suit  could  be 
maintained  on  it  against  the  company.?  Surely  not,  because  no  power 
to  do  so  is  conferred  by  the  statute.  And  if  a  formal  written  policy 
would  be  invalid,  how  can  it  be  said  that  a  mere  verbal  agreement  for 
insurance  can  be  held  binding.'' 

In  the  case  of  Rockford,  Rock  Island  and  St.  Louis  R.  Co.  v.  Sage, 
65  111.  328,  it  was  held  that  a  railroad  incorporation  was  not  liable  for 
services  rendered  before  its  organization,  unless  the  company  promised 
to  pay  after  it  was  organized.  In  Stowe  v.  Flagg,  72  111.  397,  it  was 
held  that  the  agreement  of  parties  intending  to  and  engaged  in  form- 
ing a  manufacturing  corporation  to  put  in  property  as  stock,  but  which 
never  was  subscribed,  did  not  bind  the  corporation,  nor  did  the  prop- 
erty become  that  of  the  corporation,  although  it  was  used  by  the  com- 
pany. In  the  case  of  Western  Screw  and  Manufacturing  Co.  v. 
Cousley,  72  111.  531?  it  was  held  where  the  corporators,  before  the 
organization  of  the  company  was  completed,  employed  a  superintend- 
ent, and  he  entered  upon  the  duties  of  the  place,  and  rendered  serv- 
ices for  the  inchoate  company,  it,  when  organized,  was  not  liable  to 
pay  for  such  services. 

This  statute  only  authorizes  the  company  to  transact  business  upon 
filing  the  certificate  of  the  auditor  of  public  accounts  with  the  proper 
county  clerk.  The  transaction  of  business  in  the  name  of  the  corpo- 
ration before  that  certificate  shall  be  thus  filed  is  unauthorized.  But 
in  this  case  no  policy  was  issued,  or  intended  to  be  issued,  when  the 
application  and  note  were  executed,  and  the  case  falls  within  the 
principles  announced  in  the  cases  above  referred  to,  and  they  are  con- 
clusive of  the  question. 

We  perceive  no  error  in  the  record,  and  the  judgment  of  the  appel- 
late court  is  therefore  affirmed. 

Judgment  affirmed. 

Note.  See,  1891,  McVicker  v.  Cone,  21  Ore.  353;  1894,  Nemaha  Coal  &  M. 
Co.  V.  Settle,  54  Kan.  424;  1894,  Aspen  Water  Co.  v.  City  of  Aspen,  5  Colo. 
App.  12,  1  A.  &  E.  C.  C.  (N.  S.)  12;  1894,  Owen  v.  Shepard,  19  U.  S.  App. 
336 ;  1896,  Loverin  v.  McLaughlin,  161  111.  417.  See  Elliott,  §  44;  I  Thompson, 
§§  40,  217. 


§   145  COMMENCEMENT   OF   CORPORATE   EXISTENCE.  5/1 

Sec.  145.    Same. 

(^)  Immediately  upon  filing  articles  of  incorporation,  without 
stock  subscription  or  organization. 

SINGER  MANUFACTURING  CO.  v.  PECK.' 

1896.     In  the  Supreme  Court  of  South  Dakota.     9  S.  Dak.  29, 
4  Am.  &  Eng.  C  C.  (N.  S.)  591,  67  N.  W.  Rep.  947-48. 

[Appeal  from  the  circuit  court,  Minnehaha  county;  Joseph  W. 
Jones,  Judge, 

Action  by  the  Singer  Manufacturing  Company  against  Porter  P. 
Peck.  From  an  order  sustaining  a  demurrer  to  the  complaint, 
plaintiff  appeals.      Aflfirmed.] 

Corson,  P.  J.  This  is  an  appeal  from  an  order  sustaining  a  de- 
murrer to  the  complaint.  The  allegations  in  the  complaint  are  in 
substance  as  follows:  That  the  plaintiff  is  a  corporation;  that  the 
VVohlgemouth  Shirt  Company  is  a  duly  organized  corporation  of  the 
state  of  South  Dakota  ;  that  said  last  named  corporation  was  organized 
and  incorporated  by  five  persons  named,  of  whom  the  defendant  was 
one ;  that  said  corporation  was  one  de  facto  only,  and  had  no  legal 
rights  to  transact  business  or  obtain  credit;  that  it  did  obtain  a  large 
amount  of  credit,  and  that  it  purchased  of  the  plaintiff  a  large  num- 
ber of  sewing  machines,  of  the  value  of  six  hundred  dollars  ($600)  ; 
that  said  corporation  had  no  capital,  and  none  of  its  capital  stock  was 
paid  for,  and  that  said  defendant  Peck  was  the  treasurer  of  said  cor- 
poration; that  an  action  was  duly  commenced  by  this  plaintiff,  and 
prose_cuted  to  judgment,  against  the  said  Wohlgemouth  Shirt  Company, 
execution  issued  thereon,  and  the  same  returned  unsatisfied,  "and 
that  said  corporation  has  no  property,  and  is  totally  and  wholly  in- 
solvent. (4)  And  the  said  plaintiff  further  complains  and  alleges 
that  said  corporation  never  had  any  funds,  *  *  ♦  and  that  the 
holding  out  of  said  corporation  as  a  legal  corporation,  and  one  that 
had  complied  with  the  law  by  the  said  corporators,  was  a  fraud  upon 
the  persons  from  whom  they  obtained  goods  upon  credit,  and  espe- 
cially upon  this  plaintiff,  all  of  which  was  well  known  to  the  incorpo- 
rators and  organizers  of  said  company,  and  especially  to  the  above 
named  defendant.  (5)  And  the  plaintiff  further  alleges  that  it  has 
no  way  of  collecting  said  indebtedness  unless  the  incorporators  of  said 
company  shall  be  made  to  pay  such  indebtedness.  Plaintiff,  there- 
fore, demands  judgment  against  the  defendant,  Porter  P.  Peck,  for 
the  amount "  due  on  plaintiff's  judgment  against  the  Wohlgemouth 
Shirt  Company,  together  with  the  costs  and  disbursements  of  this  ac- 
tion, and  such  other  and  further  relief  as  to  the  court  may  seem  just 
and  equitable." 

'  Arguments  omitted. 


572  SINGER   MANUFACTURING    CO.    V.    PECK.  §   I45 

Only  the  substance  of  such  part  of  the  complaint  as  we  deem  ma- 
terial under  the  stipulation  hereinafter  referred  to  has  been  given.  To 
the  complaint  a  demurrer  was  interposed  by  the  defendant,  one  of  the 
grounds  of  which  was  that  the  complaint  did  not  state  facts  sufficient 
to  constitute  a  cause  of  action.  The  parties  in  the  court  below  en- 
tered into  a  stipulation,  the  material  part  of  which  is  as  follows:  "On 
said  appeal  the  question  on  which  the  case  shall  be  decided  is  the 
question  as  to  whether  the  complaint  states  facts  sufficient  to  consti- 
.  tute  a  cause  of  action  against  said  defendant,  on  the  ground  that  he 
was  one  of  the  incorporators  of  the  Wohlgemouth  Shirt  Company, 
and  that  the  said  complaint  shall  be  constitied  solely  as  attempting  to 
constitute  a  cause  of  action  against  him  ;  not  upon  contract  for  liability 
upon  an  unpaid  stock  subscription,  but  upon  his  being  one  of  said  in- 
corporators, and  upon  his  alleged  liability,  on  the  ground  that  the 
holding  out  of  said  corporation  as  a  legal  corporation  was  a  fraud  upon 
the  plaintiff,"  Section  2905,  Comp.  Laws,^  provides:  "Upon  the 
filing  of  articles  of  incorporation  with  the  secretary  of  the  territory 
he  shall  issue  to  the  corporation,  over  the  great  seal  of  the  territory, 
a  certificate  that  the  articles  containing  the  required  statement  of  facts 
have  been  filed  in  his  office ;  and  thereupon  the  persons  signing  the 
articles,  and  their  associates  and  successors,  shall  be  a  body  politic 
and  corporate  by  the  name  and  for  the  purposes  stated  in  said  articles." 
When  the  certificate  specijied  in  this  section  is  issued^  the  corporation 
nvould  seem  to  be  perfected ^  and  possess  all  the  powers  of  a  corpora- 
tion. There  see?)is  to  be  710  provision  in  the  statutes  of  this  state  re- 
quiring any  part  of  the  capital  stock  to  be  paid  in  or  S7ibscribed  as  a 
condition  pr'ecedent  upon  which  the  corporation  is  authorized  to  trans- 
act business. 

In  most  of  the  states  their  incorporation  acts  provide  for  the  sub- 
scription and  payment  of  a  certain  proportion  of  the  capital  stock  as  a 
condition  to  the  right  of  the  corporation  to  transact  business.  When 
such  is  the  case,  incorporators  who  proceed  to  incur  debts  in  the  name 
of  the  corporation  before  such  funds  are  provided  have  been  held  lia- 
ble for  such  debts.  In  Wechselberg  v.  Bank,  12  C.  C.  A.  56,  64  Fed. 
90,  and  Burns  v.  Beck  (Ga.),  10  S.  E.  121,  incorporators  were  held 
liable.     In  the  former   case  the  court  says,  in  the  majority  opinion : 

^  Section  2902  of  the  Civil  Code  of  Dakota  Territory  (still  in  force  in  South 
Dakota  when  above  case  was  decided)  provides  that  the  articles  of  incorpo- 
ration shall  state  the  name,  purpose,  place  of  business,  terms,  number  of 
directors,  names  and  residences  of  such  of  them  who  are  to  serve  until  the 
election  of  such  officers  and  their  qualifications,  and  if  there  be  a  capital 
stock,  its  amount  and  the  number  of  shares.  Section  2904  requires  the 
articles  to  be  subscribed  by  three  or  more,  and  acknowledged.  Section  2905 
is  given  in  the  case  above.  Section  2907  makes  a  certified  copy  of  the  articles 
prima  facie  evidence  of  the  existence  of  the  corporation.  Section  2913  pro- 
vides that  after  the  secretary  of  the  territory  issues  the  certificate  of  incorpo- 
ration, "the  directors  named  in  the  articles  of  incorporation  must  proceed  in 
the  manner  specified  or  provided  by  their  by-laws,  or  if  none,  then  in  such 
manner  as  they  may  by  order  adopt,  to  open  books  of  subscription  to  the 
capital  stock  then  unsubscribed  and  to  secure  subscriptions  to  the  full  amount 
of  the  fixed  capital,  and  to  levy  assessments  and  installments  thereon,  etc." 


§   145      THE   COMMENCEMENT   OF   CORPORATE    EXISTENCE.         5/3 

"By  the  common  law  there  was  no  individual  liability  of  the  members 
of  a  corporation  for  corporate  debts  beyond  the  enforcement  of  their 
agreed  Qontributions  to  the  capital  stock.  ♦  *  *  Therefore,  if 
complete  corporate  existence  was  obtained  and  perfected  by  the  act  of 
filing  the  articles  of  association  without  compliance  with  any  of  the 
requirements  of  §  1773,  the  associates  are  not  subject  to  common  law 
liability.  On  the  other  hand,  it  is  well  settled  that  an  attempted  or 
pretended  incorporation,  not  perfected  as  the  enabling  act  requires, 
does  not  confer  this  immunity,  and  all  who  are  parties  to  the  simulated 
corporation  as  associates  or  shareholders  are  held  liable  at  common 
law  for  debts  contracted  under  the  corporate  guise.  While  the  courts 
have  differed  in  naming  this  liability — whether  in  the  nature  of  co-part- 
ners or  resting  'upon  the  ordinary  principles  of  contract  and  agency,'  or 
upon  fraud — they  agree  in  holding  liable  in  some  form  all  who  are 
engaged  in  the  defective  corporate  enterprise."  The  court  then  pro- 
ceeds to  discuss  the  various  provisions  of  the  Wisconsin  statute  and 
arrives  at  the  conclusion  that  the  incorporators,  having  proceeded  to 
contract  the  debt  before  the  fund  required  by  the  statute  to  perfect  the 
corporation  had  been  provided,  were  liable,  as  the  act  provided  that 
the  corporation  should  not  exercise  corporate  functions,  that  is,  "the 
transaction  of  business  with  any  others  than  its  members,  until  it  should 
have  provided  a  capital  stock  in  conformity  with  §1773." 

In  the  case  of  Burns  v.  Beck,  supra^  two  of  the  corporators  held 
the  corporation  out  to  the  world  as  being  duly  organized,  while  ac- 
cording to  the  allegations  of  the  complaint  all  the  stock  had  not  been 
subscribed  and  10  per  cent,  paid  in,  as  required  by  the  statute  of 
Georgia,  as  conditions  precedent  to  the  right  to  the  transaction  of 
business  by  the  corporation.  Neither  these  nor  any  other  conditions 
precedent  to  the  corporation  transacting  business  in  this  state  have 
been  imposed.  The  credit,  therefore,  in  the  two  cases  cited — and  they 
seem  to  be  all  the  cases  bearing  upon  this  question  that  the  researches 
of  counsel  have  been  able  to  bring  to  our  attention — was  obtained  by 
the  wrongful  acts  of  the  corporators  in  holding  out  the  coi-poration  as 
authorized  to  transact  business  as  a  corporation,  when,  in  fact,  the 
corporation  was  not  so  authorized.  The  corporators  in  these  cases 
committed  a  fraud  upon  the  creditors.  But  in  the  case  at  bar  it  does 
not  appear  that  the  corporators  did  any  act  that  they  were  not  fully 
authorized  to  do  under  the  statute^  or  that  they,  by  act  or  word,  made 
any  representations  they  were  not  legally  authorized  to  make.  This 
being  so,  we  can  discover  no  principle  of  law  by  which  the  defend- 
ant would  be  liable  under  the  allegations  of  the  complaint.  In  holding 
out  the  corporation  as  legally  incorporated,  the  defendant  committed 
no  fraud,  as  the  plaintiff  alleges,  and  correctly,  that  the  corporation 
was  duly  organized.  It  is  true,  it  is  further  alleged  that  it  was  only 
a  de  facto  corporation,  but  that  is  a  mere  conclusion  of  law.  The 
fact  that  our  statute  does  not  require  of  corporations  the  subscription 
to  and  payment  of  a  certain  per  cent,  of  its  capital  stock  before  the  cor- 
poration can  transact  business  imposes  upon  persons  dealing  with  cor- 
porations organized  under  the  laws  of  this  state  greater  caution  and 


574         WECHSELBERG   V.   FLOUR   CITY    NATIONAL   BANK.        §   146 

vigilance,  but  this  court  can  not  intpose  upon  corporations  a  greater 
liability  than  is  imposed  upon  them  by  law,  and  the  law  not  having 
specially  prescribed  that  corporators  shall  be  liable  in  such  a  case  as 
that  described  by  the  complaint,  and  no  actual  fraud  or  misrepresen 
tation  being  alleged,  this  court  can  not  discover  any  ground  upon 
which  the  defendant  can  be  held  liable.  He  can  not  be  held  liable  at 
common  law.  He  can  not  be  held  liable  on  the  ground  of  misrepre- 
sentations, as  he  has  made  none,  nor  upon  the  ground  of  fraud,  as 
none  is  alleged.  We  are  of  the  opinion,  therefore,  that  the  court 
properly  sustained  the  demurrer  to  the  complaint,  and  the  order  of  the 
circuit  court  appealed  from  is  affirmed. 

Note.  See,  also,  1889,  National  Bank  of  Jefferson  v.  Texas  Investment  Co., 
74  Tex.  421,  27  A.  &  E.  C.  C.  358;  1890,  Vanneman  v.  Young,  52  N.  J.  Law 
403,  32  A.  &  E.  C.  C.  8;  1894,  State  of  Missouri,  ex  rel.,  etc.,  v.  American 
Med.  Col.,  59  Mo.  App.  264. 


Sec.  146.    Same. 

(^)  At  the  time  of  filing  the  articles  of  association  with  the 
proper  officer,  but  perfect  or  adult  corporate  capacity  does  not  ex- 
ist until  the  capital  stock  is  provided  as  required. 

WECHSELBERG  v.  FLOUR  CITY  NATIONAL  BANK.i 

1894.    In  the  U.  S.  Circuit  Court  of  Appeals,  7th  Circuit,  East- 
ern District  of  Wisconsin.     24  U.  S.  Appeals  Rep.  308—330. 

Before  Woods,  circuit  judge,  and  Bunn  and  Seaman,  district 
judges. 

This  was  an  action  at  law  by  the  Flour  City  National  Bank  against 
Julius  Wechselberg,  the  plaintiff  in  error,  Ernest  S.  Moe  and  Clar- 
ence H.  Williams,  as  defendants  below,  for  the  recovery  of  the 
amount  due  upon  a  promissory  note  for  $3,000,  dated  September  18, 
1889,  made  by  the  Northwestern  Collection  Company  to  the  North- 
western Collection,  Loan  and  Trust  Association,  and  indorsed  to  said 
bank.  The  alleged  liability  of  the  defendants  below  is  based  upon 
their  acts  in  the  incorporation  of  the  Northwestern  Collection  Com- 
pany as  a  corporation  under  the  laws  of  Wisconsin,  and  the  transac- 
tion at  large  of  business  thereunder,  without  having  capital  paid  in 
as  required  by  the  statute,  whereby  it  is  asserted  that  they  became 
personally  obligated  to  pay  the  indebtedness  so  contracted.    *    *    * 

Seaman,  District  Judge,  after  stating  the  case  as  above,  delivered 
the  opinion  of  the  court. 

The  plaintiff  in  error  was  held  by  the  circuit  court  to  be  jointly  lia- 
able  with  the  other  defendants  below  for  the  indebtedness  contracted 
by  their  assumed  corporation,  the  Northwestern  Collection  Company, 
in  the  absence  of  any   capital  stock.     This  liability  was  based  upon 

'  Statement  of  facts  abridged.     Dissenting  opinion  of  Woods,  J.,  omitted. 


§   146    THE   COMMENCEMENT   OF   CORPORATE   EXISTENCE.         575 

the  facts  found,  in  his  relation  and  conduct  as  a  corporator,  and  the 
court  did  not  undertake  to  determine  at  the  trial  whether  it  arose  un- 
der the  statute  or  at  common  law. 

Corporations  are  entirely  the  creatures  of  statute,  and  when  duly 
formed,  one  of  their  chief  characteristics,  distinguishing  them  from  part- 
nerships and  other  joint  ventures,  is  the  exemption  of  the  individual  asso- 
ciates from  liability  for  the  corporate  obligations,  except  as  the  enabling 
act  may  impose  liability.  This  immunity,  which  is  an  important  ad- 
vantage of  membership,  can  only  be  secured  by  compliance  with  the 
statutory  requirements  for  incorporation.  In  the  case  of  corporations 
organized  for  a  purpose,  and  under  a  law  requiring  capital  stock,  the 
capital  becomes  a  fund  to  which  creditors  must  look  for  satisfaction 
of  debts ;  it  is  a  substitute  for  individual  liability,  and  constitutes  a 
trust  fund  for  the  benefit  of  the  creditors.  Upton,  Assignee,  v.  Tribil- 
cock,  91  U.  S.  45  ;  Alder  v.  The  Milwaukee  Patent  Brick  Manufact- 
uring Company,  13  Wis.  57  ;  i  Beach  on  Private  Corporations  (1891), 
§  116.  Capital  stock  is,  therefore,  the  vital  requirement  of  every  busi- 
ness corporation,  and  its  actual  existence  is  usually  placed  by  enabling 
statutes  as  a  condition  precedent  to  corporate  existence. 

It  is  found  and  conceded  in  this  case  that  there  was  no  capital  stock 
in  fact,  and  no  capital  paid  in  or  subscribed ;  that  the  articles  of  in- 
corporation which  were  entered  into  by  the  plaintiff  in  error  with  the 
other  defendants  below  prescribed  $5,000;  that  these  articles  were 
duly  executed  by  the  three  parties,  and  duly  filed  and  recorded ;  that 
without  capital  and  without  the  actual  taking  of  any  further  steps 
toward  organization,  business  was  opened  by  Moe  and  Williams  as 
actors  in  the  name  of  the  assumed  corporation ;  that  this  was  known 
to  the  plaintiff  in  error,  but  that  he  did  not  take  part  in  their  opera- 
tions, or  receive  any  profit  or  emolument;  that  printed  matter  was 
used  and  distributed,  wherein  the  plaintiff  in  error  was  named  as  its 
vice-president;  and  while  "the  evidence  does  not  establish  that  he  had 
actual  knowledge"  of  this  use  of  his  name,  it  is  found  that  "under 
the  circumstances,  if  he  did  not  know  it,  he  could  have  ascertained 
the  fact  by  merely  slight  attention  to  the  matter,  and  was  guilty  of 
negligence  in  not  knowing  it."  Furthermore,  it  is  recited  in  the  ar- 
ticles which  were  entered  into  that  "the  corporators  should  compose 
the  first  board  of  directors,"  and,  although  such  a  provision  would 
not  control  an  organization  effected  by  stoclvholders,  who  are  em- 
powered by  the  statute  to  elect  directors,  it  may  be  considered  as  a 
fact  tending  to  show  intention  or  knowledge.  The  debt  in  question 
was  incurred  in  the  business  so  carried  on,  and  in  the  line  apparently 
contemplated  by  the  articles  of  incorporation. 

The  statute  which  authorizes  incoiporation  for  the  purposes  stated 
in  these  articles  in  chapter  86,  in  title  19  of  the  Revised  Statutes  of 
Wisconsin,  contained,  with  amendments,  in  i  Sanborn  &  Berryman's 
Annotated  Statutes,  1052.  Section  1771  provides  that  "three  or  more 
adult  persons,  residents  of  this  state,  may  form  a  corporation  in  the 
manner  provided  in  this  chapter,"  for  objects  there  named.  Section 
1772  provides  that  "in  order  to  form  such  a  corporation,  the  persons 


5/6         WECHSELBERG   V.  FLOUR    CITY   NATIONAL   BANK.'      §   1 46 

desiring  so  to  do  shall  make,  sign  and  acknowledge  written  articles," 
with  declarations  of  (i)  purpose,  (2)  name  and  location,  (3)  capital 
stock,  if  any,  and  number  and  amount  of  shares  thereof,  (4)  desig- 
nation of  general  officers  and  number  of  directors,  (5)  duties  of 
officers,  (6)  conditions  of  membership,  (7)  "such  other  provisions  or 
articles,  if  any,  not  inconsistent  with  law,  as  they  may  deem  proper." 
The  section  further  provides  that  the  original  aiticles,  or  a  true,  verified 
copy  thereof,  must  be  filed  for  record  with  the  register  of  deeds  of  the 
county,  "and  no  corporation  shall,  until  such  articles  be  so  left  for  rec- 
ord, have  legal  existence."  It  also  declares  that  "in  stock  corporations, 
persons  holding  stock,  according  to  the  regulations  of  the  corporation, 
and  they  only,  shall  be  members."  A  verified  copy  of  the  articles 
inust  also  be  filed  with  the  secretary  of  state,  or  penalty  is  incurred. 
There  was  in  this  case  formal  compliance  with  the  foregoing  require- 
ments, but  entire  failure  to.  complete  incorporation  under  the  succeed- 
ing section. 

By  section  1773  it  is  presci'ibed  that  until  directors  are  elected  the 
signers  of  the  articles,  shall  "have  direction  of  the  affaii^s  of  the  cor- 
poration, and  make  such  niles  as  may  be  necessary  for  perfecting  its 
organization,  accepting  members  or  regulating  the  subscription  to  the 
capital  stock,"  and  that  in  stock  corporations  the  first  meeting  may  be 
held  when  half  of  the  capital  stock  is  subscribed,  and  may  be  called 
by  any  two  of  the  signers  of  the  articles  upon  certain  notice,  or  be  held 
without  notice  when  all  subscribers  for  stock  are  present.  It  then  further 
provides:  "No  such  corporation  shall  transact  business  with  any 
others  than  its  members,  until  at  least  one-half  of  its  capital  shall  have 
been  duly  subscribed,  and  at  least  20  per  centum  thereof  actually  paid 
in ;  and  if  any  obligation  shall  be  contracted  in  violation  hereof,  the 
corporation  offending  shall  have  no  right  of  action  thereon ;  but  the 
stockholders  then  existing  of  such  corporation  shall  be  personally  liable 
upon  the  same." 

Section  1775  declares  that  "every  such  corporation,  when  so  organ- 
ized, shall  be  a  body  corporate,"  and  have  "the  powers  of  a  corpora- 
tion conferred  by  these  statutes,"  etc. 

The  question  of  common-law  liability  presents  itself  at  the  threshold 
of  this  inquiry,  whether  considered  as  a  primary  ground  or  for  the 
purpose  of  interpreting  the  statute.  As  a  primary  ground  the  plaintiff 
in  error  contends  that  it  must  be  excluded  here  for  two  reasons,  (i) 
because  the  complaint  is  manifestly  based  upon  the  statute  and  intends 
a  charge  of  statutory  liability,  and  (2)  because  there  is  a  finding  by 
the  trial  court  of  the  existence  of  incorporation.  It  is  sufficient  answer  to 
the  first  objection  that  it  is  raised  here  in  the  first  instance,  that  the 
evidence  was  all  received  without  exception  for  variance,  and  that  the 
facts  are  clearly  established  by  the  findings.  Under  the  mle  stated 
in  Wasatch  Mining  Company  v.  Crescent  Mining  Co.,  148  U.  S.  293, 
approving  the  rule  pronounced  under  the  New  York  Code  of  Pro- 
cedure, in  Tyng  v.  The  Commercial  Warehouse  Company  of  New 
York,  58  N.  Y.  308,  313,  the  objection  can  not  now  stand  "to  shut 
out  from  consideration  the  case,  as  proved."      In  Wisconsin,  section 


§   146     THE   COMMENCEMENT   OF   CORPORATE   EXISTENCE.  577 

2669  of  the  Revised  Statutes  provides  that  no  "variance  between  the 
allegation  in  a  pleading  and  the  proof  shall  be  deemed  material, 
unless  it  shall  actually  mislead,"  and  the  decisions  under  it,  in  accord 
with  the  doctrine  above  stated,  hold  that  "the  variance  may  be  wholly 
disregarded,"  and  that  "the  pleadings  may  at  any  time  be  amended 
to  conform  with  the  issue  really  tried,"  or  will  be  regarded  on  appeal 
as  so  amended.  Stetler  v.  The  Chicago  and  Northwestern  Railway 
Company,  49  Wis.  609,  613.  With  reference  to  the  force  of  the  finding, 
all  of  the  facts  are  clearly  stated,  and  it  remains  for  the  court  of  re- 
view to  determine  their  legal  effect.  An  expression  of  opinion  by  the 
trial  court  has  suggestive  value,  but  is  not  conclusive,  where  the  facts 
are  undisputed.  The  case  is,  therefore,  open  for  any  liability  which 
may  result  from  the  facts  established,  and  the  only  question  on  the 
writ  of  error  is,  Do  the  facts  found  support  the  judgment? 

By  the  common  law  there  was  no  individual  liability  of  the  mem- 
bers of  a  corporation  for  corporate  debts,  beyond  the  enforcement  of 
their  agreed  contributions  to  the  capital  stock.  Terry  v.  Little,  loi 
U.  S.  216;  United  States  v.  Knox,  102  U.  S.  422;  i  Beach  on  Pri- 
vate Corporations  (1891),  §  143.  Therefore,  if  complete  corporate 
existence  was  obtained  and  perfected  by  the  act  of  filing  the  articles 
of  association,  without  compliance  w'ith  any  of  the  requirements  of 
§  1773,  the  associates  are  not  subject  to  common  law  liability.  On 
the  other  hand,  it  is  well  settled  that  an  attempted  or  pretended  in- 
corporation, not  perfected  as  the  enabling  act  requires,  does  not  con- 
fer this  immunity,  and  all  who  are'  parties  to  the  simulated  corpo- 
ration as  associates  or  shareholders  are  held  liable  at  common  law 
for  debts  contracted  under  the  corporate  guise.  While  the  courts 
have  differed  in  naming  this  liability,  whether  in  the  nature  of  co- 
partners, or  resting  "upon  the  ordinary  principles  of  contract  and 
agency,"  or  upon  fraud,  they  agree  in  holding  liable,  in  some  form, 
all  who  are  engaged  in  the  defective  corporate  enterprise.  Fuller  v. 
Rowe,  57  N.  Y.  23;  Pettis  V.  Atkins,  60  111.  454;  Hill  v.  Beach,' 
12  N.  J.  Eq.  31;  Coleman  v.  Coleman,  78  Ind.  344;  Abbott  v. 
Omaha  Smelting  and  Refining  Company,  4  Neb.  416;  Kaiser  v. 
Lawrence  Savings  Bank,  56  Iowa  104;  Lawler  v.  Murphy,  58  Coijn. 
294,  313;  Johnson  v.  Corser,  34  Minn.  355;  Hospes  v.  Northwestern 
Manuf'g  &  Car  Co.,  48  Minn.  172. 

This  statute  does  not,  in  terms,  declare  that  compliance  with  §  1773 
shall  be  a  condition  precedent  to  corporate  existence.  If  there  were 
a  decision  by  the  supreme  court  of  Wisconsin  construing  the  statute 
with  reference  to  the  time  or  event,  in  the  proceeding  upon  which  the 
incorporation  is  perfected,  that  construction  would  be  controlling; 
but  the  only  case  called  to  our  attention  in  that  view  is  Harrod  v. 
Hamer,  32  Wis.  162.  That  arose  under  a  previous  act  (act  of  April 
2,  1853,  Rev.  Stat,  of  1858,  ch.  73,  §17),  which  differs  essentially 
from  the  instant  statute  in  its  method  of  incorporation  and  in  the  status 
of  the  incoi-porators  (who  are  thereby  constituted  stockholders),  and 
therefore  is  not  applicable  here. 

37— WiL.  Casks. 


578         WECHSELBERG   V.  FLOUR    CITY   NATIONAL   BANK.        §   1 46 

The  statute  must  be  considered  in  its  entirety  to  ascertain  its  mean- 
ing, and  that  exposition  ought  to  be  adopted,  as  stated  by  Mr.  Justice 
Story,  in  Minor  v.  The  Mechanics'  Bank  of  Alexandria,  i  Pet,  46, 
63,  "which  carries  into  effect  the  ti^ue  intent  and  object  of  the  legis- 
lature in  the  enactment."  The  purpose  is  clear,  that  corporate  being 
shall  be  dated  from  and  conferred  through  the  act  of  filing  the  exe- 
cuted articles  of  incorporation  for  record,  as  one  of  the  conditions 
precedent,  but  while  the  statute  refers  to  it  as  a  corporation  at  that 
stage,  a  limitation  is  added  that  it  shall  not  exercise  corporate  func- 
tions, viz,,  "the  transaction  of  business  with  any  others  than  its  mem- 
bers," until  it  shall  have  provided  capital  stock  in  conformity  with 
section  1773-  Such  is  the  view  recognized  in  Anvil  Mining  Com- 
pany V,  Sherman,  74  Wis,  226,  232,  where  it  is  said  that  this  statute 
"provides  for  the  preliminary  organization  of  the  corporation,  and 
then  limits  its  power  to  enter  upon  its  general  business"  by  §  1773. 
The  corporation  has  obtained  the  right  to  exist,  but  can  only  be  said 
to  have  existence  in  a  qualified  sense,  for  it  is  not  possessed  of  the 
attributes  or  privileges  of  perfected  incoi-poration ;  and  §  1775,  which 
declares  these  powers  and  privileges,  vests  them  only  when  organized 
as  required  by  the  preceding  sections.  A  quotation  from  the  brief  of 
one  of  the  learned  counsel  for  the  plaintiff  in  error,  arguing  against 
liability  as  a  stockholder,  well  defines  this  embryonic  status,  and  is 
adopted  here.  It  reads,  including  italics,  as  follows:  '■'■The  truth 
is  that  no  corporation  was  formed  except  in  a  very  limited  and 
qualijied  sense.  It  is  true  the' statute  uses  the  word  '•corporation J* 
It  is,  however,  a  bare,  legal  entity,  which  through  organization  may 
become  a  corporation,  having  members  and  capable  of  transacting 
business.  *  *  *  Jt  may  be  likened  to  the  hull  of  a  ship,  with- 
out rudder  or  masts  or  gearings. ^^  The  public  are  authorized  to 
treat  it  as  a  corporation  from  the  recording  of  the  articles,  and  may 

^  look  to  the  recorded  articles  for  its  purposes  and  objects.  Compli- 
ance with  §  1773  is  imposed  upon  the  corporators  in  the  first  instance, 
and  when  they  have  provided  for  stockholders  the  duty  devolves  upon 
the  latter,  whose  action  is  matter  only  of  corporate  record  and  not  of 
general  public  record.  Until  that  provision  of  capital  is  furnished 
as  a  fund  to  take  the  place  of  personal  liability,  the  intention  is  ap- 
parent to  withhold  the  special  privilege  of  complete  incorporation 
which  exempts  the  members  from  such  liability.  The  inhibition  is,  in 
effect,  against  any  transactions  except  such  as  tend  to  organization, 
i.  e.,  perfecting  incorporation,  and  the  purpose  is  to  protect  those 
who  may  be  imposed  upon  by  premature  assumption  of  corporate 
functions,  and  not  to  save  the  corporation  or  its  projectors  from  just 
liability.  Anvil  Mining  Company  v.  Sherman,  supra.  This  is  not 
like  the  technical  requirement  placed  by  a  Michigan  statute  upon  the 
oflScers  to  file  their  articles  of  association  in  a  certain  place,  simply 
forbidding  business  until  compliance,  without  declaring  any  effect  for 
non-compliance,   of  which   it  was  held,  in  Whitney  v,  Wyman,    loi 

.  U.  S.  392,  that  the  provision  was  not  made  a  condition  precedent  to 
incorporation,  and  it  is  not  like  the  technical  requirement  found  in 


§  146     THE   COMMENCEMENT   OF   CORPORATE    EXISTENCE.         579 

the  former  Wisconsin  statute  that  the  officers  should  file  a  certificate 
of  incorporation  before  transacting  business,  held  in  Harrod  v.  Hamer, 
supra,  not  a  condition  precedent;  but  the  demand  here  is  of  the  very 
essence  of  incorporation,  that  there  shall  be  capital  stock  and  stock- 
holders. A  corporation  can  not  come  into  existence  without  members, 
and  stockholders  are  the  only  m.embers  of  a  stock  corporation. 

In  the  light  of  the  evident  purposes  of  this  enactment  and  of  these 
distinctions,  and  considering  that  the  requirements  imposed  by  section 
1773  are  of  the  essence  of  corporate  organization,  and  are  followed  by 
the  declaration  in  section  1775  of  complete  incorporation,  "when  so 
organized,"  we  are  of  opinion  that  it  was  the  legislative  intent  that 
full  effect  as  a  corporation  should  not  obtain  until  compliance,  and 
that  the  common-law  liability  is  preserved  up  to  that  event.  While  sec- 
tion 1773  provides  that  any  obligations  contracted  before  compliance 
shall  not  give  a  right  of  action  to  the  corporation,  "but  the  stockhold- 
ers then  existing"  shall  be  personally  liable,  this  imposition  is  not  in 
derogation  of  the  common  law,  but  is  rather  declaratory  of  or  sup- 
plements it.  Even  as  a  statutory  liability,  it  may  be  remarked  in  pass- 
ing that  this  is  not  penal  in  its  nature,  and  does  not  call  for  the  strict 
construction  which  is  claimed  in  another  branch  of  the  argument  for 
the  plaintiff  in  error,  but  it  is  one  of  contract  which  the  members  take 
upon  themselves  in  forming  a  corporation,  and  is  primary  and  abso- 
lute. Flash  V.  Conn,  109  U.  S.  371 ;  Coleman  v.  White,  14  Wis. 
700;  Day  V.  Vinson,  78  Wis.  198.  For  the  consideration  here,  the 
statute  must  be  taken  in  its  entirety  as  an  enactment  granting  privi- 
leges ;  when  privileges  are  asserted  under  it  the  interpretation  of  the 
statutory  prerequisites  should  be  reasonable,  and  the  legislative  intent 
should  be  given  effect  and  not  thwarted. 

So  constioied,  the  parties  who  entered  into  the  assumed  corporate 
undertaking  will  be  held  to  liability  for  obligations  which  have  been 
incurred  under  that  assumption.  Is  the  plaintiff  in  error  within  that 
rule.''  He  executed  the  agreement  of  articles  by  which  he  engaged 
with  the  other  defendants  "to  form  a  corporation,"  which  should  have 
a  capital  stock  of  $5,000 ;  he  was  party  to  every  step  which  was  taken 
under  the  statute;  without  his  participation  (or  that  of  some  third 
party)  even  the  semblance  of  corporate  existence  could  not  have  been 
obtained  for  the  venture.  This  act,  followed  by  the  filing  of  the 
instrument,  was  a  solemn  acceptance,  by  the  parties  jointly,  of  the 
privileges  of  incorporation.  In  the  argument  for  the  plaintiff  in 
error  it  is  insisted  that  these  corporators  are  m.erely  nominal  par- 
ties, and  should  not  be  regarded  as  contractors  in  any  sense;  that  it 
has  become  common  practice  to  take,  for  the  time  being,  any  per- 
son who  may  be  convenient  for  the  purpose,  leaving  the  real  project- 
ors to  come  in  with  the  subscription  for  stock?  Such  view  or 
practice  is  entirely  foreign  to  the  manifest  intent  of  the  statute,  as 
the  organization  is  placed  entirely  within  control  of  the  signers^ 
and  without  their  action  to  that  end  strangers  can  not  obtain  ad- 
mission as  stockholders.  They  occupy  a  contract  relation.  It  is 
true  that  the  relation  is  absolved  or  a  new  one  formed  when  organ- 


58o         WECHSELBERG   V.  FLOUR    CITY   NATIONAL    BANK.        §   1 46 

ization  is  effected;  that  the  offce  of  corporator  disappears  when 
that  of  stockholder  is  taken  on.  It  is  also  true  that  there  may  be  an 
abandonment  of  the  venture  without  any  liability  resting  upon  the 
corporators,  but  upon  the  condition  imposed  by  the  common  law  that 
no  obligation  shall  have  been  incurred  in  the  name  of  that  relation, 
viz.  :  by  "assuming  to  act  in  a  corporate  capacity."  Fuller  v.  Rowe, 
57  N.  Y.  23,  26.  Had  these  articles  read  that  the  signers  agreed  to 
form  a  partnership  with  $5,000  capital,  instead  of  a  coi-poration,  there 
would  have  been  no  doubt  of  joint  liability  for  contracts  entered  into 
by  either  in  the  co-partnership  name  and  within  its  scope.  The  agree- 
ment here  is  to  form  a  corporation,  with  capital  stock  of  $5,000;  it  is 
made  a  public  record,  as  the  statute  requires.  So  far  as  the  public  is 
concerned,  this  record  is  the  only  evidence  of  incorporation  which 
comes  to  notice.  The  corporate  capacity  there  promised  was  forth- 
with assumed,  as  the  plaintiff  in  error  well  knew,  and  he  can  not  be 
heard  to  evade  liability  upon  the  plea  that  they  failed  to  put  in  the 
capital  and  perfect  organization.  McHose  &  Co.  v.  Wheeler,  45  Pa. 
St.  32,  40.  On  behalf  of  the  plaintiff  in  error  it  is  contended  that  he 
is  not  liable,  because  he  did  not  participate  in  the  business  which  was 
undertaken,  and  it  is  not  found  that  he  had  actual  knowledge  of  the 
use  of  his  name  as  an  officer.  But  it  is  found  that  "under  the  circum- 
stances, if  he  did  not  know  it,  he  could  have  ascertained  the  fact  by 
merely  slight  attention  to  the  matter,  and  was  guilty  of  negligence  in 
not  knowing  it."  This  imputes  knowledge.  If  he  remained  igno- 
rant of  the  use  of  his  name  in  the  face  of  such  circumstances,  where  he 
had  given  its  use  for  the  inception  of  the  enterprise,  and  where  slight 
attention  would  have  brought  him  knowledge,  he  is  chargeable  with 
notice.     The  culpable  negligence  bars  the  excuse  of  ignorance. 

Upon  this  record  all  of  the  signers  of  the  articles  of  incorporation 
have  made  themselves  parties  to  the  assumption  of  corporate  powers, 
and  they  are  jointly  bound  for  the  indebtedness  which  was  therein 
contracted.  Their  liability  is  of  the  same  nature  which  would  be  im- 
posed "if  the  original  plan  had  been  to  form  a  partnership."  Cook 
on  Stock  and  Stockholders  (3d  ed.),  §  235.  The  agreement  which 
gave  color  to  the  assumed  corporate  action  is  the  foundation.  The 
reason  for  holding  the  liability  is  well  stated  in  Fredendall  v.  Taylor, 
26  Wis.  286,  290,  as  springing  "from  the  fact  that,  there  was  no  re- 
sponsible body  or  corporation  behind  them  ;"  having  no  principal  they 
bound  themselves  individually.  Lewis  v.  Tilton,  64  Iowa  220,  is  to 
the  same  effect. 

It  is  not  essential  that  parties  dealing  with  the  assumed  corporation 
should  have  acted  with  knowledge  or  upon  the  faith  of  Wechselberg's 
relation  to  it.  The  rule  stated  in  Thompson  v.  First  National  Bank 
of  Toledo,  III  U.  S.  529,  is  not  applicable.  There  it  was  sought  to 
recover  upon  a  co-partnership  debt  from  one  who  was  not  a  partner 
in  fact,  but  had  been  held  out  as  such,  without  credit  being  given  on 
the  faith  or  with  knowledge  of  such  holding  out.  Recovery  was  de- 
nied because  there  was  no  contract  relation  and  no  ground  for  estoppel. 
In  the  case  at  bar  there  is  primary  contract  liability,  and  it  is  not 


§  147     THE   COiMMENCEMENT   OF   CORPORATE   EXISTENCE.         58 1 

■dependent  upon  the  knowledge  or  understanding  of  those  dealing 
with  the  purported  corporation.  Pullman  v.  Upton,  96  U.  S.  328, 
citing  Adderly  v.  .Storm,  6  Hill  624;  Pierce  v.  Bryant,  5  Allen 
(Mass.)  91. 

In  view  of  this  determination  of  liability  at  common  law  we  are  of 
opinion  that  judgment  was  properly  entered  against  the  plaintiff  in 
error,  and  it  is  unnecessary  to  consider  the  question  of  statutory  lia- 
bility, which  is  well  presented  in  the  briefs  and  oral  arguments. 

The  judgment  will  be  affirmed. 

Note.  Compare,  1864,  Ashtabula  and  New  Lisbon  R.  Co.  v.  Smith,  15  Ohio 
St.  328;  1897,  Badger  Paper  Co.  v.  Rose,  95  Wis.  146;  1898,  Schofield  G.  &  P. 
Co.  V.  Schofield,  71  Conn.  1. 


Sec.  147.    Same. 

{d)  As  soon  as  its  first  meeting  has  been  held  and  officers 
chosen,  if  not  immediately  upon  signing  the  articles  of  association; 
but  until  the  division  into  shares,  the  associated  members  hold  the 
whole  capital  stock  in  common. 

HAWES  Et  Al.  v.  ANGLO-SAXON  PETROLEUM  COMPANY  Er  Al.» 

1869.     In  the  Supreme  Court  of  Massachusetts,     ioi    Mass. 

Rep.  385-398. 

[Bill  in  equity,  filed  February  2,  1867,  to  charge  individual  de- 
fendants as  members  or  stockholders  in  a  manufacturing  corporation, 
under  the  statute  of  1862,  ch.  218,  which  declares,  in  section  2,  that 
*'the  members  or  stockholders"  in  such  a  corporation  shall  be  jointly 
and  severally  liable  for  such  of  its  debts  as  may  be  contracted  before 
the  capital  is  fully  paid  in  and  certificate  thereof  duly  recorded. 

On  March  i6,  1865,  the  defendants  signed  certain  articles  bearing 
that  date,  certifying  that  the  subscribers  "hereby  associate  themselves 
together  as  a  corporation  under  the  provisions  of  the  Gen.  Stat.,ch.  61, 
and  the  several  acts  in  addition  thereto,  for  the  purpose  of  carrying  on 
the  business  of  mining  oil,  coal  and  other  minerals;  and  agree," 
third,  that  "the  amount  of  capital  stock  of  said  corporation  is  hereby 
fixed  and  limited  at  $500,000;"  fourth,  that  "the  said  corporation 
shall  be  established  and  have  its  principal  place  of  business  in  Bos- 
ton, and  may  prosecute  its  business  without  and  beyond  the  limits  of 
the  commonwealth,  as  the  corporation  elect."  On  April  i,  1865,  the 
subscribers  of  these  articles  held  their  first  meeting  and  chose  officers. 

In  the  superior  court  in  Suffolk,  at  October  term,  1866,  the  plaint- 
iffs recovered  judgment  against  the  Anglo-Saxon  Petroleum  Com- 
pany, by  the  default  of  the  corporation,  after  filing  an  affidavit  of 
merits  and  an  answer,  for  $4,231.71  damages  and  $24.07  costs,  in  an 
action  begun  March  17,  1866,  on  an  account  dated  March  29,  1865, 
for  the  price  of  three  steam-engines   and  boilers.     On  this  judgment 

^  Statement  of  facts  abridged.     Arguments  and  part  of  opinion  omitted. 


582  HAWES   V.  ANGLO-SAXON    PETROLEUM    CO.  §   147 

execution  was  issued  November  16,  1866,  and  returned  wholly  un- 
satisfied January  15,  1867. 

"The  stock  of  said  Anglo-Saxon  Petroleum  Company  was  never 
divided  into  shares,  and  never  divided  or  apportioned  among  said 
subscribers.  No  capital  was  ever  paid  in,  and  no  certificate  of  any 
payment  of  capital  was  ever  recorded.  No  part  of  the  amount  due 
on  said  judgment  has  ever  been  paid,  and  no  change  has  occurred 
among  said  subscribers  to  said  articles."] 

Gray,  J.  All  that  is  necessary  to  constitute  a  corporation  aggre- 
gate is  the  grant  of  a  franchise  by  the  government,  assented  to  by  the 
grantees.  In  the  case  of  the  creation  of  a  private  corporation  by 
special  charter,  indeed,  an  acceptance  is  ordinarily  required  in  order 
to  give  it  effect.  Angell  &  Ames  on  Corporations,  §§  81,  83.  But 
an  act  of  the  legislature^  incorporating  certain  persons  who  have  ap- 
plied for  a  charter,  and  their  associates,  may  constitute  the  persons 
named  a  corporation  at  once  "without  further  action  on  their  part, 
either  in  the  admission  of  associates,  the  choice  of  ojfficers,  or  the  di- 
vision of  the  capital  stock.  Frost  v.  Frostburg  Coal  Co.,  24  How. 
278;  Day  V.  Stetson,  8  Greenl.  365;  Penobscot  Boom  Co.  v.  Lam- 
son,  16  Maine  224;  New  York  Fire  Department  v.  Kip,  10  Wend. 
266;  Narragansett  Bank  v.  Atlantic  Silk  Co.,  3  Met.  282;  Walworth 
v.  Brackett,  98  Mass.  98;  Gen.  Stat.  ch.  68,  §  3. 

By  the  Gen.  Stat.,  ch.  61,  §  i,  "three  or  more  persons  who  shall 
have  associated  themselves  together  by  articles  of  agreement  in  writ- 
ing, for  the  purpose  of  carrying  on  any  mechanical,  mining,  quanying 
or  manufacturing  business,  except  that  of  distilling  or  manufacturing 
intoxicating  liquors,  and  shall  have  complied  with  the  provisions  of  this 
chapter,  shall  be  and  remain  a  corporation  under  any  name  indicated  in 
their  articles  of  association,  and  which  is  not  previously  in  use  by  any 
other  corporation  or  company."  The  meaning  and  extent  of  the  clause 
which  requires  that  the  associates  "shall  have  complied  with  the  provis- 
ions of  this  chapter"  maybebetter  understood  by  referring  to  the  statute 
of  1851,  ch.  133,  the  first  general  law  which  authorized  such  corpo- 
rations to  be  formed  by  voluntary  association,  and  the  intervening  acts 
in  addition  thereto,  of  all  which  the  sixty-first  chapter  of  the  General 
Statutes  is  substantially  a  re-enactment.  By  section  i  of  Statute  1851, 
ch.  133,  persons  who  should  "associate  themselves  together  according 
to  the  provisions  of  this  act"  under  any  name  by  them  assumed,  for 
either  of  the  purposes  specified,  and  who  should  "comply  with  all 
the  provisions  of  this  act"  were  declared  to  be  a  body  politic  and 
corporate.  All  the  provisions  of  that  act,  which  such  a  corporation 
was  required  by  its  terms  to  comply  with  at  any  time,  were,  that  the 
articles  of  association  should  state  the  name  of  the  corporation,  fix 
and  limit  the  amount  of  its  capital  stock,  and  state  the  purpose  for 
which  and  the  town  or  city  in  which  the  corporation  should  be  estab- 
lished and  located ;  that,  before  the  corporation  should  commence 
business,  its  officers  should  make,  publish  and  file  a  certificate  of 
those  and  other  facts ;  and  that  the  name  of  the  corporation  should 
indicate  its  corporate  character,  and  not  be  the  name  of  any  other  cor- 


§   147     THE   COMMENCEiMENT   OF   CORPORATE   EXISTENCE.         583 

poration  or  company.  Stat.  185 1,  ch.  133,  §§  1-6.  And  it  was  held 
that  even  an  irregularity  in  the  articles  of  association,  such  as  the 
adoption  of  a  name  already  belonging  to  another  company,  would  not 
enable  the  corporation  to  defeat  an  action  against  it  by  a  creditor. 
Dooley  v.  Cheshire  Glass  Co.,  15  Gray  494.  The  direction  contained 
in  the  Gen.  Stat.,  ch.  61,  §  3,  as  to  the  mode  of  calling  the  first  meet- 
ing of  such  a  corporation,  was  not  in  the  original  statute,  but  was  first 
inserted  in  the  statute  of  1855,  ch.  478,  section  2,  and  is  as  consistent 
with  holding  the  corporation  to  be  already  organized  as  with  treating 
the  first  meeting  as  necessary  to  its  organization.  The  first  section  of 
the  General  Statutes,  ch.  61,  is  certainly  not  to  be  construed  literally 
as  requiring  a  compliance  with  all  the  provisions  of  the  chapter  as  a 
condition  precedent  to  the  existence  of  a  corporation ;  for  many  of 
them  necessarily  assume  a  corporation  to  have  been  already  created, 
such,  for  instance,  as  making  the  officers  of  the  corporation  liable  for 
its  debts  until  they  have  signed  and  filed  certain  certificates.  Sec- 
tions 8—12,  Merrick  v.  Reynolds  Engine  &  Governor  Co.^  The 
fnanifest  intent  of  the  Jirst  section^  viewed  in  connection  ivith  the 
rest  of  the  chapter^  is^  that  a  corporation  shall  exist  at  least  as  soon 
as  the  first  meeting  has  been  held  and  officers  have  been  elected ^  if  not 
immediately  upon  the  signing  of  the  funda?nental  articles  of  associa- 
tion, by  which  the  intention  of  the  associates  to  avail  themselves  of 
the  privileges  conferred  by  the  legislature  is  manifested,  the  name  of 
the  corporation  determined,  the  amount  of  capital  stock  fixed,  and  the 
place  in  which  and  the  purpose  for  which  the  corporation  is  estab- 
lished are  specified.  Utley  v.  Union  Tool  Co. ,  1 1  Gray  1 39 ;  Perkins  v. 
Union  Button-Hole  &  Embroidery  Machine  Co.,  12  Allen  273;  New- 
comb  v.  Reed,  12  Allen  363. 

When  a  corporation  has  been  once  created  according  to  law,  the 
incorporated  associates  who  hold  the  corporate  franchise  are  members 
of  the  corporation,  and  a  subscriber  for  shares,  although  he  has  re- 
ceived no  certificate  of  stock,  or  the  stock  has  not  even  been  divided 
into  shares,  is  a  member  of  the  corporation,  and  a  stockholder  within 
the  meaning  of  a  statute  making  the  stockholders  of  the  corporation 
personally  liable  for  its  debts.  Chester  Glass  Co.  v.  Dewey,  16  Mass. 
94;  Narragansett  Bank  v.  Atlantic  Silk  Co.,  3  Met.  288,  289;  Spear 
V.  Crawford,  14  Wend.  20. 

The  statute  of  1862,  ch.  218,  entitled  "An  act  to  define  and  regulate 
the  enforcement  of  the  liabilities  of  officers  and  stockholders  of  manu- 
facturing corporations,"  contains  the  following  provisions,  upon  the 
construction  and  effect  of  which  this  case  depends. 

By  section  2,  "the  members  or  stockholders  in  such  corporation 
shall  be  jointly  and  severally  liable  for  its  debts  or  contracts  in  the  fol- 
lowing cases,  and  not  otherwise :  First,  for  such  as  may  be  contracted 
before  the  capital  is  fully  paid  in,  and  a  certificate  thereof  duly  re- 
corded." 

By  section  3,  no  stockholder  in  such  corporation  shall  be  held  liable 
for  its  debts  or  contracts,  unless  a  judgment  is  recovered  against  the 

*  101  Mass.  381. 


584  HAWES    V.  ANGLO-SAXON   PETROLEUM    CO.  §   1 47 

corporation,  demand  for  payment  made  upon  the  corporation  and  not 
complied  with  for  thirty  days,  and  the  execution  returned  unsatisfied. 

By  section  4,  "after  the  execution  shall  be  so  returned,  the  judg- 
ment creditor,  or  any  other  creditor,  may  file  a  bill  in  equity  in  behalf 
of  himself  and  all  other  creditors  of  the  corporation,  against  it,  and 
all  persons  who  were  stockholders  therein  at  the  time  of  the  com- 
mencement of  the  suit  in  which  such  judgment  was  recovered,"  for 
the  recovery  of  the  sums  due  from  said  corporation  to  himself  and 
such  other  creditors,  for  which  the  stockholders  may  be  personally  lia- 
able,  by  reason  of  any  act  or  omission  on  the  part  of  the  corporation 
or  its  officers. 

By  section  5,  "such  sums  as  may  be  decreed  to  be  paid  by  the  stock- 
holders in  such  suit  in  equity  shall  be  assessed  upon  them  in  proportion 
to  the  amounts  of  stock  by  them  respectively  held  at  the  time  when  the 
suit  in  which  said  judgment  was  recovered  was  begun ;  but  no  stock- 
holder shall  be  liable  to  pay  a  larger  sum  than  the  amount  of  stock 
held  by  him  at  that  time  at  its  par  value." 

Among  the  purposes  for  which  the  defendants  incorporated  them- 
selves were  "refining  oil,  coal  and  other  minerals,"  and  "preparing 
them  for  use."  They  were,  therefore,  strictly  a  manufacturing  cor- 
poration, and  equally  within  the  statutes  of  1862,  ch.  218,  as  a  similar 
corporation  established  by  special  charter  would  be.  Peele  v.  Phill- 
ips, 8  Allen  86;   Bond  v.  Morse,  9  Allen  471. 

The  bill  was  held  to  be  sufficient  when  this  cause  was  before  us 
upon  the  demurrer.  All  questions  of  variance  between  the  pleadings 
and  evidence  have  been  waived  by  submitting  the  case  to  our  decision 
upon  an  agreed  statement  of  facts.  Russell  v.  Loring,  3  Allen  121 ; 
Folger  V.  Columbian  Insurance  Co.,  99  Mass.  267. 

It  is  admitted  that  no  part  of  the  capital  stock  of  the  corporation  has 
ever  been  paid  in,  and  no  certificate  thereof  recorded ;  and  that  the 
plaintiffs  have  recovered  a  judgment  in  an  action  against  the  corpora- 
tion, and  had  the  execution  issued  thereon  duly  served  upon  the  cor- 
poration, and  returned  unsatisfied. 

That  action  was  brought  on  the  17th  day  of  March,  1866,  a  year 
after  the  signing  of  the  defendants'  articles  of  association,  and  almost 
a  year  after  the  associates  had  held  their  first  meeting  and  elected 
officers.  Upon  any  construction  of  the  statutes,  the  corporation  had 
thus,  long  before  the  bringing  of  that  action,  been  called  into  exist- 
ence and  made  a  legal  person,  capable  of  holding  property  and  of 
suing  and  being  sued,  and  had  a  board  of  officers  competent  to  bind 
the  corporation  by  a  new  agreement  or  by  ratification  of  an  old  one, 
made  before  the  corporation  was  capable  of  contracting.  The  cor- 
poration, thus  fully  organized  and  represented,  filed  an  affidavit  of 
merits,  and  afterwards  submitted  to  a  default  and  judgment  thereon. 
That  judgment,  if  not  conclusive  in  this  suit,  is  at  least  prima  facie 
evidence  that  the  debt  sued  on  was  a  debt  for  which  the  corporation 
was  liable.'  The  mere  fact  that  the  account  annexed  to  the  declara- 
tion bears  date  three  days  before  such  election  of  officers  is  not  suffi- 


^  148  CONDITIONS  OF   DE  JURE   EXISTENCE.  585 

cient  to  rebut  the  evidence  of  liability  afforded  by  the  judgment 
itself. 

The  amount  of  capital  stock  of  the  corporation  was  fixed  and  lim- 
ited in  accordance  with  the  General  Statutes,  ch.  61,  section  6.  The 
stock  not  having  been  divided  into  shares  or  certijicates  issued^  the 
associated  members  of  the  corporation  were  the  holders  of  the  whole 
capital  stock  in  co?nmon^  and  would  see?n,  upon  the  facts  agreed^  to 
be  liable  in  equal  proportions  for  such  sums  as  may  be  decreed  to  be 
paid  by  them  in  this  suit.  But  as  the  question  of  the  amount  to  be 
assessed  upon  each  has  not  been  argued  by  them,  but  only  the  ques- 
tion whether  they  are  liable  at  all,  any  additional  facts  and  considera- 
tions, bearing  upon  the  question  of  the  amounts  and  proportions  in 
which  they  are  to  be  charged,  may  be  submitted  to  the  master,  and, 
on  the  coming  in  of  his  report,  to  the  court. 

Decree  for  the  plaintiffs^  case  referred  to  a  master. 

Note.  See  Katavna  Land  Company  v.  HoUey,  129  Mass.  640;  Schofield  G. 
&  P.  Co.  V.  Schofield,  71  Conn.  1. 

Sec.  148.    Same.       ' 

(^)  Under  special  acts,  either  immediately  upon  acceptance  of 
charter,  or  only  after  organization  by  the  subscribers  to  the  stock, 
depending  upon  the  wording  of  the  acts. 

For  example,  it  is  sometimes  said  that  where  an  act  provides  that  A,  B,  C, 
etc.  (who  have  applied  for  a  charter),  and  their  successors  and  assigns  "be 
and  the  same  are  hereby  incorporated,"  there  is  created  ipso  facto  et  eo  in- 
stanti  a  corporation,  and  there  is  no  condition  precedent  to  the  coming  into 
existence  of  the  corporation.  See,  1853,  Judah  v.  The  Am.  Live  Stock  Ins. 
Co.,  4  Ind.  333;  1857,  Stoops  v.  The  Greenburgh  &  B.  P.  Co.,  10  Ind.  47;  1869, 
Hammett  v.  L.  R,  &  N.  R.  Co.,  20  Ark.  204;  1880,  The  L.  R.  &  N.  R.  Co.  v.  L. 
R.,  M.  &  T.  R.,  36  Ark.  663.  Also,  Penobscot  Boom  Corp.  v.  Lamson,  supra, 
p.  283;  Hawes  v.  Petroleum  Co.,  supra,  p.  581,  and  illustrations  in  §§  135,  136, 
137,  stipra. 


ARTICLE    IV.       COMPLIANCE    WITH  CONDITIONS.       DE  JURE  EXISTENCE. 

Sec.  149.     (i)  As  to  de  jure  existence,  conditions  are 

(a)  Precedent,  with  which  there  must  be  a  substantial,  but  not 
necessarily  a  literal,  compliance,  in  order  to  make  a  corporation  df.? 
jure. 

MOKELUMNE  HILL  MINING  CO.  v.  WOODBURY.* 
14  Cal.  424,  73  Am.  Dec.  658,  supra.,  p.  296. 
*  See,  also,  cases  below,  on  pp.  690-613. 


586  HARROD   V.    HAMER.  §  150 


Sec.  150.    Same. 

(^)  Subsequent,  with  which  compliance  is  not  necessary  in  or- 
der to  create  a  valid  corporation,  though  necessary  legally  to  ex- 
ercise corporate  functions  and  powers. 

HARROD  V.  HAMER  Et  Al.^ 

1873.     In   the   Supreme   Court  of   Wisconsin.     32  Wis.  Rep. 

162-168. 

Appeal  from  the  circuit  court  for  Outagamie  county. 

Section  17,  ch.  73  of  the  Rev.  Stat.,  entitled  "of  joint  stock  com- 
panies," provides  that  before  any  corporation,  organized  thereunder, 
shall  commence  business,  the  president  and  directors  shall  cause  the 
articles  of  association  to  be  published  in  the  papers,  make  a  certificate 
of  the  purposes  for  which  the  corporation  is  formed,  the  amount  of 
capital  stock,  the  amount  actually  paid  in,  the  names  of  the  share- 
holders, the  number  of  shares  by  each  respectively  owned,  and  de- 
posit the  same  with  the  secretary  of  state,  and  a  duplicate  with  the 
clerk  of  the  town,  city  or  village  where  the  business  is  to  be  carried 
on.  Section  25  of  the  same  chapter  provides  as  follows:  The  stock- 
holders of  any  corporation  organized  under  the  provisions  of  this 
chapter  shall  be  jointly  and  severally  liable  for  all  debts  that  may  be 
due  or  owing  to  all  their  laborers,  servants  and  apprentices,  for  serv- 
ice performed  by  them  for  such  corporation,  within  six  months  pre- 
ceding the  demand  made  for  any  such  debt,"  etc. 

Harrod  brought  his  action  against  the  defendants,  who  were  stock- 
holders in  the  Appleton  Manufacturing  Company,  incorporated  under 
ch.  73,  R.  S.,  to  hold  them  liable  individually  for  any  indebtedness 
against  the  company.  Plaintiff  was  the  owner  of  a  planing  mill,  and 
the  indebtedness  grew  out  of  certain  planing  done  at  plaintiff's  mill 
for  the  building  of  the  factoiy  of  the  corporation.  Judgment  had  been 
obtained  against  the  company  for  the  amount  due,  and  execution  was 
returned  unsatisfied.  Plaintiff  thereupon  sued  the  defendants  for  the 
amount  of  such  judgment  and  interest.  It  was  admitted  that  sec- 
tion 17  was  not  complied  with  by  the  filing  of  the  required  statement 
until  March  25,  1870,  and  it  appeared  in  evidence  that  the  company 
erected  a  building,  ran  a  saw-mill,  and  transacted  other  business, 
some  months  previous  to  this  date.  Finding  and  judgment  for  plaint- 
iff;  from  which  judgment  the  defendants  Hamer  and  Schneider  ap- 
pealed. 

Dixon,  C.  J.  The  theory  upon  which  this  action  is  prosecuted  is, 
that  the  subscribers  to  the  articles  of  agreement  and  association  did 
not,  by  the  steps  and  proceedings  taken,  become  or  constitute  a  body 
politic  and  corporate,  under  the  name  assumed  by  them  in  their  arti- 
cles, but  that  they  failed  altogether  of  organizing  and  establishing  a 

'Arguments  omitted. 


§   I50  CONDITIONS   OF   DE   JURE   EXISTENCE,  58/ 

corporation  under  the  provisions  of  the  statute,  as  they  attempted  and 
intended  to  do.  The  supposition  is  that  no  coiporation  was  created, 
and  hence  that  the  subscribers,  who  were  shareholders  or  owners  of 
the  supposed  capital  stock,  became  a  sort  of  unincorporated  joint 
stock  company,  or  quasi  firm  or  partnership,  and  so  liable  in  their  in- 
dividual capacity,  either  jointly  or  severally,  directly  to  the  creditors 
of  the  company  or  association.  We  are  of  opinion  that  this  view  of 
the  transaction  is  entirely  erroneous,  and  that  a  corporation  was  or- 
ganized and  set  in  motion  with  which  creditors  and  others  must  deal 
as  a  corporation,  and  against  which  and  against  the  stockholders  in 
which  claims  and  demands  must  be  enforced,  as  in  case  of  other  like 
corporate  bodies. 

The  corporation  was  organized  under  the  provisions  of  chapter  73 
of  the  Revised  Statutes,  i  Tay.  Stats.  982  to  987,  sections  i  to  29, 
inclusive.  It  is  not  objected  or  shown  that  any  requirement  of  the 
statute  was  omitted  or  not  complied  with,  except  only  that  the  certi- 
ficate prescribed  by  section  17  (section  19,  Tay.  Stats.)  was  not  made 
and  deposited  with  the  secretary  of  state,  and  a  duplicate  with  the 
town,  village  or  <:ity  clerk,  as  therein  directed.  The  only  question, 
therefore,  is,  whether  this  failure  of  the  president  and  directors  to 
make  and  deposit  the  certificate  and  duplicate  operated  to  defeat  the 
organization  or  to  annul  the  pi"oceedings  by  which  the  corporation 
had  been  brought  into  existence.  The  very  words  of  the  section  are 
a  sufficient  answer.  "Before  any  corporation,  formed  and  established 
by  virtue  of  the  provisions  of  this  law,  shall  commence  business,  the 
president  and  directors  thereof  shall  cause  their  articles  of  association 
to  be  published,"  etc.,  and  "shall  make  a  certificate,"  etc.  It  would 
not  be  easy  by  any  words  to  recognize  the  existence  of  the  corpora- 
tion without  the  publication  and  without  the  certificate,  or  before 
they  are  made,  more  clearly  than  has  been  done  here.  The  corpo- 
rate existence  is  clearly  acknowledged ^  and  intended  so  to  be^  and  the 
prohibition  is  only  against  its  commencing  business  until  the  require- 
ments of  the  section  are  complied  with.  It  is  spoken  of  as  a  corpora- 
tion formed  and  established  by  virtue  of  the  provisions  of  law,  and 
having  officers  such  as  the  law  prescribes,  namely,  a  president  and  a 
board  of  directors,  capable  of  acting  for  the  corporation,  and  upon 
whom,  in  their  official  capacity,  certain  duties  are  therein  specifically 
imposed,  and  their  performance  commanded. 

Bui,  if  anything  further  be  needed  upon  this  point,  it  will  be  found 
in  the  provisions  of  section  23  of  the  same  chapter.  That  section 
reads:  "If  the  president,  directors  or  secretary  of  any  such  corpora- 
tion shall  intentionally  neglect  or  refuse  to  comply  with  the  provisions 
of,  and  to  perform  the  duties  required  of  them  respectively  by,  the 
seventeenth,  eighteenth  and  nineteenth  sections  of  this  chapter,  such  of 
them  so  neglecting  or  refusing  shall  jointly  and  severally  be  liable,  in  an 
action  founded  on  this  chapter,  for  all  debts  of  such  corporation  con- 
tracted during  the  period  of  any  such  neglect  and  refusal."  The  inten- 
tion that  the  corporation  should  not  be  affected,  or  its  powers  or  exist- 
ence destroyed,  by  reason  of  any  failure  to  comply  with  the  requirements 


588  NEWCOMB    V.    REED.  §151 

of  section  17,  is  here  again  very  plainly  manifested.  It  is  again  spoken 
of  and  treated  as  a  corporation  lawfully  organized  and  still  continuing, 
notwithstanding  such  failure.  It  is  regarded  as  a  corporation  fully 
capable  of  contracting  debts,  and  having  officers,  of  whom  the  per- 
formance of  certain  duties  has  been  and  still  may  be  lawfully  required. 
And  to  the  like  effect  are  the  provisions  of  section  24,  and,  perhaps, 
others.  The  views  here  expressed  are  sustained  by  the  case  of  Holmes 
V.  Gilliland,  41  Barb.  568. 

It  follows  from  these  views  that  the  plaintiff  has  misconceived  his 
remedy,  and  that  this  action  can  not  be  maintained  against  the  appel- 
lants as  stockholders,  and  who  hold  no  other  relation  to  the  corpora- 
tion. The  remedy  of  the  plaintiff  to  enforce  payment  of  his  judgment, 
in  addition  to  that  given  by  the  statute  against  the  president  and 
directors  of  the  corporation,  will  probably  be  found  by  consulting  the 
case  of  Adler  v.  Milwaukee  Patent  Brick  Manufacturing  Co.,  13 
Wis.  57. 

The  complaint  alleges  that  the  debt,  for  the  non-payment  of  which 
the  plaintiff  recovered  judgment  against  the  corporation,  accrued  and 
became  due  to  the  plaintiff  for  work  and  labor  performed  by  him  for 
the  corporation,  but  it  is  nevertheless  not  claimed  that  the  cause  of 
action  falls  within  the  provisions  of  section  25  of  the  statute,  or  that 
the  plaintiff  is  pursuing  the  remedy  given  by  that  section.  It  does  not 
distinctly  appear  that  the  debt  was  one  of  the  kind  therein  provided 
for,  or  that  the  plaintiff  was  a  "laborer."  It  is  not  shown  that  any 
demand  was  made,  as  prescribed  by  that  section. 

The  judgment  against  the  defendants  Hamer  and  Schneider,  who 
bring  this  appeal,  must  be  reversed,  with  costs,  and  the  cause  remanded, 
with  direction  that  it  be  dismissed  as  to  them. 

By  the  court. — It  is  so  ordered. 

Note.  See  Beach,  §13;  Clark,  pp.  59,  87;  Elliott,  §§38-44;  Morawetz, 
§§744-746;  1  Thompson,  §§215-249. 


Sec.  151.     Same.     (2)    Conditions  may  be  also : 

{c)   Directory  merely. 

NEWCOMB  V.  REED. 

1866.     In  the  Supreme  Judicial  Court  of  Massachusetts.     12 
Allen's  (Mass.)  Rep.  362-364. 

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 
trial  in  the  superior  court,  before  Ames,  J. ,  without  a  jury,  the  judge 
found  for  the  defendants  upon  facts  which  are  stated  in  the  opinion ; 
and  the  plaintiff  alleged  exceptions. 


§   I5I  CONDITIONS    OF   DE   JURE    EXISTENCE.  589 

Hoar,  J.  The  defense  to  this  action  rests  wholly  upon  the  as- 
sumption 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  per- 
sons named  in  the  act  of  incorporation,  and  not  by  a  majority  of  them, 
as  required  by  Statutes  1855,  ch.  140. 

The  case  of  Utely  v.  Union  Tool  Company,  11  Gray  139,  is  the 
authority  on  which  the  defendants  chiefly  rely.  That  case  decided 
that  in  order  to  charge  as  stockholders  of  a  manufacturing  corporation 
persons  who  had  been  summoned  in  an  action  against  it  under  Statutes 
1851,  ch.  315,  the  plaintiff  must  prove  the  legal  existence  of  the  cor- 
poration. 

The  alleged  corporation  had  no  charter  or  act  of  incorporation 
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.  Statutes  of  1851,  ch.  133.  That  statute  au- 
thorized three  or  more  pex'sons  who  had  entered  into  "articles  of 
agreement  in  writing' '  for  the  transaction  of  certain  kinds  of  business 
to  organize  in  a  manner  prescribed,  and  thereby  to  become  a  corpo- 
ration ;  and  the  court  were  of  opinion  that  written  articles  of  agree- 
ment 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  and  the  place  in  which  the  corporation  was  estab- 
lished. The  court  say,  "There  is  an  obvious  reason  for  making  such 
organization  by  written  articles  of  agreement  a  condition  precedent  to 
the  exercise  of  corporate  rights.  It  is  the  basis  on  which  all  the  sub- 
sequent proceedings  are  to  rest,  and  is  designed  to  take  the  place  of  a 
charter  or  act  of  incoiporation,  by  which  corporate  rights  and  privi- 
leges are  usually  granted."  And  they  add  that  "it  is  not  a  case  of  a 
defective  organization  under  a  charter  or  act  of  incorporation,  nor  of 
erroneous  proceedings  after  the  necessary  steps  were  taken  to  the  as- 
sumption of  corporate  powers,  but  there  is  an  absolute  want  of  proof 
that  any  corporation  was  ever  called  into  being  which  had  the  power 
of  contracting  debts  or  of  rendering  persons  liable  therefor  as  stock- 
holders." 

We  think  these  reasons  have  no  application  to  the  case  now  before 
us.  In  this,  there  was  an  act  of  incorporation  from  the  legislature. 
There  is  no  question  that  the  corporate  powers  which  it  conferred 
were  assumed  by  the  persons  by  whom  it  was  intended  that  they 
should  be  enjoyed,  so  far  as  they  chose  to  avail  themselves  of  them. 
The  organization  was  not  strictly  regular,  but  can  hardly  be  consid- 
ered even  as  defective. 

And  if  the  object  of  the  statute  is  regarded^  by  which  it  is  required 
that  the  first  meeting  shall  be  called  by  a  majority  of  the  persons 
named  in  the  act  of  incorporation^  it  -will  be  evident  that  it  is  direc- 
tory merely,  and  only  designed  to  secure  the  rights  conferred  by  the 
charter  to  those  to  whom  it  was  granted,  among  themselves,  by  pro- 
viding an  orderly  method  of  organization.      Thus^  if  all  the  persons 


590  HOLMAN    V.    THE   STATE.  §   1 52 

interested  should  come  together  without  any  notice  or  call  whatever^ 
and  proceed  to  accept  the  charter^  and  do  the  other  necessary  acts  to 
constitute  the  corporation^  ive  can  not  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  proceed- 
ings. 

The  purpose  of  the  statute  was  probably  to  avoid  such  difficulties 
as  were  disclosed  in  the  case  of  Lechmere  Bank  v.  Boynton,  11  Cush. 
369,  where  two  parties  had  attempted  to  organize  separately  under 
the  same  charter,  each  claiming  to  be  the  corporation. 

There  is  nothing  in  the  facts  found  and  reported  to  show  that  all 
persons  interested  were  not  actually  notified  of  the  meeting  for  organ- 
ization. On  the  contrary,  it  would  seem  that  they  were.  No  one 
has  questioned  the  regularity  of  the  proceedings,  or  claimed,  as  in 
Lechmere  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  coi"- 
poration  ever  had  any  legal  existence,  or  for  these  officers  to  avoid 
the  liabilities  which  the  statutes  of  the  commonwealth  impose. 

The  defendant,  Brackett,  who  was  treasurer  in  February,  1861,  ap- 
pears to  have  been  liable  with  the  directors,  under  the  provisions  of 
Gen.  Stat.,  ch.  60,  sections  18,  20,  31. 

Exceptions  sustained. 


Sec.  152.    Same. 

(^)    Or  mandatory,  which  may  be, 

( I )  Implied — good  faith  in  securing  corporate  privileges  from 
the  state. 

HOLMAN  V.  THE  STATE. 

1885.  In  the  Supreme  Court  of  Indiana.   105  Ind.  Rep.  569-574. 

From  the  Huntington  circuit  court. 

Mitchell,  J.  The  state,  by  an  information  in  the  nature  of  a  quo 
warranto^  charged  that  William  J.  Holman  and  ten  others  were  as- 
suming to  act  as  a  corporation  under  the  name  of  the  Fort  Wayne, 
Warren  and  Brazil  Railway  Company;  that,  as  such  corporation,  they 
were  making  contracts,  incurring  debts,  soliciting  aid  from  townships, 
towns  and  cities,  making  surveys,  appropriating  lands,  etc.,  without 
any  warrant  or  authority  of  law.  They  were  challenged  to  show  by 
what  authority  they  assumed  so  to  act. 

By  a  special  answer  the  defendants  admitted  that  they  were  acting 


§  152  CONDITIONS   OF   DE  JURE   EXISTENCE.  591 

as  a  railway  corporation,  and  alleged  that  they  were  duly  organized 
and  incorporated  under  the  law.  With  their  answer  they  exhibited  a 
copy  of  their  articles  of  association,  which  they  averred  had  been  duly 
filed  in  the  office  of  the  secretary  of  state.  Upon  the  articles  thus  ex- 
hibited, it  appeared  that  fifteen  persons  had  each  subscribed  for  $3,400 
of  the  capital  stock,  the  whole  amount  of  which  was  fixed  at  $60,000. 

The  reply  was  filed  admitting  the  signing  and  filing  of  the  articles 
of  association  and  the  subscription  to  the  stock.  It  was,  however, 
averred  that  many  of  the  subscribers  to  the  stock  were,  at  the  time  of 
making  such  subscriptions,  wholly  and  notoriously  insolvent,  and 
made  no  pretense  of  being  able  to  pay  their  subscriptions,  and  that 
others  of  such  subscribers  were  not  worth  half  the  amount  subscribed 
by  them ;  that  the  solicitor  of  the  subscriptions  and  promoter  of  the 
corporation  was  a  subscriber  to  the  stock,  was  wholly  and  notoriously 
insolvent  himself,  and  knew  of  the  insolvency  of  many  of  the  other 
subscribers ;  that  one  of  the  subscribers,  in  addition  to  being  insolvent 
at  the  time  of  making  his  subscription,  was  also  a  minor,  which  was 
kr>own  to  the  promoters  of  the  scheme.  It  was  further  charged  that 
the  capital  stock  had  not  been  subscribed  in  good  :^aith,  but  that  the 
subscriptions  were  received  for  the  purpose  of  securing  a  colorable 
organization  to  be  made  on  paper.  Evidence  was  offered  tending  to 
prove  the  averments  contained  in  the  reply.  A  judgment  of  forfeiture 
was  rendered. 

The  statute  providing  for  the  organization  of  railroad  corporations 
enacts,  in  substance,  that  whenever  stock  to  the  amount  of  at  least 
$50,000,  or  $1,000  for  each  and  every  mile  of  the  proposed  road  shall 
have  been  subscribed,  any  number  of  the  subscribers,  not  less  than 
fifteen,  may,  under  certain  regulations  prescribed,  form  a  railroad 
corporation. 

The  question  presented  for  consideration  is,  must  the  $50,000  of 
stock,  which  is  required  to  be  subscribed  as  a  condition  precedent  to 
the  organization,  be  subscribed  in  good  faith  by  persons  who  had  a 
reasonable  expectation  that  they  will  be  able  to  pay,  or  will  sub- 
scriptions, some  of  which  are  merely  simulated,  fulfill  the  purposes  of 
the  statute  ? 

Where  the  information  is  against  the  corporation  eo  nomine^  an  in- 
quiry such  as  that  proposed  can  not  be  made.  In  such  a  case,  the 
bringing  of  the  suit  against  the  corporation  in  its  corporate  name  is 
an  admission  of  its  corporate  existence,  and  it  is  not  necessary  for  the 
corporation  to  show  that  it  had  performed  the  conditions  precedent  to 
its  corporate  existence.  High  Extra.,  L.  Rem.,  section  661.  So, 
also,  where  the  question  of  the  regularity  of  the  organization  is  made 
in  collateral  proceeding,  it  is  not  admissible  to  show  the  insolvency 
of  the  subscribers  to  the  stock.  It  was  accordingly  held,  in  Miller  v. 
Wild  Cat  Gravel  Road  Co.,  52  Ind.  51,  that,  in  a  suit  upon  an  uncon- 
ditional subscription  of  stock,  evidence  of  the  insolvency  of  some  of 
the  subscribers  was  immaterial. 

There  are  cases  which  hold  that  an  assessment  against  a  subscriber 
to  stock  can  not  be  collected  until,  at  least,  the  minimum   amount 


592  HOLMAN    V.    THE    STATE.  §   I  $2 

required  by  the  statute  has  been  subscribed  by  persons  apparently 
able  to  pay  for  the  shares  subscribed.  In  such  cases,  the  subscrip- 
tions of  insolvent  persons,  infants  and  married  women,  are  not 
counted.  Lewey's  Island  R.  Co.  v.  Bolton,  48  Maine  451 ;  Phillips 
V.  Covington,  etc.,  Bridge  Co.,  2  Met.  (Ky.)  219;  Morawetz,  Corp., 
§  279;  Pierce,  Railroads,  p.  55  and  notes. 

The  fact  that  some  of  the  subscribers  to  the  stock  of  a  corporation 
became  insolvent  after  such  subscriptions  were  made,  will  not  of  it- 
self support  an  information  in  the  nature  of  a  quo  warranto.  State, 
ex  rel.^  v.  Bailey,  16  Ind.  46. 

The  case  before  us  is  an  information  by  the  state  challenging  the 
right  of  certain  individuals  to  act  as  a  corporation,  and  asserting  that 
by  reason  of  the  colorable  character  of  the  subscriptions  they  never 
became  an  incorporation.  It  is  therefore  a  direct  inquiry  on  behalf 
of  the  state,  calling  upon  the  individuals  named  to  show  by  what 
authority  they  assume  to  act  as  a  corporation. 

In  such  a  case,  while  it  may  be  sufficient,  'prima  facie,  to  show  the 
filing  of  articles  of  association  and  a  subscription  of  the  minium  amount 
of  stock  required  by  law,  we  do  not  think  such  showing  is  conclusive 
upon  the  state.  It  is  true  the  statute  does  not  in  terms  prescribe  that 
the  subscriptions  must  have  been  made  in  good  faith,  or  that  the  sub- 
scribers must  have  been  at  the  tim^e  of  making  their  subscriptions 
solvent,  and  apparently  able  to  pay. 

But  it  must  be  implied  that,  at  least  between  the  state  and  the 
persons  to  whom  the  privilege  of  erecting  themselves  into  a  corpora- 
tion is  granted,  good  faith  and  fair  dealing  should  be  observed. 

Merely  simulated  subscriptions,  made  by  persons  who  are  neither 
actually  nor  apparently  able  to  pay  the  amount  subscribed,  can  not 
answer  the  purpose  of  the  statute.  Such  subscriptions  are  shams,  and 
are  to  be  denounced  as  a  fraud  upon  the  law.  They  are  an  attempt 
to  acquire  corporate  functions,  not  by  a  compliance  with  the  law.  but 
by  a  disingenuous  evasion  of  it.  Jersey  City  Gas  Co.  v.  Dwight,  29 
N.  J.  Eq.  242. 

Such  subscriptions  must  stand  upon  the  same  basis,  and  be  deter- 
mined upon  the  same  considerations  that  govern  any  other  business 
transaction. 

It  can  not  be  doubted  that  a  person  may  in  good  faith  become  a 
subscriber  to  the  stock  of  a  corporation,  as  he  may  become  the  pur- 
chaser of  goods,  for  a  sum  lai'ger  than  he  is  then  able  to  pay,  and 
more  than  he  is  at  the  time  actually  worth  in  property.  But  such  a 
subscriber  must  have  subscribed  in  good  .faith,  with  a  reasonable  ex- 
pectation and  apparent  prospect  of  being  able  to  pay  assessments  on 
his  stock  as  they  might  thereafter  be  called  for. 

Where,  however,  a  subscriber  is  both  insolvent  and  has  no  prospect 
or  expectation  of  being  able  to  pay,  and  such  subscription  is  taken 
with  knowledge,  it  can  not  be  counted  in  making  up  the  minimum 
required  by  statute. 

When  the  articles  of  association  were  tendered  with  a  subscription 
of  $50,000  to  the  capital  stock  by  fifteen  persons,  it  was  a  represent- 


§   152  CONDITIONS   OF   DE   JURE   EXISTENCE.  593 

ation  that  that  amount  was  pledged  and  available  as  necessity  might 
require.  Upon  the  faith  of  that  representation  the  state  authorized 
the  persons  making  it  to  assume  the  functions  and  franchises  of  a  cor- 
poration. 

On  the  same  principle  that  one  individual  may  reclaim  his  prop- 
erty which  has  been  sold  to  another,  who  is  insolvent,  and  who  had 
at  the  time  no  intention  to  pay,  or  prospect  of  being  able  to  pay  for 
it,  the  state  may  reclaim  the  privilege  granted  by  it  under  like  circum- 
stances. 

Standing  by  until  important  interests  were  acquired  by  the  corpora- 
tion might  estop  the  state,  or  lapse  of  time  might  cure  the  defect  in 
the  organization.  State,  ex  rel.^  v.  Gordon,  87  Ind.  171.  Nothing 
of  that  kind  is  either  pleaded  or  proved  in  this  case. 

It  is  abundantly  established  by  the  evidence  that  most  of  the  sub- 
scribers to  the  stock  had  not  only  neither  the  ability,  actual  or  appar- 
ent, at  the  time  they  subscribed,  to  pay  any  calls ;  but  it  appears 
further  that  they  had  no  purpose  or  expectation  that  they  would  be 
called  upon  to  pay,  or  that  they  could  pay  anything  if  called  upon. 

As  a  condition  to  its  assent  to  the  grant  of  corporate  powers  to  a 
railway  company,  the  state  requires  that  an  available  capital  of  at 
least  $50,000  shall  be  provided  as  a  security  for  persons  with  whom 
the  corporation  proposes  to  transact  business,  and  as  a  guaranty  that 
it  will  prosecute  the  proposed  work.  If  obtaining  merely  feigned  sub- 
scriptions puts  it  beyond  the  power  of  the  state  to  withdraw  its  assent, 
then  it  is  within  the  power  of  designing  persons  to  obtain  the  franchise 
of  a  corporation  by  a  merely  pretended  compliance  with  the  law,  and 
by  that  means  exclude  others  who  might  execute  a  beneficial  public 
improvement,  while  the  existing  corporation  is  wholly  unable  to  do 
anything  except  to  harass  those  who  may  be  induced  to  deal  vvith  it. 

We  think  the  evidence  sufficiently  shows  that  the  defendants  held 
themselves  out  as  a  corporation. 

The  judgment  is  affirmed,  with  costs. 

ZoLLARS,  J.,  did  not  participate  in  the  decision  of  this  case. 

Filed  March  12,  i< 


Note.  See,  1863,  Paterson  v.  Arnold,  45  Pa.  St.  410;  1878,  Jersey  City  Gas 
Co.  V.  Dwight,  29  N.  J.  Eq.  242;  1888,  Williams  v.  Evans,  87  Ala.  726;  1892, 
State  v.  Webb,  97  Ala.  Ill,  38  Am.  St.  Rep.  151.  But  see,  1898,  Bristol  Bank  & 
T.  Co.  v.  Jonesboro  B.  &  T.  Co.,  101  Tenn.  545,  9  Am.  &  Eng.  Corp.  Cas, 
(N.  S.)  790.  See,  also,  Clark,  pp.  86-94;  Elliott,  §§  38-44;  Thompson,  §§  226, 
227. 

38— WiL.  Casks. 


594  MONTGOMERY   V,    FORBES.'  §153 

Sec.  153.   Same.      (2)  Express. 

(«)    A  certain  number  of  incorporators. 

MONTGOMERY  and  Another  v.  FORBES. 

1889.     In  the  Supreme  Judicial  Court  of  Massachusetts.     148 
Mass.  Rep.  249-253,    19  N.  E,  Rep.  342. 

Contract  to  recover  the  price  of  goods  sold  and  delivered. 

At  the  trial  in  the  superior  court,  before  Dewey,  J.,  the  only  ques- 
tion wras  w^hether  the  goods  were  sold  to  a  corporation  called  the 
Forbes  Woolen  Mills,  or  to  the  defendant  doing  business  under  that 
name.  The  plaintiffs  introduced  evidence  tending  to  show  that  sub- 
sequently to  May,  1885,  they  received  an  order  for  the  goods  by  a 
letter,  written  upon  paper  with  the  printed  heading,  "Incorporated 
1885.  Forbes  Woolen  Mills.  George  E.  Forbes,  Treasurer," 
signed  "Forbes  Woolen  Mills,  by  George  E.  Forbes,  Treasurer;" 
that  they  thereupon  shipped  the  goods  to  the  Forbes  Woolen  Mills 
and  received  in  payment  thereof  three  promissory  notes,  together 
equal  to  the  price  of  the  goods,  signed  "Forbes  Woolen  Mills,  by 
George  E.  Forbes,  Treasurer;"  that  when  they  sold  the  goods  and 
took  the  notes,  they  understood  from  their  correspondence  with  the 
defendant,  as  well  as  from  information  gained  from  a  commercial 
agency,  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 
that  there  was  no  such  a  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 
corporation,  and  testified  that  he  purchased  the  goods  as  treasurer  of 
the  Forbes  Woolen  Mills,  but  admitted  that  they  had  not  been  paid 
for  except  by  the  notes,  which  themselves  had  not  been  paid ;  that  in 
May,  1885,  for  the  purpose  of  limiting  his  personal  responsibility, 
and  because  the  tax  laws  of  New  Hampshire  were  more  favorable  to 
corporations  than  the  Massachusetts  laws,  he  went  to  Nashua,  N.  H., 
to  form  a  corporation  for  the  manufacture  of  woolen  goods ;  that  he 
employed  an  attorney  at  law  of  Nashua  to  incorporate  the  company 
in  a  legal  and  proper  manner,  under  the  laws  of  the  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  May  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  May  13,  1885,  and   recited  that  the  subscribers  associated  them- 


§  153  CONDITIONS   OF   DE  JURE   EXISTENCE,  595 

selves  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  woolen  and  other  goods,  and  the  places  of  business  were  Nashua, 
in  New  Hampshire,  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 
corporation,  and  such  other  officers  and  directors  were  elected 
as  were  necessary  under  the  laws  of  New  Hampshire ;  that  the  attor- 
ney had  been  recommended  to  him  as  a  reputable  and  reliable  man 
and  attorney,  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  all  the  stock  w^is  issued  to  the  defendant,  and  that  no  other  per- 
son was  interested  in  it ;  that  fifty  per  cent,  of  the  capital  stock  of  the 
corporation  was  actually  paid  in  by  him  in  cash  and  supplies;  that 
after  the  organization  of  the  corporation  he  hired,  as  treasurer  of  the 
corporation,  a  mill  in  East  Brookfield  belonging  to  his  mother,  Rox- 
anna  Forbes,  and  himself,  and  began  the  manufacture  of  woolen  goods ; 
that  he  purchased  the  necessary  supplies,  including  those  named  in 
the  plaintiff's  account,  and  placed  them  under  the  direction  of  a 
superintendent,  employed  to  supervise  the  manufacture  of  the  goods ; 
that  there  was  no  manufacturing  done  in  Nashua,  nor  any  other  business 
except  the  holding  of  corporate  meetings,  and  possibly  the  sale  now 
and  then  of  a  bill  of  goods  in  the  ordinary  course  of  business ;  and 
that  the  principal  place  of  business  of  the  corporation  was  in  East 
Brookfield ;  that  he,  as  president  and  treasurer  of  the  corporation, 
continued  to  manufacture  woolen  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: 

"Section  i.  Any  five  or  more  persons  of  lawful  age  may,  by  written 
articles  of  agreement,  associate  themselves  together  for  agricultural, 
educational  or  charitable  purposes,  or  for  carrying  on  any  lawful  busi- 
ness, except  banking  and  the  construction  and  maintenance  of  a  rail- 
road ;  and  when  such  articles  have  been  executed  and  recorded  in  the 
ofTice  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  corpora- 
tion, and  such  corporation,  its  officers  and  stockholders,  shall  have  all 
the  rights  and  powers  and  be  subject  to  all  the  duties  and  liabilities 
of  similar  corporations,  their  officers  and  stockholders,  except  so  far 
as  the  same  are  limited  or  enlarged  by  this  chapter. 

"Sec.  2.    The  object  for  which  the  corporation  is  established,  the 


596  MONTGOMERY   V.    FORBES.  §   153 

place  in  which  its  business  is  to  be  carried  on,  and  the  amount  of  cap- 
ital 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  ques- 
tions to  the  jury:  "i.  Did  the  Forbes  Woolen  Mills  and  the  mem- 
bers of  the  said  alleged  corporation,  including  said  Forbes,  at  the  time 
of  its  attempted  organization,  intend  to  carry  on  its  business  as  a 
manufacturing  corporation  (other  than  holding  meetings  of  its  mem- 
bers and  officers)  in  whole  or  in  part,  in  the  city  of  Nashua,  N.  H.  ? 
2.  Was  there  any  attempt  in  good  faith  on  the  part  of  the  defendant^ 
Forbes,  to  organize  the  corporation  of  the  Forbes  Woolen  Mills? 
3d.  Did  said  Forbes  at  and  prior  to  the  time  the  goods  in  controversy 
were  ordered,  namely,  at  all  times  after  May  12,  1885,  during  his 
dealings  with  the  plaintiff,  believe  that  the  organization  of  said  Forbes 
Woolen  Mills  was  a  valid  corporation?" 

The  jury  answered  the  first  two  questions  in  the  negative  and  the 
third  in  the  affirmative. 

The  judge,  being  of  the  opinion  that,  upon  the  findings  of  the  jury 
and  the  uncontradicted  evidence  in  the  case,  the  plaintiffs  were  en- 
titled to  recover,  directed  the  jury  to  return  a  verdict  for  the  plaintiffs, 
and  reported  the  case  for  the  determination  of  this  court. 

C.  Allen,  J.  The  apparent  corporation  was  not  a  corporation. 
The  statute  of  New  Hampshire  requires  Jive  associates ^  and  the 
articles  of  agreement  must  be  recorded  in  the  town  in  ivhich  the  prin- 
cipal business  is  to  be  carried  on,  and  the  place  in  which  the  business 
is  to  be  carried  on  must  be  distinctly  stated  in  the  articles ;  otherwise 
there  is  no  corporation.  The  defendant' s  pretended  associates  were 
associates  only  in  na?ne ;  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  into  himself  as  treasurer  only 
50  per  cent,  of  the  amount  thereof.  This  is  not  a  case  where  there 
has  been  a  defective  organization  of  a  corporation  which  has  a  legal 
existence  under  a  valid  charter.  Here  there  was  no  corporation.  It 
was  just  the  same  as  if  the  defendant  had  done  nothing  at  all  in  the 
way  of  establishing  a  corporation,  but  had  conducted  his  business 
under  the  name  of  the  Forbes  Woolen  Mills,  calling  it  a  corporation. 
The  business  was  his  personal  business,  which  he  transacted  under 
that  name.  Fuller  v.  Hooper,  3  Gray  334,  341.  Bryant  v.  Eastman, 
7  Cush.  III. 

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 


§   154  CONDITIONS    OF   DE   JURE   EXISTENCE.  597 

State  of  things,  the  defendant  bought  goods  of  the  plaintiffs  for  his 
own  sole  benefit,  adopting  the  name  of  the  apparent  corporation, 
which  had  no  real  existence,  and  which  represented  nobody  but  him- 
self. He  can  not  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  repudiated  the  transaction,  and  maintained  replevin,  if 
they  had  learned  the  facts  in  time.  They  may  also  treat  the  transac- 
tion as  a  sale  to  the  defendant  personally.  Fay  v.  Noble,  7  Cush. 
188,  194;  Kelner  v.  Baxter,  L.  R.  3  C.  P.  174,  183,  185;  2  Kent 
Com.  (13th  ed.)  630. 

Since  the  notes  represented  nothing,  the  plaintiffs  were  at  liberty  to 
treat  them  as  void  and  recover  on  the  original  contract  for  goods  sold. 
Melledge  v.  Boston  Iron  Co.,  5  Cush.  158,  171. 

Verdict  to  stand. 


Sec.  154.    Same. 

(^)  Written  articles  of  agreement. 

UTLEY  v.  UNION  TOOL  COMPANY. 

1858.     In  the  Supreme  Judicial  Court  of  Massachusetts,     ii 
Gray's  (Mass.)  Rep.  139-142. 

Actions  of  contract  against  the  Union  Tool  Company,  described  in 
the  writs  as  "a  corporation  established  according  to  law,  in  Goshen," 
in  the  county  of  Hampshire.  The  principal  defendants  were  de- 
faulted, and  several  persons  were  summoned  in  as  stockholders,  pur- 
suant to  the  statute  of  1851,  ch.  315,  and  filed  answers,  upon  which 
trials  were  had  in  the  court  of  common  pleas  in  Hampshire. 

The  plaintiffs  proposed  to  prove  by  the  records  of  the  Union  Tool 
Company  that  the  respondents  were  stockholders  therein.  The  re- 
spondents objected  to  the  admission  of  this  evidence  before  the  exist- 
ence of  the  corporation  had  been  shown,  and  unless  it  was  shown  that 
it  was  a  manufacturing  coi-poration  whose  stockholders  might  become 
liable  as  such  for  its  debts.  Morris,  J. ,  ruled  that  it  was  not  necessary  for 
the  plaintiffs  to  prove  the  existence  of  the  coi-poration,  that  being  ad- 
mitted by  the  default,  but  that  it  was  necessary  to  show  that  it  was  such  a 
corporation  that  its  stockholders  might  become  individually  liable,  and 
admitted  evidence  that  the  company  had  made  by-laws  and  done  other 
acts  as  a  corporation,  and  the  respondents  had  attended  meetings  as 
stockholders,  without  proof  that  the  company  had  ever  been  incorpo- 
rated by  the  legislature,  or  by  articles  of  association  in  writing,  setting 
forth  the  amount  of  the  capital  stock,  and  the  purpose  of  their  estab- 
lishment, as  required  by  the  statute  of  1851,  ch.  133,  §§  1-3.  Verdicts 
were  taken  for  the  plaintiffs,  and  the  respondents  alleged  exceptions. 
The  other  facts  sufficiently  appear  in  the  opinion. 


598  UTLEY   V.    UNION   TOOL   CO.  §   1 54 

These  cases  were  argued  at  Northampton  in  September,  1858,  and 
decided  at  Boston  in  April,  i860. 

BiGELOW,  J.  There  can  be  no  doubt  that  the  burden  of  proof  was 
on  the  plaintiffs,  to  show  the  legal  existence  of  a  corporation,  of 
which  the  persons  summoned  in  the  action  were  members,  and  for 
the  debts  of  which  they  were  personally  liable.  This  is  the  precise 
issue  which,  by  statute  1851,  ch.  315,  §  2,  it  was  intended  should  be 
open  to  a  stockholder  on  his  being  admitted  to  defend  the  action  as 
therein  provided.  It  is  to  be  made  to  appear  that  he  is  liable  in  the 
action;  otherwise,  he  is  entitled  to  judgment  in  his  favor  "upon  the 
issues  joined."  It  has  already  been  determined  that  under  this  pro- 
vision an  alleged  stockholder  can  not  be  allowed  to  make  a  general 
defense  to  an  action  against  a  corporation,  by  calling  in  question  the 
validity  of  the  debt  which  is  sought  to  be  recovered,  or  disputing  the 
amount  averred  to  be  due,  but  that  he  has  a  right  to  a  hearing  and 
adjudication  on  the  question  whether  he  is  a  member  of  a  corporation 
and  liable  as  such  for  its  debts.  Holyoke  Bank  v.  Goodman  Paper 
Mfg.  Co.,  9  Cush.  582.  It  is  obvious  that  the  trial  of  the  issue  which 
is  thus  opened  to  an  alleged  stockholder  necessarily  involves  the 
question  of  the  legal  existence  of  the  corporation,  for  the  debt  of 
which  he  is  sought  to  be  charged,  because  his  liability  depends  on  the 
nature  of  the  corporate  body  and  of  the  powers  and  duties  with  which 
it  was  clothed  by  law.  Until  these  are  shown,  it  can  not  be  known 
whether  the  stockholder  is  legally  chargeable  or  not.  Doubtless  there 
may  be  cases  where  the  existence  of  a  corporation,  and  the  character 
and  description  of  its  functions  and  privileges,  may  be  shown  by  pre- 
scription or  long  user.  In  such  case  a  charter  or  legislative  grant  of 
coi"porate  powers  may  be  presumed.  But  no  such  infei"ence  or  pre- 
sumption can  exist  in  the  present  cases,  nor  do  the  plaintiffs  attempt 
to  maintain  their  claims  to  charge  the  persons  summoned  on  any  such 
ground.  On  the  contrary,  the  whole  case  rests  on  the  allegation  that 
the  respondents  are  liable  as  stockholders  in  a  corporation  created  and 
established  under  the  recent  statute,  entitled  "an  act  relating  to  joint 
stock  companies."      Statue  1851,  ch.  133. 

But  it  seems  to  us  that  the  evidence  offered  at  the  trial  fails  to  show 
that  the  alleged  corporation  ever  had  any  legal  existence.  By  refer- 
ence to  the  first  section  of  the  statute,  it  will  be  found  that,  in  order 
to  establish  a  corporation  under  it,  it  is  necessary  that  not  less  than 
three  persons  should  enter  into  "articles  of  agreement  in  writing," 
for  the  purpose  of  carrying  on  business  of  the  nature  specified  in  the 
statute.  By  these  articles  it  is  provided,  in  sections  2  and  3,  the 
amount  of  capital  stock  shall  be  fixed  and  limited,  and  the  purpose 
for  which  and  the  place  in  which  the  corporation  is  to  be  established 
shall  be  distinctly  and  definitely  set  forth.  By  section  4,  it  is  further 
provided  that,  before  commencing  business,  a  certificate  shall  be 
made  of  the  name,  purpose,  capital  stock  and  other  particulars  con- 
cerning the  constitution  and  objects  of  the  corporation,  to  be  published 
and  recorded  as  therein  required.  And  by  section  5  it  is  provided 
that,  "when   such   persons   are    organized   as  aforesaid" — that   is,  by 


§  154  CONDITIONS    OF   DE   JURE   EXISTENCE.  599 

articles  of  agreement  as  above  set  forth — "they  shall  become  a  cor- 
poration, with  all  the  powers  and  privileges  and  subject  to  all  duties, 
restrictions  and  liabilities  set  forth  in  the  thirty-eighth  and  forty-fourth 
chapters  of  the  Revised  Statutes."  There  can  be  no  doubt  of  the 
construction  which  ought  to  be  given  to  these  provisions.  The  im- 
plication is  clear  and  unavoidable  that^  until  the  organization  is 
completed  according  to  the  requireinents  of  the  statute^  the  associa- 
tion does  not  become  a  corporation^  and  does  not  possess  corporate 
rights  or  privileges .,  nor  is  it  subject  to  the  duties  and  liabilities  of 
a  manufacturing  corporation^  among  which  is  the  liability  of  the 
stockholders  for  the  corporate  debts,  if  certain  provisions  of  law  are 
not  cofn plied  with.  There  is  an  obvious  reason  for  making  such 
organization  by  written  articles  of  agreement  a  condition  precedent 
to  the  exercise  of  corporate  rights.  It  is  the  basis  on  which  all  sub- 
sequent proceedings  are  to  rest,  and  is  designed  to  take  the  place  of 
a  charter  or  act  of  incorporation,  by  which  corporate  privileges  are 
usually  granted.  If  there  were  no  such  requirement,  there  would  be 
an  absence  of  any  provisions  by  which  the  right  to  exercise  corporate 
power  could  be  defnitely  fixed  and  established,  and  there  would  be 
no  means  of  ascertaining  the  rights  of  stockholders  or  of  persons 
dealing  with  such  associations. 

Upon  an  examination  of  the  evidence  adduced  at  the  trial,  there  is 
nothing  to  show  that  any  articles  of  agreement  were  ever  entered  into 
for  the  formation  of  a  corporation  under  the  statute.  That  some  or- 
ganization took  place  with  a  view  to  establish  a  corporation  is  abun- 
dantly shown.  But  the  essential  fact  is  wanting  to  show  that  the 
persons  engaged  in  the  enterprise  ever  complied  with  the  condition 
precedent  to  their  right  to  assume  the  name  and  functions  of  a  corpora- 
tion. It  is  not  a  case  of  a  defective  organization  under  a  charter  or 
act  of  incorporation,  nor  of  erroneous  proceedings  after  the  necessary 
steps  were  taken  to  the  assumption  of  corporate  powers,  but  there 
is  an  absolute  want  of  proof  that  any  corporation  was  ever  called  into 
being  which  had  the  power  of  contracting  debts  or  of  rendering  per- 
sons liable  therefor  as  stockholders. 

We  are  not  called  on  now  to  say  whether  the  plaintiffs  have  any 
remedy  for  the  collection  of  their  debt  against  those  who  participated 
in  the  transactions  connected  with  the  attempted  organization  of  the 
supposed  corporation.  It  is  sufficient  for  the  decision  of  this  case 
that  the  respondents  can  not  be  held  liable  in  the  action  for  the  debts 
of  a  corporation  which  has  never  had  any  legal  existence. 

Exceptions  sustained. 


600        BUSENBACK   V.  ATTICA,  ETC.,  GRAVEL   ROAD   CO.         §   1 55 

Sec.  155.    Same. 

(^)  Names  and  residence  of  subscribers  to  stock. 

BUSENBACK  Et  Al.  v.  THE  ATTICA  AND  BETHEL  GRAVEL  ROAD 

COMPANY. 

1873.      In    the    Supreme    Court    of    Indiana.      43    Ind.    Rep. 

265-27 1 . 

From  the  Fountain  common  pleas. 

BusKiRK,  J.  This  was  an  action  by  the  appellants  to  enjoin  the 
collection  of  certain  assessments  made  for  the  construction  of  the  At- 
tica and  Bethel  Turnpike  Company,  upon  the  ground  that  the  said 
company  had  never  been  legally  organized. 

The  single  question  presented  by  the  record  in  this  case  is  whether 
it  is  essential  to  the  legal  existence  of  a  corporation  organized  under 
the  act  of  May  12,  1852,  "authorizing  the  construction  of  a  plank, 
macadamized  and  gravel  roads,"  that  its  articles  of  association  shall 
set  forth  the  residence  of  each  and  every  subscriber  thereto. 

The  first  section  of  said  act,  as  amended  by  the  act  of  1859,  reads 
as  follows : 

'•'•Be  it  enacted  by  the  general  assembly  of  the  state  of  Indiana^ 
That  any  number  of  persons  may  form  themselves  into  a  corporation 
for  the  purpose  of  constructing  or  owning  a  plank,  macadamized, 
gravel,  clay  and  dirt  roads,  by  complying  with  the  following  require- 
ments: They  shall  unite  in  articles  of  association,  setting  forth  the 
name  which  they  assume,  the  line  of  the  route,  and  the  place  to  and 
from  which  it  is  proposed  to  construct  the  road,  the  amount  of  capital 
stock,  and  the  number  of  shares  into  which  it  is  divided,  the  names 
and  places  of  residence  of  the  subscribers,  and  the  amount  of  stock 
taken  by  each  shall  be  subscribed  to  said  articles  of  association. 
Whenever  the  stock  subscribed  amounts  to  the  sum  of  $500  per  mile 
of  the  proposed  road,  copies  of  the  articles  of  association  shall  be  filed 
in  the  office  of  the  recorder  of  each  county  through  which  the  road  is 
to  pass,  and  shall  from  that  time  be  a  corporation,  known  by  the  name 
assumed  in  (its)  articles  of  association."      i  G.  &  H.  474. 

In  the  present  case,  every  requirement  of  the  above  section  was 
fully  complied  with,  except  setting  forth  "the  places  of  residence  of 
the  subscribers."  There  were  twenty-seven  subscribers  to  the  articles 
of  association,  and  the  places  of  the  residence  of  only  two  of  them 
are  set  forth. 

It  is  insisted  by  counsel  for  appellants  that  setting  forth  the  places 
of  residence  of  the  subscribers  is  imperatively  required  by  the  statute, 
and  is  absolutely  essential  to  the  legal  existence  of  the  corporation, 
and  that  if  one  of  the  requirements  of  the  statute  may  be  dispensed 
with,  all  may  be ;  that  it  has  not  been  left  to  constraction,  but  that  the 
legislature  has  prescribed  the  terms  and  conditions,  upon  a  compliance 
with  which  a  corporation  may  be  organized,  as  is  shown  by  the  use  of 


■§155  CONDITIONS    OF    DE   JURE    EXISTENCE.  60I 

the  following  words:  "By  complying  with  the  following  require- 
ments." 

On  the  other  hand,  it  is  argued  that  the  failure  to  affix  to  the  names 
of  the  subsci-ibers  their  places  of  residence,  is  a  mere  formal  defect  of 
a  very  technical  character.  It  does  not  go  to  the  existence  or  consti- 
tution of  the  corporation.  It  goes  only  to  the  description  of  the  per- 
sons who  compose  it.  When  their  names  are  given,  the  subscribers 
are  sufficiently  identified,  and  the  statute  is  substantially  complied 
with. 

It  is  further  contended  by  counsel  for  appellee,  that  while  a  strict 
construction  will  be  adopted  as  to  questions  relating  to  the  power  of 
dealing  in  a  corporate  capacity,  a  liberal  construction  will  be  adopted 
as  to  questions  relating  to  the  mere  manner  of  getting  into  operation 
or  acquiring  a  corporate  existence. 

Counsel  for  appellee  refer  to  and  rely  upon  the  case  of  Eakright  v. 
The  Logansport,  etc.,  R.  Co.,  13  Ind.  404,  as  establishing  the  prop- 
osition that  the  requirement  to  state  the  place  of  the  residence  of  the 
subscribers  is  only  directory. 

The  question  in  that  case  was,  whether  the  setting  forth,  in  the  ar- 
ticles of  association,  of  the  names  of  the  directors  was  essential  to  the 
legal  existence  of  the  corporation.  The  court  say:  "Here  the  di- 
rectors are  not  named  in  the  articles  of  association ;  but  it  appears  that 
they  were  elected  at  a  meeting  of  the  subscribers  after  the  stock  was 
subscribed  and  the  articles  were  constiucted ;  and  further,  at  the  same 
meeting  at  which  they  were  elected,  the  same  articles  of  association 
were  expressly  adopted  by  the  subscribers.  Indeed,  all  the  require- 
ments of  the  statute  have,  in  this  instance,  been  literally  pursued, 
save  that  of  naming  the  directors  in  the  articles  of  association,  and 
that,  it  seems  to  us,  has,  in  effect,  been  done  by  the  adoption  of  the 
articles  when  the  directors  were  elected." 

The  court  held  that  there  had  been  a  substantial  compliance  with 
the  requirements  of  the  statute,  as  the  names  of  the  directors  had  been, 
in  substance  and  effect,  set  forth.  But  the  court,  after  having  de- 
cided the  real  question  involved,  proceeded  to  express  an  opinion  upon 
a  point  that  did  not  arise  in  the  record,  as  the  statute  had  been  in 
effect  complied  with.  The  court  say:  "At  all  events,  the  require- 
ments that  they  be  named  in  the  articles  maybe  held  merely  direc- 
tory, and  not,  in  view  of  the  facts  stated  in  the  complaint,  essential  to 
the  validity  of  the  corporation."  The  facts  referred  to  as  having 
been  stated  in  the  complaint,  were  those  showing  that  the  names  of 
the  directors  had,  in  effect,  been  given.  In  our  opinion,  that  portion 
of  the  above  decision  which  held  the  requirements  merely  directory  is 
not  entitled  to  much  weight  or  consideration,  because  the  point  was 
really  not  before  the  court,  and  the  statement  is  made  with  a  qualifi- 
cation that  greatly  weakens  its  force. 

The  cases  of  Piper  v.  Rhodes,  30  Ind.  309,  and  Rhodes  v.  Piper, 
40  Ind.  369,  are  much  in  point.  In  such  cases  we  held  that  the  re- 
quirements of  the  above  section  of  the  statute  were  not  merely  direc- 
tory, but  were  imperative,  and  should  be  substantially  complied  with. 


602        BUSENBACK   V.  ATTICA,  ETC.,  GRAVEL   ROAD   CO.         §   155 

The  omission  was  the  failure  to  set  forth  in  the  articles  of  the  associa- 
tion the  name  of  such  association.  The  one  requirement  is,  under 
the  statute,  as  imperative  and  essential  as  the  other. 

The  case  of  The  State,  ex  rel.  O'Brien,  v.  The  Bethlehem,  etc.,  G. 
R.  Co.,  32  Ind.  357,  involved  a  construction  of  the  above  quoted 
section  of  the  statute.  It  is  plainly  inferrible,  from  the  language  used 
by  the  court,  that  it  was  intended  to  hold  that  there  must  be  a  sub- 
stantial compliance  with  all  the  requirements  of  the  statute.  The 
court  say:  "The  information  is  unskillfully  drawn,  is  uncertain  in 
many  of  its  averments,  and  contains  much  useless  matter;  but  we 
think  that  the  matters  alleged  in  the  first  specification  are  suflficient,  if 
true,  which  the  demurrer  admits,  to  show  that  the  association  has 
failed  to  comply  with  several  of  the  requirements  of  the  statute  which 
are  essential  to  a  legal  organization  as  a  corporation." 

The  omissions  complained  of  were  as  follows:  "The  first  charge 
alleges  that  the  pretended  articles  of  association  did  not  set  forth  the 
name  assumed  by  the  company;  that  the  articles  of  association  do 
not  contain  an  intelligent  description  of  the  line  of  the  route  and  the 
place  from  and  to  which  it  is  proposed  to  construct  the  road ;  nor 
does  it  contain  the  amount  of  the  capital  stock  of  the  company  or 
the  number  of  shares  into  which  it  is  divided,  or  the  names  and  places 
of  residence  of  the  subscribers  and  the  amount  of  stock  subscribed 
by  each." 

The  precise  question  involved  in  the  case  under  consideration  was 
involved  in  the  above  case,  and  the  court  held  that  it  was  essential  to 
the  legal  organization  of  the  corporation  that  the  names  and  places  of 
the  residence  of  the  subscribers  must  be  set  forth  in  the  articles  of  the 
association.  Such  is  the  plain  requirement  of  the  statute.  The  re- 
quirements  enumerated  in  the  Jirst  section  of  the  act  are  plainly  and 
distinctly  set  forth^  and  it  is  expressly  declared  in  such  section  that 
a  corporation  may  be  organized  by  complying  with  the  requirements 
therein  specified.  We  are  now  asked  to  hold  that  the  corporation 
was  legally  organized  by  complying  with  a  part  of  such  requirenients. 
The  legislature  has  made  no  discrimination  between  the  requirements 
by  making  some  of  them  directory  and  others  imperative^  and  we 
possess  no  power  to  do  so.  The  legislature  had  declared.,  in  plain 
and  unatnbiguous  language.,  that  '•'•the  names  and  places  of  residence 
of  the  stockholders'^  shall  be  set  forth  in  the  articles  of  association., 
and  the  efi^ect  of  the  failure  to  make  such  allegation  is  not  left  to 
construction.,  but  it  is  made  a  condition  precedent  to  the  legal  organ- 
ization of  the  corporation. 

In  Garrigus  v.  The  Board  of  Commissioners  of  Parke  County,  39 
Ind.  (i6.i  we  laid  down  certain  rules  of  construction  as  applicable  to 
corporations,  to  which  we  adhere. 

The  learned  counsel  for  appellee  have  pressed  upon  our  considera- 
tion the  inconvenience  and  loss  which  would  result  from  our  holding 
the  organization  of  the  corporation  incomplete,  by  reason  of  the  fail- 
ure to  set  forth  in  the  articles  of  association  the  places  of  residence  of 
the  stockholders.     There  is  no  hardship  or  injustice  in  requiring  those 


§   156  CONDITIONS   OF   DE   JURE   EXISTENCE.  603 

who  seek  to  be  clothed  with  the  power  of  imposing  taxes  upon  the 
property  and  burdens  upon  the  shoulders  of  others  to  comply  with 
the  plain,  unambiguous  and  undoubted  requirements  of  the  statute 
which  confers  the  power.  The  legislature  has  prescribed  the  conditions 
upon  which  these  corporate  and  extraordinary  powers  may  be  exercised, 
and  it  is  but  reasonable  and  just  that  those  who  accept  the  benefits  con- 
ferred should  comply  with  the  conditions  imposed.  If  loss  and  incon- 
venience result,  it  may  have  a  tendency  to  induce  persons  getting  up 
such  organizations  to  secure  the  services  of  persons  possessed  of  sufficient 
knowledge  a7id  skill  to  perfect  an  association  in  conformity  with  the  law, 
and  thus  relieve  corporations  from  expensive  litigation  and  the  courts 
from  being  crowded  with  unnecessary  suits.  The  gravel  road  and  ditch- 
ing associations  have  been  a  fruitful  source  of  vexatious  and  expensive 
litigation,  the  most  of  which  could  have  been  prevented  by  the  exer- 
cise of  care  and  skill.  The  disastrous  consequences  of  the  want  of 
care,  skill  and  prudence  should  teach  wisdom  to  those  engaged  in 
organizing  and  managing  such  associations. 

In  the  case  in  judgment  the  capital  stock  was  $12,000.  The  two 
stockholders  whose  places  of  residence  are  given  subscribed  for  $1,500 
of  stock,  a  sum  wholly  insufficient  to  authorize  the  organization  of  the 
corporation.  In  legal  effect,  the  case,  therefore,  stands  as  though 
none  of  the  places  of  residence  of  the  stockholders  were  set  forth. 

In  our  opinion,  the  court  below  erred  in  sustaining  the  demurrer  to 
the  complaint. 

The  judgment  is  reversed,  with  costs,  and  the  cause  is  remanded, 
with  directions  to  the  court  below  to  overrule  the  demurrer  to  the 
complaint,  and  for  further  proceedings  in  accordance  with  this  opinion. 

Note.  Necessary  to  state  names  and  residences  of  directors.  1875,  Reed  v. 
Richmond  Street  R.  Co.,  50  Ind.  342. 


Sec.  156.    Same. 

(dT)  Place  of  business. 

HARRIS  AND  STICKLE  v.  McGREGOR.* 

1865.     In  the  Supreme  Court   of  California.     29  Cal.  Rep. 

124-128. 

Appeal  from  the  district  court.  Eleventh  district,  Calaveras  county. 

This  was  action  to  recover  the  sum  of  $600  damages  for  the  diver- 
sion by  the  defendant  of  waters  of  the  middle  fork  of  the  Mokelumne 
river,  in  Calaveras  county,  away  from  the  ditch  or  canal  known  as 
Sandy  Gulch  or  Harris'  Ditch,  and  for  an  injunction  to  prevent  further 
diversion  during  the  pendency  of  the  action,  and  for  a  perpetual  in- 
junction upon  final  hearing. 

'  Arguments  orbltted.   Only  part  of  opinion  relating  to  the  one  point  given. 


604  HARRIS    V.    M'GREGOR.  §   1 56 

By  the  court,  Sanderson",  C.  J.  We  pass  the  question  as  to  the  right 
of  the  defendant  to  prove  the  title  to  the  Sandy  Gulch  or  Harris'  Ditch 
to  be  outstanding  in  the  Bunker  Hill  Canal  and  Mining  Company,  al- 
leged by  the  defendant  to  be  a  corporation,  for  the  reason  that  in  our 
judgment  the  evidence  fails  to  establish  the  existence  of  any  such  corpo- 
ration. The  certificate  offered  in  evidence,  for  the  purpose  of  prov- 
ing the  existence  of  such  a  corporation,  fails  to  comply  with  the  provis- 
ions of  the  act  under  which  the  alleged  corporation  was  attempted  to 
be  formed,  in  an  essential  particular  rendering  it  null  and  void.  That 
act  prescribes  with  particularity  the  terms  and  conditions  upon  which 
persons  seeking  its  benefits,  and  their  successors,  may  become  a  body 
politic  and  corporate,  and  there  must  be  at  least  a"  substantial  com- 
pliance with  each  and  all  of  those  conditions  before  the  corporation 
can  be  considered  in  esse.  (Mokelumne  Hill  Mining  Company  v. 
Woodbury,  14  Cal.  424.) 

Essentials  of  a  certificate  of  incorporation. 

By  express  terms  of  the  statute  the  certificate  of  incorporation  must 
state  the  following  particulars : 

I.  The  corporate  name.  2.  The  objects  for  which  the  corpora- 
tion is  formed.  3.  The  amount  of  its  capital  stock.  4.  The  term 
of  existence  not  to  exceed  fifty  years.  5.  The  number  of  shares  into 
which  the  stock  is  divided.  6.  The  number  of  trustees  and  the  names 
of  those  who  are  to  manage  the  affairs  of  the  corporation  for  the  first 
three  months.  7.  The  names  of  the  city  or  town  and  county  in 
which  the  principal  place  of  business  is  to  be  located.  With  the  last 
of  the  foregoing  provisions  of  the  statute,  the  certificate  in  question 
fails  to  show  a  substantial  compliance.  All  that  is  stated  in  the  cer- 
tificate in  that  respect  is  as  follows:  "The  operations  of  the  com- 
pany are  to  be  carried  on  in  the  county  of  Calaveras,  state  of  Cali- 
fornia." This  language  in  no  sense,  either  expressly  or  by  implica- 
tion, can  be  held  to  designate  the  principal  place  of  business  of  the 
corporation.  It  simply  designates  the  county  and  state  where  the 
"operations  of  the  company  are  to  be  carried  on."  But  the  "opera- 
tions" of  a  corporation  may  be  carried  on  in  one  county  and  their 
principal  place  of  business,  within  the  meaning  of  the  statute,  be  in 
another  and  distant  county ;  or  the  former  may  be  in  one  state  and 
the  latter  in  another.  But  could  we  understand  the  language  in  ques- 
tion as  fixing  the  principal  place  of  business  of  the  corporation  in 
Calaveras  county,  the  failure  to  comply  with  the  statute  would  only 
be  less  in  degree,  for  there  is  no  specification  of  the  "city"  or 
"town,"  which  is  no  less  essential  than  the  designation  of  the  county, 
for  it  is  so  expressly  provided.  The  "principal  place  of  business" 
contemplated  and  intended  by  the  statute  is  the  principal  office  of 
the  corporation  at  which  the  books  of  the  corporation  are  kept,  and 
its  officers  usually  and  ordinarily  meet  for  the  purpose  of  managing 
the  affairs  and  transacting  the  business  of  the  corporation,  and  the 
statute  requires  that  the  city  or  town,  as  the  case  may  be,  at  which 
such  office  is  to  be  located  shall  be  stated  in  the  certificate,  for  reasons 
which  are  obvious.     But  whether  for  reasons  or  not  is  immaterial, 


§  157  CONDITIONS   OF   DE  JURE   EXISTENCE.  60$ 

for  the  same  will  which  alone  can  confer  corporate  privileges  can 
prescribe  the  conditions  of  the  grant,  and  it  is  sufficient  to  say  that 
such  and  such  are  the  conditions. 

In  view  of  the  judgment  of  nonsuit  the  order  dissolving  the  injunc- 
tion was  proper;  the  latter  followed  the  former  as  a  matter  of  course. 
Upon  the  return  of  the  case  to  the  court  below  the  plaintiff  will  be 
entitled  to  a  renewal  of  the  injunction  upon  a  proper  application.   ♦  ♦  * 

Judgment  reversed  and  cause  remanded  for  further  proceedings. 

See  Pacific  Bank  v.  DeRo,  37  Cal.  538,  on  542.  Also,  1893,  Finnegan  v.  Noer- 
enberg,  52  Minn.  239,  38  Am.  St.  552,  infra,  p.  614. 


Sec.  157.    Same. 

(g)  Purpose  of  incorporation. 

THE  ATTORNEY  GENERAL,  Ex  Rel.  MINOR,  v.  LORMAN  Et  Al.' 

1 886.     In   the   Supreme   Court   of  Michigan.     59  Mich.  Rep. 

157-165. 

Champlin,  J.  This  is  a  proceeding  by  information  in  the  nature 
of  a  quo  warranto  to  determine  the  rights  of  respondents  to  exercise 
the  franchises  of  a  corporation  organized  under  "an  act  to  authorize 
the  formation  of  corporations  for  mining,  smelting  or  manufacturing 
iron,  copper,  mineral,  coal,  silver,  or  other  ores  or  minerals,  and  for 
other  manufacturing  purposes,"  approved  February  5,  1853.    *    *    * 

It  appears  by  the  articles  of  association  set  up  in  the  plea  of  respond- 
ents that  the  respondents,  with  others,  are  associated  and  incorporated 
under  the  act  aforesaid,  as  declared  in  such  articles,  for  the  purpose 
of  putting  up,  packing  and  manufacturing  for  market,  Detroit  river  and 
lake  ice,  and  distributing  and  selling  the  same.  The  law  requires  the 
articles  of  association  to  state  distinctly  and  definitely  the  purpose  for 
which  the  same  is  formed.  If  it  does  not  state  a  purpose  for  which 
the  statute  authorized  a  corporation  to  be  formed,  it  would  not  be 
legally  incorporated,  and  its  articles  would  afford  no  warrant  for  the 
exercise  of  corporate  action.  If  it  does  state  such  a  purpose,  and  if 
the  other  requirements  of  the  law  are  complied  with,  it  is  a  legal  cor- 
poration, and  authorized  to  act  as  svich.  In  either  case  the  articles 
themselves  are  the  sole  criterion  to  ascertain  the  purpose  for, which  it 
was  formed,  and  the  intent  must  be  gathered  alone  from  the  written 
instrument,  and  can  not  be  aided  or  varied  or  contradicted  by  testi- 
mony or  averments  aliunde  the  instrument  itself.  The  question, 
therefore,  is,  is  the  purpose  set  forth  in  the  articles  such  as  the  statute 
authorizes  the  formation  of  corporations  to  carry  on }  We  think  it 
is.  Its  expressed  purpose  is  to  manufacture  for  market  Detroit  river 
and  lake  ice.  It  was  not  necessary  for  the  articles  to  state  the  means 
or  methods  of  manufacture,  nor  are  we  to  presume  that  the  undertak- 
ing would  be  impossible  of  accomplishment.      «     •     • 

Arguments  omitted.     Only  part  of  opinion  given. 


6o6  AITORNEY   GENERAL   V.    LORMAN.  §   1 57 

The  replication  (of  the  attorney-general)  sets  forth  the  manner  in 
which  the  Belle  Isle  Ice  Company  conducts  its  business,  as  follows: 

"Said  company  owns  and  leases  various  river  and  lake  fronts  upon 
the  Detroit  river  and  Lake  St.  Clair  during  the  winter  months.  When 
the  ice  is  formed  by  a  natural  process,  without  the  aid  of  any  artificial 
means  whatsoever,  and  of  a  thickness  sufficient  for  use,  it  is  cut  pre- 
cisely as  it  is  formed  by  the  natural  process  of  freezing  on  said  lake  or 
river,  and  stored  in  ice-houses  owned  by  the  company.  The  manner 
of  cutting  said  ice  is,  and  has  been,  as  follows:  Any  snow  which 
may  have  fallen  upon  the  ice  is  scraped  and  shoveled  off  by  means 
of  scrapers  drawn  by  horses,  and  by  hand  shovels  used  by  men.  The 
ice  is  then  marked  off  into  squares  of  twenty-two  inches  in  width,  a 
hand-marker  being  first  used  to  layout  the  lines,  after  which  a  marker 
drawn  by  horses  is  used,  which  cuts  lines  from  two  to  four  inches  in 
depth  into  the  ice.  Ice-plows,  also  drawn  by  horses,  follow  in  these 
lines,  cutting  the  ice  to  a  depth  of  from  six  to  fourteen  inches,  and  the 
remaining  thickness  of  ice  is  sawed  through  by  means  of  long  saws 
operated  by  hand,  or  is  broken  off  by  breaking  bars,  and  separated 
from  the  solid  mass  of  ice.  The  ice  thus  cut  is  floated  to  the  foot  of 
inclined  slides  or  elevators  leading  to  the  ice-houses  where  it  is  to  be 
stored,  and  is  hoisted  up  by  tackle  operated  by  steam  or  horse-power, 
and  conducted  to  the  ice-houses,  where  it  is  packed  in  layers,  and 
covered  with  some  non-conducting  material,  such  as  marsh  hay  or 
sawdust.  As  the  ice  is  required  for  use,  it  is  transported  to  large  ice- 
barges  built  for  the  purpose,  and  capable  of  holding  lOO  tons  of  ice, 
each  taken  to  proper  distributing  points  in  the  city  of  Detroit,  where 
the  ice  is  cut  into  smaller  pieces  suitable  for  consumption,  and  placed 
in  covered  wagons  and  delivered  to  customers.  In  the  course  of 
the  business,  as  conducted  by  said  Belle  Isle  Ice  Company,  a  large 
number  and  variety  of  tools  are  necessary  for  clearing,  marking,  saw- 
ing, chopping  and  handling  the  ice,  as  heretofore  fully  stated,  before 
it  is  in  proper  shape  to  be  delivered  to  customers,  and  also  ice-houses, 
ice-barges,  wagons  and  other  implements,  and  a  large  force  of  men." 

Worcester  defines  "manufacturing"  as  follows: 

"(i)  The  process  of  making  anything  by  art,  or  of  reducing  ma- 
terials into  form  fit  for  use  by  hand  or  by  machinery;  as  an  'estab- 
lishment for  the  manufacture  of  cloth.' 

"(2)  Anything  made  or  manufactured  by  hand,  or  manual  dexterity, 
or  by  machinery." 

The  same  word,  as  a  verb,  he  defines: 

"(i)  To  form  by  manufacture,  or  workmanship,  by  the  hand  or  by 
machinery;  to  make  by  art  and  labor." 

The  process  described  in  the  replication  certainly  does  show  that 
the  ice  is  reduced  into  form  fit  for  use,  both  by  hand  and  by  the  use 
of  machinery,  and  the  answer  of  the  respondents  shows  that  this  is 
done  by  the  outlay  of  the  capital,  at  least  of  $50,000,  and  the  quantity 
thus  manufactured  annually  is  about  30,000  tons.  It  is  very  likely 
that  the  garnering  and  preparation  of  ice  fit  for  consumers  of  the 
article   falls  very  near  the   line.     True,  its  natural   condition   is  not 


§  158  CONDITIONS  OF  DE  JURE  EXISTENCE.  607 

changed.  The  article  itself  is  a  natural  product,  as  described  in  the 
replication.  It  is  ice  when  it  is  taken  from  the  river,  and  it  is  ice 
when  delivered  to  the  consumers.  The  form  alone  is  changed.  It  is 
reduced  in  size  and  delivered  in  quantities  to  suit  the  convenience  of 
the  patrons  of  the  company.  But  it  is  'not  necessary,  to  constitute 
the  commodity  a  manufactured  article,  that  a  chemical  change  should 
be  wrought  in  the  thing  manufactured.  Iron  manufactured  from  iron 
ore  remains  iron.  Cotton  gathered  from  the  boll,  and,  by  means  of 
complicated  machinery  manufactured,  becomes  the  cotton  of  com- 
merce. Lumber  is  manufactured  from  logs  or  timber  simply  by 
changing  its  form.  And  it  had  been  held  that  grinding  bones  to  pro- 
duce bone  dust  of  commerce  was  manufacturing,  within  the  meaning 
of  the  revenue  laws  of  the  United  States.  Schriefer  v.  Wood,  5 
Blatchf.  215.  So  it  was  held  by  the  supreme  court  of  the  United 
States  that  timber  split  into  staves,  or  into  long  pieces  designed  for 
shovel  handles,  was  "manufactured,"  and  not  covered  by  the  reci- 
procity treaty  of  1854.  United  States  v.  Hathaway,  4  Wall.  404, 
408.     *     •     * 

Demurrer  to  replication  sustained. 

Note.  What  are  or  are  not  manufacturing  corporations:  Water  companies  are 
not.  1868,  Dudley  v.  Jamaica  P.  Aqueduct,  100  Mass.  183.  Mining  compa- 
nies are  not.  1870,  Byers  v.  Franklin  Coal  Co.,  106  Mass.  131 ;  1892,  Horn 
Silver  Mining  Co.  v.  New  York,  143  U.  S.  305.  Gas  companies  are  not.  1880, 
Williams  v.  Rees,  2  Fed.  Rep.  882;  1886,  Covington  Gas  L.  Co.  v.  Covington, 
84  Ky.  94 ;  but  see,  contra,  1882,  Nassau  Gas  Light  Co.  v.  Brooklyn,  89  N.  Y.  409. 
Electric  light  and  power  companies  are  not.  1891,  Commonwealth  v.  Northern 
Elee.  L.  Co.,  145  Pa.  St.  105;  1891,  Commonwealth  v.  Edison  Elec.  L.  Co., 
145  Pa.  St.  131;  1898,  Evanston  Elec.  111.  Co.  v.  Kochersperger,  175  111.  26,  9 
Am.  &  E.  C.  C.  (N.  S.)  224;  but  contra,  1892,  People,  ex  rel.,  etc.,  v.  Wemple, 
129  N.  Y.  543,  664;  1892,  Beggs  v.  Edison  Elec.  I.  Co.,  96  Ala.  295. 

And  see,  generally,  as  to  what  is  manufacturing,  1885,  Engle  v.  Sohn,  41  Ohio 
St.  691,  52  Am.  Rep.  103  and  note. 

The  purposes  for  which  a  corporation  is  formed  are  to  be  determined  by  an  in- 
spection of  its  articles  of  association.  1896,  Detroit  Driving  Club  v.  Fitzgerald, 
109  Mich.  670,  4  Am.  &  E.  C.  C.  (N.  S.)  546,  67  N.  W.  899;  1898,  Evanston  E. 
I.  Co.  v.  Kochersperger,  175  111.  26,  and  extrinsic  evidence  as  to  the  unlawful 
intentions  of  the  promoters  will  not  be  received  to  defeat  an  action  by  such 
corporation  against  a  subscriber  upon  the  stock  subscription  contract.  1894, 
United  States  Vinegar  Co.  v.  Schlegel,  143  N.  Y.  537 ;  1895,  United  States  Vin- 
egar Co.  v.  Foehrenbach,  148  N.  Y.  58,  3  Am.  &  E.  C.  C.  (N.  S.)  164. 


Sec.  158.    Same. 

(  /)    Subscribing  and  acknowledging  articles  or  charter. 

KAISER  V.  LAWRENCE  SAVINGS  BANK  Ex  Al.» 

1881.     In  THE  Supreme  Court  OF  Iowa.     56  Iowa  Rep.  104-111. 

The  plaintiff,  in  April,  1877,  became  a  creditor  of  the  Lawrence 
Savings  Bank  by  reason  of  a  deposit  of  money  made  by  him  in  the 
bank,  which  bank  was  located  and  doing  business  in  the  city  of  Law- 
rence, Kan.     As  such  creditor  he  seeks  to  recover  of  the  defendant, 

'  Only  80  much  of  the  case  as  relates  to  the  one  point  is  given. 


6o8  KAISER   V.    LAWRENCE    SAVINGS    BANK.  §   1 58 

Hoag,  upon  the  ground  that  the  Lawrence  Savings  Bank  was  a  part- 
nership or  unincorporated  company,  and  that  Hoag  was  a  member  of 
it.  Hoag  does  not  deny  his  ownership,  but  denies  that  the  Lawrence 
Savings  Bank  was  an  unincorporated  company  or  partnership,  and 
avers  that  the  same  was  duly  incorporated  under  the  laws  of  Kansas, 
by  reason  whereof  he  was  exempt  from  personal  liability  for  the  debts 
of  the  bank.  There  was  a  trial  without  a  jury,  and  judgment  for  the 
plaintiff.      The  defendant  Hoag  appeals. 

Adams,  C.  J.  The  evidence  tends  to  show  that  certain  individuals 
attempted  in  good  faith  to  become  incorporated  under  the  laws  of 
Kansas  for  the  purpose  of  doing  business  as  a  savings  bank,  and  sub- 
scribed for  shares  in  the  supposed  corporation.  For  several  years 
they  did  business  as  a  savings  bank,  under  the  supposition  that  they 
were  duly  incorporated.  Prior  to  the  time  that  plaintiff  became  a 
creditor  of  the  bank,  the  defendant  Hoag  purchased  an  interest  in  the 

bank,  and  remained  the  owner  of  such  interest  from  that  time  forward. 

*     *     * 

The  general  incorporation  law  of  Kansas  constitutes  chapter  23  of 
the  statutes  of  Kansas.  Section  8  provides  that  "the  charter  of  an 
intended  corporation  must  be  subscribed  by  five  or  more  persons, 
three  of  whom,  at  least,  must  be  citizens  of  this  state,  and  must  be 
acknowledged  by  them  before  an  officer  duly  authorized  to  take  ac- 
knowledgment of  deeds."  Section  9  provides  that  "such  charter  shall 
thereupon  be  filed  in  the  office  of  the  secretary  of  state." 

A  certificate  of  the  secretary  of  state  of  the  state  of  Kansas  was  in- 
troduced in  evidence,  showing  what  papers,  and  what  only,  had  been 
filed  in  his  office  pertaining  to  the  incorporation  of  the  Lawrence  Sav- 
ings Bank.  The  certificate  shows  that  there  were  filed  in  his  office 
what  are  denominated  articles  of  association.  The  statute  requires 
that  a  charter  shall  be  filed.  We  are  inclined  to  think,  however,  that 
the  fact  that  the  paper  filed  is  denominated  articles  of  association,  in- 
stead of  a  charter,  is  not  sufficient  to  invalidate  it.  We  proceed,  then, 
to  inquire  whether  the  paper  complies  with  the  statute  in  other  re- 
spects, and  we  conclude  that  it  does  not.  The  statute  requires  that  it 
shall  be  subscribed  and  acknowledged  by  five  or  more  persons.  The 
paper  purporting  to  be  articles  of  association  is  so  informally  drawn 
and  executed  that  we  can  not  say  it  is  subscribed  by  any  one.  The 
paper  consists  of  eight  articles.  The  first  six  articles  purport  to  be 
subscribed  by  twenty-three  persons,  but  the  seventh  and  eighth  articles 
are  not  subscribed,  and  the  seventh  article  is,  under  the  statute,  ma- 
terial. But  if  the  articles  had  all  been  subscribed  they  would  be  fatally 
defective  for  want  of  acknowledgment  by  the  subscribers,  or  a  suf- 
ficient number  thereof  to  comply  with  the  statute.     *     *     * 

The  defendant  insists,  however,  that  in  order  to  establish  the  cor- 
porate existence  of  the  Lawrence  Savings  Bank  as  against  plaintiff 
it  is  sufficient  to  show  authority  to  create  the  corporation,  a  bona 
fide  attempt  on  the  part  of  the  corporators  to  become  incorporated, 
and  the  doing  of  business  as  a  corporation.  In  support  of  this  prop- 
osition the  defendant  cites  the  Buffalo  and  Allegany  R.  Co.  v.  Carey^ 


§  159  CONDITIONS   OF   DE   JURE   EXISTENCE.  609 

26  N.  Y,  77.  In  that  case  the  court  said,  "that  if  the  papers  filed 
are  colorable,  but  so  defective  that,  in  a  proceeding  on  the  part  of 
the  state  against  it,  it  would  for  that  reason  be  dissolved,  yet  by  the 
acts  of  user  under  such  organization  it  becomes  a  corporation  de  facto^ 
and  no  advantage  can  be  taken  of  such  defect  in  its  constitution  col- 
laterally by  any  person."  Substantially  the  same  doctrine  was 
enunciated  in  Kurtz  v.  The  Paola  Town  Co.,  20  Kan.  403,  and  Pope 
v.  The  Capital  Bank,  20  Kan.  440.  It  should  be  observed,  however, 
that  in  those  cases  the  defendant  set  up  a  want  of  incorporation  of 
the  plaintiff  and  sought  to  escape  liability  upon  that  ground.  In  the 
case  at  bar  the  defendant  sets  up  exemption,  averring  that  the  attempt 
to  become  incorporated  and  the  doing  of  business  under  a  claim  of 
incorporation  were  sufficient  to  create  the  exemption. 

It  will  be  seen  at  once  that  the  principle  involved  in  those  cases  is 
essentially  different  from  that  in  the  case  at  bar. 

It  is  hardly  necessary  to  say  that  where  incorporation  has  once  taken 
place  no  act  of  forfeiture  can  be  set  up  in  a  collateral  action,  until 
forfeiture  has  been  judicially  declared  in  an  action  brought  for  that 
purpose.  See  Angell  &  Ames  on  Corporations,  §  636,  and  cases 
cited.  But  the  principle  involved  in  those  cases  is  essentially  differ- 
ent from  that  in  the  case  at  bar. 

In  Humphrey  v.  Mooney,  i  Colo.  193,  a  creditor  of  an  assumed 
corporation  sought  to  hold  a  member  as  a  partner.  It  was  held  that 
as  his  right  of  action  was  based  upon  an  express  contract  with  the  as- 
sumed corporation  he  was  estopped  to  deny  that  it  was  in  fact  a  cor- 
poration. The  doctrine  of  that  case  is  substantially  that  relied  upon 
hy  the  defendant.  But  it  seems  to  us  that  it  is  not  sustained  by  the 
weight  of  authority.  The  court  cited  in  support  of  the  decision  Eaton 
V.  Aspinwall,  19  N.  Y.  121,  and  Buffalo  v.  Carey,  26  N.  Y.  77, 
but  neither  of  these  cases,  it  appears  to  us,  is  in  point.     «     »     ♦ 

Affirmed. 


Sec.  159.    Same. 

(^)  Acknowledging  articles. 

THE  PEOPLE,  Appellant,  v.  THE  MONTECITO  WATER  CO.,  Er  Al., 

Respondent.* 

1893.     In  thp  Supreme  Court  of   California.     97  Cal.   Rep. 

276-281. 

Appeal  from  a  judgment  of  the  superior  court  of  Los  Angeles 
county. 

The  facts  are  stated  in  the  opinion. 

Temple,  C.  Plaintiff  appeals  from  a  judgment  entered  upon  d.e- 
murrer  to  complaint. 

The  demurrer  was  general,  and  on  the  ground  of  insufficiency  of 
the  facts.  It  is  a  proceeding  taken  by  the  attorney-general  of  the  state 

*  Only  so  much  of  the  case  as  relates  to  the  one  point  given. 
39— WiL.  Cases. 


6lO  PEOPLE   V.  MONTECITO   WATER    CO.  §  159 

in  the  nature  of  a  quo  warranto  to  deprive  the  defendant  corporation 
of  its  corporate  charter,  and  procure  its  dissolution  on  two  grounds: 
I .  For  want  of  a  substantial  compliance  with  the  statutory  require- 
ments in  its  formation.      *     *      * 

It  is  contended  that  the  corporation  is  not  rightfully  such,  because 
while  five  incorporators  signed  the  articles  of  incorporation,  only  four 
acknowledged  the  same. 

Section  292  of  the  civil  code  reads  as  follows:  "The  articles  of  in- 
corporation must  be  subscribed  by  five  or  more  persons,  a  majority  of 
whom  must  be  residents  of  this  state,  and  acknowledged  by  each  be- 
fore some  officer  authorized  to  take  and  certify  acknowledgments  of 
conveyances  of  real  property." 

It  was  said  in  People  v.  Selfridge,  52  Cal.  331 :  "The  right  to  be 
a  corporation  is  in  itself  a  franchise ;  and  to  acquire  a  franchise  under 
a  general  law,  the  prescribed  statutory  conditions  must  be  complied 
with."  Still,  a  substantial  rather  than  a  literal  compliance  will  suf- 
fice. (People  v.  Stockton,  etc.,  R.  Co.,  45  Cal.  313;  13  Am. 
Rep.  178.)     Was  there  a  substantial  compliance  in  this  case.? 

Because  a  substantial  compliance  will  do,  it  does  not  follow  that 
any  positive  statutory  requirements  can  be  omitted  on  the  ground  that 
it  is  unimportant.  They  are  conditions  precedent  to  acquiring  a  stat- 
utory right,  and  none  can  be  dispensed  with  by  the  court. 

What  is  a  substantial  rather  than  a  literal  compliance  may  be  illus- 
trated from  the  cases.  In  Ex  parte  Spring  Valley  Water- Works,  17 
Cal.  132,  the  certificate  stated  the  place  of  business,  but  did  not  de- 
scribe it  as  the  "principal  place  of  business,"  as  required.  The  court 
said:  "The  statement  that  San  Francisco  was  the  place  of  business 
would  seem  to  imply  that  it  was  not  only  the  principal  but  the  only 
place  of  business." 

In  People  v.  Stockton,  etc.,  R.  Co.,  45  Cal.  306,  13  Am.  Rep.  178, 
the  affidavit  required  in  such  cases  to  be  attached  to  the  certificate 
stated  that  10  per  cent,  of  the  amount  subscribed  had  been  actually 
paid  in,  omitting  the  words  "in  good  faith,"  which  the  statute  re- 
quired. 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  suffi- 
cient funds  in  a  bank,  which  was  ready  to  accept  and  pay  checks,  was 
substantially  payment  in  cash. 

In  People  v.  Cheeseman,  7  Colo.  376,  the  acknowledgment  taken 
by  the  notary  omitted  to  state  that  the  persons  whose  acknowledg- 
ments were  taken  were  personally  known  to  the  notary.  The  certifi- 
cate did  state  that  the  persons  who  signed  appeared  before  him  and 
acknowledged  it.  The  statute  did  not  prescribe  what  the  acknowl- 
edgment should  contain,  and  it  was  held  a  substantial  cempliance 
with  the  requirement,  although  the  form  prescribed  for  acknowledg- 
ments to  deeds  was  not  followed.     It  was  acknowledged. 

In  all  these  cases  it  will  be  seen  that  the  thing  required  was  done, 


§   l6o  CONDITIONS   OF   DE   JURE   EXISTENCE.  6n 

but  not  literally,  as  directed.  But  there  was  no  omission  of  any  re- 
quirement. No  case  has  been  cited  where  the  entire  omission  of  a 
thing  prescribed  has  been  excused,  unless  it  be  the  case  of  Larabee 
V.  Baldwin,  35  Cal.  155"  That  was  not  an  action  instituted  by  the  state 
to  disincorporate  on  the  ground  of  non-compliance.  As  we  have  seen, 
unless  the  state  complains,  a  de  facto  corporation  must  be  considered, 
under  our  code,  as  possessing  a  corporate  character,  and  the  stock- 
holders, 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  any  fatal  defect  exists  in  the 
certificate  of  incorporation.  If  so,  it  is  cured  by  the  act  of  April  i, 
1864."     Plainly,  it  was  unnecessary  to  consider  the  question.   ♦    ♦    * 

Section  292  of  the  Civil  Code  required  the  articles  to  be  subscribed 
and  acknowledged  by  each.  As  this  is  an  express  condition  precedent 
to  a  valid  incorporation,  it  is  not  of  consequence  to  the  court  whether 
it  be  a  wise  or  necessary  requirement  or  not.  Still,  it  is  easy  to  see 
a  reason  for  it.  The  certificate  secures  the  state  and  all  concerned 
against  the  possibility  of  any  fictitious  names  being  subscribed  to  the 
articles,  and  furnishes  proof  of  the  genuineness  of  the  signatures. 

If  the  acknowledgment  can  be  dispensed  with  as  to  one,  why  not  as 
to  two,  or  three,  or  all.? 

Ordinarily,  no  doubt,  the  state  would  not  be  expected  to  institute  a 
proceeding  of  this  character  for  such  a  defect  alone,  and  we  must  pre- 
sume that  the  attorney-general  would  not  have  instituted  this  inquiry, 
if  he  were  not  convinced  that  there  were  reasons  sufficient  to  justify 
it.  Other  reasons  are  alleged,  but  as  the  statute  authoi-izes  a  proceed- 
ing to  forfeit  the  charter  where  the  statute  has  not  been  complied  with, 
altliough  the  corporation  is  acting  in  good  faith,  and  is  a  de  facto  cor- 
poration, 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. 


Sec.  160.    Same. 

(^)  Filing  articles. 

BERGERON,  Respondbnt,  v.  HOBBS  and  Others,  Appellants.* 

1897.     In   the  Supreme   Court  of  Wisconsin.     96  Wis.    Rep. 
641-658,  65  Am.  Stat.  Rep.  85. 

Appeal  from  a  judgment  of  the  circuit  court  for  Bayfield  county ; 
John  K.  Parish,  C.  J.     Affirmed. 

'  Arguments  omitted.  The  strong  dissenting  opinion  of  Marshall,  J.,  hold- 
ing there  was  a  corporation  de,  facto,  though  not  de  jure,  and  that  the  plaintiff 
should  be  estopped,  is  omitted. 


6l2  BERGERON    V.    HOBBS.  §   l6o 

The  defendants,  under  the  name  of  Bayfield  Agricultural  Associ- 
ation, employed  several  persons  to  perform  labor  in  improving  their 
grounds  and  in  erecting  fences  and  buildings.  Time  checks  given  by 
the  defendants  to  such  laborers,  for  such  labor,  were  assigned  to  the 
plaintiff,  who  brings  this  action  to  recover  their  amount,  alleging  that 
the  defendants  were  a  co-partnership.  The  defendants  alleged  that 
they  were  members  of  a  corporation,  and  denied  that  they  were  co- 
partners, or  liable  as  such.  This  was  the  issue  which  was  tried.  It 
appeared  upon  the  trial  that  articles  of  organization  of  the  defendants 
as  the  Bayfield  County  Agricultural  Association,  and  a  certificate 
showing  the  election  of  officers,  had  been  recorded  in  the  office  of  the 
register  of  deeds  of  Bayfield  county,  but  were  not  on  file  there.  They 
had  been  deposited  with  instruction  to  record  and  return  them, 
which  had  been  complied  with.  When  the  testimony  on  both  sides 
was  in,  the  court  directed  a  verdict  for  the  plaintiff  for  the  amount  of 
the  time  checks.  From  a  judgment  on  that  verdict  the  defendants 
appeal. 

Newman,  J.  There  are  two  questions  raised  on  this  appeal:  i. 
Was  the  mere  recording  of  the  articles  of  incorporation,  with  the  cer- 
tificate of  the  election  of  officers,  without  the  intention  or  fact  of  the 
papers  themselves  remaining  in  the  office,  a  sufficient  compliance  with 
the  statute,  so  that  the  organization  of  the  corporation  became  com- 
plete, as  upon  a  proper  filing  of  the  papers  themselves?  And  2.  If 
the  recording  was  not  sufficient  for  that  purpose,  are  the  defendants 
liable  to  the  plaintiff  only  as  a  de  facto  corporation,  or  are  they  liable 
as  co-partners? 

I.  The  statute  (sec.  1460,  R.  S.)  provides  that,  upon  the  filing  of 
"a  certificate  of  organization,  *  *  *  with  a  copy  of  the  consti- 
tution," in  the  office  of  the  register  of  deeds  of  the  county,  "such  so- 
ciety shall  have  all  the  powers  of  a  corporation  necessary  to  promote 
the  objects  thereof."  It  can  not  be  doubted  that  the  filing  of  the 
proper  paper  in  the  proper  office  is  made,  by  the  statute,  a  condition 
precedent  to  the  vesting  of  corporate  powers.  The  court  may  not  be 
able  to  clearly  define  the  respect  wherein  the  mere  recording  and  re- 
moval of  the  papers  from  the  office  fails  to  serve  the  full  purpose 
which  the  legislature  intended  to  accomplish  by  the  filing  of  them. 
The  legislature,  no  doubt,  had  good  and  sufficient  reasons  for  its 
choice  of  means  to  promote  its  purpose.  For  the  court  it  is  not  a 
question  of  equivalents.  A  literal  filing  of  the  papers  is  necessary  be- 
cause it  is  so  written  in  the  law.  The  term  "filing"  and  the  verb  "to 
file,"  as  related  to  in  this  subject,  include  the  idea  that  the  paper  is  to 
remain  in  its  proper  order  on  file  in  the  office.  A  paper  is  said  to  be 
filed  when  it  is  delivered  to  the  proper  officer,  and  by  him  received, 
to  be  kept  on  file.  Bouv.  Law  Diet.  The  statute  is  plain  and  easy 
of  observance.  Valuable  rights  and  exemptions  from  personal  lia- 
bility are  to  be  secured  by  its  observance.  It  is  no  undue  severity  to 
require  its  strict  observance.  The  defendants  had  not  observed  it, 
and  had  not  secured  corporate  powers. 


§   l6o  CONDITIONS   OF   DE  JURE   EXISTENCE,  613 

2.  Had  the  defendants  secured  immunity  from  individual  liability? 
No  doubt,  as  a  general  rule,  where  an  attempt  to  organize  a  corpora- 
tion fails  by  omission  of  some  substantial  step  or  proceeding  required 
by  the  statute,  its  members  or  stockholders  are  liable  as  partners  for 
its  acts  and  contracts.  Beach  Priv.  Corp.,  §§  16,  162;  I  Thompson 
Corp.,  §§  339,  416,  417.  But  the  defendants'  contention  is  that  they 
are  not  within  this  rule,  because  they  are  at  least  de  facto  a  cor- 
poration, and  their  right  to  be  a  corporation  can  not  be  inquired  into  in 
a  collateral  action,  but  only  in  a  direct  action  for  that  purpose,  by  the 
state.  The  infirmity  of  the  defendant's  contention  is  in  the  assump- 
tion that  they  are  de  facto  a  corporation.  In  order  to  secure  this  im- 
munity from  inquiry  into  its  right  to  be  a  corporation  in  a  collateral 
action,  its  action  <x%  a  corporation  must  be  under  a  color ^  at  least,  of 
right.  It  is  immaterial  that  they  have  carried  on  business,  under  the 
supposed  authority  to  act  as  a  body  corporate,  in  entire  good  faith.  If 
they  had  not  color  of  legal  right,  they  have  obtained  no  immunity 
from  individual  liability  for  the  debts  of  the  supposed  corporation. 
Until  the  articles  of  incorporation  are  filed  in  the  office  of  the  register 
of  deeds  of  the  county,  there  is  no  color  of  legal  right  to  act  as  a  cor- 
poration. The  filing  of  such  paper  is  a  condition  precedent  to  the 
right  to  so  act.  So  long  as  an  act,  required  as  a  condition  precedent, 
remains  undone,  no  immunity  from  individual  liability  is  secured.  I 
Thompson  Corp.,  §§  226,  508. 

The  defendants  are  not  a  corporation  either  de  jure  or  de  facto  ^  but 
are  liable  for  the  plaintiffs'  claim  as  partners.  It  is  not  necessary  to 
prove  a  co-partnership  by  evidence.  That  was  established  by  impli- 
cation of  law.  Nor  was  it  necessary  to  prove  that  the  debt  was  un- 
paid. There  was  no  presumption  that  it  had  been  paid  to  be  rebutted. 
The  judgment  of  the  circuit  court  is  right,  and  must  be  affirmed. 

By  the  court — The  judgment  of  the  circuit  court  is  affirmed. 

Note.  To  same  effect,  see,  1859,  Mokelumne  Hill  C.  &  M.  Co.  v.  Wood- 
bury, 14  Cal.  425,  supra,  p.29fi;1874,  Indianapolis  M.  Co.  v.  Herkimer,  46  Ind. 
142 ;  1876,  First  National  Bank  v.  Davies,  43  Iowa  424 ;  1876,  Abbott  v.  Omaha 
Smelting  Co.,  4  Neb.  416;  1879,  Doyle  v.  Mizner,  42  Mich.  332,  infra,  p. 632; 
1879,  Garnett  v.  Richardson,  35  Ark.  144;  1889,  Childs  v.  Hurd,  32  W.  Va. 
66;  1893,  Guckert  v.  Hacke,  159  Pa.  St.  303;  1894,  Martin  v.  Deetz,  102  Cal. 
55,  41  Am.  St.  Rep.  151;  1896,  New  York  National  Ex.  Bk.  v.  Crowell,  177 
Pa.  St.  313.  But  compare,  1896,  Supreme  Court  of  Independent  Order  of  For- 
esters v.  Sup.  Ct.  U.  O.  of  F.,  94  Wis.  234;  also,  1890,  Vanneman  v.  Young, 
52  N.  J.  L.  403,  and  1897,  Jolinson  v.  Okerstrom,  70  Minn.  303;  1900,  Slocum 
V.  Head,  105  Wis.  431,  50  L.  R.  A.  324;  1901,  Clausen  v.  Head,  110  Wis.  405, 
«4  Am.  St.  Rep.  933,  85  N.  W.  1028.  contra. 

As  to  filing  amendments  of  charter  see,  1899,  Jackson  v.  Crown  Point  Min- 
ing Co.,  21  Utah  2,  81  Am.  St.  Rep.  651,  59  Pac.  238;  1900,  Hoeft  v.  Kock, 
123  Mich.  171,  81  Am.  St.  Rep.  159,  81  N.  W.  1070. 


6 14  FINNEGAN    V.    NOERENBERG.  §  l6l 

ARTICLE  V.       CONDITIONS    OF    DE    FACTO    EXISTENCE. 

Sec.  161.     ( I  )   Conditions  precedent. 

FINNEGAN  v.  NOERENBERG.* 

1893.     In  THE  Supreme  Court  of  Minnesota.     52  Minn.  Rep. 
239-H5'  38  Am.  St.  Rep.  552. 

GiLFiLLAN,  C.  J.  Eight  persons  signed,  acknowledged  and  caused 
to  be  filed  and  recorded  in  the  office  of  the  city  clerk  in  Minneapolis, 
articles  assuming  and  purporting  to  form,  under  laws  of  1870,  ch.  29, 
a  corporation,  for  the  purpose,  as  specified  in  them,  of  "buying,  own- 
ing, improving,  selling  and  leasing  of  lands,  tenements  and  heredita- 
ments, real,  personal  and  mixed  estates  and  property,  including  the 
construction  and  leasing  of  a  building  in  the  city  of  Minneapolis, 
Minn.,  as  a  hall  to  aid  and  carry  out  the  general  purposes  of  the 
organization  known  as  the  'Knights  of  Labor.'  "  The  association  re- 
ceived subscriptions  to  its  capital  stock,  elected  directors  and  a  board 
of  managers,  adopted  by-laws,  bought  a  lot,  erected  a  building  on  it, 
and,  when  completed,  rented  different  parts  of  it  to  different  parties. 
The  plaintiff  furnished  plumbing  for  the  building  during  its  construc- 
tion, amounting  to  $599.50,  for  which  he  brings  this  action  against 
several  subscribers  to  the  stock,  as  co-partners,  doing  business  under 
the  firm  name  of  the  "K.  of  L.  Building  Association."  The  theory 
upon  which  the  action  is  brought  is  that,  the  association  having  failed 
to  become  a  corporation,  it  is  in  law  a  partnership,  and  the  members 
liable  as  partners  for  the  debts  incurred  by  it. 

It  is  claimed  that  the  association  was  not  an  incorporation  because 
— -firsts  the  act  under  which  it  attempted  to  become  incorporated,  to 
wit.  Laws  1870,  ch.  29,  is  void,  because  its  subject  is  not  properly 
expressed  in  the  title  ;  second^  the  act  does  not  authorize  the  forma- 
tion of  corporations  for  the  purpose  or  to  transact  the  business  stated 
in  the  articles;  thirds  the  place  where  the  business  was  to  be  carried 
on  was  not  distinctly  stated  in  the  articles,  and  they  had,  perhaps, 
some  other  minor  defects. 

It  is  unnecessary  to  consider  whether  this  was  a  de  jure  corpora- 
tion, so  that  it  could  defend  against  a  quo  warranto^  or  an  action  in 
the  nature  of  a  quo  warranto^  in  behalf  of  the  state ;  for  although 
an  association  may  not  be  able  to  justify  itself  when  called  on  by 
the  state  to  show  by  what  authority  it  assumes  to  be  and  act  as  a 
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  ques- 
tion the  lawfulness  of  its  organization.  Such  is  what  is  termed  a 
corporation  de  facto ^  that  is,  a  corporation  from  the  fact  of  its  act- 

*  Arguments  omitted ;  also  statement  of  facte,  except  as  given  in  the  opinion. 


§    l6l  CONDITIONS   OF   DE   FACTO    EXISTENCE.  61$ 

ing  as  such,  though  not  in  law  or  of  right  a  corporation.  What  is 
essential  to  constitute  a  body  of  men  a  ale  facto  corporation  is  stated 
by  Selden,  J.,  in  Methodist,  etc.,  Church  v.  Pickett,  19  N.  Y.  482, 
as  "(i )  the  existence  of  a  charter  or  some  law  under  which  a  corpora- 
tion with  the  powers  assumed  might  lawfully  be  created;  and  (2)  a 
user  by  the  party  to  the  suit  of  the  rights  claimed  to  be  conferred  by 
such  a  charter  or  law.'^  This  statement  was  apparently  adopted  by 
this  court  in  East  Norway  Church  v.  Froislie,  37  Minn.  447,  35  N. 
W.  Rep.  260,  but  as  it  leaves  out  of  account  any  attempt  to  organize 
under  the  charter  or  law,  we  think  the  statement  of  what  is  essential 
defective.  The  definition  in  Taylor  on  Private  Corporations  (page  145) 
is  more  nearly  accurate:  "  When  a  body  of  men  are  acting  as  a  cor- 
poration^ under  color  of  apparent  organization^  in  pursuance  of  some 
charter  or  enabling  act,  their  atithority  to  act  as  a  corporation  can 
not  be  questioned  collaterally  J*  ^ 

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 
authorizing  them  to  become  such,  the  status  of  a  de  facto  corporation 
might  open  the  door  to  frauds  upon  the  public.  It  would  certainly  be 
impolitic  to  permit  a  number  of  men  to  have  the  status  of  a  corpora- 
tion to  any  extent  merely  because  there  is  a  law  under  which  they 
might  have  become  incorporated,  and  they  have  agreed  among  them- 
selves 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  w'hat  had  been  done  was  ineffectual  to  limit 
the  individual  liability  of  the  associates.  They  had  not  gone  far 
enough  to  become  a  de  facto  corporation.  They  had  merely  signed 
the  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  stibstantial  compliance.  A 
substantial  compliance  will  make  a  corporation  de  jure,  but  there 
must  be  an  apparent  attempt  to  perfect  an  organization  under  the  law. 
There  being  such  apparent  attempt  to  perfect  an  organization,  the 
failure  as  to  some  substantial  requirement  will  prevent  the  body  being 
a  corporation  de  jure;  but,  if  there  be  user  pursuant  to  such  attempted 
organization,  it  will  not  prevent  it  being  a  corporation  de  facto. 

The  title  to  chapter  29  is  "an  act  in  relation  to  the  formation  of  co- 
operative associations."  Appellant's  counsel  argues  that  the  body  of 
the  act  does  not  contain  a  single  element  of  "co-operation,"  as  that 
term  is  generally  understood.  But  how  it  is  generally  understood  he 
does  not  inform  us.  In  a  broad  sense,  all  associations,  whether  cor- 
porations or  partnerships,  are  co-operative,  for  all  the  members, 
either  by  their  labor  or  capital,  or  both,  co-operate  to  a  common  pur- 
pose. There  is  undoubtedly,  in  popular  use  of  the  terms,  a  more 
limited  sense,  though  the  precise  limits  are  not  well  defined.  There 
is  no  legal,  as  distinguishable  from  their  popular  signification.  In 
the  Century  Dictionary  the  term  "co-operative  society"  is  defined, 


6l6  FINNEGAN   V.    NOERENBERG.  §  l6l 

"a  union  of  individuals,  commonly  laborers  or  small  capitalists, 
formed  *  *  *  for  the  prosecution  in  common  of  a  productive 
enterprise,  the  profits  being  shared  in  accordance  with  the  amount  of 
capital  or  labor  contributed  by  each  member."  Taking  the  distinctive 
feature  of  a  co-operative  society  to  be  that  it  is  made  up  of  laborers 
or  small  capitalists,  it  is  manifest  that  the  chapter  intends  to  deal  with 
just  that  sort  of  associations.  Not  only  does  it  contemplate  that  the 
operations  of  the  corporations  shall  be  local,  but  the  capital  stock  is 
limited  to  $50,000,  the  stock  which  one  member  may  hold  to  $1,000. 
No  one  can  become  a  shareholder  without  the  consent  of  the  man- 
agers, and  no  one  is  entitled  to  more  than  one  vote. 

The  provisions  in  the  body  of  the  act  are  in  accord  with  the  title, 
and  it  is  therefore  not  open  to  the  objection  made  against  it. 

The  purposes  for  which,  under  the  act,  corporations  may  be  formed, 
are  "of  trade,  or  of  carrying  on  any  lawful  mechanical,  manufactur- 
ing or  agricultural  business."  The  main  purpose  of  the  act  being  to 
enable  men  of  small  capital,  or  of  no  capital  but  their  labor  and  their 
skill  in  trades,  to  form  corporations,  for  the  pui^pose  of  giving  employ- 
ment to  such  capital  or  labor  and  skill,  the  language  expressing  the 
purposes  for  which  such  corporations  may  be  formed  Ought  not  to  be 
narrowly  construed.  Giving  a  reasonably  liberal  meaning  to  the 
word  "trade"  in  the  act,  it  would  include  the  buying  and  selling  of 
real  estate,  and,  upon  a  similar  construction,  the  word  "mechanical" 
would  include  the  erection  of  buildings.  The  doing  of  the  mason, 
or  brick,  or  carpenter,  or  any  other  work  upon  a  building  is  certainly 
mechanical.  There  can  be  little  question  that  corporations  might  be 
formed  to  do  either  of  those  kinds  of  work  on  buildings,  and,  that  be- 
ing so,  there  is  no  reason  why  they  may  not  be  formed  to  do  all  of 
them.  There  is  no  reason  to  claim  that  such  a  corporation  must  do 
its  work  as  a  contractor  for  some  other  person.  It  may  do  it  for  itself, 
and,  as  the  act  authorizes  the  corporation  to  "take,  hold  and  convey 
such  real  and  personal  estate  as  is  necessary  for  the  purposes  of  its  or- 
ganization," it  may,  instead  of  working  for  others  as  a  contractor, 
make  its  profit  by  buying  real  estate,  erecting  buildings  on  it,  and 
either  selling  or  holding  them  for  leasing. 

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. 

The  foundation  for  a  de  facto  corporation  having  been  laid  by  the 
attempt  to  organize  under  the  law,  the  user  shown  was  sufficient. 

Judgment  affirmed. 

Note.    See  note  at  end  of  Cochran  v.  Arnold,  infra,  p.  629;   1902,  Tulare 
Irrigation  Dist.  v.  Shepard,  —  U.  S.  — ,  Adv.  Sh.  May  1,  1902,  p.  531. 
Compare,  1900,  Slocum  v.  Head,  105  Wis.  431,  50  L.  K.  A.  324. 


§  l62  CONDITIONS    OF    DE   FACTO    EXISTENCE.  61/ 

Sec.  162.    Same.       ^ 

SOCIETY  PERUN  v.  CLEVELAND.* 

1885.     In  the   Supreme  Court   of   Ohio.     43   Ohio  State  Rep. 

481-499.     « 

Error  to  the  district  court  of  Cuyahoga  county. 

On  the  28th  of  January,  1874,  the  city  of  Cleveland  conveyed 
to  Perun  (an  incorporated  school  and  library  society)  certain  real 
estate  situated  in  that  city,  and  to  secure  the  unpaid  purchase-money 
therefor,  Perun,  on  the  same  date,  executed  and  delivered  to  the  city 
four  promissory  notes  and  a  mortgage  upon  the  premises  conveyed. 

The  city  neglected  to  file  this  mortgage  for  record  until  the  21st 
day  of  October,  1879.  In  February,  1874,  certain  persons  attempted 
to  organize  a  mutual  benefit  association  under  an  act  supplementary 
to  an  act  to  provide  for  the  creation  and  regulation  of  incorporate 
companies,  passed  May  i,  1852  (S.  &  C.  Stat.  271),  passed  April 
20,  1872  (69  Ohio  L.  82),  under  the  corporate  name  of  Society 
Perun.  Thereafter,  in  May,  1874,  Perun  delivered  to  Society  Perun 
its  deed  purporting  to  convey  to  the  latter  the  premises  theretofore 
mortgaged  to  the  city.  From  that  time  forward,  and  prior  to  the 
filing  of  the  city's  mortgage  for  record,  Society  Perun,  acting  in  its 
supposed  corporate  capacity,  from  time  to  time,  executed  and  deliv- 
ered deeds,  mortgages  and  executory  contracts  of  sale,  purporting  to 
convey,  incumber  and  sell  parcels  of  these  mortgaged  premises  to  va- 
rious parties,  who  were  made  defendants  in  the  action  below,  and 
some  of  whom  (including  Amasa  Stone,  a  mortgagee,  and  who  had 
paid  taxes  upon  the  premises  mortgaged  to  him),  are  cross-petitioners 
in  error.  Thereafter,  in  June,  1880,  in  a  proceeding  in  quo  warranto^ 
in  this  court,  instituted  by  the  attorney-general,  Society  Perun  was 
adjudged  not  to  have  become  incorporated  in  conformity  to  the  laws  of 
this  state,  but  that  its  pretended  incorporation  was  in  violation  thereof ; 
and  it  was  accordingly  ousted  of  all  rights  and  franchises  to  be  a  cor- 
poration. 

These  proceedings  in  quo  warranto  were  had  pending  and  prior  to 
the  final  judgment  in  the  action  below,  which  was  brought  by  the  city 
to  foreclose  her  mortgage,  and  also  to  foreclose  her  supposed  vendor's 
lien  on  the  mortgaged  premises,  as  against  these  subsequent  grantees, 
mortgagees  and  purchasers. 

The  cause  was  appealed  from  the  court  of  common  plears  to  the 
district  court,  wherein  it  was  tried  upon  the  issues,  the  court  finding, 
among  other  things,  that,  as  to  the  city  of  Cleveland,  Society  Perun 
was  not  a  corporation,  either  in  law  or  in  fact,  and  that  the  convey- 
ance to  it  by  Perun  was  void  as  against  the  city,  and  that  the  mort- 
gages and  other  liens  and  claims  of  all  the  defendants  (except  the  lien 
of  Amasa   Stone   for  taxes,  and  the  claims  of   certain  defendants  for 

*  Arguments  omitted. 


6l8  SOCIETY   PERUN   V.    CLEVELAND.  §   1 62 

improvements  on  the  premises)  were  subsequent  and  inferior  to  the 
lien  of  the  city,  in  whose  favor  the  court  adjudged  the  second  lien, 
and  subsequent  only  to  the  lien  of  Amasa  Stone  for  taxes  paid  by  him, 
but  of  equal  rank  and  merit  with  the  holders  of  liens  for  expenditures 
on  account  of  improvements  above  mentioned. 

By  the  judgment  in  the  quo  warranto  proceeding  it  was  by  this 
court  in  form  adjudged  that  the  defendants  (the  pretended  incor- 
porators), ever  since  their  pretended  incorporation,  had  unlawfully 
and  without  authority  exercised  the  franchises  of,  and  usurped  the 
right  to  be,  a  body  corporate  ;  that  the  pretended  organization  of  these 
defendants  as  a  corporation  was  wholly  void  and  of  no  effect,  and 
vested  in  them  no  corporate  rights,  powers,  privileges,  or  franchises 
of  any  description  whatever. 

It  was  further  in  form  adjudged  that  the  defendants  never  had.  nor 
had  any  of  them,  the  authority  or  lawful  right  to  be  a  body  corporate 
or  to  exercise  or  hold  any  of  the  powers,  rights  and  liberties,  privi- 
leges, functions  or  franchises  of  a  body  corporate,  but  that  they  and 
each  of  them  in  the  use  and  exercise  of  the  same  were  and  had  ever 
been  usurpers  thereof.  The  sole  ground  upon  which  this  judgment 
of  ouster  was  rendered  was  that,  while  the  statute  required  that  they 
should  set  forth  in  their  certificate  of  incorporation  (among  other 
things)  the  manner  of  carrying  on  the  business  of  the  association,  the 
attempted  compliance  with  this  requirement  was  in  these  words: 

'■'•Third.  That  the  manner  of  carrying  on  the  business  of  said  as- 
sociation shall  be  such  as  may  be  from  time  to  time  prescribed  by  the 
by-laws  of  such  association  ;  provided  that  the  same  shall  not  be  incon- 
sistent with  the  laws  of  the  state  of  Ohio." 

Upon  the  trial  below  the  plaintiff  gave  in  evidence,  against  the 
objection  of  defendants,  the  record  of  the  quo  warranto  proceedings. 

The  defendants  offered  in  evidence  the  writing  which  w^as  filed 
with  the  secretary  of  state  as  the  certificate  of  incorporation  of  Society 
Perun. 

They  also  offered  to  prove  that  the  pretended  incorporators  pro- 
ceeded to  comply  strictly  with  the  requirements  of  the  statutes,  that 
they  elected  trustees,  prepared  a  certificate  of  incorporation  stating 
explicitly  the  manner  of  carrying  on  the  business ;  that  this  was  for- 
warded to  the  secretary  of  state,  who  submitted  it  to  the  attorney- 
general  for  examination  and  approval ;  that  the  secretary  of  state  re- 
turned this  paper  with  another  form  of  certificate  which  had  been 
approved  by  the  attorney-general  and  secretaiy  of  state,  and  which 
was  the  identical  certificate  actually  filed  with  the  secretary  of  state, 
and  under  the  supposed  authority  of  which  an  organization  was  in 
good  faith  attempted,  and  that  they  proceeded  in  good  faith  to  act 
and  transact  its  business  under  the  supposed  authority  of  such  incor- 
poration. 

All  this  was  excluded,  and  the  defendants  excepted.  To  reverse 
this  judgment  the  present  proceeding  is  prosecuted.      *     *     » 

Owen,  J.  The  defendants  below,  conceding  that  Society  Perun 
had  never  been  a  corporation  de  jure.,  maintain  that  the  court  below 


§   l62  CONDITIONS   OF   DE   FACTO    EXISTENCE.  619 

should  have  permitted  them  to  prove  that  such  society  was  a  de  facto 
corporation ;  that  it  attempted,  in  good  faith,  to  become  a  body  cor- 
porate ;  proceeded  to  act  and  transact  business  in  good  faith  under 
the  supposed  authority  of  incorporation,  and  that  its  acts  ought  not  to 
have  been  declared  to  be  wholly  void  as  against  the  city  of  Cleveland. 

The  judgment  of  ouster  was  an  adjudication  between  the  state 
and  the  society  upon  the  right  of  the  latter  to  exercise  corporate  fran- 
chises. For  the  purposes  of  such  adjudication  it  was  competent  for 
this  court  to  consider  and  determine  what  had  been  its  status  from  its 
first  attempt  to  incorporate.  But  it  had  no  power  to  pass  upon  or 
determine  the  rights  of  parties  not  before  it. 

It  was  not  competent  for  this  court  to  determine  in  that  proceeding 
that  Society  Perun  had  never  been  a  corporation  de  facto,  or  that  its 
acts  and  business  transactions,  under  the  color  of  its  supposed  charter 
powers,  were  void.  The  authority  of  the  court  in  that  behalf  was 
derived  from  section  6774  (Rev.  Stat.),  which  provides:  "When  a 
defendant  is  found  guilty  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  that  the  relator  recover  his  costs." 

When  the  court  had  excluded  the  society  from  its  franchises  to  be  a 
corporation,  it  exhausted  its  jurisdiction  over  the  subject-matter.  It 
had  no  power  to  speak  concerning  whatever  rights  may  have  been  ac- 
quired by  the  society  as  a  corporation  de  facto,  or  by  third  parties  in 
their  transactions  with  it  as  an  acting  corporation. 

It  is  conceded  by  the  city  that  parties  who  had  recognized  the  ex- 
istence of  the  society  by  their  transactions  with  it  as  a  supposed  cor- 
poration are  estopped  to  deny  its  corporate  existence.  But  it  is  main- 
tained that  the  city,  having  engaged  in  no  transactions  with  it,  is  free 
to  challenge  its  existence  as  a  corporsiiion  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  way 
recognized  its  existence  as  a  corporation,"  and  that:  "The  notion  of 
a  de  facto  corporation  is  based  on  the  doctrine  of  estoppel;  when  es- 
toppel can  not  be  invoked  there  can  be  no  fl?e_/ac/(9  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  v.hich 
forbids  a  party  who  has  dealt  with  a  pretended  corporation  to  deny  its 
corporate  existence,  has  no  foundation,  either  in  reason  or  authority. 
A  de  facto  corporation  is  a  reality.  It  has  an  actual  and  substantial 
legal  existence.     It  is,  as  the  term  implies,  a  corporation. 

"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  Pri- 
vate Corporations,  §  137. 


620  SOCIETY   PERUN    V.    CLEVELAND.  §  162 

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 
corporation ;  has  been  reputed  and  dealt  with  as  a  duly  incorporated 
body,  and  valuable  rights  and  interests  have  been  acquired  and  trans- 
ferred by  it,  no  substantial  reason  is  suggested  why  its  corporate  ex- 
istence, in  a  suit  involving  such  transactions,  should  be  subject  to  at- 
tack by  any  other  party  than  the  state,  and  then  only  when  it  is  called 
upon,  in  a  direct  proceeding  for  that  purpose,  to  show  by  what  au- 
thority it  assumes  to  be  a  corporation. 

Proof  was  offered  upon  the  trial  below  to  show  (i)  that  the  per- 
sons seeking  to  incorporate  first  filed  with  the  secretary  of  state  a  cer- 
tificate which  fully  complied  with  the  requirements  of  the  statutes, 
and  free  from  the  defects  which  finally  proved  fatal  to  its  existence, 
but  which  was  disapproved  by  the  attorney-general;  (2)  that  the  cer- 
tificate 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  pay- 
ment of  stipulated  sums  of  money  to  the  families  or  heirs  of  the  de- 
ceased members  of  said  association ;  that  the  oflScers  of  said  associa- 
tion have  been  duly  chosen ;  that  for  the  purpose  of  becoming  a  body 
corporate  under  an  act  passed  by  the  general  assembly  of  the  state  of 
Ohio,  entitled  an  act  supplementary  to  an  act,  entitled  an  act  to  pro- 
vide for  the  creation  and  regulation  of  incorporated  companies  in  the 
state  of  Ohio,  passed  May  i,  1852,  passed  April  20,  1872;"  (3)  that  this 
certificate  was  approved  by  the  secretary  of  state,  and  also  by  the 
attorney-general,  as  provided  by  the  statutes  (69  Ohio  L.  ^50)  ;  (4) 
that  it  proceeded  in  good  faith  to  transact  business  peculiar  to  cor- 
porations provided  for  by  the  act  under  which  it  attempted  to  incor- 
porate. 

All  this  was  excluded,  and  the  decision  of  the  court  below  prac- 
tically rested  on  the  proof  offered  by  the  city,  that  Society  Perun  had 
been  ousted  of  its  franchises,  which  was  evidently  construed  as  de- 
termining 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 
important  question :  Was  it  coniipetent  to  show,  as  against  a  party 
who  was  not  estopped  to  deny  its  corporate  existence,  as  Society 
Perun  was,  at  the  time  of  the  transactions  involved  in  controversy,  a 
corporation  de  facto? 

In  Attorney-General,  ex  rel.  Pettee,  v.  Stevens,  Saxton  (N.  J.  Eq.) 
369,  the  relator  sought  to  enjoin  the  Camden  and  Amboy  Railroad 
and  Transportation  Company  and  others  acting  under  its  authority 


§  1 62  CONDITIONS   OF   DE   FACTO   EXISTENCE.  621 

from  erecting  a  bridge  over  a  navigable  stream.  The  claim  was  that 
the  act  authorizing  the  corporation  had  been  perverted  and  disre- 
garded, and  that  there  was  no  legal  incorporation.  The  relators  were 
in  no  manner  estopped  to  attack  the  corporate  existence  of  the  re- 
spondent.    The  court  held : 

-'Where  a  set  of  men  claiming  to  be  a  legally  incorporated  com- 
pany under  an  act  of  the  legislature,  have  done  everything  necessary 
to  constitute  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  de  jure;  and  this  court  will  not  inter- 
fere, in  an  incidental  way,  to  declare  all  their  proceedings  void,  and 
treat  them  as  a  body  having  no  rights  or  powers." 

The  chancellor  speaking  for  the  court  said: 

"Here,  then,  is  a  set  of  men  claiming  to  be  a  legally  incorporated 
company  under  the  act  of  the  legislature,  exercising  all  the  powers 
and  functions  of  a  corporation.  They  are  a  corporation  de  facto,  if 
not  de  jure.  Everything  necessary  to  constitute  them  a  corporation 
has  been  done,  colorably  at  least,  if  not  legally;  and  I  do  not  feel  at 
liberty,  in  this  incidental  way,  to  declare  all  their  proceedings  void,  and 
treat  them  as  a  body  having  no  rights  or  powers.  It  has  been  seen 
that  the  court  will  not  do  this  where  a  corporation  properly  organized 
has  plainly  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  incidentally." 

This  case  is  approved  and  followed  in  National  Docks  R.  Co.  v. 
Central  R.  Co.,  32  N.  J.  Eq.  755,  which  held:  "When  a  corporation 
exists  de  facto,,  the  court  of  chancery  can  not,  at  the  instance  of  pri- 
vate parties,  restrain  its  operations  upon  the  ground  that  its  organiza- 
tion is  not  de  jure.  In  such  case  the  proper  remedy  is  by  quo 
■warranto,,  or  information  in  the  nature  thereof,  instituted  by  the  attor- 
ney-general."    The  rule  of  estoppel  found  no  place  in  this  case. 

In  S.  &  L.  G.  R.  Co.  v.  S.  &  C.  R.  Co.,  45  Cal.  680,  it  was  held 
that:  "If  the  corporation  de  facto  is  in  the  actual  possession  of  a  pub- 
lic 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  franchises." 

In  Williams  v.  Kokomo  B.  &  L.  Association,  89  Ind.  339,  one 
Leach  gave  to  art  acting  corporation  his  mortgage  on  real  estate.  Sub- 
sequent to  the  execution  and  recording  of  it  he  executed  another 
mortgage  on  the  same  land  to  Williamson.  In  a  proceeding  to  fore- 
close the  junior  mortgage,  Williamson  maintained  that  the  pretended 
corporation  had  no  legal  existence,  by  reason  of  defects  and  omissions 
in  the  proceedings  to  incorporate,  and  that  the  senior  mortgage  was 
void.  He  was  in  no  manner  estopped,  by  dealings  with,  or  recog- 
nition of,  the  first  mortgagee,  to  deny  its  corporate  existence.     The 


622  SOCIETY    PERUN    V.    CLEVELAND.  §  162 

court  held  that:  "A  junior  mortgagee  can  not  defeat  a  senior  mort- 
gage by  showing  that  the  corporation  to  which  the  senior  mortgage 
was  executed  was  defectively  organized,  if  it  be  a  corporation  de 
facto."  Elliott,  J.,  said:  "Where  persons  assume  to  incorporate 
under  the  laws  of  the  state,  and  in  part  comply  with  their  require- 
ments, assume  corporate  functions  and  transact  business  as  a  corpora- 
tion, 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.  Neff,  73 
Ind.  68.  This  rule  is  not  limited  to  cases  where  one  by  contract  ad- 
mits corporate  existence^  but  is  a  rule  of  general  application.^^  It  is 
not  easy  to  distinguish  the  principle  of  this  case  from  that  of  the  case 
at  bar. 

In  Pape  v.  Capitol  Bank,  20  Kan.  440,  Pape  and  wife  gave  their 
notes  to  "James  M.  Spencer  or  bearer,"  and  their  mortgage  on  real 
estate  to  secure  them.  Spencer  transferred  the  notes  to  the  Capitol 
Bank  of  Topeka,  an  acting  corporation,  with  this  indorsement: 
"Pay  the  bearer,  without  recourse  on  me,  James  M.  Spencer."  The 
mortgage  was  also  transferred  to  the  bank,  which  proceeded  by  suit 
to  collect  the  notes  and  foreclose  the  mortgage.  Pape  and  wife  in- 
terposed the  defense  that  the  bank  was  not,  and  never  had  been,  a 
body  corporate,  by  reason,  among  others,  of  a  defective  organization. 
The  bank  had  assumed  corporate  functions  after  an  attempt,  in  good 
faith,  to  incorporate,  and  for  a  number  of  years  was  in  the  actual  and 
notorious  exercise  of  coiporate  franchises.  Pape  had  transacted  bank- 
ing business  with  the  plaintiff  prior  to  the  purchase  of  the  notes  and 
mortgage,  but  such  business  was  wholly  unconnected  with  the  notes 
and  mortgage  in  suit.  His  wife,  however,  had  not  in  any  manner 
recognized  the  existence  of  the  bank  as  a  corporate  body,  and  the 
doctrine  of  estoppel  was  not  invoked  to  aid  the  court  in  sustaining  a 
judgment  of  foreclosure  against  Pape  and  wife.  Brewer,  J.,  says: 
"The  corporation  is  one  de  facto.,  and  only  the  state  can  inquire,  and 
that  in  a  direct  proceeding,  whether  it  be  one  de  jure.  *  *  * 
There  must,  in  such  cases,  be  a  law  under  which  the  incorporation 
can  be  had;  there  must  also  be  an  attempt,  in  good  faith,  on  the  part 
of  the  corporators,  to  incoiporate  under  such  law;  arid  when,  after 
this,  there  has  been  for  a  series  of  years,  an  actual,  open  and  noto- 
rious exercise,  unchallenged  by  the  state,  of  the  powers  of  a  corpora- 
tion, 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  incorpora- 
tion, no  acts  of  forfeiture  from  misuser  after  the  incorporation,  are  sub- 
jects of  inquiry  in  such  an  action.  This  is  not  upon  the  ground  of 
equitable  estoppel  but  upon  the  grounds  of  public  policy.  If  the  state, 
which  alone  can  grant  the  authority  to  incorporate,  remains  silent  dur- 
ing the  open  and  notorious  asseition  and  exercise  of  corporate  powers, 
an  individual  will  not,  unless  there  be  some  powerful  equity  on  his 
side,  be  permitted  to  raise  the  inquiry." 

In  Thompson  v.  Candor,  60  111.  244,  Willetts,  in  February,  1858, 


§   1 62  CONDITIONS    OF   DE   FACTO    EXISTENCE.  623 

deeded  to  "Mercer  Collegiate  Institute,"  a  body  pretending  to  be  a 
cjorporation,  the  tract  of  land  in  controversy.  He  died  in  March, 
1858.  In  1868  his  heirs  quitclaimed  their  interest  in  the  land  to  Thomp- 
son, who  filed  a  bill  in  chancery  for  the  cancellation  of  the  deed  from 
Willetts  to  the  "institute,"  alleging,  as  one  of  the  grounds  of  relief, 
that  the  named  grantee  was  not  legally  incorporated,  had  no  capacity 
to  take  the  title,  and  that  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 
organize  by  electing  a  president  and  officers,  and  the  trustees  had 
acted  for  years  in  managing  the  property,  had  leased  and  mortgaged 
it,  and  expended  large  sums  of  money  in  its  improvement,  these  acts 
constitute  it  a  corporate  body  de  facto^  and  the  regularity  of  its 
organization  can  not  be  questioned  collaterally.  Such  irregularity, 
can  only  be  questioned  by  quo  warranto  or  scire  facias  J*  ^ 

Thornton,  J.,  says:  "In  1856  an  attempt  was  made  to  organize 
a  corporation  under  the  general  incorporation  law.  A  corporate 
name  was  selected,  trustees  were  appointed,  and  an  organization 
effected  by  the  election  of  a  president  and  proper  officers.  The  trust- 
ees thus  appointed  acted  for  years  in  the  general  management  of  the 
property,  leased  and  mortgaged  it,  and  expended  a  large  sum  of 
money.  Here  then  was  a  corporate  body  de  facto^  which  had  been 
engaged  in  an  undertaking  involving  important  interests.  The  regu- 
larity of  its  organization  can  not  be  questioned  collaterally.  Any 
alleged  non-compliance  with  the  law  can  only  be  inquired  into  by  the 
writ  of  quo  warranto  or  scire  facias.  ^^ 

There  is  no  suggestion  throughout  the  entire  case  of  the  rule  of 
estoppel  as  an  element  affecting  its  disposition. 

In  Paper  Works  v.  Willett,  i  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,  illustrating  the  principle  under  discussion :  Smith  v. 
Sheeley,  i2  Wall.  361 ;  Grand  Gulf  Bank  v.  Archer,  8  S.  &  M.  151, 
173;  Dunning  v.  R.  Co.,  2  Carter  (Ind.)  437;  Danneborge  Mining 
Cq.  v.  Ailment,  26  Cal.  286;  Searsburg  Turnpike  Co.  v.  Cutler,  6 
Vt.  315;  Mitchell  v.  Deeds,  49  111.  416;  Eliz.  Academy  v.  Lindsey, 
6  Ired.  476;  Darst  v.  Gale,  83  111.  136;  Rondell  v.  Fay,  32  Cal.  354; 
DeWitt  V.  Hastings,  40  N.  Y.  (Superior  Court)  463  ;  Rice  v.  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;  Thomburg  v.  R.  Co.,  14  Ind.  499;  Tar  River  Nav.  Co.  v. 
Neal,  3  Hawks,  520;  Bear  Camp  River  Co.  v.  Woodman,  2  Maine 
404. 

In  Jones  v.  Dana,  24  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 y  a    corpora 


624  SOCIETY   PERUN    V.    CLEVELAND.  §   l62 

tion  de  facto ^  and  the  validity  of  its  corporate  existence  can  only  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  indi- 
cated 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  ac- 
tion of  this  court  in  the  quo  warranto  proceedings,  we  have  no  hesi- 
tation in  saying  that  if  we  were  now  called  upon  to  determine  whether 
the  corporate  life  of  Society  Perun  should  be  taken,  the  question, 
upon  the  facts  offered  in  proof  at  the  trial  below,  would  not  be  free 
from  doubt  and  difficulty.  It  is  very  clear  that  the  proceedings  to  in- 
corporate 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  manifest  from  the  evidence,  which  was  received 
without  objection. 

That  the  judgment  of  ouster  did  not  and  could  not  have  a  retroact- 
ive effect  upon  the  rights  of  the  society,  and  of  parties  who  have 
dealt  with  it  during  its  de  facto  existence,  is  suggested  by  the  opinion 
of  Wright,  J.,  in  Gaff  v.  Flesher,  33  Ohio  St.  115. 

The  evidence  which  was  offered  and  excluded  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;  Darst  v.  Gale,  83  111.  136;  Shewalter  v.  Pimer,  55  Mo.  218; 
Nat.  Bank  v.  Matthews,  98  U.  S.  628 ;  Goundie  v.  Northampton 
Water  Co.,  7  Pa.  St.  233;  Barrow  v.  Nashville  Turn.  Co.,  9  Humph. 
304;  Kelly  V.  People's  Trans.  Co.,  3  Ore.  189;  Bogardus  v.  Trin- 
ity 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  office,  had  been  approved  by  him, 
and  also  by  the  attorney-general,  as  required  by  statute  (69  Ohio  L. 
150),  and  that  it  so  far  conformed  to  all  legal  requirements  that,  as 
provided  in  section  2  of  the  act  of  incorporation  (69  Ohio  L.  83),  "a 
copy,  duly  certified  by  the  secretary  of  state,  under  the  great  seal  of 
the  state  of  Ohio,  shall  be  evidence  of  the  existence  of  such  associa- 
tion." 

It  would  seem  that  such  approval,  record  and  certificate,  followed 
by  uninterrupted  and  unchallenged  user  for  nearly  six  years,  of  all  of 
which  proof  was  tendered,  would  constitute  a  corporation  de  facto,  if 
such  a  body  is,  under  any  circumstances,  entitled  to  legal  recognition. 

The  highest  considerations  of  public  policy  and  fair  dealings  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 
eminent  domain  by  the  appropriation  of  private  property  to  public 
use.  It  has  been  held  that  the  exercise  of  this  right  (which  is  but  a 
delegation  of  the  sovereign  power  of  the  state)  depends  upon  the 


§  1 63     DE   FACTO    EXISTENCE   BASED   ON   PUBLIC   POLICY.         625 

sufficiency  and  legal  validity  of  the  certificate  of  incorporation  and 
public  record  of  its  organization.  Railroad  Co.  v.  Sullivant,  5  Ohio 
St.  276;   Atkinson  v.  R.  Co.,  15  Ohio  St.  21. 

The  case  of  Raccoon  River  Nav.  Co.  v.  Eagle,  29  Ohio  St.  238,  is 
relied  upon  by  the  defendant  in  error.  It  was  an  action  to  recover 
upon  a  stock  subscription.  A  plea  of  nul  tiel  corporation  was  inter- 
posed.* The  plaintiff  claimed  to  be  organized  under  an  act  to  author- 
ize 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  certifi- 
cate 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  neither  a  de  jure  nor  de  facto  corporation.  Judgment  was  prop- 
erly rendered  for  defendant. 

In  excluding  proof  of  what  was  actually  done  looking  to  the  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  involved  the  same  general 
questions)  is  reversed.  Numerous  other  questions  are  presented  by 
the  voluminous  records  in  these  cases,  but  as  they  all  depend  upon 
the  one  central  and  controlling  question  discussed  above,  and  as  the 
disposition  here  made  of  the  cases  must  lead  to  a  retrial  in  the  light 
of  the  principles  indicated  in  this  opinion,  they  are  not  separately 
considered. 

Judgment  reversed. 

Note.    See  note  at  end  of  Cochran  v.  Arnold,  infra,  p.  629. 


Sec.  163.     (2)  Reasons  for  not  allowing  a  private  party  to  attack 
successfully  the  validity  of  de  facto  corporate  organization. 

COCHRAN  Et  Al.  v.  ARNOLD  Et  Al.» 

1868.     In   the   Supreme  Court  of  Pennsylvania.     58  Pa.  St. 

Rep.  399-408. 

Strong,  J.  *  *  *  The  action  was  assumpsit  brought  against 
a  large  number  of  persons,  charging  them  as  partners  in  the  purchase  of 
cotton  alleged  to  have  been  sold  and  delivered.  The  defendants  were 

'Argument  omitted.    Only  part  of  opinion  given. 
40— WiL,  Cases. 


626  COCHRAN  V.  ARNOLD.  §  163 

stockholders  of  a  company  called  Conestoga  Steam  Mills,  which 
claimed  to  have  become  a  corporation  in  1849,  under  the  general 
manufacturing  law  of  that  year.  In  1849  a  certificate  of  association 
for  corporate  purposes  was  made  out  and  recorded.  It  set  forth  all 
that  the  law  required.  It  was  entirely  regular  on  its  face.  A  certified 
copy  of  it  was  filed  in  the  oflSce  of  the  secretary  of  the  commonwealth. 
Ostensibly,  the  requirements  of  the  law  were  fully  met.  From  that 
time  until  after  the  cotton  was  sold,  the  corporation  had,  if  not  a  legal, 
at  least  a  de  facto  existence,  and  it  carried  on  business  as  such.  In 
November,  1856,  the  plaintiff  sold  a  quantity  of  cotton  to  it  and  took 
the  promissory  notes  of  the  corporation  for  the  price,  with  a  full 
knowledge  of  the  mode  of  its  constitution,  and  of  what  is  now  alleged 
to  have  been  a  failure  to  comply  with  the  requisitions  of  the  manu- 
facturing law  for  the  procurement  of  a  charter.  They  now  sue  those 
who  were  stockholders  of  the  company  at  the  time  the  cotton  was 
purchased,  and  claimed  to  recover  against  them  individually,  upon  the 
ground  that  the  original  certificate  for  incoi-poration,  though  appar- 
ently regular,  was  illegal  and  void,  because  it  did  not  set  forth  that 
the  capital  paid  in  was  at  the  time  invested  in  mills,  machinery  and 
other  property  adapted  to  the  purposes  for  which  the  corporation  was 
proposed  to  be  organized.  This  they  contend  renders  the  charter  a 
nullity,  and  justifies  them  in  treating  the  sale  as  having  been  made  to 
the  defendants  as  partners.  The  case  rests  therefore  upon  the  assump- 
tion that,  because  the  corporation  was  so  irregularly  constituted  that 
the  commonwealth  might  have  called  in  question  its  legal  existence, 
the  plaintiffs  may  attack  it  and  disprove  its  lawful  being. 

But  the  assumption  is  unwarranted.  The  plaintiffs  are  not  at  lib- 
erty to  assert  in  this  action  that  the  corporation  was  not  lawfully 
formed.  Though  formed  under  a  general  law,  it  is  as  against  all  the 
world,  but  the  commonwealth,  as  completely  and  effectively  a  corpo- 
rate body  as  if  it  had  been  created  by  a  special  act  of  assembly  and 
by  letters-patent.  The  act  of  April  7,  1849,  prescribes  what  shall  be 
the  legal  proof  of  the  existence  of  such  a  corporation.  That  proof  is 
a  certificate  of  certain  things  made  out  as  required,  recorded  in  the 
proper  county,  with  a  certified  copy  of  the  certificate  filed  in  the  ofiice 
of  the  secretary  of  the  commonwealth,  indorsed  by  him  and  then  re- 
tained by  the  company.  The  law  declares  that  when  the  certificate 
has  been  thus  recorded  and  filed,  the  persons  who  have  signed  and 
acknowledged  it,  and  their  successors,  shall  be  a  body  politic  and  cor- 
porate, in  fact  and  in  law.  No  distinction  is  made  between  the  effect 
of  such  a  mode  of  incorporation  and  the  effect  of  any  other  mode.  If 
the  certificate  recorded  and  filed  is  false,  or  if  the  law  has  in  any  par- 
ticular been  violated,  the  commonwealth  has  a  remedy  by  writ  of  quo 
warranto ^  as  it  would  have  in  any  other  case  where  corporate  privi- 
leges have  been  obtained  by  fraudulent  means  or  in  an  illegal  manner. 
But  until  the  franchise  claimed  and  used  has  been  directly  adjudged 
not  to  exist,  there  is  a  corporation  de  facto  at  least.  If  there  is  any- 
thing settled  it  is  that  the  corporate  existence  of  a  corporation  de  facto 
can  not  be  inquired  into  collaterally.    Upon  this  subject  the  authorities 


§   1 63      DE    FACTO    EXISTENCE    BASED   ON    PUBLIC    POLICY.        62/ 

are  too  numerous  to  admit  of  citation.  The  plaintiffs  do  not  deny 
the  principle  as  a  general  rule,  but  they  contend  that  it  is  not  appli- 
cable to  corporations  of  this  character,  to  those  organized  by  the  cor- 
porators themselves  under  a  general  law,  and  for  support  in  this 
position  they  rely  upon  Patterson  v.  Arnold,  9  Wright  410.  Such  is 
the  doctrine  advanced  in  that  case.  But  the  decision  then  made  was 
that  of  a  bare  majority  of  the  court.  It  does  not  profess  to  rest  on  a 
single  authority.  It  is  sustained  by  none,  for  it  is  in  conflict  with  the 
steady  course  of  decisions  elsewhere,  wherever  statutes  exist  similar  to 
ours  of  1849.  Very  little  attempt  was  made  to  sustain  it  by  reason, 
and  if  it  is  the  law  it  must  work  great  confusion  and  lead  to  intoler- 
able mischiefs.  Happily,  if  it  was  mistakenly  made,  we  may  now 
correct  the  mistake  without  harm  to  any  one. 

There  is  no  reason  that  can  be  given  for  such  a  distinction  as  is 
claimed  between  a  charter  obtained  under  the  act  of  1849  and  one  ob- 
tained under  a  special  act  of  assembly.  In  each  case  corporate  power  is 
obtained  by  act  of  the  corporators,  under  restrictions  imposed  by  law. 
When  an  act  authorizes  letters-patent  to  issue  after  a  certificate  by 
commissioners  appointed  to  receive  subscriptions  to  the  capital  stock 
that  a  certain  amount  has  been  subscribed,  and  a  certain  proportion 
paid  in,  the  certificate  may  be  false,  but  nobody  ever  supposed  that 
the  charter  obtained  by  the  false  certificate  is  void,  or  that  it  may  be 
attacked  collaterally.  Why,  then,  should  it  not  be  so  in  case  of  a 
charter  under  the  act  of  1849.'' 

How  much  more  is  a  charter  secured  under  that  act  the  work  of  the 
corporators  than  this  one  obtained  in  the  other  mode?  How  much 
less  is  the  organization  under  the  conduct  of  the  state  ?  Yet  that  it  is 
less  is  the  only  reason  attempted  to  be  given  in  Patterson  v.  Arnold 
why  the  charter  in  the  one  case  should  be  open  to  collateral  attack, 
and  in  the  other  assailable  only  directly  by  the  commonwealth. 

If  we  look  at  the  consequences  of  permitting  one  who  deals  with  a 
corporation  formed  under  the  general  manufacturing  law  to  deny  that 
it  ever  had  any  legal  existence,  or  to  call  in  question  its  rights  to  ex- 
ercise corporate  powers  or  enjoy  corporate  privileges,  we  shall  find 
them  to  be  no  less  mischievous  than  such  as  would  follow  the  doc- 
trine that  any  corporation  may  be  collaterally  attacked  by  one  who 
has  given  credit  to  it,  that  it  is  not  immunity  to  its  shareholders.  In- 
deed, the  mischiefs  of  such  a  doctrine  are  the  same,  whatever  may  be 
the  mode  of  obtaining  corporate  existence.  By  one  jury  a  charter  may 
be  set  aside.  By  another  it  may  be  sustained.  0*ie  creditor  may  sue 
the  corporation  as  such,  obtain  a  judgment  and  sell  its  land,  himself 
becoming  the  purchaser.  Another  creditor  may  sue  the  corporators, 
alleging  that  their  charter  is  null,  furnishing  no  immunity  to  them. 
He  may  obtain  a  judgment  and  sell  the  same  land  to  another  pur- 
chaser, as  the  property,  not  of  the  corporation,  but  of  the  stockhold- 
ers.    In  such  a  case  which  purchaser  would  hold  the  title? 

Again,  new  stockholders  may  come  in,  totally  ignorant  of  any  fraud 
or  mistake  in  making  out  the  certificate.  Are  they  to  be  charged  in- 
dividually because  there  was  a  secret  vice  in  obtaining  corporate  be- 


628  COCHRAN  V.  ARNOLD.  §  163 

ing?  That  would  be  monstrous.  It  would  render  the  manufacturing- 
law  a  thing  to  be  avoided,  though  it  expresses  a  cherished  policy  of 
the  legislature.  Yet,  if  a  charter  can  be  shown  invalid  by  a  collateral 
attack  at  the  suit  of  a  creditor,  why  are  not  new  stockholders  who 
have  come  in  after  the  birth  of  the  corporation  equally  liable  as  part- 
ners, or  joint  contractors,  with  all  the  original  stockholders?  Can  the 
charter  be  effective  and  yet  not  effective  ?  In  Patterson  v.  Arnold  it 
seems  to  have  been  thought  a  charter  may  be  good  as  to  some  stock- 
holders and  a  nullity  as  to  others.  What  confusion  must  this  produce  ? 
Some  may  be  sued  as  partners,  and  others  through  the  coiporation, 
and  under  judgments  obtained  execution  be  levied  upon  the  same 
property.  Or  all  the  original  stockholders  may  go  out  and  give  place 
to  successors.  Then  that  which  was  incurably  vicious,  because  an 
usurpation  upon  the  commonwealth,  has  become  good.  It  is  impossi- 
ble, however,  that  a  charter  can  be  good  as  to  some  stockholders  and 
bad  as  to  others.  Every  one  has  an  interest  in  the  property  of  his 
associates  invested  in  the  common  stock.  Such  is  his  corporate  right. 
If  that  property  can  be  withdrawn  by  action  against  his  associates  in- 
dividually, the  charter  ceases  to  be  to  him  all  that  it  purports  to  be. 

It  is  said  that  those  who  certify  falsely  for  the  purpose  of  obtaining 
a  charter  are  guilty  of  fraud.  Doubtless  this  is  so.  There  is  a  fraud 
upon  the  state.  If  it  be  also  a  fraud  upon  creditors,  the  law  furnishes 
a  remedy.  An  action  will  lie  for  the  fraud.  But  to  deny  the  corpo- 
rate existence  of  a  de  facto  corporation,  and  to  hold  as  partners  those 
who  were  guilty  of  fraud  in  obtaining  the  charter,  is  to  confound  an 
action  ex  contractu  with  one  essentially  for  a  tort. 

It  has  already  been  said  that  Patterson  v.  Arnold  is  unsustained  by 
authority.  General  laws,  much  like  our  act  of  1849,  exist  in  many  of 
the  states,  and  whenever  the  question  has  come  up  it  has  been  ruled 
that  corporations  formed  under  them,  like  all  others,  are  to  be  re- 
garded as  such  until  their  right  is  questioned  by  the  state.  The  ques- 
tion can  not  be  raised  collaterally  whether  they  are  lawfully  such.  In 
Jones  v.  Dana,  24  Barb,  Sup.  C.  Rep.  402,  the  court  said:  "The 
statute  is  explicit  and  leaves  no  room  for  construction.  It  makes  the 
copies  of  the  charter  and  certificates  filed  in  the  office  of  the  county 
clerk  the  authority  of  the  corporation  to  commence  business  and  issue 
policies,  and  makes  them  evidence  for  and  against  the  company ;  that 
is,  evidence  of  the  authority  to  act  as  a  corporation.  The  legislature 
having  said  what  acts  shall  give  the  company  corporate  powers,  and 
what  shall  be  the  evidence  of  those  acts,  as  well  for  as  against  the 
company,  courts  can  not,  at  the  instance  of  thii'd  persons,  go  behind 
those  acts,  and  the  prescribed  evidence  of  them,  for  the  purpose  of 
determining  the  validity  of  the  corporation,  and  make  the  decision, 
pei-haps,  depend  upon  some  mistake  or  accident  from  which  no  one 
has  received  or  can  receive  any  injury."  And  again:  "The  only 
remaining  question  is,  whether  the  plaintiffs  have  shown  the  Utica 
Insurance  Company,  acting  under  a  charter,  or  an  authority  appar- 
ently valid,  and  really  so,  unless  impeached  by  something  outside  of 
the  record  evidence  of  the  corporate  existence,  and  depending  upon 


§  1 63     DE   FACTO   EXISTENCE   BASED   ON   PUBLIC   POLICY.        629 

proof  aliunde.  If  they  have,  and  have  thus  furnished  -prima  facie 
evidence  of  the  incorporation,  they  can  not  go  behind  that  evidence 
to  show  that  it  was  got  up  in  fraud  or  mistake,  or  irregularly  brought 
into  existence."  All  this  was  said  in  reference  to  a  corporation  that 
came  into  being  under  an  act  very  similar  to  ours.  To  the  same 
effect  is  Sedman  v.  Eveleth,  6  Mctcalf  114,  and  Baker  v.  Backus,  32 
111.  III.  I  know  of  no  case,  except  Patterson  v.  Arnold,  in  which  a 
different  doctrine  has  been  advanced.  It  was  not  then  competent  for 
the  plaintiffs  in  this  action,  after  having  contracted  with  the  Conestoga 
Steam  Mills  as  a  corporation,  to  deny  its  corporate  existence.  To  all 
the  stockholders  its  charter  furnished  an  immunity  against  its  credit- 
ors. The  plaintiffs,  therefore,  would  have  had  no  cause  of  action 
against  any  of  the  defendants  had  their  amendment  been  allowed. 

There  is  another  reason  why  there  could  have  been  no  recovery. 
If  the  certificate  for  the  incorporation  was  erroneous  or  fraudulent, 
the  plaintiffs  knew  it  when  they  sold  the  cotton.  It  was  not  for  them 
afterward  to  say  it  was  a  wrong  done  to  them.  It  is  needless,  how- 
ever, to  enlarge  upon  this.  It  is  enough  that  they  were  not  at  liberty 
to  call  in  question  the  validity  of  the  charter. 

The  judgment  is  affirmed. 

Note.  De  facto  corporations :  See  also,  Clopton,  J.,  in  Snider's  Sons' 
Oo.  v.  Troy,  91  Ala.  224,  infra,  p.  656,  and  particularly  as  to  de  facto  corpora- 
tions, 1847,  Brouwer  V.  Appleby,  1  Sandf.  (N.  Y,  Superior  Ct.)  158;  1859, 
Eaton  V.  Aspinwall,  19  N.  Y.  119;  1862,  Buffalo  &  A.  R.  Co.  v.  Gary,  26  N.  Y. 
75;  1872,  Swartwoat  v.  R.  Co..  24  Mich.  390;  1881,  Batchers'  &  D.  Bank  v. 
McOonald,  130  Mass.  264;  1885,  People  v.  La  Rue,  67  Cal.  526,  8  Pac.  Rep.  84; 
1886,  Stout  V.  Zulick,  48  N.  J.  L.  599,  7  Atl.  Rep.  362;  1889,  Eaton  v.  Walker, 
76  Mich.  579,  43  N.  W.  Rep.  638,  27  A.  &  E.  C.  C.  310;  1890,  Snider's  Sons' 
Co.  v.  Troy,  91  Ala.  224,  24  Am.  St.  Rep.  887,  infra,  p.  656;  1891,  American 
Salt  Co.  v.  Heidenheimer,  80  Texas  344,  26  Am.  St.  Rep.  743;  1891.  Allen  v. 
Long,  80  Texas  261,  26  Am.  St.  Rep.  735;  1893,  Gibbs'  Estate,  157  Pa.  St.  59, 
snprn,  p.  244;  1894,  Martin  v.  Deetz.  102  Cal.  55,  41  Am.  St.  Rep.  151,  36  Pac. 
Rep.  368;  18^4,  McTighe  v.  Macon  Const.  Go.,94Ga.  306,  47  Am.  St.  Rep.  153; 
1894,  State  Bank  Building  Go.  v.  Pierce,  92  Iowa  668;  1895,  Coxe  v.  State, 
144  N.  Y.  396,  39  N.  E.  Rep.  400;  1895,  American  Loan  and  Trust  Co.  v. 
Minn.  &  N.  W.  R.  Co,  157  111.  641;  1895,  Greenbrier  Indus.  Ex.  v.  Squires,  40 
W.  Va.  307,  52  Am.  St.  Rep.  884;  1895,  Jones  v.  Hardware  Co.,  21  Colo.  263, 
62  Am.  St.  Rep.  220,  29  L.  R.  A.  143,  infra,  p.  637;  1896,  Bradley  v.  Reppell, 
133  Mo.  545.  54  Am.  St.  Rep.  685,  infra,  p.  868;  1895,  American  Mirror  Co.  v. 
Bulkley,  107  Mich.  447;  1896,  Tuckasegee  Mining  Co.  v.  Goodhue,  118  N.  C. 
981;  1896,  Duke  v.  Tavlor,  37  Fla.  64,53  Am.  St.  Rep.  232;  1897,  Martin  v. 
South  Salem  Land  Co..  94  Va.  28,  26  S.  E.  Rep.  591 ;  1897,  Continental  Trust 
Oo.  V.  T.,St.  L.  &  K.  R.  Co.  (C.  C.  N.  D.  Ohio),  82  Fed.  Rep.  642 ;  1897,  Johnson 
V.  Okerstrom,  70  Minn.  303,  73  N.  W.  Rep.  147;  1898,  Maryland  Tube  and  Iron 
Works  v.West  End  Imp.  Co.,  87  Md.  207.  39  L  R.  A.  810;  1898.  Jones  v.  Hale,  32 
Ore.  465,  8  Am.  &  E.  C.  C.  (N.  S.)  150;  1899,  Calkins  v.  Bump,  120  Mich.  335, 
79  N.  W.  Rep.  491;  1899,  Marsh  v.  Mathias,  19  Utah  350,  56  Pac.  Rep.  1074; 

1899,  City  of  Wilmington  v.  Addicks,  —  Del. ,  43  Atl.  Rep.  297;  1899, 

Christian  &  Craft  Grocery  Co.  v.  Fruitdale  Lumber  Co.,  121  Ala.  340,  25  So. 
Rep.  566 ;  1899,  Commonwealth  v.  Yetter,  190  Pa.  St.  488.  See,  also,  infra, 
pp.  1 122-1130,  on  necessity  of  pleading  and  proving  corporate  existence,  in 
suits  by  and  against  a  corporation. 

There  is  great  confusion  among  the  cases  as  to  the  doctrines  concerning 
ie  facto  corporate  existence,  and  estoppel  to  deny  corporate  existence;  many 
cases  call  an  apparent  corporation  di.de facto  corporation,  when  there  is  no  suf- 


.AT 


630  COCHRAN  V.  ARNOLD.  §  164 

ficient  reason  for  so  designating  it,  bat  abundant  reason  for  holding  the  per- 
son who  questioned  the  existence  of  the  corporation  estopped  from  doing  so. 
On  the  other  hand,  many  cases  are  decided  on  grounds  of  estoppel,  when,  in 
fact,  there  are  sufficient  reasons  for  holding  the  corporation  to  be  a  de  facto 
one,  and  hence,  there  is  no  necessity  of  invoking  the  doctrine  of  estoppel. 
Much  of  the  confusion  undoubtedly  arises  also  from  the  variety  of  opinion  as 
to  the  necessity  of  pleading  and  proving  corporate  existence  in  suits  by  or 
against  corporations.  See  jH/?-a,  pp.  1122-1130.  For  example,  in  Williams  v. 
Bank,  7  Wend.  (N.  Y.)  639  (1831),  it  is  said  "A  contract  made  with  a  corpo- 
ration by  name  is  not  an  admission  or  any  evidence  that  the  corporation  is  en- 
titled to  sue  bv  that  name."  And  again,  in  Welland  Canal  Co.  v.  Hathawav, 
8  Wend.  (N.  Y.)  480,  24  Am.  Dec.  51  (1832),  it  is  said  :  "When  a  corporatio"n 
sues,  if  they  have  not  the  powers  and  privileges  assumed  *  *  *  it  is  their 
own  fault,  not  his.  Whether  they  had  *  *  *  or  not  must  be  known  to 
themselves,  not  to  the  defendant,  and  no  act  of  his  could  legally  add  to  or 
detract  from  them.  Why,  then,  should  he  be  estopped  from  denying  their 
corporate  capacity,  or  they  be  excused  from  establishing  it  by  legal  evidence, 
when  they  are  endeavoring  to  enforce  their  rights  in  a  manner  and  before  a 
tribunal  which  can  entertain  their  suit  only  on  proof  or  assumption  that  they 
are  a  corporate  body,  duly  constituted  by  competent  authority?"  So,  too,  in 
Maryland  Tube  and  Iron  Works  v.  West  End  Improvement  Co.,  87  Md.  207. 
39  L.  R.  A.  810  (1898),  where  the  question  was  as  to  whether  there  was  cause 
for  estoppel  before  the  franchise  tax  was  paid,  it  was  said  that  the  doctrine  0/ 
estoppel  can  not  be  invoked  unless  the  corporation  has  at  least  a  de  facto  existence. 
A  similar  holding  was  made  in  Jones  v.  Hardware  Co.,  21  Colo.  2&d,  infra, 
p.  637,  and  Duke  v.  Taylor,  37  Fla.  (i4,  but  it  is  submitted  that  the  foregoing 
vi'ews  are  not  according  to  the  weight  of  authorit^^  On  the  contrary:  "A 
corporation  de  facto  may  legally  do  and  perform  every  act  and  thing  which  the 
same  entity  could  do  or  perform  were  it  a  de  jure  corporation.  As  to  ail  the 
world,  except  the  paramount  authority  under  which  it  acts  and  from  which  it 
receives  its  charter,  it  occupies  the  same  position  as  though  in  all  respects 
valid,  and  even  as  against  the  state,  except  in  direct  proceedings  to  arrest  its 
usurpation  of  power,  its  acts  are  binding."  People  v.  La  Eue,  67  Cal.  526 
(1885).  Even  the  state  in  a  qxio  icarranto  to  test  the  right  to  a  corporate  office 
can  not  question  the  corporate  existen(?e.  Commonwealth  v.  Yetter,  190  Pa. 
St.  488  (1899).  See,  also.  Beach,  H  13,  14,  16;  Clark,  §§  41,  42;  Cook,  §§  183- 
186,  231-235,  637;  Elliott,  §§  69-80;  Morawetz,  §§  735-778;  Taylor,  §§145-157; 
I  Thompson,  §§  495-513;  VII  Thompson,  §  8212. 


ARTICLE    VI.       CONDITIONS    OF    CORPORATE   EXISTENCE     BY  ESTOPPEL. 

Sec.  164.     (A)  Theories: 

"An  examination  of  the  cases  in  which  the  doctrine  of  estoppel  to 
deny  corporate  existence  has  been  applied  will  show  that  most  of  them 
rest  on  some  basis  of  conduct,  or  of  benefit  obtained,  or  other  cause 
rendering  it  inequitable  to  allow  such  denial.  The  doctrine  is  an 
equitable  orje,  and  should  be  applied  only  where  there  are  equitable 
grounds  for  applying  it.  It  should  never  be  applied  where  it  would 
be  inequitable  to  do  so.  Nor  should  it  be  applied  unless  it  would  be 
inequitable  not  to  do  so."     Clark  on  Corps.,  §  43,  p.  103. 

(  I  )  The  doctrine  is  one  of  equity. 


§  l64  CORPORATIONS    BY   ESTOPPEL.  63 1 

(«)  Will  be  applied  where  it  would  be  inequitable  not  to 
apply  it. 

ESTEY  MANUFACTURING  COMPANY  v.  RUNNELS.^ 

1884.     In    the  Supreme    Court  of   Michigan.     55  Mich.  Rep. 

130-133- 

Champlin,  J.  This  action  was  commenced  before  a  circuit  court 
commissioner  to  recover  the  possession  of  certain  land  described  in 
the  complaint,  and  averring  that  the  defendant  holds  the  same  unlaw- 
fully and  against  the  rights  of  the  Estey  Manufacturing  Company. 
December  3,  1883,  was  the  return  day,  when  the  defendant  appeared 
and  pleaded  not  guilty.  The  cause  was  then  tried  and  judgment 
rendered  in  favor  of  the  plaintiff;  and  on  the  8th  day  of  December, 
1883,  the  defendant  appealed  the  suit  to  the  circuit  court  for  the  county 
of  Shiawassee.  The  cause  was  tried  in  the  circuit,  April  3,  1884, 
when  the  plaintiff  again  had  a  verdict,  whereupon  the  defendant  brings 
the  suit  to  this  court  by  writ  of  error.     *     «     « 

Defendant  also  introduced  and  read  in  evidence  a  duly  certified 
copy  of  the  articles  of  association  of  the  plaintiff  corporation,  from 
which  it  appeared  that  there  were  but  three  corporators,  two  of  whom 
resided  in  Michigan  and  one  in  Vermont.  The  acknowledgment  of 
Jacob  W.  Este}'  was  taken  before  a  person  styling  himself  a  notary 
public,  but  his  official  character  and  authority  to  take  acknowledg- 
ments was  not  authenticated  in  accordance  with  the  requirements  of 
our  statutes.  The  defendant's  counsel  requested  the  court  to  charge 
the  jury  as  follows:      *     *     » 

'•'•Fourth.  That  the  articles  of  association  filed  in  said  cause  and 
read  therein  are  void  under  the  law."     *     *     ♦ 

The  third  and  fourth  requests  refer  to  the  same  point,  and  may  be 
considered  together.  Where  a  body  assumes  to  be  a  corporation  and 
acts  under  a  particular  name,  a  third  party  dealing  with  it  under  such 
assumed  name  is  estopped  to  deny  its  corporate  existence.  Such  is  the 
general  rule,  founded  upon  equitable  principles,  and  if  any  exceptions 
exist,  it  is  only  where  "there  are  no  facts  which  make  it  legally  unjust 
to  forbid  its  denial."  Doyle  v.  Mizner,  42  Mich.  337.  In  this  case 
the  defendant  introduced  in  Evidence  the  execution  upon  which  the 
sale  was  made.  From  this  it  appears  that  it  was  issued  upon  a  judg- 
ment rendered  for  damages  for  the  non-performance  of  certain  prom- 
ises and  undertakings  made  by  this  defendant  to  the  Estey  Manufac- 
turing Company,  which  shows  that  the  defendant  had  had  dealings 
with  the  plaintiff  as  a  corporation  in  the  name  assumed  by  it.  He 
was  therefore  estopped,  not  only  by  having  dealt  with  it  as  a  corpora- 
tion, but  by  the  judgment  in  the  case,  to  deny  its  corporate  existence. 
The  execution,  sale  and  sheriff's  deeds  all  result  from  the  contract 
relation  voluntarily  entered  into  between  the  defendant  and  this  cor- 
porate hody,  and   it   would   be  manifestly  unjust   and    inequitable  to 

'  Arguments  omitted.     Only  part  of  opinion  relating  to  the  one  point  given. 


632  DOYLE   V.    MIZNER.  §   1 65 

permit  the  defendant  to  question  the  legal  corporate  existence  of  the 
plaintiff  in  this  collateral  proceeding. 

For  these  reasons  the  requests  were  properly  refused,  and  the  judg- 
ment is  affirmed. 

The  other  justices  concurred. 

Note.    See  note  at  the  end  of  this  article,  on  extent  of  doctrine. 


Sec.  165.    Same. 

(^)  Will  be  applied  only  where  it  is  equitable  to  do  so. 

DOYLE  V.  MIZNER,  GRAY  AND  KANE.^ 

1879.     In    the    Supreme  Court    of    Michigan.     42  Mich.  Rep. 

332-341- 

Error  to  superior  court  of  Detroit.     Trover.     Plaintiff  brings  error. 

Campbell,  C.  J.  Doyle  brought  suit  to  recover  for  the  forcible 
removal  and  disposal  of  certain  goods  claimed  to  be  his  property,  and 
taken  from  his  possession  by  defendant  Kane  under  color  of  a  chattel 
mortgage  purporting  to  be  made  by  Mizner  and  Gray,  as  president 
and  secretary  of  the  Detroit  Chemical  Works.     *     *     * 

January  27,  1875,  an  agreement  was  signed  by  Doyle,  Mizner  and 
Gray  to  organize  a  joint-stock  company,  to  be  known  as  the  Detroit 
Chemical  Works,  with  a  capital  of  $50,000,  in  2,000  shares  of  $25 
each.  The  paid-in  capital  was  fixed  at  $14,000;  the  estimated  assets 
of  the  Detroit  Manufacturing  Company,  of  which  $10,000  as'paid-up 
stock  was  to  go  to  Doyle,  and  $2,000  each  to  Gray  and  Mizner,  who 
were  therein  stated  to  have  purchased  that  interest.  But  there  is  noth- 
ing to  indicate  that  they  gave  or  were  to  give  any  consideration.  The 
remaining  $36,000  was  to  be  sold  for  working  capital,  after  allowing 
Doyle  $4,000  to  be  sold  for  Doyle's  benefit  in  payment  for  certain 
claims  sold  to  the  company,  and  for  which  he  was  to  turn  in  $4,000 
of  his  stock.  The  first  $500  raised  was  to  go  towards  paying  the 
chattel  mortgage.  Without  some  further  showing  it  would  seem  that 
under  this  arrangement  Doyle  furnished  the  entire  original  capital,  and 
Gray  and  Mizner  got  their  share  out  of  him  for  nothing.     *     ♦     * 

On  the  nth  of  February,  1875,  a  transfer  in  writing  was  signed 
by  the  three  parties  of  all  the  property  of  the  Detroit  Manufacttiring 
Company  to  the  chemical  works  for  the  expressed  consideration  of 
$14,000,  "subject  to  a  claim  of  about  $500,  held  by  Kane  &  Hibbard 
(or  their  client),  of  Detroit,  Mich."      *     *     * 

Doyle's  ground  of  action  is  based  on  the  claim  that  he  never  trans- 
ferred his  rights  to  any  one,  and  that  the  paper  in  question  was  not  to 
become  operative  until  he  received  consideration  by  payment  for  his 
goods.  His  testimony,  if  believed,  shows  that  the  paper  was  never 
delivered  in  such  a  way  as  to  belong  to  the  Detroit  Chemical  Works 
or  to  pass  any  title  until  paid  for. 

*  Arguments  omitted.    Only  part  of  opinion  given. 


§  l65  CORPORATIONS   BY   ESTOPPEL.  633 

It  is  claimed  for  the  defense  that  Doyle,  having  dealt  with  it  and 
acted  with  Gray  and  Mizner,  is  estopped  from  denying  its  corporate 
existence.  There  are  certainly  many  cases  in  which  a  recognition 
of  corporate  existence  by  dealing  with  the  corporation^  will  estop 
from  questioning  it.  But  this  doctrine  rests  on  the  ground  that 
such  action  creates  relations  and  encourages  conduct  which  there 
may  be  difficulty  in  undoing.  In  ordinary  cases  such  recognitions 
have  been  considered  as  bindi?ig. 

But  this  rule  is  one  originating  in  equitable  principles^  and  can 
not  be  applied  U7iiversally .  There  would  be  no  sense  in  applying  it 
where  ?io  new  rights  have  intervened^  and  where  such  recognition 
has  itself  been  brought  about  by  fraudulent  dealings  carried  on  for 
the  very  purpose  of  entrapping  a  party  into  the  action  on  which 
such  recognition  rested.  If  there  was  no  corporation  in  fact.,  and 
if  there  are  no  facts  which  make  it  legally  ufijust  to  forbid  its  de- 
nial, it  is  difficult  to  understand  what  room  there  is  for  an  estoppel. 
And  inasmuch  as  facts  were  asserted  by  plaintiff  tending  to  show 
good  reasons  why  he  should  not  be  estopped,  and  that  testimony  was 
open  to  the  jury,  the  rulings  upon  the  proof  of  corporate  existence 
are  fairly  open  to  review. 

The  incorporation  was  sought  to  be  shown  by  asking  Doyle  on 
cross-examination  concerning  the  signing  of  the  paper  purporting  to 
be  articles  of  incorporation,  which  had  been  filed  in  the  Detroit  city 
clerk's  office,  April  6,  1875.  This  paper  was  not  acknowledged,  and 
was  not  filed  in  the  county  clerk's  office.  A  copy  of  the  same  paper 
was  certified  by  the  secretary  of  state ;  but  his  certificate  did  not  give 
a  copy  of  any  acknowledgment,  byt  merely  said  the  paper  was  ac- 
companied by  an  acknowledgment  in  the  usual  form.  The  original 
paper  had  an  unsigned  certificate  of  acknowledgment. 

Under  our  present  constitution  no  charters  can  be  granted,  and  all 
private  corporations  must  be  organized  under  general  laws,  and  can 
only  be  valid  when  strictly  conforming  to  all  the  conditions  imposed 
upon  their  completion.  The  statute  concerning  manufacturing  cor- 
porations expressly  requires  that  the  articles  shall  be  "acknowledged 
before  some  person  authorized  by  the  laws  of  this  state  to  take  ac- 
knowledgments of  deeds."     Comp.  L.,  §  2839. 

There  was,  therefore,  no  incorporation  shown,  and,  therefore,  for 
the  purposes  of  this  case,  none  exists  as  a  matter  of  fact.  The  only 
way  in  which,  under  these  circumstances,  any  question  of  corporate 
action  could  arise  would  be  by  way  of  estoppel.  And  it  is  important 
to  see  how  far  relations  existed  which  might  create  it,  and  whether 
any  one  shows  a  right  to  rely  on  it. 

By  the  contract  of  January  27,  1875,  Doyle  agreed  to  transfer  his 
assets  to  the  company  as  soon  as  it  should  become  incorporated.  The 
whole  consideration  of  that  a<2;reement  rested  on  the  creation  of  stock, 
which  was  to  be  in  part  apportioned  and  in  part  sold  as  agreed.  Notl> 
ing  but  the  stock  of  such  a  nature  as  to  be  lawfully  transferal)le  as 
such  could  satisfy  the  agreement.  And  until  provision  was  made 
which  secured  this  no  consideration  existed  for  the  transfer,  and  there 


634  SNYDER    V.    STUDEBAKER.  §   l66 

was  no  promise  to  make  it.  This  becomes  material  in  another  point 
of  view,  which  will  be  referred  to  presently. 

To  what  extent,  if  any,  the  action  of  those  parties  on  the  assump- 
tion there  was  a  corporation  would  estop  them  as  against  third  par- 
ties dealing  with  them,  can  only  be  decided  when  such  cases  arise. 
As  betiveen  themselves  there  can  be  no  such  estoppel  where  Mizner 
and  Gray  are  not  injured  by  any  honest  reliance  on  Doyle' s  action  to 
their  prejudice.  Each  of  them  knew  what  was  dofze,  and  xvas  bound 
in  law  to  know  there  was  no  incorporation.  If  a  mistake  of  law 
would  exonerate  them  from  this  rule.,  it  would  also  exojierate  Doyle., 
and  would  still  bind  him  by  no  estoppel  extending  beyond  silch  results 
as  came  from  an  honest  reliance  on  his  acts.  They  could  claim  no 
interest  in  his  property  for  which  no  consideration  passed,  and  they 
could  claim  no  rights  against  hiin  except  to  the  extent  of  their  damage 
by  a  justifiable  reliance  on  what  had  been  done  to  their  prejudice  by 
his  procurement  or  encouragement. 

If  it  was  understood  the  bill  of  sale  was  not  to  take  immediate 
effect,  then  no  title  could  pass  to  the  concern  either  corporation  or  un- 
incoi-porated.  And,  as  already  seen,  there  was  no  state  of  things 
which  formed  any  legal  consideration  for  the  transfer  under  the  agree- 
ment of  January,  1875.  We  think  the  court  erred  in  connecting  the 
transfer  with  that  agreement,  if  there  was  no  actual  incorporation. 
In  the  absence  of  an  actual  incorporation  the  transfer  must  be  regarded 
as  a  new  and  distinct  arrangement,  resting  on  its  own  consideration. 
It  could  not  be  valid  unless  delivered,  and  where  the  same  persons 
are  grantors  and  representatives  of  the  grantees,  there  must  be  dis- 
tinct evidence  that  it  was  intendefl  to  be  operative,  which  its  signa- 
ture alone  would  not  give.  And  if  there  was  no  corporate  existence, 
not  only  does  the  consideration  of  the  transfer  expressed  on  its  face 
utterly  fail,  but  the  further  difficulty  arises  that  there  is  absolute  iden- 
tity between  grantors  and  grantees,  with  nothing  to  distinguish  it  from 
any  other  grant  of  a  party  to  himself.  From  such  a  document  no  new 
rights  could  arise  as  between  the  parties.     *     *     * 

Reversed. 

Sec.  166. 

(2)  Estoppel  arises  on  matter  of  fact  only,  and  not  of  law. 
SNYDER  V.  STUDEBAKER. 
1862.  In  the  Supreme  Court  of  Indiana.    19  Ind.  Rep.  462-466. 

Appeal  from  the  Wells  Circuit  Court. 

WoRDEN,  J.  This  was  an  action  by  Snyder  against  Studebaker 
to  recover  possession  of  a  certain  tract  of  land.  Judgment  for  the 
defendant. 

The  same  question  is  presented  by  the  pleadings  and  the  evidence. 

It  appears  that,  in  March,  1853,  the  plaintiff,  who  was  then   the 


§   l66  CORPORATIONS    BY    ESTOPPEL.  635 

owner  of  the  lanH,  conveyed  the  same  to  the  Fort  Wayne  and  South- 
em  Raih-oad  Company,  by  deed,  duly  executed  and  delivered. 

This  conveyance  was  made  on  account  of  a  stock  subscription. 

Afterward,  in  November,  1855,  the  railroad  company,  for  a  valua- 
ble consideration,  conveyed  the  premises  to  the  defendant. 

The  Fort  Wayne  and  Southern  Railroad  Company  was  chartered 
by  act  of  the  legislature,  passed  in  1S49;  and  it  appears  that  the  cor- 
porators named  in  the  act  in  question  met  in  the  town  of  Bluffton,  in 
said  county  of  Wells,  on  the  19th  day  of  November,  185 1,  and  then 
and  there  accepted  the  act  of  incorporation,  and  organized  the  com- 
pany pursuant  to  the  provisions  of  said  act. 

If  the  corporation  was  not  created  before  the  ist  of  November, 
185 1,  when  the  new  constitution  took  effect,  it  could  have  no  existence 
at  all,  as  that  instrument  prohibits  the  creation  of  coiporations  other 
than  banking,  by  special  act.  The  State  v.  Dawson,  16  Ind.  40. 
Harriman  v.  Southam,  16  Ind.  190. 

The  plaintiff  claims  that,  inasmuch  as  there  was  no  acceptance  of 
the  charter,  or  organization  under  it,  until  after  the  adoption  of  the 
constitution  of  185 1,  there  was  no  such  corporation  as  The  Fort  Wayne 
and  Southern  Railroad  Company  at  the  time  he  executed  the  convey- 
ance, and.  hence,  that  no  title  passed  from  him.  But  is  he  in  a  con- 
dition to  dispute  the  existence  of  the  corporation  at  the  time  he  made 
his  conveyance  to  it.'' 

It  has  been  held,  in  numerous  cases  in  this  state,  that  a  party  ivho 
has  contracted  with  a  corporation^  as  such,  is,  as  a  general  proposi~ 
Hon,  estopped  by  his  contract  to  dispute  the  existence  of  the  corpora- 
tion at  the  time  of  the  contract.  The  following  cases  may  be  cited, 
though  there  are,  perhaps,  others  reported  and  some  not  reported  as 
yet:  Judah  v.  The  American  Live  Stock  Insurance  Company,  4  Ind. 
333  ;  The  Brookville  and  Greensburg  Turnpike  Company  v.  McCarty, 
8  Ind.  392;  Ensey  v.  The  Cleveland  and  St.  Louis  Railroad  Com- 
pany, 10  Ind.  178;  Fort  Wayne  and  Bluffton  Turnpike  Company  v. 
Deam,  10  Ind.  563;  Jones  v.  The  Cincinnati  Type  Foundry  Com- 
pany, 14  Ind.  89;  Hubbard  V.  Chappell,  14  Ind.  601;  The  Evans- 
ville,  etc.,  Railroad  Company  v.  The  City  of  Evansville,  15  Ind. 
395;  Meikel  v.  The  German  Savings  Fund  Society,  16  Ind.  181; 
Heaston  v.  The  Cincinnati  and  Fort  Wayne  Railroad  Company,  16 
Ind.  275. 

The  doctrine  is  by  no  means  confined  to  the  state,  but  prevails 
elsewhere.  The  Dutchess  Cotton  Manufactory  v.  Davis,  14  Johns. 
238;  All  Saints'  Church  v.  Lovett,  i  Hall  191 ;  Palmer  v.  Lawrence, 
3  Sand.  Sup.  C.  R.  161;  Eaton  v.  Aspinwall,  6  Duer  176;  Jones 
V.  Bank  of  Tennessee,  8  B.  Mon.  122;  Worcester  Medical  Institu- 
tion V.  Harding,  11  Cush.  285;  The  Congregational  Society  v.  Perry, 
6  N.  H.  164;  People's  Savings  Bank,  etc.,  v.  Collins,  27  Conn.  142; 
West  Winsted  Savings  Bank  v.  Ford,  27  Conn.  282  ;  Angell  and 
Ames  on  Corp.,  §  94. 

T^he  estoppel  arises  upon  matter  of  fact  only,  and  not  upo?i  matter 
of  law.     Hence,  if  there  be  no  law  which  authorized  the  supposed 


536  SNYDER   V.    STUDEBAKER.  §  1 66 

corporation^  or  if  the  statute  authorizing  it  be  unconstitutional  and 
void,  the  coj^tract  does  not  estop  the  party  making  it  to  dispute  the 
existence  of  the  corporation.  J3ut  if,  on  the  other  hand,  there  be  a 
lazv  which  authorized  the  corporation,  then,  whether  the  corporators 
have  co7)iplied  with  it,  so  as  to  become  duly  incorporated,  is  a  ques- 
tion of  fact,  and  the  party  making  the  contract  is  estopped  to  dispute 
the  oro-anization  or  the  legal  existence  of  the  corporation.  This  prop- 
osition is  substantially  stated  in  the  cases  of  Jones  v.  The  Cincinnati 
Type  Foundry  Company,  Meikel  v.  The  German  Savings  Fund 
Society,  and  Heaston  v.  The  Cincinnati  and  Fort  Wayne  Railroad 
Company,  supra. 

Let  us  apply  the  doctrine  to  the  case  before  us.  The  corpo- 
rators named  in  the  act  to  establish  the  Fort  Wayne  and  Southern 
Railroad  Company  had  a  right,  at  any  time  before  the  offer  of  the 
franchises  was  withdrawn,  that  is,  before  the  constitution  of  185 1  was 
adopted,  to  accept  the  charter,  and  organize  imder  it.  If  they  did  so 
accept  the  charter,  and  organize,  the  corporation  was  legitimately 
created,  and  the  new  constitution  did  not  destroy  it. 

Whether  they  did  so  accept  the  charter,  and  organize,  was  a  question 
of  fact,  and  the  plaintiff,  by  his  conveyance,  is  estopped  to  deny  such 
acceptance  and  organization. 

That  the  corporators  accepted  the  charter,  and  organized  under  it, 
within  the  time  when  it  was  competent  to  do  so,  was  as  fully  admitted 
by  the  contract  as  was  any  other  step  necessary  to  an  organization. 

The  conclusion  necessarily  follows  that  the  plaintiff  is  estopped  to 
dispute  the  existence  of  the  corporation  at  the  time  of  his  conveyance 
to  it. 

This  point  was  ruled  the  other  way  in  the  case  of  Harriman  v. 
Southam,  16  Ind.  190;  but,  upon  more  mature  reflection,  we  are  satis- 
fied that  the  decision  upon  this  point  was  wrong,  and  should  be  over- 
ruled. 

We  may  remark,  also,  that  the  doctrine  of  estoppel  was  erroneously 
applied  in  the  case  of  The  Evansville,  etc..  Railroad  Co.  v.  The  City 
of  Evansville,  15  Ind.  395.  There  the  point  made  was  that  the  law 
under  which  the  corporation  was  organized  was  unconstitutional  and 
void.  A  party,  we  have  seen,  does  not,  by  his  contract,  estop  him- 
self to  deny  that  there  is  any  law,  or  any  valid  law,  by  which  the  cor- 
poration was  authorized. 

Some  further  observation,  in  respect  to  the  case  before  us,  will  not 
be  out  of  place.  The  doctrine  of  estoppel,  as  applied  to  the  case, 
does  not  rest  upon  a  mere  technical  rule  of  law.  It  has  its  foundation 
in  the  clearest  equity,  and  the  principled  of  natural  justice.  The  doc- 
trine of  estoppel  in  pais  is  of  comparatively  recent  growth,  but  is 
firmly  and  clearly  established.  "The  recent  decisions  of  the  courts, 
both  in  this  country  and  in  England,  appear  to  have  given  a  much 
broader  sweep  to  the  doctrine  of  estoppel  in  pais  than  that  which 
formerly  existed,  and  to  have  established  that,  in  all  cases  where  ati 
act  is  done,  or  a  statement  made,  by  a  party,  the  truth  or  eficacy  of 
which  it  would  be  a  fraud  on  his  part  to  controvert  or  impair,  there 


§   1 6/  CORPORATIONS    BY    ESTOPPKL.  637 

the  character  of  an  estoppel  ivill  be  given  to  -what  ivoiild  otherwise  be 
mere  matter  of  evidence^  and  it  ivill^  therefore,  become  binding  upon 
a  Jury,  even  in  the  presence  of  proof  of  a  contrary  nature."  2 
Smith  Lead.  Cas.,  p.  531,  i  Am.  ed.  See,  also,  upon  this  subject, 
Kinney  V.  Farnsworth,  17  Conn.  355;  Middleton  Bank  v.  Jerome,  18 
Conn.  443;  Laney  v.  Laney,  4  Ind.  149.  In  Doe  ex  dem.  Richard- 
son V.  Baldwin,  i  Zabriskie,  397,  it  was  said  that  "The  doctrine  of 
estoppel  rests  upon  the  principle,  that  when  one  has  done  an  act,  or 
made  a  statement,  which  it  would  be  a  fraud,  on  his  part,  to  contro- 
vert or  impair,  and  such  act  or  statement  has  so  influenced  any  one 
that  it  has  been  acted  upon,  the  party  making  it  will  be  cut  off  from 
the  power  of  retraction.  It  must  appear,  r.  That  he  has  done  some 
act,  or  fnade  some  admission  inconsistent  -with  his  claim;  2.  That 
the  other  party  has  acted  upon  such  conduct  or  admission ;  3.  That 
such  party  will  be  injured  by  allowing  the  conduct  or  admission  to  be 
withdrawal."  Here  the  plaintiff,  by  his  conveyance  to  the  corpora- 
tion, admitted  that  it  had  an  existence,  and  could  receive  the  title. 
Upon  this  act  and  admission  of  the  plaintiff  the  defendant  has  acted 
in  purchasing  the  land  of  the  company.  If  the  plaintiff  had  not  con- 
veyed to  the  corporation,  the  defendant  would  not  have  purchased  from 
it.  The  law  will  not  now  permit  the  plaintiff  to  withdraw  the  admission 
made  by  him  in  conveying  to  the  corporation  and  deprive  the  defend- 
ant of  the  land  which  he  purchased  on  the  faith  of  such  admission. 
In  our  opinion  the  judgment  below  is  right,  and  must  be  affirmed. 
Per  Curiam. — The  judgment  is  affirmed,  with  costs. 

Note.    See  following  cases,  and  those  cited  to  Cochran  v.  Arnold,  supra, 
p.  629. 


Sec.  167. 

(3)  Estoppel  applies  only  in  cases  where  there  is  at  least  a  de 
facto  existence. 

JONES  V.  THE  ASPEN  HARDWARE  COMPANY. 

1895.     In  the   Supreme  Court   of    Colorado.      21  Colo.  Rep. 
263-271,  52  Am.  St.  Rep.  220. 

The  Aspen  Hardware  Company  instituted  this  suit  in  the  court  be- 
low for  the  purpose  of  recovering  a  stock  of  goods  seized  by  the  United 
States  marshal  under  a  writ  of  attachment  issued  out  of  the  circuit 
court  of  the  United  States  at  the  suit  of  Joseph  A.  Thatcher,  plaintiff, 
against  one  A.  B.  Eads.  The  only  question  in  the  case  has  reference 
to  the  corporate  capacity  of  defendant  in  error,  it  not  having  filed, 
prior  to  the  attachment  levy,  its  certificate  of  incoiporation  with  the 
secretary  of  state,  as  required  by  the  statute.  Session  Laws  of  1887, 
p.  406.  In  the  district  court  judgment  was  entered  in  favor  of  the 
company.     The  statute  reads  as  follows: 

"Every  corporation,  joint-stock  company  or  association  incorporated 


638  JONES    V.    THE   ASPEN    HARDWARE   CO.  §   167 

by  or  under  any  general  or  special  law  of  this  state,  or  by  or  under 
any  general  or  special  law  of  any  foreign  state  or  kingdom,  or  of  any 
state  or  territory  of  the  United  States  beyond  the  limits  of  this  state, 
having  capital  stock  divided  into  shares,  shall  pay  to  the  secretary  of 
state  for  the  use  of  the  state  a  fee  of  ten  dollars,  in  case  the  capital 
stock  which  said  corporation,  joint-stock  company  or  association,  is 
authorized  to  have,  does  not  exceed  one  hundred  thousand  dollars; 
but,  in  case  the  capital  stock  thereof  is  in  excess  of  one  hundred  thou- 
sand dollars,  the  secretary  of  state  shall  collect  the  further  sum  of  ten 
(10)  cents  on  each  and  every  thousand  dollars  of  such  excess,  and  a 
like  fee  of  ten  cents  on  each  thousand  of  the  amount  of  each  subse- 
quent increase  of  stock.  The  said  fee  shall  be  due  and  payable  upon  the 
filing  of  the  certificate  of  incorporation,  articles  of  association  or  char- 
ter of  said  corporation,  joint-stock  company  or  association,  in  the  office 
of  the  secretary  of  state;  and  no  such  corporation,  joint-stock  com- 
pany or  association  shall  have  or  exercise  any  corporate  powers  or  be 
permitted  to  do  business  in  this  state  until  the  said  fee  shall  have  been 
paid ;  and  the  secretary  of  state  shall  not  file  any  certificate  of  incor- 
poration, articles  of  association,  charter  or  certificate  of  the  increase 
of  capital  stock,  or  certify  or  give  any  certificate  to  any  such  corpora- 
tion, joint-stock  company  or  association,  until  said  fee  shall  have  been 
paid  to  him.  But  this  act  shall  not  apply  to  corporations  not  for 
pecuniary  profit,  or  corporations  organized  for  religious,  educational 
or  benevolent  purposes."     Section  i.  Acts  of  1887,  p.  406. 

Chief  Justice  Hayt  delivered  the  opinion  of  the  court. 

In  November,  A.  D.  1889,  Shepard  &  Bowles,  as  co-partners,  were 
doing  a  general  hardware  business  in  the  city  of  Aspen,  and,  during 
that  month  made  a  sale  of  their  business,  stock  in  trade,  good-will, 
etc.,  to  A.  B.  Eads,  the  consideration  for  this  transfer  being  certain 
real  estate  and  the  assumption  of  certain  indebtedness  of  the  firm  of 
Shepard  &  Bowles.  Eads  being  unable  to  comply  with  the  terms  of  the 
agreement,  a  new  arrangement  was  made  between  the  parties,  and  an 
organization  known  as  the  Aspen  Hardware  Company  was  formed  by 
Bowles,  Eads  and  one  Kettler.  The  articles  of  incorporation  pro- 
vided that  the  affairs  of  the  company  should  be  managed  by  a  board 
of  three  directors,  naming  Bowles,  Eads  and  Kettler  as  such  directors 
for  the  first  year.  It  was  the  evident  intention  of  the  parties  that  the 
company  should  be  duly  and  legally  incorporated,  and  to  this  end  they 
caused  to  be  executed  articles  of  incorporation  on  the  i6th  day  of 
November,  1889,  in  due  form,  and  immediately  filed  the  same  with 
the  clerk  and  recorder  of  Pitkin  county.  For  some  reasons  not  ex- 
plained 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  here- 
inafter referred  to,  and  not  until  the  day  upon  which  this  suit  in  re- 
plevin was  instituted,  but  whether  before  or  after  the  commencement 
of  this  acticrai  does  not  clearly  api>ear  from  the  evidence. 

After  the  articles  were  filed  with  the  county  clerk,  the  board  of 
directors  held  a  meeting,  elected  officers,  caused  capital  stock  to  be 
issued,  etc.,  Eads  being  present  and  participating  in  this  meeting,  at 


§  1 6/  CORPORATIONS    BY    ESTOPPEL.  639 

which  Bowles  was  elected  president,  Eads  vice-president,  and  Kettler 
secretary  and  treasurer.  Thereupon,  Eads,  for  a  valuable  considera- 
tion, sold  and  transferred  the  property  to  the  new  organization,'  and 
Mr.  Bowles,  from  that  time  forward,  conducted  the  business  for  the 
Aspen  Hardware  Company,  selling  goods  and  purchasing  new  goods 
in  the  corporate  name.  Eads,  soon  after  the  sale,  left  the  town  of 
Aspen  and  did  not  return,  nor  personally  take  part  in  the  business  at 
that  point,  but  continued  as  a  director  and  vice-pre^dent  of  the  com- 
pany, and  retained  a  portion  of  his  stock,  although  he  had  sold  a  part 
of  it  prior  to  the  levy  of  the  writ  of  attachment. 

The  business  was  thus  continued  until  July  31,  1890,  when  a  suit 
was  commenced  by  Thatcher,  plaintiff,  against  A.  B.  Eads,  and  the 
property  in  question  levied  upon  as  the  property  of  the  defendant  in 
that  suit,  and  this  action  of  replevin  was  immediately  instituted  to  re- 
cover possession  of  the  property,  or  its  value. 

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  con- 
troversy as  a  corporation  at  the  time  of  the  attempted  transfer  by 
Eads,  it  not  having  at  that  time  filed  its  articles  of  incorporation  with 
the  secretary  of  state,  or  paid  the  fee  for  such  a  filing,  as  provided  by 
the  statute  of  18S7,  p.  406. 

This  is  the  first  time  the  effect  of  this  statute  has  been  before  this 
court  for  consideration,  although  in  Edwards  v.  D.  &  R.  G.  R.  Co., 
13  Colo.  59,  the  constitutionality  of  a  somewhat  similar  act  was  under 
review.  That  act  was  attacked  upon  several  grounds,  among  which 
was  that  it  was  void  because  the  subject  was  not  clearly  expressed  in 
the  title,  the  title  being  "An  act  to  provide  for  the  formation  of  cor- 
porations," and  it  was  held  that  this  title  was  sufficient  to  cover  legis- 
lation requiring  a  fee  to  be  paid  for  filing  the  certificate  of  incorpora- 
tion, under-  the  principle  that  the  same  was  germane  to  the  general 
subject  expressed  in  the  title,  and  that  legislation  fixing  the  amount  of 
such  fee,  time  of  payment,  etc.,  was  not  obnoxious  to  the  constitu- 
tional provision  with  reference  to  titles.  The  act  of  1887,  now  under 
consideration,  is  entitled  "An  act  to  fix  the  fees  to  be  collected  by  the 
secretary  of  state  for  incorporation  and  certain  other  privileges."  The 
body  of  the  act,  however,  relates  entirely  to  the  fee  to  be  charged  and 
collected  for  filing  certificates  of  incorporation,  articles  of  association, 
charters,  or  increase  of  capital  stock  of  joint-stock  companies,  and  in 
addition  thereto  provides  that  no  such  corporation,  joint-stock  company 
or  association  '•'•shall  have  or  exercise  any  corporate  powers  or  be  per- 
mitted to  do  any  business  in  this  state  until  the  said  fee  shall  have 
been  paid."  *  *  *  This  provision  is  so  closely  allied  to  the  gen- 
eral subject,  which  is  the  fixing  of  fees  for  filing  certificates  of  incor- 
poration, etc.,  that  under  the  uniform  rule  of  decisions  in  this  state  it 
must  be  held  to  be  a  proper  matter  for  legislation  under  the  title  se- 
lected. Golden  Canal  Co.  v.  Bright,  8  Colo.  144;  People,  ex  rel. 
Thomas,  v.  Goddard,  8  Colo.  432  ;  People,  ex  rel.  Thomas,  v.  Scott,  9 
Colo.  422;  Dallas  v.  Redman,  10  Colo.  297;  Edwards  v.  D.  &  R. 
't.  R.,  supra;  In  re.,  Pratt,  19  Colo.  138. 


640  JONES   V.    THE   ASPEN    HARDWARE   CO.  §  1 67 

In  this  case  the  Aspen  Hardware  Company  claims  title  to  the  prop- 
erty in  dispute  in  its  corporate  capacity  and  not  as  a  co-partnership. 
It  is  admitted  that  the  fee  for  filing  the  certificate  of  incorporation 
with  the  secretary  of  state  was  not  paid  prior  to  the  levy  of  the  writ 
of  attachment,  and  that  the  ceilificate  was  not  filed  in  the  office  of  the 
secretary  of  state  until  about  the  time  of  the  bringing  of  the  present 
action,  the  evidence  leaving  the  exact  time  uncertain. 

It  is  to  be  remembered  that  in  this  case  the  coi-poration  is  the  party 
plaintiff,  and  it  may  be  stated,  as  a  general  rule,  that  when  a  com- 
pany relies  on  its  corporate  capacity  it  assumes  the  burden  of  estab- 
lishing such  capacity. 

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  cor- 
porate power,  and  as  such  prohibited  by  the  express  terms  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  can  not  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,  §  750,  it  hav- 
ing been  first  announced  in  the  case  of  Brouwer  v.  ApjDleby,  i  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.  Dug- 
gan  V.  The  Colorado  Mortgage  and  Investment  Co..  11  Colo.  113; 
Bates  et  al.  v.  Wilson  et  al.,  14  Colo.  140. 

A  de  facto  corporation  can  never  be  recognized  in  violation  of  a 
positive  law.  This  principle,  which  seems  to  be  supported  by  all  the 
authorities,  is  thus  stated  in  Morawetz  on  Private  Corporations,  §  758: 
"If  the  formation  of  a  corporate  association  is  not  only  prohibited  by 
this  general  rule  of  the  common  law,  but  is  also  in  violation  of  some 
principle  of  morality  or  public  policy,  or  a  positive  statutory  pro- 
hibition, 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- 


§  1 67  CORPORATIONS    BY   ESTOPPEL.  64I 

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  pre- 
cedent 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  controversy  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  can  not  be  upheld.  Having  failed  to  corn-ply 
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  co-partner- 
ship. 

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  col- 
laterally, 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  tathe  government  in  a  direct  proceeding  to  forfeit 
the  charter."  Abbott  v,  Omaha  Smelting  and  Refining  Company,  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 y 
this  did  not  prevent  The  Aspen  Hardware  Company  from  taking  title 
to  the  property  as  a  co-partnership .  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  co-partnership . 
The  plaintiff  sues  as  The  Aspen  Hardware  Company .,  and  the  facts 
alleged  show  that  such  company  was  a  co-partnership  and  not  a  cor~ 
poration.  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, §  233;   Chaffee  v.  Ludeling,  27  La.  Ann.  607. 

This  principle  has  been  applied  in  many  cases  where  parties  have 
set  up  the  defense  of  individual  non-liability  by  reason  of  having  di- 
rected an  incorporation  to  be  had,  but  where  none  in  fact  was  con- 
summated. Cook  on  Stock  and  Stockholders,  §§  233,  234 ;  Abbott 
v.  Omaha  Smelting  and  Refining  Co.,  supra ;  Empire  Mills  v.  Al- 
ston Grocery  Co.,  15  S.  W.  Rep.  505  (Texas). 

The  law  having  cast  this  liability  upon  the  members  of  the  associa« 
41 — WiL.  Cases. 


642        BOYCE  V.  TRUSTEES  TOWSONTOWN  STATION,  ETC.         §  1 68 

tion,  we  think  they  must  be  given  the  advantages  accorded  a  co-part- 
nership. So,  in  this  case,  w^hile  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  co-partnership.  The  cause  will  accord- 
ingly be  reversed  and  remanded,  with  directions  to  the  district  court 
to  allow  parties  to  amend  their  pleadings  as  they  may  be  advised. 
Reversed. 

Note.  To  same  effect:  1898,  Maryland  Tube  &  Iron  Works  v.  West  End 
Imp.  Co.,  87  Md.  207,  39  L.  R.  A.  810. 

See,  also,  cases  following  and  those  cited  in  note  to  Cochran  v.  Arnold, 
supra,  p.  629. 


Sec.  168. 

(4)  Public  policy  forbids  the  creation  or  recognition  of  corpo- 
rations by  estoppel. 

BOYCE  V.  THE  TRUSTEES  OF  TOWSONTOWN  STATION  OF  THE  M. 

E.  CHURCH.i 

1876.     In  the  Court  of  Appeals  of  Maryland.     46  Md.  Rep. 

359-374- 

[Action  of  assumpsit  by  appellant  against  appellee.  Plea  there 
never  was  a  corporate  body  as  alleged.  Plaintiff  offered  evidence  to 
show  corporate  existence,  by  way  of  user,  by  reading  a  mortgage  exe- 
cuted by  the  church  to  certain  persons,  a  deed  to  the  church  for  its 
property,  an  application  by  the  church  for  a  loan,  a  mortgage  given 
by  it  for  its  property  to  secure  bonds  issued  by  it;  byway  of  authority 
to  exist,  a  certificate  of  incoiporation,  setting  forth  name,  officers, 
location,  powers,  purposes,  acknowledged  before  one  justice  of  the 
peace  (the  statute  requiring  the  acknowledgment  to  be  before  two 
justices),  all  of  which  was  objected  to,  and  excluded  by  the  court; 
this  exclusion  of  evidence  is  assigned  as  error,  and  appeal  taken.] 

Arthur  W.  Machen,  for  appellee,  contended: 

The  proposition  contended  for  by  the  appellant's  counsel  would  be 
as  inconvenient  in  practice  as  it  is  illogical  and  unsound.  If,  when- 
ever certain  individuals  choose  to  call  themselves  a  corporation,  and 
conduct  business  in  the  name  of  the  supposed  corporation,  a  corpora- 
tion de  facto  is  thereby  created,  a  high  attribute  of  sovereignty  be- 
comes unnecessary,  all  statutory  restrictions  and  guards  become  nuga- 
tory, and  any  partnership  may  practically  become  a  corporation. 

But  what  kind  of  a  corporation  is  it,  if  it  has  no  powers.''  No  prin- 
ciple is  better  established  than  that  all  the  corporate  powers  must  be 
found  expressed  in  the  charter,  or  necessarily  incident  to  those  powers 
which  are  expressed.  How  would  it  advance  the  plaintiff  to  hold  that 
a  corporation  may  be  considered  as  existing,  if  it  is  impossible  that 
any  cause  of  action  can  be  established  against  it  for  want  of  charter 
conferring  power  to  make  the  contract  out  of  which  it  is  to  arise? 

^Statement  of  facts  abridged.  Arguments  for  appellants  omitted;  only 
part  of  argument  for  appellee  given. 


§   l68  CORPORATIONS   BY   ESTOPPEL.  643 

There  is  no  room  for  presumption  or  estoppel,  for,  the  plaintiff 
having  produced  the  alleged  instrument  of  incorporation,  the  truth  ap- 
pears, and  it  is  manifest  that  the  provisions  of  the  law  have  not  been 
complied  with,  and  that  no  incorporation  was  effected. 

Stewart,  J.,  delivered  the  opinion  of  the  court. 

From  a  careful  consideration  of  the  case,  we  find  no  error  in  the 
rulings  of  the  circuit  court,  in  the  four  exceptions  taken  by  the  ap- 
pellant. 

The  controlling  question  to  be  determined  under  the  first  plea  of 
the  appellee  of  nul  tiel  corporation  is,  whether  any  or  all  of  the  evi- 
dence offered  on  the  part  of  the  appellant  in  the  said  exception,  and 
refused  by  the  court,  was  sufficient  to  show  that  the  appellant  could 
be  held  to  be  a  corporation  de  jure  or  de  facto^  or  to  estop  the  ap- 
pellee from  disputing  its  liability  as  a  corporation. 

The  act  of  1868,  ch.  471,  in  its  fourteenth  section,  provides,  amongst 
other  things,  for  the  incorporation  of  religious  societies,  and  by  sec- 
tions 151,  162,  163  and  164  for  religious  corporations. 

These  last  provisions  are  more  especially  applicable  to  the  organiza- 
tion of  a  church,  religious  society  or  congregation,  of  whatever  denom- 
ination which  the  appellee  professes  to  be,  and  it  is  to  be  presumed 
were  intended  for  such  purpose. 

Amongst  other  requisites  to  constitute  a  religious  corporation, 
church,  religious  society  or  corporation  under  these  last  sections,  it  was 
necessary  that  the  agreement  for  that  purpose  should  be  acknowledged 
by  the  trustees  or  a  majority  of  them,  before  two  justices  of  the  peace 
of  the  county  or  city  in  which  the  church,  congregation  or  society,  or 
the  greatest  number  of  the  members  shall  reside,  or  before  a  judge  of 
the  circuit  court,  or  of  the  supreme  bench  of  Baltimore,  and  certified 
by  the  said  juvStices  or  judge  according  to  the  directions  of  section  163. 

No  authority  having  been  given  to  the  judge  by  these  provisions,  to 
determine  that  the  law  had  been  complied  with,  his  certificate  is  not 
sufficient  evidence  that  the  defendant  is  a  corporation. 

But  the  appellant  has  undertaken  to  offer  evidence  of  certain  acts 
and  proceedings  of  the  appellee,  referred  to  in  the  exceptions,  to  show 
that  it  held  itself  out  as  a  corporation,  and  treated  with  the  appellant 
as  such,  and  is  estopped  from  denying  its  liability  as  a  corporation. 

We  think  it  -would  be  extending  the  doctrine  of  estoppel  to  an  ex- 
tent not  justified  by  the  principles  of  public  policy,  to  allow  it  to  op- 
erate through  the  conduct  of  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  compli- 
ance with  the  requirements  of  the  law,  and  giving  to  them  the  same 
effect  through  the  aid  of  the  courts.  Thus,  virtually,  through  the 
courts,  recognizing  the  existence  of  the  corporation,  in  manifest  dis- 
regard of  the  written  law. 

It  has  been  determined  by  this  court  that  a  corporation  can  not  bind 
itself  in  excess  of  its  powers.  Pennsylvania  Steam  Navigation  Co.  v. 
Dandridge,  8  G.  &  J.  319* 


644  FITZPATRICK   V.    RUTTER.  §  169 

Whilst  denying  its  capacity  upon  any  principle  of  estoppel  to  make 
contracts,  ultra  vires,  to  bind  itself,  it  would  not  be  consistent  with 
that  theory  to  recognize  its  existence  ad  libitutn,  according  to  the  con- 
duct of  the  parties  concerned. 

Such  a  principle  would  seem  to  affix  no  other  limit  to  the  existence 
of  the  corporation  de  facto  or  the  extent  of  its  power  than  the  deal- 
ings of  the  parties,  through  the  recognition  of  the  courts,  might 
upon  the  doctrine  of  estoppel  prescribe. 

It  would  be  more  reasonable  to  hold  corporations  to  their  contracts, 
though  ultra  vires,  of  which  they  have  received  the  benefit,  or  to 
prevent  parties  who  have  contracted  with  them,  and  receive  the  ben- 
efit 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  2d  Kent  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,  expressly  requiring  certain  prescribed 
acts  to  be  done  to  constitute  a  corporation,  to  permit  parties  indirectly, 
or  upon  the  principle  of  estoppel,  virtually  to  create  a  corporation  for 
any  purpose,  or  to  have  acts  so  construed,  would  be  in  manifest  op- 
position to  the  statute  law  and  clearly  against  its  policy,  and  justified 
upon  no  sound  principle  in  the  administration  of  justice. 

Judgment  affirmed. 


Sec.  169.     (B)  Parties  estopped. 

(i)  The  pretended  corporation  itself. 

FITZPATRICK,  Receiver,  v.  RUTTER. » 

1896.     In  the  Supreme  Court  of  Illinois.      160  111.  282-7. 

Mr.  Justice  Wilkin  delivered  the  opinion  of  the  court: 
On  November  20,  1893,  George  Rutter  filed  in  the  circuit  court  of 
Cook  county  his  declaration  in  assumpsit  against  the  Switchmen's 
Mutual  Aid  Association  of  North  America,  of  which  he  was  a  mem- 
ber, to  collect  an  indemnity  of  $1,000,  claimed  to  be  due  him,  under 
the  iTjles  of  the  association,  for  injuries  sustained  in  a  railroad  acci- 
dent. Summons  was  issued  and  served  upon  the  officers  of  the  asso- 
ciation, but  the  declaration  was  not  filed  ten  days  prior  to  the  first  day 
of  the  January  term,  1894.  By  agreement  of  counsel,  however,  it  was 
stipulated  that  the  association  would  take  no  advantage  of  the  failure 
to  file  the  declaration  in  the  proper  time.  The  declaration  was  filed 
on  the  first  day  of  the  January  term,  1894,  and  on  March  13,  follow- 
ing, no  plea  being  on  file,  judgment  by  default  was  taken  against  the 
defendant  association.  Execution  having  been  issued  thereon  and  re- 
turned no  property  found,  Rutter,  on  June  18,  1894,  filed  a  creditor's 

^  Arguments  omitted.     Only  part  of  opinion  given. 


§   1 69  CORPORATIONS   BY   ESTOPPEL.  645 

bill  in  the  superior  court  of  Cook  county,  based  on  the  judgment  of 
March  13,  to  discover  and  reach  moneys  in  the  hands  of  the  association. 
The  defendant  was  served  with  summons,  just  as  it  was  in  the  suit  at 
law.  No  answer  being  made,  it  was  defaulted.  The  officers  of  the 
association  answered^  for  themselves  and  the  other  members  of  the 
association,  and  upon  their  answer  being  replied  to,  the  cause  was  re- 
ferred to  a  master,  and  proofs  were  taken  upon  the  issue  thus  formed. 
The  decree  of  the  court  was  in  favor  of  complainant.  Defendants 
severally  prayed  an  appeal,  but  aftenvard  withdrew  their  prayer  for 
appeal,  and  John  E.  Fitzpatrick,  as  receiver  of  the  association,  hav- 
ing been  appointed  by  the  circuit  court  on  July  21,  1894,  made  him- 
self a  party  to  the  cause  and  perfected  the  appeal.  The  cause  was 
taken  to  the  appellate  court  for  the  First  district,  and  is  brought  here 
to  reverse  the  decision  of  affirmance  in  that  court. 

The  first  ground  upon  which  appellant  relies  for  reversal  here  is 
that  the  circuit  court  had  no  jurisdiction  over  the  person  of  the  defend- 
ant association,  as  it  was  sued  as  a  corporation,  summons  being  issued 
and  served  upon  its  officers  only,  instead  of  each  of  the  members,  as 
should  have  been  done,  to  bring  a  voluntary  association  w'ithin  the 
jurisdiction  of  the  court.  If  a  court  has  proceeded  without  jurisdic- 
tion, its  judgment  is  absolutely  void  for  every  purpose,  and  will  be 
so  declared  in  any  court  in  which  it  may  be  presented,  and  that  ques- 
tion is,  therefore,  proper  to  be  considered  here.  But  we  think,  from 
an  examination  of  the  record,  the  appellate  court  -and  the  trial  court 
were  justified  in  finding,  from  the  evidence,  that  the  association  was  a 
de  facto  corporation,  and  pi'operly  served  with  process.  The  Switch- 
men's Mutual  Aid  Association  of  North  America  had  an  organization, 
consisting  of  directors,  a  president,  secretary  and  other  officers.  Its 
name  implied  a  corporate  body.  It  authenticated  its  acts  by  a  com- 
mon seal  and  exercised  corporate  powers,  and  it  is  thus  estopped  from 
denying  its  corporate  existence.  United  States  Express  Co.  v.  Bed- 
bury,  34  111.  459.     *     ♦     ♦ 

Judgment  affirmed. 

Note.  See,  1695,  Knight  v.  Corporation  of  Wells,  1  Lutw.  f.  508;  1729, 
Henriques  v.  Dutch  West  India  Co.,  2  Ld.  Raym.  1532;  1842,  Stone  v.  Berk- 
shire Congregational  Society,  14  Vt.  86;  1848,  Johnston  v.  South  West 
R.  Bank,  8  Strob.  Eq.  (S.  C.)  263;  1851,  Stoddard  v.  Onondaga  Conference, 
12  Barb.  (N.  Y.)  573;  1857,  Abbott  v.  Aspinwall,  26  Barb.  (N.  Y.)  202;  1858, 
Kennedvv.  Cotton,  28  Barb.  (N.  Y.)  59;  1860,  Dooley  v.  Cheshire  Glass 
Co.,  15  Gray  (Mass.)  494;  1860,  Calender  v.  Painesville,  etc.,  R.  Co.,  IV 
Ohio  St.  516;  1864,  The  United  States  Express  Co.  v.  Bedbiiry,  34  III.  459, 
holding  that  the  name  "The  United  States  Express  Co."  imported  a  corpora- 
tion ;  1871,  McCullongh  v.  Talladega  Ins.  Co.,  46  Ala.  376 ;  1874,  Grnpe  Sugar 
and  Vinegar  Mfg.  Co.  v.  Small,  40  Md.  395;  1879,  Humphrey  v.  Patrons 
Mercantile  Assn.,  50  Iowa  607;  1881,  Empire  Mfg.  Co.  v.  Stuart,  46  Mich. 

*  This  answer,  as  stated  in  the  report  of  the  case  in  58  Til.  A  pp.  532,  on  533, 
alleged  that  "it  was  a  voluntary  association  liaving  several  thousand  nienihers 
throughout  the  United  States  and  Canada;  that  it  was  not  incorporated  under 
the  laws  of  this  or  any  other  state  or  country  ;  that  it  did  not  hold  itself  out 
to  tlie  public  or  to  its  members  as  a  corponition,  and  that  it  was  not  a  rorpo' 
ration  dc  facto."  The  master  found  these  allegations  to  be  substantially  true. 
See  58  III.  App.  534. 


646  FOSTER    V.    MOULTON.  §   I/O 

482;  1882,  Dobson  v.  Simonton,  86  N.  C.  492;  1886,  Kelly  v.  Newburyport  & 
A  H  R.,  141  Mass.  496,  6  N.  E.  745;  1888,  Williams  v.  Stevens  Point  Lum- 
ber Co.,  72  Wis.  487  ;  1891,  Scheufler  v.  Grand  Lodge  A.  O.  U.  W.,  45  Minn. 
256;  1892,  Roll  v.  St.  Louis,  etc..  Smelting  &  M.  Co.,  52  Mo.  App.  60;  1893, 
Stewart  Paper  Mfg.  Co.  v.  Rau,  92  Ga.  511,  17  S.  E.  748;  1893,  Meneer  v.  De- 
troit Mut.  Benev.  &  P.  Assn.,  95  Mich.  451 ;  1898,  Bishop  v.  Kent  &  Stanley 
Co.,  20  R.  I.  680,  9  Am.  &  E.  C.  C.  (N.  S.)  718. 


Sec.  170. 

(2)  The  associates. 

(a)  Among  themselves. 

FOSTER  V.  MOULTON. 

1886.     In  the  Supreme  Court  of   Minnesota.     35  Minn.  Rep. 

458-460. 

Appeal  by  defendant,  E.  H.  Moulton,  from  an  order  of  the  district 
court  for  Blue  Earth  county,  Severance,  J.,  presiding,  overruling  his 
separate  demurrer  to  the  complaint. 

Berry,  J.  The  complaint  in  this  action  sets  out  what  purports  to 
be  the  articles  of  incorporation  of  a  mutual  benefit  association,  which 
appears  to  have  been  intended  to  be  a  sort  of  mutual  insurance  com- 
pany, and  alleges  that  said  articles  were  duly  executed  by  defendants, 
and  duly  recorded  with  the  register  of  deeds  and  secretary  of  state  ;  that 
one  McCarthy  became  a  member  of  the  association,  paid  his  dues  and 
received  a  certificate  of  membership ;  that  he  sustained  bodily  injury, 
entitling  him,  as  such  member,  to  pecuniary  benefit;  that  the  amount 
due  him  under  the  terms  of  his  membership  has  not  been  paid,  and 
that  he  has  duly  assigned  his  right  to  such  benefit  to  the  plaintiff. 

The  association  did  not  comply  with  the  statute  so  as  to  become  an 
insurance  corporation  de  jure.  The  appellant  (one  of  the  defend- 
ants) contends  that  it  was  duly  incorporated  as  a  benevolent  society 
under  Gen.  Stat.  1878,  ch.  34,  title  iii.  This  can  not  be  so,  for  it  is 
no  more  a  benevolent  society  than  any  mutual  insurance  company,  or 
other  mutual  company,  or  any  partnership  of  which  one  member  un- 
dertakes to  do  something  for  the  pecuniary  advantage  of  another 
member  in  consideration  of  the  undertaking  of  the  latter  to  do  a  like 
thing  for  him.  The  undertaking  is  not  in  any  proper  sense  benevolent^ 
but  it  is  for  a  quid  fro  quo  it  paid  for.  People  v.  Nelson,  46  N.  Y. 
477.  The  association  involved  in  the  case  at  bar  is,  in  substance,  for 
purposes  of  mutual  insurance.  State  v.  Merchants'  Exch.  Mut. 
Benev.  Soc. ,  72  Mo.  146;  State  v.  Benefit  Assn.  6  Mo.  App.  163; 
Commonwealth  v.  Wetherbee,  105  Mass.  149;  May  Ins.,  §  550,  a. 

But  notwithstanding  it  is  not  a  corporation  de  jure.,  we  think  it 
must  at  least,  as  between  its  members,  be  regarded  as  a  coiporation 
de  Jacto.  It  is  manifest  that  the  understanding  between  the  members 
and  the  basis  upon  which  certificates  of  membership  were  issued  was 
that  the  association  was  a  corporation  in  fact  as  it  was  in  form.  Mor- 
awetz  Priv.  Corp.,  §  139.     It  never  could  have  been  i?ite?ided or  ex~ 


§1/1  CORPORATIONS   BY   ESTOPPEL.  647 

teded  that  the  members  of  the  association,  whether  original  founders 
— members  like  defendants — or  those  who  should  becoyne  vtembers  by 
joini7ig  at  any  time,  should  or  would  be  liable  as  individuals,  either 
jointly  or  severally,  to  any  partiaUar  member  who  should,  by  virtue  of 
and  under  the  terms  of  his  membership,  become  entitled  to  pecuniary 
relief  or  benefit.  On  the  contrary,  the  intention  and  the  real  contract 
was  that  the  association,  as  a  corporation  in  the  contemplation  of  the 
parties,  i,  e.,  the  members,  should  be  liable,  and  the  association  only. 
In  such  a  state  of  facts,  though  the  association  is  not  a  corporation 
de  jure,  and  perhaps  not  for  every  purpose  a  corporation  de  facto, 
it  is  as  between  the  members  themselves  to  be  treated  as  a  corpora- 
tion de  facto  (for  that  is  the  way  in  which  the  contract  of  the  parties 
treats  it),  and  the  right  of  a  member  to  pecuniary  benefit  from  the 
association  by  virtue  of  his  membership  must  stand  upon  the  basis 
that  it  is  a  corporation  de  facto.  Being  presumed  to  know  the  signifi- 
cance of  his  membership,  its  rights  and  liabilities  (Coles  v.  Iowa  State 
Mut.  Ins.  Co.,  18  Iowa  425),  he  is  estopped  to  take  any  other  posi- 
tion. This  is  not  only  intrinsically  just  and  fair,  but  it  is  in  accord- 
ance with  the  principles  of  the  authorities.  Morawetz  Priv.  Corp., 
§§  131,  132,  134-137;  Buffalo  &  A.  R.  Co.  v.  Cary,  26  N.  Y.  75, 
followed  in  57,  64,  6'j  N.  Y. ,  and  95  U.  S. ;  White  v.  Ross,  4  Abb. 
Dec.  589;  Aspinwall  v.  Sacchi,  57  N.  Y.  331 ;  Eaton  v.  Aspinwall, 
19  N.  Y.  119;  Sands  v.  Hill,  46  Barb.  651;  Sanger  v.  Upton,  91 
U.  S.  56;  Chubb  V.  Upton,  95  U.  S.  665. 

It  is  important  to  bear  in  mind  that  no  fraud  is  alleged  against  de- 
fendant; and,  further,  that  this  is  a  case  in  which  a  member  of  the 
association  is  seeking  relief  by  vn-tue  of  his  membership.  If  the  ac- 
tion were  between  a  purported  or  pretended  corporation,  which  was 
wholly  unauthorized  and  invalid,  and  a  stranger,  different  niles  and 
principles  might,  in  some  circumstances,  be  involved. 

The  application  of  the  foregoing  views  is  that,  the  action  having 
been  brought  against  defendants  as  individuals  merely,  the  general 
demurrer  of  the  appellant,  who  was  one  of  the  defendant  members  of 
the  association,  was  erroneously  overruled.  The  overruling  order  is 
accordingly  reversed. 

Note.     See  note  to  next  case,  infra,  p.  649. 

Sec.  171.    Same. 

{b)  As  to  the  corporation  or  its  creditors. 

I .   Upon  subscription  liability. 

CANFIELD  V.  GREGORY.^ 

1895.     In  the  Supreme  Court  of  Errors  of  Connecticut.     66 

Conn.   Rep.  9-23. 

Baldwin,  J.  *  *  *  The  plaintiff  sues  as  trustee  in  insolvency  of  a 
joint-stock  corporation,  upon  an  assessment  which  it  has  called  in  upon 

'^Only  part  of  the  opinion  is  given. 


648  CANFIELD   V.    GREGORY.  §171 

the  defendant's  stock,  and  the  only  answer  is  nul tiel  corporation.  The 
second  reply  is  that,  however  this  may  be,  the  defendant  is  estopped 
from  making  such  a  defense,  because  the  debts,  whose  existence  have 
made  the  company  insolvent,  are  due  to  creditors  who  trusted  it  as  a 
corporation,  because  they  were  led  to  believe  that  it  was  such  by  the 
acts  of  the  defendant,  in  promoting  its  organization,  publishing  its  ar- 
ticles of  association,  acting  as  a  director  and  as  its  president,  and  con- 
tracting in  its  name  and  behalf  these  very  liabilities. 

It  is  claimed  that  these  averments  were  not  sufficient,  because  no 
bad  faith,  willful  wrong  or  gross  carelessness  is  charged.  No  such 
charges  were  necessary.  The  plaintiff  represents  the  rights  of  the 
creditors  of  an  insolvent  company,  who  contracted  with  it  as  being  a 
corporation.  Whatever  rights  they  formerly  had  against  those  who 
were  its  members  he  now  has.  They  were  led  to  believe  in  the  ex- 
istence of  such  a  corporation  by  the  acts  of  the  defendant,  as  a  pro- 
moter, stockholder,  director  and  president  of  the  company,  which  are 
set  out  in  the  reply.  It  was  natural  that  such  acts  should  induce  that 
belief.  He  had  means  of  knowledge  as  to  the  manner  in  which 
the  company  was  organized  which  were  not  possessed  by  the  public 
in  general.  Flad  he  in  fact  known  that  its  organization  was  so  de- 
fective that  the  corporation,  in  whose  name  he  was  contracting,  had 
no  existence,  or  was  incapable  of  transacting  business,  his  acts  would 
have  been  no  more  prejudicial  to  the  other  contracting  parties.  It  is 
not  his  intent,  so  much  as  the  result  of  his  conduct,  which  determines 
his  liability. 

The  modern  estoppel  in  pais  is  of  equitable  origin,  though  of  equal 
application  in  courts  of  law.  It  is  much  more  than  a  rule  of  evidence. 
It  establishes  rights  ;  it  determines  remedies.  An  equitable  estoppel 
does  not  so  much  shut  out  the  truth  as  let  in  the  truth,  and  the  whole 
truth.  Its  office  is  not  to  support  some  strict  rule  of  law,  but  to  show 
what  equity  and  good  conscience  require,  under  the  particular  circum- 
stances of  the  case,  irrespective  of  what  might  otherwise  be  the  legal 
rights  of  the  parties.  The  key  to  its  application  is  not  infrequently 
to  be  found  in  the  rule  that  in  matters  of  trust  and  confidence,  when 
one  of  two  innocent  persons  must  suffer,  in  consequence  of  the  acts 
of  one  of  them,  the  loss  must  generally  be  borne  by  him  who  thus  oc- 
casioned it.  Horn  V.  Cole,  51  N.  H.  287,  12  Am.  Rep.  11 1 ;  Stevens 
v.  Dennett,  ibid.  324,  330;  2  Pomeroy's  Eq.  Juris.,  §  802. 

This  rule  clearly  governs  the  case  at  bar.  It  is  true  that  it  does  not 
extend  to  acts  or  representations  not  naturally  calculated  to  mislead, 
and  on  which  others  had  no  right  to  rely.  Danforth  v.  Adams,  29 
Conn.  107.  But  those  of  the  defendant  were  addressed  to  the  public 
and  to  the  parties  injured.  They  came  from  one  who  was  in  a  posi- 
tion to  know  what  he  affirmed.  They  gained  credit  to  an  organization 
in  which  he  was  interested.  The  company  was  a  de  facto  corpora- 
tion. Its  creditors,  who  contracted  with  it  as  a  corporation,  could  not 
hold  the  individuals  who  had  associated  to  form  it  personally  liable  as 
co-partners,  for  with  them  no  contract  had  been  made.  2  Morawetz 
on  Private  Corporations,  §  748.    The  defendant  was  thus  shielded  from 


§  17 1  CORPORATIONS  BY   ESTOPPEL.  649 

partnership  liability  by  his  representations  as  to  its  corporate  charac- 
ter, and  on  these  representations  those  with  whom  he  dealt  as  one  of 
its  officers  had  a  right  to  rely.  Northrop  v.  Bushnell,  38  Conn.  498, 
511 ;  West  Winsted  Savings  Bank  v.  Ford,  37  Conn.  282,  289.   *  *  * 

It  was  not  in  dispute  between  the  parties  to  this  cause  that  the 
articles  of  association  and  organization  certificate  were  sufficient  in 
form,  and  that  they  were  duly  published  and  filed  for  record.  The 
only  issue  tendered  by  the  answer  was  upon  the  allegation  that  there 
was  not  and  never  had  been  any  such  corporation  as  that  of  which  the 
plaintiff  claimed  to  be  a  trustee,  but  the  estoppel  set  up  in  the  reply  had 
a  broader  reach,  and  w^as  invoked  to  preclude  the  defendant  from  deny- 
ing that  the  corporation  ever  existed,  and  that  it  was  capable  of  con- 
tracting debts  and  making  calls  on  stock  subscriptions. 

As  the  case  was  tried  in  the  court  below  in  this  broader  aspect,  and 
as  if  turning  on  the  right  of  the  defendant  to  relv  on  the  falsity  of  ma- 
terial statements  in  the  organization  certificate,  we  have  treated  it 
from  the  same  point  of  view,  although  it  may  be  that,  in  strictness, 
the  answer  was  disproved  by  the  admitted  facts,  which  went  to  show 
that  a  corporation  was  organized,  although  it  never  became  legally 
competent  to  commence  business.  If  this  be  so,  the  plaintiff  would 
no  less  have  been  entitled  to  a  verdict  on  the  issues  closed. 

There  is  no  error  in  the  judgment  appealed  from. 

In  this  opinion  the  other  judges  concurred. 

Note.  1.  As  to  subscription  liability.  1819,  Chester  Glass  Co.  v.  Dewev,  16 
Mass.  94,  8  Am.  Dec.  128;  1850,  Oswego  &  S.  P.  R.  Co.  v.  Rust,  5  How'.  Pr. 
(N.  Y.)  390;  1856,  Eaton  v.  Aspinwall,  13  How.  Pr.  (N.  Y.)  184;  1857,  Stoops 
V.  Greensburgh  P.  R.  Co.,  10  Ind.  47 ;  1859,  Rice  v.  Rock  Island  &  A.  R.  Co., 
21  111.  93;  1862,  Buffalo  &  A.  R.  Co.  v.  Gary,  26  N.  Y.  75;  1873,  Mont- 
pelier  &  W.  R.  Co.  v.  Langdon,  46  Vt.  284;  1873,  Upton  v.  Hansbrough, 
3  Biss.417,  Fed.  Cas.  16,801;  1874,  Ossipee  Hosiery  &W.  Mfg.  Co.  v.  Canney, 
64  N.  H.  295;  1875,  Parker  v.  North  Cent.  M.  R.  Co..  33  Mich.  23;  1877,  Bai'le 
V.  Calvert  Ed.  Soc,  47  Md.  117;  1878,  Dows  v.  Naper,  91  111.  44;  1880,  Home 
Ina.  Co.  V.  Sherwood,  72  Mo.  461 ;  1885,  Thompson  v.  Reno  Sav.  Bank,  19 
Nev.  103,  3  Am.  St.  Rep.  797,  with  note,  p.  806;  1888,  Aultman  v.  Waddle,  40 
Kan.  195,  19  Pac.  Rep.  730;  1890,  National  Com.  Bank  v.  McDonnell,  92  Ala. 
387 ;  1894,  American  Homestead  Co.  v.  Linigan,  46  La.  Ann.  1118,  15  So.  Rep. 
369;  1893,  Building  &  L.  Assn.  v.  Chamberlain,  4  So.  Dak.  271,56  N.  W.  Rep. 
897;  1895,  Greenbrier  Indus.  Ex.  v.  Squires,  40  W.  Va.  307,  52  Am.  St.  Rep. 
884;  1898,  In  re  Davis  Estate  v.  Watkins,  56  Neb.  288,  76  N.  W.  Rep.  575. 

2.  But  preliminary  subscriptions  to  the  stock  of  a  corporation  to  be  formed  Are 
presumed  to  be  made  with  the  understanding  that  a  de  jure  corporation  will 
be  formed,  and  hence  if  there  is  no  other  ground  of  estoppel  than  tlie  mere 
subscription,  the  subscriber  is  not  estopped  from  denying  that  there  is  a  valid 
corporation.  1874,  Indianapolis  F.  &  M.  Co.  v.  Herkimer,  46  Ind.  142;  1879, 
Rickhoff  V.  Brown's  R.  S.  S.  M.  Co.,  68  Ind.  388;  1894,  Capps  v.  Hastings  Pros. 
Co.,  40  Neb.  470,  42  Am.  St.  Rep.  677,  24  L.  R.  A.  259,  58  N.  W.  Rep.  956, 
supra,  p.  239.     But  see  Dorris  v.  French,  4  Huu  (N.  Y.)  292  (1875). 

3.  What  acts  toill  raise  an  estoppel. 

(a)  Payments  on  calls  estop:  1864,  Ohio,  etc.,  R.  v.  McPherson,  36  Mo. 
13,  86  Am.  Dec.  128;  1866,  Boegs  v.  Olcott,  40111.  303;  1879,  Rickhoff  v.  Ma- 
chine Co.,  68  Ind.  388;  1880,  Mnsgrave  v.  Morrison,  54  M.l.  161  ;  1886,  Bell's 
Appeal,  115  Pa.  St.  88,  2  Am.  St.  Rpp.  5.32;  1891,  Minnesota  (Gaslight  Ec.  Co. 
v.  Denslow,  46  Minn.  171,  48  N.  W  Rep.  771  ;  1895,  Greenbrier  Indus.  Ex.  v. 
Squires,  40  W.  Va.  307.  62  A-  '884. 


650  CURTIS   V.    TRACY.  §  1 72 

I  b  I  Voting  at  meetings  estops :  1864,  Railroad  Company  v.  Bowser,  48  Pa. 
St  29;  1890,  Association  v.  Walker,  83  Mich.  386;  1895,  Greenbrier  Indus. 
Ex.  V.' Squires,  40  W.  Va.  307. 

(c)  Attending  and  participating  in  organization  meeting,  or  acquiescing  in 
co'-i)orRte  acrts,  and  receiving  benefits  estop:  1824,  Rockville  &  W.  T.  R.  Co. 
V.  Van  Ness,  2  Crancli  (C.  C.  449,  Fed.  Cas.  11,986;  3849,  South  Bay  M.  D. 
Co.  V.  Gray,  30  Maine  547 ;  1850,  Bridge  Co.  v.  Chapin,  6  Cush.  i  Mass.)  50,  on 
63;  1858,  Haynes  v.  Brown,  36  N.  H.  545;  1888,  Scldoss  v.  Trade  Co.,  87  Ala. 
411,  on  414,  13  Am.  St.  Rep.  51;  1894,  Ogden  Clay  Co.  v.  Harvey,  9  Utah 
497,  35  Pac.  Rep.  510;  1895,  Greenbrier  Indus.  Ex.  v.  Squires,  40  W.  Va. 
307. 

(d)  Accepting  oflBce  from  corporation.  See  note  below,  under  Curtis,  Exr., 
V.  Tracy,  infra,  p.  650. 

Sec.  172.    Same. 

2.      Upon   statutory  liability. 

McCarthy  v.  lavasche. 

1878.     89  111.  270,  31  Am.  Rep.  83,  siipra,  253. 

Note.  To  same  effect,  see,  1859,  Eaton  v.  Aspinwall,  19  N.  Y.  119;  1871, 
Slocumv.  Providence  Steam  &  Gas  R.  Co.,  10  R.  I.  112,  116;  1872,  Peychaud 
V.  Lane,  24  La.  Ann.  404;  1873,  Upton  v.  Hansbrough,  3  Biss.  417,  Fed.  Cas. 
16,801;  1876,  Casey  v.  Galli,  94  U.  S.  673;  1883,  Keyser  v.  Hitz,  2  Mackey 
(D.  C.)  473;  1886,  Bell's  Appeal,  115  Pa.  St.  88,  8  Atl.  177.  As  to  what  acts 
will  raise  an  estoppel,  see  supra,  note,  §  171. 


Sec.  173. 

(3)  The  promoters  and  officers  of  the  apparent  corporation. 

CURTIS,  Exr.,  v.  TRACY,  Et  Al.» 

1897.    In  the  Supreme  Court  of  Illinois.   169  111.  Rep.  233-238. 
Affirming  same  case,  62  111.  App.  49. 

Mr.  Justice  Magruder  delivered  the  opinion  of  the  court: 
This  is  an  action  brought  to  the  July  term,  1895,  of  the  superior 
court  of  Cook  county,  against  appellees,  seeking  to  hold  them  liable 
as  partners  upon  four  promissory  notes,  executed  by  the  Central  Illi- 
nois Coal  Company,  all  dated  April  16,  1884,  amounting  altogether 
to  $20,000.      *     *     * 

The  contention  of  the  plaintiff,  arising  upon  exceptions  to  the  ad- 
mission of  evidence  and  upon  the  refusal  of  propositions  of  law  sub- 
mitted to  the  court,  is,  that,  as  the  notes  sued  upon  were  made  in  the 
name  of  the  coiporation  on  April  16,  1884,  and  the  certificate  of  or- 
ganization was  not  recorded  until  June  5,  1885,  the  defendants,  as 
directors,  assumed  to  exercise  corporate  powers  without  complying 
with  the  provisions  of  the  incorporation  act,  and  are,  therefore,  liable 

*  Statement  of  facts  much  abridged. 


§   173  CORPORATIONS    BY   ESTOPPEL..  6$  I 

to  pay  the  notes  as  partners  under  sections  4  and  18  of  that  act.  (i 
Starr  &  Cur.  Stat.  610,  617). 

We  have  recently  considered  the  liability  of  officers  and  directors  of 
a  corporation,  under  said  sections  4  and  18,  to  creditors  who  are  third 
persons.  (Loverin  v.  McLaughlin,  161  111.  417.)  In  the  Loverin  case 
a  distinction  was  said  to  exist  between  cases  where  a  stockholder  is  a 
party  to  the  suit,  and  cases  where  the  contest  is  between  third  persons 
and  the  officers  or  directors  assuming  to  exercise  corporate  powers.  In 
the  case  at  bar,  C.  H.  Curtis,  plaintiff's  testator,  was  a  stockholder 
in  the  company  at  or  near  the  time  when  he  became  the  owner  of  the 
notes  sued  upon,  and  not  only  so,  but  he  was  elected  as  a  director  of 
the  company  and  transacted  business  for  the  company  as  such  director 
before  the  certificate  of  organization  was  recorded  as  required  by  sec- 
tion 4.  While  acting  as  a  director  of  the  company,  he  accepted  400 
shares  of  the  capital  stock  as  security  for  the  very  debt  here  sought  to 
be  recovered.  It  is  true  that  the  notes  were  not  made  while  he  was 
director;  but  after  he  became  director  he  recognized  the  debt  as  an 
obligation  of  the  corporation  b}'  taking  part  in  proceedings  by  the 
board  of  directors  by  which  the  debt  was  further  secured.  Being  al- 
ready a  stockholder  and  director  he  accepted  additional  certificates  of 
stock,  issued  to  him  as  security  for  these  notes.  This  was  done  on 
October  22,  1884,  and  the  certificate  of  organization  was  not  recorded 
until  June  5,  1885.  It  was  as  much  his  duty  to  see  to  it  that  the  cer- 
tificate was  recorded  as  it  was  the  duty  of  the  original  board  of  direc- 
tors, elected  by  the  first  meeting  of  the  subscribers.  (Bushnell  v. 
Consolidated  Ice  Machine  Co.,  138  111.  67.)  By  acting  with  the 
other  directors  in  the  meeting  of  October  22,  1884,  he  assumed  to  exer- 
cise corporate  functions  before  that  provision  of  the  act,  which  required 
the  certificate  to  be  recorded,  had  been  complied  with.  He  is  estopped 
by  his  conduct  from  seeking  to  enforce  the  liability  provided  for  in 
section  18  against  the  defendants.  He  can  not  enforce  against  others 
a  penalty  which  he  has  himself  incurred  by  his  own  conduct. 

It  is  well  settled  that  a  stockholder  can  not  defend  against  a  liability 
which  rests  upon  him  for  the  benefit  of  corporate  creditors,  upon  the 
ground  that  the  coiporation  was  not  legally  organized  by  reason  of 
non-compliance  with  the  terms  of  the  statute  providing  for  such  an  in- 
corporation. (Hickling  V.  Wilson,  104  111.  54.)  He  is  estopped  by 
the  act  of  subscribing  for  the  stock  from  setting  up  such  defense. 
Upon  principle  there  can  be  no  difference  between  such  a  case  and  a 
case  where  a  stockholder,  who  is  also  a  director,  seeks  to  enforce  a 
claim  resting  for  its  validity  upon  the  fact  that  the  corporation  in 
which  he  is  such  stockholder  and  director  was  not  organized  in  accord- 
ance with  the  statute.  Where  a  man  has  acted  as  a  director  of  a  cor- 
poration and  participated  in  the  management  of  its  affairs,  and  at- 
tended its  business  meeti?igs  and  voted  upon  questions  affecting  its 
interests,  before  the  certificate  of  its  organization  has  been  recorded  as 
required  by  laiu,  he  should  be  estopped  from  enforcing  against  others  a 
liability  based  exclusively  upon  their  failure  to  record  the  same  certificate 
which  he  failed  to  have  recorded. 


652  WEST   WINSTED,    ETC.,    V.    FORD.  §  1 74 

Under  the  facts  as  herein  recited,  we  think  that  the  judgments  of 
the  superior  court  of  Cook  county  and  of  the  appellate  court  were  cor- 
rect.    Those  judgments  are  accordingly  affirmed. 

Judgment  affirmed. 

Note.  See,  1828,  All  Saints  Church  v.  Lovett,  1  Hall  (N.  Y.)  191;  1843, 
Selina  &  T.  R.  R.  v.  Tipton,  5  Ala.  787,  39  Am.  Dec.  344;  1853,  Danbury  &  N. 
R.  Co.  V.  Wilson,  22  Conn.  435;  1858,  Hayes  v.  Brown,  36  N.  H.  545;  1867, 
Mason  v.  Nichols,  22  Wis.  376;  1870,  Ramsey  v.  Peoria  M.  &  F.  Ins.  Co.,  55 
111  311 ;  1871,  Parrott  v.  Byers,  40  Cal.  614;  1876,  Phoenix  W.  Co.  v.  Badger, 
67  N.  Y.  294;  1882,  Close  v.  Glenwood  Cemetery,  107  U.  S.  466;  1885,  Thomp- 
son V.  Reno  Sav.  Bank,  19  Nev.  103,  3  Am.  St.  Rep.  797,  and  note;  1888, 
Marshall  Foundry  Co.  v.  Kilhan,  99  N.  C.  501.  6  Am.  St.  Rep.  539;  1888, 
Weinman  v.  Wilkinsburg  &  E.  L.  Pass.  Rv.,  118  Pa.  St.  192,  12  Atl.  Rep.  288; 
1889,  Corev  v.  Morrill,  61  Vt.  598;  1890,  Bates  v.  Wilson,  14  Colo.  140,  24  Pac. 
Rep.  99;  "l894,  State  Bank  Building  Co.  v.  Pierce,  92  Iowa  668,  61  N.  W. 
Rep.  426. 


Sec.  174. 

(4)    Dealers  with  knowledge  of  claim  of  corporate  capacity. 

(a)    Who  seek  to  evade  liability  to  the  apparent  corporation. 

WEST  WINSTED  SAVINGS  BANK  and  BUILDING  ASSOCIATION 

V.  FORD.i 

1858.     In  the  Supreme  Court  of  Errors  of  Connecticut.     27 
Conn.   Rep.  *2^2-2gi. 

Ellsworth,  J.  It  appears  in  March,  1852,  the  respondent,  with 
twenty-five  others,  took  measures  to  form  a  corporation  inWestWin- 
sted,  under  the  act  of  1850  authorizing  the  establishment  of  savings 
and  building  associations.  The  corporators  prepared  and  signed  the 
articles  of  association,  and  caused  a  copy  to  be  left  with  the  clerk  of 
the  town,  in  all  respects  complete  except  that  the  names  of  the. corpo- 
rators were  not  appended.  They  commenced  and  ever  since  have 
continued  to  prosecvite  their  business  (somewhat  extensively)  under 
their  corporate  name,  "The  West  Winsted  Savings  Bank  and  Building 
Association."  In  July,  1854,  the  respondent  applied  to  and  received 
from  the  company  a  loan  of  $1,000,  from  which  a  bonus  of  28  per 
cent,  was  deducted,  leaving  the  amount  actually  received  $720.  For 
this  loan  of  $1,000  he  executed  his  note  to  the  company,  and  agreed 
to  secure  it  by  good  and  perfect  deed  of  land  described  in  the  peti- 
tioners' bill.  It  is  found  that  he  did  execute  and  deliver  to  them  a 
deed  as  agreed,  except  that  one  of  the  witnesses  to  it  was  a  member  of 
the  company,  and  therefore,  not  a  good  witness,  as  this  court  has  re- 
cently decided.  In  consequence  of  this  the  deed  is  not  good,  and  the 
debt  is  not  secured.  The  companv  have  now  brought  their  bill  to  ob- 
tain  a  good    and  perfect  deed.      All  the  facts  stated   in  the  bill  are 

^Statement  of  facts,  except  as  given  in  the  opinion,  and  arguments  omitted. 


§   174  CORPORATIONS    BY   ESTOPPEL.  653 

found  to  be  true  except  what  is  said  about  tlie  corporators  having 
signed  the  copy  of  the  articles  left  with  the  town  clerk.  Our  advice 
is  asked  as  to  the  company's  right  to  demand  and  have  such  deed,  to- 
gether with  a  decree  of  foreclosure;  and  whether  the  bonus  is  legal, 
and  may  be  enforced,  or  should  be  rejected,  in  ascertaining  the  sum 
which  is  now  due  on  the  note. 

We  think  the  company  are  entitled  to  the  relief  they  ask  for, 
including  in  the  debt  the  bonus  of  twenty-eight  per  cent. 

It  is  objected  to  any  decree  in  favor  of  the  petitioners,  that  they  are 
not  a  body  corporate  as  they  have  alleged,  and  can  not  bring  suit,  in- 
asmuch as  the  corporators  did  not  comply  with  the  fifth  section  of 
the  act,  which  says  a  copy  of  the  articles  shall  first  be  left  with  the 
town  clerk. 

On  the  one  hand  it  is  claimed  that  the  statute  requires  that  a  copy 
shall  be  left  and  nothing  more,  and  that  the  court  has  no  power  or 
right  to  superadd  any  other  prerequisite ;  on  the  other  hand,  it  is 
claimed  that  the  paper  is  not  a  copy  without  the  names  of  the  stock-, 
holders  which  are  appended  to  the  original.  We  have  not  thought  it 
important  to  examine  or  decide  this  point,  because  we  are  all  satis- 
fied for  several  reasons  that  no  such  objection  ought  to  prevail  in  this 
case. 

In  the  first  place,  the  objection  to  the  existence  of,  a  corporation 
plaintiff  can  not  be  raised  upon  the  general  issue.  It  is  preliminary 
in  its  character,  like  all  objections  to  the  person  or  character  in  which 
a  plaintiff  sues,  and  should  be  pleaded  in  an  earlier  stage  of  the 
cause.  The  existence  of  a  corporation  and  its  capacity  jto  sue  are  ad- 
mitted by  a  plea  to  the  merits.  The  authorities  on  this  point  are 
very  numerous.  Phoenix  Bank  of  N.  Y.  v.  Curtis,  14  Conn.  437; 
Champlin  v.  Tilley,  3  Day  303;  Sutton  v.  Cole,  3  Pick.  232,  245; 
Penobscot  Boom  Corporation  v.  Lampson,  16  Maine  224;  Bank  of 
Manchester  v.  Allen,  11  Verm.  302;  School  District  v.  Blaisdell,  6 
N.  H.  197 ;   Bank  of  Utica  v.  Smally,  2  Cow.  770. 

In  the  second  place,  the  respondent  is  estopped  by  matter  in  pais. 
We  have  seldom  met  with  a  case  to  which  this  kind  of  equitable 
estoppel  is  more  properly  applicable  than  the  present.  In  1852  the 
respondent,  with  others,  imited  and  formed  this  association,  and  pro- 
claimed themselves  a  corporation  under  the  act  of  1850.  They 
unitedly  took  what  were  supposed  to  be  the  necessary  measures  to 
perfect  their  organization  according  to  law,  and  if  it  has  not  been  ex- 
actly done,  the  omission  was  through  their  mutual  mistake  and  mis- 
apprehension. They  intended  that  it  should  be  considered  as  done, 
and  so  we  must  now  treat  them,  not  only  as  possessing  a  corporate 
existence,  but  as  having  a  corporate  existence  under  the  statute,  and 
having,  as  to  and  among  themselves  certainly,  the  attributes  of  such  a 
corporation.  The  respondent  has  influenced  persons  to  become  mem- 
bers of  the  company,  some  by  subscribing  and  some  by  purchasing 
from  those  who  have  subscribed,  and  to  deposit  their  moneys  and 
form  contracts  with  the  company  as  duly  incoqiorated  and  qualified 
to  act  as  a  corporation  under  the  provisions  of  the  statute.     Besides, 


654  WEST   WINSTED,    ETC.,    V.    FORD.  §  1 74 

the  company  has,  during  all  this  time,  with  the  concurrence  and  co- 
operation of  the  respondent,  been  carrying  on  business  as  a  corpora- 
tion, admitting  new  members,  choosing  officers  and  agents,  borrowing 
and  loaning  money,  receiving  money  on  deposit  ^nd  the  like,  until  the 
rights  and  duties  of  the  corporators  and  the  corporation  have  become 
exceedingly  multiplied  and  important,  and,  which  ought  to  be  con- 
clusive upon  the  respondent,  he  has  borrowed  this  very  money  and 
given  his  note  and  deed  for  it  to  the  company  by  its  corporate  name. 
It  would  be  a  reproach  to  the  law  if,  after  this,  he  can  be  allowed  to 
call  in  question  the  existence  of  the  corporation  or  its  capacity  to  loan 
the  money.  Of  what  particular  importance  was  the  leaving  a  copy 
of  the  articles  of  association  to  the  members  of  the  company.?  How 
did  the  omission  affect  or  injure  them  ?  Their  relations  between  them- 
selves or  with  the  company  didnot  grow  out  of  that  circumstance,  and 
we  can  not  allow  it  to  have  any  effect  on  these  parties,  however  it  may 
be  as  to  the  right  of  the  government  to  complain,  if  it  see  fit,  and  pros- 
ecute the  company  by  a  writ  of  gfuo  warranto. 

The  doctrine  of  equitable  estoppel  is  of  so  common  application 
here  and  elsewhere  at  this  day,  and  has  been  so  often  discussed,  and 
shown  to  be  founded  in  such  obvious  propriety  and  necessity,  that  we 
need  not  spend  time  in  discussing  it,  and  it  will  be  sufficient  if  we 
merely  state  the  general  principles  pertaining  to  it.  At  the  common 
law  estoppels  are  founded  on  deeds  and  records  of  court,  but  estop- 
ples  in  equity  are  estopples  in  pais.  The  doctrine  of  this  kind  of 
estoppels  was  at  first  administered  as  a  branch  of  equity  jurisprudence, 
but  is  now  incorporated  into  the  law.  The  rule  with  regard  to  com- 
mon law  estoppels  is  a  precise  and  technical  one,  though  supposed  to 
be  founded  in  principles  of  truth  and  justice,  such  as  the  statement 
of  material  facts  in  specialties  or  as  found  by  verdicts  or  judgments 
upon  trials  in  courts  of  record.  The  common  law  rule  is  obviously 
too  narrow  and  inadequate  for  the  attainment  of  equity  in  the  multi- 
plied transactions  of  modern  times,  and  hence  the  equitable  estoppel 
of  the  present  day. 

Estoppel  in  pais  is  founded  in  the  obligation  which  every  man  is  un- 
der to  speak  and  act  according  to  the  truth  of  the  case,  and  in  the 
policy  of  the  law  to  prevent  the  great  mischiefs  resulting  from  uncer- 
tainty, confusion  and  want  of  confidence  in  the  intercourse  of  men,  if 
they  were  permitted  to  deny  that  which  they  have  deliberately  and 
solemnly  asserted  and  received  as  tnae.  But  the  mere  acts,  state- 
ments, or  admissions  of  a  party  when  not  performed  or  made  under 
seal  or  of  record,  or  in  some  of  those  acts  to  which  peculiar  authority 
is  attached  by  law,  were  not  at  common  law  considered  as  estoppels, 
and  had  no  other  weight  than  that  of  evidence,  more  or  less  impor- 
tant, but  which  might  be  explained  or  rebutted.  By  the  recent  de- 
cisions of  the  courts  in  this  country  and  in  England,  a  much  wider 
scope  is  given  to  the  doctrine  of  estoppels  in  pais^  and  it  is  now  held 
and  established,  that  wherever  an  act  is  done  or  asettlement  made  by 
a  party  which  can  not  be  contravened  or  contradicted  without  fraud, 
or  gross  misconduct,  which  is  akin  to  it,  on  his  part,  an  injury  to  oth- 


§  174  CORPORATIONS    BY   ESTOPPEL.  6^5 

ers  whose  conduct  has  been  influenced  by  the  act  or  omission,  or,  as 
was  said  in  Middleton  Bank  v.  Jerome,  i8  Conn.  449,  where  a  per- 
son by  his  acts  or  his  words  intentionally  induces  another  to  believe 
in  the  tinith  of  a  fact  and  thereby  change  his  situation  or  commit  his 
interests,  the  character  of  an  estoppel  will  attach  to  what  would  oth- 
erwise be  mere  matter  of  evidence,  and  will  become  binding  upon  a 
party  and  decisive  with  a  jury  even  in  opposition  to  proof  of  a  con- 
trary nature.  Equitable  estoppels,  therefore,  only  arise  when  the 
conduct  of  the  party  estopped  is  fraudulent  in  its  purpose,  or  unjust  in 
its  result,  which  forms  the  material  distinction  between  the  common 
law  doctrine  of  estoppel  and  that  which  has  grown  up  under  the  influ- 
ence of  equity  in  modern  times.  This  entire  doctrine  has  been  exam- 
ined and  settled  in  this  court  in  repeated  instances  as  may  be  seen  by 
the  cases  in  our  books.  Kinney  v.  Farnsworth,  17  Conn.  360;  Mid- 
dleton Bank  V.  Jerome,  18  Conn.  450;  Noyes  v.  Ward,  19  Conn. 
250;  Whitaker  v.  Williams,  20  Conn.  98:  Emmons  v.  Gibbings,  24 
Conn.  538.  Let  this  doctrine  be  applied  to  the  respondent  and  his 
course  of  conduct,  and  we  must  see  that  it  is  not  for  him,  with  his 
money  in  his  pocket,  to  call  in  question  the  character  of  the  party  who 
has  loaned  him  the  money  and  taken  his  mortgage.  If  further  author- 
ity is  wanted  we  refer  to  Worcester  Medical  Society  v.  Harding,  1 1 
Cush.  285,  which  is  exactly  this  case,  and  in  which  the  court  promptly 
overruled  this  objection.  Stow  v.  Wyse,  7  Conn.  214;  Narraganset 
Bank  v.  Atlantic  Silk  Co.,  3  Met.  282;  Congregational  Society  in 
Troy  V.  Perry,  6  N.  H.  164 ;  Dutchess  Cotton  Manufacturing  Co.  v. 
Davis,  14  Jones,  238;  Eaton  v.  Aspinwall,  6  Duer  176;  McFarlon. 
V.  Triton  Ins.  Co.,  4  Denio  392;  Schenectady  &  Saratoga  Plank- 
road  Co.  V.  Thatcher,  i  Kern  108;  Palmer  v.  Lawrence,  3  Sandf. 
161 ;  All  Saints  Church  v.  Lovett,  i  Hall  Sup.  Ct.  191. 

It  has  been  claimed  that  the  respondent  is  estopped  under  the  com- 
mon law  rule,  by  the  statement  in  his  deed  that  there  is  such  a  corpo- 
ration as  the  plaintiff's  from  whom  he  has  borrowed  the  money  and 
to  whom  he  has  executed  his  mortgage  deed.  But  passing  this,  we 
decide  that  this  fact,  with  the  others  to  which  we  have  alluded  are 
sufficient  to  constitute  a  good  equitable  estoppel,  which  is  sufficient 
for  the  present  case.  It  is  stronger  than  the  common  case  of  land- 
lord and  tenant  where  rent  has  been  paid,  which  is  a  good  estoppel. 

There  is  still  another  ground  of  objection  to  the  claim  of  the  re- 
spondents, to  which  allusion  has  previously  been  made,  to  wit,  that 
this  corporation,  having  enjoyed  its  franchises  so  long,  can  be  called 
in  question  only  by  the  government,  and  can  be  reached  only  by  quo 
warranto^  if  the  government  feel  that  here  has  been  an  unwarrantable 
exercise  of  corporate  power.  There  is  perhaps  force  in  this  objection, 
but  it  is  not  necessary  for  us  to  consider  it. 

Our  conclusion  is  that  the  petitioners  are  entitled  to  a  good  and 
perfect  deed  from  the  respondent  and  a  decree  for  a  foreclosure  for 
the  whole  note;   and  this  is  our  advice. 

In  this  opinion  the  other  judges  concurred. 

Decree  advised  for  plaintiffs. 


656  snider's  sons'  co.  v.  troy.  §  175 

Note.  See,  1829,  Hamtramck  v.  Bank  of  Edwardsville,  2  Mo.  169;  1833,  The 
Congregational  Society  v.  Perry,  6  N.  H.  164;  1839,  Bank  v.  Allen,  11  Vt.  302; 
1843,  Proprietors  of  Quincy  Canal  v.  Newcomb,  7  Mete.  (Mass.)  276;  1853, 
Worcester  Med.  Inst.  v.  Harding,  11  Cush.  (65  Mass.)  285;  1855,  Henderson 
R.  Co.  V.  Leavell,  55  Ky.  (16  B.  Mon.)  358;  1860,  Jones  v.  Cincinnati  Tvpe 
Foundry  Co.,  14  Ind.  89;  1861,  Wood  v.  Coosa  &  C.  R.  Co.,  32  Ga.  273;  1862, 
Washington  College  v.  Duke.  14  Iowa  14 ;  1868.  Cochran  v.  Arnold,  58  Pa.  St. 
399,  supra,  p.  625;  1878,  Cahall  v.  Citizens'  Mut.  B.  Assn.,  61  Ala.  232;  1880, 
Humphreys  v.  Mooney,  5  Colo.  282;  1881,  St.  Louis  Gas  L.  Co.  v.  St.  Louis, 

11  Mo.  App.  55;  1881,  Central  Ag.  &  Mech.  Assn.  v.  Alabama  G.  L.  Ins.  Co., 
70  Ala.  120;  1883,  Imboden  et  al.  v.  The  Etowah  &  B.  B.  M.  Co.,  70  Ga.  86, 
on  107;  1883,  AVhitford  v.  Laidler,  94  N.  Y.  145;  1886,  Town  of  Searcy  v.  Yar- 
nell,  47  Ark.  269;  1886,  Singer  Mfg.  Co.  v.  Bennett,  28  W.  Va.  16;  1887,  Fresno 
Canal  &  I.  Co.  v.  Warner,  72  Cal.  379,  14  Pac.  Rep.  37;  1889,  McCord  &  N. 
M.  Co.  V.  Glenn,  6  Utah  139,  21  Pac.  Rep.  500;  1889,  Cravens  v.  Eagle  Cotton 
Mills  Co.,  120  Ind.  6,  21  N.  E.  Rep.  981;  1891,  Bon  Aqua  Imp.  Co.  v.  Stand- 
ard F.  I.  Co.,  34  AV.  Ya.  764,  12  S.  E.  Rep.  771;  1892,  Ferine  v.  Grand  Lodge 
A.  O.  U.  W.,  48  Minn.  82,  50  N.  W.  Rep.  1022;  1895,  Johnston  v.  Gumbel,  19 
South.  100;  1896,  Livingston  Loan  &  B.  Assn.  v.  Drummond,  49  Neb.  200, 
68  N.  W.  Rep.  375;  1896,  Tuckasegee  Min.  Co.  v.  Goodhue,  118  N.  C.  981; 
1898,  Carroll  v.  Pacific  Nat'l  Bank,  19  Wash.  639,  9  Am.  &  E.  C.  C.  (N.  S.)  202, 
holding  that  a  dealer  with  an  apparent  corporation  will  be  estopped  from  de- 
nying the  corporate  existence,  if  it  would  prejudice  third  parties;  1898,  Jones 
V.  Hale,  32  Ore.  465,  52  Pac.  Rep.  311 ;  1898,  Grande  Ronde  L.  Co.  v.  Cotton, 

12  Colo.  App.  375,  55  Pac.  Rep.  610.  But  compare  Jones  v.  Aspen  Hardware 
Co.,  supra,  p.  637. 


Sec.  175.    Same. 

(d)  Who  seek  to  hold  members  of  the  corporation  liable  as 
partners,  or  individually  liable. 

SNIDER'S  SONS'  CO.  v.  TROY.» 

1S90.     In    the    Supreme    Court    of    Alabama.     91    Alabama 

Rep.  224-233. 

This  action  was  brought  by  the  Louis  Snider's  Sons'  Company,  a 
corporation  created  under  the  laws  of  Ohio,  against  D.  S.  Troy,  and 
was  commenced  on  the  15th  of  February,  1890.  The  complaint 
contained  a  single  count,  which  claimed  $827.93  for  goods  con- 
sisting of  paper  and  other  printing  materials,  sold  by  plaintiffs  in 
March,  April,  May  and  July,  1888,  to  or  on  the  order  of  the  Dispatch 
Publishing  Company,  then  publishing  a  newspaper  in  the  city  of 
Montgomery.  The  complaint  alleged  that  said  publishing  company 
was  at  the  time  a  partnership,  and  defendant  was  one  of  the  partners; 
that  the  company  claimed  to  be  a  corporation  under  the  laws  of  Ala- 
bama, but  was  never,  in  fact,  incorporated;  that  it  was  insolvent  when 
plaintiff's  account  matured,  and  has  ceased  to  do  business. 

The  defendant  filed  a  special  plea,  alleging  that  on  the  2d  day  of 
October,  1885,  he  and  two  other  persons  named,  filed  in  the  office  of 
the  judge  of  probate  of  Montgomery  county  a   declaration  in  writing 

^  Arguments  omitted. 


§   175  CORPORATIONS   BY   ESTOPPEL.  657 

for  the  formation  of  a  coiporation  under  the  name  of  the  Dispatch 
Publishing  Company,  stating  the  substance  of  the  declaration,  "all  of 
which  will  more  fvilly  appear  by  reference  to  the  same,  a  copy  of 
which,  with  the  indorsements  thereon,  is  hereto  attached  as  an  ex- 
hibit, and  made  a  part  of  this  plea ;  that  this  defendant  and  his  asso- 
ciates, immediately  after  the  filing  of  said  declaration  as  aforesaid, 
proceeded  to  organize  said  Dispatch  Publishing  Company,  by  elect- 
ing a  board  of  directors  consisting  of  three  members,  as  by  law  pro- 
vided, and,  on  the  organization  of  said  company  as  aforesaid,  com- 
menced doing  business  under  the  name  and  style  of  the  Dispatch 
Publishing  Company,  by  the  publication  of  a  newspaper  in  said  city  of 
Montgomery ;  that  the  debt  now  sued  for  was  contracted  by  said  com- 
pany as  such  corporation,  and  not  otherwise;  that  plaintiffs  knew  that 
said  company  was  doing  business  as  a  corporation,  and  made  said 
contract  with  it  as  a  corporation,  and  not  as  a  partnership  or  asso- 
ciation of  individuals,  and  dealt  v^^ith  it  as  a  corporation,  and  sold 
said  bill  of  goods  to  it  as  a  corporation,  and  not  in  any  other  capacity 
whatsoever." 

The  court  overruled  a  demurrer  to  this  plea,  and  its  judgment  is 
assigned  as  error. 

Clopton,  J.  A  corporation  de  ^ac/o  exists,  when  from  irregularity 
or  defect  in  the  organization  or  constitution,  or  from  some  omission 
to  comply  with  the  conditions  precedent,  a  corporation  de  jure  is  not 
created,  but  there  has  been  a  colorable  compliance  with  the  require- 
ments of  some  law  under  which  an  association  might  be  lawfully  in- 
corporated for  the  purposes  and  powers  assumed,  and  a  user  of  the 
rights  claimed  to  be  conferred  by  the  law — when  there  is  an  organiza- 
tion with  color  of  law  and  the  exercise  of  corporate  franchises.  Meth. 
E.  Un.  Church  v.  Pickett,  48  N.  J.  L.  599. 

The  enabling  law,  under  which  a  corporation  for  the  purposes  and 
objects  of  the  Dispatch  Publishing  Company,  and  with  the  powers 
assumed,  might  have  been  lawfully  created  at  that  time,  is  contained 
in  sections  1803-1812  of  the  Code  of  1876,  and  the  amendatory  acts, 
which  authorize  and  provide  for  the  incorporation  of  two  or  more 
persons  desirous  of  forming  a  private  corporation  for  the  purpose  of 
carrying  on  any  industrial  or  other  lawful  business  not  otherwise. spe- 
cially provided  for  by  law.  Acts  1882-3,  p.  40.  The  plea  avers 
that  defendant  and  two  other  named  persons  filed,  September  2,  1885, 
with  the  judge  of  probate  of  Montgomery  county  a  written  declara- 
tion, signed  by  themselves,  setting  forth  substantially  the  matters  re- 
quired by  the  statute,  except  the  residences  of  the  persons;  that  they 
organized  by  the  election  of  three  directors,  and  commenced  and 
continued  to  do  business  in  a  corporate  capacity,  and  were  so  doing 
business  when  the  debt  sued  for  was  contracted.  If  the  averments  of 
the  plea  be  true,  the  truth  of  which  is  admitted  by  the  demurrer,  the 
Dispatch  Publishing  Company  was  an  association  having  capital  stock 
divided  into  shares,  organized  by  the  election  of  officers,  transacting 
business  and  exercising  franchises,  functions  and  powers,  after  an  at- 
42— WiL.  Cases. 


(558  snider's  sons'  co.  v.  troy.  §  175 

tempted  incorporation — as  .if  it  were  a  corporation  de  jure — a  color- 
able compliance  with  the  requirements  of  an  existing  and  enabling 
law,  and  user  of  the  rights  claimed  to  be  conferred  thereby — the  essen- 
tial elements  of  a  corporation  de  facto.  Cen.  Agr.  &  Mech.  Assn. 
V.  Alabama  Gold  Life  Ins.  Co.,  70  Ala.  120. 

Appellant  seeks  by  the  action  to  hold  defendant,  who  was  a  mem- 
ber, liable  as  a  partner  for  paper  and  other  supplies  sold  to  the  Dis- 
patch Publishing  Company.  Whether  the  shareholders  in  a  corporation 
de  facto  are  individually  liable  for  the  corporate  debts,  in  the  absence  of 
fraud  or  a  statute,  is  a  question  as  to  which  the  authorities  are  in  direct 
antagonism.  In  Cook  on  Stock  and  Stockholders,  §  233,  the  doctrine 
asserted  is:  "A  corporate  creditor,  seeking  to  enforce  the  payment  of 
his  debt,  may  ignore  the  existence  of  the  corporation,  and  may  pro- 
ceed against  the  supposed  stockholders  as  partners  by  proving  that 
the  prescribed  method  of  becoming  incorporated  was  not  complied 
with  by  the  company  in  question."  The  leading  cases  supporting 
this  doctrine  are  Bigelow  v.  Gregory,  73  111.  197;  Abbott  v.  Omaha 
Smelt.  Co.,  4  Neb.  416;  Garrett  v.  Richardson,  35  Ark.  144;  Ferris 
V.  Thaw,  72  Mo.  446;  Richardson  v.  Mayo,  40  Ohio  St.  9;  Cole- 
man V.  Coleman,  78  Ind.  344.  We  have  omitted  reference  to  a  few 
cases  sometimes  cited,  for  the  reason,  either  the  question  on  liability 
as  partners  was  not  before  the  court,  as  in  Blanchard  v.  Kaull,  44 
Cal.  440,  or  the  debt  was  contracted  before  any  steps  were  taken, 
other  than  the  mere  filing  of  a  certificate,  toward  organization,  as  in 
Porpoise  Fish  Co.  v.  Bergen,  13  Amer.  &  Eng.  Cor.  Cas.  i,  or  it 
was  contracted  after  the  expiration  of  the  charter  by  its  own  limita- 
tion, without  reorganization,  as  in  Nat.  Bank  v.  Landon,  45  N.  Y. 
410.  In  the  case  last  cited  the  shareholders  entered  into  a  special 
agreement  which  by  its  terms  created  a  partnership  as  to  third  persons. 

In  2  Morawetz  on  Corporations,  §  748,  the  doctrine  is  stated  as  fol- 
lows: "If  an  association  assumes  to  enter  into  a  contract  in  a  cor- 
porate capacity,  and  the  party  dealing  with  the  association  contracts 
"with  it  as  if  it  were  a  corporation,  the  individual  members  can  not  be 
charged  as  parties  to  the  contract,  either  severally  or  jointly,  or  as 
partners."  The  following  cases  maintain  the  doctrine  that  the  mem- 
l)ers  of  a  corporation  de  facto  can  not  be  held  liable  as  partners  for 
the  corporate  debts:  Fay  v.  Noble,  7  Cush.  188;  First  Nat.  Bank 
V.  Avery,  117  Mass.  476;  Stout  v.  Zulick,  48  N.  J.  L.  599;  Plan, 
^ank  V.  Padgett,  69  Ga.  164;  Mer.  &  Man.  Bank  v.  Stone,  38  Mich. 
779;  Humphrey  v.  Mooney,  5  Cal.  282;  Cen.  City  Sav.  Bank  v. 
Walker,  66  N.  Y.  424;  Gartside  Coal  Co.  v.  Maxwell,  22  Fed.  Rep. 
197;   Whiting  V.  Wyman,  loi  U.  S.  392. 

The  plea  and  demurrer  do  not  raise  the  question  of  the  liability  of  the 
supposed  stockholders  as  partners,  where  there  has  been  no  intention 
or  attempt  to  incorporate;  where  they  are  acting  as  a  body  corporate, 
Avithout  even  color  of  legislative  authority — sheer  usurpation.  The 
plea  avers  that  the  debt  sued  for  was  contracted  by  the  Dispatch  Pub- 
lishing Company,  which  is  alleged  to  have  been  a  de  facto  corpora- 
tion, and  that  plaintiff  sold  the  goods  to  and  contracted  with  the  com- 


§  175  CORPORATIONS    BY  ESTOPPEL.  659 

pany  as  a  corporation,  knowing  that  it  was  doing  business  as  such. 
The  question  before  us,  and  the  only  question  we  propose  to  decide, 
is,  whether,  there  being  no  fraud  alleged  nor  statute  making  the 
stockholders  individually  liable,  a  creditor  who  has  dealt  with  a  de 
facto  corporation  as  a  corporation,  who  has  entered  into  contractual 
relations  with  it  in  its  corporate  name  and  capacity,  can  disregard  the 
existence  of  the  corporation,  and,  electing  to  treat  it  as  a  partnership, 
enforce  the  collection  of  his  debt  from  the  stockholders  individually? 
The  conflicting  authorities  afford  aid  in  the  solution  of  this  question 
only  so  far  as  their  opinions  maybe  in  accord  with  settled, principles 
and  sustained  by  reason.  Though  it  is  an  undecided  question  in  this 
state,  principles  have  been  well  settled  which  materially  bear  upon 
the  inquiry,  and  mark  the  way  to  a  correct  conclusion. 
->^Corporations  may  exist  either  de  jure  or  de  facto.  If  of  the  latter 
class,  they  are  under  the  protection  of  the  same  law  and  governed  by 
the  same  legal  principles  as  those  of  the  former,  so  long  as  the  state 
acquiesces  in  their  existence  and  exercise  of  corporate  functions.  A 
private  citizen,  whose  rights  are  not  invaded,  who  has  no  cause  of 
complaint,  has  no  right  to  inquire  collaterally  into  the  legality  of  its 
existence.  This  can  only  be  done  in  a  direct  proceeding  on  the  part 
of  the  state,  from  whom  is  derived  the  right  to  exist  as  a  corporation, 
and  whose  authority  is  usurped.  This  principle  was  clearly  and  em- 
phatically declared  in  Lehman  v.  Warner,  61  Ala.  455,  in  the  fol- 
lowing language:  "The  corporation  must  of  necessity  be  presumed 
to  be  rightfully  in  possession  of  the  franchise,  and  rightfully  to  exer- 
cise the  power  which  the  legislative  grant  confers.  Individual  right 
is  not  invaded,  if  the  negative  is  true  in  fact,  and  there  is  usuipation. 
It  is  the  state — the  sovereign — whose  rights  are  invaded  and  whose 
r.ghts  are  usurped.  The  individual  could  not  create  the  corporation, 
could  not  grant,  define,  limit  its  powers,  and  no  grant  of  these  by 
the  sovereign  can  lessen  his  rights.  There  can  consequently  be  no 
cause  of  complaint  by  the  citizen,  and  no  right  to  inquire  whether  the 
corporate  existence  is  rightful — de  jure  or  merely  colorable."  Tay- 
lor on  Corp.,  §  145;  4  Am.  &  Eng.  Enc.  of  Law  198.  The  creditor 
can  not  proceed  against  the  stockholders  as  partners  w^ithout  proving 
non-compliance  with  prescribed  conditions  precedent,  thus  inquiring 
collaterally,  not  into  the  fact,  but  the  legality  of  its  existence. 

It  i§  also  an  established  rule  of  general  application  that  a  party  who 
contracts  with  a  corporation  exercising  corporate  powers  and  perform- 
ing corporate  functions — existing  as  a  de  facto  corporation — in  its 
corporate  name  and  capacity,  will  not  be  permitted,  in  a  suit  on  the 
contract,  to  deny  and  disprove  the  rightfulness  of  its  existence.  4 
Am.  &  Eng.  Ency.  of  Law  198.  In  Swartwout  v.  Michigan  Air 
Line  R.  Co.,  24  Mich.  390,  Cooley,  J.,  declares  the  rule  as  follows: 
"Where  there  is  thus  a  corporation  de  facto^  with  no  want  of  legis- 
lative power  to  its  due  and  legal  existence,  when  it  is  proceeding  in 
the  performance  of  corporate  fimctions,  and  the  public  are  dealing 
with  it  on  the  supposition  that  it  is  what  it  professes  to  be,  and  the 
questions  are  only  whether  there  has  been  exact  regularity  and  strict 


66o  snider's  sons'  co.  v.  troy.  §  175 

compliance  with  the  provisions  of  the  law  relating  to  corporation,  it 
is  plainly  a  dictate  alike  of  justice  and  public  policy,  that  in  contro- 
versies between  the  de  facto  corporation  and  those  who  have  entered 
into  contract  relations  with  it,  as  corporators  or  otherwise,  that  such 
questions  should  not  be  suffered  to  be  raised." 

The  general  inile  is  thus  stated  in  Brickell,  C.  J.:  "Whoever 
contracts  with  a  corporation  in  the  use  of  corporate  powers  and  fran- 
chises, and  within  the  scope  of  such  powers,  is  estopped  from  deny- 
ing the  existence  of  the  corporation,  or  inquiring  into  the  regularity 
of  the  corporate  organization,  when  an  enforcement  of  the  contract, 
or  of  rights  arising  under  it,  is  sought."  Cahall  v.  Citizens'  M.  B. 
Assn.,  61  Ala.  232  ;  Central  Agr.  &  Mech.  Assn.  v.  Alabama  Gold  Life 
Ins.  Co.,  70  Ala.  120;   Schloss  v.  Montg.  Trade  Co.,  87  Ala.  411. 

It  is  conceded  that  the  rule  has  been  invoked  and  applied  most 
frequently  in  suits  against  the  stockholders  or  corporation,  or  persons 
who  have  contracted  with  it,  where  the  stockholder,  corporation  or  per- 
son is  seeking  to  avoid  a  liability  by  denying  the  legality  of  the  cor- 
porate organization.  But  why  should  it  not  be  applicable  in  other 
cases  .^  Why  should  a  stockholder  be  estopped  in  a  suit  by  a  creditor 
of  an  insolvent  corporation  to  require  payment  of  his  unpaid  sub- 
scription^ and  the  creditor  allowed  to  ignore  the  existence  of  the  cor- 
poration^ and  proceed  against  the  stockholder  as  a  partner?  Why 
should  not  the  estoppel  be  mutual?  Taylor^  in  his  work  on  Corpora- 
tions^ section  148^  having  stated  the  general  rule^  that  a  corporation 
when  sued  on  its  contract^  and  the  person  who  contracted  with  it, 
when  sued  on  his  contract,  is  each  estopped  to  deny  its  legal  incorpo- 
ration, adds:  '•'•Furthermore,  persons  who  have  contracted  with 
a  corporation  as  such,  and  have  acquired  claims  against  it,  are  es- 
topped from  denying  its  corporate  existence  for  the  purpose  of  hold- 
ing its  shareholders  liable  as  partners.^''  And  the  same  rule  was 
applied  in  several  of  the  cases  cited  above,  in  which  a  corporate  cred- 
itor was  seeking  to  hold  the  stockholder  liable  as  a  partner  for  a  cor- 
porate debt.  The  abrogation  of  the  foregoing  well-established  rule  is 
the  logical  sequence  of  maintaining  a  suit  by  a  creditor  of  a  de  facto 
corporation,  charging  the  stockholders  as  partners. 

Another  consideration.  Section  8  of  article  xiv  of  the  constitution 
declares:  "In  no  case  shall  any  stockholder  be  individually  liable, 
otherwise  than  for  the  unpaid  stock  owned  by  him  or  her.".  Exemp- 
tion from  liability,  other  than  for  unpaid  stock,  is  the  declared  policy 
of  the  state.  It  can  not  be  imposed  by  legislation,  or  by  the  judgment 
of  court.  In  view  of  the  constitutional  provision,  it  is  manifest  tha*- 
the  shareholders  of  the  Dispatch  Publishing  Company  intended,  by 
the  attempt  to  incorporate,  to  avoid  individual  liability  for  the  debts 
contracted  by  the  corporation.  When  a  party  deals  and  contracts 
with  a  corporation  as  corporators,  exemption  from  individual  liability 
enters  as  an  element  of  the  contract.  It  is  true  that  the  liability  of 
persons  associated  in  an  enterprise  or  adventure  is  not  determinable 
by  the  name  they  assume,  but  by  the  legal  consequences  of  their  acts. 
A  partnership  may  arise  as  to  third  persons,  by  mere  operation  of 


§   175  CORPORATIONS   BY   ESTOPPEL.  66 1 

law,  and  contrary  to  the  intention  of  the  parties;  but,  to  have  this 
effect,  the  elements  essential  to  constitute  a  partnership  as  to  third  per- 
sons must  exist.  A  corporation  de  facto  has  an  independent  status^ 
recognized  by  the  law  as  distinct  from  that  of  its  members.  A  partner- 
ship is  not  the  necessaiy  legal  consequence  of  an  abortive  attempt  at 
incorporation.  As  said  in  Fay  v.  Noble,  supra:  "Surely,  it  can  not 
be,  in  the  absence  of  all  fraudulent  intent,  that  such  a  legal  result  fol- 
lows as  to  fasten  on  parties  involuntarily,  for  such  a  cause,  the  enlarged 
liability  of  co-partners,  a  liability  neither  contemplated  nor  assented  to 
by  them.  The  statement  of  the  proposition  carries  with  it  a  sufficient 
refutation." 

Maintenance  of  such  suit  involves  judicial  nullification  of 
franchises  and  powers  enjoyed  and  exercised  by  a  de  facto  corpora- 
tion^ as  a  distinct  entity  recognized  by  the  law,  acquiesced  in  by  the 
state;  defeats  the  corporate  character  of  the  contract ;  changes  the  re- 
lation from  that  of  stockholders  to  that  of  partners  ;  substitutes  other 
and  new  parties  to  the  C07ttract,  and  effects  the  imposition  of  an  en- 
larged liability,  which  they  did  not  assutne,  but  intended  to  avoid ; 
so  understood  by  the  creditor  when  he  contracted  the  debt  with  the 
corporation  as  such.  The  contract  is  valid  and  binding  on  the  cor- 
poration, which  the  creditor  trusted.  No  injustice  is  done  him,  for 
all  his  rights  and  remedies  are  preserved  by  the  principle  that  the 
corporation  and  the  shareholder  are  estopped  frotn  denying  its  legal 
existence  as  against  him.  It  will  not  answer  to  say  that  he  is  not  repu- 
diating, but  enforcing  the  contract.  He  repudiates  the  party — the 
corporation — with  which  he  made  the  contract,  and  seeks  its  enforce- 
ment against  parties  who  never  entered  into  contractual  relations  with 
him. 

The  doctrine  that  a  creditor  who  has  dealt  with  a  de  facto  corpora- 
tion in  its  corporate  capacity  can  not  charge  the  stockholders  as 
partners  with  the  corporate  debt,  there  being  no  fraudulent  intent  al- 
leged and  proved,  seems  to  us  to  be  sustained  by  the  weight  of  au- 
thority, maintained  by  stronger  I'easoning,  consistent  with  well  settled 
principles,  and  in  harmony  with  the  policy  of  the  state. 

Affirmed. 

Note.  See,  1882,  Planters'  and  Miners'  Bank  v.  Padgett,  69  Ga.  159 ;  1886, 
Stout  v.  Zulick,  48  N.  J.  L.  599,  7  Atl.  Rep.  362;  1889,  Larned  v.  Beal,  65  N. 
H.  184,  23  Atl.  Rep.  149;  1892,  Thornton  v.  Balcom,  85  Iowa  198,  52  N.  W. 
Rep.  190;  1896,  Hogue  v.  Capital  Nat'l  Bank,  47  Neb.  929, 66  N.  W.  Rep.  1036; 
1896,  American  Mirror  and  Glass  Bev.  Co.  v.  Bulkley,  107  Mich.  447,  65  N. 
W.  Rep.  291.  See,  also,  cases,  infra,  p.  667.  But  see  contra,  1886,  Glenn  v. 
Bergmann,  20  Mo.  App.  343;  1891,  Stivers  v.  Carmichael,  &3  Iowa  759,  49  N. 
W.  Itep.  983;  1892,  Bradley  Fertilizer  v.  South.  Pub.  Co.,  17  N.  Y.  Supp.  587; 
1895,  Williams  v.  Hewitt,  47  La.  Ann.  1076,  17  So.  Rep.  496;  1901,  Owensboro 
Wagon  Co.  v.  Bliss,  —  Ala.  — ,  31  So.  81;  1901,  Clausen  v.  Head,  110  Wis. 
405,  8-4  Am.  St.  Rep.  933,  85  N.  W.  1028.    See,  also^cases  below,  pp.  664,  676. 


662  GUCKERT  V.    HACKE.  §  1 76 


Sec.  176. 

(^)  But  dealers  with  a  pretended  corporation,  without  knowledge 
that  it,  at  the  time,  claims  to  be  such,  are  not  estopped  to  deny  it 
is  a  corporation, 

GUCKERT  V.  HACKE  Et  Al.,  Appellants.* 

1893.     In  the  Supreme  Court  of  Pennsylvania.     159  Pa.  St. 

Rep.  303-307. 

Assumpsit  against  incorporators  for  the  debt  of  a  corporadon. 

At  the  trial  before  Porter,  J.,  it  appeared  that  plaintiff  entered 
into  a  contract  to  make  some  alterations  and  repairs  in  a  building  oc- 
cupied by  the  Hughes  &  Gawthrop  Co.  In  October,  1890,  a  certifi- 
cate of  incorporation  in  proper  form  was  presented  by  the  Hughes  & 
Gawthrop  Co.  to  the  governor  asking  for  a  charter.  The  certificate 
was  approved  and  letters-patent  were  "duly  issued.  All  the  details 
required  by  the  act  of  April  29,  1874,  P.  L.  77,  were  complied  with, 
excepting  only  the  recording  of  the  certificate  in  the  recorder's  office 
of  Allegheny  county.  The  certificate  was  not  recorded  imtil  June, 
1891.  In  the  meantime,  plaintiff,  without  knowledge  of  the  incorpo- 
ration, made  the  contract  with  Gawthrop,  upon  which  he  sued.  Sub- 
seqvxently,  he  accepted  a  note  for  the  debt,  signed  with  the  corporate 
name. 

Defendant's  points  were  as  follows: 

"i.  The  provisions  of  section  3  of  the  act  of  April  29,  1874,  which 
provides  that  'original  certificates  with  all  indorsements  thereon  shall 
then  be  recorded  in  the  office  of  the  recorder  of  deeds  in  and  for  the 
county  where  the  chief  operations  are  to  be  carried  on,'  are  merely 
directory,  and  a  failure  to  so  record  does  not  render  the  charter  void 
or  render  the  subscribers  thereto  individually  liable  for  debts  con- 
tracted by  the  corporation.  Answer.  The  failure  to  record  as  stated 
will  not  of  itself  render  the  stockholders  individually  liable." 

"2.  That  from  the  moment  the  letters-patent  were  issued  by  the 
governor  of  the  commonwealth  of  Pennsylvania  to  the  Hughes  & 
Gawthrop  Co.,  the  subscribers  to  the  articles  of  association  became  a 
corporation  for  every  practical  purpose,  and  any  one  dealing  with 
them  as  a  corporation  is  estopped  from  impeaching  the  charter  in  a 
collateral  proceeding  by  showing  that  a  condition  precedent  to  the 
existence  of  the  corporation  has  not  been  complied  with."    Affirmed. 

"3.  If  the  jury  find  from  the  evidence  that  letters-patent  were  is- 
sued to  the  defendants, by  the  governor  of  this  commonwealth  to  act 
as  a  corporation  under  the  name  of  the  Hughes  &  Gawthrop  Co., 
and  they  were  actually  engaged  in  carrying  on  business  under  such  let- 
ters-patent or  charter,  and  that  the  contract  sued  on  was  made  by  E. 

*  Arguments  omitted. 


§   1/6  CORPORATIONS   BY   ESTOPPEL.  663 

B.  Gawthrop,  general  manager  of  the  Hughes-Gawthrop  Co.,  and 
that  the  plaintiff  received  the  promissory  note  of  Hughes-Gawthrop 
Co.,  as  a  corporation,  in  payment  of  the  amount  due  on  said  con- 
tract, he  can  not  now  recover  from  Paul  H.  Hacke  and  J.  B.  George, 
two  of  the  defendants,  as  individuals."     Affirmed. 

Verdict  and  judgment  against  defendant,  E.  B.  Gawthrop,  and  in 
favor  of  Paul  H.  Hacke  c/«/.,  the  other  defendants.  Plaintiff  ap- 
pealed. 

Opinion  by  Mr.  Chief  Justice  Sterrett,  December,  30,  1893: 

It  is  essential  to  the  creation  of  a  corporation  under  an  enabling 
statute  that  all  material  provisions  should  be  substantially  followed; 
and,  exemption  from  personal  liability  being  one  of  the  chief  charac- 
teristics distinguishing  corporations  from  partnerships  and  unincorpo- 
rated joint  stock  companies,  it  follows  that  those  who  transact  business 
upon  the  strength  of  an  organization  which  is  materially  defective  are 
individually  liable,  as  partners,  to  those  with  whom  they  have  dealt. 
What  provisions  are  material  must  be  gathered  from  the  relation  of 
each  to  the  purpose  and  scope  of  the  act;  and  when,  therefore,  suc- 
cessive steps  are  prescribed  for  the  creation  of  corporations,  these 
must  obviously  be  regarded  as  imperative.  Enabling  statutes,  on  the 
principle  of  expressio  unius  est  exclusio  alterius^  impliedly  prohibit 
any  other  mode  of  doing  the  act  which  they  authorize ;  they  must  be 
strictly  construed,  Sutherland  on  Stat.  Construction,  section  454. 
Hence  it  has  been  uniformly  held  that  requirements  in  respect  of  fil- 
ing charters  are  imperative.  Childs  v.  Smith,  55  Barb.  45  ;  Smith  v. 
Warden,  86  Mo.  382;  Abbott  v.  Smelting  Co.,  4  Neb.  416;  Beach 
on  Corporations,  section  162. 

It  is  plain,  even  from  a  cursory  reading  of  the  act  of  April  29,  1874, 
P.  L.  77,  that  recording  of  the  certificate  "in  the  office  for  the  recording 
of  deeds,  and  in  and  for  the  county  where  the  chief  operations  ai"e  to  be 
carried  on,"  was  intended  to  be  made  one  of  the  conditions  precedent 
to  corporate  existence.  That  was  the  last  of  successive  steps  re- 
quired to  be  taken,  and  the  right  to  begin  the  transaction  of  corporate 
business  was  made  to  depend  upon  the  taking  of  that  step.  "From 
thenceforth,"  the  act  expressly  declares,  the  subscribers  and  their  as- 
sociates and  successors  "shall  be  a  corporation  for  the  purposes  and 
upon  the  terms  named  in  the  said  charter."  One  of  the  pui-poses 
of  the  act  being  exemption  from  personal  liability  in  the  transaction 
of  business,  it  is  obviously  material  that  the  public  should  have  no- 
tice, and  notice  by  record  was  accordingly  prescribed.  Failure  to  re- 
cord was  failure  to  comply  with  one  of  the  express  conditions  of  in- 
corporation, and  consequently  of  exemption  from  liability. 

It  may  be  conceded  that  had  plaintiff  dealt  -with  defendants  as  a 
corporation  he  would  have  been  estopped  from  claiming  against  them 
in  any  other  capacity^  even  though  they  failed  to  record  their  charter. 
Spahr  V.  Bank,  g4  Pa.  42g.  But  it  is  not  pretended  that  he  had 
any  knowledge  of  the  existence  of  the  charter;  and  there  was  cer- 
tainly nothings  either  in  the  name  under  which  they  did  business  or 
in  their  conduct,  which  should  have  put  him    upon    inquiry.     In 


664      CINCINNATI,  ETC.,  R.  CO.  V.  DANVILLE,  ETC.,  R.  CO.       §1/7 

these  circu7nstances  he  was  amfly  jtistijied  in  dealiiig  -with  them  as 
partners.  It  was  through  their  default — not  his — that  they  were  so 
treated;  and  it  wotild  be  manifest  injustice  that  he  should  lose  his  ad- 
m.ittedly  honest  claim. 

In  the  absence  of  an  express  agreement  the  acceptance  of  a  note 
from  the  defendants  as  a  corporation,  after  plaintiff  had  performed 
his  part  of  the  contract,  can  not  operate  by  way  of  election  or  estop- 
pel. The  relation  of  the  parties  was  fixed  by  their  status  when  the 
original  contract  was  made  and  can  not  be  changed  by  gratuitous  infer- 
ence. The  members  of  the  alleged  corporation  were  the  defendants, 
and  were  not  injured  by  the  acceptance  of  the  note.  The  principle 
which  treats  the  acceptance  of  a  note  as  additional  security  to  and  not 
as  satisfaction  of  a  mechanic's  lien  (Jones  v.  Shawhan,  4  W.  &  S. 
257)  is,  with  even  more  justice,  applicable  here. 

It  follows  from  what  has  been  said  that  the  instructions  complained 
of  are  erroneous. 

Judgment  reversed  and  a  venire  facias  de  novo  awarded. 

Note.  To  same  effect.  1889,  Eaton  v.  Walker,  76  Mich.  579,  6  L.  R.  A.  102; 
1896,  N.  Y.  Nat'l  Ex.  Bank  v.  Crowell  et  al.,  177  Pa.  St.  313;  1899,  Christian 
&  C.  G.  Co.  V.  Fruitdale  L.  Co.,  121  Ala.  340,  25  So.  Rep.  566. 


Sec.   177.     (5)  Non-dealers  who  injure  the  corporation  are   es- 
topped to  deny  corporate  existence. 

(«)   In  case  of  torts  against  the  corporation. 

THE  CINCINNATI,  LAFAYETTE   AND  CHICAGO   RAILROAD  CO.  v. 
THE  DANVILLE  AND  VINCENNES  RAILWAY  CO. 

1874.     In  the  Supreme  Court  of  Illinois.     75  Illinois  Reports 

113-118. 

Appeal  from  the  circuit  court  of  Iroquois  county,  the  Hon.  Charles 
H.  Wood,  J.,  presiding. 

This  was  a  bill  for  an  injunction,  filed  by  the  appellant  against  the 
appellee  to  restrain  the  latter  taking  possession  of  the  railroad  and 
right  of  way  of  the  complainant  under  certain  fraudulent  proceedings 
for  the  condemnation  of  the  same. 

Mr.  Justice  McAllister  delivered  the  opinion  of  the  court: 

In  the  year  1871,  certain  persons,  purporting  to  be  twenty-five  in 
number,  proceeded  to  organize  themselves,  under  the  general  railroad 
law  of  1849,  into  the  appellant  corporation,  for  the  purpose  of  sup= 
plying  a  portion  in  this  state  of  what  was  necessary  to  constitute  a 
complete  line  of  railway  between  the  cities  of  Cincinnati,  O.,  and 
Chicago,  in  this  state.  The  amount  of  stock  was  fixed,  was  sub- 
scribed and  paid;   directors  were  elected,  articles  of -association  pre- 


§  177  CORPORATIONS    BY   ESTOPPEL.  66$ 

pared,  subscribed,  certified  and  filed  with  the  secretary  of  state,  and 
the  usual  certificate  given  by  that  oflScer. 

The  portion  of  the  line  to  be  constructed  was  from  a  point  on  the 
line  between  this  state  and  Indiana,  about  three  miles  southeast  of 
Sheldon,  in  Iroquois  county,  thence  running  northeasterly  through 
that  county  and  a  portion  of  Kankakee  county  to  the  village  of  St. 
Anne. 

Appellant  did  not  assume  to  exercise  the  right  of  eminent  domain, 
but  obtained  the  right  of  way,  so  far  as  it  was  obtained,  by  purchase 
or  contract.  It  located  the  road  between  the  points  stated,  and,  by 
about  the  middle  of  December,  1871,  had  it  constnicted,  so  that  about 
the  ist  of  May,  1872,  the  through  line,  including  the  portion  in  ques- 
tion, was  opened  for  public  use  as  a  railroad,  and  appellant  has  not 
only  been  in  the  exercise  of  its  franchises  as  a  railroad  corporation, 
but  the  same  has  been  open,  public  and  notorious.  In  November, 
1872,  this  company  reorganized  under  the  general  railroad  act  of  this 
state,  which  went  into  force  March  i,  1872. 

It  appears,  also,  that  about  the  13th  of  November,  1872,  the  ap- 
pellee was  organized  under  the  last  mentioned  act  as  a  railroad  cor- 
poration, to  construct  a  road,  in  part  at  least,  upon  a  route  similar  to 
that  of  appellant.  On  the  22d  of  November,  1872,  appellee,  having 
caused  a  survey  of  this  line  and  a  plat  to  be  made,  presented  a  petition 
to  the  county  court  of  Iroquois  county  for  the  purpose,  ostensibly,  of 
condemning  land  through  that  county  for  its  right  of  way.  Numer- 
ous tracts  and  parcels  are  described  and  the  names  of  owners  or  pre- 
tended owners  given.  Appellant  is  not  named  or  described  in  the 
petition.  Nor  was  any  notice  to  appellant  given  or  contemplated. 
Such  proceedings  were  had  upon  this  petition  that  a  jury  was  sum- 
moned to  ascertain  the  compensation.  About  this  time  appellant  dis- 
covered that  although  it  was  in  the  actual  possession  and  use  of  the 
right  of  way  before  mentioned  as  a  common  carrier,  and  this  fact 
must  have  been  known  to  the  agents  and  attorneys  of  appellee,  yet 
the  land  that  appellee  was  about  to  have  condemned  was,  in  fact,  the 
very  right  of  way  of  which  appellant  was  in  actual  and  open  posses- 
sion for  public  purposes,  and  to  this  circumstance  there  was  not  the 
remotest  allusion  in  appellee's  petition.  It  appearing  that  there  was 
no  necessity  or  even  plausible  excuse  for  thus  interfering  with  appel- 
lant's right  of  way,  then,  in  view  of  the  circumstances  of  appellant's 
open  and  notorious  possession  of  it,  and  the  studious  exclusion  of  all 
these  facts  from  appellee's  petition,  and  the  failure  to  make  appellant 
a  party,  with  notice,  the  inference  is  iiresistible  that  this  proceeding 
in  the  county  court  was  designed  for  the  fraudulent  purpose  of  sur- 
reptitiously gaining  possession  of  appellant's  right  of  way.  The  actors 
in  the  formation  of  the  scheme,  as  would  seem  from  their  positions 
in  argument  on  this  appeal,  reasoned  in  this  wise:  "Now,  there  are 
defects  in  the  organization  of  the  Cincinnati,  Lafayette  and  Chicago 
Railroad  Company;  they  have  made  a  slip  in  some  particulars,  and  if 
we  can  so  manage  as  to  get  a  condemnation  proceeding  through  the 
court  without  notice  to  that  company,  and  thereby  get  into  possession, 


666      CINCINNATI,  ETC.,  R.  CO.  V.  DANVILLE,  ETC.,  R.  CO.       §177 

we  can  then  assail  their  organization,  convince  the  court  that  they  can 
have  no  standing  in  court  on  account  of  those  defects,  and  thus  keep 
that  possession,  no  matter  how  acquired."  That  is  the  very  argu- 
ment they  urge  here  to  sustain  the  decree  of  the  court  below  dismiss- 
ing appellant's  bill  to  restrain  them  from  thus  obtaining  possession,  on 
the  ground  of  fraud  and  want  of  jurisdiction  in  the  proceedings  to 
condemn.  It  is  apparent  from  the  fact  of  those  proceedings,  when 
considered  with  the  surrounding  circumstances,  that  the  former, 
though  ostensibly  for  the  ordinary  purpose  of  condemning  land  not  ap- 
propriated to  the  railroad  uses,  for  appellee's  rights  of  way,  were,  in 
reality,  but  in  the  execution  of  a  scheme  devised  for  the  fraudulent 
and  inequitable  purpose  of  getting  possession  of  appellant's  right  of 
way  without  making  compensation,  and  then  to  seize  upon  alleged 
defects  in  appellant's  organization  as  a  means  of  retaining  it  against 
justice  and  right.  The  morality  of  the  act  is  supported  by  the  same 
reasoning  which  would  be  resorted  to  in  justification  of  a  contemplated 
theft  from  one  non  compos  mentis^  "He  is  incapable  of  appearing  in 
court  to  vindicate  his  rights." 

An  elaborate  printed  argument  has  been  presented  by  appellee's 
counsel  to  show  that  appellant  was  not  rightfully  organized,  and  that 
therefore  it  could  acquire  no  right  of  way,  and  especially  that  it  can 
have  no  standing  in  court  in  its  claim  for  protection  against  this  con- 
templated invasion  of  its  possession.  He  says  the  act  of  1849  was  re- 
pealed by  the  constitution  of  1870. 

There  is,  in  our  opinion,  no  basis  for  the  position  that  the  sections 
of  the  act  of  1849,  so  far  as  they  provide  for  the  formation  of  such 
corporations,  are  abrogated  by  the  constitution.  They  are  not  incon- 
sistent with  any  of  its  provisions.  Then,  there  being  such  a  law  au- 
thorizing the  formation  of  railroad  corporations,  and  articles  of  associ- 
ation having  been  prepared  and  filed  with  the  secretary  of  state,  and 
he  having  given  the  certificate  provided  for,  and  there  having  been  a 
user  of  the  franchises  purporting  to  be  invested  in  the  association,  the 
latter  became  a  de  facto  corporation,  and  imder  the  settled  law  of  this 
court  neither  the  eligibility  of  the  directors  nor  the  rightfulness  of  the 
existence  of  the  corporation  could  be  inquired  into  collaterally  in  this 
suit.  Tarbell  v.  Page,  24  111.  46;  Mitchel  et  al.  v.  Deeds,  49  111. 
416;   Thompson  v.  Candor,  60  111.  244. 

In  Mitchell  v.  Deeds,  before  cited,  the  court,  page  422,  said :  "The 
law  is  well  settled  in  this  state,  that,  under  the  plea  of  nul  tiel corpo- 
ration^ the  plaintiff  need  only  show  an  organization  in  fact  and  a  user 
of  corporate  franchises." 

So,  by  parity  of  reasoning,  such  organization  in  fact,  and  user,  are 
all  that  is  necessary  to  maintain  a  bill  in  equity  against  a  mere  stranger 
seeking  to  interfere  with  the  property  of  such  de  facto  corporation. 
Here  it  was  indisputably  shown  that  there  was  such  an  organization 
in  fact,  followed  by  user  of  corporate  franchises.  That  was  sufficient. 
So,  also,  it  was  shown  that  the  directors  were  elected  under  color  of 
authority  and  were  acting  as  such.  They  were,  therefore,  de  facto 
officers  of  the  corporation.     Their  title  to   the  office  could   not  be 


§   177  CORPORATIONS    BY   ESTOPPEL.  ^/ 

brought  in  question  and  decided  collaterally  in  this  suit.  Lawson  ei 
al.  V.  Kolbenson  et  al.^  6i  111.  418,  and  authorities  there  cited. 

Appellee  had  authority  to  exercise  the  right  of  eminent  domain, 
but,  by  the  statute  prescribing  the  mode  of  its  exercise,  it  could  not 
have  appellant's  right  of  way  condemned  for  even  a  qualified  or  con- 
joint use  without  describing  it  in  the  petition  as  such  right  of  way, 
and  alleging  inability  to  agree  as  to  compensation.  This  proceeding, 
wliich  might,  perhaps,  have  been  lawful  and  proper  but  for  circum- 
stances which  were  studiously  concealed,  was  for  an  inequitable  pur- 
pose. It  was  designed  and  carried  forward  for  the  purpose  of  getting 
possession  of  the  right  of  way,  of  which  appellant  was  in  quiet  pos- 
session as  owner,  without  making  appellant  a  party  or  paying  to  it 
any  compensation.  No  other  object  was  intended  by,  and  no  other 
result  could  follow,  the  carrying  the  proceeding  through  to  a  finality. 
It  was,  in  this  view,  a  proper  case  for  an  injunction.  In  Goodenough 
v.  Sheppard,  28  111.  8i,  it  was  held  that  a  person  in  the  quiet  pos- 
session of  real  estate  as  owner  may  obtain  an  injunction  to  restrain 
others  from  dispossessing  him  by  means  of  process  growing  out  of 
litigation  to  which  he  was  not  a  party.  It  does  not  lie  with  appellee 
to  say^  in  justification  of  this  inequitable  proceedings  that  the  ap- 
pellant was  not  so  far  rightfully  organized  or  authorized  to  con- 
struct  the  railroad  in  question  as  to  be  capable  of  holding  lands  for 
the  purposes  of  a  right  of  way.  This  is  a  question  solely  between 
appellant  and  the  persons  from  whom  title  was  obtained^  or  between 
appellant  and  the  people  of  the  state,  when  proper  proceedings  shall 
arise  to  require  its  decision. 

It  is  obvious,  from  the  record,  that  the  court  below  made  inquisition 
into  the  rightfulness  of  appellant's  corporate  existence,  and  dismissed 
the  bill  for  defects  in  its  organization.  This  was  error.  The  decree 
will  be  reversed,  and  cause  remanded  for  further  proceedings  not  in- 
consistent with  this  opinion. 

Decree  reversed. 

Note,.  See,  also,  1843,  Quincv  Canal  v.  Newcomb,  7  Mete.  (Mass.)  276 ;  1846. 
Elizabeth  City  Academy  v.  Lindsey,  28  N.  C.  (6  Ired.)  476.  45  Am.  Dec.  500; 
1873,  Stockton  &  L.  G.  R.  Co.  v.  Stockton  &  R.  Co.,  45  Cal.  680;  1878,  Alder- 
man V.  School  Directors,  etc.,  91  111.  179;  1889,  Golden  Gate  M.  &  M.  Co.  v. 
Joshua  H.  M.  W.,  82  Cal.  184;  1893,  Crenshaw  v.  Ullman,  113  Mo.  633.  20  S. 
W.  Rep.  1077.  But  see,  1885,  Doboy  &  U.  I.  Tel.  Co.  v.  D.  E.  Magathias,  25 
Fed  Rep.  (U.  S.  C.  C.)  697. 


668  SASSER  V.    STATE  OF   OHIO.  §  1 78 

Sec.  178. 

(d)   Or  crimes  affecting  the  corporation. 

SASSER  V.  THE  STATE  OF  OHIO.* 
1844.     In  the  Supreme  Court  of  Ohio.      13  Ohio  Rep.  453-489. 

[These  are  writs  of  error  to  the  court  of  common  pleas  of  the 
county  of  Hamihon. 

In  the  first  of  these  cases  the  plaintiff  was  ind^icted  for  "having  in 
his  possession,  and  secretly  keeping,  a  bank-note  plate,  for  the  pur- 
pose of  striking  and  printing  false  and  counterfeited  bank-notes,  to 
wit,  false  and  counterfeited  bank  notes  in  the  likeness  and  similitude 
of  true  and  genuine  bank  notes  of  the  Bank  of  Tennessee,  of  the 
denomination  of  $20,"  etc.  The  second  count  was  the  same,  with 
the  addition  that  the  possession  was  for  the  purpose  of  printing  coun- 
terfeited bank  notes.  At  the  October  term,  1844,  he  was  found  guilty 
on  the  second  count,  and  not  guilty  on  the  first,  and  sentenced,  upon 
the  second  count,  to  imprisonment  in  the  penitentiary  for  five  years. 
A  bill  of  exceptions  was  taken  during  the  trial,  from  which  it  appears 
that  the  prosecuting  attorney  proved,  by  parol,  that  there  was  such  a 
bank  as  the  one  named  in  the  indictment,  and  that  its  bills,  of  the  de- 
nomination specified,  were  current  in  Ohio.  The  plaintiff  objected 
to  this  proof,  and  insisted  that  the  act  incoi"porating  the  Bank  of  Ten- 
nessee was  the  only  evidence  that  could  be  introduced;  which  objec- 
tion was  overruled.] 

BiRCHARD,  J.  *  *  *  Did  the  court  err  in  admitting  the  testimony  ob- 
jected to  ?  This  presents  a  question  not  free  from  difficulty,  and  yet  the 
decision  below  is  believed  to  be  consistent  with  the  uniform  and  oft- 
repeated  adjudications  upon  similar  questions  since  the  first  organiza- 
tion of  the  state.  The  general  rule  is,  that  the  best  evidence  must  be 
given  which  the  nature  of  the  case  admits  of.  The  rule  does  not  re- 
quire that  the  strongest  possible  assurance  of  the  point  in  question 
shall  be  given,  but  that  no  evidence  shall  be  received  of  a  character 
which  presupposes  that  better  and  higher  evidence  is  in  the  possession 
or'  power  of  the  party  offering  it.  Were  these  banks  suitors  in  court, 
claiming  the  exercise  of  corporate  rights,  the  offer  by  them  of  parol 
proof  to  maintain  the  right,  unless  it  were  a  right  acquired  by  pre- 
scription, would  be  within  the  rule,  for  it  would  carry  a  presumption 
against  them,  that,  if  produced,  their  charters  would  show  that  the 
franchise  in  question  was  not  conferred.  Hence  the  rule  in  Lewis  v. 
Bank  of  Kentucky,  12  Ohio  Rep.  151:  "The  corporators  have  full 
knowledge  of  their  powers  and  capacity,  and  the  means  of  establishing 
them."  When  they  exercise  powers  under  the  authority  of  a  written 
charter,  the  non-production  of  that  charter  and  the  attempt  to  supply 

^  Statement  of  facts  abridged.  Arguments  omitted,  and  part  of  opinion 
omitted. 


§   1/8  CORPORATIONS   BY  ESTOPPEL.  669 

it  by  parol  evidence  is  an  indirect  admission  that  the  charter  is  suffi- 
cient, and  that,  if  they  can  not  make  out  by  parol  a  better  one  than 
exists  on  paper,  they  must  fail.  An  analogous  point  was  ruled  by 
Lord  Mansfield,  in  Roe  v.  Harvey,  7  Burr.  2484.  No  such  implica- 
tion necessarily  arises  when  parol  proof  of  the  actual  existence  of  a 
bank  in  a  sister  state  is  offered  by  a  third  party,  and  especially  when 
offered  by  the  public  prosecutor  against  a  person  charged  with  coun- 
terfeiting the  bills  or  plates  of  such  bank,  because  the  act  of  counter- 
feiting implies,  on  his  part,  an  admission  that  there  is  such  a  bank, 
and  that  its  genuine  issues  and  plates  are  authorized  and  of  value.  It 
is  irrational  to  presume  that  men  will  take  the  trouble  to  counterfeit 
paper  which  is  wholly  worthless.  All  men  are  presumed  to  act  ac- 
cording to  their  interest.  No  one  could  have  any  interests  in  forging 
valueless  notes.  Rules  of  law  are  never  founded  upon  unnatural 
premises.  On  the  contrary,  it  is,  in  general,  safe  to  abolish  a  rule, 
when  the  sound  reason  upon  which  it  was  established  has  ceased  to 
exist. 

Admitting  the  proposition,  that  if  the  bank  notes  in  question  were 
issued  by  an  unauthorized  bank  they  would  be  nullities,  and  that,  in 
that  case,  the  plates  might  be  secretly  kept  without  incurring  the  pen- 
alty of  the  law,  it  does  not  follow  that  the  evidence  offered  below  was 
incompetent.  The  rules  of  presumptive  evidence  apply  to  corpora- 
tions as  well  as  individuals,  and  a  charter  may  be  presumed  from  the 
long  exercise  of  corporate  rights.  U.  S.  Bank  v.  Dandridge,  12 
Wheat.  70.  The  proof  offered  in  this  case  showed  that  paper  of  the 
description  alleged  to  be  counterfeited  was  current  in  Ohio,  and  reputed 
to  be  the  paper  of  legally  established  institutions  of  Virginia  and  Ten- 
nessee. Proof  that  their  paper  had  obtained  general  circulation  and 
acquired  universal  confidence  in  a  state  like  this,  at  a  time  when  pub- 
lic attention  is  turned  towards  all  corporations,  both  foreign  and 
domestic,  with  eager  and  jealous  scrutiny,  certainly  raised  a  violent 
presumption  that  the  banks  had  a  legitimate  existence,  and  lawfully 
possessed  the  powers  which  they  had  exercised.  Coupled  with  the 
other  legal  presumption,  that  no  one  will  counterfeit  the  valueless 
paper  of  an  unauthorized  bank,  and  we  think  the  proof,  unrebutted, 
sufficient  for  the  prosecution.  This  made  out  a  prima  facie  case, 
and  was  ample  to  cast  upon  the  accused  the  burden  of  proving  that 
the  laws  of  Virginia  and  Tennessee  restricted  banking  generally,  or 
by  these  institutions  in  particular.  The  People  v.  Davis,  21  Wend. 
309,  is  a  case  in  point.  Davis  was  indicted  for  having  in  his  pos- 
session a  counterfeit  note  of  the  Morris  Canal  and  Banking  Company, 
and  the  question  was  whether  the  prosecution  were  bound  to  prove 
the  existence  of  the  company  by  the  production  of  the  charter,  and  it 
was  held  they  were  not — that  they  might  prove  it  in  the  ordinaiy  way, 
and  "that  secondary  evidence,  such  as  the  acts  and  operations  of  the 
company,  and  the  like,  had  been  invariably  received  at  the  oyer  and 
terminer."  Is  there  any  real  danger  in  continuing  this  rule  of  evi- 
dence? It  may  be  presumed  that,  if  it  were  palpably  mischievous, 
or,  even  by  possibility,  occasionally  dangerous  in  practice,  it  would 


670  SASSER   V.    STATE   OF   OHIO.  §   1 78 

not  have  stood  without  question  for  forty  years  in  Ohio,  and  in 
many  of  our  sister  states  for  a  still  longer  period.  But  this  case  even 
does  not  show  that  injustice  has  been  caused  by  its  application.  We 
know,  as  a  matter  of  fact,  that  each  of  the  two  institutions  is  legally 
constituted,  and  recognized  as  such,  by  the  courts  of  Virginia  and 
Tennessee.  No  actual  wrong  was  committed  by  the  decision  com- 
plained of,  because  the  proof  offered  established  nothing  that  was  un- 
true. It  is  attacked,  not  for  the  individual  wrong  it  has  wrought  in 
this  case,  but  for  the  public  good,  lest,  peradventure,  it  may  work 
harm  hereafter  to  somebody  if  allowed  to  stand  as  a  precedent. 

In  argument,  it  is  admitted  that  parol  proof  has  hitherto  "always 
been  held  sufficient  in  similar  cases;  but,  it  is  said,  this  is  because 
counsel  have  not  objected  that  it  was  secondary  evidence,  and  that  omis- 
sions of  counsel  should  not  be  allowed  to  establish  a  rule  of  practice, 
in  opposition  to  the  paramount  principles  of  law."  If  the  argument 
be  sound  that  this  kind  of  evidence,  when  offered  by  a  third  party, 
does  not  raise  the  inference  that  higher  evidence,  in  the  possession  of 
the  party,  is  withheld,  and  if  the  act  of  forgery  implies  a  confession, 
by  the  forger,  that  the  instrument  which  it  purports  to  imitate  is  valid, 
it  can  not  well  be  said  to  be  secondary  evidence,  because  it  does  not 
fall  within  the  reason  that  distinguishes  the  two  classes  of  proof.  Is 
it  always  within  the  power  of  the  prosecutor  to  prove  the  charters  of 
banks  incorporated  by  our  sister  states.-*  That  they  may  be  procured 
by  taking  sufficient  pains  and  ample  time  is  not  doubted.  Certified 
copies  of  any  legislative  act  may  be  had  on  application  to  the  execu- 
tives of  the  states  of  Virginia  and  Tennessee.  But  under  our  consti- 
tution, an  accused  person  is  entitled  to  "a  speedy  public  trial."  He 
can  not  lawfully  be  detained,  and  committed  for  trial,  without  evi- 
dence. Nor  is  that  evidence,  on  a  question  of  commitment,  which  is 
no  evidence  on  a  final  trial.  What,  then,  would  be  the  effect  of  a 
rule  that  would,  indispensably,  require  the  production  of  the  act  in- 
corporating a  foreign  and  distant  bank  in  like  cases.''  It  would  afford 
immunity  to  crime  in  innumerable  cases.  It  would  be  as  fatal  to  the 
success  of  many  necessary  prosecutions  for  counterfeiting  as  a  rule 
that  would  permit  the  forged  signature  of  the  officer  of  a  bank  to  be 
disproved  by  him  alone — a  lule  which  has  long  since  ceased  to  be  rec- 
ognized by  the  most  enlightened  tribunals  of  this  country,  and,  at  this 
day,  is  not  law  in  England.  Hess  v.  The  State,  5  Ohio  Rep.  7; 
Commonwealth  v.  Cary,  2  Pick.  47. 

Some  courts  still  consider  the  testimony  of  experts  touching  the 
genuineness  of  the  handwriting  as  secondary  and  inferior  evidence  to 
the  testimony  of  the  supposed  writer;  others  avoid  the  general  lule 
by  assuming  that  the  testimony  of  each  is  primary  evidence,  while  all 
alike  admit  the  evidence  and  avoid  the  application  of  the  rule  which 
would  exclude  it.  So,  in  cases  of  many  public  officers,  proof  of  offi- 
cial character  is  permitted  by  parol  when  third  parties  make  the 
issue,  and  even  when  the  officer  is  a  party.  Thus  one  may  show  him- 
self to  be  a  constable  by  proving  his  own  acts  in  that  capacity,  and  by 
general  reputation ;  Johnson  v.  Stedman,  3  Ohio  Rep.  94.     That  he 


§  1/8  CORPORATIONS   BY   ESTOPPEL.  6/1 

is  a  collector  of  taxes;  Eldred  v.  Sexton,  5  Ohio  Rep.  215.  The  rea- 
son of  the  decision  in  these  cases  is  applicable  here.  "It  is  more  con- 
sistent with  the  ends  of  justice  than  to  establish  a  contrary  rule."  It 
is  not  conclusive  evidence,  but  is  so  prima  facie,  and,  unless  contra- 
dicted, must  be  conclusive.  The  character  of  a  bank,  indeed,  vv^hose 
paper  is  in  general  circulation,  performing  the  offices  of  money  in  a 
business  community  like  ours,  becomes  as  well  known  as  the  official 
character  of  a  constable  or  tax-gatherer  who  resides  amongst  us.  The 
people  in  general  are  as  well  informed  upon  the  subject  as  upon  many 
matters  of  public  history.  There  is  no  county  in  the  state  where  men  of 
integrity  can  not  be  found  competent  to  state  whether  paper,  the  money 
in  general  circulation  among  the  people,  is  the  paper  of  a  real  or  unau- 
thorized institution.  The  continuance  of  the  rule  that  has  obtained 
is,  therefore,  perfectly  consistent  with  the  security  of  individual  right ; 
and,  while  it  subserves  public  convenience,  the  mere  fact  it  is  at  war 
with  a  technical  rule,  if  it  be  so  at  war,  furnishes  no  good  reason  for 
changing  the  practice.  *  *  « 
Judgment  affirmed. 

Note.  See,  also,  1886,  Stultz  v.  Turnpike  Co.,  48  N.  J.  L.  596;  1893,  Canal 
Street  G.  R.  Co.  v.  Paas,  95  Mich.  372.  But  compare,  1888,  Plank-road  Co.  v. 
Hilton,  69  Mich.  115;  1899,  James  v.  State,  77  Miss.  370,  78  Am.  St.  Rep.  527. 

As  to  injuries  to  non-dealers  generally  by  the  apparent  corporation,  it 
would  aeem  that  if  they  have  done  nothing  to  recognize  the  corporate  exist- 
ence there  could  be  no  estoppel;  yet  if  the  corporation  shows  it  is  a  de  facto 
one,  the  logic  of  the  cases  would  seem  to  be  that  a  non-dealer  who  is  not 
estopped  could  not  hold  members  individually  liable,  or  successfully  impeach 
the  corporate  existence,  even  if  he  is  injured  by  such  de  facto  corporation ; 
however,  if  the  apparent  corporation  can  not  show  that  it  has  acquired  a  dt>, 
facto  existence  by  being  organized  under  a  valid  law,  in  good  faith,  followed 
by  corporate  acts,  a  non-dealer  could  ignore  the  apparent  corporate  existence. 

NOTE  TO  ART  VI.   EXTENT  OF  THE  DOCTRINE  OP  ESTOPPEL. 

It  is  usual  to  say  that  in  order  to  obtain  a  <Ze /«cto  corporate  existence  there 
must  be  a  valid  law  under  which  to  organize,  an  apparent  compliance  with  the 
law,  a  bona  fide  attempt  to  organize  under  the  law,  and  a  uner  of  corporate 
franchises.  See  Elliott  on  Corporations,  §  72;  Clark  on  Corporations, 
§§  41,  42,  and  Finnegan  v.  Noerenberg,  supra,  p.  614,  and  Society  Perun  v. 
Cleveland,  supra,  p.  617.  If,  therefore,  any  of  these  elements  are  wanting 
there  can  be  no  de  facto  corporation,  and  the  only  ground  for  holding  a  pre- 
tended corporation,  where  one  or  more  of  these  elements  is  wanting,  to  be 
such  must  be  upon  grounds  of  estoppel,  or  something  analogous  thereto.  It 
seems,  however,  that  there  is  no  perfect  basis  for  an  estoppel  except  against 
the  pretended  corporation  itself  or  its  members,  for  it  or  they  only  have  mis- 
led others  to  believe  it  to  be  a  corporaton.  No  one  who  contracts  with  such 
a  pretended  corporation  as  a  corporation,  has  misled  it  or  its  members  as  to 
its  real  nature,  for  they  know  as  mucli  about  it  as  he.  Tlie  most  that  can  be 
said  is  that  the  party  so  contracting  is  willing  to  accept  the  corporate  security 
for  the  performance  of  the  contract,  and  should  not  afterward  be  allowed  to 
insist  upon  a  different  security,  such  as  the  individual  or  partnership  liability 
of  the  members.  The  fact  is,  he  has  not  misled  the  corporation,  but  it  has 
misled  him— yet,  perhaps,  not  to  his  damage,  when  he  willingly  accepted  the 
corporate  security.  Hence  it  would  not  be  equitable  to  claim  a  greater  secu- 
rity, when,  upon  being  offered  a  certain  security,  viz.,  the  corporate  security, 
he  accepted  it.    This  is  hardly  an  estoppel,  but  rather  a  mere  term  of  tfie 


^72  NOTES   TO   ARTICLE   VI. 

contract,  upon  which  the  minds  of  the  parties  met,  although  it  was  false  in 
fact   and  known  to  be  so  bv  the  pretended  corporation  at  the  time. 

As  to  the  validity  of  the  law  under  which  the  corporation  claims  to  be  organ-, 
ized  there  are  three  conceivable  conditions :  (1)  A  law  in  fact  prohibiting 
such  a  corporation.  (2)  No  law  at  all.  (3)  An  unconstitutional  law.  It 
would  seem  there  could  be  no  de  facto  corporation  in  either  case,  and  it  is 
generally  so  held.  Can  there  be  a  corporation  by  estoppel?  According  to  the 
decision  in  Boyce  v.  The  Trustee,  etc.,  supra,  p.  642;  Jones  v.  Aspen  Hard- 
ware Co.,  supra,  p.  637,  and  Snyder  v.  Studebaker,  supra,  p.  634,  there  could 
not  be  a  corporation  under  any  circumstances  of  estoppel,  either  in  favor 
of  or  against  the  pretended  corporation ;  but  it  would  seem  that  estoppels 
might  arise  in  all  of  these  cases,  as  well  as  others ;  yet  in  the  first  two — 
a  prohibitory  law,  and  no  law  at  all — public  policy  might  override  all  grounds 
of  estoppel  and  say,  in  such  cases,  no  eoiporate  existence  should  be  recog- 
nized. See  Wright  v.  Lee,  2  S.  D.  696;  Empire  Mills  v.  Alston  Grocery  Co., 
15  S.  W.  Rep.  (Tex.  App.)  200,  505;  Building  and  Loan  Assn.  v.  Chamber- 
lain, 4  S.  D.  271,  56  N.  W.  Rep.  897 ;  Oregonian  R.  Co.  v.  Oregonian  R.  &  N. 
Co.,  23  Fed.  Rep.  233;  but  compare,  1870,  Smith  v.  Sheeley,  12  Wall.  (U.  S.) 
358,  and  1883,  Saunders  v.  Farmer,  62  N.  H.  572;  1898,  Carroll  v.  National 
Bank,  19  Wash.  639,  54  Pac.  Rep.  32. 

But  in  the  third  case — the  unconstitutional  law — many  cases  hold  there  can 
be  corporations  by  estoppel  (many  erroneously  calling  them  de  facto  corpora- 
tions). See,  1870,  Smith  v.  Sheeley,  12  Wall.  (U.  S.)  358;  1876,  St.  Louis  v. 
Shields,  62  Mo.  247 ;  1878,  McCarthy  v.  Lavasche,  89  111.  270,  supra,  p.  253 ; 
1878,  Dows  V.  Naper,  91  111.  44;  1880,  Freeland  v.  Insurance  Co.",  94'Pa.  St: 
504;  1881,  McClinch  v.  Sturgis,  72  Maine  288;  1883,  Saunders  v.  Farmer,  62  N. 
H.  572 ;  1884,  Catholic  Church  v.  Tobbein,  82  Mo.  418,  on  424 ;  1887,  Fresno,  etc., 
Irrigation  Company  v.  Warner,  72  Cal.  379,  17  A.  &  E.  Corp.  Cas.  37;  1889, 
W^inget  V.  Quincy  B.  &  H.  Assn.,  128  111.  67;  1892,  Wright  v.  Lee,  2  S.  D.  596, 
37  Am.  &  E.  C.  C.  588;  1893,  Building  &  L.  Assn.  v.  Chamberlain,  4  S.  D.  271, 
44  Am.  &  E.  C.  C.  49;  1893,  Black  River  Improvement  Co.  v.  Holway,  85 
Wis.  344;  1894,  Georgia  S.  &  F.  R.  Co.  v.  Mercantile  T.  &  D.  Co.,  94  Ga.306; 
1895,  Coxe  v.  State,  144  N.  Y.  396;  1898,  Gardner  v.  Minn.  &  S.  L.  R.  Co.. 
73  Minn. 517,  76  N.  W.  Rep.  282;  1899,  Richards  v.  Minn.  Sav.  Bank,  75  Minn. 
196,  77  N.  W.  Rep.  822;  but  compare,  1889,  Eaton  v.  Walker,  76  Mich.  579, 
contra. 

As  to  the  next  two  requisites  of  de  facto  existence — apparent  compliance 
with  the  law,  and  bona  fide  attempt  to  organize— both  being  questions  of  fact, 
it  would  seem  that  estoppels  should  be  allowed  to  arise  as  in  other  cases.  But 
in  both  of  these  cases  it  should  be  remembered  that  the  law  will  not  allow  its 
privileges  to  be  used,  even  if  literally  followed,  as  an  engine  for  accomplish- 
ing frauds  (see  Metcalf  v.  Arnold,  supra,  p.  97),  or  without  any  effort  in  good 
faith  to  comply  with  it  (as,  see  Montgomery  v.  Forbes,  supra,  p.  594,  and 
Walton  V.  Oliver,  supra,  p.  565). 

As  to  user,  it  seems  that  meeting,  subscribing  stock  and  completing  organ- 
ization is  sufficient  user  to  make  a  de  facto  existence,  if  the  other  elements  are 
present.  See,  1893,  Union  Water  Co.  v.  Kean,  52  N.  J.  Eq.  Ill,  44  Am.  &  E. 
C.  C.  13.  But  no  organization,  though  corporate  powers  are  claimed,  is  not 
such  user  as  makes  a  corporation  de  facto  See  Walton  v.  Oliver,  supra,  p.  565, 
and  Montgomery  v.  Forbes,  stipra,  p.  594.  In  Eaton  v.  Walker,  76  Mich.  579, 
it  was  held  that  organization  under  an  unconstitutional  law,  and  assuming  to 
act  as  a  corporation,  was  not  such  iiser  as  made  a  de  facto  existence,  and,  un- 
der the  facts  of  that  case,  it  was  held  that  no  estoppel  arose.  See  Angell  & 
Ames,  §§  83,  172,  635-6;  Beach,  §§  13,  14,  866,  871;  Boone,  §§  104,  118,  121, 
239;  Clark,  §§  43.  44;  Cook,  §  637 ;  Elliott.  §§  81-88;  Morawetz,  §§  750,  774, 
778 n;  Taylor,  §§146-151,537-9,739;  I  Thompson,  §§518-533;  VII  Thompson, 
§  8213.  The  matter  is  closely  allied  to  the  subject  of  pleading  and  proof,  upon 
which  the  cases  are  in  much  conflict.     See,  i7ifra,  §§  327-333. 


§  179  PARTNERSHIP   LIABILITY.  673 

Jk 

ARTICLE  VII.  EFFECT  OF  FAILURE  TO  COMPLY  WITH  CONDITIONS, 
AND  NO  ESTOPPEL,  UPON  THE  LIABILITY  OF  MEMBERS  OF  THE 
PRETENDED     CORPORATION  ;     THEORIES. 

Sec.  179.  (i)  Makes  the  associates  partners  (if  the  pretended 
corporation  was  for  a  business  purpose)  and  liable  as  such,  or 
with  the  rights  of  such. 

MARTIN  Et  Al.,  Appellants,  v.  FEWELL.* 

1883.     In  The  Supreme  Court  of  Missouri.     79  Missouri  Rep. 

401-412. 

Hough,  C.  J.  This  is  an  action  of  assumpsit  by  plaintiffs  as 
partners  against  defendants  as  partners.  There  are  three  counts  in 
the  petition.  The  first  is  to  recover  judgment  for  goods  alleged  to 
have  been  sold  by  plaintiffs  to  defendants,  March  30,  1877,  amount- 
ing to  $553.89;  the  second  count  is  for  goods  sold  August  14,  1877, 
amounting  to  $72.09,  and  the  third  is  for  goods  sold  October 9,  1877, 
amounting  to  $422.40.  In  addition  to  the  usual  averments  as  to  the 
sale  and  delivery  of  goods,  each  count  contains  substantially  the  fol- 
lowing allegations:  That  at  the  time  of  said  sales  the  defendants 
were  partners  in  the  retail  mercantile  business  in  Calhoun,  Henry 
county;  that  one  M.  Woods  was  the  general  agent  of  defendants,  and 
was  by  them  authorized  to  conduct,  manage  and  superintend  said 
business,  to  buy  and  sell  goods  and  merchandise,  and  to  do  all  things 
in  and  about  said  business  as  fully  as  if  he  were  himself  sole  owner 
thereof,  and  to  do  all  things  usual  and  customary  to  be  done  by  mer- 
chants carrying  on  that  sort  of  business;  that  M.  Woods,  as  such 
agent,  and  with  the  knowledge  and  approbation  of  these  defendants, 
carried  on  said  business  under  the  name  "M.  Woods,"  and  the  de- 
fendants had  no  other  partnership  designation ;  that  prior  to  Deceqfi- 
ber,  1876,  plaintiffs  had  had  dealings  with  said  defendants,  and  had 
sold  and  delivered  to  them  goods  and  merchandise,  through  Woods  as 
defendant's  agent ;  that  plaintiffs  had  at  no  time  business  transactions 
with  Woods  in  any  other  capacity  than  as  agent  for  defendants. 

The  answer  contains  a  general  denial,  and  als;o  alleges  that  the 
goods  in  the  petition  mentioned  were  sold  and  delivered  by  plaintiffs 
to  the  "Calhoun  Grange  Store  Company,"  a  duly  organized  corpora- 
tion of  Missouri,  and  not  the  defendants;  that  the  certificate  of  incor- 
poration was  duly  filed  in  the  recorder's  office  of  Henry  county,  on 

the  —  day  of ,  1876,  and  on  May  18,  1877,  a  similar  certificate 

was  filed  with  the  secretary  of  state,  and  on  the  same  day  the  said 
secretary  executed  to  said  Calhoun  Grange  Store  Company  a  certifi- 
cate of  incorporation  as  provided  by  law.  The  replication  is  a  gen- 
eral denial  of  the  new  matter  pleaded  in  the  answer.     «     *     * 

*  Only  part  of  the  opinion  given. 
43— WiL.  Cases. 


6/4  MARTIN    V.    FEWELL.  §  1/9 

At  the  request  of  the  defendants,  the  court  gave  the  following  in- 
structions : 

1.  If  the  jury  believe  from  the  evidence  that  prior  to  the  sale  of 
any  goods  by  the  plaintiffs  to  Woods  for  the  grange  store  in  question, 
the  defendants  had,  for  the  purpose  of  organizing  a  business  corpora- 
tion for  running  and  conducting  what  is  commonly  known  as  a  grange 
store,  agreed  to  subscribe  and  pay  shares  of  stock  to  such  organization, 
and  did  take  such  stock  with  such  imderstanding  and  for  such  pur- 
pose, and  took  initiative  measures  for  the  incorporation  of  said  busi- 
ness, and  organized  as  if  incorporated,  and  elected  directors  for  the 
management  and  control  of  said  association,  and  designated  said 
Woods  to  conduct  and  superintend  said  store  for  such  directors,  and 
did  make  and  acknowledge  the  articles  of  association  read  in  evidence, 
and  at  the  time  of  the  first  sale  of  any  goods  b}^  plaintiffs  to  said 
Woods,  said  defendants,  through  directors,  were  acting  under  the 
said  articles  of  association  as  a  corporation,  and  not  otherwise,  and 
the  said  Woods  had  no  authority  from  them  to  buy  goods  except  as 
the  agent  of  said  association,  then,  although  said  articles  of  incorpo- 
ration may  not  have  been  filed  and  recorded  as  by  statute  provided, 
the  defendants  are  not  liable  as  partners  to  the  plaintiffs  for  any  goods 
bought  of  them  by  said  Woods. 

2.  Even  though  the  articles  of  association  read  in  evidence  were 
not  filed  with  the  secretary  of  state,  yet,  if  defendants  were  acting 
alone  under  such  articles  of  association,  claiming  to  be  a  corporation, 
such  omission  to  file  the  same  with  the  secretary  of  state  did  not,  of 
itself,  make  the  defendants  liable  as  partners  for  any  goods  bought  for 
the  store  after  said  articles  were  actually  draw^n  up,  signed  and  ac- 
knowledged.    *     *     * 

The  court,  of  its  own  motion,  gave  the  following  instruction  to  the 
jury: 

If  you  believe  from  the  evidence  that  the  defendants,  or  some  of 
them,  in  the  fall  of  1875,  or  in  the  spring  of  1876,  made  an  agreement 
with  each  other  to  contribute  money  or  capital  for  the  purpose  of  car- 
rying on  the  business  of  buying  and  selling  merchandise  for  their 
mutual  profit,  and  that  they  did  so  contribute  and  carry  on  said  busi- 
ness, either  personally  or  by  their  agent,  then  such  of  defendants  as 
did  these  things  became  and  were  partners  in  such  business,  and  each 
partner  was  individually  liable  for  all  the  partnership  debts,  provided 
that  it  does  not  further  appear  from  the  evidence  that  they  did  not 
intend  to  act  and  carry  on  business  as  partners,  but  that  they  intended 
to  do  business  as  an  incorporated  company  and  each  one  to  be  liable 
only  for  the  amonnt  of  his  stock. 

Upon  the  giving  of  these  instructions  the  plaintiffs  took  a  nonsuit, 
and  on  the  refusal  of  the  court  to  set  the  same  aside,  they  appealed  to 
this  court.     *     *     * 

The  only  question  remaining  to  be  determined  is  whether,  on  the 
facts  stated  in  the  first  and  second  instructions  given  at  the  instance  of 
the  defendants,  and  in  the  instructions  given  by  the  court  of  its  own 
motion,  the  defendants  are  liable  as  co-partners.  Neither  the  case  of 
Hurt  V.  Salisbury,  55  Mo.  311,  nor  that  of  Richardson  v.  Pitts,  71 


§   179  PARTNERSHIP   LIABILITY.  675 

Mo.  128,  relied  upon  by  the  counsel  for  the  plaintiffs,  furnishes  a  dis- 
tinct answer  to  this  inquiry.  The  first  case  was  a  suit  upon  a  note 
executed  by  certain  individuals  as  directors  assuming  to  represent  a 
corporation  which  had  no  legal  existence,  and  this  court  held  that  the 
parties  who  signed  the  note  were  liable  thereon.  In  the  case  last 
named  certain  members  of  an  inchoate  corporation,  whose  incorpora- 
tion was  incomplete  by  reason  of  a  failure  to  file  the  articles  of  associa- 
tion with  the  secretary  of  state,  advanced  money  for  the  benefit  of  the 
joint  enterprise  under  obiigations  incurred  by  them  upon  the  supposi- 
tion that  the  association  was  duly  incorporated,  and  they  were  ad- 
judged to  be  entitled  to  contribution  from  their  associate  members 
beyond  the  amount  of  stock  severally  subscribed  for  by  such  associ- 
ates. The  effect  of  this  decision  is  to  create  the  relation  and  liability 
of  partners  as  between  the  members  of  an  unincorporated  association, 
so  far  as  the  debts  of  the  association  contracted  in  good  faith  and  paid 
by  any  of  its  members  are  concerned,  and  to  establish  a  different  rule 
from  that  laid  down  in  Ward  v.  Brigham,  127  Mass.  24.  The  de- 
cision of  this  court  is  supported  by  the  cases  of  Hill  v.  Beach,  12  N. 
J.  Eq.  31 ;  Hodgson  v.  Baldwin,  65  111.  532;  Flagg  v.  Stowe,  85  111. 
164.      Vide,  also,  Ferris  v.  Thaw,  72  Mo.  446. 

In  Pettis  V.  Atkins,  60  111.  454;  Bigelow  v.  Gregory,  73  111.  197; 
Abbott  V.  Smelting  Co.,  4  Neb.  416;  Frost  v.  Walker,  60  Maine 
46S;  Wells  y.  Gates,  18  Barb.  554;  National  Union  Bank  v.  Lan- 
don,  45  N.  Y.  410,  and  Tappan  v.  Bailey,  4  Met.  529,  it  is  held  that 
members  of  an  unincorporated  association,  notwithstanding  their  sub- 
scription and  payment  for  a  specified  number  of  shares  of  the  capital 
stock  of  the  association,  are  liable  as  co-partners  for  the  debts  of  the 
association.  These  decisions  we  regard  as  applicable  to  the  case  at 
bar.  By  reference  to  the  testimony  it  will  be  seen  that  in  1875,  more 
than  a  year  before  the  articles  of  association  were  signed  by  the  de- 
fendants, the  store  was  established  and  shares  of  stock  were  subscribed 
for  and  Woods  was  appointed  to  make  the  purchases  and  superintend 
the  sales.  All  this  was  done,  it  is  true,  with  the  understanding  that 
the  promoters  of  the  enterprise  were  to  become  a  corporation,  and  the 
purpose  of  the  promoters  undoubtedly  was  to  limit  their  liability  to 
the  amounts  severally  subscribed  by  them. 

If  by  reason  of  an  unexecuted  intention  to  become  a  coi-poration 
the  defendants  could  carry  on  the  business  of  merchandising  from 
1875  until  May,  1877,  without  incurring  in  the  meantime  the  liability 
of  partners,  we  do  not  see  why  they  could  not  have  continued  so  to 
act  as  a  corporation  for  a  much  longer  period,  buying  and  selling 
through  an  agent,  and  enjoying  all  the  privileges  of  a  corporation 
without  being  liable  to  be  sued  as  such.  JVo  mere  intsntion  on  the 
part  of  the  members  of  an  unincorporated  association  to  be  a  corpo- 
ration -will  suffice  to  restrict  their  individual  liability  to  that  imposed 
by  the  statute  upon  corporate  shareholders.  Not  being  a  corporation^ 
their  liability  can  not  be  a  corporate  liability,  but  must  be  that  of  a 
joint-stock  company.,  unless  the  provisions  of  the  statute  in  relation 
to  limited  partnerships  shall  have    been  complied  with,  of  -which 


6^6  MARTIN   V.    FEWELL.  §   1 79 

there  is  not  even  the  slightest  intimation  in  this  case.  There  is  no 
question  but  that  the  goods  were  j)urchased  by  Woods  of  the  -plaintiffs 
for  the  defendants.,  and  went  into  the  store  of  the  defendants .,  and 
were  sold  by  Woods  for  their  benefit.,  and  a  ruling  which  would  turn 
the  'plai7itiffs  out  of  courts  and  compel  them  to  collect  the  whole 
amount  of  their  claims  frotn  Woods.,  or  the  directors  ift  charge.,  who 
could  in  turn  go  against  the  defendatits  for  cojitribution  under  the 
decision  of  this  court  in  Richardson  v.  Pitts.,  supra.,  would  be  not 
only  manifestly  u^tjust.,  but  utterly  indefejisible.  Under  the  logic  of 
the  case  last  cited,  the  defendants  are  liable  as  partners  directly  to  the 
plaintiffs  for  the  debts  of  the  association  incurred  before  they  became 
incorpoi^ated. 

For  the  deots  incurred  after  they  became  a  corporation,  their  lia- 
bility will  depend  upon  the  fact  of  actual  notice  of  their  incorpora- 
tion to  the  plaintiffs  at  the  time  such  debts  were  incurred.  When 
partners  have  dealt  as  such  with  a  seller,  and  after  becoming  incor- 
porated, continued  to  deal  as  before,  having  their  bills  made  in  the 
same  way,  without  giving  any  notice  of  their  altered  condition,  they 
will  continue  to  be  liable  as  partners,  unless  the  seller  have  knowl- 
edge thereof  derived  from  some  other  source.  Whether  the  plaintiffs 
had  such  notice  or  knowledge  is  a  question  of  fact  for  the  jury. 

For  the  reasons  given,  the  judgment  will  be  reversed,  and  the  cause 
remanded.     All  the  judges  concur. 

Note.  See,  1857,  Abbott  v.  Aspinwall,  26  Barb.  (N.  Y.)  202;  1858,  Hill  v. 
Beach,  12  N.  J.  Eq.  31 ;  1866,  Medill  v.  Collier,  16  Ohio  St.  599;  1874,  Stowe  v. 
Flagg,  72  111.  397;  1874,  Whipple  v.  Parker,  29  Mich.  369;  1877,  Fiagg  v. 
Stowe,  85  111.  164;  1878,  Jessup  v.  Carnegie,  12  Jones  &  S.  (N.  Y.)  260;  1880, 
Ferris  v.  Thaw,  72  Mo.  446;  1881,  Coleman  v.  Coleman,  78  Ind.  344;  1881, 
Kaiser  v.  Lawrence  Sav.  Bank,  56  Iowa  104,  41  Am.  Rep.  85;  1883,  Clegg  v. 
Hamilton  &  W.  Co.  G.  Co.,  61  Iowa  121;  1884,  Robinson  v.  Harris,  5  Ky.  L. 
R.  928 ;  1884,  Bamberger  v.  White,  6  Ky.  L.  R.  292 ;  1885,  Smith  v.  Warden,  86 
Mo.  382;  1891,  Empire  Mills  v.  Alston  Grocerv  Co.,  4  Texas  App.  346, 12  L.  R. 
A.  366;  1895,  Taylor  v.  Branham,  35  Fla.  297,  17  So.  Rep.  552;  1895.  Jones  v. 
Aspen  Hardware  Co.,  21  Colo.  263,  52  Am.  St.  Rep.  220,  supra,  p.  637;  1896, 
Lehman  v.  Knapp,  48  La.  Ann.  1148, 20  So.  Rep.  674 ;  1896,  New  York  Nat'l  Ex. 
Bank  v.  Crowell,  177  Pa.  St.  313,  35  Atl.  Rep.  613;  1897,  Liebold  v.  Green,  69 
111.  App.  527;  1898,  Weir  Furnace  Co.  v.  Bodwell,  73  Mo.  App.  389;  1899, 
Hequembourg  v.  Edwards,  155  Mo.  514,  60  S.  W.  Rep.  908;  1899,  Christian  & 
C.  G.  Co.  V.  Fruitdale  L.  Co.,  121  Ala.  340,  25  So.  Rep.  566.  But  see,  supra, 
p.  625.  Beach,  §162;  Clark,  §45;  Elliott,  §83;  Morawetz,  §748;  Taylor, 
§§  148,  739;  I  Thompson,  §§  218,  506;  III  Thompson,  §§  2940,  2968-2993. 


§   l80  PARTNERSHIP   LIABILITY.  6^J^ 


Sec.  180.  (2)  Does  not  result  in  a  partnership  liability;  but  if 
any  liability,  either  a  corporate  one,  or  one  resting  only  upon 
those  who  have  participated  in  the  acts,  or  authorized  them 
to  be  done,  or  ratified  them. 

FAY  AND  Another  v.  NOBLE  and  Others. 

185 1.     In  the  Supreme  Judicial  Court  of  Massachusetts.     7 
Cushing's  (Mass.)  Rep.  188-194. 

This  was  a  replevin  for  seventy-two  tons  of  pig  iron.  The  defend- 
ants pleaded  the  general  issue,  and  specified  in  defense  a  title  in  them- 
selves under  a  mortgage  from  the  West  Boston  Iron  Company. 

At  the  trial  in  the  court  of  common  pleas,  before  Wells,  C.  J., 
the  following  facts  were  in  evidence:  "Prior  to  May,  1848,  Leonard 
Fuller  and  one  Kendall  owned  and  carried  on  at  Boston  a  machine 
shop  and  an  establishment  for  making  iron  castings.  On  the  22d  of 
March,  1848,  they,  with  others,  were  incorporated  as  a  manufactur- 
ing corporation,  under  the  name  of  the  West  Boston  Iron  Company, 
for  the  purpose  of  carrying  on  the  same  business  (St.  1848,  ch.  70,  8 
Special  Laws  879);  and  in  May,  1848,  attempted  to  and  supposed 
they  did  organize  as  such  corporation ;  and  Fuller  and  Kendall  then 
transferred  the  real  and  personal  estate  employed  by  them  in  said 
business  to  the  corporation,  receiving  payment  therefor  in  shares  of 
stock  in  the  corporation.  The  shares  so  received  by  Fuller  amounted 
to  more  than  three-fourths  of  the  whole  number  of  shares  into  which 
the  capital  stock  purported  to  have  been  divided.  From  the  time  of 
this  supposed  organization  until  November,  1848,  Fuller  acted  as  the 
general  agent  of  the  company,  and,  on  the  25th  of  September,  1848, 
purporting  to  act  in  that  capacity,  borrowed  money  of  the  plaintiffs, 
gave  the  note  of  the  company  therefor,  and  conveyed  the  pig  iron  in 
question  to  the  plaintiffs  as  collateral  security  for  its  payment. 

The  plaintiffs  put  into  the  case  the  records  of  said  supposed  organ- 
ization and  of  the  proceedings  under  the  same,  and  contended  that,  from 
an  inspection  of  these  records,  it  appeared  the  company  had  not  been 
legally  organized  as  a  corporation;  and  so  the  court  rules  against  the 
objection  of  the  defendants.  Two  witnesses,  called  by  the  plaintiffs, 
testified,  in  answer  to  questions  by  the  defendants,  that  the  proceed- 
ings therein  recorded  were  tnaly  set  forth.  To  this  evidence  the 
plaintiffs  objected,  but  the  judge  admitted  it  as  evidence  of  the  actual 
agreement  of  the  associates  among  themselves  whether  they  were  to 
be  regarded  as  corporators,  as  partners  or  otherwise,  as  to  the  manner 
in  which  the  business  should  be  transacted  and  of  the  extent  of  the 
authority  given  to  Fuller  as  their  agent. 

In  November,  1848,  a  reorganization  of  the  company  as  a  corpo- 
ration took  place,  and  on  the  14th  of  that  month  the  corporation  so 
reorganized  conveyed  all  their  property  to  the  defendants  by  the  mort- 


678  FAY   V.    NOBLE.  §   180 

gage  relied  on  by  the  defendants,  who  took  possession  under  this  mort- 
gage of  the  iron  in  controversy. 

The  plaintiffs  requested  the  judge  to  instruct  the  jury,  among  other 
things,  that,  as  there  had  been  no  legal  organization  of  the  corpora- 
tion at  the  time  of  the  conveyance  to  the  plaintiffs,  the  parties  then 
holding  shares  therein  and  conducting  the  business  for  their  common 
benefit  were  in  law  to  be  deemed  partners,  and  could  not,  by  any 
agreement  among  themselves  limit  the  power  of  the  members  as  such 
so  as  to  affect  the  plaintiffs,  unless  knowledge  of  such  limitation  was 
brought  home  to  the  plaintiffs,  the  burden  of  proving  which  was  on 
the  defendants;  that  Fuller,  as  one  of  the  partners  and  the  managing 
partner  and  principal  owner,  had  full  powers  to  give  the  notes  of  the 
company  to  raise  money  and  pledge  their  property  for  the  payment 
thereof ;  and  that  although  Fuller  dealt  with  the  plaintiffs  as  agent, 
they  were  not  estopped  to  show  and  avail  themselves  of  the  fact  that 
he  was  actually  a  partner  and  principal  owner. 

The  presiding  judge  submitted  the  case  to  the  jury,  with  instruc- 
tions upon  this  point,  of  which  the  following  is  the  material  part: 

"The  proceedings,  prior  to  November,  1848,  did  not  prove  a  legal 
organization  of  the  corporation,  and  consequently  no  corporate  acts 
were  done  prior  to  November,  1848,  when  the  new  organization  was 
effected.  But,  although  not  acting  as  a  corporation,  the  individual  as- 
sociates were  acting  as  an  association  connected  together  for  the  pur- 
pose of  carrying  on  business ;  this  association  was  riot  necessarily  a 
partnership,  with  the  usual  powers  and  liabilities  of  a  partnership, 
but  it  was  a  question  of  fact  what  were  the  terms  of  this  agreement  of 
association  ;  and  it  being  testified  and  proved  that  the  writings  offered 
as  records  of  the  corporation  contained  a  true  statement  of  the  acts  of 
the  associates,  these  writings  were  admissible  evidence  to  prove  the 
actual  agreenfient  of  the  associates  as  between  themselves ;  and  it  was 
for  the  jury,  from  this  and  other  evidence,  to  determine  what  this 
agreement  of  association  was.  If  it  was  a  partnership  without  any 
limitation  as  to  the  powers  of  the  individual  members,  each  partner 
had  a  right  to  bind  the  partnership  by  a  contract  made  for  partnership 
purposes ;  and  among  other  powers,  had  a  right  to  borrow  money  in 
the  name  of  the  partnership,  and  pledge  the  partnership  property  as 
security  for  repayment.  It  was,  however,  competent  for  partners  to 
limit  the  powers  of  individual  members  of  the  company  by  an  agree- 
ment that  the  conduct  of  the  business  should  be  confided  wholly  to 
the  management  of  agents  chosen  for  that  purpose ;  and  where  this 
was  done,  a  partner  not  selected  as  agent  could  not  bind  the  company 
by  an  agreement  with  an  individual  who  knew  the  fact  that  the  power 
of  transacting  the  business  of  the  concern  had  been  delegated  to  these 
agents." 

The  jury  returned  a  verdict  for  the  defendants,  and  the  plaintiffs 
excepted. 

BiGELOw,  J.  Upon  the  evidence  introduced  at  the  trial  of  this  case 
in  the  court  below,  the  presiding  judge  ruled  that  prior  to  November, 
1848,  there  was  no  legal  organization  of  the  corporation   called  the 


§   l80  PARTNERSHIP   LIABILITY.  679 

West  Boston  Iron  Company,  and  therefore  no  corporate  acts  were 
done  prior  to  that  time.  The  whole  case  was  tried  and  submitted  to 
the  jury  on  this  assumption.  As  this  point  was  so  ruled  at  the  request 
of  the  plaintiffs,  and  as  the  verdict  was  in  favor  of  the  defendants,  no 
exception  was  taken  thereto,  and  we  are  not  called  up)on  to  determine 
its  correctness. 

The  plaintiffs  contended  and  asked  the  court  to  rule  that  inasmuch 
as  there  had  been  no  legal  organization  of  said  corporation  prior  to 
November.  1848,  the  parties  holding  shares  in  said  unorganized  cor- 
poration were  in  law  to  be  deemed  co-partners  and  subject  to  all  lia- 
bilities as  such.  The  court  did  not  give  this  precise  instruction  to  the 
jury,  but  directed  them  in  substance  that  said  parties,  by  virtue  of 
their  being  subscribers  for  and  holders  of  stock  in  said  company,  were 
either  general  co-partners,  with  the  usual  powers  and  liabilities  as 
such,  or  co-partners  acting  under  certain  restrictions  and  limitations 
as  to  the  rights  and  duties  of  individual  members  and  through  an 
agent  with  limited  authority,  and  it  was  left  to  the  juiy  to  determine 
upon  the  nature  and  character  of  this  co-partnership,  and  also  the  au- 
thority of  Fuller  as  agent  or  co-partner  to  act  in  its  behalf. 

It  seems  to  us,  upon  careful  consideration  of  the  case,  that  these 
instructions  were  not  warranted  by  the  facts  proved,  and  although 
they  do  not  form  the  precise  ground  of  the  exceptions  taken  by  the 
plaintiffs,  yet  we  think  them  so  erroneous  as  to  render  it  necessary  to 
order  the  case  to  a  new  trial. 

We  are  not  aware  of  any  authority,  certainly  none  was  cited  at  the 
argument,  to  warrant  the  instruction  that  in  consequence  of  an  omis- 
sion to  comply  with  the  requisitions  of  law  in  the  organization  of  a 
corporation,  by  which  its  proceedings  were  rendered  void,  persons 
who  had  subscribed  for  and  taken  stock  in  the  company  thereby  be- 
came co-partners.  The  doctrine  seems  to  us  to  be  quite  novel  and 
somewhat  startling.  Surely  it  can  not  be,  in  the  absence  of  all  fraud- 
ulent intent  (and  none  was  proved  or  alleged  in  this  case),  that  such 
a  legal  result  follows  as  to  fasten  on  parties  involuntarily,  for  such  a 
cause,  the  enlarged  liability  of  co-partners;  a  liability  neither  contem- 
plated nor  assented  to  by  them.  The  very  statement  of  the  proposi- 
tion carries  with  it  a  sufficient  refutation.  No  such  result  can  follow 
unless  a  principle  of  law  be  established,  founded  on  no  authority,  and 
required  by  no  public  exigency.  Corporations  are  known  and  recog- 
nized legal  entities,  with  rights  and  powers  clearly  defined  and  well 
understood,  and  wholly  distinct  and  different  from  those  of  individuals 
and  co-partnerships.  Persons  who  subscribe  for  and  take  stock  in  them 
are  subject  to  certain  fixed  and  limited  liabilities,  which  they  volunta- 
rily assume,  and  these  liabilities  are  not  to  be  extended  and  enlarged 
so  as  to  affect  innocent  parties  beyond  the  letter  of  the  law.  A  co- 
partnership can  not  take  upon  itself  the  functions  of  a  corporation, 
nor  can  a  corporation  or  its  members  be  made  subject  to  the  liabilities 
of  a  copartnership,  in  the  absence  of  all  statutory  provisions  imposing 
such  liabilities.  The  personal  liability  of  the  members  of  a  joint- 
stock  company  or  co-partnership  is  inconsistent  with  the  character  and 


68o  FAY   V.    NOBLE.  §  I  bo 

nature  of  a  corporation,  of  which  the  law  properly  recognizes  only 
the  creature  of  the  charter,  and  knows  not  the  individuals.  Ang.  & 
Ames  on  Corp.,  535,  536.  On  looking  into  Revised  Statutes,  ch. 
38  and  44,  to  the  provisions  of  which  the  corporation  in  question  was 
made  subject,  we  find  various  enactments  by  which  officers  and  mem- 
bers are  made  individually  liable  for  debts  contracted  by  corporations 
in  case  of  non-compliance  with  certain  requisitions ;  but  no  provision 
is  made  by  which  such  individual  liability  attaches  by  reason  of  any 
omission  to  organize  in  the  manner  prescribed  by  law.  The  statute, 
it  is  true,  prescribes  the  mode  of  organization,  but  it  annexes  no  pen- 
alty or  liability  to  the  neglect  or  omission  to  comply  with  it.  We  are 
unable  to  see,  therefore,  any  principle  of  law  upon  which  the  instruc- 
tions given  to  the  jury  on  this  point  can  rest. 

It  follows,  as  a  necessary  consequence  of  what  we  have  already 
said,  that  the  records  of  the  corporation  were  improperly  admitted  and 
submitted  to  the  jury  as  evidence  of  an  agreement  or  understanding 
among  the  shareholders  in  the  corporation  as  to  their  own  rights  and 
liabilities  as  members  of  a  co-partnership,  and  of  the  extent  of  author- 
ity given  to  Fuller  as  agent  of  such  co-pai"tnership.  They  were  not 
made  or  kept  for  any  such  purpose.  They  were  only  the  records  and 
by-laws  of  a  corporation,  not  the  agreements  of  individuals,  in  the  na- 
ture of  articles  of  co-partnership ;  and  they  could  have  no  legitimate 
tendency  to  prove  the  facts  for  which  they  were  offered  and  used  at 
the  trial. 

Without  examining  at  greater  length  the  rulings  of  the  court  set  out 
in  the  bill  of  exceptions,  we  think  it  manifest  that  the  whole  trial  pro- 
ceeded under  a  misapprehension.  If  the  court  were  correct  in  decid- 
ing that  there  was  no  organization  of  the  corporation^  and  that  all  its 
proceedings  were  void,  the  case  resolved  itself  into  a  few  simple  ele- 
ments. Being  unorganized,  and  incompetent  to  act  as  a  corporatio?i, 
it  could  not  create  agents,  or  confer  any  atithority  on  any  one  to  act  in 
its  behalf,  and  therefore  all  those  who  acted  or  purported  to  act  as  its 
agents  were  acting  without  authority.  There  was  no  principal  to 
appoint  an  agent.  It  is  a  familiar  principle  of  law  that  a  person 
who  acts  as  agent  without  atithority  or  without  a  principal  is  him- 
self regarded  as  a  principal,  and  has  all  the  rights  and  is  subject  to 
all  the  liabilities  of  a  principal.  Story  on  Agency,  section  264.  If  a 
person,  purporting  to  act  as  agent  of  a  corporation  which  had  no 
valid  existence,  makes  contracts  and  does  other  acts  as  its  agent,  he 
becomes  the  principal,  and  is  personally  liable  therefor.  If  he  pur- 
chases property,  as  agent,  without  authority,  the  title  vests  in  him,  so 
far  at  least  as  regards  third  persons,  and  he  has  the  sole  right  to  dis- 
pose of  it  to  others.  Story  on  Agency,  section  264a,  note ;  Hampton 
V.  Speckenagle,  9  S.  &  R.  212.  Applying  this  principle  to  the  case 
at  bar,  it  is  very  clear  that  Fuller  was  not  the  agent  of  a  co-partner- 
ship, for  none  existed;  he  was  not  the  agent  of  individtials ,  as  such, 
because  he  was  not  authorized  to  act;  he  was  not  the  agent  of  the 
West  -Boston  Iron  Company,  because  if  the  court  xvere  right  in  decid- 
ing that  it  had  never  organized,  a?id  that  its  proceedings  were  void, 


§  l8o  PARTNERSHIP   LIABILITY.  68 1 

it  never  had  the  power  to  appoint  him  agent.  Clearly.,  then^  he 
acted  without  authority  from  any  one.  If  he  purchased^  he  pur- 
ctuxsed  for  himself  In  him  only  did  the  property  vest,  and  as 
against  all  but  the  vendors  he  had  the  sole  right  to  dispose  of  it  to 
others.  In  this  view,  the  question  of  co-partnership  which  was  sub- 
mitted to  the  jury  was  wholly  immaterial,  and  diveited  their  atten- 
tion froin  the  real  point  in  issue.  We  are  therefore  of  opinion  that 
there  was  a  mistrial,  and  that  the  verdict  must  be  set  aside  and  a  new 
tiial  had  at  the  bar  of  this  court. 

To  same  effect,  1879,  Ward  v.  Brigham,  127  Mass.  24 ;  First  National  Bank 
V.  Almy,  117  Mass.  476;  Trowbridge  v.  Scudder,  11  Cash.  83;  1892,  Ruther- 
ford V.  Hill,  22  Ore.  218,  29  Am.  St.  R.  596;  Humphreys  v.  Mooney,  5  Colo. 
282;  Gartside  Ctoal  Co.  v.  Maxwell,  22  Fed.  Rep.  197. 

See  the  following  oases  holding  there  is  not  necessarily  a  partnership  liabil- 
ity ;  many,  however,  are  cases  of  estoppel.  1846,  State  v.  How,  1  Mich. 
(1  Man.)  512;  1872,  Blanchard  v.  Kaull,  44  Cal.  440;  1874,  Fuller  v.  Rowe,  57 
N.  Y.  23;  1880  Humphreys  v.  Mooney,  5  Colo.  282;  1884,  Gartside  Coal  Co. 
v.  Maxwell,  22  Fed.  Rep.  (U.  S.  C.  C.)  197  ;  1885,  Johnson  v.  Corser,  34  Minn. 
355;  1890,  Snider's  Sons'  Co.  v.  Troy,  91  Ala.  224,  stipra,  p. 656;  1890,  Cory  v. 
Lee,  93  Ala.  468, 8  So.  Rep.  694;  1892,  Rutherford  v.  Hill,  22  Ore.  218,  29  Am. 
St.  R.  596;  1894,  Railroad  Gazette  v.  Wherry,  58  Mo.  App.  423;  1894,  Wilson 
Cotton  Mills  V.  C.  C.  R.  Cotton  Mills,  115  N.  C.  475;  1895,  Clark  v.  Richard- 
son, 17  Ky.  L.  Rep.  514,  31  S.  W.  Rep.  878 ;  1895,  First  National  Bank  v.  Harper, 
61  Minn.  375,  63  N.  W.  Rep.  1097 ;  1805,  American  Mirror  &  G.  B.  Co.  v. Bulk- 
lev,  107  Mich.  447,  65  N.  W.  Rep.  291 ;  1896,  First  Nat'l  Bank  v.  Dovetail  B. 
&G.  Co.,  143  Ind.  534,  42  N.  E.  Rep.  924;  1896,  Gow  v.  Collen  &,  P.  L.  Co.,  109 
Mich.  45,  66  N.  W.  Rep.  676 ;  1896,  Hogue  v.  Capital  Nat'l  Bank,  47  N.  B.  929, 
66  N.  W.  Rep.  1036;  1897,  Sentell  v.  Hewitt,  50  La.  Ann.  3,  22  So.  Rep.  970; 
1898,  Cole  V.  Great  B.  L.  &  L.  Co.,  8  Kan.  App.  860,  54  Pac.  Rep.  920;  1899, 
Richards  v.  Minn.  Sav.  Bk.,  76  Minn.  196,  77  N.  W.  Rep.  822.  See,  also, 
supra,  p.  625;  text-book  references,  supra,  p.  672. 


Title  IV.     The  Body  Corporate,  Its  Anatomy,  Internal 
Structure  and  Constitution. 


CHAPTER  8. 

MEMBERS,  PARTS,  ORGANS  OF  ACTION,  WITH  THEIR  FUNC- 
TIONS AND  MUTUAL  RELATIONS. 

Subdivision  I.    Members,  Integral  Parts  and  Organs  of 

Action. 


article  I.     members. 
Sec.  181.     Necessity  of  members. 

"It  is  plain  that  a  joint-stock  company  or  trading  corporation  can 
not  possibly  exist  without  stockholders  or  members.  It  would  be  a 
contradiction  in  terms  to  speak  of  an  association  existing  without  as- 
sociates composing  it."      i  Morawetz,  §  33. 

Note.    See,  also,  supra,  §§  96,  97. 


Sec.  182.     Acquisition  of  membership. 

(i)  Non-stock  companies. 

THE  AMERICAN  LIVE  STOCK  COMMISSION  COMPANY  v.  THE 
CHICAGO  LIVE  STOCK  EXCHANGE.^ 

1892.     In  the  Supreme  Court  of  Illinois.      143  III.  Rep.  210- 
241,  36  Am.  St.  Rep.  385. 

[Bill  by  commission  company  against  stock  exchange  for  an  in- 
junction.] 

Mr.  Chief  Justice  Bailey.  *  *  *  The  live  stock  exchange  is  a  cor- 
poration, not  for  pecuniary  profit,  organized  March  13,  1884,  under  the 
laws  of  this  state,  th5  objects  for  which  it  was  organized,  as  declared 
by  its  articles  of  incoi'poration,  being:  "To  establish  and  maintain 
a  commercial  exchange ;  to  promote  uniformity  in  the  customs  and 

'  Statement  of  facts  abridged  and  rearranged.  Arguments  omitted,  and 
only  so  much  of  opinion  given  as  relates  to  the  single  point. 

(682) 


§   l82  ACQUISITION    OF   MEMBERSHIP.  683 

usages  of  our  merchants ;  to  provide  for  the  speedy  adjustment  of  all 
disputes  between  its  members;  to  facilitate  the  receiving  of  live  stock, 
as  well  as  provide  for  good  management  and  the  inspection  thereof, 
thereby  guarding  against  the  sale  or  use  of  unsound  or  unhealthy 
meats ;  to  secure  to  members  a  corporation  in  furtherance  of  their 
legitimate  purposes."  Said  corporation  has  no  capital  stock,  and  is 
itself  engaged  in  no  commercial  business,  but  limits  its  corporate  en- 
terprise to  furnishing  to  its  members  facilities  for  carrying  on,  each 
for  himself,  the  business  of  buying,  selling  and  dealing  in  live  stock, 
meats  and  other  like  commodities,  and  to  adopting  and  enforcing  by- 
laws, rules  and  regulations  by  which  the  business  of  its  members  shall 
be  conducted  and  governed  [pp.  225—6]. 

The  complainant  is  a  joint-stock  corporation,  organized  May  3,  1889, 
under  the  laws  of  this  state,  with  a  capital  stock  of  $100,000,  divided 
into  shares  of  $100  each,  the  shareholders  consisting  principally,  if 
not  exclusively,  of  persons  and  firms  engaged  in  the  business  of  ship- 
ping live  stock  to  the  Union  Stock  Yards  at  Chicago  for  sale.  The 
principal  office  of  said  corporation  is  located  at  the  stock  yards,  and 
the  objects  for  which  said  corporation  was  formed,  as  declared  by  its 
articles  of  incorporation,  are  as  follows: 

''To  engage  in  the  business  of  buying,  selling  and  handling  live 
stock  upon  commission  at  the  Union  Stock  Yards,  state  of  Illinois,  and 
at  such  other  points  throughout  the  United  States  as  may  be  deemed 
advisable,  and  also  to  encourage  the  stockholders  of  said  coi-poration 
to  raise,  improve,  feed  and  ship  to  market  live  stock;  and  in  order  to 
better  effectuate  said  latter  object,  it  is  hereby  expressly  stipulated  and 
agreed  by  and  between  the  parties  hereto,  that  the  net  earnings  of 
said  corporation  shall  be  distributed  among  the  stockholders  thereof 
annually  in  the  following  manner,  to  wit:  Sixty-five  per  cent,  of  said 
net  earnings  shall  be  distributed  to  said  stockholders  in  the  ratio  of 
the  number  of  stock  shipped  by  each  stockholder  to  the  said  corpora- 
tion for  sale  during  the  current  year  for  which  said  dividend  shall  be 
declared,  and  the  remaining  35  per  cent,  of  said  net  earnings  shall  be 
distributed  to  the  shareholders  in  said  corporation  in  the  ratio  of  the 
amount  owned  by  each  shareholder  in  said  corporation.  It  is  hereby 
further  expressly  agreed  and  stipulated  that  no  one  person  shall  have 
the  right  to  subscribe  for  or  own  more  than  twenty-five  shares  of  stock 
in  said  corporation  at  any  time  during  the  existence  of  said  proposed 
corporation." 

Said  corporation,  on  being  organized,  appointed  Rogers  as  its  man- 
ager, and  he  applied  for  admission  as  a  member  of  the  exchange, 
and  was  admitted  a  member  thereof,  his  initiation  fee  being  paid  by 
the  presentation  of  an  outstanding  certificate  of  membership  which 
had  been  purchased  with  the  money  of  the  complainant.  The  evi- 
dence shows,  and  upon  this  point  there  seems  to  be  no  dispute,  that 
when  Rogers  applied  for  membership  no  disclosure  was  made  by  him 
as  to  the  plan  upon  which  the  complainant  corporation  was  organ- 
ized, and  particularly  the  obligation  which  it  assumed  by  its  articles 
of  incorporation,  to  distribute  annually  among  its  shareholders  sixty- 


684      AMERICAN,  ETC.,  CO.  V.  CHICAGO,  ETC.,  EXCHANGE.      §  1 82 

five  per  cent,  of  its  net  earnings,  in  the  proportion  of  the  number  of 
live  stock  shipped  by  each  to  said  corporation  for  sale.  Rogers  \va§ 
admitted  to  membership  upon  investigation  by  the  exchange  of  his 
own  personal  character  and  credit,  and  in  ignorance  of  this  peculiar 
feature  of  the  scheme  upon  which  the  corporation  represented  by  him 
was  organized. 

The  complainant  thereupon  embarked  in  the  business  of  receiving 
consignments  of  live  stock,  both  from  its  shareholders  and  others,  and 
in  selling  the  same  on  commission  at  the  stock  yards,  the  rates  of 
commission  charged  by  it  in  all  cases  being  in  conformity  to  the 
schedule  of  rates  established  by  the  exchange.  Said  business  was 
managed  by  Rogers,  who,  being  a  member  of  the  exchange,  was  en- 
abled to  avail  himself  in  the  management  of  said  business  of  all  the 
privileges  which  such  membership  afforded. 

In  November,  1889,  the  complainant  having  realized  a  considerable 
sum  of  money  as  the  net  profits  of  its  business  up  to  that  time,  dis- 
tributed such  net  profits  to  its  shareholders  as  required  by  its  articles 
of  incorporation,  and  the  exchange  being  informed  of  such  distribu- 
tion, and  regarding  it  as  a  virtual  evasion  of  its  rules  establishing  min- 
imum rates  of  commissions,  instituted  proceedings  against  the  com- 
plainant and  its  manager  for  a  violation  of  its  rules.  Rogers  set  up, 
in  defense  of  these  charges,  in  substance,  that  the  complainant  was  not 
a  member  of  the  exchange  nor  subject  to  its  jurisdiction  ;  that  so  far 
as  his  action  as  a  member  of  the  exchange  was  concerned  he  had 
strictly  conformed  to  said  rules  by  charging  and  collecting  the  rates  of 
commissions  thereby  established,  and  having  collected  them,  he  had 
accounted  for  and  paid  the  same  over  to  his  principal,  the  complain- 
ant, as  it  was  his  legal  duty  to  do,  and  that  he  had  no  responsibility 
for  the  disposition  which  the  complainant  had  subsequently  seen  fit  to 
make  of  the  same.  These  suggestions  seem  to  have  been  acquiesced 
in  by  the  exchange,  as  the  proceedings  against  both  the  complainant 
and  its  manager  appear  to  have  been  thereupon  abandoned. 

The  exchange,  however,  for  the  pui-pose,  as  may  well  be  presumed, 
of  protecting  itself  against  similar  evasions  of  its  rules  in  the  future, 
amended  its  eighth  rule  so  as  to  provide,  in  substance,  that  no  person 
should  be  received  for  membership  in  the  exchange  who,  in  any  man- 
ner, acts  for  or  represents  any  other  live  stock  corporation  whose  char- 
ter, regulations,  rules  or  by-laws  provided  for  discrimination  in  rates 
or  charges  for  commissions  between  stockholders  and  other  patrons 
or  customers,  whether  under  the  guise  of  dividends,  drawbacks  or  any 
other  scheme  or  device  whatever,  and  that  no  member  of  the  exchange 
should  act  as  agent  or  otherwise  for  any  live  stock  corporation  whose 
charter,  regulations,  rules  or  by-laws  provide  for  such  discrimination, 
and  subjecting  a  member  thus  offending  to  suspension  or  expulsion. 
At  the  same  time  rule  nine  was  so  amended  as  to  prohibit  all  mem- 
bers of  the  exchange  from  buying  any  live  stock  or  causing  the  same 
to  be  bought,  at  the  stock  yards  from  any  corporation  or  live  stock 
company  which  is  or  may  be  regularly  selling  live  stock  for  non-resi- 
dents on  commission,  unless  some  one  or  more  of  the  stockholders  of 


§   1 82  ACQUISITION    OF   MEMBERSHIP.  685 

such  company  are  members  of  the  exchange  in  good  standing  [pp. 
230-2]. 

The  case  sought  to  be  made  by  the  complainant  is  presented  under 
two  aspects :  First,  it  is  claimed  that,  either  by  itself  or  through  its 
general  manager,  the  complainant  is  or  is  entitled  to  be  admitted  a 
member  of  the  exchange,  and  it  accordingly  prays  for  an  injunction 
restraining  the  exchange  from  taking  any  steps  to  try  the  complainant 
for  a  violation  of  its  rules,  or  to  impose  upon  the  complainant's  privi- 
leges as  a  member  any  illegal  or  unreasonable  restraints,  and  it 
also  prays  that  the  certificate  of  membership  in  Roger's  hands  be  is- 
sued to  the  complainant.  Secondly,  it  claims  that  if  it  is  not  a  mem- 
ber and  entitled  to  the  privileges  of  membership,  the  exchange  should 
be  restrained  from  putting  in  force  certain  rules  it  has  adopted  for  the 
government  of  its  ovv^n  members,  and  particularly  its  amendments  to 
rules  8  and  9. 

We  are  unable  to  see  upon  what  principle  it  can  be  justly  claimed 
that  the  complainant  is  a  member  of  the  exchange  or  entitled  to  the 
privileges  of  membership,  or  that  it  is  in  a  position  where  it  can  insist 
upon  being  admitted  to  membership  as  a  matter  of  right.  Whatever 
may  have  been  its  rights  while  Rogers,  its  manager,  was  a  member, 
those  rights  no  longer  exist,  as  by  its  own  admission  Rogers  is  no 
longer  its  manager,  and  is  no  longer  a  member  of  the  exchange.  Nor 
can  there  be  any  just  pretense  that  the  complainant  itself  is  a  member 
or  has  ever  applied  for  membership.  The  exchange  is  a  corporation, 
having  rules  or  by-laws  determining  the  qualifications  for  member- 
ship and  prescribing  the  mode  in  which  members  may  be  admitted, 
and  there  is  no  pretense  that  the  complainant  has  ever  brought  itself 
within  the  terms  of  said  rules  or  by-laws,  so  as  to  be  entitled  to  mem- 
bership.    Rule  8  of  the  exchange  provides  as  follows: 

"On  and  after  May  i,  1884,  any  person  of  good  character  and 
credit  and  of  legal  age,  whose  interests  are  centered  at  the  Union  Stock 
Yards,  on  presenting  a  written  application  indorsed  by  two  members, 
and  stating  the  name  and  business  avocation  of  the  applicant,  after 
ten  days'  notice  of  such  application  shall  have  been  posted  on  the  bul- 
letin of  the  exchange,  may  be  admitted  to  membership  in  the  associa- 
tion upon  approval  by  at  least  seven  affirmative  ballot-votes  of  the 
board  of  directors,  and  upon  payment  of  an  initiation  fee  of  $500,  or 
on  presentation  of  a  certificate  of  unimpaired  or  unforfeited  member- 
ship duly  transferred,  and  by  signing  an  agreement  to  abide  by  the 
rules,  regulations  and  by-laws  of  the  association,  and  all  amendments 
that  may  in  due  form  be  made  thereto." 

Said  association  had  an  undoubted  right  to  adopt  this  rule,  and  as 
it  prescribes  the  mode  and  the  only  mode  in  which  membership  in  the 
exchange  can  be  obtained^  no  one  can  justly  claim  to  be  a  member  who 
has  not  been  admitted  in  the  mode  thus  prescribed. 

It  may  well  be  questioned  whether,  imder  this  rule,  a  corporation 
in  its  corporate  character  can  be  admitted  to  membership  in  the  ex- 
change, as  said  rule  seems  to  contemplate  only  the  admission  of  nat- 
ural persons.     But  even  if  that  were  otherwise,  there  is  no  pretense 


686      AMERICAN,  ETC.,  CO.  V.  CHICAGO,  ETC.,  EXCHANGE.      §  1 82 

that  the  coinplainant  itself  has  ever  made  application  for  membership, 
or  that  any  of  the  subsequent  steps  necessary  to  vest  an  applicant 
with  the  character  and  rights  of  membership  have  been  taken,  or  that 
they  have  resulted  favorably  to  the  complainant.  Nor  is  it  pretended 
that  since  Rogei"s  ceased  to  be  the  complainant's  manager,  and  thereby 
ceased  to  be  its  representative  on  the  exchange,  any  formal  applica- 
tion for  membership  has  been  made  by  Titus,  its  general  manager,  or 
by  any  other  person  in  its  behalf,  but  the  evidence,  on  the  other  hand, 
is  clear  and  undisputed  that  no  such  application  has  been  made.  The 
fact  alleged  in  the  bill,  if  it  be  a  fact,  that  the  complainant  has  re- 
quested the  exchange  to  issue  the  certificate  of  membership  formerly 
held  by  Rogers  to  Titus  avails  the  complainant  nothing,  as  the  ex- 
change is  under  no  obligation  to  admit  a  member  upon  such  request, 
but  can,  in  conformity  with  its  rules,  admit  to  membership  only  upon 
formal  application  duly  presented  and  approved  in  the  manner  in 
said  rules  prescribed.  The  equitable  or  even  legal  ownership  of  the 
unimpaired  or  unforfeited  certijicate  of  itiejnbership  formerly  issued 
to  Rogers  and  duly  transferred  to  it,  does  not  constitute  it  a  ?neinber, 
or  entitle  it  to  any  rights  as  such.  The  only  way  in  -which  the  com- 
flainant  can  avail  itself  of  such  certificate,  is  by  tendering  it  in  lieu 
of  the  prescribed  initiation  fee  in  case  the  complainant  or  its  repre- 
sentative, on  proper  application,  shall  be  admitted  to  membership, 
or,  in  case  such  application  should  not  be  granted,  then  by  selling 
it  for  a  consideration  to  some  other  person  who  may  desire  to  become 
a  member. 

It  may  also  be  noticed,  in  immediate  connection  with  the  point  now 
under  consideration,  that  a  court  of  chancery  has  no  power  to  order 
the  exchange  to  issue  the  certificate  of  membership  formerly  held  by 
Rogers  to  the  complainant  or  its  general  manager,  so  as  to  constitute 
it  or  him  a  member.  Before  an  applicant  can  become  a  member  his 
application  must,  among  other  things,  be  indorsed  by  two  members, 
and  must  receive  the  approval  of  at  least  seven  members  of  the  board 
of  directors,  voting  by  ballot.  Members  and  directors  of  such  corpo- 
rations, in  acting  upon  applications  for  membership,  are  necessarily 
entitled  to  a  freedom  which  is  not  subject  to  judicial  compulsion.  No 
two  members  can  be  compelled  to  indorse  an  application,  nor  can  any 
seven  members  of  the  board  of  directors  be  compelled  to  vote  in  its 
favor,  but  both  are  entitled  to  act  upon  their  own  judgment  and  ac- 
cording to  their  own  choice.  In  other  words,  a  court  of  chancery  will 
not  undertake  to  force  upon  a  corporation  of  this  character  a  member 
against  the  will  of  those  whose  duty  it  is  to  pass  upon  applications  for 
membership. 

The  complainant  then,  not  being  a  member  of  said  exchange,  nor 
entitled,  either  directly  or  indirectly,  to  any  of  the  rights  arising  from 
membership  therein,  the  question  is  presented  whether  it  can  complain 
of  any  of  the  rules  adopted  by  the  exchange  for  the  government  of  the 
conduct  of  its  own  members,  or  invoke  the  aid  of  a  court  of  equity  to 
restrain  their  enforcement  [pp.  227-230].     *     *     * 

Held,  it  can  not. 

Judgment  affirmed. 


§   l83  INTEGRAL   PARTS.  |/  68/ 


Sec.  183.     Same.      (2)    Stock  companies. 


(A.)    By  subscription. 
( I  )  Statutory  contract. 

See  Sedalia,  etc.,  Co.  v.  Wilkerson,  supra,  p.  469;  Philadelphia  Savings 
Institution,  supra,  p.  464;  Coppage  v.  Hutton,  supra,  p.  469. 


Sec.  184.     Same.    (2)   Common  law  contracts. 

I .   Agreements  to  subscribe. 
See  Thrasher  v.  Pike,  supra,  p.  471  •,  Strasburgh  v.  Echternacht,  supra,  p.  473. 

2.  Agreements  subscribing. 

Bryant's  Pond,  etc.,  v.  Felt,  supra,  p.  474 ;  Hudson  Real  Estate  Co.  v.  Tower, 
supra,  p.  478;  Peninsular  Co.  v.  Duncan,  supra,  p.  482;  Tonica,  etc.,  Ry.  v. 
McNeely,  supra,  p.  491 ;  Minneapolis  Co.  v.  Davis,  supra,  p.  492. 

3.  Agreement  with  promoter. 

Minneapolis  Co.  v.  Davis,  supra,  p.  492;  San  Joaquin  Land  Co.  v.  West, 
supi'a,  p.  497 ;  West  v.  Crawford,  supra,  p.  500. 

4.  Underwriting. 
In  re  Licensed  Victuallers,  supra,  p.  502. 

5.  Application,  allotment,  etc. 
In  re  Florence  Land  &  Pub.  Works  Co.,  siipra,  p.  504. 


Sec.  185.     Same.    (B.)    Transfer,  see  infra,  p.   1654,  ^^  seg. 


Sec.  186.     Same.    (C)  Estoppel,  see  supra,  p.  510. 


ARTICLE  n.       INTEGRAL    PARTS. 

Sec.  187.    In  general. 

"Many  aggregate  corporations  are  composed   of  distinct  parts, 
which  are  called  integral  parts,  without  any  one  of  which  the  cor- 


688  ROSE   V.    TURNPIKE   CO.  §   1 88 

poration  would  not  be  comptete,  although  none  of  them  are  by 
themselves  a  corporation.  Thus,  where  a  corporation  consists  of 
a  mayor,  alderman  and  commonalty,  the  mayor,  the  alderman 
and  the  commonalty  are  three  integral  parts ;  but  neither  of  them 
has  any  corporate  capacity  distinct  from  the  other  two,  and,  there- 
fore, the  mayor  can  not,  in  his  political  character  of  mayor,  take 
in  succession  an}^thing  as  a  sole  corporation ;  nor  the  aldermen,  as 
a  select  body,  take  anything  to  them  and  their  successors  as  an  ag- 
gregate corporation.  In  many  aggregate  corporations  there  is 
one  particular  person,  who  is  called  the  head,  and  who  forms  one 
of  the  integral  parts ;  such  is  the  mayor  of  a  city  corporation,  and 
the  chancellor  in  the  general  corporations  of  the  English  universi- 
ties. The  corporation  of  St.  Mary's  church,  in  Philadelphia,  con- 
sisting of  three  clerical  and  eight  lay  members,  was  considered  by 
the  court  to  be  a  corporation,  composed  of  two  distinct  classes  or 
integral  parts.  ^"     Angell  and  Ames,  Corporations,  §  97. 


Sec.  188.    Same. 

"A  corporation  was  founded  by  the  name  of  Brothers  and  Sisters, 
and  all  the  Sisters  are  dead,  and  the  Brothers  make  lease,  and  held 
void,  for  then  it  was  no  corporation."  Manwood  v.  Lovelace, 
Time  of  Queen  Eliz.,  6  Viner's  Abr.  282,  12. 


Sec.  189.     Same.     Directors  are  not  integral  parts. 

ROSE  V.  TURNPIKE  C0.« 

1834.    In  the  Supreme  Court  of  Pennsylvania.     3  Watts  (Pa.) 

Rep.  46-49. 

[Action  of  assumpsit  by  the  Turnpike  Company  against  Rose.  By 
the  act  of  incorporation  a  president,  six  managers  and  a  treasurer  were 
to  be  elected  for  one  year  and  until  such  other  officers  should  be 
chosen ;  and  meetings  were  to  be  held  on  the  first  Monday  of  June 
of  each  year  for  that  pui-pose,  "and  at  such  other  times  as  they  shall  be 
summoned  by  the  managers,  in  such  manner  and  form  as  shall  be 
prescribed  by  their  by-laws."  The  first  election  was  held  September 
4,  1827;  the  next  August  28,  1828;  the  next  September  8,  1829,  and 
afterward  on  the  first  Monday  of  June,  1830,  1831  and  1832,  and  suit 
was  brought  after  the  last  date.  The  defendant  contended  that  in 
consequence  of  the  neglect  to  elect  officers  on  the  day  fixed  by  the 

J  7  Serg.  &  R.  517. 

*  Statement  of  facts  abridged.     Arguments  and  parts  of  opinion  omitted. 


§  1 89  INTEGRAL   PARTS.  689 

charter  previous  to  1830,  dissolved  the  corporation  and  die  suit  could 
not  be  maintained.] 

Sergeant,  J.  The  principle  seems  to  be  settled  in  England  that 
a  corporation  is  dissolved  when  an  integral  part  is  gone  and  the  re- 
maining parts  are  incapable  of  restoring  it  or  of  doing  any  corporate 
act.  The  question  seems  chiefly  to  have  arisen  in  relation  to  munici- 
pal corporations  composed  of  mayor,  alderman  and  burgesses,  insti- 
tuted for  the  government  of  towns  in  their  judicial  concerns,  police 
or  trade.  When  these  corporations  have  fallen  into  such  a  state  by 
the  loss  of  an  integral  part  that  they  are  incapacitated  from  continu- 
ing their  succession  or  accomplishing  the  purpose  for  which  they 
were  created,  the  crown  has  treated  them  as  dissolved  and  granted  a 
new  charter.  To  prevent  the  occurrence  of  a  dissolution,  when  the 
mayor  or  head  officer  was  an  integral  part,  and  there  was  a  failure  to 
elect,  the  statute  11  Geo.  i,  ch.  4,  was  passed,  providing  for  an  elec- 
tion on  another  day. 

Our  corporations  bear  little  resemblance  to  the  English  municipal 
corporations,  either  in  design  or  constitution.  The  present,  like  many 
of  our  corporations  for  civil  purposes,  either  by  special  act  of  assem- 
bly or  under  the  act  of  1791?  is  not  a  corporation  composed  of  several 
integral  parts.  The  stockholders  constitute  the  company,  and  the 
managers  and  officers  are  their  agents,  necessary  for  the  conduct  and 
management  of  the  affairs  of  the  company,  but  not  essential  to  its 
existence  as  such  nor  forming  an  integral  part.  The  corporation  ex- 
ists per  se,  so  far  as  is  requisite  to  the  maintenance  of  perpetual  suc- 
cession and  holding  and  preserving  its  franchises.  The  non-existence 
of  the  managers  does  not  imply  the  non-existence  of  the  corporation. 
The  latter  is  dormant  during  that  time ;  its  functions  are  suspended 
for  want  of  the  means  of  action,  but  the  capacity  to  restore  its  func- 
tionaries by  means  of  elections  remains. 

The  total  dissolution  of  a  body  politic,  its  political  death  and  reso- 
lution into  its  original  elements,  would  be  attended  with  such  moment- 
ous consequences  that  it  ought  not  lightly  to  happen.  Not  only  would 
it  affect  its  property  right  and  responsibilities,  but  the  beneficial  pur- 
poses for  which  it  was  created  would  be  fnistrated,  and  the  com- 
munity as  well  as  individuals  holding  stock  be  injured.  No  class 
of  corporations  would  be  exempt.  Whether  religious,  charitable 
or  literary ;  whether  for  turnpikes,  bridges,  banks,  insurances,  canals, 
railroads  or  any  other  purpose,  all  must  be  embraced  within  the  rule, 
and  if  by  accident,  inadvertence  or  design  there  is  one  omission  to 
elect  managers  on  the  day  appointed,  or  the  election  made  is  void, 
the  whole  edifice  of  the  corporation  falls  into  ruins,  and  can  only  be 
constructed  by  legislative  interference;  even  then,  perhaps,  after  a 
lapse  of  time,  and  with  some  doubts  as  to  its  power  to  revest  former 
rights  and  to  restore  its  identity.  I  see  no  reason  why  the  company 
may  not  retain  all  their  rights,  powers  and  privileges,  though  there  be 
a  suspension  of  the  power  of  action ;  nor  why  this  power  of  action, 
though  dormant  for  a  time,  may  not  be  revived  by  a  new  election  of 

44— WiL.  Cases. 


690  ORGANS   OF   ACTION.  §   190 

the  managers  and  officers  competent  to  carry  on  its  affairs  conform- 
ably to  the  directions  of  the  charter.  That  may  be  done  on  the  day 
appointed  by  the  act,  it  not  being  required  that  the  managers,  officers 
or  any  other  persons  should  preside  at  or  do  any  act  in  reference  to 
the  election  which  is  conducted  entirely  under  the  control  of  the  stock- 
holders.    *     *     * 


ARTICLE    m.       ORGANS    OF    ACTION. 

Sec.  190.    In  general. 

"As  has  been  stated  by  Kyd,  there  are  three  different  kinds  of 
assemblies  in  corporations,  which  he  styles  legislative,  electoral 
and  administrative,  i.  The  legislative  assembly  possesses  the 
power  of  making  laws ;  such  as  the  court  of  common  council  in 
London,  the  court  proprietors  of  the  Bank  of  England  and  of  the 
East  India  and  South  Sea  Companies.  [Also  the  convocation  in 
the  University  of  Oxford,  and  the  congregation  or  senate  in  the 
University  of  Cambridge.]  2.  The  electoral  assembly  is  that 
which  is  authorized  to  elect  officers;  such  are,  in  general,  the  pro- 
prietors in  stock  companies ;  and  the  body  at  large  of  every  corpo- 
ration, when  the  power  of  election  has  not  been  vested  in  a  minor 
body.  3.  The  administrative  have  the  management  of  particular 
affairs,  such  as  the  courts  of  assistants  in  the  city  companies  of  Eu- 
rope, the  court  of  directors  of  a  bank  and  other  stock  companies. 
The  same  body  of  men  may,  therefore,  and  frequently  do,  possess 
distinct  powers.  *  *  *  j^  private  corporations  (which,  to 
some  extent,  may  be  said  to  be  towns  in  miniature)  the  electoral 
power  is  generally  in  the  body  at  large,  though  it  may  be  vested  in 
a  body  selected  solely  to  make  elections,  or  in  the  legislative  or 
administrative  assembly.  The  qualification  of  persons  to  exercise 
the  above  powers  must,  of  course,  depend  upon  the  charter  and 
the  by-laws.  By  the  constitution  of  the  railway  companies  in 
England,  the  proper  organs  through  which  they  may  act  are 
threefold:  i.  The  general  assembly  of  the  company.  2.  The 
board  of  directors;  and  3.  A  duly  constituted  agent." — Angell  and 
Ames  on  Corporations,  §  98. 

"The  various  classes  of  persons  by  whom  the  affairs  of  a  corpo- 
ration are  practically  conducted  are :  i .  Officers,  being  those 
who  are  parts  of  the  organization;  2.  Agents,  who  are  not 
parts  of  the  organization,  but  represent  it  to  the  public;  and 
3.  Servants,  who  do  not  even  represent  it,  but  only  labor  to  ad- 
vance its  objects." — I  Abbott's  Digest  of  Corporation  Law,  p.  2. 


§  191  ORGANS   OF   ACTION.  69 1 

Sec.  191.    Same. 

THE  METHODIST  EPISCOPAL  CHURCH  v.  SHERMAN.* 
1874.     In  the  Supreme  Court  of  Wisconsin.     36  Wis.  404-409. 

[Suit  by  the  church  to  recover  on  an  alleged  agreement  by  the  de- 
fendant to  pay  one  hundred  dollars  necessary  to  complete  the  church 
edifice.  The  Rev.  Dr.  Hatfield  was  engaged  to  conduct  the  services 
at  the  dedication,  and  he  was  requested  by  an  informal  meeting  of  the 
trustees,  pastor  and  class  leaders  to  solicit  subscriptions  during  the 
dedication  exercises,  but  was  not  appointed  agent  to  receive  such  by 
any  vote  of  either  trustees  or  the  corporation.  He  called  for  subscrip- 
tions and  named  a  person  to  write  down  names  and  amounts  as  sub- 
scribed. Defendant  agreed  to  take  or  be  put  down  for  the  last 
hundred  dollars  necessary,  and  his  name  was  so  put  down.  A  few 
days  later,  and  before  any  meeting  had  been  held,  one  of  the  trustees 
called  on  the  defendant  to  perform  his  agreement,  at  which  time  he 
undertook  to  revoke  his  promise.  Judgment  below  was  for  the  plaint- 
iff and  defendant  appealed.] 

Ryan, C.  J.*  *  *  The  respondent  is  a  corporation  aggregate,  having 
a  board  of.  trustees  to  manage  its  affairs.  We  need  not  stop  to  consider 
how  far  the  power  to  contract  is  in  the  aggregate  body  or  in  the  select 
body.  It  must  be  wholly  in  the  one  or  the  other,  or  partly  in  both. 
There  may  be  a  doubt  whether  it  can  contract  by  parol,  except  through 
an  agent  authorized  by  vote.  A.  &  M.  Turnpike  Co.  v.  Hay,  7  Mass. 
107.  But,  pretermitting  that  question,  it  could  certainly  contract 
only  through  the  aggregate  body  by  vote^  or  through  the  select  body 
by  vote^  or  through  aft  agent  authorized  by  vote  of  one  body  or  the 
other,  or  both.     Angell  and  Ames,  §§  231,  232. 

It  does  not  appear  in  the  record  that  Dr.  Hatfield  was  appointed 
agent  to  receive  subscriptions  by  vote  of  either  body.  On  the  con- 
trary, it  does  appear  by  the  evidence  of  one  of  the  trustees  that  his 
only  show  of  authority  was  a  request  at  an  informal  meeting  of  the 
trustees,  pastor  and  class  leaders.  This  gave  him  no  authorty  for  the 
corporation. 

He  solicited  subscriptions,  during  a  religious  service,  for  a  religious 
purpose.  Manifestly  there  was  present  no  formal  meeting  of  the  cor- 
poration aggregate  or  of  the  select  body.  The  appellant  then  made 
the  offer  when  there  was  present  no  body  or  agent  authorized  to  ac- 
cept it  for  the  corporation.  It  remained  a  mere  offer,  which  the 
appellant  might  retract  until  accepted  by  the  corporation.  Addison 
on  Con.,  36.     ♦     *     ♦ 

Judgment  reversed. 

Note.  In  Cammeyer  v.  United  German  Lutheran  Church,  2  Sandf.  Ch.  (N. 
Y.)  186  (1844),  it  was  held  that  "where  the  exercise  of  corporate  acts  is  vested 

'  Statement  of  facts  abridged.    Arguments  and  part  of  the  opinion  omitted. 


692  WIGHT   V.    SPRINGFIELD,    ETC.,    R.    CO.  §   192 

in  a  select  body,  an  act  done  by  the  persons  composing  that  body,  in  a  mass 
meeting  of  all  the  corporators,  or  in  union,  or  amalgamated  with  other  like 
bodies,  parts  of  the  corporation,  is  not  a  valid  corporate  act."  See,  also,  cases 
t'ra/m,  modes  of  action,  pp.  833-854.  nu-  ,      • 

As  to  who  is  a  corporate  officer,  see,  1825,  Dedham  Bank  v.  Chickenng, 
8  Pick  (Mass.)  335;  1827,  Union  Bank  v.  Ridgely,  1  Harr.  &  G.  (Md.) 
324-  1843,  Commonwealth  v.  Cuyler,  5  W.  &  S.  (Pa.)  275;  1844,  Com- 
monwealth V.  Wyman,  49  Mass.  (8  Met.)  247;  1846,  Burr  v.  McDonald, 
3  Gratt.  (Va.)  215;  1853,  Union  Co.  v.  James,  21  Pa.  St.  525;  1854,  Ex, 
parte  Bailey,  27  Eng.  L.  &  Eq.  190;  1857,  Commonwealth  v.  Tuckerman,  76 
Mass.  (10  Gray)  173;  1872,  Commonwealth  v.  Christian,  9  Phila.  (Pa.)  556;  1890, 
Brand  v.  Godwin,  8  N.  Y.  Supp.  339. 

As  to  how  officers  differ  from  mere  agents,  see  Salem  v.  Gloucester  Bank, 
17  Mass  1 ;  Foster  v.  Essex  Bank,  17  Mass.  479;  Ehrenzeller  v.  Union  Canal 
Co.,  1  Rawle  (Pa.)  181,  188;  Weatherby  v.  Saxony,  etc.,  Co.,  29  Atl.  Rep. 
326  (N.J.)  ,  ,„^^ 

As  to  difference  between  officers  and  servants,  employes,  etc.,  see,  1865, 
Hovey  v.  Ten  Broek,  3  Rob.  (N.  Y.)  316;  1868,  Coffin  v.  Reynolds,  37  N.  Y. 
640 ;  1874,  Hill  v.  Spencer,  61  N.  Y.  274 ;  1875,  Adams  v.  Goodrich,  55  Ga.  233 ; 
1882,  Wakefield  v.  Fargo,  90  N.  Y.  213 ;  1882,  Gordon  v.  Jennings,  L.  R.  9  Q. 
B.  Div.  45 ;  1887,  Sleeper  v.  Goodwin,  67  Wis.  577;  1889,  Vane  v.  Newcombe, 
132  U.  S.  220;  1890,  Pendergast  v.  Yandes,  124  Ind.  159;  1890,  Hand  v.  Cole, 
88  Tenn.  400;  1891,  Louisville,  etc.,  R.  Co.  v.  Wilson,  138  U.  S.  501;  1894, 
Clark's  Appeal,  100  Mich.  448;  1897,  Palmer  v.  Van  Santvoord,  153  N.  Y.  612; 
1898,  Cocking  v.  Ward,  —  Tenn.  Ch.  App.  — .  48  S.  W.  Rep.  287;  1899,  Bris- 
tor  V.  Smith,  158  N.  Y.  157. 

Sec.    192.     Qualification  of  agents  and  officers. 

WIGHT  V.   SPRINGFIELD   AND  NEW  LONDON  RAILROAD 
COMPANY  .1 

1875.     In  THE  Supreme  Judicial  Court  OF  Massachusetts.     117 
Mass.  Rep.  226—228,  19  Am.  Rep.  412. 

[Petition  for  mandamus  to  compel  respondent  to  admit  petitioner  to 
act  as  one  of  its  directors.  The  city  of  Springfield  was  the  lawful 
owner  of  1,500  of  the  2,000  shares  of- stock  of  the  railroad  company; 
at  a  duly  called  meeting  of  the  shareholders  of  the  railroad  company, 
the  city  of  Springfield  was  represented  by  five  persons  properly  se- 
lected for  that  purpose,  one  of  whom  was  the  petitioner.  At  this 
meeting  the  petitioner  received  a  large  majority  of  the  votes  of  the 
shares  of  stock  for  director,  but  he  not  being  himself  a  shareholder, 
the  president  of  the  meeting  refused  to  declare  him  elected,  and  the 
corporation,  by  its  officers,  have  since  refused  to  recognize  him  as  a 
director,  or  allow  him  to  act  as  such.] 

Gray,  C.  J.  Although  the  directors  of  a  railroad  corporation  are 
usually  chosen  by  the  stockholders  from  their  own  number,  there  is 
no  rule  of  law  that  makes  the  holding  of  stock  an  indispensable  qual- 
ification of  a  director,  unless  prescribed  by  some  act  of  the  legislature 
or  by-law  of  the  corporation.  The  only  adjudication  upon  the  sub- 
ject cited  at  the  argument  supports  this  view.  State  v.  McDaniel, 
22  Ohio  St.  354.  And  the  statutes  expressly  requiring  directors  of 
banks  and  insurance  companies  to  be  members  of  the  corporation,  and 
the  first  directors  of  a  railroad  corporation  incorporated  under  the  gen- 

*  Statements  of  facts  abridged,  and  only  part  of  opinion  given. 


§  192  QUALIFICATION   OF  OFFICERS.  693 

eral  law  to  be  associates,  strengthens  the  conclusion  that  the  legisla- 
ture intended  to  leave  the  qualifications  of  directors  in  the  permanent 
organization  of  such  a  corporation  to  the  determination  of  the  stock- 
holders.    »     *     * 
Mandamus  to  issue. 

Note.  1.  Unless  statute  or  charter  prevents,  a  corporation  can  select  whom- 
soever it  pleases  to  be  its  officers,  agents  or  servants:  1847,  Hoyt  v.  Bridge- 
water  C.  M.  Co.,  6  N.  J.  Eq.  (2  Halst.)  253,  on  275 ;  1847,  Sargent  v.  Webster,  64 
Mass.  (13  Mete.)  497,  46  Am.  Dec.  743;  1870,  Densmore  Oil  Co.  v.  Densmore, 
64  Pa.  St.  43;  1872,  State  v.  McDaniel,  22  Ohio  St.  354;  1876,  British  Provi- 
dent Life,  etc.,  Assn.,  L.  R.  5  Ch.  Div.  306;  11)80,  Opinion  of  Attorney-Gen- 
eral, 7  Pa.  Co.  Ct.  Rep.  178. 

2.  In  general  the  corporation  may  by  by-laws  prescribe  qualifications  of 
its  officers  or  directors:  1841,  Dispatch  Line  of  Packets  v.  Bellamy  Mfg.  Co., 
12  N.  H.  205,  37  Am.  Dec.  203;  1844,  Cammeyer  v.  United  Church,  2  Sandf. 
Ch.  186;  1862,  Richards  v.  Merrimac  &  C.  R.  Co.,  44  N.  H.  127;  1870,  Peo- 
ple V.  Northern  R.  Co.,  42  N.  Y.  217,  on  230 ;  1871,  Hazelhurst  v.  Savannah  G.  & 
N.  A.  R.  Co.,  43  Ga.  13 ;  1892,  Cross  v.  West  Virginia  Cent.  &  P.  R.  Co.,  37  W. 
Va.  342,  18  L.  R.  A.  582,  16  S.  E.  Rep.  587.  But  not  contrary  to  statutory 
provisions:  1876,  British  Provident  Life,  etc.,  Assn.,  L.  R.  5  Ch.  Div.  306. 

3.  As  to  residence  and  citizenship,  there  is  no  rule,  unless  by  statute  or 
charter  provision,  that  requires  an  officer  or  director  to  be  a  resident  or  citi- 
zen of  the  state  creating  the  corporation.  Statutes,  howevei;,  frequently  pro- 
vide that  a  part  of  the  directors  shall  be  residents  of  the  state  creating  the 
corporation.  1827,  McCall  v.  Bvram  Mfg.  Co.,  6  Conn.  428;  1850,  Conant  v. 
Millaudon,  5  La.  Ann.  542;  1868,  Matthews  v.  Theological  Sem.  R.  P.  Ch., 
etc.,  2  Brewst.  (Pa.)  541 ;  1887,  State  v.  Smith,  15  Ore.  98,  15  Pac.  Rep.  137,  386 ; 

1890,  Commonwealth  v.  Detwiler,  131  Pa.  St.  614,  18  Atl.  Rep.  990,  992;  1892, 
Horton  v.  Wilder,  48  Kan.  222,  29  Pac.  Rep.  566;  1893,  Hulings  v.  Lumber 
Co.,  38  W.  Va.  351,  18  S.  E.  Rep.  620. 

4.  Neither  is  an  officer  or  director  required  to  be  a  shareholder,  unless  the 
statute,  charter,  or  a  by-law  so  provides:  1841,  Dispatch  Line  of  Packets  v. 
Bellamy  Mfg.  Co.,  12  ISf.  H.  205,  37  Am.  Dec.  203;  1847,  Hoyt  v.  Bridgewater 
Copper  M.  Co.,  6  N.  J.  Eq.  253;  1872,  State  v.  McDaniel,  22  Ohio  St.  354; 
1889,  Fey  v.  Peoria  Watch  Co.,  32  111.  App.  618;  1898,  Bristol  Bank  &  T.  Co. 
V.  Jonesboro  B.  &  T.  Co.,  101  Tenn.  545.  But  statute,  charter  or  by-law 
frequently  so  requires,  and  then  generally  they  must  be  holders  in  their 
own  right  and  in  good  faith:  1841,  Dispatch  Line,  etc.,  v.  Bellamy,  etc.,  12  N. 
H.  205;  1852,  Bartholomew  v.  Bentlev,  1  Ohio  St.  37;  1889,  Bainbridge  v. 
Smith,  41  Ch.  Div.  462,  33  Am.  &  E.  C.  C.  172,  n.  182;  1891,  In  re  Newcomb, 
18  N.  Y.  Supp.  (N.  Y.)  16;  1892,  Chemical  National  Bank  v.  Colwell,  132  N. 
Y.  250;  1893,  State  v.  Mfs,  Assn.,  50  Ohio  St.  145,  24  L.  R.  A.  252;  1894, 
Frank  v.  Lewis  Foundry  &  M.  Co.,  24  Pittsburg  L.  J.  (N.  S.)  33.    But  see, 

1891,  In  re  Argus  Printing  Co.,  1  N.  Dak.  434,  26  Am.  St.  Rep.  639,  36  Am. 
&  E.  Corp.  C.  101,  48  N.  W.  Rep.  347, 12  L.  R.  A.  781,  and  1894,  Greenough  v. 
Alabama  G.  S.  R.  Co.,  64  Fed.  Rep.  (C,  C.)  22;  1898,  Haiues  v.  Kinderhook 
&  H.  Ry.  Co.,  33  App.  Div.  (N.  Y.)  154. 


694  METROPOLITAN    R.    CO.  V.  MANHATTAN   R.  CO.  §   193 


Subdivision  II.      Functions   of   Members,  Directors   and  Of- 
ficers. 


ARTICLE    I.       MEMBERS    AND    DIRECTORS. 

Sec.  193.  The  members  of  the  corporation  wield  such  powers  as 
are  extraordinary  or  unusual  in  their  nature,  whereas  the 
directors  manage  the  ordinary  business  of  the  corporation ; 
and  fundamental  changes  in  the  character  or  business  usually 
require  action  by  both  the  shareholders  and  the  executive  and 
administrative  officers. 

METROPOLITAN   ELEVATED   R.   CO.   v.   MANHATTAN   ELEVATED 

R.  CO.i 

1884.     In  the  Court  of  Common  Pleas,  City  and  County  of 

New  York.^      ii  Daly's  (N.  Y.  Com.  Pleas)  Rep.  373-528, 

14  Abb.  New  Cas.  103-316,  15  Am.  &  Eng.  R.  Cas.  1-94. 

[Action  to  set  aside  a  tripartite  agreement  made  between  the  New 
York  Elevated  Railroad  Company,  the  Metropolitan  Elevated  Rail- 
way Company  and  the  Manhattan  Elevated  Railway  Company, 
whereby  the  first  two  were  to  lease  their  roads  to  the  latter,  which  as- 
sumed the  performance  of  certain  contracts  and  the  payment  of  cer- 
tain bonds  of  the  former;  the  Manhattan  Company  being  unable  to 
perform  its  part  of  the  agreements,  after  much  litigation,  and  by  way 
of  settlement,  supplementary  agreements  were  entered  into  which 
would  enable  the  Manhattan  Company  to  continue  in  the  control  of 
the  roads  on  the  basis  of  concessions  made  by  the  other  companies. 
These  supplemental  agreements  were  executed  by  the  Metropolitan 
Company,  by  authority  of  its  directors,  without  the  assent  or  ratifica- 
tion of  the  shareholders.  New  directors  of  this  company  being  elected, 
it  brought  suit  to  set  aside  the  supplemental  agreements  on  the  ground 
of  fraud,  breach  of  trust,  etc.,  on  the  part  of  the  former  directors.] 

Van  Brunt,  j.  *  *  *  That  the  directors  of  a  corporation  are 
agents  seems  to  be  clearly  recognized  in  all  the  cases  in  which  the 
relations  of  directors  and  shareholders  to  their  corporation  have  been 
discussed. 

It  is  said  in  Twin  Lick  Oil  Co.  v.  Marbury  (91  U.  S.  587,  589) 
that  the  directors  are  the  officers  or  agents  of  the  corporation,  and 

'  Statement  of  facts  greatly  abridged.  Only  so  much  of  the  opinion  as  re- 
lates to  the  authority  of  directors  is  given.  Copies  of  all  agreements  and 
leases  are  given  in  14  Abb.  N.  C,  pp.  125,  130  and  166,  and  are  valuable  as 
forms. 

*  No  appeal  was  taken.  All  parties  accepted  this  as  a  correct  exposition  of 
the  law.     The  most  eminent  counsel  in  New  York  were  engaged  in  the  case. 


§   193  FUNCTIONS   OF   MEMBERS   AND   DIRECTORS.  695 

represent  the  interests  of  that  abstract  legal  entity,  and  of  those  who 
own  the  shares  of  its  stock. 

In  Cumberland  Coal,  etc.,  Co.  v.  Sherman  (30  Barb.  553,  571) 
the  court  says:  "There  can  be  no  question  at  the  present  time  that  a 
director  of  a  corporation  is  the  agent  or  trustee  of  the  stockholders." 

In  Angell  &  Ames  on  Corporations,  §  771,  it  is  stated  that  "The 
stockholders  compose  the  company,  and  the  managers,  directors  or 
officers  are  their  agents,  necessary  for  the  management  of  the  affairs 
of  the  company,  but  they  are  not  essential  to  its  existence  as  such,  not 
forming  one  of  the  integral  parts." 

In  Abbott  V.  American  Hard  Rubber  Co.  (33  Barb.  578)  the  court 
says,  at  the  foot  of  page  591 :  "Boards  of  directors  are  agents  of  the 
corporation  to  manage  its  affairs  and  carry  out  the  purpose  and  ob- 
ject of  its  formation." 

The  directors  thus  being  the  agents  of  the  corporation,  what  are 
their  powers  and  from  whence  are  they  derived,  and  how  must  cor- 
porate powers  residing  in  the  corporation,  the  right  to  exercise  which 
is  not  vested  in  the  directors,  be  brought  into  operation,?  These  ques- 
tions are  so  intimately  connected  that  they  must  be  disposed  of  to- 
gether. 

The  powers  of  directors  are  such  as  are  conferred  by  the  charter  of 
their  corporation  and  the  laws  pertaining  thereto,  and  such  corporate 
powers  as  are  not  conferred  by  law  upon  the  directors  remain  in  the 
corporation  to  be  exercised,  or  at  least  set  in  motion  by  its  component 
parts,  the  shareholders. 

In  the  case  at  bar  the  charter  provided  that  the  directors  were  to 
manage  the  business  and  affairs  of  the  company ;  and  the  question  in- 
volved in  this  branch  of  the  case  is  whether  this  language  conferred 
'the  right  to  exercise  every  corporate  power  possessed  by  the  corpora- 
tion or  merely  to  manage  the  ordinary  business  and  affairs  of  the  com- 
pany for  the  carrying  on  of  which  it  was  organized,  leaving  the  right 
remaining  in  the  shareholders  composing  the  company  to  set  in  motion 
or  confirm  corporate  action  within  the  limits  of  its  powers,  but  ex- 
traordinary and  unusual  in  its  nature. 

Within  the  sphere  of  their  duties  the  right  of  the  directors  is  un- 
doubtedly exclusive,  and,  further,  all  corporate  acts  must  be  done 
through  them,  as  they  are  exclusive  executive  and  administrative 
authority,  but,  nevertheless,  all  corporate  powers  do  not  reside  in  the 
board  of  directors. 

It  is  true  that  the  court  says,  in  McCuUough  v.  Moss  (5  Denio  567, 
575),  that:  "When  a  charter  invests  a  board  with  the  power  to  man- 
age the  concerns  of  a  corporation  the  power  is  exclusive  in  its  charac- 
ter. The  corporators  have  no  right  to  interfere  with  it,  and  courts 
will  not,  even  on  a  petition  of  a  majority,  compel  the  board  to  do  an 
act  contrary  to  its  judgment." 

That  case  was  an  action  to  recover  upon  a  promissory  note,  which 
the  corporation  in  the  exercise  of  its  legitimate  business  could  have 
made,  and  the  question  presented  was  whether  execution  was  proved. 
The  note  was  signed  by  the  president  and  secretary  of  the  company, 


696  METROPOLITAN    R.    CO.  V.  MANHATTAN    R.  CO.  §  193 

but  no  authority  from  the  board  of  directors,  who,  by  the  charter, 
wei*e  to  conduct  the  affairs  of  the  company,  to  the  president  and  sec- 
retary, was  shown.  Some  resolution  of  the  shareholdei-s  was  shown, 
but  it  had  no  relation  to  this  question,  and  then  the  court  uses  the  lan- 
guage above  quoted.  This  case  nowhere  decides  that  the  directors 
are  clothed  with  all  the  corporate  powers.  It  may  be  cited  as  an  au- 
thority for  the  proposition  that  the  shareholders  can  not  compel  the 
directors  to  act  in  any  manner  against  their  judgment  in  the  exercise 
of  a  corporate  power  which  remains  in  the  corporation. 

For  example,  if  the  power  to  lease  was  vested  in  the  corporation, 
but  the  directors  could  not,  because  of  the  limitation  in  the  charter,  exer- 
cise this  power,  the  shareholders  could  not  cause  the  lease  to  be  exe- 
cuted and  delivered,  nor  could  they  compel  the  directors  to  execute  and 
deliver  the  same  against  their  own  judgment ;  all  that  the  shareholders 
could  do  would  be  to  authorize  the  directors  to  act  or  confirm  an  act 
of  the  directors  which  would  be  incomplete  without  such  ratification. 

The  case  of  Hoyt  v.  Thompson  (19  N.  Y.  207)  is  also  claimed  to 
be  an  authority  against  the  suggestion  made  above ;  but  upon  an  ex- 
amination it  will  be  seen  that  much  is  said  in  respect  to  the  relation 
of  directors  to  their  corporation,  and  their  rights  and  powers,  and  the 
sources  from  which  they  are  derived,  which  was  not  at  all  necessary 
to  the  decision  of  the  question  involved,  and  is  directly  contrary  to  the 
principles  announced  in  the  United  States  Supreme  Court  in  a  case 
where  the  direct  question  was  presented. 

The  adjudication  in  the  case  of  Hoyt  v.  Thompson  had  necessarily 
to  be  put  upon  the  ground  that  the  act  under  investigation  was  "ordi- 
nary business,"  and  in  that  case  a  distinction  was  plainly  recognized 
between  "ordinary  business"  and  such  as  was  within  the  corporate 
powers,  but  unusual  and  not  coming  within  the  general  business  of 
the  corporation.  The  court  held  that  although  the  charter  of  the  cor- 
poration declared  that  its  powers  should  be  exercised  by  a  board  of 
directors,  consisting  of  a  specified  number,  yet  the  board  might  dele- 
gate its  authority  to  agents  or  to  a  quorum  of  less  than  a  majority  of 
the  number. 

The  court  further  held  that  when  a  by-law  of  the  coi-poration  de- 
clared that  five  directors  should  be  a  quorum  for  the  transaction  of 
"ordinary  business,"  the  general  business  of  the  corporation  was  em- 
braced in  the  authority  thus  delegated,  including  as  incident  thereto 
the  power  of  pledging  or  assigning  assets  of  the  corporation  for  the 
purpose  of  securing  a  debt,  it  appearing  that  such  pledge  was  made 
for  the  puipose  of  enabling  the  corporation  to  continue  its  business ; 
and  this  is  all  that  this  case  decides  which  is  pertinent  to  the  questions 
involved  in  the  case  at  bar. 

It  is  true  that  the  learned  judge  who  wrote  the  opinion  in  the  case 
of  Hoyt  v.  Thompson  uses  the  following  language: 

"The  board  of  directors  of  a  corporation  do  not  stand  in  the  same 
relation  to  the  corporate  body  which  a  private  agent  holds  toward  his 
principal.  In  the  strict  relation  of  principal  and  agent,  all  the 
authority  of  the  latter  is  derived  by  delegation  from  the  former,  and 


§  193  FUNCTIONS   OF   MEMBERS   AND    DIRECTORS.  697 

if  the  power  of  substitution  is  not  conferred  in  the  appointment,  it  can 
not  exist  at  all.  But  in  corporate  bodies  the  powers  of  the  board  of 
directors  are,  in  a  very  important  sense,  original  and  undelegated.  The 
stockholders  do  not  confer,  nor  can  they  revoke,  these  powers.  They 
are  derivative  only  in  the  sense  of  being  received  from  the  state  in  the 
act  of  incorporation.  The  directors  convened  as  a  board  are  the 
primary  possessors  of  all  the  powers  which  the  charter  confers." 

The  whole  of  this  argument  was  devoted  to  establishing  the  power 
of  the  board  of  directors  to  delegate  the  authority  to  manage  the  ordi- 
nary business  of  the  corporation  to  five  of  their  number,  and  had  no 
other  purpose. 

That  the  directors  convened  as  a  board  are  not  the  primary  pos- 
sessors of  all  the  powers  which  the  charter  confers  is  expressly  held 
by  the  United  States  Supreme  Court  in  the  case  of  the  Railway  Com- 
pany v.  Allerton,  85  U.  S.  (18  Wall.)  233^  In  that  case  the  charter 
provided  as  follows : 

"Section  3.  The  capital  stock  of  said  corporation  shall  be  one 
hundred  thousand  dollars,  and  may  be  increased  from  time  to  time  at 
the  pleasure  of  said  corporation. 

"Section  4.  All  the  corporate  powers  of  said  corporation  shall  be 
vested  in  and  exercised  by  a  board  of  directors,  and  such  officers  and 
agents  as  said  board  shall  appoint." 

An  increase  of  the  capital  stock  of  the  corporation  by  the  direc- 
tors, without  the  assent  of  the  stockholders,  was  held  to  be  void,  as 
beyond  the  power  of  the  board  of  directors,  although  the  charter 
provided  that  all  the  corporate  powers  of  the  corporation  should  be 
vested  in  and  exercised  by  a  board  of  directors,  etc.,  and  that  the 
powers  thus  granted  to  the  directors  refer  only  to  the  ordinary  busi- 
ness transactions  of  the  corporation.  The  necessary  conclusion  to  be 
drawn  from  the  reasoning  employed  in  that  case  is,  that  the  board  of 
directors  are  the  managers  of  the  business  which  the  corporation  is 
chartered  to  carry  on,  and  they  have  the  control  and  management  of 
that  business ;  but  that  they  have  no  power  to  effect  organic  and  fun- 
damental changes  in  the  corporation  or  its  business  without  the  con- 
sent of  the  corporation.  The  Metropolitan  Company  was  chartered 
for  the  purpose  of  making,  constructing,  maintaining  and  operating 
a  railway  upon  certain  streets,  avenues,  thoroughfares  and  places  in 
the  city  of  New  York.  This  was  its  business,  and  this  was  all  the 
business  upon  the  execution  of  which  it  entered.  Could  it  be  im- 
agined that  a  change  more  fundamental  could  possibly  he  made  than 
that  a  corporation,  chartered  for  the  above  purpose,  should  lease  its 
road  and  properties  to  another  corporation  and  deliver  possession  of 
the  same  for  all  time,  and  thus  change  its  business  from  that  of  mak- 
ing, constructing,  maintaining  and  operating  a  railroad  to  that  of  re- 
ceiving rent  for  the  use  of  such  road  ? 

In  considering  this  question,  it  is  not  at  all  improper  to  look  for  a 
moment  at  the  result   arising  from  a   rule   that  the  directors  ate  the 
primary  possessors  of  all  the  powers  which  tne  charter  confers.     If 
*  Supra,  p.  442. 


698  METROPOLITAN    R.    CO.  V.  MANHATTAN    R.   CO.  §   193 

the  board  of  directors  have  the  power,  without  the  assent  of  the  share- 
holders, to  lease  the  properties  of  the  corporation  for  all  time,  then 
the  shareholders  may  be  deprived  of,  not  only  the  administration  of 
their  property  through  its  agents,  the  directors,  but  its  very  possession, 
without  a  moment's  warning.  A  board  of  directors  are  elected  for  one 
year  to  manage  the  business  and  affairs  of  the  corporation,  such  busi- 
ness being  the  operating  and  maintaining  a  railroad.  At  the  time  of 
their  election  the  shareholders  have  no  intimation  that  anything  else 
is  to  be  done  by  the  directors,  and  the  expectation  is  that  such  direc- 
tors, at  the  end  of  their  year  in  office,  will  turn  over  the  property 
committed  to  them  to  their  successors  in  office,  with  an  account  of 
their  stewardship.  Can  it  be  possible  that  this  board,  elected  for  only 
one  year,  without  any  notice  or  warning,  has  the  power  to  terminate 
the  business  of  the  corporation  and  transfer  all  the  properties  to  an- 
other corporation  ?  It  seems  to  me  clearly  not.  This  is  not  the 
management  of  the  business  of  the  corporation.  It  is  terminating 
the  business,  to  carry  on  which  it  was  incorporated.  It  is  just  as  fun- 
damental and  radical  a  change  as  an  increase  of  its  capital  stock,  or 
the  entering  upon  a  new  business  by  a  corporation  authorized  by  its 
charter  can  possibly  be.  Although  I  have  not  intended  to  quote  as 
authority  any  decision  except  those  of  our  own  state,  or  of  the  United 
States  Supreme  Court,  I  must  refer  to  the  language  used  by  the  learned 
court  in  the  case  of  Cass  v.  Manchester,  13  Rep.  167,  in  which  it 
was  held  that  directors  had  no  power  to  make  a  lease,  even  for  five 
years,  without  the  consent  of  the  shareholders.     The  court  says: 

''But  if  this  conclusion  is  the  result  of  too  strict  a  construction  of 
the  charter,  we  are  of  the  opinion  that  the  power  in  question  is  not 
exercisable  independently  of  the  judgments  of  the  stockholders.  The 
directors  and  officers  of  a  corporation  are  its  exclusive  executive 
agents,  and,  as  it  can  only  act  by  and  through  them,  the  powers  vested 
in  the  corporation  are  deemed  to  be  conferred  upon  its  representatives, 
but  they  are,  nevertheless,  trustees  for  the  stockholders.  The  law 
recognizes  the  stockholders  as  the  ultimately  controlling  power  in  the 
corporation,  because  they  may,  at  each  authorized  election,  entirely 
change  the  organization,  and  may  at  any  time  keep  the  trustees  within 
the  line  of  faithful  administration,  by  an  appeal  to  a  court  of  equity. 
Hence,  it  has  been  held  that  the  directors  of  a  corporation  can  not 
alone  increase  its  capital  stock,  where  such  increase  was  authorized 
by  its  charter  'at  the  pleasure  of  said  corporation,'  and  where  it  was 
provided  that  'all  powers  of  such  corporation  shall  be  vested  in  and 
exercised  by  a  board  of  directors,'  etc.;  and  this  for  the  reason  that 
the  general  power  to  perform  all  corporate  acts,  refers  to  the  ordinaiy 
business  transactions  of  'the  corporation,'  and  not  to  a  change  so  fun- 
damental and  organic.      (18  Wall.  234.) 

"The  change  proposed  is  not  organic,  but  it  is  thorough  and  fun- 
damental, as  it  affects  the  administration  of  the  company's  affairs.  It 
involves  a  withdrawal  from  the  control  and  management  of  the  stock- 
holders of  the  entire  property  of  the  corporation  for  at  least  five  years  ; 
it  will  preclude,  for  a  like  period,  the  exercise  by  the  stockholders  of 


§   193  FUNCTIONS   OF   MEMBERS   AND    DIRECTORS.  699 

their  judgment  as  to  the  particular  character  and  method  of  conduct- 
inp^  the  business  affairs  of  the  corporation  ;  and  it  denies  to  the  stock- 
holders any  right  of  suggestion  or  disapproval  of  the  conditions,  when 
such  relinquishment  of  important  corporate  faculties  may  be  conceded. 
Surely  a  power  which  will  be  attended  with  such  consequences  does 
not  relate  'to  the  ordinary  business  transactions,'  nor  'to  the  orderly 
and  proper  administration  of  the  affairs'  of  the  company;  and  hence 
can  not  be  exercised  by  the  directors  without  express  authority  to 
them." 

In  opposition  to  this  view  is  cited  by  the  learned  counsel  for  the  de- 
fendants the  case  of  The  Excelsior  Fire  Ins.  Co.  (16  Abb.  Pr.  8, 
14),  in  which  it  was  said: 

"The  statute  says  'the  company  is  authorized  to  reduce  the  number 
of  its  directors,'  etc.  It  makes  no  provision  for  a  meeting  of  the 
stockholders  for  that  purpose.  In  the  absence  of  any  provision  of  that 
character  the  power  is  vested  in  the  board  of  directors.  Stockhold- 
ers, as  such,  possess  no  powers  in  the  management  of  a  corporation, 
except  specially  authorized  so  to  do  by  their  charter.  Their  power 
ends  with  the  election  of  the  directors." 

Also,  in  Elwell  v.  Dodge  (33  Barb.  336,  339),  the  court  says: 

'•A  general  resolution  of  the  directors  delegating  the  power  to  trans- 
fer property  or  choses  in  action  to  meet  the  exigencies  of  the  com- 
p:iny,  or  a  ratification  of  this  particular  transfer,  by  act  or  resolution 
of  the  board,  or  acceptance  and  appropriation  of  the  fruits  of  the 
transaction,  if  a  special  resolution  authorizing  the  transfer  and  use  of 
this  note  was  wanting,  would  be  sufficient  to  sustain  the  indorsement 
as  the  act  of  the  company,  even  as  against  the  company,  and  might 
have  been  proved  had  the  precise  point  now  made  been  then  taken." 

The  language  of  Judge  Selden,  in  the  case  of  Robertson  v.  Bullions 
(11  N.  Y.  243,  250),  is  also  referred  to.     He  says: 

"What,  then,  are  the  powers,  rights  and  obligations  of  this  class  of 
corporate  officers,  and  to  what  extent  has  this  court  jurisdiction  over 
them  ?  *  «  *  These  officers  are  trustees  in  the  same  sense  with 
the  president  and  directors  of  a  bank  or  of  a  railroad  company.  They 
are  the  officers  of  the  corporation,  to  whom  is  delegated  the  power  of 
managing  its  concerns  for  the  common  benefit  of  themselves  and  all 
other  corporators,  and  over  whom  the  body  corporate  retains  control 
through  its  power  to  supersede  them  at  every  recurritig  election." 

In  the  Matter  of  St.  Ann's  Church  (23  How.  Pr.  285),  Judge 
Emott  says: 

"The  officers  thus  chosen  are  not  trustees  in  the  sense  in  which  an 
individual  becomes  or  is  made  a  private  trustee ;  they  are  simply  of- 
ficers of  the  corporation.  As  such  officers  they  represent  the  cor- 
poration ;  they  are  its  managing  agents,  and  they  may  act  for  the 
corporation  as  fully  as  the  directors  or  agents  of  an  ordinary  corpora- 
tion may  act  in  its  behalf.  A  corporation  ordinarily  acts  through  its 
officers,  and  through  them  only.  The  power  of  managing  its  con- 
cerns is  delegated  to  its  officers,  and  they  are  to  manage  them  for  the 
common  benefit  of  themselves  and  all  the  other  corporators.     These 


700  METROPOLITAN   R.    CO.  V.  MANHATTAN    R.  CO.   '         §  193 

officers  are  liable,  it  may  be,  to  judicial  proceedings  to  control  their 
action  where  it  is  fraudulent  or  destructive  of  the  rights  and  interests 
of  the  corporation.  They  are  responsible,  however,  more  directly 
and  practically,  to  the  corporate  body  itself,  through  the  power  of  the 
corporators  to  supersede  them  at  their  elections." 

In  the  case  of  Dana  v.  The  Bank  of  the  United  States,  5  Watts  & 
S.  (Pa,)  223,  246,  the  following  passage  occurs: 

"This,  I  take  it  (that  is  to  say,  the  election),  is  the  utmost  that  the 
stockholders  can  do  according  to  the  tenor  and  design  of  the  act  under 
which  they  must  all  act  until  an  election  of  the  directors  shall  come 
around,  when  the  former,  if  dissatisfied  with  the  conduct  of  the  latter 
in  managing  the  affairs  of  the  bank,  may  turn  any  one,  or  more, 
or  the  whole  of  them,  out  of  the  direction,  and  place  it  in  other 
hands." 

The  claim  made  by  virtue  of  these  decisions  is  that  the  stockhold- 
ers have  no  power  to  do  anything  in  relation  to  any  matter  whatever 
pertaining  to  their  corporation,  except  that  if  dissatisfied  with  the 
conduct  of  their  directors  in  managing  the  affairs  of  the  corporation 
they  may  turn  them  out  at  the  next  election ;  and  this  is  certainly  the 
language  of  all  the  above  decisions.  But  how  inapplicable  is  such 
remedy  to  an  act  of  the  directors  which  has  terminated  the  business 
of  the  corporation  and  placed  all  its  property  in  other  hands  for  a 
thousand  years ;  will  that  give  back  the  property  to  the  corporation ; 
will  that  set  right  any  maladministration  if  the  directors  had  the  power 
to  thus  act.''  Clearly  not,  and  the  language  was  intended  to  apply  to 
cases  where  the  action  taken  was  neither  radical  nor  fundamental  in 
its  character.  For  mismanagement  of  the  ordinary  business  of  the 
company,  the  turning  out  of  the  directors  is  a  reasonably  adequate 
redress;  but  when  the  directors  have  divested  the  company  of  all  its 
property,  it  is  difficult  to  see  how  any  remedy  is  afforded  by  turning 
them  out.  Further,  the  courts  of  this  state,  as  has  already  been  seen, 
expressly  recognize  the  fact,  notwithstanding  the  decision  above  men- 
tioned, that  the  shareholders  have  certain  other  rights  and  privileges 
beside  that  of  electing  directors,  viz. :  The  right  to  be  consulted  in 
respect  to  change  of  business,  increase  of  capital  stock,  dissolving 
and  winding  up  the  affairs  of  the  coi"poration,  sale  of  any  portion  of 
its  property  necessary  for  the  transaction  of  its  business,  etc. 

It  need  hardly,  therefore,  be  necessary,  in  view  of  the  principles 
which  have  controlled  the  decisions  already  quoted,  to  discuss  further 
the  question  that  there  are  powers  reserved  to  the  corporation  which 
can  not  be  exercised  by  the  directors  without  the  assent  of  the  share- 
holders, and  that  the  shareholders,  under  some  circumstances,  at  least, 
may  exercise  other  functions  than  simply  those  of  electing  their  board 
of  directors.  Nor  is  it  necessary  now  to  dwell  upon  the  scope  of  the 
act  of  1839,  or  to  attempt  to  show  that  bv  this  act  the  Metropolitan 
Railway  Company  had  the  power  to  lease  its  road  and  properties. 
That  such  power  existed  is  now  conceded  by  the  counsel  for  the 
plaintiff,  in  view  of  the  decision  of  the  court  of  appeals  in  the  case  of 
Woodruff  v.  The  Erie  R.  Co.,  93  N.  Y.  609. 


§  193  FUNCTIONS    OF   MEMBERS   AND    DIRECTORS.  70I 

It  is  claimed  by  the  counsel  for  the  defendants  that  as  far  as  this 
state  is  concerned,  at  least,  the  power  of  a  board  of  directors  to  lease 
without  the  assent  of  shareholders  has  been  expressly  recognized  by 
the  legislature  of  this  state,  and  various  acts  of  the  legislature  are 
cited,  in  which  leases  of  railroads  and  consolidations  of  railroads  are 
authorized  to  be  made  as  the  directors  shall  determine.  It  seems  to 
me,  that  instead  of  these  acts  being  an  evidence  of  a  legislative  con- 
struction that,  under  the  act  of  1839,  directors  had  the  power  to  lease 
without  the  assent  of  shareholders,  it  was  only  because  such  acts  could 
not  be  performed  by  the  directors  alone  that  it  was  thought  necessary 
to  confer  express  powers  upon  the  directors.  If  the  power  was  con- 
ferred upon  the  corporation  the  directors  alone  could  not  exeixise  it^ 
and,  therefore,  the  legislature  confeiTed  the  power  expressly  upon  the 
directors. 

Attention  has  also  been  called  to  various  cases  where  the  assent  of 
stockholders  is  provided  for  as  a  condition  of  corporate  action. 

It  will  be  seen  that  in  every  case  it  is  a  limitation  upon  corporate 
action  by  requiring  more  than  a  majority  of  stockholders  to  assent,  or 
the  conferring  of  a  new  power  upon  corporations  and  affixing  the  con- 
ditions upon  which  such  power  is  to  be  exercised. 

I  fail  to  see  that  legislation  of  this  character  in  any  way  aids  us  in 
the  determination  of  this  question.  If,  however,  a  solution  of  the 
problem  is  to  be  reached  by  the  light  of  legislative  interpretation, 
chapter  349  of  the  Laws  of  1880  seems  to  clearly  indicate  the  neces- 
sity of  stockholders'  assent,  given  at  a  stockholders'  meeting,  to  the 
leasing  of  the  property  of  a  railroad  corporation ;  otherwise,  what 
necessity  for  legislative  intervention  in  the  terms  of  the  act  re- 
ferred to? 

The  cases  of  Fisher  v.  New  York  Central,  etc.,  R.  Co.,  46  N.  Y. 
644,  and  The  Central  Cross  Town  R.  Co.  v.  The  Twenty-third  Street 
R.  Co.,  54  How.  Pr.  183,  are  cited  as  deciding  that  a  lease  may  be 
made  without  the  assent  of  the  shareholders.  I  have  failed  to  find 
any  such  adjudication  in  either  of  those  cases.  All  that  can  be  claimed 
for  those  cases  is  that  they  decide  that  a  lease  of  its  road,  made  by  a 
railroad  corporation,  is  not  ultra  vires,  and  they  decide  nothing  more 
upon  the  question  of  power. 

No  question  is  raised  or  discussed  as  to  the  manner  of  the  exercise 
of  its  power  by  the  corporation.  There  was  no  person  before  the 
court  seeking  to  impeach  the  lease,  who  could  be  heard  upon  the  ques- 
tion of  stockholders'  assent.  The  only  question  was  whether  the  lease 
was  not  actually  void,  not  voidable. 

There  is  no  question  but  that,  admitting  that  a  board  of  directors 
alone  have  no  power  to  lease  the  property  of  their  corporation,  and 
if  such  lease  is  executed  by  the  directors  without  the  assent  of  the 
stockholders,  such  stockholders  may  accept  the  lease  or  repudiate  it, 
and  that  if  they  allow  the  parties  to  the  lease  to  go  on  under  the  lease 
without  any  action  being  taken  in  respect  thereto,  w-ithin  a  reasonable 
time,  they  will  be  held  to  have  acquiesced  in  the  lease  and  ratified  it. 
Therefore,  conceding  that  the  corporation  has  the  power  to  lease, 


702  METROPOLITAN   R.    CO.  V.  MANHATTAN   R.  CO.  §  193 

when  the  action  is  taken  and  the  stockholders  have  acquiesced,  no 
third  party  can  raise  the  objection  that  the  stockholders  have  not 
formally  assented. 

In  the  cases  cited  the  leases  had  long  been  in  operation,  and  the 
time  for  dissent  had  long  passed,  and,  therefore,  the  only  question 
that  could  be  raised  was  the  power  of  the  corporation  to  act  at  all. 
After  an  examination  of  the  reasoning  in  all  the  adujdicated  cases 
(which  has  been  by  no  means  cursory),  after  a  consideration  of  the 
principles  governing  the  relations  of  shareholders  of  a  corporation  and 
its  directors,  conceding  that  a  corporation  can  do  ho  act  unless  spe- 
cially authorized  thereto,  except  through  its  board  of  directors,  I  am 
irresistibly  brought  to  the  conclusion  that  acts  making  organic  or  fun- 
damental changes  in  the  character  or  business  of  the  corporation,  can 
not  be  done  either  by  the  directors  alone,  or  by  the  shareholders  alone  ; 
but  that  both  the  executive  and  administrative  officers  of  the  corpora- 
tion must  unite  with  the  shareholders  of  the  corporation,  who  confer 
the  right  to  act  upon  the  individuals  intrusted  with  the  office  of  di- 
rectors;  that  directors  are  merely  temporary  officers  of  the  corporation, 
by  virtue  of  their  office  entitled  to  manage  the  business  and  affairs  of 
the  corporation  during  their  term  of  office,  without  interference  from 
the  stockholders,  but  they  can  not  say  that  a  new  board  of  directors, 
although  duly  elected  by  the  stockholders,  shall  never  thereafter  inter- 
fere with  the  management  of  the  properties  of  the  corporation,  be- 
cause they  have  placed  their  possessions  and  management  into  other 
hands  forever.      *     *     * 

Judgment  for  plaintiff. 

Note.  Functions  of  shareholders. — In  general  shareholders  have  the 
right  to : 

(1)  Elect  directors.  1865,  Mottu  v.  Primrose,  23  Md.  482;  1881,  State  v. 
Merchant,  37  O.  S.  251. 

(2)  Pass  on  amendments  to  the  charter.  1818,  Marlborough  Manufactur- 
ing Co.  V.Smith,  2  Conn.  579;  1850,  Commonwealth  v.  Cullen,  13  Pa.  St.  133. 
53  Am.  Dec.  450,  supra,  p.  417;  1854,  Stark  v.  Burke,  9  La.  Ann.  341;  1870, 
Hope  V.  Mut.  F.  Ins.  Co.,  47  Mo.  93;  1873,  Railway  Co.  v.  Allerton,  85  U.  S. 
233,  supra,  p.  442;  1885,  Baker's  Appeal,  109  Pa.  St.  461;  1886,  Venner  v. 
Atchison,  etc.,  R.,  28  Fed.  Rep.  581;  1899,  In  re  Election  of  Directorsof  New- 
ark Lib.  Assn.,  64  N.  J.  L.  217,  265,  43  Atl.  Rep.  435;  1899,  Alexander  v.  At- 
lantic &  W.  P.  R.  Co.,  108  Ga.  449,  33  S.  E.  Rep.  866.  But  see  contra,  1865, 
Dayton  &  C.  R.  Co.  v.  Hatch,  1  Disn.  (Ohio)  84;  1858,  Illinois  River  R.  Co. 
v.  Zimmer,  20  111.  654. 

(3)  Increase  or  reduce  stock.  1860,  New  York  &  N.  H.  R.  v.  Schuvler,  38 
Barb.  534;  1871,  Eidman  v.  Bowman,  58  111.  444,  11  Am.  Rep.  90';  1873, 
Chicago  City  Ry.  Co.  v.  Allerton,  85  U.  S.  (18  Wall.)  233,  supra,  p.  442;  1897, 
McNulta  V.  Corn  Belt  Bank,  164  111.  427, 

(4)  Make  by-laws.  1766,  Rex  v.  Spencer,  3  Burr.  1837 ;  1868,  Stevens  v 
Davison,  18  Gratt.  (Va.)  819,  98  Am.  Dec.  692;  1875,  Morton  Gravel  Co  v* 
Wysong,  51  Ind.  4;  1876,  People  v.  Sterling  B.  C,  82  111.  457.  contra;  1876 
Thayer  v.  Herrick,  Fed.  Cas.  13868;  1877,  United  Fire  Assn.  v.  Benseman  4 
Weekly  N.  C.  (Pa.)  1;  1893,  Brinkerhoff  v.  Lumber  Co.,  118  Mo.  447,  infra 
p.  1162;  1894,  Watson  v.  Sidney,  F.  W.  P.  Co.,  56  Mo.  App.  146. 

(5)  Control  the  issue  of  stock.  1867,  Curry  v.  Scott,  54  Pa.  St.  270*  1868 
McManus  v.  P.  &  R.  Co.,  58  Pa.  St.  330;  1883,  Jones  v.  Morrison  31  Minn' 
140;  1891,  Arkansas  V.  Ag.  Soc.  v.  Eicholtz,  45  Kan.  164. 


§  194  FUNCTIONS   OF   OTHER   OFFICERS.  703 

(6)  Investigate  the  management.  1880,  Star  Line  v.  Van  Vliet,  43  Mich. 
364. 

(7)  Check  tiltra  vires  acts,  and  in  this  case  a  single  dissenting  shareholder 
can  enjoin  such  act.  1850,  Bagshaw  v.  Eastern,  etc.,  R.,  19  L.  J.  (Ch.)  410; 
1851,  Beeman  v.  Rufitord,  1  Sim.  N.  S.  5o0;  1867,  Hoole  v.  Great  Western  R., 
L.  R.  3  Ch.  App.  262;  1895,  Pollock  v.  Farmers'  L.  &  T.  Co.,  157  U.  S.  429. 

(8)  Prevent  the  sale  of  the  corporate  property,  unless  the  corporation  is  a 
failing  one.  1861,  Abbott  v.  Hard  Rubber  Co.,  33  Barb.  578 ;  1874,  Middlesex, 
etc.,  R.  v.  Boston,  etc.,  R.,  115  Mass.  347;  1892,  People  v.  Ballard,  134  N. 
Y.  269. 

1 9)  Provide  for  the  admission  of  members.  1837,  Comw.  v.  Gill,  3  Whart. 
228. 

(10)  Remove  members  or  officers.  1758,  Rex.  v.  Richardson,  1  Burr.  517; 
1865,  Evans  v.  Philadelphia  Club,  50  Pa.  St.  107,  infra,  p.  1165;  1882,  Imperial 
Hydropathic  Hotel  Co.,  L.  R.  23  Ch.  Div.  1;  1898,  In  re  Griffing  Iron  Co.,  41 
Atl.  Rep.  (N.  J.1931. 

(1 1)  Dissolve  the  corporation  or  surrender  the  corporate  franchises.  1813, 
Smith  V.  Smith,  3  Dessau.  Eq.  (S.  C.)557;  1843  State  v.  Atch.  R.  Co.,  5  Rob. 
(La.)  63;  1870,  Wilson  v.  Proprietors  of  Central  Bridge,  9  R.  I.  590;  1897, 
Pringle  v.  Eltringham  C.  Co.,  49  La.  Ann.  301,  6  A.  &  E.  C.  C.  (N.  S.)  385; 
1898,  Forrester  et  al.  v.  B.  &.M.  C.  C.  &  S.  M.  Co.,  21  Mont.  644,  55  Pac. 
Rep.  229. 

Functions  of  directors.  These  are  usually  stated  to  be  to  select  the  inferior 
officers,  agents  and  servants  of  the  corporation,  fix  their  compensation  and 
direct  their  actions.  1880,  Batchelorv.  Planters'  National  Bank,  78  Ky.  435; 
1891,  Sheridan  Elec.  L.  Co.  v.  Chatham  National  Bank,  127  N.  Y.  517,  28  N. 
E.  Rep.  467;  1898,  Granger  v.  Am.  Brew.  Co.,  25  Miscl.  (N.  Y.)  302.  Also  to 
control  in  the  ordinary  business  affairs  of  the  corporation,  such  as  policy  of 
management,  expediency  of  acting  or  contracting,  accepting  consideration  for 
corporate  property,  or  service,  or  appropriation  of  corporate  funds  to  advance 
the  corporate  enterprise.  And  in  these  particulars,  if  they  act  in  good  faith, 
the  stockholders  can  not  control  their  acts.  1840,  Burrill  v.  Pres.  and  Dir. 
of  Nahant  Bank, 2  Mete.  (Mass.)  163,  35  Am.  Dec.  395;  1850,  Gillis  v.  Bailey, 
21  N.  H.  149;  18.50,  Commw.  v.  Cullen,  13  Pa.  St.  133,  53  Am.  Dec.  450;  1863, 
Miller  v.  Rutland,  etc.,  R.  Co.,  36  Vt.  452;  1880,  Hun  v.  Cary,  82  N.  Y.  65,  37 
Am.  Rep.  546;  1881,  Cleveland  &  M.  R  Co.  v.  Himrod  Furnace  Co.,  37  Ohio 
St.  321 ;  1884,  Louisville,  E.  &  St.  L.  Ry.  Co.  v.  McVav,  98  Ind,  391 ;  1885, 
Donohoe  v.  Mariposa  L.  &  M.  Co.,  66  Cal.  317;  1891,  Ellerman  v.  Chicago 
J.  R.,  49  N.  J.  Eq.  217,  35  Am.  &  E.  C.  C.  388;  1892,  Wheeler  v.  Pullman  I. 
&  S.  Co.,  143  111.  197;  1896,  Blood  v.  La  Serena,  113  Cal.  221,  4  Am.  &  E.  G. 
C.  (N.  S.)  451  (this  case  holding  that  stockholders  can  not  direct  certain 
officers  to  do  acts  of  ordinary  business  by  resolution,  unless  the  directors 
authorize  such  acts  also) ;  1899,  Cupit  v.  Park  City  Bank,  20  Utah  292, 58  Pac. 
Rep.  839. 


ARTICLE    II.       OTHER    OFFICERS. 

Sec.  194.     The  president,  etc. 

NATIONAL  STATE  BANK  v.  VIGO  COUNTY  NATIONAL  BANK.» 

1895.     In  the  Supreme  Court  of  Indiana.     141  Ind.  Rep.  352- 
357>  50  Am.  St.  Rep.  330. 

[Action  to  set  aside  two  mortgages  held  by  Vigo  Bank,  purporting 
to  have  been  executed  by  Sanford  Tool  Company  by  its  president, 
"on  his  own  motion  and  without  any  authority  or  permission  to  him 

*  Statement  of  facts  abridged.     Only  pait  of  opinion  given. 


704  NATIONAL   STATE   BANK   V.  VIGO,   ETC.,  BANK.  §   194 

given  by  said  tool  company,  or  its  directors  or  stockholders,"  and 
without  their  consent  or  subsequent  ratification.  The  Vigo  Bank  de- 
murred ;  demurrer  sustained  and  exceptions  reserved.  Sustaining  the 
demurrer  is  the  error  assigned.] 

Monks,  J.  *  *  *  The  statute  under  which  the  tool  company  was 
organized  provides  that  the  business  of  the  corporation  shall  be  man- 
aged by  a  board  of  directors,  a  majority  of  whom  shall  constitute  a 
quorum.     Section  3854,  R.  S.  1881 ;   section  5054,  R.  S.  1894. 

Under  this  statute  the  directors  have  full  authority  to  act  for  the  cor- 
poration, and  represent  it  in  all  the  matters  relating  to  the  corporate 
business.  Brooklyn  Gravel  Road  Co.  v.  Slaughter,  33  Ind.  185  ;  Board, 
etc.,  v.  Lafayette,  etc.,  R.  Co.,  50  Ind.  85. 

The  president  of  a  corporation,  by  virtue  of  his  office  merely,  has 
very  little  authority  to  act  for  the  corporation ;  his  powers  depend 
upon  the  nature  of  the  company's  business  and  the  authority  given 
him  by  the  board  of  directors.  The  board  of  directors  may  invest 
him  with  authority  to  act  as  the  chief  executive  officer  of  the  company  ; 
this  may  be  done  by  resolution  or  by  acquiescence  in  the  course  of 
dealing  and  manner  of  transacting  the  business  of  the  corporation. 
Taylor  Coi-p.,  §§  202,  236,  238,  and  notes;  Martin  v.  Webb,  no  U. 
S.  7;  Northern,  etc.,  R.  Co.  v.  Bastian,  15  Md.  494;  Dougherty  v. 
Hunter,  54  Pa.  St.  380;  Stokes  v.  New  Jersey  Pottery  Co.,  46  N.  J. 
Law  240;  Louisville,  etc.,  R.  W.  Co.  v.  McVay,  98  Ind.  391  ;  17 
Am.  and  Eng.  Encyc.  of  Law,  pp.  135,  136,  137,  and  notes;  Jones 
Chat.  Mort.,  §  51. 

When  a  contract  is  made  in  the  name  of  a  corporation  by  the  presi- 
dent, in  the  usual  course  of  business,  which  the  directors  have  the 
power  to  authorize  him  to  make,  or  to  ratify  after  it  is  made,  the 
presumption  is  that  the  contract  is  binding  on  the  corporation  until  it 
is  shown  that  the  same  was  not  authorized  or  ratified.  Patterson  v. 
Robinson,  116  N.  Y.  193;  Eureka  Iron  and  Steel  Works  v.  Bresna- 
han,  60  Mich.  332;  i  Morawetz  Corp.,  §  538;  i  Beach  Coi-p.,  §  203; 
17  Am.  &  Eng.  Ency.  of  Law,  p.  124. 

One  dealing  with  the  president  of  a  corporation,  in  the  usual  course 
of  business,  and  within  the  powers  which  the  president  has  been  ac- 
customed to  exercise  without  objection  from  the  directors,  has  the 
right  to  assume  that  the  president  has  been  invested  with  those  powers. 
I  Morawetz  Coi-p.,  §  538;  i  Beach  Corp.,  §  203;  First  Nat'l  Bank 
v.  Kimberlands,  16  W.  Va.  555 ;  Eureka  Iron  and  Steel  Works  v. 
Bresnahan,  supra. 

Each  paragraph  of  the  complaint,  however,  alleges  that  said  mort- 
gages were  executed  without  any  authority  whatever,  and  were  never 
ratified  after  they  were  executed,  and  we  are  of  the  opinion  that  the 
second,  third  and  fourth  paragraphs  were  sufficient  to  withstand  the 
demurrer.      *     *     * 

Judgment  reversed. 

Note.  See,  also,  as  to  functions  and  powers  of  president.  1872,  Smith  v. 
Smith,  62  111.  493;  1874,  Titus  v.  Cairo,  etc.,  R.  Co.,  37  N.  J.  L.  98;  1881, 


§   195  INTERNAL    RKLATIONS    GENERALLY.  7^5 

Mining  Co.  v.  Anglo-CaL  Bank,  104  U.  S.  192;  1801,  Wait  v.  Nashua  A rmoty 
\asn.,  66  N.  H.  581,  49  Am.  St.  Rep.  630,  14  L.  R.  A.  356;  1895,  Merrill  v. 
Hnrley,  6  S.  D.  592,  55  Am.  St.  Rep.  859;  1896,  Board  of  Trade  v.  Nelson,  162 
111.  431,  53  Am.  St.  Rep.  312;  1896,  Ford  v.  Hill,  92  Wis.  188,  53  Am.  St.  Rep. 
902-  1897,  Swasey  V.  Emerson,  168  Mass.  118,60  Am.  St.  Rep.  368;  1897, 
White  V  Taylor,  113  Mich.  543;  1897,  Jones  v.  AVilliams,  139  Mo.  1,  61  Am. 
St.  Rep.  436,  37  L.  R.  A.  682;  1897,  Brush,  etc.,  Co.  v.  Montgomery,  114  Ala. 
433  21  So.  Rep.  960;  1898,  Pacific  Bank  v.  Stone,  121  Cal.  202;  1899,  Cham- 
bers V.  Lancaster,  160  N.  Y.  342,  54  N.  E.  Rep.  707;  1899,  Moore  Mercantile 
Co.  V.  Arnold,  108  Ga.  449,  34  S.  E.  Rep.  176;  1899,  White  v.  Elgin  Creamer, 
Co.,  108  Iowa  622,  79  N.  W.  Rep.  283. 

As  to  functions  and  powers  of  rice-president,  see:  1872,  Smith  v.  Smith,  62 
III.  493;  1890,  Huse  v.  Ames,  104  Mo.  91;  1891,  Wait  v.  Nashua  Armory 
Assn.,  66  N.  H.  581,  49  Am.  St.  Rep.  630,  14  L.  R.  A.  356;  1892,  Shafier  v. 
Hahn,  111  N.  C.  1;  1895,  Missouri,  etc.,  Co.  v.  Faulkner,  88  Tex.  649;  1897, 
Pond  V.  Nat'l  Mtg.  &  D.  Co.,  6  Kan.  App.  750. 

As  to  poioers  of  secretary,  see:  1889,  Read  v.  Biiffiim,  79  Cal.  77;  1893, 
Hastings  v.  Brooklyn,  etc.,  Co.,  138  N.  Y.  473;  1895,  Wolf  &  Gaines  v.  Daven- 
port, etc.,  R.  Co.,  93  Iowa  218;  1899,  Colorado  S.  Co.  v.  Am.  Pub.  Co.,  97  Fed. 
Rep.  843. 

As  to  functions  and  powers  of  treasurer,  see:  1881,  Mining  Co.  v.  Anglo-Cal. 
Bank,  104  U.  S.  192;  1889,  Craft  v.  South  Boston  R.  Co.,  150  Mass.  207,  5  L.. 
R.  A.  641;  1893,  Merchants'  National  Bank  v.  Citizens',  etc.,  Co.,  159  Mass. 
605;  1894,  Appeal  of  Philler,  161  Pa.  St.  157;  1898,  Chicago,  etc.,  Co,  v.  Chi- 
cago National  Bank,  176  111.  224;  1899,  Colorado  S.  Co.  v.  Am.  Pub.  Co.,  97 
Fed.  Rep.  843;  1899,  First  National  Bank  v.  Garretson,  107  Iowa  196. 

As  to  functions  and  powers  of  general  managers,  general  superintendents,  gen- 
eral agents,  eashiers,  road-master,  division  superintendent,  station-master,  yard- 
master,  station  agent,  foreman,  conductor,  etc.,  see:  1884,  The  Louisville,  Evans- 
ville  &  St.  L.  R.  Co.  v.  McKay,  98  Ind.  391,  where  the  cases  are  collected 
and  discussed. 

Further  as  to  powers  of  general  manager,  see:  1898,  Helena  National  Bank 
v.  Rockv,  etc.,  Co.,  20  Mont.  379,  63  Am.  St.  Rep.  628;  1898,  Butte  &  B.  Con. 
M.  Co.  V.  Mont.  Ore.  P.  Co.,  21  Mont.  539,  10  Am.  &  E.  G.  C.  (N.  S. )  415,  note 
419;  1899,  New  South  Brewing,  etc.,  Co.  v.  Shuck,  20  Ky.  L.  Rep.  2005,  10  A. 
&  E.  C.  C.  (N.  S.)  423. 


Subdivision  III.     Internal  Relations   and   Constitution. 

ARTICLE  I.       THE     CORPORATE    FRANCHISES. 

Sec.  195.  The  franchises  of  the  corporation  itself.  "A  cor- 
poration aggregate  is  an  artificial  body  of  men,  composed  of 
divers  constituent  members,  ad instar  corporis  humani,  the  lig- 
aments of  which  body  politic  or  artificial  body  are  the  fran- 
chises and  liberties  thereof,  which  bind  afid  unite  all  its  mem- 
bers together;  and  the  whole  frame  and  essence  of  the  corpora- 
tion consists  therein."  Argument  of  Sergeant  Pemberton  in 
King  V.  London,  Carth.    217  (1692). 

See,  also,  People  v.  Utica  Insurance  Co.,  15  Johns.  (N.  Y.)  358,  supra,  p. 
113;  Spring  Valley  AVater- Works  v.  Schottler,  62  Cal.  69,  supra,  p.  120,  on  pp, 

46 — WiL.  Cases. 


7o6  INTERNAL   RELATIONS    GENERALLY.  §   I96 


Memph.^  -  —  __.    _ .  .  ,r-,     tt- 

pp  146-147;  Wales  v.  Stetson,  2  Mass.  143,  supra,  p.  150,  on  p.  151;  Higgins 
V.  Downward,  8  Hous.  {Del.)  227,  supra,  p.  152,  on  pp.  155-156.  Note  to  arti- 
cle iv,  supra,  p.  157. 

Note.  It  has  been  said  that  "All  the  functions  of  a  corporation  are  in  one 
sense  franchises.  The  right  to  hold  property  in  tlie  corporate  name,  to  sue 
and  be  sued  in  that  capacity,  to  have  and  use  a  corporate  seal,  and  by  that  to 
contract,  and  some  otiiers  perhaps,  are  franchises,  which  constitute  the  very 
definition  of  a  corporation." — Chief  Justice  Redfield,in  State  v.  Boston,  etc., 
R.  Co.,  25  Vt.  442  (1853).  Also  Perley,  C.  J.,  in  Pierce  v.  Emery,  32  N.  H. 
507  (1856),  says:  "A  corporation  is  itself  a  franchise  belonging  to  the  mem- 
bers of  the  corporation ;  and  a  corporation,  being  itself  a  franchise,  may  hold 
other  franchises,  as  rights  and  franchises  of  the  corporation,  *  *^  *  ^nd 
being  itself  a  franchise,  consists  and  is  made  up  of  its  rights  and  franchises." 

It  is  sometimes  difficult  to  distinguish  between  a  franchise  and  a  mere 
license.  Many  of  the  courts  hold  that  the  right  of  w'ay  of  a  street  railroad 
company  or  the  right  to  lay  gas  or  water  pipes,  or  erect  telegraph  or  tele- 
phone poles  in  the  streets  of  a  city  granted  bv  the'citv  council  is  a  franchise. 
See,  1883,  Hovelman  v.  Kansas  City  R.  Co.,  79  Mo.  632,  on  643;  1885,  New 
Orleans,  etc.,  R.  Co.  v.  Delamore,  114  U.  S.  501  ;  1888,  State  v.  Madison,  etc., 
R.  Co.,  72  Wis.  612;  1888,  People  v. O'Brien,  111  N.  Y.  1,  7  Am.  St.  Rep.  684, 
2  L.  R.  A.  255;  1894,  Detroit  Citizens'  S.  R.  Co.  v.  Detroit,  64  Fed.  Rep.  628, 
26  L.  R.  A.  667  ;  1896,  Stevens  v.  City  of  Muskegon,  111  Mich.  72 ;  1897,  Tower 
V.  Tower  &  S.  S.  R.  Co.,  68  Minn.  500,  64  Am.  St.  Rep.  493;  1897,  Wright  v. 
Milwaukee,  etc.,  R.  Co.,  95  Wis.  29,  60  Am.  St.  Rep.  74;  1897,  Milwaukee 
Elec.  R.  Co.  V.  Milwaukee,  95  Wis.  39,  60  Am.  St.  Rep.  81 ;  1897,  State  v. 
East  Fifth  St.  R.  Co.,  140  Mo.  539,  62  Am.  St.  Rep.  742,  38  L.  R.  A.  218;  1898, 
Suburban  etc.,  Co.  v.  Inhabitants,  etc.,  41  Atl.  Rep.  865  (N.  J.  Ch  )  ;  1898, 
Ghee  v.  Northern  Union  Gas  Co.,  158  N.  Y.  510;  1899,  People  v.  Suburban  R. 
Co..  178  111.  594;  1899.  East  St.  L.  C.  R.  Co.  v.  E.  St.  L..  182  111.  433;  1899, 
Township  of  Hamtramck  v.  Rapid  R.,  122  Mich.  472,  81  N.  W.  Rep.  337. 

Other  cases  hold  such  grants  to  be  licenses  onlv.  See,  1878,  People  v.  Mu- 
tual, etc.,  Co.,  38  Mich.  154;  1885,  Galveston,  etc.,  R.  Co.  v.  Gulf  City,  etc., 
R.  Co.,  63  Texas  529;  1888,  Atchison,  etc.,  R.  Co.  v.  Nave,  38  Kan.  744,  5 
Am.  St.  Rep.  800,  note  804;  1893,  Lake  Roland  El.  Co.  v.  Baltimore,  77  Md. 
352,  20  L.  R.  A.  126;  1894,  City  of  Belleville  v.  Citizens',  etc.,  R.  Co.,  152  111. 
171,  26  L.  R,  A.  681. 


Sec.  196.  Franchises  of  the  members.  "It  is  likewise  a  fran- 
chise for  a  number  of  persons  to  be  incorporated  and  subsist 
as  a  body  politic ;  with  power  to  maintain  perpetual  succes- 
sion, and  do  other  corporate  acts;  and  each  individual  mem- 
ber of  such  corporation  is  also  said  to  have  a  franchise  or 
freedotn.''    Blackstone's  Comm.,  Bk.  II,  p.  *Z7- 

See,  also.  State,  ex  rel.  Waring,  v.  Medical  Society,  38  Ga.  608,  supra,  p.  136 ; 
Fietsam  v.  Hay,  122  111.  293,  supra,  p.  141 ;  Memphis  &  L.  R.  Co.  v.  R.  Com- 
missioners, 112  U.  S.  609,  supra,  p.  143. 

Note.  In  Board  of  Trade  of  Chicago  y.  The  People,  91  111.  80,  it  was  held 
that  a  member  did  not  have  a  franchise  in  his  membership  sufficient  to  give 
a  court  of  appeals  jurisdiction  in  appeal,  under  a  statute  authorizing  appeals 
in  cases  involving  a  franchise.  The  court's  argument  is  given  above  in  note 
on  pp,  161, 162.  See  cases  infra  on  the  right  of  corporations  to  expel  mem- 
bers, p.  1165. 


§   197  CONTRACTS    IN   THE   CORPORATE   CHARTER  707 

ARTICLE    11.       CONTRACTS     CONTAINED     IN     THE    CHARTER    OF   A    COR- 
PORATION. 

Sec.  197.  (  I  )  In  general.  ' '  The  charter  of  a  corporation  having  a 
capital  stock  is  a  contract  between  three  parties,  and  forms 
the  basis  of  three  distinct  contracts.  The  charter  is  a  contract 
between  the  state  and  the  corporation;  second,  it  is  a  con- 
tract between  the  corporation  and  the  stockholders;  third,  it 
is  a  contract  between  the  stockholders  and  the  state."  Cook 
Stock  and  Stockholders,  3d  ed.,  §  492. 

*'The  contracts  which  are  ordinarily  found  in  the  charter  of  a  pri- 
vate corporation  fall  into  three  classes :  (  i  )  Those  between 
the  state  and  the  incorporators.  *  *  *  (2)  Contracts 
between  the  corporation  and  the  stockholders.  *  *  *  (3) 
Contracts  between  the  corporation  and  persons  dealing  with 
the  corporation,  such  as  statements  in  the  charter  or  law,  that 
the  capital  stock  shall  be  a  certain  amount."  Elliott  Corpora- 
tions, §  98;   Beach  Corp.,  §§  22-24. 

By  incorporation  for  business  purposes,  the  corporators  acquire 
from  the  state  a  franchise  to  employ  certain  methods  of  acting  (which 
they  could  not  otherwise  lawfully  exercise),  and  certain  designated 
funds  or  property,  in  attaining  or  furthering  certain  specified  objects. 
It  is  the  dedication  of  certain  funds,  by  the  mutual  and  express  con- 
sent of  the  state  and  the  corporators,  to  the  attainment  of  certain  pur- 
poses, in  a  certain  way.  Because  the  state  believes  the  purposes  de- 
sirable, it  authorizes  the  peculiar  method;  because  the  corporators 
deem  the  method  necessary  or  desirable,  and  the  end  profitable,  they 
contribute  the  funds.  The  peculiar  method  is  by  the  state  authoriz- 
ing a  changing  body  of  persons,  through  a  specified  form  of  organiza- 
tion, and  under  a  designated  name,  to  act  and  be  considered  as  one 
person  in  whom  are  vested  the  funds  contributed,  and  upon  whom  is 
placed  the  duty  of  applying  them  to  the  purposes  named.  The  state 
has  the  right  to  have  the  funds  so  applied ;  so  does  the  corporation  ; 
so  do  the  members ;  so  do  those  who  are  selected  to  act  in  the  corpo- 
rate name;  so  do  those  who  become  creditors  in  the  performance  of 
the  corporate  functions.  In  this  way  there  arise  many  implied  con- 
tracts or  grants  of  franchises,  as  to  the  purposes  to  be  accomplished, 
the  method  of  accomplishing  them,  and  the  application  of  the  funds 
thereto,  protected  under  the  national  constitutional  provision  that  "no 
state  shall  pass  any  law  impairing  the  obligation  of  contracts."  (Art. 
i,  §  ID,  ch.  I. 


7o8  DARTMOUTH    COLLEGE   V.  WOODWARD.  §   1 98 

Sec.  198.     Same. 

TRUSTEES  OF  DARTMOUTH  COLLEGE  v.  WOODWARD.^ 

1819.    In  THE  Supreme  Court  OF  THE  United  States.    4  Wheaton 
(17  U.  S.)  Rep.  518-715. 

February  2,  1819.  The  opinion  of  the  court  was  delivered  by 
Marshall,  Ch.  J.  This  is  an  action  of  trover,  brought  by  the  trust- 
ees of  Dartmouth  College  against  William  H.  Woodward,  in  the  state 
court  of  New  Hampshire,  for  the  book  of  records,  corporate  seal  and 
other  corporate  property,  to  which  the  plaintiffs  allege  themselves  to 
be  entitled.  A  special  verdict,  after  setting  out  the  rights  of  the  par- 
ties, finds  for  the  defendant,  if  certain  acts  of  the  legislature  of  New 
Hampshire,  passed  on  the  37th  of  June,  and  on  the  i8th  of  December, 
1816,  be  valid  and  binding  on  the  trustees,  without  their  assent,  and 
not  repugnant  to  the  constitution  of  the  United  States ;  otherwise,  it 
finds  for  the  plaintiffs.  The  superior  court  of  judicature  of  New 
Hampshire  rendered  a  judgment  upon  this  verdict  for  the  defendant, 
which  judgment  has  been  brought  before  this  court  by  writ  of  error. 
The  single  question  now  to  be  considered  is,  do  the  acts  to  which  the 
verdict  refers  violate  the  constitution  of  the  United  States  ? 

This  court  can  be  insensible  neither  to  the  magnitude  nor  delicacy 
of  this  question.  The  validity  of  a  legislative  act  is  to  be  examined; 
and  the  opinion  of  the  highest  law  tribunal  of  a  state  is  to  be  revised 
— an  opinion  which  carries  with  it  intrinsic  evidence  of  the  diligence, 
of  the  ability  and  the  integrity  with  which  it  was  formed.  On  more 
than  one  occasion  this  court  has  expressed  the  cautious  circumspection 
with  which  it  approaches  the  consideration  of  such  questions ;  and 
has  declared  that  in  no  doubtful  case  would  it  pronounce  a  legisla- 
tive act  to  be  contrary  to  the  constitution.  But  the  American  people 
have  said,  in  the  constitution  of  the  United  States,  that  "no  state  shall 
pass  any  bill  of  attainder,  ex  'post  facto  law,  or  law  impairing  the  ob- 
ligation of  contracts."  In  the  same  instrument,  they  have  also  said,- 
"that  the  judicial  power  shall  extend  to  all  cases  in  law  and  equity 
arising  under  the  constitution."  On  the  judges  of  this  court,  then,  is 
imposed  the  high  and  solemn  duty  of  protecting,  from  even  legislative 
violation,  those  contracts  which  the  constitution  of  our  country  has 
placed  beyond  legislative  control ;  and,  however  irksome  the  task  may 
be,  this  is  a  duty  from  which  we  dare  not  shrink. 

*  Facts  are  sufficiently  stated  in  the  opinions,  and  supra,  p.  426.  Arguments, 
and  parts  of  the  opinions  of  Story  and  Washington,  JJ.,  omitted.  The  case 
was  argued  in  the  state  court  by  Mason,  Smith  and  Webster,  for  plaintiffs, 
and  by  Sullivan  and  Bartlett,  for  defendants ;  in  the  United  States  Supreme 
Court  by  Webster  and  Hopkinson,  for  plaintiff  in  error,  and  by  Holmes  and 
William  AVirt,  attorney-general,  for  defendants  in  error.  The  decision  of  the 
state  court  is  reported  (without  the  arguments  of  counsel)  in  1  N.  H.  Ill,  and 
reprinted  (with  the  arguments  of  counsel)  in  65  N.  H.  473.  Farrar's  Report 
(1817,  1819)  contains  decisions  of  both  courts.  The  original  charter  and  the 
acts  of  the  state  legislature  are  given  in  full  in  4  Wlieat.  519-551. 


§  198      CONTRACTS  IN  THE  CORPORATE  CHARTER.      709 

The  title  of  the  phiintiffs  originates  in  a  charter  dated  the  I3lh  day 
of  December,  in  the  year  1769,  incorporating  twelve  persons  therein 
mentioned  by  the  name  of  "The  Trustees  of  Dartmouth  College," 
granting  to  them  and  their  successors  the  usual  corporate  privileges 
and  powers,  and  authorizing  the  trustees,  who  are  to  govern  the  col- 
lege, to  fill  up  all  vacancies  which  may  be  created  in  their  own  body. 

The  defendant  claims  under  three  acts  of  the  legislature  of  New 
Hampshire,  the  most  material  of  which  was  passed  on  the  27th  of 
June,  1816,  and  is  entitled  "an  act  to  amend  the  charter  and  enlarge 
and  improve  the  corporation  of  Dartmouth  College."  Among  other 
alterations  in  the  charter,  this  act  increases  the  number  of  trustees  to 
twenty-one,  gives  the  appointment  of  the  additional  members  to  the 
executive  of  the  state,  and  creates  a  board  of  overseers,  with  power 
to  inspect  and  control  the  most  important  acts  of  the  tnistees.  This 
board  consists  of  twenty-five  persons.  The  president  of  the  senate, 
the  speaker  of  the  house  of  representatives  of  New  Hampshire,  and 
the  governor  and  lieutenant-governor  of  Vermont,  for  the  time  being, 
are  to  be  members  ex  officio.  The  board  is  to  be  completed  by  the 
governor  and  council  of  New  Hampshire,  who  are  also  empowered  to 
fill  all  vacancies  which  may  occur.  The  acts  of  the  i8th  and  26th  of 
December  are  supplemental  to  that  of  the  27th  of  June,  and  are  prin- 
cipally intended  to  carry  that  act  into  effect.  The  majority  of  the 
trustees  of  the  college  have  refused  to  accept  this  amended  charter, 
and  have  brought  this  suit  for  the  corporate  property,  which  is  in  pos- 
session of  a  person  holding  by  virtue  of  the  acts  which  have  been 
stated. 

[The  circumstances  constituted  a  contract.]  It  can  require  no  argu- 
tnent  to  prove,  that  the  circMinstances  of  this  case  constitute  a 
contract.  An  application  is  made  to  the  croivn  for  a  charter  to  in- 
corporate a  religious  and  literary  institution,  hi  the  application,  it 
is  stated.,  that  large  contributions  have  been  made  for  the  object,  -which 
ivill  be  conforred  on  the  corporation,  as  soon  as  it  shall  be  created. 
The  charter  is  granted,  and  on  its  foith  the  property  is  conveyed. 
Surely,  in  th  is  transaction  every  ingredient  of  a  complete  and  legiti- 
mate contract  is  to  be  foutid.  The  points  for  consideration  are:  i. 
Is  this  contract  protected  by  the  constitution  of  the  United  States?  2. 
Is  it  impaired  by  the  acts  under  which  the  defendant  holds.? 

I.  [Character  of  contracts  protected  by  the  constitution.]  On  the 
first  point  it  has  been  argued  that  the  word  "contract,"  in  its  broadest 
sense,  would  comprehend  the  political  relations  between  the  govern- 
ment and  its  citizens;  would  extend  to  offices  held  within  a  state,  for 
state  purposes,  and  to  many  of  those  laws  concerning  civil  institutions, 
which  must  change  with  circumstances,  and  be  modified  by  ordinary 
legislation ;  which  deeply  concern  the  public,  and  which,  to  preserve 
good  government,  the  public  judgment  must  control.  That  even  mar- 
riage is  a  contract,  and  its  obligations  are  affected  by  the  laws  respect- 
ing divorces.  That  the  clause  in  the  constitution,  if  construed  in  its 
greatest  latitude,  would  prohibit  these  laws.  Taken  in  its  broad,  un- 
limited sense,  the  clause  would  be  an  unprofitable  and  vexatious  inter- 


yiO  DARTMOUTH    COLLEGE   V.  WOODWARD.  §   1 98 

ference  with  the  internal  concerns  of  a  state,  would  unnecessarily  and 
unwisely  embarrass  its  legislation  and  render  immutable  those  civil 
institutions  which  are  established  for  purposes  of  internal  government, 
and  which,  to  subserve  those  purposes,  ought  to  vary  with  varying 
circumstances.  That  as  the  framers  of  the  constitution  could  never 
have  intended  to  insert  in  that  instrument  a  provision  so  unnecessary, 
so  mischievous  and  so  repugnant  to  its  general  spirit,  the  term  "con- 
tract" must  be  understood  in  a  more  limited  sense.  That  it  must  be 
understood  as  intended  to  guard  against  a  power  of  at  least  doubtful 
utility,  the  abuse  of  which  had  been  extensively  felt,  and  to  restrain 
the  legislature  in  future  from  violating  the  right  to  property.  That 
anterior  to  the  formation  of  the  constitution  a  course  of  legislation  had 
prevailed  in  many,  if  not  in  all,  of  the  states  which  weakened  the 
confidence  of  man  in  man,  and  embarrassed  all  transactions  between, 
individuals  by  dispensing  with  a  faithful  performance  of  engagements. 
To  correct  this  mischief  by  restraining  the  power  which  produced  it 
the  state  legislatures  were  forbidden  "to  pass  any  law  impairing  the 
obligation  of  contracts,"  that  is,  of  contracts  respecting  property  un- 
der which  some  individual  could  claim  a  right  to  something  beneficial 
to  himself,  and  that  since  the  clause  in  the  constitution  must  in  con- 
struction receive  some  limitation,  it  may  be  confined,  and  ought  to  be 
confined,  to  cases  of  this  description,  to  cases  within  the  mischief  it 
was  intended  to  remedy. 

The  general  correctness  of  these  observations  can  not  he  contro- 
verted. That  the  framers  of  the  constitution  did  not  intend  to  re- 
strain the  states  in  the  regulation  of  their  civil  institutions,  adopted  for 
internal  government,  and  that  the  instrument  they  have  given  us  is 
not  to  be  so  construed,  may  be  admitted.  The  provision  of  the  con- 
stitution never  has  been  understood  to  embrace  other  contracts  than 
those  which  respect  property,  or  some  object  of  value,  and  confer 
rights  which  may  be  asserted  in  a  court  of  justice.  It  has  never  been 
understood  to  restrict  the  general  right  of  the  legislature  to  legislate 
on  the  subject  of  divorces.  Those  acts  enable  some  tribunals,  not  to 
impair  a  marriage  contract,  but  to  liberate  one  of  the  parties  because  it 
has  been  broken  by  the  other.  When  any  state  legislature  shall  pass  an 
act  annulling  all  marriage  contracts,  or  allowing  either  party  to  annul 
it  without  the  consent  of  the  other,  it  will  be  time  enough  to  inquire 
whether  such  an  act  be  constitutional. 

The  parties  in  this  case  differ  less  on  general  principles,  less  on  true 
construction  of  the  constitution  in  the  abstract,  than  on  the  application 
of  those  principles  to  this  case,  and  on  the  true  construction  of  the 
charter  of  1769.  This  is  the  point  on  which  the  cause  essentially  de- 
pends. If  the  act  of  incorporation  be  a  grant  of  political  power,  if  it 
create  a  civil  institution  to  be  employed  in  the  administration  of  the 
government,  or  if  the  funds  of  the  college  be  public  property,  or  if 
the  state  of  New  Hampshire,  as  a  government,  be  alone  interested  in 
its  transactions,  the  subject  is  one  in  which  the  legislature  of  the  state 
may  act  according  to  its  own  judgment,  imrestrained  by  any  limita- 
tion of  its  power  imposed  by  the  constitution  of  the  United  States. 


§  198      CONTRACTS  IN  THE  CORPORATE  CHARTER       71I 

But  if  this  be  a  private  eleemosynary  institution,  endowed  with  a 
capacity  to  take  property  for  objects  unconnected  with  government, 
whose  funds  are  bestowed  by  individuals,  on  the  faith  of  the  charter; 
if  the  donors  have  stipulated  for  the  future  disposition  and  manage- 
ment of  those  funds  in  the  manner  prescribed  by  themselves,  there 
may  be  more  difficulty  in  the  case,  although  neither  the  persons  who 
have  made  these  stipulations,  nor  those  for  whose  benefit  they  were 
made,  should  be  parties  to  the  cause.  Those  who  are  no  longer  in- 
terested in  the  property  may  yet  retain  such  an  interest  in  the  preser- 
vation of  their  own  arrangements  as  to  have  a  right  to  insist  that  those 
arrangements  shall  be  held  sacred.  Or,  if  they  have  themselves  dis- 
appeared, it  becomes  a  subject  of  serious  and  anxious  inquiiy,  whether 
those  whom  they  have  legally  empowered  to  represent  them  forever 
may  not  assert  all  the  rights  which  they  possessed  while  in  being ; 
whether,  if  they  be  without  personal  representatives,  who  may  feel 
injured  by  a  violation  of  the  compact,  the  trustees  be  not  so  completely 
their  representatives,  in  the  eye  of  the  law,  as  to  stand  in  their  place, 
not  only  as  respects  the  government  of  the  college,  but  also  as  respects 
the  maintenance  of  the  college  charter.  It  becomes  then  the  duty  of 
the  court  most  seriously  to  examine  this  charter  and  to  ascertain  its 
true  character. 

[Provisions  of  the  charter.]  From  the  instrument  itself,  it  appears 
that  about  the  year  1754  the  Rev.  Eleazer  Wheelock  established,  at 
his  own  expense  and  on  his  own  estate,  a  charity  school  for  the  in- 
struction of  Indians  in  the  Christian  religion.  The  success  of  this 
institution  inspired  him  with  the  design  of  soliciting  contributions  in 
England  for  carrying  on  and  extending  his  undertaking.  In  this  pious 
work  he  employed  the  Rev.  Nathaniel  Whitaker,  who,  by  virtue  of  a 
power  of  attorney  from  Dr.  Wheelock,  appointed  the  Earl  of  Dart- 
mouth and  others  trustees  of  the  money  which  had  been  and  should 
be  contributed ;  which  appointment  Dr.  Wheelock  confirmed  by  a 
deed  of  trust,  authorizing  the  trustees  to  fix  on  a  site  for  the  college. 
They  determined  to  establish  the  school  on  Connecticut  river,  in  the 
western  part  of  New  Hampshire  ;  that  situation  being  supposed  favor- 
able for  carrying  on  the  original  design  among  the  Indians,  and  also 
for  promoting  learning  among  the  English  ;  and  the  proprietors  in  the 
neighborhood  having  made  large  offers  of  land  on  condition  that  the 
college  should  there  be  placed.  Dr.  Wheelock  then  applied  to  the 
crown  for  an  act  of  incorporation ;  and  represented  the  expediency  of 
appointing  those  whom  he  had,  by  his  last  will,  named  as  trustees  in 
America  to  be  members  of  the  proposed  corporation.  "In  consid- 
eration of  the  premises,  for  the  education  and  instruction  of  the  youth 
of  the  Indian  tribes,"  etc.,  "and  also  of  English  youth,  and  any 
others,"  the  charter  was  granted,  and  the  trustees  of  Dartmouth  Col- 
lege were,  by  that  name,  created  a  body  corporate,  with  power,  for 
the  use  of  the  said  college,  to  acquire  real  and  personal  property,  and  to 
pay  the  president,  tutors  and  other  officers  of  the  college  such  salaries 
as  they  shall  allow. 

The  charter  proceeds  to  appoint  Eleazer  Wheelock,  "the  founder  ^of 


712  DARTMOUTH    COLLEGE   V.  WOODWARD.  §   198 

said  college,"  president  thereof,  with  power,  by  his  last  will,  to  ap- 
point a  successor,  who  is  to  continue  in  office  until  disapproved  by 
the  trustees.  In  case  of  vacancy  the  trustees  may  appoint  a  president, 
and  in  case  of  the  ceasing  of  a  president,  the  senior  professor  or  tutor, 
being  one  of  the  trustees,  shall  exercise  the  office  until  an  appoint- 
ment shall  be  made.  The  tnistees  have  power  to  appoint  and  dis- 
place professors,  tutors  and  other  officers,  and  to  supply  any  vacancies 
which  may  be  created  in  their  own  body  by  death,  resignation, 
removal  or  disability;  and  also  to  make  orders,  ordinances  and  laws 
for  the  government  of  the  college,  the  same  not  being  repugnant  to 
the  laws  of  Great  Britain,  or  of  New  Hampshire,  and  not  excluding 
any  person  on  account  of  his  speculative  sentiments  in  religion,  or  his 
being  of  a  religious  profession  different  from  that  of  the  trustees. 
This  charter  was  accepted,  and  the  property,  both  real  and  personal, 
which  had  been  contributed  for  the  benefit  of  the  college,  was  con- 
veyed to,  and  vested  in,  the  corporate  body. 

From  this  brief  leview  of  the  most  essential  parts  of  the  charter,  it 
is  apparent  that  the  funds  of  the  college  consisted  entirely  of  private 
donations.  It  is,  perhaps,  not  very  important  who  were  the  donors. 
The  probability  is,  that  the  Earl  of  Dartmouth  and  the  other  trustees 
in  England  w^ere,  in  fact,  the  largest  contributors.  Yet  the  legal  con- 
clusion, from  the  facts  recited  in  the  charter,  would  probably  be  that 
Dr.  Wheelock  was  the  founder  of  the  college.  The  origin  of  the 
institution  was  undoubtedly  the  Indian  charity  school,  established  by 
Dr.  Wheelock,  at  his  own  expense.  It  was  at  his  instance,  and  to 
enlarge  this  school,  that  contributions  w'ere  solicited  in  England.  The 
person  soliciting  these  contributions  was  his  agent ;  and  the  trustees 
who  received  the  money  were  appointed  by,  and  act  under,  his  author- 
ity. It  is  not  too  much  to  say  that  the  funds  were  obtained  by  him  in 
trust,  to  be  applied  by  him  to  the  purposes  of  his  enlarged  school. 
The  charter  of  incorporation  was  granted  at  his  instance.  The  per- 
sons named  by  him  in  his  last  will  as  the  trustees  of  his  charity  school 
compose  a  part  of  the  corporation,  and  he  is  declared  to  be  the 
founder  of  the  college,  and  its  president  for  life.  Were  the  inquiry 
material,  we  should  feel  some  hesitation  in  saying  that  Dr.  Wheelock 
was  not,  in  law,  to  be  considered  as  the  founder  (i  Bl.  Comm.481)  of 
this  institution,  and  as  possessing  all  the  rights  appertaining  to  that 
character.  But  be  this  as  it  may,  Dartmouth  College  is  really  en- 
dowed by  private  individuals,  who  have  bestowed  their  funds  for  the 
propagation  of  the  Christian  religion  among  the  Indians,  and  for  the 
promotion  of  piety  and  learning  generally.  From  these  funds  the  sala- 
ries of  the  tutors  are  drawn,  and  these  salaries  lessen  the  expense  of 
education  to  the  students.  It  is  then  an  eleemosynary  (i  Bl.  Comm. 
471),  and  so  far  as  respects  its  funds,  a  private,  corporation. 

[Character  of  the  corporation  created.]  Doits  objects  stamp  on  it  a 
different  character?  Are  the  tnistees  and  professors  public  officers, 
invested  with  any  portion  of  political  power,  partaking  in  any  degree 
in  the  administration  of  civil  government,  and  performing  duties  which 
flow  from  the  sovereign  authority?     That  education  is  an  object  of 


§  198      CONTRACTS  IN  THE  CORPORATE  CHARTER.      713 

national  concern,  and  a  proper  subject  of  legislation,  all  admit.  That 
there  maybe  an  institution,  founded  by  government,  and  placed  en- 
tirely under  its  immediate  control,  the  officers  of  which  would  be  pub- 
lic officers,  amenable  exclusively  to  government,  none  will  deny.  But 
is  Dartmouth  College  such  an  institution?  Is  education  altogether 
in  the  hands  of  government?  Does  every  teacher  of  youth  become 
a  public  officer,  and  do  donations  for  the  purpose  of  education  nec- 
essarily become  public  property,  so  far  that  the  will  of  the  legisla- 
ture, not  the  will  of  the  donor,  becomes  the  law  of  the  donation? 
These  questions  are  of  serious  moment  to  society,  and  deserve  to  be 
well  considered. 

Doctor  Wheelock,  as  the  keeper  of  his  charity  school,  instructing 
the  Indians  in  the  art  of  reading  and  in  our  holy  religion,  sustaining 
them  at  his  own  expense,  and  on  the  voluntary  contributions  of  the 
charitable,  could  scarcely  be  considered  as  a  public  officer,  exercising 
any  portion  of  those  duties  which  belong  to  government;  nor  could 
the  legislature  have  supposed  that  his  private  funds,  or  those  given  by 
others,  were  subject  to  legislative  management,  because  they  were  ap- 
plied to  the  purposes  of  education.  When,  afterwards,  his  school 
was  enlarged,  and  the  liberal  contributions  made  in  England  and  in 
America  enabled  him  to  extend  his  care  to  the  education  of  the 
youth  of  his  own  country,  no  change  was  wrought  in  his  own  character 
or  in  the  nature  of  his  duties.  Had  he  employed  assistant  tutors  with  the 
funds  contributed  by  others,  or  had  the  trustees  in  England  established 
a  school,  with  Dr.  Wheelock  at  its  head,  and  paid  salaries  to  him  and 
his  assistants,  they  would  ?till  have  been  private  tutors;  and  the  fact 
that  they  were  employed  in  the  education  of  youth  could  not  have 
converted  them  into  public  officers,  concerned  in  the  administration 
of  public  duties,  or  have  given  the  legislature  a  right  to  interfere  in 
the  management  of  the  fund.  The  trustees,  in  whose  care  that  fund 
was  placed  by  the  contributors,  would  have  been  permitted  to  exe- 
cute their  trust,  uncontrolled  by  legislative  authority. 

Whence,  then,  can  be  derived  the  idea  that  Dartmouth  College  has 
become  a  public  institution,  and  its  trustees  public  officers  exercising 
powers  conferred  by  the  public  for  public  objects  ?  Not  from  the  source 
whence  its  funds  were  drawn ;  for  its  foundation  is  purely  private  and 
eleemosynary — not  from  the  application  of  those  funds ;  for  money 
may  be  given  for  education,  and  the  persons  receiving  it  do  not,  by 
being  employed  in  the  education  of  youth,  become  members  of  the 
civil  government.  Is  it  from  the  act  of  incorporation  ?  Let  this  sub- 
ject be  considered. 

A  cor-poration  is  an  artificial  beings  invisible^  intangible^  and  ex- 
isting only  in  contemplation  of  law.  Being  the  mere  creature  of 
'law.,  it  possesses  only  those  properties  which  the  charter  of  its  crea- 
tion confers  upon  it.  either  expressly  or  as  incidental  to  its  very'  exist- 
ence. These  are  such  as  are  supposed  best  calculated  to  effect  the 
object  for  which  it  was  created.  Among  the  most  important  are  im- 
ynortcility.,  and,  if  the  expression  may  be  allozved,  indi-oiduality ; 
properties  by  which  a  perpetual  succession  of  many  persons  are  con- 


714  DARTMOUTH    COLLEGE   V.  WOODWARD.  §   19S 

sidered  as  the  sanie^  and  may  act  as  a  single  individual.  They  enable 
a  corporation  to  manage  its  own  affairs  and  to  hold  property  -without 
the  perplexing  ifttricacies,  the  hazardous  and  endless  necessity  of  per- 
petual conveyances  for  the  purpose  of  transmitting  it  from  hand  to 
hand.  It  is  chiejly  for  the  purpose  of  clothing  the  bodies  of  men 
in  succession  with  these  qualities  and  capacities  that  corporations 
were  invented  and  are  in  use.  By  these  means  a  perpetual  succession 
of  individuals  are  capable  of  acting  for  the  promotion  of  the  par- 
ticular object.,  like  one  irnmortal  being.  But  this  being  does  not  share 
in  the  civil  government  of  the  country,  unless  that  be  the  purpose  for 
which  It  was  created.  Its  immortality  no  more  confers  on  it  political 
power  or  a  political  character  than  immortality  would'  confer  such 
power  or  character  on  a  natural  person.  It  is  no  more  a  state  instru- 
ment than  a  natural  person  exercising  the  same  powers  would  be.  If, 
then,  a  natural  person  employed  by  individuals  in  the  education  of 
youth  or  for  the  government  of  a  seminary  in  which  youth  is  educated 
would  not  become  a  public  officer  or  be  considered  as  a  member  of 
the  civil  government,  how  is  it  that  this  artificial  being,  created  by. 
law  for  the  purpose  of  being  employed  by  the  same  individuals  for 
the  same  purposes,  should  become  a  part  of  the  civil  government  of 
the  country.?  Is  it  because  its  existence,  its  capacities,  its  powers,  are 
given  by  law?  Because  the  government  has  given  it  the  power  to 
take  and  to  hold  property  in  a  particular  form  and  for  particular  pur- 
poses, has  the  government  a  consequent  right  substantially  to  change 
that  form  or  to  vary  the  purposes  to  which  the  property  is  to  be  ap- 
plied ?  This  principle  has  never  been  asserted  or  recognized,  and  is 
supported  by  no  authority.      Can  it  derive  aid  from  reason  ? 

The  objects  for  which  a  corporation  is  created  are  universally  such 
as  the  government  wishes  to  promote.  They  are  deemed  beneficial 
to  the  country;  and  this  benefit  constitutes  the  consideration,  and  in 
most  cases  the  sole  consideration  of  the  grant.  In  most  eleemosynary 
institutions,  the  object  would  be  difficult,  perhaps  unattainable,  with- 
out the  aid  of  a  charter  of  incorporation.  Charitable  or  public-spirited 
individuals,  desirous  of  making  permanent  appropriations  for  chari- 
table or  other  useful  purposes,  find  it  impossible  to  effect  their  design 
securely  and  certainly  without  an  incorporating  act.  They  apply  to 
the  government,  state  their  beneficent  object,  and  offer  to  advance  the 
money  necessary  for  its  accomplishment,  provided  the  government 
will  confer  on  the  instrument  which  is  to  execute  their  designs  the 
capacity  to  execute  them.  The  proposition  is  considered  and  ap- 
proved. The  benefit  to  the  public  is  considered  as  an  ample  com- 
pensation for  the  faculty  it  confers,  and  the  corporation  is  created.  If 
the  advantages  to  the  public  constitute  a  full  compensation  for  the 
faculty  it  gives,  there  can  be  no  reason  for  exacting  a  further  compen- 
sation, by  claiming  a  right  to  exercise  over  this  artificial  being  a 
power  which  changes  its  nature,  and  touches  the  fund  for  the  security 
and  application  of  which  it  was  created.  There  can  be  no  reason  for 
implying  in   a  charter,  given  for  a  valuable   consideration,  a  power 


§  198      CONTRACTS  IN  THE  CORPORATE  CHARTER.      715 

which  is  not  only  not  expressed,  but   is  in  direct  contradiction   to  its 
express  stipulations. 

From  the  fact,  then,  that  a  charter  of  incorporation  has  been 
granted,  nothing  can  be  inferred  which  changes  the  character  of  the 
institution,  or  transfers  to  the  government  any  new  power  over  it. 
The  character  of  civil  institutions  does  not  grow  out  of  their  incorpo- 
ration, but  out  of  the  manner  in  which  they  are  formed,  and  the  objects 
for  which  they  are  created.  The  right  to  change  them  is  not  founded 
on  their  being  incorporated,  but  on  their  being  the  instruments  of 
government,  created  for  its  purposes.  The  same  institutions,  created 
for  the  same  objectsj  though  not  incorporated,  would  be  public  insti- 
tutions, and,  of  course,  be  controllable  by  the  legislature.  The  in- 
corporating act  neither  gives  nor  prevents  this  control.  Neither,  in 
reason,  can  the  incorporating  act  change  the  character  of  a  private 
eleemosynary  institution. 

We  are  next  led  to  the  inquiiy  for  whose  benefit  the  property  given 
to  Dartmouth  College  was  secured?  The  counsel  for  the  defendant 
have  insisted  that  the  beneficial  interest  is  in  the  people  of  New 
Hampshire.  The  charter,  after  reciting  the  preliminary  measures 
which  had  been  taken,  and  the  application  for  an  act  of  incorpora- 
tion, proceeds  thus:  "Know  ye,  therefore,  that  we,  considering  the 
premises,  and  being  willing  to  encourage  the  laudable  and  charitable 
design  of  spreading  Christian  knowledge  among  the  savages  of  our 
American  wilderness,  and  also  that  the  best  means  of  education  be 
established  in  our  province  of  New  Hampshire,  for  the  benefit  of 
said  province,  do  of  our  special  grace,"  etc.  Do  these  expressions 
bestow  on  New  Hampshire  any  exclusive  right  to  the  property  of  the 
college,  any  exclusive  interest  in  the  labors  of  the  professors?  Or  do 
they  merely'indicate  a  willingness  that  New  Hampshire  should  enjoy 
those  advantages  which  result  to  all  from  the  establishment  of  a  semi- 
nary of  learning  in  the  neighborhood?  On  this  point,  we  think  it  im- 
possible to  entertain  a  serious  doubt.  The  words  themselves,  unex- 
plained by  the  context,  indicate  that  the  "benefit  intended  for  the" 
province"  is  that  which  is  derived  from  "establishing  the  best  means 
of  education  therein,"  that  is,  from  establishing  in  the  province 
Dartmouth  College,  as  constituted  by  the  charter.  But  if  these 
words,  considered  alone,  could  admit  of  doubt,  that  doubt  is  com- 
pletely removed  by  an  inspection  of  the  entire  instrument. 

The  particular  interests  of  New  Hampshire  never  entered  into  the 
minds  of  the  donors,  never  constituted  a  motive  for  their  donation. 
The  propagation  of  the  Christian  religion  among  the  savages,  and  the 
dissemination  of  useful  knowledge  among  the  youth  of  the  country, 
were  the  avowed  and  the  sole  objects  of  their  contributions.  In  these 
New  Hampshire  would  participate,  but  nothing  particular  or  exclu- 
sive was  intended  for  her.  Even  the  site  of  the  college  was  selected, 
not  for  the  sake  of  New  Hampshire,  but  becacse  it  was  "most  sub- 
servient to  the  great  ends  in  view,"  and  because  liberal  donations  of 
land  were  offered  by  the  proprietors,  on  condition  that  the  institution 
should  be  there  established.     The  real  advantages  from  the  location 


7l6  DARTMOUTH    COLLEGE   V.  WOODWARD.  §   198 

of  the  college  are,  perhaps,  not  less  considerable  to  those  on  the  west 
than  to  those  on  the  east  side  of  Connecticut  river.  The  clause 
which  constitutes  the  incorporation,  and  expresses  the  object  for 
which  it  was  made,  declares  those  objects  to  be  the  instruction  of  the  . 
Indians,  "and  also  of  English  youth,  and  any  others."  So  that  the 
objects  of  the  contributors,  and  the  incorporating  act,  were  the  same ; 
the  promotion  of  Christianity,  and  of  education  generally,  not  the  in- 
terests of  New  Hampshire  particularly. 

From  this  review  of  the  charter  it  appears  that  Dartmouth  College 
is  an  eleemosynary  institution,  incoi-porated  for  the  purpose  of  per- 
petuating the  application  of  the  bounty  of  the  donors  to  the  specified 
objects  of  that  bounty;  that  its  trustees  or  governors  were  originally 
named  by  the  founder  and  invested  with  the  power  of  perpetuating 
themselves ;  that  they  are  not  public  officers  ;  nor  is  it  a  civil  institu- 
tion, participating  in  the  administration  of  government,  but  a  charity 
school,  or  a  seminary  of  education,  incorporated  for  the  preservation 
of  its  property  and  the  perpetual  application  of  that  property  to  the 
objects  of  its  creation. 

y  [Rig-ht  of  trustees  to  complain.]  Yet  a  question  remains  to  be  consid- 
ered, of  more  real  difficulty,  on  which  more  doubt  has  been  entertained 
than  on  all  that  have  been  discussed.  The  founders  of  the  college, 
at  least  those  whose  contributions  were  in  money,  have  parted  with 
the  property  bestowed  upon  it,  and  their  representatives  have  no  in- 
terest in  that  property.  The  donors  of  land  are  equally  without 
interest  so  long  as  the  corporation  shall  exist. 

Could  they  be  found,  they  are  unaffected  by  any  alteration  in  its 
constitution,  and  probably  regardless  of  its  form,  or  even  of  its  exist- 
ence. The  students  are  fluctuating,  and  no  individual  among  our 
youth  has  a  vested  interest  in  the  institution  which  can  be  asserted  in 
a  court  of  justice.  Neither  the  founders  of  the  college,  nor  the  youth 
for  whose  benefit  it  was  founded,  complain  of  the  alteration  made  in 
its  charter,  or  think  themselves  injured  by  it.  The  trustees  alone 
complain,  and  the  trustees  have  no  beneficial  interest  to  be  protected. 
Can  this  be  such  a  contract  as  the  constitution  intended  to  withdraw 
from  the  power  of  state  legislation  ?  Contracts,  the  parties  to  which 
have  a  vested  beneficial  interest,  and  those  only,  it  has  been  said,  are 
the  objects  about  which  the  constitution  is  solicitous,  and  to  which  its 
protection  is  extended. 

The  court  has  bestowed  on  this  argument  the  most  deliberate  con- 
sideration, and  the  result  will  be  stated.  Dr.  Wheelock,  acting  for 
himself  and  for  those  who,  at  his  solicitation,  had  made  contribvitions 
to  his  school,  applied  for  this  charter,  as  the  instrument  which  should 
enable  him  and  them  to  perpetuate  their  beneficent  intention.  It  was 
granted.  An  artificial,  immortal  being  was  created  by  the  crown, 
capable  of  receiving  and  distributing  forever,  according  to  the  will  of 
the  dqnors,  the  donations  which  should  be  made  to  it.  On  this  being  the 
conti^ibutions  which  had  been  collected  were  immediately  bestowed. 
These  gifts  were  made,  not  indeed  to  make  a  profit  for  the  donors  or 
their  posterity,  but  for   something,  in  their   opinion,    of  inestimable 


§  198      CONTRACTS  IN  tHE  CORPORATE  CHARTER.      717 

value  ;  for  something  which  they  deemed  a  full  equivalent  for  the 
money  with  which  it  was  purchased.  The  consideration  for  which  they 
stipulated  is  the  perpetual  application  of  the  fund  to  its  object,  in  the 
mode  prescribed  by  themselves.  Their  descendants  may  take  no  in- 
terest in  the  presei*vation  of  this  consideration.  But  in  this  respect 
their  descendants  are  not  their  representatives ;  they  are  represented 
by  the  corporation.  The  corporation  is  the  assignee  of  their  rights, 
stands  in  their  place,  and  distributes  their  bounty  as  they  would  them- 
selves have  distributed  it  had  they  been  immortal.  So,  with  respect 
to  the  students  who  are  to  derive  learning  from  this  source,  the  cor- 
poration is  a  tiustee  for  them  also.  Their  potential  rights,  which, 
taken  distributively,  are  imperceptible,  amount  collectively  to  a  most 
important  interest.  These  are,  in  the  aggregate,  to  be  exercised,  as- 
serted and  protected  by  the  corjDoration.  They  were  as  completely 
out  of  the  donors,  at  the  instant  of  their  being  vested  in  the  corpora- 
tion, and  as  incapable  of  being  asserted  by  the  students,  as  at  present. 

According  to  the  theory  of  the  British  constitution,  their  parliament 
is  omnipotent.  To  annul  corporate  rights  might  give  a  shock  to  pub- 
lic opinion  which  that  government  has  chosen  to  avoid,  but  its  power 
is  not  questioned.  Had  parliament,  immediately  after  the  emanation 
of  this  charter  and  the  execution  of  those  conveyances  which  followed 
it,  annulled  the  instrument,  so  that  the  living  donors  would  have  wit- 
nessed the  disappointment  of  their  hopes,  the  perfidy  of  the  trans- 
action would  have  been  universally  acknowledged.  Yet  then,  as  now, 
the  donors  would  have  no  interest  in  the  pi'operty ;  then,  as  now, 
those  who  might  be  students  would  have  had  no  rights  to  be  violated  ; 
then,  as  now,  it  might  be  said  that  the  trustees,  in  whom  the  rights  of 
all  were  combined,  possessed  no  private,  individual,  beneficial  in- 
terests in  the  property  confided  to  their  protection.  Yet  the  contract 
would,  at  that  time,  have  been  deemed  sacred  by  all.  What  has  since 
occurred  to  strip  it  of  its  inviolability?  Circumstances  have  not 
changed  it.  In  reason,  in  justice  and  in  law,  it  is  now  what  it  w'as 
in  1769. 

This  is  plainly  a  contract  to  which  the  donors^  the  trustees  and  the 
crown  (to  whose  rights  and  obligations  New  Hampshire  succeeds) 
were  the  original  parties.  It  is  a  contract  made  on  a  valuable  con- 
sideration. It  is  a  contract  for  the  security  and  disposition  of  prop- 
erty.  It  is  a  contract  on  the  faith  of  which  real  and  personal  estate 
has  been  conveyed  to  the  corporation.  It  is,  then,  a  contract  within 
the  letter  of  the  constitution,  and  within  its  spirit  also,  unless  the 
fact  that  the  property  is  invested  by  the  donors  in  trustees  for  the  pro- 
motion of  religion  and  education,  for  the  benefit  of  persons  who  are 
perpetually  changing,  though  the  objects  remain  the  same,  shall  cre- 
ate a  particular  exception,  taking  this  case  out  of  the  prohibition 
contained  in  the  constitution. 

[Method  of  interpreting-  the  constitutional  provision.]  It  is  more  than 
possible  that  the  preservation  of  rights  of  this  description  was  not 
particularly  in  the  view  of  the  framers  of  the  constitution  when  the 
clause  under  consideration  was  introduced  into  that  instrument.     It  is 


7l8  DARTMOUTH    COLLEGE   V'.  WOODWARD,  §   1 98 

probable  that  interferences  of  more  frequent  occuiTence,  to  which  the 
temptation  was  stronger,  and  of  which  the  mischief  was  more  exten- 
sive, constituted  the  great  motive  for  imposing  this  restriction  on  the 
state  legislatures.  But  although  a  particular  and  a  rare  case  may  not, 
in  itself,  be  of  sufficient  magnitude  to  induce  a  rule,  yet  it  must  be 
governed  by  the  rule,  when  established,  unless  some  plain  and  strong 
reason  for  excluding  it  can  be  given.  It  is  not  enough  to  say  that  this 
particular  case  was  not  in  the  mind  of  the  convention  when  the  article 
was  framed,  nor  of  the  American  people  when  it  was  adopted.  It  is 
necessary  to  go  further  and  to  say  that  had  this  particular  case  been 
suggested  the  language  would  have  been  so  varied  as  to  exclude  it,  or 
it  would  have  been  made  a  special  exception.  The  case  being  within 
the  words  of  the  rule  must  be  within  its  operation  likewise,  unless 
there  be  something  in  the  literal  construction  so  obviously  absurd,  or 
mischievous,  or  repugnant  to  the  general  spirit  of  the  instrument, 
as  to  justify  those  who  expound  the  constitution  in  making  it  an  ex- 
ception. 

On  what  safe  and  intelligible  ground  can  this  exception  stand.? 
There  is  no  expression  in  the  constitution,  no  sentiment  delivered  by 
its  contemporaneous  expounders,  which  would  justify  us  in  making  it. 
In  the  absence  of  all  authority  of  this  kind,  is  there,  in  the  nature  and 
reason  of  the  case  itself,  that  which  wovild  sustain  a  construction  of  the 
constitution  not  warranted  by  its  words .''  Are  contracts  of  this  descrip- 
tion of  a  character  to  excite  so  little  interest  that  we  must  exclude 
them  from  the  provisions  of  the  constitution  as  being  unworthy  of  the 
attention  of  those  who  framed  the  instrument.?  Or  does  public  policy 
so  imperiously  demand  their  remaining  exposed  to  legislative  altera- 
tion as  to  compel  us,  or  rather  permit  us,  to  say  that  these  words, 
which  were  introduced  to  give  stability  to  contracts,  and  which,  in 
their  plain  import  comprehend  this  contract,  must  yet  be  so  construed 
as  to  exclude  it.? 

Almost  all  eleemosynary  corporations,  those  which  are  created  for 
the  promotion  of  religion,  of  charity,  or  of  education,  are  of  the  same 
character.  The  law  of  this  case  is  the  law  of  all.  In  every  literary 
or  charitable  institution,  unless  the  objects  of  the  bounty  be  themselves 
incorporated,  the  whole  legal  interest  is  in  trustees,  and  can  be  as- 
serted only  by  them.  The  donors,  or  claimants  of  the  bounty,  if  they 
can  appear  in  court  at  all,  can  appear  only  to  complain  of  the  trustees. 
In  all  other  situations  they  are  identified  with,  and  personated  by,  the 
trustees;  and  their  rights  are  to  be  defended  and  maintained  by  them. 
Religion,  charity  and  education  are,  in  the  law  of  England,  legatees 
or  donees,  capable  of  receiving  bequests  or  donations  in  this  form. 
They  appear  in  court  and  claim  or  defend  by  the  corporation.  Are 
they  of  so  little  estimation  in  the  United  States  that  contracts  for  their 
benefit  must  be  excluded  from  the  protection  of  words,  which  in  their 
natural  import  include  them?  Or  do  such  contracts  so  necessarily 
require  new  modeling  by  the  authority  of  the  legislature  that  the  ordi- 
nary rules  of  construction  must  be  disregarded  in  order  to  leave  them 
exposed  to  legislative  alteration  ? 


§  198      CONTRACTS  IN  THE  CORPORATE  CHARTER.      719 

All  feel  that  these  objects  are  not  deemed  unia^ortant  in  the 
United  States.  The  interest  which  this  case  has  excited  proves  that 
they  are  not.  The  framers  of  the  constitution  did  not  deem  them  un- 
worthy of  its  care  and  protection.  They  have,  though  in  a  different 
mode,  manifested  their  respect  for  science  by  reserving  to  the  govern- 
ment of  the  Union  the  power  "to  promote  the  progress  of  science  and 
useful  arts  by  securing  for  limited  times  to  authors  and  inventors  the 
exclusive  right  to  their  respective  writings  and  discoveries."  They 
have,  so  far,  withdrawn  science  and  the  useful  arts  from  the  action  of 
the  state  governments.  Why,  then,  should  they  be  supposed  so 
regardless  of  contracts  made  for  the  advancement  of  literature,  as  to 
intend  to  exclude  them  from  provisions  made  for  the  security  of  ordi- 
nary contracts  between  man  and  man.''  No  reason  for  making  this 
supposition  is  perceived. 

If  the  insignificance  of  the  object  does  not  require  that  we  should 
exclude  contracts  respecting  it  from  the  protection  of  the  constitution ; 
neither,  as  we  conceive,  is  the  policy  of  leaving  them  subject  to  legis- 
lative alteration  so  apparent  as  to  require  a  forced  construction  of 
that  instrument  in  order  to  effect  it.  These  eleemosynary  institu- 
tions do  not  fill  the  place  which  would  otherwise  be  occupied  by 
government,  but  that  which  would  otherwise  remain  vacant.  They 
are  complete  acquisitions  to  literature.  They  are  donations  to  educa- 
tion ;  donations  which  any  government  must  be  disposed  rather  to 
encourage  than  to  discountenance.  It  requires  no  very  critical  exami- 
nation of  the  human  mind  to  enable  us  to  determine  that  one  great 
inducement  to  these  gifts  is  the  conviction  felt  by  the  giver  that  the 
disposition  he  makes  of  them  is  immutable.  It  is  probable  that  no 
man  ever  was,  and  that'no  man  ever  will  be,  the  founder  of  a  college, 
believing  at  the  time  that  an  act  of  incorporation  constitutes  no 
security  for  the  institution ;  believing  that  it  is  immediately  to  be 
deemed  a  public  institution,  whose  funds  are  to  be  governed  and  ap- 
plied, not  by  the  will  of  the  donor,  but  by  the  will  of  the  legislature. 
All  such  gifts  are  made  in  the  pleasing,  perhaps  delusive,  hope,  that 
the  charity  will  flow  forever  in  the  channel  which  the  givers  have 
marked  out  for  it.  If  every  man  finds  in  his  own  bosom  strong  evi- 
dence of  the  universality  of  this  sentiment,  there  can  be  but  little  rea- 
son to  imagine  that  the  framers  of  our  constitution  were  strangers 
to  it,  and  that,  feeling  the  necessity  and  policy  cf  giving  permanence 
and  security  to  contracts,  of  withdrawing  them  from  the  influence  of 
legislative  bodies,  whose  fluctuating  policy  and  repeated  interfer- 
ences produced  the  most  perplexing  and  injurious  embarrassments, 
they  still  deemed  it  necessary  to  leave  these  contracts  subject  to  those 
interferences.  The  motives  for  such  an  exception  must  be  very 
powerful  to  justify  the  construction  which  makes  it. 
3^  [Reasons  sug-gested  for  making  an  exception  of  such  corporations.]  The 
motives  suggested  at  the  bar  grow  out  of  the  original  appointment  of 
the  trustees,  which  is  supposed  to  have  been  in  a  spirit  hostile  to  the 
genius  of  our  government,  and  the  presumption,  that  if  allowed  to 
continue  themselves,  they  now  are,   and  must  remain  forever,  what 


720  DARTMOUTH    COLLEGE   V.    WOODWARD.   "  §   1 98 

they  originally  were.  Hence  is  inferred  the  necessity  of  applying  to 
this  corporation,  and  to  other  similar  corporations,  the  correcting  and 
improving  hand  of  the  legislature.  It  has  been  urged  repeatedly, 
and  certainly  with  a  degree  of  earnestness  which  attracted  attention, 
that  the  trustees,  deriving  their  power  from  a  regal  source,  must, 
necessarily,  partake  of  the  spirit  of  their  origin ;  and  that  their  first 
principles,  unimproved  by  that  resplendent  light  which  has  been  shed 
around  them,  must  continue  to  govern  the  college  and  to  guide  the 
students. 

Before  we  inquire  into  the  influence  which  this  arguinent  ought  to 
have  on  the  constitutional  question,  it  may  not  be  amiss  to  examine 
the  fact  on  which  it  rests.  The  first  trustees  were  undoubtedly 
named  in  the  charter  by  the  crown ;  but  at  whose  suggestion  were 
they  named.?  By  whom  were  they  selected?  The  charter  informs  us. 
Dr.  Wheelock  had  represented  "that  for  many  weighty  reasons  it 
would  be  expedient  that  the  gentlemen  whom  he  had  already  nomi- 
nated, in  his  last  will,  to  be  trustees  in  America  should  be  of  the  cor- 
poration now  proposed."  When,  afterwards,  the  tixistees  are  named 
in  the  charter,  can  it  be  doubted  that  the  persons  mentioned  by  Dr. 
Wheelock  in  his  will  were  appointed?  Some  were  probably  added 
by  the  crown,  with  the  approbation  of  Dr.  Wheelock.  Among  these 
is  the  doctor  himself.  If  any  others  wei^e  appointed  at  the  instance  of 
the  crown,  they  are  the  governor,  three  members  of  the  council  and 
the  speaker  of  the  house  of  representatives  of  the  colony  of  New 
Hampshire.  The  stations  filled  by  these  persons  ought  to  rescue  them 
from  any  other  imputation  than  too  great  a  dependence  on  the  crown. 
If,  in  the  revolution  that  followed,  they  acted  under  the  influence  of 
this  sentiment,  they  must  have  ceased  to  be  trustees;  if  they  took  part 
with  their  countrymen,  the  imputation,  which  suspicion  might  ex- 
cite, would  no  longer  attach  to  them.  The  original  tnistees,  then,  or 
most  of  them,  were  named  by  Dr.  Wheelock,  and  those  who  were 
added  to  his  nomination,  most  probably  with  his  approbation,  were 
among  the  most  eminent  and  respectable  individuals  in  New  Hamp- 
shire. 

The  only  evidence  which  we  possess  of  the  character  of  Dr.  Whee- 
lock is  furnished  by  this  charter.  The  judicious  means  employed  for 
the  accomplishinent  of  his  object,  and  the  success  which  attended  his 
endeavors,  would  lead  to  the  opinion  that  he  united  a  sound  under- 
standing to  that  humanity  and  benevolence  which  suggested  his  un- 
dertaking. It  surely  can  not  be  assumed  that  his  trustees  were  selected 
without  judgment.  With  as  little  probability  can  it  be  assumed,  that 
while  the  light  of  science  and  of  liberal  principles  penades  the  whole 
community,  these  originalU"^  benighted  trustees  remain  in  utter  dark- 
ness, incapable  of  participating  in  the  general  improvement ;  that 
while  the  human  race  is  rapidly  advancing,  they  are  stationary.  Rea- 
soning a  priori,  we  should  believe,  that  learned  and  intelligent  men, 
selected  by  its  patrons  for  "the  government  of  a  literary  institution, 
would  select  learned  and  intelligent  men  for  their  successors ;  men  as 
well  fitted  for  the   government   of  a  college  as  those  who  might  be 


§  1 98      CONTRACTS  IN  THE  CORPORATE  CHARTER.      72 1 

chosen  by  other  means.  Should  this  reasoning  ever  prove  erroneous, 
in  a  particular  case,  public  opinion,  as  has  been  stated  at  the  bar, 
would  correct  the  institution.  The  mere  possibility  of  the  contrary 
would  not  justify  a  construction  of  the  constitution  which  should  ex- 
clude these  contracts  from  the  protection  of  a  provision  whose  terms 
comprehend  them. 

The  opinion  of  the  court,  after  mature  deliberation,  is  that  this  is  a 
contract,  the  obligation  of  which  can  not  be  impaired  without  violating 
the  constitution  of  the  United  States.  This  opinion  appears  to  us  to 
be  equally  supported  by  reason  and  by  the  former  decisions  of  this 
court. 

2.  [Impairment  of  the  oblig-ation  of  this  contract.]  We  next  proceed 
to  the  inquiry  whether  its  obligation  has  been  impaired  by  those  acts 
of  the  legislature  of  New  Hampshire  to  which  the  special  verdict  re- 
fers ? 

From  the  review  of  this  charter  which  has  been  taken  it  appears 
that  the  whole  power  of  governing  the  college,  of  appointing  and  re- 
moving tutors,  of  fixing  their  salaries,  of  directing  the  course  of  study 
to  be  pursued  by  the  students  and  of  filling  up  vacancies  created  in 
their  own  body,  was  vested  in  the  trustees.  On  the  part  of  the  crown 
it  was  expressly  stipulated  that  this  corporation  thus  constituted  should 
continue  forever,  and  that  the  number  of  trustees  should  forever  con- 
sist of  twelve,  and  no  more.  By  this  contract  the  crown  was  bound, 
and  could  have  made  no  violent  alteration  in  its  essential  terms  with- 
out impairing  its  obligation. 

[Effect  of  the  American  revolution.]  By  the  revolution  the  duties,  as  well 
as  the  powers,  of  government  devolved  on  the  people  of  New  Hamp- 
shire. It  is  admitted  that  among  the  latter  was  comprehended  the 
transcendent  power  of  parliament,  as  well  as  that  of  the  executive  de- 
partment. It  is  too  clear  to  require  the  support  of  argument  that  all 
contracts  and  rights  respecting  property  remained  unchanged  by  the 
revolution.  The  obligations  then  which  were  created  by  the  charter 
to  Dartmouth  College  were  the  same  in  the  new  that  they  had  been 
in  the  old  government.  The  power  of  the  government  was  also  the 
same.  A  repeal  of  this  charter,  at  any  time  prior  to  the  adoption  of 
the  present  constitution  of  the  United  States,  would  have  been  an  ex- 
traordinary and  unprecedented  act  of  power,  but  one  which  could 
have  been  contested  only  by  the  restrictions  upon  the  legislature  to  be 
found  in  the  constitution  of  the  state.  But  the  constitution  of  the  United 
States  has  imposed  this  additional  limitation,  that  the  legislature  of  a 
state  shall  pass  no  act  "impairing  the  obligation  of  contracts." 

It  has  been  already  stated  that  the  act  to  "amend  the  charter,  and 
enlarge  and  improve  the  corporation  of  Dartmouth  College,"  in- 
creases the  number  of  trustees  to  twenty-one,  gives  the  appointment 
of  the  additional  members  to  the  executive  of  the  state,  and  creates  a 
board  of  overseers,  to  consist  of  twenty-five  persons,  of  whom  twenty- 
one  are  also  appointed  by  the  executive  of  New  Hampshire,  who  have 
power  to  inspect  and  control  the  most  important  acts  of  the  trustees. 

46— WiL.  Cases. 


722  DARTMOUTH    COLLEGE   V.  WOODWARD.  §   1 98 

[Effectol  an  act  to  amend  the  charter.]  On  the  effect  of  this  law,  two 
opinions  can  not  be  entertained.  Between  acting  directly,  and  acting 
through  the  agency  of  trustees  and  overSeers,  no  essential  difference  is 
perceived.  The  whole  power  of  governing  the  college  is  transferred 
from  trustees,  appointed  according  to  the  will  of  the  founder  ex- 
pressed in  the  charter,  to  the  executive  of  New  Hampshire.  The 
management  and  application  of  the  funds  of  this  eleemosynaiy  insti- 
tution, which  are  placed  by  the  donors  in  the  hands  of  trustees  named 
in  the  charter,  and  empowered  to  perpetuate  themselves,  are  placed 
by  this  act  under  the  control  of  the  government  of  the  state.  The  will 
of  the  state  is  substituted  for  the  will  of  the  donors  in  every  essential 
operation  of  the  college.  This  is  not  an  immaterial  change.  The 
founders  of  the  college  contracted  not  merely  for  the  perpetual  appli- 
cation of  the  funds  which  they  gave  to  the  objects  for  which  those  funds 
were  given  ;  they  contracted  also  to  secure  that  application  by  the  con- 
stitution of  the  corporation.  They  contracted  for  a  system  which 
should,  so  far  as  human  foresight  can  provide,  retain  forever  the  gov- 
ernment of  the  literary  institution  they  had  formed  in  the  hands  of 
persons  approved  by  themselves.  This  system  is  totally  changed. 
The  charter  of  1769  exists  no  longer.  It  is  reorganized,  and  reorgan- 
ized in  such  a  manner  as  to  convert  a  literary  institution,  molded 
according  to  the  will  of  its  founders,  and  placed  under  the  control  of 
private  literary  men,  into  a  machine  entirely  subservient  to  the  will  of 
government.  This  may  be  for  the  advantage  of  this  college  in  partic- 
ular, and  may  be  for  the  advantage  of  literature  in  general ;  but  it  is 
not  according  to  the  will  of  the  donors,  and  is  subversive  of  that  con- 
tract on  the  faith  of  which  their  property  was  given. 

In  the  view  -which  has  been  taken  of  this  interesting  case,  the  court 
has  confined  itself  to  the  rights  possessed  by  the  trustees  as  the  assign- 
ees and  representatives  of  the  donors  and  founders  for  the  benefit 
of  religion  and  literature.  Yet,  it  is  not  clear  that  the  tnastees  ought 
to  be  considered  as  destitute  of  such  beneficial  interest  in  themselves 
as  the  law  may  respect.  In  addition  to  their  being  the  legal  owners 
of  the  property,  and  to  their  having  a  freehold  right  in  the  powers 
confided  to  them,  the  charter  itself  countenances  the  idea  that  trustees 
may  also  be  tutors  with  salaries.  The  first  president  was  one  of  the 
original  trustees ;  and  the  charter  provides  that  in  case  of  vacancy  in 
that  office,  "the  senior  professor  or  tutor,  being  one  of  the  trustees, 
shall  exercise  the  office  of  president  until  the  trustees  shall  make 
choice  of  and  appoint  a  president."  According  to  the  tenor  of  the 
charter,  then,  the  trustees  might,  without  impropriety,  appoint  a  pres- 
ident and  other  professors  from  their  own  body.  This  is  a  power  not 
entirely  unconnected  with  an  interest.  Even  if  the  proposition  of  the 
counsel  for  the  defendant  were  sustained ;  if  it  were  admitted  that 
those  contracts  only  are  protected  by  the  constitution,  a  beneficial  in- 
terest in  which  is  vested  in  the  party  who  appears  in  court  to  assert 
that  interest,  yet  it  is  by  no  means  clear  that  the  trustees  of  Dart- 
mouth College  have  no  beneficial  interest  in  themselves.  But  the 
court  has  deemed  it  unnecessary  to  investigate  this  particular  point. 


§  198      CONTRACTS  IN  THE  CORPORATE  CHARTER.      723 

being  of  opinion,  on  general  principles,  that  in  these  private  eleemosy- 
nary institutions,  the  body  corporate,  as  possessing  the  whole  legal 
and  equitable  interest,  and  completely  representing  the  donors,  for  the 
purpose  of  executing  the  trust,  has  rights  which  are  protected  by  the 
constitution. 

It  results  from  this  opinion,  that  the  acts  of  the  legislature  of  New 
Hampshire,  which  are  stated  in  the  special  verdict  found  in  this  cause, 
are  repugnant  to  the  constitution  of  the  United  States ;  and  that  the 
judgment  on  this  special  verdict  ought  to  have  been  for  the  plaintiffs. 
The  judgment  of  the  state  court  must,  therefore,  be  reversed. 

Washington,  Justice.  *  *  *  i.  [What  is  a  contract?]  It  may  be 
-defined  to  be  a  transaction  between  two  or  more  persons,  in  which  each 
party  comes  under  an  obligation  to  the  other,  and  each  reciprocally  ac- 
quires a  right  to  whatever  is  promised  by  the  other.  Powell  on  Cont.  6. 
Under  this  definition,  says  Mr.  Powell,  it  is  obvious  that  every  feoff- 
ment, gift,  grant,  agreement,  promise,  etc.,  may  be  included,  because 
in  all  there  is  a  mutual  consent  of  the  minds  of  the  parties  concerned 
in  them  upon  an  agreement  between  them  respecting  some  property 
or  right  that  is  the  object  of  the  stipulation.  He  adds,  that  the  ingre- 
dients requisite  to  form  a  contract  are,  parties,  consent  and  an  obliga- 
tion to  be  created  or  dissolved ;  these  must  all  concur,  because  the 
regular  effect  of  all  contracts  is,  on  one  side,  to  acquire,  and  on  thfc 
other  to  part  with,  some  property  or  rights;  or  to  abridge,  or  to  re- 
strain natural  liberty,  by  binding  the  parties  to  do,  or  restraining  them 
from  doing  something  which  before  they  might  have  done  or  omitted. 
If  a  doubt  could  exist  that  a  grant  is  a  contract,  the  point  was  decided  in 
the  case  of  Fletcher  v.  Peck,  6  Cranch  87,  in  which  it  was  laid  down  that 
a  contract  is  either  executory  or  executed;  by  the  former,  a  party  binds 
himself  to  do,  or  not  to  do,  a  particular  thing;  the  latter  is  one  in 
which  the  object  of  the  contract  is  performed,  and  this  differs  in  noth- 
ing from  a  grant ;  but  whether  executed  or  executory,  they  both  con- 
tain obligations  binding  on  the  parties,  and  both  are  equally  within 
the  provisions  of  the  constitution  of  the  United  States,  which  forbids 
thie  state  governments  to  pass  laws  impairing  the  obligation  of  con- 
tracts. 

If,  then,  a  grant  be  a  contract,  within  the  meaning  of  the  constitu- 
tion of  the  United  States,  the  next  inquiry  is,  whether  the  creation  of 
a  corporation  by  charter  be  such  a  grant  as  includes  an  obligation  of 
the  nature  of  a  contract,  which  no  state  legislature  can  pass  laws  to 
impair?  A  corporation  is  defined  by  Mr.  justice  Blackstone  (2  Bl. 
Comtn.  sj")  to  be  a  franchise,  h  is,  says  he,  '■'•a  franchise  for  a 
number  of  -persons,  to  be  incorporated  and  exist  as  a  body  politic,  with 
a  power  to  maintain  perpetual  succession.,  and  to  do  corporate  acts^ 
and  each  individual  of  such  corporation  is  also  said  to  have  a  fran- 
chise or  freedom.''^  This  franchise,  like  other  franchises,  is  an  in- 
corporeal hereditament,  issuing  out  of  something  real  or  personal,  or 
concerning  or  annexed, to,  and  exercisable  -within  a  thing  corporate. 
To  this  grant,  or  this  franchise,  the  parties  are  the  king  and  the 
persons  for  whose  benefit  it  is  created,  or  trustees  for  them.      The 


724  DARTMOUTH    COLLEGE    V.   WOODWARD,  §   19S 

assent  of  both  is  necessary.  The  subjects  of  the  grant  are  not  only 
privileges  and  immunities.,  but  property^  or^  which  is  the  same  things 
a  capacity  to  acquire  and  to  hold  property  in  perpetuity .  Certain 
obligations  are  created.,  binding  both  on  the  grantor  and  the  grantees. 
On  the  part  of  the  former.,  it  amounts  to  an  extinguishment  of  the 
king' s  prerogative  to  bestow  the  same  identical  franchise  on  another 
corporate  body.,  because  it  would  prejudice  his  prior  grant,  (2  Bl. 
Comm.  37.)  Jt  implies,  therefore.,  a  contract  not  to  reassert  the  right 
to  grant  the  franchise  to  another.,  or  to  impair  it.  There  is  also  an 
implied  contract  that  the  founder  of  a  private  charity,  or  his  heirs,  or 
other  persons  appointed  by  him  for  that  purpose,  shall  have  the  right 
to  visit  and  to  govern  the  corporation  of  which  he  is  the  acknowledged 
founder  and  patron,  and  also,  that  in  case  of  its  dissolution  the  re- 
versionary right  of  the  founder  to  the  property,  with  which  he  had 
endowed  it,  should  be  preserved  inviolate. 

The  rights  acquired  by  the  other  contracting  party  are  those  of 
having  perpetual  succession.,  of  suing  and  being  sued.,  of  purchasing 
lands  for  the  benefit  of  themselves  and  their  successors,  and  of  having 
a  common  seal  and  of  making  by-laws.  The  obligation  imposed  upon 
them.,  and  which  forfns  the  consideration  of  the  grant.,  is  that  of 
acting  up  to  the  end  or  design  for  which  they  were  created  by  their 
founder.  Mr.  Justice  Buller,  in  the  case  of  the  King  v.  Pasmore,  3 
T.  R.  246,  says  that  the  grant  of  incorporation  is  a  compact  between 
the  crown  and  a  number  of  persons,  the  latter  of  whom  undertake,  in 
consideration  of  the  privileges  bestowed,  to  exert  themselves  for  the 
good  government  of  the  place.  If  they  fail  to  perform  their  part  of 
it  there  is  an  end  of  the  compact.  The  charter  of  a  corporation,  says 
Mr.  Justice  Blackstone  (2  Bl.  Comm.  484),  maybe  forfeited  through 
negligence  or  abuse  of  its  franchises,  in  which  case  the  law  judges 
that  the  body  politic  has  broken  the  condition  upon  which  it  was  in- 
corporated, and  thereupon  the  corporation  is  void.  It  appears  to  me, 
upon  the  whole,  that  these  principles  and  authorities  prove,  incontro- 
vertibly,  that  a  charter"  of  incorporation  is  a  contract. 

2.  [Impairment  ol  this  contract.]  The  next  question  is,  do  the  acts 
of  the  legislature  of  New  Hampshire  of  the  27th  of  June  and  i8th 
and  26th  of  December,  1816,  impair  this  contract  within  the  true  in- 
tent and  meaning  of  the  constitution  of  the  United  States?  Previous 
to  the  examination  of  this  question,  it  will  be  proper  clearly  to  mark 
the  distinction  between  the  different  kinds  of  lay  aggregate  corpora- 
tions, in  order  to  prevent  any  implied  decision  by  this  court  of  any 
other  case  than  the  one  immediately  before  it. 

We  are  informed  by  the  case  of  Philips  v.  Bury,  i  Ld.  Raym.  5 ; 
s.  c.  2  T.  R.  346,  which  contains  all  the  doctrine  of  corporations  con- 
nected with  this  point,  that  there  are  two  kinds  of  corporations  aggre- 
gate, viz.,  such  as  are  for  public  government  and  such  as  are  for  pri- 
vate charity.  The  first  are  those  for  the  government  of  a  town,  city 
or  the  like ;  and  being  for  public  advantage,  are  to  be  governed 
according  to  the  law  of  the  land.  The  validity  and  justice  of  their 
private  laws  and  constitutions  are  examinable  in  the  king's  conrts.   Of 


i   198      CONTRACTS  IN  THE  CORPORATE  CHARTER.      725 

these  there  are  no  particular  founders,  and  consequently  no  particular 
visitor;  there  are  no  patrons  of  these  corporations.  But  private  and 
particular  corporations  for  charity,  founded  and  endowed  by  private 
persons,  are  subject  to  the  private  government  of  those  who  erect 
them,  and  are  to  be  visited  by  them  or  their  heirs,  or  such  other  per- 
sons as  they  may  appoint.  The  only  rules  for  the  government  of 
these  private  corporations  are  the  laws  and  constitutions  assigned  by 
the  founder.  This  right  of  government  and  visitation  arises  from  the 
property  which  the  founder  had  in  the  lands  assigned  to  support  the 
charity;  and  as  he  is  the  author  of  the  charity,  the  law  invests  him 
with  the  necessary  power  of  inspecting  and  regulating  it.  The  author- 
ities are  full  to  prove  that  a  college  is  a  private  charity,  as  well  as 
an  hospital,  and  that  there  is,  in  reality,  no  difference  between 
them  except  in  degree,  but  they  are  within  the  same  reason,  and  both 
eleemosynary. 

These  corporations,  civil  and  eleemosynary,  which  differ  from  each 
other  so  especially  in  their  nature  and  constitution,  may  very  well  dif- 
fer in  matters  which  concern  their  rights  and  privileges,  and  their 
existence  and  subjection  to  public  control.  The  one  is  the  mere  creat- 
ure of  public  institution,  created  exclusively  for  the  public  advantage 
without  other  endowments  than  such  as  the  king  or  government  may 
bestow  upon  it,  and  having  no  other  founder  or  visitor  than  the  king 
or  government,  the  Jun da ior  incifiens.  The  validity  and  justice  of 
its  laws  and  constitution  are  examinable  by  the  courts  having  juris- 
diction over  them ;  and  they  are  subject  to  the  general  law  of  the 
land.  It  would  seem  reasonable  that  such  a  corporation  may  be 
controlled,  and  its  constitution  altered  and  amended  by  the  govern- 
ment, in  such  manner  as  the  public  interest  may  require.  Such  legis- 
lative interferences  can  not  be  said  to  impair  the  contract  by  which 
the  corporation  was  formed,  because  there  is,  in  reality,  but  one 
party  to  it,  the  trustees  or  governors  of  the  corporation  being  merely 
the  trustees  for  the  public,  the  cestui  que  trust  of  the  foundation. 
These  trustees  or  governors  have  no  interest,  no  privileges  or  immuni- 
ties, which  are  violated  by  such  interference,  and  can  have  no  more 
right  to  complain  of  them  than  an  ordinary  trustee,  who  is  called 
upon  in  a  court  of  equity  to  execute  the  trust.  They  accepted  the 
charter  for  the  public  benefit  alone,  and  there  would  seem  to  be  no 
reason  why  the  government,  imder  proper  limitations,  should  not 
alter  or  modify  such  a  grant  at  pleasure.  But  the  case  of  a  private 
corporation  is  entirely  different.  That  is  the  creature  of  a  private 
benefaction  for  a  charity  or  private  purpose.  It  is  endowed  and 
founded  by  private  persons,  and  subject  to  their  control,  laws  and 
visitation,  and  not  to  the  general  control  of  the  government ;  and  all 
these  powers,  rights  and  privileges  flow  from  the  property  of  the 
founder  in  the  funds  assigned  for  the  support  of  the  charity.  Al- 
though the  king,  by  the  grant  of  the  charter,  is,  in  some  sense,  the 
founder  of  all  eleemosynary  corporations,  because,  without  his  grant 
they  can  not  exist,  yet  the  patron  or  endower  is  the  perficient  founder, 
to  whom  belongs,  as  of  right,  all  the  powers  and  privileges  which 


726  DARTMOUTH    COLLEGE   V.  WOODWARD.  §   1 98 

have  been  described.  With  such  a  corporation,  it  is  not  competent 
for  the  legislature  to  interfere.  It  is  a  franchise,  or  incorporeal  here- 
ditament, founded  upon  private  property,  devoted  by  its  patron  to  a 
private  charity,  of  a  peculiar  kind,  the  offspring  of  his  own  will  and 
pleasure,  to  be  managed  and  visited  by  persons  of  his  own  appoint- 
ment, according  to  such  laws  and  regulations  as  he,  or  the  persons  so 
selected,  may  ordain. 

It  has  been  shown  that  the  charter  is  a  contract  on  the  part  of  the 
government,  that  the  property  with  which  the  charity  is  endowed  shall 
be  forever  vested  in  a  certain  number  of  persons  and  their  successors, 
to  subserve  the  particular  purposes  designated  by  the  founder  and  to 
be  managed  in  a  particular  way.  If  a  law  increases  or  diminishes 
the  number  of  the  trustees,  they  are  not  the  persons  which  the  grantor 
agreed  should  be  managers  of  the  fund.  If  it  appropriate  the  fund 
intended  for  the  support  of  a  particular  charity  to  that  of  some  other 
charity,  or  to  an  entirely  different  charity,  the  grant  is  in  effect  set 
aside,  and  a  new  contract  substituted  in  its  place,  thus  disappoint- 
ing completely  the  intentions  of  the  founder  by  changing  the  objects 
of  his  bounty.  And  can  it  be  seriously  contended  that  a  law  which 
changes  so  materially  the  terms  of  a  contract  does  not  impair  it  ?  In 
short,  does  not  every  alteration  of  a  contract,  however  unimportant, 
even  though  it  be  manifestly  for  the  interest  of  the  party  objecting  to 
it,  impair  its  obligations?  If  the  assent  of  all  the  parties  to  be  bound 
by  a  contract  be  of  its  essence,  how  is  it  possible  that  a  new  contract, 
substituted  for  or  engrafted  on  another  without  such  assent,  should 
not  violate  the  old  charter.?     *     *     * 

Upon  the  whole,  I  am  of  opinion  that  the  above  acts  of  New  Hamp- 
shire, not  having  received  the  assent  of  the  corporate  body  of  Dart- 
mouth College,  are  not  binding  on  them,  and,  consequently,  that  the 
judgment  of  the  state  court  ought  to  be  reversed. 

Johnson,  Justice,  concurred,  for  the  reasons  stated  by  the  chief 
justice. 

Livingston,  Justice,  concurred,  for  the  reasons  stated  by  the  chief 
justice,  and  Justices  Washington  and  Story. 

Story,  Justice.  This  is  a  cause  of  great  importance,  and  as  the 
very  learned  discussions  as  well  here  as  in  the  state  court  show,  of  no 
inconsiderable  difficulty.  There  are  two  questions  to  which  the 
appellate  jurisdiction  of  this  court  properly  applies,  i.  Whether  the 
original  charter  of  Dartmouth  College  is  a  contract  within  the  prohib- 
itory clause  of  the  constitution  of  the  United  States,  which  declares 
that  no  state  shall  pass  any  "law  impairing  the  obligation  of  con- 
tracts?" 2.  If  so,  whether  the  legislative  acts  of  New  Hampshire  of 
the  27th  of  June,  and  of  the  i8th  and  27th  of  December,  18 16,  or  any 
of  them,  impair  the  obligations  of  that  charter? 

[Nature  of  an  aggreg-ate  corporation  at  common  law.]  It  will  be  neces- 
sary, however,  before  we  proceed  to  discuss  these  questions,  to  insti- 
tute an  inquiry  into  the  nature,  rights  and  duties  of  aggregate  corpo- 
rations at  common  law ;  that  we  may  apply  the  principles  drawn  from 


§  198     CONTRACTS  IN  THE  CORPORATE  CHARTER.       ^2^ 

this  source  to  the  exposition  of  this  charter,  which  was  granted 
emphatically  with  reference  to  that  law. 

An  aggregate  corporation^  at  common  law,  is  a  collection  of  indi- 
viduals, united  into  one  collective  body,  under  a  special  name,  and 
possessing  certain  immunities,  privileges  and  capacities,  in  its  col- 
lective character,  which  do  not  belong  to  the  natural  persons  compos- 
ing it.  Among  other  things,  it  possesses  the  capacity  of  perpetual 
succession,  and  of  acting  by  the  collected  vote  or  will  of  its  compo- 
nent members,  and  of  suing  and  being  sued  in  all  things  touching 
its  corporate  rights  and  duties.  It  is,  in  short,  an  artificial  person, 
existing  in  contemplation  of  law  and  efzdowed  with  certain  powers 
and  franchises  which,  though  they  must  be  exercised  through  the 
medium  of  its  natural  tnembers,  are  yet  considered  as  subsisting  in 
the  corporation  itself,  as  distinctly  as  if  it  were  a  real  personage. 
Hence,  such  a  corporation  may  sue  and  be  sued  by  its  own  members, 
and  may  contract  with  them  in  the  same  manner  as  with  any  stran- 
gers. I  Bl.  Comm.  469,  475  ;  i  Kyd  on  Corp.  13,  69,  189 ;  i  Wooddes. 
471,  etc.  A  great  variety  of  these  corporations  exist  in  every  coun- 
try governed  by  the  common  law,  in  some  of  which  the  corporate 
existence  is  perpetuated  by  new  elections,  made  from  time  to  time ; 
and  in  others,  by  a  continual  accession  of  new  members,  without  any 
corporate  act.  Some  of  these  corporations  are,  fro?n  the  particular 
purposes  to  which  they  are  devoted,  denominated  spiritual  and  some 
lay ;  and  the  latter  are  again  divided  into  civil  and  eleemosynary 
corporations .  It  is  unnecessary ,  in  this  place,  to  enter  into  any  ex- 
amination of  civil  corporations.  Eleemosynary  corporations  are 
such  as  are  constituted  for  the  perpetual  distribution  of  the  free- 
alms  and  bounty  of  the  founder,  in  such  manner  as  he  has  directed; 
and  in  this  class  are  ranked  hospitals  for  the  relief  of  poor  and  im- 
potent persons,  and  colleges  for  the  promotion  of  learning  and  piety, 
and  the  support  of  persons  engaged  in  literary  pursuits,  i  BI.  Comm. 
469,  470,  471,  482;  I  Kyd  on  Corp.  25;  i  Wooddes.  474;  Attorney- 
General  V.  Whorwood,  i  Ves.  534;  St.  John's  College  v.  Todington, 
I  W.  Bl.  84;  s.  c.  I  Burr.  200;  Philips  v.  Bury,  i  Ld.  Raym.  5;  s. 
c.  2  T.  R.  346;   Porter's  Case,  i  Co.  22(5,  23. 

Another  division  of  corporations  is  into  public  and  private.  Pub- 
lic corporations  are  generally  esteemed  such  as  exist  for  public  polit- 
ical purposes  only,  such  as  towns,  cities,  parishes  and  counties,  and 
in  many  respects  they  are  so,  although  they  involve  some  private  in- 
terests; but,  strictly  speaking,  public  corporations  are  such  only  as  are 
founded  by  the  government  for  public  purposes,  where  the  whole  in- 
terests belong  also  to  the  government.  If,  therefore,  the  foundation 
be  private,  though  under  the  charter  of  the  government,  the  corpora- 
tion is  private,  however  extensive  the  uses  may  be  to  which  it  is 
devoted,  either  by  the  bounty  of  the  founder ,  or  the  nature  and  objects 
of  the  institution.  For  instance,  a  bank  created  by  the  government 
for  its  own  uses,  whose  stock  is  exclusively  owned  by  the  government 
is,  in  the  strictest  sense,  a  public  corporation.  So,  an  hospital  cre- 
ated and  endowed   by  the  government  for  general    charity.     But  a 


728  DARTMOUTH    COLLEGE   V.  WOODWARD.  §   1 98 

bank,  whose  stock  is  owned  by  private  persons,  is  a  private  corpora- 
tion, although  it  is  erected  by  the  government,  and  its  objects  and 
operations  partake  of  a  public  nature.  The  same  doctrine  may  be 
affirmed  of  insurance,  canal,  bridge  and  turnpike  companies.  In  all 
these  cases  the  uses  may,  in  a  certain  sense,  be  called  public,  but 
the  corporations  are  private,  as  much  so,  indeed,  as  if  the  franchises 
were  vested  in  a  single  person. 

This  reasoning  applies  in  its  full  force  to  eleemosynary  corpora- 
tions. An  hospital,  founded  by  a  private  benefactor,  is,  in  point  of 
law,  a  private  corporation,  although  dedicated  by  its  charter  to  gen- 
eral charity.  So  a  college  founded  and  endowed  in  the  same  man- 
ner, although  being  for  the  promotion  of  learning  and  piety,  it  may 
extend  its  charity  to  scholars  from  every  class  in  the  community,  and 
thus  acquire  the  character  of  a  public  institution.  This  is  the  un- 
equivocal doctrine  of  the  authorities,  and  can  not  be  shaken  but  by  un- 
dermining the  most  solid  foundations  of  the  common  law.  Philips  v. 
Bury,  I  Ld.  Raym.  5,  9;  s.  c.  2  T.  R.  346. 

It  was  indeed  supposed  at  the  argument  that  if  the  uses  of  an  elee- 
mosynary corporation  be  for  general  charity,  this  alone  would  consti- 
tute it  a  public  corporation.  But  the  law  is  certainly  not  so.  To  be 
sure,  in  a  certain  sense,  every  charity  which  is  extensive  in  its  reach, 
may  be  called  a  public  charity,  in  contradistinction  to  a  charity 
embracing  but  a  few  definite  objects.  In  this  sense  the  language  was 
unquestionably  used  by  Lord  Hardwicke  in  the  case  cited  at  the  argu- 
ment; Attorney-General  v.  Pearce,  2  Atk.  87,  i  Bac.  Abr.  tit.  Char- 
itable Uses,  E,  589;  and  in  this  sense  a  private  corporation  may  well 
enough  be  denominated  a  public  charity.  So  it  would  be  if  the  endow- 
ment, instead  of  being  vested  in  a  corporation,  were  assigned  to  a 
private  trustee;  yet  in  such  a  case  no  one  would  imagine  that  the  trust 
ceased  to  be  private,  or  the  funds  became  public  property.  That  the 
mere  act  of  incorporation  will  not  change  the  charity  from  a  private  to 
a  public  one  is  most  distinctly  asserted  in  the  authorities.  Lord  Hard- 
wicke, in  the  case  already  alluded  to,  says  "the  charter  of  the  crown  can 
not  make  a  charity  more  or  less  public,  but  only  more  permanent  than  it 
would  otherwise  be,  but  it  is  the  extensiveness  which  will  constitute  it 
a  public  one.  A  devise  to  the  poor  of  the  parish  is  a  public  charity. 
Where  testators  leave  it  to  the  discretion  of  a  trustee  to  choose  out  the 
objects,  though  each  particular  object  may  be  said  to  be  private,  yet 
in  the  extensiveness  of  the  benefit  accruing  from  them,  they  may  prop- 
erly be  called  public  charities.  A  sum  to  be  disposed  of  by  A.  B. 
and  his  executors  at  their  discretion  among  poor-house  keepers  is  of 
this  kind."  The  charity,  then,  may  in  this  sense  be  public,  although 
it  may  be  administered  by  private  trustees,  and  for  the  same  reason  it 
may  thus  be  public,  though  administered  by  a  private  corporation. 
The  fact,  then,  that  the  charity  is  public,  affords  no  proof  that  the 
corporation  is  also  public ;  and  consequently  the  argument,  so  far  as 
it  is  built  on  this  foundation,  falls  to  the  ground.  If  indeed  the  argu- 
ment were  correct,  it  would  follow  that  almost  every  hospital  and  col- 


§   198  CONTRACTS    IN   THE   CORPORATE   CHARTER.  729 

lege  would  be  a  public  corporation ;  a  doctrine  utterly  irreconcilable 
with  the  whole  current  of  decisions  since  the  time  of  Lord  Coke. 

When,  then,  the  argument  assumes  that  because  the  charity  is  pub- 
lic the  corporation  is  public,  it  manifestly  confounds  the  popular  with 
the  strictly  legal  sense  of  the  terms.  And  if  it  stopped  here  it 
would  not  be  very  material  to  correct  the  error.  But  it  is  on  this 
foundation  that  a  superstructure  is  erected  which  is  to  compel  a  sur- 
render of  the  cause.  When  the  corporation  is  said  at  the  bar  to  be 
public,  it  is  not  merely  meant  that  the  whole  community  may  be  the 
proper  objects  of  the  bounty,  but  that  the  government  have  the  sole 
right,  as  trustees  of  the  public  interests,  to  regulate,  control  and  direct 
the  corporation,  and  its  funds  and  its  franchises,  at  its  own  good  will 
and  pleasure.  Now,  such  an  authority  does  not  exist  in  the  govern- 
ment, except  where  the  corporation  is  in  the  strictest  sense  public; 
that  is,  where  its  whole  interests  and  franchises  are  the  exclusive  prop- 
erty and  domain  of  the  government  itself.  If  it  had  been  otherwise, 
courts  of  law  would  have  been  spared  many  laborious  adjudications  in 
respect  to  eleemosynary  corporations  and  the  visitorial  powers  over  them 
from  the  time  of  Lord  Holt  down  to  the  present  day.     Rex  v.  Bury, 

1  Ld.  Raym.  5;  s.  c.  Comb.  265;  Holt  715;  i  Show.  360;  4  Mod. 
106;  Skin.  447,  and  Lord  Holt's  opinion  from  his  own  manuscript,  in 

2  T.  R.  346.  Nay,  more,  private  trustees  for  charitable  purposes 
would  have  been  liable  to  have  the  property  confided  to  their  care 
taken  away  from  them  without  any  assent  or  default  on  their  part, 
and  the  administration  submitted,  not  to  the  control  of  law  and  equity, 
but  to  the  arbitrary  discretion  of  the  government.  Yet,  whoever  thought 
before  that  the  munificent  gifts  of  private  donors  for  general  charity 
"became  instantaneously  the  property  of  the  government,  and  that 
the  trustees  appointed  by  the  donors,  whether  corporate  or  unincor- 
porated, might  be  compelled  to  yield  up  their  rights  to  whomsover 
the  government  might  appoint  to  administer  them?  If  we  were  to 
establish  such  a  principle  it  would  extinguish  all  future  eleemosynary 
endowments,  and  we  should  find  as  little  of  public  policy  as  we  now 
find  of  law  to  sustain  it. 

[Foundation  and  visitation  of  corporations.]  An  eleemosynary  corpo- 
ration, then,  upon  a  private  foundation,  being  a  private  corporation, 
it  is  next  to  be  considered  what  is  deemed  a  foundation  and  who  is  the 
founder.  This  can  not  be  stated  with  more  brevity  and  exactness 
than  in  the  language  of  the  elegant  commentator  upon  the  laws  of  Eng- 
land: "The  founder  of  all  coiporations  (says  Sir  William  Black- 
stone),  in  the  strictest  and  original  sense,  is  the  king  alone,  for  he 
only  can  incorporate  a  society;  and  in  civil  corporations,  such  as 
mayor,  commonalty,  etc.,  where  there  are  no  possessions  or  endow- 
ments given  to  the  body,  there  is  no  other  founder  but  the  king;  but 
in  eleemosynary  foundations,  such  as  colleges  and  hospitals,  where 
there  is  an  endowment  of  lands,  the  law  distinguishes  and  makes  two 
species  of  foimdation,  the  one  fundatio  incipicns.  or  the  incorpora- 
tion, in  which  sense  the  king  is  the  general  founder  of  all  colleges 
and  hospitals ;    the  other  fundatio  perficiens^  or  the  dotation  of  it. 


730  DARTMOUTH    COLLEGE   V,    WOODWARD.  §  IQS 

in  which  sense  the  first  gift  of  the  revenues  is  the  foundation,  and  he 
who  gives  them  is,  in  the  law,  the  founder;  and  it  is  in  this  last  sense 
we  generally  call  a  man  the  founder  of  a  college  or  hospital."  i  Bl. 
Comm.  480,  10  Co.  33. 

To  all  eleemosynary  corporations  a  visitatorial  power  attaches  as  a 
necessary  incident ;  for  these  corporations  being  composed  of  individ- 
uals subject  to  human  infirmities  are  liable,  as  well  as  private  persons, 
to  deviate  from  the  end  of  their  institution.  The  law,  therefore,  has 
provided  that  there  shall  somewhere  exist  a  power  to  visit,  inquire 
into,  and  correct  all  irregularities  and  abuses  in  such  corporations,  and 
to  compel  the  original  purposes  of  the  charity  to  be  faithfully  fulfilled. 
I  Bl.  Comm.  480.  The  nature  and  extent  of  this  visitatorial  power  has 
been  expounded  with  admirable  fullness  and  accuracy  by  Lord  Holt 
in  one  of  his  most  celebrated  judgments.  Philips  v.  Bury,  i  Ld. 
Raym.  5 ;  s.  c.  2  T.  R.  346.  And  of  common  right  by  the  donation 
the  founder  and  his  heirs  are  the  legal  visitors,  unless  the  founder  has 
appointed  and  assigned  another  person  to  be  visitor.  For  the  founder 
may,  if  he  please,  at  the  time  of  the  endowment,  part  with  his  visita- 
torial power;  and  the  person  to  whom  it  is  assigned  will,  in  that  case, 
possess  it  in  exclusion  of  the  founder's  heirs,  i  Bl.  Com.  482.  This 
visitatorial  power  is,  therefore,  an  hereditament  founded  in  property, 
and  valuable  in  intendment  of  law,  and  stands  upon  the  maxim  that 
he  who  gives  his  property  has  a  right  to  regulate  it  in  future.  It 
includes  also  the  legal  right  of  patronage,  for,  as  Lord  Holt  justly 
observes,  "patronage  and  visitation  are  necessary  consequents  one 
upon  another."  No  technical  terms  are  necessary  to  assign  or  vest 
the  visitatorial  power;  it  is  sufficient  if,  from  the  nature  of  the  duties 
to  be  performed  by  particular  persons  under  the  chartev,  it  can  be 
inferred  that  the  founder  meant  to  part  with  it  in  their  favor,  and  he 
may  divide  it  among  various  persons,  or  subject  it  to  any  modifica- 
tions or  control  by  the  fundamental  statutes  of  the  corporation.  But 
where  the  appointment  is  given  in  "general  terms,  the  whole  power 
vests  in  the  appointee.  Eden  v.  Foster,  2  P.  Wms.  325 ;  Attorney- 
General  V.  Middleton,  2  Ves.  327;  St.  Johns  College  v.  Todington, 
I  W.  Bl.  84;  s.  c.  2  Burr.  200;  Attorney-General  v.  Clare  College, 
3  Atk.  662 ;  s.  c.  I  Ves.  78.  In  the  consti"uction  of  charters,  too,  it  is 
a  general  rule  that  if  the  objects  of  the  charity  are  incorporated,  as,  for 
instance,  the  master  and  fellows  of  a  college,  or  the  master  and  poor 
of  a  hospital,  the  visitatorial  power,  in  the  absence  of  any  special 
appointment,  silently  vests  in  the  founder  and  his  heirs.  But  where 
trustees  or  governors  are  incorporated  to  manage  the  charity,  the  vis- 
itatorial power  is  deemed  to  belong  to  them  in  their  corporate  charac- 
ter. Philips  V.  Bury,  i  Ld.  Raym.  5;  s.  c.  2  T.  R.  346;  Green  v. 
Rutherford,  i  Ves.  472;  Attorney-General  v.  Middleton,  2  Ves.  327; 
Case  of  Sutton  Hospital,  10  Co.  23,  31. 

When  a  private  eleemosynary  corporation  is  thus  created  by  the 
charter  of  the  crown,  it  is  subject  to  no  other  control  on  the  part  of 
the  crown  than  what  is  expressly  or  implicitly  reserved  by  the  charter 
itself.     Unless   a  power  be   reserved  for  this  purpose,  the  crown  can 


§  198     CONTRACTS  IN  THE  CORPORATE  CHARTER.       73 1 

not,  in  virtue  of  its  prerogative,  w^ithout  the  consent  of  the  corpora- 
tion, alter  or  amend  the  charter,  or  divest  the  corporation  of  any  of 
its  franchises,  or  add  to  them,  or  add  to  or  diminish  the  number  of 
the  trustees,  or  remove  any  of  the  members,  or  change  or  control 
the  administration  of  the  charity,  or  compel  the  corporation  to  receive 
a  new  charter.  This  is  the  uniform  language  of  the  authorities,  and 
forms  one  of  the  most  stubborn  and  well-settled  doctrines  of  the  com- 
mon law. 

But  an  eleemosynary,  like  every  other  coi-poration,  is  subject  to 
the  general  law  of  the  land.  It  may  forfeit  its  corporate  franchises 
by  ?nisuser  or  non-user  of  them.  It  is  subject  to  the  controlling 
authority  of  its  legal  visitor,  who,  imless  restrained  by  the  terms  of 
the  charter,  may  amend  and  repeal  its  statutes,  remove  its  officers, 
correct  abuses  and  generally  superintend  the  management  of  the  trusts. 
Where,  indeed,  the  visitatorial  power  is  vested  in  the  trustees  of  the 
charity,  in  virtue  of  their  incorporation,  there  can  be  no  amotion  of 
them  from  their  corporate  capacity.  But  they  are  not,  therefore, 
placed  beyond  the  reach  of  the  law.  As  managers  of  the  revenues  of 
the  corporation  they  are  subject  to  the  general  superintending  power 
of  the  court  of  chancery,  not  as  itself  possessing  a  visitatorial  power, 
or  a  right'to  control  the  charity,  but  as  possessing  a  general  jurisdic- 
tion in  all  cases  of  an  abuse  of  trust  to  redress  grievances  and  sup- 
press frauds.  2  Fonbl.  Eq.,  B.  2,  pt.  2,  ch.  i,  §  i,  note  a;  Coop. 
Eq.  PI.  292;  2  Kyd  on  Corp.  195;  Green  v.  Rutherford,  i  Ves.  462 ; 
Attorney-General  v.  Foundling  Hospital,  4  Bro.  C.  C.  165 ;  s.  c.  2 
Ves.  Jr.  42;  Eden  v.  Foster,  2  P.  Wms.  325  ;  i  Wooddes.  476;  At- 
torney-General V.  Price,  3  Atk.  108;  Attorney-General  v.  Lock,  3 
Atk.  164;  Attorney-General  v.  Dixie,  13  Ves.  519;  Ex  parte  Kirby 
Ravensworth  Hospital,  15  Ves.  304,  314;  Attorney-General  v.  Earl 
of  Clarendon,  17  Ves.  491,  499;  Berkhamstead  Free  School,  2  Ves. 
&  B.  134;  Attorney-General  v.  Corporation  of  Carmarthen.  Cooper 
30;  Mayor,  etc.,  of  Colchester  v.  Lowten,  i  Ves.  &  B.  226;  Rex  v. 
Watson,  2  T.  R.  199  ;  Attorney-General  v.  Utica  Ins.  Co.,  2  Johns.  Ch. 
371  ;  Attorney-General  v.  Middleton,  2  Ves.  327.  And  where  a  cor- 
poration is  a  mere  trustee  of  a  charity,  a  court  of  equity  will  go  yet 
further,  and  though  it  can  not  appoint  or  remove  a  corporator,  it  will 
yet,  in  a  case  of  gross  fraud  or  abuse  of  trust,  take  away  the  trust  from 
the  corporation  and  vest  it  in  other  hands.  Mayor,  etc.,  of  Coventry 
V.  Attorney-General,  7  Bro.  P.  C.  235;  Attorney-General  v.  Earl  of 
Clarendon,  17  Ves.  491,  499. 

Thus  much  it  has  been  thought  proper  to  premise  respecting  the 
nature,  rights  and  duties  of  eleemosynary  corporations  growing  out  of 
the  common  law.  We  may  now  proceed  to  an  examination  of  the 
original  charter  of  Dartmouth  College. 

(Stating  facts  as  to  recitals  of  charter  and  its  terms  as  above.) 

[Terms  of  the  charter.]  Such  are  the  most  material  clauses  of  the 
charter.  It  is  observable,  in  the  first  place,  that  no  endowment  what- 
ever is  given  by  the  crown,  and  no  power  is  reserved  to  the  crown  or 
government  in  any  manner  to  alter,  amend  or  control  the  charter.     It 


732  DARTMOUTH    COLLEGE   V,  WOODWARD.  §   198 

is  also  apparent,  from  the  very  terms  of  the  charter,  that  Dr.  Whee- 
lock  is  recognized  as  the  founder  of  the  college,  and  that  the  charter 
is  granted  upon  his  application,  and  that  the  trustees  were  in  fact 
nominated  by  him.  In  the  next  place,  it  is  apparent  that  the  objects 
of  the  institution  ai"e  purely  charitable,  for  the  distribution  of  the  pri- 
vate contributions  of  private  benefactors.  The  charity  was  in  the  sense 
already  explained  a  public  charity,  that,  is  for  the  general  promotion 
of  learning  and  piety,  but  in  this  respect  it  was  just  as  much  public 
before  as  after  the  incoiporation.  The  only  effect  of  the  charter  was 
to  give  permanency  to  the  design,  by  enlarging  the  sphere  of  its  ac- 
tion and  granting  a  perpetuity  of  corporate  powers  and  franchises, 
the  better  to  secure  the  administration  of  the  benevolent  donations. 
As  founder,  too.  Dr.  Wheelock  and  his  heirs  would  have  been  com- 
pletely clothed  with  the  visitatorial  power,  but  the  whole  govern- 
ment and  control,  as  well  of  the  officers  as  of  the  revenues  of  the 
college  being  with  his  consent  assigned  to  the  trustees  in  their  corpo- 
rate character,  the  visitatorial  power,  which  is  included  in  this  author- 
ity, rightfully  devolved  on  the  trustees.  As  managers  of  the  property 
and  revenues  of  the  corporation,  they  were  amenable  to  the  jurisdic- 
tion of  the  judicial  tribunals  of  the  state,  but  as  visitors,  their  discre- 
tion was  limited  only  by  the  charter,  and  liable  to  no  supervision  or 
control,  at  least,  unless  it  was  fraudulently  misapplied. 

From  this  summary  examination  it  follows  that  Dartmouth  College 
w^as,  under  its  original  charter,  a  private  eleemosynary  corporation, 
endowed  with  the  usual  privileges  and  franchises  of  such  corporations, 
and  among  others,  with  a  legal  perpetuity,  and  was  exclusively  under 
the  government  and  control  of  twelve  trustees,  who  were  to  be  elected 
and  appointed,  from  time  to  time,  by  the  existing  board,  as  vacancies 
or  removals  should  occur. 

[Is  this  charter  a  contract?]  We  are  now  led  to  the  consideration  of 
the  first  question  in  the  cause,  whether  this  charter  is  a  contract  within 
the  clause  of  the  constitution  prohibiting  the  states  from  passing  any 
law  impairing  the  obligation  of  contracts.  In  the  case  of  Fletcher  v. 
Peck,  6  Cranch  87,  136,  this  court  laid  down  its  exposition  of  the 
word  "contract"  in  this  clause  in  the  following  manner:  "A  con- 
tract is  a  compact  between  two  or  more  persons,  and  is  either  execu- 
tory or  executed.  An  executory  contract  is  one  in  which  a  party 
binds  himself  to  do,  or  not  to  do,  a  paiticular  thing.  A  contract  ex- 
ecuted is  one  in  which  the  object  of  the  contract  is  performed ;  and 
this,  says  Blackstone,  differs  in  nothing  from  a  grant.  A  contract 
executed,  as  well  as  one  that  is  executory,  contains  obligations  bind- 
ing on  the  parties.  A  grant,  in  its  own  nature,  amounts  to  an  ex- 
tinguishment of  the  right  of  the  grantor,  and  implies  a  contract  not 
to  reassert  that  right.  A  party  is  always  estopped  by  his  own  grant." 
This  language  is  perfectly  unambiguous,  and  was  used  in  reference  to 
a  grant  of  land  by  the  governor  of  a  state,  under  a  legislative  act. 
It  determines,  in  the  most  unequivocal  manner,  that  the  grant  of  a 
state  is  a  contract,  within  the  clause  of  the  constitution  now  in  ques- 


§  198     CONTRACTS  IN  THE  CORPORATE  CHARTER.       733 

tion,  and  that  it  implies  a  contract  not  to  reassume  the  rights  granted; 
a  fortiori,  the  doctrine  applies  to  a  charter  or  grant  from  the  king. 

But  it  is  objected  that  the  charter  of  Dartmouth  College  is  not  a 
contract  contemplated  by  the  constitution,  because  no  valuable  con- 
sideration passed  to  the  king  as  an  equivalent  for  the  grant,  it  pur- 
porting to  be  granted  ex  mere  motu,  and  further  that  no  contracts, 
merely  voluntary,  are  w^ithin  the  prohibitory  clause.  It  must  be  ad- 
mitted that  mere  executory  contracts  can  not  be  enforced  at  law, 
unless  there  be  a  valuable  consideration  to  sustain  them,  and  the  con- 
stitution certainly  did  not  mean  to  create  any  new  obligations  or  give 
any  new  efficacy  to  nude  pacts.  But  it  must,  on  the  other  hand,  be 
also  admitted  that  the  constitution  did  intend  to  preserve  all  the  ob- 
ligatory force  of  contracts  which  they  have  by  the  general  principles 
of  law.  Now  when  a  contract  has  once  passed  bona  Jide  into  grant, 
neither  the  king  nor  any  private  person  who  may  be  the  grantor  can 
recall  the  grant  of  the  property,  although  the  conveyance  may  have 
been  purely  voluntary.  A  gift  completely  executed  is  irrevocable. 
The  property  conveyed  by  it  becomes,  as  against  the  donor,  the  abso- 
lute property  of  the  donee ;  and  no  subsequent  change  of  intention  of 
the  donor  can  change  the  rights  of  the  donee.  2  Bl.  Com.  441,  Jenk. 
Cent.  104.  And  a  gift  by  the  crown  of  incorporeal  hereditaments, 
such  as  corporate  franchises,  when  executed  comes  completely  within 
the  principle,  and  is,  in  the  strictest  sense  of  the  terms,  a  grant.  2  Bl. 
Com.  317,  346;  Shep.  Touch.,  ch.  12,  p.  227.  Was  it  ever  imagined 
that  land,  voluntarily  granted  to  any  person  by  a  state,  was  liable  to 
be  resumed  at  its  own  good  pleasure?  Such  a  pretension  would, 
under  any  circumstance,  be  truly  alarming,  but  in  a  country  like  ours, 
where  thousands  of  land-titles  had  their  origin  in  gratuitous  grants  of 
the  states,  it  would  go  far  to  shake  the  foundations  of  the  best  settled 
estates.  And  a  grant  of  franchise  is  not,  in  point  of  principle,  dis- 
tinguishable from  a  grant  of  any  other  property.  If,  therefore,  this 
charter  were  a  pure  donation,  when  the  grant  was  complete,  and  ac- 
cepted by  the  grantees,  it  involved  a  contract  that  the  grantees  should 
hold  and  the  grantor  should  not  reassume  the  grant  as  much  as  if  it 
had  been  founded  on  the  most  valuable  consideration. 

But  it  is  not  admitted  that  this  charter  was  not  granted  for  what  the 
law  deems  a  valuable  consideration.  For  this  purpose,  it  matters  not 
how  trifling  the  consideration  may  be,  a  pepper-corn  is  as  good  as 
a  thousand  dollars.  Nor  is  it  necessary  that  the  consideration  should 
be  a  benefit  to  the  grantor.  It  is  sufficient  if  it  import  damage  or 
loss,  or  forbearance  of  the  benefit,  or  any  act  done  or  to  be  done,  on 
the  part  of  the  grantee.  It  is  unnecessary  to  state  cases;  they  are 
familiar  to  the  mind  of  every  lawyer.  Pillans  v.  Van  Mierop,  per 
Yates,  J.,  3  Burr.  1663;  Forth  v.  Stanton,  i  Saund.  2ii;  Williams' 
note  2,  and  the  cases  there  cited. 

With  these  principles  in  view,  let  us  now  examine  the  terms  of  this 
charter.  It  purports,  indeed,  on  its  face,  to  be  granted  "of  the  special 
grace,  certain  knowledge  and  mere  tnotion'^  of  the  king,  but  these 
words  were   introduced  for  a  very  different  purpose  from  that  now 


734  DARTMOUTH    COLLEGE   V.    WOODWARD.  §   198 

contended  for.  It  is  a  general  rule  of  the  common  law  (the  reverse 
of  that  applied  in  ordinary  cases)  that  a  grant  of  the  king,  at  the  suit 
of  the  grantee,  is  to  be  consti'ued  most  beneficially  for  the  king  and 
most  strictly  against  the  grantee.  Wherefore,  it  is  usual  to  insert  in 
the  king's  grants  a  clause  that  they  are  made,  not  at  the  suit  of  the 
grantee,  but  of  the  special  grace,  certain  knowledge  and  mere  motion 
of  the  king,  and  then  they  receive  a  more  liberal  construction.  This 
is  the  true  object  of  the  clause  in  question,  as  we  are  informed  by  the 
most  accurate  authorities.  2  Bl.  Comm.  347;  Finch's  Law  100;  10 
Rep.  112;  I  Shep.  Abr.  136;  Bull.  N.  P.  136.  But  the  charter  also, 
on  its  face,  purports  to  be  granted  in  consideration  of  the  premises  in 
the  introductory  recitals. 

(Stating  recitals  as  to  founding  by  Dr.  Wheelock,  at  his  own  ex- 
pense, contributions  made  by  others,  etc.,  and  the  location  of  the 
college.) 

[Implied  contracts  with  the  founder,  trustees  and  benefactors.]  Can  it 
be  truly  said  that  these  recitals  contain  no  legal  consideration  of 
benefit  to  the  crown,  or  of  forbearance  of  benefit  on  the  other  sidcf" 
Is  there  not  an  implied  contract  by  Dr.  Wheelock,  if  a  charter  is 
granted,  that  the  schools  shall  be  removed  from  his  estate  to  New 
Hampshire,  and  that  he  will  relinquish  all  his  control  over  the 
funds  collected,  and  to  be  collected  in  England  under  his  auspices 
and  subject  to  his  authority?  That  he  will  yield  up  the  management 
of  his  charity  school  to  the  trustees  of  the  college.?  That  he  will  re- 
linquish all  the  offers  made  by  other  American  governments,  and  de- 
vote his  patronage  to  this  institution?  It  will  scarcely  be  denied  that 
he  gave  up  the  right  any  longer  to  maintain  the  charity  school  already 
established  on  his  own  estate ;  and  that  the  funds  collected  for  its  use 
and  subject  to  his  management  were  yielded  up  by  him  as  an  endow- 
ment of  the  college.  The  very  language  of  the  charter  supposes  him 
to  be  the  legal  owner  of  the  funds  of  the  charity  school,  and  in  virtue 
of  this  endowment,  declares  him  the  founder  of  the  college.  It  mat- 
ters not  whether  the  funds  were  great  or  small ;  Dr.  Wheelock  had 
procured  them  by  his  own  influence,  and  they  were  under  his  control 
to  be  applied  to  the  support  of  his  charity  school ;  and  when  he  re- 
linquished his  control  he  relinquished  a  right  founded  in  property  ac- 
quired by  his  labors.  Besides,  Dr.  Wheelock  impliedly  agreed  to 
devote  his  future  services  to  the  college,  when  erected,  by  becoming 
president  thereof,  at  a  period  when  sacrifices  must  necessarily  be 
made  to  accomplish  the  great  design  in  view.  If,  indeed,  a  pepper- 
corn be,  in  the  eye  of  the  law,  of  sufficient  value  to  found  a  contract, 
as  upon  a  valuable  consideration,  are  these  implied  agreements,  and 
these  relinquishments  of  right  and  benefit,  to  be  deemed  wholly  worth- 
less? It  has  never  been  doubted  that  an  agreement  not  to  exercise 
a  trade  in  a  particular  place  was  a  sufficient  consideration  to  sustain 
a  contract  for  the  payment  of  money ;  a  fortiori^  the  relinquishment 
of  property  which  a  person  holds,  or  controls  the  use  of  as  a  trust,  is 
a  sufficient  consideration ;  for  it  is  parting  with  a  legal  right.  Even 
a  right  of  patronage  (^jus  fatronatus")  is  of  great  value  in  intendment 


§  198     CONTRACTS  IN  THE  CORPORATE  CHARTER.       735 

of  law.  Nobody  doubts  that  an  advowson  is  a  valuable  hereditament ; 
and  yet,  in  fact,  it  is  but  a  mere  trust,  or  right  of  nomination  to  a 
benefice,  which  can  not  be  legally  sold  to  the  intended  incumbent. 
2  Bl.  Comm,  22,  Christian's  note.  In  respect  to  Dr.  Wheelock,  then, 
if  a  consideration  be  necessary  to  support  the  charter  as  a  contract,  it 
is  to  be  found  in  the  implied  stipulations  on  his  part  in  the  charter 
itself.  He  relinquished  valuable  rights  and  undertook  a  laborious 
office  in  consideration  of  the  grant  of  the  incorporation. 

This  is  not  all.  A  charter  may  be  granted  upon  an  executory  as 
•well  as  an  executed  or  present  consideration.  When  it  is  granted  to 
persons  "who  have  not  made  applicatioti  for  it  until  their  acceptance 
thereof^  the  grant  is  yet  in  fieri.  Upon  the  acceptance  there  is  an 
ifnplied  contract  on  the  part  of  the  grantees.,  in  consideration  of  the 
charter.,  that  they  "will  perforin  the  duties  and  exercise  the  authorities 
conferred  by  it.  This  was  the  doctrine  asserted  by  the  late  learned 
Mr.  Justice  Duller,  in  a  modern  case.  Rex  v.  Pasmore,  3  T.  R.  199, 
239,  246.  He  there  said,  "I  do  not  know  how  to  reason  on  this  point 
better  than  in  the  manner  urged  by  one  of  the  relator's  counsel,  who 
considered  the  grant  of  incorporation  to  be  a  compact  between  the 
crown  and  a  certain  number  of  the  subjects,  the  latter  of  whom  under- 
take, in  consideration  of  the  privileges  which  are  bestowed,  to  exert 
themselves  for  the  good  government  of  the  place"  (i.  e.,  the  place 
incorporated).  It  will  not  be  pretended  that  if  a  charter  be  granted 
for  a  bank,  and  the  stockholders  pay  in  their  own  funds,  the  charter 
is  to  be  deemed  a  grant  without  consideration,  and  therefore  revocable 
at  the  pleasure  of  the  grantor.  Yet  here  the  funds  are  to  be  managed, 
and  the  services  performed  exclusively  for  the  use  and  benefit  of  the 
stockholders  themselves.  And  where  the  grantees  are  mere  trustees 
to  perform  services  without  reward,  exclusively  for  the  benefit  of 
others  for  public  charity,  can  it  be  reasonably  argued  that  these  serv- 
ices are  less  valuable  to  the  government  than  if  performed  for  the  pri- 
vate emolument  of  the  trustees  themselves.''  In  respect,  then,  to  the 
trustees  also  there  was  a  valuable  consideration  for  the  charter,  the 
consideration  of  services  agreed  to  be  rendered  by  them  in  execution 
of  a  charity,  from  which  they  could  receive  no  private  remuneration. 

There  is  yet  another  view  of  this  part  of  the  case  which  deserves 
the  most  weighty  consideration.  The  corporation  was  expressly 
created  for  the  purpose  of  distributing  in  perpetutity  the  charitable 
donations  of  private  benefactors.  By  the  terms  of  the  charter  the 
trustees  and  their  successoi's  in  their  corporate  capacity  were  to  re- 
ceive, hold  and  exclusively  manage  all  the  funds  so  contributed.  The 
crown  then,  upon  the  face  of  the  charter,  pledged  its  faith  that  the 
donations  of  private  benefactors  should  be  perpetually  devoted  to 
their  orginal  purposes  without  any  interference  on  its  own  part,  and 
should  be  forever  administered  by  the  trustees  of  the  corporation, 
unless  its  corporate  franchises  should  be  taken  away  by  due  process  of 
law.  From  the  very  nature  of  the  case.,  therefore^  there  was  an  im- 
plied contract  on  the  part  of  the  crovjn  with  every  benefactor  that  if 
he  would  give  his  mon^  it  should  be  deemed  a  charity  protected  by 


736  DARTMOUTH    COLLEGE   V.  WOODWARD.  §   1 98 

the  charter^  and  be  administered  by  the  corporation  according  to  the 
general  law  of  the  land.  As  soon,  then,  as  a  donation  was  made  to 
the  corporation,  there  was  an  ijuplied  contract  springing  up  and 
founded  on  a  valuable  consideration  that  the  crown  would  not  revoke 
or  alter  the  charter  or  change  its  administration  without  the  consent 
of  the  corporation.  There  was  also  an  implied  contract  between  the 
corporation  itself  and  every  benefactor  upon  like  consideration,  that 
it  would  administer  his  bounty  according  to  the  terms  and  for  the 
objects  stipulated  in  the  charter. 

In  every  view  of  the  case,  if  a  consideration  were  necessary  (which 
I  utterly  deny)  to  make  the  charter  a  valid  contract,  a  valuable  con- 
sideration did  exist  as  to  the  founder,  the  tiustees  and  the  benefactors. 
And  upon  the  soundest  legal  principles  the  charter  may  be  properly 
deemed,  according  to  the  various  aspects  in  which  it  is  viewed,  as  a 
several  contract  with  each  of  these  parties  in  virtue  of  the  foundation 
or  the  endowment  of  the  college,  or  the  acceptance  of  the  charter  or 
the  donations  to  the  charity. 

[Implied  contract  with  the  corporation  itself,]  And  here  we  might 
pause ;  but  there  is  yet  remaining  another  view  of  the  subject,  which 
can  not  consistently  be  passed  over  without  notice.  It  seems  to  be  as- 
sumed by  the  argument  of  the  defendanV s  counsel  that  there  is  no 
contract  whatsoever ,  in  virtue  of  the  charter,  between  the  crown  and 
the  corporation  itself.  But  it  deserves  consideration,  whether  this  as- 
sumption can  be  sustained  upon  a  solid  foundation. 

If  this  had  been  a  new  charter,  granted  to  an  existing  corporation, 
or  a  grant  of  lands  to  an  existing  corporation,  there  could  not  have  been 
a  doubt  that  the  grant  would  have  been  an  executed  contract  with  the 
corporation,  as  much  so  as  if  it  had  been  to  any  private  person.  But  it 
is  supposed  that  as  the  corporation  was  not  then  in  existence,  but  was 
created  and  its  franchises  bestowed,  uno  fatu,  the  charter  can  not  be 
construed  a  contract,  because  there  was  no  person  in  rerum  naturce 
with  whom  it  might  be  made. 

Is  this,  however,  a  just  and  legal  view  of  the  subject.''  If  the  cor- 
poration had  no  existence,  so  as  to  become  a  contracting  party,  neither 
had  it  for  the  purpose  of  receiving  a  grant  of  the  franchises.  The 
truth  is  that  there  may  be  a  priority  of  operation  of  things  in  the  same 
grant,  and  the  law  distinguishes  and  gives  such  priority  wherever  it  is 
necessary  to  effectuate  the  objects  of  the  grant.  Case  of  Sutton  Hos- 
pital, 10  Co.  23 ;  Buckland  v.  Fowcher,  cited  10  Co.  27—8,  and 
recognized  in  Attorney-General  v.  Bowyer,  3  Ves.  Jr.  714,  726—7; 
s.  p.  Highmore  on  Mort.  200,  etc.  From  the  nature  of  things  the 
artificial  person  called  a  corporation  must  be  created  before  it  can  be 
capable  of  taking  anything.  When,  therefore,  a  charter  is  granted, 
and  it  brings  the  corporation  into  existence,  without  any  act  of  the 
natural  persons  who  compose  it,  and  gives  such  corporation  any  privi- 
leges, franchises  or  property,  the  law  deems  the  corporation  to  be  first 
brought  into  existence,  and  then  clothes  it  with  the  granted  liberties 
and  property.  When,  on  the  other  hand,  the  corporation  is  to  be 
brought  into  existence  by  some  future  acts  of  the  corporators ,  the 


§  198     CONTRACTS  IN  THE  CORPORATE  CHARTER.       737 

franchises  remain  in  abeyance  until  such  acts  are  done,  and  when 
the  corporation  is  brought  into  life  the  franchises  instantaneously 
attach  to  it.  There  may  be,  in  intendment  of  law,  a  priority  of  time, 
even  in  an  instant,  for  this  purpose.  Highmore  on  Mort.  200,  etc. 
And  if  the  corporation  have  an  existence  before  the  grant  of  its  other 
franchises  attaches,  what  more  difficulty  is  there  in  deeming  the  grant 
of  these  franchises  a  contract  with  it  than  if  granted  by  another  instru- 
ment at  a  subsequent  period  ? 

It  behooves  those  also  who  hold  that  a  grant  to  a  corporation  not  then 
in  existence  is  incapable  of  being  deemed  a  contract  on  that  account, 
to  consider  whether  they  do  not  at  the  same  time  establish  that  the  grant 
itself  is  a  nullity  for  precisely  the  same  reason.  Yet  such  a  doctrine 
would  strike  us  all  as  pregnant  with  absurdity,  since  it  would  prove 
that  an  act  of  incorporation  could  never  confer  any  authorities  or 
rights  of  property  on  the  corporation  it  created.  It  may  be  admitted 
that  two  parties  are  necessary  to  form  a  perfect  contract,  but  it  is 
denied  that  it  is  necessary  that  the  assent  of  both  parties  must  be  at 
the  same  time.  If  the  legislature  were  voluntarily  to  grant  land  in 
fee  to  the  first  child  of  A.  to  be  hereafter  bom,  as  soon  as  such  child 
should  be  bom  the  estate  would  vest  in  it.  Would  it  be  contended 
that  such  a  grant,  when  it  took  effect,  was  revocable,  and  not  an  exe- 
cuted contract  upon  the  acceptance  of  the  estate .''  The  same  question 
might  be  asked  in  a  case  of  a  gratuitous  grant  by  the  king  or  the  legis- 
lature to  A.  for  life,  and  afterward  to  the  heirs  of  B.,  who  is  then 
living.  Take  the  case  of  a  bank,  incorporated  for  a  limited  period 
upon  the  express  condition  that  it  shall  pay  out  of  its  corporate  funds 
a  certain  sum  as  the  consideration  for  the  charter,  and  after  the  cor- 
poration is  organized  a  payment  is  duly  made  of  the  sum  out  of  the 
corporate  funds ;  will  it  be  contended  that  there  is  not  a  subsisting 
contract  between  the  government  and  the  corporation  by  the  matters 
thus  arising  ex  post  facto  that  the  charter  shall  not  be  revoked  during 
the  stipulated  period.''  Suppose  an  act  declaring  that  all  persons, 
who  should  thereafter  pay  into  the  public  treasury  a  stipulated  sum, 
should  be  tenants  in  common  of  certain  lands  belonging  to  the  state 
in  certain  proportions ;  if  a  person,  afterward  born,  pays  the  stipu- 
lated sum  into  the  treasuiy,  is  it  less  a  contract  with  him  than  it 
would  be  with  a  person  in  esse  at  the  time  the  act  passed.''  We  must 
admit  that  there  may  be  future  springing  contracts  in  respect  to  per- 
sons not  now  in  esse,  or  we  shall  involve  ourselves  in  inextricable  dif- 
ficulties. And  if  there  may  be  in  respect  to  natural  persons,  why  not 
also  in  respect  to  artificial  persons  created  by  the  law  for  the  very  pur- 
pose of  being  clothed  with  corporate  powers .''  /  am  unable  to  distin- 
guish between  the  case  of  a  grant  of  land  or  of  franchises  to  an  exist- 
ing corporation  and  a  like  grant  to  a  corporation  brought  into  life  for 
the  very  purpose  of  receiving  the  grant.  As  soon  as  it  is  in  esse, 
and  the  franchises  and  property  become  vested  and  executed  in  it,  the 
grant  is  just  as  much  an  executed  contract  as  if  its  prior  existence 
had  been  established  for  a  century. 

47— WiL.  Cases. 


738  DARTMOUTH    COLLEGE    V.  WOODWARD.  §   198 

[Are  these  contracts  protected  by  the  constitution?]  Supposing,  how- 
ever, that  in  either  of  the  views  which  have  been  suggested,  the  charter 
of  Dartmouth  College  is  to  be  deemed  a  contract,  we  are  yet  met  with 
several  objections  of  another  nature.  It  is,  in  the  first  place,  con- 
tended that  it  is  not  a  contract  within  the  prohibitoiy  clause  of  the 
constitution,  because  that  clause  was  never  intended  to  apply  to  mere 
contracts  of  civil  institutions,  such  as  the  contract  of  marriage,  or  to 
grants  of  power  to  state  officers,  or  to  contracts  relative  to  their  offices, 
or  to  grants  of  trust  to  be  exercised  for  purposes  merely  public,  w^hen 
the  grantees  take  no  beneficial  interest. 

[Offices.]  It  is  admitted  that  the  state  legislatures  have  power  to 
enlarge,  repeal  and  limit  the  authorities  of  public  officers  in  their  offi- 
cial capacities,  in  all  cases  where  the  constitutions  of  the  states  respect- 
ively do  not  prohibit  them;  and  this,  among  others,  for  the  very  rea- 
son that  there  is  no  express  or  implied  contract  that  they  shall  always, 
during  their  continuance  in  office,  exercise  such  authorities;  they  are 
to  exercise  them  only  during  the  good  pleasure  of  the  legislature. 
But  when  the  legislature  makes  a  contract  with  a  public  officer,  as  in 
the  case  of  a  stipulated  salary  for  his  services  during/a  limited  period, 
this,  during  the  limited  period,  is  just  as  much  a  contract,  within  the 
purview  of  the  constitutional  prohibition,  as  a  like  contract  would  be 
between  two  private  citizens.  Will  it  be  contended  that  the  legisla- 
ture of  a  state  can  diminish  the  salary  of  a  judge  holding  his  office 
during  good  behavior?  Such  an  authority  has  never  yet  been  asserted 
to  our  knowledge.  It  may. also  be  admitted  that  corporations  for  mere 
public  government,  such  as  towns,  cities  and  counties,  may  in  many 
respects  be  subject  to  legislative  control.  But  it  will  hardly  be  con- 
tended that  even  in  respect  to  such  corporations,  the  legislative  power 
is  so  transcendent  that  it  may  at  its  will  take  away  the  private  property 
of  the  corporation,  or  change  the  uses  of  its  private  funds  acquired 
under  the  public  faith.  Can  the  legislature  confiscate  to  its  own  tise 
the  private  funds  which  a  municipal  corporation  holds  under  its  char- 
ter, without  any  default  or  consent  of  the  corporators.?  If  a  munici- 
pal corporation  be  capable  of  holding  devises  and  legacies  to  charita- 
ble uses  (as  many  municipal  corporations  are),  does  the  legislature, 
under  our  forms  of  limited  government,  possess  the  authority  to  seize 
upon  those  funds  and  appropriate  them  to  other  uses,  at  its  own 
arbitrary  pleasure,  against  the  will  of  the  donors  and  donees  ?  From 
the  very  nature  of  our  governments  the  public  faith  is  pledged  the 
other  way,  and  that  pledge  constitutes  a  valid  compact,  and  that  com- 
pact is  subject  only  to  judicial  inquiry,  construction  and  abrogation. 
This  court  have  already  had  occasion  in  other  causes  to  express  their 
opinion  on  this  subject;  and  there  is  not  the  slightest  inclination  to 
retract  it.  Terrett  v.  Taylor,  9  Cranch  43;  Town  of  Pawlet  v.  Clark, 
9  Cranch  292. 

[Marriag-e  contracts.]  As  to  the  case  of  the  contract  of  marriage, 
which  the  argument  supposes  not  to  be  within  the  reach  of  the  pro- 
hibitory clause  because  it  is  matter  of  civil  institution,  I  profess  not  to 
feel  the  weight  of  the  reason  assigned  for  the  exception.      In  a  legal 


§  198     CONTRACTS  IN  THE  CORPORATE  CHARTER.       739 

sense,  all  contracts  recop^ized  as  valid  in  any  country  may  be  prop- 
erly said  to  be  matters  of  civil  institution,  since  they  obtain  their  obli- 
gation and  construction  jure  loci  contractus.  Titles  to  land,  consti- 
tuting part  of  the  public  domain,  acquired  by  grants  under  the  pro- 
visions of  existing  laws  by  private  persons,  are  certainly  contracts  of 
civil  institution.  Yet  no  one  ever  supposed  that  when  acquired  bona 
fide  they  were  not  beyond  the  reach  of  legislative  revocation.  And 
so,  certainly,  is  the  established  doctrine  of  this  court.  A  general 
law  regulating  divorces  from  the  contract  of  marriage,  like  a  law 
regulating  remedies  in  other  cases  of  breaches  of  contracts,  is  not  nec- 
essarily a  law  impairing  the  obligation  of  such  a  contract.  It  may  be 
the  only  effectual  mode  of  enforcing  the  obligations  of  the  contract  on 
both  sides.  A  law  punishing  a  breach  of  a  contract  by  imposing  a  for- 
feiture of  the  rights  acquired  under  it,  or  dissolving  it  because  the 
mutual  obligations  were  no  longer  observed,  is,  in  no  correct  sense,  a 
law  impairing  the  obligations  of  the  contract.  Could  a  law  compelling 
a  specific  performance  by  giving  a  new  remedy  be  justly  deemed  an 
excess  of  legislative  power.?  Thus  far  the  contract  of  marriage  has 
been  considered  with  reference  to  general  laws  regulating  divorces 
upon  breaches  of  that  contract.  But  if  the  arg^iment  means  to  assert 
that  the  legislative  power  to  dissolve  such  a  contract  without  such  a 
breach  on  either  side,  against  the  wishes  of  the  parties,  and  without 
any  judicial  inquiry  to  ascertain  a  breach,  I  certainly  am  not  prepared 
to  admit  such  a  power,  or  that  its  exercise  would  not  entrench  upon 
the  prohibition  of  the  constitution.  If,  under  the  faith  of  existing 
laws,  a  contract  of  marriage  be  duly  solemnized,  or  a  marriage  settle- 
ment be  made  (and  marriage  is  always  in  law  a  valuable  considera- 
tion for  a  contract),  it  is  not  easy  to  perceive  why  a  dissolution  of  its 
obligations,  without  any  default  or  assent  of  the  parties,  may  not  as 
well  fall  within  the  prohibition  as  any  other  contract  for  a  valuable 
consideration.  A  man  has  just  as  good  a  right  to  his  wife  as  to  the 
property  acquired  under  a  marriage  contract.  He  has  a  legal  right  to 
her  society  and  her  fortune;  and  to  divest  such  right  without  his 
default  and  against  his  will,  would  be  as  flagrant  a  violation  of  the 
principles  of  justice  as  the  confiscation  of  his  own  estate.  I  leave  this 
case,  however,  to  be  settled  when  it  shall  arise.  I  have  gone  into  it 
because  it  was  urged  with  great  earnestness  upon  us,  and  required  a 
reply.  It  is  sufficient  now  to  say,  that  as  at  present  advised,  the 
argument  derived  from  this  source  does  not  press  my  mind  with  any 
new  and  insurmountable  difficulty. 

[Trustees.]  In  respect  also  to  grants  and  contracts,  it  would  be  far 
too  narrow  a  construction  of  the  constitution  to  limit  the  prohibitory 
clause  to  such  only  where  the  parties  take  for  their  own  private  ben- 
efit. A  grant  to  a  private  trustee,  for  the  benefit  of  a  particular  ceS" 
tut  que  trusty  or  for  any  special,  private  or  public  charity,  can  not  be 
the  less  a  contract  because  the  trustee  takes  nothing  for  his  own  ben- 
efit. A  grant  of  the  next  presentation  to  a  church  is  still  a  contract, 
although  it  limit  the  grantee  to  a  mere  right  of  nomination  or  patron- 
age.    2  Bl.  Comm.  21.     The  fallacy  of  the  argument  consists  in  as- 


740  DARTMOUTH    COLLEGE   V.  WOODWARD.  §  1 98 

suming  the  very  ground  in  controversy.  It  is  not  admitted  that  a 
contract  with  a  trustee  is,  in  its  own  nature,  revocable,  whether  it  be 
for  special  or  general  purposes,  for  public  charity  or  particular  benefi- 
cence. A  private  donation,  vested  in  a  trustee,  for  objects  of  a  gen- 
eral nature,  does  not  thereby  become  a  public  trust,  which  the  gov- 
ernment may,  at  its  pleasure,  take  from  the  trustee,  and  administer  in 
its  own  way.  The  truth  is,  that  the  government  has  no  power  to  re- 
voke a  grant,  even  of  its  own  funds,  when  given  to  a  private  person 
or  a  corporation  for  special  uses.  It  can  not  recall  its  own  endow- 
ments, granted  to  any  hospital  or  college,  or  city  or  town,  for  the  use 
of  such  corporations.  The  only  authority  remaining  to  the  govern- 
ment is  judicial,  to  ascertain  the  validity  of  the  grant,  to  enforce  its 
proper  uses,  to  suppress  frauds,  and,  if  the  uses  are  charitable,  to  se- 
cure their  regular  administration,  through  the  means  of  equitable  tri- 
bunals, in  cases  where  there  would  otherwise  be  a  failure  of  justice. 
[Property  contracts.]  Another  objection  growingoutof  and  connected 
with  that  which  we  have  been  considering,  is,  that  no  grants  are  within 
the  constitutional  prohibition,  except  such  as  respect  property  in  the 
strict  sense  of  the  term ;  that  is  to  say,  beneficial  interests  in  lands, 
tenements  and  hereditaments,  etc.,  which  may  be  sold  by  the  grantees 
for  their  own  benefit ;  and  that  grant  of  franchises,  immunities  and 
authorities  not  valuable  to  the  parties  as  property  are  excluded  from 
its  purview.  No  authority  has  been  cited  to  sustain  this  distinction, 
and  no  reason  is  perceived  to  justify  its  adoption.  There  are  many 
rights,  franchises  and  authorities  which  are  valuable  in  contemplation 
of  law,  where  no  beneficial  interest  can  accrue  to  the  possessor.  A 
grant  to  the  next  presentation  to  a  church,  limited  to  a  grantee  alone, 
has  been  already  mentioned.  A  power  of  appointment,  reserved  in  a 
marriage  settlement,  either  to  a  party  or  a  stranger,  to  appoint  uses  in 
favor  of  third  persons,  without  compensation,  is  another  instance.  A 
grant  of  lands  to  a  trustee  to  raise  portions  or  pay  debts,  is,  in  law,  a 
valuable  grant,  and  conveys  a  legal  estate.  Even  a  power  given  by 
will  to  executors  to  sell  an  estate  for  payment  of  debts  is,  by  the  bet- 
ter opinions  and  authority,  coupled  with  a  trust,  and  capable  of  sur- 
vivorship. Co.  Litt.,  113a,  Harg.  &  Butler's  note  2;  Sugden  on 
Powers  140;  Jackson  v.  Jansen,  6  Johns,  73;  Franklin  v.  Osgood, 
2  John.  Cas.  i  ;  s.  c.  14  Johns.  527;  Zebach  v.  Smith,  3  Binn.  69; 
Lessee  of  Moody  v.  Vandyke,  4  Binn.  7,  31 ;  Attorney-General  v. 
Gleg,  I  Atk.  356;  I  Bac.  Abr.  586  (Gwyllim's  ed.).  Many  digni- 
ties and  offices  existing  at  common  law  are  merely  honorary  and 
without  profit,  and  sometimes  are  onerous.  Yet  a  grant  of  them  has 
never  been  supposed  the  less  a  contract  on  that  account.  In  respect 
to  franchises,  whether  corporate  or  not,  v/hich  include  a  pernancy  of 
profits,  such  as  a  right  of  fishery,  or  to  hold  a  ferry,  a  market  or  a 
fair,  or  to  erect  a  turnpike,  bank  or  bridge,  there  is  no  pretense  to 
say  that  grants  of  them  are  not  within  the  constitution.  Yet  they 
mav,  in  point  of  fact,  be  of  no  exchangeable  value  to  the  owners. 
They  may  be  worthless  in  the  market.  The  truth,  however,  is,  that 
all  incorporeal  hereditaments,  whether  they  be  immunities,  dignities, 


§  198      CONTRACTS  IN  THE  CORPORATE  CHARTER.      74 1 

offices  or  franchises,  or  other  rights,  are  deemed  vahiable  in  law. 
The  owners  have  a  legal  estate  and  property  in  them,  and  legal  rem- 
edies to  support  and  recover  them,  in  case  of  any  injury,  obstruction 
or  disseizin  of  them.  Whenever  they  are  the  subjects  of  a  con- 
tract or  grant,  they  are  just  as  much  within  the  reach  of  the  constitu- 
tion as  any  other  grant.  Nor  is  there  any  solid  reason  why  a  contract 
for  the  exercise  of  a  mere  authority  should  not  be  just  as  much  guarded 
as  a  contract  for  the  use  and  dominion  of  property.  Mere  naked 
powers,  which  are  to  be  exercised  for  the  exclusive  benefit  of  the 
grantor,  are  revocable  by  him  for  that  very  reason.  But  it  is  other- 
wise where  a  power  is  to  be  exercised  in  aid  of  a  right  vested  in  the 
grantee.  We  all  know  that  a  power  of  attorney,  forming  a  part 
of  a  security  upon  the  assignment  of  a  chose  in  action^  is  not  revoca- 
ble by  the  grantor.  For  it  then  sounds  in  contract,  and  is  coupled 
with  an  interest.  Walsh  v.  Whitcomb,  2  Esp.  565 ;  Bergen  v.  Ben- 
nett, I  Caines'  Cas.  1,  15;  Raymond  v.  Squire,  11  Johns.  47.  So, 
if  an  estate  be  conveyed  in  trust  for  the  grantor,  the  estate  is  irrevoca- 
ble in  the  grantee,  although  he  can  take  no  beneficial  interest  for  him- 
self.  Many  of  the  best  settled  estates  stand  upon  conveyances  of  this 
nature;  and  there  can  be  no* doubt  that  such  grants  are  contracts 
within  the  prohibition  in  question. 

[Franchises.]  Iti  respect  to  corf  orate  franchises^  they  are,  properly 
speaking,  legal  estates  vested  in  the  corporation  itself  as  soon  as  it  is 
in  esse.  They  are  not  niere  naked  powers  granted  to  the  corporation, 
but  powers  coupled  -with  a7i  interest.  The  property  of  the  corpora- 
tion rests  upon  the  possession  of  its  franchises,  and  whatever  may  be 
thought  as  to  the  corporators,  it  can  not  be  denied  that  the  corpora- 
tion itself  has  a  legal  interest  in  them.  It  may  sue  and  be  sued  for 
them.  Nay,  more,  this  very  right  is  one  of  its  ordinary  franchises . 
'•'•It  is  likewise  a  franchise,''^  says  Mr.  fustice  Blackstone,  '•'•for  a 
number  of  persons  to  be  incorporated  and  subsist  as  a  body  politic, 
with  power  to  maintain  perpetual  sziccession  and  do  other  corporate 
acts;  and  each  individual  rnember  of  such  corporation  is  also  said  to 
have  a  franchise  or  freedom.^''  2  Bl.  Comm.  37;  i  Kyd  on  Corp.  14, 
16.  In  order  to  get  rid  of  the  legal  difficulty  of  these  franchises  being 
considered  as  valuable  hereditaments  or  property,  the  counsel  for  the 
defendant  are  driven  to  contend  that  the  corporators  or  trustees  are 
mere  agents  of  the  corporation,  in  whom  no  beneficial  interest  subsists; 
and  so  nothing  but  a  naked  power  is  touched  by  removing  them  from 
the  trust;  and  then  to  hold  the  corporation  itself  a  mere  ideal  being, 
capable  indeed  of  holding  property  or  franchises,  but  having  no  interest 
in  them  which  can  be  the  subject  of  contract.  Neither  of  these  positions 
is  admissible.  The  former  has  been  already  sufficiently  considered, 
and  the  latter  may  be  disposed  of  in  a  few  words.  The  corporators  are 
not  mere  agents,  but  have  vested  rights  in  their  character  as  corporators. 
The  right  to  be  a  freeman  of  a  corporation  is  a  valuable  temporal 
right.  It  is  a  right  of  voting  and  acting  in  the  corporate  concerns, 
which  the  law  recognizes  and  enforces,  and  for  a  violation  of  which  it 
provides  a  remedy.     It  is  founded  on  the  same  basis  as  the  right  of 


742  DARTMOUTH    COLLEGE   V.  WOODWARD.  §  198 

voting  in  public  elections;  it  is  as  sacred  a  right,  and  whatever  might 
have  been  the  prevalence  of  former  doubts  since  the  time  of  Lord 
Holt,  such  a  right  has  always  been  deemed  a  valuable  franchise  or 
privilege.     Ashby  v.  White,  2  Ld.  Raym.  938;    i  Kyd  on  Corp.  16. 

This  reasoning,  which  has  been  thus  far  urged,  applies  with  full 
force  to  the  case  of  Dartmouth  College.  The  franchises  granted  by 
the  charter  were  vested  in  the  trustees,  in  their  corporate  character.  The 
lands  and  other  property  subsequently  acquired  were  held  by  them  in  the 
same  manner.  They  were  the  private  demesnes  of  the  corporation, 
held  by  it,  not,  as  the  argument  supposes,  for  the  use  and  benefit  of  the 
people  of  New  Hampshire,  but,  as  the  charter  itself  declares,  "for 
the  use  of  the  Dartmouth  College."  There  were  not,  and  in  the  na- 
ture of  things  could  not  be,  any  other  cestui  que  use,  entitled  to  claim 
those  funds.  They  were,  indeed,  to  be  devoted  to  the  promotion  of 
piety  and  learning,  not  at  large,  but  in  that  college  and  the  establish- 
ments connected  with  it;  and  the  mode  in  which  the  charity  was  to  be 
applied,  and  the  objects  of  it,  were  left  solely  to  the  trustees,  who 
were  the  legal  governors  and  administrators  of  it.  No  particular  person 
in  New  Hampshire  possessed  a  vested  right  in  the  bounty ;  nor  could 
he  force  himself  upon  the  trustees  as  a  proper  object.  The  legisla- 
ture itself  could  not  deprive  the  trustees  of  the  corporate  funds,  nor 
annul  their  discretion  in  the  application  of  them,  nor  distribute  them 
among  its  own  favorites.  Could  the  legislature  of  New  Hampshire 
have  seized  the  land  given  by  the  state  of  Vermont  to  the  corporation, 
and  appropriated  it  to  uses  distinct  from  those  intended  by  the  charity, 
against  the  will  of  the  trustees?  This  question  can  not  be  answered 
in  the  affirmative,  until  it  is  established  that  the  legislature  may  law- 
fully take  the  property  of  A.  and  give  it  to  B. ;  and  if  it  could  not 
take  away  or  restrain  the  corporate  funds,  upon  what  pretense  can  it 
take  away  or  restrain  the  corporate  franchises.'*  Without  the  fran- 
chises, the  funds  could  not  be  used  for  corporate  purposes;  but  with- 
out the  funds,  the  possession  of  the  franchises  might  still  be  of  inesti- 
mable value  to  the  college,  and  to  the  cause  of  religion  and  learning. 

[Rlg-hts  of  the  trustees.]  Thus  far  the  rights  of  the  corporation  itself 
in  respect  to  its  property  and  franchises  have  been  more  immediately 
considered ;  but  there  are  other  rights  and  privileges  belonging  to  the 
trustees  collectively  and  severally  which  are  desei'ving  of  notice.  They 
are  intrusted  with  the  exclusive  power  to  manage  the  funds,  to  choose 
the  officers  and  to  regulate  the  corporate  concerns  according  to  their 
own  discretion.  The  jus  patronatus  is  vested  in  them.  The  visita- 
torial power  in  its  most  enlarged  extent  also  belongs  to  them.  When 
this  power  devolves  upon  the  founder  of  a  charity  it  is  an  heredita- 
ment, descendible  in  perpetuity  to  his  heirs,  and  in  default  of  heirs  it 
escheats  to  the  government.  Rex  v.  St.  Catherine's  Hall,  4  T.  R. 
233.  It  is  a  valuable  right,  founded  in  property,  as  much  so  as  the 
right  of  patronage  in  any  other  case.  It  is  a  right  which  partakes  of 
a  judicial  nature.  May  not  the  founder  as  justly  contract  for  the  pos- 
session of  this  right  m  return  for  his  endowment,  as  for  any  other 
equivalent?    and  if,  instead   of  holding  it  as  an  hereditament,  he  as- 


§  198     CONTRACTS  IN  THE  CORPORATE  CHARTER.       743 

signs  it  in  perpetuity  to  the  trustees  of  the  corporation,  is  it  less  a  val- 
uable hereditament  in  their  hands?  The  right  is  not  merely  a  collect- 
ive right  in  all  the  trustees ;  each  of  them  also  has  a  franchise  in  it. 
Lord  Holt  says,  ''it  is  agreeable  to  reason  and  the  rules  of  law,  that  a 
franchise  should  be  vested  in  the  corporation  aggregate,  and  yet  the 
benefit  redound  to  the  particular  members,  and  be  enjoyed  by  them  in 
their  private  capacities.  Where  the  privilege  of  election  is  used  by 
particular  persons,  it  is  a  particular  right  vested  in  each  particular 
man."  Ashby  v.  White,  2  Ld.  Raym.  938,  952;  Attorney-General 
v.  Dixie^  13  Ves.  519.  Each  of  the  trustees  had  aright  to  vote  in  all 
elections.  If  obstructed  in  the  exercise  of  it,  the  law  furnished  him 
with  an  adequate  recompense  in  damages.  If  ousted  unlawfully  from 
his  office,  the  law  would,  by  a  mandamus,  compel  a  restoration. 

It  is  attempted,  however,  to  establish  that  the  trustees  have  no  in- 
terest in  the  corporate  franchises,  because  it  is  said  that  they  may  be 
witnesses  in  a  suit  brought  against  the  corporation.  The  case  cited 
at  the  bar  certainly  goes  the  length  of  asserting  that  in  a  suit  brought 
against  a  charitable  corporation  for  a,  recompense  for  services  per- 
formed for  the  corporation,  the  governors,  constituting  the  corporation 
(but  whether  intrusted  with  its  funds  or  not  by  the  act  of  incorpora- 
tion does  not  appear),  are  competent  witnesses  against  the  plaintiff. 
Weller  v.  Governor  of  the  Foundling  Hospital,  i  Peake's  Cas.  153. 
But  assuming  this  case  to  have  been  rightly  decided  (as  to  which, 
upon  the  authorities,  there  may  be  room  to  doubt),  the  corporators 
being  technically  parties  to  the  record  (Attorney-General  v.  City  of 
London,  3  Bro.  C.  C.  171 ;  s.  c.  i  Ves.  J.  243;  Burton  v.  Hinde,  5 
T.  R.  174;  Nason  v.  Thatcher,  7  Mass. '398;  Phillips  on  Evid.  42, 
52,  57  and  notes;  i  Kyd  on  Corp.  304,  etc. ;  Highmore  on  Mortm. 
514),  it  does  not  establish  that  in  a  suit  for  the  corporate  property 
vested  in  the  tiustees  in  their  corporate  capacity,  the  trustees  are 
competent  witnesses.  At  all  events,  it  does  not  establish  that  in  a 
suit  for  the  corporate  franchises  to  be  exercised  by  the  tinistees  or  to 
enforce  their  visitatorial  power  the  trustees  would  be  competent  wit- 
nesses. On  a  Mandamus  to  restore  a  trustee  to  his  corporate  or  vis- 
itatorial power,  it  will  not  be  contended  that  the  trustee  is  himself  a 
competent  witness  to  establish  his  own  rights,  or  the  corpoi'ate  rights. 
Yet,  why  not,  if  the  law  deems  that  a  trustee  has  no  interest  in  the 
franchise  ?  The  test  of  interest  assumed  in  the  argument  proves  noth- 
ing in'  this  case.  It  is  not  enough  to  establish  that  the  trustees  are 
sometimes  competent  witnesses ;  it  is  necessaiy  to  show  that  they  are 
always  so  in  respect  to  the  corporate  franchises  and  their  own.  It  will 
not  be  pretended  that  in  a  suit  for  damages  for  obstruction  in  the  ex- 
ercise of  his  oflScial  powers  a  trustee  is  a  disinterested  witness.  Such 
an  obstruction  is  not  a  damnum  absque  injuria.  Each  trustee  has  a 
vested  right  and  legal  interest  in  his  office,  and  it  can  not  be  divested 
but  by  due  course  of  law.  The  illustration,  therefore,  lends  no  new 
force  to  the  argument,  for  it  does  not  establish  that  when  their  own 
rights  are  in  controversy  the  trustees  have  no  legal  interest  in  their 
offices. 


744  DARTMOUTH    COLLEGE   V.  WOODWARD.'  §   1 98 

The  principal  objections  having  been  thus  answered  satisfactorily,  at 
least,  to  my  own  mind,  it  remains  only  to  declare,  that  my  opinion, 
after  the  inost  mature  deliberation,  is  that  the  charter  of  Dartmouth 
College,  granted  in  1769,  is  a  contract  within  the  purview  of  the  con- 
stitutional prohibition. 

[Effect  of  the  revolution.]  I  might  now  proceed  to  the  discussion  of 
the  second  question;  but  it  is  necessary  previously  to  dispose  of  a  doc- 
trine which  has  been  very  seriously  urged  at  the  bar,  viz.,  that  the 
charter  of  Dartmouth  College  was  dissolved  at  the  revolution,  and  is, 
therefore,  a  mere  nullity.  A  case  before  Lord  Thurlow  has  been 
cited  in  support  of  this  doctrine.  Attorney-General  v.  City  of  Lon- 
don, 3  Bro.  C.  C.  171 ;  s.  c.  i  Ves.  Jr.  343.  The  principal  question 
in  that  case  was,  whether  the  corporation  of  William  and  Mary  Col- 
lege in  Virginia  (which  had  received  its  chaiter  from  King  William 
and  Queen  Mary),  should  still  be  permitted  to  administer  the  charity 
under  Mr.  Boyle's  will,  no  interest  having  passed  to  the  college, 
under  the  will,  but  it  acting  as  an  agent  or  tiiistee,  under  a  decree  in 
chancery,  or  whether  a  new  scheme  for  the  administration  of  the 
charity  should  be  laid  before  the  court.  Lord  Thurlow  directed  a 
new  scheme,  because  the  college,  belonging  to  an  independent  gov- 
ernment, was  no  longer  within  the  reach  of  the  court.  And  he  very 
unnecessarily  added,  that  he  could  not  now  consider  the  college  as  a 
corporation,  or  as  another  report  (i  Ves.  Jr.  243)  states  that  he 
could  not  take  notice  of  it,  as  a  corporation,  it  not  having  proved  its 
existence  as  a  corporation  at  all.  If,  by  this,  Lord  Thurlow  meant  to 
declare,  that  all  charters  acquired  in  America  from  the  crown  were 
destroyed  by  the  revolution,  his  doctrine  is  not  law ;  and  if  it  had  been 
true,  it  would  equally  apply  to  all  other  grants  from  the  crown,  which 
would  be  monstrous.  It  is  a  principle  of  the  common  law,  which 
has  been  recognized  as  well  in  this,  as  in  other  courts,  that  the  divis- 
ion of  an  empire  works  no  forfeiture  of  previously  vested  rights  of 
property.  And  this  maxim  is  equally  consonant  with  the  common 
sense  of  mankind,  and  the  maxims  of  eternal  justice.  Terrett  v.  Tay- 
lor, 9  Cranch  43,  50;  Kelly  v.  Harrison,  2  Johns.  Cas.  29;  Jackson 
v,  Lunn,  3  Johns.  Cas.  109;  Calvin's  Case,  7  Co.  27.  This  objec- 
tion, therefore,  may  be  safely  dismissed  without  further  comment. 

[Impairment  of  the  charter.]  The  remaining  inquiry  is,  whether  the 
acts  of  the  legislature  of  New  Hampshire  now  in  question,  or  any  of 
them,  impair  the  obligations  of  the  charter  of  Dartmouth  College. 
The  attempt  certainly  is  to  force  upon  the  corporation  a  new  charter 
against  the  will  of  the  corporators.  Nothing  seems  better  settled  at 
the  common  law  than  the  doctrine  that  the  crown  can  not  force  upon 
a  private  corporation  a  new  charter,  or  compel  the  old  members  to 
give  up  their  own  franchises,  or  to  admit  new  members  into  the  cor- 
poration. Rex  V.  Vice-Chancellorof  Cambridge,  3  Burr.  1656;  Rex 
V.  Pasmore,  3  T.  R.  240;  i  Kyd  on  Corp.  65;  Rex  v.  Larwood, 
Comb.  316.  Neither  can  the  crown  compel  a  man  to  become  a  mem- 
ber of  such  corporation  against  his  will.  Rex  v.  Dr.  Askew,  4  Burr. 
2200.      As  little  has  it  been  supposed  that  under  our  limited  govern- 


4  198      CONTRACTS  IN  THE  CORPORATE  CHARTER.      745 

ments  the  legislature  possessed  such  transcendent  authority.  On  one 
occasion,  a  very  able  court  held  that  the  state  legislature  had  no 
authority  to  compel  a  person  to  become  a  member  of  a  mere  private 
corporation,  created  for  the  promotion  of  a  private  enterprise,  because 
eveiy  man  had  a  right  to  refuse  a  grant.  Ellis  v.  Marshall,  2  Mass. 
269.  On  another  occasion,  the  same  learned  court  declared  that  they 
were  all  satisfied  that  the  rights  legally  vested  in  a  corporation,  can 
not  be  controlled  or  destroyed  by  any  subsequent  statute,  unless  a 
power  for  that  purpose  be  reserved  to  the  legislature  in  the  act  of 
incorporation.  Wales  v.  Stetson,  2  Mass.  143,  146.  These  principles 
are  so  consonant  with  justice,  sound  policy  and  legal  reasoning  that 
it  is  diflRcult  to  resist  the  impression  of  their  perfect  correctness.  The 
application  of  them,  however,  does  not,  from  our  limited  authority, 
properly  belong  to  the  appellate  jurisdiction  of  this  court  in  this  case. 

(Stating  facts  as  to  acts  of  1816.) 

It  is  apparent  that  in  substance  a  new  corporation  is  created,  includ- 
ing the  old  corporators  with  new  powers,  and  subject  to  a  new  control ; 
or  that  the  old  corporation  is  newly  organized  and  enlarged,  and 
placed  under  an  authority  hitherto  unknown  to  it.  The  board  of  trust- 
ees are  increased  from  twelve  to  twenty-one.  The  college  becomes 
a  university.  The  property  vested  in  the  old  timstees  is  transferred  to 
the  new  board  of  trustees,  in  their  corporate  capacities.  The  quorum 
is  no  longer  seven  but  nine.  The  old  trustees  have  no  longer  the  sole 
right  t<5  perpetuate  their  succession  by  electing  other  trustees,  but  the 
nine  new  trustees  are,  in  the  first  instance,  to  be  appointed  by  the 
governor  and  council,  and  the  new  board  are  then  to  elect  other  trust- 
see  from  time  to  time  as  vacancies  occur.  The  new  board,  too, 
have  the  power  to  suspend  or  remove  any  member,  so  that  a  minority 
of  the  old  board,  co-operating  with  the  new  trustees,  possess  the  un- 
limited power  to  remove  the  majority  of  the  old  board.  The  powers, 
too,  of  the  corporation  are  varied.  It  has  authority  to  organize  new 
colleges  in  the  "university  and  to  establish  an  institute  and  elect  fel- 
lows and  members  thereof."  A  board  of  overseers  is  created  (a  board 
utterly  unknown  to  the  old  charter),  and  is  invested  with  a  general 
supervision  and  negative  upon  all  the  most  important  acts  and  pro- 
ceedings of  the  trustees.  And  to  give  complete  effect  to  this  new 
authority,  instead  of  the  right  to  appoint,  the  trustees  are  in  future 
only  to  nominate,. and  the  overseers  are  to  approve,  the  president  and 
professors  of  the  university. 

If  these  are  not  essential  changes,  impairing  the  rights  and  authori- 
ties of  the  trustees,  and  vitally  affecting  the  interests  and  organization 
of  Dartmouth  College  under  its  old  charter,  it  is  difficult  to  conceive 
what  acts,  short  of  an  unconditional  repeal  of  the  charter,  could  have 
that  effect.  If  a  grant  of  land  or  franchises  be  made  to  A.,  in  trust  for 
special  purposes,  can  the  grant  be  revoked  and  a  new  grant  thereof  be 
made  to  A.,  B.  and  C,  in  trust  for  the  same  purposes,  without  vio- 
lating the  obligation  of  the  first  grant?  If  property  be  vested  by 
grant  in  A  and  B.,  for  the  use  of  a  college,  or  an  hospital,  of  private 
foundation,  is   not  the   obligation   of  that  grant   impaired  when  the 


746  DARTMOUTH    COLLEGE   V.  WOODWARD.  §   1 98 

estate  is  taken  from  theif  exclusive  management  and  vested  in  them  in 
common  with  ten  other  persons?  If  a  power  of  appointment  be  given 
to  A.  and  B.,  is  it  no  violation  of  their  right  to  annul  the  appointment, 
imless  it  be  assented  to  by  five  other  persons,  and  then  confirmed  by 
a  distinct  body?  If  a  bank  or  insurance  company,  by  the  terms  of  its 
charter,  be  under  the  management  of  directors,  elected  by  the  stock- 
holders, would  not  the  rights  acquired  by  the  charter  be  impaired,  if 
the  legislature  should  take  the  right  of  election  from  the  stockholders 
and  appoint  directors  unconnected  with  the  corporation  ?  These  ques- 
tions carry  their  own  answers  along  with  them.  The  common  sense 
of  mankind  will  teach  us  that  all  these  cases  would  be  direct  infringe- 
ments of  the  legal  obligations  of  the  grants  to  which  they  refer,  and 
yet  they  are,  with  no  essential  distinction,  the  same  as  the  case  now 
at  the  bar. 

In  my  judgment  it  is  perfectly  clear  that  any  act  of  a  legislature 
which  takes  away  any  powers  or  franchises  vested  by  its  charter  in  a 
private  corporation,  or  its  corporate  officers,  or  which  restrains  or 
controls  the  legitimate  exercise  of  them,  or  transfers  them  to  other 
persons,  without  its  assent,  is  a  violation  of  the  obligations  of  that 
charter.  If  the  legislature  mean  to  claim  such,  an  authority,  it  must 
be  reserved  in  the  grant.  The  charter  of  Dartmouth  College  con- 
tains no  such  reservation ;  and  I  am,  therefore,  bound  to  declare,  that 
the  acts  of  the  legislature  of  New  Hampshire,  now  in  question,  do 
impair  the  obligations  of  that  charter  and  are,  consequently,  uncon- 
stitutional and  void. 

In  pronouncing  this  judgment,  it  has  not  for  one  moment  escaped 
me,  how  delicate,  difficult  and  ungracious  is  the  task  devolved  upon 
us.  The  predicament  in  which  this  court  stands  in  relation  to  the  na- 
tion at  large  is  full  of  perplexities  and  embarrassments.  It  is  called 
to  decide  on  causes  between  citizens  of  different  states,  between  a 
state  and  its  citizens,  and  between  different  states.  It  stands,  there- 
fore in  the  midst  of  jealousies  and  rivalries  of  conflicting  parties,  with 
the  most  momentous  interests  confided  to  its  care.  Under  such  cir- 
cumstances, it  never  can  have  a  motive  to  do  more  than  its  duty ;  and 
I  trust,  it  will  always  be  found  to  possess  firmness  enough  to  do  that. 
Under  these  impressions,  I  have  pondered  on  the  case  before  us  with 
the  most  anxious  deliberations.  I  entertain  great  respect  for  the  leg- 
islature, whose  acts  are  in  question.  I  entertain  no  less  respect  for 
the  enlightened  tribunal  whose  decision  we  are  called  upon  to  review. 
In  the  examination,  I  have  endeavored  to  keep  my  steps  super  antiquas 
vias  of  the  law,  iinder  the  guidance  of  authority  and  principle.  It  is  not 
for  judges  to  listen  to  the  voice  of  persuasive  eloquence  or  popular 
appeal.  We  have  nothing  to  do  but  to  pronounce  the  law  as  we 
find  it;  and  having  done  this,  our  justification  must  be  left  to  the  im- 
partial judgment  of  our  country. 

DuvALL,  Justice,  dissented. 

Judgment  for  $20,000  (as  agreed)  for  plaintiff  in  error. 

Note,.     Mr.  Justice  Miller,  in  his  Lectures  on  Constitutional  Law,  p.  391, 
Bays:  "It  may  well  be  doubted  whether  any  decision  ever  delivered  by  any 


§  198      CONTRACTS  IN  THE  CORPORATE  CHARTER.      747 

court  lias  had  such  a  pervading  operation  and  influence  in  controlling  legisla- 
tion as  this.  The  legislation,  liowever,  has  been  that  of  the  states  of  the 
Union.  The  decision  is  founded  upon  that  clause  of  the  constitution  which 
declares  'That  no  state  shall  make  any  law  impairing  the  obligation  of  con- 
tracts.' " 

The  case  has  been  frequently  and  severely  criticised,  but  notwithstanding 
this,  as  Chief  Justice  Waite  (himself  an  enemy  of  the  decision)  says  in  Stone 
V.  Mississippi,  101  U.  S.  814:  "The  doctrines  of  Dartmouth  College  v.  Wood- 
ward, announced  by  this  court  more  than  sixty  [now  eighty]  years  ago,  have 
become  so  imbedded  in  tiie  jurisprudence  of  the  United  States  as  to  make 
them  to  all  intents  and  purposes  a  part  of  the  constitution  itself.  In  this  con- 
nection, however,  it  must  be  kept  in  mind  that  it  is  not  the  charter  that  is 
protected,  but  onljr  any  contract  which  the  charter  may  contain.  If  there  is 
no  contract  there  is  nothing  in  the  grant  on  which  the  constitution  can  act; 
consequently,  the  first  inquiry  in  all  this  class  of  cases  is  whether  a  contract 
has  in  fact  been  entered  into,  and  if  so,  what  its  obligations  are." 

So,  too,  in  1894,  Judge  Gray,  of  the  New  York  Court  of  Appeals  in  Matter  of 
the  City  of  Brooklyn,  143  N.  Y.  596,  on  609,  says  of  the  case:  "The  principle 
enunciated  has  been  steadily  adhered  to,  despite  criticisms,  and  is  not  ques- 
tioned here."  And  Mr.  Justice  Miller,  in  Pearsall  v.  Great  Northern  Railway, 
161  U.  S.  646,  on  660,  says:  "The  doctrine  of  this  case  has  been  subjected  to 
more  or  less  criticism  by  the  courts  and  the  profession,  but  has  been  reaffirmed 
and  applied  so  often  as  to  have  become  firmly  established  as  a  canon  of 
American  jurisprudence."     See  infra,  p.  1413. 

The  first  case  I  have  found  in  which  the  power  of  the  state  to  modify  a  cor- 
porate charter  was  discussed,  is  Carrie's  Administrators  v.  Mutual  Assurance 
Society,  4  Henning  &  M.  (Va.)  315,  decided  by  the  supreme  court  of  appeals 
of  Virginia  in  1809 — ten  years  before  the  decision  of  the  Dartmouth  College 
Case  by  the  United  States  Supreme  Court.  This  case  is  not  cited  or  com' 
mented  upon  by  the  attorneys  upon  either  side,  or  referred  to  in  the  decis- 
ions of  the  judges  either  in  the  state  or  the  supreme  courts.  This  seems 
strange  when  William  Wirt,  the  attorney-general,  himself  a  Virginian,  was 
counsel  for  the  defendant. 

Upon  one  side  it  was  argued:  "A  charter  is  not  a  law,  but  a  compact  be- 
tween the  sovereign  authority  of  the  state  and  a  citizen.  In  England,  though 
the  parliament  enacts  every  law,  yet  it  grants  no  charters.  These  are  granted 
by  tlie  king,  who  can  not  at  his  mere  pleasure^revoke  them,  but  they  remain 
unalterable  as  fate,  unless  the  corporation  do  some  act,  or  are  guilty  of  some 
omission  which,  according  to  established  rules  and  principles  of  law,  pro- 
duces a  forfeiture.  And  then  it  is  not  competent  for  the  king  (one  of  the  con- 
tracting parties)  to  determine  the  question,  but  belongs  exclusively  to  the 
tribunals  selected  to  decide  all  other  controversies  respecting  charters."  On 
the  other  side  it  was  said :  "A  charter  is  not  a  compact  between  the  state  and 
the  grantee  of  the  charter.  On  the  part  of  the  state  there  is  no  contract,  express 
or  implied.  The  state  is  not  bound  either  to  give  to,  or  to  receive,  to  do,  or 
to  abstain  from  doing  anything.  On  the  part  of  the  society  there  is  no  obliga- 
tion to  the  state.  On  what  ground,  then,  can  it  be  said  that  there  is  a  con- 
tract, when  neither  of  the  parties  enter  into  any  sort  of  obligation.  The  idea 
is  absurd."  Another  view  was:  "That  the  constitution  of  the  United  States 
prohibits  the  legislature  from  passing  such  an  act  without  the  consent  of  the 
body  corporate,  I  am  not  disposed  to  controvert,  although  it  may  well  be 
questioned  whetlier  it  was  intended  to  apply  to  such  a  case.  The  provision  in 
the  constitution  that  *«o  state  sfia'l  pass  a  law  impairing  the  obligation  of  con- 
tracts,' can  not  be  understood  in  the  most  extensive  sense  of  the  words  so  as 
to  embrace,  for  instance,  laws  for  suppressing  usurious  or  gaming  contracts, 
but  must  have  a  reasonable  construction." 

The  court  by  Roane,  J.,  said :  "With  respect  to  acts  of  incorporation,  they 
ought  never  to  be  passed  but  in  consideration  of  services  to  be  rendered  to 
the  public.  *  *  ♦  It  may  be  often  convenient  for  a  set  of  associated  indi- 
viduals to  have  the  privileges  of  a  corporation  bestowe<l  upon  tiiem;  but  if 
their  object  is  merely  private  or  selfish,  if  it  is  detrimental  to,  or  not  promo- 


748  DARTMOUTH    COLLEGE   V.  WOODWARD.  §  1 98 

tive  of  the  public  good,  they  have  no  adequate  claim  upon  the  legislature  for 
the  privilege.  But  as  it  is  possible  that  the  legislature  may  be  imposed  upon 
in  the  first  instance,  and  as  the  public  good  and  the  interests  of  the  associated 
body  may,  in  the  progress  of  time,  by  the  gradual  and  natural  working  of 
events,  be  thrown  entirely  asunder,  the  question  presents  itself  whether, 
under  such  and  similar  circumstances,  the  hands  of  a  succeeding  legislature 
are  tied  up  from  revoking  the  privileges.  My  answer  is,  that  they  are  not. 
In  the  first  case,  no  consideration  of  public  service  ever  existed  and  in  the 
last,  none  contimies  to  justify  the  privilege.  It  is  the  character  of  a  legisla- 
tive act  to  be  repealable  by  a  succeeding  legislature ;  nor  can  a  preceding  leg- 
islature limit  the  power  of  its  successor  on  the  mere  ground  of  volition  only. 
That  effect  can  only  arise  from  a  state  of  things  involving  public  utility, 
which  includes  the  observance  of  justice  and  good  faith  toward  all  men." 

Cases  and  articles  giving  important  facts  relating  to  or  taking  views  op- 
posed to  the  decisions  of  the  supreme  court  are:  1817,  Trustees  of  Dart- 
mouth College  v.  Woodward,  1  N.  H.  Ill,  65  N.  H.  473 ;  1853,  Toledo  Bank  v. 
Bond,  1  Ohio  St.  630;  1863,  Chenango,  etc.,  Co.  v.  Binghamton,  27  N.  Y.  87, 
on  119;  1873,  President  James  A.  Garfield,  "The  Future  of  the  Republic,"  5 
Leg.  Gaz.  409,  2  vol.  of  his  works,  p.  46,  61,  et  seq.;  1874,  Dubuque  v.  Illinois 
Central  R.  Co.,  39  Iowa  56,  on  95;  1878,  Ashuelot  R.  Co.  v.  Elliot,  68  N.  H. 
451;  1881,  East  St.  Louis  v.  Gas  Co.,  98  111.  415,  on  443,  by  Walker,  J. ;  1882, 
People  v.  Stephens,  62  Cal.  209.  on  236;  1886,  The  Dartmouth  College  Case 
and  Private  Corporations  by  Wm.  P.  Wells,  9  Am.  Bar.  Assn.  Rep.  229,  et 
seq.;  1886,  Dow  v.  Northern  R.  Co.,  67  N.  H.  1,  36  Atl.  Rep.  525,  6  Harv.  L. 
R.  161,  213,  8  Harv.  L.  R.  295,  396,  27  Am.  L.  R.  71 ;  1892,  Judge  Seymour  D. 
Thompson,  "Abuses  of  Corporate   Privileges,"  in  26  Am.  L.  R.  169,  et  seq.; 

1893,  E.  A.  Otis,  in  27  Am.  L.  R.  525;  1894,  G.  P.  Wantv,  4  Mich.  L.  J.  251; 

1894,  W.  S.G.  Noyes,  28  Am.  L.  R.  356,  n.  440;  1895,  Alfred  Russell,  Status  and 
Tendencies  of,  30  Am.  L.  R.  321. 

The  inside  history  of  the  political  and  religious  controversy,  and  its  influ- 
ence upon  the  decision,  are  set  forth  fully  in  Shirley's  Dartmouth  College 
Causes;  also  a  short  and  interesting  sketch  of  the  same  is  found  in  27  Am.  L. 
R.,  p.  525 ;  the  best  reasoned  legal  attack  upon  it  (in  the  writer's  opinion}  is  the 
opinion  of  Chief  Justice  Bartley,  in  Toledo  Bank  v.  Bond,  1  Ohio  St.  629;  the 
next  best  is  that  of  Chief  Justice  Doe,  in  Dow  v.  Northern  R.,  67  N.  H  1,  36 
Atl.  525,  6  and  8  Harv.  L.  R.  The  most  savage  attack  is  that  of  Judge  Thomp- 
son, in  26  Am.  L.  R.  169,  and  to  which  view,  he  says  in  his  work  on  corpora- 
tions, he  still  adheres,  4  vol.,  §  5380,  n.  4.  The  best  statement  of  both  its  ben- 
eficial and  evil  effects  is  that  of  Wm.  P.  Wells,  in  9  Am.  Bar  Assn.  Rep.,  p. 
229.  Perhaps  the  two  views  so  ably  expressed  as  follows,  will  continue  to 
enlist  the  strongest  minds  of  the  country  in  upholding  or  destroying  its  doc- 
trine and  effects.  Said  Chancellor  Kent  in  1826:  "The  decision  did  more  than 
any  other  single  act  proceeding  from  the  authority  of  the  United  States  to  throw 
an  impregnable  barrier  around  all  rights  and  franchises  derived  from  the  grant 
of  government,  and  to  give  solidity  and  inviolability  to  the  literary,  charitable, 
religious  and  commercial  institutions  of  our  country,"  1  Kent  Comm.  419.  On 
the  other  hand.  Judge  Cooley,  in  1871,  said:  "It  is  under  the  protection  of  the 
decision  in  the  Dartmouth  College  Case  that  the  most  enormous  and  threat- 
ening powers  in  our  country  have  been  created,  some  of  the  great  and  wealthy 
i-orporations  having  greater  influence  in  the  country  at  large,  and  upon  the 
legislation  of  the  country  than  the  states  to  which  they  owe  their  corporate 
existence,"  Const.  Lim.^  p.  279-80  n.  (2d  ed.). 

A  full  statement  of  the  various  applications  of  the  doctrines  of  the  college 
case  and  their  limitations  is  given  by  Mr.  Justice  Brown  in  Pearsall  v.  Great 
N.  R.  Co  ,  161  U.  S.  646,  on  659,  et  seq.,  infra,  p.  1413. 

1.  The  charter  contract.  The  charter  of  a  private  corporation,  which  con- 
tains a  contract,  can  not  be  so  modified  by  subsequent  legislative  act,  unless 
the  power  to  repeal  or  amend  is  reserved,  as  to  impair  the  obligation  of  the 
charter  contract:  1839,  Crease  v.  Babcock,  23  Pick.  (Mass.)  334,  34  Am.  Dec. 
61  ;  1850,  Commonwealth  v.  Cullen,  13  Pa.  St.  133,  supra,  p.  417;  1865,  Mavor 
Of  New  York  v.  Second  Ave.  R.,  32  N.  Y.  261 ;    1872,  Flint  &  F.  P.  R.  Co.  v. 


§  198     CONTRACTS  IN  THE  CORPORATE  CHARTER.       749 

Woodhull,  25  Mich.  99,  supra,  p.  398 ;  1876,  Hays  v.  Commonwealth,  82  Pa.  St. 
518;  1877,  University  v.  North  Carolina,  etc.,  76  N.  C.  103,  22  Am.  Rep.  671; 
1888,  People  V.  O'Brien,  111  N.  Y.  1,  7  Am.  St.  Rep.  684;  1889,  Grammar 
School  V.  Bailey,  62  Vt.  467;  1892,  Platte  Co.  v.  Dowell,  17  Colo.  376;  1892, 
Mayor,  etc.,  v.  Houston  St.  R.,  83  Tex.  548,  29  Am.  St.  679;  1893,  Millburn  v. 
South  Orange,  55  N.  J.  L.  254;  1894,  Mathews  v.  St.  Louis  S.  F.  R.  Co.,  121 
Mo.  298;  1894,  Reagan  v.  Farmers'  L.  &  T.  Co.,  154  U.  S.  362;  1894,  Indian- 
apolis V.  Consumers'  Gas  Co.,  140  Ind.  107,  49  Am.  St.  Rep.  183;  1896,  Cov- 
ington &  L.  Tump.  R.  Co.  v.  Sandford,  164  U.  S.  578;  1897,  Railroad  Co.  v. 
Harris,  99  Tenn.  684;  1898,  State,  ex  rel.,v.  St.  Louis,  etc.,  145  Mo.  551;  1898, 
Walla  Walla  City  v.  Walla  Walla  Water  Co.,  172  U.  S.  1.  See,  also,  infra, 
cases  immediately  following  this  note. 

2.  Consideration  necessary.  There  must  be  some  consideration  moving 
to  the  state  in  order  to  support  the  contract;  but  the  implied  agreement  upon 
the  part  of  the  corporation  to  perform  the  duties  imposed  upon  it  is  a  suffi- 
cient consideration  to  support  all  contracts  contained  in  the  charter  at  the 
time  of  its  creation ;  a  new  consideration  is  essential  to  support  subse- 
quent contracts  with  the  state.  1871,  Salt  Company  v.  East  Saginaw,  80  U. 
S.  (13  Wall.)  373;  1874,  Tucker  v.  Fergeson,  89  U.  S.  (22  Wall.)  527;  1897, 
Grand  Lodge  v.  New  Orleans,  166  U.  S.  143. 

3.  Unexecuted  powers.  But  powers  not  acted  upon,  or  unexecuted, 
are  in  the  nature  of  an  offer  only  on  the  part  of  the  state,  and  can  be  with- 
drawn at  any  time  before  they  are  acted  upon.  1896,  Pearsall  v.  Great  North- 
ern Railway,  161  U.  S.  646,  infra,  p.  1413;  1896,  Bank  of  Commerce  v.  Tennes- 
see, 163  U.  S.  416;  1898,  Galveston,  H.,  etc.,  R.  v.  Texas,  170  U.  S.  226. 

4.  Laws  giving"  new  or  different  remedies.  Laws  reasonably  affecting 
the  remedy  only,  do  not  impair  the  contract  obligation.  1829,  Vanzant  v. 
Waddel,  2  Yerg.  (Tenn.)  259 ;  1851,  Carey  v.  Giles,  9  Ga.  253 ;  1881,  Penniman'a 
Case,  103  U.  S.  714. 

5.,  Charitable  and  educational  institutions.  The  constitutional  protection 
extends  to  public  charitable  and  educational  institutions:    1838,  Regents  of 
Univ.  of  Md.  v.  Williams,  9  G.  &  J.  (Md.)  365,  31  Am.  Dec.  72;  1847,  Brown 
v.  Hummel,  6  Pa.  St.  86,  47  Am.  Dec.  431 ;    1852,  Vincennes  Univ.  v.  State 
14  How.  (55  U.  S.)  268;    1887,  Board  of  Education  v.  Bakewell,  122  111.  339 
1888,  Liggett  v.  Ladd,  17  Ore.  89;  1889,  Grammar  School  v.  Bailey,  62  Vt.467 
1894,  Graded  School  District  v.  Trustees,  95  Ky.  436;    1895,  Ohio  v.  Neff,  52 
O.  S.  375. 

6.  Municipal  charters.  But  charters  of  public,  or  municipal,  corporations 
may  be  changed  or  modified :  1835,  People  v.  Morris,  13  Wend.  325,  supra, 
p.  113;  1836,  Armstrong  v.  Board,  4  Blackf .  (Ind.)  208;  1850,  East  Hartford  v. 
Bridge  Co.,  10  How.  (51  U.  S.)  511;  1856,  Montpelier  v.  East  Montpelier,  29 
Vt.  12,  67  Am.  Dec.  748;  1860,  Aspinwall  v.  Commissioners  of  Davies  Co.,  22 
How.  (63  U.S.)  364;  1879,  Newton  v.  Commissioners,  100  U.S.  548;  1886, 
Portland  R.  Co.  v.  City,  14  Ore.  188,  58  Am.  Rep.  299;  1891,  New  Orleans  v. 
N.  O.  W.  W.;  142  U.  S.  79. 

7.  Charter  exemptions  from  taxation.  Exemptions  from  taxation,  if  sus- 
tained by  a  sufficient  consideration,  are  contracts  protected  by  the  constitu- 
tional provision;  but  the  later  cases  strictly  require  a  sufficient  consideration. 
1853,  Piqua  Branch  Bank  v.  Knoop,  16  How.  (57  U.  S.)  369;  1869,  Home  of 
Friendless  and  Washington  Univ.  v.  Rouse,  8  Wall.  (75  U.  S.)  430,  439;  1871, 
Salt  Company  v.  East  Saginaw,  "13  Wall.  (80  U.  S.)  373;  1877,  Farrington  v. 
Tennessee,  95  U.  S.  679;  1881,  Asylum  v.  New  Orleans,  105  U.  S.  362;  1883, 
Worth  v.  Railroad  Co.,  89  N.  C.  291,  45  Am.  Rep.  679;  1892,  Louisville  Water 
Co.  v.  Clark,  143  U.  S.  1 ;  1892,  Hamilton  Gas  L.  Co.  v.  Hamilton,  146  IT.  S. 
258;  1897.  Grand  I^dge  F.  &  A.  Masons  v.  New  Orleans,  166  U.  S.  143;  1899, 
Citizens'  Savings  Bank  v.  Owensboro,  173  U.  S.  636,  on  644;  1899,  City  of 
Louisville  V.  Bank  of  Louisville,  174  U.  S.  439. 

8.  Power  to  reg'ulate  rjltes.  Unless  there  is  a  definite  express  grant  of  the 
power  to  regulate  its  own  charges  to  a  qnasi-pnhWc  corporation,  the  state  may 
prescribe  such  rates  as  will  permit  a  reasonable  profit  to  the  corporation 
1876,  Munn  v.  Illinois,  94  U.  S.  113;  1876,  Chicago,  B.  &  Q.  R.  v.  Iowa,  94  U. 


750  YEATON    V.  BANK   OF   THE   OLD    DOMINION.  §   199 

S.  155;  1876,  Peik  v.  C.  &  N.  W.  R.,  94  U.  S.  164;  1884,  Laurel  Fork  R.  Co. 
V.  Wept  Virginia,  25  W.  Va.  324;  1886,  Railroad  Commission  Cases,  116  U.  S. 
307;  1889,  Chicago,  M.  &  St.  P.  R.  v.  Minn.,  134  U.  S.  418;  1892,  Budd  v.  New 
York,  143  U.  S.  517;  1894,  Reagan  v.  Farmers'  L.  &  T.  Co.,  154  U.  S.362;  1894, 
Brass  v.  North  Dakota,  153  U.  S.  391 ;  1896,  Covington  &  L.  Turnp.  R.  Co.  v. 
Sandford.  164  U.  S.  578;  1898,  Smvth  v.  Ames,  169  U.  S.  466;  s.  c,  171  U.  S. 
361;  1898,  Nebraska  T»l.  Co.  v.  State,  55  Neb.  627;  1899,  Lake  Shore  &  M.  S. 
R.  Co.  V.  Smith,  173  U.  S.  684,  reversing  Smith  v.  L.  S.  R.  Co.,  114  Mich.  460; 
1899,  City  of  Danville  v.  Danville  Water  Co.,  180  III.  235;  1899,  San  Diego 
L.  &  T.  Co.  v.  National  City,  174  U.  S.  739;  1899,  Toledo  v.  N.  W.  O.  Natl. 
Gas  Co.,  6  Ohio  N.  P.  531;  'l899,  Gould  v.  Edison  El.  111.  Co.,  29  Miscl.  (N. 
Y.)  559;  1899,  Bailey  v.  Fayette  Gas-F.  Co.,  193  Pa.  175,  44  Atl.  Rep.  251. 

9.  Bridg"e  franchises.     Bee  Piscataqua  Bridge  v.  New  Hampshire  Bridge, 
7  N.  H.  35,  on  68,  supm,  p.  309,  and  note,  p.  320. 

10.  As  to  police  power,  eminent  domain  and  taxation  and  power  to  repeal, 
see  infra,  pp.  1344,  1337,  1370. 


Sec.  199.     2.    Contract  between  the  state  and  the  corporation. 

YEATON  v.  BANK  OF  THE  OLD  DOMINION.^ 

1872.  In  the  Court  of  Appeals  of  Virginia.   21  Grattan's  (Va.) 

Rep.  593-603- 

[Action  of  assumpsit  by  the  bank  against  Yeaton  to  recover  the 
sum  of  $561.07,  and  interest;  the  defense  was  a  tender  of  the  amount 
in  notes  issued  by  the  branch  bank  at  Pearisburg.  The  mother  bank 
was  located  at  Alexandria,  and  the  legislature  reserved  the  "right  to 
repeal,  alter  or  modify  the  charter  at  its  pleasure;"  the  branch  bank 
was  subject  to  the  charter  of  the  mother  bank,  and  its  notes  were  to 
*'be  received  in  payments  of  debts  due  the  bank,  whether  contracted 
at  the  parent  bank  or  at  the  branch  bank."  During  the  war,  while 
Alexandria  was  in  possession  of  the  United  States  authorities,  and 
Pearisburg  not,  the  Virginia  legislature  authorized  the  branch  bank  to 
issue  notes  of  smaller  denomination  than  the  original  charter  allowed ; 
these  notes  became  greatly  depreciated,  and  were  the  ones  tendered 
in  payment  of  the  debt.  Neither  the  directors  nor  stockholders  ever 
accepted  any  amendment  of  the  charter.  Judgment  below  was  for 
the  bank,  and  this  is  the  error  assigned.] 

Christian,  J-  *  *  *  The  power  of  the  legislature  "to  repeal, 
alter  or  modify  the  charter  of  any  bank  at  its  pleasure,"  must  be  held 
to  be  limited  to  this  extent.  It  may  certainly  repeal  the  charter  of 
any  bank,  but  it  can  not  compel  a  bank  to  accept  an  amendment  or 
modification  of  its  charter.  Nor  is  any  such  amendment  or  modifica- 
tion of  its  charter  binding  upon  the  bank  without  its  acceptance. 
Banks  are  private  corporations,  created  by  a  charter  or  act  of  incor- 
poration from  the  government,  which  is  in  the  nature  of  a  contract^ 
and,  therefore,  in  order  to  complete  the  creation  of  such  corporations, 
something  more  than  the  mere  grant  of  a  charter  is  required  ;  that  is, 
in  order  to  give  to  the  charter  the  full  force  and  effect  of  an  executed 
contract,  it  must  be  accepted.  It  is  clear  that  the  government  can  not 
enforce  the  acceptance  of  a  charter  upon  a  private  corporation  with- 

^  Statement  abridged.     Only  part  of  opinion  given. 


§  199    CONTRACT  BETWEEN  STATE  AND  CORPORATION.    75 1 

out  its  consent.  *  *  *  These  well-settled  principles  are  everywhere 
recognized  as  applicable  to  the  original  charters  of  incorporation,  and 
upon  principle  and  authority  they  apply  with  equal  force  to  any  amend' 
merit  or  modification  of  the  charter  as  well  as  to  the  original  charter. 
Though  the  legislature  may  have  the  reserved  power  to  amend  or 
modify  a  charter  of  incorporation^  it  can  no  more  force  the  corpora- 
tion to  accept  such  amendttient  or  modification  than  it  could  have 
forced  upon  them  the  acceptance  of  the  original  charter  without  their 
consent.  Under  the  reservation  they  cati  repeal  or  destroy  the  char- 
ter., without  any  consent  on  the  part  of  the  corporators.,  but  as  long  as 
they  remain  in  existence  as  a  corporate  body.,  they  necessarily  have  the 
power  to  reject  an  amendment  or  modification  of  their  charter.  The 
power  reserved  by  the  legislature  gives  the  right  certainly  to  repeal  or 
destroy,  but  so  far  as  the  right  to  modify  or  alter  is  concerned,  't  is 
nothing  more  than  the  ordinary  case  of  a  stipulation  that  one  of  the 
parties  to  a  contract  may  vary  its  terms  with  the  consent  of  the  other 
contracting  party.  These  principles  grow  out  of  the  nature  of  char- 
ters or  acts  of  incorporation,  which  are  regarded  in  the  nature  of 
contracts.  The  amendment  or  modification  must  be  made  by  the  par- 
ties to  the  contract.,  the  legislature  on  the  one  hand  and  the  corpora- 
tion on  the  other ^  the  former  expressing  its  intention  by  means  of  a 
legislative  act  and  the  latter  assenting  thereto  by  a  vote  of  the  majority 
of  the  stockholders.,  according  to  the  provisions  of  its  charter^  or  by 
other  acts  showing  its  acceptance. 

The  reservation  of  the  right  to  alter,  amend  or  repeal  the  act  by 
which  the  corporation  is  created  may  be  prudent  and  salutary,  but  it 
seems  to  be  a  necessary  implication  that  if  the  legislature  should 
undertake  to  make  what  in  their  opinion  is  a  legitimate  alteration  or 
amendment,  the  corporation  has  the  power  to  reject  or  accept  it  what- 
ever may  be  the  consequences.  One  consequence  undoubtedly  is, 
that  the  corporation  can  not  conduct  its  operations  in  defiance  of  the 
power  that  created  it;  and  if  it  does  not  accept  the  modification 
or  amendment  proposed,  must  discontinue  its  operations  as  a  corpo- 
rate body.  But  such  amendment  or  modification  can  not  be  forced 
upon  the  corporation  without  its  consent.  Sage,  etc.,  v.  Dillard,  etc., 
15  B.  Mon.  R.  340;  Allen  v.  McKean,  i  Sumner's  R.  277;  Durfee 
v.  Old  Colony  and  Fall  River  R.  Co.,  5  Allen's  R.  230.  Every 
amendment  or  modification  of  a  charter  of  incorporation  is  nothing 
more  than  a  new  contract.,  which  is  not  binding  upon  the  corporate 
body  until  accepted  by  them.  Applying  these  doctrines,  which  seem 
to  be  well  settled,  to  the  case  before  us,  it  is  manifest  that  the  Bank 
of  Old  Dominion  can  not  be  held  bound  by  the  acts  of  1862  as  amend- 
ments of  its  charter.     *     *     * 

It  is  no  answer  to  this  view  that  the  branch  bank  at  Pearisburg  was 
within  the  territorial  jurisdiction  of  the  Richmond  government,  and 
subject  to  its  authority.  This  bank  was  not  an  independent  corpora- 
tion. It  had  no  charter;  it  was  but  a  branch  of  its  mother  bank  at 
Alexandria,  subject  to  its  charter.  It  was  but  the  agent,  the  mother 
bank  being  its  principal.   It  could  do  no  act  to  bind  its  principal  with- 


752  HAWTHORNE    V.    CALEF.  §  200 

out  the  consent  and  authority  of  that  principal.  Nor  could  the  legis- 
lature authorize  the  branch  bank  which  owed  its  existence  to  the 
charter  of  the  mother  bank  to  issue  small  notes,  or  to  do  any  other  act 
as  a  bank  without  the  consent  of  the  mother  bank.  The  only  author- 
ity which  the  legislature  could  exercise  was  that  which  it  reserved 
under  the  power  "to  repeal,  modify  or  alter"  the  charter  of  the 
mother  bank.  I  have  already  shown  that  this  was  not  done  by  the 
acts  of  1862,  which  could  not  operate  upon  the  Bank  of  the  Old  Do- 
minion as  a  change  or  modification  of  its  charter.  *  «  » 
Affirmed. 

Note.  See  Commonwealth  v.  Cullen,  aupra,  p.  417 ;  Plank-Road  v.  Woodhull, 
supra,  p.  398;  Railway  Co.  v.  Allerton,  supra,  p.  442;  Ashton  v.  Burbank,  su- 
pra, p.  87 ;  and  note  to  Dartmouth  College  v.  Woodward,  supra,  p.  746. 


Sec.  200.  3.  Contract  between  the  state  and  corporate  creditors, 
and  between  stockholders  and  corporate  creditors,  in  the  case 
of  statutory  liability. 

HAWTHORNE  v.  CALEF.» 

1864.     In  the  Supreme  Court  of  the  United  States.     2  Wall. 

(69  U.  S.)  10-23. 

The  constitution  of  the  United  States  ordains  that  "no  state  shall 
pass  any  law  impairing  the  obligation  of  contracts."  With  this  pro- 
vision in  force,  the  state  of  Maine,  on  the  ist  of  April,  1836,  incor- 
porated a  railroad  company,  the  charter  providing  that  "the  shares  of 
individual  stockholders  should  be  liable  for  the  debts  of  the  corpora- 
tion." "And  in  case  of  deficiency  of  attachable  corporate  property  or 
estate,"  the  provision  went  on  to  say,  "the  individual  property ,  rights 
and  credits  of  any  stockholder  shall  be  liable  to  the  a^noujit  of  his 
stock,  for  all  debts  of  the  corporation  contracted  prior  to  the  transfer 
thereof,  for  the  term  of  six  months  after  judgment  recovered  against 
said  corporation,  and  the  same  may  be  taken  in  execution  on  said  judg- 
ment in  the  same  manner  as  if  said  judgment  and  execution  were 
against  him  individually,  or  said  creditor,  after  said  judgment,  may 
have  his  actioii  on  the  case  against  said  individual  stockholder;  but  in 
no  case  shall  the  property,  rights  and  credits  of  said  stockholder  be 
taken  in  execution,  or  attached  as  aforesaid,  beyond  the  amount  of  his 
said  stock."  Another  section  provides  that  if  sufficient  corporate 
property  to  sati-sfy  the  execution  could  not  be  found,  the  officer  having 
the  execution  should  certify  the  deficiency  on  the  execution,  and  give 
notice  thereof  to  the  stockholder  whose  property  he  was  about  to  take, 
and  if  such  stockholder  should  show  to  the  creditor  or  officer  sufficient 
attachable  corporate  property  to  satisfy  the  debt,  "his  individual  prop- 


^  Arguments  and  parts  of  opinion  omitted. 


§  200  CONTRACTS   BETWEEN    SvTATE   AND    CREDITORS.  753 

erty,  rights  and  credits  shall  thereupoti  be  exempt  from  attachment  and 
execution." 

The  plaintiff,  Hawthorne,  who  had  supplied  the  corporation,  then 
embarrassed  and  insolvent,  with  materials  to  build  its  road,  having 
obtained  judgment  as  a  creditor  against  it,  and  being  unable  to  get 
from  it  satisfaction  (the  company  having,  in  fact,  no  property),  sued 
the  defendant,  Calef,  who  was  a  stockholder,  both  at  the  time  when 
the  debt  was  contracted  and  when  judgment  for  it  was  rendered,  and 
no  transfer  of  whose  stock  had  been  made.  A  few  months  after  the 
debt  was  contracted,  the  legislature  of  Maine  passed  a  statute  repeal- 
ing the  "individual  liability"  clause  of  the  charter. 

On  a  question  before  the  supreme  court  of  Maine — the  highest  court 
of  law  in  that  state — whether  such  repeal  was  or  was  not  repugnant 
to  the  clause  above  cited  of  the  constitution,  that  court  held  that  it 
was  not;  that  the  original  provision — not  making  the  stockholder ^^r- 
S07ially  liable  in  any  way — did  not  constitute  a  "contract"  between 
the  creditor  and  him,  within  the  meaning  of  the  constitution,  and  that 
while,  but  for  the  repealing  act,  the  plaintiff  would  have  been  entitled 
to  recover  of  the  stockholder  individually  to  the  extent  of  his  stock, 
this  repealing  act  had  taken  away  and  destroyed  such  right. 

Judgment  being  given  accordingly  by  the  said  court  in  favor  of  the 
state  statutes,  the  correctness  of  such  judgment  was  now  on  error  be- 
fore this  court. 

Nelson,  J.  The  question  upon  the  provisions  of  the  charter  of 
the  railroad  company — in  connection  with  the  sale  of  the  property  by 
the  plaintiff  to  the  corporation  out  of  which  this  debt  accrued — is 
whether  a  contract,  express  or  implied,  existed  between  him  and  the 
stockholder? 

It  is  asserted  in  behalf  of  the  latter  that  a  contract  existed  only 
between  the  creditors  and  the  corporation ;  and  that  the  obligation  of 
the  stockholder  rests  entirely  upon  a  statutory  liability,  destitute  of 
any  of  the  elements  of  a  contract. 

Without  stopping  to  discuss  the  question  upon  the  clause  of  the 
statute,  we 'think  that  the  case  falls  within  the  principle  of  Wooditiff 
V.  Trapnal,  lo  How.  190;  and  Curran  v.  State  of  Arkansas,  15  How. 
304,  heretofore  decided  in  this  court. 

In  the  first  of  these  cases  the  charter  of  the  bank  provided  that  the 
bills  and  notes  of  the  institution  should  be  received  in  all  payment  of 
debts  due  to  the  state.  The  bank  was  chartered  2d  November,  1836.  On 
the  loth  January,  1845,  this  provision  was  repealed,  and  the  question 
was  whether  or  not,  after  this  repeal,  the  bills  and  notes  of  the  bank 
outstanding  at  the  time  were  receivable  for  debts  due  to  the  state. 
The  court  held,  after  a  very  full  examination,  that  the  clause  in  the 
charter  constituted  a  contract  with  the  holders  of  the  bills  and  notes  on 
the  part  of  the  state,  and  that  the  repealing  act  was  void  as  impairing 
the  obligation  of  the  contract. 

In  the  second  case  the  charter  of  the  bank  contained  a  pledge  or 
assurance  that  certain  funds  deposited  therein  should  be  devoted  to 

48— WiL.  Cases. 


754  TOMLINSON   V.    JESSUP.  §  201 

the  payment  of  its  debts.  It  was  held  by  the  court  that  this  consti- 
tuted a  contract  with  the  creditors,  and  that  the  acts  of  the  legislature 
withdrawing  these  funds  were  void,  as  impairing  the  obligation  of  the 
contract. 

Now,  it  is  quite  clear  that  the  personal  liability  clause  in  the  char- 
ter in  the  present  case  pledges  the  liability  or  guarantee  of  the  stock- 
holders to  the  extent  of  their  stock  to  the  creditors  of  the  company, 
and  to  which  pledge  or  guai'antee  the  stockholders,  by  subscribing  for 
stock  and  becoming  members  of  it,  have  assented.  They  thereby 
virtually  agree  to  become  security  to  the  creditors  for  the  payment  of 
the  debts  of  the  company,  which  have  been  contracted  upon  the  faith 
of  this  liability.       «     *     * 

By  the  clause  in  the  charter  subjecting  the  property  of  the  stock- 
holder he  becomes  liable  to  the  creditor,  in  case  of  the  inability  or 
insolvency  of  the  company  for  its  debts,  to  the  extent  of  his  stock. 
The  creditor  had  this  security  when  the  debt  was  contracted  with  the 
compa7iy  over  and  above  its  responsibility.  This  remedy  the  repeal- 
ing act  has  not  merely  modified  to  the  prejudice  of  the  cj'editor,  but  has 
altogether  abolished,  and  thereby  impaired  the  obligation  of  his  con- 
tract with  the  company.     *     *     * 

Reversed. 

Note.  See  generally :  1845,  Freeland  v.  McCullough,  1  Denio  (N.  Y.)  414, 
43  Am.  D.  685,  note,  694;  1847,  Corning  v.  McCullough,  1  N.  Y.  47,  49  Am.  D. 
287,  note,  308;  1857,  Conant  v.  Van  Shaick,  24  Barb.  (N.  Y.)  87;  1862,  Story 
v.  Furman,  25  N.  Y.  214;  1870, /?i  re  Telegraph  C.  Co.,  L.  R.  10  Eq.  Cas.  384; 
1871,  Norris  v.  Wrenschall,  34  Md.  492;  1871,  Lowry  v.  Inman,  46  N.  Y.  119; 
1873,  Provident  Sav.  Inst.  v.  Jackson,  etc.,  52  Mo.*552;  1878.  Sinking  Fund 
Cases,  99  U.  S.  700;  1881,  Aultman's  Appeal,  98  Pa.  Stat.  505;  1883,  Jerman  v. 
Benton,  79  Mo.  148;  1884,Ninnick  v.  Iron  Works,  25  W.  Va.  184;  1887,  Fourth 
National  Bank  v.  Francklyn,  120  U.  S.  747 ;  1888,  Leavitt  v.  Lovering,  64  N.  H. 
607,  1  L.  R.  A.  58;  1888,  McDonnell  v.  Alabama,  etc.,  85  Ala,  401 ;  1892,  Ken- 
nedy v.  Bank,  97  Cal.  93;  1896,  McGowan  v.  McDonald,  111  Cal.  57,  52  Am. 
Stat.  Rep.  149.  But  see,  contra,  1858,  Coffin  v.  Rich,  45  Maine  507,  71  Am.  D. 
559;  1867,  Woodhouse  v.  Commw.  Ins.  Co.,  54  Pa.  Stat.  307. 


Sec.  201.     4.    Contract  between  the  state  and  the  corporators  or 
members. 

TOMLINSON  v.  JESSUP.' 

1872.     In   the   Supreme   Court    of    the    United    States.     15 
Wallace  (82  U.  S.)  454-459. 

[Bill  in  equity  by  Jessup,  a  stockholder  of  the  Northeastern  Rail- 
road Company  against  Tomlinson  and  other  officers  of  South  Carolina 
to  enjoin  them  from  levying  a  tax  on  the  property  of  the  road.  Lower 
court  granted  the  injunction,  and   appeal  taken.] 

Field,  J.  The  constitution  of  South  Carolina,  adopted  in  1868, 
declares  that  the  property  of  corporations  then  existing  or  thereafter 

'  Statement  except  as  given  in  opinion  omitted. 


§  201  CONTRACT   BETWEEN    STATE   AND   MEMBERS.  755 

created,  shall  be  subject  to  taxation,  except  in  certain  cases,-  not  ma- 
terial to  the  present  inquiry.  The  subsequent  legislation  of  the  state 
carried  out  this  requirement  and  provided  for  the  taxation  of  the  prop- 
erty of  railroad  companies;  and  the  question  presented  is,  whether  the 
act  of  December,  1855,  to  amend  the  charter  of  the  Northeastern  Rail- 
road Company,  exempted  the  property  of  that  company  from  such 
taxation.  The  company  was  incorporated  in  185 1,  and  at  that  time  a 
general  law  of  the  state  was  in  existence,  passed  in  1841,  which  en- 
acted that  the  charter  of  every  corporation  subsequently  granted,  and 
any  renewal,  amendment  or  modification  thereof,  should  be  subject  to 
amendment,  alteration  or  repeal  by  legislative  authority,  unless  the  act 
granting  the  charter  or  the  renewal,  amendment  or  modification  in 
express  terms  excepted  it  from  the  operation  of  that  law.  •  The  pro- 
visions of  that  law,  therefore,  constituted  the  condition  upon  which 
every  charter  of  a  corporation  subsequently  granted  was  held,  and  upon 
which  every  amendment  or  modification  was  made.  They  were  as 
operative  and  as  much  a  part  of  the  charter  and  amendment  as  if  in- 
corporated into  them. 

The  act  amending  the  charter  of  the  Northeastern  Railroad  Com- 
pany, passed  in  December,  1855,  provided  that  the  stock  of  the  com- 
pany, and  the  real  estate  it  then  owned,  or  might  thereafter  acquire, 
connected  with  or  subservient  to  the  works  authorized  by  its  charter, 
should  be  exempted  from  taxation  during  the  continuance  of  the  char- 
ter. This  act  contained  no  clause  excepting  the  amendment  from  the 
provisions  of  the  general  law  of  184 1.  It  was,  therefore,  itself  sub- 
ject to  repeal  by  force  of  that  law. 

It  is  true  that  the  charter  of  the  company  when  accepted  by  the 
corporators  constituted  a  contract  between  them  and  the  state,  and 
that  the  amendment,  when  accepted,  formed  a  part  of  the  contract 
from  that  date  and  was  of  the  same  obligatory  character.  And  it 
may  be  equally  titie,  as  stated  by  counsel,  that  the  exemption  from 
taxation  added  greatly  to  the  value  of  the  stock  of  the  company,  and 
induced  the  plaintiff  to  purchase  the  shares  held  by  him.  But  these 
considerations  can  not  be  allowed  any  weight  in  determining  the 
validity  of  the  subsequent  taxation.  The  power  reserved  to  the  state 
by  the  law  of  184 1  authorized  any  change  in  the  contract  as  it  origin- 
ally existed,  or  as  subsequently  modified,  or  its  entire  revocation.  The 
original  corporators,  or  subsequent  stockholders,  took  their  interests 
with  knowledge  of  the  existence  of  this  power,  and  of  the  possibility 
of  its  exercise  at  any  time  in  the  discretion  of  the  legislature.  The 
object  of  the  reservation,  and  of  similar  reservations  in  other  charters, 
is  to  prevent  a  grant  of  corporate  rights  and  privileges  in  a  form  which 
will  preclude  legislative  interference  with  their  exercise  if  the  public 
interest  should  at  any  time  require  such  interference.  It  is  a  pro- 
vision intended  to  preserve  to  the  state  control  over  its  contract  with  the 
corporators,  which  without  that  provision  would  be  irrepealable  and 
protected  from  any  measures  affecting  its  obligation. 

There  is  no  subject  over  which  it  is  of  greater  moment  for  the  state 
to  preserve  its  power  than  that  of  taxation.     It  has  nevertheless  been 


756  TOMLINSON   V.    JESSUP.  §  20I 

held  by  tnis  court,  not,  however,  without  occasional  earnest  dissent 
from  a  minority,  that  the  power  of  taxation  over  particular  parcels  of 
property,  or  over  property  of  particular  persons  or  corporations,  may 
be  surrendered  by  one  legislative  body,  so  as  to  bind  its  successors 
and  the  state.  It  was  so  adjudged  at  an  early  day  in  New  Jersey  v. 
Wilson,  7  Cranch  164;  the  adjudication  was  affirmed  in  Jefferson 
Bank  v.  Skelly,  i  Black  436 ;  and  has  been  repeated  in  several  cases 
within  the  past  few  years,  and  notably  so  in  the  cases  of  The  Home 
of  the  Friendless  V.  Rouse,  8  Wallace  430;  and  Wilmington  Rail- 
road v.  Reed,  13  Wallace  264.  In  these  cases,  and  in  others  of  a 
similar  character,  the  exemption  is  upheld  as  being  made  upon  con- 
siderations moving  to  the  state  which  give  to  the  transaction  the  char- 
acter of  a  contract.  It  is  thus  that  it  is  brought  within  the  protection 
of  the  federal  constitution.  In  the  case  of  a  corporation,  the  exemption , 
if  originally  made  in  the  act  of  incorporation,  is  supported  upon  the 
consideration  of  the  duties  and  liabilities  which  the  corporators  assume 
by  accepting  the  charter.  When  viade,  as  in  the  present  case,  by  an 
amendment  of  the  charter,  it  is  supported  upon  the  consideration  of  the 
greater  efficiency  with  which  the  corporation  will  thus  be  enabled  to  dis- 
charge the  duties  originally  assumed  by  the  corporators  to  the  public,  or 
of  the  greater  facility  with  which  it  will  support  its  liabilities  and  carry 
out  the  purposes  of  its  creation.  Immunity  from  taxation,  constituting 
in  these  cases  a  part  of  the  contract  with  the  government,  is,  by  the 
reservation  of  power  such  as  is  contained  in  the  law  of  1841,  subject 
to  be  revoked  equally  with  any  other  provision  of  the  charter  when- 
ever the  legislature  may  deem  it  expedient  for  the  public  interests  that 
the  revocation  shall  be  made.  The  reservation  affects  the  entire  re- 
lation between  the  state  and  the  corporation,  and  places  under  legis- 
lative control  all  rights,  privileges  and  immunities  derived  by  its  charter 
directly  from  the  state.  Rights  acquired  by  third  parties,  and  which 
have  become  vested  under  the  charter,  in  the  legitimate  exercise  of 
its  powers,  stand  upon  a  different  footing ;  but  of  such  rights  it  is  un- 
necessary to  speak  here.  The  state  only  asserts  in  the  present  case  the 
power  under  the  reservation  to  modify  its  own  contract  with  the  corpo- 
rators; it  does  not  contend  for  a  power  to  revoke  the  contracts  of  the 
corporation  with  other  parties,  or  to  impair  any  vested  rights  thereby 
acquired. 
Reversed. 

Note.  See  cases  cited  under  Dartmouth  College  v.  Woodward,  mpra,  p.  746, 
and  Yeaton  v.  Bank,  supra,  p.  750.  1851,  Stevens  v.  Rutland,  etc.,  E.,  29  Vt. 
545;  1852,  Bank  of  Pennsylvania  v.  Commonwealth,  19  Pa.  St.  144;  1856,  Erie 
R.  Co.  v.  Casey,  26  Pa.  St.  287 ;  1867.  Zabri.skie  v.  Hackensack  R.,  18  N.  J. 
Eq.  178;  1871,  Wilmington  R.  Co.  v.  Reid,  80  U.  S.  (13  Wall.)  264;  1873,  Del- 
aware R.  Tax,  85  U.  S.  (18  Wall.)  206;  1875,  Lothrop  v.  Stedtnan,  42  Conn. 
683. 


§   202  CONTRACT  BETWEEN  CORPORATION  AND  .MEMBERS.  /S7 

Sec.  202.     5.    Contract  between  the  corporation  and  members,  or 
among  the  members  themselves. 

(«)  As  to  amount  to  be  contributed, 
IRELAND  V.  THE  PALESTINE,  Etc., 'TURNPIKE  COMPANY.* 
1869.  In  the  Supreme  Court  of  Ohio.   19  Ohio  St.  Rep.  369-375. 

[Error  to  common  pleas  reserved  in  the  district  court.  The  Turn- 
pike Company  was  organized  in  1852,  under  a  law  imposing  no  indi- 
vidual liability  upon  stockholders  beyond  their  subscription.  Ireland 
was  a  subscriber  to  the  stock  and  had  fully  paid  up  his  subscription. 
A  later  act  (May  3,  1853)  authorized  those  companies  who  should 
accept  its  provisions  to  issue  bonds  to  complete  their  roads  or  pay 
their  debts,  making  the  stockholders  individually  Hable  to  the  amount 
of  their  stock  on  such  bonds.  The  directors  accepted  this  act,  and 
issued  and  sold  the  bonds.  A  later  act  provided  that  a  majority  of 
shareholders  at  a  meeting  duly  called  could  make  an  assessment /ro 
rata  for  the  payment  of  such  liability.  At  a  meeting  duly  called 
(Ireland  not  being  present  or  represented)  an  assessment  was  ordered. 
Upon  Ireland's  refusal  to  pay,  the  company  brought  suit  and  obtained 
judgment  in  the  lower  court.  Petition  in  enor  was  brought  to  reverse 
this]. 

Welch,  J.  In  our  judgment  the  act  of  May  3,  1852,  in  so  far  as 
it  authorizes  assessments  against  stockholders  who  have  paid  the  full 
amount  of  their  subscriptions,  and  who  by  the  charter  of  the  company, 
or  the  laws  under  which  it  was  organized,  were  not  individually  liable 
for  its  debts,  is  unconstitutional.  It  impairs  the  validity  of  the  contract 
between  the  company  and  the  stockholder .  In  a  contract  betivecn  the 
company  and  a  stockholder ^  or  in  an  action  by  the  for7ner  or  its  creditors 
against  the  latter^  the  stockholder  is  to  be  regarded  as  an  individual 
person^  separate  and  distinct  from  the  corporation.  He  becomes  a 
stockholder  by  virtue  of  a  contract  zvith  the  company,  and  he  has  a 
right  to  stand  upon  the  terms  of  that  contract,  interpreted  and  lim- 
ited by  the  laws  under  which  it  was  made.  By  his  contract  with  this 
company  Ireland  agreed  to  pay  a  specified  sum,  and  no  more.  This 
sum  he  has  fully  paid,  and  to  require  him  to  contribute  an  additional 
amount  would  be  to  violate  the  contract  between  the  parties.  Let  it 
be  understood  that  the  amount  for  which  a  stockholder  becomes  liable 
to  the  company  by  his  subscription  is  not  limited  by  his  contract,  but 
by  the  discretion  of  the  directors,  or  the  stockholders  at  large,  and  no 
prudent  man  will  subscribe  for  stock  in  a  corporation.  If  such  be 
the  law,  it  is  of  little  importance  to  the  subscriber  whether  the  amount 
of  stock  taken  be  large  or  small,  because  it  can  be  indefinitely  in- 
creased at  the  pleasure  of  the  company,  whenever  the  legislature  sees 
proper  to  give  the  power  to  do  so.     If  a  subscriber  contracts  to  pay  a 

'  Statement  abridged.     Arguments  and  part  of  opinion  omitted. 


758  WHITE   MOUNTAINS    R.    CO.    V.    EASTMAN.  §  203 

sum  which  he  deems  within  his  means  of  payment,  he  may  be  called 
upon  to  contribute  an  amount  utterly  beyond  those  means,  and  which 
may  render  him  bankrupt.  No  subscriber  would  be  safe  under  such 
a  law,  or  have  any  rule  by  which  to  determine  the  amount  of  stock 
he  could  afford  to  take.  In  vain  would  he  look  to  the  charter  of  the 
company,  or  to  the  provisions  of  the  constitution  and  subsisting  laws 
of  the  state,  to  learn  the  nature  and  extent  of  the  liability  he  was 
about  to  incur,  if  that  liability  can,  at  the  pleasure  of  the  legislature, 
be  indefinitely  increased  or  modified  by  retroactive  laws.  *  *  * 
Reversed. 

Note.  See,  1806,  Wales  v.  Stetson,  2  Mass.  143,  supra,  p.  150;  1820,  Livings- 
ton V.  Lynch,  4  Johns.  Ch.  (N.  Y.)  573;  1824,  Natusch  v.  Irving,  2  Cooper 
Ch.  358;  1843,  Hartford  &  N.  H.  R.  Co.  v.  Crosswell,  5  Hill  (N.  Y.)  383;  1851, 
Stevens  v.  Rutland,  etc.,  R.,  29  Vt.  545;  1854,  New  Orleans,  etc.,  R.  Co.  v. 
Harris,  27  Miss.  517;  1860,  Simpson  v.  Westminster,  etc.,  Co.,  8  H.  L.  Cas. 
712;  1861,  Abbott  v.  Hard  Rubber  Co.,  33  Barb.  578;  1863,  Clearwater  v. 
Meredith,  68  U.  S.  (1  Wall.)  25;  1867,  Zabriskie  v.  Hackensack,  etc.,  R.,  18 
N.  J.  Eq.  178,  90  Am.  Dec.  617;  1869,  Central  R.  Co.  v.  Collins,  40  Ga.  582, 
on  624;  1873,  Railway  Co.  v.  Allerton,  85  U.  S.  (18  Wall.)  223,  stipra,  p.  442; 
1879,  Kent  v.  Quicksilver  Mining  Co.,  78  N.  Y.  159,  infra,  p.  790;  1880,  Hoey  v. 
Henderson,  32  La.  Ann.  1069;  1885,  Academy  of  Music  v.  Flanders,  75  Ga. 
14;  1892,  People  v.  Ballard,  134  N.  Y.  269;  1898,  Forrester  v.  Boston  &  M.  C. 
G.  &  S.  Co.,  22  Mont.  430,  55  Pac.  Rep.  229;  1899,  Pronick  v.  Spirits  Distrib. 
Co.,  58  N.  J.  Eq.  97,  42  Atl.  Rep.  586 ;  1901,  Bedford  v.  Eastern  B.  &  L.  Assn., 
181  U.  S.  227.  

Sec.  203.    Same. 

(^)  That  subscriptions  are  made  in  good  faith. 

WHITE  MOUNTAINS  RAILROAD  CO.  v.  EASTMAN.^ 

1856.     In  the    Supreme   Judicial  Court   of   New   Hampshire. 
34  N.  H.  Rep.  124-147. 

[Appeal  from  report  of  commissioner  of  insolvency  upon  Eastman's 
estate,  allowing  the  railroad  company  $2,642.12  upon  a  subscription 
made  by  decedent  for  thirty  shares  to  the  company's  stock.  The 
original  subscription  was  made  in  writing  in  the  company's  subscrip- 
tion book,  apparently  upon  the  same  terms  as  other  subscriptions,  but 
at  the  time  it  was  made  the  proper  agents  of  the  corporation  agreed 
in  writing  to  release  the  decedent,  at  his  or  his  administrator's  elec- 
tion, from  all  liability  upon  twenty-five  shares.  This  was  the  defense 
made.] 

Sawyer,  J,  *  *  *  The  two  contemporaneous  writings  upon 
the  same  .subject,  between  the  same  parties,  are  to  be  considered  to- 
gether as  one  contract,  unless  upon  other  grounds  the  writing  given 
by  the  corporation  is  to  be  held  void.  Thus  considered  in  connec- 
tion, effect  would  be  given  to  all  the  stipulations  on  both  sides,  con- 

*  Statement  abridged.     Only  small  part  of  opinion  given. 


§  203     CONTRACT  BETWEEN  CORPORATION  AND  MEMBERS.         759 

tained  in  both  writings,  as  constituting  together  one  agreement.  If 
no  person  were  to  be  affected  by  the  contract  but  the  parties  them- 
selves, it  would  be  competent  for  them  to  agree  that  the  intestate 
should  take  and  pay  for  thirty  shares,  subject,  however,  to  the  condi- 
tion that  if  within  one  year  he  should  elect  to  reduce  the  number  so 
subscribed  for  to  five,  or  any  other  number  not  less  than  five,  he  might 
be  at  liberty  so  to  do,  and  that  the  corporation,  upon  his  paying  for  the 
thirty  or  other  reduced  number  of  shares,  would  give  him  proper  cer- 
tificates therefor,  constituting  him  the  owner  of  them.  *  *  *  If  they, 
for  the  puipose  of  misleading  and  deceiving  third  persons  having  an 
interest  in  the  subject  of  their  contract,  held  out  the  subscription  of  the 
intestate,  as  shown  upon  their  subscription  book,  as  the  contract  be- 
tween them  and  him,  and  concealed  from  those  third  persons  the  fact, 
■  material  for  them  to  know,  that  there  was  a  secret  stipulation  making  the 
contract  an  entirely  different  thing,  the  principles  of  common  honesty 
would  require  that  they  should  be  compelled  to  stand  to  the  agreement 
as  they  held  it  out  to  be.  *  *  *  That  the  proceeding  is  a  fraud  upon 
third  persons  is  clear  from  the  relation  in  which  subscribers  for  stock 
in  a  corporation  of  this  kind  stand  toward  each  other.  In  the  sub- 
scription of  each  person  every  other  subscriber  has  a  direct  interest. 
Their  respective  subscriptions  are  cojitributions  or  advancements  for  a 
cojnmon  object.  The  action  of  each  in  his  S7ibscription  may  be  supposed 
to  be  influenced  by  that  of  the  others,  and  every  subscription  to  be  based 
upon  the  ground  that  the  others  are  what  upon  their  face  they  purport 
to  be.   *  *  * 

The  fact  that  one  man  has  bound  himself  to  place  a  certain  amount 
of  his  money  upon  the  risk  involved  in  the  enterprise  is  an  induce- 
ment to  others  to  venture  in  like  manner.  Seeing  who  are  his  associ- 
ates, and  the  extent  of  the  liability  which  they  have  assumed,  he  reg- 
ulates his  own  upon  that  consideration ;  and  though  inform  and  legal 
effect  the  contract  of  each  is  with  the  corporation, yet  among  the  subscrib- 
ers themselves  it  is  to  be  regarded  as  an  agreement  with  every  other  sub- 
scriber to  bear  that  proportion  of  the  common  burthen  to  which  he  pro- 
fesses to  bind  himself  by  the  contract  which  he  holds  ozct  to  them  as  his 
contract  with  the  corporation .  *  *  *  To  hold  that  the  secret  stipulation  is 
valid  as  between  these  parties  would  be  to  give  full  effect  to  the  xraud 
by  relieving  the  estate  of  the  intestate  from  a  part  of  that  burthen  which 
he  held  out  to  the  other  subscribers  he  had  assumed,  and  throwing 
upon  them  the  necessity  of  providing  for  it.  To  hold  that  by  fraud  the 
whole  contract  as  between  the  parties  is  void  would  but  increase  the  in- 
justice as  to  the  other  subscribers,  for  it  would  throw  upon  them  the 
whole  of  that  proportion  of  the  common  burthen  which  the  intestate  held 
out  to  them  he  had  assumed  ;  while,  on  the  other  hand,  by  holding  that 
the  contract  which  the  parties  held  out  to  them  as  the  true  one,  was 
in  fact  the  contract  made  by  them — all  secret  stipulations  rendering  it 
other  than  that  being  void  as  fraudulent  toward  third  persons — the 
contemplated  fraud  is  defeated  and  perfect  justice  done  to  the  other 


76o  WHITE   MOUNTAINS    R.    CO.    V.    EASTMAN.  §  204 

subscribers,  and  at  the  same  time  in  so  holding  no  wrong  is  done  to 
the  parties  of  which  either  has  reason  to  complain.     *     *     * 
Affirmed. 

Note.  See,  1827,  Center  &  K.  Turnpike  Co.  v.  McConaby,  16  S.  &  R.  (Pa.) 
140;'  1858,  Graff  v.  Pittsburg  &  S.  R.  Co.,  31  Pa.  St.  489;  1859,  LaGrange  &  M. 
Plank  R.  Co.  v.  Mays,  29  Mo.  64;  1869,  Custar  v.  Titusville  Gas  &  W.  Co.,  63 
Pa.  St.  381;  1875,  Melvin  v.  Lamar  Ins.  Co.,  80  111.  446,  22  Am.  Rep.  199; 
1876,  Phoenix  Warehouse  Co.  v.  Badger,  67  N.  Y.  294;  1878,  Miller  v.  Han- 
over, Jc.  &  S.  R.  Co.,  87  Pa.  St.  95,  30  Am.  Rep.  349;  1886,  Galena  &  S.  W. 
R.  Co.  V.  Ennor,  116  111.  55;  1888,  Topeka  Manufacturing  Co.  v.  Hale,  39 
Kan.  23;  1889,  Morrow  v.  Iron  &  Steel  Co.,  87  Tenn.  262,  3  L.  R.  A.  37. 

Compare,  1872,  Burke  v.  Smith,  16  Wall.  390;  1888,  Morgan  v.  Struthers, 
131  U.  S.  246;  1888,  Meyer  v.  Blair,  109  N.  Y.  600,  4  Am.  St.  Rep." 500;  1889, 
Winston  v.  Dorsett  Pipe  &  P.  Co.,  129  111.  64,  4  L.  R.  A.  507. 

But  under  some  circumstances  conditional  deliveries  in  escrow  are  valid. 
See,  1874,  Bucher  v.  Dillsburg&  M.  R.  Co.,  76  Pa.  St.  306;  1894,  Great  West- 
ern Tel.  Co.  V.  Loewenthal,  154  111.  261 .  Also,  Minneapolis  Threshing  Mac.  Co. 
V.  Davis,  40  Minn.  110,  12  Am.  St.  Rep.  701,  3  L.  R.  A.  796,  stipra,  p.  492; 
Wight  V.  Shelby  R.  Co.,  16  B.  Mon.  4,  supra,  p.  536,  and  Cass  v.  P.,  Y.  &  C. 
R.  Co.,  80  Pa.  St.  31,  supra,  p.  538. 


ARTICLE  III.   THE  CORPORATE  FUNDS CAPITAL  STOCK. 

Sec.  204.  In  general.  "The  legal  relations  resulting  from  incor- 
poration subsist  in  respect  of  the  object  of  incorporation  spe- 
cified in  the  charter  or  articles  of  association  and  the  means  of 
attaining  this  object,  i.  e.,  the  corporate  funds  and  property. 
Roughly  speaking,  the  general  result  of  these  relations  is  that 
the  corporate  funds  become  a  so-called  trust  fund,  set  apart 
for  the  attainment  of  the  object  of  incorporation."  *  *  * 
"The  general  outline  is  this:  The  state  has  the  power  or 
right  to  enforce  the  application  of  these  funds  to  the  objects 
of  incorporation,  at  least,  so  far  as  the  public  is  interested  in 
their  attainment;  the  shareholders  have  the  right  to  apply 
these  funds  to  these  objects ;  and  the  creditors  of  the  corpora- 
tion have  the  right  to  prevent  the  diversion  of  these  funds 
from  the  objects  of  incorporation  to  the  injury  of  creditors. 
The  result  of  the  respective  rights  of  these  different  classes  of 
persons  is  that  corporate  property  becomes  a  fund  set  apart 
for  the  attainment  of  certain  purposes  from  which  it  can  not 
be  diverted  without  the  consent  of  all  whose  legally  protected 
interests  would  be  injured  by  such  diversion." — Taylor  Pri- 
vate Corporations,  §§  32-34. 


§  205  THE   CAPITAL   STOCK  76I 

Sec.  205.     Right  to  create  a  capital  stock. 

COOKE  V.  MARSHALL.* 

1899.     In  the  Supreme  Court  of  Pennsylvania.     191  Pa.  St. 

Rep.  315-323- 

[J^«o  warranto  to  determine  right  to  office  of  secretary  of  the  Char- 
tiers  Cemetery  Company.  This  company  was  created  by  act  of  1862, 
with  the  usual  corporate  powers — nothing  being  said  as  to  power  to 
have  a  capital  stock.  The  corporators  organized,  passed  a  resolution 
establishing  the  cemetery  on  the  ground  designated,  "and  for  this 
purpose"  fixed  the  capital  stock  at  "$8,000,  divided  into  160  shares  of 
the  par  value  of  $50  each."  This  was  subscribed,  and  the  corpora- 
tion proceeded  to  business.  Afterward  increases  were  made,  first  to 
$50,000,  and  later  to  $150,000.  In  1893,  at  an  informal  meeting  of 
some  of  the  shareholders,  the  board  was  increased  from  five  to  seven 
members,  and  Cooke  was  elected  secretary ;  to  these  acts  Marshall 
protested,  and  later  he,  in  connection  with  other  members,  organized 
a  new  board,  wholly  ignoring  all  idea  of  corporate  stock,  elected  "as- 
sociates" and  officers,  and  Marshall  has  ever  since  claimed  to  be  sec- 
retary, and  obtained  possession  of  the  seal  and  books  of  the  company. 
The  stock  board,  however,  continued  to  conti'ol  the  management  of 
the  cemetery.  Cooke  brought  the  suit  and  obtained  judgment  below. 
Marshall  appealed.] 

Green,  J.  *  *  *  The  question  then  is,  was  the  original  creation 
and  issue  of  stock  lawful,  and  if  so,  were  the  subsequent  increases  law- 
ful ?  The  issue  was  made  for  the  purpose  of  performing  the  original 
duty  to  establish  a  cemeteiy.  It  was  necessary  to  acquire  land  in  order 
to  create  the  cemetery,  and  the  corporators  adopted  the  method  of  ob- 
taining the  land  by  issuing  stock  in  payment  for  it.  It  is  not  denied 
that  the  corporation  might  have  borrowed  inoney  for  this  purpose, 
and  made  a  mortgage  on  the  property  to  secure  the  payment  of  it, 
although  no  such  power  was  expressly  conferred  by  the  charter.  On 
the  question  whether  capital  stock  might  be  issued  for  the  same  pur- 
pose where  the  charter  has  not  specially  authorized  a  capital  stock, 
not  a  single  authority  is  cited  for  or  against  in  the  paper-books  of 
either  party.  There  is  no  doubt  that  this  particular  corporation  did 
possess  full  corporate  powers,  and  there  is  also  no  doubt  that  it  was 
not  only  authorized  but  expressly  enjoined  to  create  a  cemetery  of  not 
less  than  thirty  acres  in  extent,  and  after  that  to  lay  it  out  into  lots  and 
plots,  and  roads  and  walks,  and  to  do  various  other  things  neces- 
sary to  its  proper  development  as  a  cemetery.  No  method  of  raising 
money  to  acquire  the  land  and  do  these  various  things  was  provided  in 
the  charter.  The  ordinary  method  in  which  such  things  are  done  is 
by  the  creation  and  issue  of  capital  stock,  and  it  may  be  argued  with 
apparent  reason  that  it    is  a  necessary  implication   from  the  grant  of 

*  Arguments  and  part  of  opinion  omitted.    Statement  abridged. 


762  COOKE   V.    MARSHALL.  ,  §  205 

corporate  existence  and  powers  that  a  right  to  issue  stock  is  conferred. 
*  *  *  In  this  case,  however,  the  charter  confers  no  power  to  issue 
any  stock,  and  for  such  a  company  as  this  no  such  power  is  needed.  It  is 
remarkable  that  it  is  so  difficult  to  find  either  text-book  discussion  of 
this  subject  or  adjudicated  cases.  Whether  a  corporation  without  capital 
provided  for  in  its  charter  may  create  and  issue  capital  stock  is  certainly 
a  fundamental  and  radical  matter  in  corporation  law.  In  i  Cook  on 
Stock,  etc.,  §  279,  it  is  said,  "The  capital  stock  of  all  incorporated 
companies  is  generally  fixed  by  the  charters  which  give  them  an  exist- 
ence." Section  281,  "In  the  absence  of  express  authority  from  the 
state  a  corporation  has  no  power  whatsoever  to  increase  or  reduce  the 
amount  of  its  stock,  and  any  attempt  on  the  part  of  the  corporation, 
either  by  the  corporate  officers  or  by  the  stockholders,  to  do  so  is 
wholly  illegal  and  void.  *  *  *  Where  the  attempted  increase  or 
reduction  of  the  stock  is  not  authorized  by  the  charter,  not  even  the 
unanimous  assent  and  agreement  of  all  the  parties  concerned  will  le- 
galize it."      *     *     * 

(Citing  Droitwich  P.  S.  Co.  v.  Curzon,  L.  R.  3  Ex.  35;^  Scovill  v. 
Thayer,  105  U.  S.  143  ;  Sutherland  v.  Olcott,  95  N.  Y.  93 ;  i  Mora- 
wetz,  §  434,  to  the  same  effect.) 

It  follows,  hence,  that  the  increase  of  stock  being  void,  all  the  elec- 
tions held  thereunder  since  that  time  are  void  and  confer  no  authority 
upon  the  persons  elected. 

This  ruling  would  dispose  of  the  present  contention,  but  it  is  per- 
haps desirable  that  the  original  creation  of  the  $8,000  of  capital  stock 
should  be  considered.  It  is  extremely  difficult  to  understand  under 
the  foi'egoing  decisions  how  any  issue  of  capital  stock  by  this  com- 
pany can  be  regarded  as  valid.  The  company  was  chartered  to  es- 
tablish a  cemetery.  While  a  cemetery  company  is  not  necessarily  a 
religious  or  charitable  corporation,  yet  in  many  instances  it  is  of  that 
character,  and  perhaps  as  a  nde  this  is  so  ;  yet  they  may  be  established 
as  merely  private  enterprises  and  carried  on  for  profit.  But,  in  either 
case,  if  the  charter  confers  no  right  or  power  to  create  capital  stock, 
it  is  difficult  to  understand  how  any  right  to  create  and  issue  such 
stock  has  any  existence.  If  capital  stock  may  neither  be  increased 
nor  diminished  without  an  express  power  to  that  effect,  how  can  any 
stock  be  created  or  issued  when  there  is  no  capital  stock  fixed  by  the 
charter,  and  no  power  is  given  to  create  it  ?  In  i  Cook  on  Corpora- 
tions, §  8,  the  following  definition  of  capital  stock  is  given:  "Capital 
stock  is  the  sum  fixed  by  the  corporate  charter  as  the  amount  paid  in, 
or  to  be  paid  in,  by  the  stockholders  for  the  prosecution  of  the 
business  of  the  corporation,  and  for  the  benefit  of  corporate  cred- 
itors."    *     *      * 

(Citing  Barry  v.  Merchants'  Exchange,  i  Sandf.  Ch.  280;^  Amer- 
ican Pig  Iron  S.  Co.  v.  State  Bd.,  etc.,  56  N.  J.  L.  389;  Salem  Mill 
Dam  Co.  v.  Ropes,  6  Pick.  23.) 

Now,  if  the  doctrine  of  these  cases  (and  there  are  many  more  of 
them)  be  true,  and  the  act  of  increasing  or  decreasing  the   capital 

*  Infra,  p.  764.     "  Infra,  p.  766. 


§  206  THE   CAPITAL   STOCK.  763 

Stock  of  a  coi-poration  withou*:  specific  charter  power  to  do  so  is  a 
void  act  because  it  is  ultra  vires,  how  can  it  be  true  that  a  corpora- 
tion may  issue  any  capital  stock  without  having  specific  legislative 
authority  to  do  so  ?  We  can  not  see.  If  it  is  ultra  vires  to  increase^ 
it  is  ultra  vires  to  issue  any  stock  where  no  power  to  do  so  is  con- 
ferred by  the  charter.  The  power  to  create  corporate  capital  stock 
is  a  legislative  function,  and,  in  any  given  case,  in  order  that  such 
stock  may  have  a  legal  existence,  the  function  must  be  exercised. 
Reversed. 


Sec.  206.     Power  to  increase  the  capital  stock. 
See  RAILWAY  CO.  v.  ALLERTON,  86  U.  S.  (18  Wall.)  233,  mpra,  p.  442. 

Note..  See,  also:  1827,  Salem  Mill  D.  Corp.  v.  Ropes,  23  Mass.  (6  Pick.) 
23;  1854,  People  v.  Parker  Vein  Coal  Co.,  10  How.  Pr.  (N.  Y.)  543;  1856, 
Mechanics'  Bank  v.  New  York,  etc.,  R.,  13  N.  Y.  599;  1856,  Ferris  v.  Ludlow, 
7  Ind.  517;  1865,  New  York  &  N.  H.  R.  Co.  v.  Scluivler,  34  N.  Y.  30;  1878, 
Moses  V.  Ocoee  Bank,  1  Lea  (Tenn.)  398;  1881,  Scovill  v.  Thayer,  105  U.  S.. 
143;  1882,  Grangers',  etc.,  Ins.  Co.  v.  Kamper,  73  Ala.  325;  1884,  Sutherland 
v.  Olcott,  95  N.  Y.  93;  1889.  Cartwright  v.  Dickinson,  88  Tenn.  476;  1891, 
Jones  V.  Railroad  Co.,  67  N.  H.  119,  234;  1895,  Einstein  v.  Rochester  Gas, 
etc.,  Co.,  146  N.  Y.  46;  1897,  Peck  v.  Elliott,  47  U.  S^  App.  605,  79  Fed.  Rep. 
10,  24  C.  C.  A.  425,  38  L.  R.  A.  616,  and  note. 

But  it  seems  that  if  the  charter  or  articles  of  association  provides  that  the 
stock  may  be  fixed  bv  the  members,  it  may  be  changed  from  time  to  time  by 
the  members.     See,  1897,  Peck  v.  Elliott,  47  U.  S.  App.  605,  38  L.  R.  A.  616. 

Overissued  shares  are  void,  even  in  the  hands  of  hona  Jide  holders:  1854, 
People  v.  Parker  Vein  Coal  Co.,  10  How.  Pr.  (N.  Y.)  543;  1865,  N.  Y.  &  N. 
H.  R.  V.  Schuyler,  34  N.Y.  30;  1867,  Bruff  v.  Mali,  36N.Y.  200;  1868,  Sewell's 
Case,  L.  R.  3  Ch.  App.  131,  138;  1882,  People's  Bank  v.  Kurtz,  99  Pa.  St.  344; 
1893,  Hayden  v.  Charter  Oak  D.  P.,  63  Conn.  142. 

But  the  corporation  is  liable  to  an  innocent  holder  for  the  tort  of  the  officer, 
if  he  was  clothed  with  the  general  power  to  issue  stock  for  the  corporation: 
1842,  Daly  v.  Thompson,  10  M.  &  W.  309;  1857,  Mandlebaum  v.  North  .Ajti. 
Min.  Co.,  4  Mich.  465;  1865,  New  York  &  N.  H.  R.  v.  Schuvler,  34  N.  Y.  30, 
49,  60;  1867,  Bruff  v.  Mali,  36  N.  Y.  200;  1868,  Re  Bahia,  etc.,  R.  Co.,  L.  R. 
3  Q.  B.  584,  595;  1873,  Tome  v.  Parkersburg  Br.  R.,  39  Md.  36;  1882,  Peoples' 
Bank  v.  Kurtz,  99  Pa.  St.  344;  1889,  Allen  v.  South  Boston  R.,  150  Mass.  200; 
1892,  Ryder  v.  Bushwick  R.,  134  N.  Y.  83;  1893,  Havden  v.  Charter  Oak  Driv. 
Park,  63  Conn.  142;  1893,  Fifth  Avenue  Bank  v.  Forty-Second  St.,  etc.,  R.  Co., 
137  N.  Y.  231 ;  1897,  Cincinnati,  etc.,  R.  v.  Citizens'  Nat'l  Bank.  66  Ohio  St. 
351,  47  N.  E.  Rep.  249,  43  L.  R.  A.  777. 

Unless  the  stock  is  taken  from  such  officer,  as  a  part  of  a  transaction  in 
which  he  is  personally  interested  at  the  time:  1884,  Moores  v.  Citizens'  Na- 
tional Bank,  111  U.  S.  156;  1890,  Farrington  v.  South  Boston  R.,  160  Mass. 
406;  1890,  Wilson  v.  Metropolitan  El.  R.,  120  N.  Y.  145;  1891,  Hill  v.  Jewett 
Pub.  Co.,  164  Mass.  172;  1893,  Manhattan  L.  Ins.  Co.  v.  Forty-Second,  etc., 
R.,  139  N.  Y.  146. 


764  DROITWICH    SALT    CO.    V.    CURZON.  §  20/ 

Sec.  207.      Power  to  decrease  the  capital  stock. 

DROITWICH  SALT  CO.  v.  CURZON.» 

1867.     In  the  English  Court  of   Exchequer.     L.   R.  3   Exch. 

35-43- 

Kelly,  C.  B.  *  *  *  The  plaintiffs  are  a  company  which  were  in 
existence  long  before  the  passing  of  the  companies  act,  1862.  At  the 
time  of  the  passing  of  that  act,  or  rather  a  short  time  afterward,  when 
they  called  on  the  registrar  to  register  them  under  the  act,  their  nom- 
inal capital  was  250,000/.  But  this  capital  was  then  farther  stated  to 
be  "in  10,000  shares  of  25/.  each,  all  taken,  25/.  having  been  paid  on  the 
first  5,000  shares,  15/.  on  the  next  1,000  shares,  and  5/.  on  the  remaining 
4,000  shares;"  and  it  was  also  stated  that  the  last  5,000  shares  were 
issued  at  25/.  each  "for  the  sums  above  mentioned."  This  amounts 
in  substance  to  a  declaration  that  the  actual  amount  of  capital  had 
been  reduced  from  250,000/.  to  160,000/.,  thus:  there  had  been  anew 
issue  of  1,000  shares  on  the  original  capital  of  125.000/.  at  15/.  a 
share,  and  two  subsequent  issues  of  4,000  shares  at  5/.  each.  The 
aggregate  amount  subscribed  was,  therefore,  160,000/.,  and  this  was 
the  real  capital  of  the  company,  although  their  nominal  capital 
amounted  to  250,000/.  It  is  said  that  the  words  in  the  requisition  for 
registration,  "the  last  5,000  shares  were  issued  at  25/.  each,_/c>r  Me 
su?ns  above  mentioned^"  amount  to  a  statement  that  these  shares  were 
to  be  considered  as  fully  paid  up.  Probably  this  is  so,  and  at  all 
events  the  registrar  entered  the  company  on  the  register,  whether  by 
inadvertence  or  othei*wise,  under  the  act  of  1862,  in  the  manner 
above  described.  Subsequently  he  was  called  upon  to  register  a 
further  change  in  the  amount  of  capital.  Resolutions  were  passed 
reducing  the  capital  to  100,000/.  in  10,000  fully  paid-up  shares  of  10/. 
each.  These  resolutions  were  sent  to  the  registrar  and  were  recorded 
by  him.  In  fact,  he  ought  to  have  refused  to  record  them.  He  did, 
however,  perhaps  per  incuriam,  enter  the  reduction  of  capital.  Then 
he  was  called  upon  to  register  an  increase  of  this  reduced  capital  from 
100,000/.  to  125,000/.  Notice  was  duly  given  to  him  of  the  proposed 
increase,  but  he  refused  to  record  the  notice  or  the  amount  of  the 
increase.  Had  he  done  so,  then  taking  all  the  entries  together  as  rep- 
resenting the  constitution  and  condition  of  the  company,  the  entry  of 
125,000/.  would  have  amounted,  in  fact,  to  an  entry,  not  of  an  increase, 
but  of  a  reduction  of  the  nominal  capital  of  250,000/..  as  originally 
registered,  to  125,000/.  The  question,  therefore,  really  is,  whether 
the  company  were  entitled  to  reduce  their  nominal  capital  and  to  call 
upon  the  registrar  to  enter  on  the  register  a  minute  of  that  reduction? 

Now,  in  the  case  of  a  company  formed  under  the   act  of  1862,   and 

'  Facts  sufficiently  stated  in  the  opinion,  part  of  which  is  omitted.  Also 
arguments,  and  concurring  opinions  of  Bramwell,  Channel]  and  Piggot, 
Barons,  are  omitted. 


§  207  THE   CAPITAL   STOCK.  765 

also  in  the  case  of  a  company  already  formed,  which  afterwards  is 
registered  under  the  act,  it  is  imperative  on  the  registrar  to  enter  on 
the  register  the  amount  of  nominal  capital.  With  regard  to  compa- 
nies limited  by  shares  formed  under  the  act,  section  8  enacts  that  the 
memorandum  of  association  shall,  among  other  things,  contain  "the 
amount  of  capital  with  which  the  company  proposes  to  be  registered, 
divided, into  shares  of  a  certain  fixed  amount,"  and  before  registration 
the  registrar  (who  has  to  give  a  certificate  which  is  to  be  conclusive 
evidence  that  all  the  requisites  of  the  act  in  respect  of  registration 
have  been  complied  with)  must  satisfy  himself  that  the  matter  to  be 
registered — the  memorandum  of  association — contains  all  the  elements 
prescribed  by  the  different  clauses  of  section  8,  and  no  alteration  in 
any  one  of  these  elements  can  be  made  unless  expressly  authorized 
(section  12).  The  law  is  the  same  where  an  existing  company  ap- 
plies for  registration.  Section  183  provides  that,  previous  to  registra- 
tion, a  statement  of  "the  nominal  capital  of  the  company,  and  the 
nimiber  of  shares  into  which  it  is  divided,"  is  to  be  delivered  to  the 
registrar,  and  his  certificate  of  incorporation  is  to  be  conclusive  evi- 
dence (section  192)  that  all  the  requisitions  in  the  act  contained  in 
respect  of  registration  have  been  complied  with.  It  is  quite  clear, 
therefore,  that  the  nominal  amount  of  capital,  and  the  number  of 
shares  into  which  it  is  divided,  must  be  stated  to  the  registrar,  by 
whom  that  amount  must  then  be  entered  on  the  register. 

We  next  have  to  consider  whether  an  existing  company,  when  once 
registered,  have  any  power  under  the  act  of  1S62  to  give  effect  to  a 
provision  contained  in  their  original  deed  of  settlement  to  reduce  their 
capital.  Now,  there  is  an  express  power  given  to  increase  capital 
(section  12),  but  nowhere  can  there  be  found  an  express  provision 
pointing  to  a  power  to  reduce,  after  once  the  nominal  amount  of  cap- 
ital has  been  registered.  Is  it  then,  the  effect  of  the  sixth  clause  of 
section  196,  to  enable  a  company  existing  before  the  act,  and  register- 
ing under  it,  to  exercise  the  power  of  reducing  their  capital ;  or  rather, 
is  it  the  effect  of  that  article  to  legalize  the  continuance  of  a  power 
already  possessed  under  the  original  deed  of  settlement  or  articles  of 
association .''  The  language  of  the  sixth  clause  is  as  follows  (his  lord- 
ship read  the  clause),  and  as  far  as  that  language  goes  it  is  not  con- 
tended that  there  is  anything  in  it  to  render  lawful  a  reduction  of 
capital.  But  there  follows  a  proviso  in  these  terms:  "Nothing  herein 
contained  shall  derogate  from  any  power  of  altering  its  constitution 
or  regulations  which  may  be  vested  in  any  company  registering  under 
this  act  in  pursuance  of  this  part  thereof  by  virtue  of  any  act  of  par- 
liament, deed  of  settlement,  etc.,  constituting  or  regulating  the  com- 
pany." Now,  in  construing  this  proviso,  I  take  it  that  before  the 
word  "power"  we  ought  to  introduce  the  word  "lawful,"  and  that 
the  proviso  means  that  nothing  in  the  act  is  to  derogate  from  any 
"lawful  power"  before  possessed  by  any  company. 

Is  this  power  of  reduction,  then,  a  lawful  power,  a  power  which 
could  be  exercised  consistently  with  justice,  and  with  the  objects  of  the 
act.''  If  it  applies,  we  must  remember,  to  a  company  where  the  whole 


766        BARRY  V.  MERCHANTS'  EXCHANGE  CO.       §  2o8 

amount  of  the  shares  has  been  paid  up,  there  is  no  reason  why  it 
should  not  apply  to  a  company  where  a  portion  only  of  the  nominal 
amount  registered  has  been  paid  up,  and  the  shareholders  are  liable 
to  contribute  for  the  remainder.  Now,  it  is  impossible  to  contend  that 
a  company  registered  with  a  nominal  capital  of  250,000/.,  made  up  of 
25/.  shares,  of  which  say  only  15/.  or  20/.  is  paid,  should  have  power 
to  enforce  the  registrar  to  register  resolutions  reducing  their  c;ipital  to 
the  amount  actually  paid  up.  If  such  a  proceeding  were  permitted, 
the  shareholders'  liability  would  be  limited,  not,  as  was  intended,  by 
the  amount  of  their  shares,  but  by  the  amount  of  the  already  paid-up 
portion  of  their  shares.  Justice,  the  language  of  the  act  and  the  inten- 
tion of  the  legislature  alike  forbid  an  interpretation  which  would  lead  to 
such  a  result.  I,  therefore,  think  that  the  nominal  capital  of  this  com- 
pany having  been  registered  at  250.000/.,  it  was  not  competent  to  the 
plaintiffs  to  reduce  that  capital.  The  registrar  should  not  have  regis- 
tered the  resolutions  making  that  reduction,  and  when  he  was  called 
on  to  make  a  further  entry  which  would  have  affirmed  the  previous 
improper  reduction  of  capital,  he  was  justified  in  declining  to  make 
it.     The  defendant,  therefore,  is  entitled  to  our  judgment. 

Note.  See,  also:  1856,  Ferris  v.  Ludlow,  7  Ind.  517;  1896,  Niagara  Shoe 
Co.  V.  Tobey,  71  111.  App.  250;  1897,  In  re  Colmer,  1  Ch.  524;  1897,  Shoe- 
maker V.  Washburn  L,  Co.,  97  Wis.  585;  1897,  Peck  v.  Elliott,  47  U.  S.  App. 
605,  38  L.  R.  A.  616;  1898,  In  re  National  Dwellings'  Soc,  78  L.  T.  (N.  S.)  144. 


Sec.  208.     Nature,  function  and  purpose  of  capital  stock. 

BARRY  V.   MERCHANTS'   EXCHANGE  COMPANY.^ 

1844.     In  the  Court  of  Chancery  of  New  York,      i  Sandford's 
Chancery  (N.  Y.)  Rep.  280-318. 

[The  Merchants'  Exchange  was  incorporated  in  1823,  with  a  capi- 
tal stock  not  to  exceed  $1,000,000 ;  it  was  authorized  to  purchase, 
hold  and  convey  so  much  real  estate  and  to  erect  such  buildings  as 
the  body  corporate  might  deem  necessary  or  proper  for  the  purpose, 
and  receive  the  rent&  and  profits  thereof,  and  divide  the  same  amongst 
the  stockholders  at  such  times  as  the  company  might  deem  expedient; 
power  to  make  by-laws  was  given,  and  the  act  was  to  be  favorably 
construed  for  all  beneficial  purposes ;  $230,000  of  stock  was  subscribed 
and  paid  and  the  exchange  built  at  a  cost,  including  the  lot,  of 
about  $250,000.  The  building  was  destroyed  in  1835  by  fii'e  ;  and  it 
was  determined  to  build  a  new  and  much  larger  one;  subscriptions 
were  called  for  the  rest  of  the  stock;  this  was  soon  taken,  and  the 
amount  received  therefrom  invested  in  more  land ;  then  it  was  deter- 
mined to  boiTOw  money — in  all  $700,000 — by  the  issue  of  bonds  to 
that  extent,  secured  by  mortgage  upon  the  property ;  this  was  done  and 
the  property  conveyed  by  deed  of  trust  to  K.,  to  hold  for  the  bond- 

*  Statement  greatly  abridged ;  arguments  and  much  of  opinion  omitted. 


§  208  THE   CAPITAL   STOCK.  ^6^ 

holders.  The  company  made  default  in  payment  of  its  debts  and 
its  property  was  taken  possession  by  K.  Barry  had  performed  work 
in  the  construction  of  the  new  building  to  the  amount  of  about  $io,ooo 
— of  which  $7,400  had  been  paid  in  cash,  $1,000  in  bonds,  and  $1,600 
remained  unpaid ;  for  this  he  sued  and  obtained  judgment,  which  could 
not  be  paid.  He  brought  his  bill,  alleging  that  the  company  had  no 
right  to  issue  bonds,  and  asking  that  the  ti"ustees'  title  be  set  aside,  the 
bonds  canceled,  and  a  receiver  be  appointed,  etc.] 

Sandford,  V.  C.  *  *  *  It  was  argued  that  the  amount  fixed 
as  the  capital  stock  of  the  corporation  was  an  absolute  restriction 
upon  the  amount  and  value  of  the  property,  both  real  and  personal, 
which  they  may  hold  permanently. 

Some  modifications  of  this  position  at  once  forced  themselves  upon 
the  attention  of  the  counsel.  If  the  capital  were  the  limit  of  the  prop- 
erty of  the  corporation  they  could  make  no  dividends  or  profits,  for 
those  are  beyond  the  capital.  Again,  in  the  ever-varying  and  fluctu- 
ating values  of  all  descriptions  of  property,  a  corporation  that  w^as 
within  its  capital  last  year,  may,  without  a  single  new  purchase  or 
expenditure,  be  worth  this  year  twenty  per  cent,  beyond  its  capital  by 
the  increased  value  of  the  same  property. 

Hence  the  learned  counsel  were  driven  to  rest  their  point  upon  a 
designedly  permanent  increase  of  property  beyond  the  capital  of  the 
company.     Still  the  rule  encountered  difficulties. 

The  object  of  corporators  in  all  moneyed  and  business  corporations 
is  to  make  greater  profits  than  they  can  command  by  the  separate  use 
of  the  same  amount  of  capital.  They  put  in  their  money,  the  capital 
stock,  for  the  very  purpose  of  having,  it  increase  in  value,  and  more 
rapidly  than  in  private  adventures.  And  we  have  seen  that  unless 
positively  enjoined  by  their  charters,  there  is  nothing  to  require  them 
to  divide  the  increase  annually,  or  in  any  given  time. 

It  was  argued  that  in  this  particular  case  the  design  was  one  not 
referring  to  profits  for  ultimate  division,  but  it  was  a  permanent  and 
solid  investment  of  profits  which  never  could  be  divided,  and  w^hich 
became  an  essential  and  integral  portion  of  the  real  capital  of  the 
company.  That  the  exchange  was  an  unit,  indivisible,  and  composed 
of  the  capital  stock  and  nearly  as  much  more ;  the  latter  being  added 
in  anticipation  of  earnings  or  profits,  and  the  whole  incapable  of  par- 
.tition  or  division. 

On  this  subject  of  the  capital  stock  of  a  corporation,  the  elementaiy 
treatises  are  comparatively  barren. 

It  is  the  aggregate  amount  of  the  funds  of  the  corporators,  'which 
are  combined  together  under  a  charter  for  the  attainment  of  some 
common  object  of  public  convenience  or  private  utility.  This  amount 
is  usually  fixed  in  the  act  of  incorporation,  althotigh  we  have  seen  in 
the  statutes  of  1823.  one  exception  to  this  practice.  It  isthtis  limited^ 
in  reference  to  the  convenience  of  the  intended  corporators^  and  for 
the  information  and  security  of  the  public  at  large.  To  the  corpo- 
rators, it  prescribes  the  amount  and  subdivisions  of  their  respective 
contributions  to  the  common  fund ;  the  voice  which  each  shall  have  in 


768        BARRY  V.  merchants'  EXCHANGE  CO.       §  2o8 

its  control  and  management ;  and  the  apportioitfnent  of  the  profits  ojf 
the  enterprise.  To  the  comtnunity ^  it  announces  the  extent  of  the 
means  contributed  atid  forming  the  basis  of  the  dealings  of  the  cor- 
porate body,  and  enables  every  man  to  Judge  of  its  ability  to  meet  its 
engagements  and  perform  what  it  undertakes.  And  when,  as  in 
most  instances,  the  statute  requires  the  stock  to  be  paid  in  before  the 
corporation  can  transact  business,  security  to  those  contracting  with  it 
is  thereby  superadded  to  the  information  of  its  resources.  These  ob- 
jects, for  the  public  benefit,  are  sometimes  defeated  by  fraud  and  de- 
ception, but  they  are  such  as  the  legislature  have  in  view  in  limiting 
the  amount  of  capital  stock,  and  requii-ing  a  specified  sum  or  propor- 
tion to  be  paid  in. 

One  further  consideration  dictates  the  amount  thus  fixed.  This  is 
the  probable  and  reasonable  extent  of  the  means  requisite  to  the  ac- 
complishment of  the  end  proposed,  qualified  in  many  cases  by  the 
unwillingness  of  the  legislature  to  create  these  artificial  beings  with 
an  undue  amount  of  capital. 

As  no  certain  iiile  can  be  devised  by  which  to  estimate  the  means 
necessary  to  effect  all  the  purposes  of  a  contemplated  incorporation, 
the  amount  of  the  capital  in  each  case  must  be  fixed  in  reference  to 
the  considerations  which  I  have  just  enumerated,  without  any  inten- 
tion or  expectation  in  ordinaiy  casesx)f  limiting  to  that  sum  the  aggre- 
gate property  which  the  corporation,  when- its  capital  is  paid  in  and  its 
operations  commenced,  shall  from  time  to  time  possess  or  own.  This 
is  peculiarly  true  of  the  numerous  incorporations  which  have  sprung 
into  being  under  the  magic  infiuence  of  the  enterprise  and  ingenuity 
of  our  citizens,  and  in  which,  from  their  boldness  or  novelty,  it  was 
impi'acticable  for  human  foresight  to  calculate  the  requisite  means. 

It  is  true  that  in  one  instance  the  authors  of  a  most  excellent  treatise 
on  corporations  have  spoken  of  capital  stock,  and  the  amount  of  prop- 
eity  which  they  shall  hold,  as  if  they  were  synonymous  terms ;  but 
they  have  said  on  a  previous  page,  that  every  corporation  aggregate 
has  incidentally  at  common  law  a  right  to  take,  hold  and  transmit  in 
succession,  property  real  and  personal  to  an  unlimited  extent  or 
amount,  i  Angell  &  Ames  on  Corp.  87,  ch.  5,  §  i ;  i  Kyd  on  Corp. 
76,  78;  1  Black.  Comm.  475;  2  Kent's  Comm.  277,  2d  ed.,  and  a 
host  of  authorities  are  to  the  same  effect.  Angell  &  Ames  also  add 
that  "the  statutes  of  mortmain  make  no  mention  of  personal  property, 
and  hence  in  England  the  power  of  corporations  aggregate  to  take 
such  property  remains  in  general  unlimited,  unless  restrained  by  the 
charters  or  acts  of  parliament  establishing  them."  Treatise  on  Corp., 
90,  92.     And  see  i  Kyd  on  Corp.  104. 

The  capital  stock  of  a  corporation  is,  like  that  of  a  co-partnership 
or  joint  stock  company,  the  amount  -which  the  partners  or  associates 
put  in  as  their  stake  in  the  concern.  To  this  they  add  upon  the  credit 
of  the  c07npany,  froju  the  means  and  resources  of  others,  to  such 
extent  as  their  ozvn  prudence  or  the  confidence  of  such  other  persons 
ivill  permit.  Such  additions  create  a  debt;  they  do  not  form  capital. 
And  if  successful  in  their  career,  the  surplus  over  and  above  their 


§   208  THE   CAPITAL   STOCK.  '  769 

capital  and  debts  becomes  profits^  and  is  either  divided  among  the 
partners  and  associates^  or  used  still  farther  to  extend  their  opera- 
tions. 

The  proposition  that  a  corporation  is  limited,  even  in  its  permanent 
ownership  of  property,  to  the  amount  fixed  as  its  capital,  is  entirely 
new,  and  has  not  the  sanction  of  authority  or  reason.  The  custom  of 
retaining  the  profits,  which  I  have  before  mentioned,  has  been  long 
continued,  and  has  worked  in  many  of  our  corporations,  and  espe- 
cially in  banking  institutions,  an  increase  of  their  solid  property  and 
estate,  as  permanent  as  any  that  has  been  inferred  in  this  case.  Not 
that  such  increase  has  in  those  instances  been  so  invested  and  mingled 
with  the  fruits  of  the  original  capital  as  to  become  indivisible  there- 
from ;  but  the  increase  has  in  many  of  the  instances  been  as  fixed  and 
permanent  as  the  capital  itself,  and  with  no  purpose  or  probability  of 
its  being  returned  to  the  stockholders  until  the  concern  should  be 
wound  up  voluntarily,  or  by  the  expiration  of  the  charters.  Some 
further  illustration  of  this  question  will  occur  in  connection  with  the 
discussion  of  the  power  of  borrowing  after  the  payment  of  the 
capital. 

Second.  The  second  theory  of  the  counsel  for  the  complainant 
was,  that  the  power  of  borrowing  money  was  limited  to  the  extent 
of  the  capital  of  the  company;  and  when  that  capital  was  fully 
paid,  the  power  ceased,  except  for  mere  temporary  objects,  and  for 
short  periods. 

They  therefore  had  no  right  to  contract  a  permanent  debt  like  these 
mortgages.  That  if  they  did  not  expect  to  pay  the  mortgages,  it  is 
still  worse,  because  by  the  means  used  they  created,  or  attempted  to 
create,  a  public  stock  or  funded  debt. 

It  was  urged  that  on  the  latter  hypothesis  they  were  exceeding  the 
charter,  because  the  direct  consequence  is,  that  they  build  at  the  ex- 
pense of  two  millions,  and  out  of  the  rents  pay  an  interest  to  the  bond- 
holders, and  a  dividend  to  the  stockholders ;  and  the  one  to  continue 
as  long  as  the  other,  being  to  all  intents  a  capital  of  two  millions. 

This  argument  is  specious,  for  if  the  building  be  worth  the  two  mill- 
ions, which  it  is  assumed  to  have  cost,  and  the  company  owes  one 
million,  their  clear  property  is  but  one  million  after  all.  Then  as  to  the 
funded  debt  or  stock  created  and  secured  by  these  mortgages.  The  fifth 
section  of  the  act  of  incorporation  was  referred  to  as  prohibiting  this 
mode  of  effecting  a  loan.  That  section  declares  that  the  act  shall  not 
be  construed  to  authorize  the  dealing  or  trading  in,  or  the  purchase  or 
sale  of  any  stock  or  funded  debt  created,  or  to  be  created,  under  any 
law  of  the  United  States,  or  of  any  particular  state. 

If  the  resemblance  between  these  bonds  and  such  stock  or  funded 
debt  were  complete  in  all  things,  this  section  would  have  no  applica- 
tion to  the  borrowing  of  money  upon  their  issue.  But,  in  truth,  the 
resemblance  is  very  faint.  The  bonds  were  printed  or  engraved,  and 
had  coupons  attached  for  convenience  in  the  collection  of  interest. 
There  the  likeness  ceased.     These  bonds  were  sealed  obligations  of 

49— WiL.  Casks. 


770        BARRY  V.  MERCHANTS'  EXCHANGE  CO.       §  208 

the  company,  bonds^  in  the  technical  sense  of  the  word,  and  secured 
not  by  the  public  faith,  or  the  mere  corporate  liability,  but  by  mort- 
gages on  real  estate. 

But  it  was  contended  that  the  unrestricted  power  of  borrowing, 
which  the  company  claims  for  effecting  the  purposes  of  its  charter, 
virtually  confers  upon  the  corporation  unlimited  power.  That  the 
purposes  of  the  charter  would,  in  this  instance  at  least,  be  no  restraint, 
because  they  could  embrace  accommodations  for  every  description  of 
commercial  business,  and  the  extent  of  their  credit  would  be  equalh' 
ine~ffectual,  for  there  would  be  no  limit  to  that,  except  in  the  prudence 
of  the  lender,  and  finally,  that  no  such  extravagant  authority  was 
granted  to  this  corporation,  expressly  or  by  implication,  and  it  is  con- 
trary to  the  spirit  and  policy  of  our  laws  and  institutions. 

This  whole  argument  is,  in  my  judgment,  unsound.  The  danger 
of  inordinate  accumulation  of  property  and  consequent  overshadow- 
ing power  is  wholly  fallacious.  The  whole  extent  of  the  corporate 
cred"*  is,  in  truth,  measured  and  controlled  by  its  capital.  Every  ad- 
dition to  its  means  beyond  its  paid-up  capital  (leaving  profits  out  of 
view)  must  be  by  gift  or  contract,  and  if  by  contract,  a  debt  ensues. 
If  a  corporation  with  a  million  of  capital  succeeds  in  running  into 
debt  two  millions  it  has  no  more  solid  property,  and  is  intrinsically  worth 
no  more  than  before,  unless  the  property  obtained  on  credit  is  worth 
more  than  it  cost,  and  then  the  increase  of  property  is  only  such  ex- 
cess of  value.  And  if  worth  less  than  cost,  then  the  company  has  by 
the  operation  sunk  a  part  of  its  capital. 

All  experience  shows  that  the  financial  management  of  corporations 
is,  in  general,  less  judicious  and  safe  than  that  of  individuals.  Hence 
losses  are  likely  to  ensue  from  expansions  upon  credit :  and  the  far- 
ther such  credit  is  pushed  by  any  corporation,  the  greater  the  danger 
that  such  losses  will  impair  and  finally  consume  its  capital.  The 
lenders  of  money  are  usually  sagacious  enough  to  protect  their  inter- 
ests when  dealing  with  corporations  as  well  as  with  individuals ;  and 
few  would  lend  money  to  a  company  which  already  owed  debts 
greatly  exceeding  its  whole  capital  stock,  however  flattering  in  ap- 
pearance the  investment  might  be.  The  laws  of  trade  have  placed 
an  impassable  barrier  to  the  power  of  corporate  borrowing,  in  the  ten- 
dency of  such  institutions  to  make  an  improvident  use  of  exuberant 
means,  and  in  the  caution  and  prudence  of  capitalists.  It  is  utterly 
impossible  for  a  corporation  with  a  known  limited  capital  to  accumu- 
late by  means  of  its  credit  the  gigantic  property  and  power  which 
the  imagination  of  the  counsel  portrayed.     ♦     *     * 

In  this  case,  then,  I  am  satisfied  that  the  Merchants'  Exchange 
Company  were  authorized  by  law  to  borrow  money  for  the  comple- 
tion of  their  building,  to  the  extent  adopted  by  them,  and  to  secure  its 
repayment  by  their  corporate  obligations,  and  by  mortgages  on  their 
real  estate. 

I  do  not  find  that  any  limitation  contained  in  their  charter  has  been 
thereby  exceeded,  nor  that  any  condition  annexed  to  the  grant  of  their 


§  208  CAPITAL   STOCK.  771 

franchise  has  been  broken,  nor  that  they  have  failed  to  perform  the 
duties  enjoined  upon  them  by  the  law  of  their  creation.     ♦     ♦     * 
Bill  dismissed. 

Note.  Stock  is  generally  used  synonymously  with  "shares  of  stock"  with  us, 
and  indicates  a  definite  proportional  interest  that  the  owner  has  in  the  manage- 
ment, dividends  and  final  distribution  of  the  surplus  assets  of  the  corporation 
upon  dissolution.  In  England  it  seems  that  stock  is  a  fund  which  can  be 
divided  and  held  in  irregular  amounts,  like  the  government  stocks,  which  can 
be  bought  in  £993^  sums,  as  well  as  any  other  sums,  while  a  share,  or  de- 
benture, is  of  a  fixed  amount,  as  £100,  incapable  of  subdivision. — Rapalje  & 
L.  Law  Dictionary,  1224. 

Common  stock,  or  shares,  are  such  as  entitle  all  the  owners  thereof  to  equal 
(in  proportion  to  number  of  shares  owned)  participation  in  the  management 
of  the  corporation,  and,  in  the  absence  of  any  preference  shares,  to  alike 
equal  portion  of  the  profits  and  assets.  The  common  shares  quite  frequently 
have  a  preference  in  the  management  of  the  corporation,  though  not  in  the 
profits. 

Preferred  stock,  or  shares,  are  such  as  entitle  the  owners  thereof  to  some 
preference  in  the  distribution  of  the  profits  or  assets  of  the  corporation  over 
the  owners  of  the  common  shares.  There  may  be  various  classes  of  preferred, 
such  as  first  and  second,  etc.,  preferred,  with  different  kinds  of  preferences  as 
the  basis.  But  within  each  class  the  owners  have  equal  rights  in  proportion 
to  their  holdings.  The  preference  may  be  either  as  to  profits,  or  assets  when 
dissolved,  or  both.  In  the  absence  of  special  provisions,  preferred  share- 
holders have  the  right  to  participate  in  the  management,  and  are  subject  to 
liabilities  to  the  same  extent  as  common  shareholders. 

Guaranteed  stock,  in  the  United  States,  is  generally  given  the  same  meaning 
as  preferred — the  words  being  used  interchangeably — and  both  meaning  that 
the  "preferred"  or  "guaranteed"  shareholders  shall  not  only  receive  divi- 
dends in  preference  to  the  common  shareholders,  each  year  there  are  profits 
to  divide,  but  also  that  they  will  be  entitled  to  arrears  of  dividends  for  the 
years  there  are  no  profits  earned,  whenever  subsequent  profits  are  sufficient 
to  pay  such  dividends.  1860,  Bates  v.  Androscoggin,  etc.,  R.,  49  Maine  491 ; 
1866,  Taft  v.  Hartford,  etc.,  R.,  8  R.  I.  310;  1875,  Lockhart  v.  Van  Alstyne, 
31  Mich.  76;  1881,  Boardman  v.  Lake  S.  &  M.  S.  R.,  84  N.  Y.  157;  1882,  El- 
kins  v.  Camden,  etc.,  R.,  36  N.  J.  Eq.  233.  And  the  rule  seems  to  be  the 
same  in  England.  1857,  Henry  v.  Great  Northern  R.,  1  De  G.  &  J.  606;  1875, 
Webb  V.  Earle  L.  R.,  20  Eq.  Gas.  556.  Of  course  it  can  be  made  non-cumulative 
if  so  expressed.  1871,  Bailey  v.  Hannibal,  etc.,  R.,  1  Dillon  174.  And  a  few 
cases  hold  it  is  non-cumulative,  unless  expressed  to  be  cumulative.  1885,  Bel- 
fast, etc.,  R.  V.  Belfast,  77  Maine  445;  1887,  Hazeltine  v.  Belfast,  etc.,  R.  Co., 
79  Maine  411.  The  term,  however,  is  also  applied  so  as  to  entitle  the  guaran- 
teed shareholder  to  payment  of  arrears  of  dividends  out  of  the  property  of 
the  company,  before  dividing  it  up  among  common  shareholders  upon  disso- 
lution. It  is  also  sometimes  applied  to  indicate  the  liability  for  dividends 
without  regard  to  there  being  any  earnings  from  which  to  pay — such  stock 
tlien  seems  to  be  nothing  but  an  interest-bearing  loan. 

Interest-bearing"  stock.  Some  attempts  have  been  made  to  issue  stock 
upon  condition  that  all  sums  paid  in  upon  it  shall  bear  interest  until  the  im- 
])rovement  is  completed  and  profits  earned  out  of  which  to  pay  dividends ; 
such  stock  is  designated  interest-bearing  stock.  Since  there  are  no  earnings 
out  of  which  to  pay  dividends,  it  seems  that  the  interest  can  come  only  out 
of  the  capital,  if  it  is  to  be  paid  before  profits  are  earned,  and  would  there- 
fore, in  effect,  be  a  reduction  of  the  capital  to  that  extent,  of  which  creditors 
might  complain ;  when  the  interest  is  to  be  paid  as  it  accrues,  and  before 
there  are  earnings,  such  stock  provisions  are  generally  held  to  be  void. 
1854,  Troy  &  B.  R.  Co.  v.  Tibbitts,  18  Barb.  (N.  Y.)  297,  on  307;  1861,  Mil- 
ler V.  Pitts.  &C.  R.  Co.,  40  Pa.  St.  237,  80  Am.  D.  570;  1867,  Painesville  &  H. 
R.  Co.  v.   King,  17  Ohio  St.  534;  1869,  Pittsburgh  &  C.  R.  Co.  v.  Allegheny 


7/2        BARRY  V.  MERCHANTS'  EXCHANGE  CO.       §  208 

Co.,  63  Pa.  St.  126;  1887,  Ohio  College  of  Dental  Surgery  v.  Rosenthal,  45 
Ohio  St.  183;  1892,  Re  Sharpe,  L.  R.  1  Ch.  Div.  154. 

But  if  the  interest  is  not  to  be  paid  until  there  are  earnings  out  of  which  to 
pay,  such  provisions  will  be  held  valid,  and  if  possible  such  construction 
will  be  given  to  provisions  of  this  kind:  1853,  Wright  v.  Vt.  &  M.  R.  Co.,  12 
Cush.  (Mass.)  68:  1857,  Waterman  v.  T.  &  G.  R.  Co.,  8  Gray  (Mass.)  433; 
1860,  McLaughhn  v.  Det.  &  M.  R.  Co.,  8  Mich.  100;  1860,  Milwaukee  &  N.  I. 
R.  Co.  V.  Field,  12  Wis.  *340;  1863,  Rutland  &  B.  R.  Co.  v.  Thrall,  35  Vt.  536; 
1872,  Richardson  v.  Vt.  &  M.  R.  Co.,  44  Vt.  613. 

Special  stock.  "This  is  a  peculiar  kind  of  stock,  now  distinctly  provided 
for  by  statute,  but  unknown  to  the  general  laws  of  the  commonwealth  until 
1855.  Its  characteristics  are,  that  it  is  limited  in  amount  to  two-fifths  of  the 
actual  capital ;  it  is  subject  to  redemption  by  the  corporation  at  par  after  a 
fixed  time, to  be  expressed  in  the  certificates;  the  corporation  is  bound  to  pay 
a  fixed  half-yearly  sum  or  dividend  upon  it,  as  a  debt ;  the  holders  of  it  are  in. 
no  event  liable  for  the  debts  of  the  corporation  beyond  their  stock ;  and  the 
issue  of  special  stock  makes  all  the  general  stockholders  liable  for  all  debts 
and  contracts  of  the  corporation  until  the  special  stock  is  fully  redeemed. 
Statutes  1855,  ch.  290;  1870,  ch.  224,  §§  25,  39,  cl.  4;  Pub.  Stats.,  ch.  106,  §§  42, 
61,  cl.  3;  Williams  v.  Parker,  136  Mass.  204,  207."  Allen,  J.,  in  1885,  Amer- 
ican Tube  Works  v.  Boston  M.  Co.,  139  Mass.  5,  on  9  .  See,  also,  1886,  Reed 
v.  Boston  M.  Co.,  141  Mass.  454.  This  sort  of  stock  seems  to  be  confined  to  Mas- 
sachusetts, although  other  states  have  recognized  redeemable  stock.  See 
1875,  Totten  v.  Tison,  64  Ga.  139;  1879,  Culver  v.  Reno  Real  Estate  Co.,  91 
Pa.  St.  367. 

For  a  valuable  note  upon  the  subject  of  Preferred,  Chiaranteed,  Interest-Bear- 
ing, and  Special  Stock,  see  27  L.  R.  A.  136. 

Treasury  stock.  This  is  a  term  used  to  designate  that  part  of  the  authorized 
stock  left  (after  the  required  statutory  amount  for  commencing  business  has 
been  subscribed)  in  the  possession  of  the  corporation  to  be  issued  in  the  future 
by  sale  by  the  corporation  or  upon  further  subscription  ;  it  is  also  applied  to 
the  stock  that  has  once  been  issued,  but  surrendered  or  forfeited  to  the  corpo- 
ration, and  which  may  be  reissued.  See,  1890,  Ailing  V.  Wenzel,  133  111.264,  on 
269.  When  the  holding  of  such  stock  by  the  corporation  in  this  way  is  legal,  it  is 
not  merged,  but  lifeless;  it  can  not  be  voted,  nor  draw  dividends;  but  may 
be  sold  at  the  face  or  the  market  value.  See  1  Cook  Corporations,  §  314,  and 
cases  cited. 

Deferred  stock,  or  bonds,  are  those  upon  which  payment  of  dividends  or 
interest  is  expressly  postponed  until  some  other  class  of  owners  of  stock, 
bonds  or  other  obligations  are  paid.     1  Cook  Corp.,  §§  14,  762. 

Founders'  shares  are  such  as  are  issued  to  the  promoters  or  founders  of 
the  corporation,  and  which  entitle  the  holders  to  all  the  profits  after  certain 
fixed  maximum  dividends  are  paid  to  the  other  shareholders ;  though  deferred 
until  the  ordinary  dividends  are  paid  to  the  other  shareholders,  they  some- 
times become  enormously  valuable.  For  the  usual  provisions  of  such,  see  1 
Cook  Corp.,  §  14,  pp.  52,  53,  giving  forms,  and  citing,  1893,  Re  MacDonald,  etc., 
Co.,  69  L.  T.  R.  567;  1895,  Re  London,  etc.,  Corp.,  73  L.  T.  R.  280;  1896,  Re 
New  Transvaal  Co.,  75  L.  T.  R.  272;  1897,  Re  London,  etc.,  Ltd.,  77  L.  T.  R. 
146. 

Debenture  stock  does  not  mean  shares  of  stock,  but  is  the  English  form  of 
bond,  evidenced  generally  by  a  certificate  representing  a  portion  of  a  lump 
debt,  which  may  or  may  not  be  secured  by  mortgage.  A  similar  security  is 
issued  in  this  country  sometimes  by  a  corporation  giving  a  bondholder  a  cer- 
tificate entitling  him  alone  to  a  certain  sum  with  interest  on  exchange  for 
coupon  bonds  delivered  to  the  company — like  the  United  States  government 
registered  bond.  For  further  descriptions  and  forms  see  1  Cook  Corp.,  §§  14 
and  777. 

Scrip,  is  a  certificate  that  the  owner  is,  or  will  be,  upon  the  performance  of 
some  condition,  entitled  to  a  share  of  something,  as  land,  stock  or  other  prop- 
erty. In  England  it  certifies  that  the  holder  will  be  entitled  to  certain  shares 
of  stock  when  unpaid  installments  are  paid.     1  Cook  Corp.,  §  14,  citing.  1876, 


§  209  CAPITAL    STOCK.  773 

Goodwin  v.  Robarts,  L.  R.  1  App.  Cas.  476.  A  form  of  stock  scrip  is  given 
in  full  in,  1865,  Brown  et  al.  v.  Lehigh  Coal  and  Navigation  Co.,  49  Pa.  St. 
270,  on  p.  272 ;  a  form  of  scrip  dividend  issued  by  the  New  York  Central  and 
Hudson  R.  Co.  is  given  in  full  in,  1874,  Baily  v.  Railroad  Company,  89  U.  S. 
(22  Wall.)  604,  on  608.  See,  also,  1884,  Gordon  v.  Richmond,  etc.,  R.  Co.,  78 
Va.  501,  on  506.  For  a  discussion  of  the  natureof  landscrip  see,  1892,  Rogers, 
etc.,  V.  N.  Y.  &  T.  Land  Co.,  134  N.  Y.  197.  See,  also.  1  Cook  Corp.,  §  535,  and 
Angell  and  Ames  Corp.,  ch.  vi.,  Proprietors  of  Common  and  Undivided 
Lands. 

Watered  stock,  is  stock  which  upon  its  face  purports  to  have  been  paid  for 
at  its  full  face  value,  but  which,  in  fact,  has  been  issued  without  the  corpora- 
tion receiving,  or  having  the  right  to  demand,  the  full  face  value  either  in 
money,  property  or  service. 

Spurious  or  overissued  stoclc,  is  such  as  is  issued  in  excess  of  the  amount 
authorized.     Such  stock  is  void.     See  note  p.  763. 


Sec.  209.    Same. 

COMMERCIAL  FIRE  INSURANCE  CO.  v.  BOARD  OF  REVENUE.* 

1892.     In  the  Supreme  Court  of  Alabama.    99  Ala.  Rep.  1-12, 
42  Am.  St.  Rep.  17. 

[Proceeding  by  the  insurance  company  to  be  released  from  taxation 
upon  $51,000  worth  of  stock  of  the  Montgomery  Bank  owned  by  it. 
The  law  under  which  plaintiff  was  organized  authorized  insurance 
companies  "to  invest  their  money  in  real  and  personal  property,  stocks 
or  choses  in  action  and  to  sell  the  same."  The  tax  law  provided  for 
a  tax  upon  the  capital  stock  of  corporations,  except  such  portions  as 
may  be  invested  in  property  which  is  otherwise  taxed  as  property,  but 
when  such  corporation  shall  pay  taxes  on  its  shares,  or  the  same  is 
paid  by  shareholders,  such  corporation  shall  pay  taxes  only  on  its  real 
and  personal  property.  The  insurance  company  claimed  that  $51,000 
of  its  capital  stock  was  invested  in  that  much  of  the  capital  stock  of 
the  bank,  and  the  bank  had  already  paid  the  taxes  upon  this  sum. 
The  lower  courts  decided  against  this  view,  and  this  is  the  error  as- 
signed.] 

Stone,  C.  J.  *  *  *  What  is  capital  stock  of  corporations,  and 
why  are  they  required  to  have  a  capital  stock  paid  in } 

''^Capital  stock  is  the  sutn  fixed  by  the  corporate  charter  as  the 
amount  paid  in,  or  to  be  paid  in  by  the  stockholders ^  for  the  prosecu- 
tion of  the  business  of  the  corporation,  and  for  the  benefit  of  cor- 
porate creditors.  The  capital  stock  is  to  be  clearly  distinguished 
from  the  amount  of  property  possessed  by  the  corporation.  *  «  * 
At  common  law  the  capital  stock  does  not  vary,  but  remains  fixed, 
although  the  actual  property  of  the  corporation  may  fluctuate  -widely 
in  value,  and  may  be  diminished  by  losses  or  increased  by  gains.  ^'  — 
Cook  on  Stock  and  Stockholders,  §  3. 

"A  stockholder  has  no  legal  title  to  the  property  or  profits  of  the 
corporation  until  a  dividend  is  declared  or  a  division  made  on  the  dis- 
solution of  the  corporation."     lb.,  §  4a. 

*  Statement  abridged  ;  arguments  and  much  of  opinion  omitted. 


774      COMMERCIAL  FIRE  INS.  CO.  V.  BOARD  OF  REVENUE.       §  209 

"A  stockholder  in  an  insurance  company  has  the  same  rights  that  a 
stockholder  in  any  other  corporation  has."     /<5.,  §  40;. 

"A  share  of  stock  may  be  defined  as  a  right  which  its  owner  has 
in  the  management,  profits  and  ultimate  assets  of  the  corporation. 
By  the  court  of  appeals  of  New  York  it  is  said  that  'the  right  which 
a  shareholder  in  a  corporation  has,  by  reason  of  his  ownership  of 
shares,  is  a  right  to  participate  according  to  the  amount  of  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.'  " 

lb..  §  5-. 

In  Neiler  v.  Kelly,  69  Pa.  St.  403,  Justice  Sharswood  said:  "A 
share  of  stock  is  an  incorporeal,  intangible  thing.  It  is  a  right  to  a 
certain  proportion  of  the  capital  stock  of  a  corporation — never  real- 
ized except  upon  the  dissolution  and  winding  up  of  the  corporation 
— with  the  right  to  receive,  in  the  meantime,  such  profits  as  may  be 
made  and  declared  in  the  shape  of  dividends."     *     *     * 

(Citing  2  Morse  on  Banking,  669—72  ;  2  Morawetz  Corp.,  §§  787-9  ; 
Wood  V.  Dummer,  3  Mason  308;   Semple  v.  Glenn,  91  Ala.  245.) 

The  foregoing  quotations  are  made  with  a  view  of  presenting 
clearly  and  fully  the  nature  and  object  of  capital  stock  in  a  corpora- 
tion. As  property  it  has  peculiar  attributes .  Collectively  it  is  the 
property  of  the  corporation.,  while  th^  ownership  of  the  shares  is  in 
the  shareholders .  Sale  and  disposition  of  the  shares  by  the  several 
owners  is  free  and  untrammeled .  save  as  the  law  or  by-laws  of  the 
corporation  may  have  prescribed  rules.  Not  so  with  the  capital 
stock.  That  is  a  security  or  pledge  the  law  exacts  as  a  condition  on 
which  it  grants  the  corporate  franchise — the  right  to  incur  liabili- 
ties for  the  discharge  of  which  no  responsibility  rests  on  any  natural 
person.  It  is  the  indispensable  condition  on  which  the  law-making 
power  grants  the  franchise.,  because  the  law  and  public  policy  so  de- 
clare. And  the  capital  stock  is  a  trust  fund ;  a  trust  for  the  benefit 
and  security  of  the  corporation' s  creditors.  The  directory .  or  gov- 
erning body  of  the  corporation.,  are  trustees,  charged  with  the  duty  of 
guarding  the  trust  fund^  and  preserving  it  for  the  uses  for  which  it 
was  placed  in  trust.  The  uses  are,  first.,  to  meet  and  discharge  any 
liabilities  and  debts  of  the  corporation  which  disaster  may  bring 
upon  it;  and,  second,  to  restore  to  the  shareholders,  when  the  corpo- 
ration is  wound  up,  whatever  of  the  capital  stock  and  accumulated 
gains  may  remain  on  hand,  after  discharging  the  corporation's  liabili- 
ties to  creditors. 

It  is  not  intended  to  be  affirmed  that  the  governing  board  of  the 
corporation  is  I'equired  to  keep  the  capital  stock  unemployed  in  its 
locked  vaults.  It  should  be  utilized  with  a  view  of  making  it  pro- 
ductive in  some  line  of  investment  or  operation  within  the  scope  of  its 
corporate  powers.  There  is  this  limitation  to  its  authorized  use.  It 
must  be  within  the  scope  of  the  corporate  powers,  and  must  be  done 
with  reference  to  the  interest  and  success  of  the  corporation  whose 
capital  stock  it  is.  When  this  is  the  case,  there  is  fidelity  in  the  exe- 
cution of  the  trust. 


§  209  CAPITAL   STOCK.  775 

If  this  trust  fund  be  misapplied  to  objects  or  uses  outside  of  the 
scope  of  the  corporate  powers,  this  is  a  breach  of  trust,  and  fastens  a 
personal  liability  on  those  who  perpetrate  the  wrong,  commensurate 
with  the  injury,  if  any,  caused  by  the  misapplication.  And  persons 
receiving  the  trust  fund  so  misapplied,  knowing  it  to  be  such,  make 
themselves  trustees  in  invitum^  and  render  themselves  liable  to  the 
corporation  whose  funds  are  thus  misapplied,  or  to  the  creditors  of 
the  corporation,  for  any  diminution  the  trust  fund  may  suffer  in  the 
transaction.  .    *     ♦     « 

What  is  meant  by  the  language,  "To  invest  their  money  in  *  *  * 
stocks  or  choses  in  action,  and  to  sell  the  same.^"'  Will  it  or  can  it 
be  contended  that  the  authority  to  invest  in  stocks  confers  the  power 
to  subscribe  to  the  capital  stock  of  another  corporation  in  process  of 
organization  ?  And  if  it  confers  the  authority  to  subscribe  for  and 
become  a  stockholder  in  another  corporation,  in  what  description  of 
corporation  may  the  insurance  company  become  a  stockholder.''  The 
statute  employs  only  the  generic  word  stocks;  and  that  word,  if  it 
include  bank  shares,  applies  equally  to  shares  in  all  private  corpora- 
tions. Can  the  insurance  company  invest  its  capital  stock,  and  thus 
become  a  stockholder  in  any  and  every  description  of  private  corpora- 
tion, at  the  mere  will  and  pleasure  of  its  governing  body?  The  vast 
variety  of  corporations  now  in  use  and  operation  need  not  be  referred 
to,  to  show  to  what  extreme  results  this  interpretation  would  lead. 
Railroads,  telegraph  lines,  telephones,  express  companies,  mining  and 
manufacturing  enterprises,  these  are  only  a  few  of  the  numerous 
subjects  of  incorporation  under  the  law.  Can  an  incorporated  insur- 
ance company  under  our  statute  subscribe  for  stock  in  the  organiza- 
tion of  each,  all,  or  any  of  the  numerous  corporations  now  so  common 
in  human  transactions?     The  statute  has  a  different  meaning. 

Stocks — shares  in  corporations — have  come  to  be,  in  a  large  degree, 
subjects  of  commercial  dealing  and  speculation.  The  newspapers 
contain  tables  of  the  ruling  prices  of  stocks,  as  their  market  value 
fluctuates.  These  notices  refer  to  the  shares  of  stock  in  organized 
corporations.  Their  sale  neither  increases  nor  diminishes  the  capital 
stock  in  the  corporation ;  it  neither  adds  to,  nor  takes  from  the  corpo- 
ration one  dollar  of  its  stock.  It  simply  changes  its  ownership  fro 
tanto.  The  capital  remains  in  the  corporation  intact,  and  the  security 
it  furnishes,  and  is  intended  to  furnish,  the  creditors  of  the  corporation 
remains  unimpaired. 

When  we  speak  of  capital  stock  of  a  corporation,  we  are  under- 
stood to  refer  to  the  sum  subscribed  in  its  organization.  When  we 
speak  of  stock,  we  mean  the  certificates  issued  by  the  corporation  to 
the  shareholders,  which  certificates,  like  titles  to  property,  furnish  the 
evidence  of  ownership  of  the  shares  of  stock.  Capital  stock  is  the 
aggregate  of  money  or  other  valuable  thing  contributed^  or  faid  into 
the  common  treasury  as  a  condition  of  the  exercise  of  corporate  func- 
tions^ and  a  security  for  their  faithful  and  prudent  exercise.  It  is 
the  property  of  the  corporation^  charged  with  a  trust.,  it  is  true; 
but  nevertheless^  in  its  possession  and  under  its  control.      The  stock., 


^^6      COMMERCIAL  FIRE  INS.  CO.  V.  BOARD  OF  REVENUE.       §  209 

stocks  or  shares  of  stock  do  not  belong  to  the  corporation.  They 
belong  to  the  shareholders  and  are  exclusively  under  the  individual 
control  of  the  several  owners.  The  stocks  which  the  statute  author- 
izes insurance  companies  to  invest  their  money  in  can  not  m.ean  capi- 
tal stock  owned  and  to  be  held  by  the  corporation.  This^  we  have 
seen.,  is  a  trust  fund.  It  means  the  stock  owned  by  stockholders, 
usually  evidenced  by  stock  certificates.  Stock,  as  a  subject  of  com- 
mercial dealing,  is  what  the  legislature  meant  in  the  statute  we  are 
interpreting.  The  very  connection  in  which  the  word  is  used  in  the 
statute  confirms  this  interpretation.  "  To  invest  their  money  in 
*  *  *  stocks  or  choses  in  action,  and  to  sell  the  same,"  is  the 
language  employed.  There  i,  not  even  a  comma  between  the  words 
"stocks"  and  "choses  in  action,"  nor  a  shade  of  difference  in  the 
powers  conferred  as  to  each.  The  power  to  invest  in  and  to  sell  is 
very  appropriate  language  when  applied  to  commercial  dealings.  It 
is  very  inapt,  if  the  intention  was  to  confer  authority  to  subscribe  for 
stock  in  the  formation  of  another  corporation.    *     *     * 

The  tax  is,  by  statute,  levied  on  the  capital  stock  of  corporations. 
In  the  coiporation's  petition  to  be  relieved  of  a  part  of  the  tax  thus 
levied,  it  describes  it  as  a  tax  on  the  capital  stock.  It  avers  "That 
said  capital  stock  is  invested,  *  *  *  $51 ,000  thereof  in  the  capital 
stock  of  the  Bank  of  Montgomery."  The  corporation  owned  its 
capital  stock,  and,  presumptively  at  least,  did  not  own  the  shares  of 
its  capital  stock.  Hence  the  propriety  and  reasonableness  of  the  aver- 
ment that  it  was  so  invested,  and  not  shares  in  its  capital  stock,  pre- 
termitting, for  the  sake  of  argument,  its  want  of  corporate  power  to 
invest  its  capital  stock.  The  exact  and  specific  case  made  in  the  peti- 
tion is  that  the  capital  stock  of  one  corporation — the  thing  itself — is 
invested  in  the  capital  stock  of  another  corporation.  And,  it  may  be 
added,  this  averment  was  necessary  to  give  the  petition  a  semblance 
of  merit.  Capital  stock — the  insurance  company's  capital  stock — was 
the  subject  of  the  tax,  and  in  order  to  maintain  the  discount  or  deduc- 
tion claimed,  it  was  necessary  to  aver  and  show  that  that  specific  sub- 
ject of  taxation — the  capital  stock — or  some  portion  of  it,  had  been 
"invested  in  property  which  is  otherwise  taxed  as  property."  We 
are  thus  confronted  with  the  question,  can  one  and  the  same  sum  of 
money,  at  one  and  the  same  time,  serve  the  purpose  of  capital  stock 
for  two  corporations .'' 

We  have  shown  by  the  highest  legal  authority  that  the  capital  stock 
of  a  corporation  is  a  trust  fund  for  the  security  and  benefit  of  the  cred- 
itors of  the  corporation,  and  that  the  managing  board  fills  the  relation 
of  trustee  for  its  preservation  and  administration.  Corporations  act- 
ing within  the  scope  of  corporate  powers.,  fix  no  liability  on  their 
officers  or  on  any  one  else.  They  charge  only  the  corporation.  Hence 
the  purpose  and  policy  of  requiring  a  capital  stock  as  security  and 
indemnity  of  persons  who  become  its  creditors.  The  law-making 
pcnver  confers  on  them  privileges — a  franchise.,  a  right  to  make  con- 
tracts in  its  artificial  name  without  fastening  a  liability  on  any  nat- 
ural person — and  it  exacts  from  them  as  a  condition  on  which   it 


f  209  CAPITAL   STOCK.  777 

grants  this  franchise^  this  ■privilege  and  power,  that  they  place  a 
capital  stock  in  safe  pledge  for  the  security  of  their  creditors.  And 
this  capital  stock  is  a  pertnanent  investment,  with  no  power  in  the 
shareholder  to  withdraw  it  until  the  corporation  is  wound  up  and  all 
its  debts  paid,  and  no  power  iti  the  managing  board  to  permit  it  to 
be  withdrawn  at  the  expense  of  creditors.  It  is  a  trust  fund  in  the 
corporation^ s  treasury,  to  be  used  only  in  its  interest,  and  whatever 
of  profit  or  emolument  it  may  yield  belongs  of  right  to  the  corpora- 
tion, its  creditors  and  shareholders.  It  must  be  kept  within  the  cor- 
poration and  under  its  control  to  meet  the ptirpose  for  which  it  was 
required  to  be  raised  and  paid  in.  It  is  not  materially  unlike  any- 
other  pledge  that  is  placed  as  a  guaranty  of  faithful  performance  of 
debt  or  duty.  It  is  a  fixed  pledge  until  the  debt  is  paid,  or  the  duty 
performed. 

Such  being  the  nature,  the  status  of  capital  stock  in  a  corporation, 
can  one  and  the  same  fund  supply  this  want  and  fill  this  condition  for 
two  corporations.?  The  law  required  $icx),cxx)  of  capital  stock  as  a 
condition  on  which  it  granted  the  corporate  franchise  for  that  amount 
of  capital  to  the  Commercial  Fire  Insurance  Company,  and  the  same 
amount  from  the  Bank  of  Montgomery  as  the  condition  on  which  it 
conferred  a  similar  franchise  on  it.  Will  a  single  sum  of  $100,000 
meet  and  satisfy  this  double  demand.''  The  law  does  not  grant 
acts  of  incorporation  in  the  undoubting  faith  and  trust  that  they  will  be 
profitably  and  successfully  administered.  If  there  was  neither  distrust 
nor  doubt,  no  guaranty,  no  pledge,  no  capital  stock  paid  in  should  be 
required.  The  law,  basing  its  action  on  experience,  requires  this 
guaranty,  this  security,  because  human  enterprises  often  miscarry.  Let 
us  suppose  that  in  the  case  before  us  disaster  should  overtake  both 
corporations,  and  it  should  become  necessary  to  exhaust  the  capital 
stock  of  each  in  the  payment  of  its  liabilities.  Is  it  not  manifest  that 
the  $100,000  the  law  required  as  a  pledge  and  guaranty  from  each 
company  would  not  be  forthcoming?  Fifty-one  thousand  dollars  of 
the  sum  could  not  meet  the  double  demand  of  that  sum  from  the  re- 
spective creditors  of  the  two  companies.  One  dollar  can  not  pay 
two. 

Let  us  take  a  further  step.  If  corporation  No.  i  can,  of  its  $100,- 
000  of  capital  stock,  supply  fifty-one  of  the  $100,000  the  law  requires 
of  corporation  No.  2,  and  yet  retain  its  $100,000  of  stock,  no  sound 
argument  can  be  formulated  why  it  could  not  furnish  the  bank  with 
the  whole  $100,000  of  capital  with  the  same  result.  And  if  corpora- 
tion No.  I  can,  from  its  own  capital',  furnish  the  capital  stock  of  cor- 
poration No.  2,  why  can  not  corporation  No  2  render  the  same  service 
to  corporation  No.  3  }  And  why  can  not  this  process  be  carried  on 
indefinitely?  Would  not  such  proceedings  be  an  utter  subversion  of 
the  purpose  and  policy  which  require  that  corporations,  as  a  condition 
of  the  franchise  they  ask  to  be  clothed  with,  shall  furnish  this  security 
for  those  with  whom  they  propose  to  have  dealings?  These  ques- 
tions can  receive  but  one  answer,  and  that  answer  is,  that  corporations 


7/8  PEOPLE   V.    COLEMAN.  §  2IO 

have  no  authority  to  subscribe  their  own  capital  stock  in  the  capital 
stock  of  another  corporation  in  process  of  organization.     *     *     * 
Affirmed.     Walker  and  McClellan,  JJ.,  dissent. 


Sec.  210.     Capital,  capital    stock,  surplus  and    franchise  distin- 
guished. 

PEOPLE,  Ex  Rbl.  U.  T.  CO.,  v.  COLEMAN.^ 

1 89 1.     In  the  Court  of   Appeals   of    New  York.      126  N.  Y. 

Rep.  433-450- 

[Appeal  from  judgment  of  supreme  court,  dismissing  a  writ  of 
certiorari  \.o  review  assessment  of  trust  company's  capital.  The  com- 
pany claimed  that  all  its  capital  stock  and  surplus  were  invested  in 
United  States  securities  and  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  the  United  States  securities.] 

Finch,  J.  The  relator  has  been  assessed  upon  an  "actual  value" 
of  its  capital  stock  derived  entirely  from  the  market  value  of  its  shares. 
These  are  selling  at  the  large  premium  of  something  over  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  taxation,  instead  of 
its  own  proved  and  established  value.  The  relator  challenges  the  as- 
sessment, and  through  all  the  proceeding  has  persistently  raised  and 
pressed  the  inquiry,  not  so  much  as  to  the  mode  or  manner  of  ascertain- 
ing value,  but  rather  as  to  what  is  the  precise  thingtobe  valued,  whether 
the  capital  stock  of  the  company  or  the  capital  stock  held  in  shares  by 
the  corporators.  If  these  are  the  same,  or  in  any  just  sense  equiva- 
lents, either  might  be  valued  without  substantial  error,  but  if  they  are 
not  such  we  must  determine  which  is  to  be  valued  before  we  can  solve 
the  problem  of  how  to  value  it. 

Now  it  is  certain  that  the  two  things  are  neither  identical  nor  equiv- 
alents. The  capital  stock  of  a  cojnpany  is  one  thing,  that  of  the  share- 
holders is  another  and  a  different  thing.  That  of  the  company  is 
simply  its  capital,  existing  in  money  or  property  ^  or  both  ;  while  that  of 
the  shareholders  is  representative,  not  merely  of  that  existing  and  tang- 
ible capital^  but  also  of  surplus,  of  dividend  earning  power  ^  of  fran- 
chise and  the  good  will  of  an  established  and  pi'osperous  business. 
The  capital  stock  of  the  company  is  owned  and  held  by  the  company 
in  its  corporate  character ;  the  capital  stock  of  the  shareholders  they 
own  and  hold  in   different  proportions  as  individuals.       The  one 

'*■  Statement  abridged ;  arguments  and  part  of  opinion  omitted. 


§  2IO  CAPITAL   STOCK.  779 

belongs  to  the  corporation^  the  other  to  the  corporators.  The  fran- 
chise of  the  company^  which  may  be  deemed  its  business  opportunity 
and  capacity^  is  the  property  of  the  corporation.,  but  constitutes  no 
part  or  eleme?it  of  its  capital  stock,  while  the  same  franchise  does 
enter  into  and ,  form,  part.,  and  a  very  essential  part,  of  the  share- 
holder's capital  stock.  While  the  nominal  or  par  value  of  the  capi- 
tal stock  and  of  the  share  stock  are  the  same.,  the  actual  value  is  often 
widely  different.  The  capital  stock  of  the  company  may  be  wholly  in 
cash  or  in  property.,  or  both.,  which  may  be  counted  and  valued.  It 
may  have  in  addition  a  surplus.,  consisting  of  some  accumulated  and 
reserved  fund.,  or  of  undivided  profits.,  or  both.,  but  that  surplus  is 
no  part  of  the  company' s  capital  stock.,  and,  therefore,  is  not  itself 
capital  stock.  The  capital  can  not  be  divided  and  distributed ;  the 
surplus  may  be.  But  that  surplus  does  enter  into  and  fortn  part  of 
the  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  dis- 
tinct things,  which  are  its  capital  stock,  its  surplus,  its  franchise ; 
but  these  three  things^  several  in  the  ownership  of  the  cotnpany,  are 
united  in  the  ownership  of  the  shareholders.  The  share  stock  covers, 
embraces,  represents  all  three  in  their  totality,  for  it  is  a  business 
photograph  of  all  the  corporate  possessions  and  possibilities.  A  cotn- 
pany also  may  have  no  surplus,  but,  on  the  contrary,  a  deficiency 
which  works  an  itnpairment  of  its  capital  stock.  Its  actual  value  is 
then  less  than  its  nominal  or  par  value,  while  yet  the  share  stock, 
strengthened  by  hope  of  the  future  and  the  support  of  earnings,  may 
be  worth  its  par,  or  even  more.  And  thus  the  two  things — the  com- 
pany's  capital  stock  and  the  shareholder' s  capital  stock — are  essen- 
tially and  in  every  material  respect  different.  They  differ  in  their 
character,  in  their  elements,  in  their  ownership  and  in  their  values. 
How  important  and  vital  the  difference  is  became  evident  in  the 
effort  by  the  state  authorities  to  tax  the  property  of  the  national  banks. 
The  effort  failed,  and  yet  the  share  stock  in  the  ownership  of  individ- 
uals was  held  to  be  taxable  as  against  them.  The  corporation  and  its 
property  were  shielded,  but  the  shareholders  and  their  property  were 
taxed. 

Now  some  degree  of  confusion  and  trouble  have  come  in  because 
these  two  different  things  are  denominated  alike  capital  stock,  making 
the  expression  sometimes  ambiguous.  It  is  the  important  and  decisive 
phrase  in  the  law  of  1857,  under  which  the  assessment  here  resisted 
was  made,  and  requires  of  us  to  determine  at  the  outset  in  which 
sense  it  was  used.  The  section  reads  thus:  "The  capital  stock  of 
every  company  liable  to  taxation,  except  such  part  of  it  as  shall  have 
been  excepted  in  the  assessment  roll,  or  shall  have  been  exempted  by 
law,  together  with  its  sux'plus  profits  or  reserved  funds  exceeding  10 
per  cent,  of  its  capital,  after  deducting  the  assessed  value  of  its  real 
estate  and  all  shares  of  stock  in  other  corporations  actually  owned  by 
such  company  which  are  taxable  upon  their  capital  stock  under  the 
laws  of  this  state,  shall   be  assessed   at  its  actual  value   and  taxed 


78o  PEOPLE  V.    COLEMAN.  §  2IO 

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  tfie 
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  pro|>erty  and  not 
against  the  shareholders,  and  so  upon  their  property.  In  theory  every 
tax  is  charged  against  some  p>erson,  natural  or  artificial,  resident  or 
non-resident,  known  or  unknown.  It  is  assessed,  not  upon  property 
irrespective  of  ownership,  but  against  persons  in  respect  to  their  prop- 
erty (23  N.  Y.  215),  and  effects  not  merely  a  lien,  but  also  a  personal 
liability.  On  the  assessment  rolls  in  this  case  appeared  the  name  of 
the  relator  as  the  i>erson  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  con- 
cerns 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  founded  on  those  terms  of  the  statute  which  in- 
clude and  exclude  respectively  specific  kinds  or  classes  of  property  in 
the  corporate  ownership.  Thus  the  assessment  is  to  be  laid  not 
merely  upon  the  capital  stock  of  the  corporation,  but  also  upon  its 
surplus.  No  such  explicit  direction  was  necessary,  except  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 
sjjecific  mention,  it  excludes  franchise  by  omitting  it.  The  omission 
of  franchise  is  emphasized  by  the  careful  inclusion  of  surplus.  It  is 
fully  and  definitely  settled  that  the  tax  imposed  by  the  statute  is  not 
upon  franchise,  (People  v.  Comrs.  of  Taxes,  2  Black.  620.)  But 
if  that  be  so,  it  is  not  upon  the  share  stock,  for  that  represents  the 
value  of  the  corporate  franchise  as  a  part  of  the  total  of  the  corporate 
property.  And  so,  both  by  what  it  specifically  includes  and  silently 
excludes,  the  statute  itself  informs  us  that  by  "capital  stock"  it  means 
and  intends  the  company's  actual  capital  paid  in  and  possessed,  and 
not  at  all  or  in  any  sense  the  share  stock.     »     *     * 

(Reviewing  statutes  and  distinguishing  the  following  cases:  Os- 
wego Starch  Factory  v.  Dilloway,  21  N.  Y.  449;  People,  ex  rel.^  v. 
Comrs.  of  Taxes,  '23  N.  Y.  192  ;  People,  ex  rel.^  v.  Dolan,  36  N.  Y. 
59;  People,  ex  rel.^  v.  Ferguson,  38  N.  Y.  89;  People,  ex  rel.^  v, 
Bd.  of  Assrs.,  39  N.  Y.  81 ;  People,  ex  rel.,v.  Comrs.  of  Taxes,  95 
N.  Y.  554 ;  People,  exrel.y  v.  Asten,  100  N.  Y.  597 ;  People,  ex  rel.^ 


§210  CAPITAL   STOCK.  781 

V.  Comrs.  of  Taxes,  104  N.   Y.  240;   People,  ex  rel.^  v.  Coleman, 
107  N.Y.  541.) 
Judgment  reversed. 

Note.     See,  1851,  State  v.  Morristown  Fire  Assn.,  23  N.  J.  L.  196. 

Capital  stock,  capital,  shares,  and  property.  Great  confusion  exists  in  the 
use  of  these  terms ;  sometimes  capital  stock  is  used  to  mean  the  amount  of 
stock  a  corporation  is  authorized  to  issue ;  sometimes  the  amount  subscribed 
and  issued  ;  sometimes  the  amount  actually  paid  in,  with  which  the  company 
proceeds  to  do  business;  sometimes  the  value  (actual  or  nominal)  of  the  sum 
total  of  the  shares  in  the  hands  of  the  shareholders ;  sometimes  the  value  of 
the  property  of  the  corporation,  real  and  personal,  including  surplus  and 
franchise. 

Statutes  frequently  provide  that  the  articles  of  incorporation  shall  state  the 
amount  of  capital  stock,  and  after  50  per  cent,  is  subscribed,  and  10  per  cent, 
thereof  is  paid  in,  the  corporation  may  organize  and  commence  business — 
leaving  it  in  the  discretion  of  the  corporation  to  call  for  further  subscriptions 
or  further  payment  upon  subscriptions  made.  For  example,  if,  under  such  a 
law,  the  articles  of  incorporation  provide  "the  capital  stock  shall  be  $100,000," 
the  corporation  may  commence  business  with  $50,000 subscribed,  upon  which 
only  $5,000  were  actually  paid  in;  there  would,  however,  exist  the  capacity 
to  call  for  the  payment  of  $45,000  more,  and  also  to  issue  $50,000  more  by  a 
new  subscription,  and  to  call  for  its  payment. 

If  the  whole  amount  authorized  was  always  subscribed  and  paid  in  there 
would  be  little  difficulty ;  the  sums  being  the  same,  each  could  very  properly  be 
designated  capital  stock;  yet  there  is  opportunity  here  for  confusion  with  the 
corporate  property,  for  if  the  whole  $100,000  were  paid  in  and  invested  in 
property  which  increased  in  value  to  $150,000,  it  might  be  and  sometimes  is 
said  that  the  capital  stock  is  $150,000,  instead  of  $1(X),000;  approved  usage, 
however,  says  there  is  still  only  $100,000  capital  stock,  but  a  surplus  of  $50,000, 
which,  if  it  can  be  separated  from  the  rest,  can  be  paid  to  the  shareholders  as 
dividends;  on  the  other  hand,  if  there  should  be  a  loss  of  $50,000,  it  would 
seem  wrong  to  say  the  capital  stock  is  $100,000,  yet  approved  usage  still  says 
the  capital  stock  is  $100,000,  though  there  is  a  deficit  of  $50,000,  and  the  cor- 
porate  property  is  only  $50,000,  the  corporation  (at  least  for  the  protection  of 
creditors)  being  required  to  make  up  such  deficit  before  distributing  subse- 
quent earnings  as  dividends. 

More  difficulty  arises  wheu  the  whole  amount  authorized  is  not  subscribed, 
and  only  a  part  of  tiie  latter  is  paid  in ;  of  course,  in  such  event  it  could  be 
made  clear  in  each  case  what  was  mpant  by  using  the  terms :  Authorized  capi- 
tal stock,  $100,000 ;  subscribed  capital  stock,  $50,000 ;  paid-up  capital  stock, 
$6,000;  and  if  such  terms  were  always  used  in  statutes,  contracts,  rules,  etc., 
much  confusion  could  be  avoided.  Unfortunately,  however,  capital  stock  and 
capital  are  the  only  terms  used,  as  "The  capital  stock  shall  not  be  increased  or 
decreased,  except  by  consent  of  the  state;"  or,  "The  capital  stock  is  a  trust 
fund  for  the  security  of  creditors;"  or,  "Dividends  shall  not  be  paid  out  of 
the  capital  of  the  company  ;"  or,  "The  corporation  shall  be  taxed  only  upon 
its  capital  stock;"  or,  "The  capital  stock  shall  be  exempt  from  taxation;"  or, 
"The  shares  of  stock  shall  be  taxed,  or  be  exempt  from  taxation." 

In  the  first  case,  in<'reasiiig  or  decreasing  the  capital  stork — the  authorized 
capital  stock — the  amount  named  in  the  charter  or  articles  of  association  is 
meant,  not  the  property  of  the  corporation,  not  the  amount  subscribed  or 
paid  in;  but  no  greater  subscription  than  the  authorized  amount  can 
rightly  be  taken,  and  no  payment,  in  the  absence  of  a  special  statutory  lia- 
bility, can  be  required  beyond  the  amount  snbRcribed.  The  property,  however, 
may  be  increased  to  any  extent,  or  diminished  to  any  extent,  that  does  not 
interfere  with  the  performance  of  its  corporate  functions  or  the  payment  of 
creditors.     See  Barry  v.  Merchants'  Exchange,  supra,  p.  766. 

In  the  second  case — the  capital  stock  as  a  trust  fund— which  is  meant,  the 
authorized,  the  subscribed,  or  the  paid  in  amounts,  or  the  property  only  of 


782  PEOPLE   V.    COLEMAN.  ,  §  2IO 

the  corporation?  If  all  that  is  authorized  is  subscribed,  paid  in  and  invested 
in  property,  and  there  is  no  statutory  liability,  the  creditor  can  not  look 
further  than  to  the  actual  property  of  the  corporation,  though  it  is  much  less 
than  the  capital  stock  named,  if  the  loss  is  due  to  misfortune,  and  not  fraud 
or  improper  appropriation  of  corporate  funds  by  officers  or  members ;  on  the 
other  hand,  if  this  property  is  more  than  the  capital  stock  named,  and  is 
undivided  in  the  hands  of  the  corporation,  the  creditor  can  have  it  applied, 
if  necessary,  to  the  payment  of  his  debt;  yet  until  a  lien  has  been  acquired 
or  insolvency  converted  it  into  a  trust  fund,  the  surplus  over  the  amount  of 
stock  named  can  be  distributed  as  dividends.  But  if  the  whole  amount 
authorized  is  never  subscribed,  and  the  law  allows  business  to  be  done  with  a 
smaller  subscription,  then  as  to  a  creditor,  what  is  the  capital  stock?  It  is 
universally  conceded  that  the  amount  subscribed,  and  not  the  amount  author- 
ized, is  the  capital  stock,  for  there  is  no  way  by  which  a  corporation  can  be 
required  to  secure  additional  subscriptions,  or  to  compel  any  one  to  subscribe 
in  order  to  pay  creditors ;  in  other  words,  unissued  shares  are  not  part  of  the 
capital  stock,  so  far  as  creditors  are  concerned.  Sturges  v.  Stetson,  1  Biss. 
(U.  S.)  246,  on  248,  10  Myer's  Fed.  D.,  §  142 ;  Christensen  v.  Eno,  106  N.  Y.  97. 

On  the  other  hand,  the  creditor  has  the  right  to  have  all  the  subscriptions 
paid  up,  if  necessary,  for  his  protection,  and  no  part  of  the  property  returned 
to  the  shareholders  that  reduces  it  to  a  value  less  than  the  face  value  of  the 
amount  subscribed,  if  necessary,  to  pay  his  claims.  Scovill  v.  Thayer,  105 
U.  S.  143;  Wood  v.  Dummer,  3  Mason  308.  So  here,  too,  the  amount  sub- 
scribed, and  not  the  amount  paid  in  is  the  capital  stock  that  is  the  primary 
basis  of  the  company's  credit ;  but  this,  too,  is  subject  to  the  qualification  made 
above — the  creditor  has  the  protection  of  the  surplus  earned  until  divided, 
and  can  claim  no  more  than  the  actual  propertj',  if  all  subscribed  has  been 
once  paid  in  good  faith,  and  not  lost  through  negligence,  fraud  or  misappro- 
priation. 

As  to  the  next — "dividends  shall  not  be  paid  out  of  the  capital" — capital  is 
used  to  mean  the  amount  of  property  of  the  company  equal  in  value  to  the 
face  value  of  the  stock  subscribed ;  all  above  that  is  surplus,  and  may  be  dis- 
tributed in  dividends;  and  in  this  sense  capital  is  equivalent  to  capital  stock 
subscribed  as  above  explained.  Williams  v.  Western  Union  Tel.  Co.,  93  N.  Y. 
162.  The  word  capital  is,  however,  more  generally  used  to  designate  the 
actual  property  of  the  company  derived  from  what  has  been  paid  in  on  the 
shares  with  undivided  accumulations,  whether  the  total  is  less  or  greater  than 
the  amount  subscribed,  and  whether  there  have  been  losses  or  gains ;  in  short, 
to  designate. the  actual  sum  with  which  business  is  being  done  at  any  partic- 
ular time. 

As  to  taxation,  there  are  many  conflicting  views :  Taxation  is  supposed  to 
be  upon  values  without  duplication.  If  placed  upon  capital  stock,  and  the  au- 
thorized capital  stock  was  assessed  at  its  face  value,  in  case  all  was  not  sub- 
scribed, it  would  amount  to  an  assessment  upon  a  mere  privilege,  and  would 
be  in  the  nature  of  a  franchise  tax ;  if  placed  upon  the  face  value  of  the 
amount  subscribed,  regardless  of  the  sum  paid  in,  it  would  be  upon  a  mere 
possibility  or  power  to  call  for  further  payments  (except  so  far  as  paid  up), 
and  would  also  be  in  the  nature  of  a  franchise  tax ;  if,  upon  the  market  value, 
this  would  be  determined  by  the  net  amount  of  corporate  property,  the  earn- 
ing capacity  and  business  opportunity  exhibited  by  the  corporation,  and 
would,  therefore,  be  equivalent  to  the  total  value  of  all  the  shares  in  the  hands 
of  the  shareholders,  and  the  tax  so  laid  would  be  upon  the  same  elements  of 
value  charged  against  the  corporation ;  if,  in  addition  to  this,  the  corporate 
property,  its  lands,  chattels  and  credits,  was  taxed  against  the  corporation 
there  would  be  double  taxation  to  that  extent ;  and  if  the  shares  in  the  hands 
of  shareholders  were  also  taxed  at  their  market  value  there  would  be  triple 
taxation,  in  the  sense  that  the  same  actual  elements  of  value  or  part  of  them 
would  be  taxed  three  times — twice  to  the  corporation,  and  once  to  the  share- 
holders. 

Again,  if  capital  stock  is  held  to  mean  only  the  corporate  property — lands, 
chattels  and  credits — and  these  alone  are  taxed,  it  is  evident  that  in  many 


§2  10  CAPITAL   STOCK.  783 

cases  property  rights  of  great  value  arising  from  the  existence  of  the  corpora- 
tion are  not  taxed.  When  A.  subscribes  for  a  share  of  $100  face  value,  and 
pays  in  that  sum,  the  corporation  is  the  owner  of  the  $100  as  tangible  prop- 
erty and  A.  is  the  owner  of  the  intangible  share,  entitling  him  to  have  this  $100 
(if  all  creditors  are  otherwise  satisfied)  with  all  its  net  earnings  during  the 
corporate  existence  returned  to  him  at  the  dissolution  of  the  corporation,  or 
from  time  to  time  before,  in  the  case  of  the  surplus  earnings ;  though  it  is  not 
considered  a  loan,  it  is  in  some  respects  similar,  but  without  an  obligation  to  re- 
pay before  dissolution,  or  to  pay  interest  in  the  meantime ;  these  rights  of  the 
shareholder  are  considered  A.'s  property,  and,  in  general,  if  he  receives  more 
in  the  way  of  dividends  than  he  would  receive  as  interest  from  a  safe  loan  of 
$100,  these  intangible  rights  would  be  considered  worth  more  as  property — 
represented  by  a  certificate  of  shares  instead  of  a  promissory  note — than  $100, 
or  if  the  income  was  less  than  from  a  safe  loan  the  share  would  be  considered 
less  valuable ;  the  $100  that  the  corporation  has  is  only  $100  as  its  property, 
but  because  of  its  earning  capacity,  A.'s  intangible  rights  arising  from  it,  his 
property  in  it  is  worth  more  than  $100;  a  valuation,  therefore,  of  the  cor- 
porate property  alone  as  property  does  not  reach  all  the  elements  of  value  in 
connection  with  the  $100 ;  its  earning  capacity  does  not  add  to  the  corporate 
property,  but  does  add  to  A.'s  property. 

But  inasmuch  as  the  $100  A.  has  put  in  the  corporation  is  put  there  mainly 
as  an  investment  for  gain,  its  value  to  him  is  determined  almost  wholly  by  its 
earning  capacity,  and  very  little  by  the  fact  that  it  is  $100  proi)erty  in  the 
hands  of  the  corporation ;  the  reason  for  this  is  that  the  $100  can  not  be  ob- 
tained by  A.  as  his  property  until  the  corporation  is  dissolved,  which  may 
never  occur,  or  only  at  an  uncertain  time  in  the  future.  However  much 
property  the  corporation  may  actually  have,  the  market  value  of  its  shares 
depends  mostly  upon  the  earning  capacity  of  the  property,  and  not  upon 
the  actual  value  of  the  property.  As  Mr.  Justice  Bigelow  savs  in  Commw. 
V.  Hamilton  Mfg.  Co.,  12  Allen  (Mass.)  298,  on  302:  "The  price  for  which 
all  the  shares  would  sell  may  greatly  exceed  the  a^regate  of  the  cor- 
porate property,  or  it  may  fall  very  far  short  of  it.  Undoubtedly  the 
amount  of  property  *  *  *  is  one  of  the  considerations  that  enters  into 
the  market  value  of  its  shares ;  but  such  market  value  also  embraces  other 
elements;  *  *  ♦  it  includes  the  profits  and  gains  which  have  attended  its 
operations,  the  prospects  of  its  future  success,  the  nature  and  extent  of  its 
corporate  rights  and  privileges,  and  the  skill  and  ability  with  which  its  busi- 
ness is  managed,  the  estimate  put  on  the  potentiality  of  a  corporation."  So, 
too,  the  corporate  property  may  be  large,  because  it  has  all,  or  most  of  it,  been 
purchased  by  the  proceeds  of  bonds  sold,  and  upon  which  the  income  is  suffi- 
cient to  pay  large  interest,  but  with  nothing  left  for  dividends— in  which  event 
the  stock  would  be  of  but  little  value ;  yet  possibly  this  would  in  some  degree 
represent  the  net  value  of  the  property  after  the  bonds  were  paid.  But  the 
corporation  may  in  fact  also  have  property  to  the  value  of  a  million  dollars, 
and  its  shares  be  worth  in  the  market  but  little,  because  the  corporate  prop- 
erty is  unproductive — and  the  owner  of  the  shares  can  in  no  way  have  the 
valuable  property  apportioned  to  him,  but  is  bound  to  let  it  remain  unpro- 
ductive until  dissolution  of  the  corporation.  From  such  considerations  as 
these  it  seems  clear  that  the  property  of  the  corporation  and  the  caj>ital  stock 
of  the  corporation  are  different  materially  in  value  very  frequently,  the 
value  of  the  capital  stock  being  equivalent  to  the  sum  total  of  the  value  of 
the  shares,  and  this  being  the  business  estimate  of  the  earning  capacity  of 
the  property  as  it  is  then  employed — and  not  the  value  of  the  same  property 
as  it  could  and  (if  not  owned  by  that  corporation)  would,  probably,  be  em- 
ployed. Because  of  these  differences  in  value,  and  in  ownership  in  the  case 
of  shares,  it  is  generally  held  that  a  tax  on  the  prope/ty  of  the  corporation, 
and  a  tax  on  the  shares  of  the  stockholders  are  not  double  taxation — though 
both  seem  to  be  placed  upon  the  same  sources  of  value. 

Although  it  is  certain  that  confusion  will  continue  to  exist  in  the  use  of 
these  terms,  yet  it  is  desirable  that  it  be  avoided  as  much  as  possible ;  and  as 
an  aid  to  that  end  it  is  suggested  that  terms  be  used  as  follows  so  far  as  posai- 


784  PEOPLE   V.    COLEMAN.  §  2IC> 

ble :  Authorized  capital  stock,  to  mean  the  total  face  value  of  all  the  shares  the 
corporation  has  the  right  to  issue ;  capital  stock,  to  mean  the  sum  total  .sm6- 
scribed,  equivalent  in  face  value  to  the  sum  total  of  the  face  value  of  the  shares 
issued ;  capital,  the  sum  paid  in  as  the  fund  with  which  it  transacts  business — 
orthe  total  value  of  all  the  property  of  the  corporation  arising  from  the  in- 
vestment of  this  fund;  shares,  the  intangible  property  of  the  individual 
shareholders,  in  face  value  equivalent  to  the  capital  stock  of  the  corporation, 
and  in  actual  value,  the  business  estimate  of  the  earning  power  of  the  capi- 
tal of  the  corporation.  It  is  believed  that  these  views  are  sanctioned  gener- 
ally by  text  writers,  and  also  by  the  best  considered  cases,  where  the  uncer- 
tainty of  statutes  have  not  made  it  necessary  to  hold  otherwise.  Ang.  &  A., 
§§  556,  et  seq. ;  Beach,  §  465,  et  seq.;  Boone,''§  105,  112;  Clark,  p.  256,  et  seq.; 
Cook  §§11,  12,  199;  Elliott,  §§  299,  300;  Lowell  Transfer  of  Stock,  ch.  1; 
Morawetz,  §§  137,  781 ;  Taylor,  §§  ±24,  541,  545;  I  Thompson,  §§  1059-1085;  II 
Thompson,  §  2810;  III  Thompson,  §§  2956,  4288,  et  seq. 

Below  is  given  a  collection  of  cases  where  these  matters  are  considered : 
Capital  stock  does  not  include  unissued  hut  authorized  shares:  1858,  Codding- 
ton  V.  Gilbert,  17  N.  Y.  489;  18G8,  Fisk  v.  Chicago,  etc.,  R.,  36  How.  Pr. 
(N.  Y.)  20.  on  22;  1877,  Greenpoint  Sugar  Co.  v.  Whitin,  69  N.  Y.  328,  on 
338;  1879,  Pratt  v.  Munson,  17  Hun.  (N.  Y.)  475;  1887,  Christensen  v.  Eno, 
106  N.  Y.  97. 

2.  Capital  stock  means  the  amount  subscribed,  and  not  the  sum  paid  in :  1834, 
Bank  of  Utica  v.  City  of  Utica,  4  Paige  Ch.  (N.  Y.)  399,  on  402;  1842,  People 
V.  Supervisors  of  Niagara,  4  Hill  (N.  Y.)  20;  1844,  Ward  v.  Griswoldville- 
Mfg.  Co.,  16  Conn.  593;  1850,  Hightower  v.  Thornton,  8  Ga.  486,  52  Am.  D. 
412;  1851,  State  v.  Morristown  Fire  Assn.,  23  N.  J.  L.  195,  on  196;  1862,  Bank 
of  Commerce  v.  N.  Y.  Citv,  67  U.  S.  (2  Black)  620,  on  628;  1882,  Wetherbee 
V.  Baker,  35  N.  J.  Eq.  501;  1891,  Security  Co.  v.  Town  of  Hartford,  61  Conn. 
89,  on  100,  101. 

3.  Capital  stock  means  th^  necessary  property  of  the  company  purchased  by  the 
fund  derived  from  the  payments  on  the  shares  subscribed:  1868,  State  v.  Hood,  15 
Rich.  Law  (S.  C.i  177;  1875,  State  Railroad  Tax  Cases,  92  U.  S.  575,  on  602; 
1880,  Ohio  and  Mississippi  R.  Co.  v.  Weber,  96  111.  443;  1881,  Bank  v.  Ten- 
nessee, 104  U.  S.  493;  1883,  Williams  v.  W.  U.  Tel.  Co.,  93  N.  Y.  162;  1891, 
Security  Co.  V.  Hartford,  61  Conn.  89,  on  100-1;  1892,  Wilkes  Barre,  etc.. 
Bank  v.  Wilkes  Barre,  148  Pa.  St.  601 ;  1897,  Union  Bank  v.  City  of  Rich- 
mond, 94  Va.  316;  1898,  Commonwealth  v.  N.  Y.,  P.  &  O.  R.  Co.,  188  Pa.  St. 
169,  and  cases  on  pp.  195,  198,  199  and  203. 

But  does  not  include  unnecessary  property :  1842,  Inhabitants  of  Worcester 
v.  Western  R.  Corp.,  4  Mete.  (Mass.)  564;  1847,  Railroad  v.  Berks  Co.,  6  Pa. 
St.  70;  1855,  Vermont  Central  R.  Co.  v.  Burlington,  28  Vt.  193. 

Neither  does  it  include  surplus :  1883,  Williams  v.  W.  U.  Tel.  Co.,  93  N.  Y. 
162;  1891,  People  v.  Coleman,  126  N.  Y.  433,  supra,  p.  778.  But  see,  1898, 
Commw.  V.  N.  Y.,  P.  &  O.  R.  Co.,  188  Pa.  St.  169. 

4.  Capital  stock  does  not  mean  the  corporate  property — they  are  distinct  things : 
1819,  McCulloch  V.  Maryland,  4  Wheat.  (U.  S.)  316;  1851,  State  v.  Morris- 
town  Fire  Assn.,  23  N.  J.  L.  195,  on  196;  1862,  Bank  of  Commerce  v.  N.  Y. 
City,  67  IT.  S.  (2  Black)  620,  on  628;  1866,  Commonwealth  v.  Hamilton  Mfg. 
Co.,  12  Allen  (Mass.)  298,  on  302-4;  1877,  Memphis  &  C.  R.  Co.  v.  Gaines, 
3  Tenn.  Ch.  604;  1878,  Railroad  Companies  v.  Gaines,  97  U.  S.  697;  1886, 
Tennessee  v.  Whitworth,  117  U.  S.  129,  on  139;  1892,  Railway  Company  v. 
Furnace  Co.,  49  O.  S.  102;  1895,  Wells  v.  Green  Bay,  etc.,  Co.,  90  Wis.  442. 

5.  Capital  stock  and  shares  of  stock  in  hands  of  shareholders  are  the  same: 
1845,  Gordon  v.  Appeal  Tax  Court,  44  U.  S.  (3  How.)  133,  on  147;  1852,  The 
State  V.  Branin,  23  N.  J.  L.  484;  1861,  People  v.  Commissioners  of  Taxes,  23 
N.  Y.  192,  on  220;  1869,  National  Bank  v.  Commonwealth,  76  U.  S.  (9  Wall.) 
363,  on  359 ;  1875,  Nichols  v.  New  Haven  &  N.  Co.,  42  Conn.  103,  on  120;  1886; 
Tennessee  v.  Whitworth,  117  U.  S.  129. 

6.  Capital  stock  and  shares  in  the  hands  of  the  shareholders  are  not  the  samez 
1836,  Union  Bank  v.  The  State,  9  Yerg.  (Tenn.)  489;  1864,  Lycoming  Co.  v. 
Gamble,  47  Pa.  St.  106;   1865,  Van  Allen  v.  Assessors,  3  Wall  (70  U.  S.)  575, 


§211  ^  CAPITAL   STOCK.  785 

on  583;  1869,  National  Bank  v.  Commonwealth,  76  U.  S.  (9  Wall.)  353,  on 
859;  1873,  The  Delaware  Railroad  Tax,  85  U.  S.  (18  Wall.)  206,  on  229; 
1877,  Farrington  v.  Tennessee,  95  U.  S.  679,  on  686;  1884,  State  Bank  v.  Citv 
of  Richmond,  79  Va.  113;  1896,  Shelby  Co.  v.  Union  &  P.  Bank,  161  U.  S.  149, 
on  154;  1895,  Bank  of  Commerce  v.  Tennessee,  161  U.  S.  134,  on  146;  1897, 
Union  Bank  v.  City  of  Richmond,  94  Va.  316;  1898,  Bank  v.  Memphis,  101 
Tenn.  154. 

7.  Capital  means  the  property  of  the  company:  1861,  People  v.  Commission- 
ers, etc.,  23  N.  Y.  192,  on  219;  1862,  Bank  of  Commerce  v.  N.  Y.  Citv,  67  U. 
S.  (2  Black)  620,  on  629;  1865,  Van  Allen  v.  Assessors,  70  U.  S.  (3  Wall.)  673, 
on  583;  1869.  National  Bank  v.  Commonwealth,  76  U.  S.  (9  AVall.)  353,  on 
369;  1874,  Bailey  v.  Clark,  88  U.  S.  (21  Wall.)  284;  1878,  Burrall  v.  Bush- 
wick  R.,  75  N.  Y.  211 ;  1880,  Bradley  v.  Bander,  36  Ohio  St.  28,  on  35;  1883, 
Williams  v.  Western  U.Tel.  Co.,  93  N.  Y.  162;  1886, Tennessee  v.  Whitworth, 
117  U.  S.  129,  on  139;  1895,  Wells  v.  Green  Bay,  etc.,  Co.,  90  Wis.  442. 

8.  Capital  is  the  same  as  capital  stock  of  the  corporation:  1883,  Williams  v. 
Western  Union  Tel.  Co.,  93  N.  Y.  162;  1891,  People  v.  Coleman,  126  N.  Y. 
433,  supra,  p.  778: 1892,  Railway  Co.  v.  Furnace  Co.,  49  Ohio  St.  102;  1894, 
American,  etc.,  Co.  v.  State  Board,  66  N.  J.  L.  389;  1895,  Tradesman  Pub. 
Co.  V.  Car  Wheel  Co.,  95  Tenn.  634. 

9.  Capital  is  not  the  same  as  shares  of  stock  in  the  hands  of  the  shareholders: 
1865,  Van  Allen  v.  The  Assessors,  70  U.  S.  (3  Wall.)  573,  on  583;  1866,  Com- 
monwealth V.  Hamilton  Mfg.  Co.,  12  Allen  (Mass.)  298,  on  302-4;  1866,  Peo- 
ple V.  Commissioners,  71  U.  S.  (4  Wall. )  244,  on  255 ;  1866,  Bradley  v.  The 
People,  71  U.  S.  (4  Wall.)  459;  1869,  National  Bank  v.  Commonwealth,  76 
U.  S.  (9  Wall.)  353,  on  359;  1880,  Bradley  v.  Bauder,  36  Ohio  St.  28;  1886, 
Tennessee  v.  Whitworth,  117  U.  S.  129;  1897,  New  Orleans  v.  Citizens' Bank, 
167  U.  S.  371,  on  402. 

10.  Property  of  the  corporation  is  not  the  same  as  shares  of  stock:  1866,  Com- 
monwealth V.  Hamilton  Mfg.  Co.,  12  Allen  (Mass.)  298,  on  302-4;  1898,  State 
V.  Travelers'  Ins.  Co.,  70  Conn.  590,  on  603;  1899,  Owensboro  National  Bank 
V.  Owensboro,  173  U.  S.  664. 


Sec.  211.     Capital  stock — Kinds,  common  and  preferred. 

HAMLIN  V.  CONTINENTAL  TRUST  COMPANY.* 

1897.     In  the  United  States  Circuit  Court  of  Appeals,  Sixth 

Circuit  (Ohio),  47  U.  S.  Appeals  Rep.  422-438,  78  Fed.  Rep. 

664,  36  L.  R.  A.  826,  7  A.  &  E.  C.  C.  N.  S.  631. 

[Certain  unsecured  creditors  of  the  insolvent  Toledo,  St.  L.  &  K. 
C.  R.  Co.,  in  May,  1893,  filed  a  bill  on  behalf  of  all  the  creditors  to 
wind  up  the  affairs  of  the  railroad  and  distribute  its  assets ;  a  receiver 
was  appointed  under  this  bill ;  the  bondholders  were  not  made  parties 
to  this  suit,  but  in  December,  1893,  the  Continental  Trust  Company, 
trustees  for  the  holders  of  some  $9,000,000  mortgage  bonds,  filed  in 
the  same  court  a  bill  to  foreclose  the  mortgage,  whereupon  the  same 
receiver  was  appointed  as  before,  and  the  two  cases  ordered  to  be 
consolidated.  Before  any  decree  adjudicating  claims  or  decreeing 
foreclosure,  Hamlin  etal.,  appellants  herein,  asked  to  become  parties 
defendant  with  leave  to  file  an  answer  and  cross-bill ;  this  was  granted, 

^Statement  of  facts  abridged.    Only  part  of  opinion  given. 
50 — WiL.  Cases. 


786  HAMLIN    V.    CONTINENTAL   TRUST   CO.*  §211 

subject  to  the  right  of  complainants,  after  further  examination,  to 
move  to  strike  from  the  files,  or  strike  out  anything  attacking  the 
validity  of  the  consideration  for  the  mortgage  bonds.  Such  motion 
was  afterward  made  accordingly,  and  the  court  gave  an  opinion 
"denying  the  claim  of  the  appellants  (Hamlin  et  al.')  to  be  creditors 
of  the  railroad  company,  or  that  as  preferred  stockholders  they  had 
any  lien  valid  as  against  creditors,  or  any  right  or  interest  in  or  to  the 
property  of  said  company  antagonistic  to  the  corporation  or  to  the 
class  of  common  stockholders,"  and  thereupon  an  order  was  entered 
"denying  the  appellants  the  right  to  intervene  or  file  an  answer  or 
other  pleading."  This  ruling,  and  the  decree  following  it,  are 
appealed  from.      Other  facts  are  stated  in  the  opinion.] 

LuRTON,  Circuit  Judge.  *  *  *  The  case  made  by  the  petition, 
answer  and  cross-bill  was  substantially  this:  The  appellants  and  those 
acting  in  concert  with  them  are  owners  and  holders  of  certificates  of 
preferred  non-voting  stock  issued  by  the  Toledo,  St.  Louis  and  Kansas 
City  Railroad  Company.  The  total  issue  of  these  certificates  was 
$5,805,000,  and  of  this  total  the  appellants  and  those  represented  by 
them  hold  about  $2,000,000.  They  claim  that  these  certificates  are 
money  obligations  of  the  railroad  company,  secured  by  a  lien  next 
after  the  existing  first  mortgage  bonds  of  said  companv.  They  aver 
that,  though  no  mortgage  was  executed  and  registered  to  secure  said 
certificates,  they  constitute  a  valid  equitable  mortgage,  binding  upon 
the  corporation  and  upon  all  creditors  who  become  such  with  notice 
of  this  equitable  lien.  These  certificates  are  in  form  alike,  and  were 
issued  simultaneously  with  the  execution  of  the  first  mortgage  sought 
to  be  foreclosed  herein,  and  were  registered  by  the  trustee  under  said 
first  mortgage.  We  here  set  out  one  of  these  certificates  and  one  of 
the  coupons  attached : 

"Toledo,  St.  Louis  and  Kansas  City  Railroad  Company. 
"No.  Preferred  capital  stock.  10  shares. 

"This  is  to  certify  that  James  M.  Quigley,  or  bearer,  is  entitled  to 
ten  shares  of  one  hundred  dollars  each,  of  the  preferred  non-voting 
capital  stock  of  the  Toledo,  St.  Louis  and  Kansas  City  Railroad 
Company. 

"This  stock  constitutes  a  lien  upon  the  property  and  net  earnings  of 
the  company  next  after  the  company's  existing  first  mortgage.  It 
does  not  entitle  the  holder  to  vote  thereon.  After  the  first  day  of 
January,  1888,  it  is  entitled  to,  and  carries  interest  at  the  rate  of  4 
per  cent,  per  annum,  payable  semi-annually,  represented  by  interest 
coupons  attached  to  this  certificate.  Such  interest  is  only  payable  out 
of  the  net  earnings  of  the  company  after  the  payment  of  interest  upon 
its  existing  first  mortgage  bonds,  and  the  cost  of  maintenance  and 
operation.  A  statement  showing  the  business  of  the  company  for  the 
half  of  its  fiscal  year  next  preceding  shall  be  exhibited  at  the  office  of 
the  company  in  New  York  to  the  holder  of  this  certificate,  at  the  ma- 
turity of  each  interest  coupon,  and  the  net  earnings  applicable  to  such 
interest  shall  be  reckoned  for  such  period.     Such  interest  is  not  to  ac- 


§211  CAPITAL   STOCK.  787 

cumulate  as  a  charge,  and  the  coupons  representing  unearned  interest 
must  be  surrendered  and  canceled  on  the  payment  in  whole  or  in  part 
of  a  subsequently  maturing  coupon.  At  any  time  after  the  first  day 
of  January,  1891,  and  before  the  first  day  of  January,  1898,  this  cer- 
tificate may  be  converted  into  the  common  capital  stock  of  the  com- 
pany. If  not  converted,  then  to  become  a  preferred  four  per  cent, 
non-cumulative  stock.  The  company  will  create  no  mortgage  of  its 
main  line  other  than  its  first  mortgage,  nor  of  any  part  thereof,  except 
expressly  subject  to  the  prior  lien  of  this  certificate,  without  the  con- 
sent of  the  holders  of  at  least  two-thirds  of  this  stock  present  at  a 
meeting,  of  which  reasonable  personal  notice  must  be  given  to  each 
registered  stockholder,  and  by  publication  for  at  least  three  successive 
weeks  in  two  leading  daily  newspapers  published  in  the  cities  of  New 
York  and  Boston.  One-third  of  the  entire  issue  of  this  stock  present 
in  person  or  by  proxy  shall  constitute  a  quorum.  Nor  will  the  com- 
pany increase  the  issue  of  these  certificates  of  stock  without  consent 
obtained  as  above.  This  certificate  of  stock  shall  be  transferrable  by 
delivery  or  by  transfer  on  the  book  of  the  company  in  the  city  of  New 
York,  after  a  registration  of  ownership,  certified  hereon  by  the  trans- 
fer agent  of  the  company. 
"Countersigned. 

"American  Loan  and  Trust  Company,  , 

"By ,  President. 

"Secretary.  , 

"New  York,  June  19,  1886.  Secretary. 

"Shares  $ioo  each. 

"The  Toledo,  St.  Louis  and  Kansas  City  Railroad  Company  will 
pay  to  bearer  on  the  first  day  of  January,  1898,  upon  the  surrender 
of  this  warrant,  at  its  office  or  agency,  in  the  city  of  New  York,  any 
amount  that  may  be  due  hereon  under  the  conditions  set  forth  in  the 
certificate  of  stock  to  which  this  is  attached,  not  exceeding  the  sum 

of  twenty  dollars.     Coupon  No.  20.     No.  . 

"Isaac  White,  Secretary."     ♦     *     * 

In  the  absence  of  charter  regulation  or  prohibition  by  the  law  of 
the  state  under  which  a  corporation  is  organized,  a  corporation  at  its 
organization  may  classify  its  stock,  and  provide  for  a  preference  of 
one  class  over  another  in  respect  of  both  capital  and  dividends,  i 
Cook  on  Stock  and  Stockholders  (3d  ed.),  §§  267,  268,  278;  War- 
ren V.  King,  108  U.  S.  389;  Lockhart  v.  Van  Alstyne,  31  Mich.  76; 
Kent  V.  The  Quicksilver  Mining  Company,  78  N.  Y.  159;  McGregor 
V.  The  Home  Insurance  Company  of  Newark,  New  Jersey,  33  N.  J. 
Eq.  181;  Miller  v.  Ratterman,  47  Ohio  St.  141,  163. 

In  providing  for  the  lien  of  this  stock  upon  the  "property"  of  the 
company  next  after  the  company's  existing  first  mortgage,  "property 
and  net  earnings"  are  coupled  together.  This  is  significant.  The 
lien  given  on  "net  earnings"  is  the  same  kind  of  lien  as  that  given  on 
the  "property"  of  the  company.     In  such  case  it  is  a  preference  over 


788  HAMLIN    V.    CONTINENTAL   TRUST    CO.  ^2X1 

the  usual  rights  and  interests  of  another  but  subordinate  class  of  stock- 
holders. Neither  do  we  think  that  the  provision  that  this  stock  shall 
"become  a  preferred  four  per  cent,  non-cumulative  stock,"  m  the 
event  the  holder  fails  to  avail  himself  of  the  privilege  of  converting  it 
into  common  stock  w^ithin  the  time  allowed,  is  indicative  that  it  was 
not  preferred  stock  before  the  rejection  of  the  option  to  become  com- 
mon stock.  Before  that  it  was  a  non-voting,  non-cumulative  pre- 
ferred stock  with  the  option  to  become  common  stock.  After  that 
time  this  option  is  lost,  and  with  it  the  privilege  of  sharing  equally 
with  the  other  class  of  stock  in  the  control  of  the  corporation  and  in 
the  distribution  of  dividends  without  the  limitation  prescribed  as  ta 
the  amount  of  such  dividends.  That  seems  to  be  the  only  result  of 
rejecting  the  option. 

There  is  a  wide  difference  between  the  relation  of  a  creditor  and  a 
stockholder  to  the  corporate  property.  One  can  not  well  be  a  creditor 
as  respects  creditors  proper,  and  a  stockholder  by  virtue  of  a  certifi- 
cate evidencing  his  contribution  to  the  capital  of  the  corporation. 
Stock  is  capital,  and  a  stock  certificate  but  evidences  that  the  holder 
has  ventured  his  means  as  a  part  of  the  capital.  It  is  a  fixed  charac- 
teristic of  capital  stock  that  no  part  of  it  can  be  withdrawn  for  the 
purpose  of  repaying  the  principal  of  the  capital  stock  until  the  debts 
of  the  corporation  are  paid.  These  principles  are  elementary.  Warren 
V.  King,  io8  U.  S.  389;  i  Cook  on  Stock  and  Stockholders  (3  ed.), 
§271.  The  chance  of  gain  throws  on  the  stockholder,  as  respects 
creditors,  the  entire  risk  of  the  loss  of  his  contribution  to  capital.  "He 
can  not  be  both  creditor  and  debtor  by  virtue  of  his  ownership  of 
stock."  Warren  v.  King,  supra.  If  the  purpose  in  providing  for 
these  peculiar  shares  was  to  arrange  matters  so  that  under  any  circum- 
stances a  part  of  the  principal  of  the  stock  might  be  withdrawn  before 
the  full  discharge  of  all  corporate  debts,  the  device  would  be  contrary 
to  the  nature  of  capital  stock,  opposed  to  public  policy,  and  void  as  to 
creditors  affected  thereby,  i  Cook  on  Stock  and  Stockholders  (3d  ed.), 
§§  270,  271  ;  Chaffee  v.  Rutland  Railroad  Company,  55  Vermont  1 10  ; 
McCutcheon  v.  Merz  Capsule  Company,  37  U.  S.  App.  586,  598 ; 
Morrow  v.  Iron  &  Steel  Co.,  3  Pickle  (Tenn.)  262.  If  that  was  the 
purpose  of  this  arrangement,  most  doubtful  language  was  employed. 

There  is  a  sense  in  which  every  shareholder  is  a  creditor  of  the  cor- 
poration 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  corpo- 
ration and  its  shareholders.  It  is  a  liability  which  is  postponed  to 
every  other  liability,  and  no  part  of  the  capital  stock  can  be  lawfully 
returned  to  the  stockholders  until  all  debts  are  paid  or  provided  for. 
The  violation  of  this  well-understood  principle  is  a  breach  of  trust, 
and  a  creditor  affected  thereby  may  pursue  the  stockholders  and 
recover  as  for  an  unlawful  diversion  of  assets. 

The  appellants  say  that  it  was  originally  contemplated  that  the  new 
corporation  should  pay  them  for  their  interests  in  the  foreclosed  rail- 


^211  CAPITAL   STOCK.  789 

road,  and  for  that  purpose  should  issue  to  them  its  second  mortgage 
bonds.  If  that  plan  had  been  carried  out  there  would  be  no  doubt  as 
to  their  attitude.  They  would  have  become  creditors.  Under  it  their 
relation  would  have  been  one  of  no  doubt,  and  notice  by  registration 
would  have  put  all  who  dealt  with  the  corporation  on  guard.  That 
plan  was  abandoned.  They  agreed  to  take  and  did  take  the  relation 
of  stockholders  toward  the  new  company.  They  surrendered  the 
privilege  of  voting.  That  was  perhaps  a  valid  agreement  between 
stockholders,  though  of  doubtful  public  policy.  They  thereby  gave 
some  additional  value  to  the  common  stock.  The  latter  was  the  ex- 
clusive voting  stock,  and  that  was  worth  something  as  railway  man- 
agement now  goes.  The  surrender  of  the  right  to  vote  does  not  make 
them  cre.ditors.  They  bargained  for  preferred  shares  of  stock,  pre- 
ferred as  to  dividends  and  preferred  as  to  capital.  For  this  advan- 
tageous position  they  surrendered  the  first  intention  by  which  they 
were  to  have  become  secured  creditors.  If  they  intended  to  become 
creditors  and  not  stockholders,  they  adopted  a  most  singular  method 
of  defining  their  relation.  We  will  not  presume  that  their  puipose 
was  to  adopt  a  device  by  which  they  might  withdraw  their  contribu- 
tion to  the  capital  stock  and  leave  creditors  unpaid.  If  they  intended 
that,  they  have  not  made  it  plain,  and  if  it  was  plain,  the  device  would 
be  invalid  as  to  creditors. 

Although  the  appellants  were  not  creditors  proper,  yet  they  show  a 
case  on  the  face  of  their  certificates  entitling  them  to  a  preference 
over  common  stockholders  in  relation  to  both  dividends  and  capital. 
Ordirtarily  preferred  stock  is  entitled  to  no  preference  over  other 
stock  in  relation  to  capital.  But  where  there  is  an  expressed  agree- 
ment giving  such  a  preference,  not  prohibited  by  local  law  or  the 
charter,  we  see  no  reason  why  it  is  not  a  valid  contract  as  between 
the  corporation  and  such  preferred  stockholders,  and  binding  upon 
the  common  stockholders,  i  Cook  on  Stock  and  Stockholders  (3d 
ed.),  §  278;  Warren  v.  King,  108  U.  S.  389;  Chaffee  v.  Rutland 
Railroad  Company,  55  Ver.  no;  In  re  Bangor  and  Portmadoc  Slate 
and  Slab  Company,  L.  R.  20  Eq.  59;  Lockhart  v.  Van  Alstyne,  31 
Mich,  "j^'^  Kent  v.  The  Quicksilver  Mining  Company,  78  N.  Y.  159. 
Such  a  preference  would  not  be  inconsistent  with  their  relation  as 
stockholders,  and  would  not  affect  creditors.  This  relation  to  the 
corporation  and  to  its  common  stockholders,  in  view  of  the  non-voting 
provision  in  this  arrangement,  makes  it  eminently  proper  that  these 
preferred  stockholders  should  be  represented  by  a  reasonable  number 
standing  for  the  class  with  the  right  to  stand  for  and  defend  in  respect 
to  their  own  rights.  Bronson  v.  La  Crosse  and  Milwaukee  Railroad 
Company,  2  Wall.  283,  302.      «     *     « 

The  effect  of  dismissing  the  appellants  from  the  case  after  admitting 
them  as  parties  was  to  deny  them  the  preference  over  common  stock- 
holders, and  was  such  a  decree  as  was  final,  and,  therefore,  appeal- 
able. Ex  farte  Jordan,  94  U.  S.  248.  For  this  error  the  decree 
will  be  reversed. 

Note.    1.   As  to  nature  of  preferred  stock,  see,  1844,  Davis  v.  Proprietors, 


790  KENT   V.    QUICKSILVER   MINING   CO.  §212 

etc.,  8  Mete.  (Mass.)  321 ;  1860,  Bates  v.  Androscoggin  &  K.  R.  Co.,  49  Maine 
491;  1863,  Rutland  &  B.  R.  Co.  v.  Thrall,  35  Vt.  536;  1866,  Taft,  Trustee,  v. 
Railroad  Co.,  8  R.  I.  310;  1875,  Totten  v.  Tison,  54  Ga.  139;  1875,  West  Ches- 
ter &  P.  R.  Co.  V.  Jackson,  77  Pa.  St.  321;  1881,  Boardman  v.  L.  S.  &  M.  S. 
R.  Co.,  84  N.  Y.  157  ;  1882,  Chaffee  v.  Rutland  R.  Co.,  55  Vt.  110;  1883,  Nick- 
als  V.  R.  Co.,  15  Fed.  Rep.  575 ;  1884,  Gordon  v.  R.  F.  &  P.  R.  Co.,  78  Va.  501 ; 
1885,  Belfast  &  M.  L.  R.  Co.  v.  Belfast,  77  Maine  445;  1887,  Hazeltine  v.  B.  & 
M.R.,  79  Maine  411,1  Am.  St.  Rep.  330;  1890,  Miller  v.  Ratterman,  47  0hio  St. 
141 ;  1890,  Campbell  v.  American  Z.  Co.,  122  N.  Y.  455;  1892,  Jones  v.  Con- 
cord &  M.  R.  Co.,  67  N.  H.  234,  68  Am.  St.  Rep.  650;  1894,  Field  v.  Lamson 
&Goodnow  Mfg.  Co.,  162  Mass.  388,  27  L.  R.  A.  136;  1898,  People  v.  St. 
Louis.  A.  &  T.  R.  Co.,  176  111.  512.  12  A.  &  E.  C.  C.  (N.  S.)  227 ;  1898,  Cook  v. 
Association,  104  Ga.  814,  30  S.  E.  Rep.  911 ;  1899,  Pronick  v.  Spirits  Distribut- 
ing, 58  N.  J.  Eq.  97,  42  Atl.  Rep.  586;  1899,  Savannah  Real  Estate,  L.  &  B. 
Co.  V.  Silverberg,  108  Ga.  281,  33  S.  E.  Rep.  908;  1899,  Heller  v.  National  Ma- 
rine Bank,  89  Md.  603,  45  L.  R.  A.  438,  73  Am.  St.  Rep.  212,  note  227. 


Sec.  212.      Preferred  stock — Power  to  issue. 

KENT  V.  QUICKSILVER  MINING  COMPANY.^ 

1879.     In  the  Court  of  Appeals  of  New  York.     78  New  York 

Reports  159— 191. 

Folger,  J.  These  are  suits  in  equity  to  perpetually  restrain  the 
Quicksilver  Mining  Company  from  taking  certain  action,  on  the  one 
hand  proposed  by  it  with  the  expressed  assent  of  some  only,  of  the 
stockholders  in  it,  and  on  the  other  hand  demanded  of  it  by  certain 
other  of  the  stockholders  in  it  which  demand,  it  and  still  other  stock- 
holders resist. 

Whatever  the  frame  of  the  pleadings  in  the  several  actions,  and 
whatever  the  formal  prayer  for  judgment,  the  pui-pose  of  the  litiga- 
tion in  each  is  to  reach  a  final  and  binding  judgment,  whether  certain 
'"'"preferred  stock,"  heretofore  created  by  that  company,  is  so  far  valid 
as  to  be  recognized  in  the  future  business  of  the  company  as  giving  to 
the  holders  thereof  the  peculiar  right  expressed  in  the  certificate 
thereof.  (The  judgment  below  held  the  issue  of  preferred  stock  to 
be  valid.) 

What  is  meant  by  '■'■ -preferred  stock"  is  well  enough  known  in  law 
and  business  without  definition  or  circumlocution  here.      «     ♦      « 

(The  corporation  had  the  usual  corpor?.te  powers,  including  "the 
power  to  issue  certificates  of  stock,  representing  the  value  of  its  prop- 
erty, in  such  form  and  subject  to  such  regulations  as  it  might  from 
time  to  time  by  its  by-laws  prescribe.") 

A  by-law  was  duly  made,  which  declared  the  whole  value  of  its 
property  and  the  whole  amount  of  its  capital  stock,  and  divided  the 
whole  of  it  into  shares  equal  in  amount,  and  directed  the  issuing  of 
certificates  of  stock  therefor.  It  is  not  to  be  said  that  this  by-law  au- 
thorized anything  but  shares  equal  in  value  and  in  right;  or  that  the 

*  Statement  much  abridged,  and  only  part  of  opinion  given. 


§  212  PREFERRED    STOCK.  791 

taker  of  one  did  not  own  as  large  an  interest  in  the  coiporation,  its 
capital,  affairs  and  profits  to  come,  as  any  other  holder  of  a  share. 
Certificates  of  stock  were  issued  under  this  by-law  that  gave  no  ex- 
pression of  anything  different  from  that.  When  that  by-law  was 
adopted,  it  was  as  much  the  law  of  the  corporation  as  if  its  provisions 
had  been  a  part  of  the  charter.  (Presbyterian  Church  v.  City  of  New 
York,  5  Cow.  538.)  So  it  is  said  in  Grant  on  Corporations,  p.  80, 
in  a  qualified  way.  Thereby,  and  by  the  certificate,  as  between  it 
and  every  stockholder,  the  capital  stock  of  the  company  was  fixed  in 
amount,  in  the  number  of  shares  into  which  it  was  divisible,  and  in 
the  peculiar  and  relative  value  of  each  share.  The  by-law  entered 
into  the  compact  between  the  corporation  and  every  taker  of  a  share  ; 
it  was  in  the  nature  of  a  contract  between  them.  The  holding  and 
owning  of  a  share  gave  a  right  which  could  not  be  divested  without 
the  assent  of  the  holder  and  owner ;  or  unless  the  power  so  to  do  had 
been  reserved  in  some  way.  (Mech.  Bank  v.  N.  Y.  and  N.  H.  R. 
Co.,  13  N.  Y.  599—627.)  Shares  of  stock  are  in  the  nature  of  choses 
in  action,  and  give  the  holder  a  fixed  right  in  the  division  of  the 
profits  or  earnings  of  a  company  so  long  as  it  exists,  and  of  its  effects 
when  it  is  dissolved.  That  right  is  as  inviolable  as  is  any  right  in 
property,  and  can  no  more  be  taken  away  or  lessened,  against  the 
will  of  the  owner,  than  can  any  other  right,  unless  power  is  reserved 
in  the  first  instance,  when  it  enters  into  the  constitution  of  the  right ; 
or  is  properly  derived  afterwards  from  a  superior  law  giver.  The 
certificate  of  stock  is  the  muniment  of  the  shareholder's  title,  and 
evidence  of  his  right.  It  expresses  the  contract  between  the  corpora- 
tion and  his  co-stockholders  and  himself;  and  that  contract  can  not, 
he  being  unwilling,  be  taken  away  from  him  or  changed  as  to  him 
without  his  prior  dereliction,  or  under  the  conditions  above  stated. 
Now  it  is  manifest  that  any  action  of  a  corporation  which  takes  hold 
of  the  shares  of  its  capital  stock  already  sold  and  in  the  hands  of  law- 
ful owners,  and  divides  them  into  two  classes — one  of  which  is 
thereby  given  prior  right  to  a  receipt  of  a  fixed  sum  from  the  earnings 
before  the  other  may  have  any  receipt  therefrom,  and  is  given  an 
equal  share  afterwards  with  the  other  in  what  earnings  may  remain — 
destroys  the  equality  of  the  shares,  takes  away  a  right  which  originally 
existed  in  it,  and  materially  varies  the  effect  of  the  certificate  of  stock. 

It  is  said  that  when  a  corporation  can  lawfully  buy  property,  or  get 
money  on  loan,  any  known  assurance  may  be  exacted  and  given  which 
does  not  fall  within  the  prohibition,  express  or  implied,  of  some  stat- 
ute (Curtis  V.  Leavitt,  15  N.  Y.  66-67);  ^"^  ^^^^  '^  sought  to  be 
applied  here.  But  the  prohibition  to  such  action  as  this  is  found,  not 
indeed  in  a  statute  commonly  so  called,  but  in  the  constitutional  pro- 
vision which  forbids  the  impairment  of  vested  rights,  save  for  public 
purposes  and  on  due  compensation.  The  right  which  a  stockholder 
gets  on  the  purchase  of  his  share  and  the  issue  to  him  of  the  certifi- 
cate therefor  is  such  a  vested  right. 

It  is  contended  that  the  power  so  to  do  is  an  incidental  and  implied 
power,  necessary  to  the  use  of  the  other  powers  of  the  corporation.. 


792  KENT   V.    QUICKSILVER   MINING    CO.  §  212 

and  is  a  legitimate  means  of  raising  money  and  securing  the  agreed 
consideration  therefor.  We  have  already  conceded  that  it  is  legitimate 
to  borrow  money,  and  to  secure  the  repayment  of  it,  with  a  compen- 
sation for  the  use  of  it.  But  that  is  when  it  is  done  in  such  way  as  to 
put  the  burthen  upon  every  share  of  stock  alike,  and  to  enable  every 
share  of  stock  to  be  relieved  therefrom  alike ;  in  such  way  as  to  pre- 
serve the  equality  of  right  and  privilege  and  value  of  the  shares,  and 
maintain  intact  the  contract  thereto  with  the  .stockholder. 

Citations  are  made  to  us  for  the  conveise  of  this,  but  they  do  not 
come  up — sometimes  in  their  facts,  sometimes  in  their  declarations — 
to  the  necessity  of  the  proposition.  Either  it  is  where  the  capital  is 
not  limited,  and  it  is  new  shares  that  may  be  issued  with  a  preference, 
and  where  there  is  express  power  to  borrow  on  bond  and  mortgage 
(2  Redf.  on  Railways,  ch.  33,  §§  4,  237;  Harrison  v.  Mex.  R.  W., 
12  Eng.  Rep.  793);  or  the  amount  of  the  capital  has  not  been  reached 
and  such  stock  is  issued  therefrom  (Hazelhurst  v.  Savannah  R.,  43 
Ga.  53;  Tottan  V.  Tison,  54  Ga.  139);  or  there  was  legislative  au- 
thority (Davis  V.  Proprietors,  SMetcf.  321 ;  Rutland  R.  Co.  v.  Thrall, 
35  Vt.  545)  ;  or  a  restriction  to  authorized  capital  and  there  was 
unanimous  consent  of  the  stockholders  (Prouty  v.  M.  S.  &  N.  I.  R., 
I  Hun  663  ;  43  Ga.  53,  supra)  ;  or  there  was  power  to  redeem,  which 
wa^  a  transaction  in  the  nature  of  a  debt  (Westchester,  etc.,  R.  Co. 
v.  Jackson,  77  Pa.  St.  321)  ;  or  the  opinion  was  obiter  (Bates  v.  An- 
droscoggin R.  Co.,  49  Maine  491)  ;  or  it  was  the  case  of  a  subscrip- 
tion for  stock  with  a  condition  for  interest  until  the  corporation  was 
in  operation  (Richardson  v.  Vt.  &  Mass.  R.  Co.,  44  Vt.  613)  ;  or  it 
was  an  action  on  a  subscription  more  favorable  to  defendant  than  to 
other  subscribers,  and  it  was  held  that  defendant  could  not  set  up  the 
lack  of  equality  (Evansville  R.  Co.  v.  Evansville,  15  Ind.  395);  or 
a  solemn  determination  of  this  question  was  not  necessary  for  the  dis- 
posal of  the  case  (Williston  v.  M.  S.  &  N.  I.  R.  Co.,  13  Allen  400)  ; 
or  the  issue  was  authorized  by  the  articles  of  association  (^In  re  A'D. 
St.  Nav.  &  Col.  Co.,  20  L.  R.  Eq.  339)  ;  or  there  was  full  knowl- 
edge on  the  part  of  all  concerned  (Lockhart  v.  Van  Alstyne,  31  Mich. 
81);  or  the  power  in  the  corporate  body  was  conceded,  and  it  was 
denied  that  it  existed  in  the  directors  (McLaughlin  v.  D.  &  M.  R., 
8  Mich.  100). 

We  will  not  say,  for  we  are  not  called  upon  here  to  say,  that  never 
can  a  corporation  rightfully,  against  the  dissent  of  a  portion  of  its 
stockholders,  make  some  of  the  stock  preferred ;  what  we  assert  is 
that  this  case  does  not  present  a  state  of  facts  in  which  a  power  so  to 
do  exists. 

There  is  a  power  in  this  charter  to  alter,  amend,  add  to  or  repeal, 
at  pleasure,  by-laws  before  made.  It  is  argued  from  this  that  it  was 
in  the  power  of  the  corporate  body,  in  due  form  and  manner,  to  alter 
the  by-law  which  had  fixed  the  amount  of  the  capital  stock  and  the 
number  and  relative  value  of  the  shares  thereof.  The  power  to  make 
by-laws  is  to  make  such  as  are  not  inconsistent  with  the  constitution 
and  the  law;   and  the  power  to  alter  has  the  same  limit,  so  that  no 


§213.  PREFERRED    STOCK.  793 

alteration  could  be  made  which  would  infringe  a  right  already  given 
and  secured  by  the  contract  of  the  corporation.  Nor  was  the  power 
to  alter,  to  the  extent  of  affecting  the  contracted  relative  value  of  a 
share,  reserved  when  the  share  was  sold  to  the  stockholder,  so  as  to 
e«ter  into  and  form  a  part  of  the  contract.  An  alteration  is  a  fro  tanto 
repeal ;  but  no  private  corporation  can  repeal  a  by-law  so  as  to  impair 
rights  which  have  been  given  and  become  vested  by  virtue  of  the  by- 
law afterwards  repealed.     *     *     » 

We  are  therefore  of  the  opinion  that  there  was  no  power  in  the 
corporate  body,  nor  in  a  majority  of  the  stockholders,  to  provide  by 
by-law  for  the  creation  of  a  preferred  stock,  so  as  to  bind  a  minority 
of  the  stockholders  not  assenting  thereto.     »     •     » 

But  there  remains  a  serious  question,  whether,  though  there  was  at 
the  outstart  a  minority  of  the  stockholders  who  gave  no  assent  to  the 
corporate  act,  there  has  not  been  such  tacit  acquiescence  and  delay  in 
action  by  that  minority  as  to  amount  to  indefensible  laches  and 
estoppel  upon  those  who  constituted  it  and  their  assigns.  In  our 
judgment  there  has,  and  we  find  here  a  safe  place  on  which  to  rest 
our  decisions  of  these  cases.*     *     * 

Affirmed  on  the  ground  of  estop f  el  by  laches. 

Note.  Power  to  issue  preferred  stock  generally:  1867,  Everhart  v.  West  Ches- 
ter, etc.,  R.  Co.,  28  Pa.  St.  339;  1865,  Hutton  v.  Scarborough  Cliff  Hotel  Co., 
4  De  G.  J.  &  S.  672,  2  Dr.  &  S.  514,  521;  1884,  Gordon  v.  Richmond,  etc.,  R. 
Co.,  78  Va.  501 ;  1885,  Belfast,  etc.,  R.  Co.  v.  Belfast,  77  Maine 445;  1890,  Camp- 
bell v.  American  Z.  Co.,  122  N.  Y.  455,  11  L.  R.  A.  596;  1890,  Bamjam  v. 
Bard,  134  U.  S.  291 ;  1891,  Re  Dicido  Pier  Co.,  L.  R.  2  Ch.  Div.  354 ;  1891,  p:ich- 
baum  V.  City  of  Chicago  Grain  Elevators,  L.  R.  3  Ch.  Div.  459 ;  1895,  Higgins  v. 
Lansin^h,  154  111.  301 ;  1897,  Andrews  v.  Gas  Meter  Co.,  76  L.  T.  R.,  132, 
overruling  Hutton  v.  Scarborough  C.  H.  Co.,  supra;  1898,  Ernst  v.  Elmira  M. 
I.  Co.,  54  N.  Y.  S.  116,  24  Miscl.  (N.  Y.)  583. 

Majority  of  members  can  not,  without  express  legislative  authority,  and  with- 
out consent  of  all  the  subscribers,  after  organization  or  subscription  upon  an 
equal  basis,  convert  a  part  of  the  shares  into  preferred.  1865,  Hutton  v. 
Scarborough  CHff  Hotel  Co.,  4  De  G.  J.  &  S.  672,  2  Drew  &  S.  514,  521 ;  1881, 
Boardman  v.  L.  S.  &  M.  S.  R.,  84  N.  Y.  157;  1890,  Campbell  v.  American 
Zylonite  Co.,  122  N.  Y.  456;  1898,  Ernst  v.  Elmira  M.  I.  Co.,  64  N.  Y.  Sup. 
116,  24  Miscl.  583. 

But  it  has  also  been  held  that  express  legislative  authority  will  make 
such  issue  valid,  even  against  dissenting  shareholders.  1857,  Everhart  v. 
Westchester,  etc.,  R.  Co.,  28  Pa.  St.  339;  1863,  Rutland,  etc.,  R.  Co.  v.  Thrall, 
35  Vt.  536;  1867,  Curry  v.  Scott,  64  Pa.  St.  270;  1875,  Westchester,  etc.,  R. 
Co.  V.  Jackson,  77  Pa.  St.  321 ;  1875,  Totten  v.  Tison,  54  Ga.  139;  1897,  Andrews 
V.  Gas  Meter  Co.,  76  L.  T.  Rep.  132,  overruling  Hutton  v.  Scarborough  Cliff 
Hotel  Co.,  4  De  G.  J.  &  S.  672,  a»d  2  Drew  &  S.  514,  521. 

But  upon  the  other  hand,  it  seems  that  neither  statutory  nor  charter  au- 
thority is  necessary,  if  the  preferred  stock  is  issued  (under  a  power  to  in- 
crease" or  complete  an  authorized  issue)  by  the  unanimous  consent  of  the  exist- 
ing shareholders.  Havemaver  v.  Bordeaux  Co.,  8  National  Corp.  Rep.  127; 
1896,  Higgins  v.  Lansingh,  154  111.  301;  2  Beach  Corp.,  §808;  1  Morawetz, 
§464. 


794  JOHNS   V.    JOHNS.  §213 

Sec.  213.     Shares  of  stock — Nature  of. 
( I )   Personal  property. 

JOHNS  V.  JOHNS.i 
1853.     In   the  Supreme   Court   of  Ohio,     i  Ohio  St.  350-362. 

This  is  a  petition  in  which  the  plaintiff,  the  widow  of  Benjamin 
Johns,  deceased,  claims  dower  in  forty-six  shares  of  the  capital  stock 
of  "The  Mansfield  and  Sandusky  City  Railroad  Company"  and  in  ten 
shares  of  the  capital  stock  of  "The  Ohio  and  Pennsylvania  Railroad 
Company,"  of  which  shares  her  deceased  husband,  the  said  Benjamin 
Johns,  was  the  owner  at  the  time  of  his  death. 

The  defendant,  Sherman,  as  executor  as  aforesaid,  answers,  ad- 
mitting the  facts  alleged  in  the  petition,  but  insisting  that  said  shares 
are  personal  and  not  real  estate. 

Thurman,  J.  *  *  *  Turning,  then,  to  the  charter  of  the  com- 
pany, we  find  in  it  no  provision  declaring  whether  its  stock  is  realty 
or  personalty.  We  are  thus  brought  to  the  general  question,  whether 
railroad  shares  in  Ohio  are,  in  the  absence  of  express  legislative  enact- 
ment, to  be  considered  as  real  or  personal  estate.  This  question  must 
be  determined  by  a  reference  to  the  principles  of  the  common  law 
and  the  general  statutes  of  the  state  that  have  a  bearing  upon  it. 
And  its  solution  is  not  without  diiliculty,  for  as  to  the  common  law 
the  adjudicated  cases  are  directly  conflicting,  and  when  we  resort  to  ovir 
statutes  the  chief  aid  we  derive  is  from  analogies  and  inference. 

In  Drybutter  v.  Bartholomew,  decided  in  1723,  2  P.  Wms.  127,  the 
master  of  the  rolls  said  that:  "a  fine  may  be,  and  usually  is,  levied  of 
New  River  shares  by  the  description  of  so  much  land  covered  with 
water,"  but  the  case  does  not  inform  us  what  these  shares  were,  nor 
how  they  were  created ;  and  whether  they  were  real  or  personal 
estate  was  not  discussed.  They  appear  to  have  had  their  origin  in 
the  statutes  of  3  James  i,  ch.  18,  and  4  James  i,  ch.  12,  to  enable 
the  mayor,  commonalty  and  citizens  of  London  to  supply  the  city 
with  water;  but  these  acts  simply  authorize  the  construction  of  the 
works  and  the  acquisition  of  the  necessary  right  of  way.  They  create 
no  stock,  nor  is  an}'  mention  made  in  them  of  shares  or  shareholders. 
Yet  it  would  seem  from  the  case  cited,  as  well  as  the  case  of  Town- 
shend  v.  Ash,  decided  in  1745,  3  Atkyns  336,  that  shares  were  created, 
and  hence  these  cases  have  been  frequently  cited  as  showing  that  stock 
in  a  water-works  company  is  real  estate. 

By  a  statute  of  10  Anne,  the  mayor,  aldermen  and  common  council 
of  the  city  of  Bath,  then*  successors  or  assigns,  or  such  persons  as  they 
should  appoint,  were  authorized  to  improve  the  navigation  of  the 
river  Avon,  and  to  charge  tolls  on  persons  and  property  transported 
thereon.   By  an  agreement  executed  between  the  corporate  authorities 

*  Only  part  of  opinion  is  given. 


§  213  NATURE   OF   SHARES   OF   STOCK.  795 

of  the  one  part,  and  the  Duke  of  Beaufort  and  several  other  persons 
on  the  other  part,  the  duke  and  his  associates  undertook  to  do  the 
work  in  consideration  of  being  allowed  to  take  the  tolls.  By  the  nth 
article  of  the  agreement  it  was  provided  that  "no  survivorship  shall  at 
any  time  take  place  between  the  said  parties  and  undertakers;  but  if 
any  or  either  of  them  shall  happen  to  .die,  the  share  or  part  of  such  so 
dying,  shall  descend  and  go  to  the  heirs  and  assigns  of  the  party  or 
parties  so  dying." 

In  Buckeridge  v.  Ingram,  decided  in  1795,  2  Ves.  Jr.  651,  the 
question  was  directly  made  whether  these  shares  were  personal  or  real 
estate,  and  it  was  decided  that  they  were  real  estate  and  subject  to 
dower.  The  master  of  the  rolls  held  that  the  right  to  take  tolls  was 
an  incorporeal  hereditament  arising  out  of  realty,  and  was  therefore  a 
"tenement." 

And  he  remarked:  "I  have  no  difficulty  in  saying,  that  wherever 
a  perpetual  inheritance  is  granted,  which  arises  out  of  lands,  or  is  in 
any  way  connected  with,  or,  as  it  is  emphatically  expressed  by  Lord 
Coke,  exerciseable  within  it,  it  is  that  sort  of  property  the  law  denom- 
inates real." 

The  principle  of  these  cases  was  followed,  and  possibly  extended, 
by  the  supreme  court  of  Connecticut  in  1818,  in  the  case  of  Welles  v. 
Cowles,  2  Conn.  567,  in  which  it  was  held  that  shares  of  an  incorpo- 
rated turnpike  company  are  real  estate.  The  right  to  the  tolls,  said 
the  court,  "is  a  right  issuing  out  of  real  property,  annexed  to  and  ex- 
erciseable within  it ;  and  comes  within  the  description  of  an  incorpo- 
real hereditament  of  a  real  nature,  ori  the  same  principle  as  a  share  in 
the  New  River,  in  canal  navigations  and  tolls  of  fairs  and  markets;" 
citing  Drybutter  v.  Bartholomew,  2  Peere  Williams  127,  Habergham 
v.  Vincent,  2  Ves.  Jr.  232,  and  The  King  v.  The  Inhabitants  of  Chip- 
ping Norton,  5  East  239. 

And  in  answer  to  the  argument  that  the  individual  stockholders  had 
only  a  claim  on  the  company,  and  not  upon  the  realty,  and  that  this 
must  be  of  a  personal  nature,  the  court  said:  "But  the  stockholders, 
as  members  of  the  company,  are  owners  of  the  turnpike  road ;  and  it 
is  in  virtue  of  this  interest  that  they  have  their  claims  for  the  divi- 
dends, or  their  respective  shares  of  the  toll.  It  is  not  a  mere  claim  on 
the  corporation." 

This  decision  was  recognized  as  law  in  1822,  in  a  suit  between  the 
same  parties,  4  Conn.  182,  though  the  question  was  not  expressly 
made. 

In  1835  the  supreme  court  of  Pennsylvania  held  that  "a  toll  bridge 
erected  by  two  individuals  across  a  river  between  their  lands  by  legis- 
lative authority  is  real  estate."  The  court  said  that  the  right  was 
"not  only  a  right  arising  out  of  the  soil,  but  so  far  as  the  abutments 
of  the  bridge  are  concerned,  it  is  the  soil  itself."  Hurst  v.  Meason, 
4  Watts  346.  It  is  to  be  observed,  however,  that  it  does  not  appear 
that  the  builders  were  incorporated. 

In  Price  v.  Price's  Heirs,  6  Dana  107,  the  court  of  appeals  of  Ken- 
tucky, in  1838,  held  that  the  stock  in  the  Lexington  and  Ohio  Rail- 


796  JOHNS  V.  JOHNS.  §213 

road  Company  is  real  estate.  Without  citing  any  adjudicated  case, 
the  court  came  to  a  conclusion  which  is  thus  expressed:  "The  i-ight 
conferred  on  each  shareholder  is  unquestionably  an  incorporeal 
hereditament.  It  is  a  right  of  perpetual  duration,  and  though  it 
springs  out  of  the  use  of  personalty,  as  well  as  lands  and  houses,  this 
matters  not.  It  is  a  franchise  which  has  ever  been  classed  in  that  class 
of  real  estate  denominated  an  incorporeal  hereditament." 

On  the  other  hand,  the  supreme  court  of  Massachusetts,  in  1798,  in 
Russell  et  al.  v.  Temple  and  Others,  3  Dane's  Abr.  108,  held  that 
shares  in  incorporated  bridge  and  canal  companies  are  personalty.  The 
case  was  between  the  widow  and  heirs  of  Thomas  Russell,  the 
former  contending  that  the  shares  were  personal  property,  and  that, 
consequently,  she  was  entitled  to  a  distributive  portion  of  them,  and 
the  latter  insisting  that  they  were  realty,  and  that,  therefore,  she  had 
but  a  dower  estate.  The  question  was  very  fully  discussed,  and  was 
decided  (says  Professor  Greenleaf  in  his  edition  of  Cruise)  "upon 
great  consideration." 

"For  the  heirs  it  was  urged  that  these  shares  were  real  estate,  be- 
cause, it  was  said,  the  estates  were  real  in  the  corporations,  and  that 
if  the  estates  in  the  corporation  were  real,  the  estates  of  the  individual 
members  in  them  followed  their  nature  and  were  real,  and  that  the 
frequent  declarations  of  the  legislature  declaring  such  shares  personal 
estate,  at  least  show  a  doubt  that  when  one  has  a  right  to  receive  rent 
he  has  only  a  right  to  receive  a  sum  of  money,  3'et  it  does  not  follow 
that  his  estate  is  not  real  estate  out  of  which  his  rent  issues." 

For  the  widow  it  was  argued  that  the  shares  were  personalty,  because 
the  estate  (in  the  bridges,  canals,  towing-paths,  wharves  and  lands) 
"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  purposes  of  property.  Its  tenure  is  to  their  successors,  or  to 
their  successors  and  assigns.  The  estates  can  never  vest  in  or  be 
divided  among  the  individual  members  to  hold  as  tenants  in  common, 
etc. ,  in  their  private  capacities.  Only  the  corporation  can  possess  the 
estate,  and  that  only  by  possessing  the  charter,  and  only  the  corpora- 
tion can  be  taxed  for  it  on  common-law  principles,  and  on  these  can 
it  alone  be  taken  in  execution  for  the  debts  of  the  corporation." 

"That  the  share  is  personal  estate,  though  the  corporation  hold  real 
estate,  for  the  individual  member  has  no  estate,  but  only  a  right  to 
such  dividends  as  the  corporation  from  time  to  time  assigns  to  him. 
He  is  unknown  in  the  grants  made  to  it,  and  he  can  not  grant  any 
part  of  the  estate ;  nor  can  he  be  taxed  for  it  but  by  statute  law ;  nor  can 
any  private  member  of  a  corporation  be  distrained  for  a  public  con- 
cern of  it;  his  only  remedy  for  his  dividend  is  case  in  assumpsit,  or 
an  action  on  the  case  for  a  wrongful  refusal  or  neglect  to  pay  or  allow 
him  his  part  of  the  profits." 

The  judgment  of  the  court  was,  as  I  have  stated,  that  the  shares 
were  personal  estate.  "The  principal  reason  of  the  decision,"  says 
Dane,  "appeai-s  to  be  because  the  court  considered  that  the  individual 


§  213  NATURE   OF   SHARES   OF    STOCK.  797 

member,  or  shareholder,  had  only  a  right  of  action  for  a  sum  of  money, 
his  part  of  the  net  profits  or  dividends.  And  so  the  law  has  been 
held  to  be  since  this  decision  was  made." 

In  his  edition  of  Cruise,  Greenleaf  says:  "Shares  in  the  property 
of  a  corporation  are  real  or  personal  property,  according  to  the  nature, 
object  and  manner  of  the  investment.  Where  the  corporate  powers 
are  to  be  exercised  solely  in  land,  as  where  original  authority  is  given 
by  the  charter  to  remove  obstructions  in  a  river  and  render  it  naviga- 
ble, to  open  new  channels,  etc.,  to  make  a  canal,  erect  water-works, 
and  the  like,  as  was  the  case  of  the  New  River  water,  the  navigation 
of  the  river  Avon  and  some  others,  and  the  property  or  interest  in  the 
land,  though  it  be  an  incorporeal  hereditament,  is  vested  inalienably 
in  the  corporators  themselves ^  the  shares  are  deemed  real  estate. 
Such,  in  some  of  the  United  States,  has  been  considered  the  nature 
of  shares  in  toll  bridge,  canal  and  turnpike  corporations  by  the  com- 
mon law;  though  latterly  it  has  been  thought  that  railway  shares 
were  more  properly  to  be  regarded  as  pei'sonal  estate.  But  where 
the  property  originally  entrusted  is  money,  to  be  made  profitable  to 
the  contributors  by  applying  it  to  certain  purposes,  in  the  course  of 
which  it  maybe  invested  in  lands  or  in  personal  property,  and  changed 
at  pleasure,  the  capital  fund  is  vested  in  the  corporation,  and  the 
shares  in  the  stock  are  deemed  personal  property,  and  as  such  are  in 
all  respects  treated.  In  modern  practice,  however,  shares  in  corpo- 
rate stock,  of  whatever  nature,  are  usually  declared  by  statute  to  be 
personal  estate."      i  Greenleaf's  Cr.  Dig.  39,  40. 

In  support  of  this  statement,  Mr.  Greenleaf  cites  the  cases  we  have 
already  noticed,  and  some  others  that  require  consideration.  One  of 
the  most  important  of  these  is  Bligh  v.  Brent,  2  Y.  &  C.  Exch.  Rep. 
268,  294.  It  involved  the  question  whether  the  shares  in  the  Chelsea 
Water- Works  Company  were  realty  or  personalty.  The  act  of  incor- 
poration left  the  question  open,  as  it  contained  no  declaration  upon 
the  subject.  The  court  reviewed  the  cases  bearing  upon  it,  and  came 
to  the  conclusion  that  the  shares  were  personalty.  This  decision  was 
afterwards,  in  1838,  spoken  of  with  approbation  in  Bradley  v.  Holds- 
worth,  3  M.  &  W.  422. 

In  the  latter  case  the  question  was  whether  shares  in  the  "London 
and  Birmingham  Railway"  might  be  sold  by  a  verbal  contract.  On 
the  part  of  the  defendant  it  was  contended  that  they  constituted  an 
interest  in  land  within  the  meaning  of  the  statute  of  frauds,  and  that, 
therefore,  a  contract  for  their  sale  was  void  unless  reduced  to  writing. 
The  court  held  the  contract  valid.  True,  the  act  of  incorporation 
declared  that  the  shares  should,  to  all  intents  and  purposes,  be  deemed 
personal  estate  and  transmissible  as  such,  and  should  not  be  of  the 
same  nature  of  real  property;  but  it  is  evident  from  what  was  said, 
that,  independent  of  this  provision,  the  same  decision  would  have 
been  made.  Parke.  B.,said:  "No  doubt  the  company  are  seized 
of  real  property,  as  well  as  possessed  of  a  great  deal  of  personal 
property;  but  the  interest  of  each  individual  shareholder  \?>  ^  share 
of  the  net  produce  of  both   when  brought  into  one  fund. ^^     And 


798  JOHNS  V.  JOHNS.  §213 

again:  "I  have  no  doubt  whatever  that  the  shares  of  the  proprietors, 
as  individuals,  are  personalty ;  they  consist  of  nothing  more  than  a 
right  to  have  a  share  of  the  net  produce  of  all  the  property  of  the 
company. ^^ 

Alderson,  B.,  said:  "All  the  cases  were  under  review  in  Bligh 
V.  Brent,  where  the  question  was  as  to  the  shares  in  the  Chelsea  Water- 
Works  Company.  That  was  a  stronger  case  than  the  present  because 
there  was  no  clause  of  this  kind  in  the  act  of  parliament,  and  yet  the 
shares  were  held  personal  property."  •'!  conceive  that  all  the  share- 
holders would  take  even  without  such  a  clause." 

Bolland,  B.,  concurred. 

So,  in  Duncuft  v.  Albrecht,  12  Simons  &  Stewart  189,  it  was  held 
that  a  parol  agreement  for  the  sale  of  railway  shares  is  valid,  for  they 
are  neither  an  interest  in  lands,  nor  goods,  wares  or  merchandise, 
within  the  statute  of  frauds. 

A  careful  examination  of  the  adjudications  upon  the  subject  has 
brought  us  to  the  conclusion  that,  according  to  the  weight  of  authority, 
the  shares  in  question  are  personal  property.  In  the  early  English 
cases  the  distinction,  now  w^ell  understood,  between  the  property  of  a 
corporation  and  the  rights  of  its  members,  does  not  seem  to  have  been 
taken,  and  it  appears  to  have  been  assumed  that  each  shareholder  had 
an  estate  in  the  corporate  property,  and  that,  consequently,  if  that 
property  was  real,  his  share  was  also  realty.  But  the  cases  we  have 
cited  abundantly  show  that  the  distinction  above  mentioned  is  now 
fully  recognized  in  England,  and  that  the  property  of  a  corporation 
may  be  mainly,  if  not  wholly,  real,  and  yet  the  shares  of  its  members 
be  personalty.      «     *      * 

In  whatever  way  we  view  the  case,  whether  upon  adjudication, 
reason,  or  our  statute  laws,  we  arrive  at  the  conclusion  that  the  shares 
in  question  are  personal  property.  The  bill  must  therefore  be  dis- 
missed. 

Bill  dismissed. 

Note,.  Many  early  cases  held  shares  in  corporations  owning  real  property 
to  be  real  property.  Some  of  these  were  followed  in  this  country,  as  shown 
by  the  above  case:  1723,  Drvbutter  v.  Bartholomew,  2  P.  Wms.  127;  1745, 
Tbwnsend  v.  Ash,  3  Atk.  336;  1786,  King  v.  Dock  Co.,  1  T.  R.  219;  1818, 
Welles  v.  Cowles,  2  Conn.  567  (this  case  led  to  a  statute  declaring  shares  to 
be  personal  property) ;  1831,  Coombs  v.  Jordan,  3  Bl.  Ch.  (Md.)  284,  22  Am. 
Dec.  236;  1838,  Price  v.  Price,  36  Ky.  (6  Dana)  107;  1870,  CopeJand  v.  Cope- 
land.  70  Ky.  (7  Bush)  349  (after  which  holding  the  legislature  changed  the 
rule  there  by  statute,  declaring  shares  to  be  personal  property). 

The  great  weight  of  authority,  even  from  early  times,  holds  shares  to  be 
personal  property:  1781,  Weekley  v.  Weekley,  2  Younge  &  Col.  Exch.,  p.  281, 
note;  1798,  Russell  v.  Temple,  3  Dane's  Abr.  108;  1812,  Cooper  v.  Swamp 
Canal  Co.,  6  N.  C.  (2  Murph.)  195;  1830,  Blake  v.  Jones.  Bailey's  Eq.  (S.  C.) 
141,  21  Am.  Dec.  530;  1836,  Bligh  v.  Brent,  2  Younge  &  Col.  Exc.  268;  1837, 
Arnold  v.  Ruggles,  1  R.  I.  166;  1843,  North  v.  Forest,  15  Conn.  400;  1849, 
Slavmaker  V.  Bank  of  Gettysburg,  10  Pa.  St.  373;  1854,  Watson  v.  Spratley, 
10  Ex.  222,  24  L.  J.  Ex.  53;  1855,  Edwards  v.  Hall,  25  L.  J.  Ch.  82,  35  E.  L. 
&  Eq.  433;  1856,  Walker  v.  Bartlett,  18  C.  B.  845,  25  L.  J.  C.  P.  263;  1865, 
McKeen  v.  Northampton  Co.,  49  Pa.  St.  519,  88  Am.  Dec.  515;  1869,  South- 
western R.  Co.  V.  Thomason,  40  Ga.  408;   1881,  Manns  v.  Brookville  National 


§  214  NATURE   OF   SHARES   OF   STOCK.    *  799 

Bank,  73  Ind.  243 ;  1884,  Feckheimer  v.  National  Exchange  Bank,  79  Va.  80; 
1886,  Colonial  Bank  v.  Whinney,  56  L.  J.  Ch.  43,  II  App.  Cae.  426;  1890, 
Mattingly  v.  Roach,  84  Cal.  207,  23  Pac.  Rep.  1117;  1897,  Jellenik  v.  Huron 
C.  M.  Ck).,  82  Fed.  Rep.  778;  1899,  Herring  v.  Ruskin  Co-op.  Assn.,  — Tenn. 
Ch.  App.  — ,  52  S.  W.  Rep.  327. 


Sec.  214.     Same.     Statute  of  frauds. 

(2)    "Goods,  wares  or  merchandise." 

TISDALE  V.  HARRIS.* 

1838.     In   the   Supreme   Judicial    Court    of    Massachusetts. 
20  Pick.   (Mass.)  9-14. 

[Assumpsit  by  Tisdale  against  Harris  on' an  oral  contract  by  which 
defendant  agreed  to  sell  plaintiff  two  hundred  shares,  with  all  the 
earnings  thereon,  in  the  capital  stock  of  a  manufacturing  company. 
The  object  was  to  recover  $300,  being  the  amount  of  dividends 
declared  on  the  shares  after  the  agreement  to  sell.] 

Shaw,  C.  J.  *  *  *  But  by  far  the  most  important  question  in 
the  case  arises  on  the  objection  that  the  case  is  within  the  statute  of 
frauds.  This  statute,  which  is  copied  precisely  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  actually  receive  the  same  or*  give  something  in 
earnest  to  bind  the  bargain,  or  in  part  payment,  or  that  some  note  or 
memorandum  in  writing  of  the  said  bargain  be  made  and  signed  by 
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  by  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  defi- 
nitely settled  in  England.  In  the  case  of  Pickering  v.  Appleby, 
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  afterward  determined  in  chancery,  the  better  opinion  seemed  to 
be  that  shares  in  incorporated  companies  were  within  the  statute,  as 
goods  or  merchandise.  Mussell  v.  Clooke,  Prec.  in  Ch.  533;  CruU  v. 
Dodson,  Sel.  Cas.  in  Ch.  41. 

'  Statement  abridged ;  arguments  and  part  of  opinion  omitted. 


800  TISDALE    V.    HARRIS.  §2  14 

We  are  inclined  to  the  opinion  that  the  weight  of  authorities  in 
modern  times  is,  that  contracts  for  the  sale  of  stocks  and  shares  in 
incorporated  companies  for  more  than  ten  pounds  are  not  valid  unless 
there  has  been  a  note  or  memorandum  in  writing,  or  earnest  or  part 
payment.  4  Wheaton  89,  note;  3  Starkie  on  Evid.,4th  Amer.  edit., 
608. 

Supposing  this  a  new  question  now  for  the  first  time  calling  for  a 
construction  of  the  statute,  the  court  are  of  opinion  that,  as  well  by  its 
terms  as  its  general  policy,  stocks  are  fairly  within  its  operation.  The 
words  "goods"  and  "merchandise"  are  both  of  very  large  significa- 
tion. Bona^  as  used  in  the  civil  law^,  is  almost  as  extensive  as  per- 
sonal property  itself,  and  in  many  respects  it  has  nearly  as  large  a 
signification  in  the  common  law.  The  word  "merchandise"  also, 
including  in  general,  objects  of  traffic  and  commerce,  is  broad  enough 
to  include  stocks  or  shares  in  incorporated  companies.      *     *.     * 

The  main  argument  relied  upon  by  those  who  contend  that  shares 
are  not  within  the  statute  is  this:  That  statute  provides  that  such  con- 
tract shall  not  be  good,  etc.,  among  other  things,  except  the  purchaser 
shall  accept  part  of  the  goods.  From  this  it  is  argued  that  by  neces- 
sary implication  the  statute  applies  only  to  goods,  of  which  part  may 
be  delivered.  This  seems,  however,  to  be  rather  a  narrow  and  forced 
construction.  The  provision  is  general  that  no  contract  for  the  sale 
of  goods,  etc.,  shall  be  allowed  to  be  good.  The  exception  is  when 
part  are  delivered ;  but  if  part  can  not  be  delivered,  then  the  exception 
can  not  exist  to  take  the  case  out  of  the  general  prohibition.  The  pro- 
vision 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 
applicable,  without  affecting  others,  to  which  from  their  nature  it  can 
not  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 
prevettt  frauds  in  the  sale  of  other  commodities.  On  the  contrary^ 
these  companies  have  become  so  numerous^  so  large  an  amount  of  the 
property  of  the  community  is  now  invested  in  the?n^  and  as  the  or- 
dinary indicia  of  property^  arising  from  delivery  and  possession^ 
can  not  take  place ^  there  seems  to  be  peculiar  reason  for  extending 
the  provisions  of  this  statute  to  them.  As  they  may  properly  be  in- 
cluded under  the  terms  goods.,  as  they  are  within  the  reason  and  pol- 
icy of  the  act^  the  court  are  of  opinion  that  a  contract  for  the 
sale  of  shares.,  in  the  absence  of  the  other  requisites.,  must  be  proved 
by  some  note  or  memorandum  in  writing ;  and  as  there  was  no  such 
memorandum  in  writing,  in  the  present  case,  the  plaintiff  is  not  en- 
titled to  maintain  this  action.  As  to  the  argument  that  here  was  a 
part  performance,  by  a  payment  of  the  money  on  one  side,  and  the 
delivery  of  the  certificate  on  the  other,  these  acts  took  place  after  this 
action  was  brought,  and  can  not  therefore  be  relied  upon  to  show^  a 
cause  of  action  when  the  action  was  commenced 

Verdict  set  aside  and  plaintiff  nonsuit. 


§215  NATURE   OF   SHARES   OF  STOCK.  8oi 

Note.  It  is  generally  held  in  this  country  that  sales  of  stock  are  within  the 
seventeenth  section  of  the  statute  of  frauds.  See,  as  to  the  application  of  this  and 
other  sections,  the  following  cases :  1810,  Colvin  v.  Williams,  3  Har.  &  J.  (Md.) 
38;  1843,  North  v.  Forest,  15  Conn.  400;  1847,  Thompson  v.  Alger,  63  Mass.  (12 
Mete.)  428;  1862,  Hagar  v.  King,  38  Barb.  (N.  Y.)  200;  1872,  Pray  v.  Mitchell, 
60  Maine  430 ;  1873,  Mayer  v.  Child,  47  Cal.  142 ;  1878,  Mason  v.  Decker,  72  N.  Y. 
595;  1880,  Boardman  v.  Cutter,  128  Mass.  388;  1884,  Porter  v.  Worsmer,  etc.. 
94  N.  Y.  431 ;  1884,  Fitzpatrick  v.  Woodruff,  96  N.  Y.  561 ;  1888,  Hinchman  v. 
Lincoln,  124  U.  S.  38;  1889.  Seddon  v.  Rosenbaum,  85  Va.  928;  1891,  Rvers  v. 
Tuska,  14  N.  Y.  Sup.  926;  1892,  Spear  v.  Bach,  82  Wis.  192;  1893,  Dinkier  v. 
Baer,  92  Ga.  432;  1895,  McLure  v.  Sherman,  70  Fed.  Rep.  190;  1895,  Flowers 
V.  Steiner,  108  Ala.  440. 

But  in  England  the  rule  is  different:  See,  1839,  Humble  v.  Mitchell,  11 
Ad.  &  El.  205;  1841,  Duncuft  v.  Albrecht,  12  Sim.  Ch.  189;  1844,  Hargreaves  v. 
Parsons,  13  Mees.  &  W.  561. 

But  the  statute  of  frauds  does  not  apply  to  agreements  to  subscribe :  See, 
note,  supra,  p.  459,  and,  1871,  Green  v.  Brookins,  23  Mich.  48;  1886,  Colfax 
Hotel  Co.  V.  Lyon,  69  Iowa  683;  1898,  Rogers  v.  Burr,  105  Ga.  432. 

The  fourth  section  of  the  statute  of  frauds  relating  to  conveyances  of  inter- 
ests in  lands  does  not  applv  to  sales  of  corporate  shares,  even  if  the  corpora- 
tion owns  and  deals  in  land :  1839,- Humble  v.  Mitchell,  11  Ad.  «&  E.  205 ;  1836, 
Bligh  V.  Brent,  2  Y.  &  C.  Exc.  268. 


Sec.  215.    Same. 

(3)    Choses  in  action. 

COLONIAL  BANK  v.  WHINNEY.» 

1885.     In  English  Court  of  Appeal.     L.  R.  30  Ch.  Div. 

261-290. 

[Suit  by  the  bank  to  enforce  an  equitable  mortgage  of  shares  in  a 
raiWay  company  against  Whinney,  who  was  a  trustee  in  bankruptcy 
of  the  person  in  whose  name  the  shares  stood  at  the  commencement 
of  the  bankruptcy.  The  English  bankrupt  law  provided  that  "all 
goods  in  the  possession,  order  or  disposition  of  the  bankrupt"  should 
pass  to  the  trustee  in  bankruptcy,  "provided  that  things  in  action, 
other  than  debts  due  the  bankrupt,  shall  not  be  deemed  goods  within 
the  meaning"  of  this  law.  Under  this  provision  the  majority  of  the 
court  held  that  the  shares  were  not  choses  in  action  within  the  mean- 
ing of  the  proviso;  but  Fry,  L.  J.,  pronounced  the  following  dissent- 
ing opinion,  which  was  affirmed  in  the  house  of  lords,  1 1  App.  Cas. 
426.] 

Fry,  L.  J.  One  of  the  questions  argued  before  us  on  the  present 
appeal  has  been,  whether  the  shares  in  question  in  this  case  are  or  are 
not  choses  in  action.,  within  the  meaning  of  those  words  as  used  in 
the  3d  subsection  of  the  44th  section  of  the  Bankruptcy  Act  1883. 

'  Statement  abridged.  Only  the  dissenting  opinion  of  Fry,  L.  J.,  is  given 
(a  part  of  it  being  omitted).    The  majority  opinion  was  overruled  upon  this 

Soint,  and  Fry's  opinion  unanimously  affirmed  by  the  house  of  lords,  in  1886. 
he  Colonial  Bank  v.  Whinney,  L.  R.  11  App.  Cas.  426. 

51 — WiL.  Casks. 


802  COLONIAL   BANK   V.    WHINNEY.  §  21$ 

The  shares  in  question  are  shares  in  a  company  constituted  by  act 
of  parliament,  which  incorporates  the  Companies  Clauses  Consoli- 
dation Act,  and  that  act  declares  that  shares  are  personal  property, 
transmissible  as  such,  and  furthermore  provides  for  the  transfer  of  the 
shares  by  deed  in  a  specified  manner. 

The  first  question  is  whether,  according  to  the  ordinary  legal  mean- 
ing of  the  words  "things  in  action,"  which  I  take  to  be  technical 
words,  they  include  such  shares  as  those  in  controversy.  This  leads 
to  the  consideration  of  some  very  elementary  points  in  English  law. 
According  to  my  view  of  that  law,  all  personal  things  are  either  in 
possession  or  in  action.  The  law  knows  no  tertium  quid  between  the 
two.  "No  chattel,"  says  Lord  Coke,  in  Fulwood's  Case,  4  Rep. 
65a,  "either  in  action  or  possession,  shall  go  in  succession,"  as  if  the 
two  alternatives  were  the  only  possible  ones.  "Property  in  chattels 
personal,"  says  Blackstone,  "may  be  either  in  possession — which  is 
where  a  man  hath  not  only  the  right  to  enjoy,  but  hath  the  actual  en- 
joyment of  the  thing — or  else  it  is  in  action,  where  a  man  hath  only 
a  bare  right  without  any  occupation  or  enjoyment."  Bl.  Comm., 
book  2,  ch.  25,  p.  389,  and  so  Lord  Hardwicke,  in  the  great  case  of 
Ryall  V.  Rolle,  i  Atk.  165,  182,  speaks  of  personal  property,  whether 
in  possession  or  action  only,  as  equivalent  to  all  kinds  of  personal 
property.  The  expression  '•'•choses  in  suspense^ ^  is  found  in  Brooke's 
Abridgement,  in  conjunction  with  choses  in  action;  but,  so  far  as  I 
can  understand,  the  two  expressions  are  synonymous. 

It  has  been  suggested  that  the  expression  '  '■choses  in  action"  was  orig- 
inally only  applicable  to  debts,  and  that  by  a  lax  usage  it  has  acquired 
a  secondary  and  wider  significance.  I  am  not  able  to  adopt  this  view. 
The  article  '■'■Choses  in  Action  and  Choses  in  Suspense^' ^  in  Brooke's 
Abridgement,  fol.  140,  seems  to  show  that  as  early  as  5  Edw.  4  the 
expression  was  held  to  include  the  king's  right  to  the  marriage  of  his 
ward ;  in  9  Hen.  6  the  property  in  deeds  in  the  hands  of  a  third  per- 
son was  considered  as  a  chose  in  action,  and  in  33  Hen.  8  the  clas- 
sification of  choses  in  action  into  real,  personal  and  mixed,  was 
recognized.  Indeed,  the  whole  article  appears  to  me  inconsistent 
with  the  notion  that  according  to  early  usage  the  expression  was  con- 
fined to  debts.  On  the  contrary,  that  early  usage  appears  to  me  to 
have  been  as  wide  as  the  modem  usage,  as  explained  by  Mr.  Joshua 
Williams  in  the  passage  which  has  been  cited  by  Lord  Justice  Cotton. 

What,  then,  is  the  character  of  a  share  in  a  company.?  Is  it  in  its 
nature  a  chose  in  possession  or  a  chose  in  action?  Such  a  share  is,  in 
my  opinion,  the  right  to  receive  certain  benefits  from  a  corporation, 
and  to  do  certain  acts  as  a  member  of  that  corporation ;  and  if  those 
benefits  be  withheld  or  those  acts  be  obstructed,  the  only  remedy  of 
the  owner  of  the  share  is  by  action.  Of  the  share  itself,  in  my  view, 
there  can  be  no  occupation  or  enjoyment,  though  of  the  fruits  arising 
from  it  there  may  be  occupation,  enjoyment  and  manual  possession. 
Such  a  share  appears  to  me  to  be  closely  akin  to  a  debt,  which  is  one 
of  the  most  familiar  of  choses  in  action ;  no  action  is  required  to  ob- 
tain the  right  to  the  money  in  the  case  of  the  debt,  or  the  right  to  the 


§2  15  NATURE   OF   SHARES   OF   STOCK.  803 

dividends  or  other  accruing  benefits  in  the  case  of  the  share ;  but  an 
action  is  the  only  means  of  obtaining  the  money  itself  or  the  other 
benefits  in  specie,  the  right  to  which  is  called  in  one  case  a  debt  and 
in  the  other  case  a  share.  In  the  case  alike  of  the  debt  and  of  the 
share,  the  owner  of  it  has,  to  use  the  language  of  Blackstone,  "a  bare 
right  without  any  occupation  or  enjoyment."  A  debt  no  doubt  dif- 
fers from  a  share  in  one  respect,  that  it  confers  generally  a  more  lim- 
ited right  than  a  share,  and  that  when  once  paid  it  is  at  an  end ;  but 
this  distinction  appears  to  me  immaterial  for  the  purpose  now  in 
hand. 

It  is  true  that  unassignability  by  act  inter  vivos  has  been  a  charac- 
ter of  many  choses  in  action  in  the  earlier  stages  of  our  law ;  but  the 
question  whether  a  personal  thing  is  or  is  not  assignable,  is  not,  in 
my  opinion,  a  criterion  of  whether  it  is  in  possession  or  in  action.  The 
king  has  always  been  able  to  assign  choses  in  action  that  are  certain. 
Bills  of  exchange  have  been  assignable  by  our  law  ever  since  the  law 
merchant  on  that  point  was  recognized  by  our  courts  hundreds  of  years 
ago ;  many  choses  in  action  have  long  been  assignable  by  statute,  such 
as  promissory  notes  and  bail  and  replevin  bonds,  and  by  the  Judicature 
Act  of  1873  all  debts  and  other  legal  choses  in  action  were  made  as- 
signable in  the  manner  therein  indicated.  With  great  deference  to 
those  who  think  otherwise,  I  consider  that  the  power  of  transfer  con- 
ferred on  the  holder  of  these  shares  by  statute  does  not  affect  the 
question. 

Furthermore,  on  the  question  whether  a  particular  property  is  a 
chose  in  action  or  not,  I  think  it  immaterial  to  inquire  whether  the 
right  in  question  was  formerly  enforceable  at  law  or  in  equity ;  a  right 
of  suit  is  equally  a  chose  in  ac/iV?«,  whether  the  forum  be  legal  or 
equitable. 

Turning  now  to  authority,  I  find  that  in  the  case  of  Humble  v. 
Mitchell  (1839),  II  Ad.  &  El.  205,  the  question  arose  whether  shares 
in  a  joint  stock  company  were  goods,  wares  or  merchandise  within 
the  meaning  of  the  seventeenth  section  of  the  statute  of  frauds ;  and  in 
determining  that  they  were  not,  Lord  Denman  obsei-ved  that  shares  in 
a  joint  stock  company  like  this  are  mere  choses  in  action ;  and  in  this 
judgment  Justices  Patteson,  Williams  and  Coleridge  concurred. 
Again,  in  Ex  parte  Agra  Bank  (1868),  Law  Rep.  3,Ch.  555,  a  ques- 
tion arose  as  to  certain  shares  in  the  San  Pedro  Mining  Company 
being  in  the  order  and  disposition  of  the  bankrupt  Worcester.  Though 
the  precise  constitution  of  the  company  is  not  stated,  it  appears  that 
the  company  was  an  English  one,  by  which  certificates  of  shares  were 
issued,  and  in  which  the  shares  passed  by  transfer ;  the  case  was  ar- 
gued and  decided  on  the  footing  of  these  shares  being  choses  in  action 
and  they  are  so  described  in  the  judgment  of  Lord  Hatherly,  then 
Lord  Justice  Page  Wood.  On  the  other  hand,  in  the  case  of  Ex 
parte\Jn\on  Bank  of  Manchester  ( 1871),  /did.,  12  Eq.  354,  Vice- 
Chancellor  Bacon  held  that  shares  in  a  company  under  7  and  8  Vict., 
ch.  1 10,  were  not  choses  in  action  within  the  meaning  of  the  Bank- 
ruptcy Act,  1869,  partly  upon  the  ground  that  if  it  had  been  intended 


804  PAYNE   V.    ELLIOT.  §  2l6 

to  exclude  trom  the  operation  of  the  law  of  reputed  ownership  every- 
thing incapable  of  manual  delivery,  a  clearer  term  would  have  been 
used,  and  partly  on  the  ground  that  the  owner's  title  depended  on  the 
register.  And  again,  in  Societe  Generale  de  Paris  v.  Tramways  Union 
Company,  14  Q.  B.  D.  424,  451,  Lord  Justice  Lindley  approved  of 
the  decision  of  the  vice-chancellor,  and  dwelt  upon  the  fact  that  a 
transferee  of  shares  has  a  legal  and  not  merely  an  equitable  right  to 
become  a  shareholder. 

In  this  conflict  of  authorities  upon  the  precise  point,  it  is  not  use- 
less to  consider  the  authorities  bearing  on  personal  things  of  a  kind 
closely  analogous  to  shares  in  a  company.  The  right  of  a  fund-holder 
in  the  public  funds,  where  there  is,  of  course,  a  legal  power  to  assign,, 
has  long  ago  (1790,  181 7)  been  held  to  be  a  chose  in  action.  Dundas 
V.  Dutens,  i  Ves.  196;  Rex  v.  Capper,  5  Price  217.  In  Ex  -parte 
Ibbetson  (1878),  8  Ch.  D.  519,  the  court  of  appeal  held  a  policy  of 
assurance  to  be  beyond  all  argument  a  thing  in  action  within  the 
meaning  of  the  clause  in  question;  and  in  In  re  Bainbridge,  8  Ch. 
D.  218,  Chief  Judge  Bacon  held  that  the  share  of  a  partner  in  the 
partnership  property  was  a  chose  in  action.  If  it  be  rightly  decided, 
as  I  think  it  was,  that  a  share  in  a  partnership  is  a  chose  in  action.,  it 
is  very  difficult  to  conclude  that  a  share  in  a  joint-stock  company  is 
not  a  chose  in  action.  In  the  case  of  a  partnership,  the  real  and  per- 
sonal property  of  the  partnership  is,  or  may  be,  vested  in  all  the 
partners,  and  each  therefore  may  have  a  legal  interest  in  choses  in 
possession.  In  the  case  of  a  corporation,  the  whole  property  of  the 
concern  is  vested  in  the  corporation,  and  the  individual  corporators 
have  no  direct  interest  in  the  chattels  in  possession  which  may  belong 
to  the  concern.  In  a  partnership  of  seven  persons,  each  would  have 
a  chose  in  action;  if  that  partnership  incorporated  itself  under  the 
Companies  Act,  1862,  would  each  of  the  seven  have  a  chosein  posses- 
sion?    *     *     « 

Appeal  dismissed. 

Note.  See,  1830,  Blake  v.  JonsB,  1  Bailey  Eq.  (S.  C.)  141,  21  Am.  Dec.  530; 
1837,  Arnold  v.  Ruggles,  1  R.  I.  165 ;  1849,  Slaymaker  v.  Bank  of  Grettysburg^ 
10  Pa.  St.  373. 


Sec.  216.    Same. 

(4)  As  subjects  of  conversion. 

PAYNE  V.  ELLIOT  Et.  Al.> 

1880.     In  the  Supreme  Court  of  California.     54  Cal.   Rep. 
339-344'  35  Am.  Rep.  80. 

Appeal  from  judgment  for  plaintiff  in  the  court  below. 
McKee,  J.     This  is  an  action  of  trover.     The  plaintiff  seeks  to 
charge  defendants  with  $2,79^.32  and  costs  for  an  alleged  conversion 

'  Arguments  and  part  of  opinion  omitted. 


§  2l6  NATURE   OF   SHARES   OF   STOCK.  805 

of  one  hundred  shares  of  the  stock  of  the  "Northern  Belle  Mill  and 
Mining  Company,"  and  also  to  have  them  adjudged  guilty  of  fraud. 
The  complaint  was  demurred  to  on  several  grounds,  and  the  demurrer 
overruled.  Defendants  afterward  answered,  and,  upon  a  trial,  had  in 
the  absence  of  defendants  and  their  attorneys,  the  court  gave  judg- 
ment for  the  plaintiff  for  the  amount  sued  for,  in  gold  coin,  and  also 
adjudged  that  the  defendants  were  guilty  of  fraud.  The  appeal  comes 
to  this  court  upon  the  judgment  roll,  and  the  appellants  claim  that  the 
lower  court  erred  in  overruling  defendants'  demurrer  to  the  complaint 
upon  the  grounds  that  there  is  no  allegation  that  the  plaintiff  owned 
or  that  the  defendants  converted  any  certificates  of  shares  of  stock, 
and  that  the  allegation  of  fraud  is  insufficient  to  sustain  the  judgment 
that  the  defendants  were  guilty  of  fraud  in  the  supposed  conversion. 
The  principal  question  is,  whether  shares  of  stock,  eo  nomine^  are 
property  for  which  an  action,  in  the  nature  of  an  action  of  trover,-  can 
be  maintained. 

At  common  law  trover  was  the  proper  remedy  for  a  conversion  of 
personal  property ;  but  it  lay  only  for  tangible  property,  capable  of 
being  identified  and  taken  into  actual  possession.  The  conversion  of 
the  property  was  the  gist  of  the  action ;  and  the  action  did  not  lie, 
unless  the  defendant  had  become  actually  possessed  of  the  property 
by  some  means,  whether  of  finding  or  otherwise.  Shares  of  stocky 
and  such  things^  did  not  belong  to  that  class  of  property  knoxvn  as 
chattels;  they  -were  considered  incorporeal^  intangible  things  which 
existed  in  idea^  and  tuere  incapable  of  being  subjected  to  actual  pos- 
session. Nor  "were  they  supposed  to  denote  possession^  for  they  had  no 
other  evidence  of  an  existence  than  the  certificate  which  was  issued  to 
the  person  who  claimed  the  right  to  what  the  certificate  represented . 
That  right  consists  of  the  privilege  of  voting  in  the  concerns  of  the 
corporation.^  and  of  participating  in  the  profits  of  the  business  of  the 
corporation.  It  subsisted  only  in  law  or  contract.  It  was  a  right  to 
a  thing  not  in  possession.,  but  in  action.  The  certificates  themselves 
were  not  considered  property  .^  but  were  considered  evidence  of  prop- 
erty. Wherever  common-law  ideas  of  personal  property  prevail, 
courts  hold  that  trover  is  not  the  proper  remedy  for  the  conversion  of 
things  which  were  considered  at  common  law  as  mere  personal  rights, 
not  reducible  into  possession,  but  recoverable  by  law.  So  the  supreme 
court  of  Pennsylvania  has  held  that  trover  will  not  lie  to  recover  dam- 
ages for  shares  of  bank  stock;  and,  says  Justice  Sharswood,  "the 
principle  applies  to  all  other  corporation  stocks."  A  share  of  stock, 
says  the  court,  "is  an  incorporeal,  intangible  thing.  It  is  a  right  to  a 
certain  proportion  of  the  capital  stock  of  a  corporation — never  realized 
except  upon  the  dissolution  and  winding  up  of  the  corporation — with 
the  right  to  receive  in  the  meantime  such  profits  as  may  be  made  and 
declared  in  the  shape  of  dividends.  Trover  can  no  more  be  main- 
tained for  a  share  in  the  capital  stock  of  a  corporation  than  it  can  for 
the  interest  of  a  partner  in  a  commercial  firm."  (Neiller  v.  Kelly, 
69  Pa.  407.) 

Upon  the  idea  that  shares  of  stock  can  not  be  taken  away  or  wrong- 


8o6  PAYNE   V.    ELLIOT.  §  2l6 

fully  detained  from  the  owner,  or  that  they  can  not  be  lost  by  the 
owner  or  found  by  a  stranger,  there  is  no  doubt  of  the  soundness  of 
that  decision.  But  the  fiction  on  which  the  action  of  trover  was 
founded,  namely,  that  a  defendant  had  found  the  property  of  another, 
which  was  lost,  has  become  in  the  progress  of  law  an  unmeaning 
thing,  which  has  been  by  most  courts  discarded,  so  that  the  action  no 
longer  exists  as  it  did  at  common  law,  but  has  been  developed  into  a 
remedy  for  the  conversion  of  every  species  of  personal  property.  It 
lies  for  bank  notes  sealed  in  a  letter  (Moody  v.  Keeney,  7  Ala.  218)  ; 
for  negotiable  instruments  (Comparet  v.  Burr,  5  Blackf.  419)  ;  for  a 
judgment  (Hudspeth  v.  Wilson,  2  Dev.  N.  C.  372);  for  a  promis- 
sory note  which  has  been  paid  (Pierce  v.  Gibson,  9  Vt.  216)  ;  for 
copies  of  a  creditor's  account  (Fulton  v.  Cunningham,  16  Vt.  697) ; 
for  a  writ  of  execution  issued  on  a  judgment  (Keeler  v.  Fassett, 
21  Vt.  539)5  and  for  certificates  of  shares  of  stock  (Anderson  v. 
Nicholas,  28  N.  Y.  600 ;  Atkins  v.  Gamble,  42  Cal.  98 ;  Von  Schmidt 
V.  Bourne,  50  Cal.  616). 

At  the  same  time  that  the  action  has  been  thus  expanded  the  words 
"things  in  action"  have  undergone  such  a  development  from  their 
original  meaning  that  they  now  represent  things  to  the  imagination  in 
the  light  of  tangible  objects,  and  as  such  they  are  the  subject  of  con- 
tract, sale,  gift,  mortgage,  bailment  and  pledge;  and,  under  the  pro- 
visions of  our  codes,  they  are  personal  property,  subject  to  taxation, 
attachment,  execution,  levy  and  sale.  (Sections  542,  688,  Code  Civ. 
Proc.) 

It  is,  therefore,  the  "shares  of  stock"  which  constitute  the  property 
which  belongs  to  the  shareholder.  Otherwise,  the  property  would  be 
in  the  certificate;  but  the  certificate  is  only  evidence  of  the  property ; 
and  it  is  not  the  only  evidence^  for  a  transfer  on  the  books  of  the  cor- 
poration^ Tvithout  the  issuance  of  a  certificate^  vests  title  in  the  share- 
holder;  the  certificate  is,  therefore,  but  additional  evidence  of  title, 
and  if  trover  is  maintainable  for  the  certificate,  there  is  no  valid 
reason  why  it  is  not  also  maintainable  for  the  thing  itself  which  the 
certificate  represents.  For,  as  the  supreme  court  of  Connecticut  says, 
"If  a  certificate  of  stock  is  unlawfully  retained  when  demanded,  what 
is  presumed  to  have  been  converted .''  The  certificate  has  no  intrinsic 
value  disconnected  from  the  stock  it  represents.  No  one  would  say 
that  the  paper  alone  had  been  converted — that  the  conversion  of  the 
paper  constitutes  the  entire  wrong.  The  real  act  done  in  such  cases 
is  precisely  the  same  as  that  done  here — no  more,  no  less;  and  to  say 
that  trover  will  lie  in  one  case  and  not  in  the  other,  is  to  make  a  dis- 
tinction where  in  reality  there  is  no  difference.  *  *  *  Xhe  stock 
in  both  cases  was  converted ;  and  we  think  that  in  these  days,  when 
the  tendency  of  courts  is  to  do  away  with  technicalities  not  based 
upon  reason,  a  technical  distinction  of  this  character  should  no  longer 
be  sustained."  (Ayres  v.  French,  41  Conn.  151.)  In  Boylan  v. 
Hagnel,  8  Nev.  352,  and  in  Kuhn  v.  McAllister,  i  Utah  275,  actions 
of  this  character  for  "shares  of  stock"  were  sustained.  It  follows 
that  the  court  below  did  not  err  in  overruling  the  demurrer  to  the  com- 


§  217  NATURE   OF   SHARES    OF   STOCK.  807 

plaint,  or  in  rendering  judgment  for  the  plaintiff  for  the  value  of  the 
stock  and  interest  thereon  from  the  time  of  the  conversion  until  the 
time  of  the  trial.      *     »      * 

Judgment  modified  and  affirmed. 

Note.  As  to  convereion  of  stock  see,  1821,  Kingman  v.  Pierce,  17  Mass. 
247  (conversion  of  a  note) ;  1830,  Plymouth  Bank  v.  Bank  of  Norfolk,  10  Pick. 
(Mass.)  454;  1859,  Freeman  v.  Harwood,  49  Maine  195;  1864,  Anderson  v. 
Nicholas,  28  N.  Y.  600;  1869,  Morton  v.  Preston,  18  Mich.  60;  1873,  Bank  of 
America  v.  McNeil,  73  Ky.  (10  Bush)  64;  1874,  Ayers  v.  French,  41  Conn. 
142;  1875,  1877,  Kuhn  v.  McAllister,  1  Utah  273,  96  U.  S.  87;  1881,  People  v. 
Williams,  60  Cal.  1  (shares  may  be  embezzled);  1884,  Union,  etc..  Bank  v. 
Farrington,  13  Lea  (Tenn.)  333;  1884,  Daggett  v.  Davis,  53  Mich.  35,  51  Am. 
Rep.  91;  1885,  Budd  v.  Multnomah,  etc.,  R.  Co.,  12  Ore.  271, 53  Am.  Rep.  355; 
1893,  Gresham  v.  Island  City,  etc.,  Bank,  2  Texas  Civ.  App.  52;  1896,  With- 
ers v.  Bank,  67  Mo.  App.  115,  on  120;  1896,  Ralston  v.  Bank  of  California, 
112  Cal.  208;  1899,  Hine  v.  Com.  Bank  of  Bay  City,  119  Mich.  448,78  N.  W. 
Rep.  471.  See,  also,  notes  52  Am.  Dec.  73 ;  79  Am  Dec.  506 ;  24  Am.  St.  Rep. 
818. 

But  Pennsylvania  seems  to  hold  that  nothing  but  the  certificate  is  suscepti- 
ble of  conversion.  1828,  Sewall  v.  Lancaster  Bank,  17  S.  &  R.  (Pa.)  286; 
1871,  Neiler  v.  Kelley,  69  Pa.  St.  403;  1888,  Telford  and  F.  Turnpike  Co.  v. 
Gerhab,  13  Atl.  Rep.  90. 


Sec.  217.    Same. 

(5)  Negotiability  of  shares.  -y 

EAST  BIRMINGHAM  LAND  CO.  v.  DENNM.DH       (/ 

1888.     In  the  Supreme  Court  of  Alabama.     85  Ala.  565-569, 
7  Am.  St.  Rep.  73,  26  Am.  &  E.  C  C.  135. 

[Appeal  from  decree  in  favor  of  Dennis,  who  sued  one  J.  P.  Mudd 
and  the  land  company,  to  compel  the  transfer  of  ten  shares  of  stock 
in  the  land  company,  of  which  Dennis  claimed  to  be  owner,  and  to 
compel  Mudd  to  deliver  the  certificate  of  which  he  had  possession 
under  claim  of  ownership.  The  certificate  had  been  issued  to  one 
Dearborn,  and  was  indorsed  by  him  in  blank.  Dennis  bought  the  cer- 
tificate from  one  who  purchased  it  from  Dearborn ;  afterward  it  was 
lost  or  stolen,  without  the  fault  of  Dennis.  Mudd  had  purchased  the 
certificate  for  full  value  from  stock  brokers  in  Birmingham.] 

SoMERViLLE,  J,  *  «  *  The  only  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  neg- 
ligence. The  only  exception  to  this  rule  is  the  case  of  a  6ona  Jide 
purchaser  for  value  of  negotiable  paper.  We  have  no  reference,  of 
course,  to  the  taking  of  property  for  public  uses  by  judicial  condemna- 
tion, which  may  be  done  without  the  owner's  consent. 

It  can  not  be  contended  with  any  degree  of  plausibility  that  under 

^  Arguments  and  part  of  opinion  omitted.    Statement  abridged. 


8o8  EAST   BIRMINGHAM    LAND    CO.    V.    DENNIS.  §21/ 

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 
bonajide  purchaser  of  stock,  from  one  shown  to  be  owner  on  the  cor- 
porate books,  who  has  already  made  a  prior  unregistered  transfer  of 
it  to  another  purchaser.  All  such  transfers  made  by  the  true  owner, 
and  not  registered  on  the  books  of  the  corporation  within  fifteen  days, 
are  declared  by  statute  to  be  "void  as  to  bona  Jide  creditors  or  pur- 
chasers without  notice.''  Code,  1886,  §  1671;  Fisher  v.  Jones,  82 
Ala.  117.  If  the  defendant  Mudd  had  claimed  by  a  subsequent  pur- 
chase 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  in- 
termediate transferees,  the  first  of  whom  was  a  fraudulent  holder  with- 
out 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  Jide  purchaser  of  a  negotiable 
bill,  bond  or  note,  although  he  buys  from  a  thief,  acquires  a  good 
title,  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  certijicate  of  corporate  shares  of  stocky  in  the  ordinary  form  ^  is  not 
negotiable  paper ^  and  that  a  purchaser  of  such  certificate^  although 
indorsed  in  blank  by  the  owner ^  ivhere  no  question  arises  under  the 
registration  laws,  obtains  no  better  title  to  the  stock  than  his  vendor 
had^  in  the  absence  of  all  negligence  on  the  part  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  R.  Co.,  13  N.  Y.  (1856)  599.  It  was  there  held  that 
such  a  certificate  does  not  partake  of  the  character  of  a  negotiable 
instrument,  and  that  a  bona  fide  assignee,  with  full  power  to  transfer 
the  stock,  takes  the  certificate  subject  to  the  equities  which  existed 
against  his  assignor.  Such  certificates,  said  Comstock,  J.,  "contain 
no  words  of  negotiability.  They  declare  simply  that  the  person 
named  is  entitled  to  certain  shares  of  stock.  They  do  not,  like  nego- 
tiable instruments,  run  to  the  bearer,  or  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,  and  the  documentary  evidence  of 
title  thereto."  The  most  that  can  be  said  is,  that  all  such  instru- 
ments 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  strictly  as  negotiable  paper. 

In  Shaw  V.  Spencer,  100  Mass.  382;  s.  c,  97  Am.  Dec,  i  Am. 
Rep.  115  (1868),  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 


§21/  NATURE   OF   SHARES   OF  STOCK.  809 

such  an  instrument  the  attribute  of  negotiability.  However  many  in- 
termediate hands  it  may  pass  through,  whoever  would  obtain  a  new 
certificate  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  Sewall  V.  Boston  Water  Power  Co.,  4  Allen  282;  s.  c.  81  Am. 
Dec.  701,  decided  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  Am.  Rep.  705,  where 
it  was  expressly  held  that  a  bona  fide  purchaser  of  stock  standing  on 
the  company's  books  in  the  name  of  the  former  owner,  regularly  in- 
dorsed by  him,  and  stolen  from  the  present  owner  without  his  fault, 
gets  no  title.  The  decision  was  based  on  the  fact  that  such  certifi- 
cates are  not  negotiable  instruments,  but  simply  muniments  of  title, 
and  evidences  of  the  holder's  right  to  a  given  share  in  the  property 
and  franchise  of  the  corporation.  It  was  observed,  in  regard  to  the 
matter  of  negligence,  as  follows:  "But  if  the  purchaser  from  one 
who  has  not  the  title,  and  has  no  authority  to  sell,  relies  for  his  pro- 
tection on  the  negligence  of  the  true  owner,  he  mus*  ^how  that  such 
negligence  was  the  proximate  cause  of  the  deceit." 

The  same  principle  was  applied  to  bills  of  lading,  in  Gurney  v. 
Behrend,  3  Ellis  &  Bl.  622,  decided  by  the  English  Queen's  Bench, 
where  an  instrument  of  that  kind,  indorsed  in  blank  by  the  consignor, 
and  sent  by  him  to  his  correspondent,  had  been  misappropriated. 
The  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.,  supra,  is  well  sup- 
ported by  authority,  and,  in  our  judgment,  announces  a  correct  prin- 
ciple of  law,  and  we  fully  approve  it. — WooUey  v.  Sargeant,  14 
Amer.  Dec,  note  on  page  427,  and  cases  there  cited;  Cook  on  Stock 
and  Stockholders,  §§  7,  10,  192,  368,  437;  2  Daniel's  Neg.  Inst. 
(3d.  ed.),  §  1708^.  It  harmonizes  entirely  with  the  declaration  of 
our  statute,  that  shares  of  stock  in  private  corporations  "are  personal 
property,  transferable  on  the  books  of  the  corporation"  in  accordance 
with  the  rules  and  regulations  of  the  corporation. — Code  1886,  §  1669 ; 
Campbell  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  extent,  and  transfers  it  by  exceeding  his  powers,  or  in  breach 
of  his  trust.  In  such  cases  it  has  often  been  held  that  the  true  owner, 
having  conferred  on  the  holder,  by  contract,  all  the  external  indicia 
of  title,  and  an  apparently  unlimited  power  of  disposition  over  the 
stock,  "is  estopped  to  assert  his  title  as  against  a  third  person,  who, 
acting  in  good  faith,  acquires  it  for  value  from  the  apparent  owner." — 
2  Dan.  Neg.  Inst.  (3d  ed.),  §1708^;  McNeil  v.  Tenth  Nat.  Bank,  46 


8lO  HALEY   V.    REID.  §  2l8 

N.  Y.  325 ;  Mount  Holly  Turnpike  Co.  v.  Ferree,  17  N.  J.  Eq.  117 ; 
Prall  V.  Tilt,  28  N.  J.  Eq.  479 ;  Merchants'  Bank  v.  Livingston,  74 
N.  Y.  223.  These  cases  rest  on  the  principle  that  it  is  more  just  and 
reasonable,  where  one  of  two  innocent  parties  must  suffer  loss,  that 
he  should  be  the  loser  who  has  put  trust  and  confidence  in  the  de- 
ceiver than  a  stranger  who  has  been  negligent  in  trusting  no  one. 
Allen  V.  Maury  &  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  stipula- 
tions of  a  contract.  Dickinson  v.  Gay,  83  Am.  Dec.  656,  and  note, 
664;  E.  T.,  Va.  &  Ga.  R.  Co.  v.  Johnston,  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. 

Note.  While  shares  of  stock  are  almost  universally  held  to  be  non-nego- 
tiable, yet  they  approach  very  nearly  to  having  such  qualities  when  they  pass 
by  indorsement  and  delivery  of  the  certificate.  1850,  Harris  v.  Bank  of  Mo- 
bile, 5  La.  Ann.  638;  1856,  Mechanic's  Bank  v.  N.  Y.  &  N.  H.  E.,  13  N.  Y. 
599;  1857,  Mandelbaum  v.  N.  A.  Min.  Co.,  4  Mich.  465;  1861,  Bridgeport  Bank 
V.  N.  Y.  &  N.  H.  R.,  30  Conn.  231 ;  1868,  Shaw  v.  Spencer,  100  Mass.  382, 
97  Am.  Dec.  107,  1  Am.  Rep.  115;  1870,  Mechanic's  Bank  v.  Merchants'  Bank, 
45  Mo.  513,  100  Am.  Dec.  388;  1870,  State  v.  Bank  of  State,  45  Mo.  528;  1871, 
McNeil  V.  Tenth  Nat'l  Bank,  46  N.  Y.  325,  7  Am.  Rep.  341;  1871,  First  Na- 
tional Bank  v.  Lanier,  11  Wall.  (78  U.  S.)  369;  1873,  Hall  v.  Rose  H.  &  E.  R. 
Co.,  70  HI.  673;  1874,  Bercich  v.  Marye,  9  Nev.  312;  1875,  Sherwood  v.  Meadow 
Val.  M.  Co.,  50  Cal.  412;  1877,  Weyer  v.  Second  Nat'l  Bank,  57  Ind.  198;  1883, 
Barstow  v.  Savage  Min.  Co.,  64  Cal.  388,  49  Am.  Rep.  705;  1886,  Young  v. 
South  Tredegar  Iron  Co.,  85  Tenn.  189,  4  Am.  St.  R.  752;  1887,  Supply  D.  Co. 
V.  ElUott,  10  Colo.  327,  3  Am.  St.  Rep.  586;  1890,  Hammond  v.  Hastings,  134 
U.  S.  401 ;  1892,  Clark  v.  Am.  Coal  Co.,  86  Iowa  436, 17  L.  R.  A.  557,  53  N.  W. 
Rep.  291 ;  1893,  Brinkerhoff-Farris,  etc.,  Co.  v.  Home  L.  Co.,  118  Mo.  447; 
1896,  Craig  v.  Hesperia  L.  &  W.  Co.,  113  Cal.  7,  54  Am.  St.  Rep.  316;  1896, 
Knox  V.  Eden  Musee  Am.  Co.,  148  N.  Y.  441,  51  Am.  St.  Rep.  700;  1899. 
Masury  v.  Ark.  Nat'l  Bank,  93  Fed.  Rep.  603,  35  C.  C.  A.  476. 


Sec.  218.    Same. 

(6)  As  subjects  of  attachment  or  execution. 
HALEY  V.  REID.^ 

1854.      In    the    Supreme    Court    of    Georgia.     16   Ga.    Rep. 

437-439- 

[Raid  sued  out  an  attachment  against  Haley,  which  the  sheriff 
levied  on  the  stock  of  Haley  in  a  plank-road  company  by  making  an 
entry  to  that  effect  upon  the  attachment.     The  court  overruled  a  mo- 

^  Only  part  of  opinion  given. 


§219  NATURE   OF   SHARES   OF   STOCK.  8ll 

tion  by  the  defendant  to  dismiss  the  attachment,  and  exceptions  were 
taken.] 

Benning,  J.  *  *  *  To  "levy"  means  to  seize — to  take  cor- 
poreally. It  follows  that  what  can  not  be  seized — what  can  not  be 
taken  corporeally — can  not  be  levied  on.  And  as  the  law  is  not  to 
be  presumed  to  require  impossibilities  when  it  requires  an  executing 
officer  to  levy  on  both  personal  and  real  estate,  it  is  not  to  be  pre- 
sumed to  intend  to  require  him  to  levy  on  such  personal  or  real  estate 
as  it  is  impossible  to  levy  on ;  that  is  to  say,  as  it  is  impossible  to 
seize — to  take  corporeally.  What  precise  idea  the  sheriff  meant  to 
express  by  the  word  '■'■levied^'  when  he  returned  that  he  had  "levied" 
the  attachment  upon  one  hundred  shares  in  the  corporation  I  am  at 
some  loss  to  conceive.     »     *     * 

Reversed. 

Note.  At  common  law  shares  are  not  attachable.  1812,  Denton  v.  Livings- 
ton, 9  Johns.  (N.  Y.)  96;  1819,  Williamson  v.  Smoot,  7  Martin  (La.  O.  S.)  31, 
12  Am.  Dec.  494;  1823,  Nashville  Bank  v.  Ragsdale,  Peck  (Tenn.)  296;  1858, 
Evans  v.  Monot,  4  Jones  Eq.  (N.  C.)  227;  1866,  Foster  v.  Potter,  37  Mo.  525; 
1873,  Merchants'  M.  I.  Co.  v.  Brower,  38  Texas  230;  1885,  Barnard  v.  Ins. 
Co.,  4  Mackey  (D.  C.)  63;  1887,  Rhea  v.  Powell,  24  111.  App.  77;  1889,  Duncan- 
son  V.  Nat'l  Bank,  7  Mackey  (D.  C)  348. 

But  statutes  generally  provide  for  the  taking  of  shares  by  execution  or  attach- 
ment. 1821,  Howe  V.  Starkweather,  17  Mass.  240;  1830,  Hussey  v.  Manufac. 
&  M.  Bank,  10  Pick.  (Mass.)  415;  1838,  Castle  v.  Carr,  16  N.  J.  Law  394;  1882, 
Shenandoah  Valley  R.  Co.  v.  Griffith,  76  Va.  913 ;  1889,  Union  Bank  v.  Bvram, 
131  111.  92;  1894,  Thompson  v.  Wells,  67  111.  App.  436;  1895,  Ditty  v.  Bank, 
112  Ala.  391. 

Under  some  statutes  only  the  legal  interest  is  attachable.  1881,  Van  Nor- 
man V.  Jackson,  Cir.  J.,  45  Mich.  204;  1888,  Weller  v.  Pace  Tobacco  Co.,  2 
N.  Y.  Snpp.  292;  1893,  Gypsum  Plaster  &  S.  Co.  v.  Kent,  C.  J.,  97  Mich.  631. 

But  under  other  statutes  the  equitable  interest  is  also.  1854,  Bank  of  St. 
Mary's  v.  St.  John,  25  Ala.  566 ;  1866,  Middletown  Sav.  Bank  v.  Jarvis,  33 
Conn.  372;  1894,  Tufts  v.  Volkening,  122  Mo.  631. 

"Stock"  can  not  be  the  subject  of  replevin,  because  of  its  incorporeal  nature. 
1899,  Ashton  v.  Heydenfeldt,  124  Cal.  14,  56  Pac.  Rep.  624. 


Sec.  219.    Same. 

(7)  Location  of  shares  for  attachment. 

PLIMPTON  V.  BIGELOW.* 

1883.     In  the  Court  of  Appeals  of  New  York.     93  New  York 

592-602. 

[Appeal  from  order  of  general  term  of  supreme  court  reversing  an 
order  of  the  special  term  vacating  a  levy  by  attachment  upon  stock.] 

Andrews,  J.  This  action  is  brought  by  the  plaintiffs,  residents  of 
Massachusetts,  against  the  defendant,  a  resident  of  Pennsylvania,  upon 

'Arguments  and  parts  of  opinion  omitted. 


8 12  PLIMPTON   V.    BIGELOW.  §  219 

several  promissory  notes  of  the  defendant,  made  and  delivered  in 
Massachusetts  and  payable  generally.  The  plaintiffs  procured  an 
order  for  the  service  of  the  summons  upon  the  defendant  by  publica- 
tion, and  also  a  vs^arrant  of  attachment  against  his  property.  The 
sheriff  of  the  city  and  county  of  New  York,  to  whom  the  warrant  was 
directed,  undertook  to  execute  it  by  levying  upon  439  shares  of  the 
stock  of  the  Hat  Sweat  Manufacturing  Company,  a  Pennsylvania  cor- 
poration, incorporated  under  the  laws  of  that  state,  owned  by  the  de- 
fendant, and  for  which  he  held  and  then  had,  in  the  state  of  Pennsyl- 
vania, stock  certificates  issued  and  delivered  to  him  at  the  office  of 
the  company  in  Philadelphia,  in  Febiiiary,  1882,  at  which  place  the 
stock  and  transfer  books  of  the  company  then  were  and  still  are  kept. 
The  sheriff,  for  the  purpose  of  making  the  levy,  left  with  the  secretary 
of  the  company  in  the  city  of  New  York  a  certified  copy  of  the  war- 
rant of  attachment,  together  with  the  notice  prescribed  by  section  649 
of  the  Code  of  Civil  Procedure.  The  formal  proceedings  were  taken 
to  complete  the  levy,  and  the  shares  were  subjected  to  the  attachment, 
provided  they  were  liable  to  attachment  under  section  647  of  the  code. 
That  section  declares  that  "the  rights  or  shares  which  the  defendant 
has  in  the  stock  of  an  association  or  corporation,  together  with  the 
interest  and  profits  thereon,  may  be  levied  upon,  and  the  sheriff's  cer- 
tificate of  the  sale  thereof  entitles  the  purchaser  to  the  same  rights  and 
privileges  with  respect  thereto,  which  the  defendant  had  when  they 
were  attached." 

The  question  here  is  whether  this  section  applies  to  shares  of  stock 
of  a  foreign  corporation.  It  is  to  be  observed  that  the  section  is  one 
of  the  provisions  of  a  system  of  proceedings  by  attachment,  and  is  to 
be  construed  in  view  of  the  fundamental  principle  upon  which  all  at- 
tachment proceedings  rest,  that  the  res  must  be  actually  or  construct- 
ively within  the  jurisdiction  of  the  court  issuing  the  attachment  in 
order  to  any  valid  or  effectual  seizure  under  the  process.  In  the 
case  of  tangible  property,  capable  of  actual  manucaption,  it  must 
have  an  actual  situs  within  the  jurisdiction.  But  credits,  choses  in 
action  and  other  intangible  interests  are  made  by  statute  susceptible 
of  seizure  by  attachment.  The  same  principle,  however,  applies  in 
this  case  as  in  the  other,  the  res,  that  is  the  intangible  right  or  interest, 
to  be  subject  to  the  attachment,  must  be  within  the  jurisdiction.  But 
it  is  manifest  from  the  nature  of  this  species  of  property  that  it  must 
be  a  constructive  or  statutory  presence  only,  founded  upon  some  char- 
acteristic fact  which  determines  its  locality.  Where  the  defendant 
who  owns  a  credit  is  within  the  jurisdiction  there  is  no  difficulty 
through  proceedings  in  personam  in  reaching  and  applying  it  in  dis- 
charge of  his  debt  to  the  plaintiff.  But  where  he  is  out  of  the  juris- 
diction, and  the  debt  or  duty  owing  to  him,  or  the  right  he  possesses 
exists  against  some  person  within  the  jurisdiction,  attachment  laws 
fasten  upon  that  circumstance,  and  by  notice  to  the  debtor  or  person 
owing  the  duty  or  representing  the  right,  impound  the  debt,  duty  or 
right  to  answer  the  obligation  which  the  attachment  proceeding  is  in- 
stituted to  enforce.     In  the  case  supposed,  the  debt,  duty  or  righ-t  for 


§219  NATURE   OF   SHARES   OF   STOCK.  813 

the  purpose  of  attachment  proceedings  is  deemed  to  have  its  situs  or 
locality  in  the  jurisdiction.     *     ♦     « 

We  now  come  more  directly  to  the  inquiry  upon-  which  the  case 
now  under  review  depends,  viz. :  Whether  the  shares  of  a  non-resi- 
dent defendant  in  the  stock  of  a  foreign  corporation  can  be  deemed  to 
be  within  this  state,  by  reason  of  the  fact  that  the  president  or  other 
officers  of  the  corporation  are  here  engaged  in  carrying  on  the  corpo- 
rate business.  We  do  not  overlook  the  fact  that  we  are  construing  a 
section  of  the  code,  the  language  of  which  is  sufficiently  general  to 
include  foreign  corporations,  but  they  are  not  expressly  named,  and 
for  the  purpose  of  determining  whether  foreign  corporations  were  in- 
tended to  be  included,  it  is  a  relevant  inquiry  whether  upon  general 
principles  the  right  which  a  stockholder  in  a  corporation  has,  by  reason 
of  his  ownership  of  shares,  is  a  debt  or  duty  of  the  corporation,  exist- 
ing in  a  foreign  jurisdiction  wherever  the  officers  of  the  corporation 
may  be  found  engaged  in  the  prosecution  of  the  corporate  business. 
If  the  corporation,  by  having  its  officers,  and  by  transacting  business 
in  a  state  other  than  its  domicile  of  origin,  is  deemed  to  be  itself  pres- 
ent as  an  entity  in  such  foreign  state,  to  the  same  extent  and  in  the 
same  sense  as  it  is  present  in  the  state  which  created  it,  it  may  be  con- 
ceded that  its  shares  might  be  properly  attached  in  such  foreign  juris- 
diction. 

But  we  regard  the  principle  to  be  too  firmly  settled  by  repeated 
adjudications  of  the  federal  and  state  courts,  to  admit  of  further  con- 
troversy, that  a  corporation  has  its  domicile  and  residence  alone 
within  the  bounds  of  the  sovereignty  which  created  it,  and  that  it  is 
incapable  of  passing  personally  beyond  that  jurisdiction.  (Bank  of 
Augusta  V.  Earle,  13  Pet.  519;  Lafayette  Ins.  Co.  v.  French,  18 
How.  (U.  S.)  404;  Merrick  V.  Van  Santvoord,  34  N.  Y.  208;  Stevens 
V.  Phoenix  Ins.  Co.,  41  N.  Y.  150.)  But  it  is  equally  true  that  a 
foreign  corporation  is  permitted  to  sue  in  the  courts  of  this  state  and 
that  suits  in  personam  may  be  brought  against  it  by  service  of  process 
on  its  officers  or  agents  within  the  jurisdiction.  (Code,  §§  432,  1780; 
Gibbs  V.  Queen  Ins.  Co.^)  But  suits  by -or  against  foreign  cor- 
porations are  not  maintained  on  the  theory  that  the  corporation  liti- 
gant is  here  in  person,  or  that  the  corporate  entity  attends  its  officers 
in  their  migrations  from  one  state  to  another,  or  that  it  is  itself  pres- 
ent wherever  its  property  may  be,  or  its  business  may  be  transacted. 
The  jurisdiction,  as  I  understand,  rests  upon  the  ground  that  as  a 
corporation  must  act  by  agents,  it  may,  through  its  agents,  subject  it- 
self to  the  jurisdiction  of  a  foreign  tribunal.      «     *     * 

The  right  which  a  shareholder  in  a  corporation  has  by  reason  of 
his  ownership  of  shares  is  a  right  to  participate  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.  (Burrall  v.  Bushwick  Railroad  Co. ,  75 
N.  Y.  2n.)  It  is  this  right  and  interest  which  is  made  liable  to 
attachment  under  the  section  referred  to.  The  right  of  the  share- 
holder is  derived  from  the  corporation  under  its  charter,  or  the  laws 

»  63  N.  Y.  114. 


8 14  PLIMPTON   V.    BIGELOW.  §219 

of  the  state  which  created  it.  It  is  enforceable  by  judicial  proceed- 
ing in  the  local  courts,  and  in  case  of  a  dissolution,  of  the  corporation 
the  local  courts  'alone  can  be  resorted  to  to  wind  up  its  affairs  and 
distribute  its  assets.  It  seems  impossible  to  regard  the  stock  of  a 
corporation  as  being  present  for  the  purpose  of  judicial  proceedings 
except  at  one  of  two  places,  viz.,  the  place  of  residence  of  the  owner, 
or  the  place  of  the  residence  of  the  corporation.      *     *     « 

The  foreign  corporation  is  not  here  because  its  agents  are  here,  nor 
because  it  has  property  here ;  nor  is  the  stock  here  because  the  cor- 
poration has  property,  or  is  conducting  its  business  in  this  state. 
The  individual  members  of  a  corporation  are  not  the  owners  of 
the  property  of  the  corporation,  or  of  any  part  of  it.  The  abstract 
entity — the  corporation — is  the  owner  and  only  owner  of  the  prop- 
erty. We  do  not  doubt  that  shares  for  the  purpose  of  attach- 
ment proceedings  may  be  deemed  to  be  in  the  possession  of  the  cor- 
poration which  issued  them,  but  only  at  the  place  where  the  corpora- 
tion by  intendment  of  law  always  remains,  to  wit,  in  the  state  or 
country  of  its  creation.  In  all  other  places  it  is  an  alien.  It  may 
send  its  agents  abroad  or  transact  business  abroad  as  any  other  in- 
habitant may  do,  without  passing  pei'sonally  into  the  foreign  jurisdic- 
tion or  changing  its  legal  residence.  But  such  agents  are  not  the 
corporation,  and  do  not  represent  the  corporation  in  respect  to  rights 
as  between  the  corporation  and  its  shareholders  incident  to  the  owner- 
ship of  shares. 

It  is  not  necessary  to  this  case  to  define  the  limits  of  legislative 
power  in  subjecting  intangible  property  to  attachment  by  notice  served 
upon  such  person  or  corporation  as  may  be  designated  by  the  legisla- 
ture. Manifestly  the  res  can  not  be  within  the  jurisdiction,  as  a  mere 
consequence  of  a  legislative  declaration,  when  the  actual  locality  is 
undeniably  elsewhere.  But  in  respect  to  intangible  interests,  as  we 
have  said,  there  can  be  no  actual  seizure  of  the  thing,  and  it  can  be 
bound  only  by  notice  to  some  one  who  represents  the  thing.  In  case 
of  a  debt,  notice  to  the  debtor  residing  within  the  jurisdiction  is  the 
ordinary  proceeding  to  attach  the  debt,  and  if  the  debtor  is  a  corpora- 
tion, and  the  corporation  is  a  domestic  one,  there  is  no  difficulty. 
But  in  some  of  the  states  foreign  corporations  having  an  agent,  or  a 
place  of  business  within  the  state,  may  be  charged  under  what  is  called 
the  trustee  process,  or  as  garnishee.  (Barrv.  King,  96  Pa.  St.  485; 
Nat'l  Bank  v.  Huntington,  129  Mass.  444.)  In  these  proceedings 
the  trustee  or  garnishee  is  joined  with  the  principal  defendant  as  a 
party  to  the  action,  and  the  debt  owing  by  the  trustee  or  garnishee 
is  ascertained  and  the  liability  of  the  trustee  and  garnishee  is  ad- 
judged in  the  action.  There  may  be  no  difficulty  upon  principle  in 
compelling  a  corporation  which  has  an  agent  and  officer  in  another 
state  and  is  transacting  business  there  to  respond  in  garnishment  pro- 
ceedings for  the  debt,  although  the  creditor — the  principal  defendant 
— is  a  non-resident,  and  if  bound  to  respond,  it  is  certainly  just  that 
the  judgment  which  compels  the  corporation  to  pay  the  debt  to  the 
plaintiff  should  protect  it  in  making  such  payment  against  a  subse- 


§  220  NATURE   OF   SHARES   OF   STOCK.  815 

quent  claim  by  its  creditor.  We  do  not  enter  into  this  question  here, 
but  whatever  view  may  be  taken  as  to  the  right  to  attach  a  debt  owing 
by  a  foreign  corporation  to  a  non-resident,  by  service  of  notice  on  an 
agent  of  the  corporation  within  the  jurisdiction,  we  think,  in  respect  to 
corporate  stock,  which  is  not  a  debt  of  the  corporation  in  any  proper 
sense,  it  would  be  contrary  to  principle  to  hold  that  it  can  be  reached 
by  such  a  notice.  We  are,  therefore,  of  the  opinion  that  the  funda- 
mental condition  of  attachment  proceedings,  that  the  res  must  be 
within  the  jurisdiction  of  the  court  in  order  to  an  effectual  seizure,  is 
not  answered  in  respect  to  shares  in  a  foreign  corporation  by  the  pres- 
ence here  of  its  officers,  or  by  the  fact  that  the  corporation  has  prbp- 
erty  and  is  transacting  business  here,  and  that  section  647  must  be 
construed  as  applying  to  domestic  corporations  only.  (See  Moore  v. 
Gennett,  2  Tenn.  Ch.  375;  Christmas  v.  Biddle,  13  Pa.  St.  223; 
Childs  v.  Digby,  24  Pa.  St.  26;  Drake  on  Attachment,  §§  244,  471, 
478.)     *     ♦     * 

Order  of  general  term  reversed  and  that  of  special  term  affirmed. 

Note.  See,  also,  1875,  Moore  v.  Gennett,  2  Tenn.  Ch.  375;  1886,  Winslow 
v.  Fletcher,  53  Conn.  390,  55  Am.  Rep.  122;  1895,  Reid  Ice  Co.  v.  Stephens, 
62  111.  App.  334;  1895,  Ireland  v.  Globe  M.  &  R.  Co.,  19  R.  I.  180,  61  Am.  St. 
Rep.  756,  29  L.  R.  A.  429;  1898,  New  Jersey  Sheep  &  W.  Co.  v.  Traders'  Dep. 
Bank,  20  Ky.  L.  Rep.  666,  46  S.  W.  Rep.  677 ;  1898.  Hnney  v.  Nevills,  86  Fed. 
Rep.  97. 


Sec.  220. 

(8)  Seizure  in  equity. 

ERWIN  v.  OLDHAM. 

1834.     In  the   Supreme   Court  of   Tennessee.     6  Yerger  (14 

Tenn.)  185-189. 

Green,  J.  This  is  a  bill  filed  by  the  complainant  to  subject  stock 
in  the  Nashville  Bridge  Company  to  the  payment  of  his  debt  due 
from  defendant. 

It  is  not  pretended  that  there  is  any  fraud  or  trust  in  this  case  to 
furnish  a  ground  of  equity  jurisdiction,  and  the  simple  question  is 
whether  this  court  has  power  to  cause  stocks,  credits  and  rights  of 
action  held  by  a  debtor,  without  fraud,  to  be  sold  or  converted  into 
money,  or  transferred  to  the  creditor  in  payment  of  his  debt.  We 
think  it  has  not,  and  without  entering  into  any  reasoning  on  the  sub- 
ject or  review  of  authorities,  we  refer,  as  conclusively  settling  the 
point,  to  the  case  of  Donavan  v.  Finn,  i  Hop.  59. 

Our  act  of  assembly  of  1833,  ch.  11,  makes  ample  provision  upon 
this  subject,  but  this  bill,  being  filed  long  before  the  passage  of  that 
act,  can  not  be  governed  by  it. 

Decree  affirmed. 

Note.  Compare,  1854,  Bank  of  St.  Mary's  v.  St.  John,  26  Ala.  666;  1866, 
Middletown  Sav.  Bank  v.  Jarvis,  33  Conn.  372. 


Title  V.     The  Body  Corporate — Its  Name. 


CHAPTER  9. 
THE  CORPORATE  NAME.» 

Sec.  221.    Necessity  of  a  name. 

"There  ought  to  be  a  name  by  which  it  ought  to  be  incorporated." 
— 10  Coke's  Rep.,  p.  29,  c.  1600. 

"The  name  of  the  corporation  is  as  a  name  of  baptism.^' — 21  Ed. 
IV,  p.  56  (1482);  ID  Coke's  Rep.,  p.  28. 

"It  is  a  clear  and  plain  rule  in  our  law,  that  the  name  of  a  corpora- 
tion is  as  a  name  of  baptism  to  a  natural  man,  and  if  there  is  any 
difference,  I  conceive  that  the  law  requires  inore  strict  certainty  in 
the  name  of  a  corporation  than  in  the  name  of  any  particular  person; 
for  a  name  is  more  necessary  to  a  corporation  than  to  another;  for 
when  an  infant  is  born,  he  is  presently  a  perfect  creature  before  any 
name  is  given  him,  and  the  giving  the  name  is  not  a  matter  of  neces- 
sity, but  of  policy  for  distinction,  etc.,  but  in  the  case  of  a  corpwa- 
tion  the  name  is  the  substance  and  esse?ice  of  it,  and  it  is  not  a  body 
before  a  name  be  imposed  upon  it." — Argument  of  Egerton,  Solici- 
tor-General, 30  and  31  Eliz.,  Ley's  Rep.  163  pi.  22S  (15S9);  6 
Viner's  Abr.,  p.  *26i. 

"The  names  of  corporations  are  given  of  necessity,  for  the  name  is 
as  the  very  being  of  the  constitution,  and  though  it  is  the  will  of  the 
king  that  erects  them,  yet  the  name  is  the  knot  of  their  combination, 
without  which  they  could  not  perform  their  corporate  acts,  and  it  is 
no  body  to  plead  and  be  impleaded,  to  take  and  give  till  it  hath  got 
a  name,  but  natural  persons  can  take  before  they  come  into  being, 
and  when  they  are  in  being,  before  they  have  got  a  name." — Gilb. 
Hist.  C.  B.  181,  182,  cap.  17;  6  Viner  *262,  c.  1620. 

>See  Ang.  &  Ames,  §§  99-103;  Beach,  §§  373-5,  864;  Boone,  §§  29-32,  47,  75, 
286:  Clark,  pp.  71-4;  Cook,  §  699,  et  seq.;  Elliott,  §§  47-8;  Morawetz,  §§  353- 
7,  770,  771,  810-12;  Taylor,  §§12,  14,  137,  158-9;  I  Thompson,  §§284-300; 
VII  Thompson,  §§  8183-8202. 

(816) 


§  222  THE   CORPORATE   NAME.  817 

Sec.  222.     Acquisition  of  a  name. 

SMITH  V.  TALLASSEE  BRANCH  OF  CENTRAL  PLANK-ROAD  CO.* 

1857.     In   the   Supreme   Court    of   Alabama.     30   Ala.    Rep. 

650-668. 

[Action  by  the  "Tallassee  Branch  of  the  Central  Plank-Road  Com- 
pany" against  Smith  upon  a  subscription  to  the  stock  of  the  Central 
Plank-Road  Company.  Plaintiff  showed  the  organization  of  the  lat- 
ter company  under  its  charter;  also  the  proceedings  for  the  establish- 
ment of  the  Tallassee  branch,  including  the  meeting  of  the  stockhold- 
ers for  the  organization  thereof,  the  adoption  of  by-laws  and  a  corpo- 
rate name — "The  Tallassee  Branch  of  the  Central  Plank-Road 
Company" — the  election  of  directors,  etc.  Smith  asked  the  court  to 
charge  that  the  charter  did  not  give  the  plaintiff  any  corporate  name, 
nor  any  authority  to  select  one.  This  was  refused,  and  defendant, 
Smith,  excepted.  The  court  below  found  for  the  road  company  and 
Smith  appeals.]    • 

Walker,  J.  *  *  ♦  If  the  plaintiff  have  any  corporate  exist- 
ence, it  is  derived  from  the  fourth  section  of  the  act  of  30th  of  Janu- 
ary, 1850,  -providing  for  the  incorporation  of  the  Central  Plank-Road 
Company — Pamphlet  Acts  1849— 1850,  p.  268.  This  act  authorizes 
the  incorporation  of  a  company  for  the  construction  of  a  plank-road 
from  Wetumpka  to  Gunter's  Landing  or  some  other  point  on  the  Ten- 
nessee river.  So  much  of  the  fourth  section  as  it  is  necessary  to  copy 
in  this  opinion,  is  in  the  following  words:  "Any  individual  or  asso- 
ciation may  establish  branch  plank-roads  running  into  and  connecting 
with  said  central  plank-road,  which  branches  may  be  governed  by  the 
respective  stockholders  thereof;  and  said  stockholders  for  building 
branches  to  said  central  plank-road  may  become,  and  hereby  are  in- 
corporated under  the  provisions  of  this  act. ^^ 

It  is  contended  that  the  bestowment  of  a  name  by  the  charter  of  a 
corporation  is  indispensable  to  its  creation,  and  that  the  plaintiff  has 
no  corporate  existence,  because  no  name  is  provided  in  the  statute. 
Names  are  necessary  to  the  existence  of  corporations.  It  is  "the  very 
being  of  the  constitution;"  "the  knot  of  their  combination,  without 
which  they  could  not  do  their  corporate  acts,  for  it  is  no  body  to  plead 
and  be  impleaded,  to  take  and  give,  until  it  hath  gotten  a  name." — 2 
Bacon's  Abr.  Corporation  (C).  But  the  authorities  clearly  show ,  that 
although  the  name  is  usually  given  by  the  charter,  it  is  not  indispensable 
that  it  should  be  so  given.  It  is  said,  in  Wilcock  on  Corporations  3^ ^ 
that  every  corporation  has  at  least  one  name  by  which  it  may  be  identi- 
fied; this  may  be  either  derived  from  usage,  or  conferred  upon  it  by 
the  statute  or  charter  of  creation.  In  an  anonymous  case  in  ist 
Salkeld  191,  we  find  the  following:   "My  Lord  Coke  says  that  a  cor- 

*  Statement  much  abridged.  Arguments  omitted ;  and  only  that  part  of  th© 
opinion  relating  to  the  one  point  given. 

52— WiL.  Cases. 


8l8         SMITH  V.  CENTRAL  PLANK-ROAD  CO.        §  222 

poration  must  have  a  name;  but  th'at  must  be  understood  to  be  either 
expressed  in  the  patent  or  implied  in  the  nature  of  the  thing,  as  if  the 
king  should  incorporate  the  inhabitants  of  Dale  with  power  to  choose 
a  mayor  annually,  yet  it  is  a  good  corporation  by  the  name  of  mayor 
and  commonalty.  So  the  city  of  Norwich  is  incorporated  to  be  a 
mayor  and  sheriffs  by  the  charter  of  Henry  IV,  and  are  called  mayor, 
sheriffs  and  commonalty." 

Where  individuals  are  authorized  to  associate  themselves  together, 
and,  organizing  as  a  coiporation  under  a  general  law,  give  themselves 
a  name,  the  existence  of  the  corporation  has  been  maintained. — Fal- 
coner v.  Campbell,  2  McLean  195-198;  see,  also,  Minot  v.  Curtis, 
7  Mass.  447. 

The  charter  provides  for  the  establishment  of  branches  to  the  Cen- 
tral plank-road,  and  so  designates  them  in  the  13th  as  well  as  the  4th 
section  above  copied.  The  charter  also  clearly  contemplates  the  es- 
tablishment of  more  branches  than  one,  and  thus  arises  the  propriety 
of  distinguishing  the  different  branches  by  a  variation  in  the  names. 
A  most  appropriate  mode  of  accomplishing  the  object  is  by  reference 
to  some  noted  point  toward  which  the  branch  leads.  Tallassee  or  its 
vicinity  is  one  of  the  points  had  in  view  in  the  organization  of  this 
company.  It  is  shown  by  the  record  of  the  proceedings  of  the  cor- 
poration, copied  into  the  bill  of  exceptions,  that  it  has  used  from  the 
commencement  the  name  of  the  Tallassee  Branch  of  the  Central 
Plank-Road  Company.  This  is  the  name  which  would  naturally  be 
given  to  it  by  implication  from  the  charter,  and  the  route  of  the  road. 
Without  determining  the  effect  of  implication  or  usage,  in  a  case 
where  one  existed  without  the  other,  we  decide  that  the  plaintiff  has, 
by  implication  and  usage,  the  name  of  the  Tallassee  Branch  of  the 
Central  Plank-Road  Company,  and  that  the  complaint,  as  amended, 
is  in  the  proper  name.      *     *     * 

Affirmed. 

Note.  A  corporate  name  may  be  acquired  by  user.  1877,  Gifford  v.  Rock- 
ett,  121  Mass.  431 ;  1877,  Alexander  v.  Berney,  28  N.  J.  Eq.  90.  See,  infra, 
p.  823.  but  under  the  statutes  should  be  distinctive  and  not  vague  or  uncer- 
tain. 1882,  State  v.  McGrath,  75  Mo.  424;  1893,  In  re  Nether  Prov.  Assn., 
12  Pa.  Co.  Ct.  666;  1894,  In  re  Nether  Prov.  Assn.,  2  Pa.  Dist.  Rep.  702.  Stat- 
utes frequently  provide  that  a  corporation  shall  not  select  a  name  already  in 
use  by  another  corporation,  or  so  similar  thereto  as  to  lead  to  uncertainty  or 
confusion.  New  York,  Gen'l  Corp.  L.  1890,  ch.  663,  §  6;  Michigan,  Howell's 
Stat.,  §  4161a,  C.  L.,  §7037.  See.  New  Jersey  Statute,  1896,  ch.  185,  §  8. 
Such  provision  is  declaratory  of  the  common  law.  Newby  v.  R.  Co.,  infi-a, 
p.  819. 

Many  other  statutory  provisions  exist,  e.  g. :  "When  the  name  assumed  is 
that  of  a  person  or  firm,  there  must  be  joined  thereto  some  word  designating 
the  business  to  be  carried  on,  followed  by  the  word  "company  or  corporation" 
— Alabama.  §  1286  of  Code— under  penalty  of  partnership  liability  of  mem- 
bers for  failure  to  complv  with  this  provision.  Missouri  has  a  similar  provis- 
ion, R.  S.  1889,  §  2496.  Ohio  provides  that  the  name  shall  begin  with  "The" 
and  end  with  "company,"  unless  the  organization  is  not  for  profit.  R.  S., 
§  3236.  Wisconsin  provides  that  the  "name  shall  not  contain  the  names  of  in- 
dividuals in  the  manner  in  which  they  are  ordinarily  used  in  partnership  or 
business  names."  Statutes  1889,  §  1772.  In  Rfentucky,  every  corporation 
doing  business  in  the  state  is  required  to  have  its  name  painted  in  large  let- 


§  223  THE   CORPORATE  NAME.  819 

ters  in  a  conspicuous  place  at  its  principal  place  of  business,  followed  by  <n- 
corporated,  painted  in  like  manner.     So  the  name,  with  incorporated,  shall  be 

grinted  upon  all  advertising  matter.     Am.  Corp.  Legal  Man.,  1899,  p.  169; 
tat.  1894,  §  576. 


Sec.  223.     Rights  in  the  corporate  name. 

NEWBY  V.  THE  OREGON  CENTRAL  RAILWAY  CO.  Et  Al.» 

1869.     In  the    U.    S.  Circuit   Court.      Deady's  Rep.  609-620, 

Fed.  Cas.  10144. 

[Suit  to  enjoin  the  defendants  from  using  and  issuing  bonds  in  the 
name  of  the  Oregon  Central  Railway  Company.  Prior  to  1867  there 
had  existed  a  railroad  company,  duly  incorporated  and  organized  un- 
der the  Oregon  law,  by  the  name  of  the  Oregon  Central  Railway 
Company.  This  had  proceeded  to  business,  and  had  issued  certain 
bonds  of  $1,000  each,  two  of  which  Newby  owned.  In  1867,  owing 
to  difficulties  among  the  members,  certain  of  the  corporators  of  the 
old  company  seceded  therefrom,  and  under  the  general  corporation 
laws  of  Oregon  proceeded  to  organize  a  new  corporation  with  the 
same  name,  and  to  issue  and  put  upon  the  market  bonds  of  a  charac- 
ter similar  to  those  issued  by  the  old  company  and  under  the  same 
name.  The  defendants  demurred  on  the  ground  that  the  legal  right 
to  the  name — The  Oregon  Central  Railway  Company — had  not  been 
established  at  law,  and  the  facts  alleged  were  not  sufficient  to  consti- 
tute a  cause  of  suit.] 

Deady,  J.  *  *  «  By  the  law  of  Oregon  any  three  or  more 
persons  may  incorporate  themselves  for  the  purpose  of  engaging  in 
any  lawful  enterprise  or  occupation.  The  primary  step  in  the  forma- 
tion of  this  legal  entity  is  the  execution  and  filing  of  articles  of  incor- 
poration, which  .articles,  among  other  things,  must  specify — "The 
name  assumed  by  the  corporation  and  by  which  it  shall  be  known." 
(Or.  Code,  658-^).) 

By  the  execution  and  filing  of  these  articles  the  corporate  name  as- 
sumed thereby  and  specified  therein  becomes  exclusively  appropri- 
ated. If  afterwards  any  persons  attempt  to  incorporate  for  any  pur- 
pose by  the  same  name,  this  would  be  an  encroachment  upon  the 
rights  of  the  first  corporation  and  therefore  illegal.  To  prevent  the 
continuance  of  such  a  wrong  upon  the  rights  of  another,  equity  will 
interfere  at  the  suit  of  the  injured  party  by  injunction.  The  case  is 
analogous  to  if  not  stronger  than  that  of  a  piracy  upon  an  established 
trade-mark.  (Bell  v.  Locke,  8  Paige  75;  Taylor  v.  Carpenter,  11 
Paige  292;  Partridge  v.  Menck,  2  Barb.  Ch.  102;  Wil.  Eq.,  402-3.) 
The  corporate  name  of  a  corporation  is  a  trade-mark  from  the  neces- 
sity of  the  thing,  and  upon  every  consideration  of  private  justice  and 

^  Statement  abridged.     Only  part  of  opinion  given. 


820  ARMINGTON  V.  PALMER  ET  AL.  §  224 

public  policy  deserves  the  same  consideration  and  protection  from  a 
court  of  equity. 

Under  the  law  the  corpoi'ate  name  is  a  necessary  element  of  the 
corporation's  existence ;  without  it  a  corporation  can  not  exist.  Any 
act  which  pi'oduces  confusion  or  uncertainty  concerning  this  name  is 
well  calculated  to  injuriously  affect  the  identity  and  business  of  a  cor- 
poration. And  as  a  matter  of  fact,  in  some  degree  at  least,  the  nat- 
ural and  necessary  consequence  of  the  wrongful  appropriation  of  a 
corporate  name  is  to  injure  the  business  and  rights  of  the  corporation 
by  destroying  or  confusing  its  identity.  The  motives  of  the  persons 
attempting  the  wrongful  appropriation  are  not  inaterial.  They 
neither  aggravate  or  extenuate  the  injury  caused  by  such  appropria- 
tion. The  act  is  an  illegal  one,  and  must,  if  necessary,  be  presumed 
to  have  been  done  with  an  intent  to  cause  the  results  which  naturally 
flow  from  it.  Nor  will  a  court  of  equity  refuse  to  enjoin  the  wrong- 
ful appropriation  of  a  corporate  name  until  the  right  of  the  first  cor- 
poration to  the  name  has  been  established  by  the  verdict  of  a  jury  in 
an  action  at  law.  Such  right  does  not  rest  in  parol  but  is  shown  by 
the  record,  if  at  all,  and  is  determined  by  the  court  in  any  form  of 
proceeding.  Neither  in  such  case  has  the  party  injured  an  adequate 
and  complete  remedy  at  law.  As  in  the  case  of  patents  for  inven- 
tions and  copyrights,  the  remedy  at  law  can  only  give  redress  for  the 
past  injury,  and  that  often  inadequately.  But  to  protect  the  injured 
corporation  from  the  mischief  arising  from  continued  violation  of  its 
rights  and  perpetual  litigation  concerning  them,  resort  must  be  had  to 
the  equitable  remedy  by  injunction.      (Story's  Eq. ,  §  930.) 

Nor  do  I  deem  it  material  in  this  case  to  the  jurisdiction  in  equity, 
that  the  defendant  should  be  insolvent — unable  to  respond  to  the  com- 
plaint in  damages.  The  jurisdiction  in  this  class  of  cases — trade- 
marks, patents  and  copyrights — depends  upon  the  fact  that  the  matter 
is  intrinsically  of  equitable  cognizance — that  the  legal  rights  of  the 
party  can  only  be  protected  in  equity,  and  not  upon  the  uncertain  and 
irrelevant  test  of  the  insolvency  of  the  defendant.     *     *     * 

Demurrer  sustained  on  another  ground  suggested  in  argument,  i.  c, 
that  the  old  company  should  be  a  party  to  the  suit. 

Note.    See  note  at  end  of  next  case. 


Sec.  224.    Same. 

ARMINGTON  v.  PALMER  Et  Al.» 

1898,  In  the  Supreme  Court  of  Rhode  Island.  21  R.  I.  109, 
79  Am.  St.  Rep.  786,  42  Atl.  Rep.  308,  43  L.  R.  A.  95,  9  Am. 
&  Eng.  C.  C.  N.  S.  802. 

[Bills  by  Armington  and  Sims,  individually  and  as  stockholders  in 
the  Armington  and  Sims  Engine  Company,  to  enjoin  Palmer  and  others 
from  using  the  name    "Armington  and  Sims  Company,   successors 

*  Statement  abridged.     Arguments  and  part  of  opinion  omitted. 


§224  THE   CORPORATE   NAME.  82  I 

to  Armington  and  Sims  Engine  Company."  The  engine  company  was 
incorporated  in  1883,  and  had  acquired  the  assets,  including  patents 
and  good-will,  of  a  former  partnership  and  corporation  by  the  name  of 
Armington  and  Sims  Company.  It  had,  however,  in  1896,  become  em- 
barrassed, and  by  agieement  of  all  interested,  its  property  was  sold  at 
auction  to  pay  its  debts,  Palmer  and  others  being  purchasers.  They 
immediately  organized  a  corporation  under  the  general  corporation  law, 
with  the  name  Armington  and  Sims  Company,  and  afterward  a  meet- 
ing of  the  engine  company  was  called  to  ratify  the  use  of  the  name 
chosen.  At  this  meeting,  against  the  written  protest  of  Sims,  Armington 
not  being  present,  a  resolution  granting  the  right  to  use  the  name  was 
passed.  The  defendants  demurred  on  the  ground  that  an  injunction 
against  the  use  of  a  corporate  name  authorized  by  the  state  could  not 
be  maintained  by  a  private  party,  but  only  by  the  state ;  also,  that  no 
facts  set  out  entitled  complainants  to  relief.] 

Stiness,  J.  *  *  *  Upon  the  first  ground  of  demurrer,  the  question 
is  whether  a  private  party  can  maintain  a  bill  against  a  corporation  for 
the  wrongful  assumption  of  its  name.  The  respondents  rely  upon 
Rice  V.  Bank,  126  Mass.  300;  Boston  Rubber  Shoe  Co.  v.  Boston 
Rubber  Co.,  149  Mass.  436,  21  N.  E.  Rep.  875  ;  American  Order  of 
Scottish  Clans  v.  Merrill,  151  Mass.  558,  24  N.  E.  Rep.  918,  and 
Paulino  v.  Association,  18  R.  I.  165,  26  Atl.  Rep.  36.  The  first  of 
these  cases  was  an  information  quo  -warranto^  to  exclude  the  respond- 
ents from  exercising  the  franchise  of  being  a  corporation.  The  court 
held  that  such  a  bill  must  be  filed  by  the  state,  and  not  by  private  par- 
ties. With  this  doctrine  we  need  not  disagree.  The  second  case  was 
a  petition  for  leave  to  file  an  information  quo  warranto,  and  to  re- 
strain the  respondent  from  doing  business  under  the  name  of  the  Bos- 
ton Rubber  Company,  claiming  that  this  was  distinct  from  the  fran- 
chise to  be  a  corporation.  The  statutes  of  Massachusetts  of  1870  pro- 
vided that  the  name  assumed  in  the  agreement  of  association  should 
not  be  changed  but  by  act  of  the  legislature,  and  also  that  the  agree- 
ment was  to  be  submitted  to  a  commissioner  of  corporations  for  his 
approval.  The  court  held  that,  as  it  was  within  his  discretion  to  re- 
fuse to  approve  it,  the  court  could  not  exercise  that  discretion,  and 
the  certificate  was  conclusive.  The  court  said  that  the  statute  was 
not  intended  to  prevent  the  fraudulent  use  of  trade-names,  but  to  pre- 
vent the  identity  of  corporate  names.  The  statute,  like  our  own,  re- 
quired that  the  name  should  not  be  one  in  use  by  any  existing  corpo- 
ration of  the  state.  The  statutes  of  Massachusetts  (Pub.  St.,  ch.  186, 
§  17)  provide  for  an  application  to  the  court  in  cases  of  private  in- 
jury ;  but  as  the  petitioner  had  acquiesced  in  the  use  of  the  name  for 
ten  years  without  injury,  the  court  held  that  it  did  not  make  out  a  case 
for  injunction  under  the  statute.  The  third  case  is  to  the  same  effect, 
that  the  approval  by  the  insurance  commissioner  of  the  name  adopted 
by  a  beneficial  association  is  conclusive  in  a  private  suit  of  the  right 
of  the  association  to  such  corporate  name.  Both  of  these  latter  cases 
so  clearly  rest  upon  the  conclusiveness  of  the  judgment  of  the  com- 
missioner that  they  are  hardly  in  point  in  respect  to  our  statute,  which 


822  ARMINGTON    V.    PALMER   ET   AL.  §  224 

has  no  such  provision.  Judge  Holmes,  in  American  Order  of  Scottish 
Clans  V.  Merrill,  foresaw  a  case  like  this  one  in  saying:  "When 
there  are  no  statute  provisions  as  to  the  choice  of  names,  and  parties 
organize  a  corporation  under  general  laws,  it  may  be  that  they  choose 
a  name  at  their  peril,  and  that,  if  they  take  one  so  like  that  of  an  ex- 
isting corporation  as  to  be  misleading  and  thereby  to  injure  its  busi- 
ness, they  may  be  enjoined,  if  there  is  no  language  in  the  statute  to 
the  contrary."  The  possibility  here  suggested  is  fully  sustained  by 
many  cases,  among  which  are  the  following,  some  of  which  were 
cited  by  Judge  Holmes :  Putnam  v.  Sweet,  i  Chand.  286;  Newby 
V.  Railway  Co.,  Deady  609;  Holmes,  Booth  &  Haydens  v.  Holmes, 
Booth  and  Atwood  Mfg.  Co.,  37  Conn.  278;  Farmers'  Loan  and 
Trust  Co.  v.  Farmers'  Loan  and  Trust  Co.  of  Kansas  (Sup.),  i 
N.  Y.  Supp.  44;  Higgins  Co.  v.  Higgins'  Soap  Co.,  144  N.  Y.  462, 
39  N.  E.  Rep.  490;  Celluloid  Mfg.  Co.  v.  Cellonite  Mfg.  Co.,  32 
Fed.  Rep.  94;  R.  W.  Rogers  Co.  v.  William  Rogers'  Mfg.  Co.,  17 
C.  C.  A.  576,  and  note;  Plant  Seed  Co.  v.  Michel  Plant  and  Seed 
Co.,  23  Mo.  App.  579,  affirmed  37  Mo.  App.  313. 

The  principles  upon  which  these  cases  rest  are,  that  although  a 
corporation  may  be  legally  created,  it  can  no  more  use  its  corporate 
name  in  violation  of  the  rights  of  others  than  an  individual  can  use 
his  name,  legally  acquired,  so  as  to  mislead  the  public  and  to  injure 
another.  The  principle  adopted  is  similar  to  that  of  a  trade-name  or 
trade-mark,  and  is  applied  accordingly.  Consequently  a  court  of 
equity  has  jurisdiction  in  such  a  case  without  the  intervention  of  the 
state.  The  case  of  Paulino  v.  Association  is  quite  different  from  the 
case  now  before  us.  In  that  case  the  complainants,  a  voluntary  as- 
sociation, had  appointed  a  committee  to  procure  a  charter,  which  was 
procured,  and  under  which  the  corporators  had  organized.  The  bill 
sought  to  annul  the  charter  because  of  alleged  misconduct  on  the  part 
of  the  corporators.  The  court  held  that  this  could  not  be  done. 
Clearly,  the  remedy  of  the  complainants  was  of  a  different  sort.  After 
referring  to  some  of  the  cases  cited  above,  the  court  used  tlie  same 
language  herein  quoted  from  the  opinion  of  Judge  Holmes  in  Amer- 
ican Order  of  Scottish  Clans  v.  Merrill,  thus  intimating  the  very  right 
which  is  claimed  in  this  case.  But  the  respondents  argue,  as  was 
argued  in  the  Massachusetts  cases,  that  to  restrain  the  use  of  the  name 
is  practically  to  annul  the  corporation,  because  it  can  not  act  without 
a  name.  We  do  not  think  that  this  result  follows.  According  to  the 
allegations  of  the  bill,  the  name  assumed  by  the  respondents  is  so  like 
that  of  the  older  corporation  as  to  be  misleading  and  injurious.  We 
see  no  reason  why  the  corporation,  if  it  is  restrained  from  using  its 
present  name,  may  not,  under  Gen.  Laws  R.  I.,  ch.  176,  §  7,  choose 
another  name.     *     *     * 

Stated  generally,  the  defense  is  that,  having  the  right  to  make  the 
engine,  the  respondents  have  the  right  to  use  the  name,  which,  for 
this  reason,  can  not  injure  the  complainants;  that  no  fraud  was  in- 
tended in  the  choice  of  the  name,  and  the  authority  given  by  the  vote 
above  referred  to  for  the  use  of  the  name  by  the  respondents.     The 


§  224  THE   CORPORATE   NAME.  823 

use  of  a  trade-name  is  in  some  respects  different  from  that  of  a  tradp- 
mark.  The  latter  usually  relates  chiefly  to  the  thing  sold,  while,  in 
addition  to  this,  the  former  involves  the  source  from  which  it  comes, 
the  individuality  of  the  maker,  both  for  protection  in  trade  and  for 
avoiding  confusion  in  business  affairs,  as  well  as  for  securing  to  him 
the  advantage  of  any  good  reputation  which  he  may  have  gained. 
The  law  of  trade-mark  is  designed  chiefly  for  the  protection  of  the 
public  from  imposition ;  that  of  trade-name  for  the  protection  of  the 
party  entitled  to  it.  A  case,  therefore,  in  regard  to  trade-name  is  of 
somewhat  broader  scope  than  one  relating  to  a  trade-mark.  It  would 
be  of  little  use  to  go  over  the  numerous  cases  upon  these  objects,  as 
they  all  agree  in  principle,  however  variant  may  have  been  its  appli- 
cation. For  this  case  it  is  enough  to  say  that  although  one  may  make 
and  sell  an  unprotected  article,  he  can  not  simulate  the  name  or  prod- 
uct of  another  so  as  to  trench  upon  the  latter's  rights  or  to  mislead 
the  public.      *     *     ♦ 

Applying  this  principle  to  this  case,  it  is  demonstrative.  The  name 
adopted  by  the  respondent  is  so  close  a  resemblance  to  that  of  the 
Armington  &  Sims  Engine  Company  that  there  can  be  little  doubt 
that  it  would  be  misleading  and  confusing  in  business  matters,  and 
the  respondent  advertises  itself  as  the  successor  of  said  company. 
That  company  is  still  in  existence.  So  far  as  appears,  it  still  has 
assets,  because  its  accounts,  bills  and  notes  receivable  were  excepted 
from  the  sale  of  its  property.  As  such  corporation,  it  has  the  right 
to  its  name,  free  from  simulative  interference.     *     »     ♦ 

But  the  respondents  claim  that  the  Armington  &  Sims  Engine 
Company  is  not  in  business,  and  so  no  injury  can  follow.  As  we 
have  said,  the  company  is  still  in  existence,  and  may  be  put  on  a 
footing  for  active  business  by  a  further  contribution  of  capital,  a  thing 
which  is  often  done.  It  has  the  right  to  its  name,  and,  if  its  right  be 
violated,  it  is  not  necessary  to  show  actual  damage,  nor  will  the  ab- 
sence of  fraudulent  intent  be  a  defense.  Davis  v.  Kendall,  2  R.  I. 
566.     This  disposes  of  the  defense  on  the  ground  of  innocent  intent. 

The  third  branch  of  the  defense,  the  claim  of  authority,  can  not 
prevail.  The  respondents  did  not  acquire  the  right  to  use  the  name 
by  purchase.  They  bought  only  the  plant,  machinery,  stock  and 
such  visible  property.  The  purchase  of  these  does  not  carry  the 
franchise  or  name  of  the  corporation.     ♦     »     « 

The  vote  of  the  corporation  is  of  no  effect.  *  «  «  It  was  done 
after  the  sale  of  the  property  and  the  organization  of  a  new  com- 
pany, and  without  consideration.  It  was  therefore  a  purely  voluntary 
act.     *     *     * 

Demurrer  overruled. 

Note.  1.  The  right  to  a  corporate  name  is  a  franchise  of  the  corporation,  if 
lawfully  acquired:  1889,  Boston  Rubber  Slioe  Co.  v.  Boston  Rubber  Co.,  149 
Mass.  436,  27  Am.  &  E.  C.  C.  380;  1890,  American  Order  Scottish  Clans  v. 
Merrill,  151  Mass.  558,  8  L.  R.  A.  320;  1892,  Illinois  Watch  Case  Co.  v.  Pear- 
son, 140  111.  423,  41  Am.  &  E.  C.  C.  11 ;  1893,  Paulino  et  al.  v.  Portuguese  B. 
Assn.,  18  R.  I.  165,  41  Am.  &  E.  C.  C.  8;  but  see,  1891,  Hazeltou  Boiler  Co. 
v.  Hazelton  Tripod  Co.,  137  111.  231,  28  N.  K.  Rep.  248,  holding  that  rights  in 


824  ARMINGTON   V.    PALMER    ET   AL.  §  224 

a  corporate  name  are  not  a  franchise  within  the  meaning  of  statutes  relating 
to  jurisdiction  of  courts ;  1893,  Hygeia  Water  Ice  Co.  v.  N.  Y.  Hygeia  Water 
Ice  Co.,  140  N.  Y.94;  1899,  Aiello  v.  Montecalo,  21  R.  I.  496,44  Atl.  Rep.  931. 

2.  A  corporation,  unincorporated  association,  or  an  individual  who  has  ac- 
quired a  prior  right  to  a  name  used  as  a  trade-name  or  trade-mark  may  enjoin 
its  subsequent  appropriation  and  use  by  another  corporation,  association  or 
person  when  it  does  substantial  damage  to  the  plaintiff  or  misleads  the  pub- 
he:  1869,  Newbv  v.  Oregon  Cent.  R.  Co.,  Deadv  609,  Fed.  Cas.  10144,  s^ipra, 
p.  819;  1870,  Holmes,  Booth  &  Haydens  v.  Holmes  B.  &  A.,  37  Conn.  278,  9 
Am.  Rep.  324;  1877,  Singer  Machine  Co.  v.  Wilson,  3  App.  Cas.  376;  1878, 
Merchants'  Banking  Co.,  etc.,  v.  Mer.  J.  S.  Co.,  9  Ch.  Div.  560,  47  L.  J.  Ch. 
828;  1881,  Hendricks  v.  Montagu,  44  L.  T.  879,  50  L.  J.  Ch.  456,  17  Ch.  Dec. 
630;  1884,  Goodyear  Rubber  Co.  v.  Goodyear  Rubber  Mfg.  Co.,  21  Fed.  Rep. 
276,  reversed  128  U.  S.  598;  1885,  Drummond  Tobacco  Co.  v.  Rundle,  114  111. 
412,  10  Am.  &  E.  C.  C.  9;  1887,  Celluloid  Mfg.  Co.  v.  Cellonite  Mfg.  Co.,  32 
Fed.  Rep.  94;  1890,  Rendle  v.  J.  Edgcumbe  R.  Co.,  63  L.  T.  94;  1890,  Gate 
V.  EI.  Modello  Cigar  Mfg.  Co.,  25  Fla.  886,  6  L.  R.  A.  823 ;  1890,  Madame  Tus- 
saud  &  Sons  v.  Louis  Tussaud,  L.  R.  44  Ch.  Div.  678,  32  Am.  &  E.  C.  C.  11; 
1892,  Hazelton  Boiler  Co.  v.  Hazelton  T.  Co.,  142  111.  494,  37  Am.  &  E.  C.  C. 
7;  1892,  Vonderbank  v.  Schmidt,  44  La.  Ann.  264, 15  L.  R.  A.  462;  1892,  Fish 
Bros.  Wagon  Co.  v.  Fish,  82  Wis.  546,  16  L.  R.  A.  453 ;  1892,  Le  Ppge  Co.  v. 
Russia  Cement  Co.,  51  Fed.  Rep.  941,  17  L.  R.  A.  354;  1895,  Higgins  v.  Hig- 
gins  Soap  Co.,  144  N.  Y.  462,  27  L.  R.  A.  42;  1895,  Grand  Lodge  A.  O.  U.  W. 
V.  Graham,  96  Iowa  592,  31  L.  R.  A.  133;  1895,  Rogers  Co.  v.  Rogers  Mfg. 
Co.,  17  C.  C.  Ap.  579,  70  Fed.  Rep.  1017;  1895,  Elgin  Butter  Co.  v.  Elgin 
Creamery  Co.,  155  111.  127 ;  1896,  Snyder  Mfg.  Co.  v.  Snyder,  54  Ohio  St.  86, 
31  L.  R.  A.  657;  1896,  Investor  Pub.  Co.  v.  Dobinson,  72  Fed.  Rep.  603 ;  1897, 
Supreme  Lodge  K.  of  P.  v.  Imp.  Or.  K.  of  P.,  113  Mich.  133,  38  L.  R.  A.  658; 
1898,  Bingham  School  v.  Gray,  122  N.  C.  699,  41  L.  R.  A.  243;  1898,  Bristol 
Bank  &  T.  Co.  v.  Jonesboro  B.  &  T.  Co.,  101  Tenn.  545;  1898,  Reed  v.  Wil- 
mington S.  Co.,  1  Marvel  (Del.)  193,  40  Atl.  Rep.  955 ;  1898,  Walter  A.  Baker  & 
Co.  v.  Baker,  87  Fed.  Rep.  209;  1899,  St.  Patrick's  AlHance,  etc.,  v.  Byrne,  59 
N.  J.  Eq.  26,  44  Atl.  Rep.  716;  1899,  Red  Polled  Cattle  Club  v.  Red  Polled 
Cattle  Club,  108  Iowa  105,  78  N.  W.  Rep.  803;  1899,  Lamb  Knit  Goods  Co.  v. 
Lamb  G.,  etc.,  Co.,  120  Mich.  159,  44  L.  R.  A.  841,  78  N.  W.  Rep.  1072.  But 
compare,  1890,  Amer.  Order,  etc.,  v.  Merrill,  151  Mass.  558,  8  L.  R.  A.320; 

1891,  Internatl.  T.  Co.  v.  Int.  L.  &  T.  Co.,  153  Mass.  271,  10  L.  R.  A.  758. 

3.  A  sale  of  the  property  and  good-will  of  the  business  carries  with  it  the 
right  to  use  the  trade-name,  though  the  name  be  the  name  of  an  individual  or 
corporation:  1892,  Le  Page  Co.  v.  Russia  Cement  Co.,  51  Fed.  Rep.  941,  17  L. 
R.  A.  354;    1892,  Vonderbank  v.  Schmitt,  44  La.  Ann.  264,  15  L.  R.  A.  462; 

1892,  Fish  Bros.  v.  Fish,  82  Wis.  546, 16  L.  R.  A.  453;  1894,  Pillsburvv.  Pills- 
bury -Washburn  F.  M.  Co.,  12  C.  C.  App.  432,  64  Fed.  Rep.  841 ;  1895,  Higgins 
V.  Higgins  Soap  Co.,  144  N.  Y.  462,  27  L.  R.  A.  42;  1896,  Snyder  Mfg.  Co.  v. 
Snyder,  54  Ohio  St.  86,  31  L.  R.  A.  657;  1898,  Bingham  School  v.  Gray,  122  N. 
C.  699,  41  L.  R.  A.  243;  1898,  Walter  A.  Baker  v.  Baker,  87  Fed.  Rep.  209. 

4.  It  has,  however,  been  held  that  a  foreign  corporation  can  not  prevent  the 
use  of  a  corporate  name  afterward  selected  by  a  domestic  corporation :  1892, 
Hazelton  Boiler  Co.  v.  Hazelton,  T.  B.  Co.,  142  111.494;  1897,  People  v. 
Assurance  Co.,  Ill  Mich.  405.  But  see  contra,  1897,  Re  Bradley  Fertilizer  Co., 
19  Pa.  Co.  Ct.  271 ;  1899,  Red  Polled  Cattle  Club  v.  Red  Polled  Cattle  Club, 
108  Iowa  105,  78  N.  W.  Rep.  803. 

6.  But  no  exclusive  trade-name  rights  can  be  acquired  in  geographical  names, 
though  selected  bv  a  corporation  as  its  name:  1889,  Nebraska  L.  &  T.  Co.  v. 
Nine,  27  Neb.  507,  27  Am.  &  Eng.  C.  C.  374;  1893,  Columbia  Mill  Co.  v.  Alcorn, 
150  U.  S.  460;  1899,  Illinois  Watch  Case  Co.  v.  Elgin  N.  W.  Co.,  94  Fed.  Rep. 
667.  Butcompare  1899,  Waltham  Watch  Co.  v.  U.  S.  Watch  Co.,  173  Mass.  85, 
53  N.  E.  Rep.  141. 

6.  The  secretary  of  state  or  the  proper  registering  officer  has  discretionary 
power  to  refuse  to  register  a  company  that  chooses  a  name  closely  resembling 
one  already  in  use  by  another  corporation ;  and  this  discretion  is  not  to  be 


§  22  5  EFFECT    OF    MISNOMER.  825 

controlled  by  the  courts:  1887,  State  v.  McGrath,  92  Mo.  355,  17  Am.  &  Eng. 
C.  C.  191;  1889,  lure  U.  S.  Mer.  Rep.  Co.,  115  N.  Y.  176;  1892,  He  Waverly 
Ladies,  30  W.  N.  C.  257;  1892,  Illinois  Watch  C.  Co.  v.  Pearson,  140  111.  423, 
41  Am.  &  Eng.  C.  C.  11 ;  1896,  Altoona  Gas  Co.  v.  Gas  Co.,  17  Pa.  Co.  Ct.  662. 
Bat  if  the  corporation  applying  has  a  clear  prior  right  to  the  name  chosen, 
the  secretary  of  state  may  be  compelled  to  register  it.  1882,  State  v.  McGrath, 
75  Mo.  424;  "1900,  People  v.  Payn,  161  N.  Y.  229,  55  N.  E.  Rep.  849. 


Sec.  225.     Effect  of  misnomer. 

THE  MEDWAY  COTTON  MANUFACTORY  v.  ADAMS.* 

18 1 3.     In  the  Supreme  Judicial  Court  of  Massachusetts,     id 
Mass.  Rep.  *'^6o-*'^6^. 

Sewall,  J.  In  this  action  of  assumpsit  the  defendants  are  charged 
upon  a  note  made  by  them  with  an  averment  that  it  was  made  to  the 
plaintiffs,  by  the  name  of  Richardson^  Aletcalf  <&  Co.  To  this 
declaration  there  is  a  demurrer,  and  the  ground  taken  by  the  defend- 
ants is,  that  the  promise  expressed  in  the  note  declared  on  is  not 
recoverable  by  the  plaintiffs.      ♦     «     ♦ 

[It  was  argued  that  the  variance  was  not  obviated  by  the  averment 
that  the  promise  was  in  fact  made  to  the  plaintiffs  in  their  corporate 
capacity,  and  that  the  demurrer  was  no  confession  of  a  substantially 
deficient  averment.] 

But  the  declaration  is  not  liable  to  the  objections  which  have  been 
urged  against  it,  if  the  case  there  stated  is  provable  in  any  course  of 
evidence  competent  for  the  plaintiffs  to  produce  in  a  trial  upon  the 
general  issue.  For  then  the  variance  of  name  is  not  fatal  to  their 
demand ;  and  if  it  is  competent  for  the  plaintiffs  to  prove  the  allega- 
tions of  their  writ,  then  these  are  confessed  by  the  demurrer. 

A  variance  or  mistake  of  the  name  in  cases  of  existing  persons  is 
not  fatal  to  their  contracts  when  there  is  a  sufficient  description  of  the 
parties  whereby  they  may  be  known.  A  variance  of  the  name  sub- 
scribed from  the  name  of  the  defendant  does  not  prejudice,  if  it  be 
found  that  the  defendant  executed  the  deed,  although  the  name  should 
be  totally  different.^ 

A  grantee  or  person  entitled  by  a  conveyance  takes  solely  by  the 
deed,  and  is  therefore  to  be  named  or  described  w-ith  more  exactness 
than  is  required  in  naming  the  party  entitled  by  an  obligation  or  con- 
tract constituting  a  chose  in  action.  But  even  in  grants  and  convey- 
ances it  is  .sufficient  if  the  name  be  expressed  in  re  and  sensu^  al- 
though not  in  verbis.  And  in  all  cases  a  misnomer  may  be  aided  by 
a  verdict  or  an  averment,  ^ 

These  principles  are  noticed  and  relied  on  in  the  case  of  the  Mayor 
and  Burgesses  of  Lynn  Regis,*  the  case  of  misnomer  of  corporations 
reported  by  Lord  Coke,  and  which  was  cited  in  the  argument  for  the 
defendants.     In  that  case  the  defendant,  who  was  .sued  upon  a  bond 

*  Statement  abridged,  and  only  part  of  opinion  given,  arguments  omitted. 

*  Salk.  462;  Com.  Dig.  Fait.  B.  1  E.  3;  Grant.  A.  2;  Co.  Lit.  3;  2Rol.  42. 
8  Dyer,  279. 

MO  Co.  Rep.  120. 


826      MEDWAY  COTTON  MANUFACTORY  V.  ADAMS.     §  22$ 

given  to  the  corporation,  pleaded  non  est  factum^  and  relied  upon  a 
variance  in  the  bond  from  the  true  and  right  name  of  the  corporation. 
But  the  plaintiffs  had  judgment,  notwithstanding  the  fnisnojner. 

In  a  more  modern  case^  the  misnomer  of  a  corporation  was  con- 
sidered wMth  a  view  to  the  argument  which  has  been  urged  in  the  case 
at  bar,  that  a  corporation  is  a  creature  of  the  law,  having  no  essence 
but  what  is  derived  from  its  name.  In  an  action  for  tolls  which  ac- 
crued to  the  plaintiffs  in  their  corporate  capacity,  and  as  a  duty  to  the 
corporation,  the  corporate  name  of  the  plaintifis  was  mistaken;  and 
the  declaration  was  in  a  name  variant  from  the  name  given  them  in 
their  charter.  But  the  decision  was,  that  the  misnomer  was  not  to  be 
taken  advantage  of  at  the  trial  as  a  ground  of  nonsuit;  and  was  only 
pleadable  in  abatement,  as  in  the  case  of  an  existing  person. 

It  may  be  objected  that  the  variances  in  the  cases  cited  of  misnomer 
of  corporations  are  not  so  considerable  or  material  as  the  variance  is 
in  the  case  at  bar,  where  the  name  of  the  promisees,  as  it  is  expressed 
in  the  note,  is  totally  different  from  the  name  of  the  plaintiffs  in  their 
corporate  capacity.  The  inquiry,  however,  is  in  this  case,  as  it  was 
in  the  cases  of  misnomer  which  have  been  cited,  of  the  description  of 
the  promisees,  or  parties  in  the  note  or  contract  declared  on.  Does 
the  name  in  the  note  sufficiently  indicate  the  plaintiffs.''  Were  they 
known  by  it  as  the  promisees?  Now  this  depends,  in  part  at  least, 
upon  any  inquiry  of  facts  which  may  or  may  not  be  proved,  and 
which  may  be  provable  by  evidence  extraneous  to  the  note,  or,  for 
aught  that  appears,  the  note  itself  may  maintain  the  plaintiff's  aver- 
ment, that  it  was  made  to  them  by  the  name  therein  expressed.  In 
an  action  of  assumpsit  there  is  no  profert  of  the  writing  declared  on, 
and  this  is  not  like  a  demurrer  for  variance  as  in  a  case  of  oyer  of  a 
deed.  In  such  a  case,  a  different  construction  might  be  required  if 
there  were  no  averments  to  identify  the  plaintiffs  in  the  action  with 
the  description  given  of  them  in  their  deed. 

Upon  this  demurrer  we  have  only  to  determine  whether  the  decla- 
ration is  in  itself  absurd  and  repugnant  and  incapable  of  proof.  We 
think  it  is  not,  upon  the  authorities  respecting  misnomers  of  corpora- 
tions, or  upon  the  reason  of  the  thing.  The  declaration  is  adjudged 
good,  and  the  plaintiffs  are  to  have  judgment  to  recover  their  demand.* 

Note.    Effect  of  misnomer. 

1.  In  case  of  contracts ,  ^ra.nts  and  devises  misnomer  does  not  invalidate  if 
the  identity  of  the  corporation  can  be  established.  1809,  Inhabitants  of  Mid- 
dletown  v.  McOormick,  3  N.  J.  L.  (2  Penn.  *500)  92;  1816,  New  York  African 
See.  V.  Varick,  13  Johns.  38;  1820,  Berks  &  D.  T.  R.  v.  Myers,  6  Serg.  &  R. 
12,  9  Am.  Dec.  402;  1840,  Milford  &  C.  Turnp.  v.  Brush,  10  Ohio  111,  36  Am. 
Dec.  78;  1854,  Kentucky  Sem.  v.  Wallace,  15  B.  Mon.  (Ky.)  35;  1862,  Mount 
Palatine  Acad.  v.  Kleinschintz,  28  111.  133;  1867,  Commissioners  v.  Louisville 
Orphans'  Home,  3  Bush  (Ky.)  365;  1871,  Athearn  v.Ind.  Dist.  of  Millersburg, 
33  Iowa  105;  1873,  St.  Luke's,  etc.,  v.  Association,  52  N.  Y.  191 ;  1873,  Walrath 
V.  Campbell,  28  Mich.  Ill ;  1875,  Lefevre  v.  Lefevre,  59 N.  Y.  434 ;  1884,  Clement 
v.  Citv  of  Lathrop,  18  Fed.  Rep.  885;  1889,  Chilton  v.  Brooks,  71  Md.  445; 
1895,  Wooflrough  &  Hanchett  v.  Witte.  89  Wis.  537;  1899,  Precious  Blood 
Sec.  V.  Elsythe,  102  Tenn.  40,  50  S.  W.  Rep.  759. 

'  1  Bos.  &  Pul.,  40;  1  Chittv,  252;  3  Ans.,  935. 
»  See  2  Bos.  &  Pal.,  339,  Elliot  et  al.  v.  Davis. 


§  22  5  CHANGE   OF   NAME.  %2J 

But  in  England  it  is,  by  statute,  more  serious— leading  to  individual  liabil- 
ity of  the  corporate  ollicer  making  the  contract.  1858,  Penrose  v.  Martyr,  El. 
Bl.  «fe  El.  96  E.  C.  L  499;  1889,  Atkin  v.  Wardle,  61  L.  T.  23. 

2.  In  process. 

(a)  Issuing  summons  against  a  corporation  by  the  wrong  name  is  not  a 
valid  beginning  of  the  suit  against  the  corporation.  1835,  Bank  of  Virginia  v. 
Craig,  6  Leigli  (Va.)399;  1878,  Pennsylvania  Co.  v.  Sloan  1  111.  App.  364; 
1892,  South.  Pac.  Co.  v.  Block,  84  Texas  21. 

(6)  But  if  process  is  issued  against  the  corporation  in  the  wrong  name,  the 
mistake  can  be  corrected  by  amendment.     1809,  BuUard  v.  Nantucket  Bank, 

5  Muss.  99;  1832,  Burnhain  v.  Strafford  Co.  Sav.  Bank,  5  N.  H.  673;  1857, 
Lane  v.  Seaboard  &  R.  Co.,  56  N.  C.  25;  1860,  Edinboro  Acad.  v.  Robinson, 
37  Pa.  St.  210,  78  Am.  Dec.  421;  1860,  Keech  v.  B.  &  W.  R.  Co.,  17  Md.  32; 
1876,  Roberts  v.  Nat'l  Ice  Co.,  6  Daly  (N.  Y.)  426;  1885,  Thompson  v.  Allen, 
86  Mo.  85. 

(c)  So,  if  a  corporation  has  process  issued  for  it  in  a  wrong  name,  it  is 
ground  for  plea  in  abatement.  1842,  Beene  v.  Cahawba  &  M.  R.  Co.,  3  Ala. 
660.     See  infra,  under  pleadings. 

3.  In  pleadings. 

(a)  In  actions  against  a  corporation,  transposition  of  words  or  other  like, 
or  slight,  variations  are  not  material:  1809,  Bullard  v.  Nantucket  Bank,  5 
Mass.  99;  1814,  Sherman  v.  Conn.  B.  Co.,  11  Mass.  338;  1831.  Burnham  v. 
Stafford  Sav.  Bank,  5  N.  H.  446;  1864,  Board  of  Ed.  v.  Greenebaum,  39  111. 
610.     But  see  supra,  under  process  (a). 

(ft)  And  the  corporation  defendant  may,  by  appearance,  waive  what  would 
otlierwise  be  material  variations:  1842,  Stone  v.  Cong  Soc,  14  Vt.  86;  1875, 
Wilton  Town  Co.  v.  Humphrey,  15  Kan.  372;  1880,  Mobile  &  M.  R.  Co.  v. 
Yeates,  67  Ala.  164;  1886,  Young  v.  South  T.  I.  Co.,  85  Tenn.  189;  1887,  Bate 
Refrig.  Co.  v.  Gillett,  31  Fed.  Rep.  809. 

(c)  In  actions  by  the  corporation,  care  is  required  that  no  part  of  the  name 
be  omitted:  1867,  Bartlett  v.  Brickett,  96  Mass.  (14  Allen)  62;  1873,  Drum- 
heller  V.  First  U.  C,  etc.,  45  Ind.  275. 

(d)  But  slight  variations,  not  misleading  as  to  the  identity  of  the  corpora- 
tion plaintiff,  are  not  material:  1832,  Burnham  v.  Sav.  Bank,  5  N.  H.  573; 
1838,  Mechanics  &  T.  Bank  v.  Prescott,  12  La.  444;  1869,  Thatcher  v.  W.  R. 
N.  B..  19  Mich.  196;  1880,  State  v.  Bell  Tel.  Co.,  36  Ohio  St.  290.  38  Am.  Rep. 
683. 

(e)  Defendant  can  take  advantage  of  mistake  in  name  of  corporation  plaint- 
iff only  bv  plea  in  abatement:  1841,  Gray  v.  Monongahela  Nav.  Co.,  2  Watts 

6  S.  Co.  "(Pa.)  156,  37  Am.  D.  500;  1845,  Trustees  of  M.  E.  Church  v.  Tryon, 
1  Denio  (N.  Y.)  451;  1851,  Hanover  Sav.  F.  Soc.  v.  Suter,  1  Md.  602;  1869, 
Northumb.  Co.  Bank  v.  Ever,  60  Pa.  St.  436. 

(/)  As  to  effect  of  judgment  rendered  in  wrong  name,  see,  1856,  Lafayette 
Ins.  Co.  V.  French,  18  How.  (59  U.  S.)  404 ;  1878,  Lehman  D.  &  Co.  v.  Warner, 
61  Ala.  455;  1879,  Wilson  v.  Baker,  52  Iowa  423;  1880,  Brown  v.  T.  H.  &  I., 
etc.,  Co.,  72  Mo.  667. 


SeC-  226.     Change  of  corporate  name. 

CINCINNATI  COOPERAGE  COMPANY  v.  BATE.* 

1894.     In  the  Court  of  Appeals  of  Kentucky.     96  Ky.  Rep. 
356-361,  49  Am.  St.  Rep.  300. 

[The  cooperag^e  company  sued  Bate  upon  a  draft  accepted  by  the 
Gebhart  &  Bate  Brewing  Company.    The  facts  showed  that  originally 

*  Statement  greatly  abridged,  and  only  part  of  opinion  given.   (Cook  Corp., 
§  243,  thinks  this  decision  is  erroneous.) 


828  CINCINNATI   COOPERAGE   COMPANY   V.    BATE.  §  226 

the  New  Albany  Brewing  Company  was  organized  under  the  In- 
diana laws.  Afterwards  Gebhart,  Bate  and  another  acquired  all  the 
stock  of  this  company,  became  its  directors,  and  without  complying 
with  the  Indiana  statute,  changed  the  name  to  the  Gebhart  &  Bate 
Brewing  Company,  and  continued  to  do  business  in  that  name.  The 
plaintiff  coijtended  that  the  parties  thereby  became  liable  individually 
or  as  partners  and  the  superior  court  so  held.  On  appeal  to  the  Lou- 
isville law  and  equity  court  it  was  ruled  otherwise,  and  this  is  the 
error  assigned.] 

Hazelrigg,  J.  *  *  *  The  name  of  a  corporation  is  "the  very 
being  of  its  constitution,  the  knot  of  its  combination,  without  which 
it  could  not  perform  its  corporate  functions."  (Smith's  Mercantile 
Law,  3d  edition,  141.) 

"When  a  corporation  is  created  a  name  must  be  given  to  it,  and 
by  that  name  alone  must  it  sue  and  be  sued  and  do  all  legal  acts." 
(i  Blackstone's  Comm.  474.) 

"The  law  knows  a  corporation  only  by  its  corporate  name." 
(Walker's  American  Law,  9th  edition,  232.) 

"A  corporation  has  no  right  or  power  of  itself  to  change  or  alter 
the  name  originally  selected  by  it  without  recourse  to  such  formal 
proceedings  as  are  prescribed  by  law."  (Beach  on  Private  Corpora- 
tions, section  275.)  The  effect  of  such  change  of  name  is  an  abandon- 
ment not  only  of  the  corporate  name,  but  of  the  corporation  itself. 
The  identity  of  the  creature  authorized  by  the  statute  to  do  business 
is  destroyed.  It  is  in  no  sense  like  the  case  where  an  individual 
changes  his  name.  The  very  being  of  its  constitution  is  destroyed 
by  an  abandonment  of  its  name  and  an  attempted  substitution  of  a 
new  name  without  authority  of  law.  In  the  case  of  Fuller  v.  Rowe, 
57  N.  Y.  26,  it  was  said:  "Parties  assuming  to  act  in  a  corporate 
capacity  without  a  legal  organization  as  a  corporate  body  are  liable 
as  partners  to  those  with  whom  they  contract."  In  Robinson  v. 
Harris,  5  Ky.  Law  Rep.  928,  it  was  held  that  the  corporate  exist- 
ence of  associations  provided  for  in  chapter  56,  General  Statutes,  de- 
pends upon  and  begins  only  after  the  terms  of  the  law  are  substan- 
tially complied  with,  and  until  the  notice  required  by  section  5  has 
been  published,  the  association  has  no  right  to  begin  business  as  a 
corporation,  and  because  such  notice  had  not  been  published,  the 
members  were  held  liable  as  individuals.  We  concur  in  the  conclu- 
sions reached  by  the  superior  court  in  this  case,  that  "The  Gebhart 
&  Bate  Brewing  Company  had  no  right  to  do  business  as  a  corpora- 
tion until  the  members  had  complied  with  the  law.  Until  they  did 
so,  no  corporation  existed.  The  stockholders  were  merely  doing 
business  as  partners,  and  as  such  are  individually  liable  for  the  debts." 
Judgment  reversed  and  cause  remanded  for  proceedings  conforma- 
ble to  this  opinion. 

Note.    Chang-e  of  name. 

(fl)  Corporation  can  change  its  name  only  by  consent  of  the  state:  1847, 
Reginav.  Registrar,  10  Q.  B.  (Ad.  &  E.),  59  E.  C.  L.  839;  1884,  Goodyear 
Rubber  Co.  v.  Goodyear,  21  Fed.  Rep.  276;  1890,  Sykes  v.  People,  132  111.  32. 


§  226  CHANGE   OF   NAME.  829 

(6)  And  the  name  can  be  changed  only  by  consent  of  the  shareholders: 
1873,  Morris  v.  St.  Paul,  etc.,R.  Co.,  19  Minn.  528;  1879,  Anthonv  v.  Inter- 
national Bank,  93  111.  225;  1883,  Wells  v.  Oregon  R.  &  Nav.  Co.,  15  Fed.  Rep. 
561 ;  1899,  In  re  Societe  Francaise,  etc.,  123  Cal.  525. 

(c)  Such  a  change  made  by  the  legislature  is  an  amendment,  under  consti- 
tutional provisions  forbidding  special  acts:  1876.  Chicago  D.  &  M.v.  Keisel, 
43  Iowa  39;  1899,  In  re  La  Societe  Francaise,  123  Cal.  525-.  But  see,  1843, 
Doe  V.  Norton,  11  Mees.  &  W.  928;  1882,  Hazelett  v.  Butler  Univ.,  84  Ind. 
230. 

(d)  Such  change,  if  legal,  does  not  affect  the  rights,  duties  or  liabilities  of 
the  corporation:  1843, The  President,  etc.,  of  Ft.  Wayne  v.  Jackson,  7  Blackf. 
(Ind.)  36;  1852,  Trinity  Church  v.  Hall,  22  Conn.  125;  1857,  Hyatt  v. 
McMahon,  25  Barb.  (N.  Y.)  457;  1858,  Rosenthal  v.  Madison,  etc,  R.  Co.,  10 
Ind.  358;  1869,  Olney  v.  Harvey,  50  111.  453;  1875,  Dean  v.  La  Motte  Lead 
Co.,  59  Mo.  523;  1878,  Heckel  v.  Sanford,  40  N.  J.  L.  180;  1879,  Macon  &  A. 
R.  Co.  V.  Goldsmith,  62  Ga.  463;  1895,  McCloskey  v.  Doherty,  97  Ky.  300. 

(e)  Statutes  usually  provide  a  method  for  changing  the  corporate  name :  e. 
g.,  the  laws  of  Michigan  provide  that  any  corporation  "organized  under  the 
laws  of  this  state  may  amend  its  articles  of  association  by  a  vote  of  not  less 
than  two-thirds  in  interest  of  all  its  stockholders,  but  before  it  shall  com- 
mence any  business  under  its  amended  articles  the  said  corporation  shall 
cause  such  amendment  or  amendments,  subscribed  by  at  least  two-thirds  in 
interest  of  all  its  stockholders,  and  certified  by  its  president,  to  be  filed  or 
recorded,  as  the  case  may  be,  in  the  same  manner  as  is  provided  for  in  the 
original  articles  of  incorporation,  and  when  so  recorded,  such  amendment  or 
amendments  shall  become  a  part  of  the  articles  of  incorporation  of  such  com- 
pany."   Comp.  L.,  §  8583. 

When  a  corporation  having  the  right  to  change  its  name  has  done  all  the 
statute  requires,  the  secretary  of  state  may  be  compelled  by  mandamus  to  reg- 
ister the  change:  1897,  State  v.  Pritchett,  S.  I.  &  Lesueur,  141  Mo.  29;  1900, 
People  v.  Payn,  161  N.  Y.  229. 


Title  VI.     The  Corporate  Lipb. 

CHAPTER  10. 
THE  MODE  OF  CORPORATE  EXISTENCE  AND  ACTION. 

ARTICLE   I.       MODE    OF    EXISTENCE. 


Sec.  227.     Perpetual  succession. 

THE  STATE,  Ex  Eel.  WALKER,   Atty.-Gen'l,  v.   PAYNE.» 

1895.     In  THE  Supreme  Court   of  Missouri.     129   Mo.    Rep. 

468-482. 

l^-^uo  warranto  by  the  attorney-general  against  Payne  and  his  asso- 
ciates, charging  them  with  usurping  the  franchise  of  being  a  corpora- 
tion, after  the  term  of  corporate  existence  was  alleged  to  have  ex- 
pired.    The  defense  was  that  the  term  had  not  expired.] 

Macfarlane,  J.  *  *  *  The  only  question  presented  by  the 
pleadings  which  we  deem  it  necessary  to  discuss  is  whether,  under  the 
act  incorporating  the  Kansas  City  Gaslight  and  Coke  Company,  its 
corporate  rights  and  powers  ceased  at  the  expiration  of  thirty  years 
after  the  act  became  a  law.  The  question  is  one  of  vast  importance 
both  to  the  corporation  and  the  citizens  of  Kansas  City.  The  corpo- 
ration has  expended  and  now  has  invested  a  large  amount  of  money 
in  plants,  mains  and  other  property,  which  will  necessarily  be  much 
depreciated  in  value  should  the  property  go  into  the  hands  of  the 
stockholder  or  trustees  for  the  settlement  of  the  corporate  business. 
The  citizens,  and  city  itself,  have  also  great  interest  in  securing  ade- 
quate light  at  reasonable  rates.  These  considerations,  however,  can 
not  affect  the  legal  principles  involved. 

At  the  time  the  act  in  question  was  passed  the  general  law  of  the 
state  concerning  corporations  declared:  "Every  corporation,  as  such, 
has  power  to  have   succession  by  its  corporate  name  for  the  period 

*  Statement,  arguments  and  part  of  opinion  omitted.  Sufficient  facte  are 
stated  in  the  opinion  for  an  understanding  of  the  case. 

(830) 


§  226  PERPETUAL   SUCCESSION.  83  I 

limited  in  its  charter,  and  when  no  period  is  limited,  for  twenty  years." 
The  first  section  of  the  act  incorporating  the  said  gaslight  and  coke 
company  granted  to  it  "perpetual  succession."  The  second  section 
grants  to  the  corporation  the  "exclusive  right  and  power  of  manufac- 
turing gas  and  coke  from  any  substance  whatever  for  and  within  the 
city  of  Kansas,  Jackson  county,"  for  the  term  of  thirty  years. 

It  is  insisted  by  respondents  that  the  grant  of  "peipetual  succes- 
sion," without  other  limiting  words,  gave  to  the  corporation  the  right 
to  perpetual  existence,  and  that  the  limitation  of  thirty  years,  con- 
tained in  section  2,  was  not  intended  to  limit  the  duration  of  corporate 
existence,  but  of  the  exclusive  rights  specified.     «     «     * 

The  word  perpetual,  as  used  in  the  act,  expressly  qualifies  the  suc- 
cession and  not  the  duration  of  the  corporate  existence.  In  the  con- 
nection used,  does  it  imply  that  the  legislature  intended  to  grant  the 
corporation  unlimited  existence.''  The  word  itself  does  not  necessarily 
so  imply.  It  has  more  than  one  meaning,  as  "everlasting,"  "con- 
tinued," "uninterrupted."  All  lexicographers  give  these  or  equiva- 
lent words  as  proper  definitions  of  the  word  "perpetual." 

The  word  "succession,"  in  its  common  legal  use,  denotes  the 
devolution  of  title  to  property  under  the  laws  of  descent  and  distribu- 
tion. It  is  defined  as  "the  coming  in  of  another  to  take  the  property 
of  one  who  dies  without  disposing  of  it  by  will."  Title  to  corporate 
property  and  franchises  is  held  continuously  and  uninterruptedly  by 
and  in  the  name  of  the  corporation,  and  not  in  the  names  of  the  vari- 
ous stockholders.  There  is  no  devolution  of  title  in  case  of  the  death 
of  a  membter  or  stockholder.  The  succession  is  not  interrupted,  but 
continues  in  the  corporation.  The  succession  is  continuous  during  the 
life  of  the  corporation,  whether  it  be  for  years  or  for  an  unlimited 
time. 

Blackstone  says  that  the  very  end  of  a  corporation  is  "to  have  per- 
petual succession,"  "for  there  can  not  be  a  succession  forever  with- 
out an  incorporation."  i  Cooley's  Blk.  Com.,  475.  Chancellor 
Kent  says:  "A  corporation  is  a  franchise  possessed  by  one  or  more 
individuals,  who  subsist  as  a  body  politic  under  a  special  denomina- 
tion, *  *  *  with  the  capacity  of  perpetual  succession  and  of 
acting  in  several  respects,  however  numeious  the  association  may  be 
as  a  single  individual."     2  Kent's  Com.,  268. 

The  duration  of  a  corporation,  though  unlimited  by  its  charter,  and 
though  it  is  given  the  capacity  to  have  perpetual  succession,  can  not 
be  regarded  as  everlasting  within  the  general  and  common  meaning 
of  that  word.  It  may  be  dissolved  and  cease  to  exist  for  want  of 
members,  by  voluntary  surrender  of  franchises,  forfeiture  by  misuser, 
etc.     Ang.  &  Ames  Corp.  [11  ed.],  §  8. 

It  will  be  found,  by  reference  to  all  the  authorities,  that  a  grant  of 
capacity  to  take  in  "perpetual  succession"  refers  rather  to  the  con- 
tinued legal  identity  and  succession  than  to  continuous  or  perpetual 
succession,  i  Blk.  Com.,  supra;  2  Kent's  Com.,  supra ;  i  Dill. 
Munc.  Corp.,  §  18;  Dartmouth  College  Case,  4  Wheat.  636;  Field 
Corp.,  §§  I  and  71. 


832  STATE   V.    PAYNE.  §  22/ 

"The  immortality  of  a  corporation  means  only  its  capacity  to  take 
in  perpetual  succession  as  long  as  the  corporation  exists.  So  far  is  it 
from  being  literally  true '  that  a  corporation  is  immortal,  many  corpo- 
rations of  recent  creation  are  limited  in  their  duration  to  a  certain 
number  of  yeai's."     Ang.  &  Ames  Corp.,  §  8. 

Aggregate  corporations  are  "immortal,  because,  in  the  judgment 
of  law,  they  never  die,  yet  in  point  of  fact,  like  natural  persons,  they 
are  subject  to  death  and  dissolution  in  various  ways.  *  *  *  Its 
immortality,  therefore,  means  only  its  capacity  to  take  and  to  act  in 
perpectual  succession  so  long  as  the  corporation  exists."  Potter 
Corp.,  §  2. 

"When  it  is  said  that  corporations  have  perpetual  succession,  it  is 
meant  that  they  have  continuity  only  during  any  limited  period  of 
time  which  may  be  fixed  by  the  law  of  their  creation.  *  «  *  In 
the  proper  and  more  restricted  sense  the  immortality  of  a  corporation 
means  only  its  capacity  to  take  in  perpetual  succession  so  long  as  it 
exists.     Spelling  Priv.  Corp.,  §  4. 

Chancellor  Kent  says:  "It  is  sometimes  said  that  a  corporation  is 
an  immortal  as  well  as»ran  invisible  and  intangible  being.  But  the 
immortality  of  a  corporation  means  only  its  capacity  to  take  in  per- 
petual succession  so  long  as  the  corporation  exists."      2  Kent,  supra. 

Thus,  it  appears  that  the  words  "perpetual  succession"  as  used  in 
charters  generally  mean  nothing  more  than  that  the  corporation  should 
have  continuous  and  uninterrupted  succession  so  long  as  it  should  con- 
tinue to  exist  as  a  corporation,  and  are  not  intended  to  define  its  du- 
ration. If  no  limit  is  fixed  to  its  existence  then  it  would  have  an  in- 
definite or  unlimited  duration.     Morawetz  on  Corp.,  §  411. 

The  general  law  in  force  at  the  time  this  special  act  was  passed  de- 
clared that  every  corporation  should  have  the  capacity  of  succession 
by  its  corporate  name  for  the  period  limited  in  its  charter,  and  when 
no  period  was  limited,  for  twenty  years.     R.  S.  1855,  §  i,  p.  369. 

It  is  claimed  by  respondents  that  this  provision  of  the  general  law 
is  inconsistent  with  this  special  act  of  incoi-poration  and  was  ex- 
pressly repealed  by  the  ninth  section.  But  if,  as  we  have  seen  to  be 
the  case,  the  words  "perpetual  succession"  were  intended  to  imply 
nothing  more  than  a  continuous  succession  duinng  the  existence  of  the 
corporation,  then  there  is  no  inconsistency.  The  general  law  must  be 
read  into  and  made  a  part  of  the  special  act.  The  general, law  must  be 
taken  as  declaring  the  intent  of  the  legislature  in  respect  to  the  dura- 
tion of  the  corporation.  As  is  said:  "Statutes  granting  such  special 
privileges  are,  in  one  sense,  to  be  read  together  and  construed  in  con- 
formity with  general  statutes  laying  down  universal  rules  applicable 
to  the  class  of  corporations  to  which  the  one  claiming  under  the  spe- 
cial act  belongs."     Endlich  Interpretation  of  Statutes,  §  56. 

Reading  the  general  law  and  the  first  section  of  the  special  act  to- 
gether the  duration  of  the  corporate  existence  of  the  gaslight  company 
is  clearly  fixed  at  twenty  years.     It  does  not  seem  that  a  doubt  of  the 


§  228  MODE   OF   ACTION.  833 

legislative  intent  can  be  raised,  but  if  one  should  exist  it  must  be  re- 
solved against  the  corporation.     *     ♦     * 
Judgment  of  ouster. 

Note.  The  foregoing  case  is  contrary  to  1881,  State  ex  rel.  etc.,  v.  Stormont, 
24  Kan.  686,  which  is  distinguished,  and  also  to  1880,  Fairchild  v.  Masonic 
Hall  Assn.,  71  Mo.  526,  which  it  overrules.  It  also  seems  to  conflict  with 
1889,  State  v.  Ladies  of  the  Sacred  Heart,  99  Mo.  533,  which  is  not  mentioned 
in  the  case.  The  later  case  of  1897,  State,  etc.,  v.  Lesueur,  141  Mo.  29,  where 
the  language  used  was  "the  trusteeship  shall  be  perpetual,"  with  a  provision 
for  each  trustee  to  appoint  his  successor,  holds  that  "a  continuous  or  per- 
petual term"  of  existence  is  clearly  implied.  The  case  of  1878,  Scanlan  v. 
Crawshaw,  5  Mo.  App.  337,  is  in  accord  with  the  principal  case. 

In  case  the  duration  is  not  expressly  limited  in  some  way  the  corporation 
is  supposed  to  have  the  right  of  an  endless  existence,  if  it  is  not  guilty  of  mis- 
user or  non-user,  so  that  the  state  can  complain  of  a  forfeiture:  1841,  Van- 
derbilt  v.  E^le  I.  W.,  25  Wend.  (N.  Y.)  665;  1850,  Farmers'  L.  &  T.  Co.  v. 
Clowes,  3  N.  Y.  470;  1879,  East  Tenn.  Mfg.  Co.  v.  Gaskell,  70  Tenn.  (2  Lea) 
742;  1889,  State  v.  Ladies  of  the  Sacred  Heart,  99  Mo.  533;  1892,  Cronin 
V.  Potters'  Co-op.  Co.,  29  W.  L.  B.  (Ohio)  62;  1897,  State  v.  Lesueur,  141 
Mo.  29. 

Charter,  statutory  or  constitutional  provisions  usually  fix  the  period  of  ex- 
istence. Many  of  these  fix  the  Mmit  in  such  a  way  that  the  articles  of  associa- 
tion can  not  provide  for  a  longer  duration:  1876,  Atlantic  &  G.  R.  Co.  v. 
Allen,  15  Fla.  637;  1884,  People  v.  Cheeseman,  7  Colo.  376;  1890,  MarysvHle 
Inv.  Co.  V.  Munson,  44  Kan.  491. 

Some  statutes,  however,  fix  a  limit  only  in  case  the  articles  of  association 
do  not  name  a  limit.  See  the  Missouri  cases  cited  above,  and  1887,  Stead- 
man  V.  Merchants'  &  P.  Bank,  69  Tex.  50. 


ARTICLE    II.       MODE    OF    ACTION;     SHAREHOLDERS    AND    DIRECTORS. 

Sec.  228.     Shareholders'  meeting.' 

DUKE  v.  MARKHAM.« 

1890.     In  THE  Supreme  Court  of  North  Carolina.     105  N.  C. 
Rep.  131-138,   18  Am.  St.  Rep.  889. 

[Action  by  Duke  to  recover  from  Markham  certain  property  he 
had  taken  possession  of  as  the  property  of  a  corporation  by  virtue  of 
executions  in  his  hands.  Plaintiff  claimed  under  a  mortgage  by  the 
corporation  which  the  trial  judge  instructed  the  jury  was  valid.  The 
error  assigned  was  this  instruction  and  allowing  the  mortgage  to  be 
put  in  evidence.  The  secretary  of  the  corporation  testified  as  to  the 
execution  of  the  mortgage  as  follows:  "Before  this  mortgage  was 
executed   he  went   around    and   saw  the  stockholders   separately  in 

'  See  Ang.  &  Ames,  §§  487-514;  Beach,  §§  272-298:  Boone,  §§  62-6;  Clark, 
pp.  462-493;  Cook,  §  589,  et  seq.;  Elliott,  §§  463-493;  Morawetz,  §§  474-^, 
&41-7 ;  Taylor,  §§  184,  573-6 ;  I  Thompson,  §§  686-697 ;  II  Thompson,  §§  1900- 
1910;  III  Thompson,  §§3905-37;  V  Thompson,  §§  6176-6486;  VII  Thomp- 
son, §§  8451-90. 

'  Statement  abridged,  only  part  of  opinion  given. 

53— WiL.  Cases. 


834  DUKE   V.    MARKHAM.  §  228 

regard  to  executing  it ;  he  did  not  see  all  the  stockholders  or  directors, 
he  saw  a  majority  of  them ;  they  had  no  meeting,  but  each  one  he 
saw  authorized  him  to  execute  the  mortgage ;  the  plaintiff  requested 
the  president  and  two  stockholders  to  sign  the  mortgage ;  this  was 
done ;  Mr.  Duke  signed  the  note  for  $3,000,  and  witness  got  the 
money  from  the  Raleigh  National  Bank  ;  the  money  was  used  in  the 
business  of  the  corporation ;  he  said  nothing  more  to  the  stockholders 
or  directors ;  the  directors  were  stockholders  ;  the  note  has  never  been 
paid ;  it  sometimes  happened  that  we  could  not  get  a  meeting  of  the 
board  of  directors ;  they  did  not  attend  the  meetings  regularly ;  the 
mortgage  was  delivered  to  W.  Duke  immediately."] 

Clark,  j.  *  *  *  We  think  his  honor  erred  in  admitting  the 
mortgage  in  evidence  upon  such  probate,  and  likewise  in  instructing 
the  jury,  upon  the  proof  offered  by  plaintiff,  that  it  was  valid  as  to 
creditors  whom  defendant  represented  by  virtue  of  the  executions  in 
his  hands. 

In  Pierce  v.  New  Orleans  Building  Co. ,  9  La.  397,  it  is  held  that  the 
act  of  a  majority  of  the  stockholders,  expressed  elsewhere  than  at  a  meet- 
ing of  stockholders,  as  where  the  assent  of  each  one  is  given  separately 
and  at  different  times,  is  not  binding  on  the  corporation.  The  same 
is  true  of  a  meeting  of  which  notice  is  not  given.  Stow  v.  Wyse,  18 
Am.  Dec.  99^  and  notes ;  Cook  Stockholders,  §  594 ;  i  Potter  on  Cor- 
porations, §  336  and  notes. 

In  Leggett  v.  N.  J.  M.  &  B.  Co.,  i  Saxton  Ch.  541,  it  is  held  that 
a  corporation  is  only  bound  by  an  agent's  acts  when  within  the  scope 
of  his  authority,  and  that  a  president  and  cashier,  as  such,  can  not 
execute  a  mortgage  of  corporate  property  without  special  authority 
from  the  board  of  directors  or  the  stockholders,  and  that  the  proceeds 
of  a  mortgage  have  been  applied  to  the  use  of  the  corporation  in  pay- 
ing its  debts,  or  otherwise,  is  not  sufficient  to  render  the  mortgage 
binding  if  its  execution  was  not  properly  authorized. 

"The  members  of  a  corporation  can  not,  separately  and  individ- 
ually, give  their  consent  in  such  manner  as  to  bind  it  as  a  collective 
body,  for  in  such  case  it  is  not  the  body  that  acts,  and  this  is  no  less 
the  doctrine  of  the  common  than  of  the  Roman  civil  law.  Being 
lawfully  assembled ^^'  says  Ayliffe,  '"they  represent  but  one  person, 
and  may  consequently  make  contracts,  and  by  their  collective  assent, 
oblige  themselves  thereunto.  And  though  all  the  members  of  a  cor- 
poration covenanted  on  behalf  of  it  under  their  private  seals,"  this, 
it  was  held,  would  only  bind  them  personally^  and  not  the  corporation. 
Angell  &  Ames  Corp.,  §232,  which  is  supported  by  the  numerous 
cases  there  cited.  Again,  in  the  same  work,  section  504:  "The 
separate  action,  individually,  without  consultation,  although  a  major- 
ity in  number  should  agree  upon  a  certain  act,  would  not  be  the  act 
of  the  constituted  body  of  men  clothed  with  corporate  powers."  In- 
deed, the  authorities  upon  this  subject  are  numerous,  uncontradicted 
and  supported  by  reason.     *     «     * 

Error. 

*  Infra  p.  835. 


§  229  MODE    OF    ACTION.  835 

Note.  To  same  effect  see,  1820,  Livingston  v.  Lvnch,4  Johns.  Ch.(N.Y.)  573, 
597  ;  1836,  Pierce  v.  N.  O.  Building  Co.,  etc.,  9  La.  397,  29  Am.  Dec.  448;  1841, 
Shortz  V.  Unangst,  3  Watts  &  S.  (Pa.)  45;  1847,  Smith  v.  Hurd,  12  Mete. 
(Mass.)  371,  on3&5;  1850,  Commonwealth  v.  Cullen,  13  Pa.  St.  133,  »7/;)ra, 
p.  417;  1851,  Langolf  v.  Seiberlitch,  2  Pars.  Eq.  Cas.  64;  1854,  Ex  parte  John- 
son, 31  E.  L.  &  Eq.  430;  1861,  Torrey  v.  Baker,  83  Mass.  120;  1874,  Hopkins 
V.  Roseclare  Lead  Co.,  72  111.  373;  1876,  Finley  Shoe,  etc.,  Co.  v.  Kurtz,  84 
Mich.  89;  1877,  Clarke  v.  Omaha  &  S.  R.  Co.,  5  Neb.  314;  1886,  England  v. 
Dearborn,  141  Mass.  590;  1890,  Humphreys  v.  McKissock,  140  U.  S.  304,  312; 
1890,  Allemongv.  Simmons,  124  Ind.  199;  1898,  Sellers  v.  Greer,  172  111.  549, 
supra,  p.  65;  1898,  Troy  Min.  Co.  v.  White,  10  S.  Dak.  475;  1898,  Singer  v. 
Salt  Lake,  etc.,  Co.,  17  Utah  143;  1898,  Morrison  v.  Wilder  Gas.  Co.,  91  Maina 
492;  1899,  Nicholstone  City  Co.  v.  Smallev,  21  Tex.  Civ.  App.  210,  51  S.  W. 
Rep.  527 ;  1899,  De  La  Vergne  Co.  v.  Ger.  "Sav.  Inst.,  175  U.  S.  40,  on  53. 

But  compare  1870,  Granger  v.  Grubb,  7  Phil,  350;  1886,  Graham  v.  B.,  etc., 
R.,  118  U.  S.  161;  1892,  Coe  v.  East.,  etc.,  R.,  52  Fed.  Rep.  531;  1895,  In  re 
George  N.  &  Co.,  L.  R.  1  Ch.  674. 


Sec.  229.     Shareholders'  meetings — Notice. 
STOWE  Et  Al.  v.  WYSE.» 

1828.     In  the  Supreme  Court  of  Errors  of  Connecticut.     7 
Conn.  Rep.  214-220,  18  Am.  Dec.  99. 

This  was  an  action  of  trespass  quare  clausum  fregit^  tried  on  the 
general  issue  at  Middletown,  February  term,  1828,  before  Dag- 
gett, J. 

It  was  admitted  that  the  defendant  entered  on  the  premises  in  May, 
1825,  the  time  specified  in  the  declaration,  and  continued  in  the  pos- 
session and  occupation  thereof  until  the  commencement  of  this  suit, 
claiming  right  as  the  tenant  of  the  Middletown  Bank,  and  the  only 
question  was  whether  the  plaintiffs  had  title  to  the  land  or  whether  it 
was  in  the  Middletown  Bank.  The  title  of  the  bank  was  derived  from  a 
mortgage  deed  of  the  Middletown  Manufacturing  Company,  dated  the 
29th  of  March,  18 17,  to  the  bank.  The  title  of  the  plaintiffs  was  de- 
rived from  a  mortgage  deed,  executed  by  Arthur  W.  Magill,  some 
years  afterwards.  Magill's  title  was  acquired  by  the  regular  levy  of 
an  execution  in  his  favor  against  the  Middletown  Manufacturing  Com- 
pany subsequent  to  the  execution  of  the  deed  to  the  bank.  The  Mid- 
dletown Manufacturing  Company  were  the  undisputed  owners  of  the 
land  prior  to  and  until  their  deed  of  the  29th  of  March,  1817,  above 
mentioned.  That  deed  was  given  to  the  Middletown  Bank  by  Arthur 
W.  Magill  as  agent  for  the  Middletown  Manufacturing  Company.  It 
begins  thus:  "I,  Arthur  W.  Magill,  of  the  town  of  Middletown, 
agent  for  the  Middletown  Manufacturing  Company  of  said  town,  being 
empowered,  by  a  vote  of  said  company,  in  pursuance  of  said  power," 
etc.  [It  contained  the  usual  covenants  of  seizin  and  warranty  by 
Magill  on  behalf  of  the  company.  The  resolution  directing  the  con- 
veyance was  passed  at  a  meeting  at  which  the  holders  of  only  29  out 
of  1,000  shares  were  represented,  and  of  which  the  others  had  no 
notice.     Verdict  for  plaintiff.     Motion  for  new  trial.] 

'  Statement  abridged,  and  only  part  of  opinion  given. 


836  STEVENS    V.    EDEN   MEETING-HOUSE   SOCIETY.  §  2.3O 

Daggett,  J.  The  plaintiffs,  who  claim  under  A.  W.  Magill's 
deed  to  them,  allege  that  no  title  passed  by  the  deed  to  the  Middle- 
town  Bank ;  for  that  Magill  had  no  authority  to  bind  the  Middletown 
Manufacturing  Company  and  transfer  the  title.  The  deed  is  attempted 
to  be  supported,  or  rather  Magill's  power  is  to  make  it,  on  two  grounds. 
The  first  is  the  vote  of  the  Middletown  Manufacturing  Company, 
passed  on  the  29th  day  of  March,  1817,  the  day  of  the  execution  of 
the  deed,  by  which  he  was  authorized  to  make  a  mortgage  to  the  bank 
of  the  premises.  On  the  other  hand,  it  is  insisted  that  the  meeting 
was  illegal,  and  the  acts  done  void.  It  is  very  clear  that  a  meeting  of 
the  stockholders,  constituted  as  this  was,  could  do  no  acts  binding  on 
the  company.  Though  a  meeting,  regularly  warned,  would  be  com- 
petent to  do  any  act  within  their  chartered  powers  by  a  bare  major- 
ity, yet  if  not  thus  warned  their  act  must  be  void.  If  no  particular 
mode  of  notifying  the  stockholders  be  provided,  either  in  the  charter 
or  in  any  by-law,  yet  personal  notice  might  be  given ;  and  this,  in 
such  case,  would  be  indispensable.  The  counsel  for  the  defendant 
do  not  press  this  point,  and  I  think  it  quite  untenable.      *     *     * 

Another  position,  however,  is  taken  by  counsel  for  defendant 
which  is  fatal  to  the  plaintiff's  title.      *     *     * 

Now  Magill  has  declared  under  his  hand  and  seal  that  he  was  em- 
powered by  a  vote  of  the  company  to  execute  this  deed.  Can  he  ever 
say  that  he  was  not  thus  empowered  ?  If,  on  the  next  day  after  the 
deed  to  the  bank  was  executed,  he  had  procured  a  valid  deed  from 
the  company,  and  had  brought  ejectment  against  the  bank,  could  he 
have  sustained  it  against  the  declarations  in  his  deed  ?  I  think  he  must 
have  been  estopped.  If  so,  then  all  persons  claiming  under  and 
through  him  are  estopped,  i  Stark.  Ev.,  305;  Hoyt  v.  Dimon,  5 
Day  483;    I  Phill.  Ev.,  10. 

These  principles  are  in  entire  accordance  with  the  case  of  Fairtitle 
d.  Mytton  et  al.  v.  Gilbert  et  al.^  2  Term  Rep.  169,  171 ;  Palmer  v. 
Elkins,  2  Stra.  817;   Com.   Dig.,    tit.  Estoppel,  A,   i,   2,  3  and  B. 

There  must,  therefore,  be  a  new  trial. 

Note.    See  note  at  end  of  next  case. 


Sec.  230.    Same. 

STEVENS  V.  EDEN  MEETING-HOUSE  SOCIETY. 
1839.     In  the  Supreme  Court  of  Vermont.      12  Vt.  Rep.  688— 9. 

This  was  an  action  of  assumpsit  on  an  award.   Plea,  non-assumpsit. 

On  the  trial  the  plaintiff  produced  the  defendants'  book  of  records, 
which  showed  a  society  regularly  organized  under  the  statute  consti- 
tuting them  a  corporation.  The  by-laws  provided  that,  among  other 
officers,  a  clerk  or  secretary  should  be  chosen,  and  one  had  been 
regularly  elected.     The  by-laws  provided  that  all  meetings  were  to 


§  230  MODE    OF  ACTION.  837 

be  warned  by  the  clerk,  by  posting  up  a  written  notice  thereof.  This 
appears  to  have  been  clone  and  the  records  regularly  kept  up  to 
December,  1836.  The  plaintiff  then  offered  to  prove,  by  parol  testi- 
mony, that  said  society  continued  its  meetings,  that  the  persons  who 
joined  him  in  the  submission  were,  at  that  time,  and  at  the  publish- 
ing of  the  award,  the  prudential  committee  of  said  society,  and  that 
after  the  award  was  made  and  published,  said  society  voted  to 
approve  and  confirm  the  same.  This  was  objected  to  by  the  defend- 
ants and  was  rejected  by  the  court,  to  which  the  plaintiff  excepted. 
Verdict  and  judgment  having  passed  for  the  defendants,  the  cause 
passed  to  the  supreme  court. 

The  opinion  of  the  court  was  delivered  by 

CoLLAMER,  J.  A  corporation,  and  every  member  thereof,  is 
bound  by  a  vote  of  the  majority  present  at  a  meeting  warned  agree- 
ably to  the  laws  of  the  corporation,  and  not  otherwise.  If  no  provis- 
ion is  made  for  such  warning  every  member  must  have  personal 
notice.  Here  the  clerk  was  authorized  to  warn  a  meeting  by  posting 
up  a  written  notice.  No  other  mode  of  calling  a  meeting  could  be 
shown,  and  most  clearly  this  could  not  be  proved  by  parol  until  the 
loss  of  the  notification  was  first  proved,  but  this  was  not  attempted. 
Here  was  an  attempt  to  add  to  the  records  by  parol,  whole  warnings, 
meetings  and  votes.  This  is  clearly  inadmissible,  and  the  fact  that 
no  record  of  meetings  after  1836  appeared  on  the  books  does  not 
authorize  this.  The  want  of  such  record  only  shows  that  no  such 
meeting  was  held.  If  it  be  asked,  what  is  to  be  done  by  third  per- 
sons, if  a  corporation  will  not  record  its  appointments  and  votes,  the 
answer  is,  refuse  to  recognize  or  act  on  any  such  assumed  authority 
or  unrecorded  votes,  or  hold  them  personally  liable  who  misrepresent 
their  authority. 

Judgment  afiirmed. 

Note.    Notice  of  corporate  meeting's. 

1.  Notice  of  corporate  meetings  is  necessary  to  their  validity  and  the  va- 
lidity of  the  business  done  at  a  meeting  as  against  a  stockholder  who  had  no 
notice,  was  not  present,  and  who  objects  promptly:  1844,  Wiggin  v.  First 
Freewill  B.  Ch.,  8  Mete.  (49  Mass.)  301 ;  1850.  Commw.  v.  Cullen,  13  Pa.  St. 
133,  53  Am.  Dec.  450,  supra,  p.  417 ;  1852,  Stebbins  v.  Merritt,  10  Cush.  (Mass. ) 
27;  1871,  Westcott  v.  Minnesota  M.  Co.,  23  Mich.  145;  1876,  Shelby  R.  Co.  v. 
L.  C.  &  L.  R.  Co.,  12  Bush  (75  Kv.)  62;  1892,  Coe  v.  East  &  W.  R.  Co.,  52 
Fed.  Rep.  531;  1893.  Morrill  v.  Little  Falls  Mfg.  Co.,  53  Minn.  371,  21  L.  R. 
A.  174,  infra,  p.  839;  1898,  Wall  v.  London  &  N.  A.  Corp.,  79  L.  T.  (N.  S.) 
249,  67  L.  J.  Ch.  596;  1899,  Heller  v.  National  M.  Bank,  89  Md.  602,  46  L.  R. 
A.  438. 

2.  In  the  absence  of  charter,  by-law  or  statutory  provision,  personal  notice 
is  required:  1830,  Savings  Bank  v.  Davis,  8  Conn.  191;  1834,  Bethany  v. 
Sperry,  10  Conn.  200;  1841,  Evans  v.  Osgood,  18  Maine  213;  1844,  Wiggin  v. 
Freewill  B.  C,  8  Mete.  (Mass.)  301;  1860,  People  v.  Batchelor,  22  N.  Y.  128; 
1860,  People's  Ins.  Co.  v.  Westcott,  14  Gray  (Mass.)  440;  1870,  Harding  v. 
Vandewater,  40  Cal.  77. 

3.  But  statutory,  charter  or  by-law  provisions  should  be  followed:  1871, 
"Westcott  v.  Minn".  M.  Co.,  23  Mich.  145;  1876,  Stockholders,  etc.,  v.  Ix)nisville, 
etc.,  R.  Co.,  12  Bush  (Kv.)  62;  1877.  Tattle  v.  Mich.  Air  Line.  35  Mich.  247; 
1884,  Reilly  v.  Oglebay,' 25  W.  Va.  36;  1897,  Matthews  v.  Columbia  Nat'l 
Bank,  79  Fed.  Rep.  558. 


838  STEVENS    V.    EDEN    MEETING-HOUSE    SOCIETY.  §  230 

4.  However,  it  is  frequently  held  that  statutory,  charter  and  by-law  pro- 
visions relating  to  quorum,  notice  and  business  to  be  done  are  wholly  for  the 
benefit  of  the  shareholders  only,  and  if  they  do  not  complain  of  the  irregu- 
larity others  can  not:  1881,  Beecher  v.  Marquette  &  P.  R.  M.  Co.,  45  Mich. 
103;  1882,  Thomas  v.  Citizens',  etc.,  R.  Co.,  104  111.  462;  1889,  Manhattan 
Hardware  Co.  v.  Phalen,  128  Pa.  St.  110;  1890,  Wood  v.  Corry  Water-Works 
Co.,  44  Fed.  Rep.  146;  1892,  Nelson  v.  Hubbard,  96  Ala.  238,  17  L.  R.  A.  375; 
1896,  Atlantic  Trust  Co.  v.  The  Vigilancia,  73  Fed.  Rep.  452 ;  1898,  In  re  A.  A. 
Griffing  Iron  Co.,  63  N.  J.  L.  168,  41  Atl.  Rep.  931.  But  compare,  1885,  State  v. 
McGratli,  86  Mo.  239.  '  ' 

5.  If  the  time  of  holding  meetings  is  fixed  definitely  by  statute,  charter,  by- 
law or  custom,  no  further  notice  is  necessary,  unless  extraordinary  or  special 
business  is  to  be  done:  1839,  Warner  v.  Mower,  11  Vt.  385,  393;  1858,  Atlantic 
M.  F.  Ins.  Co.  V.  Sanders,  36  N.  H.  252,  269;  1878,  State  v.  Bonnell,  35  O.  S. 
10,  15;  1893,  Morrill  v.  Little  Falls  Mfg.  Co.,  53  Minn.  371,  infra,  p.  839;  1899, 
Heller  v.  National  Marine  Bank,  89  Md.  603,  45  L.  R.  A.  438. 

6.  Notice  should  be  definite  and  specific:  (a)  As  to  time — day  and  hour: 
1858,  Atlantic  M.  F.  Ins.  Co.  v.  Sanders,  36  N.  H.  252;  1860,  People  v.  Batch- 
elor,  22  N.  Y.  128;  1875,  San  Buenaventura,  etc.,  Co.  v.  Vassault,  50  Cal.  534; 
1876,  Shelby  R.  Co.  v.  L.,  C.  &  L.  R.  Co.,  12  Bush  (Kv.)  62. 

ib)  As  to  place:  1848,  Miller  v.  English,  21  N.  J.  L.317  ;  1856,  Jones  v.  Mil- 
ton &  R.  T.  R.  Co.,  7  Ind.  547;  1875,  San  Buenaventura,  etc.,  Co.  v.  Vassault, 

50  Cal.  534. 

(c)  As  to  business  to  he  done,  unless  the  meeting  is  a  stated  one  at  which  it 
is  understood  any  corporate  business  may  be  done:  1841,  Evans  v.  Osgood, 
18  Maine  (6  Shep.)  213;  1853,  Sampson  v.  Bowdoinham,  etc.,  Co.,  36  Maine 
78;  1860,  People  Mut.  Ins.  Co.  v.  Westcott,  14  Grav  (Mass.)  440;  1866,  Re 
Bridport  Old  Brewery  Co.,  L.  R.  2  Ch.  Div.  191 ;  1877,  Tuttle  v.  Michigan  Air 
Line,  35  Mich.  247;  1881,  Beecher  v.  Marquette  &  P.  R.  M.  Co.,  45  Mich.  103; 
1885,  American  Tube  Works  v.  Boston  Mach.  Co.,  139  Mass.  5;  1890,  Stutz  v. 
Handley,  41  Fed.  Rep.  531 ;  1892,  Evans  v.  Boston  Heating  Co.,  157  Mass.  37. 

7.  But  if  the  meeting  is  one  prescribed  by  the  charter,  by-law  or  statute,  at 
which  it  is  usual  to  transact  the  general  corporate  business,  the  notice  need 
not  specify  the  business  to  be  done:  1839,  Warner  v.  Mower,  11  Vt.  385;  1853, . 
Samson  v.  Bowdoinham,  etc.,  Co.,  36  Maine  78;  1858,  Atlantic  De  Laine  Co. 
V.  Mason,  5  R.  I.  463;  1891,  Chicago,  etc.,  R.  v.  Union  Pac.  R.,  47  Fed.  Rep. 
15;  1892,  Jones  v.  Concord  &  M.  R.,  67  N.  H.  234,  38  Atl.  Rep.  120;  1893,  Mor- 
rill V.  Little  Falls  Mfg.  Co.,  53  Minn.  371,  21  L.  R.  A.  174,  infra,  p.  839. 

8.  But  if  unusual  or  extraordinary  business  is  to  be  done  at  a  general  meet- 
ing, statutes  frequently  require  the  notice  to  specify  that  such  business  is  to 
be  done:  1892,  Jones  v.  Concord  &  M.  R.  Co.,  67  N.  H.  234;  1898,  Mutual 
Fire  Ins.  Co.  v.  Farquhar,  86  Md.  668. 

9.  If  the  meeting  is  called  to  do  specific  business  designated  in  the  notice, 
no  other  business  can  be  transacted  at  such  meeting  against  the  protest  of 
members,  or  bind  those  absent:  1839,  Warner  v.  Mower,  II  Vt.  385;  1841, 
Evans  v.  Osgood,  18  Maine  (6  Shep.)  213;  1860,  Peoples'  Mut.  Ins.  Co.  v. 
Westcott,  14  Gray  (Mass.)  440;  1898,  Wall  v.  London  &  N.  A.  Corp.,  79  L. 
T.  (N.  S.)  249,  67  L.  J.  Ch.  596.  But  see,  1892,  Evans  v.  Heating  Co.,  157 
Mass.  37. 

10.  However,  if  all  the  members  are  present  and  consent,  other  or  different 
business  may  be  transacted.  1809,  Rex  v.  Theodorick,  8  East  543;  1852,  Steb- 
binsv.  Merritt,  10  Cush.  (Mass.)  27;  1891,  Handley  v.  Stutz,  139  U.  S.  417; 
1892,  Nelson  v.  Hubbard,  96  Ala.  238;   1892,  Campbell  v.  Argenta,   etc.,  Co., 

51  Fed.  Rep.  1;  1895,  Bridgeport  Electric  Co.  v.  Meader,  72  Fed.  Rep.  115; 
1898,  In  re  A.  A.  Griffing  Iron  Co.,  63  N.  J.  L.  168,  41  Atl.  Rep.  931. 

11.  No  further  notice  is  necessary  of  an  adjourned  meeting,  or  the  business 
to  be  done  thereat,  than  the  record  of  the  resolution  adjourning  a  duly  called 
meeting  to  a  definite  time  and  place.  1897,  W^estern  Imp.  Co.  v.  Des  Moines 
M.  N.  Bank,  103  Iowa  455,  72  N.  W.  Rep.  657;  1897,  State  v.  Cronan,  23  Nev. 
437,  49  Pac.  Rep.  41.    But  if  the  time  to  which  the  meeting  is  adjourned  is  not 


§231  MODE   OF   ACTION.  839 

definitely  fixed  further  notice  must  be  given.    1888,  Thompson  v.  Williams, 
76  Cal.  153. 

12.  Notice  must  be  given  by  the  officer  having  anthoritv,  such  as  the  board 
of  directors  or  the  general  manager,  but  not  the  president  or  secretary  with- 
out special  authority.  1834,  Betheny  v.  Sperry,  10  Conn.  200;  1841,  Evans  v. 
Osgood,  18  Maine  213;  1852,  Stebbins  v.  Merritt,  10  Cnsh.  (Mass.)  27;  1872, 
Johnston  V.  Jones,  23  N.  J.  Eq.  216;  1875,  State  v.  PettineH,  10  Nev.  141 ;  1882, 
Toronto,  etc.,  Co.  v.  Blake,  2  Ont.  175;  1888,  Cassell  v.  Lexington,  etc.,  Co., 
10  Ky.  L.  Rep.  486,  9  S.  W.  Rep.  502,  701;  1896,  Dusenbury  v.  Ix)oker,  110 
Mich.  58.  67  N.  W.  Rep.  986. 

13.  Notice,  to  be  valid,  must  be  served  a  reasonable  time  before  the  meeting 
called  by  it.  1837,  lie  Long  Island  R.,  19  Wcntl.  37;  1878,  Covert  v.  Rogers, 
38  .Mich.  3H3;  1888,  Cassell  v.  Le.xington,  etc.,  Co.,  10  Kv.  L.  Rep.  486,  9  S. 
VV.  Rep.  502;  1893,  Brown  v.  Republicanj  etc..  Mines,  55  Fed.  Rep.  7. 


Sec.  231.      Quorum. 

MORRILL  V.  LITTLE  FALLS  MANUFACTURING  CO.* 

1893.     In  the  Supreme  Court  of  Minnesota.     53  Minn.  Rep. 
371-380,  55  N.  W.  Rep.  547. 

[Action  to  determine  title  to  land,  claimed  to  belong  to  the  plaintiff, 
but  in  which  the  "company  claimed  some  interest.  The  corporation 
had  originally  owned  the  lands,  but  in  1864  it  had  become  hopelessly 
insolvent,  abandoned  its  business,  and  its  organization  became  prac- 
tically defunct.  No  effort  to  revive  it  was  made  by  any  of  the  share- 
holders until  1881,  a  period  of  seventeen  years.  In  the  meantime 
plaintiff  had  attempted  to  acquire  title  to  its  lands  through  tax  titles. 
In  1881,  at  plaintiff's  suggestion,  one  Thayer,  a  shareholder,  for  him- 
self and  as  proxy  for  certain  other  shareholders,  went  to  the  place, 
and  at  the  time  fixed  by  the  by-laws  for  holding  the  annual  meeting  of 
the  company,  and  being  the  only  person  present,  cast  the  votes  of 
himself  and  those  for  whom  he  held  proxies  for  a  board  of  directors, 
to  each  of  whom  he  transferred  one  share  of  stock.  The  same  thing 
was  done  by  another  shareholder  at  the  proper  time  and  place  in  1882. 
During  these  years  Thayer  was  elected  and  acted  as  president  of  the 
company,  and  in  1882  he  and  the  secretary  under  proper  directions 
conveyed  the  land  in  question  to  persons  from  whom  the  plaintiff 
traces  title.  The  decision  below  was  for  the  plaintiff,  and  the  de- 
fendant company  appealed.] 

Mitchell,  J.  *  *  *  As  affecting  the  validity  of  the  deeds 
executed  in  1882,  in  behalf  of  the  corporation,  by  Thayer  as  presi- 
dent, the  appellants  assail  the  finding  of  the  court  as  to  the  election 
of  directors  in  Augl^st,  1881.  The  grounds  of  objection  arc:  Firsts 
that  no  notice  was  given  of  the  meeting,  and,  second^  that  it  required 
a  majority  of  the  shares  of  stock  to  constitute  a  quorum  to  hold  a 
meeting,  or,  in  any  event,  that  one  person  could  not  hold  a  meeting, 
that  at  least  two  persons  are  necessary  to  constitute  a  corporate 
meeting. 
*  Statement  abridged.    Only  part  of  opinion  given. 


840       MORRILL   V.    LITTLE    FALLS    MANUFACTURING   CO.        §231 

As  to  the  first  point  all  that  is  necessary  to  say  is  that  the  by-laws 
fixed  the  time  and  place  of  holding  the  meeting,  and  neither  the  char- 
ter nor  the  by-laws  required  any  notice  to  be  given.  Under  such  cir- 
cumstances, the  rule  is  that  the  by-laws  themselves  are  sufficient 
notice  to  all  the  stockholders,  and  no  further  notice  is  necessary,  i 
Mor.  Priv.  Corp.,  §  479. 

The  second  objection  is  equally  untenable.  Where  the  charter 
and  by-laws  of  a  corporation  are  silent  on  the  subject,  the  common- 
law  rule  is  that  such  of  the  shareholders  as  actually  assemble  at  a 
properly  convened  meeting,  although  a  minority  of  the  whole  num- 
ber and  representing  only  a  minority  of  the  stock,  constitute  a  quorum 
for  the  transaction  of  business,  and  may  express  the  corporate  will, 
and  the  body  will  be  bound  by  their  acts.  Cook  Stock  &  S.,  §§  607, 
623;  2  Kent  Comm.,  293;  Mor.  Priv.  Corp.,  §476;  Craig  v.  First 
Presbyterian  Church,  88  Pa.  St.  42;  Rex  v.  Varlo,  Cowp.  248; 
Columbia  Bottom  Levee  Co.  v.  Meier,  39  Mo.  53;  Ex  parte  Will- 
cocks,  7  Cow.  402;  Field  v.  Field,  9  Wend.  395. 

The  contention  of  the  appellants  that  this  rule  applies  only  to  such 
organizations  as  towns,  churches  and  the  like,  and  not  to  stock  corpo- 
rations, finds  no  support  either  in  reason  or  authority.  The  correct 
distinction  is  between  a  corporate  act  to  be  done  by  a  select  body  of 
a  definite  number,  as,  for  example,  a  board  of  directors  or  trustees, 
and  one  to  be  performed  by  the  constituent  members  of  the  corpora- 
tion. In  the  latter  case  a  majority  of  those  who  appear  may  act. 
This  distinction  is  clearly  made  in  several  of  the  cases  above  cited, 
and  also  in  the  leading  case  of  Rex  v.  Bellringer,  4  Term  R.  810. 
As  was  said  by  Lord  Mansfield  in  Rex  v.  Varlo,  supra:  "It  is  in 
the  nature  of  all  corporations  to  do  corporate  acts ;  and,  when  the 
power  of  doing  them  is  not  specially  delegated  to  a  particular  num- 
ber, the  general  mode  is  for  the  members  to  meet  on  the  charter  days, 
and  the  major  part  who  are  present  to  do  the  act.  But  when  there  is 
a  select  body  it  is  a  different  thing,  for  then  it  is  a  special  appoint- 
ment." And,  this  being  so,  it  is  immaterial  whether  the  number 
present  is  only  one  or  more  than  one.  It  was  held  in  Sharpev.  Dawes, 
46  Law  J.  Q.  B.  104,  followed  reluctantly  in  another  case,  that  one 
person  can  not  constitute  a  quorum;  that  at  least  two  persons  are  nec- 
essary to  hold  a  corporate  meeting ;  but  this  decision  is  based  upon  a 
narrow  lexicographical  definition  of  the  word  "meeting,"  as  the  com- 
ing together  of  two  or  more  persons — a  reason  that  does  not  commend 
itself  to  our  judgment. 

Therefore,  in  our  opinion,  the  court  was  justified  in  holding  that 
the  election  of  directors  in  1881  was  regular;  and  it  follows  that  the 
deeds  executed  in  1882  by  Thayer,  the  president  elected  by  them, 
were  the  deeds  of  the  corporation.     *     *     * 

Reversed  upon  another  point. 

Note.    Quorum. 

1.  If  all  of  an  indefinite  number  of  shareholders  are  duly  notified  to  meet, 
those  who  assemble  constitute  a  quorum,  unless  there  are  statutory,  charter,  or 
by-law  provisions  otherwise:   1775,  Rex  v.  Varlo,  Cowp.  248;  1827,  Ex  parte 


§  232  MODE   OF   ACTION.  84 1 

Willcocks,  7  Cow.  (N.  Y.)  402,  17  Am.  D.  525;  1832,  Field  v.  Field,  9  Wend. 
394;  1856,  People  v.  Walker,  2  Abb.  Pr.  425,  23  Barb.  (N.  Y.)  304;  1866,  Co- 
lumbia Bottom  L.  Co.  V.  Meier,  39  Mo.  53;  1866,  Madison  Ave.  B.  Ch.  v. 
Baptist  Ch.,  etc.,  5  Robt.  (N.  Y.)  649;  18(57,  Brown  v.  Pacific  Mail  S.S.  Co.,  5 
Blatch.  525;  1878,  Craig  v.  First  Pres.  Ch.,  88  Pa.  St.  42,  32  Am.  Rep.  417; 
1885,  State  v.  Chute,  34  Minn.  135.     See  note  in  7  Eng.  Rul.  Cases,  pp.  350-3. 

2.  A  majority  of  a  body  composed  of  a  definite  number  of  members  must 
be  present  to  constitute  a  quorum:  1693,  Hascard  v.  Somanv,  Freem.  K.  B. 
504;  7  Eng.  Rul.  Cas.  333;  1792,  Rex  v.  Bellringer,  4  T.  R.  810;  1823,  Rex  v. 
Devonshire,  1  Barn.  &  C.  609  (8  Eng.  C.  L.) 

3.  Statute,  charter  or  by-laws  frequently  require  a  certain  number  of  mem- 
bers, or  a  certain  number  of  shares,  to  be  represented  to  constitute  a  quorum ; 
if  so,  this  number  must  continue  to  be  present  during  the  meeting:  1827,  Ex 
parte  Roeer.s,  7  Cow.  (N.  Y.)  526,  530,  note;  1898,  Rutherford  B.  S.  &  C.  Elec. 
Co.  V.  Franklin,  57  N.  J.  Eq.  42,  41  Atl.  Rep.  488,  s.  c.  43  Atl.  Rep.  1098. 

4.  The  shares  outstanding,  and  not  the  authorized  but  unissued  or  unsub- 
scribed shares,  are  the  ones  counted  where  the  quorum  is  to  consist  of  a  "ma- 
jority of  shares":  1846,  Green  v.  Seymour,  3  Sandf.  Ch.  285;  1897,  In  re 
Election  of  Directors,  etc.,  19  Miscl.  (N.  Y.)  409;  1898,  Castner  v.  Twitchell- 
Champlin  Co.,  91  Maine  524, 40  Atl.  Rep.  558.  But  see,  1887,  Ellsworth  Woolen 
Mfg.  Co.  v.  Faunce,  79  Maine  440. 

5.  In  the  absence  of  evidence  to  the  contrary,  a  quorum  will  be  presumed 
to  have  been  present  at  a  corporate  meeting:  1817,  Commw.  v.  Woelper,  3 
Serg.  &  R.  29,  8  Am.  Dec.  628;  1847,  Sargent  v.  Webster,  13  Mete.  (Mass.) 
497;  1864,  Citizens'  M.  F.  Ins.  Co.  v.  Sortwell,  8  Allen  (Mass.)  217. 

6.  The  English  courts  hold  contrary  to  the  case  above  upon  the  right  of  one 
man  with  proxies  to  hold  a  meeting:  1876,  Sharpe  v.  Dawes,  47  L.  J.  Q. 
B.  104.  Compare  also,  1874,  Hopkins  v.  Roseclare  L.  Co.,  72  111.  373;  1886, 
England  v.  Dearborn,  141  Mass.  690. 


Sec.  232.     Place  of  meeting. 

MILLER  v.  EWER.» 

1847.     ^^  "^"^  Supreme  Judicial  Court  of  Maine.     27  Maine 
Rep.  509—525,  46  Am.  Dec.  619. 

[Writ  of  entry  to  recover  land.  Demandants  derive  title  from  the 
Bluehill  Granite  Company,  through  a  mortgage  purporting  to  be 
executed  bv  the  president  and  secretary  of  that  company.  To  prove 
authority  of  these  officers,  the  charter  granted  by  the  state  of  Maine, 
and  the  corporate  records  were  introduced  in  evidence.  The  records 
showed  "that  a  meeting  of  the  corporators  was  called  for  the  organ- 
ization of  the  corporation  under  the  charter  in  the  city  of  New  York, 
and  that  the  charter  was  there  accepted  and  directors,  president  and 
secretary  chosen.  The  directors  by  meeting  held  in  New  \  ork  City 
organized  and  authorized  the  president  and  secretary  to  execute  the 
mortgage.  There  was  no  proof  of  any  meeting  for  the  organization 
of  the  company  or  any  election  of  officers  being  held  in  Maine  or 
that  it  had  ever  transacted  business  there,  except  by  a  person  acting 
as  its  agent  there.] 

Shepi.ey,  J.  ♦  ♦  »  The  demandants  must  recover  upon  the 
strength  of  their  own  title,  not  because  the  tenant  does  not  exhibit  a 

*  Statement  abridged.    Arguments  and  part  of  opinion  omitted. 


842  MILLER   V.    EWER.  §  232 

legal  title ;  and  their  right  to  recover  will  depend  upon  a  decision  of 
the  question  whether  the  corporation  has  authorized  any  board  of 
directors  or  other  persons  to  make  that  conveyance  of  its  estate. 

There  is  a  variety  of  corporations.  It  will  only  be  necessarv,  on 
this  occasion,  to  speak  of  one  class  of  them,  corporations  aggregate, 
composed  of  natural  persons.  It  is  often  stated  in  books  that  such  a 
corporation  is  created  by  its  charter.  This  is  not  precisely  correct. 
The  charter  only  confers  the  power  of  life,  or  the  right  to  come  into 
existence,  and  provides  the  instruments  by  which  it  may  become  an  ar- 
tificial being,  or  acting  entity.  Such  a  corporation  has  been  well  de- 
fined to  be  an  artificial  being,  invisible,  intangible  and  existing  only  in 
contemplation  of  law.  The  instruments  provided  to  bring  the  artifi- 
cial being  into  life  and  active  operation  are  the  persons  named  in 
charter,  and  those  who,  by  virtue  of  its  provisions,  mav  become  asso- 
ciated with  them.  Those  persons  or  corporators,  as  natural  per- 
sons, have  no  such  power.  The  charter  confers  upon  them  a  new 
faculty  for  this  purpose  ;  a  faculty  which  they  can  have  only  by  virtue  of 
the  law  which  confers  it.  That  law  is  inoperative  beyond  the  bounds 
of  the  legislative  power  by  which  it  is  enacted.  As  the  corporate 
faculty  can  not  accompany  the  natural  persons  beyond  the  bounds  of 
the  sovereignty,  which  confers  it,  they  can  not  possess  or  exercise  it 
there.  Can  have  no  more  power  there  to  make  the  artificial  being  act, 
than  other  persons  not  named  or  associated  as  corporators.  Any  at- 
tempt to  exercise  such  a  faculty  there  is  merely  an  usurpation  of  au- 
thority by  persons  destitute  of  it,  and  acting  without  any  legal  capac- 
ity to  act  in  that  manner.  It  folloivs  that  all  votes  and  proceedi?igs 
of  persons  professingto  act  in  the  capacity  of  corporators  ^  when  as- 
sembled "juithout  the  bounds  of  the  sovereignty  granting  the  charter ^ 
■  are  -wholly  void. 

This  is  a  familiar  principle  when  applied  in  analogous  cases  to  per- 
sons upon  whom  the  law  has  conferred  some  power  or  faculty  which, 
as  natural  persons,  they  do  not  possess. 

The  power  conferred  by  law  upon  executors  and  administrators 
can  not  accompany  their  persons  beyond  the  bounds  of  the  sover- 
eignty which  has  conferred  it.  Story  has  collected  numerous  cases 
in  note  under  section  512,  in  his  treatise  upon  the  Conflict  of  Laws, 
proving  the  doctrine  to  be  established  both  in  England  and  in  this 
countiy. 

The  same  doctrine  prevails  respecting  the  powers  of  guardians. 
Williams  v.  Storrs,  6  Johns.  Chan.  357. 

The  same  doctrine  generally  prevails  in  this^country,  while  it  does 
not  in  England,  respecting  the  powers  of  assignees  under  bankrupt 
and  insolvent  laws.  The  doctrine  is  stated  and  discussed  and  the 
cases  are  collected  by  Story  in  his  treatise  on  the  Conflict  of  Laws, 
ch.  9.  §§  405  to  417. 

If  the  artificial  being  called  the  Bluehill  Granite  Company  may  be 
considered  as  having  existence  and  active  life  in  this  state,  by  proof 
of  its  acts  within  her  limits,  it  will  be  still  true  that  it  can  not  have 
existence  without  her  limits,  and  of   course    can  not   make    choice  of 


§  232  MODE   OF   ACTION.  843    ' 

any  officers  or  agents  there.  It  may  maintain  a  suit  without  those 
limits,  but  that  does  not  imply  its  existence  or  presence  there.  It  may 
also  contract  without  those  limits.  Being  within  them  it  may,  acting 
per  se,  by  vote  transmitted  elsewhere,  propose  a  contract  or  accept 
one  previously  offered.  And  it  may,  by  an  agent  or  agents  duly  con- 
stituted, act  and  contract  beyond  those  limits.  But  it  can  neither  ex- 
ist nor  Sict  per  se  without  them,  except  by  the  assistance  of  its  officers 
or  agents  duly  elected  or  appointed  within  them. 

The  constitution  and  powers  of  such  corporations  were  perhaps 
more  thoroughly  discussed  and  fully  considered  than  ever  before,  by 
any  judicial  tribunal,  in  the  case  of  the  Bank  of  Augusta  v.  Earle,  13 
Peters  519.  C.  J.  Taney,  delivering  the  opinion  of  the  court,  says: 
"It  is  very  true  that  a  corporation  can  have  no  legal  existence  out  of 
the  boundaries  of  the  sovereignty  by  which  it  is  created.  It  exists 
only  in  contemplation  of  law;  and  where  that  law  ceases  to  operate 
and  is  no  longer  obligatory,  the  corporation  can  have  no  existence.  It 
must  dwell  in  the  place  of  its  creation  and  can  not  migrate  to  another 
sovereignty." 

The  cases  of  McCall  v.  The  Byram  Manufacturing. Co.,  6  Conn. 
Rep.  428,  and  of  Copp  v.  Lamb,  3  Fairf.  314,  are  relied  upon  as  de- 
ciding that  corporations  whose  charters  were  granted  by  one  state 
could  hold  meetings,  pass  votes  and  exercise  powers  in  another  st^ate. 

The  question  presented  in  the  former  case  was  whether  the  secre- 
tary of  a  corporation  was  legally  appointed  by  the  directors  of  a  meet- 
ing held  by  them  in  the  city  of  New  York.  The  charter  had  been 
granted  by  the  state  of  Connecticut.  The  decision  was  in  the  affirm- 
ative. 

The  directors  of  a  corporation  are  not  a  corporate  body,  are,  when 
acting  as  a  board,  but  a  board  of  officers  or  agents,  and  they  may  ex- 
ercise their  powers  as  agents  beyond  the  bounds  where  the  corpora- 
tion exists.  It  did,  indeed,  appear  in  that  case  that  all  the  meetings 
of  the  stockholders  and  of  the  directors  were  holden  in  the  city  of 
New  York,  but  the  capacity  of  the  stockholders  to  act  there  does  not 
appear  to  have  been  examined  or  discussed. 

In  the  case  of  Copp  v.  Lamb  the  court  did  not  enter  upon  an  exam- 
ination of  the  question  whether  the  proprietors  of  common  and  undi- 
vided lands  had,  by  virtue  of  an  act  passed  by  the  commonwealth  of 
.  Massachusetts,  power  to  organize  and  act  as  a  corporation  in  another 
state.     *     «     * 

That  clause  in  the  charter  of  the  Bluehill  Granite  Company  which 
authorizes  two  persons  named  to  call  the  first  meeting  of  the  com- 
pany at  such  time  and  place  as  they  may  think  proper  can  not  receive 
such  a  construction  as  would  authorize  them  to  call  the  meeting  at  a 
place  without  the  limits  of  this  state.  Legislative  bodies  do  not 
usually  in  their  acts  of  legislation  use  language  to  limit  their  opera- 
tion, but  use  general  language,  and  the  limitation  is  implied  and  in- 
ferred from  the  extent  of  the  legislative  power.  The  language  used 
in  that  charter  does  not  require  any  other  construction  or  authorize  the 


844       THE   MISSOURI     LEAD   M.    &    S.    CO.    V.    REINHARD.       §233 

conclusion  that  it  was  the  intention  to  authorize  that  meeting  to  be 
held  without  the  limits  of  the  sovereignty,      *     *     * 

Whether  the  statute  provisions  of  this  state  and  the  intention  of  the 
legislative  power,  or  the  genei^al  rules  of  law  respecting  corporations, 
be  examined,  the  conclusion  must  be  the  same,  that  this  corporation 
could  hold  no  meeting  for  the  election  of  its  officers  or  for  the  regula- 
tion of  its  affairs  without  the  limits  of  this  state.  That  all  such  meet- 
ings and  proceedings  were  without  right  or  authority  and  wholly 
void. 

If  there  were  no  directors  de  jure^  were  there  any  de  facto  having 
authoritv  to  convey  the  estate  of  the  corporation  p     *     *      * 

When  a  corporation  has  held  certain  persons  out  to  the  public  as 
its  directors  or  officers,  those  dealing  with  them  as  such  and  ignorant 
of  their  want  of  legal  power  will  be  entitled  to  consider  their  acts  as 
binding  upon  the  corporation.  And  when  there  has  been  an  informal 
or  irregular  exercise  of  an  existing  power  of  election,  the  officers  so 
elected,  until  removed,  are  regarded  as  officers  de  facto,  and  their  acts 
are  obligatory  upon  the  corporation.     • 

But  when  the  corporators  have  no  power  at  all  to  proceed  to  an 
election,  and  when  the  officers  must  be  considered  as  assuming  to  be 
such  without  any  election,  their  acts  can  not  be  binding  upon  the 
corporation  unless  the  corporation  has  held  them  out  in  the  manner 
before  stated  to  be  its  officers.      *     *     * 

(The  facts  showed  that  demandants  traced  their  title  directly  through 
deeds  from  parties  having  knowledge  of  and  participating  in  the 
organization  proceedings.) 

Demandants  nonsuit. 

See  note  at  end  of  Graham  v.  Railroad  Co.,  infra,  p.  847. 


Sec.  233.    Same. 

THE  MISSOURI  LEAD  M.  &  S.  CO.  v.  REINHARD.* 

1893.     In  the  Supreme  Court  of  Missouri.      114  Mo.  Rep.  218- 
232,  35  Am.  St.  Rep.  746. 

[Suit  to  quiet  title  to  lands.  The  plaintiff,  the  lead  company,  was 
organized  in  England.  In  1880  it  purchased  certain  mining  lands  in 
Missouri,  formerly  owned  by  a  company  organized  in  Missouri;  this 
company,  having  become  financially  embarrassed,  its  members,  consist- 
ing of  only  three  persons,  one  residing  in  St.  Louis  and  the  other  two  in 
London,  England,  held  a  meeting  in  London,  England,  and  there  or- 
ganized the  plaintiff  company.  While  there  they  held  a  meeting  of 
the  Missouri  company,  selected  themselves  as  directors,  elected  a 
president   and    empowered    him   to   convey  the  mining  lands   to  the 

*  StatenVent  abridged,  arguments  and  much  of  the  opinion  omitted.  See 
note  at  end  of  next  case. 


§  233  MODE   OF   ACTION.  84$ 

plaintiff.  This  was  done.  One  M.  had,  in  1877,  begun  suit  against 
the  Missouri  company  and  obtained  judgment  against  it  in  1885,  and 
under  an  execution  issued  upon  this  judgment,  the  mining  hmds  in 
question  was  sold  to  Reinhard,  who  claims  title  to  them.  The  lower 
court  directed  the  plaintiff  to  pay  the  judgment  and  the  title  to  the 
land  to  be  quieted.] 

Black,  C.J.  *  *  *  The  defendants  insist  that  the  deed  from 
the  Missouri  company  to  the  English  company  is  void  because  exe- 
cuted and  delivered  in  England. 

As  our  statute  provides  that  the  articles  of  association  shall  state  the 
city  or  town  and  the  county  in  which  the  corporation  is  to  be  located,  it 
is  but  fair  and  reasonable  that  acts  of  the  body  corporate  itself^  such  as 
annual  elections  of  directors^  votes  to  increase  or  diminish  the  stocky  and 
other  meetings  of  the  stockholders^  should  take  place  at  the  home  office. 
But  luhere,  as  here^  there  is  710  prohibitory  statute^  and  all  of  the 
shareholders  give  their  consent^  the  acts  of  the  stockholders  at  a  meet- 
ing held  in  a  foreign  jurisdiction  are  valid,  i  Morawetz  on  Private 
Corporations  (2  ed.),  §  484;  Taylor  on  Coiporations  (2  ed.),  §  382.' 
Directors  are  the  agents  of  the  corporation^  and  it  is  now  quite  well 
settled  that  they  may  hold  meetings  and  transact  business  in  a  foreign 
state  if  they  desire  to  do  so  unless  the  contrary  is  expressly  provided 
by  the  charter^  by-laws  or  the  general  laws  of  the  state  under  which 
the  corporation  was  organized.  Morawetz  on  Private  Corporations, 
(2  ed.),  §  533;  Taylor  on  Corporations  (2  ed.),  §  381 ;  Railroad  v. 
McPherson,  35  Mo.  13;  Handley  v.  Stutz,  139  U.  S.  422.  These 
three  persons  who  transacted  the  business  in  London  held  all  of  the 
stock  and  were  the  duly-appointed  directors.  The  law  of  this  state 
did  not  prohibit  them  from  holding  meetings  there,  and  it  follows 
that  the  action  of  these  directors  in  making  the  contract  for  the  sale 
of  the  property,  and  in  directing  the  president  to  execute  the  deed,  and 
his  act  in  delivering  it,  were  and  are  just  as  valid  as  if  they  had  been 
performed  here  at  the  office  of  the  corporation. 

The  further  contention  that  the  English  company  had  and  has  no 
power  to  take  and  hold  real  property  in  this  state  is  equally  untenable. 
Though  it  was  said  in  Bank  v.  Earle,  13  Pet.  584,  that  a  corporation 
"must  dwell  in  the  place  of  its  creation,  and  can  not  migrate  to  an- 
other sovereignty,"  still  it  was  there  held  that  it  did  not  follow  that  it 
could  not  do  business  in  other  jurisdictions.  Though  corporations 
are  mere  artificial  beings  and  creatures  of  the  law  where  organized ^ 
still  it  is  settled  beyond  a  shadow  of  doubt  that  they  may  hold  prop- 
erty and  transact  business  in  a  foreign  state  or  country  when  not  pro- 
hibited from  doing  so  by  the  laws  of  such  country.  But  wherever  a 
corporation  "goes  for  business  it  carries  its  charter,  as  that  is  the  law 
of  its  existence,  and  the  charter  is  the  same  abroad  as  at  home."  Rail- 
road V.  Gebhard,  109  U.  S.  527.     *     ♦     ♦ 

Affirmed. 

Note.    Compare,  1900,  Union  Natl.  Bank  v.  State  Natl.  Bank,   loj  Mo.  tid 
78  Am.  St.  Rep.  560. 


846     GRAHAM    V.    BOSTON,    HARTFORD   AND    ERIE   R.    CO.      §  234 

Sec.  234.    Same. 

GRAHAM  V.  BOSTON,  HARTFORD  AND  ERIE  R.  CO.' 

1886.     In  THE  Supreme  Court  of  the  United  States.      118  U. 

S.-Rep.  161-180. 

[Bill  in  equity  in  circuit  court  of  the  United  States,  by  a  stockholder 
on  behalf  of  himself  and  the  other  shareholders  and  the  creditors,  to 
set  aside  a  mortgage  given  by  the  railroad  company  upon  all  its  prop- 
erty.] 

Blatchford,  J.  *  *  *  It  appears  by  the  bill  that  the  mort- 
gagor corporation  was  chartered  by  its  name  by  the  legislature  of  Con- 
necticut at  its  May  session,  1863 ;  that  thereafter  acts  were  passed  by 
the  legislatures  of  Massachusetts  and  Rhode  Island  making  it  a  corpo- 
ration of  those  states;  that  in  August,  1863,  the  Southern  Midland 
Railroad  Company  having  previously  acquired  all  the  franchises  and 
property  of  the  Boston  and  New  York  Central  Railroad  Company,  a 
corporation  chartered  under  the  laws  of  Massachusetts,  Connecticut 
and  New  York,  conveyed  all  its  franchises  and  property  to  the  Bos- 
ton, Hartford  and  Erie  Company;  and  that  in  November,  1863,  the 
latter  company,  under  authority  contained  in  acts  of  the  legislatures 
of  all  four  of  the  states,  acquired  the  franchises  and  property  of  the 
Hartford,  Providence  and  Fishkill  Railroad  Company,  a  corporation 
created  under  the  laws  of  New  York,  Rhode  Island  and  Connecticut. 
«      «     « 

The  first  ground  alleged  in  the  bill  for  declaring  the  mortgage  in- 
valid is,  that  it  was  authorized  and  made  at  a  meeting  of  the  share- 
holders of  the  company  held  in  the  city  qf^ew  York  ;  that  it  was  not  a 
corporation  of  New  Yoi-k,  but  was  a  corporation  of  Connecticut,  Massa- 
chusetts and  Rhode  Island ;  and  that,  therefore,  the  meeting  was  ille- 
gal and  the  mortgage  void.  The  circuit  court  held  that  the  coi-pora- 
tion  was    a    New  York  corporation ;   that  the  meeting  was  lawfully 

held ;  and  that  its  proceedings  were  valid  and  binding  on  the  company. 

*     *     *        ^ 

That  a  meeting  in  one  of  several  states  of  the  stockholders  of  a 
corporation  chartered  by  all  those  states  is  valid  in  respect  to  the  prop- 
erty of  the  corporation  in  all  of  them  without  the  necessity  of  a  repeti- 
tion of  the  meeting  in  any  other  of  those  states  is,  we  think,  a  sound 
proposition,  whether  it  be  or  be  not  true  that  proceedings  of  persons 
professing  to  act  as  corporators,  when  assembled  without  the  bounds 
of  the  sovereignty  granting  the  charter,  are  void.  Miller  v.  Ewer, 
27  Maine  509,  There  is  no  principle  which  requires  that  the  cor- 
porators of  this  consolidated  corporation  should  meet  in  more  than  one 
of  the  states  in  which  it  has  a  domicile  in  order  to  the  validity  of  a 
corporate  act.     *     *     * 

The  Boston,  Hartford  and  Erie  Company,  though  made  up  of  dis- 

^  Statement  of  facta  greatly  abridged.  Only  part  of  the  opinion  relating  to 
the  single  point  is  given,  and  this  is  rearranged  and  transposed. 


§  234  MODE   OF  ACTION.  847 

tinct  corporations,  chartered  by  the  legislatures  of  different  states,  had 
a  capital  stock  which  was  a  unit,  and  only  one  set  of  shareholders,  who 
had  an  interest  by  virtue  of  their  ownership  of  shares  of  such  stock  in 
all  of  its  property  everywhere.  In  its  organization  and  action  and  the 
practical  management  of  its  property  it  was  one  corporation,  having 
one  board  of  directors,  though  in  its  relations  to  any  state  it  was  a 
separate  corporation,  governed  by  the  laws  of  that  state  as  to  its  prop- 
erty therein.  It,  therefore,  had  a  domicile  in  each  state,  and  the 
corporators  or  shareholders  could,  in  the  absence  of  any  statutory  pro- 
vision to  the  contrary,  hold  meetings  and  transact  corporate  business 
in  any  one  state,  so  as  to  bind  the  corporation  in  respect  to  its  prop- 
erty everywhere.  Bridge  Co.  v.  Mayer,  31  Ohio  St.  317;  Pierce  on 
Railroads,  20.  *  *  » 
Affirmed. 

Note.  1.  A  great  number  of  decisions  hold  that  business  done  at  an  organi- 
zation meeting,  or  other  meeting  of  shareholders  held  out  of  the  state  creat- 
ing the  corporation,  is  void,  and  of  no  effect:  1854,  Freeman  v.  Machias 
Water,  etc.,  Co.,  38  Maine  343;  1858,  Hill  v.  Beach,  12  N.  J.  Eq.  31;  1862, 
Hilles  v.  Parrish,  14  N.  J.  Eq.  380;  1863,  Aspinwall  v.  Ohio,  etc.,  R.  Co.,  20 
Ind.  492,  83  Am.  D.  329;  1874,  Bellows  v.  Todd,  39  Iowa  209,217;  1874, 
Ormsbv  v.  Vermont  Copper  M.  Co.,  56  N.  Y.  623;  1876,  Mitchell  v.  Vermont 
C.  M.  Co.,  67  N.  Y.  280;  1883,  Franco  Texan  Land  Co.  v.  Laigle,  39  Texas 
339  (so  held  although  the  charter  expressly  authorized  the  business  to  be 
done  in  France);  1885,  Smith  v.  Silver  Valiey,  64  Md.  85,  54  Am.  Rep.  700; 

1890,  Mack  v.  De  Bardeleben,  90  Ala.  396;  1890,  Welch  v.  Old  Dominion,  etc., 
R.,  10  N.  Y.  Supp.  174;  1891,  Hodgson  v.  Duluth,  etc.,  R.,  46  Minn.  454;  1894, 
Jones  v.  Pearl  M.  Co.,  20  Colo.  417;  1895,  Taylor  v.  Branham,  35  Fla.  297; 
1895,  Craig  Silver  Co.  v.  Smith,  163  Mass.  262,  on  265;  1896,  Duke  v.  Taylor, 
37  Fla.  64,  53  Am.  St.  Rep.  232,  31  L.  R.  A.  484  (this  intimates  that  if  the 
statute  authorized,  such  meeting  would  be  valid) ;  1897,  Bastian  v.  Modern 
Woodmen  of  Am.,  166  111.  595  (this  seems  to  intimate  that  statutory  authority 
might  make  such  meeting  valid).  1899,  Harding  v.  Glucose  Co.,  182  111.  657, 
74  Am.  St.  Rep.  189. 

2.  Several  cases,  however,  hold  that  such  extraterritorial  acts  are  not 
void,  but,  at  least,  are  sufficient  to  estop  the  corporation  or  participating  share- 
holders, and  third  parties  can  not  complain,  non-participating  shareholders 
being  the  only  parties  who  may  object.  1864,  Ohio  &  M.  R.  Co.  v.  McPher- 
son,  35  Mo.  13,  on  26;  1867,  Camp  v.  Byrne,  41  Mo.  625;  1875,  Heath  v.  Sil- 
verthorn  L.  M.  Co.,  39  Wis.  146;  1880,  Humphreys  v.  Mooney,  5  Colo.  282; 

1891,  Handley  v.  Stutz,  139  U.  S.  417 ;  1892,  Wright  v.  Lee,  2  S.  Dak.  596. 

3.  There  seems  to  be  no  doubt  but  that  consolidated  companies  formed  by 
the  union  of  several  corporations,  organized  in  different  states,  can  hold  a 
valid  meeting  in  either  state,  as  held  in  Graham  v.  R.  Co.,  supra.  1877, 
Covington,  etc..  Bridge  Co.  v.  Maver,  31  Ohio  St.  317;  1888,  Ohio,  etc.,  R.  v. 
People,  123  111.  467. 

4.  As  indicated  in  Miller  v.  Ewer,  the  directors,  being  only  corporate 
agents,  may  hold  valid  meetings  outside  the  state  creating  the  corpora- 
tion. 1827,  McCall  v.  Mfg.  Co.,  6  Conn.  428;  1864,  Arms  v.  Conant,  36  Vt. 
744;  18(54,  Ohio  &  M.  R.  Co.  v.  McPherson,  35  Mo.  13;  1872,  Wood,  etc.,  M. 
Co.  V.  King,  45  Ga.  34;  1874,  Bellows  v.  Todd,  39  Iowa  209;  1880,  Humphreys 
V.  Moonev,  5Colo.  282;  1881,  Parsons  v.  Lent,  34  N.J.  Eq.  67;  1888,  Salt- 
marsh  V.  Spaulding,  147  Mass.  224;  1892,  Wright  v.  Lee,  2  S.  Dak.  596;  1893, 
Brockway  v.  Gadsden  M.  L.  Co.,  102  Ala.  620.  But,  see,  1874,  Ormsby  v. 
Vermont  C.  M.  Co.,  56  N.  Y.  623,  contra. 

Statutes  sometimes  require  the  directors  to  meet  within  the  state  creating 
the  corporation.   1897,  State  National  Bank  v.  Union  Nat'l  Bank,  168  111.519. 


848  BANK    OF   LITTLE   ROCK   V.    M'CARTHY.  §  23$ 

Sec.  235.     Directors'  meeting,  necessity,  notice  and  quorum. 
BANK  OF  LITTLE  ROCK  v.  M'CARTHY.^ 

1892.     In  the  Supreme  Court  of  Arkansas.     55  Ark.  Rep.  473- 
482,  29  Am.  St.  R.  60.  37  Am.  &  E.  C.  C.  671. 

[Suit  instituted  by  a  dissenting  stockholder  to  have  a  receiver  ap- 
pointed for  a  lumber  company.  In  August,  1869,  this  company  owed 
the  bank  and  McCarthy  about  $25,000  each,  and  others  about 
$6,500.  In  order  to  meet  pressing  claims  the  president  sought  a 
further  loan  from  McCarthy,  who  offered  to  advance  $10,000,  pro- 
vided the  company  would  give  a  mortgage  securing  that  sum  and  his 
existing  claim  of  $25,000.  This  necessitated  a  meeting  of  directors, 
a  call  for  which  was  prepared  and  sei-ved  upon  all  but  one.  Field. 
Inquiry  was  made  at  Field's  office,  but  without  ascertaining  where  he 
was.  The  president  then  went  with  a  notice  of  the  meeting  to  Field's 
residence,  and  finding  no  one  there,  inserted  it  between  the  door  and 
casing  and  left  it.  Field's  family  was  away,  the  residence  was  un- 
occupied at  the  time,  except  by  a  man  who  slept  there,  and  the  notice 
was  not  receivedby  Field.  The  meeting  was  held,  and  all  of  the  direc- 
tors (there  being  five),  except  Field,  were  present.  At  this  meeting 
it  was  determined  by  a  vote  of  three  to  one  that  the  mortgage  should 
be  made  to  McCarthy.  The  shareholders  were  the  same  as  the  direc- 
tors, and  the  dissenting  director  as  a  shareholder  instituted  the  suit  the 
same  day  the  mortgage  was  executed.  A  receiver  was  appointed  and 
it  then  became  apparent  the  company  was  insolvent.  The  bank  put 
in  a  cross-bill  asking  that  the  mortgage  to  McCarthy  be  canceled, 
and  McCarthy  asked  a  foreclosure  and  secured  a  decree  to  that  effect. 
The  bank  appealed.] 

Hemingway,  J,  *  »  *  The  statute  provides  that  the  stock, 
property,  affairs  and  business  of  business  corporations  shall  be  man- 
aged by  not  less  than  three  directors  (Mansf.  Dig.,  §  964);  and, 
further,  that  a  majority  of  the  directors,  convened  according  to  the 
by-laws,  shall  constitute  a  quoium  •  for  the  transaction  of  business 
(section  969). 

In  the  case  of  Simon  v.  Sevier  Association,  54  Ark.  58,  the  validity 
of  a  general  assignment  authorized  by  a  majority  of  the  directors  at  a 
meeting  of  which  the  absent  directors  had  no  notice  was  considered, 
and  we  held  that  the  statute  authorized  a  majority  to  act  only  at  a 
meeting  legally  convened,  and  that  it  was  essential  to  a  legal  meeting 
that  it  be  called  in  accordance  with  the  by-laws  or  rules  of  the  corpo- 
ration or  upon  due  and  legal  notice  given  to  each  of  the  members. 
There  was  no  contention  that  notice  could  not  have  been  served  on 
ench  member,  and  no  expression  of  the  law  where  that  was  a  fact. 

Subsequent  investigation  has  not  altered  our  views  as  then  expressed, 
but  we  are  convinced  that  they  are  in  a  line  with  the  authority  of  text- 
writers  and  adjudged  cases.     If  the  rule  were  otherwise,  the  rights 

^  Statement  abridged.     Arguments  and  part  of  opinion  omitted. 


§  235  MODE   OF   ACTION.  849 

and  interests  of  minority  holders  would  be  liable  to  great  abuse. 
Even  majorities  might  suffer,  for,  by  absence  of  some  of  their  num- 
ber, the  minority  might  become  the  majority,  hold  a  meeting  without 
notice  to  the  absentees  and  change  the  entire  course  or  policy  of  the 
business,  or  do  acts  destructive  to  its  prosperity  or  future  existence. 
Such  abuse  of  corporate  power  is  not  unknown  to  the  history  of  cor- 
porations, and  its  evidence  is  found  in  the  records  of  the  courts. 
Rules  intended  to  check  or  prevent  it  should  be  rigidly  observed, 
except  where  reason  requires  that  they  be  relaxed.  The  wisdom  of 
the  rule  and  the  dangers  incident  to  any  other  are  very  clearly  stated 
by  Judge  Brewer  in  the  case  of  the  Paola  &  Fall  River  R.  Co.  v. 
Comrs.  of  Anderson  Co.,  16  Kan.  309,  where  he  shows  that  if  any 
other  rule  prevailed  it  would  be  possible,  with  a  board  composed  of 
twelve  members,  for  four  directors  to  convene  a  meeting  of  seven  by 
giving  notice  to  three  and  witholding  it  from  five  others,  and  to  bind 
the  corporation  to  acts  condemned  by  eight.  That  case  called  for  no 
expression  as  to  the  law  in  cases  of  emergency  where  notice  to  any 
director  was  impracticable,  and  contains  no  discussion  of  such  cases, 
but  there  is  an  intimation  that  the  rule  might  admit  exceptions  in  such 
cases. 

That  such  cases  may  arise  as  will  justify  and  require  exceptions  to 
be  made,  is  a  conclusion  to  which  reflection  inevitably  leads.  In  fact, 
it  is  conceded  by  the  learned  counsel  for  the  appellant  "that  a  director 
can  not  put  a  stop  to  corporate  business  by  simply  leaving  its  jurisdic- 
tion" ;  and  that,  "if  after  a  reasonable  search  the  parties  are  unable 
to  find  him,  the  remaining  directors  may  attend  to  the  necessary 
affairs."  This  indicates  that  the  exception  arises  upon  a  concurrence 
of  three  conditions,  fii'st,  the  impracticability  of  notice;  second,  the 
existence  of  an  emergency  for  action ;  and  third,  a  reasonable  neces- 
sity for  the  action  taken. 

Without  committing  the  court  to  a  full  approval  of  this  form  of 
stating  the  exception,  we  may  say  that  it  seerris  to  be  substantially 
correct.  Where  notice  is  practicable^  it  must  be  given;  it  can  be  dis- 
pensed with  when  impracticable,  only  to  meet  an  emergency;  and  the 
act  done  must  appear  reasonably  necessary  to  the  welfare  of  the  cor- 
poration. If  the  act  is  merely  proper,  but  not  necessary,  or  if  it  ap- 
pear that  it  may  become  necessary ,  but  the  necessity  is  not  present,  the 
rule  should  not  yield,  for  in  such  cases  notice  may  become  practica- 
ble, and  the  presence  of  the  absent  director  be  secured  before  the  ne- 
cessity arises  or  the  emergency  is  present.  Such  we  consider  the 
ru>e  deducible  from  the  case  of  Chase  v.  Tuttle,  55  Conn.  455,  relied 
upon  by  the  appellee.  For  it  had  been  held  in  earlier  decisions  of 
that  court  that  a  meeting  attended  by  a  majority  of  the  directors,  of 
which  the  minority  had  no  notice,  was  not  lawful,  and  it  does  not  ap- 
pear that  there  was  any  intention  to  overrule  those  decisions.  Stow 
v.  Wyse,  7  Conn.  214;  s.  c,  18  Am.  Dec.  99.'  The  learned  judge 
who  delivered  the  opinion  in  that  case  says  that  "the  exigency  de- 
manded immediate  action  to  save  the  property  and  to  save  expense," 

'  Su'pra,  p.  835. 

54— WiL.  Casks. 


850  BANK    OF    LITTLE    ROCK    V.    M'CARTHY.  §  235 

and  the  action  of  the  meeting  was  upheld  upon  the  ground  that  power 
must  be  accorded  the  company  to  protect  itself.      *     *     * 

Was  the  notice  left  at  his  usual  place  of  residence,  at  a  time  when 
he  and  his  family  were  absent  to  remain  until  after  the  time  fixed  for 
the  meeting,  notice  to  him?  Counsel  insist  that  it  constituted  notice, 
and  to  sustain  their  position  cite  us  to  section  5206,  Mansfield  Digest; 
but  that  section  has  reference  to  notices  mentioned  in  the  code,  and  as 
notices  to  directors  of  business  corporations  are  not  included  in  such 
mention,  we  think  the  section  inapplicable.  The  latv  provides  for  7to 
constructive  notice  in  such  cases^  and  in  the  absence  of  such  provis- 
ion notice  must  be  personal.  Such  seems  to  be  the  rule  established  by 
the  atithorities.  i  Beach  Corp.,  §  281;  Stow  v.  Wyse,  7  Conn. 
214;  s.  c,  18  Am.  Dec.  99,  and  note,  102-3;  Covert  v.  Rogers, 
38  Mich.  363;  I  Waterman  on  Corp.,  §  63,  p.  205;  i  Morawetz 
Corp.,  §  531  ;  Stevens  v.  Eden  Meeting-house  Society,  12  Vt.  688; 
Harding  v.  Vandewater,  40  Cal.  77. 

Reversed. 

Note.  1.  Accord:  1828,  Stow  v.  Wyse,  7  Conn.  214, 18  Am.  Dee.  99,  supra, ^p. 
835;  1839,  Stevens  v.  Eden  Meeting-house,  etc.,  12  Vt.  688,  supra,  p.  836;  1841, 
Despatch  Line  v.  Bellamy  Mfg.  Co.,  12  N.  H.  205,  87  Am.  Dec.  203 ;  1842,  Elliot 
V.  Abbott,  12  N.  H.  549,  37  Am.  Dec.  227 ;  1859,  Ross  v.  Crockett,  14  La.  Ann. 
811 ;  1876,  Paola,  etc.,  F.  R.  Co.  v.  Commissioners  Anderson  Co.,  16  Kan.  302; 
1877,  Herrington  v.  District  Tp.  of  Listen,  47  Iowa  11 ;  1878,  Covert  v.  Rogers, 
88  Mich.  363;  1878,  Choteau  Ins.  Co.  v.  Holmes,  68  Mo.  601,  30  Am.  Rep.  807; 
1879,  Baldwin  v.  Canfield,  26  Minn.  43;  1880,  Pike  Co.  v.  Rowland,  94  Pa.  St. 
238;  1882,  Buttrick  v.  Railroad  Co.,  62  N.  H.  413,  418;  1887,  Chase  v.  Tuttle, 
55  Conn.  455,  3  Am.  St.  Rep.  64,  and  note;  1888,  Thompson  v.  Williams,  76 
Cal.  153,  9  Am.  St.  Rep.  187,  and  note;  1892,  Smith  v.  Dorn,  96  Cal.  73,  40 
Am.  &  E.  C.  C.  196;  1895,  Smith  v.  Cornehus,  41  W.  Va.  59,  on  68;  1895,  First 
Nat'l  Bank  v.  Asheville,  etc.,  Co.,  116  N.  C.  827 ;  1895,  Hamlin  v.  Union  Brass 
Co.,  68  N.  H.  292,  44  Atl.  Rep.  385;  1897,  Limer  v.  Traders'  Co.,  44  W.  Va. 
175,  28  S.  E.  Rep.  730;  1898,  Singer  v.  Salt  Lake  City  Mfg.  Co.,  17  Utah  143, 
53  Pac.  Rep.  1024;  1899,  Monroe  Mercantile  Co.  v.  Arnold,  108  Ga.  449,  34 
S.  E.  Rep.  176;  1899,  Broughton  v.  Jones,  120  Mich.  462,  79  N.  W.  Rep.  691. 
See  next  case,  contra. 

(2)  In  the  absence  of  evidence  to  the  contrary,  notice  is  presumed  to  have 
been  properly  given  and  a  quorum  present:  1847,  Sargent  v.  Webster,  13 
Mete.  (Mass.)  497,  46  Am.  Dec.  743;  1883,  Leavitt  v.  Oxford  &  G.  S.  M.  Co., 
3  Utah  265,  4  Am.  &  E.  C.  C.  234;  1887,  Chase  v.  Tuttle,  55  Conn.  455,  3  Am. 
St.  Rep.  64,  and  note;  1890,  Rollins  v.  Shaver  Wagon  Co.,  80  Iowa  380,  20 
Am.  St.  Rep.  427;  1894,  Benbow  v.  Cook,  115  N.  C.  324,  44  Am.  St.  Rep.  454; 
1895,  Pauly  v.  Pauly,  107  Cal.  8,  48  Am.  St.  Rep.  98;  1899,  Balfour-Guthrie 
Co.  v.  Woodworth,  124  Cal.  169,  56  Pac.  Rep.  891. 

(3)  In  the  absence  of  statutory,  charter  or  by-law  provisions  no  qualifica- 
tions, except  such  as  the  corporation  may  impose,  are  necessary  in  order  to 
be  a  director.  An  officer  may  be,  1847,  Sargent  v.  Webster,  13  Met.  497,  46  Am. 
Dec.  743;  a  non-resident  may  be,  1887,  State  v.  Smith,  15  Ore.  98;  an  alien, 
resident  or  non-resident  may  be,  1890,  Commonwealth  v.  Hemingway,  131  Pa. 
St.  614;  and  it  has  been  held  where  the  statute  requires  a  director  to  be  a 
shareholder,  he  mav  receive  shares  solely  for  the  purpose  of  qualifying  him 
1891,  In  re  Argus,  etc.,  Co.,  1  N.  Dak.  434,  26  Am.  St.  Rep.   639. 

(4)  Delegation  of  powers  by  directors:. 

(a)  In  general  discretionary  powers  can  not  be  delegated  by  those  to  whom 
they  have  once  been  delegated",  and  the  powers  of  directors  derived  from  share- 


§236  MODE   OF   ACTION.  85 1 

holders  are  delegated  powers:  1832.  Percv  v.  Millaudon,  3  La.  568;  1837, 
Bank  Commrs.  v.  Bank  of  Buffalo,  6  Paige  Cli.  (N.  Y.)  497;  1850,  Gillis  v. 
Bailey,  21  N.  H.  149 ;  1855,  York,  etc.,  R.  Co.  v.  Ritchie  40  Me.  425 ;  18H6,  In  re 
Leeds  Banking  Co.,  L.  R.  1  Ch.  App.  561 ;  1876,  Farmers'  Mut.  Fire  Ins.  Co. 
V.  Chase,  56  N.  H.  341 ;  1877,  Tracy  v.  Guthrie,  etc.,  Soc,  47  Iowa  27;  1878, 
Silver  Hook  Road  v.  Greene,  12  R.  t.  164;  1892,  Weidenfeld  v.  Sugar,  etc., 
R.  Co.,  48  Fed.  Rep.  615;  1895,  Temple  v.  Dodge,  89  Tex.  68. 

(6)  But  if  the  board  of  directors  is  a  statutory  body,  it  is  frequently  held 
that  its  powers  are  original,  and  not  delegated  as  the  power  of  an  agent  is,  and 
so  may  be  delegated  by  it  to  others:  1814,  North  Hampton  Bank  v.  Pepoon, 
11  Mass.  288;  1883,  Leavitt  v.  Oxford,  etc.,  G.  S.  M.  Co.,  3  Utah  265;  1891, 
Sheridan,  etc.,  Co.  v.  Chatham,  etc..  Bank,  127  N.  Y'.517;  1893,  Black  River, 
etc.,  Co.  V.  Holwav,  85  Wis.  344;  1896,  Burden  v.  Burden.  8  App.  Div.  (N.Y.) 
160;  1896,  Union,  etc.,  R.  Co.  v.  Chicago,  R.  I.  &  P.  R.  Co.,  163  U.  S. 
664. 

(c)  Purely  ministerial,  non-discretionary  power  may  be  delegated :  1823, 
Fleckner  v.  Bank  of  U.  S.,  8  Wheat.  (U.  S.)  338,  355;  1840,  Burrill  v.  Nahant 
Bank,  2  Mete.  (Mass.)  163;  1848,  Stevens  v.  Hill,  29  Maine  133;  1856,  Man- 
chester, etc.,  R.  Co.  v.  Fisk,  33  N.  H.  297;  1864,  Arms  v.  Conant,  36  Vt.  744; 
1881,  Burleigh  v.  Ford,  61  N.  H.  360;  1893,  Skinner  v.  W.  M.  &  R.  M.  Co., 
140  N.  Y.  217. 

(d)  Directors  can  not  vote  by  proxy :  1891 ,  Craig  Medicine  Co.  v.  Merchants' 
Bank,  59  Hun  561.  Neither  can  shareholders  unless  specially  authorized  by 
charter  or  statute  or  by  law  provision:  1812,  State  v.  Tudor,  5  Dav  (Conn.) 
329,5  Am.  Dec.  162;  1829,  PhiHps  v.  Wickham,  1  Paige  (N.  Y.)  590;  1834, Tay- 
lor v.  Griswold,  14  N.  J.  L.  Ss^.  _/  \  in.  Dec.  33 ;  ivfra.  n.  1591 ;  1883,  Common- 
vrealth  v.  Bringhurst,  103  Pa.  St.  134,  49  Am.  Rep.  119;  1890,  Commonwealth 
V.  Detwiller,  131  Pa.  St.  614,  7  L.  R.  A.  367. 


Sec.  286.    Same. 

EDGERLY  v.  EMERSON.» 

1 85 1.     In  the  Superior  Court  of  Judicature  of  New  Hamp- 
shire;   23  N.  H.  Rep.  555-573,  55  Am.  D.  207. 

[The  Rochester  bank  had  obtained  a  judgment  against  Jones,  Rich- 
ards and  Legro.  Execution  was  levied  by  Edgerly,  as  deputy  sheriff, 
upon  the  goods  of  Jones,  and  these  were  delivered  to  Emerson  for  safe 
keeping.  Legro  as  surety  for  Jones  paid  the  judgment,  and  the  execu- 
tion was  discharged  in  writing  on  its  back  by  the  cashier  of  the  bank. 
Edgerly,  relying  upon  a  later  assignment  of  the  bank  to  Legro,  de- 
manded the  goods  of  Emerson,  who  failed  to  deliver  them.  Edgerly 
then  sued  him,  alleging  the  goods  were  lost  by  Emerson's  negligence, 
and  proposed  to  show  that  the  discharge  was  written  upon  the  execu- 
tion through  mistake,  and  contrary  to  the  agreement  of  the  parties, 
and  that  the  same  was  intended,  and  supposed  at  the  time  it  was  exe- 
cuted, to  be  an  assignment  of  said  execution  to  Legro ;  and  to  prove 
this  he  offered  the  testimony  of  John  McDuffie,  Jr.,  who  signed  said 
discharge,  to  which  the  defendant  objected,  but  which  the  court  ad- 
mitted. 

The  plaintiff  proposed  to  show  by  parol  that  it  was  agreed  between 

'  Statement  abridged ;  arguments  and  part  of  opinion  omitted. 


852  EDGERLY  V.  EMERSON.  §  236 

the  bank  and  Legro  that  Legro  should  pay  to  the  bank  the  amount 
of  the  execution,  and  the  bank,  by  its  cashier,  McDuffie,  should  as- 
sign to  him  the  execution,  and  all  its  rights,  as  against  Jones,  at  the 
same  time  that  the  discharge  was  written  upon  the  execution ;  but  no 
vote  was  passed  upon  the  subject. 

The  defendant  objected  that  the  proceedings  of  the  directors  could 
be  proved  by  the  records  alone ;  but  the  couit  decided  that  if  the 
directors  agreed  in  any  matter  of  business,  it  was  not  necessary  that 
any  formal  question  should  be  put,  or  vote  passed ;  and  that  if  their 
agreement  was  not  recorded,  it  might  be  shown  by  parol. 

It  appeared  that  the  meeting  of  the  directors,  last  referred  to,  was  a 
special  meeting,  and  that  only  four  of  the  seven  directors  were  pres- 
ent or  notified.  The  defendant  objected  to  the  meeting  as  illegal, 
but  the  court  ruled  that  if  a  quorum  were  present,  the  proceedings 
were  valid.] 

Bell,  J.  *  *  *  It  was  also  objected  that  the  meeting  of  the 
directors,  on  whose  action  the  plaintiff  relies,  was  illegal  and  their 
proceedings  invalid,  because  it  was  a  special  meeting  at  which  only 
four  of  the  seven  directors  were  present  or  notified.  In  the  case  of 
The  Despatch  Line  of  Packets  v.  The  Bellamy  Manufacturing  Com- 
pany, 12  N.  H.  Rep.  205,  certain  questions  were  determined  in  rela- 
tion to  the  powers  of  the  directors  of  coi-poi-ations,  by  which  we 
feel  bound  to  abide.  The  case  was  considered  with  great  care  and 
ability.     In  that  case  it  was  held : 

I.  That  if  the  authority  of  the  directors,  to  manage  and  exercise  a 
general  superintendence  and  control  over  the  affairs  of  the  corpora- 
tion, had  been  conferred  by  the  charter  itself,  it  would  have  been  in 
the  nature  of  an  original  corporate  power,  in  a  definite  number,  and  a 
majority  of  the  whole  number  being  duly  assembled  at  a  regular 
meeting  might  act  by  major  vote  of  those  present. 

II.  That  where  the  by-laws  of  a  private  corporation  confer  upon 
the  directors  power  to  act  in  behalf  of  the  corporation  without  special 
limitation  as  to  the  manner,  a  majority  may  act  within  the  scope  of 
the  authority  given  to  the  board  and  bind  the  corporation,  either 
where  there  is  a  consultation  of  all  together  and  a  concurrence  of  a 
majority  or  where  there  is  a  regular  meeting  at  which  all  might  be 
present,  and  a  majority  actually  meet  and  act  by  major  vote. 

III.  That  the  act  of  a  majority  of  such  board,  in  the  case  last  sup- 
posed, does  not  bind  the  corporation,  unless 

1.  There  was  an  assent  of  all  the  directors  at  a  meeting,  or,  ^er- 
haps^  separately  obtained. 

2.  Or  there  was  a  meeting  and  consultation  of  the  whole  board 
and  a  vote  of  a  majority. 

3.  Or  a  meeting  held  at  some  regular  period,  at  which  a  majority 
were  present  and  acted  by  a  major  vote. 

4.  Or  a  meeting  regularly  notified,  at  which  a  majority  assembled 
and  acted  by  major  vote. 

IV.  When  the  act  purports  to  be  the  act  of  the  board,  it  may  be 
presumed  it  was  the  act  of  a  majority  until  the  contraiy  is  shown.   *  * 


§  236  MODE   OF  ACTION.  853 

But  this  applies  only  to  a  regular  meeting,  which  is  a  stated  meet- 
ing, at  which  all  have,  of  course,  the  needful  notice  and  opportunity 
to  be  present,  or  a  special  meeting,  at  which  all  have  been  duly  noti- 
fied to  be  present.  The  question  which  arises  in  this  case  is  different. 
The  meeting  in  question  was  not  a  stated  meeting  nor  a  meeting  at  which . 
all  had  been  duly  notified  to  be  present.  Four  only  of  the  seven  directors 
were  present,  and  no  others  had  been  notified.  The  general  princi- 
ples applicable  to  the  exercise  of  joint  powers  are  well  settled.  When 
individuals  or  corporations  give  an  authority  jointly  to  two  or  more 
persons,  in  order  to  bind  the  principal  all  the  agents  must  act.  Jew- 
ett  v.  Alton,  7  N.  H.  Rep.  253;  Andover  v.  Grafton,  7  N.  H.  Rep. 
304.  But  where  a  number  of  persons  are  by  law  entrusted  with 
power  not  of  mere  private  confidence,  but  in  some  respects  of  a  gen- 
eral nature,  and  all  of  them  are  regularly  assembled,  the  majority  will 
conclude  the  minority  and  their  act  will  be  the  act  of  the  whole. 
Grindley  v.  Barker,  i  B.  &  P.  236;  King  v.  Beeston,  3  D.  &E.  592; 
Green  v.  Millar,  6  Johns.  39;  Farwell's  Petition,  2  N.  H.  Rep.  124; 
Damon  v.  Granbly,  2  Pick.  345. 

There  are,  however,  many  cases  where  an  authority  is  granted  to  a 
board  or  to  several  persons,  or  a  majority  of  them,  or  a  certain  lim- 
ited number,  either  more  or  less  than  a  majority,  who  are  thereby  con- 
stituted a  quorum.  Thus,  in  the  usual  form  of  bank  charters  there  is 
a  provision  that  "no  less  than  four  directors  shall  constitute  a  board 
for  the  transaction  of  business,  of  whom  the  president  shall  be  one,  ex- 
cept in  case  of  sickness  or  necessary  absence,  in  which  case  the 
directors  present  may  choose  a  chairman  for  the  time  being,  in  his 
stead."  The  effect  of  this  clause  we  deem  the  same  as  a  provision 
that  the  directors,  or  any  four  of  them,  shall  be  competent  to  transact 
any  business  of  the  bank.  Four  constitute  a  quorum,  and  when  as- 
sembled possess  all  the  powers  of  the  entire  board.     *     «     * 

We  are,  therefore,  of  the  opinion  that  where  a  quorum  of  the  di- 
rectors of  a  bank  meet  and  unite  in  any  determination  the  corpora- 
tion are  bound,  whether  the  other  directors  are  or  are  not  notified. 

Such,  we  understand,  to  be  the  construction,  practically  given  to 
this  part  of  their  charters  by  all  our  banking  institutions,  and  we  think 
their  convenience  requires  that  it  should  be  sustained.     *     *     * 

Verdict  set  aside  on  other  grounds. 

Note.  Accord.  1876,  State  v.  Smith,  48  Vt.  266;  1885,  Bank  v.  Flour  CJo., 
41  Ohio  St.  552,  on  568-9.  Compare,  1898,  Troy  Mining  Co.  v.  White,  10  8. 
D.  475,  42  L.  R.  A.  549.     See,  however,  contra,  cases  in  note,  supra,  p.  850. 


854  UNITED    STATES    BANK   V,    DANDRIDGE   ET   AL.  §  237 

ARTICLE  III.       MODE  OF  ACTION  GENERALLY. 

Sec.  237.     Presumptions. 

PRESIDENT,  DIRECTORS,  Etc.,  OF  BANK  OF  THE  UNITED  STATES 
V.  DANDRIDGE  Et  Al.» 

1827.    In  the  Supreme  Court  of  the  United  States.    12  Wheat. 
(25  U.  S.)  Rep.  64-116. 

[Writ  of  error  from  the  circuit  court. 

The  original  action  was  debt  upon  a  bond,  purporting  to  be  signed 
by  Dandridge  as  principal,  and  six  sureties,  to  insure  the  faithful  per- 
formance by  Dandridge  of  the  duties  of  cashier  of  the  bank.  The 
plea  was  non  est  factum^  the  ground  of  which  was  that  the  bond  had 
never  been  approved  according  to  the  rules  and  regulations  of  the 
bank.  These  required  the  cashier  "before  entering  upon  the  duties 
of  his  office  to  give  bond,  with  two  or  more  sureties,  to  the  satisfac- 
tion of  the  directors"  in  a  sum  named.  Evidence  to  show  the  execu- 
tion and  approval  of  the  bond  was  offered,  but  upon  objection  was 
rejected  by  the  court.      This  is  the  error  assigned.] 

Story,  J.  *  *  *  It  is  material  to  state  that  the  rejection  of  the 
evidence  did  not  proceed  upon  the  ground  that  it  was  of  a  secondary 
nature,  leaving  behind,  in  the  possession  of  the  plaintiffs,  evidence  of 
a  higher  and  more  satisfactory  nature.  On  the  contrary,  the  whole 
structure  of  the  case  shows  that  there  was,  in  the  understanding  of  both 
the  parties,  no  record  ever  made  of  the  approval  or  acceptance  of  the 
bond  in  question,  and  the  principal  controversy  was  whether  it  could 
be  established  by  any  evidence  short  of  such  record  proof. 

The  propositions  maintained  by  the  circuit  court  were,  in  substance, 
these:  First,  that  the  cashier  could  not  legally  enter  upon  the  duties 
of  his  office,  nor  make  his  sureties  responsible  for  his  non-perform- 
ance of  those  duties,  before  his  official  bond  was  accepted  as  satis- 
factory by  the  board  of  directors,  according  to  the  terms  of  the  char- 
ter. Secondly,  that  such  acceptance  could  be  established  only  by 
proof  drawn  from  the  records  of  the  board  of  directors ;  and  if  no  rec- 
ord had  been  kept  of  such  assent  and  acceptance,  the  bond  was  inef- 
fectual, and  no  secondary  evidence  could  be  admitted  to  establish  the 
fact.  . 

The  last  proposition  will  be  first  considered.  The  correctness  of 
it  in  a  great  measure  depends  upon  the  soundness  of  the  distinction 
taken  between  the  acts  of  private  persons  and  the  acts  of  corporations. 
It  is  admitted,  in  the  opinion  of  the  circuit  court,  that  the  evidence 
offered  would,  in  common  cases,  between  private  persons,  have  been 
prima  facie  evidence,  to  be  submitted  to  the  jury  as  proof  that  the 
bond  was  fully  executed  and  accepted.  But  it  is  supposed  that 
a  different   rule   prevails  in    cases   of   corporations ;    that   their  acts 

^  Statement  abridged  ;  much  of  Story's  opinion,  and  most  of  the  dissenting 
opinion  of  Marshall,  Ch.  J.,  are  omitted. 


§237  PRESUMPTIONS  AS  TO    CORPORATE    ACTS.  855 

must  be  established  by  positive  record  of  proofs ;  and  that  no  pre- 
sumptions can  be  made  in  their  favor  of  corporate  assent  or  adoption, 
from  other  circumstances,  though  in  respect  to  individuals  the  same 
circumstances  w^ould  be  decisive.  The  doctrine,  then,  is  maintained 
from  the  nature  of  corporations,  as  distinguished  from  natural  per- 
sons ;  and  from  the  supposed  incapacity  of  the  former  to  do  any  act, 
not  evidenced  by  writing,  and  if  done  to  prove  it,  except  by  writing. 

Little  light  can  be  thrown  on  this  subject,  by  considerations  drawn 
from  corporations  existing  by  the  common  law,  or  dependent  upon 
prescription.  To  corporations,  however  erected,  there  are  said  to  be 
certain  incidents  attached,  without  any  express  words  or  authority  for 
this  purpose;  such  as  the  power  to  plead  and  be  impleaded,  to  pur- 
chase and  alien,  to  make  a  common  seal,  and  to  pass  by-laws.  Com. 
Dig.  Franchise,  F.  10,  13.  In  ancient  times,  it  was  held,  that  corpo- 
rations aggregate  could  do  nothing  but  by  deed  under  their  common 
seal.  But  this  principle  must  always  have  been  understood  with  many 
qualifications ;  and  seems  inapplicable  to  acts  and  votes  passed  by  such 
corporations  at  corporate  meetings.  It  was  probably,  in  its  origin, 
applied  to  aggregate  corporations  at  the  common  law,  and  limited  to 
such  solemn  proceedings  as  were  usually  evidenced  under  seal,  and  to 
be  done  by  those  persons  who  had  the  custody  of  the  common  seal, 
and  had  authority  to  bind  the  corporation  thereby,  as  their  permanent 
official  agents.  Be  this  as  it  may,  the  rule  has  been  broken  in  upon' 
in  a  vast  variety  of  cases,  in  modem  times,  and  can  not  now,  as  a 
general  proposition,  be  supported.  Mr.  Justice  Bayley,  in  Harper  v. 
Charlesworth,  4  B.  &  C.  575,  said,  "A  corporation  can  only  grant 
by  deed ;  yet  there  are  many  things  which  a  corporation  has  power  to 
do,  otherwise  than  by  deed.  It  may  appoint  a  bailiff,  and  do  other 
acts  of  alike  nature."  And  it  is  now  firmly  established,  both  in  Eng- 
land and  America,  that  a  corporation  may  be  bound  by  a  promise, 
express  or  implied,  resulting  from  the  acts  of  its  authorized  agent,  al- 
though such  authority  be  only  by  virtue  of  a  corporate  vote,  unaccom- 
panied with  the  corporate  seal.      *     *     « 

By  the  general  rules  of  evidence,  presumptions  are  continually  made, 
in  cases  of  private  persons,  of  acts  even  of  the  most  solemn  nature, 
when  those  acts  are  the  natural  result  or  necessary  accompaniment  of 
other  circumstances.  In  aid  of  this  salutary  principle,  the  law  itself, 
for  the  purpose  of  strengthening  the  infirmity  of  evidence,  and  uphold- 
ing transactions  intimately  connected  with  the  public  peace,  and  the 
security  of  private  property,  indulges  its  own  presumptions.     *     «    ♦ 

The  same  presumptions  are,  we  think,  applicable  to  corporations. 
Persons  acting  publicly  as  officers  of  the  corporation  are  to  be  pre- 
sumed rightfully  in  office;  acts  done  by  the  corporation,  which  pre-* 
suppose  the  existence  of  other  acts  to  make  them  legally  operative, 
are  presumptive  proofs  of  the  latter.  Grants  and  proceedings  bene- 
ficial to  the  corporation  are  presumed  to  be  accepted,  and  slight  acts 
on  their  part,  which  can  be  reasonably  accounted  for,  only  upon  the 
supposition  of  such  acceptance,  are  admitted  as  presumptions  of  the 
fact.     If  officers  of  the  corporation  openly  exercise  a   power  which 


856  UNITED    STATES    BANK   V.    DANDRIDGE   ET   AL.  §  237 

presupposes  a  delegated  authority  for  the  purpose,  and  other  corpo- 
rate acts  show  that  the  corporation  must  have  contemplated  the  legal 
existence  of  such  authority,  the  acts  of  such  officers  will  be  deemed 
rightful,  and  the  delegated  authority  will  be  presumed.  If  a  person 
acts  notoriously  as  cashier  of  a  bank,  and  is  recognized  by  the  direc- 
tors or  by  the  corporation  as  an  existing  officer,  a  regular  appointment 
will  be  presumed,  and  his  acts,  as  cashier,  will  bind  the  corporation, 
although  no  written  proof  is  or  can  be  adduced  of  his  appointment.  In 
short,  we  think  that  the  acts  of  artificial  persons  afford  the  same  pre- 
sumptions as  the  acts  of  natural  persons.  Each  affords  presumptions 
from  acts  done  of  what  must  have  preceded  thejn,  as  matters  of  right, 
or  matters  of  duty. 

It  may  be  not  without  use  to  advert  to  a  few  cases  where  corpo- 
rate acts  have  been  the  subject  of  presumptions.  In  the  first  place, 
we  may  advert  to  the  known  fact,  that  a  charter  may  be  presumed  to 
have  been  given  to  persons  who  have  long  acted  as  a  corporation,  and 
assumed  the  exercise  of  the  powers  of  a  corporate  body,  whether  of 
an  ordinary  or  extraordinary  nature.  This  is  the  case  in  respect  to 
all  corporations  existing  by  prescription.  Yet  the  very  case  supposes 
that  no  written  proof  can  be  adduced  of  a  charter,  or  of  a  vote  of 
the  corporators  to  accept  the  charter.  Yet,  both  a  charter  and  ac- 
ceptance are  vital  to  the  existence  of  the  corporation.  They  are, 
"however,  presumed,  not  merely  from  the  lapse  of  time,  but  from  the 
continued  exercise  of  coi-porate  powers,  which  presuppose  their  ex- 
istence. So,  in  relation  to  the  question  of  acceptance  of  a  particular 
charter,  by  an  existing  corporation,  or  by  corporators  already  in  the 
exercise  of  coi"porate  functions,  the  acts  of  the  corporate  officers  are 
admissible  evidence  from  which  the  fact  of  acceptance  may  be  infer- 
red. It  is  not  indispensable  to  show  a  written  instrument  or  vote  of 
acceptance  on  the  corporation  books.  It  may  be  inferred  from  other 
facts  which  demonstrate  that  it  must  have  been  accepted.      *     *     * 

In  respect  to  grants  and  deeds  beneficial  to  a  corporation,  there 
seems  to  be  no  particular  reason  why  their  assent  to  and  acceptance 
of  the  same  may  not  be  inferred  from  their  acts,  as  well  as  in  the 
case  of  individuals.  Suppose  a  deed  poll  granting  lands  to  a  corj^o- 
ration,  can  it  be  necessary  to  show  that  there  was  an  acceptance  by 
the  corporation  by  an  assent  under  seal,  if  it  be  a  corporation  at  the 
common  law,  or  by  a  written  vote,  if  the  corporation  may  signify  its 
assent  in  that  manner.?  Why  may  not  its  occupation  and  improve- 
ment, and  the  demise  of  the  land  by  its  agents,  be  justly  admitted  by 
implication  to  establish  the  fact  in  favor  and  for  the  benefit  of  the 
corporation.''  Why  should  the  omission  to  record  the  assent,  if  act- 
ually given,  deprive  the  corporation  of  the  property  which  it  gained 
in  virtue  of  such  actual  assent?  The  validity  of  such  a  grant  depends 
upon  the  acceptance,  not  upon  the  mode  by  which  it  is  proved.  It  is 
no  implied  condition  that  the  corporation  shall  perpetuate  the  evidence 
of  its  assent  in  a  particular  way.  At  least,  if  it  be  so,  we  think  it  is 
incumbent  on  those  who  maintain  the  affirmative  to  point  out  the 
authorities  which  sustain   it.      None  such    have    been  cited    at    the 


§  237  PRESUMPTIONS   AS  TO   CORPORATE  ACTS.  857 

But  the  present  question  does  not  depend  upon  the  point  whether 
the  acts  of  a  corporation  may  be  proved  otherwise  than  by  some 
written  document.  The  reasoning  upon  it,  however,  was  very  ably 
gone  into  at  the  bar,  and  as  it  furnishes  very  strong  illustrations  upon 
the  point  now  in  judgment,  it  could  not  be  passed  over  with  propriety. 

In  the  present  case,  the  acts  of  the  corporation  itself,  done  at  a 
corporate  meeting,  are  not  in  controversy.     «     »     » 

[After  examining  the  charter  and  showing  that  the  corporation  was 
created  out  of  the  subscribers  to  the  stock,  and  that  the  management 
was  vested  in  a  board  of  twenty-five  directors,  chosen  by  the  share- 
holders annually,  proceeds:] 

It  is  most  manifest,  that  the  corporation  is  altogether  a  distinct  body 
from  the  directors,  possessing  all  the  general  powers  and  attributes  of 
an  aggregate  corporation,  and  entitled  to  direct  and  superintend  the 
management  of  its  own  property,  and  the  government  of  the  institu- 
tion, and  to  enact  by-laws  for  this  purpose.  So  far  as  the  act  dele- 
gates authority  to  the  directors,  the  latter  possess  it,  and  may  exercise 
it,  not  as  constituting  the  corporation  itself,  but  as  its  express  statute 
agents,  to  act  in  the  ordinary  business  of  the  institution.  The  direct- 
ors are  created  a  board,  and  not  a  corporate  body.  If  the  authority 
delegated  to  them  can  only  be  exercised  by  them,  when  assembled  as 
a  board,  with  a  proper  quorum^  and  not  by  the  separate  assent  of  a 
majority  of  the  whole  body  (on  which  it  is  unnecessary  here  to  express 
any  opinion),  still  it  is  clear  that  their  meetings  and  acts  are  but  the 
meetings  and  acts  of  a  board  of  agents,  acting  ex  officio^  and  not  the 
meetings  and  acts  of  the  corporation  itself.  The  whole  structure  of 
the  charter,  and  the  whole  proceedings  under  it,  as  well  as  the  by-laws 
and  regulations  which  have  come  under  our  review,  demonstrate  that 
this  has  been  the  uniform  construction  of  the  corporation  itself,  and  of 
the  directors.  Indeed,  this  is  believed  to  be  so  universally  acted  upon, 
in  all  the  cases  respecting  banks,  which  have  been  judicially  decided, 
that  it  is  not  thought  necessary  to  do  more  than  express  our  opinion 
that  such  is  the  true  interpretation  of  this  charter.      *      ♦      * 

Assuming,  then,  that  the  directors  of  the  parent  bank  were,  as  a 
board,  to  approve  of  the  bond,  so  far  as  it  respects  the  sureties,  in 
what  manner  is  that  approval  to  be  evidenced?  Without  question, 
the  directors  keep  a  record  of  their  proceedings  as  a  board,  and  it  ap- 
pears by  the  rules  and  regulations  of  the  parent  bank,  read  at  the  bar, 
that  the  cashier  is  bound  "to  attend  all  meetings  of  the  board  and  to 
keep  a  fair  and  regular  record  of  its  proceedings."  If  he  does  not 
keep  such  a  record,  are  all  such  proceedings  void,  or  is  the  bank  at 
liberty  to  establish  them  by  secondary  evidence?  In  the  present  case 
(we  repeat  it)  the  whole  argument  has  proceeded  upon  the  ground, 
as  conceded,  that  no  such  record  exists  of  the  approval  of  the  present 
bond.     ♦     *     • 

We  ask,  upon  what  ground  it  can  be  maintained  that  the  approval 
of  the  bond  by  the  directors  must  be  in  writing?  It  is  not  required 
by  the  terms  of  the  charter,  or  the  by-laws.  In  each  of  them,  the 
language  points  to  the  fact  of  approval,  and  not  to  the   evidence  by 


858  UNITED    STATES    BANK   V.    DANDRIDGE   ET   AL.  §  237 

which  it  is  to  be  established,  if  controverted.  It  is  nowhere  said  the 
approval  shall  be  in  writing  or  of  record.  The  argument  at  the  bar 
upon  the  necessity  of  its  being  in  writing  must,  therefore,  depend  for 
its  support  upon  the  ground  that  it  is  a  just  inference  of  law  from  the 
nature  and  objects  of  the  statute,  from  the  analogy  of  the  board  of 
directors  to  a  corporate  body,  from  principles  of  public  convenience 
and  necessity,  or  from  the  language  of  authorities,  which  ought  not  to 
be  departed  from.  Upon  the  best  consideration  we  can  give  the  sub- 
ject, we  do  not  think  that  the  argument  can  be  maintained  under  any 
of  these  aspects. 

If  the  directors  had  been  a  board  constituted  by  an  unincorporated 
company,  or  by  a  single  person  for  the  like  purposes  and  with  the 
like  powers,  it  would  scarcely  occur  to  any  person  that  the  acts  of  the 
board  must,  of  necessity,  be  reduced  to  writing  before  they  could 
bind  their  principal.  The  agents  of  private  persons  are  not  usually 
in  the  habit  of  keeping  regular  minutes  of  all  their  joint  proceedings, 
and  hitherto  there  has  been  no  adjudication  which  requires  such  a 
verification  of  their  joint  acts.  Yet  innumerable  cases  must  have 
arisen  in  which  such  a  principle  might  have  been  applied  with  suc- 
cess if  it  had  been  ever  supposed  to  possess  a  legal  existence.  The 
acts  of  private  and  public  trustees,  of  joint  agents  for  commercial 
purposes,  of  commissioners  for  private  objects  and  of  public  boards, 
must  have  presented  many  occasions  for  passing  upon  such  a  doc- 
trine. The  silence  of  the  books  under  such  circumstances  would  form 
no  inconsiderable  answer  to  the  argument,  connected  as  it  must  be 
with  the  knowledge  of  the  loose  and  inartificial  manner  in  which  much 
of  the  business  of  agencies  is  generally  conducted.  There  may  be, 
and  undoubtedly  there  is,  some  convenience  in  the  preservation  of 
minutes  of  proceedings  by  agents,  but  their  subsequent  acts  are  often 
just  as  irresistible  proof  of  the  existence  of  prior  dependent  acts  and 
votes  as  if  minutes  were  produced.  If  a  board  of  directors  were  cre- 
ated to  erect  a  bridge,  or  make  a  canal  or  turnpike,  and  they  pro- 
ceeded to  do  the  sers'ice,  and  under  their  superintendence  there  were 
persons  employed  who  executed  the  work,  and  the  board  proceeded 
to  pay  them  therefor  out  of  funds  in  their  hands,  the  facts  of  public 
notoriety  would  be  as  irresistible  evidence  of  the  due  execution  of 
their  authority  and  of  due  contracts  made  and  proceedings  had  by  the 
board  as  if  the  proceedings  were  recorded  in  the  most  formal  and 
regular  manner.  Can  there  be  a  doubt  that  in  the  cases  put  many 
contracts  are  so  varied  and  rescinded,  many  acts  done  and  assented  to 
by  the  board  which  never  are  reduced  to  formal  votes  and  declarations 
and  written  proofs?  We  think  we  may  safely  say  that  the  sense  of 
the  profession  and  the  course  of  private  business  have  never,  hitherto, 
in  respect  to  private  agencies  and  boards,  recognized  the  existence  of 
any  rule  which  required  their  acts  and  proceedings  to  be  justified  by 
written  votes. 

What  foundation  is  there  for  a  different  rule  in  relation  to  agencies 
for  corporations?  The  acts  of  a  single  duly- authorized  agent  of  a 
corporation,  within  the  scope  of  his   authority,  bind  the  corporation, 


§  237  PRESUMPTIONS   AS   TO    CORPORATE   ACTS.  859 

although  he  keeps  no  minutes  of  such  acts.  They  may  be.  and  they 
are,  daily,  proved  aliunde.  In  what  respects  do  the  acts  of  a  board 
of  agents  differ  from  those  of  a  single  agent  in  their  operation  as 
evidence  ?  A  board  may  accept  a  contract,  or  approve  a  surety,  by 
vote,  or  by  a  tacit  and  implied  assent.  The  vote  or  assent  may  be 
more  difficult  of  proof,  by  parol  evidence,  than  if  it  were  reduced  to 
writing.  But  surely  this  is  not  a  sufficient  reason  for  declaring  that 
the  vote  or  assent  is  inoperative.  If  a  board  of  directors  agree  to 
build  a  banking-house,  and  it  is  accordingly  built,  and  paid  for  by 
their  cashier,  with  their  assent,  is  the  whole  proceeding  to  be  deemed 
void,  because,  in  the  progress  of  the  undertaking,  from  accident  or 
negligence,  the  votes  and  the  payments  have  not  been  verified  by  reg- 
ular minutes.-*  But  it  is  said  that  in  the  present  case  the  cashier  is 
required  to  keep  a  fair  and  regular  record  of  the  proceedings  of  the 
directors.  But  if  this  be  admitted,  it  does  not  establish  the  purpose 
for  which  it  is  used.  It  is  a  by-law  of  the  corporation,  directory  to 
its  officers,  enacted  for  its  own  security  and  benefit,  and  not  for  the 
purpose  of  restricting  the  acts  of  the  directors.  If  the  cashier  should 
neglect  to  keep  such  records,  or  should  omit  any  single  vote,  the  by- 
law has  not  declared  that  the  vote  shall  be  void  and  the  proceedings 
nugatory.  Suppose  no  such  by-law  had  been  passed,  would  not  the 
votes  of  the  board  have  bound  the  corporation.?  If  they  had  dis- 
counted notes,  taken  mortgages,  advanced  money,  and  bought  stock, 
by  faith  of  viva  voce  unrecorded  votes,  and  evidence  of  the  existence 
of  these  acts  and  votes  necessarily  resulted  from  the  other  proceedings 
of  the  bank,  could  it  be  the  intention  of  the  legislature  that  they 
should  be  utterly  void  ?  or  of  the  stockholders  that  any  by-law  should 
operate  a  legal  extinguishment  of  their  title  to  the  property?  It  seems 
to  us  difficult  to  imagine  that  such  could  be  the  legislative  or  corpo- 
rate intention.  If,  in  ordinary  cases,  such  an  intention  could  not  be 
inferred,  in  order  to  produce  a  very  strict  and  inconvenient  construc- 
tion of  the  charter,  there  is  still  less  reason  to  apply  it  to  the  cases  of 
approval  of  official  bonds.  These  are  taken  exclusively  for  the  secu- 
rity and  benefit  of  the  bank  itself,  and  not  of  mere  strangers.  The 
approval  is  matter  of  discretion  in  the  direciors,  and  that  discretion 
once  being  exercised,  it  is  of  very  little  consequence  to  the  bank 
whether  a  written  minute  of  the  vote  be  made  or  not.  All  that  the 
bank  is  interested  in  is  that  there  shall  be  an  approval ;  and  it  mat- 
ters not  whether  the  fact  is  established  by  a  direct  record,  or  by  acts 
of  the  directors,  which  recognize  its  prior  existence.     *     «     * 

To  all  the  authorities  cited  at  the  bar  on  this  point,  the  counsel  for 
the  defendants  has  made  one  answer,  which  he  deems  applicable  to 
all  of  them.  It  is  this,  that  where  no  particular  form  for  the  expres- 
sion of  the  corporate  will  is  prescribed  by  law,  there  it  may  be  in- 
ferred from  corporate  acts;  but  that  where  such  a  form  is  prescribed 
it  must  be  followed.  This  distinction,  he  supposes,  will  reconcile  all 
the  cases.  The  distinction,  if  admitted,  will  not  aid  the  argument. 
It  may  be,  and,  indeed,  is  conceded,  that  no  corporate  act  can  be 
valid  if  done  differently  from  the  manner  prescribed  by  law  as  essen- 


86o  UNITED    STATES    BANK   V.    DANDRIDGE    ET   AL,  §  237 

tial  to  its  validity.  If  in  the  present  case  the  statute  had  prescribed 
that  nothing  but  a  written  vote  on  record  should  be  deemed  an  ap- 
proval of  the  bond,  or  that  the  cashier  should  not  be  deemed  for  any 
purpose  in  office  until  such  approval,  the  consequence  contended  for 
would  have  followed.  His  acts  would  have  been  utterly  void,  and  any 
tinrecorded  vote  pi  approval  nugatory.  But  the  very  point  in  contro- 
versy is  whether  such  written  record  be  necessary  by  the  charter  or  by- 
laws, not  as  a  matter  of  convenience  or  discreet  exercise  of  authority, 
but  as  a  sine  qua  non  to  the  validity  of  the  act.  The  cases  which 
have  been  commented  on  by  the  court  do  not  deny  the  distinction,  but 
proceed  upon  the  ground  that,  unless  positively  required  by  law,  a 
written  vote  is  not  to  be  deemed  indispensable.  The  court  is  then 
called  upon,  not  to  administer  a  doctrine  of  strict  and  settled  and 
technical  law,  but  to  introduce  a  new  rule  into  the  law  of  evidence, 
and  to  exclude  presumptive  evidence,  not  only  of  the  acts  of  corpora- 
tions, but  of  their  imincorporated  agents.  If  such  a  itile  be  lit  to  be 
adopted  it  must  be  upon  the  foundation  of  some  clear  and  unequivo- 
cal analogy  of  law,  and  public  policy  and  convenience.  We  are  not 
pi-epared  to  admit  that  it  has  any  such  foundation.  On  the  contrary, 
we  are  persuaded  that  the  introduction  of  the  rule  itself  would  be 
attended  with  serious  public  mischiefs,  and  shake  many  titles  and 
rights  which  have  been  consummated  in  entire  good  faith,  and  the 
confidence  that  no  such  written  record  was  necessary  to  their  validity. 
We  can  not,  therefore,  assent  to  the  doctrine  decided  in  the  circuit 
court  on  this  point.      *      *     * 

Reversed. 

Marshall,  Ch.  J.,  dissenting.  *  *  *  The  plaintiff  is  a  corporation 
aggregate  ;  a  being  created  by  law ;  itself  impersonal,  though  composed 
of  many  individuals.  These  individuals  change  at  will,  and  even 
while  members  of  the  corporation  can,  in  virtue  of  such  member- 
ship, perform  no  corporate  act,  but  are  responsible  in  their  natural 
capacities,  both  while  members  of  the  corporation  and  after  they 
cease  to  be  so,  for  everything  they  do,  whether  in  the  name  of  the 
corporation  or  otherwise.  The  corporation  being  one  entire  imper- 
sonal entity,  distinct  from  the  individuals  who  compose  it,  must  be 
endowed  with  a  mode  of  action  peculiar  to  itself,  which  will  always 
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  writing.''  Being  destitute  of  the  nat- 
ural organs  of  man,  being  distinct  from  all  its  members,  can  it  com- 
municate its  resolutions  or  declare  its  will  without  the  aid  of  some  ad- 
equate substitute  for  those  organs?  If  the  answer  to  this  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  or- 
gans belong  only  to  individuals ;  the  words  they  utter  are  the  word  of 
individuals.  These  individuals  must  speak  collectively,  to  speak  cor- 
porately,  and  must  use  a  collective  voice;  they  have  no  such  voice, 
and  must  communicate  this  collective  will  in  some  other  mode.   That 


§  237  rRESlMPTK^NS    AS   TO    CORPORATE    ACTS.  86l 

other  mode,  as  it  seems  to  me,  must  be  by  writing.  A  corporation 
will  generally  act  by  its  agents ;  but  those  agents  have  no  self-existing 
power.  It  must  be  created  by  law,  or  communicated  by  the  body 
itself.      This  can  be  done  only  by  writing. 

If,  then,  corporations  were  novelties,  and  we  were  required  now  to 
devise  the  means  by  which  they  should  transact  their  affairs,  or  com- 
municate their  will,  we  should,  I  think,  from  a  consideration  of  their 
nature,  of  their  capacities  and  disabilities,  be  compelled  to  say,  that 
where  other  means  were  not  provided  by  statute,  such  will  must  be 
expressed  in  writing.  But  they  are  not  novelties.  They  are  institu- 
tions of  very  ancient  date ;  and  the  books  abound  with  cases  in  which 
their  character,  and  their  means  of  action,  have  been  thoroughly  in- 
vestigated. In  Brooke's  Abridgment  (title  Coi-poration)  we  find 
many  cases,  cited  chiefly  from  the  Year  Books,  from  which  the  gen- 
eral principle  is  to  be  extracted,  that  a  corporation  aggregate  can  nei- 
ther give  nor  receive,  nor  do  anything  of  importance,  without  deed. 
Lord  Coke,  in  his  commentary  on  Littleton  (666),  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  can  not  appear  in  person ;  for,  albeit, 
the  bodies  natural,  whereupon  the  body  politic  consists,  may  be  seen, 
yet  the  body  politic  or  corporate  itself  can  not  be  seen,  nor  do  any 
act,  but  by  attorney."  So,  too,  a  corporation  is  incapable  of  attorn- 
ing, otherwise  than  by  deed  (6  Co.,  386),  or  of  suiTendering  a  lease 
for  years  (10  Co.,  676),  or  of  presenting  a  clerk  to  a  living  (Bro. 
Corp.,  83),  or  of  appointing  a  person  to  seize  forfeited  goods  (i 
Vent.,  47),  or  agreeing  to  a  disseizin  to  their  use  (Bro.  Corp.,  34). 
These  incapacities  are  founded  on  the  impersonal  character  of  a  cor- 
poration aggregate,  and  the  principle  must  be  equally  applicable  to 
every  act  of  a  personal  nature.     *     *     * 

It  is  stated  in  the  old  books  (Bro.  Corp.,  49)  that  a  corporation 
may  have  a  ploughman,  butler,  cook,  etc.,  without  retaining  them  by 
deed;  and  in  the  same  book  (p.  50)  Wood  says,  "small  things  need 
not  be  in  writing,  as  to  light  a  candle,  make  a  fire  and  turn  cattle  off 
the  land."  Fairfax  said,  "A  corporation  can  not  have  a  servant  but 
by  deed;  small  things  are  admissible  on  account  of  custom,  and  the 
trouble  of  a  deed  in  such  cases,  not  by  strict  law."  Some  subsequent 
cases  show  that  officers  may  be  appointed  without  deed,  but  not  that 
they  may  be  appointed  without  writing.  Every  instrument  under 
seal  was  designated  as  a  deed,  and  all  writings  not  under  seal 
were  considered  as  acts  by  parol.  Consequently,  when  the  old 
books  say  a  thing  may  be  done  without  deed  or  by  parol,  nothing 
more  is  intended  than  that  it  may  be  done  without  a  sealed  instru- 
ment. It  may  still  require  to  be  in  writing.  In  2  Bac.  Abr.,  13,  it  is 
said,  "aggregate  corporations,  consisting  of  a  constant  succession  of 
various  persons,  can  regularly  do  no  act  without  writing ;  therefore, 
gifts  by  and  to  them  must  be  by  deed."  In  page  340  it  is  said,  "if 
a  corporation  aggregate  disseize  to  the  use  of  another,  they  are  dissei- 
zors in  their  natural  capacity,",  "as  a  corporation  they  can  regularly 
do  no  act  without  writing."     ♦     ♦     * 

See  note  at  the  end  of  the  next  case. 


862  ZOLLER    V.    IDE.  §  238 

Sec.  238.     Execution  of  contracts. 

ZOLLER  V.  IDE. 
187 1.     In  the  Supreme  Court  of  Nebraska,    i  Neb.  Rep.  439. 

This  was  a  bill  in  chancery,  filed  to  recover  the  legal  title  to  lands. 
Zoller  sought  to  make  his  title  through  a  coi-poration  called  "The 
Sulphur  Springs  Land  Company,"  by  a  deed  which  ran,  "I,  Thomas 
H.  Benton,  Jr.,  President  of  the  Sulphur  Springs  Land  Company,  do 
hereby  convey,"  etc.,  and  was  signed  by  Benton  in  the  same  way. 

The  court,  by  Lockwood,  J.,  held  that  this  conveyance  did  not 
pass  the  title  of  the  company,  and,  therefore,  Zoller  did  not  show 
title  in  himself. 

Note.     See,  as  to  use  of  seal,  infra,  pp.  1136-1153. 

1.  Corporate  meetings,  both  those  of  shareholders  and  directors,  being  de- 
liberative assemblies  are  conducted  in  such  ways  as  may  be  convenient  and 
agreeable  to  the  members,  though,  perhaps,  in  the  absence  of  any  specific 
charter  or  by-law  regulations,  or  custom  to  the  contrary,  they  are  supposed  to 
follow  ordinary  parliamentary  usage:  1829,  Phillips  v.  Wickham,  1  Paige 
Ch.  (N.  Y.)  590;  1834,  People  v.  Peck,  11  Wend.  (N.  Y.)  604;  1849,  Hughes  v. 
Parker,  20  N.  H.  58;  1851,  Downing  v.  Potts,  23  N.  J.  L.  66;  1852,  People  v. 
Campbell,  2  Cal.  135;  1875,  State  v.  Pettineli,  10  Nev.  141;  1879,  In  re  Hor- 
bury,  etc.,  Co.,  L.  R.  U  Ch.  Div.  109;  1889,  Landers  v.  Frank  St.  M.  E. 
Church,  114  N.  Y.  626;  1890,  Henderson  v.  Bank  of  Jiustralasia,  62  L.  T.  Rep. 
869. 

2.  It  is  not  necessary  to  the  validity  of  corporate  action  that  the  proceed- 
ings be  recorded:  1848,  Waters  v.  Gilbert,  56  Mass.  (2  Cush.)  27;  1859, 
Langsdale  v.  Bonton,  12  Ind.  467;  1891,  Handley  v.  Stutz,  139  U.  S.  417;  1892, 
New  Boston  Fire  Ins.  Co.  v.  Saunders,  67  N.  H.  249;  1896,  Boggs  v.  Lakeport, 
etc.,  Assoc,  111  Cal.  354;  1897,  Zalesky  v.  Iowa,  etc.,  Co.,  102  Iowa  512,  70 
N.  W.  Rep.  187. 

3.  If  corporate  records  are  kept,  they  are  the  best  evidence  of  the  corporate 
action,  and  other  evidence  is  not  admissible  until  it  is  shown  the  records  can 
not  be  obtained:  1817,  Hallowell,  etc..  Bank  v.  Hamlin,  14  Mass.  178;  1820, 
Owings  V.  Speed,  5  Wheat.  (U.  S.)  420;  1830,  Thayer  v.  Middlesex  Co.,  27 
Mass.  (10  Pick.)  326;  1852,  Gould  v.  Norfolk,  etc.,  Co.,  63  Mass.  (9  Cnsh.) 
338;  1888,  Dial  v.  Valley,  etc,  Assoc,  29  S.  C.  560;  1891,  MuUanphy  Sav. 
Bank  v.  Schoot,  135  111.  655;  1891,  Bowick  v.  Miller,  21  Ore.  25;  1895,  Man- 
del  V.  Swan,  etc.,  Co.,  154  111.  177.  But  compare,  1845,  Van  Hook  v.  Som- 
erville,  etc,  Co.,  5  N.  J.  Eq.  137,  169;  1897,  Johnson  v.  Okerstrom,  70  Minn. 
303,  on  308. 

4.  All  corporate  contracts  and  conveyances  should  be  made  in  the  legal 
name  of  the  corporation,  and  be  executed  by  it  in  its  own  name,  and  not  in 
the  name  of  the  person  representing  it.  It  is  usual,  though  not  necessary,  for 
the  instrument  itself  somewhere  to  recite  that  the  person  who  actually  repre- 
sents the  corporation  has  been  duly  authorized  to  execute  the  instrument  for 
and  in  the  name  of  the  corporation. 

Illustrations .  (a)  Deed:  The  following  would  be  proper :  Know  all  men 
by  these  presents,  that  the  A.  B.  Co.,  a  corporation  duly  organized  and  exist- 
ing under  and  by  authority  of  the  laws  of ,  in  consideration  of 

dollars  to  it  paid,  etc.,  does  hereby  grant,  etc.,  unto  the  X.  Y.  Co.,  a  corpora- 
tion duly  organized  and  existing  under  and  by  authority  of  the  laws  of , 

its  successors  and  assigns  forever,  the  following,  etc.,  etc. 

And  the  said  A.  B.  Co.,  for  itself  and  its  successors,  does  hereby  covenant, 
etc.,  etc. 

In  witness  whereof,  the  said  A.  B.  Co.  has  hereunto  caused  its  corporate 
name  to  be  signed,  and  its  corporate  seal  to  be  affixed,  and  the  same  to  be  at- 


§  238  EXECUTION   OF   CONTRACTS.  863 

tested  by  the  signatures  of  C.  D.,  its  president,  and  E.  F.,  its  secretarj',  being 

thereunto  duly  authorized,  on  this day  of . 

[corporate  seal.]  a.  B.  Co., 

Signed,  sealed  and  acknowledged  By  C.  D.,  its  president,  and 

in  our  presence:  E.  F.,  its  secretary. 

Witness : 


In  Norris  v.  Dains,  52  O.  S.  215  (1894),  an  instrument  worded  and  executed 
as  follows  was  held  not  to  be  the  act  of  the  company :  Know  all  men  by  these 
presents,  That  I,  G.  F.  Baker,  treasurer  of  the  S.  I.  &  C.  M.  Co.,  by  virtue  of 
the  power  in  rae  vested  by  virtue  of  the  vote  of  directors  of  said  company  (a 

copy  of  which  is  hereto  annexed),  and  in  consideration  of dollars,  etc., 

to  me  paid  by,  etc.,  do  hereby  sell,  etc.,  to  G.  W.  Norris,  etc.  Tn  witness 
whereof,  I,  the  said  G.  F.  Baker,  treasurer  as  aforesaid,  in  behalf  of  said  com- 
pany, have  hereunto  set  my  hand  and  the  seal  of  said  company  this  eighth 
day  of,  etc. 

G.  F.  Baker,  Treas.  of  S.  I.  &  C.  M.  Co. 

Inp.esenceo,{J:  ^^.J^f  { ^^"brlaJiztf IsS.  °"- } 

(Copy  of  vote  of   directors,  authorizing  lease  to  be  made  to  Norris,  and 
authorizing  the  treasurer  to  execute  the  same.) 
Commw.  of  Mass.,  Suffolk  Co.,  ss.,  Nov.,  1864. 

"Then  personally  appeared  G.  F.  Baker,  who  executed  the  foregoing  instru- 
ment, and  acknowledged  the  same  to  be  his  free  act  and  deed  and  the  free 
act  and  deed  of  said  company  before  me. 

J.  NiCKERSON,  Justice  of  the  Peace. 

Some  of  the  older  cases,  however,  hold  that  a  conveyance  by  an  authorized 
officer,  sealed  with  the  corporate  seal,  is  valid  as  the  act  of  the  corporation. 
See  1830,  Savings  Bank  v.  Davis,  8  Conn.  191  (old  cases  collected  in  counsel's 
brief);  1832,  Leggett  v.  N.  J.  Mfg.  Co.,  1  Saxton  Ch.  (N.  J.)  541,  23  Am. 
Dec.  728,  note,  746. 

But  the  more  recent  cases,  as  well  as  many  of  the  early  cases,  approve  the 
rule  above  stated.  I  am  indebted  to  J.  H.  Brewster,  professor  of  conveyanc- 
ing in  the  law  department  of  U.  of  M.  for  most  of  the  following:  1614,  Combes' 
Case,  9  Co.  Rep.  75,  766;  1824,  Hatch  v.  Barr,  1  Ohio  390;  1827,  Coburn  v. 
Ellenwood,  4  N.  H.  99;  1847,  Isham  v.  Bennington  Iron  Co.,  19Vt.  230; 
1848,  Brinley  v.  Mann,  2  Cush.  (Mass.)  337;  1863,  Miller  v.  Rutland  R.  Co., 
36Vt.  452;  1872,  Merrill  v.  Montgomery,  25  Mich.  73;  1873,  Northwestern 
Distilling  Co.  v.  Brant,  69  111.  668,  18  Am.  Rep  631 ;  1876,  Hays  v.  Gallon 
G.  L.  &  C.  Co.,  29  Ohio  St.  330,  on  334;  1880,  C.,  B.  &  Q.  R.  Co.  v.  Lewis, 
53  Iowa  101;  1882,  Merchants  v.  Goddin,  76  Va.  503;  1883  Eppright  v. 
Nickerson,  78  Mo.  482;  1887,  Galloway  v.  Hamilton,  68  Wis.,  651;  1889, 
Alta  Silver  M.  Co.  v.  Mining  Co.,  78  Cal.  629;  1890,  McElroy  v.  Nucleus 
Assoc,  131  Pa.  St.  393;  1891,  Danville  Seminary  v.  Mott,  136  111.  289;  1893, 
Brown  v.  Farmer's  Supply  Co.,  23  Ore.  541,  .32  Pac  Rep.  548;  1894,  Norris  v. 
Dains,  52  Ohio  St.  215;  1894,  Gray  v.  Waldron,  101  Mich.  612;  1895,  Garrett 
v.  Belmont  Land  Co.,  94  Tenn.  459  (collecting  cases  as  to  seal) ;  1897,  Globe 
Accident  I.  Co.  v.  Reid,  19  Ind.  App.  203;  1897,  Jones  v.  Williams,  139  Mo. 
1,61  Am.  St.  Rep.  436;  1898,  Lewis  v.  Pulitzer  Pub.  Co.,  77  Mo.  App.  434; 
1899,  Little  Saw  Mill  V.  T.  &  Co.  v.  Fed.  St.  R.  Co„  193  Pa.  144,  45  Atl. 
Rep.  66;  1900,  New  Memphis  Gaslight  Co.  Cases,  105  Tenn.  268,  80  Am.  St. 
Rep.  880,  60  S.  W.  206. 

As  to  seal,  see  powers  of  corporation  to  have  a  seal,  infra,  pp.  1136-1153. 

(b)  Acknowledgrment:  The  American  Bar  Association  (5  Report,  1882,  p. 
304)  recommends  the  adoption  and  use  of  the  following  form  for  the  acknowl- 
edgment by  a  corporation.  According  to  the  last  edition  of  Jones'  Forms  of 
Conveyancing,  p.  9,  this  form  has  been  authorized  bv  Iowa,  Code  1897, 
§§  2959-60;  Massachusetts,  Acts  1894,  ch.  253;  Michigan,  Public  Acts  1895,  p. 
346;  Minnesota,  2  G.  S.  1894,  ch.  72;  Missouri,  R.  S.  1889,  §  2408;  New  Mex- 
ico, Conip.  Laws  1897,  §  3945.  It  undoubtedly  would  be  8uffi<-ient  in  many 
other  states,  though  perhaps  not  in  all ;  and  in  any  event,  if  there  is  any  stat- 


864  ZOLLER    V.    IDE.  §  238 

ute  of  the  state  upon  the  subject  it  should  be  consuked  and  carefully  fol- 
lowed.    The  form  suggested  is : 

"State  of ,  county  of ,  ss  : 

On  this day  of ,  19—,  before  me,  the  subscriber  [insert  here  the 

title  of  the  o^cer], "appeared  C.  D.,  to  me  personally  known,  who,  being  by  me 
duly  sworn  {or  affirmed) ,  did  say  that  he  is  the  president  [or  other  officer  or 
agent  of  the  corporation  or  association']  of  [describing  the  corporation  or  associa- 
tion], and  that  the  seal  affixed  to  said  instrument  is  the  corporate  seal  of  said 
corporation  [or  association],  and  that  sai4  instrument  was  signed  and  sealed 
in  behalf  of  said  corporation  [or  association'}  by  authority  of  its  board  of  direc- 
tors [or  trnstees~\,  and  said  C.  D.  acknowledged  said  instrument  to  be  the 
free  act  and  deed  of  said  corporation  [or  association}. 

[In  case  the  corporation  or  association  has  no  corporate  seal  omit  the  words 
"the  seal  affixed  to  said  instrument  is  the  corporate  seal  of  said  corporation  (or 
association)  and  that'''  and  add  at  the  end  of  the  affidavit  clause  the  xoords  "and 
that  said  corporation  (or  association)  has  no  corporate  seal.'"} 

["In  all  cases  add  tlie  signature  and  title  of  the  officer  taking  the  acknowledg- 
ment."} 

See  the  following :  1872,  Merrill  v.  Montgomery,  25  Mich.  73;  1877,  Kelly 
V.  Calhoun,  95  U.  S.  710;  1880,  C.  B.  &  Q.  R.  Co.  v.  Lewis,  53  Iowa  101; 
1883,  Eppright  v.  Nickerson,  78  Mo.  482;  1894,  Gray  v.  Waldron,  101  Mich. 
612;   1894,  Jinwright  v.  Nelson,  105  Ala.  399. 

{c\    Notes,  etc.     The  ordinary  form  of  a  note  would  be : 

"One  year  after  date,  for  value  received,  The  A.  B.  Co.  promises  to  pay  to 
the  X.  Y.  Co.  or  order,  the  sum  of dollars,  at ,  with  interest,  etc. 

"The  A.  B.  Co.,  by  C.  D.,  its  president  (or  officer  duly  authorized)." 

This  would  be  properly  indorsed  as  follows: 

"Pay  to  the  order  of  John  Doe. 

"TheX.Y.  Co.,  by  E.  F.,  its  president  (or  other  officer  authorized)." 

It  is  not  necessary  to  attach  the  corporate  seal  1868,  Jones  v.  Horner,  60 
Pa.  St.  214,  and  some  of  the  earlier  cases  held  that  affixing  the  seal  to  what 
would  otherwise  be  a  negotiable  instrument  would  make  it  non-negotiable : 
1810,  Warren  v.  Lynch,  5  Johns.  (N.  Y.)  239;  1836,  Clark  v.  Farmer's  Woolen 
Mfg.  Co.,  15  Wend.  (N.' Y.)  256;  1840,  Frevall  v.  Fitch,  5  Whart.  (Pa.)  325,  34 
Am.  Dec.  558;  1866,  Conine  v.  Junction,  etc.,  R.  Co.,  3  Houst.  (Del.)  288,  89 
Am.  Dec.  230;  1881,  Coe  v.  The  Cayuga  L.  R.  Co.  (C.C.  N.  D.),  8  Fed.  Rep. 
534. 

But  the  recent  cases  all  hold  otherwise:  1873,  Bank  v.  Railroad  Co.,  5  S.C. 
156;  1875,  Jackson  v.  Meyers,  43  Md.  452;  1889,  Miller  v.  Roach,  150  Mass. 
140;  1891,  Stevens  v.  Ball  Club,  142  Pa.  St.  52;  1894,  Weeks  v.  Esler,  143  N. 
Y.  374;  1896,  Chase  National  Bank  v.  Faurot,  149  N.  Y.532;  1897,  Landauer 
v.  Sioux,  etc.,  Co.,  10  S.  D.  205,  72  N.  W.  Rep.  467;  1898,  Clark  v.  Read,  12 
App.  D.  C.  343. 

Judge  Thompson,  however,  thinks  it  is  useful  to  affix  the  corporate  seal,  as 
showing  it  is  the  note  of  the  corporation,  and  not  that  of  the  officer  signing 
for  the  corporation,  and  also  furnishing  prima  facie  evidence  of  agent's 
authority,  and  of  everything  else  necessary  to  the  validity  of  the  act:  IV. 
Thompson,  §§  5054,  5105,  5123  n.  1,  p.  3839;  1840,  Burrill  v.  Nahant  Bank,  2 
Met.  (Mass.)  163,  35  Am.  Dec.  395;  1867,  Gashwiler  v.  Willis,  33  Cal.  11,  11 
Am.  Dec.  607,  note  collectiner  cases,  p.  616;  1889,  Miller  v.  Roach,  150  Mass. 
140.     See,  infra,  pp.  1147-1153. 

There  is  much  conflict  as  to  the  effect  of  making  and  signing  promissory- 
notes  in  a  way  different  from  that  suggested  above:  e.  g.  Where  a  note  read 
"  We  pi'omise  to  pay ,  etc.,"  signed  "Ihibuque  Matress  Co.,  John  Kapp,  Ft." — it 
was  held  to  be  the  note  of  Kapp  as  well  as  of  the  corporation,  and  parol  evi- 
dence was  not  admitted  to  show  it  to  be  only  the  note  of  the  corporation. 
1893,  Mathews  v.  Dubuque  Matress  Co.,  87  Iowa  246,  54  N.  W.  Rep.  225.  On 
the  other  hand,  1889,  Liebscher  v.  Kraus,  74  Wis.  387,  where  the  note  read 
"We  promise  to  pay,  etc.,"  signed  "San  Pedro  Mining  and  Milling  Co.,  F. 
Kraus,  President,"  it  was  held  to  be  the  note  of  the  corporation  alone,  and 


§  238  EXECUTION    OF    CONTRACTS  865 

l>arol  evidence  was  inadmissible  to  show  Kraus  was  a  joint  maker.  Again 
wlien  the  note  read  "  We  promise  to  pat/,  etc.,^'  and  was  signed  "National  Forge 
and  Iron  Co.,  Mark  Stoarts,  Pi'esident,"  it  was  held  to  be  ambiguous,  as  to 
whether  it  was  the  note  of  Swarts  alone,  or  the  company  alone,  or  a  joint- 
note,  and  parol  evidence  was  admitted  to  clear  up  the  ambiguity.  1894, 
Swarts  V.  CJohen,  11  Ind.  App.  20.  In  neither  of  the  foregoing  was  the  corpo- 
rate seal  affixed.  In  Miller  v.  Roach,  150  Mass.  140  (1889),  the  note  read, 
"We  promise  to  pay,  etc.,"  and  in  the  usual  place  of  the  signature  the  corpo- 
rate seal,  giving  the  name  of  the  corporation,  was  stamped,  and  "John  Roach, 
Treasurer,"  was  written  partly  across  the  seal.  This  was  held  to  be  the  note 
of  the  company. 

Judge  Thompson,  Vol.  iv,  §§  5121-54,  and  Daniell's  Negotiable  Instruments, 
§§  401-415,  review  many  cases.  The  form  of  making  and  executing  corporate 
notes  is  discussed  in  the  following  cases:  1823,  Mott  v.  Hicks,  1  Cow.  (N.  Y.) 
513, 13  Am.  Dec.  550;  1839,  Horah  v.  Long.  4  Dev.  &  B.  (N.  C.)  274,  34  Am. 
Dec.  378;  1855,  Pierce  v.  Robie,  39  Maine  205,  63  Am.  Dec.  614;  1880,  Pack  v. 
White,  78  Ky.  243;  1889,  McKensey  v.  Edwards,  88  Ky.  272,  21  Am.  St.  Rep. 
339;  1889,  Liebscher  v.  Kraus,  74  Wis.  387,  17  Am.  St.  Rep.  171;  1889, 
McCandless  v.  Belle  Plaine,  etc.,  Co.,  78  Iowa  161, 16  Am.  St.  Rep.  429;  1894, 
Swarts  V.  Cohen,  11  Ind.  App.  20,  collecting  cases;  1896,  Hately  v.  Pike,  162 
111.  241,  53  Am.  St.  Rep.  304;  1896,  Nebraska  Nat'l  Bank  v.  Ferguson,  49  Neb. 
109,  59  Am.  St.  Rep.  522;  1897,  Albany  Furniture  Co.  v.  Merchants'  Nat'l 
Bank,  17  Ind.  App.  531;  1897,  Taylor  v.  Reger,  18  Ind.  App.  466;  1898, 
National  Bank  v.  Allen,  90  Fed.  Rep.  545,33  C.  C.  A.  169;  1898,  Clark  v. 
Read,  12  App.  D.  C.  343;  1899,  Youngs  v.  Perry,  42  App.  Div.  (N.  Y.)  247; 
1900,  Crawford  v.  Albany  Ice  Co.,  36  Ore.  535,  60  Pac.  Rep.  14. 

65— WIL.  CAS. 


^13/ 0^ 


Title  VII.     Corporate  Death — Dissolution. 


CHAPTER  11. 

MODES  AND  EFFECT  OF  DISSOLUTION. 

article    I.       METHODS    OK    DISSOLUTION. 

Sec.    239.     In  general. 

THE  BOSTON  GLASS  MANUFACTOEY  v.  LANGDON.* 

1834.     In   the   Supreme    Judicial   Court    of   Massachusetts. 
24  Pick.  (Mass.)  49-54,  35  Am.  Dec.  292. 

[Assumpsit  by  Glass  company  upon  a  note  given  by  defendant  to 
plaintiff.  Plea  in  abatement  that  there  was  at  time  of  suit  no  such 
corporation — the  facts  showing  an  incorporation  and  organization  in 
181 1,  an  assignment  of  all  the  corporate  property  in  1817  to  tmstees 
to  pay  creditors,  and  an  omission  to  hold  annual  meetings,  choose  di- 
rectors or  transact  business  since  that  time.  The  jury  were  instructed 
that  the  corporate  life  continued,  and  they  found  for  the  plaintiff. 
The  instructions  and  verdict  upon  them  are  assigned  as  errors.] 

Morton,  J.  *  *  *  The  legal  establishment  and  due  organiza- 
tion of  the  corporation  were  admitted ;  but  it  was  contended  that  the 
facts  disclosed  showed  a  dissolution  of  it. 

The  elementary  treatises  on  corporations  describe  four  methods  in 
which  they  may  be  dissolved.  It  is  said  that  private  corporations 
may  lose  their  legal  existence  by  the  act  of  the  legislature ;  by  the 
death  of  all  the  members;  by  a  forfeiture  of  their  franchises :  and 
by  a  surrender  of  their  charters.  2  Kyd  Corp.  447;  i  Bl.  Comm. 
485  ;  2  Kent's  Comm.  (ist  ed.)  245  ;  Angell  and  Ames  Corp.,  501 ; 
Oakes  v.  Hill,  14  Pick.  442.  No  other  mode  of  dissolution  is  any- 
where mentioned  or  alluded  to. 

I.  In  England,  where  the  parliament  is  said  to  be  omnipotent,  and 
where  in  fact  there  is  no  constitutional  restraint  upon  their  action, 
but  their  own  discretion  and  sense  of  right,  corporations  are  supposed 
to  hold  their  franchises  at  the  will  of  the  legislature.     But  if  they  pos- 

*  Statement  abridged  ;  arguments  and  part  of  opinion  omitted. 

(866) 


§  2  39  METHODS   OF   DISSOLUTION.  86/ 

sess  rhe  power  to  annul  charters,  it  certainly  has  been  rarely  exercised 
by  them.  In  this  country,  where  the  legislative  power  is  carefully  de- 
fined by  explicit  fundamental  laws,  by  which  it  must  be  governed  and 
beyond  which  it  can  not  go,  it  has  become  a  question  of  some  diffi- 
culty to  determine  the  precise  extent  of  their  authority  in  relation  to 
the  revocation  of  charters  granted  by  them.  But  as  it  is  not  pre- 
tended that  there  has  been  any  legislative  repeal  of  the  plaintiff's 
charter,  it  will  not  be  useful  further  to  discuss  this  branch  of  the  sub- 
ject. 

2.  As  all  the  original  stockholders  are  not  deceased,  the  corporation 
can  not  be  dissolved  for  the  want  of  members  to  sustain  and  exercise 
the  corporate  powers.  Besides,  this  mode  of  dissolution  can  not  afply 
to  pecuniary  or  business  corporations .  The  shares^  being  property^ 
pass  by  assignment ^  bequest  or  descent^  and  must  ever  remain  the 
property  of  some  persons^  who  of  necessity  must  be  members  of  the 
corporation  as  long  as  it  may  exist. 

3.  Although  a  corporation  may  forfeit  its  charter  by  an  abuse  or 
misuser  of  its  powers  and  franchises,  yet  this  can  only  take  effect 
upon  a  judgment  of  a  competent  tribunal.  2  Kent's  Comm.  (  ist  ed. ) 
249;  Corporation  of  Colchester  v.  Seaber,  3  Burr.  1866;  Smith's 
Case,  4  Mod.  53.  Whatever  neglect  of  duty  or  abuse  of  power  the 
corporation  may  have  been  guilty  of,  it  is  perfectly  clear  that  they 
have  not  lost  their  charter  by  forfeiture.  Until  a  judicial  decree  to 
this  effect  be  passed,  they  will  continue  their  corporate  existence. 
The  King  v.  Amery,  2  T.  R.  515. 

4.  Charters  are  in  many  respects  compacts  between  the  govern- 
ment and  the  corporators.  And  as  the  former  can  not  deprive  the 
latter  of  their  franchises  in  violation  of  the  compact,  so  the  latter  can 
not  put  an  end  to  the  compact  without  the  consent  of  the  former.  It 
is  equally  obligatory  on  both  parties.  The  surrender  of  a  charter 
can  only  be  made  by  some  formal  solefnn  act  of  the  corporation  ;  and 
will  be  of  no  avail  until  accepted  by  the  government.  There  must  be 
the  same  agreement  of  the  parties  to  dissolve  that  there  was  to  form 
the  compact.  It  is  the  acceptance  which  gives  effcacy  to  the  surren- 
der. The  dissolution  of  a  corporation,  it  is  said,  extinguishes  all  its 
debts.  The  power  of  dissolving  itself  by  its  own  act  would  be  a 
dangerous  power,  and  one  which  can  not  be  supposed  to  exist. 

But  there  is  nothing  in  this  case  which  shows  an  intention  of  the 
corporators  to  surrender  or  forfeit  their  charter,  nor  anything  which 
can  be  construed  into  a  surrender  or  forfeiture. 

7^he  possession  of  property  is  not  essential  to  the  existence  of  a  cor- 
poration. 2  Kent's  Comm.  (ist  ed.)  249.  Its  insolvency  can  not, 
therefore,  extinguish  its  legal  existence.  Nor  can  the  assignment  of 
all  its  property  to  pay  its  debts,  or  for  any  other  purpose,  have  that 
effect.  The  instrument  of  assignment  was  not  so  intended,  and  can 
not  be  so  construed.  All  its  provisions  look  to  the  continuance  of 
the  corporation.  It  contains  covenants  that  the  assignees  may  use  the 
corporate  name  for  the  collection  of  the  debts  and  the  disposition  of 
the  property  assigned ;   that  the  corporation  will  not   hinder  or  ob- 


868  BRADLEY   V.    REPPELL.  §  24O 

struct  them  in  the  performance  of  these  functions ;  that  it  will  make 
any  further  conveyances  and  assurances  which  may  become  necessary, 
and  will  do  and  perform  any  other  and  further  acts  which  may  be  re- 
quired to  enable  the  assignees  fully  to  execute  their  trust.  The  in- 
strument which  covenants  for  future  acts  can  not  be  construed  to  take 
away  all  power  of  action. 

The  omission  to  choose  directors  clearly  does  not  show  a  dissolution 
of  the  corporation.  Although  the  'proper  officers  may  be  necessary  to 
enable  the  body  to  act,  yet  they  are  not  essential  to  its  vitality.  Even  the 
^yant  of  officers  and  the  want  of  power  to  elect  them,  would  not  be 
fatal  to  its  existence.  It  has  a  potentiality  which  might,  by  proper 
authority,  be  called  into  action  without  affecting  the  identity  of  the 
corporate  body.     Colchester  v.  Seaber,  3  Burr.  1870. 

But  here  in  fact  was  no  lack  of  officers.  Although  no  directors  had 
been  chosen  for  several  years,  yet  by  the  by-laws  of  the  corporation 
the  directors,  though  chosen  for  one  year,  were  to  continue  in  office 
till  others  were  chosen  in  their  stead.     *     *     * 

Affirmed. 

Note.  Modes  of  dissolution.  In  Swan  Land,  etc.,  Co.  v.  Frank,  148  U.  S.  603, 
611  (1893),  Mr.  Justice  Jackson  states  the  following  methods  of  dissolution: 
(1^  By  expiration  of  charter;  (2)  by  failure  of  an  essential  part  that  can  not 
be  restored;  (3)  by  dissolution  and  surrender  of  franchise  with  consent  of 
the  state;  (4)  by  legislative  enactment  within  constitutional  authority;  (5) 
by  forfeiture  of  franchises  and  judgment  of  dissolution  declared  in  regular 
judicial  proceedings,  or  by  other  lawful  means. 

In  9  Am.  &  Eng.  Ency.  of  Law,  p.  546, 2d  ed.,  it  is  said :  "A  corporation  may 
be  dissolved :  (1)  By  the  repeal  of  its  charter;  (2)  by  the  happening  of  a 
condition  or  contingency  prescribed  by  the  charter ;  (3)  by  the  natural  death 
of  all  its  members  or  the  loss  of  an  integral  part;  (4)  by  the  surrender  of  its 
franchises ;  (5)  by  expiration  of  the  period  of  its  existence  as  limited  in  its 
charter ;  (6)  by  judgment  of  forfeiture  in  a  judicial  proceeding. 

Elliott  Private  Corporations,  §  592,  says  dissolution  may  be  effected  (1)  by 
the  expiration  of  the  statutory  period  of  its  existence;  (2)  an  act  of  the  legis- 
lature under  a  reserved  power  to  repeal ;  (3)  the  surrender  of  the  charter 
with  the  consent  of  the  state ;  (4)  the  forfeiture  of  the  charter  for  misuse  or 
non-use  of  its  powers ;  (5)  the  loss  of  an  integral  part  without  whose  exist- 
ence the  functions  of  the  corporation  can  not  be  exercised,  and  (6)  compli- 
ance with  whatever  statutory  requirements  may  exist  in  ord^r  to  effect  a  vol- 
untary dissolution. 


Sec.  240.     Expiration  of  charter. 

BRADLEY  v.  REPPELL.* 

1896.     In  the  Supreme  Court  of  Missouri.     133  Mo.  Rep.  545- 
561,  54  Am.  St.  Rep.  685. 

[Ejectment  by  Bradley  to  recover  land  claimed  by  Reppell  by  ad- 
verse possession.  Plaintiff  offered  in  evidence  to  show  title  a  certified 
copy  of  a  deed  to  the  land  executed  by  the  West  Kansas  City  Land 

*  Statement  much  abridged,  arguments  and  much  of  the  opinion  omitted. 


§  240  METHODS   OF   DISSOLUTION.  869 

Company,  by  its  president  and  secretary,  August  20.  1880.  This 
company  was  incorporated  by  special  act  of  March  14,  1859,  without 
any  special  provision  as  to  its  duration.  The  general  law  at  the  time 
provided  that  every  corporation  should  have  succession  for  the  period 
limited  in  its  charter,  and  when  no  period  is  limited,  for  twenty  years, 
with  power  in  the  president  and  directors  to  settle  up  its  affairs  after- 
ward. A  demurrer  to  the  plaintiff'^  evidence  contained  in  the  deed  was 
sustained  by  the  court  on  the  ground  that  corporate  life  had  ceased  at 
the  time  of  its  execution,  and  there  was  a  verdict  for  the  defendant. 
Sustaining  the  demuner  is  the  error  assigned.  To  the  defendant's 
contention  that  the  corporate  life  had  ceased  before  the  deed  was  exe- 
cuted, the  plaintiff  answered  that  a  de  facto  corporation  existed,  and 
its  acts  could  be  questioned  only  by  the  state.] 

Brace,  P.  J.  *  *  *  This  answer  does  not  meet  the  question, 
unless  it  be  assumed  that  a  corporation  whose  corporate  existence  has 
expired  by  the  terms  of  the  law  which  created  it  still  exists  as  a  de 
facto  corporation  as  to  all  persons  except  the  state,  an  assumption  that 
we  think  is  not  sustained  by  the  authorities  cited,  and  is  not  "the  set- 
tled law  in  this  state." 

On  the  contrary,  in  this  state,  as  elsewhere,  unless  otherwise  pro- 
vided by  statute,  the  law  is,  that  where  the  term  of  the  existence  of  a 
corporation  is  fixed  by  its  charter  or  the  general  law,  upon  the  expira- 
tion of  that  term  the  corporation  becomes  ipso  facto  dissolved;  it  can 
no  longer  act  in  a  corporate  capacity  and  its  title  to  property  ceases. 
2  Beach  Priv.  Corp.,  §  780;  2  Morawetz  Priv.  Corp.,  §  1031.  In 
such  an  event  in  this  state  the  title  to  its  property  is  by  statute  de- 
volved upon  trustees  for  the  settlement  of  its  affairs  and  the  distribu- 
tion of  its  assets.  R.  S.  1855,  ch.  34,  §  24;  R.  S.  1889,  §  2513.  And 
thereafter  it  has  no  power  to  make  a  legal  contract  or  convey  property 
in  its  corporate  naine  and  capacity;  it  ceases  to  be  a  corporation  de 
jure  et  de  facto^  for  the  reason  that  there  is  no  law  in  force  authoriz- 
ing 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  it- 
self, without  the  necessity  of  any  judicial  investigation,  in  an  issue  in- 
volving 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,  Mclndoe  v.  St.  Louis, 
10  Mo.  576,  does  not  touch  the  question,  side,  edge,  or  bottom.  The 
cases  of  Chambers  v.  St.  Louis,  29  Mo.  543;  Land  v.  Coffman,  50 
Mo.  243;  Shewalter  V.  Pirner,  55  Mo.  218,  and  Conn.  Mutual  Ins. 
Co.  V.  Smith,  117  Mo.  261,  go  no  farther  in  the  direction  of  our 
present  inquiry  than  to  hold  that  where  an  existing  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 


8/0  •  BRADLEY    V.    REPPELL.  §  24O 

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  or- 
ganization 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  ca- 
pacity to  contract  or  sue  as  a  corporation  upon  such  contract.  4 
Thomp.  Corp.,  §  5275;  4  Am.  &  Eng.  Ency.  of  Law,  p.  198,  and 
cases  cited,  note  i,  p.  199;  2  Morawetz  Priv.  Corp.,  §§  750,  753;  i 
Beach  Priv.  Corp.,  §  13. 

And  so  it  has  been  ruled  in  this  state  in  many  cases,  including  those 
next  cited  in  the  brief  of  counsel  for  respondent.  Railroad  v.  Mc- 
Pherson,  35  Mo.  13;  Ins.  Co.  v.  Needles,  52  Mo.  18;  St.  Louis  v. 
Shields,  62  Mo.  247;  Stoutimore  v.  Clark,  70  Mo.  471  ;  Studebaker 
Bi'os.  V.  Montgomery,  74  Mo.  loi  ;  St.  Louis  Gaslight  Co.  v.  St. 
Louis,  84  Mo.  202,  affirming  11  Mo.  App.  55  ;  Broadwell  v.  Merritt, 
87  Mo.  95  ;   Granby  Mining  Co.  v.  Richards,  95  Mo.  106. 

Of  course,  such  estoppel  extends  as  well  to  the  privies  of  as  to 
the  parties  to  such  contracts.  Hasenritter  v.  Kirchhoffer,  79  Mo. 
339;  Ragan  v.  McElroy,  98  Mo.  349;  Broadwell  v.  Merritt,  87  Mo. 
95;  Reinhard  v.  Lead  Mining  Co.,  107  Mo.  616. 

The  inling  in  none  of  these  cases,  however,  supports  the  conten- 
tion that  the  deeds  should  have  been  admitted  in  evidence  in  the  case 
in  hand,  in  which,  as  has  been  already  seen,  there  is  no  question  of 
estoppel. 

Nor  do  the  cases  of  Finch  v.  Ullman,  105  Mo.  255,  or  Crenshaw 
V.  Ullman,  113  Mo.  633,  cited  by  plaintiff's  counsel,  in  which  it  was 
ruled  (where  there  was  a  law  authorizing  the  existence  of  the  corpo- 
ration, at  the  time  when  the  organization  assumed  to  act  and  did  act 
as  such  corporation)  that  its  corporate  existence  as  to  such  act  could 
not  be  called  in  question  in  a  collateral  proceeding,  sustain  respondent's 
contention. 

It  is  true  in  these  and  in  other  cases  it  is  sometimes  broadly  stated 
as  settled  law,  in  substance,  "that  a  transfer  of  property  to  or  by  a 
corporation  de  facto  will  be  binding  and  valid  as  against  all  parties 
except  the  state,"  but  this  is  simply  a  restatement  in  another  form  of 
the  proposition  ruled.  It  implies  that  the  case  is  one  in  which  a  cor- 
poration may  by  law  exist,  for  there  can  be  no  corporation  de  facta 
when  there  can  not  be  a  corporation  de  jure  (i  Beach  Priv.  Corp., 
§  13;  4  Thomp.  Corp.,  §  5275;  i  Thomp.  Corp.,  §  523);  at  least  as 
to  any  person  who  is  not  precluded  by  his  own  action,  or  that  of  those 
under  whom  he  claims,  frorn  questioning  its  existence.  Whatever 
may  be  the  rule  as  to  these,  as  to  all  other  persons  there  must  be  at 
least  color  of  law  for  its  corporate  existence  to  preclude  such  inquiry, 
and  it  would  seem  to  go  without  saying  that  a  law  which  gives  exist- 
ence to  a  corporation  for  a  certain  number  of  years,  at  the  end  of 
which  time  it  must  surely  die,  can  not  give  color  to  its  corporate  ex- 


§  241  METHODS   OF  DISSOLUTION.  87 1 

istence  after  the  date  of  its  death  as  decreed  by  the  terms  of  that  same 
law. 

Judge  Thompson,  in  his  recent  work  on  Private  Corporations,  says : 
"There  is  much  judicial  authority  for  the  proposition  that  where  a  cor- 
poration is  brought  to  an  end  by  hipse  of  time,  that  is,  by  the  expira- 
tion of  the  distinct  limitatio7i  of  its  life  in  its  charter,  any  further  exercise 
of  its  corporate  powers  may  be  questioned  collaterally.  The  govern- 
ing principle  here  is  that,  upon  the  expiration  of  the  term  limited  by 
the  charter  for  the  existence  of  the  corporation,  its  dissolution  is  com- 
plete. 'The  dissolution  in  such  a  case,'  it  has  been  said,  'is  declared 
by  the  act  of  legislature  itself.  The  limited  time  of  existence  has  ex- 
pired, and  no  judicial  determination  of  that  fact  is  requisite.  The 
corporation  is  de  facto  dead  '."  Thomp.  Corp.,  §  530,  citing,  in  sup- 
port of  the  text,  People  v.  Manhattan  Co.,  9  Wend.  (N.  Y.)  351; 
Morgan  v.  Ins.  Co.,  3  Ind.  285;  Wilson  v.  Tesson,  12  Ind.  285; 
Grand  Rapids  Bridge  Co.  v.  Prange,  35  Mich.  400;  Dobson  v.  Si- 
monton,  86  N.  C.  492  ;  Sturges  v.  Vanderbilt,  73  N.  Y.  384;  Bank 
of  U.  S.  V.  McLaughlin's  Adm'r,  2  Cranch  C.  C.  (U.  S.)  20. 

(Citing  and  discussing  St.  Louis  Gaslight  Co.  v.  St.  Louis,  84 
Mo.  202,  and  Miller  v.  Coal  Co.,  31  W.  Va.  836,  contra^  and  con- 
cluding the  statements  therein  were  dicta.")     *     *     * 

Affirf)ied,  and  this  opinion  adopted  by  the  court  in  banc,  four 
judges  concurring,  and  two  dissenting. 

Note.  Compare  1888,  Miller  v.  Newberg  Coal  Co.,  31  W.  Va.  836,  13  Am. 
St.  Rep.  903. 

Note:  See,  also,  1832,  Chesapeake,  etc.,  Co.  v.  Bait.  &  O.  R.  Co.,  4 Gill  &  J. 
(Md.)  1,  on  123;  1841,  Commercial  Bank  v.  Lockwood,  2  Harr,  (Del.)  8; 
1844,  State  Bank  v.  Wrenn,  3  Sra.  &  M.  (Miss.)  791 ;  1845,  Greeley  v.  Smith, 
3  Story  567,  658;  1846,  GallipoHs  Bank  v.  Trimble,  6  B.  Men.  (Ky.)  599,  601; 
1870,  LaGrange,  etc.,  R.  Co.  v.  Rainey,  47  Tenn.  (7  Cold.)  420;  1878, 
Sturges  V.  Vanderbilt,  73  N.  Y.  384,  390;  1880,  Eagle  Chair  Co.  v.  Kelsey, 
23  Kan.  632;  1885,  Asheville  Div.  No.  15  v.  Astor,  92  N.  C.  578,  585;  1888, 
People  V.  Anderson,  etc.,  Co.,  76  Cal.  190;  1891,  Logan  v.  Western,  etc.,  R. 
Co.,  87  Ga.  533. 


Sec.  241.     Happening  of  a  condition  or  contingency  prescribed 
by  the  charter. 

BROOKLYN  STEAM  TRANSIT  CO.  v.  CITY  OF  BROOKLYN.^ 

1879.     In  the  Court  of  Appeals  of  New  York.     78  N.  Y.  Rep. 

524-535- 

[Suit  by  the  transit  company  to  restrain  the  city  from  interfering  with 
it  in  constructing  its  road  in  the  city  streets.  The  charter  of  1871  pro- 
vided that  "unless  said  transit  company  be  organized,  and  at  least  one 
mile  of  such  railroad  ♦  *  *  be  laid  within  three  years"  after  the  pas- 

'  Statement  mnch  abridged ;  arguments  and  much  of  opinion  on  other  points 
omitted. 


8/2  STEAM   TRANSIT   CO.    V.    CITY   OF    BROOKLYN.  §  24I 

sage  of  the  act, "all  the  powers, rights  and  franchises  herein  granted  shall 
be  deemed  forfeited  and  terminated."  A  supplementary  act  in  1873 
provided  forthe  construction  "as  provided  in  the  original  act,"  and  en- 
acted "the  time  for  the  construction  of  the  one  mile  of  railroad  *  *  * 
is  hereby  extended  to  the  fourth  day  of  July,  1876.  No  road  was  con- 
structed till  June,  1878,  when  a  mile  was  laid  upon  the  surface  of  a 
portion  of  its  route  outside  of  Brooklyn,  and  about  the  same  time  op- 
erations were  begun  in  the  city,  when  it  was  prevented  from  proceed- 
ing further  by  the  city.     Judgment  below  for  defendant.] 

Earl,  J.  *  *  *  The  claim  of  the  defendant  is  that  the  plaintiff 
lost  its  corporate  existence  by  not  building  the  one  mile  of  its  read 
before  the  expiration  of  the  time  limited,  to  wit,  July  4,  1876. 

The  general  principle  is  not  disputed  that  a  corporation,  by  omit- 
ting to  perform  a  duty  imposed  by  its  charter,  or  to  comply  with  its 
provisions,  does  not  if  so  facto  lose  its  corporate  character  or  cease  to 
be  a  corporation,  but  simply  exposes  itself  to  the  hazard  of  being  de- 
prived of  its  corporate  character  and  franchises  by  the  judgment  of 
the  courtin  an  action  instituted  for  that  purpose  by  the  attorney-gen- 
eral in  behalf  of  the  people ;  but  it  can  not  be  denied  that  the  legisla- 
ture has  the  power  to  provide  that  a  corporation  may  lose  its  coipo- 
rate  existence  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.  Hei^e  the  lan- 
guage used  shows  that  the  legislature  intended  to  make  the  continued 
existence  of  the  plaintiff  as  a  corporation  depend  upon  its  compliance 
with  the  requirements  of  section  seventeen  of  the  original  act.  In 
case  of  non-compliance  the  act  itself  was  to  cease  to  have  any  opera- 
tion, and  all  the  powers,  rights  and  franchises  thereby  granted  were 
to  be  "deemed  forfeited  and  terminated."  There  was  to  be  not 
merely  a  cause  of  forfeiture  which  could  be  enforced  in  an  action  in- 
stituted by  the  attorney-general,  but  the  powers,  rights  and  franchises 
were  to  be  taken  and  treated  as  forfeited  and  terminated. 

At  the  end  of  time  limited  the  corporation  was  to  come  to  an  end, 
as  if  that  were  the  time  limited  in  its  charter  for  its  corporate  exist- 
ence. A  precise  authority  for  this  construction  of  this  statute  is  found 
in  the  case  of  the  Brooklyn,  Winfield  and  Newton  Railroad  Com- 
pany (72  N.  Y.  245).  That  company  was  organized  under  the  gen- 
eral 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  cor- 
poration formed  under  the  general  act  shall  not,  within  five  years 
after  its  articles  of  association  are  filed  and  recorded,  begin  the  con- 
struction 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 
years  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  limited,  and  it 
was  held  that  it  had  lost  its  corporate  existence,  and  the  same  view 
was  emphatically  reiterated  when  a  similar  case  of  the  same  company 


§  242  METHODS   OF   DISSOLUTION.  873 

was  again  before  this  court  (75  N.  Y.  335).  It  was  held  that  the 
statute  executed  itself,  and  that  the  intervention  of  the  courts  in  an 
action  instituted  by  the  attorney-general  was  not  necessary.  The 
language  of  limitation  used  in  section  seventeen  of  the  act  of  187 1, 
more  plainly  if  possible  indicates  the  legislative  intention,  that  a  fail- 
ure to  comply  with  the  limitations  should  put  an  absolute  end  to  the 
corporation,  than  the  language  used  in  the  act  1867. 
Judgment  for  defendant  affirmed.     *     «     ♦ 

Note.  See,  1839,  Crease  v.  Babcock,  23  Pick.  (Mass.)  335,  34  Am.  Dec.  61; 
1857,  Mobile,  etc.,  R.  v.  State,  29  Ala.  673;  1869,  N.  Y.,  etc.,  R.  Co.  v.  Boston, 
etc..  R.  Co.,  36  Conn.  196;  1873,  Oakland  R.  Co.  v.  Oakland,  46  Cal.  365; 
1885,  Commw.  v.  Lvkens  W.  Co.,  110  Pa.  St.  391 ;  1888.  Atchison,  etc.,  R.  Co. 
V.  Nave,  38  Kan.  744,  5  Am.  St.  Rep.  800;  1889,  Elizabethtown  Gas  L.  Co.  v. 
Green,  46  N.  J.  Eq.  118;  1892,  Houston  v.  Houston  Belt  R.  Co.,  84  Tex.  581, 
o90;  1892,  Ford  v.  Kansas  City,  etc.,  R.  Co.,  62  Mo.  App.  439;  1894,  Belle- 
ville V.  City,  etc.,  R.  Co.,  152  111.  171,  26  L.  R.  A.  681. 

And  compare,  1872,  Flint  and  Fentonville  P.  R.  Co.  v.  WoodhuU,  25  Mich. 
99,  supra,  p.39'<:  1877,Wallamet,  etc.,  Co.  v.  Kittridge,  6  Saw.  44;  1896,  N.  Y. 
L.  I.  &  B.  Co.  V.  Smith,  148  N.  Y.  540;  1897,  State  v.  Spartanburg,  etc.,  R. 
Co.,  61  S.  C.  129,  28  S.  E.  Rep.  145. 


Sec.  242.     Death  of  members. 

McGINTY  V.  ATHOL  RESERVOIR  COMPANY.* 

1892.     In   the    Supreme    Judicial    Court    of    Massachusetts. 
155  Mass.  Rep.  183-188. 

[Action  by  McGinty  for  damages  for  personal  injury  done  him 
while  in  employ  of  the  defendant.  Suit  was  brought  originally 
against  certain  individuals  who  pleaded  in  abatement  that  the  injury 
was  done,  if  at  all,  by  the  reservoir  company,  a  corporation  of  which 
they  were  members.  Plaintiff  then  amended  his  writ  and  substituted 
the  reservoir  company  as  defendant,  alleging  it  to  be  a  corporation. 
This  the  reservoir  company  denies.  It  appears  that  three  persons 
named  and  their  associates,  by  an  act  of  1854,  were  "made  a  corpo- 
ration by  the  name  of  the  Athol  Reservoir  Co.,"  the  capital  stock  not 
to  exceed  $10,000,  to  be  issued  only  at  a  par  value  per  share  to  be 
fixed.  One  of  the  persons  named,  without  objection  from  the  others, 
and  seven  persons  not  named,  met  and  accepted  the  act  of  incorpora- 
tion, organized  and  commenced  business  under  it.  Whether  or  not 
there  was  a  corporation  was  left  to  the  jury  who  found  for  the  plaintiff, 
and  defendant  accepted.] 

Morton,  J.  *  *  *  It  is  clear  that  the  persons  who  took  part 
in  these  proceedings  became  a  corporation  under  the  name  of  the 
Athol  Reservoir  Company.  Chester  Glass  Co.  v.  Dewey,  16  Mass. 
94 ;  Walworth  v.  Brackett,  98  Mass.  98 ;  Hawes  v.  Anglo-Saxon  Pe- 
troleum Co.,  loi  Mass.  385,  393;  Minor  v.  Mechanics'  Bank,  i  Pet. 

*  Statement  abridged,  and  only  part  of  opinion  given. 


874  m'ginty  v.  athol  reservoir  company.  §242 

46;  Frost  V.  Frostburg  Coal  Co.,  24  How.  278.  It  is  true  that  none 
of  the  capital  stock  has  been  issued.  Something  in  the  nature  of  cap- 
ital or  joint  stock  has  been  paid  in,  and  has  been  expended  by  the 
company  in  the  construction  of  its  dains ;  but  neither  the  paying  in 
nor  the  issuing  of  it  was  a  condition  precedent  to  the  existence  of  the 
corporation.  See  cases  supra.  Nothing  in  the  act  of  incorporation, 
nor  in  chapters  38  and  44  of  the  Revised  Statutes  referred  to  in  it, 
required  either  to  be  done  as  precedent  to  the  formation  of  the  corpo- 
ration. As  soon,  therefore,  as  the  act  of  incorporation  was  accepted 
and  an  organization  effected  the  grant  from  the  state  took  effect,  and 
the  corporation  began  to  exist. 

It  is  contended,  however,  that  all  the  persons  named  in  the  act  of 
incorporation,  and  who  took  part  in  the  organization,  are  dead;  that, 
no  stock  having  been  issued,  there  was  no  provision  for  a  succession 
of  members;  and  that  therefore  the  corporation  has  been  dissolved 
by  operation  of  law.  U7idoubtedIy  a  corporation  may  be  dissolved 
by  the  death  of  all  its  mevibers^  or  by  the  loss  of  an  integral  part  of 
its  organizational  so  that  the  exercise  of  its  corporate  functions  can 
not  be  restored.  Penobscot  Boom  Co.  v.  Lamson,  16  Maine  224, 
231.  But  it  appears  that  the  company  has  met  annually  since  its 
organization  and  elected  officers,  and  has  from  time  to  time,  as  occa- 
sion required,  held  special  meetings;  that  it  built  and  has  maintained 
the  dam,  which  it  was  chartered  especially  to  build,  and  has  built  two 
others,  and  had  voted  to  build  and  was  constructing  the  dam  on  which 
the  plaintiff  was  injured;  that  it  has  taken  in  the  corporate  name  a 
deed  of  the  land  on  which  the  dam  authorized  by  the  act  was  built, 
and  also  deeds  of  certain  rights  of  flowage ;  and  that  it  has  transacted 
other  business  that  was  incident  to  and  grew  out  of  the  purpose  for 
which  it  was  chartered. 

There  can  be  no  reasonable  doubt  that  the  persons  interested  have 
believed  that  they  were  acting  and  have  intended  to  act  as  a  corpora- 
tion, and  they  should  be  held  to  be  one  unless  there  are  insuperable 
difficulties  in  the  way.  We  do  not  think  there  are.  The  corporation 
was  established  for  the  purpose  of  constructing  and  supporting  a  res- 
ervoir to  supply  the  mills  on  the  stream  below  it.  Before  the  act  of 
incorporation  was  passed  a  number  of  mill-ownei"s  on  the  stream  had 
associated  themselves  together  by  an  agreement  bearing  date  April 
26,  1853,  for  the  purpose  of  constructing  and  maintaining  a  reservoir 
across  it.  The  agreement  provided  among  other  things,  "that  those 
who  may  hereafter  have  their  (the  parties)  respective  estates  in  the 
mills,  mill-dams  and  mill  privileges,  shall  succeed  to  their  rights  and 
be  subject  to  their  duties  respectively  in  the  resei-voir;"  that  the  busi- 
ness of  the  association  should  be  under  the  control  of  the  association, 
and  that  the  proprietors  of  each  of  the  several  mill-dams  who  were 
parties  to  said  agreement  should  be  entitled  to  a  voice  in  all  the  busi- 
ness of  the  association  equal  to  the  proportion  of  the  expenses  which 
such  dam  was  to  pay ;  and  that  dam-owners  who  were  not  parties 
might  become  such  at  any  time  by  paying  their  reasonable  proportion 
of  the  expenses.     By  article  6  of  its  by-laws  the  corporation   adopted 


§  243  METHODS   OF   DISSOLUTION.  875 

"as  the  basis  of  their  association  the  articles  of  agreement  made  and 
entered  into  by  the  members  thereof  as  proprietors  of  mills,  bearing 
date  April  26,  1853."  Article  5  of  the  by-laws  provided  that  the 
capital  stock  should  consist  of  $2,500  divided  into  shares  of  $25  each, 
and  that  the  money  already  advanced  for  the  purpose  of  the  associa- 
tion should  go  in  part  payment  for  the  shares.  //  is  clear  that  the 
corporation  succeeded  to  and  took  the  place  of  the  association.  The 
members  of  the  latter  became  and  zuere  members  of  the  former^  and 
the  evident  intention  was  that  as  the  members  of  the  corporation  died 
or  conveyed  their  mills ^  mill-dafns^  or  mill  privileges^  those  who  suc- 
ceeded to  their  respective  estates  as  heirs  or  purchasers  should  become 
members  of  the  corporation  in  their  steady  and  succeed  to  their  re- 
spective interests  in  it.  The  uniform  practice  since  the  corporation 
was  formed  shows  that  this  was  and  has  been  the  luiderstanding. 

Ordinarily,  membership  in  a  private  trading  corporation  arises  from 
the  ownership  of  stock  which  has  been  issued  by  it,  but  it  is  not  al- 
ways so.  In  re  Philadelphia  Savings  Institution,  i  Whart.  461. 
Shares  might  have  been  issued  in  the  present  case,  or  could  be  issued 
now.  Instead  of  issuing  shares,  however,  the  members  in  substance 
agreed  that  their  rights  in  the  joint  or  capital  stock  of  the  corporation 
should  pass  with  the  mills,  mill-dams  and  mill  privileges,  thus  con- 
fining the  membership  to  persons  directly  interested  in  the  mainte- 
nance of  the  dams.  In  the  absence  of  any  restriction  in  the  charter^ 
we  til  ink  that  in  the  case  of  a  corporation  like  this  there  can  be  no 
valid  objection  to  a  membership  so  constituted,  and  therefore  that  the 
objection  that  the  corporation  has  been  dissolved,  by  the  death  of  the 
original  members  can  not  be  sustained.  Watuppa  Reservoir  v.  Fall 
River,  134  Mass.  267.     »     ♦     * 

Exceptions  sustained  upon  other  points. 

Note.    See  Russell  v.  M'Lellan,  14  Pick.  (Mass.)  63. 


Sec.  243.     Loss  of  integral  part. 

PHILIPS  V.  WICKHAM  Et  Al. 

1829.     In    the    Court   ov    Chancery    of  New    York,    i  Paige 
(N.  Y».)  Ch.  Rep.  590-601. 

[By  an  act  of  1807,  drainage  commissioners  were  created,  with 
powers  to  cease  on  the  first  Tuesday  in  June,  i8o8,  at  which  time  the 
owners  of  lands  affected  were  to  meet  at  a  designated  place,  and  se- 
lect other  commissioners  for  one  year,  and  so  on  annually.  In  1828, 
no  election  was  held,  and  the  old  commissioners  continued  to  act. 
In  1829,  new  commissioners, — the  defendants, — were  elected.  Their 
power  was  denied  on  the  ground  that  the  failure  to  elect  in  1828  ter- 
minated their  official  existence.] 

The  Chancellor  (Walworth).  *  ♦  *  If  a  corporation  con- 
sists of  several  integral  parts,  and  some  of  those  are  gone,  and  the 
remaining  parts  have  no  power  to  supply  the  deficiency,  the  corpora- 


8/6  PHILIPS    V.    WICKHAM    ET   AL.  §  243 

tion  is  dissolved.  As  in  the  case  in  Rolle(i  Roll.  Abr.  514,  I.), 
where  the  corporation  was  to  be  composed  of  a  certain  number  of 
brothers,  and  a  certain  number  of  sisters,  and  all  the  sisters  were  dead, 
it  was  admitted  that  all  grants  and  acts  done  by  the  brothers  aft- 
erward were  void ;  for,  after  the  sisters  were  dead,  it  was  not  a  per- 
fect corporation.  But  the  case,  which  is  immediately  afterwards 
stated  by  Rolle,  shows  that  if  the  brothers  had  jDossessed  the  power 
to  appoint  other  sisters  in  the  place  of  those  who  were  dead,  the  cor- 
poration might  have  been  revived.  So,  Baron  Comyn  says,  if  a 
corporation  refuses  to  continue  the  election  of  officers  till  all  die  who 
could  make  an  election,  the  corporation  is  dissolved.  (4  Com.  Dig. 
373,  tit.  Franchises.,  G.  4. 

The  incapacity  to  receive  or  resuscitate  the  powers  of  a  corporation 
may  arise  from  three  causes:  i.  The  absence  of  the  necessary  offi- 
cers who  are  required  to  be  present  when  the  deficiency  is  supplied,  or 
their  incapacity  or  neglect  to  do  some  act  which  is  requisite  to  the 
validity  of  the  appointment.  2.  The  want  of  the  necessary  corpora- 
tors who  are  required  to  unite  in  the  appointment;  and  3.  The  want 
of  the  proper  persons  from  whom  the  appointment  is  to  be  made. 
The  case  of  The  Corporation  of  Banbury,  before  referred  to,  appears 
to  be  one  of  the  first  description.  And  the  case  cited  from  Rolle  and 
that  put  by  Chief  Baron  Comyn,  as  well  as  the  King  v.  Passmore 
(3  Term  Rep.  199),  and  The  Corporation  of  Maidstone  and  The 
Borough  of  Teverton,  referred  to  in  that  case,  all  appear  to  belong  to 
the  two  last  classes  of  cases.  The  statute,  11  Geo.  i,  ch.  4  (15  Stat. 
at  Large  178),  has  provided  for  the  first  class  of  cases,  but  the  sixth 
section  of  the  act  expressly  excludes  the  second  class,  and  no  provis- 
ion is  made  for  cases  of  the  third  class.  The  result  of  an  examina- 
tion of  all  the  cases  on  this  subject  is  the  principle  so  ably  and  suc- 
cessfully contended  for  by  Serjeant  East  in  the  King  v.  Passmore, 
that  if  the  corporators  have  the  pow  er  in  themselves  to  supply  the  de- 
ficiency in  their  body  their  rights  are  not  extinguished  but  only  dor- 
mant. If,  however,  that  power  is  gone,  and  they  can  not  act  until 
the  deficiency  is  supplied,  the  corporation  is  dissolved.  In  the  lan- 
guage of  Lord  Macclesfield,  this  is  not  a  forfeiture  for  non-user,  but  is 
a  consequence  of  law.  "The  corporation  is  dead,  and  not  barely 
asleep."     *     *     * 

[The  court  then  concluded  that  because  of  the  fact  that  the  electors 
could  meet  at  a  fixed  time  and  place  without  the  intervention  of  the 
commissioners,  there  was  nothing  requiring  a  continued  succession  of 
such  commissioners  and  hence  new  commissioners  could  be  elected  at 
any  annual  meeting.] 

Note.  See  2  Kyd  Cor.  448.  ]717,  Banburv's  Case,  10  Mod.  346;  1803,  Rex 
V.  Morris,  3  East  213;  1833,  Lehigh  R.  B.  Co.  v.  Lehigh  Coal  Co.,  4  Rawle 
(Pa.)  9;  1838,  State  University  v.  Williams,  9  Gill  &  J.  (Md.)  365,  421,  31 
Am.  Dec.  72;  1854,  State  v.  Vincennes  Univ.,  6  Ind.  77;  1876,  Harris  v.  Mis- 
sissippi V.  R.  Co.,  51  Miss.  602. 


§  244  METHODS   OF   DISSOLUTION.  877 

Sec.  244.     Surrender. 

THE  MECHANICS'  BANK  v.  HEARD.* 
1867.  In  the  Supreme  Court  of  Georgia.  37  Ga.  Rep.  401^22. 

[Suit  by  Heard  against  the  bank  upon  bills  which  it  refused  to  pay. 
The  sheriff's  return  showed  personal  service  upon  "T.  S.  Metcalf, 
president  of  the  Mechanics'  Bank,"  September  12,  1866.  Metcalf 
put  in  a  traverse  averring  that  he  was  not  at  that  time  president  of 
the  bank,  and  that  it  had  at  a  meeting  of  the  stockholders  on  February 
30,  1866,  duly  called,  and  by  a  unanimous  vote  of  the  directors,  sur- 
rendered the  charter  to  the  state,  and  by  order  of  said  meeting  notice 
of  such  surrender  was  sent  to,  and  received  by,  the  governor  of  the 
state,  thus  dissolving  the  corporation.  The  bank  asked  for  a  special 
jury  to  try  this  collateral  issue,  and  the  court  refused,  allowing  this 
issue  to  be  tried  with  others  in  the  case.  The  jury  found  for  the 
plaintiff.  Among  the  errors  assigned  was  the  refusal  of  a  special  jury 
to  try  the  collateral  issue  as  to  the  surrender  of  the  corporate  exist- 
ence.] 

Harris,  J.  *  *  *  It  can  not  be  denied  that  all  banking  cor- 
porations in  America  are  the  creatures  of  legislative  iv ill ^  and  that  no 
power  to  create  such  corporations  belongs  to  either  of  the  other  de- 
partments of  the  state  government.  Nor  can  it  be  denied  that  every 
act  of  the  legislature  creating  a  banking  corporation  upon  its  accept- 
ance becomes  an  executed  contract  between  the  state  and  corporation. 
This  principle,  decided  in  Dartmouth  College  v.  Woodard,  4  Whea- 
ton  518,  places  plaintiff  in  error  within  the  protection  of  the  constitu- 
tion of  the  United  States.  Under  such  protection  it  follows  that  the 
act  creating  the  Mechanics'  Bank  as  a  corporation  can  not  be  modified 
or  repealed  by  the  legislature  of  Georgia  without  the  free  assent  of  the 
corporators,  and  then  only  when  such  alteration  or  repeal  does  not 
affect  the  rights  of  its  creditors.  It  may  be  safely  asserted  that  the 
legislature,  its  creator,  has  no  power  of  its  "will  merely  to  dissolve  it. 
As  long  as  it  performs  its  engagement  by  the  act  creating  it,  it  has  a 
corporate  existence  within  the  limit  of  time  fixed  by  the  act  which  can 
not  be  shortened. 

This  brings  us  to  consider  the  grounds  on  which  corporations  (pri- 
vate) could  be  dissolved  at  common  law. 

They  are:  i.  Death  of  the  corporators.  2.  Surrender  of  char- 
ter accepted  and  enrolled.  3.  Forfeiture.  Section  3,  Burrows 
Repts.  1866. 

But  counsel  for  plaintiff  in  error  have  gravely,  and  with  seeming 
earnestness,  asserted  a  dissolution  of  a  corporation  by  a  voluntary  sur- 
render was  unknown  to  the  common  law,  that  such  a  privilege  was 
the  creation  of  our  code,  and  upon  this  assumption  rests  the  plaintiff's 
case.  Let  us  see  if  it  can  stand  the  test  of  examination.  It  is  said 
of  coi-porations   created  by   letters-patent   from   the  crown,  that  the 

*  Statement  abridged ;  arguments,  part  of  opinion,  and  dissenting  opinion 
of  Wdker,  J.,  omitted. 


8/8  THE   MECHANICS'    BANK    V.    HEARD,  §  244 

king  could  not  ex  viero  motu  alter  or  resume  his  grant.  ]t  could  be 
dissolved  upon  the  free  consent  of  the  corporators  surrendering  their 
franchises  under  the  seal  of  the  corporation.  Grant  on  Corporations, 
p.   303.      Rex  V.  Lanier,  Salk.  168;   8  Meeson  and  Welsby,  i. 

Here  then  we  find  that  surrender  was  a  mode  whereby  a  corpora- 
tion might  be  dissolved.  It  was  voluntary ^  for  it  proceeded  from 
\\\Q  free  consent  of  the  corporators.  The  franchise  could  not  be  re- 
sumed unless  the  grantees  concurred.  Rex  v.  Lanier,  Salk.  168;  8 
Meeson  and  Welsby,  i.  Thus  v/e  have  the  definition  of  surrender ; 
its  characteristic  is  that  it  \?>  voluntary  ^  ?,Y>r\n^m^  from  the  free  consent 
of  the  corporators.  Can  more  be  necessary  to  satisfy  the  enquirer 
that  a  voluntary  surrender  was  a  mode  whereby  a  dissolution  of  a  cor- 
poration might  be  effected  according  to  the  common  law  }  To  make 
it  complete,  such  surrender  required  the  assent  or  acceptance  of  the 
creator  of  the  corporation,  duly  enrolled  and  of  record.  The  En- 
glish authorities  cited  established  these  doctrines. 

Our  code,  in  enumerating  the  grounds  whereby  corporations  are 
dissolved,  but  repeats  those  existing  at  common  law.  "Surrender" 
is  one  of  them.  In  a  subsequent  clause,  voluntary  surrender  is  de- 
fined, thus  clearly  showing  that  in  the  minds  of  the  codifiers  they 
were  one  and  the  same  mode. 

An  identity  is  thus  shown  between  "surrender"  at  common  law, 
ana  tne  surrender  or  voluntary  surrender  of  the  code,  pi-oceeding  alike 
from  the  free  •will  of  the  corporators.  'Tis  this  which  distinguishes 
them  from  another  mode  of  dissolution  by  forfeiture ;  this  last  is  the 
result  solely  of  the  coercion^  compulsion  by  the  judgment  of  a  court. 
In  England  the  surrender  was  required  to  be  made  to  the  creator  of 
the  corporation.  In  Georgia,  the  code  requires  it  to  be  made  to  the 
state,  by  which  the  legislature,  as  the  creator  by  law  of  banking  cor- 
porations, must  necessarily  be  understood.      *     *     * 

Counsel  have  throughout  confounded  the  resolution  to  make  a  sur- 
render with  an  actual  dissolution  of  a  corporation.  These  things  are 
entirely  distinct,  proceeding  from  different  parties.  A  surrender  is 
not  a  dissolution;  it  is  but  a  mode,  a  way,  a  means  to  an  end.  The 
corporators  consent  to  surrender  their  franchise,  tender  it  back  to  the 
legislature  and  ask  to  be  dissolved  as  a  corporation.  This  is  then  free 
act  and  proceeds  from  one  party  to  the  conti'act.  If  the  surrender  is 
formal  under  the  seal  of  the  corporation  and  the  legislature,  the  other 
party  to  the  contract  in  behalf  of  the  state  accepts  it  by  an  act  or  or- 
dinance in  some  authoritative  form,  and  that  is  authenticated  as  law 
and  ordinances  usually  are,  then,  and  not  till  then,  is  the  dissolution 
of  the  corporation  upon  surreiider  and  the  evidence  of  it  complete. 

Now  corporations  in  Great  Britain  were  created  either  by  virtue  of 
the  royal  prerogatives  or  by  act  of  parliament;  if  by  the  crown,  by 
letters-patent  under  its  seal  and  duly  enrolled ;  if  by  parliament,  by 
an  act  of  the  three  estates  duly  enrolled  and  with  the  great  seal 
attached. 

In  the  case  of  crown  grants,  when  dissolved  upon  surrender  by  the 


§  244  METHODS   OF   DISSOLUTION.  8/9 

grantees,  the  acceptance  of  the  king  of  such  surrender  was  required 
to  be  enrolled  and  of  record.  3  Burr.  Rep.  1866;  i  Wooddeson's 
Lectures,  500;  i  Salk.  Rep.  191.  Parliamentary  could  only  be  dis- 
solved by  act  of  parliament.     See  Grant  on  Corporations. 

The  foregoing  are  familiar  principles  regulating  the  creation  and 
dissolution  of  corporations,  and  they  are  in  accordance  with  a  maxim 
pervading  the  common  law  in  other  departments.  Nihil  tam  conven- 
iens est  naturali  aequitati  quam  unum  quoque  dissolet  eo  ligamine 
quo  ligatum  est. 

Again,  "a  corporation  aggregate  may  surrender  and  in  that  way 
dissolve  itself,  but  then  the  surrender  must  be  accepted  by  government^ 
and  be  made  by  some  solemn  act  to  render  it  complete.^''  2  Kent's 
Com.   209. 

An  act  of  the  legislature  repealing  the  act  of  incorporation,  passed 
xvith  the  assent  of  the  corporators ^  would  undoubtedly  be  sufficient 
to  effect  a  dissolution.     Revere  v.  Boston  Copper  Co.,  15  Pick.  R. 

351- 

The  surrender  must  be  by  a  formal  act   of   the  corporation  under 

seal ;   and  it  can  not  avail  but  by  an  acceptance  of  such  surrender  by 

an  enrolled  act  or  law.     There  must  be  the  same  agreement  to  dissolve 

as  to  make.     The  power  in  a  corporation  to  dissolve  by  its  own  act 

is  too  dangerous  to  be  supposed  to  exist.     See   Boston    Glass  Co.  v. 

Langdon,  24  Pickering  Rep.  49. 

In  this  country,  where  corporations  are  usually  created  by  act  of 
the  legislature,  no  mode  of  surrender  is  pointed  out  by  the  books  as 
necessary  to  be  pursued,  differing  from  that  in  England,  where  cor- 
porations are  usually  created  by  charter  from  the  crown.  It  is  said  a 
surrender,  if  accepted,  will  be  sufficient.  Angell  and  Ames  on  Cor- 
porations, 638;   2  Kent.  Com.   250;    15  Pick.  Rep.  351. 

As  the  identity  of  surrender  at  common  law  as  a  mode  of  dissolu- 
tion of  a  corporation,  with  the  surrender  defined  by  the  code,  can  not 
but  be  conceded  by  every  lawyer  who  will  take  the  trouble  of  investi- 
gating the  subject,  and  no  mode  or  form  is  prescribed  by  the  code  as 
necessary  to  be  pursued  in  order  to  make  it  effectual,  there  seems  to 
me  no  escape  from  the  necessity  of  alleging,  and,  in  support  of  such 
allegation,  exhibiting,  some  act  or  ordinance  of  the  legislature,  ap- 
proved by  the  governor,  assenting  to  or  accepting  the  proposed  sur- 
render of  their  franchise  by  the  Mechanics'  Bank. 

A  dissolution  at  the  will  of  corporators  would  leave  no  evidence  of 
the  surrender  but  the  entry  of  the  resolution  of  the  corporators  on  the 
minutes  of  the  bank,  and  when  thus  dissolved  who  can  say  where  will 
be  the  depository  of  the  minutes  ? 

In  fine  the  proposition  of  plaintiff  in  error  involves,  besides  what 
has  been  said  in  reference  to  it,  this  striking  inequality,  that  a  law 
containing  a  contract  of  the  highest  importance  between  the  corpora- 
tion and  the  state  may  be  set  aside  and  annulled  at  the  will  of  the 
corporators  by  a  mere  resolution,  notice  of  which  is  given  to  the  gov- 
ernor, whilst  the  state  can  not  alter  or  repeal  that  law,  or  resume  the 
franchises  granted,  or  compel  their  delivery  up  or  cause  a  dissolution 


88o      merchants'  and  planters'  line  v.  waganer.    §  245 

of  that  corporation,  but  upon  some  ground  of  forfeiture  judicially  es- 
tablished, and  the  judgment  thereon  of  a  competent  court.  Such  ine- 
quality between  the  rights  of  contracting  parties  as  flows  from  the 
position  of  plaintiff's  counsel  demonstrates  the  absurdity  of  such 
position,     *      *      * 

Affirmed. 

Note.     See  note  to  §  246. 


Sec.  245.    Same. 

MERCHANTS'  AND  PLANTERS'  LINE  v.  WAGANER.' 

1882.     In    the    Supreme    Court    of  Alabama.     71    Ala.  Rep. 

581-589. 

[Bill  filed  in  1882  by  Waganer  and  others,  as  shareholders  in  the 
line  corporation  asking  for  a  dissolution  of  the  corporation,  and  to 
hold  the  directors  thereof  personally  liable  for  misconduct  and  mis- 
management. The  corporation  was  organized  in  November,  1879^ 
and  by-laws  were  adopted,  one  of  which  provided,  ''This  corporation 
shall  be  dissolved  January  i,  1881."  These  were  made  part  of  the 
bill ;  to  this  a  demurrer  was  filed,  on  the  ground  that  the  corporation 
was  dissolved  before  the  suit  was  brought.  The  demurrer  was  over- 
ruled in  the  lower  court  and  this  is  the  error  assigned.] 

Stone,  J.  *  *  *  In  Ang.  &  Ames  on  Coi-p.,  §  766,  after  enumer- 
ating several  modes  by  which  corporations  may  be  dissolved,  the  authors 
say:  "To  these  modes  of  dissolution  may  be  added  one  grown  to  be 
quite  common  in  this  country :  the  dissolution  of  a  corporation  by  expi- 
ration" of  the  term  of  its  duration,  limited  by  charter  or  general  law." 
And  in  section  772  the  same  authors  say :  '  'In  this  country,  the  power  of 
a  private  corporation  to  dissolve  itself  by  its  own  assent  seems  to  be  as- 
sumed by  nearly  all  the  judges  who  touch  upon  the  point."  Many 
authorities  are  cited  in  support  of  this;  but  the  authors  add:  "It 
would  seem  that,  as  there  are  two  parties  to  the  charter  compact,  the 
assent  of  both  would  be  necessary  to  the  abrogation  of  the  contract." 
In  Tread  well  v.  Salisbury  Manuf.  Co.,  7  Gray  393,  the  Supreme 
Court  of  Massachusetts  held  that  corporations  of  a  private  nature, 
established  solely  for  manufacturing  purposes,  may  by  vote,  even  of 
a  majority  of  their  members,  wind  up  their  business  and  close  their 
operations,  if  they  elect  to  do  so.  It  will  be  observed  that  this  right 
is  placed  on  the  ground  that  the  corporation  was  pui'ely  of  a  private 
nature,  in  which  the  public  could  not  be  supposed  to  have  any  inter- 
est. Between  such  corporation  and  any  joint  adventure  in  which 
parties  may  associate  themselves,  there  can  be  little  or  no  difference, 
so  far  as  the  rights  of  the  public  are  concerned.     *     *     * 

We  hold  that  the  stockholders  of  this  corporation  had  the  power  to 
dissolve  it,  without  obtaining  the  consent  of  the  state.  This  princi- 
ple was  so  announced  in  Savage  v.  Walshe,  26  Ala.  619.  See,  also, 
M.  &  O.  R.  Co.  V.  State,  29  Ala.  573;  McLaren  v.  Pennington,  i 
Paige  102;  Enfield  Toll  Bridge  Co.  v.  Conn.  Riv.  Co.,  7  Conn.  45; 

*  Statement  much  abridged,  and  only  part  of  the  opinion  given. 


§  246  METHODS   OF   DISSOLUTION.  88 1 

vSlee  V.  Bloom,  19  Johns.  456;  Canal  Co.  v.  R.  Co.,  4  Gill  &  Johns. 
i;  Mclntyre  Poor  School  v.  Zanesville  Canal  Co.,  9  Ohio  203; 
Mumma  v.  Potomac  Co.,  8  Pet.  281. 

In  the  very  act  of  organizing  this  corporation  the  stockholders,  by  a 
by-law,  fixed  the  term  of  its  duration.  Their  language  was,  it  shall 
be  dissolved  on  the  first  day  of  January,  18S1.  A  more  solemn  agree- 
ment and  compact  could  not  be  entered  into.  We  can  not  know  that 
in  the  absence  of  that  compact  the  corporation  ever  would  have  been 
organized,  or  its  duties  entered  upon.  We  hold  that  such  stipulation, 
embodied  in  the  original  compact,  is  at  least  as  obligatory  on  the  stock- 
holders as  a  resolution  afterwards  adopted  would  be.  This  put  an 
end  to  the  corporation,  as  a  corporation  January  i,  1S81.      *     *    * 

[Considered,  however,  as  a  bill  to  settle  accounts  of  a  dissolved 
corporation  and  of  its  successor,  a  g^uast  joint  stock  company  resulting 
from  a  continuance  of  the  business  in  the  same  way  after  dissolution, 
there  was  no  substantial  error  in  overruling  the  demurrer.     Affirmed.] 

Note.    See  note  to  §  246. 


Sec.  246.     Non-user,  insolvency  and  surrender. 
SLEE  V.  BLOOM  and  Others.' 

1821.     In  Court  of  Chancery.     1822.     In  the  Court  of   Er- 
rors, New  York.     5  Johns.  Ch.  (N.  Y.)    Rep.    366-388,  19 
Johns.  (N.  Y.)  456-486,  10  Am.  Dec.  273. 

[Bill  in  equity  by  Slee  against  Bloom  et  al.,  filed  in  1819.  It 
showed  that  Slee  had  been  the  owner  of  a  cotton  mill  in  New  York, 
and  in  order  to  provide  additional  funds  he,  in  18 14,  induced  Bloom 
and  others  to  unite  with  him  in  the  formation  of  a  corporation  for  the 
purpose  of  purchasing  and  operating  the  mill.  The  corporation  was 
formed  under  the  New  York  Act  of  181 1,  with  a  capital  stock  of 
$60,000.  After  organization  Slee  proposed  to  sell  the  mill  for  $30,- 
900,  which  was  accepted,  and  172  shares  of  $100  each,  full  paid, 
were  issued  to  him  in  part  payment,  leaving  $13,700  yet  due.  From 
time  to  time  calls  were  made  upon  the  other  shares  to  the  extent  of 
50  per  cent,  but  only  a  small  part  was  paid.  In  December,  181 5,  in 
order  to  carry  on  the  business,  $10,000  were  borrowed,  upon  the 
individual  note  of  Slee,  due  in  one  year,  indorsed  as  surety  by  Bloom 
and  the  other  directors.  In  order  to  protect  them  Slee  executed  to- 
them  a  penal  bond  in  the  sum  of  $20,000,  with  power  to  confess 
judgment  against  him,  which  they  did  in  June,  1816.  In  October,  1816, 
it  was  determined  to  discontinue  business,  and  Slee,  as  superintend- 
ent, was  directed  to  wind  up  the  affairs  and  dispose  of  the  company's 
property,  and  upon  the  report  of  a  committee  appointed  for  that  pur- 
pose it  was  foimd  that  the  company  then  owed  Slee  $23,493  (includ- 
ing the  note),  and  for  security  executed  its  penal  bond,  with  power 

'  Only  parts  of  opinions  of  Chancellor  Kent  and  Spencer,  Ch.  J.,  are  given. 
Arguments  are  omitted. 
66 — WiL.  Cases. 


882  SLEE  V.  BLOOM  AND  OTHERS.  §  246 

to  take  judgment  against  the  company  for  $46,986.  In  May,  1817, 
Slee  took  judgment  upon  this,  with  stay  till  October,  181 7.  In 
August,  181 7,  it  was  resolved,  with  the  assent  of  Slee,  that  all  share- 
holders who  paid  up  the  50  per  cent,  of  subscriptions  called  for 
should  be  exempt  from  further  liability.  But  few  paid,  and  in  Novem- 
ber, 1817,  against  the  protest  of  Slee,  it  was  resolved  that  those  who 
paid  30  per  cent,  of  their  stock  should  be  entirely  relieved.  Most  of 
the  delinquents  did  this  and  wholly  abandoned  the  corporation.  No 
shareholders  and  no  dii'ectors'  meetings  were  held  after  May  and  De- 
cember, 1817,  respectively.  Slee  being  unable  to  pay  the  note  when 
due  Bloom  and  others  paid  it,  and  in  October,  1817,  issued  execution 
against  Slee,  whereby  his  land  to  value  of  $9,000,  and  his  interest  in 
the  corporate  property,  became  liable  to  sale.  In  order  to  save  him- 
self he  took  out  execution  against  the  company,  allowed  $4,105  re- 
ceived upon  calls  to  be  paid  to  Bloom  and  the  rest,  and  procured  one 
E.  to  become  surety  for  the  balance  due  on  the  note,  by  assigning  to 
E.  his  property  and  the  avails  of  his  execution  against  the  company, 
whereupon  Bloom  et  al.  gave  up  the  note  and  were  discharged  from 
liability  upon  it.  The  sale  of  the  corporate  property  under  execution 
February  i,  18 18,  netted  only  $460,  leaving  (after  crediting  the 
$4,105  as  payment)  over  $18,000  yet  due,  which  Slee  alleged  he  had 
no  way  of  obtaining  imless  the  stockholders  should  be  compelled  to  pay 
their  subscriptions.  The  statute  provided  "that  for  all  debts  which 
shall  be  due  and  owing  to  the  company  at  the  time  of  dissohdion,  the 
persons  then  composing  the  company  shall  be  individually  responsible 
to  the  extent  of  their  respective  shares  of  stock  in  said  company  and 
no  further." 

Most  of  the  material  facts  were  admitted  by  Bloom  et  al.,  and  the 
chancellor  dismissed  the  bill  and  appeal  was  taken.  Part  of  the  chan- 
cellor's opinion  (5  Johns.  Ch.  377  et  seq.")  is  as  follows]  : 

Kent,  C  *  *  *  The  first  and  leading  question  in  the  case  is 
whether  the  corporation  is  dissolved,  so  as  to  enable  the  plaintiff  to 
call  upon  the  individual  members.  It  will  not  be  disputed  that  with- 
out such  a  provision  in  the  statute  the  individuals  would  not  be  re- 
sponsible in  their  private  property,  either  before  or  after  the  dissolu- 
tion of  the  company  for  corporate  debts.  The  facts  from  which  an 
actual  dissolution  is  inferred  are,  that  the  stockholders  have  not 
elected  trustees  since  Aprils  1817,  and  that  the  trustees  have  not  met 
as  a  body  since  the  31st  of  December,  18 17,  and  that  all  the  cor- 
porate property,  real  and  personal,  was  sold  on  an  execution  issued 
in  the  name  and  at  the  instance  of  the  plaintiff  on  the  ist  of  February , 
1818,  and  that  the  members  have  since  abandoned  all  attention  to  the 
institution.     *     *     * 

The  omission  to  elect  new  trustees  in  18 18  and  1819  did  not,  of 
itself,  work  a  dissolution  according  to  the  opinion  of  the  supreme 
court  in  the  case  of  the  People  v.  Runkle  (9  Johns.  Rep.  147),  and 
by  the  authority  of  the  cases  there  referred  to,  a  corporate  election 
after  the  year  would  be  good,  upon  general  principles  of  law,  if  an 
integral  part  of  the  corporation  renriained,  and  the  officers  already  in 


§  246  METHODS   OF  DISSOLUTION.  883 

would  continue  to  be  ^ood  officers  after  the  year,  and  until  others 
were  elected.      «     *     » 

The  members  of  the  corporation,  who  are  the  integral  part  of  it, 
are  in  esse,  and  I  see  no  difficulty  in  a  future  meeting  of  the  last 
elected  tmstees,  and  in  a  new  election  of  trustees  to  be  ordered  and 
prescribed.      *     *     * 

A  corporation  aggregate  may  be  dissolved  within  the  period  pre- 
scribed by  its  charter  in  certain  modes  and  upon  ce/tain  events,  none 
of  which  have  occurred  in  this  case.  It  may  be  dissolved  if  it  be- 
come incapable  of  continuing  its  corporate  succession  or  executing 
its  corporate  functions,  as  by  the  death  of  all  its  members  or  the  de- 
struction of  an  integral  part  of  it,  or  it  may  be  dissolved  by  surrender 
of  its  franchises  into  the  hands  of  the  government,  or  by  forfeiture  of 
its  charter  through  abuse  or  neglect  of  its  franchises.  The  last  is  the 
alleged  ground  of  forfeiture  in  this  case ;  but  I  apprehend  that  the 
forfeiture  in  such  case  must  be  judicially  ascertained  and  declared,  and 
that  the  power,  which  may  have  been  abused  or  abandoned,  can  not 
be  taken  away  but  by  regular  process.  The  judgment  in  such  cases 
is,  that  the  parties  be  ousted  or  that  the  liberty  be  seized  into  the 
hands  of  the  government.  (Rex  v.  Stevenson,  Yelv.  190.)  This 
subject  underwent  great  and  learned  discussion  in  the  case  of  the 
King  V.  Ainery,  in  the  K.  B.  (2  Term  Rep.  515),  and  it  was  decided 
by  that  couit  as  the  result  of  the  investigation,  that  a  corporation  may 
be  dissolved  and  its  franchises  lost  by  non-user  or  neglect;  but  it  was 
assumed  as  an  undeniable  proposition  that  the  default  was  to  be  judi- 
cially determined  in  a  suit  instituted  for  the  purpose.     *     «     * 

Assuming  the  charges  in  the  bill  in  this  case  to  be  true,  Lord 
Kenyon  points  out  the  proper  remedy:  It  is  by  the  judicial  process 
oi  scire  facias  \  and  I  believe  that  there  is  no  instance  of  calling  in 
question  the  rights  of  a  coiporation  as  a  body,  for  the  purpose  of  de- 
claring its  franchises  forfeited  and  lost,  but  at  the  instance  and  on  be- 
half of  the  government.     *    *     * 

(Citing  Rex  v.  Passmore,  3  T.  R.  199  ;  Commw.  v.  Union  Ins.  Co., 
5  Mass.  230;  Atty.-General  v.  Utica  Ins.  Co.,  2  Johns.  Ch.  389.) 

I  conclude,  therefore,  that  the  corporation  is  still  subsisting  in  judg- 
ment of  law,  and  that  this  court  is  not  authorized  from  anything  that 
appears  in  the  case  to  consider  the  corporation  dissolved.  It  follows, 
then,  that  the  bill  against  individual  members  for  a  corporate  debt 
can  not  be  sustained.     *     *     * 

Spencer,  Ch.  J.  (In  Court  of  Errors,  19  Johns.  *473).  With  the 
most  profound  and  undissembled  respect  for  the  Chancellor,  I  am 
constrained  to  differ  from  the  opinion  held  by  him  that  this  corpora- 
tion is  not  dissolved. 

The  object  and  intention  of  the  legislature  in  authorizing  the  asso- 
ciation of  individuals  for  manufacturing  purposes  was,  in  effect,  to 
facilitate  the  formation  of  partnerships  without  the  risks  ordinarily  at- 
tending them,  and  to  encourage  internal  manufactures.  There  is 
nothing  of  an  exclusive  nature  in  the  statute ;  but  the  benefits  from  as- 
sociating and  becoming  incorporated,  for  the  purposes  held  out  in  the 


884  ^LEE  V.  BLOOM  AND  OTHERS.  §  246 

act,  are  offered  to  all  who  will  conform  to  its  requisitions.  There  are 
no  franchises  or  privileges  which  are  not  common  to  the  whole  com- 
munity. In  this  respect,  incorporations  under  the  statute  differ  from 
corporations  to  whom  some  exclusive  or  peculiar  privileges  are 
granted.  The  only  advantages  of  an  incorporation  under  the  statute 
over  partnerships,  and  the  only  substantial  difference  between  them, 
consists  in  a  capacity  to  manage  the  affairs  of  the  institution  by  a  few 
and  select  agents,  and  by  an  exoneration  from  any  responsibility 
beyond  the  amount  of  the  individual  subscriptions. 

In  coming  to  the  conclusion  that  the  corporation  in  this  case  is 
dissolved,  I  lay  out  of  the  case  everything  of  misuser,  or-  non-user, 
excepting  the  influence  which  the  fact  of  non-user  may  have  as  evi- 
dence, connected  with  other  facts,  to  show  the  renunciation  of  the 
corporate  rights.  Upon  the  authorities,  and  for  the  reasons  given  by 
the  chancellor,  misuser  or  non-user  can  not  be  relied  on  as  a  substan- 
tive and  specific  ground  of  a  dissolution.  The  ground  on  which  I 
place  my  opinion,  that  the  corporation  is  dissolved,  is,  that  they  have 
done,  and  suffered  to  be  done,  acts  equivalent  to  a  direct  surrender. 
The  chancellor  concedes,  and  it  does  not,  in  my  judgment,  admit  of 
a  doubt,  that  a  corporation  may  be  dissolved  by  a  surrender  of  all 
their  corporate  rights. 

In  2  Kyd  on  Corp.  467  the  rational  and  true  rule  is  laid  down.  He 
says,  "the  rule  adopted  in  all  the  cases  which  have  occurred  on  this 
question  seems  to  have  been  this,  that  where  the  effect  of  the  sur- 
render is  to  destroy  the  end  for  which  the  corporation,  or  the  corpo- 
rate capacity,  was  instituted,  the  corporation,  or  the  corporate  capac- 
ity, is  itself  destroyed;"  and  we  have  the  high  authority  of  Lord 
Coke  to  the  same  effect.  He  says,  if  there  be  a  warden  of  a  chapel, 
and  the  chapel  and  all  the  possessions  be  aliened,  he  ceases  to  be  a 
corporation,  because  he  can  not  be  warden  of  nothing;  but  if  the 
body  of  a  prebend  be  a  manor  and  no  more,  and  the  manor  be  re- 
covered from  the  prebendary,  by  title  paramount,  yet  his  corporate 
capacity  remains,  because  he  has  stallum  in  choro,  et  vocem  in  capitulOy 
and  he  is  prebendary,  although  he  has  no  possessions.  Thus,  accord- 
ing to  Lord  Coke,  a  recovery  by  title  paramount  would  have  produced 
an  extinction  of  the  corporation,  had  it  reached  all  the  rights  and 
powers  of  the  corporation,  but  inasmuch  as  there  were  rights  un- 
affected by  the  recovery,  it  did  not  work  a  dissolution.  Suffering  an 
act  to  be  done  which  destroys  the  end  and  object  for  which  the  corpo- 
ration was  instituted,  must  be  regarded  as  equivalent  to  the  doing  an 
act  which  produces  the  very  same  consequences.  A  surrender  is  an 
act  in  pais;  it  can,  therefore,  be  no  objection,  in  this  case,  that  the 
acts  which  have  dissolved  the  corporation  are  acts  in  pais. 

This  bill  was  not  filed  until  the  24th  of  April,  1819.  In  February^ 
1818,  all  the  estate,  real  and  personal,  of  the  corporation  was  sold 
under  an  execution;  and,  as  has  already  been  stated,  the  corporation 
has  totally  ceased  from  acting  since  December,  18 17.  The  bill 
charges,  substantially,  that  the  corporation  is  dissolved,  and  not  one 
of  the  respondents  asserts  that  it  does  exist,  or  that  there   is  the  re- 


§  246  METHODS    OF  DISSOLUTION.  885 

motest  idea  of  resuscitating  H.  Here  is,  then,  a  corporation  pos- 
sessed of  nothing,  abandoning  the  end  and  object  of  their  institution, 
without  pretending  that  they  ever  hope  or  expect  to  resume  their 
functions;  and,  it  may  be  added,  all  the  corporators  either  admit  the 
dissolution  of  the  corporation  (I  speak  of  those  who  have  suffered 
the  bill  to  be  taken  pro  confesso)^  or  deny  that  they  are  corporators, 
thus  presenting  the  phenomenon  of  a  corporation  without  corpora- 
tors, a  nominal,  inert  body,  pretending  to  have  life  and  existence. 
Such  an  anomaly  can  not  be  recognized.  The  argftmcnt  is,  that 
being  incorporated  for  twenty  years,  there  exists  a  corporate  capacity 
during  that  period,  and  that  although  all  the  functions  of  the  corpora- 
tion have  ceased,  yet  tl>ey  may  be  resumed.  The  second  section  of 
the  act  provides  that  as  soon  as  the  certificate  shall  be  filed,  the  persons 
who  shall  have  signed  and  acknowledged  the  same,  and  their  succes- 
sors, shall,  for  the  term  of  twenty  years  next  after,  be  a  body  politic 
and  corporate,  in  fact  and  in  name,  etc.  The  legislature  never 
meant,  nor  does  the  act  authorize  the  conclusion,  that  the  corporation 
should  remain  and  continue  during  all  that  period  nolens  volens.  It 
was  implied  that  during  that  time  they  should  do  nothing  to  forfeit 
their  rights,  nor  surrender  them  back,  or  do  any  act  tantamount 
thereto.  The  act  prolongs  the  corporation  for  twenty  years,  subject 
to  all  the  incidents  attending  corporations;  and  I  have  endeavored  to 
show  that  one  of  the  incidents  is  an  extinction  of  the  corporation  if 
it  does  what  is  equivalent  to  a  surrender.  I  doubt,  extremely, 
whether  the  capacity  to  resume  the  functions  of  the  corporation  does, 
in  fact,  exist,  but  it  is  not  necessary  to  decide  that  point.  I  consider 
it  merely  as  a  matter  of  speculation,  thrown  out,  without  any  practi- 
cal reference  to  the  cause,  as  a  stumbling  block  to  the  attainment  of 
justice  between  the  parties.  For  all  the  substantial  purposes  of  jus- 
tice, and  in  effect,  the  coiporation  is  dissolved.     *     *     * 

In  point  of  good  sense  this  corporation  was  dissolved  within  the 
meaning  and  intent  of  the  act  as  regards  creditors,  when  it  ceased  to 
own  any  property,  real  or  personal,  and  when  it  ceased  for  such  a 
space  of  time  from  doing  any  one  act  manifesting  an  intention  to  re- 
sume their  corporate  functions.  The  end,  being  and  design  of  the 
corporation  were  completely  determined,  and  even  if  it  had  the  capac- 
ity to  reorganize  and  re  invigorate  itself,  the  case  has  happened,  when, 
as  relates  to  its  creditors,  it  is  dissolved. 

If  I  am  right  thus  far,  then  by  .the  seventh  section  of  the  statute, 
the  persons  composing  the  company  at  the  time  of  its  dissolution  are 
individually  responsible  to  the  extent  of  their  respective  shares  for  the 
debts  then  due  and  owing  by  the  company. 

With,  respect  to  the  period  of  the  dissolution,  it  appears  to  me  that 
we  may  safely  say  it  happened  on  the  ist  of  February^  18 18,  when 
all  the  property  of  the  company  was  sold,  for  since  that  time  no  cor- 
porate act  has  been  done.     «     *     * 

(Held  also  that  Slee  assenting  to  discharge  of  members  upon  pay- 
ment of  50  per  cent,  of  stock  was  bound  by  it,  but  that  he  was  not 
Reversed. 


886  SLEE   V.    BLOOM    AND    OTHERS.  §  246 

bound  by  the  resolution  releasing  shareholders  upon  payment  of  30 
per  cent.) 

As  to  insolvency,  see,  also,  1867,  Coburn  v.  Manufacturing  Co.,  10  Gray 
(Mass.)  243;  1887,  Dewey  v.  St.  Albans,  etc.,  Co.,  60  Vt.  1,  6  Am.  St.  E.  84; 
1888  Jones  V.  Bank  of  Leadville,  10  Colo.  464,  20  Am.  &  Eng.  C.C.  554;  1889, 
Rouse  V.  Merchants'  Bank,  46  Ohio  St.  493,  15  Am.  St.  Rep.  644;  1893,  Sit  bin 
V.  Columbia  Fuel  Co..  25  Ore.  15.  42  Am.  St.  756;  1893  Larrabee  v.  Franklin 
BMiik,  114  Mo.  592,  35  Am.  St.  Rep.  774. 

Note.    Surrender. 

1.  A  corporation  may  voluntarily  surrender  its  franchises.  1822,  Slee  v. 
Bloom,  19  Johns.  (N.  Y.)  456,  10  Am.  Dec.  278,  supra;  1832,  Chesapeake 
&  O.  Canal  Co.  v.  Bal.  &  O.  R.,  4  Gill  &  J.  (Md.)  1;  1834,  Boston  Glass 
Mfy.  V.  Langdon,  24  Pick.  (Mass.)  49,  35  Am.  Dec.  292,  supra,  p.  866; 
1839,  Penobscot  Boom  Corp.  v.  Lamson,  16  Maine  (4  Shep.)  224,  33  Am.  Dec. 
656;  1839,  Mclntire  Poor  School  v.  Zanesville,  etc.,  Co.,  9  Ohio  203,  34  Am. 
Dec.  436;  1858,  Lauman  v.  Leb.  V.  R.,  30  Pa.  St.  42,  72  Am.  Dec.  685;  1859, 
Attorney-General  v.  Clergy  Soc,  10  Rich.  Eq.  (S.  C.)  604;  1869,  People  v.  Cal- 
ifornia College,  38  Cal.  166;  1870,  Houston  v.  Jefferson  College,  63  Pa.  St. 
428;  1871,  Moore  v.  Whitcomb,  48  Mo.  543;  1892,  Cronin  v.  Potters'  Co-op. 
Co.,  29  Wkly.  L.  B.  (Ohio)  52. 

2.  Acceptance  by  the  state  (through  the  legislature)  is  necessary  in  order 
to  complete  dissolution.  In  2  Kyd  Corporations,  447,  it  is  said  the  king  may 
accept  a  surrender  of  charters  granted  by  himself,  but  not  one  grtuited  by 
parliament.  1828,  Enfield  Toll  B.  Co.  v.  Conn.  R.  Co.,  7  Conn.  28,  45;  1834, 
Boston  Glass  Mfv.  v.  Langdon,  24  Pick.  (Mass.)  49,  35  Am.  Dec.  292,  mpra,  p. 
866;  1834,  Revere  v.  Boston  Copper  Co.,  15  Pick.  (Mass.)  351 ;  1836,  Harris  v. 
Muskingum  Mfg.  Co.,  4  Blackf.  (Ind.)  267,  29  Am.  Dec.  372;  1845.  Greeley  v. 
Smith,  3  Story  657;  1847,  Town  v.  River  Raisin  Bank,  2  Doug.  (Mich.)  530; 
1851,  Norris  v.  Mavor,  etc.,  1  Swan  (31  Tenn.)  164;  1861,  McMahan  v.  Morri- 
son, 16  Ind.  172,  79  Am.  Dec.  418;  1861,  Curien  v.  Santini,  16  La.  Ann.  27; 
1870,  Wilson  v.  Central  Br.  Co.,  9  R.  I.  590;  1870,  LaGrange,  etc.,  R.  Co.,  7 
Colw.  (Tenn.)  420,  437 ;  1895,  Combes  v.  Keyes,  89  Wis.  297,  46  Am.  St.  Rep. 
839:  1896,  The  Attorney-General  v.  Superior,  etc.,  R.  Co.,  93  Wis.  604.  See, 
contra.  Merchants'  and  Planters'  Line  v.  Waganer,  71  Ala.  581,  supra,  p.  880, 
and  cases  therein  stated.  A  statutory  method  of  voluntary  dissolution  under 
a  general  law  giving  the  state's  consent  when  certain  formalities  are  complied 
with,  is  quite  usually  provided  by  the  states. 

3.  As  to  the  right  of  the  majority  to  surrender  the  charter  and  dissolve  the 
corporation,  there  seems  to  be  considerable  conflict.  The  question  is  closely 
allied  to  the  right  of  a  majority  to  dispose  of  the  assets  of  the  corporation, 
and  the  following  cases,  or  many  of  them,  are  upon  this  point. 

a.  In  the  case  of  a  solvent,  going,  private  business  corporation  the  major- 
ity can  not,  against  the  wishes  of  the  minority,  dispose  of  the  assets  and  dis- 
solve the  corporation:  1813,  Smith  v.  Smith,  3  Des.  Eq.  (S.  C. )  557;  1844, 
Ward  V.  Soc.  of  Attvs.,  1  Coll.  370;  1857, 'Mobile  &  O.  R.  v.  State,  29  Ala. 
573,  586;  1861,  Curien  v.  Santini,  16  La.  Ann.  27;  1861,  Abbott  v.  Am.  Hard 
Rubber  Co.,  33  Barb.  (N.  Y.)  578;  1867,  Zabriskie  v.  Hackensack,  etc.,  R  , 
18  N.  J.Eq.  178,  90  Am.  Dec.  617;  1868,  Clinch  v.  Financial  Corp.,  L.  R.  5 
Eq.  Cas.  450;  1872,  Bird  v.  Bird's,  etc.,  Co.,  L.  R.  9  Ch.  App.  358;  1873, 
Black  V.  Del.  &  R.  Canal  Co.,  9  C.  E.  Green  (24  N.  J.  Eq.)  455;  1876,  Buford  v. 
Keokuk  N.  L.  Co.,  3  Mo.  App.  159;  1882,  Bergman  v.  St.  Paul,  etc.,  M.  B. 
Assn.,  29  Minn.  275;  1883,  Balliet  v.  Brown,  103  Pa.  St.  546;  1887,  Barton 
V.  The  Enterprise  Loan,  etc.,  Co.,  114  Ind.  226;  1889,  In  re  Sovereign  Life 
Assurance  Co.,  42  Ch.  D.  540,  61  L.  T.  R.  455;  1890,  Rothwell  v.  Robinson, 
44  Minn.  538;  1892,  Chicago,  etc..  Cab.  Co.  v.  Yerkes,  141  111.  320,  33  Am.  St. 
Rep.  315:  1892,  People  v.  Ballard,  134  N.  Y.  269;  1895,  Bv-ne  v.  Schuvler 
Elec.  Mfg.  Co.,  65  Conn.  336;  1896,  McCutcheon  v.  Merz  Capsule  Co.,  37  U. 
S.  App.  586;  1897,Pringle  v.  Eltringham  Constr.  Co.,  49  La.  Ann.  301,  6  A.& 
E.  C.  C.  (N.  S.)  385;  1898,  Forrester  v.  Boston  M.  M.  Co.,  21  Mont.  544,  55 
Pac.  Rep.  229. 


§  247  METHODS   OF  DISSOLUTION.  88/ 

b.  But  the  majority  may  dispose  of  the  assets  of  a  corporation,  surrender 
its  charter  and  dissolve  the  corporation,  even  against  the  wishes  of  a  minor- 
ity, when  the  corporation  is  in  faiUng  circumstances,  unable  to  go  on  and  ac- 
complish its  ends,  in  the  absence  of  unfairness,  oppression  or  fraud:  1847, 
Sargeant  v.  Webster,  13  Mete,  l  Mass.)  497,  46  Am.  Dec.  743;  1850,  Hodges  v. 
New  Eng.  Screw  Co.,  1  R.  I.  312,  53  Am.  Dec.  H24 ;  18o(i.  Treadwell  v.  Salis- 
bury Mfg.  Co.,  7  Gray  (Mass.)  393,  66  Am.  Dec.  490;  1862,  Bank  of  Switzer- 
land V.  Bank,  5  L.  T.  (N.  S.)  549;  1870,  Wilson  v.  Proprietors,  etc.,9  R.  1.590; 
1881,  Hancock  v.  Holbrook,  9  Fed.  Rep.  353;  1883,  Sheldon  Hat  Co.  v.  Eick- 
meyer,  etc.,  Co.,  56  How.  Pr.  (N.  Y.)  70;  1886,  Ervin  v.  Oregon  R.  &  Nav. 
Co.,  27  Fed.  Rep.  625;  1886,  Hutchinson  v.  Green,  91  Mo.  371;  1888,  Berry 
V.  Broach,  65  Miss.  450;  1888,  Botts  v.  Simp.sonville  Tp.  Co.,  88  Ky.  54;  1889, 
Mason  v.  Pewabic  Min.  Co.,  133  U.  S.  50;  1889,  Sawyer  v.  Dubuque,  etc.,  Co., 
77  Iowa  242;  1890,  Havden  v.  Official  Hotel,  etc.,  Co.,  42  Fed.  Rep.  875;  1891, 
Trisconi  v.  Winship,  43  La.  Ann.  45;  1892,  Skinner  v.  Smith,  134  N.  Y.  240; 
1893,  Price  V.  Holcomb,  89  Iowa  123;  1893,  Sewell  v.  East  Cape  Mav,  etc., 
Co.,  50  N.  J.  Eq.  717;  1896,  Elyton  Land  Co.  v.  Dowdell,  113  Ala.  177;  1897, 
Peabodv  v.  Westerly  W.  W.,  20  R.  I.  176,  37  Atl.  Rep.  807;  1899,  Phillips  v. 
Prov.  Steam,  etc.,  Co.,  21  R.  I.  302,  45  L.  R.  A.  560. 


Sec.  247.     Repeal. 

See,  infra,  The  State  and  Corporation,  §§  453-73.  Also  see  Pro- 
prietors of  Piscataqua  Bridge  v.  New  Hampshire,  7  N.  H.  35,  supra, 
p.  309;  Flint  &  F.,  P.  R.  Co.  V.  Woodhull,  25  Mich.  99,  supra,  p. 
398;  Commonwealth  v.  Cullen,  13  Pa.  St.  133,  stipra,  p.  417; 
Dartmouth  College  v.  Woodward,  4  Wheat.  518,  stipra,  p.  708; 
Hawthorne  v.  Calef,  2  Wall.  10,  supra,  p.  752;  Tomlinson  v.  Jes- 
sup,  15  Wall.  454,  supra,  p.  754;  Ireland  v.  Palestine  Turn.  Co.,  19 
Ohio  St.  369,  supra,  p.  757 ;  Mormon  Church  (Romney)  v.  United 
States,  136  U.  S.  I,  infra,  p.  906. 


Sec.  248.     Forfeiture. 

See,  infra.  The  State  and  Corporation,  §§  410-18.  Also  see 
King  V.  Mayor  of  London,  i  Show.  280,  supra,  p.  152;  People  v. 
N.  R.  Sug.  R.  Qo.,  supra,  p.  100;  Higgins  v.  Downward,  8  Houst. 
(Del.)  227,  supra,  p.  152;  State  v.  Standard  Life  Assn.,  38  Ohio 
St.  281,  supra,  p.  234;  State  v.  Curtis,  35  Conn.  374,  supra,  p.  259; 
State  Bank  v.  The  State,  i  Blackf.  (Ind.)  267,  infra,  p.  891. 


Sec.  249.     Ownership  of  stock  by  one  member. 

LOUISVILLE  BANKING  COMPANY  v.  EISENMAN.' 

1894.     In  the  Court  of  Appeals  of  Kentucky.    94  Ky.  Rep. 
83-96,  42  Am.  St.  Rep.  335,  19  L.  R.  A.  684,  with  note. 

[Suit  by  the  bank  to  hold  J.  C.  Eisenman  personally  liable  upon 
an  acceptance  for  the  accommodation  of  Mattingly  &  Sons  of  drafts 
to  the  amount  of  $20,000,  drawn  by  them  upon  the  corporation  of 
Eisenman  Bros.  &  Co.,  and  accepted  by  it,  after  J.  C.  Eisenman  had 
become  the  sole  owner  of  the  stock  of  the  corporation.     The  failure 

^Statement  much  abridged.    Arguments  and  part  of  opinion  omitted. 


888  LOUISVILLE   BANKING   COMPANY    V.    EISENMAN.  §  249 

of  Mattingly  &  Sons  to  meet  the  drafts  rendered  Eisenman  Bros.  & 
Co.  insolvent.  The  bank  knew  the  circumstances  under  which  the 
drafts  were  accepted.  The  statute  provided  "any  number  of  persons 
may  associate  themselves  together^  and  become  incorporated,"  etc. 
The  bank  contended  that  the  sole  ownership  of  stock  dissolved  the 
corporation,  and  rendered  the  sole  owner  individually  liable.  The 
lower  court  held  otherwise.] 

Pryor,  J.  «  «  *  The  purpose  of  the  statute  was.  to  enable  two  or 
more  persons  possessed  of  capital  or  skill  to  associate  themselves  in 
business,  and  to  limit  their  liability  as  against  the  improvident  acts  of 
each  other,  or  the  act  of  the  corporation,  in  the  event  of  pecuniary  loss 
in  the  legitimate  and  proper  conduct  of  its  business.  It  invites  the  in- 
vestment of  the  capital  stock  of  one  to  be  placed  in  the  same  business 
with  the  skill  of  another,  or  a  combination  of  capital  that  encourages 
trade,  the  burden  of  which  mere  individual  enteiprise  would  be  unwill- 
ing to  assume,  and  it  could  not  have  been  the  legislative  intent  that  any 
one  man  could  form  a  corporation  of  which  he  is  the  creature  and  sole 
stockholder,  so  as  to  limit  his  liability  for  the  debts  contracted,  and 
from  which  he  has  derived  the  benefit,  to  the  extent  only  of  what  he 
might  designate  his  corporate  estate.  He  owns  the  entire  property 
belonging  to  the  corporation — it  is  his.  He  can  sell  or  dispose  of  it 
as  he  pleases;  borrow  money,  acquire  property,  in  the  name  of  the 
corporation,  for  the  sole  purpose  of  exempting  him  from  any  respon- 
sibility, other  than  that  belonging  to  the  corporation ;  and  however 
reckless  or  improvident  he  may  be,  he  has  all  to  gain  and  nothing  to 
lose.  He  could  make  a  gift  of  the  entire  corporate  estate,  dispense 
with  all  corporate  forms,  and  to  say,  when  exercising  such  unlimited 
control,  he  is  not  personally  responsible  for  every  debt  he  contracts, 
would  be  to  pervert  the  plain  purpose  of  the  statute. 

There  is  no  such  being  in  this  state  as  a  sole  corporation,  and  cer- 
tainly none  such  allowed  to  be  created  by  the  statute. 

This  corporation,  however,  was  properly  organized,  had  its  several 
stockholders  and  board  of  directors  and  was  prospering  in  its  busi- 
ness until  these  drafts  were  drawn  for  the  benefit  of  Mattingly  & 
Sons.     *     *     * 

That  both  the  appellant  and  appellee  were  acting  on  the  belief  that 
the  corporation  was  alone  liable  is  beyond  dispute,  and  the  corpora- 
tion, as  it  was  called,  the  appellee  being  the  sole  owner  of  the  stock, 
submitted  to  the  judgment  against  it  for  the  drafts  in  an  action  by 
the  bank,  and  the  appellee  is  making  no  resistance  to  its  payment  out 
of  the  property  of  the  corporation,  but  insists  that  no  personal  liability 
exists.  The  appellant  has  obtained  all  he  contracted  for.  There 
was  no  fraud  practiced  upon  it  by  the  appellee,  and  certainly  no 
intention  to  bind  himself  personally,  nor  any  of  the  proceeds  of  these 
drafts  applied  to  his  benefit  in  any  manner  or  to  the  benefit  of  what 
he  supposed  was  an  existing  corporation.  If  the  stock  had  been  held 
as  it  was  originally  the  pecuniary  condition  of  the  corporation  would 
have  been  the  same,  as  no  act  had  been  done  by  the  appellee  by  which 
the  interest  of  creditors  or  those  dealing  with  the  corporation  would  have 


§  249  METHODS   OF   DISSOLUTION.  889 

been  prejudiced.  Nor  are  we  prepared  to  adjudge,  after  a  corpora- 
tion has  been  created  by  the  statute,  with  the  stock  distributed  among 
several  stockholders,  that  the  purchase  by  one  stockholder  of  all  the 
stock  destroys  the  corporate  existence  and  places  all  the  property  of 
the  corporation  upon  the  same  footing  with  the  other  estate  of  the  in- 
dividual stockholder.  The  legal  title  to  the  estate  of  the  corporation 
is  still  vested  in  it,  and  while  the  stockholder's  interest  could  be  sub- 
jected to  the  payment  even  of  his  individual  debt,  when  he  contracts 
in  behalf  of  the  corporation,  and  with  no  fraudulent  intent,  it  seems 
to  us  the  party  with  whom  he  contracts  gets  all  he  bargains  for  when 
he  subjects  the  corporate  property  to  the  payment  of  his  debt.  (Cit- 
ing and  commenting  upon  Swift  v.  Smith,  65  Md.  428.)     *     «     * 

In  the  case  before  us  there  was  no  surrender  of  the  franchise,  but 
the  business  conducted  in  good  faith  and  under  the  belief  that  the  cor- 
porate estate  was  alone  liable.  The  coiporation  still  lived  and  had 
such  vitality  as  enabled  the  holder  of  the  stock  to  transfer  it  and  pro- 
ceed with  the  corporate  powers  as  if  he  had  never  become  the  sole 
owner;  and  the  argument  that  such  a  constmction  as  to  the  meaning 
of  the  statute  would  enable  two  or  more  to  organize  a  corporation 
with  a  view  of  vesting  the  entire  stock  in  one  of  the  corporators  is 
not  available,  for  the  reason  that  the  corporate  property  in  the  hands 
of  one  stockholder,  when  made  liable  by  him  for  his  corporate  or 
individual  debts,  remains  so,  although  he  may  transfer  the  stock  to 
others,  as  they  must  take  it  subject  to  the  incumbrances  the  sole  stock- 
holder has  placed  upon  it  prior  to  his  sale  of  the  stock.  (Citing  and 
commenting  upon  Button  v.  Hoffman,  61  Wis.  20;  Wilde  v.  Jenk- 
ins, 4  Paige  481  ;  Winona,  etc.,  R.  Co.  v.  St.  Paul,  etc.,  R.  Co.,  23 
Minn.  359;  Cook  on  Stock,  §   631  ;   Morawetz,  p.  635.)      *     «      * 

While  we  recognize  the  general  rule  on  the  subject  sustained  by 
the  authorities  referred  to,  it  must  be  held  that  the  purchase  by  one 
of  all  the  shares  in  a  corporation  created  under  the  statute  is  a  disso- 
lution of  the  corporation  to  the  extent  that  it  suspends  the  exercise  of 
the  rights  under  the  franchise  until  the  owner  transfers  the  stock  in 
good  faith,  so  as  to  maintain  an  organization  under  the  statute.  There 
is  a  difference  between  the  attempt  to  create  one  person  a  corporation 
under  this  statute,  and  the  purchase  in  good  faith  of  all  the  stock  after 
the  corporation  has  been  created.  In  the  first  instance  there  is  no  cor- 
poration, and  in  the  last  there  is  a  franchise,  the  operations  of  which 
are  suspended  until  the  stock  may  be  transferred  to  others ;  and  while 
in  the  hands  of  one  person  the  corporate  and  individual  property  are 
ordinarily  alike  liable  for  the  payment  of  any  debt  contracted  by  the 
owner,  and  subsequent  purchasers  of  stock  take  it  subject  to  the  liens 
or  equities  of  the  creditors  of  the  sole  owner  created  prior  to  the  trans- 
fer of  the  stock  to  them.     *     »     * 

Affirmed. 

Note.    One-man  companies. 

1.  It  seems  that  where  a  Htatiite  provides  that  "any  number  of  persons" 
may  form  a  corporation,  the  courts  will  hold  that  more  than  one  person  is 
meant.  Louisville  Banking  Co.  v.  Eisenman,  94  Ky.  83,  42  Am.  St.  Rep.  335, 
supra,  p,  887;  Montgomery  v.  Forbes,  148  Mass.  249,  supra,  p.  694.     Yet  the 


890  LOUISVILLE   BANKING    COMPANY   V.    EISENMAN.         §  249 

English  case  of  Salomon  v.  Salomon,  ]897,  App.  Cas.  22,  66  L.  J.  Ch.  35,  holds 
that  the  court  can  not  go  back  of  the  record,  when  regular,  to  inquire  into  the 
motive  of  those  forming  the  corjxjration.  The  Iowa  Code  of  1897,  title  ix, 
ch.  1,  §  1608,  provides  that,  "Except  as  otherwise  provided  by  law,  a  single 
person  may  incorporate  under  the  provisions  of  this  chapter,  thereby  entitl- 
ing himself  to  all  the  privileges  and  immunities  herein,  but  if  he  adopts  the 
name  of  an  individual  or  individuals  as  that  of  the  corporation,  he  must  add 
thereto  the  word  'incor[X)rated'  (Code  1873,  §  1088;  Code  1888,  §  1638)." 
So  far  as  I  am  aware  this  is  the  only  state  that  permits  this.  Since  the  fore- 
going chapter  provides  for  stock  corporations  as  well  as  others,  it  is  submit- 
ted that  if  a  stock  corporation  is  created  by  one  man  it  would  not  be  a  corpo- 
ration sole.  See  note,  snpra,  p.  200;  but  if  not  a  stock  corporation,  whether 
or  not  a  corporation  sole^  quaere'} 

2.  By  the  great  weight;  of  authority,  if  a  stock  corporation  is  once  validly 
created,  the  fact  that  one  person,  or  fewer  persons  than  may  lawfully  incor- 
porate, acquire  in  good  faith  all  the  stock,  the  corporation  still  exists,  and 
has  the  title  and  control  of  all  its  property,  and  the  individual  acts  of  the  sole 
or  other  owners  of  stock  do  not  bind  the  corporation.  1811,  Smith  v.  Smith, 
3  Desaus.  (S.  C.)  *557,  *582;  1819,  Williamson  v.  Smoot,  7  Martin  CLa.)  31. 
supra,  p.  70;  1833,  Russell  v.  McLellan,  14  Pick.  (Mass.)  63;  1833,  Spencer 
v.  Champion,  9  Conn.  536;  1834,  Wade  v.  Jenkins,  4  Paige  Ch.  (N.  Y.)  481  ; 
1839,  Penobscot  Boom  Corp.  v.  Lamson,  16  Maine  224,  si^^ra,  p.  283 ;  1843, 
Wheelock  v.  Moulton,  15  Vt.  519  ideed  by  all  the  shareholders  is  not  the 
deed  of  the  corporation);  1846,  Queen  v.  Arnaud,  25  L.  J.  (16  N.  S.) 
Q.  B.  50,  supra,  p.  58;  1850,  Evarts  v.  Killingworth  Mfg.  Co.,  20  Conn.  447, 
458;  1856,  Bohannon  v.  Binns,  31  Miss.  355;  1858,  Lillard  v.  Porter,  2  Head 
(Tenn.)  176;  1860,  Frost  v.  Frostburg  Constr.  Co.,  24  How.  (U.  S.)  278,  283; 
1871,  Newton  Mfg.  Co.  v.  White,  42  Ga.  148;  1877,  Winona  &  St.  P.  R.  Co.  v. 
St.  Paul  &  S.  R.  Co.,  23  Minn.  359;  1879,  Balwin  v.  Canfield,  26  Minn.  43; 
1880,  Keith  v.  Clarke,  4  Lea  (Tenn.)  718;  1884,  Button  v.  Hoffman,  61  Wis. 
20,  50  Am.  Rep.  131 ;  1884,  Mathis  v.  Morgan,  72  Ga.  517,  525;  1886,  England 
V.  Dearborn,  141  Mass.  690;  1890,  Fitzhugh  v.  Mo.  Pac.  R.  Co.,  45  Fed.  Rep. 
812;  1890,  Humphreys  V.  McKissock,  140  U.  S.  304,  312;  1893,  Gallagher  v. 
Germania  Brewing  Co.,  53  Minn.  214;  1893,  Foster  &  Son  v.  Comm'rs  of  In- 
land Rev.,  L.  R.  (1894)  1  Q.  B.  516,  supra,  p.  60;  1895,  Matter  of  Belton, 
47  La.  Ann.  1615;  1896,  Parker  v.  Bethel  Hotel  Co.,  96  Tenn.  252;  1897, 
Harrington  v.  Connor,  51  Neb.  214;  1897,  Salomon  v.  Salomon,  App.  Cas.  22, 
66  L.J.  Ch.35;  1898,  Louisville,  etc.,  Co.  v.  Kaufman,  20  Kv.  L.  Rep.  1069,  48 
S.  AV.  Rep.  434;  1898,  First  Nat'l  Bank  v.  Winchester,  119  Ala.  168,  72  Am.  St. 
Rep.  904;  1899,  Chase  v.  Mich.  Tel.  Co.,  121  Mich.  631,  11  Am.  &  E.  C.  C.  (N. 
S.I  715;  1899,  In  re  Hirth,  1  Q.  B.  612,  68  L.  J.  Q.  B.  287;  1898,  Durlacher  v. 
Frazer,  8  Wyo.  58,  80  Am.  St.  Rep.  918,  55  Pac.  306.  But  it  has  been 
held  in  Maryland,  that  the  ownership  of  stock  by  one  person  virtually  sus- 
pends the  corporate  existence  during  such  sole  ownership.  1831,  Bellona 
Cos.  Case,  3  Bland.  Ch.  (Md.)  442,  446;  1886,  Swift  v.  Smith,  65  Md.  428,  57 
Am.  Rep.  336;  1898,  First  Nat'l  Bank  v.  Winchester,  119  Ala.  168,  72  Am.  St. 
Rep.  904. 

3.  But  in  equity,  or  incase  of  fraud,  or  evasion  of  corporate  duties,  the 
acts  of  all  the  shareholders  as  individuals  will  be  treated  as  the  acts  of  the 
corporation,  if  necessary  to  work  out  justice.  1882,  Bundv  v.  Ophir  Iron  Co., 
38  Ohio  St.  300;  1890.  People  v.  North  Riv.  S.  Ref.  Co.,  121  N.  Y.  582,  18  Am. 
St.  Rep.  843,  supra,Y>.  100;  1892,  State  v.  Standard  Oil  Co.,  49  Ohio  St.  137; 
1898,  First  Nat'l  Bank  v.  Winchester,  119  Ala.  168,  72  Am.  St.  Rep.  904. 
See  also,  supra,  the  corporation  as  a  collection  of  persons,  sees.  16-21,  and 
note,  p.  109,  et  seq. 


§  2  50  EFFECT   OF   DISSOLUTION.  89I 

ARTICLE    II.       EFFECT    OK    DISSOLUTION. 

Sec.  250.     Lands,  chattels  and  debts  at  common  law. 
STATE  BANK  v.  THE  STATE.i 

1823.    In  the  Supreme  Court  of  Indiana,    i  Blackf.  (Ind.)  Rep. 
267-285,  12  Am.  Dec.  234. 

\^^uo  warranto  against  the  bank  for  numerous  violations  of  its  char- 
ter. The  defendant  pleaded  not  guilty  to  all  the  charges.  On  the  trial 
in  the  lower  court  the  jury  found  them  guilty  of  nine  of  the  charges. 
A  motion  in  arrest  of  judgment  was  made  and  overruled,  and  judg- 
ment given  that  the  privileges,  liberties  and  franchises  be  seized  into 
the  custody  of  the  state,  together  with  all  the  goods,  chattels,  rights, 
credits  and  effects  of  every  kind.  Various  errors  were  assigned,  two 
of  which  were:  i,  that  the  charges  did  not  justify  a  forfeiture,  and 
2,  the  judgment  of  seizure  of  the  franchises  and  property  violated  the 
constitution  of  the  state,  providing  that  no  man's  property  should  be 
taken  for  a  public  use  without  the  consent  of  his  representatives,  etc.] 

Holm  AN,  J.  ♦  ♦  *  That  a  corporation  may  forfeit  its  charter 
for  misusing  or  abusing  its  franchises  is  a  doctrine  that  can  not  now 
be  disputed.  See  i  Bl.  Comm.,  485;  2  Kyd  Cor.,  474,  and  the  cases 
there  cited.  For  there  is  an  implied  condition  annexed  to  each  par- 
ticular grant,  which,  if  violated,  forfeits  the  whole  franchise.  2  Bac, 
31.  Inasmuch  as  it  is  the  duty  of  corporations  to  act  up  to  the  end 
or  design  for  which  they  were  created  (i  Bl,  Comm.,  480)  so  when 
they  pursue  such  measures  as  wholly  frustrate  this  design  the  reason 
of  their  existence  ceases,  and  it  is  but  just  that  their  existence  should 
also  be  terminated.  Whether  every  slight  deviation  from  the  inten- 
tion of  the  charter  should  occasion  a  forfeiture  is  not  the  question,  but 
when  the  grand,  leading  conditions  and  restrictions  in  the  charter  have 
been  violated  there  can  be  no  question  but  the  franchises  are  thereby 
forfeited.  Several  of  the  charges  found  by  the  jury  against  this  cor- 
poration are  of  this  nature,  and  show  that  they  have  evidently  abused 
their  most  important  privileges  to  the  manifest  injury  of  others  and  of 
the  community  in  general.    (Considering  the  charges  in  detail.)   *   *  * 

But  if  it  be  contended  that  such  a  private  property  exists  in  the  in- 
dividual shareholders  as  will  be  destroyed  if  the  franchises  of  the 
corporation  be  seized,  and,  inasmuch  as  the  private  property  is  guar- 
anteed by  the  constitution,  that  the  constitution  must  also  of  necessity 
guaranty  the  continued  existence  of  those  franchises  or  otherwise  this 
property  will  be  annihilated,  we  shall  find  that  this  doctrine  is  not 
warranted  by  the  constitution.  The  privilege  of  holding  stock  in  this 
bank  is  inseparably  connected  with  its  existence  as  a  corporation,  and 
inasmuch  as  we  have  seen  that  the  existence  of  the  corporation  de- 
pends on  the  implied  condition  that  it  will  not  violate  its  charter,  so 
this  privilege  of  holding  stock  in  this  bank  must  depend  for  its  contin- 
uance on  the  same  implied  condition.  The  president  and  directors  of 
the  corporation  become  the  agents  of  the  stockholder,  and  if  they  vio- 

'  Statement  much  abridged,  and  much  of  opinion  omitted. 


892  STATE   BANK   V.    THE   STATE.  §250 

late  the  conditions  on  which  he  enjoys  this  privilege,  his  privilege  is 
immediately  subjected  to  forfeiture  by  this  act  of  his  agents.  Nor 
will  the  regard  which  the  constitution  has  for  private  property  secure 
such  property  from  annihilation  by  a  dissolution  of  the  corporation. 
So  that  we  see  nothing  in  the  constitution  to  prevent  the  seizure  of 
those  franchises,  let  the  effect  upon  private  property  be  what  it  may. 
And  there  can  be  no  doubt  but  that  this  judgment,  so  far  as  it  author- 
izes a  seizure  of  the  franchises  into  the  hands  and  custody  of  the  state, 
is  warranted  by  law.  When  it  appears  that  the  liberty  has  been  once 
granted,  and  is  forfeited  by  misuser  or  non-user,  the  judgment  shall  be 
that  it  be  seized  into  the  king's  hands.  Year  Book  15  Ed.  4,  cited  in 
2  Kyd  Corp.,  407.  And  such  appears  to  be  the  law  at  present.  *  *  * 
There  are  but  two  grounds  on  which  it  can  be  contended  that  the 
corporate  effects  fall  into  the  hands  of  the  state:  i.  As  a  forfeiture 
for  abusing  the  franchises ;  or  2.  For  the  want  of  an  owner  by  the 
dissolution  of  the  corporation.  When  we  examine  the  first  of  these 
grounds  we  find  nothing  in  the  books  to  support  an  idea  that  the  abuse 
of  corporate  franchises  occasions  forfeiture  of  lands  or  goods,  rights 
or  credits,  or,  in  fact,  occasions  any  other  forfeiture  but  the  franchises 
themselves.  The  consequence  of  a  breach  of  the  implied  condition 
on  which  their  liberties  were  granted  was  not  that  they  should  forfeit 
their  property  or  possessions  if  they  abused  their  franchises,  but  only 
that  they  should  forfeit  their  franchises.  That  which  comes  out  of 
the  hands  of  the  king  is  the  proper  subject  of  forfeiture ;  the  king,  by 
the  seizure,  resuming  what  originally  flowed  from  his  bounty.  Au- 
thorities leading  to  this  conclusion  are  numerous.  See  the  cases  cited 
in  2  Bac,  32,  and  in  The  King  v.  Amery,  2  T.  R.  515.  Forthe  for- 
feiture is  the  same  for  non-user  when  no  property  has  been  held  or 
rights  exercised,  as  for  misuser  or  abuser  after  the  possession  of  much 
property  and  the  exercise  of  extensive  rights  and  credits ;  and  the 
judgment  is  the  same  in  both  cases.  Consequently,  the  judgment 
could  not  direct  a  seizure  of  the  corporate  possessions  as  a  forfeiture 
for  the  violation  of  the  charter.  Nor  is  the  second  ground—  that  the 
property  falls  to  the  state  for  the  want  of  an  owner,  on  the  dissolution 
of  the  corporation — more  tenable  as  a  foundation  on  which  to  sustain 
this  judgment.  For  the  ownership  of  the  corporation  does  not  cease 
until  its  dissolution.  And  whether  it  is  dissolved  by  the  judgment 
of  seizure  or  not,  until  the  state  has  execution  on  that  judgment,  is 
not  here  very  material.  For  if  the  corporation  is  dissolved  by  the 
judgment,  the  judgment  must  be  regularly  entered,  and  have  its  full 
effect  before  the  dissolution  takes  place,  and  it  is  not  till  then  that  the 
property  can  be  said  to  be  without  an  owner.  The  loss  of  the  prop- 
erty to  the  corporation  is  a  consequence  of  the  judgment,  and  it  is  a 
contradiction  of  the  first  principles  of  reason — a  complete  reversal  of 
effect  and  cause — to  make  such  loss  of  property  a  part  of  the  judg- 
ment. That  which  can  not  exist  until  after  the  judgment,  can  never 
be  the  subject-matter  on  which  the  judgment  is  given.  But  the  better 
opinion  seems  to  me,  that  the  corporation  is  not  dissolved  by  the  judg- 
ment of  ocizure,  but  that  it  exists  until   the  franchises  are   seized  by 


§  2  50  EFFECT  OF   DISSOLUTION.  893 

execution  on  that  judgment.  See  Kyd  Corp.,  409,  410,  and  the  au- 
thorities there  cited.  Consequently,  the  last  shadow  of  a  support  for 
this  judgment  on  this  ground  must  vanish. 

We  have  thus  far  examined  the  judgment  which  directs  a  seizure  of 
the  goods  and  chattels,  rights  and  credits,  lands  and  tenements  of  the 
corporation,  on  the  assumed  position  that  they  will  necessarily  fall  to 
the  state  on  the  dissolution  of  the  corporation.  We  shall  now  inquire 
into  the  correctness  of  this  position.  In  order  to  elucidate  the  subject 
we  shall  examine  it  in  detail,  and  in  the  first  place  inquire  what  be- 
comes of  the  lands  and  tenements ;  secondly,  what  becomes  of  the  goods 
and  chattels,  and  thirdly,  what  becomes  of  the  rights  and  credits  of 
the  corporation?  and  we  shall  find  that  each  of  these  three  items  is 
governed  by  different  principles. 

First.  As  to  the  lands  and  tenements:  "When  a  corporation  is  dis- 
solved," says  Sir  Wm.  Blackstone,  "the  lands  and  tenements  revert 
to  the  person  or  his  heirs  who  granted  them  to  the  corporation ;  for 
the  law  doth  annex  a  condition  to  every  such  grant,  that  if  the  cor- 
poration be  dissolved  the  grantor  shall  have  the  lands  again.  The 
grant  is  only  during  the  life  of  the  corporation,  which  may  endure 
forever,  but  when  that  life  is  deterrtiined  by  the  dissolution  of  the  body 
politic,  the  grantor  takes  it  back  by  reversion,  as  in  the  case  of  every 
other  grant  for  life."  i  Bl.  Comm.,  484.  This  is  the  doctrine  ad- 
vanced by  Lord  Coke,  Co.  Litt.  1^6.  See,  also,  2  Kyd  Cor.,  516;  2 
Bac.,32;  2  Cruise,  493;  Colchester  V.  Seaber,  3  Burr.  1866.  We  see 
but  little  in  the  books  that  contradicts  or  questions  those  authorities, 
and  the  cases  that  look  a  different  way  maintain  that  the  lands  would 
escheat.  2  Bac.  32.  If  either  of  those  principles  be  coi'rect  we  feel 
warranted  in  determining  that  the  corporate  lands  and  tenements  can 
not  be  seized  into  the  hands  of  the  state,  and  certainly  not  in  the 
manner  contemplated  by  this  judgment. 

Secondly.  As  to  the  goods  and  chattels:  On  this  subject  the  books 
are  almost  silent.  In  the  argument  of  Colchester  v.  Seaber,  it  is  said 
by  Sir  Fletcher  Norton,  on  the  authority  of  i  Ro.  Ab.  816,  that  the 
goods  and  chattels  go  to  the  crown.  An  English  writer,  who  has  col- 
lected together  most  of  the  cases  on  corporations,  concludes  his  re- 
marks on  the  effect  of  a  dissolution  in  these  words:  "What becomes 
of  the  personal  estate  is,  perhaps,  not  decided ;  but  probably  it  vests 
in  the  crown."  2  Kyd  on  Corp.,  516.  We  do  not  feel  under  the 
necessity  of  resolving  any  doubts  which  may  rest  on  this  subject;  for 
if  the  law  were  conclusive,  that  the  goods  and  chattels  in  this  case 
would  vest  in  the  state  on  the  dissolution  of  the  corporation,  yet  we 
have  already  seen  that  this  would  not  be  as  a  forfeiture,  but  because 
they  are  without  an  owner,  and  that  the  claim  of  the  state  could  not 
exist  until  after  judgment ;  consequently,  it  is  impossible  to  include 
them  in  the  terms  of  the  judgment. 

Thirdly.  As  to  the  rights  and  credits  of  the  corporation:  These,  as 
applying  to  the  debts,  etc.,  due  to  the  corporation,  are  supposed  to  be 
of  considerable  amount,  and  have  formed  a  principal  feature  in  every 
view  of  this  case.     But  the  importance  of  the  case,  arising  from  the 


894  STATE    BANK    V.    THE    STATE.  §250 

amount  in  controversy,  can  not  affect  the  principles  by  which  it  is 
governed  ;  and  u'hen  those  principles  are  fixed  they  must  be  declared, 
let  the  consequence  to  individuals  or  the  community  be  what  it  may. 
That  the  debts  are  necessarily  lost  to  the  corporation  naturally  fol- 
lows from  the  principles  we  have  examined.  For  when  dissolved 
they  have  no  existence,  and  can  have  no  claim  to,  nor  control  over, 
anything  whatever.  They  not  only  die,  but  leave  no  representative 
behind  them.  This,  in  every  respect,  is  the  case  with  aggregate  cor- 
porations. Sole  corporations  depend,  in  this  respect,  upon  principles 
somewhat  different;  but  with  them  we  have  now  no  concern.  But 
although  the  debts  fall  out  of  the  lifeless  hands  of  the  corporation  at 
the  same  time  with  their  real  and  personal  estate,  yet  when  thus  out 
of  their  hands,  they  are  very  different  in  their  natures  from  the  real 
and  personal  estate. 

Lands  and  goods  have  a  necessary  existence,  although  they  may  be 
without  an  owner  in  being  or  in  expectancy.  They  continue  in  being 
and  may  be  made  the  subject  of  possession  by  occupancy.  But  this 
is  not  the  case  with  respect  to  debts.  They  have  no  necessary  exist- 
ence, and  are  so  conclusively  personal  that  they  can  not  exist  without 
an  obligor  and  obligee  in  being  or  in  expectancy.  And  on  the  death 
of  the  obligor  or  obligee,  without  the  possibility  of  a  representative, 
the  obligation  ceases.  Such  appears  to  be  the  case  on  the  dissolu- 
tion of  a  corporation  aggregate.  Blackstone  says:  "The  debts 
of  a  corporation,  either  to  or  from  it,  are  totally  extinguished  by 
its  dissolution,  so  that  the  members  thereof  can  not  recover  or  be 
charged  with  them,  in  their  natural  capacities,  i  Bl.  Comm.,  484; 
2  Kyd  Corp.,  516,  uses  the  same  language.  2  Bac,  32,  advances 
nearly  the  same  doctrine,  on  the  authority  of  Lev.,  237;  Owen,  73, 
and  2  And.,  107.  And  this  doctrine  is  either  directly  or  indirectly 
supported  in  a  varietv  of  cases.  See  the  before-mentioned  case  of 
Colchester  v.  Seaber;  also  Rex  v.  Pasmore,  3  T.  R.  199;  The  Mayor, 
etc.,  of  Scarborough  v.  Butler,  2  Lev.  237;  4  Com.  Dig.,  273.  If  this 
doctrine  be  connect,  and  we  find  it  uncontradicted,  the  seizure  of  the 
rights  and  credits  of  the  corporation  is  impossible  in  the  nature  of 
things,  because  their  existence  ceases  as  the  claim  of  the  state  com- 
mences. But  even  if  they  could  be  seized  into  the  hands  of  the  state 
they  would  be  unavailing.  The  debts  due  to  the  corporation  could 
not,  on  any  common  law  principle,  be  collected  by  the  state  or  its 
agent,  there  being  no  privity  of  contract,  either  in  fact  or  law,  between 
the  state  and  debtor  to  the  corporation.     *     *     * 

Thus,  in  no  view  of  the  case,  can  that  part  of  the  judgment  which 
directs  a  seizure,  into  the  hands  of  the  state,  of  the  goods  and  chat- 
tels, rights,  credits  and  effects,  lands,  tenements  and  hereditaments  of 
the  corporation,  be  supported. 

Affirmed  as  to  seizure  of  franchises  but  reversed  as  to  seizure  of 
property. 

Note.    See  following  cases  and  note,  infra,  p.  910. 


§251  EFFECT   OF   DISSOLUTION.  895 

Sec.  251.     Contracts  of  shareholders. 

FOSTER  V.  ESSEX  BANK.* 

1820.     In  the  Supreme  Judicial  Court  of  Massachusetts.    16 
Mass.  Rep.  245-274. 

[Assumpsit  against  the  bank  for  $50,000,  begun  April  term  18 19. 
At  the  trial  term  it  was  suggested  the  bank's  charter  had  expired.  By 
the  act  creating  it,  it  was  to  exist  for  twenty  years  from  July  i,  1799. 
By  an  act  of  June  19,  1819,  all  such  corporations  were  "continued 
bodies  corporate  and  politic,  for  the  term  of  three  years  from  and 
after  the  day  on  which  their  powers  would  expire,"  for  the  puipose 
of  prosecuting  and  defending  suits,  now  or  hereafter  instituted,  and  to 
settle  their  concerns,  and  divide  their  capital  stock,  but  not  for  con- 
tinuing business.  It  was  contended  that  this  statute  impaired  the 
obligation  of  the  shareholders'  contracts.] 

Parker,  C.  J.  *  *  *  In  the  first  place,  we  see  no  pretense  for  say- 
ing that  it  impairs  the  force  of  contracts.  Certainly  it  has  not  that 
effect  on  contracts  made  by  or  with  the  bank;  but  the  very  object  of 
the  statute  is  to  enforce  such  contracts. 

It  is  said,  however,  that  the  contract  with  the  government  was  that  at 
the  end  of  twenty  years  the  corporation  should  be  dissolved,  and  each 
member  take  his  share  out  of  the  common  fund.  But  it  should  be 
considered  that,  by  the  original  charter,  each  member's  share  was 
liable  for  all  the  debts  of  the  bank,  and  that  he  would  have  no  moral 
right  to  withdraw  it  until  all  the  debts  of  the  bank  were  paid  ;  so 
that  there  was  an  equitable  lien  upon  his  share ;  and  the  legislature, 
we  think,  had  a  right,  if  it  was  not  their  duty,  to  provide  the  means 
of  enforcing  this  moral  obligation. 

The  law  complained  of  is  a  general  law  operating  upon  all  bodies 
corporate,  and  it  is  convenient  for  them  and  the  public  that  their 
power  of  suing  and  being  sued  should  be  continued  beyond  the  period 
within  which  they  are  empowered  to  make  contracts,  m  order  that 
their  concerns  may  be  properly  adjusted. 

Nor  do  we  think  it  an  objection  that  this  additional  term  should  be 
granted  by  an  act  made  subsequent  to  the  time  when  their  charter  was 
granted.  A  debtor  to  the  bank  could  not  object  to  a  suit  on  the  ground 
that  the  original  term  of  the  charter  had  expired,  for  the  very  bringing 
of  the  suit  would  be  an  acceptance  of  the  prolongation  of  the  charter, 
and  it  would  be  absurd  for  him  to  say  that  his  debt  was  discharged, 
or  that  there  were  no  means  of  recovering  it  because  he  contracted 
with  the  corporation  on  a  supposition  that  it  would  continue  in  being 
only  a  certain  number  of  years.  We  think  it  equally  incompetent  for 
such  corporation  to  deny,  its  existence  against  a  statute  of  the  govern- 
ment, the  object  of  which  is  to  give  a  right  of  action  on  contracts  upon 
which  they  were  legally  and  morally  bound  under  their  charter. 

It  is  said  that  the  members  of  such  a  corporation  associated  upon 

•Statement  abridged.  Much  of  the  opinion,  and  the  elaborate  arguments 
of  Saltonstall,  Pickering  and  Webster,  omitted. 


896  MUMMA   V.    THE    POTOMAC    COMPANY.  §  252 

the  faith  that  after  the  time  limited  in  their  charter  they  might  sepa- 
rate and  take  their  shares  of  the  stock.  But  it  is  to  be  answered  that 
their  stock  is,  in  an  equitable  view,  pledged  for  the  payment  of  all 
debts  due  from  the  corporation,  and  that  it  would  be  fraudulent  to 
withdraw  the  funds,  knowing  that  there  were  debts  to  be  paid,  leav- 
ing no  means  of  coercing  the  payment  of  those  debts.  What  should 
be  said  of  a  banking  company  which  just  before  its  expiration  should 
divide  all  the  stock,  making  no  provision  for  the  payment  of  its  debts? 
Yet  this  might  be  done  if  the  legislature  have  no  authority  to  estab- 
lish by  law  a  mode  by  which  it  should  be  compelled  to  fulfill  its  obli- 
gations. For  it  is  certainly  doubtful  whether  any  means  exist,  under 
our  laws,  of  pursuing  the  funds  into  the  hands  of  individual  corpora- 
tors and  subjecting  them  to  the  claims  of  creditors.  We  see  no  vio- 
lation of  the  rights  of  the  corporators,  no  impairing  of  the  obligation 
of  contracts,  for  it  can  never  be  the  right  of  any  person  to  withhold  a 
just  debt  from  his  creditor.      *     *     * 

(The  suggestion  filed  can  not  impede  the  progress  of  the  suit.) 

Note.     See  following  cases,  and  note,  infra,  p.  910. 


SeCt  252.     Contracts  of  creditors. 

MUMMA  V.  THE  POTOMAC  COMPANY.* 

1834.     In  the  Supreme  Court  of  the  United  States.     8    Pe- 
ters (33  U.  S.)  Rep.  *28i-7. 

[Mumma,  in  1818,  obtained  a  judgment  in  the  circuit  court  of  the 
District  of  Columbia  against  the  Potomac  Company  for  $5,000.  No  at- 
tempt was  made  to  enforce  it  till  April  18,  1828,  when  a  scire  facias 
was  issued  to  revive  the  judgment;  this  revivor  case  was  continued 
till  1830,  when  the  facts  were  agreed  to  be  that  after  the  rendition  of 
the  judgment  in  question  and  in  accordance  with  a  provision  of  the 
laws  of  Virginia,  Maryland  and  the  United  States  incorporating  the 
Chesapeake  and  Ohio  Canal  Company,  so  authorizing,  the  Potomac 
Company  had  surrendered  all  its  property,  rights  and  privileges  by  deed 
of  August  15,  1828,  to  and  the  same  had  been  accepted  by  the  Chesa- 
peake and  Ohio  Canal  Company,  whereby  the  charter  of  the  Potomac 
Company  was  vacated  and  annulled,  and  its  powers  vested  in  the  canal 
company.  It  was  contended,  secondly,  that  the  deed  of  surrender 
and  the  acts  of  the  legislature  were  void  as  impairing  the  obligation 
of  contracts.     The  lower  court  gave  judgment  for  the  defendant.] 

Story,  j.  *  *  *  Unless,  then,  the  second  point  can  be  main- 
tained, there  is  an  end  of  the  cause,  for  there  is  no  pretense  to  say 
that  a  scire  facias  can  be  maintained,  and  a  judgment  had  thereon, 
against  a  dead  corporation  any  more  than  against  a  dead  man.  We 
are  of  opinion  that  the  dissolution  of  the  corporation,  under  the  acts 
of  Virginia  and  Maryland  (even  supposing  the  act  of  confirmation  of 
congress  out  of   the  way),  can  not,  in  any  just  sense,  be  considered, 

*  Statement  abridged,  only  part  of  opinion  given. 


§  2  53  EFFECT   OF   DISSOLUTION.  89/ 

within  the  clause  of  the  constitution  of  the  United  States  on  this  sub- 
ject, an  impairing  of  the  obligation  of  the  contracts  of  the  company  by 
those  states,  any  more  than  the  death  of  a  private  person  can  be  said 
to  impair  the  obligation  of  his  contracts.  The  obligation  of  those  con- 
tracts survives,  and  the  creditors  may  enforce  their  claims  against  any 
property  belonging  to  the  corjjoration  which  has  not  passed  into  the 
hands  of  bona  fide  purchasers,  but  is  still  held  in  trust  for  the  com- 
pany, or  for  the  stockholders  thereof,  at  the  time  of  its  dissolution,  in 
any  mode  permitted  by  the  local  laws.  Besides,  the  twelfth  section 
of  the  act  incorporating  the  Chesapeake  and  Ohio  Canal  Company 
makes  it  the  duty  of  the  president  and  directors  of  that  company,  so 
long  as  there  shall  be  and  remain  any  creditor  of  the  Potomac  Com- 
pany who  shall  not  have  vested  his  demand  against  the  same  in  the 
stock  of  the  Chesapeake  and  Ohio  Canal  Company  (which  the  act  ena- 
bles him  to  do),  to  pay  to  such  creditor  or  creditors,  annually,  such  div- 
idend or  proportion  of  the  net  amount  of  the  revenues  of  the  Potomac 
Company,  on  an  average  of  the  last  five  years  preceding  the  organi- 
zation of  the  said  Chesapeake  and  Ohio  Canal  Company,  as  the  de- 
mand of  the  said  creditor  or  creditors  at  that  time  may  bear  to  the 
whole  debt  of  $175,800  (the  supposed  aggregate  amount  of  the  debts 
of  the  Potomac  Clompany).  So  that  here  is  provided  an  equitable 
mode  of  distributing  the  assets  of  the  company  among  its  creditors,  by 
an  apportionment  of  its  revenues  in  the  only  mode  in  which  it  could 
be  practically  done  upon  its  dissolution ;  ^  mode  analogous  to  the  dis- 
tribution of  the  assets  of  a  deceased  insolvent  debtor. 

Independent  of  this  view  of  the  matter,  it  would  be  extremely 
difficult  to  maintain  the  doctrine  contended  for  by  the  plaintiff  in 
error,  upon  general  principles.  A  corporation,  by  the  very  terms 
and  nature  of  its  political  existence,  is  subject  to  dissolution,  by  a  sur- 
render of  its  corporate  franchises,  and  by  a  forfeiture  of  them  for  will- 
ful misuser  and  non-user.  Every  creditor  must  be  presumed  to  under- 
stand the  nature  and  incidents  of  such  a  body  politic,  and  to  contract 
with  reference  to  them.  And  it  would  be  a  doctrine  new  in  the  law, 
that  the  existence  of  a  private  contract  of  the  corporation  should  force 
upon  it  a  perpetuity  of  existence,  contrary  to  public  policy,  and  the 
nature  and  objects  of  its  charter.     *     ♦     • 

Affirmed. 

See  following  cases,  and  note,  infra,  p.  -910. 


Sec.  253.     Executory  contracts. 
GRIFFITH  Et  Al.  v.  BLACKWATER  BOOM  AND  LUMBER  CO.^ 

1899.     In  the  Supreme  Court  of  West  Virginia.  .  46  W.  Va. 
56,  33  S.    E.  Rep.  125-128. 

[In  a  suit  toy  creditors  against  the  lumber  company  to  settle  up  its 
affairs  there  were  three  contested  claims  in   favor  of  one  Thompson, 

*  Statement  abridged ;  only  part  of  the  opinion  given. 
57— WiL.  Cases. 


898  GRIFFITH  V.  BLACKWATER  BOOM  AND  LUMBER  CO.     §  253 

for  over  $1 15,000.  One  of  these,  for  over  $98,000,  was  adjudged  not 
to  be  a  preferred  claim,  but  if  of  any  validity  at  all,  to  be  such  as  to 
share  only  pro  rata  with  other  claims.  This  claim  arose  out  of  a  con- 
tract called  the  stocking  contract,  whereby  Thompson  was  to  cut, 
saw  and  deliver  all  its  timber  at  the  mill  at  a  certain  price.  Before 
any  part  of  this  contract  was  carried  out  the  company's  affairs  were 
placed  in  the  hands  of  a  receiver  by  consent  of  all  parties  interested. 
Thompson  claimed  damages  for  the  breach  of  this  contract,  and  over 
$98,000  was  found  to  be  the  proper  amount,  if  he  was  entitled  to  any- 
thing. He  claimed  also  that  under  a  statute  making  claims  for  work 
and  labor  preferred  claims,  the  damages  for  a  breach  of  contract  for 
work  and  labor  would  have  the  same  preference.  The  lower  court 
decreed  that  this  was  not  a  preferred  claim,  but  allowed  it  to  be  a 
valid  claim.      Other  creditors  appealed.] 

Dent,  p.  *  *  *  The  last  report  of  the  receiver  shows  that,  if 
the  three  contested  claims  of  Albert  Thompson  are  allowed,  the  assets 
of  the  company  will  greatly  fall  short  of  the  liabilities ;  but,  if  such 
claims  are  disallowed,  there  will  be  in  the  neighborhood  of  $30,000 
to  be  distributed  among  the  stockholders.  So  these  amounts  are  of 
very  grave  importance  to  the  stockholders,  Albert  Thompson,  and  the 
other  creditors,  the  most  important  of  which  is  his  right  to  recover 
the  alleged  profits  of  his  abrogated  contract  by  way  of  damages,  ascer- 
tained by  the  final  decree  to  amount  to  $98,661.56,  as  of  the  24th 
day  of  November,  1896.  These  damages  are  claimed  by  reason  of 
an  alleged  breach  of  its  contract  by  the  company.  This,  however,  is 
a  legal  impossibility,  for  the  reason  that,  at  the  time  the  alleged 
breach  occurred,  the  company  had  ceased  to  exist  save  only  in  name, 
and  its  bones  were  already  bleaching  on  the  plains  of  corporate  exist- 
ence amid  millions  of  their  kind.  By  force  of  law,  it  had  been  com- 
pelled to  suiTender  its  franchises  into  the  hands  of  a  receiver  on  ac- 
count of  its  inability  to  further  carry  on  its  business,  without  great 
threatened  loss  to  its  creditors  and  stockholders,  and  it  was  afterwards 
finally  dissolved  by  the  disposal  of  all  its  property,  to  all  which  Albert 
Xhompson  was  present  and  gave  his  assent,  with  certain  reservations 
in  his  own  interest.  Where  an  insolvent  corporation  is  forced  into 
liquidation  and  dissolution  all  its  executory  contracts  perish  with  it, 
for  this  is  an  implied  condition  of  their  execution.    , 

In  7  Am.  &  Eng.  Ency.  Law  (2  ed.),  116,  the  law  is  stated  to  be: 
"When  performance  of  a  contract  is  dependent  upon  the  continued 
existence  of  a  given  perron  or  thing,  and  such  continued  existence  was 
assumed  as  the  basis  of  the  agreement,  the  death  of  the  person  or  the 
destruction  of  the  thing  puts  an  end  to  the  obligation."  The  con- 
tinued existence  of  the  corporation  was  assumed  as  the  basis  of  the 
contract  with  Albert  Thompson,  and  its  involuntary  dissolution  put 
an  end  to  performance  on  its  part,  and  the  contract  ceased  to  be  bind- 
ing, as  there  was  no  one  left  to  perform  it  according  to  its  terms. 
People  V.  Globe  Mat.  Life  Ins.  Co.,  91  N.  Y.  174;  i  Am.  &  Eng. 
Corp.  Cas.  586,  note  594.  Such,  however,  is  not  the  law  where  a 
solvent  corporation  is  voluntarily  dissolved.    By  its  own  act  it  can  not 


§  2  54  EFFECT  OF   DISSOLUTION.  899 

relieve  itself  from  its  contracts,  but  its  assets  will  be  held  liable  for 
breaches  thereof.  It  must  be  taken  as  an  implied  condition  of  all  such 
contracts  that  such  corporation  will  not  voluntarily  try  to  escape  or 
evade  fulfillment,  and  if  it  does,  equity  will  not  recognize  its  dissolu- 
tion nor  permit  the  distribution  of  its  assets  until  its  contracts  are  sat- 
isfied. Glass  Co.  V.  Stoehr,  54  Ohio  St.  157,  43  N.  E.  Rep.  279; 
Sclileiderv.  Dielman,  44  La.  Ann.  462,  10  South.  934.  The  appellee, 
Thompson,  claims  that  the  dissolution  of  the  corporation  was  volun- 
tary, for  the  reason  that  the  officers  assented  thereto.  They  assented 
because  its  business  had  assumed  such  a  condition  that  it  could  not  be 
continued  without  great  loss  to  its  creditors  and  stockholders.  And  to 
this  the  appellee,  Thompson,  also  assented.  Hence  its  dissolution 
was  not  voluntary,  but  was  brought  about  by  the  force  of  circum- 
stances, and  the  final  determination  of  its  affairs  shows  that  it  was  not 
solvent.     *     *     * 

A  receiver  is  not  bound  to  carry  out  executory  contracts  of  the  cor- 
poration, but  he  may  disregard  them.  Beach  Rec,  §  328.  The 
power  to  adopt  or  reject  the  defendant's  contract,  to  accept  those 
which  are  of  advantage  to  the  tnast  estate,  and  reject  the  burdensome 
ones,  is  restricted  to  the  receiver.  The  rule  is  not  reciprocal,  hence 
it  is  called  "anomalous."     Section  cited: 

"The  court,  however,  may  order  the  receiver  to  complete  imfin- 
ised  contracts,  if  by  so  doing  the  interests  of  all  parties  will  be  better 
conserved,  and  in  such  case  whatever  is  done  by  the  receiver  in  the 
performance  of  such  contracts  becomes  an  obligation  upon  the  receiv- 
ership and  its  property,  to  be  protected  by  the  court."  Smith  Rec, 
pp.  102,  103,  §  35.  The  receiver  in  this  case  did  adopt,  under  the 
instruction  of  the  court,  and  partly  cany  out  the  stocking  contract; 
but  finally  the  court,  reaching  the  conclusion,  with  the  assent  of  all 
parties,  except  Albert  Thompson,  determined  to,  and  did,  abandon 
the  stocking  contract  and  direct  a  sale  of  the  property.  This  the 
court  had  the  legal  and  equitable  power  to  do.  It  thereby  determined 
that  the  carrying  out  of  the  contract  would  be  injurious  to  those  in 
interest.  After  this  action  on  the  part  of  the  court,  the  corporation, 
the  receiver  or  Albert  Thompson  would  be  in  contempt  even  in  seek- 
ing to  carry  out  the  same.     *     «     * 

Decree  below  reversed. 

Note.    See  following  cases  and  note,  infra,  p.  910. 


See.  254.     Generally  upon  rights  and  liabilities  in  equity. 
BACON  Et  Al.  v.  ROBERTSON.! 

1855.     In  the  Supreme  Court  of  the  United  States.     18  How. 
(59  U.  S.)  Rep.  480-489. 

[Appeal  from  United  States  circuit  court  for  the  southern  district  of 
Mississippi.     In  1843  the  legislature  of  Mississippi  directed  that  ac- 

*  Statement  abridged,  and  much  of  opinion  omitted. 


900  BACON    ET   AL.    V.    ROBERTSON.  §  254 

tions  in  quo  -warranto  be  instituted  against  all  banking  corporations 
in  the  state  that  had  so  violated  their  charters  as  to  incur  their  forfeit- 
ure, and  provided  that  trustees  should  be  appointed  by  the  court  de- 
claring a  forfeiture,  w^hose  duty  it  should  be  to  collect  the  assets,  and 
after  paying  the  debts  distribute  the  surplus,  if  any,  ratably  among 
the  stockholders.  The  charter  of  the  Commercial  Bank  of  Natchez, 
after  due  proceedings,  v^^-as  declared  forfeited,  and  Robertson  ap- 
pointed trustee  to  pay  debts  and  make  distribution.  After  all  debts 
were  paid  he  refused  to  distribute  the  $4,000,000  surplus.  Bacon 
and  the  other  shareholders  brought  their  bill  in  equity  to  obtain  their 
shares.  Upon  demurrer  the  circuit  court  dismissed  the  bill  and  plaint- 
iffs appealed.] 

Campbell,  J.  *  *  *  To  comprehend  the  import  of  this  legis- 
lation we  must  consider  the  mischiefs  it  was  jdesigned  to  prevent  or 
remove,  and  the  mode  adopted  to  accomplish  the  end,  for  the  legisla- 
tion is  of  a  character  wholly  remedial.  The  common  law  of  Great 
Britain  was  deficient  in  supplying  the  instrumentalities  for  a  speedy 
and  just  settlement  of  the  affairs  of  an  insolvent  corporation  whose 
charter  had  been  forfeited  by  a  judicial  sentence.  The  opinion  usu- 
ally expressed  as  to  the  effect  of  such  a  sentence  was  unsatisfactory 
and  questioned.  There  had  been  instances  in  Great  Britain  of  the 
dissolution  of  public  or  ecclesiastical  corporations  by  the  exertion  of 
the  public  authority,  or  as  a  consequence  of  the  death  of  their  mem- 
bers, and  parliament  and  the  courts  had  affirmed  in  these  instances 
that  the  endowments  they  had  received  from  the  prince  or  pious  found- 
ers would  revert  in  such  a.  case.  Stat,  de  Terris  Templariorum,  17 
Edw.  II;  Dean  and  Canons  of  Windsor,  Godb.  211;  Johnson  v. 
Norway,  Winch.  37;  Owen,  73;  6  Vin.  Abr.,  280.  What  was  to  be- 
come of  their  personal  estate  and  of  their  debts  and  credits  had  not 
been  settled  in  any  adjudged  case,  and  as  was  said  by  Pollexfen  in  the 
argument  of  the  quo  warranto  against  the  city  of  London  was  pei- 
haps  '•'•nan  deJinUur  in  Jure."     *     *     * 

It  may  be  admitted  that  the  courts  of  law  could  not  give  any  relief 
to  the  shareholders  of  a  corporation  disfranchised  by  a  judicial  sen- 
tence in  respect  to  a  corporate  right.  Their  modes  of  proceeding  do 
not  provide  for  the  case,  as  they  have  not  for  many  others,  i  Plow, 
276,  277;  Richards  v.  Richards,  2  B.  &  Adol.  447;  Will.  Ex.,  1129. 
But  this  concession  does  not  involve  an  acknowledgment  that  the 
rights  of  the  corporations  are  extinguished.  Courts  of  chancery  have 
been  forced  into  a  closer  contact  with  these  associations,  and  have 
formed  a  more  rational  conception  of  their  constitution  and  a  more 
accurate  estimate  of  their  importance  to  the  industrial  relations  of 
society.  Those  courts  have  evinced  a  spirit  of  accommodation  of 
their  modes  of  proceeding  so  as  to  adapt  them  to  the  changing  exi- 
gencies of  society.  (Citing  and  quoting  as  illustrating  this  doctrine, 
Lord  Cottenham  in  Wallworth  v.  Holt,  4  M.  &  C.  635,  Sir  James 
Wigram,  V.  C,  in  Foss  v.  Harbottle,  2  Hare  491 ;  Bank  of  U.  S.  v. 
Deveaux,  5  Cr.  61;  Lennox  v.  Roberts,  2  Wheat.  373;  Mumma  v. 
Potomac  Co.,  8  Pet.  281  ;   Curran  v.  Arkansas,  15  How.  304.)    *    * 


§  2  54  EFFECT   OF   DISSOLUTION.  90 1 

The  tendency  of  the  discussions  and  judgments  of  the  court  of  chan- 
cery in  Great  Britain,  and  of  the  courts  of  this  country,  is  to  concede 
the  existence  of  a  distinct  and  positive  right  of  property  in  the  indi- 
viduals composing  the  corporation  in  its  capital  and  business,  which 
is  subject  in  the  main  to  the  management  and  control  of  the  corpora- 
tion itself,  but  that  cases  may  arise  where  the  corporators  may  assert 
not  only  their  own  rights  but  the  rights  of  the  corporate  body.  And 
no  reason  can  be  given  why  the  dissolution  of  a  corporation,  whether 
by  judicial  sentence  or  otherwise,  whose  capital  was  contributed  by 
shareholders  for  a  lawful  and  perhaps  laudable  enterprise,  with  the 
consent  of  the  legislature,  should  suspend  the  operation  of  these  prin- 
ciples, or  hinder  the  effective  interference  of  the  court  of  chancery  for 
the  preservation  of  individual  rights  of  property  in  such  a  case.  The 
withdrawal  of  the  charter — that  is,  the  right  to  use  the  corporate  name 
for  the  purposes  of  suits  before  the  ordinary  tribunals — is  such  a  sub- 
stantia! impediment  to  the  prosecution  of  the  rights  of  the  parties 
interested,  whether  creditors  or  debtors,  as  would  authorize  equitable 
interposition  in  their  behalf  within  the  doctrine  of  chancerv  prece- 
dents. Staintonv.  The  Carron  Company,  23  L.  and  E.  315;  Travis 
v.  Milne,  9  Hare  141 ;  Travis  v.  Milne,  2  Hare  491.  For  the  sen- 
tence of  forfeiture  does  not  attain  the  rights  of  property  of  the  corpo- 
rators or  corporation,  for  then  the  state  would  appropriate  it.  If  thos^ 
rights  are  put  an  end  to,  it  would  seem  to  be  rather  from  a  careless 
disregard,  or  hardened  and  reckless  indifference  to  consequences  on 
the  part  of  the  public  authority,  than  from  any  preconceived  plan  or 
purpose.  For,  according  to  the  doctrine  of  the  text-writers  on  this 
subject,  the  consequences  are  visited  without  any  discrimination ;  the 
losses  are  imposed  upon  those  who  are  not  blameworthy,  and  the  ben- 
efits are  accumulated  upon  those  who  are  without  desert. 

The  effects  of  a  dissolution  of  a  corporation  are  usually  described 
to  be,  the  reversion  of  the  lands  to  those  who  had  granted  them ;  the 
extinguishment  of  the  debts,  either  to  or  from  the  corporate  body,  so 
that  they  are  not  a  charge  nor  a  benefit  to  the  members.  The  in- 
stances which  support  the  dictum  in  reference  to  the  lands  consist  of 
the  statutes  and  judgments  which  followed  the  suppression  of  the  mil- 
itary and  religious  orders  of  knights,  and  whose  lands  returned  to 
those  who  had  granted  them,  and  did  not  fall  to  the  king  as  an 
escheat;  or  of  cases  of  dissolution  of  monasteries  and  other  ecclesias- 
tical foundations,  upon  the  death  of  all  their  members,  or  of  donations 
to  public  bodies,  such  as  a  mayor  and  commonalty.  But  such  cases 
afford  no  analogy  to  that  before  us.  The  acquisitions  of  real  prop- 
erty by  a  trading  corporation  are  commonly  made  upon  a  bargain  and 
sale,  for  a  full  consideration,  and  without  conditions  in  the  deed ;  and 
no  conditions  are  implied  in  law  in  reference  to  such  conveyances. 
The  vendor  has  no  interest  in  the  appropriation  of  the  property  to 
any  specific  object,  nor  any  reversion,  where  the  succession  fails.  If 
the  statement  of  the  consequences  of  a  dissolution  upon  the  debts  and 
credits  of  the  corporation  is  literally  taken,  there  can  be  no  objection 
to  it.     The  members  can  not  recover  nor  be   charged  with  them,  in 


902  BACON    ET    AL.    V.    ROBERTSON.  §  254 

their  natural  capacities,  in  a  court  of  law.  But  this  does  not  solve 
the  difficulty. 

The  question  is,  has  the  bona  Jide  and  just  creditor  of  a  corpora- 
tion, dissolved  under  a  judicial  sentence  for  a  breach  in  its  charter, 
any  claim  upon  the  corporate  property  for  the  satisfaction  of  his  debt, 
apart  from  the  reservation  in  the  act  of  the  legislature  which  directed 
the  prosecution  i*  Can  the  lands  be  resumed  in  disregard  of  their 
rights  by  vendors,  who  have  received  a  full  payment  of  their  price, 
and  executed  an  absolute  conveyance?  Can  the  careless,  improvi- 
dent or  faithless  debtor  plead  the  extinction  of  his  debt  or  of  the  cred- 
itor's claim,  and  thus  receive  pi"otection  in  his  delinquency?  The 
creditor  is  blameless — he  has  not  participated  in  the  corporate  mis- 
management, nor  procured  the  judicial  sentence;  he  has  trusted  upon 
visible  property  acquired  by  the  corporation  in  virtue  of  its  legisla- 
tive sanction.  How  can  the  vendors  of  the  lands  or  the  delinquent 
debtors  resist  the  might  of  his  equity?  But,  if  the  claims  of  the  cred- 
itor are  irresistible  those  of  the  stockholder  are  not  inferior,  at  least 
against  the  parties  who  claim  to  hold  the  corporate  property.  The 
money,  evidences  of  debts,  lands  and  personalty  acquired  by  the 
corporation  were  purchased  with  the  capital  they  lawfully  contributed 
to  a  legitimate  enterprise  conducted  under  the  legislative  authority. 
The  enterprise  has  failed  under  circumstances,  it  may  well  be,  which 
entitled  the  state  to  withdraw  its  special  support  and  encouragement, 
but  the  state  does  not  affirm  that  any  cause  for  the  confiscation  of  the 
property,  or  for  the  infliction  of  a  heavier  penalty,  has  arisen.  It  is  a 
case,  therefore,  in  which  courts  of  chancery,  upon  their  well-settled 
principles,  would  aid  the  parties  to  realize  the  property  belonging  to 
the  corporation,  and  compel  its  application  to  the  satisfaction  of  the 
demands  which  legitimately  rest  upon  it. 

In  our  view  of  the  equity  of  this  bill  we  have  the  support  and  sanc- 
tion of  the  legislature  of  Mississippi,  Their  legislation  excludes  all 
the  consequences  which  have  been  imputed  as  necessary  to  a  sentence 
of  dissolution  on  a  civil  corporation.  From  the  plentitude  of  their 
powers  for  the  amelioration  of  the  condition  of  the  body  politic,  and 
the  supply  of  defects  in  their  system  of  remedial  laws,  they  have 
afforded  a  plan  for  the  liquidation  and  settlement  of  the  business  of 
these  corporations  in  which  the  equities  of  the  creditors  and  shai'e- 
holders  respectively  are  recognized  as  attaching  to  all  the  corporate 
property  of  whatever  description.  And  the  inquiry  arises,  who  is 
authorized  to  obstruct  the  enforcement  of  these  equities  in  so  far  as 
the  stockholders  of  the  Commercial  Bank  of  Natchez  are  concerned? 
The  "creditors  have  been  satisfied.  The  defendant  in  the  present  suit 
is  the  trustee  appointed  under  these  legislative  enactments.  His  de- 
murrer confesses  that  he  has  received  money,  stocks,  evidences  of 
debt,  lands,  and  personal  property,  which  he  refuses  to  distribute. 
He  claims  that  the  stockholders  have  no  rights  since  the  dissolution  of 
the  corporation,  and  if  any,  they  must  be  looked  for  in  the  circuit 
court  of  Adams  county,  Mississippi.  But  the  trustee  can  not  deny 
the  title  of  the  stockholders  to  a  distribution.      To  collect  and  distrib- 


§  255  EFFECT   OF   DISSOLUTION.  905 

ute  the  property  of  the  corporation  among  the  creditors  and  stock- 
holders is  his  commission — for  this  end  he  was  placed  in  the  posses- 
sion of  the  property,  and  was  armed  with  all  the  powers  he  has  exer- 
cised. 

His  title  is  in  subordination  to  theirs,  and  his  duties  are  to  maintain 
their  rights  and  to  consult  their  advantage.  Pearson  v.  Lindley,  2 
Ju.  758;  3  Pet.,  43;  4  Bligh  I  ;  Willis  Trus.,  125,  172,  173.  He  is 
estopped  from  making  the  defense  of  a  want  of  title  in  the  stockhold- 
ers,     »     *     »     Reversed. 

Note.     See  following  cases,  and  note,  infra,  p.  910. 


Sec.  255.     Reversion  of  land. 

WILSON   V.  LEARY.' 

1897.     In  the  Supreme    Court   of   North  Carolina.     120  N. 
C.  Rep.  90-94,  58  Am.  St.  Rep.  778. 

[Action  to  recover  land.  In  1849,  plaintiff's  ancestor  conveyed  the 
land  in  fee  to  an  Odd  Fellows  Lodge,  which  was  incorporated  the 
following  year  and  duly  chartered  by  the  grand  lodge.  This  lodge 
took  and  held  possession  till  1872,  when  it  ceased  to  exist,  and  was 
never  revived.  Under  the  direction  of  the  Grand  Lodge  the  land 
was  sold  in  1873  to  the  defendants.  Suit  was  brought  in  1892,  by 
the  heirs  of  the  original  grantor,  claiming  a  reverter  upon  the  extinc- 
tion of  the  subordinate  lodge;    and  the  lower  court  so  found.] 

Clark,  J.  «  *  *  The  plaintiff's  counsel  insist,  however,  that  at 
the  time  of  the  conveyance  the  Revised  Statutes  (ch.  26,  sec.  17)  pro- 
vided that  a  corporation,  unless  otherwise  specially  stated  in  its  charter, 
had  existence  for  onlv  thirty  years,  and  as  there  was  no  special  pro- 
vision in  this  charter,  the  grantor  only  parted  with  the  property  for 
thirty  years  and  held  a  resulting  trust.  But  the  conveyance  was  in  fee, 
and  a  corporation  limited  in  duration  can  take  a  fee-simple  convey- 
ance just  as  a  natural  being,  whose  existence  is  also  limited.  Either 
may  convey  away  the  property,  and  upon  the  death  of  either,  without 
having  disposed  of  it,  the  property  will  go  to  pay  creditors,  to  heirs, 
to  stockholders,  or  as  an  escheat,  according  to  the  circumstances,  but 
in  neither  case  is  there  any  reverter  to  the  grantors.  On  the  death  of 
a  corporation  the  property  is  usually  administered  by  a  receiver,  and 
on  the  death  of  a  natural  person,  by  the  personal  representative,  or 
passes  to  the  heirs. 

It  is  true  it  was  held  in  an  opinion  by  Gaston,  J.  (Fox  v.  Horah, 
36  N.  C.  358),  that  by  the  common  law,  upon  the  dissolution  of  a  cor- 
poration by  the  expiration  of  its  charter  or  otherwise,  its  real  property 
reverted  to  the  grantor,  its  personal  property  Escheated  to  the  state, 
and  its  choses  in  action  became  extinct,  and  hence  that  on  the  expira- 
tion of  the  charter  of  a  bank  a  court  of  equity  would  enjoin  the  collec- 
tion of  notes  made  payable  to  the  bank  or  its  cashier,  the  debtor  be- 

*  Statement  abridged,  and  part  of  opinion  omitted. 


904       TITCOMB    V.    KENNEBUNK   MUT.    F.    INSURANCE   CO.    §  256 

ing  absolved  by  the  dissolution.  Judge  Thompson  (5  Thomp.  Corp., 
§  6720)  refers  to  this  decision  "in  accordance  with  the  barbarous  rule 
of  the  common  law"  as  "probably  the  last  case  of  its  kind,"  and 
notes  that  it  has  since  been  in  effect  overruled  in  Von  Glahn  v.  De 
Rossett,  81  N.  C.  467,  and  it  is  now  expressly  overruled  by  us. 
Chancellor  Kent  (2  Comm.,  307,  note)  says  "this  rule  of  the  common 
law  has,  in  fact,  become  obsolete  and  odious,"  and  elsewhere  he 
stoutly  denied  that  it  had  ever  been  the  rule  of  the  common  law,  ex- 
cept as  to  a  restricted  class  of  coi^porations  (5  Thompson,  supra^ 
§  6730).  The  subject  is  thoroughly  discussed  by  Gray  on  Perpetui- 
ties, §§  44-51,  and  he  demonstrates  that  my  I.,ord  Coke's  doctrine 
rested  on  the  dictum  of  a  fifteenth  century  judge  (Mr.  Justice  Choke, 
in  the  Prior  of  Spalding's  Case,  7  Edward  IV,  1467),  and  is  contrary 
to  the  only  case  deciding  the  point,  Johnson  v.  Norway,  Winch. 
37  (1622),  though  Coke's  statement  has  often  been  referred  to  as 
law.  But  whatever  the  extent  of  this  rule  at  the  common  law,  if  it 
was  the  rule  at  all,  it  was  not  founded  upon  justice  and  reason,  nor 
could  it  be  approved  by  experience,  and  has  been  repudiated  by 
modern  courts.  The  modern  doctrine  is,  as  held  by  us,  that  "upon 
a  dissolution  the  title  to  real  property  does  not  revert  to  the  original 
grantors  or  their  heirs,  and  the  personal  property  does  not  escheat 
to  the  state."  Thompson,  stipra^  §  6746;  Owen  v.  Smith,  31  Barb. 
641  ;  Towar  v.  Hale,  46  Barb.  361.  The  crude  conceptions  of 
corporations  naturally  entertained  in  a  feudal  and  semi-barbarous 
age,  when  they  were  few  in  number  and  insignificant  in  value  and 
functions,  by  even  so  able  a  man  as  Sir  Edward  Coke,  and  the  fanci- 
ful reason  given  by  him  (Coke  Lit.,  136)  for  the  reverter  of  their  real 
estate,  to  wit,  that  a  conveyance  to  them  must  necessarily  be  a  quali- 
fied or  base  fee,  have  long  since  become  outworn  and  discredited. 
That  which  is  termed  "the  common  law"  is  simply  the  "right  reason 
of  the  thing"  in  matters  as  to  which  there  is  no  statutory  enactment. 
When  it  is  misconceived  and  wrongly  declared,  the  common  rule 
is  equally  subject  to  be  overruled,  whether  it  is  an  ancient  or  a  recent 
decision.  Upon  the  facts  agreed  judgment  should  be  entered  below 
against  the  plaintiffs,  dismissing  their  action. 
Reversed. 

See  following  cases  and  note,  infra,  p.  910. 


Sec.  256.      Reversion  of  property  of  mutual  company. 

TITCOMB  v.  KENNEBUNK  MUT.  F.  INSURANCE  CO. 

1887.     In  the  SuPRsyviE   Judicial    Court  of  Maine.     79  Maine 

Rep.  315-317- 

Walton,  J.     The  Kennebunk  Mutual   Fire   Insurance  Company 
was  incorporated  in  1856.     It  has  issued  no  policies  since  1877. 

In  1884,  its  last  policy  having  expired,  the  com'pany  voted  to  close 


§  2  56  EFFECT   OF    DISSOLUTION.  905 

up  its  affairs  and  to  do  no  more  business.  A  decree  has  been  ob- 
tained at  nisi  frius  dissolving  the  corporation,  from  which  no  appeal 
has  been  taken  or  claimed ;  and  the  only  question  before  the  law 
court  is  to  determine  what  shall  be  done  with  the  assets  of  the  com- 
pany.     Our  statutes  contain  ample  provisions  for  the  disposition  of 

the  assets  of  stock  companies.     R.  S.,  ,  c.  46,  §§  25,  26,  27  and 

54.  But  this  is  a  mutual  company  and  has  no  stockholders,  and  the 
provisions  cited  do  not  apply.  According  to  the  old  settled  law  of 
the  land,  says  Chancellor  Kent,  upon  the  civil  death  of  a  corporation, 
when  there  is  no  special  statute  to  the  contrary,  all  its  real  estate  re- 
verts to  the  grantors  and  their  heirs,  and  all  its  personal  estate  vests 
in  the  people.  2  Kent.  (loth  ed.),  3S5,  386.  To  the  same  effect  is 
Angell  and  Ames  on  Corp.,  c.  22,  §  6  (2d  ed.).    ' 

But  it  is  said  that  in  this  class  of  cases  the  corporators  named  in  the 
act  of  incorporation  should  be  regarded  as  stockholders.  They  are 
not  stockholders,  and  to  hold  that  they  are  would  be  a  fiction,  and 
fictions  are  not  favored,  and  are  never  resorted  to  except  to  work  out 
some  strong  and  inherent  equity,  and  there  is  no  such  equity  in  favor 
of  the  corporators  of  a  mutual  insurance  company.  They  contribute 
nothing  towards  its  assets,  and  we  think  it  would  be  against  public 
policy  to  allow  them  to  have  a  pecuniary  interest  in  them.  Such  an  in- 
terest would  inevitably  tend  to  create  a  temptation  to  fix  the  rates  of 
insurance  higher  than  would  be  necessary  to  meet  losses,  and  then, 
when  a  surplus  had  been  thus  obtained,  to  divide  it  among  themselves 
and  thus  reap  a  profit  from  business  in  which  they  had  invested  no 
capital  and  had  taken  no  risks,  and  this  at  the  expense  of  the  policy- 
holders. We  think  there  is  a  much  stronger  equity  in  favor  of  the 
former  policy-holders,  whose  money  has  contributed  to  produce  the 
assets.  But  we  do  not  think  they  can  be  regarded  as  stockholders 
after  their  policies  have  expired  and  their  premium  notes  have  been 
canceled  or  given  up  to  them.  They  have  then  received  in  full  the 
benefits  for  which  they  contracted  and  are  no  longer  members  of  the 
company,  and  to  distribute  among  them  a  small  amount  of  assets,  and 
to  determine  what  each  former  policy-holder's  share  ought  in  equity 
to  be,  would  be  attended  with  difficulties  and  an  amount  of  labor 
which  the  end  would  not  justify.  When  a  man  dies  leaving  no  wife 
or  kindred  h's  property  descends  to  the  state.  And  when  a  corpo- 
ration which,  like  a  mutual  insurance  company,  has  no  stockholders, 
ceases  to  exist,  we  are  not  prepared  to  say  that  the  rule  of  the  com- 
mon law,  which  gives  its  surplus  assets  to  the  state,  is  not  a  wise  one. 
*  *  *  (Ordered  that  balance  after  paying  debts,  costs,  etc.,  be 
paid  to  the  state  treasurer  for  the  use  of  the  state.) 

Note.    See,  1899,  Cummings  v.  Hollis  (Ga.),  33  S.  E:  919;  1883,  Mason  v. 
Fire  Co.,  70  Ga.  604,     Also  next  ease,  and  note,  infra,  p.  910. 


906         MORMON  CHURCH  V.  UNITED  STATES.       §  25/ 

Sec.  257.      Reversion  of  property,  charitable  corporation. 

MORMON  CHURCH  v.  UNITED  STATES.^ 

ROMNEY  V.  UNITED  STATES. 

1890.     In    the    Supreme    Court  of    the    United    States.      136 

U.  S.  Rep.  1-67. 

Bradley,  J.  The  principal  questions  raised  are,  first,  as  to  the 
power  of  congress  to  repeal  the  charter  of  the  Church  of  Jesus  Christ 
of  Latter-Day  Saints ;  and,  secondly,  as  to  the  power  of  congress  and 
the  courts  to  seize  the  property  of  said  corporation  and  to  hold  the 
same  for  the  purposes  mentioned  in  the  decree. 

The  power  of  congress  over  the  territories  of  the  United  States  is 
general  and  plenary,  arising  from  and  incidental  to  the  right  to  acquire 
the  territory  itself,  and  from  the  power  given  by  the  constitution  to 
make  all  needful  rules  and  regulations  respecting  the  territory  or  other 
property  belonging  to  the  United  States.  It  would  be  absurd  to  hold 
that  the  United  States  has  power  to  acquire  territory,  and  no  power 
to  govern  it  when  acquired.  The  power  to  acquire  territory,  other 
than  the  territoiy  northwest  of  the  Ohio  river  (which  belonged  to  the 
United  States  at  the  adoption  of  the  constitution),  is  derived  from  the 
treaty-making  power  and  the  power  to  declare  and  carry  on  war. 
The  incidents  of  these  powers  are  those  of  national  sovereignty,  and 
belong  to  all  independent  governments.  The  power  to  make  acqui- 
sitions of  territory  by  conquest,  by  treaty  and  by  cession  is  an  incident 
of  national  sovereignty.  The  territory  of  Louisiana,  when  acquired 
from  France,  and  the  territories  west  of  the  Rocky  mountains,  when 
acquired  from  Mexico,  became  the  absolute  property  and  domain  of 
the  United  States,  subject  to  such  conditions  as  the  government,  in  its 
diplomatic  negotiations,  had  seen  fit  to  accept  relating  to  the  rights  of 
the  people  then  inhabiting  those  territories.  Having  rightfully  ac- 
quired said  territories,  the  United  States  government  was  the  only  one 
which  could  impose  laws  upon  them,  and  its  sovereignty  over  them 
was  complete.  No  state  of  the  Union  had  any  such  right  of  sover- 
eignty over  them  ;  no  other  country  or  government  had  any  such  right. 
These  propositions  are  so  elementary,  and  so  necessarily  follow  from 
the  condition  of  things  arising  upon  the  acquisition  of  new  territory, 

that  they  need  no  argument  to  support  them.      They  are  self-evident. 

♦     *     » 

This  brings  us  directly  to  the  question  of  the  power  of  congress  to 
revoke  the  charter  of  the  Church  of  Jesus  Christ  of  Latter-Day  Saints. 
That  corporation,  when  the  territory  of  Utah  was  organized,  was  a 
corporation  flfe^ac^o,  existing  under  an  ordinance  of  the  so-called  State 
of  Deseret,  approved  February  8,  185 1.  This  ordinance  had  no  va- 
lidity except  in  the  voluntary  acquiescence  of  the  people  of  Utah  then 

'  Facts  suflBciently  stated  in  opinion ;  arguments  and  much  of  opinion 
omitted. 


§  2  57  EFFECT   OF   DISSOLUTION.  907 

residing  there.  Deseret,  or  Utah,  had  ceased  to  belong  to  the  Mexi-" 
can  government  by  the  treaty  of  Guadalupe  Hidalgo,  and  in  185 1  it 
belonged  to  the  United  States,  and  no  government  without  authority 
from  the  United  States,  express  or  implied,  had  any  legal  right  to  ex- 
ist there.  The  assembly  of  Deseret  had  no  power  to  make  any  valid 
law.  Congress  had  already  passed  the  law  for  organizing  the  terri- 
tory of  Utah  into  a  government,  and  no  other  government  was  lawful 
within  the  bounds  of  that  territory.  But  after  the  organization  of  the 
territorial  government  of  Utah  under  the  act  of  congress,  the  legisla- 
tive assembly  of  the  territory  passed  the  following  resolution:  '-'■Re- 
solved by  the  Legislative  Assembly  of  the  Territory  of  Utah  ^  That  the 
laws  heretofore  passed  by  the  provisional  government  of  the  state  of 
Deseret,  and  which  do  not  conflict  with  the  organic  act  of  said  terri- 
tory, be  and  the  same  are  hereby  declared  to  be  legal  and  in  full  force 
and  virtue,  and  shall  so  remain  until  superseded  by  the  action  of  the 
legislative  assembly  of  the  territory  of  Utah."  This  resolution  was 
approved  October  4,  1851.  The  confirmation  was  repeated  on  the 
19th  of  January,  1855,  by  the  act  of  the  legislative  assembly,  entitled 
"An  act  in  relation  to  the  compilation  and  revision  of  the  laws  and 
resolutions  in  force  in  Utah  Territory,  their  publication  and  distribu- 
tion." From  the  time  of  these  confirmatory  acts,  therefore,  the  said 
corporation  had  a  legal  existence  under  its  charter.  But  it  is  too  plain 
for  argument  that  this  charter  or  enactment  was  subject  to  revocation 
and  repeal  by  congress  whenever  it  should  see  fit  to  exercise  its  power 
for  that  purpose.  Like  any  other  act  of  the  territorial  legislature,  it 
was  subject  to  this  condition.  Not  only  so,  but  the  power  of  congress 
could  be  exercised  in  modifying  or  limiting  the  powers  and  privileges 
granted  by  such  charter,  for  if  it  could  repeal,  it  could  modify ;  the 
greater  includes  the  less.  Hence  there  can  be  no  question  that  the  act 
of  July  I,  1862,  already  recited,  was  a  valid  exercise  of  congressional 
power.  Whatever  may  be  the  effect  or  true  construction  of  this  act, 
we  have  no  doubt  of  its  validity.  As  far  as  it  went  it  was  effective. 
If  it  did  not  absolutely  repeal  the  charter  of  the  corporation,  it  cer- 
tainly took  away  all  right  or  power  which  may  have  been  claimed  im- 
der  it  to  establish,  protect  or  foster  the  practice  of  polygamy,  under 
what2ver  disguise  it  might  be  carried  on;  and  it  also  limited  the 
amount  of  property  which  might  be  acquired  by  the  Church  of  Jesus 
Christ  of  Latter-Day  Saints,  not  interfering,  however,  with  vested 
rights  in  real  estate  existing  at  that  time. 

If  the  act  of  July  i,  1862,  had  but  a  partial  effect,  congress  had 
still  the  power  to  make  the  abrogation  of  its  charter  absolute  and  com- 
plete. This  was  done  by  the  act  of  1887.  By  the  seventeenth  sec- 
tion of  that  act  it  is  expressly  declared  that  "the  acts  of  the  legisla- 
tive assembly  of  the  territory  of  Utah,  incorporating,  continuing  or 
providing  for  the  corporation  known  as  the  Church  of  Jesus  Christ  of 
Latter-Day  Saints,  and  the  ordinance  of  the  so-called  general  assem- 
bly of  the  State  of  Deseret,  incorporating  the  said  church,  so  far  as  the 
same  may  now  have  legal  force  and  validity,  are  hereby  disapproved 
and  annulled,  and  the  said  corporation,  so  far  as  it  may  now  have,  or 


908  MORMON    CHURCH   V.    UNITED    STATES.  §  2  5/ 

pretend  to  have,  any  legal  existence,  is  hereby  dissolved."  This  ab- 
solute annulment  of  the  law^s  which  gave  the  said  corporation  a  legal 
existence  has  dissipated  all  doubt  on  the  subject,  and  the  said  corpo- 
ration has  ceased  to  have  any  existence  as  a  civil  body,  whether  for 
the  purpose  of  holding  property  or  of  doing  any  other  corporate  act. 
It  was  not  necessary  to  resort  to  the  condition  imposed  by  the  act  of 
1862,  limiting  the  amount  of  real  estate  which  any  corporation  or  as- 
sociation for  religious  or  charitable  purposes  was  authorized  to  acquire 
or  hold,  although  it  is  apparent  from  the  findings  of  the  court  that  this 
condition  was  violated  by  the  corporation  before  the  passage  of  the 
act  of  1887.  Congress,  for  good  and  sufficient  reasons  of  its  own,  in- 
dependent of  that  limitation  and  of  any  violation  of  it,  had  a  full  and 
perfect  right  to  repeal  its  charter  and  abrogate  its  corporate  existence, 
which,  of  course,  depended  upon  its  charter. 

The  next  question  is  whether  congress  or  the  court  had  the  power 
to  cause  the  property  of  the  said  corporation  to  be  seized  and  taken 
possession  of  as  was  done  in  this  case. 

When  a  business  corporation  instituted  for  the  purposes  of  gain  or 
private  interest  is  dissolved,  the  modem  doctrine  is  that  its  property, 
after  payment  of  its  debts,  equitably  belongs  to  its  stockholders.  But 
this  doctrine  has  never  been  extended  to  public  or  charitable  corpo- 
rations. As  to  these  the  ancient  and  established  rule  prevails,  namely: 
that  when  a  corporation  is  dissolved  its  personal  property,  like  that 
of  a  man  dying  without  heirs,  ceases  to  be  the  subject  of  private  own- 
ership, and  becomes  subject  to  the  disposal  of  the  sovereign  authority, 
whilst  its  real  estate  I'everts  or  escheats  to  the  grantor  or  donor,  unless 
some  other  course  of  devolution  has  been  directed  by  positive  law, 
though  still  subject,  as  we  shall  hereafter  see,  to  the  charitable  use. 
To  this  rule  the  corporation  in  question  was  undoubtedly  subject.  But 
the  grantor  of  all  or  the  principal  part  of  the  real  estate  of  the  Church 
of  Jesus  Christ  of  Latter-Day  Saints  was  really  the  United  States, 
from  whom  the  property  was  derived  by  the  church  or  its  trustees 
through  the  operation  of  the  town-site  act.  Besides,  as  we  have  seen, 
the  act  of  1863  expressly  declared  that  all  real  estate  acquired  or  held 
by  any  of  the  corporations  or  associations  therein  mentioned  (of 
which  the  Church  of  Jesus  Christ  of  Latter-Day  Saints  was  one),  con- 
trary to  the  provisions  of  that  act,  should  be  forfeited,  and  escheat  to 
the  United  States,  with  a  saving  of  existing  vested  rights.  The  act 
prohibited  the  acquiring  or  holding  of  real  estate  of  greater  value  than 
$50,000  in  a  territory,  and  no  legal  title  had  vested  in  any  of  the 
lands  in  Salt  Lake  City  at  that  time,  as  the  town-site  act  was  not  passed 
until  March  2,  1867.  There  can  be  no  doubt,  therefore,  that  the  real 
estate  of  the  corporation  in  question  could  not,  on  its  dissolution,  re- 
vert or  pass  to  any  other  person  or  persons  than  the  United  States. 

If  it  be  urged  that  the  real  estate  did  not  stand  in  the  name  of  the 
corporation  but  in  the  name  of  a  trustee  or  trustees,  and  therefore  was 
not  subject  to  the  rules  relating  to  corporate  property,  the  substance 
of  the  difficulty  still  remains.  It  can  not  be  contended  that  the  prohi- 
bition of  the  act  of  1862  could  have  been  so  easily  evaded  as  by  put- 


§  257  EFFECT   OF   DISSOLUTION.  909 

ting  the  property  of  the  corporation  into  the  hands  of  trustees.  The 
equitable  or  trust  estate  was  vested  in  the  corporation.  The  trustee 
held  it  for  no  other  purpose,  and  the  corporation  being  dissolved,  that 
purpose  was  at  an  end.  The  trust  estate  devolved  to  the  United 
States  in  the  same  manner  as  the  legal  estate  would  have  done  had  it 
been  in  the  hands  of  the  corporation.  The  trustee  became  trustee  for 
the  United  States  instead  of  trustee  of  the  corporation.  We  do  not 
now  speak  of  the  religious  and  charitable  uses  for  which  the  corpora- 
tion, through  its  trustee,  held  and  managed  the  property.  That  as- 
pect of  the  subject  is  one  which  places  the  power  of  the  government 
and  of  the  court  over  the  property  on  a  distinct  ground. 

Where  a  charitable  corporation  is  dissolved  and  no  private  donor 
or  founder  appears  to  be  entitled  to  its  real  estate  (its  personal  prop- 
erty not  being  subject  to  such  reclamation),  the  government  or  sover- 
eign authority,  as  the  chief  and  common  guardian  of  the  state,  either 
through  its  judicial  tribunals  or  otherwise,  necessarily  has  the  disposi- 
tion of  the  funds  of  such  corporation,  to  be  exercised,  however,  with 
due  regard  to  the  objects  and  purposes  of  the  charitable  uses  to  which 
the  property  was  originally  devoted  so  far  as  they  are  lawful  and  not 
repugnant  to  public  policy.     *     *     * 

The  property  in  question  has  been  dedicated  to  public  and  charita- 
ble uses.  It  matters  not  whether  it  is  the  product  of  private  contri- 
butions, made  during  the  course  of  half  a  century,  or  of  taxes  imposed 
upon  the  people,  or  of  gains  arising  from  fortunate  operations  in  busi- 
ness, or  appreciation  in  values,  the  charitable  uses  for  which  it  is 
held  are  stamped  upon  it  by  charter,  by  ordinance,  by  regulation  and 
by  usage,  in  such  an  indelible  manner  that  there  can  be  no  mistake 
as  to  their  character,  purpose  or  object.     *     *     « 

The  manner  in  which  the  due  administration  and  application  of 
charitable  estates  is  secured,  depends  upon  the  judicial  institutions  and 
machinery  of  the  particular  government  to  which  they  are  subject.  In 
England,  the  court  of  chancery  is  the  ordinary  tribunal  to  which  this 
class  of  cases  is  delegated,  and  there  are  comparatively  few  which  it 
is  not  competent  to  administer.  Where  there  is  a  failure  of  trustees, 
it  can  appoint  new  ones ;  and  where  a  modification  of  uses  is  neces- 
sary in  order  to  avoid  a  violation  of  the  laws,  it  has  power  to  make 
the  change.  There  are  some  cases,  however,  which  are  beyond  its 
jurisdiction ;  as  where,  by  statute,  a  gift  to  certain  uses  is  declared 
void  and  the  property  goes  to  the  king ;  and  in  some  other  cases  of 
failure  of  the  charity.  In  such  cases  the  king  as  parens  patrice,  under 
his  sign  manual,  disposes  of  the  fund  to  such  uses,  analogous  to  those 
intended,  as  seems  to  him  expedient  and  wise. 

These  general  principles  are  laid  down  in  all  the  principal  treatises 
on  the  subject,  and  are  the  result  of  numerous  cases  and  authorities. 
vSee  Duke  on  Char.  Uses,  ch.  10,  §§4,  5,  6 ;  Boyle  on  Char.,  bk.  2,  ch. 
3,  4;  2  Story's  Eq.  Jur.,  §§  1 167,  et  seq.  ;  Attorney-General  v.  Guise, 
2  Vernon  266;  Moggridge  v.  Thackwell,  7  Ves.  36,  77;  De  Them- 
mines  v.  De  Bonneval,  5  Russ.  289;  Town  of  Pawlet  v.  Clark,  9 
Cranch  292,  335,   336;  Beatty  v.  Kurtz,  2  Pet.  566;  Vidal  v.  Girard's 


9IO  MORMON    CHURCH    V.    UNITED    STATES,  §  257 

Executors,  2  How.  127;  Jackson  v.  Phillips,  14  Allen  539;  Ould  v. 
Washington  Hospital,  95  U.  S.  303  ;  Jones  v.  Habersham,  107  U.  S. 
174.      *     *     * 

It  is  obvious  that  any  property  of  the  corporation  which  may  be  ad- 
judged to  be  forfeited  and  escheated  will  be  subject  to  a  more  abso- 
lute control  and  disposition  by  the  government  than  that  which  is  not 
so  forfeited.  The  non-forfeited  property  will  be  subject  to  such  dis- 
position only  as  may  be  required  by  the  law  of  charitable  uses;  whilst 
the  forfeited  and  escheated  property,  being  subject  to  a  more  absolute 
control  of  the  government,  will  admit  of  a  greater  latitude  of  discre- 
tion in  regard  to  its  disposition.  As  we  have  seen,  however,  con- 
gress has  signified  its  will  in  this  regard,  having  declared  that  the  pro- 
ceeds shall  be  applied  to  the  use  and  benefit  of  common  schools  in 
the  territory.  Whether  that  will  be  a  proper  destination  for  the  non- 
forfeited  property  will  be  a  matter  for  future  consideration  in  view  of 
all  the  circumstances  of  the  case.      *     *     « 

Decree  affirmed  generally^  Fuller,  C.  J.,  Field  and  Lamar,  J.J., 
dissenting. 

Note.    Effect  of  dissolution. 

1.  Franchises  can  be  no  longer  exercised:  1844,  White  v.  Campbell,  5 
Humpli.  (Tenn.i38;  1844,  Bank  of  Mississippi  v.  Wrenn,  11  Miss.  (3  Sm. 
&  M.  )  791 ;  1877,  Turnpike  Co.  v.  Illinois,  96  U.  S.  63 ;  1879,  State  v.  Lawrence 
Bridge  Co.,  22  Kan.  438;  1881,  Greenwood  v.  Freight  Co.,  105  U.  S.  13,  infra, 
p.  1422;  1882,  Campbell  v.  Talbot,  132  Mass.  174;  1889,  People  v.  O'Brien,  111 
N.  Y.  1,  infra,  p.  1426;  1890,  Marysville  Invest.  Co.  v.  Munson,  44  Kan.  491. 
And  see  supra,  pp.  868-871. 

2.  Executory  contracts: 

a.  Involuntary  dissolution,  at  common  law,  extinguished  executory  con- 
tracts, and  all  claims  for  damages  for  non-performance:  1797,  Bracken  v. 
William  &  M.  College,  1  Call  (Va.)  161;  1876,Silliman  v.  Fredericksburg,  etc., 
R.  Co.,  27  Gratt.  (Va.)  119;  1883,  People  v.  Globe  Mut.  L.  Ins.  Co.,  91  N.  Y. 
174;  1892,  Schleider  v.  Dielman,  44  La.  Ann.  462;  1897,  Rosenbaum  v.  U.  S. 
Cred.  Sys.  Co.,  60  N.  J.  L.  294;  1899,  Griffith  v.  Blackwater  B.  &  L.  Co.,  4t; 
W.  Va."56.  33  S.  E.  Rep.  125,  supra,  p.  897. 

6.  Voluntary  dissolution  does  not  extinguish  executory  contracts :  1834, 
Revere  v.  Boston  Copper  Co.,  15  Pick.  (Mass.)  351;  1865,  Muscatine  T.  V.  v. 
Funck,  18  Iowa  469,  on  472;  1870,  Pahquioque  Bank  v.  Bethel  Bank,  36  Conn. 
325,  4  Am.  Rep.  80 ;  1877,  Shields  v.  Ohio,  95  U.  S.  319,  on  324 ;  1892,  Schleider 
v.  Dielman,  44  La.  Ann.  462;  1896,  Tiffin  Glass  Co.  y.  Stoehr,  54  Ohio  St.  157. 

c.  In  equity  the  obligation  of  such  contracts  survives,  and  may  be  enforced 
against  corporate  assets:  1819,  Vose  v.  Grant,  15  Mass.  505,  on  522;  1819, 
Spear  v.  Grant,  16  Mass.  9,  on  15;  1824,  Wood  v.  Dummer,  3  Miison  30m, 
1834,  Mumma  v.  Potomac  Co.,  8  Pet.  (U.  S.)  281,  supra,  p.  896;  1852, 
Coulter  v.  Robertson,  16  Ind.  46,  79  Am.  Dec.  405;  1853,  Curran  v.  Arkan- 
sas, 15  How.  (U.  S.)304,  on  311-2;  1855,  Bacon  v.  Robertson,  18  How.  (U.  S.) 
480-6,  supra,  p.  899;  1861,  State  v.  Bailey,  99  Mass.  267,  96  Am.  Dec.  747; 
1867,  Powell  V.  North  Mo.  R.  Co.,  42  Mo.  63,  on  68;  1873,  Oakland  R.  Co.  v. 
Oakland,  etc.,  R.  Co.,  45  Cal.  365,  13  Am.  Rep.  181;  1876,  Broughton  v.  Pen- 
sacola,  93  U.  S.  266,  on  268;  1877,  Shields  v.  Ohio,  95  U.  S.  319,  on  p.  324; 
1877,  Wallamet  Falls  Canal,  etc.,  Co.  v.  Kittridge,  5  Saw.  44.  on  50;  1877, 
Shamokin  Valley,  etc.,  R.  Co.  v.  Malone,  85  Pa.  St.  25,  on  36;  1882,  Tavlor  v. 
Holmes,  14  Fed.  Rep.  498;  1887,  Stamm  v.  N.  W.  Mut.  Ben.  Assn.,  65  Mich. 
317,  on  330;  1899,  Boyd  v.  Hankinson,  92  Fed.  Rep.  49.  See  infra,  3b,  and 
dicta  in  cases  next  paragraph. 

d.  Under  statutes  rights  arising  from  executory  contracts  are  preserved : 


§257  EFFECT   OF   DISSOLUTION.  91I 

1843.  Readv.  Frankfort  Bank,  23  Maine  318;  1866,  Towar  v.  Hale.  46  Barb. 
(N.  Y.)  361 ;  1877,  Shields  v.  Ohio,  95  U.  S.  319;  1879,  Von  Glahn  v.  De  Ros- 
set.  81  N.  C.  467,  473;  1880,  People  v.  Trust  Co.,  82  N.  Y.  283;  1882,  Life 
Assoo.  V.  Fassett,  102  III.  315 ;  1882,  Taylor  v.  Holmes,  14  Fed.  Rep.  498 ;  1886, 
Beck  V.  Henderson,  76  Ga.  360;  1889,  Mott  v.  Danville  Seminary,  129  III. 
403;  1891,  Nelson  v.  Hubbard,  96  Ala.  238,  244;  1892,  Schleider  v.  Dielman, 
44  La.  Ann.  462;  1894,  Mason  v.  Pewabic  Min.  Co.,  66  Fed.  Rep.  391,  on  394; 
1896,  Tiffin  Glass  Co.  v.  Stoehr,  54  Ohio  St.  157. 

3.  Debts  due  to  or  from  the  corporation: 

a.  At  common  law  debts  were  extinguished:  1835,  Commercial  Bank  v. 
Lockwood,  2  Har.  (Del.)  8;  1841,  Fox  v.  Horah,  1  Ired.  Eq.  (N.  C.)  358,  36  Am. 
Dec.  48;  1844,  White  v.  Campbell,  5  Humph.  (Tenn.)  38;  1847,  Commercial 
Bank  v.  Chambers,  8Sm.  &  M.  (Miss.)  9;  1849,  Town  of  Port  Gibson  v.  Moore, 
13Sm.&  M.  (Miss.)  157;  1850,  Hightower  v.  Thornton,  8  Ga.  486,62  Am.  Dec. 
412;  1854,  Moultrie  v.  Smilev,  16  Ga.  289;  1863,  Malloy  v.  Mallett.  59  N.  C. 
(6  Jones  Eq  )  345;  1867,  Cohwell  v.  Pattison,  28  Ind.  509;  1872.  Exchange 
Bank  v.  Teddy,  67  N.  C.  169;  1878,  Bank  of  Mississippi  v.  Duncan,  56  Miss. 
166;  1888,  Higgins  v.  Downward,  8  Houst.  (Del.)  227,  40  Am.  St.  141,  supra, 
p.  152. 

b.  But  debts  and  claims  are  preserved  in  equity :  1861,  State,  ex  rel.  Brown, 
V.  Bailey,  16  Ind.  46,  79  Am.  Dec.  405;  1868,  Folger  v.  Columbia  Ins.  Co.,  99 
Mass.  267,  96  Am.  Dec.  747 ;  1877,  McCoy  v.  Farmer,  65  Mo.  244 ;  1883,  Howe  v. 
Robinson,  20  Fla.  352;  1888,  People  v.  O'Brien,  111  N.  Y.  1,  7  Am,  St.  Rep. 
684,  infra,  p.  1426;  1888,  Higgins  v.  Downward,  8  Houst.  (Del.)  227,  40  Am.  St. 
Rep.  141,  supra,  \).  152;  1890,  Havermeyer  v.  Superior  Court,  84  Cal.  327,  18 
Ana.  St.  Rep.  192;  1895,  Conover  v.  Hull,  10  Wash.  673,  45  Am.  St.  Rep.  810. 

See,  supra,  2c. 

c.  And  very  generally  now  by  statute,  rights,  credits  or  liabilities  arising 
ex  contractu  or  ex  delicto  are  preserved,  and  trustees  provided  for  the  settle- 
inent  of  such  claims:  1847,  Commercial  Bank  v.  Chambers,  8  Sm.  &  M. 
(Miss.)  9;  1856,  Robinson  v.  Lane,  19  Ga.  337;  1860,  Hargroves  v.  Chambers, 
30  Ga.  580;  1861,  Bank  of  Salem  v.  Caldwell,  16  Ind.  469;  1867,  Hunt  v.  Co- 
lumbia Ins.  Co.,  55  Maine  290,  92  Am.  Dec.  592;  1885,  Society  Rerun  v.  Cleve- 
land, 43  Ohio  St.  481,  supra,  p.  617;  1888,  Miller  v.  Newburg  Coal  Co.,  31  W. 
Va.  836,  13  Am.  St.  Rep.  903;  1891,  Hepworth  v.  Union  Ferry  Co.,  62  Hun 
(N.  Y.)  257;  1891,  Grafton  v.  Union  Ferry  Co.,  19  N.  Y.  Supp.  966,  contra; 
1894,  People  v.  Troy  St.  &  I.  Co.,  82  Hun  303,  1  N.  Y.  Ann.  Cas.  138;  1894, 
Marsteller  v.  Mills,  143  N.  Y.  398,  38  N.  E.  Rep.  370;  1898,  State  v.  Fogerty, 
105  Iowa  32 ;  1899,  American  Surety  Co.  v.  Great  W.  S.  Co.,  58  N.  J.  Eq.  626,  4:; 
Atl.  Rep.  579;  1899,  Boyd  v.  Hankinson,  92  Fed.  Rep.  49.  See,  supra,  2d. 
Compare,  1885,  Gray  v.  National  S.  S.  Co.,  115  U.  S.  116  (tort). 

4.  Personal  property,  at  common  law,  upon  dissolution,  vested  in  the  crown 
or  state:  Coke's  Littleton,  136;  Rex  v.  Pasmore,  3  Term  R.  199;  1823,  State 
Bank  v.  State,  1  Blackf.  (Ind.)  267,  S7ipra,  p.  891T1841,  Fox  v.  Horah,  1  Ired. 
Eq.  (N.  C.)  358,  36  Am.  Dec.  48;  1844,  White  v.  Campbell,  5  Humph.  (Tenn.) 
38;  1856,  Erie  R.  Co.  v.  Casey,  26  Pa.  St.  287.     See  infra,  5c. 

5.  Beal  property : 

a.  At  common  law  real  estate  reverted  to  the  grantor.  1823,  S,tate  Bank  v. 
State,  1  Blackf.  (Ind.)  267,  supra,  p.  891 ;  1844,  White  v.  Campbell,  5  Humph. 
(Tenn.)  38;  1848,  Bingham  v.  Wiederwax,  1  N.  Y.  509;  1852,  Nicoll  v.  N.  Y. 
&  E.  R.  Co..  12  Barb.  460;  1856,  Erie,  etc.,  R.  v.  Casey,  26  Pa.  St.  287  (goes 
to  the  state) ;  1862,  Plitt  v.  Cox,  43  Pa.  St.  486  (same) ;  1869,  People  v.  Col- 
lege of  California,  38  Cal.  166;  1875,  Mercer  Academy  v.  Rusk,  8  W.  Va.  373; 
1877,  Turnpike  Co.  v.  Illinois,  96  U.  S.  63;  1886,  New  York,  etc.,  R.  v.  Parma- 
lee,  1  Ohio  C.  C.  239;  1891,  Danville  Seminary  v.  Mott,  136  111.  289.  See  also, 
supra,  3c. 

6.  But  a  corporation  whose  duration  is  limited  may  take  or  grant  an  estate 
in  fee:  1848,  People  v.  Mauran,  6  Denio  389;  1862,  Nicoll  v.  N.  Y.  &  E.  R. 
Co.,  12  Barb.  460;  1864,  Nicoll  v.  N.  Y.  &  E.  R.  Co.,  12  N.  Y.  121  ;  1866,  Rives 
V.  Dudlev,  3  Jones  Eq.  (56  N.  C.)  126,  67  Am.  Dec.  231  ;  1864,  Erie  R.  Co.  v. 
State,  31  N.  J.  L.  631,  86  Am.   Dec.  226;    1889,  Bailev  v.  Platte,  etc.,  Co.,  12 


912  MORMON    CHURCH    V.    UNITED    STATES.  §  257 

Colo.  230;  1889,  Davis  v.  Memphis,  etc.,  R.,  87  Ala.  633;  1890,  Miner  v.  X 
Y.,  etc.,  R.,  123  N.  Y.  242;  1894,  Detroit  Citizens'  St.  R.  v.  Detroit,  64  Fed, 
Rep.  628;  1896,  Union,  etc.,  R.  Co.  v.  Chicago,  etc.,  R.,  163  U.  S.  564;  1897, 
Sioux,  etc.,  Co.  v.  Trust  Co.,  82  Fed.  Rep.  124;  1897,  Wilson  v.  Learv,  120  N. 
C.  90,  58  Am.  St.  Rep.  778,  supra,  p.  903. 

c.  But  in  equity  or  by  statute,  real  or  personal  estate,  or  the  proceeds 
from  its  sale,  are  considered  a  fund  for  the  payment  of  debts,  and  distribution 
among  shareholders,  and  there  is  no  reversion  either  to  the  grantor  or  to  the 
state  in  the  case  of  j^rivate  business  corporations,  but  in  eleemosynary  and 
non-business  corporations  the  common  law  doctrines  are  applied  frequently: 
1860,  Owen  v.  Smith,  31  Barb.  (N.  Y.)  641 ;  1866,  Towar  v.  Hale,  46  Barb.  (N 
Y.)  361 ;  1872,  Heath  v.  Barmore,  50  N.  Y.  302;  1887,  Titcomb  v.  Kennebunk 
Mut.  F.  Ins.  Co.,  79  Maine  315,  supra,  p.  904;  1888,  People  v.  O'Brien,  111  N 
Y.  1,  7  Am.  St.  Rep.  684;  1889,  Bailey  v.  Platte  L.  D.  Canal  &  M.  C,  12  Colo. 
230;  1889,  Davis  v.  Memphis,  etc.,  R.,  87  Ala.  633;  1890,  Havermeyer  v.  Su- 
perior Court,  84  Cal.  327, 18  Am.  St.  Rep.  192;  1890,  Mormon  Church  v.  United 
States,  136  U.  S.  1,  stipra,  p.  906 ;  1891,  Danville  Seminary  v.  Mott,  136  111.  289  : 
1893,  Sulphur  S.  &.  M.  P.  R.  v.  St.  Louis,  2  Texas  Civ.  App.  650;  1897,  Wilson 
v.  Leary,  120  N.  C.  90,  58  Am.  St.  Rep.  778,  supra,  p.  903. 

6.  Actions  bij  a  corporation: 

a.  Suits  by  a  corporation  at  common  law  abate  upon  its  dissolution :  1810» 
Bank  of  U.  S.  v.  McLaughlin,  2  Cranch  C.  C.  20,  Fed.  Cas.  928;  1843,  May  v. 
State  Bank,  2  Rob.  (Ya.)  56,  40  Am.  Dec.  726;  1844,  Bank  of  Miss.  v.  Wrenn, 
3Sm.&M.  (Miss.)  791;  1844,  Miami  Exporting  Co.  v.  Gano,  13  Ohio  269; 
1846,  Bank  of  Gallipolis  v.  Trimble,  6  B.  Mon.  (Ky.)  599;  1851,  Ingraham  v. 
Terry,  11  Humph.  (Tenn.)  572;  1852,  Torry  v.  Robertson,  24  Miss.  192;  1891, 
Van  Pelt  v.  Home  Bldg.  Assn.,  87  Ga.  370. 

b.  But  see  the  following  cases  holding  dissolution  of  a  plaintiff  corporation 
after  suit  is  begun  is  not  ground  for  nonsuit:  1828,  Agnew  v.  Bank,  2  Har, 
&  G.  (Md.)  478;  1842,  City  of  Louisville  v.  Bank.of  U.  S.,  3  B.  Mon.  (Kv.). 
138;  1849,  Grand  Gulf  Bank  v.  Wood,  12  Sm.  &  M.  (Miss.)  482;  1850,  Kim- 
ball V.  Grafton  Bank,  20  N.  H.  347;  1877,  Kansas  City  Hotel  Co.  v.  Sauer,  65 
Mo.  279;  1882,  Butchers'  &  D.  Bank  v.  Pulitzer,  11  Mo.  App.  594. 

c.  Statutes  may  prevent  abatement  of  suits  by  dissolution  of  plaintiff  cor- 
poration: 1826,  President,  etc.,  of  N.  J.,  etc.,  Bank  v.  Thorp,  6  Cow.  (N.  Y.) 
46 ;  1847,  Bank  of  U.  S.  v.  Leathers,  8  B.  Mon.  (Ky.)  126 ;  1857,  State  v.  Bank, 
18  Ark.  654;  1897,  Richmond  Union  Pass.  Co.  v.  R.  Co.,  95  Va.  386:  1898, 
Singer  &  Talcott  Stone  Co.  v.  Hutchinson,  176  111.  48. 

7.  Stdts  against  a  corporation : 

a.  No  valid  judgment  at  common  law  could  be  rendered  against  a  dissolved 
corporation:  1836,  Rider  v.  Nelson,  etc.,  Fac,  7  Leigh  (Va.)  154,  30  Am.  Dec. 
495;  1845,Musson  v.  Richardson,  11  Rob.  (La.)  37;  1845,  Greelev  v.  Smith,  3 
Story  657,  Fed.  Cas.  5748;  1849,  Merrill  v.  Bank,  31  Maine  57,  50  Am.  Dec. 
649;  1874,  McCullough  v.  Norwood,  58  N.  Y.  562;  1874,  First  National  Bank 
V.  Colby,  88 U.  S.  609;  1878,  Sturgis  v.  Vanderbilt,  73  N.  Y.  384;  1880,  Ferry 
v.  Merchants',  etc..  Bank,  66  Ga.  177;  1891,  Pendleton  v.  Russell,  144  U.  S. 
640;  1895,  In  re  N.  Y.  Oxygen  Co.,  33  N.  Y.  Supp.  726,  24  Civ.  Proc.  Rep.  398; 
1895,  Combes  v.  Keyes,  89  Wis.  297,  46  Am.  St.  Rep.  839;  1897,  In  re  Direc- 
tors, etc..  Brewing  Co.,  24  App.  Div.  (N.  Y.)  223.     See,  infra,  c  and  d  and  8. 

b.  Attachment  or  garnishment  proceedings  are  terminated  by  dissolution 
of  defendant  corporation:  1844,  Farmers',  etc..  Bank  v.  Little,  8  W.  &  S. 
(Pa.)  207,  13  Am.  Dec.  293;  1874,  Frailey  v.  Central  Fire  Ins.  Co.,  9  Phil.  ??19; 
1895,  Walters  v.  Western,  etc.,  R.  Co.,  69  Fed.  Rep.  679.  But  see,  1840,  Lin- 
dell  v.  Benton,  6  Mo.  361 ;  1882,  Hays  v.  Lvcoming  Fire  Ins.  Co.,  99  Pa.  St. 
621,  contra;  1901,  Fitts  v.  Natl.  Life  Assn.,  —  Ala.  — ,  30  So.  374. 

c.  Statutes  may  provide  that  dissolution  shall  not  abate  suits  pending,  nor 
prevent  the  bringing  of  suits  against  the  defunct  corporation :  1859,  Blake 
v.  Portsmouth,  etc.,  R.  Co.,  39  N.  H.  435;  1870,  Ramsay  v.  Peoria,  etc.,  Ins. 
Co.,  55  111.  311 ;  1887,  Greenbrier  Lumber  Co.  v.  Ward,  30  W.  Va.  43;  1890, 
Lake  Superior  Iron  Co.  v.  Brown,  B.  &  Co.,  44  Fed.  Rep.  539;  1894,  People 
V.  Troy  Steel  &  Iron  Co.,  82  Hun  (N.  Y.)  304;  1895,  State  v.  Port  Roval,  etc.. 


§  2  57  EFFECT   OF   DISSOLUTION.  913 

R.,  45  S.  C.  413,  23  S.  E.  Rep.  363;  1898,  Steinhaur  v.  Colmar,  11  Colo.  App. 
494,  55  Pac.  Rep.  291 ;  1901,  Shayne  v.  Evening  Post  Pub.  Co.,  168  N.  Y.  70, 
55  L.  R.  A.  777. 

An  action  for  libel  against  a  corporation  which  abates  by  the  expiration  of 
tiie  corporate  charter  may  be  revived  against  the  trustees  of  the  dissolved 
corporation  in  office  at  the  time  of  dissolution:  1901,  Shayne  v.  Evening 
Post  Pub.  Co.,  168  N.  Y.  70,  55  L.  R.  A.  777. 

d.  And  it  seems  that  a  decree  dissolving  a  corporation  may  provide  that 
pending  suits  against  the  corporation  shall  not  be  affected :  1882,  Life  Asso- 
ciation V.  Funck,  102  111.  315;  1891,  Hepworth  v.  Union  Ferry  Co.,  62  Hun 
(N.  Y.)  257;  1896,  People  v.  Troy  Steel,  etc.,  Co.,  82  Hun  (N.  Y.)  303,  1  N.  Y. 
Ann.  Cas.  138. 

8.  Judgments :  At  common  law,  a  judgment  in  favor  of  a  corporation  was  ex- 
tinguished by  the  dissolution  of  the  corporation:  1842,  May  v.  State,  2  Rob. 
(Va.»  56,  40  Am.  Dec.  726;  but  if  such  judgment  was  assigned  before  dissolu- 
tion the  assignee  could  enforce  it  after  dissolution :  1855,  De  Vendell  v.  Ham- 
ilton, 27  Ala.  156;  1861,  Leach  v.  Thomas,  27  111.  457. 

A  judgment  against  a  corporation,  obtained  while  an  appeal  from  a  judg- 
ment of  dissolution  is  pending,  may  be  enforced  before  the  judgment  of  disso- 
lution is  affirmed:  1894,  Giles  v.  Stanton,  86  Tex.  620, 26  S.W.Rep.  615,  1111. 

58 — WiL.  Oases. 


PART  III. 

THE  CORPORATION  AS  A  SUBJECT  AND  SOURCE  OF 
RIGHTS  AND  OBLIGATIONS. 


Title  I.     Rights  and  Duties  of  the  Corporation  in  General. 


CHAPTER  12. 

POWERS  AND  AUTHORITY  IN  GENERAL, 

ARTICLE  I.       THEORIES  OF  CORPORATE  CAPACITY. 

Sec.  258.  Corporate  powers. — "The  capacities  of  corporations 
are  limited:  (i)  by  natural  possibility,  i.  e.,  by  the  fact  that 
they  are  artificial  and  not  natural  persons;  (2)  by  legal 
possibility,  i.  e.,  by  the  restrictions  which  the  power  creating 
a  corporation  may  impose  on  the  legal  existence  and  action 
of  its  creature. 

"First,  of  the  limits  set  to  the  powers  and  liabilities  of  cor- 
porations by  the  mere  fact  that  they  are  not  natural  persons . 
The  requirement  of  a  common  seal  is  sometimes  said  to  spring 
from  the  artificial  nature  of  a  corporation.  The  fact  that  it  is 
not  known  in  Scotland  is,  however,  enough  to  show  that  it  is 
a  mere  positive  rule  of  English  law.  The  correct  and  compre- 
hensive proposition  is  that  a  corporation  can  do  no  act  except 
by  an  agent  (for  even  if  all  the  members  concur  they  are  but 
agents).     *     *     * 

"We  come  now  to  consider  the  far  more  difficult  and  com- 
plicated questions  of  special  restrictions.  *  *  *  Qn  this 
there  have  been  many  decisions,  much  discussion,  and  some 
real  conflict  of  judicial  opinions.  There  are  two  opposite 
views  by  which  the  consideration  of  the  matter  may  be  gov- 
erned, and  they  may  be  expressed  thus: 

'  (914) 


§  259  THEORIES    OF   CORPORATE   CAPACITY.  915 

"I.  A  corporation  is  an  artificial  creature  of  the  law,  and 
has  no  existence  except  for  the  purposes  for  which  it  was  cre- 
ated. No  act  exceeding  the  limits  of  those  purposes  can  be 
the  act  of  the  corporation,  and  no  one  can  be  authorized  to 
bind  the  corporation  to  such  an  act.  In  each  particular  case, 
therefore,  the  question  is :  Was  the  corporation  empowered  to 
.  bind  itself  to  this  transaction? 

"2.  A  corporation  once  duly  constituted  has  all  such  pow- 
ers and  capacities  of  a  natural  person  as  in  the  nature  of  things 
can  be  exercised  by  an  artificial  person.  Transactions  entered 
into  with  apparent  authority  in  the  name  of  the  corporation 
are  presumably  valid  and  binding,  and  are  invalid  only  if  it 
can  be  shown  that  the  legislature  has  expressly  or  by  neces- 
sary implication  deprived  the  corporation  of  the  power  it  nat- 
urally would  have  had  of  entering  into  them.  The  question  is, 
therefore:  Was  the  corporation  forbidden  to  bind  itself  to 
this   transaction?     *     *     *     * 

"These  views  we  may  call  ( i)  the  doctrine  of  special  ca- 
pacities, and  (2)  \}ci^  ^ocXxmt.  oi  general  capacity .' '  Pollock 
on  Contracts,  pp.  86-91. 


Sec.  259.     Special  capacities. 

THOMAS  V.  RAILROAD  COMPANY.* 

1879.     In    the    Supreme    Court    of   United    States,     ioi  U. 

S.  71-87. 

[Error  to  the  circuit  court  of  the  United  States  for  the  eastern  dis- 
trict of  Pennsylvania. 

This  was  an  action  of  covenant,  by  Thomas  et  al.  against  the  West 
Jersey  Railroad  Company,  and  they,  to  maintain  the  issue  on  their 
part,  offered  to  prove  that: 

In  October,  1863,  the  Millville  and  Glassboro  Railroad  Company, 
incorporated  by  the  legislature  of  New  Jersey  in  1859,  entered  into 
an  agreement  with  them  leasing  its  road,  buildings  and  rolling-stock 
to  them  for  twenty  years  from  August,  1863,  for  the  consideration  of 
one-half  of  the  gross  sum  collected  from  the  operation  of  the  road  by 
the  plaintiffs  during  that  period ;  and  providing  that  the  company 
might  at  any  time  terminate  the  contract  and  retake  possession  of  the 
railroad,  and  in  such  case,  if  the  plaintiffs  so  desired,  arbitrators 
should  decide  upon  the  value  of  the  contract  and  the  loss  incurred  by 
the  termination  thereof;  and  the  decision  was  to  be  final,  conclusive, 
and  binding  upon  the  parties. 

In  October,  1867,  articles  of  agreement  were  entered  into  between 

'  Statement  abridged. 


gi6  THOMAS    V.    RAILROAD    COMPANY.  §  259 

the  Millville  and  Glassboro  Railroad  Company  and  the  West  Jersey 
Railroad  Company,  the  defendant,  whereby  it  was  agreed  that  the 
former  should  be  merged  into  and  consolidated  with  the  latter. 

In  November,  1867,  a  written  notice  was  served  by  the  Millville  and 
Glassboro  Railroad  Company  upon  the  plaintiffs,  putting  an  end  to 
the  contract  and  to  all  the  rights  thereby  granted,  and  notifying  them 
that  the  company  would  retake  possession  of  the  railroad  on  the  first 
day  of  April,  1868. 

In  March,  1868,  the  legislature  of  New  Jersey  enacted  that,  upon 
the  fulfillment  of  certain  preliminaries,  the  Millville  and  Glassboro 
Railroad  Company  should  be  consolidated  with  the  West  Jersey  Rail- 
road Company,  "subject  to  all  the  debts,  liabilities  and  obligations  of 
both  of  said  companies."  These  conditions  were  fulfilled,  and  the 
railroad  was  duly  delivered  by  the  plaintiffs  to  the  West  Jersey  Rail- 
road Company  on  the  first  of  April,  1868. 

Notices  to  arbitrate  according  to  the  terms  of  the  agreement  were 
served  by  the  plaintiffs  upon  the  Millville  and  Glassboro  Railroad 
Company,  and  immediately  thereafter  upon  the  West  Jersey  Railroad 
Company.  An  agreement  of  submission  was  entered  into  whereby 
arbitrators  were  appointed,  with  power  to  settle  the  controversy  be- 
tween the  parties.  An  award  was  made  by  which  the  value  of  the 
unexpired  term  of  the  lease,  and  the  loss  sustained  by  reason  of  the 
termination  thereof,  to  and  by  the  plaintiffs,  was  adjudged  to  be  the 
sum  of  $159,437.07;  and  the  West  Jersey  Railroad  Company  was 
ordered  to  pay  that  sum  to  the  plaintiffs.  This  award  was  subse- 
quently set  aside  in  a  suit  in  equity  brought  in  New  Jersey. 

The  plaintiffs  further  offered  to  prove  their  compliance  in  all  re- 
spects with  the  terms  of  the  lease,  its  value,  and  the  loss  and  damage 
they  had  sustained  by  reason  of  its  termination  as  aforesaid.  The 
court  excluded  the  offered  testimony  on  the  ground  that  the  lease  by 
the  Millville  and  Glassboro  Railroad  Company  to  the  plaintiffs  was 
ultra  vires^  and  directed  the  jury  to  return  a  verdict  for  the  defend- 
ant.    The  plaintiffs  duly  excepted,  and  sued  out  this  writ.] 

Miller,  J-  *  *  *  The  ground  on  which  the  court  held  the 
contract  to  be  void,  and  on  which  the  ruling  is  supported  in  argument 
here,  is  that  the  contract  amounted  to  a  lease,  by  which  the  railroad, 
rolling-stock,  and  franchises  of  the  corporation  were  transferred  to 
plaintiffs,  and  that  such  a  contract  was  ultra  vires  of  the  company. 

It  is  denied  by  the  plaintiffs  that  the  contract  can  be  fairly  called  a 
lease. 

But  we  know  of  no  element  of  a  lease  which  is  wanting  in  this  in- 
strument. "A  lease  for  years  is  a  contract  between  lessor  and  lessee, 
for  possession  of  lands,  etc.,  on  the  one  side,  and  a  recompense  by 
rent  or  other  consideration  on  the  other."     4  Bac.  Abr.  632.   *     *    * 

The  authority  to  make  this  lease  is  placed  by  counsel  primarily  in 
the  following  language  of  the  thirteenth  section  of  the  company's 
charter : 

"That  it  shall  be  lawful  for  the  said  company,  at  any  time  during 
the  continuance  of  its   charter,  to   make  contracts  and  engagements. 


§  2  59  THEORIES    OF   CORPORATE   CAPACITY.  91/ 

with  any  other  corporation,  or  with  individuals,  for  the  transporting 
or  conveying  any  kinds  of  goods,  produce,  merchandise,  freight,  or 
passengers,  and  to  enforce  the  fulfillment  of  such  contracts." 

This  is  no  more  than  saying:  "You  may  do  the  business  of  carry- 
ing goods  and  passengers,  and  may  make  contracts  for  doing  that 
business.  Such  contracts  you  may  make  with  any  other  corporation 
or  with  individuals."  No  doubt  a  contract  by  which  the  goods  re- 
ceived from  railroad  or  other  carrying  companies  should  be  carried 
over  the  road  of  this  company,  or  by  which  goods  or  passengers  from 
this  road  should  be  carried  by  other  railroads,  whether  connecting  im- 
mediately with  them  or  not,  are  within  this  power,  and  are  probably 
the  main  object  of  the  clause.  But  it  is  impossible,  under  any  sound 
rule  of  construction,  to  find  in  the  language  used  a  permission  to  sell, 
lease,  or  transfer  to  others  the  entire  road  and  the  rights  and  fran- 
chises of  the  corporation.  To  do  so  is  to  deprive  the  company  of 
the  power  of  making  those  contracts  which  this  clause  confers,  and  of 
performing  the  duties  which  it  implies.      «      *     * 

It  is  next  insisted,  in  the  language  of  counsel,  that  though  this  may 
be  so,  "a  corporate  body  may  (as  at  common  law)  do  any  act  which 
is  not  either  expressly  or  impliedly  prohibited  by  its  charter;  although 
where  the  act  is  unauthorized  by  the  charter  a  shareholder  may  enjoin 
its  execution,  and  the  state  may,  by  proper  process,  forfeit  the 
charter." 

We  do  not  concur  in  this  proposition.  We  take  the  general  doc 
trine  to  be  in  this  country^  though  there  may  be  exceptional  cases  and 
sotne  authorities  to  the  contrary^  that  the  powers  of  corporations 
organized  under  legislative  statutes  are  such  and  such  only  as  those 
statutes  confer.  Conceding  the  rule  applicable  to  all  statutes^  that 
-what  is  fairly  implied  is  as  much  granted  as  -what  is  expressed.,  it 
remains  that  the  charter  of  a  corporation  is  the  measure  of  its  pow- 
ers, and  that  the  enumeration  of  these  powers  implies  the  exclusion 
of  all  others.      *     *     ♦ 

[Citing  and  discussing  East  Anglian  R.  Co.  v.  Eastern  Counties 
R.  Co.,  II  C.  B.  775;  Eastern  Counties  R.  Co.  v.  Hawkes,  5  H. 
L.  Cas.  331  ;  McGregor  v.  Deal  &  Dover  R.  Co.,  22  Law  J.  Q.  B. 
69,  18  Q.  B.  618.] 

There  is  another  principle  of  equal  importance  and  equally  conclu- 
sive against  the  validity  of  this  contract,  which,  if  not  coming  exactly 
within  the  doctrine  of  ultra  vires  as  we  have  just  discussed  it,  shows 
very  clearly  that  the  railroad  company  was  without  the  power  to 
make  such  a  contract. 

That  principle  is  that  where  a  corporation,  like  a  railroad  company, 
has  granted  to  it  by  charter  a  franchise  intended  in  large  measure  to 
be  exercised  for  the  public  good,  the  due  performance  of  those  fimc- 
tions  being  the  consideration  of  the  public  grant,  any  contract  which 
disables  the  corporation  from  performing  those  functions,  which  un- 
dertakes, without  the  consent  of  the  state,  to  transfer  to  others  the 
rights  and  powers  conferred  by  the  charter,  and  to  relieve  the  grant- 
ees of  the  burden  which  it  imposes,  is  a  violation  of  the  contract  with 
the  state,  and  is  void  as  against  public  policy.     *     «     *      [Citing  New 


91 8  THOMAS    V.     RAILROAD    COMPANY.  §  2  59 

York  &  M.  L.  R.  Co.  v.  Winans,  17  How.  30;  Beman  v.  Rufford^ 
iSim.  (N.  S.)  550;  Winch  V.  Birkenhead,  L.  &  C.  J.  R.  Co.,  isEng. 
L.  &  Eq.  506  ;  Black  V.  Delaware  &  R.  Canal  Co.,  23  N.  J.  Eq.  130.] 

It  remains  to  consider  the  suggestion  that  the  contract,  having  been 
executed,  the  doctrine  of  ultra  vires  is  inapplicable  to  the  case.  There 
can  be  no  question  that,  in  many  instances  where  an  invalid  contract, 
which  the  party  to  it  might  have  avoided  or  refused  to  perform,  has 
been  fully  performed  on  both  sides,  whereby  money  has  been  paid  or 
property  changed  hands,  the  courts  have  refused  to  sustain  an  ac- 
tion for  the  recovery  of  the  property  or  the  money  so  transferred. 

In  regard  to  corporations  the  rule  has  been  well  laid  down  by  Corn- 
stock,  C.  J.,  in  Parish  v.  Wheeler,  22  N.  Y.  494,  that  the  executed 
dealings  of  corporations  must  be  allowed  to  stand  for  and  against  both 
parties  when  the  plainest  rules  of  good  faith  require  it. 

But  what  is  sought  in  the  case  before  us  is  the  enforcement  of  the 
unexecuted  part  of  this  agreement.  So  far  as  it  has  been  executed, 
namely,  the  four  or  five  years  of  action  under  it,  the  accounts  have 
been  adjusted  and  each  party  has  received  what  he  was  entitled  to  by 
its  terms.  There  remains  unperformed  the  covenant  to  arbitrate  with 
regard  to  the  value  of  the  contract.  It  is  the  damages  provided  for 
in  that  clause  of  the  contract  that  are  sued  for  in  this  action.  Dam- 
ages for  a  material  part  of  the  contract  never  performed  ;  damages  for 
the  value  of  a  contract  which  was  void.  It  is  not  a  case  of  a  contract 
fully  executed.  The  very  nature  of  the  suit  is  to  recover  damages  for 
its  non-performance.     As  to  this  it  is  not  an  executed  contract. 

Not  only  so,  but  it  is  a  contract  forbidden  by  public  policy  and  be- 
yond the  power  of  the  defendants  to  make.  Having  entered  into  the 
agreement  it  was  the  duty  of  the  company  to  rescind  or  abandon  it  at 
the  earliest  moment.  This  duty  was  independent  of  the  clause  in  the 
contract  which  gave  them  the  right  to  do  it.  Though  they  delayed 
its  performance  for  several  years,  it  was  nevertheless  a  rightful  act 
when  it  was  done.  Can  this  performance  of  a  legal  duty,  a  duty  both 
to  stockholders  of  the  company  and  to  the  public,  give  to  the  plaint- 
iffs a  right  of  action }  Can  they  found  such  a  right  on  an  agreement 
void  for  want  of  corporate  authority  and  forbidden  by  the  policy  of 
the  law.f*  To  hold  that  they  can,  is,  in  our  opinion,  to  hold  that  any 
act  performed  in  executing  a  void  contract  makes  all  its  parts  valid, 
and  that  the  more  that  is  done  under  a  contract  forbidden  by  law,  the 
stronger  is  the  claim  to  its  enforcement  by  the  courts. 

We  can  not  see  that  the  present  case  comes  within  the  principle 
that  requires  that  contracts,  which,  though  invalid  for  want  of  corpo- 
rate power,  have  been  fully  executed,  shall  remain  as  the  foundation 
of  rights  acquired  by  the  transaction. 

We  have  given  this  case  our  best  consideration  on  account  of  the 
importance  of  the  principles  involved  in  its  decision,  and  after  a  full 
examination  of  the  authorities  we  can  see  no  error  in  the  action  of  the 
circuit  court.     Judgment  affirmed. 

Note.  Special  capacities.  Only  the  following  among  numerous  author- 
ities are  given:     1804,  Head  v.  Providence  Ins.  Co.,  2  Cranch  (6  U.  S.)  127; 


§  26o  THEORIES   OF   CORPORATE   CAPACITY.  9 19 

1807,  Beatty  v.  Marine  Ins.  Co.,  2  Johns.  (N,  Y.)  109,3  Am.  Dec.  401; 
1818,  People  v.  Utica  Ins.  Co.,  15  Johns.  358,  8  Am.  Dec.  243;  1819,  Dart- 
mouth College  V.  Woodward,  5  Wheat.  (U.  S.)  518,  636,  supra,  p.  708;  1827, 
Fuller  V.  Plainfield,  6  Conn.  632;  1828,  State  v.  Stebbins,  1  Stew.  (Ala.)  299; 
1830,  Providence  Bank  v.  Billings,  4  Pet.  (29  U.  S.)  514;  1831,  Betts  v.  Men- 
ard, 1  111.  (Breese)  395;  1839,  Bank  of  Augusta  v.  Earle,  13  Pet.  (38  U.  S.) 
519,  587 ;  1839,  Penobscot  Boom  Co.  v.  Lamson,  16  Maine  224,  33  Am.  Dec. 
656;  1839,  Thomas  v.  Dakin,  22  Wend.  9,  supra,  p.  19;  1841,  State  v.  Wash- 
ington S.  L.  Co.,  11  Ohio  96;  1846,  Coleman  v.  Eastern  Coiinties  R.  Co.,  10 
Beav.  1;  1846,  Janesville  Bridge  Co.  v.  Stoughton,  1  Pin.  (Wis.)  667;  1850, 
Perrine  v.  Ches.  &  D.  C.  Co.,  9  How.  (50  U.  S.)  172;  1851,  East  Anglian  R. 
Co.  V. -Eastern  Counties  R.,  11  C.  B.  (73  E.  C.  L.)  775;  1852,  Bank  of  Penn- 
sylvania V.  Commonwealth,  19  Pa.  St.  144;  1853,  Hood  v.  N.  Y.  &  N.  H.  R. 
Co.,  22  Conn.  502;  1856,  Commw.  v.  Erie  &  N.  E.  R.  Co.,  27  Pa.  St.  339,  67 
Am.  Dec.  471 ;  1858,  Pearce  v.  Madison  &  Ind.  R.  Co.,  21  How.  (62  U.  S.)441 ; 
1858,  A bby  v.  Billups,  35  Miss.  618,72  Am.  Dec.  143;  1859,  Talmadge  v. 
North  Am.  C.  &  T.  Co.,  3  Head  (40  Tenn.)  337;  1860.  Bissell  v.  Mich.  South- 
ern, etc.,  R.  Co.,  22  N.  Y.  258;  1860,  Memphis  &  St.  F.  P.  R.  Co.  v.  Rives,  21 
Ark.  302;  1860,  McCracken  v.  Citv  of  San  Fran.,  16  Cal.  591 ;  1865,  Hannibal 
&  St.  J.  R.  Co.,  V.  Marion  Co.,  36  Mo.  294;  1868,  Rochester  Ins.  Co.  v.  Mar- 
tin, 13  Minn.  59  (Gil.  54) ;  1869,  Monument  Nat'l  Bank  v.  Globe  Works,  101 
Mass.  57;  1873,  Fowler  v.  Scully,  72  Pa.  St.  456,  13  Am.  Rep.  699;  1875,  Ash- 
bury  R.  Co.  V.  Riche,  L.  R.  7  H.  L.  Rep.  653;  1877,  Franklin  Co.  v.  Lewiston 
Inst.  For  Sav.,  68  Maine  43 ;  1880,  Houston  &  T.  C.  R.  v.  Shirley,  54  Texas  125 ; 
1881,  Davis  v.  Old  Colony  R.  Co.,  131  Mass.  258;  1885,  Ewing  v.  Toledo  Sav. 
Bank,  43  Ohio  St.  31 ;  1888,  Chewackla  Lime  Works  v.  Dismukes,  87  Ala.  344 ; 
1888,  State  v.  Atchison  &  N.  R.  Co.,  24  Neb.  143,  8  Am.  St.  Reo.  164;  1890, 
Central  Trans.  Co.  v.  Pullman  P.  C.  Co.,  139  U.  S.  24,  48;  1894,  Commw.  v.  N. 
El.  R.  Co.,  161  Pa.  St.  409;  1897,  Farwell  Co.  v.  Josephson,  96  Wis.  10, 37  L.  R. 
A.  138, 65  Am.  St.  Rep.  22 ;  1897,  Pullman's  Car  Co.  v.  Cent.  Trans.  Co.,  171  U. 
S.  138;  1897,  Franklin  Nat'l  Bank  v.  Whitehead,  149  Ind.  560,  63  Am.  St.  Rep. 
302;  1898,  Nicollet  Nat'l  Bank  v.  Frisk-Turner  Co.,  71  Minn.  413,  70  Am.  St. 
Rep.  334 ;  1899,  De  La  Vergne  Refrigerating  Machine  Co.  v.  German  Sav. 
Inst.,  175  U.  S.  40;  1899,  National  Loan,  etc.,  Assn.  v.  Home  Sav.  Bank,  181 
111.  35,  72  Am.  St.  Rep.  245. 


Sec.  260.     General  capacity. 

RICHE  V.  THE  ASHBURY  RAILWAY  CARRIAGE  &  IRON  CO.,  LTD.* 

1874.    -In  the  Court  of  Exchequer.     L.  R.  9  Ex.  224-297. 

[The  defendants  were  incorporated  as  a  limited  company  under  the 
companies'  act,  1862,  the  objects  of  the  company,  as  stated  in  the 
memorandum  of  association,  being  "To  make,  sell,  or  lend  on  hire, 
railway  carriages  and  wagons,  and  all  kinds  of  railway  plant,  fittings, 
machinery  and  rolling  stock;  to  carry  on  the  business  of  mechanical 
engineers  and  general  contractors;   to  purchase,  lease,  work  and  sell 

*  Statement  of  facts  abridged,  arguments,  part  of  opinion  of  Blackburn,  J,, 
and  dissenting  opinion  of  Archibald,  J.,  omitted.  Brett  and  Grove,  JJ., 
concurred  with  Blackburn,  and  Keating  and  Quain,  JJ.,  concurred  with 
Archibald,  J.  The  court  being  evenly  divided,  the  judgment  below  was 
affirmed.  Upon  appeal  to  the  house  of  lords,  1875,  Ashbury,  etc.,  R.  Co.  v. 
Riche,  L.  R.  7  H.  L.  Rep.  653,  the  decision  above  was  overruled,  and  the  doc- 
trine of  special  capacities  established  as  to  parliamentary  corporations.  See 
note,  infra,  p.  924. 


920  RICHE   V.    THE   ASHBURY   RAILWAY,    ETC.,    CO.  §  260 

mines,  minerals,  land  and  buildings ;  to  purchase  and  sell  as  mer- 
chants timber,  coal,  metal  and  other  materials,  and  to  buy  and  sell 
any  such  materials  on  commission  as  agents."  And  by  article  4  of 
their  articles  of  association,  "An  extension  of  the  company's  business 
beyond  or  for  other  than  the  objects  or  purposes  expressed  or  implied 
in  the  memorandum  of  association,  shall  take  place  only  in  pursuance 
of  a  special  resolution." 

The  defendants'  directors  in  January,  1865,  entered  into  contracts 
on  behalf  of  the  company,  by  which  the  company  became  purchasers 
of  a  concession  granted  by  the  Belgian  government  for  the  construc- 
tion of  a  railway  in  Belgium,  and  contracted  with  the  plaintiff  that, 
through  the  medium  of  a  societe  anonyme  which  the  company  were  to 
form  in  Belgium,  he  should  be  employed  to  construct  the  line,  and 
that  they  would  pay  certain  sums  of  money  into  the  treasury  of  the 
societe  anonyme  for  the  purpose  of  payments  being  made  to  him 
thereout  for  the  construction  of  the  railway.  These  contracts  were 
afterward  modified  in  certain  particulars  by  agreements  entered  into, 
October,  1865,  by  the  directors  on  behalf  of  the  company. 

In  October,  1865,  the  plaintiff  entered  on  the  construction  of  the 
line ;  the  societe  anonyme  was  formed,  and  for  some  time  payments 
were  made  by  the  company  into  the  treasury  of  the  societe  in  pursu- 
ance of  their  contract  with  the  plaintiff. 

In  May,  1866,  defendants  repudiated  the  contracts,  on  the  ground 
that  they  were  ultra  vires.  Afterwards  these  contracts  were  ratified 
at  an  annual  meeting  of  the  shareholders.  Plaintiffs  claimed  the  con- 
tracts were  not  ultra  vires,  but  if  they  were  they  could  be  ratified  by 
the  shareholders.] 

Blackburn,  J.  *  *  *  It  is  of  great  importance,  when  we  come 
to  construe  a  statute  creating  a  corporation,  to  consider  what  would 
be  the  incidents  at  common  law  conferred  on  a  corporation  created  by 
charter. 

The  leading  authority  on  this  subject  is  the  case  of  Sutton's  Hos- 
pital, 10  Co.  I.  There  were  many  points  raised  in  that  case.  Those 
which  I  think  material  to  the  present  point  arose  on  a  part  of  the 
charter  set  out  in  the  special  verdict  (p.  10^),  by  which  the  king  in- 
corporated the  first  governors  of  the  charterhouse,  and  expressly  pro- 
vided, I.  That  they  should  have  power  to  purchase,  etc.,  as  well 
goods,  chattels,  etc.,  as  lands.  2.  To  sue  and  be  sued.  3.  To  have  a 
common  seal,  "whereby  the  same  corporation  shall  or  may  seal  any 
manner  of  instrument  touching  the  said  corporation  and  the  manor, 
lands,  etc.,  thereto  belonging,  or  in  any  wise  touching  or  concerning 
the  same.  Nevertheless,  it  is  our  true  intent  and  meaning  that  the 
said  governors,  for  the  time  being,  and  their  successors,  nor  any  of  them, 
shall  do,  or  suffer  to  be  done,  at  any  time  hereafter,  any  act  or  thing 
whereby  or  by  means  whereof  any  of  the  manors,  etc.,  of  the  said  in- 
corporation, or  any  estate,  etc.,  shall  be  conveyed,  etc.,  to  any  other 
whatsoever  contrary  to  the  true  meaning  hereof,  other  than  by  such 
leases  as  are  hereafter  mentioned,  and  that  in  such  manner  and  form 
as  is  hereafter  expressed,  and  not  otherwise."     The  king,  therefore, 


§  260  THEORIES   OF   CORPORATE   CAPACITY.  921 

by  this  charter  not  only  did  not  in  express  terms  give  a  power  of  alien- 
ation, but  by  express  negative  words  forbade  any  alienation  except  by 
lease.  But  the  resolution  of  the  court,  as  reported  by  Coke  (at  p. 
3o3),  was  that  "when  a  corporation  is  duly  created  all  other  incidents 
are  tacite  annexed  ;  »  *  *  and,  therefore,  divers  clauses  subsequent 
in  the  charter  are  not  of  necessity,  but  only  declaratory,  and  might 
well  have  been  left  out.  As,  i .  By  the  same  to  have  authority,  ability, 
and  capacity  to  purchase ;  but  no  clause  is  added  that  they  may  alien, 
etc.,  and  it  need  not,  for  it  is  incident.  2.  To  sue  and  be  sued,  im- 
plead and  be  impleaded.  3.  To  have  a  seal,  etc.,  that  is  also  declar- 
atory, for  when  they  are  incorporated  they  may  make  or  use  what 
seal  they  will.  4.  To  restrain  them  from  aliening  or  demising  but  in 
a  certain  form ;  that  is  an  ordinance  testifying  the  king's  desire,  but 
it  is  but  a  precept  and  doth  not  bind  in  law." 

This  seems  to  me  an  express  authority  that  at  common  law  it  is  an 
incident  to  a  corporation  to  use  its  common  seal  for  the  purpose  of 
binding  itself  to  anything  to  which  a  natural  person  could  bind  him- 
self, and  to  deal  with  its  property  as  a  natural  person  might  deal  with 
his  own.  And  further,  that  an  attempt  to  forbid  this  on  the  part  of 
the  king,  even  by  express  negative  words,  does  not  bind  at  law.  Nor 
am  I  aware  of  any  authority  in  conflict  with  this  case. 

If  there  are  conditions  contained  in  the  charter  that  the  corporation 
shall  not  do  particular  things,  and  these  things  are  nevertheless  done, 
it  gives  ground  for  a  procceeding  by  scire  facias  in  the  name  of  the 
crown  to  repeal  the  letters-patent  creating  the  corporation.  See  Reg. 
V.  Eastern  Archipelago  Company,  2  E.  &  B.  857,  22  L.  J.  Q.  B.  196. 
But  if  the  crown  take  no  such  steps  it  does  not,  as  I  conceive,  lie  in 
the  mouth,  either  of  the  corporation  or  of  the  person  who  has  con- 
tracted with  it,  to  say  that  the  contract  into  which  they  have  entered 
was  void  as  beyond  the  capacity  of  the  corj>oration. 

I  am  aware  of  no  decision  by  which  a  corporation  at  common  law 
has  been  permitted  to  do  so.  I  take  it  that  the  true  rule  of  law  is,  that 
a  corporation  at  common  law  has,  as  an  incident  given  by  law,  the 
same  power  to  contract  and  subject  to  the  same  restrictions  that  a  nat- 
ural person  has.  And  this  is  important  when  we  come  to  construe  the 
statutes  creating  a  corporation.  For  if  it  were  true  that  a  corporation 
at  common  law  has  a  capacity  to  contract  to  the  extent  given  it  by  the 
instrument  creating  it,  and  no  further,  the  question  would  be,  does 
the  statute  creating  the  corporation,  by  express  provision  or  by  neces- 
sary implication,  show  an  intention  in  the  legislature  to  confer  upon 
this  corporation  capacity  to  make  the  contract?  But  if  a  body  corpo- 
rate has,  as  incident  to  it,  a  general  capacity  to  contract,  the  question 
is,  does  the  statute  creating  the  corporation,  by  express  provision  or 
necessary  implication,  show  an  intention  in  tbe  legislature  to  prohibit, 
and  so  avoid  the  making  of  a  contract  of  this  particular  kind  ? 

I  think  this  is  the  real  question,  and  for  that  I  refer  to  the  judgment 
of  Parke,  B.,  in  South  Yorkshire  R.  Co.  v.  Great  Northern  R.  Co., 
9  Ex.  55,  84,  22  L.  J.  Ex.  305,  313,  and  the  various  other  cases  cited 


922  RICHE   V.    THE   ASHBURY    RAILWAY,    ETC.,    CO.  §  260 

by  my  late  brother  Willes  and  by  myself  in  Taylor  v.  Chichester  and 
Midhurst  R.  Co.,  L.  R.  2  Ex.,   at  pp,  375,  389. 

And  when  we  are  construing  a  statute  creating  and  regulating  a 
corporation,  it  is  right  to  bear  in  mind  that,  as  Lord  Coke  says,  "It 
is  a  maxim  in  the  common  law  that  a  statute  made  in  the  affirmative, 
without  any  negative  expressed  or  implied,  doth  not  take  away  the 
common  law."  2  Inst.  200.  Affirmative  words  may  no  doubt  be 
used  so  as  to  imply  a  negative  (see  Plowden  Com.,  113),  but  I  take  it 
the  general  principle  is  that  thus  laid  down  by  Cresswell,  J.,  in  the 
Eastern  Archipelago  Company  v.  Reg.,  2  E.  &  B.,  at  p.  888,  23  L. 
J.  Q.  B.  82,  "that  to  make  the  words  giving  an  express  liberty  or 
right  have  the  effect  of  controlling  or  limiting  that  which  would  oth- 
erwise exist,  they  must  be  very  plain." 

I  now  come  to  consider  the  construction  of  the  act  of  1862,  under 
which  the  present  company  is  formed.  The  sections  of  the  act  of 
1862  bearing  on  the  present  case  seem  to  me  to  be  only  sections  6,  8, 
9,  10  and  12. 

By  the  sixth  section  of  the  act  of  1862,  any  seven  persons  may,  by 
subscribing  their  names  to  a  memorandum  of  association,  and  other- 
wise complying  with  the  requisitions  of  this  act  ih  respect  of  registra- 
tion, form  an  incorporated  company  with  or  without  limited  liability. 

The  eighth,  ninth  and  tenth  sections  provide  that  the  memorandum 
of  association  shall  contain  the  objects  for  which  the  proposed  com- 
pany is  to  be  established. 

The  twelfth  section  provides  that  the  company  may  make  certain 
specified  alterations  in  the  memorandum  of  association,  not  including 
a  change  in  the  objects  for  which  the  company  is  to  be  established, 
and  then,  in  express  negative  words  provides  that,  "save  as  aforesaid^ 
no  alteration  shall  be  made  in  the  conditions  contained  in  the  memo- 
randum of  association." 

The  objects  of  the  proposed  company  must,  therefore,  always  re- 
main the  same,  and  that  has,  I  think,  two  important  effects:  First, 
I  think  that  if  the  company  as  a  body  proposes  to  do  anything  beyond 
these  objects,  any  one  dissentient  shareholder  (who  has  not  preclnded 
himself  from  doing  so)  may  prevent  it  from  doing  so. 

Secondly.  No  person  can  be  entitled  to  fix  the  company  with  a 
contract  made  by  the  board  for  any  purpose  beyond  those  objects,  oti 
the  ground  that  the  board  had  an  ostensible  or  apparent  authority  to 
make  contracts  of  that  kind,  but  must,  in  order  to  fix  the  company, 
at  least  prove  an  actual  authority  given  to  the  board  to  make  the  par- 
ticular contract  he  seeks  to  enforce. 

Now,  if  I  thought  that  it  was  at  common  law  an  incident  to  a  corpo- 
ration that  its  capacity  should  b,e  limited  to  the  extent  conferred  on  it 
by  the  instrument  creating  it,  I  should  agree  that  the  capacity  of  a 
company  incorporated  under  the  act  of  1862  was  limited  to  the  ob- 
jects in  the  memorandum  of  association.  But  if  I  am  right  in  the 
opinion  which  I  have  already  expressed,  that  the  general  power  of 
contracting  is  an  incident  to  a  corporation  which  it  requires  an  indi- 
cation of  intention  in  the  legislature  to  take  away,  I  see  no  such  indi- 


§  26o  THEORIES    OF   CORPORATE   CAPACITY.  923 

cation  here.  There  are  not  even  affirmative  words,  those  used  in  §  25 
of  7  and  8  Vict.,  ch.  no,  to  which  I  shall  now  refer,  having  been  (I 
presume  advisedly)  not  repeated. 

The  7  and  8  Vict.,  ch.  no,  §  25,  enacts  that  from  the  date  of  the 
certificate  the  shareholders  shall  be  incorporated  "by  the  name  of  the 
company  as  set  forth  in  the  deed  of  settlement,  and  for  the  purpose  of 
carrying  on  the  trade  or  business  for  which  the  company  was  formed, 
but  only  according  to  the  provisions  of  this  act,  and  of  such  deed  as 
aforesaid."  And  then  express  powers  are  given  to  the  company  to 
enter  into  contracts  for  any  "necessary  purpose  of  the  company." 

I  think  if  the  question  was  whether  the  legislature  had  conferred  on 
a  corporation  created  under  this  act  capacity  to  enter  into  contracts 
beyond  the  provisions  of  the  deed,  there  could  be  only  one  answer. 
The  legislature  did  not  confer  such  capacity. 

But  if  the  question  be,  as  I  apprehend  it  is,  whether  the  legislature 
have  indicated  an  intention  to  take  away  the  power  of  contracting, 
which  at  common  law  would  be  incident  to  a  body  corporate,  and  not 
merely  to  limit  the  authority  of  the  managing  body  and  the  majority 
of  the  shareholders  to  bind  the  minority,  but  also  to  prohibit  and  make 
illegal  contracts  made  by  the  body  corporate  in  such  a  manner  that 
they  would  be  binding  on  the  body  if  incorporated  at  common  law,  I 
think  the  answer  should  be  the  other  way.  There  certainly  is  ground 
for  suspecting  that  the  person  who  framed  the  act,  7  and  8  Vict.,  ch. 
no,  thought  that  the  corporation  would  have  no  other  powers  than 
those  thus  expressly  given  to  it,  and  perhaps  meant  to  restrict  its  pow- 
ers accordingly,  but  when  we  remember  the  canon  of  construction 
that  affirmative  words  do  not  take  away  the  common  law  right,  I 
think  he  has  not  used  words  sufficient  to  effect  such  a  purpose.  It 
would  be  different  if  negative  words  had  been  used,  and  it  had  been 
said  that  the  company  should  not  do  any  other  acts  than  those  neces- 
sary for  the  purpose  for  which  it  is  formed. 

The  two  acts,  7  and  8  Vict.,  ch.  no,  and  the  act  of  1862,  are  so 
much  in  pari  materia^  that  if  it  had  been  settled  by  judicial  construc- 
tion that  a  company  under  7  and  8  Vict.,  ch.  no,  was  forbidden  to 
make  any  contract  for  objects  beyond  those  specified  in  the  deed,  I 
should  endeavor  to  put  the  same  construction  on  the  act  of  1862,  un- 
less the  change  in  the  language  showed  an  intention  in  the  legislature 
to  alter  the  law. 

There  are  many  dicta  in  courts  of  equity  worthy  of  great  respect, 
which  indicate  an  opinion  not  only  that  such  acts  are  beyond  the  au- 
thority of  the  board,  or  even  of  a  majority  of  the  shareholders,  but 
also  that  they  are  beyond  the  capacity  of  the  company,  though  unani- 
mous. 

These  are  worthy  of  great  attention,  but  I  can  find  no  case  in  which 
it  has  been  decided  that  a  contract  so  made  or  ratified  by  the  whole 
company  that  it  would  have  bound  the  company  in  its  corporate  ca- 
pacity (but  for  the  provisions  of  the  statute)  has,  either  at  law  or  in 
equity,  been  held  void  on  account  of  the  provisions  of  that  act.  And 
I  think  that  the  three  cases  already  referred  to  of  Spackman  v.  Evans, 


924  RICHE   V.    THE   ASHBURY   RAILWAY,    ETC.,  ,CO.  §  260 

L.  R.  3  H.  L.  Cas.  171 ;  Evans  v.  Smallcombe,  L.  R.  3  H.  L. 
Cas.  249,  and  Houldsworth  v.  Evans,  L.  R.  3  H.  L.  Cas.  263,  all 
decided  in  the  house  of  lords,  are  at  least  authorities  for  the  contrary 
doctrine.      *     *     * 

I  think,  for  the  reasons  I  have  above  given,  that  in  this  case  the 
unanimous  shareholders  have,  in  fact,  assented  to  the  ratification  under 
the  seal  of  the  company  of  this  contract,  and  that  such  a  ratification, 
at  all  events,  makes  the  contract  binding  on  the  company  in  its  cor- 
porate capacity. 

I  think,  therefore,  that  the  judgment  of  the  court  below  should  be 
affirmed. 

Note.  General  capacity.  While  the  rule  of  special  capacities  is  verbally 
almost  universally  adhered  to,  there  is  a  tendency,  especially  in  the  decisions 
of  the  state  courts,  when  no  public  interest  or  policy  is  specially  involved, 
and  creditors'  rights  are  not  affected,  practically  to  allow  a  general  capacity 
to  do  everything  in  every  way  an  individual  could  do,  within  the  field  covered 
by  the  business  in  which  the  corporation  was  organized  to  engage.  As  was 
stated  in  1851,  by  Willard,  P.  J.,  in  Conro  v.  Port  Henry  Iron  Co.,  12  Barb. 
(N.  Y.)  27,  53,  "modern  decisions  tend  to  assimilate  the  actions,  rights,  du- 
ties and  liabilities  of  corporations  to  those  of  individuals  and  commercial 
partnerships;"  or  as  stated  in  1857,  in  Shrewsbury  &  B.  R.  Co.  v.  N.  W.  R. 
Co.,  6  H.  L.  Cases  113,  "Prima  facie  all  corporate  bodies  are  bound  by  con- 
tracts under  their  common  seal,  but  this  prima  facie  power  to  contract  can  not 
be  insisted  on  as  to  matters  where,  from  the  nature  of  the  corporate  body  or 
the  object  of  its  incorporation,  it  is  expressly  or  impliedly,  'by  reasonable  in- 
ference,' prohibited  from  contracting.  A  contract  as  to  such  matters  is  riltra 
vires."  So,  too,  in  1859,  Lord  Wensleydale,  in  Scottish  N.  E.  R.  Co.  v.  Stew- 
art, 3  Macq.  H.  L.  Cas.  382,  said :  "There  can  be  no  doubt  that  a  corporation 
is  fully  capable  of  binding  itself  by  any  contract,  except  when  the  statutes 
by  which  it  is  created  or  regulated  expressly  or  by  necessary  implication  pro- 
hibit such  contract  between  the  parties.  Prima  facie  all  its  contracts  are 
valid,  and  it  lies  on  those  who  impeach  any  contract  to  make  out  that  it  is 
bad."  And  in  1887,  Lord  Selborne  said  in  A.-G.  v.  Great  Eastern  R.  Co., 
5  App.  Cas.  478,  "The  doctrine  of  ultra  vires  is  one  which  ought  to  be 
reasonably  and  not  unreasonably  applied,  and  whatever  may  fairly  be  re- 
garded as  incidental  to  or  consequential  upon  those  things  which  the  legisla- 
ture has  authorized,  ought  not  (unless  expressly  prohibited)  to  be  held  by  ju- 
dicial construction  to  be  ultra  vires." 

Cook  Corporations,  4th  ed.,  1898,  §  3,  states  the  modern  tendency  more 
broadly  than  other  writers,  and  perhaps  too  broadly.  He  says :  "The  theory 
of  a  corporation  is  that  it  has  no  powers  except  those  expressly  given  or  neces- 
sarily implied.  But  this  theory  is  no  longer  strictly  applied  to  private  corpo- 
rations. A  private  corporation  may  exercise  many  extraordinary  powers, 
provided  all  of  its  stockholders  assent  and  none  of  its  creditors  are  injured. 
There  is  no  one  to  complain  except  the  state,  and  the  business  being  entirely 
private,  the  state  does  not  interfere.  *  *  *  The  old  theory  of  a  corporation 
was  that  it  could  not  legally  do  anything  in  excess  of  its  express  or  implied 
powers.  But  the  modern  view  is  that  a  private  corporation  may,  if  all  its 
stockholders  assent  and  if  creditors  are  paid.  Public  policy  does  not  require 
business  corporations  to  confine  themselves  strictly  within  the  limits  of  the 
words  of  their  charter."  He  cites  particularlv,  1879,  Kent  v.  Quicksilver 
Mining  Co.,  78  N.  Y.  159,  186;  1896,  Bath  Gaslight  Co.  v.  Claffy,  151  N.  Y.  24. 
29-31,  33,  34,  37;  1897,  Augusta,  etc.,  R.  Co.  v.  City  Council,  100  Ga.  701,  28 
S.  E.  Rep.  126;  1897,  Farwell  Co.  v.  Wolf,  96  Wis.  10,  70  N.  W.  Rep.  289.  ' 

This  lattercase  holds  that  "none  hut  a  person  directly  interested  in  the  corpo- 
ration or  the  state  can  question  such  [corporate]  authority;"  and  the  follow- 
ing cases  seem  to  support  this  doctrine:     1860,  Natoma,  etc.,  Co.  v.  Clarkin, 


§  26 1  CLASSES   OF   CORPORATE   POWERS.  925 

14  Cal.  544;  1876,  Grant  v.  Henry  Clay,  etc.,  Co.,  80  Pa.  St.  208;  1878,  Na- 
tional Bank  v.  Whitney,  103  U.  S.  99;  1883,  Hovelman  v.  Kansas  City,  etc., 
Co.,  79  Mo.  632;  1884,  Alexander  v.  Tolleston  Club,  110  111.  65;  1886,  Baker  v. 
North  West,  etc.,  Loan  Co.,  36  Minn.  185;  1889,  Fritts  v.  Palmer,  132  U.  S. 
282;  1893,  Prescott  Nat'l  Bank  v.  Butler,  157  Mass.  548;  1898,  Rogers  v.  R. 
Co.,  33  C.  C.  A.  517,  91  Fed.  Rep.  2<)'.»;  1S98.  South  &  N.  A.  R.  Co.  v.  High- 
land Ave.,  etc.,  119  Ala.  105,  24  So.  Rep.  114;  1898,  Chapman  v.  Iron  Clad  R. 
Co.,  62  N.  J.  L.  497,  41  Atl.  Rep.  690;  1898,  Bishop  v.  Kent  &  Stanley  Co.,  20 
R.  I.  680,  41  Atl.  Rep.  255;  1898,  Miller  v.  American  Tobacco  Co.,  65  N.  J.  Eq. 
352,  42  Atl.  Rep.  1117 ;  1899,  Union  Trust  Co.  v.  M.  L.  H.  Co.,  189  Pa.  St.  263, 
42  Atl.  Rep.  129;  1899,  Murphy  v.  Arkansas  &  L.  L.  &  I.  Co.  (C.  C.  Ark.),  97 
Fed.  Rep.  723;  1899,  Colorado  Springs  Co.  v.  Am.  Pub.  Co.  (C.  C.  A.  Colo.),  97 
Fed.  Rep.  843;  1899,  International  B.  &  L.  Assn.  v.  Wall,  153  Ind. 554,  55  .n. 
E.  Rep.  431 ;  1900,  Burke  Land  &  L.  S.  Co.  v.  Wells  F.,  etc.,  Co.,  —  Idaho  — , 
60  Pac.  Rep.  87;  1900,  City  of  Spokane  v.  Amsterdamsch  T.  K.,  22  Wash.  172, 
60  Pac.  Rep.  141. 

Late  cases  hold  also  that  the  state  will  not  object  except  when  some  special 
public  Interest  is  injuriously  affected:  1836,  State  v.  Essex  Bank,  8  Vt.  489; 
1860,  Bissell  v.  Mich.  So.  R.  Co.,  22  N.  Y.  258,  289;  1879,  State  v.  Oberlin  B. 
&  L.  Assn.,  35  Ohio  State  258;  1889,  State  v.  Minnesota  Thresher  Co.,  40 
Minn.  213 ;  1890,  People  v.  North  River  S.  R.  Co.,  121  N.  Y.  582,  supra,  p.  100 ; 
1890,  Martin  v.  Niagara  Falls  Co.,  122  N.  Y.  165;  1892,  Oliver  v.  Gilmore  (C. 
C.  Mass.),  52  Fed.  Rep.  562;  1892,  Edgar  Collegiate  Institute  v.  People,  142 
111.  363;  1896,  State  v.  Janesville  Water  Co.,  92  Wis.  496,  501;  1897,  Illinois 
Health  Univ.  v.  People,  166  111.  171;  1898,  State  v.  National  School  of  Oste- 
opathy, 76  Mo.  App.  439. 

These  two  doctrines — that  the  state  alone  can  complain,  and  that  it  will 
complain  only  when  the  public  are  injuriously  affected — with  the  extension  of 
the  doctrine  of  implied  powers  indicated  below,  leave  but  little  of  the  old  doc- 
trine of  special  capacities,  and  approximate  to  the  doctrine  of  general  capacity 
— an  unwise  extension  in  the  writer's  opinion. 


ARTICLE  II.       CLASSES  OF    CORPORATE  POWERS. 

Sec.  261.  I.  Incidental  powers — those  tacitly  annexed  without 
any  express  words  to  every  corporation  duly  created.  These 
are : 

(i)To  have  perpetual  succession  during  the  period  for  which  the 
corporation  is  created. 

(3)  To  have  a  corporate  name  and  to  contract,  to  grant  and  re- 
ceive, and  to  sue  and  be  sued  thereby. 

(3)  To  purchase  and  hold  real  and  personal  property  for  the  pur- 
poses authorized  by  the  charter. 

(4)  To  have  and  use  a  common  seal. 

(5)  To  make  by-laws. 

(6)  To  remove  members  or  officers,  under  some  circumstances, 
called  the  power  of  disfranchisement  (in  case  of  removal  of  mem- 
bers) and  amotion  (in  case  of  removal  of  officers).  2  Kent  Comm., 
277,  278;  I  Blackstone's  Comm.,  ch.  18.  Supra,  Warner  v.  Beers, 
p.  2;  Thomas  v.  Dakin,  p.  19;  Sutton's  Hospital  Case,  p.  264; 
and  the  cases  following,  under  the  next  title. 


926        THE  PEOPLE   V.  THE   PULLMAN'S  PALACE  CAR  CO.        §  262 

Sec.  262.  2.  Express  powers,  such  as  are  specifically  enumer- 
<ited  in  the  charter  or  general  law,  and  constitutionally  granted 
therein,  together  with  such  as  are  lawfully  inserted  in  the  ar- 
ticles of  incorporation. 

3.  Implied  powers,  such  as  are  reasonably  necessary  or 
proper  for  the  execution  of  the  powers  expressly  granted,  and 
not  expressly  or  impliedly  excluded. 

THE  PEOPLE  V.  THE  PULLMAN'S  PALACE  OAR  COMPANY.* 

1898.     In    the    Supreme    Court    of    Illinois.     175    111.    Rep. 

125-182. 

[^•^uo  warranto  against  the  car  company  specifying  twenty-five 
usurpations  of  power  by  the  defendant,  justifying  as  alleged  a  for- 
feiture of  the  corporate  franchises.  Pleas  were  put  in  by  the  defend- 
ant alleging  other  facts  by  way  of  answer  to  the  complaint.  Demur- 
rers to  the  various  pleas  admitted  the  allegations  of  fact.] 

BoGGS,  J.  *  *  *  A  corporation  in  our  state  has  its  existence 
by  virtue  of  the  enactment,  general  or  special,  of  the  law-making 
power.  The  appellee  corporation  was  created  by  a  special  act  of  the 
general  assembly.  The  only  difference  between  a  corporation  organ- 
ized under  a  general  law  and  one  created  by  a  special  statute  is, 
"that  in  the  former  we  look  to  the  certificate  of  the  promoters,  while 
in  the  latter  we  look  to  the  special  statute  to  ascertain  the  scope  of  the 
powers  of  the  corporation."  The  rule  for  construing  the  instruments 
must  necessarily  be  the  same,  viz.,  the  powers  specifically  enumer- 
ated, and  such  other  powers  as  are  incidental  or  necessary  to  carry 
those  powers  into  effect,  but  none  others  may  be  exercised  by  the  cor- 
poration. Rockhold  V.  Canton  Masonic  Benevolent  Society,  129 
111.  440. 

The  enactment  creating  the  appellee  corporation  is  the  full  meas- 
ure of  its  power.  In  order  to  enable  it  to  carry  into  execution  the 
powers  thus  conferred  it  may  exercise  other  powers,  known  to  the 
law  as  incidental  or  implied  powers.  Implied  powers  exist  only  to 
enable  a  corporation  to  carry  out  the  express  powers  granted — that 
is,  to  accomplish  the  purpose  of  its  existence — and  can  in  no  case 
avail  to  enlarge  the  express  powers,  and  thereby  warrant  it  to  devote 
its  efforts  and  capital  to  other  purposes  than  such  as  its  charter  ex- 
pressly authorizes,  or  to  engage  in  collateral  enterprises  not  directly 
but  only  remotely  connected  with  its  specific  corporate  purposes.  A 
power  which  the  law  will  regard  as  existing  by  implication  must  be 
one  in  a  sense  necessary — that  is,  needful,  suitable  and  proper  to  ac- 
complish the  object  of  the  grant — and  one  that  is  directly  and  immedi- 
ately appropriate  to  the  execution  of  the  specific  powers,  and  not  one 
that  has  but  a  slight,  indirect  or  remote  relation  to  the  specific  pur- 

^  Facts  sufficiently  stated  in  the  opinion.  Arguments  and  much  of  the  pre- 
vailing and  dissenting  opinions  omitted. 


§  262  CLASSES   OF   CORPORATE   POWERS.  92/ 

poses  of  the  corporation.  Illinois  Conference  Female  College  v. 
Cooper,  25  111.  133;  Caldwell  V.  City  of  Alton,  33  111.  416;  Chicago, 
Pekin  and  Southwestern  R.  Co.  v.  Town  of  Marseilles,  84  111.  643 ; 
Chicago  Gas  Light  Co.  v.  People's  Gas  Light  Co.,  121  111.  530; 
Mott  V.  Danville  Seminary,  129  111.  403;  People  v.  Chicago  Gas 
Trust  Co.,  130  111.  268;  North  Side  R.  Co.  v.  Worthington  (Tex.), 
30  S.  W.  Rep.  1055;  Field  Corporations,  §§  53,  54;  IV  Thompson 
Law  of  Corp.,  §  5638;  2  Beach  Private  Corp.,  §  385;  Green's 
Brice's  Ultra  Vires,  88,  89. 

Keeping  these  definitions  as  to  implied  powers  in  view,  we  may 
proceed  to  determine  whether  the  acts  set  forth  in  the  pleas  are  within 
or  beyond  the  measure  of  power  possessed  by  the  appellee  company. 

It  appears  from  the  averments  of  those  pleas  which  are  intended  to 
answer  the  allegations  of  the  information  set  forth  hereinbefore  as 
Nos.  2,  3,  4,  5,  6,  7,  8,  9,  10,  II,  12,  13  and  24,  that  the  defendant 
company  about  the  year  1880  acquired  and  now  holds  a  certain  tract 
of  land  containing  about  eighty-three  acres,  on  a  portion  of  which,  in 
the  year  1880 — at  least  not  later  than  1882 — it  caused  to  be  constructed 
a  large  number  of  dwellings  and  tenement  houses,  some  of  the  height 
of  two  stories  and  others  three  stories  in  height;  that  the  total  num- 
ber of  such  buildings  is  twenty-two  hundred,  and  that  it  has  laid  out 
and  now  maintains  the  usual  and  necessary  streets  and  alleys  to  afford 
the  tenants  to  whom  it  rents  said  dwellings  and  tenement  houses 
the  proper  and  usual  means  of  ingress  and  egress  to  and  from  their 
homes  and  places  of  business ;  that  it  now  rents  said  dwellings  and 
tenements  to  its  employes ;  that  upon  the  same  plat  of  ground  upon 
which  said  dwellings  and  tenements  stand  and  where  said  streets  and 
alleys  are  located,  it  caused  to  be  erected  a  number  of  school-houses, 
'a  church  edifice,  a  hotel,  a  large  building  called  "The  Arcade,"  in 
which  are  a  number  of  rooms,  some  of  which  were  constructed  to  be 
rented  for  dry  goods,  grocery  and  other  retail  stores,  and  other  of  the 
rooms  were  built  for  school,  lecture  and  theatre  rooms  and  for  the  use 
of  religious  congregations  for  church  purposes,  and  that  it  now  rents 
the  rooms  in  said  "Arcade"  for  the  various  purposes  for  which  they 
were  intended  when  built ;  that  it  has  also  constructed  on  the  same 
plat  of  ground  a  large  building  called  "Market  Hall,"  the  lower  floor 
whereof  it  caused  to  be  fitted  up  for  meat  and  vegetable  markets,  and 
it  has  rented  and  now  rents  them  to  retail  dealers  in  such  articles  of 
food,  and  the  upper  floor  is  a  large  hall  where  concerts,  dances  and 
other  entertainments  may  be  given,  and  is  rented  by  it  for  such  pur- 
poses; that  it  maintains  a  system  of  water-works  and  sewers  and  a 
gas  plant,  and  for  a  consideration  supplies  those  who  inhabit  its  houses 
with  water,  light  and  heat.     *     *     ♦ 

Manifestly  the  acts  of  the  corporation  which  have  resulted  in  the 
creation  of  this  town  or  city  and  its  acts  in  connection  with  the  streets, 
alleys,  dwellings,  tenements,  school,  church  and  business  houses, 
water  system,  sewerage,  heat,  etc.,  which  the  plea  admits  it  was  per- 
forming at  the  time  of  the  filing  of  the  information,  can  not  be  re- 
garded as  the  exercise  of  powers  expressly  given.     Can  they  be  justi- 


928         THE   PEOPLE   V.    THE   PULMAN'S  PALACE   CAR   CO.       §  26z 

fied  as  the  proper  exercise  of  powers  incidental  to  the  express  powers 
possessed  by  the  corporation,  or  by  the  provision  in  the  sixth  clause 
of  the  charter  that  it  may  be  lawful  for  the  corporation  to  acquire  and 
hold  such  real  estate  as  may  be  deemed  necessary  for  the  successful 
prosecution  of  its  business  ?  The  declaration  of  the  sixth  clause  is  not 
that  the  company  may  acquire  and  hold  such  real  estate  as  it  or  its 
directory  may  deem  necessary,  but  such  as  may  be  deemed  necessary 
to  the  successful  prosecution  of  its  business.  The  true  meaning  of 
this  clause  is  not  that  the  company  or  its  governing  body  is  vested 
with  unlimited  and  unbridled  power  to  acquire  and  hold  such  real 
estate  as  it  may  deem  necessary,  but  with  power  to  purchase  and  hold 
only  such  real  estate  as,  under  the  rules  of  law,  may  be  deemed  nec- 
essary for  the  successful  prosecution  of  its  business.  "The  rule  of 
construction,  when  any  doubt  arises  out  of  any  language  employed  in 
such  a  charter,  is,  that  every  power  that  is  not  clearly  granted  is  with- 
held, and  that  any  ambiguity  in  the  terms  of  the  grant  must  operate 
against  the  corporation  and  in  favor  of  the  public."  (American 
Trust  Co.  V.  Minnesota  and  Northwestern  Railroad  Co.,  157  111.  641.; 
Illinois  Health  University  V.  People,  166  111.  171.)  "Irrespective  of 
the  operation  of  statutory  restrictions,  it  is  a  settled  principle  of  Amer- 
ican jurisprudence  that  a  corporation  can  not  take  and  hold  land  ex- 
cept in  so  far  as  reasonably  necessary  to  carry  out  the  objects  of  its 
creation.  These  bodies,  which  never  die,  are  not  allowed,  against 
the  objection  of  the  state,  to  take  and  hold  land  for  purposes  wholly 
foreign  to  the  purposes  for  which  the  state  endowed  them  with  corpo- 
rate existence  and  the  power  of  perpetual  succession."  5  Thomp- 
son's Law  of  Corp.,  §  5772. 

This  court  has  declared  that  it  is  against  the  public  policy  of  this 
state  to  allow  corporations  to  own  real  estate  beyond  what  is  necessary 
for  the  transaction  of  their  corporate  business,  or  such  as  is  acquired 
in  the  collection  of  debts.  (Carroll  v.  City  of  East  St.  Louis,  67  111. 
568;  United  States  Trust  Co.  v.  Lee,  73  111.  142.)  And  in  further- 
ance of  this  declared  public  policy  statutes  have  been  enacted  by  the 
general  assembly,  requiring  all  corporations  which  have  acquired 
lands  in  the  collection  of  debts  to  sell  and  dispose  of  all  that  is  not 
necessary  to  the  purposes  of  the  corporation,  and  providing  remedies 
designed  to  coerce  compliance  with  such  requirements.  Revised 
Statutes,  section  517,  chapter  32,  entitled  "Coi-porations."     *     *     * 

With  a  view  of  showing  that  the  situation  at  the  time  justified  the 
course  pursued  by  the  company,  and  was  sufficient  to  invest  it  with 
the  legal  right  to  pursue  such  course,  the  appellee  company  filed  pleas 
averring,  in  substance,  as  follows :  That  after  it  had  been  for  several 
years  in  the  exercise  of  the  powers  conferred  by  its  charter,  its  busi- 
ness increased  to  such  an  extent  that  it  became  necessary  for  it  to  build 
large  and  extensive  shops  in  which  to  manufacture  cars ;  that  a  large 
amount  of  land  was  necessaiy  on  which  to  locate  such  shops ;  that  it 
was  decided  to  locate  and  build  said  shops  in  the  county  of  Cook,  in 
or  near  the  city  of  Chicago,  where  its  general  offices  and  headquarters 
were,  and  where  its  principal   officers  resided ;  that  it  found  that  it 


§  262  CLASSES   OF   CORPORATE    POVVERS.  929 

could  not  acquire  a  sufficient  amount  of  land  upon  which  to  erect  said 
shops  within  the  city  of  Chicago  on  account  of  the  high  price  of  land 
in  said  city;  that  after  diligent  and  careful  inquiry  as  to  the  price  of 
land  and  the  means  of  access  thereto,  it  decided  to  build  its  shops 
where  they  are  now  situated.     »     «     » 

[It  is  claimed  that] :  "Accordingly,  in  the  exercise  of  its  best 
judgment,  appellee  selected  and  purchased  about  350  acres  of  land 
situated  upon  the  shores  of  Lake  Calumet,  fourteen  miles  distant  from 
its  offices  and  ten  miles  beyond  the  then  limits  of  the  city  of  Chicago. 
The  land  at  that  time  was  practically  an  unoccupied  waste.  It  was 
surrounded  for  a  very  considerable  distance  in  all  directions  save  to- 
ward the  lake,  by  farming  and  unoccupied  lands.  There  were  no  con- 
venient places  where  employes  of  the  company  could  find  homes  or 
dwelling  places.  The  construction  of  the  manufactory  therefore  in- 
volved, not  the  expediency  simply,  but  the  necessity,  of  providing 
places  suitable  for  the  occupancy  of  those  who  were  to  do  its  work. 
The  manufactory  and  the  homes  for  the  workmen  were  mutually  and 
equally  necessary  to  the  success  of  the  enterprise.  'The  power  to 
manufacture  cars'  was  barren  without  the  other  charter  power  'to  pur- 
chase, acquire  and  hold  such  real  estate  as  may  be  deemed  necessary.' 
It  was  only  by  the  combination  of  the  two — by  their  exercise  together, 
in  the  manner  which  has  been  described — that  the  object  of  the  charter, 
'the  successful  prosecution  of  their  business,'  could  be  accomplished. 
Accordingly,  the  exercise  of  these  powers  was  undertaken  cotempora- 
neously.  The  construction  of  the  works  and  the  construction  of  the 
dwelling  places  of  those  who  were  to  operate  them  was  undertaken  at 
the  same  time  and  as  a  part  of  a  single,  harmonious  scheme.  Two 
years  of  time  and  the  labor  of  4,000  men  transported  daily  to  and  fro 
between  Chicago  and  the  point  of  location,  were  devoted  to  the  work. 
At  the  expiration  of  that  time  the  result  appeared  in  the  completed 
structures  of  a  manufactory  giving  employment  to  5,000  persons,  and 
in  its  immediate  vicinity  dwelling  houses  sufficient  in  number  for  the 
comfortable  occupancy  of  a  large  part  of  these  persons  with  their  fam- 
ilies and  those  dependent  upon  them,  with  the  necessary  school-houses 
for  the  education  of  their  children,  churches  for  their  religious  in- 
struction, stores  and  shops  where  the  necessaries  of  life  could  be  pro- 
cured, halls  suitable  for  lectures  and  social  entertainments — all  so  ar- 
ranged with  such  accessories  of  streets,  parks  and  other  provisions,  as 
to  minister  not  simply  to  the  necessities,  but  also  to  the  comfort  and 
well-being  of  those  who  might  be  employed." 

The  averment  of  the  plea  the  corporation  was  obliged  to  construct 
such  houses  and  tenements  is  but  the  statement  of  a  conclusion,  and 
we  find  the  facts  pleaded  do  not  justify  such  a  deduction.  No  reason 
existed,  nor  do  we  find  in  the  pleas  even  a  suggestion  that  there  was 
reason  or  ground,  for  the  apprehension  that  individual  enterprise  and 
private  capital  would  not  at  once,  after  the  purpose  and  intention  of 
the  corporation  became  known,  provide  all  necessary  dwellings  and 
tenements  for  the  accommodation  of  the  workmen,  or  that  the  wants 
59 — WiL.  Cases. 


930      THE   PEOPLE   V.  THE   PULLMAN'S    PALACE    CAR   CO.       §  262 

of  the  community  composed  of  such  workmen  would  not  at  once  be 
met  by  the  location  in  its  midst  of  schools,  churches,  dry  goods  and 
grocery  stores,  meat  markets,  etc.,  or  that  the  necessary  streets,  alleys, 
and  public  ways  would  not  be  provided  without  any  intervention 
whatever  on  the  part  of  the  corporation.  The  public  laws  of  the 
state  would  have  supplied  the  requisite  school-houses  and  teachers, 
and  the  inclinations  of  the  individual  members  of  the  community 
could  have  been  safely  relied  upon  to  provide  church  houses  and 
rooms  for  imparting  religious  instruction.  It  is  idle  to  argue  it  be- 
came in  any  sense  necessary  or  directly  appropriate  to  the  accomplish- 
ment of  the  lawful  and  chartered  purposes  or  objects  of  the  corpora- 
tion it  should  engage  its  efforts  or  capital  in  the  construction  of  dwell- 
ings, tenement  houses,  store  houses,  streets,  alleys,  theaters,  hotel, 
churches,  school-houses,  water-works,  a  system  of  sewers,  etc.  Work- 
men, if  they  have  families,  must  have  homes,  or  if  unmarried  must 
be  accommodated  with  boarding  and  places  of  lodging.  Homes, 
groceries,  vegetables,  bread,  meat,  clothing,  furniture,  light,  heat, 
water,  school  books,  medicine,  the  services  of  physicians,  dentists 
and  other  professional  men,  and  many  other  things,  become  necessary 
to  the  health,  comfort,  or  convenience  of  such  workmen  and  their 
families ;  but  the  right  and  power  to  supply  such  wants  had,  in  this 
instance,  so  far  as  the  pleas  show,  no  direct  relation  or  connection 
with  the  successful  prosecution  of  the  specific  object  of  the  appellee 
corporation.  The  relation  was  but  remote,  indirect  and  mediate, — 
not  direct  and  immediate.  Implied  power  can  not  be  invoked  to 
authorize  a  corporation  to  engage  in  collateral  enterprises  but  remotely 
connected  with  the  specific  purposes  it  was  created  to  accomplish. 
A  power  which  a  corporation  may  exercise  by  implication  must  be 
bounded  by  the  purposes  of  the  corporate  existence  and  the  terms  and 
intention  of  the  charter,  and  acts  which  tend  only  remotely  and  by 
indirection  to  promote  its  interests  and  chartered  objects  can  not  be 
justified  by  implication  of  law,  but  are  ultra  vires. 

Cases  cited  holding  corporations  operating  mines  or  mills  engaged 
in  sawing  lumber  had  implied  power  to  construct  dwellings  and 
boarding-houses  for  their  employes  can  have  little  or  no  influence 
upon  the  question  here  presented.  In  those  cases  the  fact  the  works 
or  mills  of  the  corporation  were  necessarily  located  at  mines  or  near 
large  forests,  and  other  circumstances  peculiar  to  the  respective  cases, 
were  deemed  sufficient  to  justify  the  corporations  in  arranging  for  the 
lodging  or  boarding  of  their  workmen  or  in  building  homes  to  shelter 
them  and  their  families.  The  circumstances  in  each  of  such  cases  as 
can  be  accepted  as  having  been  well  considered,  were  such  it  became, 
in  a  legal  sense,  necessary  to  the  accomplishment  of  the  chartered 
purposes  of  the  corporation  that  it  should  exercise  such  power  as  was 
accorded  it  lay  implication  of  law.  Exceptional  circumstances  or  ex- 
traordinary conditions  may  make  it  necessary  to  the  proper  prosecu- 
tion of  the  business  of  a  corporation  that  it  shall  be  accorded  implied 
power  to  perform  acts  beyond  its  express  power,  and  which,  except 
for  the  prevailing  conditions,  would  be  wholly  unwarranted.     But  in 


§  262  CLASSES    OF   CORPORATE    POWERS.  931 

the  case  in  hand  the  appellee  corporation  voluntarily  assumed  to  de- 
vote its  corporate  capital  and  power  to  that  which,  to  say  the  least, 
but  remotely  and  indirectly  tended  to  aid  the  accomplishment  of  the 
purposes  it  had  the  right  to  pursue  under  conditions  and  circumstances 
which  were  heither  rare  nor  unusual. 

The  argument  of  counsel  for  appellee  that  the  construction  of  the 
manufacturing  plant  involved,  not  the  expediency  simply,  but  the  ne- 
cessity of  providing  places  suitable  for  the  occupancy  of  those  who 
were  to  do  its  work,  "and  that  in  view  of  this  the  company  deter- 
mined to  imdertake,  and  did  undertake,  to  construct  its  works  and 
dwelling  places  for  its  workmen  at  the  same  time  and  as  a  part  of  a 
single  harmonious  plan,"  is  fallacious.  It  ignores  the  palpable  fact 
that  no  duty  of  providing  houses  for  its  workmen  was  pressed  upon 
the  company  by  surrounding  conditions  or  circumstances  as  a  neces- 
sity, but  was  adopted  as  a  matter  of  choice,  based,  it  may  have  been, 
upon  motives  which  were  in  part  benevolent  or  charitable  in  their 
nature.  Had  it  purchased  only  that  quantity  of  ground  needful  for  its 
proper  corporate  uses,  and  restricted  its  efforts  and  expenditures  to 
the  construction  of  such  buildings  as  would  have  answered  its  corpo- 
rate wants,  there  appears  to  us  no  reason  to  believe  that  the  question 
of  homes  for  its  workmen,  market  places  or  stores  where  such  work- 
men could  purchase  supplies,  or  school  rooms  where  their  children 
could  receive  instruction,  or  the  making  of  streets  and  alleys,  would 
ever  have  demanded  the  thought  or  attention  of  its  governing  body. 
It  is  beyond  reason  to  conclude  that  had  the  way  been  left  open  pri- 
vate capital  and  individual  enterprise  would  have  overlooked  this  de- 
sirable field  of  operations,  or  that  merchants,  tradesmen,  butchers  and 
other  classes  of  business  men  would  not  have  appeared  and  entered 
into  business  rivalry  for  the  custom  of  the  workmen  and  their  fami- 
lies, and  that  the  prosecution  of  the  business  of  the  corporation  would 
have  suffered  because  its  workmen  could  not  find  homes  or  places 
where  the  articles  necessary  to  supply  their  wants  and  add  to  their 
comfort  could  be  purchased,  and  yet  it  is  upon  this  ground  it  is  sought 
to  justify  the  acts  of  the  corporation  which  are  now  under  considera- 
tion. 

The  prohibition  of  the  law  against  the  unauthorized  exercise  of 
power  by  corporations  is  based  upon  grounds  of  public  policy,  and 
the  wisdom  of  the  rule  may  here  find  exemplification.  Conceding  the 
rectitude  of  the  purpose  which  it  is  alleged  operated  to  induce  the 
acts  of  the  corporation  which  resulted  in  the  creation  of  the  town  or 
city  of  Pullman,  we  are  constrained  to  declare  the  corporation  had 
not  lawful  power  to  perform  such  acts,  and  that  the  existence  of  a 
town  or  city  where  the  streets,  alleys,  school-houses,  business  houses, 
sewerage  system,  hotels,  churches,  theaters,  water-works,  market 
places,  dwellings  and  tenements  are  the  exclusive  property  of  a  cor- 
poration is  opposed  to  good  public  policy,  and  incompatible  with  the 
theory  and  spirit  of  our  institutions.  It  is  clearly  the  theory  of  our 
law  that  streets,  alleys  and  public  ways,  and  public  school  buildings, 
should  be  committed  to  the  control  of  the  proper  public  authorities, 


932      THE   PEOPLE   V.  THE   PULLMAN'S    PALACE   CAR   CO.       §262 

and  that  real  estate  should  be  kept  as  fully  as  possible  in  the  channels 
of  trade  and  commerce,  and  good  public  policy  demands  that  the 
number  of  persons  who  should  engage  in  the  business  of  selling  such 
articles  as  are  necessary  to  the  support,  maintenance  and  comfort  of 
the  people  of  any  community  should  not  be  restricted  by  the  will  of 
any  person,  natural  or  artificial,  but  should  be  left  to  be  determined 
by  the  healthy,  wholesome  and  natural  operations  of  the  rules  of  trade 
and  business,  free  from  all  that  which  tends  to  stifle  competition  and 
foster  monopolies. 

We  think  the  averments  of  the  plea  in  response  to  the  allegations  of 
the  information  under  consideration  were  insufficient  to  present  a  legal 
defense.     *     *     * 

[The  court  held  further  that  the  construction  and  operation  of  a 
sewerage  system  and  sewerage  farm,  with  truck  gardening  thereon, 
though  necessary  to  the  health  of  the  dwellers  in  Pullman,  was  not 
justified  by  its  relation  to  the  usurped  power  of  owning  the  town  of 
Pullman;  that  under  the  express  power  to  "sell  supplies"  to  persons 
traveling  on  its  cars,  it  was  authorized  to  sell  beer,  wine  and  whisky 
as  beverages ;  that  the  ownership  of  fifty-five  acres  of  vacant  land, 
upon  which  to  dump  cinders  was  lawful ;  that  the  ownership  of  twen- 
ty-three acres  solely  to  meet  the  necessity  for  additional  dwelling 
houses  was  unlawful ;  that  the  ownership  of  twenty-five  acres,  for  the 
purpose  of  providing  for  the  proper  storage  of  its  cars  when  needed  in 
the  future,  was  lawful ;  that  it  was  lawful  to  construct  very  large 
steam  boilers  with  a  view  of  anticipating  its  probable  future  wants, 
and,  in  the  meantime,  until  needed,  to  furnish  an  adjoining  manufac- 
turing company  with  steam ;  that  it  is  unlawful  to  hold  shares  of 
stock  in  the  Pullman  Iron  and  Steel  Company  though  all  its  product, 
being  necessary  in  the  construction  of  cars,  is  used  by  the  defendant, 
so  that  in  effect  the  Steel  Company  is  a  mere  department  of  the  de- 
fendant; that  the  existence  of  the  alleged  usurpations  for  eighteen 
years,  with  the  knowledge  of  the  state,  and  the  collection  of  taxes 
during  that  time  upon  the  property  was  not  a  waiver,  nor  sufficient  to 
work  an  estoppel,  upon  the  part  of  the  state.] 

Reversed  and  remanded. 

Craig,  Wilkin  and  Cartwright,  JJ.,  dissenting,  approved  the 
following  statement  as  to  implied  -powers : 

"It  is  axiomatic  that  corporations  have  not  only  the  powers  ex- 
pressly granted  but  those  which  are  necessarily  implied;  that  while 
they  derive  all  their  powers  from  the  legislature  which  creates  them, 
it  is  also  true  that  what  is  fairly  implied  is  as  certainly  granted  as 
what  is  expressed ;  that  unless  restrained  by  their  charters  they  have 
the  power  to  deal  precisely,  in  carrying  out  the  corporate  purposes, 
as  individuals  seeking  to  accomplish  the  same  ends ;  that  they  may 
'resort  to  any  means  that  would  be  necessary  and  proper  for  an  indi- 
vidual in  executing  the  same,  unless  they  be  prohibited  by  the  terms 
of  their  charters  or  some  public  law  from  so  doing ; '  that  while,  in  re- 
gard to  their  express  powers,  the  grants  are  construed  most  liberally 


§  262  CLASSES   OF   CORPORATE   POWERS.  933 

in  favor  of  the  state  and  most  strictly  against  the  corporation,  yet  in 
regard  to  incidental  powers  neither  strict  nor  liberal,  but  only  reason- 
able, rules  of  construction  are  applied ;  that  corporations  may  so  far 
develop  and  extend  their  operations  as  to  engage  in  matters  not  pri- 
marily contemplated  by  their  founders,  provided  these  matters  be 
fairly  within  their  scope,  and  provided,  also,  that  in  so  developing  and 
extending  their  undertakings  they  employ  direct,  and  not  indirect, 
means ;  that  different  rules  of  construction  are  to  be  applied  to  char- 
ters of  corporations  organized  under  special  acts  and  those  organized 
under  a  general  law,  the  greater  strictness  of  interpretation  being  em- 
ployed in  dealing  with  the  latter;  that  'necessary,*  when  used  in  de- 
fining the  powers  of  corporations,  does  not  mean  what  is  simply  in- 
dispensable, but  also  what  is  useful,  convenient  and  proper  to  carry 
into  effect  the  franchises  granted,  i  Spelling  on  Corp.,  §§  68,  73, 
75,  and  cases  cited;  Green's  Brice's  Ultra  Vires,  pp.  66,  71,  73,  75, 
87,  91,  and  cases  cited;  Curtis  v.  Leavitt,  15  N.  Y.  9;  Union  Bank 
V.  Jacobs,  6  Humph.  525;  Railroad  Co.  v.  Berks  County,  6  Pa.  St. 
70;  P.  &  S.  R.  Co.  V.  Lewis,  33  Pa.  St.  33;  New  England  Fire 
and  Marine  Ins.  Co.  v.  Robinson,  25  Ind.  541 ;  Brown  v.  Winnisim- 
met  Co.,  II  Allen  326;  Old  Colony  R.  Co.  v.  Evans,  6  Gray  25; 
McCulloch  V.  Maryland,  4  Wheat.  316;  State  v.  Hancock,  35  N.  J. 
L.  537;  Crawford  v.  Longstreet,  43  N.  J.  L.  328  ;  Ellerman  v.  Rail- 
way Co.,  49  N.  J.  Eq.  217;  2  Cook  Stockholders  (3d  ed.),  §  681." 
See,  also,  Madison,  etc.,  Co.  v.  Watertown,  etc.,  Co.,  5  Wis.  173, 
and  Clark  v.  Farrington,  11  Wis.  321. 

In  the  case  of  Curtis  v.  Leavitt,  15  N.  Y.  9,  it  was  held  that  cor- 
porations, along  with  their  specific  powers,  take  all  the  reasonable 
means  of  execution,  all  that  are  convenient  and  adapted  to  the  end  in 
view;  that  the  corporation  has  a  liberty  of  choice  amongst  those 
means,  and  that  if  in  the  exercise  of  such  liberty  an  intelligent  good 
faith  is  used,  then  the  power  to  select  the  means  adopted  can  not  be 
called  in  question. 

In  State  v.  Hancock,  35  N.  J.  L.  537,  it  was  said  by  Chief  Justice 
Beasley:  "Power  necessary  to  a  corporation  does  not  mean  simply 
power  which  is  indispensable.  Such  phraseology  has  never  been  in- 
terpreted in  so  narrow  a  sense.  There  are  a  few  powers  which  are, 
in  the  strict  sense,  absolutely  necessary  to  those  artificial  persons,  and 
to  concede  to  them  powers  only  of  such  a  character,  while  it  might  not 
entirely  paralyze,  would  very  greatly  embarrass  their  operations. 
Such  in  similar  cases  has  never  been  the  legal  acceptance  of  this  term. 
A  power  which  is  obviously  appropriate  and  convenient  to  carry  into 
effect  the  franchise  granted  has  always  been  deemed  a  necessary  one." 
And  further  said:  "The  term  comprises  a  grant  of  the  right  to  use  all 
the  means  suitable  and  proper  to  accomplish  the  end  which  the  legis- 
lature had  in  view  at  the  time  of  the  enactment  of  the  charter." 

N'ote.  (1)  Implied  powers.  1825,  The  Banks  v.  Poitiaux,  3  Rand.  (Va.) 
136,  15  Am.  Dec.  706;  1831,  Attorney-General  v.  Stevens,  1  Saxton  Ch.  (N- 
J.)  369,  22  Am.  Dec.  526;  1840,  Commercial  Bank  v.  Newport  Mfg.  Co.,  1  B. 
Men.  (Kv.)  13,  35  Am.  Dec.  171 ;   1848,  Mclntire  v.  Preston,  5  Gil.  (111.)  48, 


934      THE   PEOPLE   V.  THE    PULLMAN'S   PALACE   CAR  CO.       §  262 

48  Am.  Dec.  321;  1852,  State  v.  Comin'rs,  3  Zabr.  CS.  J.)  510,  57  Am.  Dec. 
409;  1853,  Southern  Life  Ins.  &  T.  Co.  v.  Lanier,  5  Fla.  110,  58  Am.  Dec.  448; 
1853,  Smith  v.  Nashua,  etc.,  R.  Co.,  27  N.  H.  86,  94,  59  Am.  Dec.  364;  1859, 
Philadelphia,  etc.,  R.  v.  Lewis,  33  Pa.  St.  33,  75  Am.  Dec.  574;  1859,  Hope 
Mut.  Life  Ins.  Co.  v.  Weed,  28  Conn.  51,  63;  1860,  Miles  v.  Gleason,  11  Wis. 
470,  78  Am.  Dec.  721;  1860,  Downie  v.  White  &  Hoover,  12  Wis.  174,  176,  78 
Am.  Dec.  730,  731;  1862,  Bardstown,  etc.,  R.  Co.  v.  Metcalf,  4  Metcf.  (Ky.) 
199,  81  Am.  Dec.  541;  1863,  Olcott  v.  Tioga  R.  Co.,  27  N.  Y.  546,  84  Am.  Dec. 
298;  1865,  Brown  V.  Winnissimmet,  11  Allen  (Mass.)  326,334;  1867,  Cleve- 
land, etc.,  R.  Co.  V.  Speer,  56  Pa.  St.  325,  94  Am.  Dec.  84;  1867,  Pixley  v. 
Western  Pac.  R.  Co.,  33  Cal.  183,  91  Am.  Dec.  623;  1871,  State  v.  Hancock,  35 
N.  J.  L.  537,  545;  1877,  Low  v.  Central  Pac.  R.,  52  Cal.  63,  28  Am.  Rep.  629; 
1878,  Deringer  v.  Deringer,  5  Houst.  (Del.)  416,  1  Am.  St.  Rep.  150;  1880, 
Attorney-General  v.  Great  East.  R.  Co.,  L.  R.  5  App.  473;  1883,  Liebke  v. 
Knapp,  79  Mo.  22,  49  Am.  Rep.  212;  1884,  London  Finan.  Assn.  v.  Kelk,  L. 
R.,  26  Ch.  Div.  107;  1885,  Graber  v.  Washington,  etc.,  R.  Co.,  92  N.  C.  1; 
1885,  Sutro  Tunnel  Co.  v.  Segregated  B.  M.  Co.,  19  Nev.  121 ;  1887,  Elevator 
Co.  V.  Memphis,  etc.,  R.  Co.,  85  Tenn.  703,  4  Am.  St.  Rep.  798;  1889,  People 
V.  Chicago,  etc.,  T.  Co.,  130  111.  268,  17  Am.  St.  Rep.  319;  1890,  Killingsworth 
V.  Portland  Trust  Co.,  18  Ore.  351,  17  Am.  St.  Rep.  737;  1891,  Ellerman  v. 
Chicago  Jc.  R.  Co.,  49  N.  J.  Eq.  217;  1892,  Richeheu  Hotel  Co.  v.  Internat'l 
Mill  En.  Co.,  140  III.  248,  33  Am.  St.  Rep.  234;  1894,  Fort  Worth  City  v. 
Smith  Bridge  Co.,  151  U.  S.  294,  44  Am.  &  E.  C.  C.  604;  1894,  Wheeler  Os- 
good, etc.,  Co.  v.  Everett  L.  Co.,  14  Wash.  630;  1895,  B.  S.  Green  Co.  v. 
Blodgett,  159  111.  169,50  Am.  St.  Rep.  146;  1895,  Northside  R.  Co.  v.  Worth- 
ington,  88  Texas  562,  53  Am.  St.  Rep.  778,  n.  789;  1895,  Jacksonville,  etc.,  R. 
Co.  v.  Hooper,  160  U.  S.  514;  1896,  Bath  Gas  Light  Co.  v.  Claffv,  151  N.  Y. 
24;  1897,  Winterfield  v.  Cream  Brewing  Co.,  96  Wis.  239;  1897',  MaJone  v. 
Lancaster  L.  Co.,  182  Pa.  St.  309;  1898,  Nicollet  Nat'l  Bank  v.  Frisk-Turner 
Co.,  71  Minn.  413,  70  Am.  St.  334;  1899,  Central  Ohio  Natural  Gas  Co.  v.  Cap- 
ital City  Dairy  Co.,  60  Ohio  St.  96 ;  1899,  Parkman  Sugar  Co.  v.  Bank,  etc.,  Co., 
60  Kan.  474,  57  Pac.  Rep.  126;  1899,  State  v.  Newman,  51  La.  Ann.  833,  72 
Am.  St.  Rep.  476;  1899,  Trenton  Potteries  Co.  v.  Oliphant,  58  N.  J.  Eq.  507, 
46  L.  R.  A.  255. 
(2)  Rules  of  construing-  corporate  charters. 

1.  The  cardinal  rule  here,  as  in  all  cases,  is  to  ascertain  the  legislative  in- 
tent, and  give  it  full  effect.  1836,  Middle  Bridge  Proprietors  v.  Brooks,  13 
Maine  391,  29  Am.  Dec.  510;  1846,  Enfield  T.  B.  Co.  v.  H.  &  N.  R.  Co.,  17 
Conn.  454,  44  Am.  Dec.  556;  1848,  Mayor,  etc.,  v.  B.  &  O.  R.Co.,  6  Gill  (Md.) 
288,  48  Am.  Dec.  531 ;  1854,  Boston  &  L.  R.  Co.  v.  Salem  &  L.  R.  Co.,  2  Gray 
(68  Mass.)  1;  1855,  Straus,  etc.,  v.  Eagle  Ins.  Co.,  5  Ohio  State  59.  61 ;  1858, 
State  V.  Passaic  T.  P.  Co.,  27  N.  J.  Law  217;  1859,  Pennock  v.  Coe,  23  How. 
(64  U.  S.)  117;  1859,  State  v.  Noves,  47  Maine  189;  1860,  Hartford  Bridge  Co. 
V.  Union  Ferry  Co.,  29  Conn.  210;  1862,  Moran  v.  Miami  Co.  Comm'rs,  2 
Black  (67  U.  S.)  722;  1869,  Home  of  Friendless  v.  Rouse,  8  Wall.  (75  U.  S.) 
430;  1887,  Lawrence  v.  Morgan,  etc.,  Co.,  39  La.  Ann.  427,  4  Am.  St.  Rep. 
265;  1888,  West  Branch,  etc.,  Co.  v.  Lumber,  etc.,  Co.,  121  Pa.  St.  143,6  Am. 
St.  Rep.  766. 

2.  With  the  exceptions  noted  below,  the  language  granting  corporate  pow- 
ers should  neither  be  construed  strictly  nor  liberally,  but  according  to  its  fair 
and  natural  import,  with  reference  to  the  purposes  and  objects  of  the  corpo- 
ration ;  the  whole  law  should  be  considered,  and  the  words  given  their  ordi- 
nary meaning,  unless  custom  or  usage  has  clearly  given  them  a  different  one. 
1846,  Enfield  T.  B.  Co.  v.  H.  &  N.  R.  Co.,  17  Conn.  454,  44  Am.  Dec.  531; 
1853,  Belleville,  etc.,  R.  Co.  v.  Gregory,  15  111.  20,  58  Am.  Dec.  589;  1855,. 
Straus  V.  Eagle  Ins.  Co.,  5  Ohio  State  59;  1859,  Dexter  Lime-Rock  Co.  v. 
Dexter,  6  R.  I.  353;  1860,  Downing  v.  Mt.  Washington  R.  Co.,  40  N.  H. 
230;  1865,  The  Binghamton  Bridge,  3  Wall.  (70  U.  S.)  51;  1865,  Brown  v. 
Winnisiramet  Co.,  11  Allen  (Mass.)  326,  334;  1876,  State  v.  Fla.  Cent.  R.  Co., 
15  Fla.  690,  699;  1878,  Whitaker  v.  Canal  Co.,  87  Pa.  St.  34,  37;  1880,  Atty.- 
Gen'l  v.  Great  East.  R.  Co.,  L.  R.,  5   App.  473;  1880,  Fairchild  v.  Masonic 


§  262  CLASSES    OF   CORPORATE   POWERS.  935 

Hall  Assn.,  71  Mo.  526;  1884,  National  Bank  v.  Continental  L.  Ins.  Co.,  41 
Ohio  St.  1,  13;  1891,  Ellerman  v.  Chicago  Jet.  R.  Co.,  49  N.  J.  Eq.  217; 
1892,  Riker  v.  Leo,  133  N.  Y.  619,  524;  1895,  Jacksonville,  etc.,  R.  Co.  v. 
Hooper,  160  U.  S.  514,  523 ;  1896,  Wheeler  v.  Everett  Land  Co.,  14  Waah. 
630,  633;  1900,  Inter-Ocean  Pub.  Co.  v.  Associated  Press,  184  111.  438,  75  Am. 
St.  Rep.  184. 

3.  The  enumeration  of  certain  powers  and  privileges,  by  implication  ex- 
cludes all  other  unnecessAry  powers:  1818,  People  v  Utica  Ins.  Co.,  15  Johns. 
(N.  Y.)  358,  383;  1825,  N.  Y.  F.  Ins.  Co.  v.  Ely,  5  Conn.  560,  572,  13  Am.  Dec. 
100;  1831,  Life,  etc.,  Ins.  Co.  v.  Mech.  F.  I.  Co.,  7  Wend.  (N.  Y.)  31 ;  1850, 
Perrine  v.  Ches.  &  O.  Canal  Co.,  9  How.  (50  U.  S.)  172,  183;  1852,  Talmage 
V.  Pell,  7  N.  Y.  328,  345;  1875,  Ashbury  R.,  etc.,  Co.  v.  Riche,  7  H.  L.  Rep. 
653;  1888.  State  v.  Atchison,  etc.,  R.  Co.,  24  Neb.  143,  8  Am.  St.  Rep.  164; 
1889,  Case  v.  Kelly,  133  U.  S.  21,  26. 

4.  While  the  rule  of  statutory  construction  that  general  words  following 
special  words  shall  extend  to  and  include  only  things  of  a  nature  similar  to 
.those  specially  mentioned,  is  applied  in  some  cases  to  the  construction  of  cor- 
porate charters:  1875,  Ashbury  R.,  etc.,  Co,  v.  Riche,  L.  R.  7  H.  L.  Rep.  653; 
1876,  Navigation  Co.  v.  County  of  Galveston,  45  Tex.  272,  290;  1894,  State  v. 
International  Inv.  Co.,  88  Wis.  512,  43  Am.  St.  Rep.  920;  yet  it  does  not  seem 
to  be  followed  in  other  cases.  1881,  Wells  F.  &  Co.  v.  N.  P.  R.  Co.,  23  Fed. 
Rep.  469,  474;  1889,  Brown  v.  Corbin,  40  Minn.  508;  1889,  National  Bank  v. 
Texas  Inv.  Co.,  74  Tex.  421,  434;  1894,  State  v.  Corkin,  123  Mo.  56. 

5.  When  the  question  is  one  betM'een  the  state  and  the  corporation,  or  when 
the  public  interest  is  involved,  "All  rights  which  are  asserted  against  the  state 
must  be  clearly  defined,  and  not  raised  by  inference  or  presumption  ;  and  if 
the  charter  is  silent  about  a  power  it  does  not  exist.  If  on  a  fair  reading  of 
the  instrument  reasonable  doubts  arise  as  to  the  proper  interpretation  to  be 
given  to  it,  those  doubts  are  to  be  solved  in  favor  of  the  state;  and  where  it 
IS  susceptible  of  two  meanings,  the  one  restricting  and  the  other  extending 
the  powers  of  the  corporation,  that  construction  is  to  be  adopted  which  works 
the  least  harm  to  the  state." — Davis,  J.,  in  The  Binghamton  Bridge,  3  Wall. 
(70  U.  S.)  51  (1865).    This  rule  is  applied  in 

(a)  Cases  where  the  state  restricts  its  own  action,  as  in  exemptions  from 
taxation:  1830,  Providence  Bank  v.  Billings,  4  Pet.  (29  U.  S.)  514;  1861, 
Jefferson  Bank  v.  Skelly  1  Black  (66  U.  S.)  436;  1878,  Railroad  Co.  v.  Gaines, 
97  U.  S.  697;  1881,  Bank  v.  Tennessee,  104  U.  S.  493;  1885,  Chesapeake,  etc., 
R.  Co.  v.  Miller,  114  U.  S.  176;  1892,  Wilmington,  etc.,  R.  Co.  v.  Alsbrook, 
146  U.S.  279;  1896,  Bank  of  Commerce  v.  Tennessee,  161  U.  S.  134;  1899, 
Citizens'  Sav.  Bank  v.  Owensboro,  173  U.  S.  636,  10  Am.  &  E.  C.  C.  N.  S.  540. 

See  note,  supra,  p.  749. 

(6)  Cases  in  which  an  exclusive  privilege  or  monopoly  is  claimed:  1837, 
Charles  River  Bridge  v.  Warren  Bridge,  11  Pet.  (36  U.  S.)  420;  1883,  Geoi^ia, 
etc.,  R.  Co.  V.  Smith,  70  Ga.  694;  1885,  Birmingham,  etc.,  R.  Co.  v.  Birming- 
ham St.  R.  Co.,  79  Ala.  465,  58  Am.  Rep.  615;  1888,  Rockland  Water  Co.  v. 
Camden,  etc.,  Co.,  80  Maine  544;  1889,  Syracuse  Water  Co.  v.  Syracuse,  116 
N.  Y.  167;  1890,  State  v.  Hamilton,  47  Ohio  St.  52;  1890,  Indianapolis 
Cable,  etc.,  Co.  V.  Citizens,  etc.,  R.,  127  Ind.  369;  1891,  Stein  v.  Bienville 
Water  Imp.  Co.,  141  U.  S.  67;  1895,  Pearsall  v.  Great  Northern  R.  Co.,  161 
U.  S.  646,  664 ;  1900,  Adirondack  R.  Co.  v.  New  York,  176  U.  S.  336. 

(c)  Cases  in  derogation  of  common  right,  as  in  the  appropriation  of  private 
property  under  eminent  domain  proceedings,  or  erecting  nuisances,  etc. : 
1848,  Moorehead  v.  Little  Miami  R.  Co.,  17  Ohio  340;  1856,  Edward  v.  Law- 
renceburgh,  etc.,  R.  Co.,  7  Ind.  711;  1860,  Downing  v.  Mt.  Washington  R. 
Co.,  40  N.  H.  230;  1871,  N.  Y.,  etc.,  R.  Co.  v.  Kip,  46  N.  Y.  546,  7  Am.  Rep. 
385;  1878,  Fertilizing  Co.  v.  Hyde  Park,  97  U.  S.  659;  1883,  Alabama,  etc., 
R.  Co.  v.  Gilbert,  71  Ga.  591 ;  1887,  Snell  v.  Buresh,  123  111.  151. 

(d)  Cases  in  derogation  of  common  law :  1872,  Moyerv.  Penn.  Slate  Co.,  71 
Pa.  St.  293. 

(e)  Ca.ses  directly  interfering  with  the  use  of  franchises  already  granted, 
as  one  railroad  encroaching  upon  the  right  of  way  of  another,  or  of  a  turn- 
pike or  canal :  1878,  Boston,  etc.,  R.  Co.  v.  Lowell,  124  Mass.  368;  1880,  Penn* 


936      THE   PEOPLE    V.  THE    PULLMAN'S    PALACE    CAR  CO,       §  262 

Bylvania  R.  Co.'s  Appeal,  93  Pa.  St.  160;  1888,  Barre  R.  Co.  v.  Montpelier,  61 
Vt.  1,  4  L.  R.  A.  785;  1888,  Appeal  of  Sharon  R.,  122  Pa.  St.  533,  9  Am.  St. 
Rep.  133;  1891,  Cincinnati,  etc.,  R.  Co.  v.  Belle  Centre,  48  Ohio  St.  273. 

6.  General  and  special  laws  under  which  corporations  are  formed:  There 
seems  to  be  some  conflict  of  expression  as  to  rules  of  construing  charters  un- 
der general  laws  as  compared  with  the  rules  when  the  corporation  is  created 
by  a  special  act.  Granger,  C.  J.,  in  National  Bank  of  Wash.  v.  Ins.  Co.,  41 
Ohio  St.  1,  on  p.  11  (1884),  says:  "A  radical  change  has  occurred  in  the  rela- 
tion of  corporations  to  the  state  and  the  people.  *  *  ♦  Special  charters 
granted  to  persons  named  *  *  *  gave  special  powers  and  rights,  that  as 
a  rule  were  beyond  legislative  control ;  only  in  the  rare  cases  where  the  power 
to  amend,  alter  or  repeal  was  expressly  reserved  could  the  legislature  modify, 
limit,  or  take  away  power  once  granted.  In  those  days  a  corporation  was  a 
monopoly.  It  was  necessary  to  strictly  construe  the  grants  made  in  order  to 
protect  the  interests  of  the  state  and  of  people  generally.  But  now  the  legis- 
lature has  far  more  power  over  corporations  than  over  individuals.  It  may 
alter  or  repeal  all  acts  granting  corporate  power.  *  *  *  There  is  no 
longer  reason  to  hesitate  to  apply  to  the  language  of  acts  of  incorporation  the 
same  rules  of  interpretation  as  applied  to  like  words  in  any  contract  or  stat- 
ute." 

On  the  other  hand,  in  regard  to  corporations  formed  under  general  laws, 
Justice  Miller,  in  Oregon  R.  Co.  v.  Oregonian  R.  Co.,  130  U.  S.  1,  on  p.  26 
(1888),  says:  "If  the  articles  of  association  *  *  *  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  *  *  *  conferring 
such  powers  on  the  corporations,  they  would  be  subject  to  the  rule  above 
stated  (strict  construction  in  favor  of  the  state  and  against  the  grantee)  and 
to  a  rigid  construction  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."  To  the  same  effect 
is,  1896,  Ross-Meehan  Brake  Shoe  F.  Co.  v.  Southern  M.  I.  Co.,  72  Fed.  Rep. 
957. 


y^u/W 


Title  n.     Particular  Powers  and  Liabilities. 


CHAPTER  13. 

PARTICULAR    POWERS. 
ARTICLE    I.       PERPETUAL    SUCCESSION. 

Sec.  263.  See  State  v.  Payne,  129  Mo.  468,  supra,  p.  830;  also, 
Warner  v.  Beers,  supra,  p.  2,  and  Thomas  v.  Dakin,  supra, 
p.  19. 


ARTICLE    II.        NAME. 


Sec.  264.  See,  supra,  chapter  9.  Smith  v.  Tallassee  Branch, 
etc.,  30  Ala.  650,  supra,  p.  817;  Newby  v.  Oregon  Central 
R.,  Deady  609,  supra,  p.  819;  Armington  v.  Palmer,  42 
Atl.  Rep.  (R.  I.)  308,  supra,  p.  820.     Note,  supra,  p.  823. 


ARTICLE    III.       POWER    TO   CONTRACT. 

Sec.  265.  {A)  As  to  form. 

I.  In  general:  "In  determining  whether  a  contract  may 
be  enforced  against  a  corporation,  three  things  are  to  be  con- 
sidered :  First,  did  the  corporation  have  the  power  to  enter 
into  such  a  contract?  Second,  was  the  contract  entered  into 
by  a  duly  authorized  agent  of  the  corporation?  Third,  was 
the  contract  drawn,  signed,  and  sealed  in  a  form  which  binds 
the  corporation? 

"A  corporation  may  be  bound  by  a  contract  which  is  exe- 
cuted in  any  of  the  following  ways :  by  a  written  instrument 
sealed  with  the  corporate  seal,  and  either  with  or  without  the 

(937) 


938  FRANKLIN  CO.  V.  LEWISTON  INST'N  FOR  SAVINGS.      §  266 

corporate  name  signed  thereto;  by  an  unsealed  written  in- 
strument signed  with  the  corporate  name ;  by  a  written  record 
of  a  resolution  of  its  directors ;  by  an  unwritten  resolution  of 
its  directors ;  by  the  oral  agreements  of  its  authorized  agents ; 
or  by  ratifying,  acquiescing  in,  or  accepting  the  benefits  of 
contracts  made  in  its  name  by  unauthorized  agents." — Cook 
Corporations,  4th  ed.,  part  of  §§  704  and  721.  See  also, 
supra,  §§  190,  191,  193,  194,  228-238. 

2.    As  to  seal.       See,  infra,  Art.  VII.,  p.  1136. 


Sec.  266.     (^)  As  to  subject-matter. 

(i)    In  general.      See,  supra,  §§  258—262. 


Sec.  267.     (2)    Contract  debts  and  borrow  money. 

See  Barry  V.  Merchants'   Exchange  Co.,  i  Sandf.   Ch.  (N.  Y.) 
280,  supra,  p.  766. 

Note.  See,  also,  1889,  Wright  v.  Hughes,  119  Ind.  324, 12  Am.  St.  Rep.  412 ; 
1890,  Woolverton  v.  Taylor,  132  111.  197,  22  Am.  St.  Rep.  521 ;  1890,  Davis  v. 
Jackson,  152  Mass.  58.     See  note  at  end  of  next  case. 


Sec.  268.    Same. 

FRANKLIN  COMPANY  v.  LEWISTON  INSTITUTION  FOR  SAVINGS.* 

1877.     In  the  Supreme  Judicial   Court  of  Maine.     68  Maine 

Rep.  43-49. 

[In  1875  the  Savings  Company  subscribed  for  $50,000  of  the  cap- 
ital stock  of  a  manufacturing  company,  having  no  money  with  which 
to  pay  for  the  same.  The  Franklin  Company  agreed  to  pay  the  sum, 
take  the  notes  of  the  Savings  Company  for  the  amount,  and  hold  the 
stock  as  security.  Notes  for  this  amount  were  duly  given,  and  the 
stock  was  issued  directly  to  the  Franklin  Company  as  collateral,  but 
not  to  the  Savings  Company,  or  with  its  knowledge.  The  Savings 
Company  failed  in  1876,  and  commissioners  were  appointed  to  pass 
upon  the  claims  presented ;  the  notes  and  a  claim  for  $50,000  for 
money  paid  out  at  the  request  of  the  Savings  Company  were  pre- 
sented by  the  Franklin  Company  and  rejected  by  the  commissioners; 
the  validity  of  the  claims  is  the  question  involved.] 

Walton,  J.     *     *     *     The  first  question  is  whether  it  is  compe- 

'  Statement  abridged  and  part  of  opinion  omitted. 


§  268  POWER   TO    BORROW   MONEY.  939 

tent  for  the  trustees  of  a  savings  bank,  at  a  time  when  there  are  no 
funds  in  the  bank  for  investnaent,  to  agree  to  take  shares  in  a  manu- 
facturing corporation,  and  thereby  create  a  debt  binding  upon  the  bank. 

We  think  not.  It  is  familiar  law  that  a  corporation  possesses  such 
powers,  and  such  only  as  the  law  of  its  creation  confers  upon  it.  The 
rule  is  stated  with  great  uniformity. 

[After  quoting  to  this  effect  from  several  cases  proceeds :]  It  would 
seem,  therefore,  upon  principle  as  well  as  authority,  that  it  is  not 
within  the  authority  of  the  trustees  of  a  savings  bank  to  invest  its 
funds  in  the'  stock  of  manufacturing  corporations,  unless  expressly 
authorized  so  to  do  by  its  charter  or  the  public  laws  of  the  state. 

But  we  do  not  rest  our  decision  upon  this  ground.  We  rest  it 
upon  the  broader  ground  that  it  is  not  competent  for  the  trustees  of  a 
savings  bank  to  purchase  on  credit  property  of  any  kind  not  needed 
for  immediate  use,  or  the  investment  of  existingf  funds.  No  such 
power  is  expressly  conferred  upon  them,  nor  do  we  think  it  can  be 
sustained  as  an  incidental  power. 

It  is  suggested  that  it  may  be  convenient  in  this  way  to  provide  in 
advance  for  the  investment  of  funds  that  may  afterward  come  into  the 
possession  of  the  bank.  We  think  the  creation  of  debts  by  corpora- 
tions or  individuals,  for  no  other  purpose  than  to  provide  a  ready  way 
to  dispose  of  future  acquisitions,  a  proceeding  of  very  questionable 
convenience  ;  that  in  the  great  majority  of  cases  it  would  be  likely  to 
prove,  as  it  did  in  this  case,  very  inconvenient.  But  it  is  a  sufficient 
answer  to  say  that  the  law  imposes  no  duty  upon  the  trustees  of  sav- 
ings banks  to  provide  for  the  investment  of  future  funds  or  future  de- 
posits. Their  whole  duty  is  performed  when  they  have  provided  safe 
investments  for  the  funds  already  committed  to  their  care,  To  hold 
that  they  may  create  debts  binding  upon  existing  depositors,  for  the 
benefit  of  future  depositors,  whose  money  after  all  may  never  be  com- 
mitted to  their  care,  would  be  a  doctrine  as  startling  as  it  would  be 
unprecedented. 

[The  court  further  held  that  the  Franklin  Company,  having  know- 
ingly participated  in  the  illegal  transaction,  could  not  claim  the  priv- 
ileges of  a  bona  fide  holder  of  the  notes,  and  the  Savings  Company 
having  received  no  benefit  from  the  transaction  was  not  estopped  to 
set  up  the  defense  of  ultra  vires. '\ 

Claim  not  allowed. 

Note. — A  corporation  can  not  borrow  money  for  the  purpose  of  purchasing 
its  own  shares:  1894,  Adams  &  W.  Co.  v.  Deyette,  5  So.  Dak.  418,  49  Am. 
St.  Rep.  887;  1896,  Adams  &  W.  Co.  v.  Deyette,  8  So.  Dak.  119,  59  Am. 
St.  Rep.  751. 

The  statutes  frequently  fix  a  limit  as  to  the  amount  that  a  corporation  is 
allowed  to  borrow ;  in  such  a  case  the  courts  hold  strictly  that  it  has  no  power 
to  exceed  those  limits,  and  an  attempt  to  do  so  can  be  restrained :  1884, 
Wenlock  V.  River  Dee  Comm'rs,  10  App.  Cas.  354;  1889,  Commonwealth's 
Appeal,  24  W.  N.  C.  (Pa.)  530;  1889,  Commw.  v.  Lehigh  Ave.  R.  Co.,  129  Pa. 
St.  405;  1893,  First  Nat'l  Bank  v.  K.  M.  Co.,  95  Ky.  97.  One  who  loans  a  cor- 
poration money  in  excess  of  the  authorized  limit  can  not  collect  the  excess, 
though  he  may  collect  up  to  the  limit.  1874,  Osippee,  etc.,  Mfg.  Co.  v.  Can- 
ney,  54  N.  H.  295;  1878,  DeCamp  v.  Dobbins,  29  N.  J.  Eq.  36;  1879,  Humphrey 


940  BRADBURY  V.  BOSTON  CANOE  CLUB.        §  269 

V.  Patron's  M.Assoc.,  50  Iowa  607;  1881,  Auerbachv.LeSeuerM.  Co.,  28  Minn. 
291,  41  Am.  Rep.  285;  1886,  Garrett  v.  Burlington,  etc.,  Co.,  70  Iowa  697,  59 
Am.  Rep.  461;  1891,  Fidelity,  etc.,  Co.  v.  West.  Pa.  R.,  138  Pa.  St.  494 ;  1893, 
First  Nat'l  Bank  v.  K.  M.  Co.,  95  Ky.  97 ;  1893,  Merchants'  Nat'l  Bank  v.  C.  G. 
L.  Co.,  159  Mass.  505 ;  1895,  Kraniger  v.  People's  B'ld'g  Soc,  60  Minn.  94 ;  1896, 
Oswald  V.  Minn.  T.  Co.,  65  Minn.  249;  1897,  Sioux  City,  etc.,  Co.  v.  Trust 
Co.,  82  Fed.  Rep.  124. 

And  it  seems  that  one  who,  in  good  faith,  loans  money  to  a  corporation 
after  the  corporation  has  already  borrowed  up  to  the  limit,  can  recover  if  he 
had  no  knowledge  that  the  limit  had  been  reached.  1845,  Stoney  v.  Am., 
etc.,  Co.,  11  Paige  Ch.  (N.  Y.)  635;  1874,  Osippee,  etc.,  Co.  v.  Canney,  54  N. 
H.  295;  1881,  Auerbach  v.  Le  Seuer  M.  Co.,  28  Minn.  291,  41  Am.  Rep.  461; 
1886,  Garrett  v.  Burlington,  etc.,  Co.,  70  Iowa  697,  69  Am.  Rep.  461;  1890, 
Allis  V.  Jones,  46  Fed.  Rep.  148. 


Sec.  269.     (3)    Negotiable  instruments. 

BRADBURY  v.  BOSTON  CANOE  CLUB. 

1891.     In  the  Supreme  Judicial  Court  of  Massachusetts.     153 

Mass.  Rep.  77-8. 

Holmes,  J.  This  is  an  action  upon  a  promissory  note  for  $150 
and  interest,  given  by  the  defendant  to  the  plaintiff  for  money  lent  to 
it  by  the  plaintiff  to  be  used  in  building  a  club-house.  There  is  a  sec- 
ond count  for  money  lent.  At  a  meeting  duly  called  the  corporation 
passed  a  vote  authorizing  its  treasurer  to  borrow  money  in  terms  suffi- 
ciently 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.  Moreover,  it  would  be 
impossible  to  argue  that  the  defendant  had  not  recognized  and  ratified 
the  act  of  its  treasurer  in  borrowing  from  the  plaintiff.  The  money 
was  received  by  the  corporation,  and  was  used  by  it  for  the  purpose 
mentioned.  The  only  question  for  us  is,  whether  the  corporation 
acted  illegally  in  borrowing  money  for  the  purpose  of  erecting  a  club- 
house upon  land  of  which  it  held  a  lease. 

The  defendant  is  a  corporation  formed  under  the  Public  Statutes, 
ch.  115,  §  2,  for  encouraging  athletic  exercises.  By  section  7  it  "may 
hold  real  and  personal  estate,  and  may  hire,  purchase,  or  erect  suita- 
ble buildings  for  its  accommodations,  to  an  amount  not  exceeding 
$500,000,"  etc.  We  are  of  opinion  that  under  these  words  the  de- 
fendant 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  purpose.  No  argument  is  needed  to  show  that  the  power  at  the 
end  of  section  7  to  receive  and  hold  in  trust  funds  received  by  gift  or  be- 
quest does  not  confine  the  corporations  to  that  mode  of  raising  it. 
Borrowing  money  is  a  usual  and  proper  means  of  accomplishing  what 
the  statute  expressly  permits.  See  Fay  v.  Noble,  12  Cush.  i,  18; 
Morville  v.  American  Tract  Society,  123  Mass.  129,  136;  Davis  v. 
Old  Colony  Railroad,  131   Mass.  258,  271,  275.     As  this  is  a  suffi- 


§270  POWER   AS  TO   NEGOTIABLE   INSTRUMENTS.  94I 

cient  reason  for  giving  the  plaintiff  judgment,  it  is  unnecessary  to 
consider  whether  there  are  not  others. 
Judgment  for  the  plaintiff. 

Note.    See  note  at  the  end  of  next  case. 


Sec.  270.    Same. 

UNION  BANK  v.  JACOBS.* 

1845.     In   the    Supreme   Court   of   Tennessee.     25   Tenn.    (6 
Humph.)  515,  Cooper's  Ed.,  389. 

[On  the  28th  day  of  September,  1841,  Jacobs,  as  president  of  the 
Hiwassee  Railroad  Company,  executed  a  note,  binding  that  company 
to  pay  to  said  Jacobs  the  sum  of  $5,641,  negotiable  and  payable  at 
the  branch  of  the  Union  Bank  at  Knoxville,  four  months  after  date. 
The  note  was  indorsed  by  Jacobs  to  Trautwine,  and  by  Trautwine  to 
the  Union  Bank,  and  delivered  to  the  president  and  directors  of  the 
bank,  arid  discounted  by  the  bank  for  the  benefit  of  the  Hiwassee 
company.  At  maturity,  the  note  was  protested,  and  suit  brought  by 
the  bank  against  Jacobs,  as  indorser,  in  the  circuit  court  of  Knox 
county. 

It  was  tried  by  Judge  Lucky  and  a  jury  at  the  February  term, 
1845.  He  charged  the  jury  that  the  Hiwassee  company  had  no 
power  to  borrow  money,  and  that  the  note  given  in  execution  of  a 
void  contract  was  null  and  void  also. 

The  jury  returned  a  verdict  for  the  defendant,  and  plaintiff  ap- 
pealed. 

The  railroad  company  was  created  with  all  the  rights  "necessary 
to  the  well  ordering  and  conducting  the  affairs  of  said  company;  and 
capable  in  law  of  purchasing,  accepting,  selling  and  conveying 
estates,  real,  personal  and  mixed,  to  the  end,  and  for  the  purpose  of 
facilitating  the  intercourse  and  transportation"  designated;  and  was 
"invested  with  all  the  powers  and  rights  necessary  for  the  building, 
constructing,  and  keeping  in  repair  of  a  railroad;"  and  the  directors 
"may  cause  to  be  made,  or  contract  with  others  for  making  of  said 
road  or  any  part  thereof."] 

TuRLEY,  J.  *  *  *  It  is  contended  against  the  plaintiff's  right 
to  recover  that  there  is  no  power  given,  either  expressly  or  by  neces- 
sary implication,  by  the  charter  to  the  Hiwassee  Railroad  Company, 
to  borrow  money  or  to  execute  promissory  notes;  and  that,  therefore, 
the  note  executed  and  indorsed  to  the  bank  is  void,  both  as  against  the 
maker  and  indorsers,  and  that  no  action  can  be  maintained  against  them 
thereon. 

*  Statement  abridged.    Arguments  and  part  of  opinion  omitted. 


942  UNION    BANK   V.    JACOBS.  §  2/0 

The  construction  of  the  powers  of  corporations  has  been  a  fruitful 
source  of  litigation,  both  in  the  courts  of  Great  Britain  and  the  United 
States.  In  the  earlier  cases  they  were  construed  with  great  strictness, 
and  a  stringent  rule  as  to  the  mode  of  exercising  them  enforced. 
Mr.  Story,  in  the  case  of  Bank  of  Columbia  v.  Patterson,  7  Cranch 
305,  says:  "Anciently  it  seems  to  have  been  held  that  corporations 
could  not  do  anything  without  deed.  13  Hen.  VIII,  12;  4  Hen.  VII, 
6 ;  7  Hen.  VII,  7,  9.  Afterwards,  the  rule  seems  to  have  been  relaxed, 
and  they  were  for  convenience  sake  permitted  to  act  in  ordinary 
matters  without  deed,  as  to  retain  a  servant,  cook,  or  butler  (Plow, 
91  ;  2  Saund.  395)  ;  and  gradually  this  relaxation  widened  to  embrace 
other  objects  (Bro.  Corp.,  51  ;  3  Salk.  191  ;  3  Lev.  107).  At  length, 
it  seems  to  have  been  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.  3  P.  Wms.  4  19.  And  courts 
of  equity,  in  this  respect,  seeming  to  follow  the  law,  have  decreed  a 
specific  performance  of  an  agreement  made  by  a  major  part  of  a  cor- 
poration, and  entered  in  the  corporation  books,  although  not  under 
the  corporate  seal.  i  Fonbl.  Eq.  305.  This  technical  doctrine  has 
in  more  modem  times  been  entirely  broken  down."  The  same  judge, 
in  continuation  in  the  same  case,  observes:  "The  doctrine  that  a  cor- 
poration could  not  contract  except  under  its  seal,  or,  in  other  words, 
could  not  make  a  promise,  if  it  had  ever  been  fully  settled,  must  have 
been  productive  of  great  mischief.  Indeed,  as  soon  as  the  doctrine 
was  established,  that  its  regularly  appointed  agents  could  contract  in 
their  name  without  seal,  it  was  impossible  to  support  it ;  for,  other- 
wise, the  party  who  trusted  such  contract  would  be  without  remedy 
against  the  corporation.  Accordingly,  it  would  seem  to  be  a  sound 
rule  of  law,  that  whenever  a  corporation  is  acting  within  the  scope  of 
the  legitimate  purposes  of  its  institution,  all  parol  contracts,  made  by 
its  authorized  agents,  are  express  promises  of  the  corporation ;  and 
all  duties  imposed  upon  them  by  law,  and  all  benefits  conferred  at 
their  request,  raise  implied  promises,  for  the  enforcement  of  which  an 
action  may  well  lie.  3  Brown  Ch.  262;  Doug.,  524;  3  Mass.  364; 
5  Mass.  89,  491  ;  6  Mass.  50."  Whatever  of  strictness  may  have 
existed  in  the  earlier  cases,  in  restricting  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  Ang.  &  A.  Corp.,  p.  192,  §  12,  it  is  said: 
"A  corporation  having  been  created  for  a  specific  purpose,  can  not 
only  make  no  contracts  forbidden  by  its  charter,  which  is,  as  it  were, 
the  law  of  its  nature,  but  in  general  can  make  no  contract  which  is 
not  necessary,  either  directly  or  incidentally,  to  enable  it  to  answer 
that  purpose.  In  deciding,  therefore,  whether  a  corporation  can 
make  a  particular  contract,   we   are   to   consider,   in  the  first  place, 


§  2/0  POWER    AS    TO    NEGOTIABLE   INSTRUMENTS.  943 

whether  its  charter,  or  some  statute  binding  upon  it,  forbids  or  per- 
mits 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  fulfill 
the  purpose  of  its  existence,  or  whether  the  contract  is  entirely  foreign 
to  that  purpose.  In  general^  an  express  authority  is  fiot  indispensa- 
ble to  confer  upon  a  corporation  the  right  to  become  drarwer^  indorser, 
or  acceptor  of  a  bill  of  exchange.,  or  to  become  a  party  to  any  other 
negotiable  paper.  It  is  sufficient  if  it  be  implied  as  the  usual  and 
proper  means  to  accomplish  the  purposes  of  the  charter.  Chit.  Bills 
(5th  ed.),  17-21;  Baily  Bills  (5th  ed.),  p.  69,  ch.  2,  §  7;  Story 
Bills  Exch.,  p.  94,  §  79.  In  the  case  of  Mum  v.  Commission  Co.,  15 
Johns.  52,  Spencer,  J.,  who  delivered  the  opinion  of  the  court,  says: 
"It  has  been  strongly  urged  that,  under  the  act  of  incorporating  this 
company,  they  could  neither  draw  nor  accept  bills  of  exchange. 
Their  power  is  undoubtedly  limited;  they  are  required  to  employ 
their  stock  solely  in  advancing  money,  when  required,  on  goods  and 
articles  manufactured  in  the  United  States,  and  the  sale  of  such  goods 
and  articles  on  commission.  The  acceptance  of  a  bill  is  an  engage- 
ment 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  accept- 
ance of  a  bill.  When  a  charter  or  act  of  incorporation  and  valid  stat- 
utory 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  neces- 
sary and  usual  means  to  effectuate  that  purpose."  Ang.  &  A.  Corp., 
p.  200,  §  3. 

Mr.  Story,  in  his  treatise  on  Bills  of  Exchange  (page  95),  speak- 
ing of  the  power  of  corporations  to  draw,  indorse  and  accept  bills  of 
exchange,  says:  "It  is  suflScient  if  it  be  implied  as  a  usual  and  appro- 
priate means  to  accomplish  the  objects  and  purposes  of  the  charter. 
But  when  the  drawing,  indorsing,  or  accepting  such  bills  is  obviously 
foreign  to  the  purposes  of  the  charter,  or  repugnant  thereto,  then  the 
act  becomes  a  nullity,  and  not  binding  on  the  corporation." 

In  the  case  of  People  v.  Utica  Ins.  Co.,  15  Johns.,  Thompson,  C. 
J.,  who  delivered  the  opinion  of  the  court,  says,  at  page  383,  "An 
incorporated  company  has  no  rights  but  such  as  are  specially  granted, 
and  those  that  are  necessary  to  carry  into  effect  the  powers  so 
granted. ' ' 

In  the  case  of  Mott  v.  Hicks,  a  quantity  of  wood  was  purchased 
for  the  president  and  directors  of  the  Woodstock  Glass  Company  by 
Whitehead  Hicks,  the  president  thereof,  for  which  he  executed  the 
promissory  note  of  the  company  at  six  months.  It  appears,  from  a 
reference  in  argument  to  the  charter  of  the  company,  that  there  was 
no  clause  authorizing  it  to  issue  bills  or  notes,  or  making  such,  if 
issued,  binding  and  obligatory  upon  the  company ;  yet  it  was  held  by 


944  UNION    BANK   V.    JACOBS.  §  270 

the  court  that  an  action  would  lie  against  the  corporation  upon  the 
note,  it  having  been  executed  by  its  legally  authorized  agent,  acting 
within  the  scope  of  the  legitimate  purposes  of  such  corporation,  i 
Cow.  513. 

In  the  case  of  Hay  ward  v.  Pilgrim  Soc,  21  Pick.  270,  it  was  held 
that  the  trustees  of  a  society  incorporated  for  the  purpose  of  building 
a  monument,  in  virtue  of  their  authority  to  manage  the  finances  and 
property  of  the  society,  were  held  competent  to  bind  the  society  by  a 
promissory  note  through  the  agency  of  their  treasurer. 

These  authorities  fully  establish  the  proposition,  that,  in  the  con- 
struction of  charters  of  corporations,  the  power  to  contract  and  the 
mode  of  contracting  is  not  limited  to  the  express  grant,  but  may  be 
extended  by  implication  to  all  necessary  and  proper  means  for  the  ac- 
complishment of  the  purposes  of  the  charter.  Now,  what  are  neces- 
sary and  proper  means?  Mr.  Story,  as  we  have  seen,  says  if  the 
means  are  usual  and  appropriate,  the  implication  of  power  arises. 
Story  Bills,  95. 

Chief  Justice  Marshall,  in  the  case  of  McCulloch  v.  State  of  Mary- 
land, 4  Wheat.  413,  says:  "But  the  argument  on  which  most  reli- 
ance is  placed,  is  drawn  from  the  peculiar  language  of  this  clause  of 
the  constitution.  Congress  is  not  empowered  by  it  to  make  all  laws 
which  may  have  relation  to  the  powers  conferred  on  the  government, 
but  such  only  as  may  be  necessary  and  proper  for  carrying  them  into 
execution.  The  word  'necessary'  is  considered  as  controlling  the 
whole  sentence,  and  as  limiting  the  right  to  pass  laws  for  the  execu- 
tion of  the  granted  powers  to  such  as  are  indispensable,  and  without 
which  the  power  would  be  nugatory.  That  it  excludes  the  choice  of 
means,  and  leaves  congress  in  each  case  that  only  which  is  most 
direct  and  simple.  Is  it  true  that  this  is  the  sense  in  which  the  word 
'necessary'  is  always  used .''  Does  it  always  import  an  absolute  phys- 
ical necessity,  so  strong  that  one  thing  to  which  another  may  be 
termed  necessary  can  not  exist  without  that  other.''  We  think  it  does 
not.  If  reference  be  had  to  its  use  in  the  common  affairs  of  the  world, 
or  in  approved  authors,  we  find  that  it  frequently  imports  no  more 
than  that  one  thing  is  convenient  or  useful  or  essential  to  another.  To 
employ  the  means  necessary  to  an  end,  is  generally  understood  as  em- 
ploying any  means  calculated  to  produce  the  end,  and  not  as  being 
confined  to  those  single  means,  without  which  the  end  would  be  en- 
tirely unattainable.  Such  is  the  character  of  the  human  mind  that  no 
word  conveys  to  it  in  all  situations  one  single  definite  idea,  and  noth- 
ing is  more  common  than  to  use  words  in  a  figurative  sense.  Almost 
all  compositions  contain  words  which,  taken  in  their  rigorous  sense, 
would  convey  a  meaning  different  from  that  which  is  obviously  in- 
tended. It  is  essential  to  just  construction  that  many  words  which 
import  something  excessive  should  be  understood  in  a  more  mitigated 
sense — in  that  sense  which  common  usage  justifies.  The  word  'nec- 
essary' is  of  this  description.  It  has  no  fixed  character  peculiar  to 
itself.  It  admits  of  all  degrees  of  comparison,  and  is  often  connected 
with  other  words,  which  increase  or  diminish  the  impression  the  mind 


§  2/0  POWER    AS    TO    NEGOTIABLE    INSTRUMENTS.  945 

receives  of  the  urgency  it  imports.  A  thing  may  be  necessary,  very 
necessary,  absolutely  or  indispensably  necessary.  To  no  mind  would 
the  same  idea  be  conveyed  by  these  several  phrases."  In  conclusion 
upon  this  subject,  he  says,  page  421,  same  case:  "We  admit,  as  all 
must  admit,  that  the  powers  of  the  government  are  limited,  and  that 
its  limits  are  not  to  be  transcended.  But  we  think  the  sound  con- 
struction of  the  constitution  must  allow  to  the  national  legislature  that 
discretion  with  respect  to  the  means  by  which  the  powers  it  confers 
are  to  be  carried  into  execution  which  will  enable  that  body  to  per- 
form the  high  duties  assigned  to  it  in  the  manner  most  beneficial  to 
the  people.  Let  the  end  be  legitimate,  let  it  be  within  the  scope 'of 
the  constitution,  and  all  means  which  are  appropriate,  which  are 
plainly  adapted  to  that  end,  which  are  not  prohibited,  but  consist  with 
the  letter  and  spirit  of  the  constitution,  are  constitutional." 

Now  if  this  be  true  doctrine  in  relation  to  the  constitution  of  the 
United  States,  surely  it  will  not  be  contended  that  a  more  stringent 
rule  will  be  applied  in  the  construction  of  the  powers  of  a  corpora- 
tion than  is  applied  in  the  construction  of  the  powers  of  congress  un- 
der the  constitution  of  the  United  States. 

To  apply  these  principles,  as  established  by  the  authorities  cited,  to 
the  case  under  consideration.  The  Hiwassee  Railroad  Company  is 
chartered  to  construct  a  railroad,  a  thing  of  itself  necessarily  involving 
a  heavy  expenditure  of  money;  but  in  addition  thereto  it  is  empowered 
to  sue  and  be  sued,  to  acquire  and  holdj  sell,  lease  and  convey  es- 
tates, real,  personal  and  mixed,  which  necessarily  involves  the  power 
of  making  contracts  for  the  same.  How  shall  these  contracts  be  made, 
both  for  the  construction  of  the  road  and  the  purchase  of  the  property  ? 
It  is  argued  that  the  capital  stock  of  the  company  is  the  only  means 
provided  for  the  payment,  and  that  no  other  can  be  resorted  to  for 
that  purpose ;  or,  in  other  words,  that  it  must  pay  cash  for  every  con- 
tract, for  that  no  power  is  given  by  which  it  may  contract  upon  time ; 
for  if  it  may  create  a  debt  of  necessary  consequence,  it  may  create 
written  evidences  of  that  debt,  and  these  may  be  either  promissory 
notes  or  bills  of  exchange.  It  is  true  that  the  capital  stock  of  the 
company  is  the  source  from  whence  an  ultimate  payment  of  the  debts 
of  the  company  must  be  made ;  but  to  hold  that  a  sufficient  amount 
of  this  stock  must  always  be  on  hand  to  pay  immediately  for  every  con- 
tract made  would  be  destructive  of  the  operations  of  the  company. 
By  the  provisions  of  the  charter  not  more  than  one-fourth  of  the  stock 
shall  be  called  for  in  any  one  year,  and  this  upon  thirty  days'  notice ; 
and  if,  within  thirty  days  after  such  notice,  the  amount  called  for  be 
not  paid,  the  company  is  authorized  to  take  steps  against  the  delin- 
quent stockholders  to  enforce  payment.  Now  it  is  obvious  that  it 
never  was  intended  that  all  the  stock  should  be  paid  in  before  the 
company  commenced  operations.  The  early  completion  of  the  road 
was  a  desirable  object  for  commercial  purposes,  and  it  can  be  pre- 
tended that  the  expenditures  of  the  company  were  to  be  limited  and 
restricted  to  the  amount  of  capital  actually  paid  in  by  the  stockhold- 

60— WiL.  Cases. 


946  UNION    BANK   V.    JACOBS.  §2/0 

ers,  and  that  under  no  circumstances  was  the  company  to  exceed 
them?  If,  upon  failure  of  the  means  on  hand,  the  stockholders  should 
neglect  to  pay  upon  a  proper  call,  are  the  works  to  be  suspended  un- 
til such  time  as  payments  could  be  enforced?  Are  the  persons  who 
may  have  done  work  for  it,  and  for  which  they  have  not  been  paid, 
to  wait  the  slow  process  of  the  law  before  they  can  receive  satisfac- 
tion ?  And  shall  the  company  not  be  permitted  to  use  its  credit  in 
such  emergency?  It  is  so  argued  for  the  defendant.  This  construc- 
tion of  the  charter  would  be  ruinous  in  its  consequences.  The  com- 
pany might  be  compelled  to  suspend  all  operations  at  a  time  when 
great  loss  would  result  from  deterioration  to  unfinished  work,  and  be 
greatly  injured  also  in  its  credit. 

The  restriction  contended  for  is  too  refined  and  technical.  It  might 
have  suited  the  days  of  the  Year  Books,  when  it  was  held  that  a  cor- 
poration could  contract  for  nothing  except  under  its  corporate  seal ; 
but  it  is  strange  that  it  should  be  urged  at  this  day  of  enlightened  ju- 
risprudence, when  the  substance  of  things  is  looked  to  rather  than 
forms.  A  corporation  is,  in  the  estimation  of  law,  a  body  created  for 
special  purposes,  and  there  is  no  good  reason  why  it  should  not,  in 
the  execution  of  these  purposes,  resort  to  any  means  that  would  be 
necessary  and  proper  for  an  individual  in  executing  the  same,  unless 
it  be  prohibited  by  the  terms  of  its  charter  or  some  public  law  from 
so  doing. 

There  is  no  principle  which  prevents  a  corporation  from  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  indorsing  or  accepting  notes  or  bills.  It  is  not 
pretended  that  this  power  extends  to  the  drawing,  indorsing  or  accept- 
ing of  bills  or  notes  generally,  and  disconnected  from  the  purposes  for 
which  the  corporation  was  created.     *     «     * 

Judgment  reversed. 

Note.    Power  to  issue  negotiable  instruments. 

1.  Corporations  have  such  power  whenever  it  is  a  necessary  or  convenient 
method  of  conducting  their  proper  business:  1797,  Phelps  v.  Livingston,  2 
Root  (Conn.)  495;  1838,  Hayward  v.  Pilgrim  Soc.,  38  Mass.  (21  Pick.)  270; 
1848,  Stevens  v.  Hill,  29  Maine  133;  1849,  Butts  v.  Cuthbertson,  6  Ga.  166; 
1860,  Brown  v.  Donnell,  49  Maine  421,  77  Am.  Dec.  266;  1871,  Downer  v. 
Read,  17  Minn.  493;  1873,  In  re  Great  West.  Tel.  Co  ,  5  Biss.  363,  Fed.  Cas. 
5740;  1875,  Watts'  Appeal,  78  Pa.  St.  370;  1877,  Franklin  Co.  v.  Lewiston  Inst, 
for  Sav.,  68  Maine  43,  supra,  p.  938;  1882,  Wright  v.  Pipe  Line  Company,  101 
Pa.  St.  204;  1889,  National  Bank  v.  German  Mut.,  etc.,  Co.,  116  N.Y.  281; 
1892,  Am.  Ex.  Nat'l  Bank  v.  Oregon,  etc.,  Co.,  55  Fed.  Rep.  265;  1896,  Farm- 
ers' Mut.  Ins.  Co.  V.  Meese,  49  Neb.  861 ;  1896,  Kneeland  v.  Braintree,  167 
Mass.  161 ;  1899,  National  Loan  &  Inv.  Co.  v.  Rockland  Co.,  94  Fed.  Rep.  335; 
1899,  G.  V.  B.  Min.  Co.  v.  First  Nat'l  Bank,  95  Fed.  Rep.  23;  1899,  McGarry 
V.  Tanner,  etc.,    21  Utah  16,  59  Pac.  Rep.  93. 

But  corporations,  unless  expressly  authorized,  have  no  power  to  deal  in 
notes  or  bonds:  1863,  Goodrich  v.  Reynolds,  31  111.  490,  83  Am.  Dec.  240; 
1899,  Indiana  Bond  Co.  v.  Ogle,  22  Ind.  App.  593,  72  Am.  St.  Rep.  326. 

2.  As  between  the  original  parties  to  the  negotiable  instrument,  the  oflScer 
who  acts  for  the  corporation  must  have  express  or  implied  authority  to  bind 
the  corporation,  but  generally  no  formal  proceedings  upon  the  part  of  the  cor- 


^271  POWER   AS  TO   NEGOTIABLE   INSTRUMENTS.  94/ 

poration  are  necessary :  1897,  Blake  v.  Domestic  Mfg.  Co.,  —  N.  J.  Eq.  — , 
38  Atl.  Rep.  241 ;  1898,  Washington  Times  Co.  v.  Wilder,  12  App.  D.  C.  62; 
1898,  Dexter  Savings  Bank  v.  Friend,  90  Fed.  Rep.  703;  1899,  Monroe  Mer- 
cantile Co.  V.  Arnold,  108  Ga.  449,  34  S.  E.  Rep.  176 ;  1899,  Porter  v.  Winona 
&  D.  G.  Co.,  78  Minn.  210,  80  N.  W.  Rep.  966;  1899,  G.  V.  B.  Min.  Co.  v. 
First  Nat'l  Bank,  95  Fed.  Rep.  23;  1900,  Crawford  v.  Albany  Ice  Co.,  36  Ore. 
535,  60  Pac.  Rep.  14. 

But  if  the  corporation  has  power  to  issue  promissory  notes  for  any  purpose 
a  bona  fide  holder  for  value,  with  no  knowledge  of  lack  of  authority  of  the 
agent,  or  of  other  irregularity,  or  that  it  was  in  fact  issued  by  the  corpora- 
tion for  an  ultra  vires  purpose,  will  be  protected:  1825,  Ridgway  v.  Bank,  12 
Serg.  &  R.  (Pa.)  256;  1848,  Mclntire  v.  Preston,  10  111.  (5  Gil.)  48;  1869,  Mon- 
ument Nat'l  Bank  v.  Globe  Works,  101  Mass.  57 ;  1886,  National  Bank  v. 
Young,  41  N.  J.  Eq.  531 ;  1889,  National  Park  Bank  v.  G.  A.  M.  W.  &  S.  Co., 
116  N.  Y.  281 ;  1895,  Jacob's  Pharmacy  Co.  v.  So.  B.  &  T.  Co.,  97  Ga.  573; 
1895,  Marshall  Nat'l  Bank  v.  O'Neal,  11  Texas  Civ.  App.  640. 

As  in  other  cases,  there  is  much  uncertaintj^  as  to  the  extent  of  the  power  of 
the  president  to  bind  the  corporation  by  notes  issued  without  express  authority. 
The  two  following  cases  illustrate  this :  1899,  G.  V.  B.  Mining  Co.  v.  First  Nat'l 
Bank,  95  Fed.  Rep.  23  (holding  that  president  has  implied  authority);  1900, 
Crawford  v.  Albany  Ice  Co.,  36  Ore.  535,  60  Pac.  Rep.  14  (holding  that  ex- 
press authority  must  be  shown). 


See.  271.    Same. 

BATEMAN  v.  THE  MID  WALES  RAILWAY  COMPANY.* 

i866.     In  the  Court  of  Common  Pleas.     35  L.  J.  Rep.  (C.  P.) 
205-210,  I  Com.  Pleas  499. 

The  plaintiffs  in  these  actions,  as  indorsees,  sued  the  defendants, 
as  acceptors  of  certain  bills  of  exchange ;  and  the  defendants  pleaded 
that  they  did  not  accept. 

The  defendants  were  a  railw^ay  conipany,  constituted  under  the  22 
&  23  Vict.,  ch.  Ixiii.  This  special  act  was  in  the  usual  form,  both  as 
to  the  powers  given  to  and  the  restrictions  placed  on  the  company, 
and  as  to  the  incorporation  of  general  acts ;  and  there  was  no  differ- 
ence between  the  cases,  except  that  in  the  last  case  evidence  was 
given  of  the  defendants  having  actually  commenced  business. 

The  bills  were  directed  to  the  Mid  Wales  Railway  Company,  and 
were  accepted  in  the  following  form :  "Accepted  by  order  of  the 
board  of  directors,  and  payable  at  the  Agra  &  Masterman's  Bank, 
John  Wade,  Secretary,"  with  the  seal  of  the  company  affixed  under 
these  words.  And  there  was  no  question  but  that  there  was  a  resolu- 
tion of  the  board  of  directors  to  the  above  effect. 

At  the  trial  a  verdict  was  entered  for  the  plaintiffs,  with  leave  to 
the  defendants  to  move  to  enter  a  verdict  for  themselves  on  the 
grounds,  first,  that  the  defendants  had  no  power  by  law  to  accept  the 
bills,  and,  secondly,  that  the  acceptances  were  not  binding  on  them, 
and  that  even  if  bills  could  be  accepted  by  them  the  bills  were  not  ac- 
cepted in  such  a  form  as  to  be  binding  on  them. 

^  Arguments,  and  opinions  of  Erie,  C.  J.,  Byles  &  Keating,  JJ.,  omitted. 


948         BATEMAN    V.  THE   MID    WALES    RAILWAY   COMPANY.   §  2/1 

Rules  nisi  were  obtained,  pursuant  to  such  leave. 

Montague  Smith,  J.  The  plaintiffs  as  indorsees  sue  the  defend- 
ants as  acceptors,  so  that  the  action  is  not  between  the  immediate 
parties  to  the  bills.  I  think  a  railway  company  is  not  competent  to 
accept  bills  of  exchange.  A  railway  company  is  incorporated  to 
make  and  maintain  a  railway ;  its  powers  and  resources  are  limited 
by  the  incorporating  statutes ;  but  if  they  may  accept  bills  of  ex- 
change, they  either  may  do  so  to  any  extent,  or  there  would  have  to 
be  an  inquiry  whether  the  purposes  for  which  the  bills  were  accepted 
were  within  their  powers  in  each  particular  case.  I  think  the  legis- 
lature did  not  intend  to  give  them  the  power.  It  is  admitted  that  there 
is  no  authority  in  favor  of  it;  and  there  is  a  great  abundance  of 
authority  to  show  that  in  the  analogous  cases  of  mining,  water-works, 
gas,  and  other  companies,  the  companies  can  not  draw  bills  of  ex- 
change, though  they  are  more  trading  companies  than  a  railway  com- 
pany. The  first  object  in  the  constitution  of  a  railway  company  is 
to  make  a  railway,  though,  it  is  true,  they  may,  and  practically  al- 
ways do  become  carriers.  Corporations  for  the  purposes  of  trade 
have  the  power  of  issuing  bills  of  exchange  as  incidental  to  such 
trading;  but  this  doctrine  only  applies  where  the  primary  object  is 
trade,  buying  and  selling.  In  addition  to  the  authorities  referred  to, 
there  is  the  distinct  authority  of  various  eminent  text-writers  that  such 
a  company  as  this  can  not. accept  a  bill  of  exchange.  Amongst  oth- 
ers, Mr.  J.  W.  Smith,  in  his  treatise  on  Mercantile  Law,  says: 
"However,  it  has  been  considered  that  a  trading  corporation  may  differ 
from  others  as  to  its  powers  of  contracting  and  its  remedies  on  con- 
tracts 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  cor- 
poration will  not  have  these  extraordinary  powers  unless  the  nature  of 
the  business  in- which  it  is  engaged  raises  a  necessary  implication  of 
their  existence."  Now  clearly,  here  there  is  no  express  power,  nor 
is  there  any  necessary  implication.  For  these  reasons,  I  am  of  opin- 
ion that  the  defendants  were  not  competent  to  accept  a  bill  of  ex- 
change ;   and  on  the  other  point  I  also  agree  with  the  rest  of  the  court. 

Note. — The  above  case  gives  the  general  doctrine  in  England,  but  the  power 
to  give  notes  or  accept  bills  of  exchange  exists  "where  upon  a  fair  construc- 
tion of  the  memorandum  and  articles  of  association  it  appears  that  it  was  in- 
tended to  be  conferred."  1866,  Peruvian  R.  v.  Thames  &  M.  M.  I.  Co.,  36  L. 
J.  Ch.  864,  L.  R.  2  Ch.  617.  Or  where  "it  is  necessary  to  carry  on  the  business 
under  ordinary  circumstances  and  in  the  usual  way."  1887,  In  re  Cunning- 
ham &  Co.,  36  Ch.  Div.  538,  57  L.  J.  Ch.  169;  1889,  Atkin  v.  Wardle,  61  L.  T. 
23.  This  power  seems  to  be  implied  in  purely  trading  companies.  1869,  In 
re  Land  Credit  Co.,  L.  R.  4  Ch.  App.  460;  but  not  in  railway  (Bateman  & 
Mid  Wales,  etc.,  supra),  gas  (1837,  Bramah  v.  Roberts,  3  Bing.  N.  C.  963,  32 
E.  C.  L.  404),  water-works  (1819,  Broughton  v.  Manchester,  etc.,  Co.,  3  B. 
&  Aid.  1,  5  E.  C.  L.  11),  or  mining  companies  (1829,  Dickinson  v.  Valpy,  10 
B.  &  0.  128,  21  E.  0.  L.  63). 


§  2/2  POWER   AS   TO    NEGOTIABLE    INSTRUMENTS.  949 

Sec.  272.     Same.     Accommodation  paper. 

MONUMENT  NATIONAL  BANK  v.  GLOBE  WORKS.* 

1869.     In  the  Supreme  Judicial  Court  of  Massachusetts,    ioi 
Mass.  Rep.  57-59. 

Hoar,  J.  The  single  question  presented  for  our  decision  in  this 
cause,  all  others  which  arise  upon  the  report  having  been  waived,  is, 
whether  the  note  of  a  manufacturing  corporation,  in  the  hands  of  a 
holder  in  good  faith  for  value,  who  took  it  before  maturity,  and  with- 
out any  knowledge  that  the  makers  had  not  received  the  full  consider- 
ation, can  not  be  enforced  against  them,  because  it  was  in  fact  made 
as  an  accommodation  note. 

The  argument  for  the  defendants  takes  the  ground  that  to  issue  an 
accommodation  note  is  not  within  the  powers  conferred  upon  the 
corporation ;  and  that,  as  any  persons  taking  it  had  notice  that  it  was 
the  note  of  the  corporation,  they  had  notice  that  it  was  of  no  validity 
unless  issued  for  a  purpose  within  the  scope  of  the  corporate  powers, 
and  were,  therefore,  bound  to  ascertain  not  only  that  it  was  executed 
by  the  officer  of  the  corporation  who  had  the  general  authority  to  sign 
the  notes  which  they  might  lawfully  make,  but  that  the  purpose  for 
which  it  was  issued  was  such  as  the  charter  authorized  them  to  enter- 
tain and  execute. 

The  court  are  all  of  opinion  that  this  position  is  not  tenable,  and 
that  the  defense  can  not  be  maintained. 

It  has  long  been  settled  in  this  commonwealth  that  a  manufactur- 
ing corporation  has  the  power  to  make  a  negotiable  promissory  note. 
Narragansett  Bank  v.  Atlantic  Silk  Co.,  3  Met.  282.  And  it  was 
held  in  Bird  v.  Daggett,  97  Mass.  494,  as  a  just  corroUary  to  that 
proposition,  that  such  note  in  the  hands  of  a  holder  in  good  faith  for 
value  is  binding  upon  the  maker,  although  made  as  an  accommodation 
note.  The  question  was  not  discussed,  nor  the  reasons  for  the  decis- 
ion fully  stated  in  Bird  v.  Daggett;  but  it  was  assumed  that  the  doc- 
trine announced  was  clear  and  undoubted  law. 

The  doctrine  of  ultra  vires  has  been  carried  much  farther  in  Eng- 
land than  the  courts  in  this  country  have  been  disposed  to  extend  it; 
but,  with  just  limitations,  the  principle  can  not  be  questioned,  that 
the  limitations  to  the  authority,  powers,  and  liability  of  a  corporation 
are  to  be  found  in  the  act  creating  it.  And  it  no  doubt  follows,  as 
claimed  by  the  learned  counsel  for  the  defendants,  that  when  powers 
are  conferred  and  defined  by  statute,  every  one  dealing  with  the  cor- 
poration is  presumed  to  know  the  extent  of  those  powers. 

But  when  the  transaction  is  not  the  exercise  of  a  power  not  confer- 
red on  a  corporation,  but  the  abuse  of  a  general  power  in  a  particular 
instance,  the  abuse  not  being  known  to  the  other  contracting  party, 
the  doctrine  of  ultra  vires  does  not  apply.     As  was  said  by  Selden,  J., 

'  Part  of  opinion  omitted. 


950        MURPHY  V.  ARKANSAS  &  L.   LAND  IMPROVEMENT  CO.   §  275 

in  Bissell  v.  Michigan  Southern  and  Northern  Indiana  Railroad  Com- 
pany, 22  N.  Y.  289,  290:  "There  are  no  doubt  cases  in  which  a 
corporation  would  be  estopped  from  setting  up  this  defense,  although 
its  contract  might  have  been  really  unauthorized.  It  would  not  be 
available  in  a  suit  brought  by  a  bona  Jide  indorsee  of  a  negotiable 
promissory  note,  provided  the  corporation  w  as  authorized  to  give  notes 
for  any  purpose ;  and  the  reason  is,  that  the  corporation,  by  giving 
the  note,  has  virtually  represented  that  it  was  given  for  some  legiti- 
mate purpose,  and  the  indorsee  could  not  be  presumed  to  know  the 
contrary.  The  note,  however,  if  given  by  a  corporation,  absolutely 
prohibited  by  its  charter  from  giving  notes  at  all,  would  be  voidable 
not  only  in  the  hands  of  the  original  payee,  but  in  those  of  any  subse- 
quent holder ;  because  all  persons  dealing  with  a  corporation  are 
bound  to  take  notice  of  the  extent  of  its  chartered  powers.  The  same 
principle  is  applicable  to  contracts  not  negotiable.  When  the  want 
of  power  is  apparent  upon  comparing  the  act  done  with  the  terms  of 
the  charter,  the  party  dealing  with  the  corporation  is  pi^esumed  to 
have  knowledge  of  the  defect,  and  the  defense  of  ultra  vires  is  avail- 
able against  him.  But  such  a  defense  would  not  be  permitted  to  pre- 
vail against  a  party  who  can  not  be  presumed  to  have  had  any  knowl- 
edge of  the  want  of  authority  to  make  the  contract.  Hence,  if  the 
question  of  power  depends  not  merely  upon  the  law  under  which  the 
corporation  acts,  but  upon  the  existence  of  certain  extrinsic  facts, 
resting  peculiarly  within  the  knowledge  of  the  corporate  officers,  then 
the  corporation  would  be  estopped  from  denying  that  which,  by  as- 
suming to  make  the  contract,  it  had  virtually  affirmed." 

This  doctrine  seems  to  us  sound  and  reasonable ;  and  in  conformity 
with  it,  it  was  held,  in  Farmers'  and  Mechanics'  Bank  v.  Empire 
Stone  Dressing  Company,  5  Bosw.  275,  that  an  accommodation  ac- 
ceptance by  an  officer  of  a  manufacturing  corporation,  on  behalf  of 
the  company,  was  not  binding,  unless  the  consideration  had  been  ad- 
vanced upon  the  faith  of  the  acceptance ;  but  that  if  the  consideration 
was  paid  in  good  faith  after  the  acceptance,  and  upon  the  credit  of  it, 
it  could  be  enforced.     *     *     « 

Judgment  for  plaintiffs. 

Note.  Accord:  1858,  Smead  v.  R.  Co.,  11  Ind.  104;  1865,  Hall  v.  Auburn 
Tp.  Co.,  27  Cal.  255,  87  Am.  Dec.  75;  1886,  National  Bank  v.  Young,  41  N.  J. 
Eq.  531 ;  1889,  National  Park  Bank  v.  G.  A.  M.  W.  &  S.  Co.,  116  N.  Y.  281 ; 
1895,  Jacob's  Pharmacy  Co.  v.  So.  Bank  &  T.  Co.,  97  Ga.  573 ;  1898,  Steiner  v. 
Steiner  L.  &  L.  Co.,  120  Ala.  128,  26  So.  Rep.  494.    But  see  next  case. 


Sec.  273.    Same. 

MURPHY  Et  Al.  v.  ARKANSAS   &  L.  LAND   IMPROVEMENT 

COMPANY.! 

1899.     In  the  United  States  Circuit  Court,  N.  D.  Arkansas. 
97  Fed.  Rep.  723-730. 

[Bill  to   foreclose   a   trust   deed.     P.  F.  B.  owned  one-third   of  a 
*  Statement  abridged,  and  only  part  of  opinion  given. 


§273  POWER    AS   TO    NEGOTIABLE    INSTRUMENTS.  95 1 

$30,000  judgement  in  favor  of  the  A.  &  L.  R.  Co.  against  J.  D.  B. 
In  order  to  discharge  this  third,  J,  D.  B.  paid  P.  F.  B.  $6,000,  and 
delivered  to  him  a  note  for  $4,000,  secured  by  a  deed  of  trust,  exe- 
cuted by  the  Land  Company,  and  made  payable  to  J.  D.  B.  or  his 
assignee,  for  the  purpose  of  enabling  him  to  pay  his  claim.  The  note 
and  de^d  were  executed  with  the  full  consent  of  all  the  directors  and 
shareholders  of  the  Land  Company,  composed  of  J.  D.  B.,  who 
owned  all  the  stock  except  shares  necessary  to  qualify  a  son  of  J.  D. 
B.  and  his  attorney  to  be  directors ;  also  at  a  time  when  the  corpora- 
tion had  ample  property  to  pay  all  its  debts  including  this  claim.  P. 
F.  B.  assigned  the  note  and  deed  of  trust  in  the  ordinary  course  of 
business  to  Murphy,  who  brings  the  suit.] 

Rogers,  District  Judge.  *  *  ♦  It  is  urged  that  the  land  com- 
pany had  no  authority  to  execute  accommodation  paper,  and  hence 
the  execution  of  the  note  was  ultra  vires.  I  incline  to  think  that 
the  charter  of  the  land  company  is  broad  enough  to  authorize  it  to  ex- 
ecute accommodation  paper,  but  it  makes  no  difference  as  to  that. 
The  land  company  is  a  private  corporation.  It  owed  no  debts. 
The  paper  was  issued  by  the  consent  of  all  the  stockholders,  and  it 
has  been  accepted,  and  the  consideration  parted  with  by  P.  F.  B. 
for  it.  Can  it  now  be  permitted  to  take  shelter  under  the  plea  of  ultra 
vires?     I  think  not.     In  i   Cook  Corp.,  §  3,  the  author  says: 

"A  private  corporation  may  become  an  accommodation  indorser, 
distribute  its  assets,  issue  its  notes,  stock,  or  bonds  below  par,  or,  for 
no  consideration  whatever,  give  away  its  assets,  or  may  mortgage  its 
property  for  the  personal  benefit  of  a  part  or  all  of  its  stockholders  or 
officers;  provided,  always,  that  all  the  stockholders  assent,  and  pro- 
vided that  corporate  creditors  are  not  injured,  and  provided  that  no 
statute  forbids  such  acts.  The  doctrine  of  ultra  vires  is  no  longer 
held  to  forbid  such  acts  by  a  private  corporation  under  such  circum- 
stances. ♦  *  *  The  theory  of  a  corporation  is  that  it  has  no  pow- 
ers except  those  expressly  given  or  necessarily  implied.  But  this 
theory  is  no  longer  strictly  applied  to  private  corporations.  A  private 
corporation  may  exercise  many  extraordinary  powers,  provided  all  of 
its  stockholders  assent,  and  none  of  its  creditors  are  injured.  There 
is  no  one  to  complain  except  the  state,  and,  the  business  being  entirely 
private,  the  state  does  not  interfere.  Thus,  fifty  years  ago  the  courts 
would  have  summarily  declared  it  illegal  for  a  business  corporation 
to  become  an  accommodation  indorser  of  commercial  paper,  but  to- 
day there  is  no  rule  of  public  policy  which  prohibits  a  private  corpo- 
ration having  a  capital  stock  from  becoming  the  accommodation  in- 
dorser of  commercial  paper,  providing  such  indorsement  is  made  with 
the  knowledge  and  assent  of  all  the  directors  and  stockholders,  and 
provided  corporate  creditors  are  paid." 

In  the  subsequent  discussion  of  the  author  it  is  shown  that  whatever 
is  done  by  a  private  corporation  with  the  assent  of  all  of  its  stockhold- 
ers, and  where  no  creditor  is  injured,  although  it  may  be  ultra  vires^ 
is  lawful,  and  will  be  enforced  by  the  courts.     The  principle  does  not 


952  TOD    ET   AL.    V.    KENTUCKY    UNION    LAND    CO.  §  274 

apply  to  railroad  corporations  or  ^«aj2-public  corporations.     *     »     » 
Decree  for  plaintiff. 

Note.  Accord:  1890,  Martin  v.  Niagara  Falls  Paper  Co.,  122  N.  Y.  165; 
1895,  Bensiek  v.  Thomas,  66  Fed.  Rep.  104;  1897,  Solomon  Solar  S.  Co.  v. 
Barber,  58  Kan.  419,  49  Pac.  Rep.  524;  1898,  Central  Trust  Co.  v.  C.  H.  V.  & 
T.  R.  Co.,  87  Fed.  Rep.  815. 


Sec.  274.      (4)    Surety  or  guarantor. 

TOD  Et  Al.  v.  KENTUCKY  UNION  LAND  COMPANY  Er  Al.> 

1893.     In   the    United    States    Circuit    Court,    District    of 
Kentucky.     57  Fed.  Rep.  47-66. 

[Bill  in  equity  against  the  land  company  and  others  for  the  appoint- 
ment of  a  receiver,  and  declaring  an  assignment  under  the  Kentucky 
laws,  on  account  of  the  debtor  land  company  having  made  preferences 
which,  as  alleged,  operated  as  an  assignment.  Decree  for  complain- 
ants, with  a  reference  to  a  commissioner,  to  report  as  to  priority  of 
claims.  The  land  company  had  guaranteed  the  first  mortgage  bonds 
to  the  extent  of  $2,625,000,  $800,000  second  mortgage  bonds,  and  a 
5  per  cent,  dividend  upon  $500,000  of  the  capital  stock,  of  the  Ken- 
tucky Union  Railway  Company;  the  validity  of  these  guaranties,  be- 
ing assailed  by  other  creditors,  was  submitted  by  the  commissioner  to 
the  court.] 

LuRTON,  C.  J.  *  *  *  Did  the  Kentucky  Union  Land  Com- 
pany have  the  power  to  bind  itself  by  its  contract  guarantying  the 
principal  and  interest  of  the  first  mortgage  bonds  issued  by  the  Ken- 
tucky Union  Railway  Company? 

The  question,  as  presented  on  this  record,  is  a  question  pure  and 
simple  as  to  how  far  the  authority  to  execute  these  contracts  is  sus- 
tained by  the  corporate  powers  which  the  law  has  vested  in  this  com- 
pany. No  question  arises  as  to  the  rights  of  bona  fide  holders  of 
these  bonds  for  value  and  without  notice  of  the  facts  that  the  bonds 
had  not  been  indorsed  upon  their  sale  and  transfer  by  the  guarantying 
corporation.  The  general  doctrine  may  be  taken  to  be  well  settled  in 
the  courts  of  the  United  States  that  the  powers  of  the  corporation  are 
such,  and  such  only,  as  are  conferred  by  the  law  under  which  it  is  in- 
corporated. The  charter  is  the  measure  of  the  power  of  every  corpo- 
ration, and  by  this  test  must  every  corporate  act  be  tried.  This  rule, 
however,  concedes  the  usual  propositions  applicable  to  every  legisla- 
tive act — that  what  is  fairly  implied  is  as  much  granted  as  if  expressly 
enumerated.     »     *     * 

The  power  to  execute  accommodation  paper  or  to  guaranty  for  ac- 
commodation the  obligations  of  another  corporation  is  not  expressly 
conferred   by    the    charter   of  the   land   company.      Ordinarily,    such 

*  Statement  abridged,  and  only  part  of  opinion  given. 


^  274  POWER  TO   BE   SURETY.  (j^S 

power  is  not  implied  from  the  powers  conferred  upon  corporations, 
and  such  contracts  are  generally  in  excess  of  the  powers  of  corpora- 
tions, and  therefore  void  as  u/ira  vires,  in  the  true  sense  of  the  term. 
This  proposition  rests  upon  two  or  more  very  evident  reasons : 
(i)  The  corporate  funds  belong  to  its  shareholders  and,  by  the 
very  terms  of  the  law  creating  it,  can  not  be  devoted  to  any  other  pur- 
pose than  those  indicated  by  its  charter  and  constitution.  Such  obli- 
gations would  violate  the  fundamental  terms  of  the  agreement  be- 
tween the  corporators  themselves. 

(2)  To  do  so  would  be  to  exercise  a  power  not  conferred  by  the 
state,  either  expressly  or  impliedly.  The  state's  grant  of  the  corpo- 
rate franchises  is  for  the  purpose  prescribed,  and  the  execution  of 
such  obligations  would  be  beyond  the  power  conferred,  and  therefore 
a  diversion  of  the  corporate  purposes,  as  well  as  of  the  corporate 
funds. 

(3)  Such  obligations  rest  upon  no  consideration,  and  would  not, 
therefore,  be  valid.  They  would  amount  to  a  donation  of  the  corpo- 
rate funds,  and  therefore  an  unlawful  diversion.  Mor.  Priv.  Corp., 
423;  Davis  v.  Railroad  Co.,  131  Mass.  258;  Madison  Plank-Road  Co. 
V.  Watertown  Plank-Road  Co.,  7  Wis.  59;  McClellan  v.  File  Works, 
5*6  Mich.  579,  23  N.  W.  Rep.  321  ;  National  Park  Bank  v.  German- 
American  Mutual  Warehouse  &  Security  Co.,  116  N.  Y.  292,  22  N. 
E.  Rep.  567;  ^tna  Nat'l  Bank  v.  Charter  Oak  Life  Ins.  Co.,  50 
Conn.  167. 

But  there  is  no  inherent  want  of  power  in  a  business  corporation, 
having  the  power  to  execute  negotiable  paper,  to  obligate  itself  as  a 
surety  or  guarantor.  If  such  a  corporation  receives  commercial  paper 
or  bonds  in  due  course  of  business  we  see  no  reason  why,  upon  transfer- 
ring such  paper,  it  may  not  be  lawful  to  obligate  itself  as  indorser  or 
guarantor.  Such  a  contract  would  be  a  new  and  independent  con- 
tract, and  would  rest  upon  a  sufficient  consideration,  if  entered  into  as 
a  legitimate  means  of  increasing  the  value  of  the  security  to  be  dis- 
posed of  in  ordinary  course  of  business.  In  Railroad  v.  Howard  the 
question  arose  as  to  the  liability  of  a  railroad  company  upon  its  guar- 
anty of  certain  bonds  issued  by  various  counties  and  cities,  and  re- 
ceived by  the  railroad  company  in  payment  of  subscription  to  its 
stock. 

Upon  full  consideration  it  was  held  that,  inasmuch  as  the  company 
had  received  the  bonds  in  payment  of  stock,  it  had  a  right  to  obligate 
itself  by  its  own  bonds  for  the  purpose  of  building  its  road ;  it  might 
lawfully,  and  in  furtherance  of  its  authorized  purpose,  guaranty  such 
bonds  as  a  means  of  augmenting  their  value  on  the  market,  thus  pro- 
ducing funds  to  build  its  road.  7  Wall.  411,  412.  The  power  of  a 
corporation  to  bind  itself  by  a  guaranty,  when  it  does  so  for  its  own 
benefit  and  as  a  means  of  selling  at  an  augmented  value,  is  generally 
conceded  by  the  authorities.  "In  such  cases,"  says  Mr.  Randolph 
in  his  work  upon  Commercial  Paper  (vol.  i,  sec.  334),  "the  guaranty 
is  an  original  contract  of  the  corporation  for  its  own  benefit ;  the  con- 
sideration moving  to  itself,  and  not  to  the  person  whose  debt  is  guar- 
antied."    *     »     « 


954  TOD  ET  AL.  V.  KENTUCKY  UNION  LAND  CO.  ET  AL.   §  274 

In  the  light  of  these  principles  let  us  look  at  the  facts  connected 
with  the  contract  under  consideration. 

The  Kentucky  Union  Land  Company  was  incorporated  under  a 
special  charter  granted  by  the  legislature  of  Kentucky  in  1880.  Its 
original  corporate  title  was,  "The  Central  Kentucky  Lumber,  Min- 
ing, Manufacturing  and  Transportation  Company."  This  name  was 
by  amendment  of  charter  in  1890,  and  after  these  bonds  had  been 
guarantied,  changed  to  "The  Kentucky  Union  Land  Company." 
The  original  title  indicated  very  thoroughly  the  large  power  confer- 
red by  the  charter,  and  the  composite  character  of  the  business  con- 
templated thereunder.      *     *     * 

The  Kentucky  Union  Railway  Company  was  organized  under  a 
special  charter  granted  by  Kentucky  in   1854.      Under  its  charter  the 

stock  might  be  subscribed  for  by  "any  individual  or  corporation."^ 

»      *     * 

Without  undertaking  to  state  the  details  as  to  how  and  under  what 
circumstances,  and  upon  what  consideration,  it  is  sufficient  for  the 
purpose  of  this  case  to  say  that,  at  the  date  of  the  contract  of  guaranty 
in  question,  shares  of  stock  in  the  railway  company  to  the  amount  of 
J^  1,800,000  were  held  and  owned  by  the  land  company.  This  con- 
stituted the  whole  of  the  shares  issued  by  that  company  except,  per- 
haps, nine,  which  were  held  by  the  directors  of  the  railway  company 
in  order  that  they  might  be  qualified  to  act.  The  land  company  at 
the  same  time  had  acquired  the  title  to  between  300,000  and  500,000 
acres  of  mountain  lands  on  the  line  of  the  projected  continuation  of 
this  railway.  In  order  to  the  development  of  these  lands,  and  to  the 
utilization  of  the  timber  and  mines  thereon,  it  became  most  essential 
that  this  railway  should  be  completed.  Did  the  land  company  have 
power  to  aid  in  the  extension  and  completion  of  this  railway?    *    *    * 

[The  charter  provided  inter  alia,  that  the  land  company  might 
"acquire  by  purchase  or  condemnation  the  necessary  rights  of  way  for 
exporting  the  products  of  the  inines  and  timber,"  and  might  "effect 
a  temporary  or  permanent  consolidation  with  any  railroad  or  transpor- 
tation company,"  and  "the  consolidated  companies  may  have  and  ex- 
ercise the  powers  of  both  companies."] 

Now,  the  case,  as  it  was  presented  to  the  land  company,  was  this: 
"We  have  purchased,  as  authorized  by  our  charter,  a  vast  body  of 
timbered  and  mineral  lands.  We  are  authorized,  expressly,  to  utilize 
these  lands  by  developing  their  timber  and  mineral  interest.  The  in- 
tention of  the  legislature  was  that  this  buried  natural  wealth  shall  be 
utilized  by  the  erection  of  sawmills,  iron  works,  rolling  mills,  furniture 
factories,  iron  furnaces,  and  by  the  opening  and  operating  of  iron  and 
coal  mines.  It  contemplated  that  transportation  of  the  products  of 
these  mines,  mills  and  factories  would  be  a  matter  of  great  concern. 
The  right  to  condemn  rights  of  way  is  conferred." 

That  railroad  transportation  would  be  essential  to  get  to  market 
these  products,  and  for  the  necessary  development  of  the  towns  which 
must  spring  up  around  enterprises  so  numerous,  was  also  in  contem- 


§274  POWER  TO    BE   SURETY.  955 

plation  of  the  state  when  the  charter  was  granted,  is  evident  from  sev- 
eral considerations: 

(i)  The  coal,  iron  and  timber,  and  the  manufactured  products  of 
the  contemplated  mills  and  factories  could  not  be  profitably  utilized 
without  cheap  transportation. 

(2)  That  the  company  should  engage  in  transportation  is  indicated 
by  the  original  title  of  the  corporation.  It  was  to  be  a  transportation 
company  as  well  as  a  mining  and  manufacturing  company. 

(3)  The  power  to  consolidate  with  any  railroad  company,  char- 
tered or  to  be  chartered,  is  expressly  conferred. 

(4)  In  case  of  such  consolidation  the  companies  were  to  exercise 
the  powers  of  both,  and  act  in  the  name  of  either,  or  Ia  an  agreed 
name.  The  power  did  not  stop  here.  There  might  be  a  "temporary 
consolidation"  with  a  railroad  company.     •     «     * 

There  is  nothing  in  this  charter  to  indicate  that  only  a  technical 
consolidation  was  authorized.  On  the  contrary,  the  power  to  make  a 
"temporary  consolidation,"  looking  to  all  the  four  corners  of  this  char- 
ter, clearly  implies  the  power  to  make  such  an  alliance  or  bring  about 
such  a  union  and  co-operation  of  interests  between  the  land  company 
and  the  railway  company  as  shall  be  to  the  mutual  interest  of  each, 
and  place  both  under  the  same  control  and  management.  This  could 
be  done  by  the  plan  suggested  by  Mr.  Morawetz  in  section  942, 
whereby  the  shares  of  one  company  should  be  held  by  the  other,  or 
by  the  same  persons.  This  meaning  seems  reasonable  and  proper, 
looking  to  the  objects  and  purposes  of  this  corporation,  and  any  steps 
which  brought  about  unity  of  interest  and  co-operation  in  purpose  as 
being  legitimate  and  authorized.  Under  the  power  we  are  of  opinion 
that  the  Kentucky  Union  Land  Company  had  the  power  to  acquire 
the  shares  in  the  railway  company,  and  the  right  to  exercise  control 
over  the  railway  company  through  the  ownership  and  control  of  those 
shares.     *     *     * 

Having  authority  to  acquire  this  stock  the  land  company  became 
the  sole  stockholder  in  the  railway  company.  Each  had  express  au- 
thority to  borrow  money  and  issue  bonds  to  carry  out  the  purposes  of 
the  organization.  The  completion  of  this  railway  was  an  object 
within  the  scope  of  its  charter  powers.  It  could  do  so  by  its  own 
name,  or  by  aiding  the  railway  company  to  negotiate  its  securities  by 
guarantying  their  payment.  The  guaranty  was  not  for  the  accom- 
modation of  the  railway  company.  The  guarantor  being  the  sole 
shareholder  of  the  railway  company,  it  was  a  contract  for  its  own  ben- 
efit, and  therefore  rested  upon  a  sufficient  security.  In  addition,  the 
land  company  was  a  creditor  of  the  railway  company,  and  was  to, 
and  did  receive  the  proceeds  arising  from  sale  of  one-half  million  of 
these  bonds.  The  remainder  of  the  money  thus  raised  was  to  be  ap- 
plied to  the  building  of  the  railway  line.  The  consideration  was  suf- 
ficient to  fully  support  the  contract.     ♦     «     * 

One  railway  company,  under  authority  of  law,  leased  the  line  of 
another  for  a  term  of  years.  The  consideration  of  the  lease  was  an  an- 
nual rental,  and  that  the  lessee  company  should  guaranty  the  principal 


956        TOD  ET  AL.  V.   KENTUCKY    UNION    LAND    CO.  ET  AL.     §  2/4 

and  interest  of  bonds  to  be  issued  by  the  lessor  company.  The  con- 
tract of  guaranty  was  challenged  as  ultra  vires.  The  lessee  company 
had  no  express  authority  to  make  such  contract  of  guaranty,  but  did 
have  power  to  make  all  such  contracts  as  were  usual  and  proper  in 
the  building  and  operation  of  the  railway,  and  it  likewise  had  power 
to  lease  the  line  of  the  lessor  company.  It  was  held  that  the  consid- 
eration was  sufficient  and  the  guaranty  valid.  The  court  was  of  opin- 
ion that  it  was  as  competent  for  the  company  to  promise  to  pay  con- 
ditionally as  to  promise  to  pay  absolutely ;  that  the  validity  of  the 
agreement  depended  upon  the  sufficiency  of  the  consideration.  The 
right  to  take  the  lease  being  express,  it  was  a  good  consideration  for 
the  conditional  promise  involved  by  a  contract  guaranty.  Low  v. 
Railroad  Co.,  52  Cal.  53.  See,  also,  Smead  v.  Railroad  Co.,  11  Ind. 
104,  and  Zabriskie  v.  Railroad  Co.,  23  How.  381,  where  a  general 
authority  to  aid  a  connecting  railroad  company  was  held  sufficient  to 
authorize  the  guarantying  of  the  bonds  of  such  road.  Also,  Mor. 
Priv.  Corp.,  §  423.  *  *  * 
Guaranties  held  valid. 

Note.     Power  to  be  surety  or  guarantor. 

1.  The  g-eneral  rule  is  that  a  corporation  has  no  implied  power  to  become 
surety  or  guarantor  in  a  matter  not  clearly  authorized:  1846,  Coleman  v.  R. 
Co.,  10  Beav.  1;  1858,  Smead  v.  R.  Co.,  11  Ind.  104;  1865,  Hall  v.  Auburn  T. 
P.  Co.,  27  Cal.  255,  87  Am.  Dec.  75;  1895,  Northside  R.  Co.  v.  Worth ingrton, 
8*^  Texas  562,  53  Am.  St.  Rep.  778 ;  1899,  Gilbert  v.  Seatco  Mfg.  Co.,  98  Fed  Rep. 
208 ;  1899,  M.  V.  Monarch  Co.  v.  Farmers'  &  D.  Bank,  20  Ky.  L.  Rep.  1351,  49  S. 
W.  Rep.  317.  But  it  seems  that  a  guaranty  may  be  binding  if  all  the  share- 
holders agree,  and  no  bona  fide  creditor's  rights  are  affected,  though  the  pur- 
pose may  be  ultra  vires.  1898,  First  National  Bank,  etc.,  v.  Winchester,  119 
Ala.  168,  72  Am.  St.  Rep.  904,  and  Murphy  v.  Ark,  &  L.  L.  Imp.  Co.,  supra, 
p.  950,  and  note, 

2.  There  are,  however,  some  well-defined  exceptions  to  the  general  rule : 
e.  g,,  A  corporation  holding  the  securities  of  another  party  has  the  right  to  dis- 
pose of  them,  and  guarantee  their  payment  in  the  ordinary  course  of  business : 
1868,  Railroad  v.  Howard,  7  Wall  (74  U.  S.)  392;  1876,  Arnot  v.  Erie  R.  Co., 
67  N.  Y.  315;  1891,  Ellerman  v.  Chicago  J.  R.  Co.,  49  N.  J.  Eq.  217;  1898,  Na- 
tional Bank  of  Com.  v.  Allen,  90  Fed.  Rep.  545. 

A  railroad  company  may  guarantee  the  payment  of  the  bonds  and  interest 
of  a  company  whose  road  it  is  authorized  to  lease:  1877,  Low  v.  Railroad  Co., 
52  Cal.  53,  28  Am.  Rep.  629;  or  the  bonds  of  cities  that  are  lawfully  issued  to  aid 
in  its  construction,  1868,  Railroad  v.  Howard,  7  Wall.  (74  U.  S.)  392;  or  a 
note  given  by  a  party  for  its  right  of  way,  1900,  Lake  St.  El.  R.  Co.  v.  Car- 
michael,  184  111.  348,  56  N.  E.  Rep.  372 ;  but  a  railroad  company  can  not  guar- 
antee the  profits  of  a  connecting  steamship  company,  1846,  Colman  v.  Rail- 
road Co.,  10  Beav.  1. 

A  land  company — with  power  to  do  whatever  is  necessary  to  the  develop- 
ment of  the  land — may  guarantee  the  bonds  of  a  railroad  company  necessary 
to  the  success  of  the  land  company:  1870,  Vandall  v.  Dock  Co.,  40  Cal.  83; 
1893,  Mercantile  Trust  Co.  v.  Kizer,  91  Ga.  636;  1894,  Marburv  v.  Kentuckv 
Union  Land  Co.,  62  Fed.  Rep.  335.  But  see,  1895,  Northside  R'.  Co.  v.  Worth- 
ington,  88  Texas  562,  53  Am.  St.  Rep.  778.  Such  company  may  also  build, 
or  help  another  corporation  build,  a  saw-mill,  1875,  Watts's  Appeal,  78  Pa. 
St.  370;  or  a  bridge,  1894.  Fort  Worth  City  Co.  v.  Smith  Bridge  Co.,  151  U. 
S.  294,  14  Sup.  Ct.  Rep.  539. 

So  a  lumber  company  may  be  a  guarantor  for  a  railroad  necessarv  for  its 
success:  1893,  Mercantile  Co.  v.  Kizer,  91  Ga.  636;  or  for  a  builder  who  gets 
his  material  from  such  company,  1896,  Wheeler,  Osgood,  etc.,  Co,  v.  Ever- 


§  275  POWER  TO    FORM  PARTNERSHIP.  957 

ett,  etc.,  Co.,  14  Wash.  630;  1900,  Wittmer  Lumber  Co.  v.  Rice,  23  Ind.  App. 
586,  55  N.  E.  Rep.  868. 


Sec.  275.     (5)    Partnership. 

MALLORY  V.  HANAUR  OIL  WORKS.* 

1 888.    In  the  Supreme  Court  of  Tennessee.     86  Tenn.  Rep. 
598-609,  20  Am.  &  E.  C.  C.  478. 

Appeal  in  error  from  circuit  court  of  Shelby  county. 

LuRTON,  J.  This  is  an  action  of  unlawful  detainer,  brought  by 
the  Hanaiir  Oil  Works,  a  corporation  created  under  the  General  In- 
corporation Act  of  1875,  and  engaged  in  the  manufacture  of  cotton- 
seed oil  at  Memphis,  Tenn. 

The  facts  which  raise  the  question  to  be  determined  are  these :  In 
July,  1884,  a  contract  was  entered  into  by  and  between  four  corpora- 
tions engaged  in  manufacturing  cotton-seed  oil  at  Memphis  for  the 
formation  of  what  is  designated  in  the  agreement  as  a  "combination,** 
"syndicate,"  and  "partnership."  The  contracting  mills  agreed  to  se- 
lect a  committee,  composed  of  representatives  from  each  corporation, 
and  to  turn  over  to  this  committee  the  properties  and  machinery  of 
each  mill,  to  be  managed  and  operated  by  this  committee,  through 
officers,  agents  and  employes  selected  by  them,  for  the  common  ben- 
efit, the  profits  and  losses  of  such  operations  to  be  shared  in  propor- 
tions agreed  upon.  This  arrangement  was  to  last  one  year,  but,  with 
consent  of  all,  might  be  renewed  for  two  additional  years,  and,  as  ap- 
pears, was  at  the  end  of  first  year  renewed  for  two  other  years,  termi- 
nating August  I,  1887.      «     ♦     * 

The  argument  here  has  largely  turned  upon  the  correctness  of  the 
charge  of  the  circuit  judge,  who  distinctly  instructed  the  jury  that  the 
contract  between  the  Hanaur  Company  and  the  other  four  corporations 
was  a  contract  for  a  partnership  between  corporations,  and  that  under 
the  charter  of  the  Hanaur  Oil  Works  it  had  no  power  to  make  such  a 
contract,  and  that  it  was,  therefore,  void,  and  that  it  had  a  right  to 
recover  possession  of  its  property,  it  being  withheld  solely  under  and 
by  virtue  of  an  agreement  ultra  vires. 

"A  partnership,"  says  Judge  Story,  "is  usually  defined  to  be  a 
voluntary  contract  between  two  or  more  competent  persons  to  place 
their  money,  effects,  labor  and  skill,  or  some  or  all  of  them,  in  lawful 
commerce  or  business,  with  the  understanding  that  there  shall  be  a 
communion  of  the  profits  thereof  between  them." 

Pothier  says  that  "a  partnership  is  a  contract  whereby  two  or  more 
persons  put,  or  contract  to  put,  something  in  common  to  make  a  law- 
ful profit  in  common,  and  reciprocally  engage  with  each  other  to  ren- 
der an  account  thereof."     Story  Part.,  §  2. 

A  careful  examination  of  this  agreement  discloses  every  material 
element  to  a  contract  of  partnership.     The  absolute  ownership  of  the 

*  Only  part  of  opinion  given. 


958  MALLORY    V.    HANAUR   OIL    WORKS.  §  2/5 

corporate  property,  the  mills,  machinery,  etc.,  is  not  conveyed  to  the 
partnership,  nor  is  this  necessary.  The  beneficial  use  of  all  such 
property  is  surrendered  to  the  common  purpose.  The  provisions  for 
the  complete  possession,  control  and  use  of  the  properties  of  the  sev- 
eral corporations  by  the  partnership  or  syndicate  is  perfect.  Nothing 
is  left  to  the  several  corporations  but  the  right  to  receive  a  share  of 
the  profits  and  participate  in  the  management  and  control  of  the  con- 
solidated interests  as  one  of  the  new  association.  The  contract  is, 
both  technically  and  in  its  essential  character,  a  partnership  in  so  far  as 
it  is  possible  for  corporations  to  form  such  an  association. 

It  is,  however,  argued  by  the  learned  counsel  for  appellants  that  if 
it  be  a  partnership,  that  it  does  not,  therefore,  follow  that  it  is  ultra 
vires;  that  such  a  contract,  not  being  prohibited  by  law  or  the  char- 
ter of  the  defendant  in  error,  or  against  public  policy,  is  not  void, 
even  if  in  excess  of  power  expressly  conferred ;  that  the  business  pro- 
posed by  the  contract,  being  within  the  purposes  of  the  charter,  is, 
therefore,  within  the  implied  powers  of  the  corporation,  and  not  ii/ira 
vires.  In  other  words,  "that  the  question  is  not  whether  the  corpo- 
ration had,  by  virtue  of  the  act  of  incorporation,  authority  to  make 
the  contract,  but  whether  they  are  by  those  statutes  forbidden  to  do 
it."  In  this  doctrine  we  do  not  concur.  There  is,  however,  respect- 
able authority  for  the  position.  A  corporation,  being  an  artificial  cre- 
ation, is  the  very  thing  it  is  made  by  the  statute  which  brings  it  into 
being,  and  nothing  more.  The  extent  of  its  powers  are  those  enu- 
merated in  its  charter,  or  implied  by  fair  and  natural  construction  of 
powers  expressly  conferred. 

The  charter  is  the  measure  of  its  powers,  and  the  enumeration 
thereof  implies  the  exclusion  of  all  others.  We  are  not  to  look  to  the 
charter  to  see  whether  the  thing  done  be  prohibited,  but  whether  there 
is  authority  to  do  it.  These  principles  we  understand  to  have  the 
support  of  the  great  weight  of  authority  in  this  country,  and  to  have 
the  sanction  of  the  supreme  court  of  the  United  States.  Thomas  v. 
Railroad  Co.,  loi  U.S.  71. 

This  view  of  the  law  has  been  the  one  entertained  by  this  court, 
and  clearly  and  distinctly  enforced  in  an  opinion  by  the  present  chief 
justice  in  the  case  of  Elevator  Company  v.  Memphis  and  Charleston 
R.  Co.,  I  Pick.  703.  The  power  to  enter  into  a  partnership  is  not 
expressly  or  impliedly  conferred  by  our  act  of  1875,  under  which  the 
Hanaur  Oil  Works  is  incorporated.  Neither  is  such  authority  within 
the  implied  powers  of  corporations.  A  partnership  and  a  corporation 
are  incongruous.  Such  a  contract  is  wholly  inconsistent  with  the  scope 
and  tenor  of  the  powers  expressly  conferred  and  the  duties  expressly 
enjoined  upon  a  corporation,  whether  it  be  a  strictly  business  and  pri- 
vate corporation  or  one  owing  duties  to  the  public,  such  as  a  com- 
mon carrier.  In  a  partnership  each  member  binds  the  firm  when  act- 
ing within  the  scope  of  the  business.  A  corporation  must  act  through 
its  directors  or  authorized  agents,  and  no  individual  member  can,  as 
such  member,  bind  the  corporation. 


§  275  POWER   TO    FORM   PARTNERSHIP.  959 

Now,  if  a  corporation  be  a  member  of  a  partnership  it  may  be 
bound  by  any  other  member  of  the  association,  and  in  so  doing  he 
would  act,  not  as  an  offieer  or  agent  of  the  corporation,  and  by  virtue 
of  authority  received  from  it,  but  as  a  principal  in  an  association  in 
which  all  are  equal,  and  each  capable  of  binding  the  society  by  his 
acts.  The  whole  policy  of  the  law  creating  and  regulating  corpora- 
tions looks  to  the  exclusive  management  of  the  affairs  of  each  corpo- 
ration by  the  officers  provided  for  or  authorized  by  its  charter.  This 
management  must  be  separate  and  exclusive,  and  any  arrangement  by 
which  the  control  of  the  affairs  of  the  corporation  should  be  taken 
from  its  stockholders  and  the  authorized  officers  and  agents  of  the  cor- 
poration would  be  hostile  to  the  policy  of  our  general  incorporation 
acts.  The  decided  weight  of  authority  is  that  a  corporation  has  not 
the  power  to  enter  a  partnership,  either  with  other  corporations  or 
with  individuals.  Says  Mr.  Morawetz:  "It  seems  clear  that  corpo- 
rations are  not  impliedly  authorized  to  enter  into  partnership  with 
other  corporations  or  individuals.  The  existence  of  a  partnership 
not  only  would  interfere  with  the  management  of  the  corporation  by 
its  regularly  appointed  officers,  but  would  impair  the  authority  of  the 
shareholders  themselves,  and  involve  the  company  in  new  responsi- 
bilities through  agents  over  whom  it  had  no  control."  i  Morawetz 
Corp.,  §  421 ;  Whittenton  Mills  v.  Upton,  10  Gray  528  (s.  c.  71  Am. 
Dec.  681);  Angell  &  Ames  Corp.,  §  272. 

It  is  unnecessary  to  consider  this  contract  as  constituting  a  mere  traffic 
arrangement ;  for  the  conclusion  already  announced  that  it  was  an  ef- 
fort to  form  a  partnership,  determines  that  in  its  scope  and  effect  it 
sought  to  accomplish  much  more  than  would  be  understood  by  the 
phrase  "traffic  arrangement."     ♦     ♦     « 

Affirmed. 

Note.    Power  to  enter  into  partnership. 

1.  The  general  rule  is  that  a  corporation  has  no  such  power.unlesa  expressly 
authorized:  1831,  Sharon  Canal  Co.  v.  Fulton  Bank,  7  Wend.  (N.  Y.)  412* 
1858,  Whittenton  Mills  v.  Upton,  10  Gray  (Mass.)  582,  71  Am.  Dec.  681 ;  1862, 
Marine  Bank  v.  Ogden,  29  111.  248;  1885,  Gunn  v.  Central  R.  Co.,  74  Ga.  509; 
1890,  People  v.  North  River  Sag.  R.  Co.,  121  N.  Y.  582,  18  Am.  St.  Rep.  843, 
supra,  \>.  100;  1895,  Aurora  Bank  v.  Oliver,  62  Mo.  App.  390;  1897,  Sabine 
Tram  Co.  v.  Bancroft,  16  Texas  Civ.  App.  170,  40  S.  W.  Rep.  837 ;  1899,  Mer- 
chants' Nat'l  Bank  v.  Standard  W.  Co.,  6  Ohio  N.  P.  264. 

2.  Exceptions. — Some  exceptions  have  been  recognized  by  the  courts.  Of 
course,  if  expressly  authorized  there  can  be  no  question :  1878,  Butler  v.  Am. 
Toy  Co.,  46  Conn.  136.  In,  1851,  Catskill  Bank  v.  Grav,  14  Barb.  (N.  Y.)  471, 
it  was  held  that  an  iron  manufacturing  company  had  implied  power  to  be- 
come a  partner  with  an  individual.  In,  1876,  Allen  v.  Woonsocket  Co.,  11  R. 
I.  288,  it  was  held  that  a  corporation  with  undefined  powers  and  a  single 
shareholder  could  become  a  member  of  a  partnership  strictly  at  will.  And 
in  1895,  Bates  v.  Coronado  Beach  Co.,  109  Cal.  160,  it  was  held  that  a  corpo- 
ration could  be  a  partner,  if  the  management  was  left  entirely  to  the  corpora- 
tion. 

3.  Although  the  corporation  exceeds  its  powers  by  becoming  a  partner,  it 
will  be  liable  to  the  extent  of  benefits  received  upon  joint  contracts:  1851, 
Catskill  Bank  v.  Gray,  14  Barb.  (N.  Y.)  471;  1862,  Marine  Bank  v.  Ogden,  29 
111.  248;  1880,  Clarkson  v.  Erie  &  N.  S.  D.,  6  111.  App.  284;  1887,  Swift,  etc.,  v. 
Pacific  Mail  Steamship  Co.,  106  N.  Y.  206;  1895,  Northside  R.  Co.  v.  Worth- 


96o  THE  C,  C.  C.  &  I.  RY.  CO.  V.  CLOSSER  ET  AL.  §  2/6 

ington,  88  Texas  562,  53  Am.  St.  Rep.  778.  And  also  may  recover  for  its 
Bhare  of  benefits  conferred:  1831,  N.  Y.  &  S.  Canal  Co.  v.  Fulton  Bank,  7 
Wend.  412;  1899,  Wilson  v.  Carter  Oil  Co.,  46  W.  Va.  469,  33  S.  E.  Rep.  249. 
See,  infra,  corporations  as  joint  tenants  and  tenants  in  common,  §§  292,  293. 


Sec.  276.    (6)  Trade  combinations. 
{a)   Pools. 

THE  CLEVELAND,  COLUMBUS,  CINCINNATI   AND  INDIANAPOLIS 
RAILWAY  COMPANY  v.  CLOSSER  Et  Al.^ 

1890.    In  the  Supreme  Court  of  Indiana.     126  Ind.  Rep.  348— 
369,   32  Am.  St.  Rep.  593. 

Elliott,  J.  The  appellees  were  partners,  under  the  name  of 
Closser&  Co.,  and  as  such  prosecute  this  action  against  the  appellant. 
They  base  their  right  of  action  upon  contracts  made  with  the  appel- 
lant wherein  it  undertook  to  transport  grain  from  Indianapolis  to  the 
seaboard,  and  they  charge  that  the  appellant  agreed  to  receive,  at  the 
time  of  the  shipment,  a  designated  sum  as  compensation  for  the  trans- 
portation of  the  grain,  and  to  refund  to  them  a  certain  part  of  the  sum 
received.  They  demand  that  the  appellant  be  compelled  to  respond  in 
damages  for  a  breach  of  the  agreement  to  refund  part  of  the  money 
paid  to  it  as  freight  on  the  grain  carried  under  the  contracts.    *    *    * 

The  second  paragraph  of  the  complaint  alleges  that  the  defendant 
is,  and  long  has  been,  a  common  carrier  of  goods,  and  that  its  custom 
of  long  standing  is  to  make  contracts  for  carrying  grain  from  Indiana- 
polis to  the  eastern  cities ;  that  the  plaintiffs  have  long  been  engaged 
in  the  business  of  buying,  selling  and  shipping  grain ;  that  on  the  first 
day  of  November,  1884,  the  plaintiffs,  under  the  firm  name  of  Clos- 
ser  &  Co.,  entered  into  a  contract  with  the  defendant  whereby  it 
undertook  to  transport  grain  from  a  station  on  its  road,  known  as 
Union  City,  to  the  city  of  New  York;  that  at  the  time  this  contract 
was  made  "there  was  no  open  and  established  rate  of  freight  charges 
for  carrying  such  grain,  except  a  certain  rate  agreed  upon  between  the 
defendant  and  other  railway  companies  owning  competing  lines  ;  the 
rate  so  fixed  by  the  competing  companies  was  established  by  an 
agreement  made  by  them  for  the  purpose  of  preventing  competition," 
and  was  enforced  and  maintained,  in  so  far  as  it  was  enforced  and 
maintained,  by  an  agency  of  such  companies  established  for  that  pur- 
pose, and  called  a  "pool"  ;  that  the  "pool"  was  managed  by  a  per- 
son selected  by  the  companies  for  that  purpose,  and  called  a  "pool 
commissioner";  that  at  the  time  mentioned  all  the  railway  companies 
that  "were  so  located  or  situated  as  to  be  competitors  for  such  freight 
were  parties  to  said  arrangement  and  "pool"  ;  that  the  rate  established 
by  the  combination  of  common  carriers  was  21 J^  cents  per  hundred- 
weight; that  the  defendant,  "notwithstanding  such  combination  and 
pool,  offered  and  gave  to  Closser  &  Co.  an  inducement  for  shipping 

^  Statement  abridged ;  only  part  of  opinion  given. 


§  276  POWER    AS    TO    TRADE    COMBINATIONS.  961 

freight  over  its  lines  at  a  rate  lower  than  that  fixed  by  the  combina- 
tion and  'pool'  ,  but,  in  order  to  do  this  and  be  able  to  report  to  the 
pool  commissioner  that  such  pool  rate  had  been  charged,"  the  defend- 
ant "requested  Closser  &  Co.,  when  shipping  freight  over  its  lines, 
to  pay  the  pool  rate,  and  agreed  at  the  same  time  with  Closser  & 
Co.  to  pay  a  certain  portion  of  the  pool  rate  so  charged,  as  a  rebate, 
in  order  that  the  shippers  might,  in  the  end,  be  only  required  to  pay 
the  rate  fixed  by  the  defendant"  ;  that  "in  this  manner  and  for  this 
purpose  the  defendant  did,  on  the  same  day,  agree  with  Closser  &Co., 
in  respect  to  the  shipment  of  grain,  that  Closser  &,Co.  should  pay  the 
pool  rate  of  2 1 J4  cents  per  hundred-weight,  and  that  the  defendant 
would  thereupon  repay  to  them  4}^  cents  on  every  hundred-weight 
of  grain  so  shipped  as  a  rebate,  so  that  they  should,  in  the  end,  pay  as 
freight  upon  such  shipment  but  17  cents  per  hundred-weight,  which 
was  then,  in  fact,  the  rate  of  defendant  for  such  freight  between  said 
points  as  then  agreed  upon,  which  rebate  the  defendant  agreed  to  pay 
promptly  after  such  shipment."  It  is  also  alleged  that  grain  was 
shipped  by  Closser  &  Co.,  under  the  contract,  and  that  they  paid  the 
••  pool"  rate.      *      ♦     «     Decision  below  for  plaintiff. 

The  central  question  is  as  to  the  validity  of  the  contracts  between 
the  rival  railroad  companies.     *     *     » 

We  preface  our  discussion  of  the  central  question  by  saying  that 
we  are  not,  at  this  point,  dealing  with  the  case  where  a  combination 
is  formed  for  the  purpose  of  preventing  ruinous  competition,  and  in 
which  there  is  no  design  to  stifle  fair  competition.  We  are  not  re- 
quired to  decide,  nor  do  we  decide,  that  combinations  fair  to  the  pub- 
lic, untainted  by  any  sinister  design,  and  formed  solely  to  prevent  the 
destruction  of  business  by  unregulated  competition,  may  not  be  valid. 
There  are,  we  know,  cases  sanctioning  the  doctrine  that  combinations 
may  be  formed  where  the  purpose  is  lawful,  and  the  means  employed 
not  forbidden  by  positive  law  or  high  considerations  of  public  policy. 
Central  Trust,  etc.,  Co.  v.  Ohio  Central  R.  Co.,  23  Am.  &  Eng,  R. 
Cases  666;  Boston  Chamber  of  Commerce  v.  Lake  Shore,  etc.,  R. 
Co.,  32  Am.  &  Eng.  R.  Cases  618;  Hare  v.  London,  etc.,  R.  Co., 
2  J.  &  H.  80;  Leslie  v.  Lorillard,  no  N.  Y.  519;  Manchester, 
etc.,  R.  Co.  V.  Concord  R.,  8  R.  &  Corp.  Law  Journal  443.  The 
doctrine  of  these  cases  we  neither  affirm  nor  deny;  we  do,  however, 
declare  that  they  are  not  relevant  to  the  matter  here  in  dispute.  It  is, 
however,  both  appropriate  and  necessary  to  adjudge  that  a  combina- 
tion between  common  carriers  to  prevent  competition  is,  at  least,  prima 
facie  illegal.  The  doubt  is  as  to  whether  any  ultimate  purpose  can 
save  it  from  the  condemnation  of  the  law ;  there  can  be  no  doubt  that, 
unexplained,  such  a  combination  for  such  a  purpose  is  condemned  by 
public  policy.  If  such  a  combination  can,  in  any  event,  be  ad- 
mitted to  be  legal,  it  can  only  be  so  where  it  is  affirmatively  shown 
that  its  object  was  to  prevent  ruinous  competition,  and  that  it  does  not 
establish  unreasonable  rates,  imjust  discriminations  or  oppressive  reg- 
ulations. If  such  a  contract  can  stand  it  must  be  upon  an  affirmative 
showing,  and  one  so  full,  complete  and  clear,  as  to  remove  the  pre- 
61— WiL.  Cases. 


962  THE   C,    C.    C.    &    I.    RY.   CO.  V.  CLOSSER    ET   AL.       §  2/6 

sumption  (to  which  its  existence,  in  itself,  gives  rise)  that  it  was 
formed  to  do  mischief  to  the  public  by  repressing  fair  competition. 
The  burden  is  on  the  carrier  to  remove  the  presumption,  and  until  it 
is  removed  the  agreement  providing  for  the  combination  gives  way  be- 
fore this  presumption,  and  the  agreement  must  be  held  to  be  within 
the  condemnation  directed  against  all  contracts  which  violate  public 
policy. 

Coming  to  the  question  which  awaits  our  judgment,  and  to  which 
we  have  cleared  our  path,  we  affirm  that  a  contract  between  corpora- 
tions charged  with  a  public  duty,  such  as  is  that  of  common  carriers, 
providing  for  the  formation  of  a  combination  having  no  other  purpose 
than  that  of  stifling  competition,  and  providing  means  to  accomplish 
that  object,  is  illegal.  The  purpose  to  break  down  competition  poi- 
sons the  whole  contract,  and  there  is  here  no  antidote  which  will  res- 
cue it  from  legal  death.  The  element  which  destroys  the  contract  is 
the  purpose  to  stifle  competition,  for  a  combination  of  rival  carriers, 
moved  and  controlled  by  that  purpose  alone,  is  destructive  of  public 
interest,  and,  to  the  last  degree,  antagonistic  to  sound  public  policy. 
The  principle  on  which  this  rule  rests  is  a  very  old  one,  and  its  place 
in  the  law  is  very  firm.  The  overshadowing  element  in  this  case,  and 
in  kindred  cases,  is  the  pui*pose  which  influences  the  parties  in  uniting 
themselves  in  a  combination,  and  concerting  means  to  make  its  pur- 
pose effective,  for  the  law  abhors  a  combination  which  has  for  its 
principal  object  the  suppression  of  competition  in  matters  of  com- 
merce in  which  the  public  have  an  interest.      *     *     * 

Relevant  and  striking  illustrations  of  the  scope  and  force  of  the 
general  principle  are  supplied  by  what  are  known  as  "The  Sugar 
Trust  Cases,"  decided  by  the  courts  of  New  York — cases  rich  in 
argument  and  authority.  People  v.  North  River  Sugar  Refining  Co., 
22  Abbott  N.  Cases  164;  see,  also,  Law  Literature  of  Trust  Combi- 
nations, etc.,  23  Abbott  N.  Cases  317;  People  v.  North  River  Sugar 
Refining  Co.,  121  N.  Y.  582.^  The  authorities  collected  in  those 
cases  demonstrate  the  proposition  that  a  trust,  or  combination,  having 
for  its  purpose  the  suppression  of  free  competition,  can  not  live  where 
the  common  law  prevails.  There  are,  however,  cases  which,  on  their 
facts,  bear  a  closer  resemblance  to  the  present  than  the  sugar  trust 
cases;  but,  after  all,  it  may  be  said  with  propriety  the  important 
thing  to  be  secured  is  a  sound  and  salutary  general  principle,  and  not 
merely  cases  with  closely  resembling  facts.  There  is  no  difficulty  in 
securing  the  principle  we  seek,  for  cases  almost  without  number  as- 
sert and  enforce  it  in  an  almost  endless  variety  of  forms  and  phases. 

One  of  the  cases  near  akin  to  the  one  before  us  is  that  of  Hooker  v. 
Vandewater,  4  Denio  349.  In  that  case  competing  canal  companies 
combined,  and  agreed  to  fix  an  established  rate  of  freight,  and  to  di- 
vide profits.  The  agreement  was  adjudged  illegal,  the  court  saying, 
among  other  things,  that  "It  is  a  general  proposition  that  an  agree- 
ment to  do  an  unlawful  act  can  not  be  supported  at  law — that  no  right 
of  action  can  spring  out  of  an  illegal  contract ;   and   this  rule  applies 

^  Supra,  p.  100. 


§  277  POWER   AS   TO    TRADE    COMBINATIONS.  963 

not  only  when  the  contract  is  expressly  illegal,  but  whenever  it  is  op- 
posed to  public  policy."  Still  closer  is  the  resemblance  between 
this  case  and  that  of  Texas,  etc.,  R.  Co.  v.  Southern  Pacific  R. 
Co.,  41  La.  Ann.  970.  The  court  there  held  a  "pooling  contract" 
substantially  the  same  as  the  one  described  in  the  appellees'  com- 
plaint to  be  void,  and  in  support  of  its  ruling  referred  to  the  cases  of 
Gibbs  V.  Consolidated  Gas  Co.,  130  U-.  S.  396;  Woodstock  Iron  Co. 
V.  Richmond,  etc.,  Extension  Co.,  129  U.  S.  643;  Morris  Run  Coal 
Co.  V.  Barclay  Coal  Co.,  68  Pa.  St.  173;  Amot  v.  Pittson,  etc., 
Coal  Co.,  68  N.  Y.  558;  Craft  v.  McConoughy,  79  III.  346;  Morrill 
v.  Boston,  etc.,  R.,  55  N.  H.  531;  Jackson  v.  McLean,  36  Fed. 
Rep.  213  ;  Santa  Clara  Valley,  etc.,  Co.  v.  Hayes,  18  Pac.  Rep.  391 ; 
Fireman's  Charitable  Association  v.  Bcrghaus,  13  La.  Ann.  209; 
Indiana  Bagging  Association  v.  Kock,  14  La.  Ann.  168;  Glasscock 
v.  Wells,  23  La.  Ann.  517,  and  Cummings  v.  Saux,  30  La.  Ann.  207. 
The  authorities  found  on  every  hand  not  only  fully  support  our 
conclusion  that  a  contract  between  competing  carriers,  forming  a 
combination  for  the  pui"pose  of  stifling  competition,  is  prifua  facie 
illegal,  but  many  of  them  carry  the  principle  to  a  much  greater  length; 
it  is  enough  for  us,  however,  that  the  law,  as  it  has  long  existed,  sus- 
tains the  conclusion  we  here  affirm,  since  it  is  neither  necessary  nor 
proper  for  us  to  go  beyond  the  case  before  us  for  judgment.  *  *  ♦ 
Judgment  affirmed. 

Note.  The  following  cases  hold  pooling  contracts  void :  1848,  Stanton  v. 
Allen,  SDenio  (N.  Y.)  434;  1871,  Morris  Run,  etc.,  Co.  v.  Barclay  Coal  Co., 
68  Pa.  St.  173;  1875,  Morrill  v.  Railroad  Co.,  55  N.  H.  531 ;  1877,  Wilson  v. 
Harlem  &  N.  Y.  Nav.  Co.,  52  How.  Pr.  (N.  Y.)  348;  1881,  Barke,  etc.,  v.  Con- 
cord, etc.,  R.,  61  N.  H.  161 ;  1883,  Denver  &  N.  O.  R.  Co.  v.  A.,  T.  &  S.  F.  R. 
Co.,  15  Fed.  Rep.  650,  110  U.  S.  667;  1883,  State  v.  Concord,  etc.,  R.,  13  Am. 
&  Eng.  R.  Cas.  (N.  H.)  94;  1888,  Gibbs  v.  Gas  Co.,  130  U.  S.  396;  1889, 
Anderson  v.  Jett,  11  Ky.  L.  Rep.  570,  12  S.  W.  Rep.  670;  1889,  Texas  &  Pac. 
R.  V.  Southern  Pac,  etc.,  R.,  41  La.  Ann.  970;  1894,  C.  M.  &  St.  Paul  R.  v. 
Wabash,  St.  L.  &  P.  R.,  61  Fed.  Rep.  993;  1896,  United  States  v.  Trans-Mis- 
souri Frt.  Assn.,  166  U.S.  290;  1898,  United  States  v.  Joint  Traffic  Assn.,  J71  U. 
S.  505, 19  Sup.  Ct.  25,  reverses  76  Fed.  Rep.  895  (C.  C.),and  89  Fed.  Rep.  1020 
(C.  C.  A.) ;  1899,  State  v.  Fireman's  Fund  Ins.  Co.,  152  Mo.  1,  62  S.  W.  Rep. 
595. 

See  note  at  end  of  the  next  case. 


Sec.  277.    Same. 

MANCHESTER  AND  LAWRENCE  RAILROAD  v.  CONCORD 
RAILROAD.! 

1889.     In   the    Supreme   Court  of  New  Hampshire.     66   New 
Hampshire  Rep.  100—134. 

[Bill  in  equity  for  a  discovery  and  an  accounting.  Defendants 
filed  special  pleas,  to  which  the  plaintiffs  demurred.  Defendants  de- 
murred to  the  parts  of  the  bill  not  covered  by  the  pleas.] 

*  Only  part  of  opinion  given. 


964       MANCHESTER  &  LAWRENCE   R.  R.  V.  CONCORD  R.  R,   §  2// 

Blodgett,  J,  *  *  *  The  second  plea  avei's,  and  the  demur- 
rer admits,  that  at  the  time  of  the  making  of  the  contracts  between 
the  parties  and  of  the  dealings  thereunder,  their  respective  roads  "were 
rival  and  competing  railroads,  by  the  competition  of  which  the  prices 
of  transportation  thereon  were,  and  but  for  said  supposed  contracts, 
dealings,  transactions,  operations  and  business,  would  have  continued 
to  be,  materially  reduced,  and  said  alleged  contracts,  dealings,  transac- 
tions and  business  were  made  and  had  for  the  purpose  of  destroy- 
ing and  preventing  such  competition,  and  did  destroy  and  prevent  it." 

It  will  be  noticed  that  there  is  no  averment  in  the  plea  that  the  pur- 
pose of  the  contracts  was  to  raise  the  prices  of  transportation  above  a 
reasonable  standard,  or  that  they  did  have  this  effect,  or  that  the  pub- 
lic were  prejudiced  by  their  operation  in  any  manner;  and  the  naked 
question  presented  then  is,  whether  all  contracts  between  rival  rail- 
way corporations  which  prevent  competition  are  necessarily  contrary 
to  public  policy,  and  therefore  mala  prohibita  and  illegal  in  them- 
selves. 

To  state  this  question  is  to  answer  it  in  the  negative,  because  it  is 
obvious  that  the  answer  depends  upon  circumstances.  While,  with- 
out doubt,  contracts  which  have  a  dii'ect  tendency  to  prevent  a 
healthy  competition  are  detrimental  to  the  public  and  consequently 
against  public  policy,  it  is  equally  free  from  doubt  that  when  such 
contracts  prevent  an  unhealthy  competition  and  yet  furnish  the  public 
with  adequate  facilities  at  fixed  and  reasonable  rates,  they  are  beneficial 
and  in  accord  with  sound  principles  of  public  policy.  For  the  lessons 
of  experience,  as  well  as  the  deductions  of  reason,  amply  demonstrate 
that  the  public  interest  is  not  subserved  by  competition  which  reduces 
the  rate  of  transportation  below  the  standard  of  fair  compensation ; 
and  the  theory  which  formerly  obtained,  that  the  public  is  benefited 
by  imrestricted  competition  between  railroads  has  been  so  emphatic- 
ally disproved  by  the  results  which  have  generally  followed  its  adop- 
tion in  practice,  that  the  hope  of  any  permanent  relief  from  ex- 
cessive rates  through  the  competition  of  a  parallel  or  rival  road  may, 
as  a  rule,  be  justly  characterized  as  illusory  and  fallacious. 

Upon  authority,  also,  arrangements  and  contracts  between  compet- 
ing railroads,  by  which  unrestrained  competition  is  prevented,  do  not 
contravene  public  policy.  Hare  v.  Railway  Co.,  2  Johns.  &  H.  80, 
is  directly  in  point.  In  that  case  a  bill  in  chancery  had  been  brought 
by  a  stockholder  in  the  defendant  company  to  annul  an  agreement 
between  two  railway  companies  to  divide  the  profits  of  the  traffic  in 
fixed  proportions  ;  and  it  was  admitted  there,  as  it  is  here,  that  the 
.purpose  of  the  agreement  was  to  prevent  competition.  In  dismissing 
the  bill,  Vice-Chancellor  Wood  said,  page  103,  "With  regard  to  the 
argument  against  the  validity  of  the  agreement,  I  may  clear  the 
ground  of  one  objection  by  saying  that  I  see  nothing  in  the  alleged 
injury  to  the  public  arising  from  the  prevention  of  competition.  *  *  * 
It  is  a  mistaken  notion  that  the  public  is  benefited  by  pitting  two  rail- 
way companies  against  each  other  till  one  is  ruined,  the  result  being 
at  last  to  raise  the  fares  to  the  highest  possible  standard."     So,  also, 


§  277  POWER   AS   TO   TRADE   COMBINATIONS.  965 

in  I  Red.  Railroads,  §  146,  2,  it  is  said,  "There  is  no  principle  of 
public  policy  which  renders  void  a  traffic  arrangement  between  two  lines 
of  railway  for  the  purpose  of  avoiding  competition."  And  Mr.  Mora- 
wetz  says,  in  his  admirable  treatise  on  corporations,  "Public  policy 
clearly  does  not  demand  that  railroad  companies  operating  competing 
lines  shall  engage  in  strife,  causing  their  financial  loiin ;  and,  so  far  as 
agreements  among  companies  are  designed  to  effect  this  result,  their 
purpose  is  not  injurious  to  the  public  or  illegal.  Moreover,  such 
agreements  are  positively  beneficial  to  the  public  so  far  as  they  pre- 
vent the  fluctuation  of  rates  and  unjust  discriminations  among  ship- 
pers, which  invariably  attend  the  unrestricted  competition  of  rival 
companies.  It  is  the/efore  impossible  to  support  the  proposition  that 
all  agreements  among  railroad  companies  which  restrict  competition 
are  condemned  by  law.  Some  such  agreements  may  be  contrary  to 
public  policy  and  unlawful ;  but  if  an  agreement  of  this  character  is  a 
reasonable  business  arrangement  to  protect  the  shareholders  and  cred- 
itors of  the  companies  from  loss,  and  does  not  cause  unreasonably 
high  charges  or  violate  any  duty  which  the  companies  owe  to  the 
public,  it  should  be  sustained  and  enforced  by  the  courts."  Mor. 
Corp.  (2d  ed.),  §  1 131.  In  the  same  section,  in  speaking  of  contracts 
in  restraint  of  trade  (to  which  many  of  the  authorities  and  much  of 
the  argument  for  the  defendants  relate)  he  says:  "Even  if  there  were 
such  a  rule  as  has  been  claimed  applicable  to  competition  in  trade, 
the  principle  and  policy  of  the  rule  would  not  be  applicable  to  traffic 
arrangements  designed  merely  to  prevent  ruinous  competition  and 
'wars'  among  railroad  companies.  The  main  objection  which  has 
been  urged  against  combinations  restraining  competition  in  trade, 
namely,  that  such  combinations  tend  to  produce  monopolies  and 
cause  extortion,  has  no  application  to  combinations  among  railroad 
companies,  for  railroad  companies  are  prohibited  by  law  to  charge 
more  than  reasonable  rates.  It  should  be  observed,  also,  that  compe- 
tition among  railroad  companies  has  not  the  same  safeguards  as  com- 
petition in  trade.  Persons  will  ordinarily  do  business  only  when 
they  think  they  see  a  fair  chance  of  profit ;  and  if  press  of  competi- 
tion renders  a  particular  trade  unprofitable,  those  engaged  in  that 
trade  will  suspend  or  reduce  their  operations,  and  apply  their  capital 
and  labor  to  other  uses  until  a  reasonable  margin  of  profit  has  been 
reached.  But  the  capital  invested  in  the  construction  of  a  railroad 
can  not  be  withdrawn  when  competition  renders  the  operation  of  the 
road  unprofitable.  A  railroad  is  of  no  use  except  for  railroad  pur- 
poses, and  if  (he  operation  of  the  road  were  stopped,  the  capital 
invested  in  its  construction  would  be  wholly  lost.  Hence  it  is  for  the 
interest  of  a  railroad  company  to  operate  its  road,  though  the  earnings 
are  barely  sufficient  to  pay  the  operating  expenses.  The  ownership  o£ 
the  road  may  pass  from  the  shareholders  to  the  bondholders  and  be  of 
no  benefit  to  the  latter;  but  the  struggle  for  traffic  will  continue  so 
long  as  the  means  of  paying  operating  expenses  can  be  raised.  Unre- 
stricted competition  will  thus  render  the  competitive  traffic  wholly  uti- 
remunerative,  and  will  cause  the  ultimate  bankruptcy  of  the  company 


966     MANCHESTER  AND  LAWRENCE  R.  R.  V.  CONCORD  R,  R.   §  2// 

unless  the  portion  of  their  traffic  which  is  not  the  subject  of  competi- 
tion can  be  made  to  bear  the  entire  burden  of  the  interest  and  fixed 
charges." 

The  application  of  these  principles  to  the  plea  under  consideration 
is  patent  and  decisive.  The  geographical  location  and  relative  re- 
sources of  the  two  roads  were  such  as  to  render  it  obvious  that  the 
plaintiffs  could  not  reasonably  hope  successfully  to  compete  with  their 
more  powerful  rival.  The  alternatives  presented,  it  may  be  safely 
assumed,  were  combination  or  ruinous  competition.  They  accepted 
the  former;  and  as  the  combination  did  not,  so  far  as  appears  by  the 
pleadings,  raise  the  rate  of  transportation  above  the  standard  of  fair 
compensation,  or  violate  any  duty  that  is  owing  to  the  public  from 
roads  which  are  non-competing,  there  is  nothing  averred  in  the  plea 
which  bars  the  right  of  the  plaintiffs  to  an  accounting  with  the  defend- 
ants. 

Numerous  cases  have  been  cited  in  behalf  of  the  defendants  in  sup- 
port of  their  proposition  that  the  combination  between  the  parties 
must  be  regarded  as  void  at  common  law  because  against  public  pol- 
icy. It  is  quite  iinpossible,  without  extending  this  opinion  beyond 
all  reasonable  limits,  to  go  through  and  comment  upon  these  cases  in 
detail,  as  has  been  done  in  the  last  brief  for  the  plaintiffs ;  but  it  is 
sufficient  to  say,  in  general  terms,  as  is  there  said,  that  they  are  cases 
of  contracts  in  restraint  of  mercantile  business;  or  cases  of  contracts 
which  attempt  to  derogate  from  the  right  of  eminent  domain  inherent 
in  the  state ;  or  cases  where  contracts  between  railroad  companies 
were  held  contrary  to  public  policy  because  one  of  the  parties  at- 
tempted to  bind  itself  not  to  perform  duties  incident  to  the  legal  char- 
acter of  common  carriers  or  public  sei-vants ;  or  cases  where  contracts 
between  railroad  companies  were  held  contrary  to  public  policy  be- 
cause one  of  the  parties  agreed  not  to  build,  or  to  cease  to  operate,  a 
road  which  they  were  chartered  to  build  or  operate ;  or  cases  where 
contracts  between  railroad  companies  have  been  held  illegal  merely 
on  the  ground  that  they  were  ultra  vires ;  in  short,  they  do  not  estab- 
lish a  rule  which  fairly  includes  a  case  like  the  one  at  bar.  The  de- 
murrer to  the  second  plea  is  sustained.      *     *     * 

Plaintiffs^  demurrers  sustained,  and  defendants''  overruled. 

Note.  The  following  cases  hold  pools  to  be  valid,  or  at  least  not  void  under 
all  circumstances:  1861,  Hare  v.  London  &  N.  W.  R.  Co.,  2  J.  &  H.  80;  1865. 
Hartford,  etc.,  R.  v.  N.  Y.,  etc.,  R.,  3  Rob.  (N.  Y.)  411  ;  1868,  Sussex  R.  Co, 
v.  Morris  and  Essex  R.,  19  N.  J.  Eq.  13;  1882,  Elkins  v.  Camden  &  A.  R.,  36 
N.  J.  Eq.  234,  244;  1885,  Central  T.  Co.  v.  Ohio  Cent.  R.  Co.,  23  Fed  Rep. 
306;  1886,  Dolph  v.  Troy  Laundry  M.  Co.,  28  Fed.  Rep.  553;  1888,  Ives  v. 
Smith,  3  N.  Y.  Siipp.  645;  1892,  Mogul  Steamship  v.  McGregor,  App.  Cas.  25; 
1892,  U.  S.  v.  Trans-Mo.  Frt.  Assn.,  53  Fed.  Rep.  440;  1893,  U.  S.  v.  Trans- 
Mo.  Frt.  Assn.,  58  Fed.  Rep.  58,  19  U.  S.  App.  36,  7  C.  C.  A.  15  (these  being 
overruled  by  the  supreme  court,  166  U.  S.  290) ;  1899,  Post  v.  Southern  R.  Co.,. 
103  Tenn.  184,  16  Am.  &  E.  R.  Cas.  (N.  S.)  201. 


§  2/8  POWER   AS   TO   TRADE   COMBINATIONS.  967 

Sec.  278.     Same,      {b)      Contracts  restraining  trade  and  compe- 
tition. 

UNITED  STATES  v.  ADDYSTON  PIPE  and  STEEL  COMPANY  Ex  Ai,.» 

1898.  In  the  U.  S.  Circuit  Court  of  Appeals,  E.  D.  Tennessee. 

85  Fed.  Rep.  271. 

[Appeal  from  the  circuit  court.  Suit  in  equity  by  the  attorney-gen- 
eral of  the  United  States  against  six  coiporations  engaged  in  manufac- 
turing cast  iron  pipe,  charging  them  with  a  combination  and  conspir- 
acy in  restraint  of  inter-state  commerce,  contrary  to  the  anti-trust  law 
passed  by  congress  July  2,  1890.^  The  defendants  were  the  Addyston 
Co.,  of  Cincinnati,  Ohio,  Long  &  Co.,  of  Louisville,  Ky.,  How- 
ard-Harrison &  Co.,  of  Bessemer,  Ala.,  Anniston  Co.,  of  Anniston, 
Ala.,  South  Pittsburgh  Co.,  of  South  Pittsburgh,  Tenn.,  and  the 
Chattanooga  Co.,  of  Chattanooga,  Tenn.  The  petition  prayed  for  a 
seizure  and  confiscation  of  the  pipe,  a  dissolution  of  the  conspiracy 
and  a  perpetual  injunction  against  the  same.  Defendants  admitted 
the  existence  of  an  association  for  the  purpose  of  avoiding  ruinous 
competition,  but  denied  that  it  was  in  restraint  of  trade,  created  a  mo- 
nopoly or  violated  the  anti-trust  law.  The  circuit  court  dismissed  the 
petition.  The  evidence  showed  that  the  association  had  divided  up 
the  United  States  into  "pay"  and  "free"  territory;  the  capacity  of 
the  mills  in  the  pay  territory  was  392,500  tons,  220,000  tons  being 
represented  by  the  association,  the  other  mills  in  the  pay  territory  be- 
ing located  in  Colorado,  Texas,  Oregon  and  St.  Louis,  with  an  aggre- 
gate capacity  of  57,500  tons,  and  at  Columbus,  Cleveland  and  New 
Comerstown,  Ohio,  and  Detroit,  Mich,,  with  an  aggregate  capacity 
of  113,000  tons;  the  capacity  of  mills  in  the  "free"  territory  was 
348,000  tons,  and  they  were  located  in  eastern  Virginia  (14,000  tons), 
four  in  eastern  Pennsylvania  (87,000  tons),  three  in  New  Jersey 
(3 10,000  tons),  and  two  in  New  York  (35,000  tons)  ;  from  these  "free" 
mills  to  the  "pay"  territory  the  freight  rates  varied  from  $2  to  $6  per 
ton.  Within  the  "pay"  territory  of  thirty-four  states  certain  cities  were 
reserved  to  be  supplied  exclusively  by  a  certain  company,  as,  e.  g.^  the 
Addyston  Company  was  to  have  the  exclusive  right  to  handle  the  business 
of  Cincinnati,  Ohio,  Covington  and  Newport,  Ky.  The  plan  contem- 
plated was  as  follows:  "All  competition  or  pipe  lettings  shall  take 
place  among  the  various  pipe  shops  prior  to  said  letting.  To  accom- 
plish this  purpose  it  is  proposed  that  the  six  competitive  shops  have  a 
representative  board  located  at  some  central  city,  to  whom  all  inquir- 
ies for  pipe  shall  be  referred,  and  said  board  shall  fix  the  price  at 
which  said  pipe  shall  be  sold,  and  bids  taken  from  the  respective 
shops  for  the  privilege  of  handling  the  order,  and  the  party  securing 

*  Statement  abridged  and  much  of  opinion  omitted.  Tliis  opinion  ehould 
be  read  in  full,  and  carefully  studied.  It  was  affirmed,  though  the  decree 
was  slightly  modified  by  the  United  States  Supreme  Court.  See  175  U.  S.  211. 

*  See  note,  infra  p.  977. 


968         U,    S.    V.    ADDYSTON    PIPE   AND    STEEL   CO.    ET   AL.     §  2/8 

the  order  shall  have  the  protection  of  all  the  other  shops."  This 
board  proceeded  as  follows:  "It  was  moved  to  sell  the  519  pieces  of 
30-inch  pipe  for  Omaha,  Neb.,  for  $23.40  delivered.  Carried.  It 
was  moved  that  Anniston  participate  in  the  bonus,  and  the  job  be  sold 
over  the  table.  Carried.  Pursuant  to  the  motion,  the  519  pieces  20- 
inch  pipe  for  Omaha  was  sold  to  Bessemer  at  a  premium  of  $8.20." 
In  a  case  of  a  letting  at  St.  Louis,  this  city  being  reserved  to  the  Bes- 
semer (x\la.)  Company,  the  price  was  fixed  by  the  association  at  $24 
per  ton  on  2,800  tons,  and  the  bonus  at  $6.50.  Before  the  letting, 
the  vice-president  of  the  Bessemer  Company  wrote  to  the  other  mem- 
bers of  the  association  saying,  "I  prefer  that  if  any  of  you  find  it  nec- 
essary to  put  in  a  bid  without  going  to  St.  Louis,  please  bid  not  less 
than  $27  for  the  pipe.  *  *  *  J  would  also  like  to  know  as  to 
which  of  you  would  find  it  convenient  to  have  a  representative  at  the 
letting.  It  will  be  necessary  to  have  two  outside  bidders."  At  the 
letting  the  Addyston  Company  bid  $34.37  ^^^  ^^^  Louisville  Com- 
pany $24.57.  T^^^  contract  being  let  to  the  Bessemer  Company  at 
$24 ;  the  evidence  showed  that  the  Chattanooga  Company  could  have 
furnished  the  same  at  from  $17  to  $18  per  ton  at  a  profit.  The 
bonus  or  premium  bid  was  to  be  paid  to  the  other  companies  in  pro- 
portion to  the  capacities  of  the  various  mills.  There  was  much  other 
evidence  of  a  similar  and  confirmatory  character.] 

Taft,  C.  J.  *  *  *  Two  questions  are  presented  in  this  case 
for  our  decision:  i.  Was  the  association  of  the  defendants  a  con- 
tract, combination,  or  conspiracy  in  restraint  of  trade,  as  the  terms  are 
to  be  understood  in  the  act?  2.  Was  the  trade  thus  restrained  be- 
tween the  states.'' 

The  contention  on  behalf  of  defendants  is  that  the  association 
would  have  been  valid  at  common  law,  and  that  the  federal  anti-trust 
law  was  not  intended  to  reach  any  agreements  that  were  not  void  and 
unenforcible  at  common  law.  It  might  be  a  sufficient  answer  to  this 
contention  to  point  to  the  decision  of  the  supreme  court  of  the  United 
States  in  the  United  States  v.  Trans-Missoui-i  Freight  Assn.,  166  U. 
S.  290,  17  Sup.  Ct.  540,  in  which  it  was  held  that  contracts  in  re- 
straint of  interstate  transportation  were  within  the  statute,  whether  the 
restraints  would  be  regarded  as  reasonable  at  common  law  or  not.  It 
is  suggested,  however,  that  that  case  related  to  a  ^uasz-puhlic  em- 
ployment, necessarily  under  public  control  and  affecting  public  inter- 
ests, and  that  a  less  stringent  rule  of  constniction  applies  to  contracts 
restricting  parties  in  sales  of  merchandise,  which  is  purely  a  private 
business,  having  in  it  no  element  of  a  public  or  ^uasz-puhlic  charac- 
ter. Whether  or  not  there  is  substance  in  such  a  distinction — a  ques- 
tion we  do  not  decide — it  is  certain  that,  if  the  contract  of  association 
which  bound  the  defendants  was  void  and  unenforcible  at  the  com- 
mon law  because  in  restraint  of  trade,  it  is  within  the  inhibition  of  the 
statute  if  the  trade  it  restrained  was  interstate.  Contracts  that  were 
in  unreasonable  restraint  of  trade  at  common  law  were  not  unlawful 
in  the  sense  of  being  criminal,  or  giving  rise  to  a  civil  action  for  dam- 
ages in  favor  of  one  prejudicially  affected   thereby,   but  were  simply 


§  2/8  POWER  AS    TO  TRADE   COMBINATIONS.  969 

void,  and  were  not  enforced  by  the  courts.  Mogul  Steamship  Co.  v. 
McGregor,  Gow  &  Co.  (1892),  App.  Cas.  25;  Hornbyv.  Close,  L. 
R.  2  Q.  B.  153;  Lord  Campbell,  C.  J.,  in  Hilton  v.  Eckersley,  6 
EI.  &  Bl.  47,  66;  Hannen,  J.,  in  Farrer  v.  Close,  L.  R.  4  Q.  B. 
602,  612.  The  effect  of  the  act  of  1890  is  to  render  such  contracts 
unlawful  in  an  affirmative  or  positive  sense,  and  punishable  as  a  mis- 
demeanor, and  to  create  a  right  of  civil  action  for  damages  in  favor 
of  those  injured  thereby,  and  a  civil  remedy  by  injunction  in  favor  of 
both  private  persons  and  the  public  against  the  execution  of  such  con- 
tracts and  the  maintenance  of  such  trade  restraints. 

The  argument  for  defendants  is  that  their  contract  of  association 
was  not,  and  could  not  be,  a  monopoly,  because  their  aggregate  ton- 
nage capacity  did  not  exceed  30  per  cent,  of  the  total  tonnage  capac- 
ity of  the  country;  that  the  restraints  upon  the  members  of  the  asso- 
ciation, if  restraints  they  could  be  called,  did  not  embrace  all  the 
states,  and  were  not  unlimited  in  space ;  that  such  partial  restraints 
were  justified  and  upheld  at  common  law  if  reasonable,  and  only  pro- 
portioned to  the  necessary  protection  of  the  parties ;  that  in  this  case  the 
partial  restraints  were  reasonable,  because  without  them  each  member 
would  be  subjected  to  ruinous  competition  by  the  other,  and  did  not 
exceed  in  degree  of  stringency  or  scope  what  was  necessary  to  protect 
the  parties  in  securing  prices  for  their  product  that  were  fair  and  rea- 
sonable to  themselves  and  the  public ;  that  competition  was  not  stifled 
by  the  association,  because  the  prices  fixed  by  it  had  to  be  fixed  with 
reference  to  the  very  active  competition  of  pipe  companies  which 
were  not  members  of  the  association,  and  which  had  more  than  double 
the  defendant's  capacity;  that  in  this  way  the  association  only  modi- 
fied and  restrained  the*evils  of  ruinous  competition,  while  the  public 
had  all  the  benefit  from  competition  which  public  policy  demanded. 

From  early  times  it  was  the  policy  of  Englishmen  to  encourage 
trade  in  England,  and  to  discourage  those  voluntary  restraints  which 
tradesmen  were  often  induced  to  impose  on  themselves  by  contracts. 
Courts  recognized  this  public  policy  by  refusing  to  enforce  stipulations 
of  this  character.  The  objections  to  such  restraints  were  mainl}'  two. 
One  was  that  by  such  contracts  a  man  disabled  himself  from  earning 
a  livelihood,  with  the  risk  of  becoming  a  public  charge,  and  deprived 
the  community  of  the  benefit  of  his  labor.  The  other  was  that  such 
restraints  tended  to  give  to  the  covenantee,  the  beneficiary  of  such  re- 
straints, a  monopoly  of  the  trade,  from  which  he  had  thus  excluded 
one  competitor,  and  by  the  same  means  might  exclude  others.    *  *    * 

The  inhibition  against  restraints  of  trade  at  common  law  seems  at 
first  to  have  had  no  exception.  See  language  of  Justice  Hull,  Year 
Book,  2  Hen.  V.,  folio  5,  pi.  26.  After  a  time  it  became  apparent 
to  the  people  and  the  courts  that  it  was  in  the  interest  of  trade  that 
certain  covenants  in  restraint  of  trade  should  be  enforced.  It  was  of 
importance,  as  an  incentive  to  industry  and  honest  dealing  in  trade, 
that,  after  a  man  had  built  up  a  business  w  ith  an  extensive  good-will, 
he  should  be  able  to  sell  his  business  and  good-will  to  the  best  of  ad- 
vantage, and  he  could  not  do  so  unless  he  could  bind  himself  by  an 


972         U.    S.   V.  AUDYSTON    PIPE   AND    STEEL   CO.   ET   AL.        §  2/8 

of  the  contract  suggests  the  measure  of  protection  needed,  and  fur- 
nishes a  sufficiently  uniform  standard  by  which  the  validity  of  such 
restraints  may  be  judicially  determined.  In  such  a  case,  if  the 
restraint  exceeds  the  necessity  presented  by  the  main  purpose  of  the 
contract,  it  is  void  for  two  reasons :  First,  because  it  oppresses  the 
covenantor  without  any  corresponding  benefit  to  the  covenantee;  and, 
second,  because  it  tends  to  a  monopoly.  But  where  the  sole  object 
of  both  parties  in  making  the  contract  as  expressed  therein  is  merely 
to  restrain  competition,  and  enhance  or  maintain  prices,  it  would 
seem  that  there  was  nothing  to  justify  or  excuse  the  restraint,  that  it 
would  necessarily  have  a  tendency  to  monopoly  and  therefore  would 
be  void.  In  such  a  case  there  is  no  measure  of  what  is  necessary  to 
the  protection  of  either  party  except  the  vague  and  varying  opinion 
of  judges  as  to  how  much,  on  principles  of  political  economy,  men 
ought  to  be  allowed  to  restrain  competition.  There  is  in  such  con- 
tracts no  main  lawful  purpose  to  subserve  which  partial  restraint  is 
permitted,  and  by  which  its  reasonableness  is  measured,  but  the 
sole  object  is  to  restrain  trade  in  order  to  avoid  the  competition  which 
it  has  always  been  the  policy  of  the  common  law  to  foster. 

[Reviewing  many  cases.]      **»**♦*** 

Upon  this  review  of  the  law  and  the  authorities,  we  can  have  no 
doubt  that  the  association  of  the  defendants,  however  reasonable  the 
prices  they  fixed,  however  great  the  competition  they  had  to  encoun- 
ter, and  however  great  the  necessity  for  curbing  themselves  by  joint 
agreement  from  committinsr  financial  suicide  by  ill-advised  competi- 
tion, was  void  at  common  law,  because  in  restraint  of  trade,  and 
tending  to  a  monopoly.  But  the  facts  of  the  case  do  not  require  us 
to  go  so  far  as  this,  for  they  show  that  the  attempted  justification  of 
this  association  on  the  grounds  stated  is  without  foundation. 

Another  aspect  of  this  contract  of  association  brings  it  within  the 
term  used  in  the  statute,  "a  conspiracy  in  restraint  of  trade."  A 
conspiracy  is  a  combination  ofr  two  or  more  persons  to  accomplish  an 
unlawful  end  by  lawful  means  or  a  lawful  end  by  unlawful  means.  In 
the  answer  of  the  defendants,  it  is  averred  that  the  chief  way  in  which 
cast-iron  pipe  is  sold  is  by  contracts  let  after  competitive  bidding  in- 
vited by  the  intending  purchaser.  It  would  have  much  interfered 
with  the  smooth  working  of  defendants'  association  had  its  existence 
and  purposes  become  known  to  the  public.  A  part  of  the  plan  was 
a  deliberate  attempt  to  create  in  the  minds  of  the  members  of  the 
public  inviting  bids  the  belief  that  competition  existed  between  the 
defendants.  Several  of  the  defendants  were  required  to  bid  at  every 
letting,  and  to  make  their  bids  at  such  prices  that  the  one  already  se- 
lected to  obtain  the  contract  should  have  the  lowest  bid. 

It  is  well  settled  that  an  agreement  between  intending  bidders  at  a 
public  auction  or  a  public  letting  not  to  bid  against  each  other,  and 
thus  to  prevent  competition,  is  a  fraud  upon  the  intending  vendor  or 
contractor,  and  the  ensuing  sale  or  contract  will  be  set  aside.  Breslin 
v.  Brown,  24  Ohio  St.  565;  Atcheson  v.  Mallon,  43  N.  Y.  147; 
Loyd  V.  Malone,  33  111,  41 ;   Wooten  v.  Hinkle,  20  Mo.  290;   Phip- 


§  2/8  POWER    AS   TO    TRADE    COMBINATIONS.  9/3 

pen  V.  Stickney,  3  Mete.  (Mass.)  384;  Kearney  v.  Taylor,  15  How. 
494,  519;  Wilbur  V.  How,  8  Johns.  444;  Hannah  v.  Fife,  27  Mich. 
172;  Gibbs  V.  Smith,  115  Mass.  592;  Swan  v.  Chorpenning,  20  Cal. 
182;  Gardiner  V.  Morse,  25  Maine  140;  Ingram  v.  Ingram,  49  N.  C. 
188;  Brisbane  v.  Adams,  3  N.  Y.  129;  Woodruff  v.  Berry,  40  Ark. 
251;  Wald  Pol.  Cont.,  310,  note  by  Mr.  Wald,  and  cases  cited. 
The  case  of  Jones  v.  North,  L.  R.  19  Eq.  426,  to  the  contrary,  can 
not  be  supported.  The  largest  purchasers  of  pipe  are  municipal  cor- 
porations, and  they  are  by  law  required  to  solicit  bids  for  the  sale  of 
pipe  in  order  that  the  public  may  get  the  benefit  of  competition.  One 
of  the  means  adopted  by  the  defendants  in  their  plan  of  combination 
was  this  illegal  and  fraudulent  effort  to  evade  such  laws,  and  to  de- 
ceive intending  purchasers.  No  matter  what  the  excuse  for  the  com- 
bination by  defendants  in  restraint  of  trade,  the  illegality  of  the  means 
stamps  it  as  a  conspiracy,  and  so  brings  it  within  that  term  of  the  fed- 
eral statute. 

The  second  question  is  whether  the  trade  restrained  by  the  combi- 
nation of  the  defendants  was  interstate  trade.     *     *     * 

In  Robbins  v.  Taxing  Dist.,  120  U.  S.  489,  7  Sup.  Ct.  592,  a  law 
of  Tennessee,  which  imposed  a  tax  on  all  "drummers"  who  solicited 
orders  on  samples,  was  held  unconstitutional  in  so  far  as  it  applied  to 
the  drummer  of  an  Ohio  firm,  who  was  soliciting  orders  for  goods  to 
be  sent  from  Ohio  to  the  purchasers  in  Tennessee,  on  the  ground  that 
it  was  a  tax  on  interstate  commerce.  In  delivering  the  opinion  of  the 
court  in  that  case,  Mr.  Justice  Bradley  said  (page  497,  120  U.  S., 
and  page  596,  7  Sup.  Ct.)  that  a  tax  on  the  sale  of  goods,  or  the  offer 
to  sell  them  before  they  are  brought  into  the  state,  was  clearly  a  tax 
on  interstate  commerce.     He  further  said  : 

"The  negotiation  of  sales  of  goods  which  are  in  another  state,  for 
the  purpose  of  introducing  them  into  the  state  in  which  the  negotia- 
tion is  made,  is  interstate  commerce."     «     *     * 

If  then,  the  soliciting  of  orders  for,  and  the  sale  of,  goods  in  one 
state,  to  be  delivered  from  another  state,  is  interstate  commerce  in  its 
strictest  and  highest  sense — such  that  the  states  are  excluded  by  the 
federal  constitution  from  a  right  to  regulate  or  tax  the  same, — it  seems 
clear  that  contracts  in  restraint  of  such  solicitations,  negotiations,  and 
sales  are  contracts  in  restraint  of  interstate  commerce.  The  anti-trust 
law  is  an  effort  by  congress  to  regulate  interstate  commerce.  Such 
commerce  as  the  states  are  excluded  from  burdening  or  regulating  in 
any  way  by  tax  or  otherwise,  because  of  the  power  of  congress  to  reg- 
ulate interstate  commerce,  must,  of  necessity,  be  the  commerce  which 
congress  may  regulate,  and  which,  by  the  terms  of  the  anti-trust  law, 
it  has  regulated.  We  can  see  no  escape  from  the  conclusion,  there- 
fore, that  the  contract  of  the  defendants  was  in  restraint  of  interstate 
commerce.     «     ♦     * 

Reversed. 

Corporate  Combinations. 

Note:     See  decision  in  supreme  court  of  U.  S.,  176  U.  S.  211,  infra,  p.  1535. 
1.    In  general.    In  the  discussion  of  this  topic  two  principles  should  be  kept 


972         U.    S.  V.  ADDYSTON    PIPE   AND    STEEL   CO.  ET   AL.        §  2/8 

of  the  contract  suggests  the  measure  of  protection  needed,  and  fur- 
nishes a  sufficiently  uniform  standard  by  which  the  validity  of  such 
restraints  may  be  judicially  determined.  In  such  a  case,  if  the 
restraint  exceeds  the  necessity  presented  by  the  main  purpose  of  the 
contract,  it  is  void  for  two  reasons :  First,  because  it  oppresses  the 
covenantor  without  any  corresponding  benefit  to  the  covenantee;  and, 
second,  because  it  tends  to  a  monopoly.  But  where  the  sole  object 
of  both  parties  in  making  the  contract  as  expressed  therein  is  merely 
to  restrain  competition,  and  enhance  or  maintain  prices,  it  would 
seem  that  there  was  nothing  to  justify  or  excuse  the  restraint,  that  it 
would  necessarily  have  a  tendency  to  monopoly  and  therefore  would 
be  void.  In  such  a  case  there  is  no  measui'e  of  what  is  necessary  to 
the  protection  of  either  party  except  the  vague  and  varying  opinion 
of  judges  as  to  how  much,  on  principles  of  political  economy,  men 
ought  to  be  allowed  to  restrain  competition.  There  is  in  such  con- 
tracts no  main  lawful  purpose  to  subserve  which  partial  restraint  is 
permitted,  and  by  which  its  reasonableness  is  measured,  but  the 
sole  object  is  to  restrain  trade  in  order  to  avoid  the  competition  which 
it  has  always  been  the  policy  of  the  common  law  to  foster. 

[Reviewing  many  cases.]      ********* 

Upon  this  review  of  the  law  and  the  authorities,  we  can  have  no 
doubt  that  the  association  of  the  defendants,  however  reasonable  the 
prices  they  fixed,  however  great  the  competition  they  had  to  encoun- 
ter, and  however  great  the  necessity  for  curbing  themselves  by  joint 
agreement  from  committinsr  financial  suicide  by  ill-advised  competi- 
tion, was  void  at  common  law,  because  in  restraint  of  trade,  and 
tending  to  a  monopoly.  But  the  facts  of  the  case  do  not  require  us 
to  go  so  far  as  this,  for  they  show  that  the  attempted  justification  of 
this  association  on  the  grounds  stated  is  without  foundation. 

Another  aspect  of  this  contract  of  association  brings  it  within  the 
term  used  in  the  statute,  "a  conspiracy  in  restraint  of  trade."  A 
conspiracy  is  a  combination  o5  two  or  more  persons  to  accomplish  an 
unlawful  end  by  lawful  means  or  a  lawful  end  by  unlawful  means.  In 
the  answer  of  the  defendants,  it  is  averred  that  the  chief  way  in  which 
cast-iron  pipe  is  sold  is  by  contracts  let  after  competitive  bidding  in- 
vited by  the  intending  purchaser.  It  would  have  much  interfered 
with  the  smooth  working  of  defendants'  association  had  its  existence 
and  purposes  become  known  to  the  public.  A  part  of  the  plan  was 
a  deliberate  attempt  to  create  in  the  minds  of  the  members  of  the 
public  inviting  bids  the  belief  that  competition  existed  between  the 
defendants.  Several  of  the  defendants  were  required  to  bid  at  every 
letting,  and  to  make  their  bids  at  such  prices  that  the  one  already  se- 
lected to  obtain  the  contract  should  have  the  lowest  bid. 

It  is  well  settled  that  an  agreement  between  intending  bidders  at  a 
public  auction  or  a  public  letting  not  to  bid  against  each  other,  and 
thus  to  prevent  competition,  is  a  fraud  upon  the  intending  vendor  or 
contractor,  and  the  ensuing  sale  or  contract  will  be  set  aside.  Breslin 
v.  Brown,  24  Ohio  St.  565;  Atcheson  v.  Mallon,  43  N.  Y.  147; 
Loyd  v.  Malone,  23  111.  41  ;   Wooten  v.  Hinkle,  20  Mo.  290;    Phip- 


§  2;8  POWER    AS    TO    TRADE    COMBINATIONS.  973 

pen  V.  Stickney,  3  Mete.  (Mass.)  384;  Kearney  v.  Taylor,  15  How. 
494,  519;  Wilbur  V.  How,  8  Johns.  444;  Hannah  v.  Fife,  27  Mich. 
172;  Gibbs  V.  Smith,  115  Mass.  592;  Swan  v.  Chorpenning,  20  Cal. 
182;  Gardiner  V.  Morse,  25  Maine  140;  Ingram  v.  Ingram,  49  N.  C. 
188;  Brisbane  v.  Adams,  3  N.  Y.  129;  Woodruff  v.  Beny,  40  Ark. 
251;  Wald  Pol.  Cont.,  310,  note  by  Mr.  Wald,  and  cases  cited. 
The  case  of  Jones  v.  North,  L.  R.  19  Eq.  426,  to  the  contrary,  can 
not  be  supported.  The  largest  purchasers  of  pipe  are  municipal  cor- 
porations, and  they  are  by  law  required  to  solicit  bids  for  the  sale  of 
pipe  in  order  that  the  public  may  get  the  benefit  of  competition.  One 
of  the  means  adopted  by  the  defendants  in  their  plan  of  combination 
was  this  illegal  and  fraudulent  effort  to  evade  such  laws,  and  to  de- 
ceive intending  purchasers.  No  matter  what  the  excuse  for  the  com- 
bination by  defendants  in  restraint  of  trade,  the  illegality  of  the  means 
stamps  it  as  a  conspiracy,  and  so  brings  it  within  that  term  of  the  fed- 
eral statute. 

The  second  question  is  whether  the  trade  restrained  by  the  combi- 
nation of  the  defendants  was  interstate  trade.      *     »     * 

In  Robbins  v.  Taxing  Dist.,  120  U.  S.  489,  7  Sup.  Ct.  592,  a  law 
of  Tennessee,  which  imposed  a  tax  on  all  "drummers"  who  solicited 
orders  on  samples,  was  held  unconstitutional  in  so  far  as  it  applied  to 
the  drummer  of  an  Ohio  firm,  who  was  soliciting  orders  for  goods  to 
be  sent  from  Ohio  to  the  purchasers  in  Tenijessee,  on  the  ground  that 
it  was  a  tax  on  interstate  commerce.  In  delivering  the  opinion  of  the 
court  in  that  case,  Mr.  Justice  Bradley  said  (page  497,  120  U.  S., 
and  page  596,  7  Sup.  Ct.)  that  a  tax  on  the  sale  of  goods,  or  the  offer 
to  sell  them  before  they  are  brought  into  the  state,  was  clearly  a  tax 
on  interstate  commerce.      He  further  said: 

"The  negotiation  of  sales  of  goods  which  are  in  another  state,  for 
the  purpose  of  introducing  them  into  the  state  in  which  the  negotia- 
tion is  made,  is  interstate  commerce."     *     *     * 

If  then,  the  soliciting  of  orders  for,  and  the  sale  of,  goods  in  one 
state,  to  be  delivered  from  another  state,  is  interstate  commerce  in  its 
strictest  and  highest  sense — such  that  the  states  are  excluded  by  the 
federal  constitution  from  a  right  to  regulate  or  tax  the  same, — it  seems 
clear  that  contracts  in  restraint  of  such  solicitations,  negotiations,  and 
sales  are  contracts  in  restraint  of  interstate  commerce.  The  anti-trust 
law  is  an  effort  by  congress  to  regulate  interstate  commerce.  Such 
commerce  as  the  states  are  excluded  from  burdening  or  regelating  in 
any  way  by  tax  or  otherwise,  because  of  the  power  of  congress  to  reg- 
ulate interstate  commerce,  must,  of  necessity,  be  the  commerce  which 
congress  may  regulate,  and  which,  by  the  terms  of  the  anti-trust  law, 
it  has  regulated.  We  can  see  no  escape  from  the  conclusion,  there- 
fore, that  the  contract  of  the  defendants  was  in  restraint  of  interstate 
commerce.     ♦     «     * 

{Reversed. 

Corporate  Combinations. 

Note:     See  decision  in  supreme  court  of  U.  S.,  176  U.  S.  211,  infra,  p.  1536. 
1.    In  general.    In  the  discussion  of  this  topic  two  principles  should  be  kept 


974      U.    S.    V.    AUDYSTON    PIPE   AND    STEEL   CO.    ET   AL.        §  2/8 

constantly  in  mind, — one  based  upon  tlie  nature  of  a  corporation  is,  that  tl)e 
grant  of  corporate  power  is  a  franchise  granted  by  the  state  for  a  definite  pur- 
pose, to  be  exercised  in  a  way  prescribed,  and  subject  to  forfeiture  by  the 
state  if  it  is  not  carried  out  in  accordance  with  the  grant;  tlie  second  is  based 
upon  public  policy,  viz.,  that  combination  agreements  of  individuals,  part- 
nerships, or  corporations,  with  the  purpose  and  effect  (with  certain  excep- 
tions) of  restraining  trade,  destroying  competition,  and  resulting  in  monopoly, 
are  unenforcible,  and  under  some  circumstances  wrongful, — tortious  or  crim- 
inal. 

2.  The  first  principle,  that  a  corporation  must  not  abdicate  its  purpose  or  prescribed 
method  of  management,  is  well  expressed  in  Whittenton  Mills  v.  Upton,  10 
Gray  (Mass.)  682  (1858),  by  Thomas,  J.,  where  the  question  involved  was 
whether  a  corporation  could  be  a  member  of  a  partnership.  He  paid:  "An 
act  of  the  corporation,  done  either  by  direct  vote  or  by  agents  authorized  for 
the  purpose,  is  the  manifestation  of  the  collected  will  of  the  society.  No 
member  of  the  corporation,  as  such,  can  bind  the  society.  In  a  partnership 
each  member  binds  the  society  as  a  principal.  If,  then,  this  corporation  may 
enter  into  partnership  with  an  individual,  there  would  be  two  principals,  the 
legal  person  and  the  natural  person,  each  having,  within  the  scope  of  the 
society's  business,  full  authority  to  manage  its  concerns,  including  even  the 
disposition  of  its  property.  *  ♦  *  The  partner  may  manage  and  conduct 
the  business  of  the  corporation,  and  bind  it  by  his  acts.  In  doing  so  he  does 
not  act  as  an  officer  or  agent  of  the  corporation  by  authority  received  from  it, 
but  as  a  principal  in  a  society  in  which  all  are  equals,  and  each  capable  of 
binding  the  society  by  the  act  of  its  individual  will."  This  agreement  was 
held  void.  Such  agreements,  if  valid,  would  have  the  effect,  as  Judge  Finch 
says,  in  People  v.  North  River  Sugar  Ref.  Co.,  121  N.  Y.  582  (1890),  supra, 
p.  100,  to  permit  a  corporation  "  to  accept  from  the  state  the  gift  of  corporate 
life  only  to  disregard  the  conditions  upon  which  it  was  given;  to  receive  its 
powers  and  privileges  merely  to  put  them  in  pawn;  and  to  give  away  to  an 
irresponsible  board  {or  person)  its  entire  independence  and  self-control.'^  So,  too, 
it  would  have  the  effect  of  conferring  upon  the  partner  the  capacity  of  wield- 
ing or  enjoying  corporate  power  without  the  states'  grant  being  made  to  him. 
The  same  doctrines  are  stated  in  Mallory  v.  Hanaur  Oil  Works,  86  Tenn.  598, 
supra,  p.  957. 

The  above  were  all  cases  of  purely  private  business  corporations,  not  those 
owing  any  special  duty  to  the  public.  The  rule  applies,  of  course,  with  more 
reason  and  more  strictness  to  quasi-public  corporations,  or  those  owing  partic- 
ular duties  to  the  public.  As  stated  bv  Justice  Miller  in  Thomas  v.  West  Jer- 
sey R.  Co.,  101  U.  S.  71  (1879),  supra,  p"915 ;  "  Where  acorporation,  like  a  rail- 
road company,  has  granted  to  it  by  charter  a  franchise  intended,  in  large 
measure,  to  be  exercised  for  the  public  good,  the  due  performance  of  those 
functions  being  the  consideration  of  the  public  grant,  any  contract  which  dis- 
ables the  corporation  from  i)erforming  those  functions,  which  undertakes, 
without  the  consent  of  the  state,  to  transfer  to  others  the  rights  and  powers 
conferred  by  the  charter,  and  to  relieve  the  grantees  of  the  burden  which  it 
imposes,  is  a  violation  of  the  contract  with  the  state,  and  is  void  as  against 
public  policy."  While  Justice  Miller  says  such  contract  is  void  as  against 
public  policy,  he  evidently  means  that  it  is  void  because  it  is  in  conflict  with  a 
definite  rule  of  law,  viz.,  that  corporations  are  accountable  to  the  state  for 
non-user  or  mis-u?ier  of  the  franchises  granted,  and  not  that  only  gwasi-public 
corporations  are  so  accountable.     (See  infra,  this  note,  class  d.) 

From  these  principles,  therefore,  it  follows  that  all  contracts  of  a  corpora- 
tion, either  private  or  quasi-\->n\)\\c,  to  enter  into  combinations,  whether  of  part- 
nership, pool,  restraint  of  trade,  trust,  lease,  consolidation,  sale  or  otherwise, 
the  necessary  effect  of  which  is  to  destroy  its  autonomy  in  the  performance  of 
its  duty  to  the  state,  are,  or  ought  to  be,  held  to  be  void  and  unenforcible,  and 
this  so,  regardless  of  any  other  quality  of  the  contract.  And  it  is  generally 
held  so,  although  there  are  holdings  to  the  contrary  (erroneously  we  think), 
in  the  case  of  leases  and  sales  by  purely  private  corporations.  See  cases 
cited  in  notes  to  §§  275,  276,  277,  279-282,  and  below,  class  d  in  this  note. 


§  278  POWER   AS   TO   TRADE   COMBINATIONS.  975 

While  a  contract  by  a  corporation  violating  this  principle  alone  is  not  crim- 
inal or  wrongful,  it  is  iiltra  vires  in  the  true  sense,  and  the  state  umloubt- 
edly  has  a  technical  riglit  to  complain.  Tlie  state,  however,  does  not,  and 
will  not,  complain  of  such  a  transaction  unless  tlie  contract  made,  or  tilings 
done  under  it,  injuriously  affect  or  threaten  public  interests;  then  the  state 
may  interfere  by  quo  icnrranto  to  prevent  or  enjoin  its  consummation,  eittier 
by  ousting  the  corj)oration  of  the  power  usurped  or  annulling  the  charter.  As 
Judge  Finch  says,  People  v.  Sugar  Ref.  Co.,  121  N.  Y.  582,  608:  "The  state, 
as  prosecutor,  must  show  on  the  part  of  the  corporation  accused  some  sia 
against  the  law  of  its  being  which  has  produced,  or  tends  to  produce,  injury 
to  tlie  public.  The  transgression  must  not  be  merely  formal  or  incidental, 
but  material  and  serious ;  and  such  as  to  harm  or  menace  the  public  wel- 
fare." See,  181K),  People  v.  North  River  S.  R.  Co.,  121  N.  Y.  582;  1892,  State 
V.  Standard  Oil  Co.,  49  Oliio  St.  137;  1899,  State  v.  Portland  Natural  Gas  & 
Oil  Co.,  153  Ind.  483,  53  N.  E.  Rep.  1089. 

3.  The  second  principle — that  contracts  in  restraint  of  trade  (with  certain  ex- 
ceptions) are  void  and  unenforcible — has  alone  no  peculiar  application  to  cor- 
porations, but  applies  to  individuals  and  partnerships  also ;  but  this  principle 
together  with  the  first  one  above  gives  the  state  a  power  over  corporations  in 
regard  to  such  contracts  that  it  does  not  have  over  individuals,  viz.,  that  the 
state  can  actively  and  of  its  own  accord  take  the  life  of  the  offending  corpo- 
ration for  engaging  in  s  ich  a  contract,  though  no  punishment,  aside  from 
refusing  to  enforce  the  contract,  could  be  meted  out  to  an  offending  individual 
or  partnership. 

What  contracts  restraining  trade  are  void  is  a  difficult  matter,  in  the  pres- 
ent state  of  the  law,  to  determine.  It  seems  to  me  that  Judge  Taft,  in  the 
Addyston  Pipe  case,  supi'a,  p.  967,  has  struck  the  true  basis  of  classification  by 
dividing  contracts  in  restraint  of  trade  and  competition  into  three  classes: 

a.  Those  in  which  the  restraining  contract  is  wholly  incidental  and  ancil- 
lary to  another  main  or  principal  contract  that  is  lawful ;  and, 

b.  Those  in  which  the  restraining  contract  is  the  main  or  principal  contract, 
to  which  others  are  only  incidental,  ancillary,  or  preliminary  to  this  pur- 
pose; and, 

c.  Those  in  which  the  restraining  contract  is  the  only  contract  made. 

As  to  class  «,  it  was  formerly  held,  perhaps,  that  all  restraints  upon  trade 
were  invalid:  1415,  Y.  B.,  2  Hen.  V.  5,  26;  1613,  Darcy  v.  Allein,  11  Co.  84; 
1711,  Mitchel  v.  Reynolds,  1  P.  Wms.  181;  1837,  Alger  v.  Thacher,  19  Pick. 
(Mass.)  51;  but  the  rule  has  been  settled  that  such  restraints  as  are  rea- 
sonably necessary  for  the  protection  of  the  rights  acquired  by  the  main 
contract  are  valid:  1621,  Broad  v.  Jollyfe,  Cro.  Jap.  596;  1711,  Mitchel  v. 
Revnolds,  1  P.  Wms.  181;  1793,  Davis  v.  Mason,  5  T.  R.  118;  1803,  Bunn  v. 
Guy,  4  East  190;  1806,  Gale  v.  Reed,  8  East  80;  1811,  Pierce  v.  Fuller,  8 
Mass.  223;  1813,  Perkins  v.  Lyman,  9  Mass.  522;  1818,  Hayward  v.  Young,  2 
Chittv407;  1822,  Brvson  v.  Whitehead,  1  Simons  &  S.  74;  1827,  Nobles  v. 
Bates',  7  Cowen  307;' 1831,  Horner  v.  Graves,  7  Bing.  735;  1837,  Alger  v. 
Thacher,  19  Pick.  (Mass.)  51;  1839,  Chappel  v.  Brockway,  21  Wend.  157; 
1851,  Dunlop  V.  Gregory,  10  N.  Y.  241,  61  Am.  Dec.  746:  1856,  Cal.  Steam  Nav. 
Co.  V.  Wright,  6  Cal.  259,  65  Am.  Dec.  51 1 ;  1869,  Jenkins  v.  Templs,  39  Ga.  655, 
99  Am.  Dec.  482;  1869,  Morse  T.  D.  Co.  v.  Morse,  103  Mass.  73.  4  Am.  Rep. 
513;  1872,  Hovtv.  Holly,  39  Conn.  326,12  Am.  Rep.' 390;  1887,  Diamond 
Match  Co.  V.  Roeber,  106  N.  Y.  473,  60  Am.  Rep.  464;  1890,  Newell  v.  Meven- 
dorff,  9  :\ront.  254,  18  Am.  St.  Rep.  738;  1891,  Chapin  v.  Brown,  83  Iowa  156, 
32  Am.  St.  Rep.  297;  1894,  Nordenfeldt  v.  Maxim  N.  Co.,  App.  Cas.  535; 
1895,  McCurrv  v.  Gibson,  108  Ala.  451,  54  Am.  St.  Rep.  177;  1896,  Kramer  v. 
Old,  119  N.  C.  1.  56  Am.  St.  Rep.  650;  1898,  Lufkin  R.  Co.  v.  Fringeli,  57 
Ohio  St.  596,  63  Am.  St.  Rep.  736;  1898,  Stride  v.  Martin,  77  L.  T.  (N.  S.) 
600;  1900,  Jackson  v.  Byrnes,  103  Tenn.  698,  54  S.  W.  Rep  984. 

What  is  reasonable  or  unreasonable  depends  upon  the  circumstances  of  each 
case,  and  different  courts  take  different  views  of  similar  circumstances,  but 
total  restraints  in  both  space  and  time  are  generally  held  void ;  with  improved 
machinery  and  communication,  what  are  now  reasonable  for  protection  (Dia- 


976     U.    S.    V.    ADDYSTON    PIPE   AND    STEEL   CO.    ET   AL.        §  278 

mond  Match  Co.  v.  Roeber,  106  N.  Y.  473;  Nordenfeldt  v.  Maxim  N.  Co., 
App.  Cas.  (1894)  535)  would  formerly  have  been  held  to  be  unreasonable 
(Mitchel  V.  Reynolds,  1   P.  Wms.  181). 

The  subdivisions  of  class  a  are  given  in  the  report  of  the  Addyston  case, 
supra,  p.  970. 

Under  class  b,  when  the  main  contract  is  to  restrain  trade,  and  this  does  so 
unreasonably  as  to  affect  public  interests,  such  main  and  ancillary  contracts 
are  not  enforcible.  The  following  late  cases  illustrate  this :  1877,  Arnot  v. 
Coal  Co.,  68  N.  Y.  558;  1888,  Santa  Clara  Lumber  Co.  v.  Hayes,  76  Cal.  387, 
18  Pac.  Rep.  391 ;  1889,  Richardson  v.  Buhl,  77  Mich.  632, 43  N.  W.  Rep.  1102 ; 
1890,  People  v.  Refining  Co.,  121  N.  Y.  582,  supra,  p.  100;  1890,  State  v.  Neb. 
Dis.  Co.,  29  Neb.  700,  46  N.  W.  Rep.  155;  1890,  Pittsburgh  Carbon  Co.  v.  Mc- 
Millin,  119  N.  Y.  46,  23  N.  E.  Rep.  530;  1891,  Am.  Biscuit  Mfg.  Co.  v.  Klotz, 
44  Fed.  Rep.  721 ;  1891,  Pacific  Factor  Co.  v.  Adler,  90  CaL  110;  1892,  State  v. 
Standard  Oil  Co.,  49  Ohio  St.  137;  1895,  People  v.  Milk  Exchange,  145  N.  Y. 
267 ;  1895,  Distilling  and  Cattle  Feeding  Co.  v.  People,  156  111.  448,  infra,  p.  978 ; 
1897,  National  Harrow  Co.  v.  Hench,  83  Fed.  Rep.  36;  1898,  United  States  v. 
Coal  Dealers' Assn.,  85  Fed.  Rep.  252;  1899,  Harding  v.  Am.  Glucose  Co.,  182 
111.  551,  55  N.  E.  Rep.  577. 

Under  class  c,  there  being  no  lawful  purpose  to  forward,  no  rule  to  measure 
the  necessity  of  restriction,  but  a  purpose  to  avoid  competition  which  the  law 
favors,  such  contracts  should  be  held  void.  The  following  are  cases  of  this 
kind :  1837,  Alger  v.  Thacher,  19  Pick.  51 ;  1855,  Hilton  v.  Eckersley,  6  El.  & 
Bl.  (88  E.  C.  L.)  47;  1859,  India  Bagging  Assn.  v.  Kock,  14  La.  Ann.  168; 
1871,  Morris  Run  Coal  Co.  v.  Barclay  Coal  Co.,  68  Pa.  St.  173;  1875,  Craft  v. 
McConoughy,  79  111.  346;  1880,  Salt  Co.  v.  Guthrie,  35  Ohio  St.  666;  1889,  Leon- 
ard V.  Poole,  114  N.  Y.  371 ;  1889,  Anderson  v.  Jett,  89  Ky.  375;  1890,  Emerv 
V.  Candle  Co.,  47  Ohio  St.  320;  1890.  Urmston  v.  Whitelegg  Bros.,  63  L.  T.  (N. 
S.)455;  1891,  Chapin  V.  Brown,  83  Iowa  156;  1892,  Vulcan  Powder  Co.  v. 
Hercules  Powder  Co.,  96  Cal.  510;  1892,  Oil  Co.  v.  Adoue,  83  Tex.  650;  1892, 
More  V.  Bennett,  140  111.  69;  1892,  Mogul  Steamship  Co.  v.  McGregor,  App. 
Cas.  25;  1893.  People  v.  Sheldon,  139  N.  Y.  251 ;  1893,  Judd  v.  Harrington, 
139  N.  Y.  105 ;  1894,  Nester  v.  Brewing  Co.,  161  Pa.  St.  473 ;  1895,  Ford  v.  Milk 
Association,  155  111.  166;  1895,  Bishop  v.  Preservers'  Co.,  157  111.  284 ;  1897,  Mil- 
waukee M.  &  B.  Assoc.  V.  Niezerowski,  95  Wis.  129;  1898,  LTnited  States  v. 
Trans-Missouri  Ft.  Assoc,  166  U.  S.  290;  1898,  United  States  v.  Joint  Traffic 
Association,  171  U.  S.  505;  1899,  State  v.  Fireman's  F.  Ins.  Co.,  152  Mo.  1,  52 
S.  W.  Rep.  595;  1899,  Bailey  v.  Association  of  Plumbers,  103  Tenn.  99,  52 
8.  W.  Rep.  853;  1899,  Harding  v.  Am.  Glucose  Co.,  182  111.  551,  55  N.  E.  Rep. 
577;  1900,  Gatzow  v.  Buening,  106  Wis.  1,  81  N.  W.  Rep.  1003. 

With  these  cases,  however,  should  be  compared  the  following:  Wickens  v. 
Evans,  3  Y.  &  J.  318;  Collins  v.  Locke,  4  App.  Cas.  674;  Ontario  Salt  Co.  v. 
Merchants'  S.  Co.,  18  Grant  (U.  C.)  540;  and  Leslie  v.  Lorrillard,  110  N.  Y. 
519. 

Perhaps  there  should  be  added  to  the  above  classes  another  that  we  may 
call  class  d — public  service  companies  or  occ^ipations — in  whicii  any  restraints 
that  prevent  the  performance  of  their  whole  duty  to  the  public  are  held  to 
be  invalid:  1847,  Hooker  v.  Vandewater,  4  Denio  349;  1848,  Stantofi  v. 
Allen,  5  Denio  434;  1869,  Railroad  Co.  v.  Collins,  40  Ga.  582;  1871,  Hazel- 
hurst  V.  R.  Co.,  43  Ga.  13;  1883,  West  Va.  Transp.  Co.  v.  Ohio  Riv.,  etc.,  Co., 
22  W.  Va.  600;  1888,  Gibbs  v.  Gas  Co.,  130  U.  S.  396;  1889.  People  v.  Chi- 
cago Gas  T.  Co.,  130  111.  268,  infra,  p.  1054;  1892,  Stockton  v.  Central  R.  Co., 
50  N.  J.  Eq.  52;  1899,  State  v.  Portland  Nat.  Gas  Co.,  153  Ind.  483,  53  N.  E. 
Rep.  1089 ;   and  see  cases  cited  under  section  276. 

^Tiether  contracts  in  undue  restraint  of  trade  are  anything  more  than  un- 
enforcible,  that  is,  illegal  as  being  tortious  or  wrongful,  so  as  to  be  the  basis 
of  a  suit  for  damages,  or  a  criminal  prosecution,  in  the  absence  of  any  statute 
regulating  the  matter,  is  in  controversy  ;  but  the  weight  of  authority  certainly 
is  that  if  there  is  no  fraud,  coercion,  intimidation,  or  something  of  the  kind 
practiced  upon  some  one,  there  is  no  civil  or  criminal  liability. 

The  following  cases  hold  there  is  a  civil  or  criminal  liability:     King  v. 


§  279  POWER   AS   TO   TRADE    COMBINATIONS.  97/ 

Journeyman  Tailors,  8  Mod.  10;  1835,  People  v.  Fisher,  14  Wend.  9,  28  Am, 
Dec.  501 ;  1867,  Master  Stevedore's  Assn.  v.  Wateh,  2  Daly  1 ;  1871,  Morris 
Run  Coal  Co.  v.  Barclay,  etc,  Co.,  68  Pa.  St.  173;  1888,  Crump  v.  Commw., 
84  Va.  927,  10  Am.  St.  Rep.  895 ;  1893,  People  v.  Sheldon,  139  N.  Y.  251,  30 
Am.  St.  Rep.  690;  1898,  United  States  v.  Trans-Mo.  Ft.  Assn.,  166  U.  S.  290; 
1898,  Doremus  v.  Hennesy,  176  111.  608,  68  Am.  St.  Rep.  203;  1900,  Ertz  v. 
Produce  Ex.  Co.,  82  Minn.  173,81  N.  W.  Rep.  346. 

The  following  hoM  otherwise:  1842,  Commonwealth  v.  Hunt,  4  Mete. 
(Mass.)  Ill,  38  Am.  Dec.  346;  1892,  Mogul  Steamship  Co.  v.  McGregor,  App. 
Cas.  25;  1895,  Macauley  v.  Tierney,  19  R.  I.  255,  61  Am.  St.  R,  770;  1897, 
Beechley  v.  Mulville,  102  Iowa  602,  63  Am.  St.  Rep.  479;  1897,  Allen  v.  Flood, 
77  L.  T.  R.  717;  1899,  ^tna  Ins.  Co.  v.  Commw.,  21  Ky.  L.  Rep.  503,  45  L. 
R.  A.  355,  51  S.  W.  Rep.  624. 

4.  Anti-Trust  Acts :  Most  of  the  states  have  enacted  anti-trust  acts,  mak- 
ing a  civil  and  criminal  liability  for  creating  or  attempting  to  create  a  monop- 
oly. Some  of  these,  especially  the  late  Michigan,  act  255,  1899,  Missouri,  R. 
S.  1899,  §§  8978-85,  and  Texas,  ch.  146,  1899,  acts,  are  peculiarly  stringent. 

The  United  States  act  of  1890  (26  Stat.  209)  created  seven  different  crimes 
relating  to  interstate,  foreign,  or  territorial  trade  or  commerce,  punishable  by 
a  penalty  not  exceeding  $5,000,  or  one  year's  imprisonment,  or  both,  by  pro- 
viding that  every  person  (including  corporations  or  associations)  who  shall 
make  (1)  a  contract  in  restraint  of  such  trade,  or  (2)  engage  in  a  combination 
in  form  of  a  trust  or  otherwise,  or  (3)  engage  in  a  conspiracy  in  restraint  of 
such  trade,  or  (4)  monopolize,  or  (5)  attempt  to  monopolize,  or  (6)  combine, 
or  (7)  conspire,  to  monopolize  such  trade,  shall  be  guilty  of  a  misdemeanor 
punishable  as  stated ;  and  an  injured  party  may  recover  damages,  and  the 
combination  can  be  enjoined  at  the  suit  of  United  States  attorneys. 

This  applies  not  to  the  making  or  manufacture  of  goods  (United  States  v. 
E.  C.  Knight  Co.,  156  U.  S.  1),  but  allows  an  injunction  against  a  combina- 
tion of  railway  employes  to  obstruct  railroad  commerce.  In  re  Debs,  158  U. 
S.  564.  It  also  prevents  the  formation  of  pools  and  traffic  combinations 
among  railroads,  the  direct  tendency  of  which  is  to  limit  competition, 
whether  reasonable  or  unreasonable  (United  States  v.  Trans-Mo.  Freight 
Assn.,  1896,  166  U.  S.  290;  United  States  v.  Joint  Traffic  Association,  1898, 
171  U.  S.  505;  also  such  combinations  as  directly  affect  the  sale  of  products 
that  are  to  cross  state  lines,  1899,  United  States  v.  Addyston  Pipe  &  S.  Co., 
175  U.  S.  211,  infra,  p.  1535;  1899,  Lowrv  v.  Tile  M.  &  G.  Assn.,  98  Fed.  Rep. 
817;  1902,  Bement  v.  National  Harrow  Co.,  —  U.  S.  — ,  Adv.  June  16,  1902, 
p.  747. 

A<t  to  constitutionalitii  of  the  anti-trust  acts:  That  they  are  constitutional, 
see,  1900,  State  v.  Schlitz  Brewing  Co.,  104  Tenn.  715,  78  Am.  St.  Rep.  941; 
1901,  /?i  re  Davis,  168  N.  Y.  89,  61  N.  E.  118. 

That  they  are  unconstitutional,  see,  1901,  Niagara  Fire  Ins.  Co.  v.  Cornell 
(C.  C.  Neb.),  110 Fed.  816;  1902,  Connollv  v.  Union  Sewer  Pipe  Co.,  -  U.  S. 
— ,  22  Sup.  Ct.  Rep.  431 ;  1902,  Brown  v.  Jacobs  Pharmacy  Co.,  —  Ga.  — ,  41 
8.  E.  553;  1902,  State  v.  Shippers  Compress  Co.,  —  Tex.  Civ.  App.  — ,  67  S. 
W.  1049;  1902,  State  v.  Waters-Pierce  Oil  Co.,  —  Tex.  Civ.  App.  — ,  67  S.  W. 
1057. 

5.  Bibliography:  See  "The  Bibliography  of  Commercial  Trusts,  Law  Liter- 
ature of  Trust  Combinations,  Monopolies,  etc.,"  bv  Wm.  H.  Winters,  7  Ry.  & 
Corp.  L.  J.  236  (1890)  ;  2  Beach  on  Private  Corporations,  §  856,  note  1 ;  note, 
23  Abb.  N.  C.  317.  See  also,  especially,  Cook  Corporations,  §§503a-d03d; 
Elliott  CorporationB,  §§  172-179. 


Sec.  279.     {c)   Unincorporated  trusts. 

See  People  v.  N.  R.  Sugar  Ref.  Co.,  I2i   N.  Y.  582,  18  Am. 
St.  R.  843,  supra,  p.  100. 
ATofe.— See  note  to  preceding  case,  and  also  note,  supra,  pp.  109,  963,  966. 
62— WiL.  Cases. 


978        DISTILLING   AND  CATTLE   FEEDING  CO.  V.  PEOPLE.      §  280 
Sec.  280.      {^)   Incorporated  trusts. 

DISTILLING  AND  CATTLE  FEEDING  COMPANY  v.  PEOPLE.' 

1895.      In  the  Supreme  Court  of  Illinois.      156  111.  Rep.  448- 
492,  47  Am.  St.  R.  200. 

[_^uo  warranto  against  the  distilling  company.  Defendant  filed  a 
number  of  pleas,  to  all  of  which  demurrers  were  sustained,  and  the 
defendant  electing  to  abide  by  its  pleas  judgment  of  ouster  was 
rendered  against  it,  from  which  this  appeal  is  taken.  The  people  al- 
leged that  in  1887,  five  corporations  of  Illinois,  one  of  Missouri,  one 
of  Ohio,  with  a  partnership  and  an  individual  of  that  state,  all  en- 
gaged in  distilling,  executed  an  agreement  "to  form  a  trust  to  be 
known  as  the  Distillers'  and  Cattle  Feeders'  Trust,  for  the  purpose  of 
securing  intelligent  co-operation  in  the  business  of  distilling  spirits, 
etc.,"  by  creating  nine  trustees  (named  for  the  first  year,  to  be  elected 
annually,  by  the  certificate  holders),  who  were  required  to  prepare 
trust  certificates  of  $100  each,  to  be  issued  to  shareholders  in  the 
various  corporations  in  lieu  of  all  their  shares  of  stock  which  (except 
enough  to  qualify  a  minority  of  the  directors  in  each  company)  was  to 
be  assigned  absolutely  to  the  trustees  (but  without  power  of  sale), 
thereby  enabling  them  to  exercise  supervision  over  the  various  cor- 
porations entering  into  the  trust,  with  power  to  elect  themselves  di- 
rectors of  such  companies  if  found  desirable ;  also  with  power  to 
purchase  stock  in  other  distilling  companies  and  issue  trust  certificates 
therefor;  to  receive  and  distribute  all  dividends  declared,  in  propor- 
tion to  trust  certificates  held ;  that  each  corporation  conveyed  its  real 
estate  to  some  person  to  be  held  in  trust  for  its  shareholders,  which 
tmstee  leased  the  property  back  to  the  corporation  for  twenty-five 
years,  the  period  for  which  the  trust  was  to  exist ;  that  within  a  year 
after  this  agreement  was  entered  into,  eighty-one  distilleries  (in- 
cluding twenty-two  in  Illinois),  had  been  drawn  into  the  trust, 
and  the  trustees  held,  owned  and  controlled  the  capital  stock, 
business  and  franchises  of  all  of  such  corporations;  that  in  1890 
it  was  determined  to  change  the  organization  from  a  trust  to  a 
corporation,  and  the  trustees  were  directed  to  incorporate  the  Distill- 
ing and  Cattle  Feeding  Company  in  Illinois,  with  $35,000,000  capital 
stock,  theshares  to  be  of  $100  each,  and  to  be  exchanged  share  for  share 
for  trust  certificates,  and  the  latter  canceled;  that  the  trustees  were 
also  directed  to  transfer  all  their  rights  as  trustees  to  the  new  corpora- 
tion, and  also  cause  the  various  separate  companies  (of  each  of  which 
the  trustees  formed  a  majority  of  the  directors)  to  convey  all  their 
property  of  every  kind  to  the  new  corporation:  that  all  of  this  was 
done  by  organizing  the  company  under  the  Illinois  law,  "to  carry  on 
a  general  business  of  distilling,  redistilling  and  rectifving  high  wines, 
alcohol,  spirits,  gins  and  whiskies  of  every  kind  and  description,  and 
deal  in  the  same  in  the  state   of   Illinois  and    elsewhere,    and   owning 

'  Statement  of  facts  much  abridged;  only  part  of  opinion  given. 


§  2 So  POWER   AS   TO   TRADE   COMBINATIONS.  979 

the  property  necessary  for  that  purpose ; "  also  to  deal  in  cattle,  to 
malt  and  deal  in  malt,  and  "do  any  other  business  incident  to  the 
main  purpose  of  this  corporation,"  the  principal  office  to  be  located 
at  Peoria ;  that  the  nine  trustees  subscribed  for  all  the  stock,  elected 
themselves  directors  and  then  caused  the  stock  to  be  exchanged  and 
conveyances  to  be  made  as  directed  and  thereby  continued  to  retain 
control  of  said  corporations;  that  other  distilleries  had  been  acquired, 
many  of  them  dismantled  and  discontinued  so  that  in  1892  it  owned 
and  controlled  over  95  per  cent,  of  the  distilling  business  of  the  United 
States,  and  by  a  system  of  rebates  of  7  cents  per  gallon,  payable  at 
the  end  of  six  months  to  every  purchaser  who  had  in  the  meantime 
purchased  of  no  other  seller,  and  otherwise,  had  destroyed  all  compe- 
tition in  its  products;  and  that  all  the  foregoing  had  been  done  for  the 
purpose,  with  the  intent,  and  with  the  effect  of  raising  prices,  prevent- 
ing competition  and  creating  a  monopoly  in  the  production  and  sale 
of  its  products. 

The  pleas  admitted  substantially  all  the  allegations  relating  to  the 
formation  of  the  trust  and  the  corporation,  the  dismantling  of  distillerp 
ies  and  the  allowance  of  rebates,  except  such  as  charged  a  scheme  for 
the  purpose  or  with  the  effect  of  preventing  competition  and  creating 
a  monopoly,  all  of  which  were  denied  in  detail,  as  was  also  denied  all 
allegations  of  the  continued  existence  and  control  of  the  former  cor- 
porations by  the  defendant.  •  On  the  other  hand  the  pleas  alleged  that 
the  defendant  used  its  franchises  and  powers  by  virtue  of  its  charter 
alone,  and  that  after  its  incorporation  it  purchased  the  various  plants 
for  a  valuable  consideration  for  the  purpose  of  utilizing  them  in  its 
authorized  business ;  that  each  corporation  had  by  the  unanimous 
direction  of  its  shareholders  sold  all  of  its  property  of  every  kind  to 
the  defendant,  and  had  directed  that  all  of  its  stock  be  canceled  by  its 
directors,  and  the  charter  be  surrendered  to  the  state,  all  of  which  was 
alleged  to  have  been  done ;  that  at  the  time  when  the  purchases  were 
pnade  the  producing  capacity  of  all  plants  was  at  least  four  times  the 
demand,  and  forty-eight  of  the  plants  had  long  been  idle,  and  por- 
tions of  their  machinery  useless,  but  that  such  as  could  be  was  used 
in  fitting  up  such  distilleries  as  were  necessary;  and  that  the  sole  pur- 
pose of  the  defendant  was  to  meet  the  demand  of  the  public  and  secure 
only  fair  remuneration,  and  not  to  enhance  prices,  nor  create  a  mo- 
nopoly, nor  prevent  other  parties  from  engaging  in  the  business,  and 
that  in  fact  it  never  had  produced  more  than  65  per  cent,  of  the  de- 
mand, and  there  were  then  eighteen  distilleries  capable  of  producing 
two-thirds  of  the  entire  demand,  with  which  tlie  defendant  was  then 
in  active  competition.] 

Mr.  Justice  Bailey  [after  holding  the  "trust"  preceding  the  corpo- 
ration had  been  illegal  upon  the  authority  of  State  v.  Neb.  Dist.  Co., 
29  Neb.  700;  State  v.  Standard  Oil  Co.,  49  Ohio  St.  137;  People  v. 
N.  R.  S.  R.  Co.,  54  Hun  354,  121  N.  Y.  578,  supra^  p.  100;  Rich- 
ardson V.  Buhl,  77  Mich.  632;  People  v.  Chicago  Gas  Trust  Co., 
130  111.  268,  infra^  p.   1054]  proceeds:       *     «     * 

But  the  defendant  contcMuls  that,  while  this  may  all  be  so,  the  change 


98o       DISTILLING    AND    CATTLE    FEEDING    CO.   V.   PEOPLE.      §  280 

in  organization  from  an  unincorporated  association  to  a  corporation, and 
the  change  in  the  mode  of  holding  the  distillery  properties  of  the  va- 
rious corporations  formerly  belonging  to  the  trust,  by  surrendering  the 
stock  of  the  corporations,  by  means  of  which  the  control  of  those 
properties  was  formerly  maintained,  and  having  the  properties  them- 
selves transferred  and  conveyed  directly  to  the  defendant  corporation, 
have  purged  the  combination  of  its  illegality.  It  must  be  admitted 
that  these  changes,  so  far  as  they  have  any  effect  upon  the  rights  or 
interests  of  the  former  stockholders  in  those  corporations  or  of  the 
public,  are  formal  rather  than  substantial.  The  same  interests  are 
controlled  in  substantially  the  same  way  and  by  the  same  agencies  as 
before.  The  nine  trustees  of  the  trust  who,  as  the  holders  of  all  the  cap- 
ital stock  of  the  corporations  and  as  a  majority  of  the  directors  of 
each,  controlled  such  corporate  property,  became  the  subscribers  for 
all  the  stock  of  the  new  corporation,  and  its  board  of  directors.  The 
conveyance  and  transfer  of  the  properties  of  the  constituent  companies 
to  the  new  corporation  was  merely  a  transfer  by  the  trustees  to  them- 
selves, though  in  a  slightly  different  capacity,  and  the  former  stock- 
holders in  the  constituent  companies  simply  exchanged  their  trust 
certificates,  share  for  share,  for  stock  in  the  new  corporation.  That 
corporation  thus  succeeds  to  the  trust,  and  its  operations  are  to  be  car- 
ried on  in  the  same  way,  for  the  same  purposes  and  by  the  same  agen- 
cies as  before.  The  trust,  then,  being  repugnant  to  public  policy  and 
illegal,  it  is  impossible  to  see  why  the  same  is  not  true  of  the  corpo- 
ration which  succeeds  to  it  and  takes  its  place.  The  control  exercised 
over  the  distillery  business  of  the  country — over  production  and  prices 
— and  the  virtual  monopoly  formerly  held  by  the  trust,  are  in  no  de- 
gree changed  or  relaxed,  but  the  methods  and  purposes  of  the  trust 
are  perpetuated  and  carried  out  with  the  same  persistence  and  vigor 
as  before  the  organization  of  the  corporation.  There  is  no  magic  in  a 
corporate  organization  which  can  purge  the  trust  scheme  of  its  illegal- 
ity, and  it  remains  as  essentially  opposed  to  the  principles  of  sound 
public  policy  as  when  the  trust  was  in  existence.  It  was  illegal  be- 
fore and  is  illegal  still,  and  for  the  same  reasons. 

But  it  is  urged  that  the  defendant,  by  its  charter,  is  authorized  to 
purchase  and  own  distillery  property  and  that  there  is  no  limit  placed 
upon  the  amount  of  property  which  it  may  thus  acquire.  By  its  cer- 
tificate of  organization  it  is  authorized  to  engage  in  a  general  distill- 
eiy  business  in  Illinois  and  elsewhere,  and  to  own  the  property  neces- 
sary for  that  purpose.  It  should  be  remembered  that  grants  of  power 
in  corporate  charters  are  to  be  construed  strictly,  and  that  what  is  not 
clearly  given  is,  by  implication,  denied.  The  defendant  is  author- 
ized to  own  such  property  as  is  necessary  for  carrying  on  its  distillery 
business,  and  no  more.  Its  power  to  acquire  and  hold  property  is 
limited  to  that  purpose,  and  it  has  no  power,  by  its  charter,  to  enter 
upon  a  scheme  of  getting  into  its  hands  and  under  its  control  all,  or 
substantially  all,  the  distilleiy  plants  and  the  distillery  business  of  the 
country,  for  the  purpose  of  controlling  production  and  prices,  of 
crushing  out  competition,  and  of  establishing  a  virtual  monopoly  in  that 


§  28l  POWER    AS   TO   TRADE    COMBINATIONS.  98 1 

business.  Such  purposes  are  foreign  to  the  powers  granted  by  the 
charter.  Acquisitions  of  property  to  such  extent  and  for  such  pur- 
pose do  not  come  within  the  authority  to  own  the  property  necessary 
for  the  purpose  of  carrying  on  a  general  distillery  business.  In  ac- 
quiring distillery  properties  in  the  manner  and  for  the  purposes  shown 
by  the  information,  the  defendant  has  not  only  misused  and  abused 
the  powers  granted  by  its  charter,  but  has  usurped  and  exercised  pow- 
ers not  conferred  by,  but  which  are  wholly  foreign  to,  that  instrument. 
It  has  thus  rendered  itself  liable  to  prosecution  by  the  state  by  quo 
warranto,  and  we  are  of  the  opinion  that,  upon  the  facts  shown  by 
the  information,  the  judgment  of  ouster  is  clearly  warranted.  It 
will  accordingly  be  affirmed. 
Judgment  affirmed. 

Note.    See  next  case,  and  note  to  People  v.  N.  R.  Sugar  Ref.  Co.,  swpra^ 
p.  109 ;  also,  note  to  section  278,  swgra. 


Sec.  281.    Same. 

TRENTON  POTTERIES  COMPANY  v.  OLIPHANT  Et  Al.» 

1899.  In  the  New  Jersey  Court  of  Errors  and  Appeals. 
58  N.  J.  Eq.  507,  78  Am.  St.  R.  612,  43  Atl.  Rep.  723-730, 
46  L.  R.  A.  255. 

[Bill  by  the  Potteries  Company,  a  New  Jersey  corporation,  against 
the  defendants,  the  owners  of  the  Delaware  Potteries,  to  enjoin  them 
from  engaging  directly  or  indirectly  in  the  business  of  manufacturing 
pottery  within  any  state  of  the  United  States  (except  Arizona  and 
Nevada)  for  fifty  years.  In  1890,  there  were  nine  pottery  factories 
engaged  in  manufacturing  of  sanitary  pottery  in  the  United  States, — 
seven  in  Trenton,  N.  J.,  one  in  Baltimore,  Md.,  and  one  at  Tiffin,  O. 
The  eight  eastern  potteries  had  formed  the  American  Sanitaiy  Pot- 
teries Association,  for  the  purpose  of  securing  uniform  prices  of  their 
wares,  to  be  fixed  by  the  vote  of  a  majority  (each  having  one  vote), 
and  by  which  all  were  bound  to  sell.  About  this  time  a  New  York 
promoter  "undertook"  to  organize  them  into  a  corporation  to  control 
the  manufacture  of  sanitary  pottery.  He  sought  and  obtained  options 
from  five  of  the  Trenton  potteries,  including  the  defendant,  whereby 
each  of  them  agreed  to  sell  all  of  its  property  and  processes  of  every 
kind  to  the  promoter  or  his  assignee,  and  covenanted  that  it  would 
not,  for  the  period  of  fifty  years,  either  directly  or  indirectly,  engage 
in  the  pottery  business,  within  any  state  of  the  United  States  (except 
Arizona  and  Nevada).  These  five  options  were  those  of  the  potteries 
manufacturing  about  seventy-five  per  cent,  of  the  product,  and  by 
their  vote  they  were  able  to  control  the  fixing  of  prices  by  the  associa- 
tion. After  these  options  were  obtained,  they  were  assigned  by  the 
promoter  to  the  Trenton  Potteries  Company,  organized  in  New  Jer- 
sey with  a  capital  of  $1,750,000  common,  and  $1,250,000,  preferred 

'  Statement  greatly  abridged,  and  only  that  part  of  the  opinion  as  to  the 
validity  of  the  corporate  existence  and  ownership  is  given. 


982  TRENTON    POTTERIES    CO.    V.    OLIPHANT    ET   AL.  §  28 1 

stock,  "to  manufacture,  sell,  and  trade  in  pottery  and  earthenware, 
and  other  like  products,  and  in  all  materials  commonly  or  conven- 
iently used,  manufactured,  bought  and  sold  in  connection  therewith, 
or  necessary,  or  convenient  in  and  about  the  transaction  of  the  said 
business."  This  company  was  formed  after  the  options  were  secured, 
and  in  pursuance  thereof  the  property  of  these  potteries  was  conveyed 
to  it,  together  with  the  covenants  not  to  engage  in  business,  and  pay- 
ment therefor  was  made  partly  in  cash  and  partly  in  stock  in  the  new 
company.  After  coming  into  possession  of  the  five  potteries,  this 
new  company  continued  to  operate  them  as  separate  concerns,  and 
kept  its  right  to  five  votes  in  the  American  Sanitary  Potteries  Asso- 
ciation, thereby  controlling  it  for  several  years,  although  at  the  time 
this  suit  was  brought,  the  association  had  broken  up. 

The  defendants  herein — the  partnership  owning  the  Delaware  pot- 
teries— afterward  organized  a  coi-poration  to  be  located  in  New  Jersey, 
and  to  engage  in  the  manufacture  and  sale  of  sanitary  pottery,  in  ac- 
tive competition  with  the  complainants.  The  defense  made  was  that 
the  contract  "not  to  engage  in  business  was  in  unlawful  restraint  of 
trade,  that  the  complainant  company  was  formed  for  the  purpose  of 
obtaining  a  monopoly  of  the  manufacture  and  sale  of  sanitary  ware, 
a  necessity  of  life,  and  that  the  contracts  not  to  engage  in  business 
were  in  aid  of  this  unlawful  purpose,  and  therefore  void."  Vice- 
Chancellor  Grey  so  held,  and  dismissed  the  bill  (39  Atl.  Rep.  923). 
From  this  decision  an  appeal  was  taken.] 

Magie,  C.  J.,  *  *  *  [after  holding  that,  though  a  contract  in 
general  restraint  of  trade  was  void,  the  words  "within  any  state  of  the 
United  States  except  Arizona  and  Nevada,"  were  a  short  way  of 
enumerating  the  states,  and  the  contract  was  valid  in  those  states 
where  reasonably  necessary  to  protect  the  purchaser,  though  it  might 
be  void  elsewhere ;  that  the  Sanitary  Potteries  Association,  with  its 
power  of  fixing  prices  was  unlawful  as  against  public  policy]  pro- 
ceeds:    *    *    * 

It  is  further  urged  that  the  simultaneous  contracts  procured  by  ap- 
pellant create  or  tend  to  create  a  monopoly,  because  they  stipulate  for 
the  removal  of  many  competitors  in  the  business  of  manufacturing 
sanitary  pottery  ware.  The  owners  of  five  of  the  eight  potteries  in 
Trenton  manufacturing  that  kind  of  ware  (and  there  were  but  few,  if 
more  than  one,  elsewhere)  thereby  agreed  not  to  engage  in  that  busi- 
ness for  a  long  period  of  time,  and  over  a  great  extent  of  country. 
The  engagement  of  respondents  in  that  respect  has  been  found  not  to 
be  an  improper  restraint  of  trade,  nor  inimical  to  public  policy  on 
that  ground,  but  a  contract  partially  enforceable  upon  respondents,  if 
not  othei^wise  objectionable.  The  engagements  of  the  other  vendors 
who  sold  their  properties  and  business  to  appellant  are  similar  in 
terms  to  that  entered  into  by  respondents,  and  furnish  a  reasonable 
protection  to  appellant  of  the  business  and  good  will  purchased  by  it 
of  each  of  them.  Each  sale  and  each  incidental  contract  against 
competition  are,  for  reason  before  given,  unobjectionable.  Are  they 
rendered  objectionable  by  the  fact  that,  being  simultaneously  made. 


§  28 1  POWER   AS   TO   TRADE    COMBINATIONS.  983 

they  excluded  from  engaging  in  the  business  of  manufacturing  sani- 
tary pottery  ware  so  large  a  proportion  of  those  previously  engaged 
in  that  manufacture?  It  is  to  be  observed  that  the  contracts  of  re- 
spondents and  the  other  vendors,  to  appellant,  restricted  them  from 
engaging  in  the  business  of  manufacturing,  not  sanitary  pottery  ware 
alone,  but  all  pottery  ware.  The  proofs  show  that  a  large  number 
of  persons  are  engaged  in  manufacturing  pottery  ware  in  various 
parts  of  the  country,  and  that  the  contracts  in  question  would  exclude 
from  competition  a  very  small  proportion  of  them.  But  as  the  proofs 
also  show  that  the  main  purpose  of  appellant  was  to  engage  in  the 
manufacture  of  sanitary  pottery  ware,  I  have  stated  the  proposition  in 
a  more  restricted  form.  Whether  sanitary  pottery  ware  has  become 
a  necessity  of  life,  is  open  to  question.  It  is  certain  that  many  per- 
sons manage  to  exist  without  using  it.  But  if  its  use  is  of  importance 
to  health  and  comfort,  and  a  considerable  and  increasing  number  of 
persons  desire  to  acquire,  and  use  it,  the  public  may  have  such  an 
interest  in  its  manufacture  and  sale  that  public  policy  will  justify  judi- 
cial interference  and  refusal  to  enforce  illegal  combinations  to  en- 
hance its  price.  The  elimination  of  competition  may  produce  that 
result.  The  contracts  in  question  were  not  intended  to  withdraw, 
and  do  not  appear  to  have  withdrawn,  from  work  a  single  workman 
in  that  industry.  They  restrain  a  comparatively  small  number  of 
capitalists,  who  had  previously  employed  their  capital  in  such  manu- 
facture, from  continuing  so  to  do.  The  entire  capital  of  the  country 
except  theirs  is  free  to  be  employed  in  the  manufacture. 

There  seems  no  ground  for  the  claim  that  we  should  refuse  to  en- 
force respondents'  contracts  by  injunction,  when  the  proofs  furnish 
no  reason  for  the  belief  that  the  public  will  suffer  if  they  are  held  to 
their  bargains.  The  contemporaneous  contracts  were  all  made  as  in- 
cidental to  the  sale  and  purchase  of  competing  concerns  engaged  in 
the  manufacture  of  sanitary  pottery  ^are.  They  were,  as  we  have 
seen,  reasonably  appropriate  to  the  protection  of  the  purchaser  in  each 
case.  While  contracts  to  restrain  or  limit  competition  in  the  produc- 
tion of  that  ware  may  be  repugnant  to  the  public  interest,  such  a  re- 
straint or  limit  may  result  from  contracts  w^hich  the  courts  are  bound 
to  enforce.  A  person  engaged  in  any  manufacture  or  trade,  having 
the  right  to  acquire  and  possess  property,  and  to  do  with  it  what  he 
chooses,  may  lawfully  buy  the  business  of  any  of  his  competitors. 
His  first  purchase  would  at  once  diminish  competition.  If  he  con- 
tinued to  purchase,  each  succeeding  transaction  would  remove  another 
competitor.  If  his  capital  was  large  enough  to  enable  him  to  buy  the 
business  of  all  competitors,  the  last  purchase  would  completely  ex- 
clude competition,  at  least  for  a  time.  But  in  the  absence  of  legisla- 
tive restrictions,  if  such  could  be  imposed,  upon  the  acquisition  of 
such  property,  and  its  use  when  so  acquired,  courts  could  impose  no 
limitation.  They  would  be  obliged  to  enforce  such  contracts,  not- 
withstanding the  effect  was  to  diminish,  or  even  to  exclude,  competition. 
But  appellant  is  a  corporation,  and  not  an  individual.  Corpora- 
tions, however,  may  lawfully  do  any  acts  within  the  coiporate  powers 


984  CLEARWATER    V.  MEREDITH    ET   AL.  §  282 

conferred  on  them  by  legislative  grant.  Under  our  liberal  corpora- 
tion laws,  corporate  authority  may  be  acquired  by  aggregation  of  in- 
dividuals, organized  as  prescribed,  to  engage  in  and  carry  on  almost 
every  conceivable  manufacture  or  trade.  Such  corporations  are  em- 
powered to  purchase,  hold,  and  use  property  appropriate  to  their  busi- 
ness. They  may  also  purchase  and  hold  the  stock  of  other  corpora- 
tions. Under  such  powers  it  is  obvious  that  a  corporation  may 
purchase  the  plant  and  business  of  competing  individuals  and  con- 
cerns. The  legislature  might  have  withheld  svich  powers,  or  imposed 
limitations  upon  their  use.  In  the  absence  of  prohibition  or'limita- 
tions  on  their  powers  in  this  respect,  it  is  impossible  for  the  courts  to 
pronounce  acts  done  under  legislative  grant  to  be  inimical  to  public 
policy.  The  gi'ant  of  the  legislature  authorizing  and  permitting  such 
acts  must  fix  for  the  courts  the  character  and  limit  of  public  policy  in 
that  regard.  It  follows  that  a  corporation  empowered  to  carry  on  a 
particular  business  may  lawfully  purchase  the  plant  and  business  of 
competitors,  although  such  purchases  may  diminish  or  for  a  time,  at 
least,  destroy  competition.  Contracts  for  such  purchases  can  not  be 
refused  enforcement.  Since  contracts  by  individuals,  and  by  corpora- 
tions having  legislative  authority,  for  the  purchase  of  competing  plants 
and  business,  may  be  made,  and  are  enforcible,  although,  as  a  result 
thereof,  competition  is  diminished  or  temporarily  destroyed,  it  further 
follows  that  contracts  reasonably  required  to  make  such  purchases 
effective  by  protecting  the  purchaser  in  the  use  and  enjoyment  of  the 
thing  purchased  can  not  be  declared  by  the  courts  to  be  repugnant  to 
public  policy.  The  interference  with  competition  resulting  from  such 
purchases  under  legislative  permission  being  found  not  to  invalidate 
contracts  for  such  purchases,  the  like  interference  by  contracts  reason- 
ably required  for  the  protection  of  the  purchaser  can  not  be  held  to 
invalidate  them. 

Decree  modified.     LippincotJ  and  Hendrickson,JJ.,  dissent. 

Note.    See,  preceding  case,  and  cases  cited  in  note  to  People  v.  N.  R.  Sugar 
Ref.  Co.,  supra,  p.  109. 


Sec.  282.  (7)     Consolidation. 

(a)   Power  to  consolidate. 

CLEARWATER  v.  MEREDITH  Et  Al.* 

1863.     In    the    United    States    Supreme    Court,      i    Wallace's 
(68  U.  S.)  Rep.  25-43. 

[Clearwater,  in  1853,  sold  a  tract  of  land  to  Meredith  and  others 
for  $10,000,  taking  in  pay  therefor  200  shares  in  the  S.  L.  R.  Co., 
which  Meredith  and  his  associates  guaranteed  would  be  worth  $50 
per  share  (z.  e.,  the  par  value),  in  Cincinnati,  O,,  on  Oct.  i,  1855. 
In  1854,  the  S.  L.  R.  Co.,  by  authority  of  law,  and  with  the  consent 

^  Statement  of  facts  abridged.    Arguments  and  part  of  opinion  omitted. 


§  282  POWER   AS   TO    CONSOLIDATION.  985 

of  its  stockholders  and  directors,  was  consolidated  with  another  rail- 
road company.  Oct.  i,  1855,  having  arrived  and  passed,  and  Clear- 
water considering  his  stock  was  not  worth  $50  per  share,  sued  on  the 
guaranty.  The  defendants  pleaded  that  the  consolidation  of  the 
companies  necessai'ily  destroyed  and  rendered  worthless  the  stock, 
that  plaintiff  consented  to  this  and  so  could  not  now  complain.  Judg- 
inent  below  for  defendants.] 

Mr.  Justice  Davis.  *  «  *  jf  Clearwater  was  a- consenting 
party  to  a  proceeding  which,  of  itself,  put  it  out  of  the  power  of  the 
defendants  to  perform  their  contract,  he  can  not  recover,  for  "prom- 
isors will  be  discharged  from  all  liabilitv  when  the  non-performance 
of  their  obligation  is  caused  by  the  act  or  the  fault  of  the  other  con- 
tracting party." 

The  Cincinnati,  Cambridge  and  Chicago  Short  Line  Railway  Com- 
pany, whose  stock  was  guaranteed,  was,  as  stated  in  the  pleadings, 
organized  under  a  general  act  of  the  state  of  Indiana,  providing  for 
the  incorporation  of  railroad  companies.  This  act  was  passed  May 
II,  1852,  and  contained  no  provision  permitting  railroad  corporations 
to  consolidate  their  stock.  It  can  readily  be  seen  that  the  interests  of 
the  public,  as  well  as  the  perfection  of  the  railway  system,  called  for 
the  exercise  of  a  power  by  which  different  lines  of  road  could  be 
united.  Accordingly  on  the  23d  of  February,  1853,  the  general  as- 
sembly of  Indiana  passed  an  act  allowing  any  railway  company  that 
had  been  organized  to  intersect  and  unite  their  road  with  any  other 
road  constructed  or  in  progress  of  construction,  and  to  merge  and  con- 
solidate their  stock,  and  on  the  4th  of  March,  1853,  the  privileges  of 
the  act  were  extended  to  railroad  companies  that  should  afterwards 
be  organized. 

The  fouuer  of  the  legislature  to  confer  such  authority  can  not  be 
questioned ^  and  without  the  authority  railroad  corporations  organ- 
ized separately  cotild  not  merge  and  consolidate  their  interests.  But 
in  conferring  the  authority ,  the  legislature  never  intended  to  compel 
a  dissenting  stockholder  to  transfer  his  interest  because  a  majority 
of  the  stockholders  consented  to  the  consolidation.  Even  if  the  legis- 
lature had  manifested  an  obvious  purpose  to  do  so,  the  act  would 
have  been  illegal,  for  it  would  have  ij?ipaired  the  obligation  of  a 
contract.  There  was  no  reservation  of  power  in  the  act  under  which 
the  Cincinnati,  Cambridge  and  Chicago  Short  Line  Railway  was  or- 
ganized, which  gave  authority  to  make  material  changes  in  the  pur- 
poses for  which  the  corporation  was  created,  and  without  such  a  res- 
ervation in  no  event  could  a  dissenting  stockholder  be  bound. 

When  any  person  takes  stock  in  a  railroad  corporation,  he  has 
entered  into  a  contract  with  the  company  that  his  interests  shall  be 
subject  to  the  direction  and  control  of  the  proper  authorities  of  the 
corporation  to  accomplish  the  object  for  which  the  company  was 
organized.  He  does  not  agree  that  the  improvement  to  which  he 
subscribed  should  be  changed  in  its  purposes  and  character,  at  the  will 
and  pleasure  of  a  majority  of  the  stockholders,  so  that  new  responsi- 
bilities, and  it  may  be  new  hazards,  are  added  to  the  original  under- 


986  CLEARWATER    V.    MEREDITH    ET    AL.  §  282 

taking.  He  may  be  very  willing  to  embark  in  one  enterprise,  and 
unwilling  to  engage  in  another;  to  assist  in  building  a  short  line  rail- 
way, and  averse  to  risking  his  money  in  one  having  a  longer  line  of 
transit. 

But  it  is  not  every  unimportant  change  which  would  work  a  disso- 
lution of  the  contract.  It  must  be  such  a  change  that  a  new  and  dif- 
ferent business  is  superadded  to  the  original  undertaking.  The  act  of 
the  legislature  of  Indiana  allowing  railroad  corporations  to  merge 
and  consolidate  their  stock,  was  an  enabling  act — was  permissive, 
not  mandatory.  It  simply  gave  the  consent  of  the  legislature  to 
whatever  could  lawfully  be  done  and  which  without  that  consent 
could  not  be  done  at  all.  By  virtue  of  this  act  the  consolidations  in 
the  plea  stated  were  made.  Clearwater,  before  the  consolidation, 
was  a  stockholder  in  one  corporation  created  for  a  given  purpose. 
After  it  he  was  a  stockholder  in  another  and  different  corporation, 
with  other  privileges,  powers,  franchises  and  stockholders.  The 
effect  of  the  consolidation  '■'■was  a  dissolution  of  the  three  corf  ora- 
tions^ and  at  the  same  instant  the  creation  of  a  new  corporation  with 
property^  liabilities  and  stockholders^  derived  from  those  passing  out 
of  existence.'^  McMahon  v.  Morrison.^  And  the  act  of  consolida- 
tion was  not  void  because  the  state  assented  to  it,  but  a  non-consent- 
ing stockholder  was  discharged.  Clearwater  could  have  prevented 
this  consolidation  had  he  chosen  to  do  so;  instead  of  that  he  gave  his 
assent  to  it,  and  merged  his  own  stock  in  the  new  adventure.  If  a 
majority  of  the  stockholders  of  the  corporation  of  which  he  was  a 
member  had  undertaken  to  transfer  his  interest  against  his  wish,  they 
would  have  been  enjoined.  There  was  no  power  to  force  him  to  join 
the  new  corporation,  and  to  receive  stock  in  it  on  the  surrender  of 
his  stock  in  the  old  company.  By  his  own  act  he  has  destroyed  the 
stock  to  which  the  guaranty  attached,  and  made  it  impossible  for  the 
defendants  to  perform  their  agreement.  After  the  act  of  consolida- 
tion the  stock  could  not  have  any  separate,  distinct  market  value. 
There  was,  in  fact,  no  longer  any  stock  of  the  Cincinnati,  Cambridge 
and  Chicago  Short  Line  Railway. 

Meredith  and  his  co-defendants  undertook  that  the  stock  should  be 
at  par  in  Cincinnati,  if  it  maintained  the  same  separate  and  independ- 
ent existence  that  it  had  when  they  gave  their  guaranty.  Their  un- 
dertaking did  not  extend  to  another  stock,  created  afterwards,  with 
which  they  had  no  concern  and  which  might  be  better  or  worse  than 
the  one  guaranteed.  It  is  not  material  whether  the  new  stock  was 
worth  more  or  less  than  the  old.  It  is  sufficient  that  it  is  another  stock, 
and  represented  other  interests.      *     *     * 

Affirmed.  / 

» 16  Ind.  172. 


§  283  POWER    AS   TO    CONSOLIDATION.       '  987 

Sec.  283.    Same. 

IN  THE  MATTER  OF  THE  PROSPECT  PARK  &  C.  I.  RAILROAD  CO.* 

1876.     In  the  Court  of  Appeals  of  NewYork.     67  N.  Y.  Rep. 

371-379- 

[Appeal  from  order  of  lower  court  appointing  commissioners  to  ap- 
praise land  taken  by  the  railroad  company  under  the  railroad  act. 
Objection  was  made  to  the  application  upon  the  ground,  inter  alia^ 
that  the  company  had  been  formed  by  the  consolidation  of  two 
companies,  one  of  which  had  the  power  "to  consolidate  with  any 
other  company  and  form  a  new  company,"  but  the  company  consoli- 
dated with  had  no  charter  authority  to  so  consolidate.] 

FoLGER,  J.  *  *  *  The  act  of  1874  (Laws  of  1874,  chap.  448, 
pp.  591-592,  §  3)  gave  power  to  one  of  the  corporations,  which  now 
together  form  the  corporation  which  is  the  petitioner  in  this  case,  to 
consolidate  with  any  other  like  corporation.  The  point  of  the  appel- 
lants, that  no  power  to  consolidate  is  given  to  the  other  of  those  cor- 
porations, is  without  effect.  Power  is  given  to  one  corporation  by 
statute  to  form  a  consolidation  with  any  other.  It  can  not  form  a  con- 
solidation unless  it  finds  another  with  which  to  unite  and  which  is 
capable  of  union  with  it;  hence,  whatever  other  company  it  selects 
for  a  union,  and  finds  willing  to  join  it,  that  other  company,  though 
not  named  in  the  statute,  gets  power  from  the  statute  to  unite  with 
that  company  which  the  statute  names. 

Affirmed. 

Note.     See  next  case. 


Sec.  284.    Same. 

GAINES,  C.  J.,  IN  MORRILL  v.  SMITH  COUNTY. 

1896.     In  the  Supreme  Court  of  Texas.     89  Texas  529,  on  552. 

It  has  been  held  that  the  power  given  to  one  railroad  company  to 
consolidate  with  any  other  like  company,  without  naming  any,  author- 
izes any  other  company  to  consolidate  with  it.  (Matter  of  P.  P.  & 
C.  I.  R.  Co.,  6'^  N.  Y.  371.)  But  a  contrary  rule  is  recognized  in 
this  state.  Railway  v.  Rushing,  69  Texas  306.  See,  also,  Railway 
V.  Morris,  67  Texas  692.  It  does  not  follow  that  because  the  char- 
ter of  a  railway  company  empowers  it  in  general  language  "to  con- 
solidate with  any  other  railroad  company,"  these  words  should  be 
consti^ued  as  conferring  the  power  upon  any  other  company  to  consol- 
idate with  it.  They  reasonably  admit  of  the  constniction  that  the 
company  named  is  empowered  only  to  unite  with  any  other  company 
which  has  a  like  power,  and  it  would  seem  that,  under  the  general  rule 
previously  announced,  the  construction  least  favorable  to  the  corpora- 

'  Statement  abridged,  and  duly  the  part  of  the  opinion  relating  to  the  single 
point  given. 


988      QUINCY   RAILROAD  BRIDGE   CO.  V.  ADAMS  COUNTY.       §  285 

tion  should  control ;  at  all  events,  when  we  attempt  to  adopt  the  con- 
struction insisted  upon  on  behalf  of  Smith  county,  in  respect  to  the 
grant  in  the  charter  of  the  Houston'Tap  and  Biazoria  Railroad  Com- 
pany, we  encounter  a  grave  constitutional  difficulty.  The  contention 
is  that  the  special  charter  of  the  company  not  only  confers  power  upon 
the  company  to  consolidate  with  any  other  railroad  company,  but  also 
upon  any  other  such  company  to  consolidate  with  it.  The  title  of  the  act 
is  clearly  sufficient  to  embrace  the  grant  of  any  powers  to  the  com- 
pany incorporated  which  were  appropriate  to  its  purpose.  But  is 
there  anything  in  the  title  that  indicated  that  it  was  one  of  the  objects 
of  the  act  to  confer  power  upon  all  the  railroads  of  the  state  to  consol- 
idate with  that  company.'*  That  involved  a  distinct  grant  and  enlarge- 
ment of  power  to  every  other  railroad  company  in  the  state,  and  it 
seems  to  us  that,  if  such  was  the  intent  of  the  legislature,  it  comes 
within  the  scope  of  the  very  evil  which  was  intended  to  be  suppressed 
by  that  section  of  the  constitution  which  required  that  the  object  of 
every 'act  be  expressed  in  its  title.  Giddings  v.  San  Antonio,  47  Texas 
548;  Peck  v.  San  Antonio,  51  Texas  490. 

Hote.    See  preceding  case. 


Sec.  285.  (^)  Interstate  consolidation. 

QUINCY  RAILROAD  BRIDGE  COMPANY  v.  ADAMS  COUNTY.^ 

1878.      In    the    Supreme    Court    of    Illinois.      88    111.    Rep. 

615-622. 

[Action  by  the  county  to  collect  a  tax  upon  the  capital  stock  of  the 
bridge  company.  The  first  section  of  the  tax  law  provided  for  a  tax 
upon  "the  capital  stock  of  the  companies  and  associations  incorpo- 
rated under  the  laws  of  this  state."  In  1865,  the  Railroad  Bridge 
Company  was  incorporated  in  Illinois, — and  about  this  time  the 
Quincy  Bridge  Company  was  incorporated  in  Missouri, — the  purpose 
of  both  companies  being  to  build  a  bridge  across  the  Mississippi  river 
at  Quincy;  in  order  to  do  this  successfully  it  became  necessary  to 
consolidate,  and  this  was  done  by  agreement  duly  filed  in  the  office  of 
the  secretary  of  state  in  each  state,  and  the  consolidation  was  legalized 
by  the  respective  legislatures,  under  the  name  of  the  Quincy  Railroad 
Bridge  Company.  The  corporation  claimed  it  was  not  "a  company 
incorporated  under  the  laws  of  Illinois."  A  demurrer  to  this  claim 
was  sustained,  and  judgment  rendered  for  the  county.  The  company 
appealed.] 

Breese,  J.  *  *  *  But  it  is  said  by  appellants,  this  corpora- 
tion, although  it  derived  some  of  its  powers  and  in  pail  its  corporate 
existence  from  this  state,  derived  an  equal  part  from  the  sovereign 

*  Statement  abridged,  and  only  part  of  opinion  given. 


§  286  POWER   AS   TO    CONSOLIDATION.  989 

state  of  Missouri,  and  therefore  they  are  not  a  corporation  created 
under  the  laws  of  either  state.  To  this  it  is  answered,  and  we  think 
satisfactorily,  that  the  legislatures  of  this  state  and  of  Missouri  can 
not  act  jointly,  nor  can  any  legislation  of  the  last  named  state  have 
the  least  effect  in  creating  a  corporation  in  this  state.  Hence,  the 
corporate  existence  of  appellants,  considered  as  a  corporation  of  this 
state,  must  spring  from  the  legislation  of  this  state,  which,  by  its  own 
vigor,  performs  the  act.  The  states  of  Illinois  and  Missouri  have  no 
power  to  unite  in  passing  any  legislative  act.  It  is  impossible,  in  the 
very  nature  of  their  organizations,  that  they  can  do  so.  They  can  not 
so  fuse  themselves  into  a  single  sovereignty,  and  as  such  create  a  body 
politic  which  shall  be  a  corporation  of  the  two  states,  without  being 
a  corporation  of  each  state  or  of  either  state.  As  argued  by  appellee, 
the  only  possible  status  of  a  company  acting  under  chatters  from  two 
states  is,  that  it  is  an  association  incorporated  in  and  by  each  of  the 
states,  and  when  acting  as  a  corporation  in  either  of  the  states  it  acts 
under  the  authority  of  the  charter  of  the  state  in  which  it  is  then  act- 
ing, and  that  only,  the  legislation  of  the  other  state  having  no  opera- 
tion beyond  its  territorial  limits.  We  do  not,  and  can  not,  understand 
that  appellants  derive  any  of  its  corporate  powers  from  the  legislature 
of  the  state  of  Missouri,  but  wholly  and  entirely  derived  from  the 
general  assembly  of  this  state.  Consequently  they  are  embraced  in 
the  first  section  of  the  revenue  act,  above  cited.  ♦  *  * 
Affirmed. 

Note:  Compare,  1892,  People  v.  N.  Y.  C.  &  S.  L.  R.  Co.,  129  N.  Y.  474;  1898, 
State  V.  Lesoeur,  145  Mo.  322;  1892,  Ashley  v.  Ryan,  49  Ohio  St.  604;  and 
cases  in  note  at  end  of  section  288,  4a  and  5a. 


Sec.  286.     (^)   Consolidation  or  merger, 

KEOKUK  AND  WESTERN  RAILROAD  COMPANY  v.  MISSOURI.' 

1894.     In  the  Supreme   Court    of   the    United   States.     152 
United  States  Rep.  301-317. 

[Action  in  Missouri  state  court  for  collection  of  taxes.  Defendant, 
a  consolidated  company,  relied  on  a  charter  exemption  from  taxation, 
appearing  in  the  charter  of  one  of  the  original  Missouri  companies 
out  of  which  the  consolidated  company  had  been  formed.  Before  the 
consolidation,  the  new  Missouri  constitution  had  expressly  provided 
that  such  property  should  not  be  exempt.  The  tax  was  levied  after 
the  consolidation,  and  the  state  court  gave  judgment  for  the  tax.  This 
was  affirmed  by  the  supreme  court  of  the  state,  and  the  defendant  sued 
out  this  writ  of  error.] 

Mr.  Justice  Brown.  *  ♦  ♦  The  question  in  this  case  is 
whether  the  defendant,  the  Keokuk  and  Western  Railroad  Company, 
was  entitled  to  the  exemption  of  its  property  from  taxation  contained 

'  Statement  abridged  and  part  of  opinion  omitted. 


990  KEOKUK   AND    WESTERN    R.    CO.    V.    MISSOURI.  §  2  86 

in  the  original  charter  to  the  Alexandria  and  Bloomfield  Railroad 
Company,  of  which  road  it  is  the  successor  in  interest. 

(i)  It  will  be  observed  that  the  constitutional  provision  upon  which 
the  state  relies  for  the  enforcement  of  this  tax  for  the  year  1886  was 
adopted  in  1865,  before  the  consolidation  of  the  Alexandria  and 
Bloomfield  Company,  under  its  changed  name  of  the  Alexandria  and 
Nebraska  City  Railroad  Company,  with  the  Iowa  Southern  Company, 
which  took  place  in  1870,  and  before  the  completion  of  the  road  in 
1872.  That  the  exemption  from  taxation  contained  in  the  original 
charter  to  the  Alexandria  and  Bloomfield  Company  would  have  con- 
tinued the  full  twenty  years  from  the  completion  of  the  road  in  1872, 
had  such  consolidation  not  taken  place,  is,  for  the  purpose  of  this 
case,  conceded.  Indeed,  it  was  so  held  by  the  supreme  court  of  the 
state,  in  State  v.  Macon  County,  41  Mo.  453.  The  court,  construing 
sections  3  and  14  of  article  1 1  of  the  constitution,  held  the  provisions 
of  section  14  to  be  a  limitation  upon  the  future  power  of  the  general 
assembly,  and  not  intended  to  retroact  so  as  to  have  any  controlling 
application  to  laws  in  existence  when  the  constitution  was  adopted. 
See  also,  State  v.  Cape  Girardeau  Railway,  48  Mo.  468 ;  State  v. 
Coffee,  59  Mo.  59;   Atlantic,  etc.,  Railroad  v.  St.  Louis,  66  Mo.  228. 

The  question  then  arises  whether  the  Alexandria  and  Bloomfield 
Railroad  Company,  whose  charter  contained  the  exemption,  is  still  in 
existence,  or  was  dissolved  by  the  consolidation,  and  a  new  corpora- 
tion was  thereby  called  into  being,  which  held  its  property  subject  to 
the  constitutional  provisions  of  1865,  denying  the  power  of  the  gen- 
eral assembly  to  exempt  property  from  taxation.  In  the  numerous 
cases  which  have  arisen  in  this  court  as  to  the  effect  of  a  consolida- 
tion upon  the  existence  and  status  of  the  constituent  corporations,  it 
has  been  held  that  the  question  of  the  dissolution  of  such  corpora- 
tions depended  upon  the  language  of  the  statute  under  which  the  con- 
solidation took  place — the  presumption  in  each  case  being  that  each 
of  the  two  lines  of  road  will  be  held  respectively  to  the  privileges  and 
burdens  originally  attaching  thereto.  Tomlinson  v.  Branch,  15  Wall. 
460.  If,  upon  the  one  hand,  the  identity  of  the  prior  corporations  is 
preserved,  an  exemption  from  taxation  which  one  of  them  possessed, 
falls  to  that  portion  of  the  new  corporation  to  which,  under  its 
former  name,  it  had  been  attached.  If,  upon  the  other  hand,  the  con- 
solidation worked  a  dissolution  of  the  prior  corporations,  their  former 
privileges  and  franchises  also  ceased  to  exist.  Thus,  in  the  earliest 
of  these  cases,  Philadelphia,  etc.,  R.  Co.  v.  Maryland,  10  How.  376, 
it  was  held  that  the  Baltimore  and  Port  Deposit  Railroad  Company, 
whose  charter  contained  no  exemption  from  taxation,  did  not  acquire 
such  exemption  by  consolidation  with  the  Delaware  and  Maryland 
Railroad  Company,  whose  charter  exempted  the  road  from  taxation, 
"except  upon  that  portion  of  the  permanent  and  fixed  works  which 
might  be  in  the  state  of  Maryland."  A  general  rule  was  laid  down 
in  this  case  to  which  this  court  has  steadily  adhered,  that  the  taxing- 
power  of  the  state  should  never  be  presumed  to  be  relinquished,  un- 
less the  intention  to  do  so  be  declared  in  clear  and  unambiguous  terms 


§  286  POWER   AS   TO    CONSOLIDATION.  99 1 

This  case  was  subsequently  reaffirmed  in  the  Delaware  Railroad  Tax, 
iS  Wall.  206. 

In  Tomlinson  v.  Branch,  15  Wall.  460,  it  was  held  that  when  a 
railroad  company  to  which,  by  its  charter,  an  exemption  from  taxa- 
tion was  granted,  for  a  limited  period,  was  by  act  of  the  legisla- 
ture "merged"  in  another  company,  which  thereby  became  invested 
with  all  its  rights,  property  and  privileges,  the  exemption  applied  to 
the  property  with  its  limitation  of  time,  and,  although  the  company 
in  which  it  was  merged  had  been  granted  a  perpetual  exemption  from 
taxation  in  its  charter,  this  perpetual  exemption  would  not  be  extended 
to  property  so  acquired,  without  express  words,  or  necessary  intend- 
ment to  that  effect.  In  Central  Railroad  v.  Georgia,  92  U.  S.  665, 
the  act  of  the  legislature  authorized  the  Central  Railroad  and  the 
Macon  Railroad  "to  unite  and  consolidate"  their  "stocks"  and  all 
their  "rights,  privileges,  immunities,  property  and  franchises"  under 
the  name  and  charter  of  the  Central  Railroad  in  such  manner  that 
each  owner  of  shares  of  stock  of  the  Macon  road  should  be  entitled  to 
receive  an  equal  number  of  shares  of  the  consolidated  companies.  It 
was  held  this  consolidation  was  not  a  surrender  of  the  existing  charters 
of  the  two  companies,  and  did  not  work  the  extinction  of  the  Central 
Company  nor  the  creation  of  a  new  company,  and  also  that  the  con- 
solidated company  continued  to  possess  all  the  rights  and  immunities 
which  were  conferred  upon  each  company  by  its  original  charter.  The 
Central  Company  having  been  exempted  from  taxation  beyond  a  lim- 
ited amount  by  its  original  charter,  it  was  held  not  to  be  within  the 
power  of  the  legislature  to  impose  an  increased  tax  after  the  consoli- 
dation was  effected ;  but  as  the  Macon  Company  had  no  provision  in 
its  charter  limiting  its  liability  to  taxation,  the  power  of  the  legislature 
remained  unimpaired  to  tax  its  franchises,  property  and  income  after 
its  consolidation  with  the  Central.  It  was  said  in  the  opinion  of  the 
court  that  "if  in  the  statute  there  be  no  words  of  grant  of  corporate 
powers,  it  is  difficult  to  see  how  a  new  corporation  is  created.  If  it 
is,  it  must  be  by  implication;  and  it  is  an  unbending  rule  that  a  grant 
of  corporate  existence  is  never  implied."  It  was  held  that  the  act 
did  not  work  the  dissolution  of  the  existing  corporations,  and.  at  the 
same  time  the  creation  of  a  new  company,  the  court  giving  among 
other  reasons  that  there  was  no  provision  for  the  surrender  of  the  cer- 
tificates of  stock  of  the  shareholders  of  the  Central,  and  none  for  the 
issue  of  other  certificates  to  them.  It  will  be  observed  in  this  case 
that  the  road  whose  charter  contained  the  exemption  from  taxation 
was  preserved  intact  by  the  consolidation  ;  and  it  was  held  that  its 
exemption  continued,  while  the  other  road  was  undoubtedly  intended 
to  go  out  of  existence ;  and  as  the  Macon  road  held  its  property  and 
franchise  subject  to  taxation,  the  Central,  succeeding  to  the  franchises 
and  property,  held  them  alike  subject.  Other  cases  to  the  same  effect, 
and  holding  that  the  act  of  consolidation  did  not  operate  as  a  dissolu- 
tion of  the  constituent  companies  are,  Chesapeake  and  Ohio  Railroad 
v.  Virginia,  94  U.  S.  718;  Green  County  v.  Conness,  109  U.  S.  104; 
and  Tennessee  v.  Whitworth,  117  U.  S.  139. 


992  KEOKUK    AND    WESTERN    R.    CO.    V.    MISSOURI.  §  286 

Upon  the  other  hand,  we  have  held  that  the  con.solidation  acts  of 
Ohio  and  Maine  worked  a  dissolution  of  the  constituent  companies 
and  the  incorporation  of  a  new  company,  and  that  such  company  was 
subject  to  intermediate  acts  declaring  the  charters  of  corporations  sub- 
ject to  be  altered,  amended,  or  repealed  by  the  legislature.  Shields 
V.  Ohio,  95  U.  S.  319;  Railroad  Company  v.  Maine,  96  U.  S.  499. 
A  leading  case  is  that  of  a  Railroad  Company  v.  Georgia,  98  U.  S.  359,. 
362,  wherein  two  railroad  companies,  each  of  which  enjoyed  by  its 
charter  a  limited  exemption  from  taxation,  were  consolidated  by  an 
act  of  the  legislature  passed  April  18,  1863,  which  authorized  a  con- 
solidation of  their  stocks,  conferred  upon  the  consolidated  companies 
full  corporate  powers,  and  continued  to  it  the  fi-anchises,  privileges, 
and  immunities  which  the  companies  had  held  bv  their  original  char- 
ters. It  was  held  that  by  the  consolidation  the  original  companies 
were  dissolved  and  a  new  corporation  created,  which  became  subject 
to  the  provisions  of  a  statutory  code,  adopted  Januaiy  i,  1863,  per- 
mitting the  charters  of  private  corporations  to  be  changed,  modified, 
or  destroyed  at  the  will  of  the  legislature.  It  was  further  held  that 
a  subsequent  legislative  act  taxing  the  property  of  such  new  corpora- 
tion as  other  property  in  the  state  was  taxed  was  not  a  law  impairing 
the  obligation  of  a  contract.  It  was  said  that  the  consolidation  pro- 
vided for  was  not  a  merger  of  one  company  into  another,  and  the  case 
of  Railroad  Company  v.  Georgia,  92  U.  S.  665,  was  distinguished 
from  it  in  this  particular. 

'•Nor  was  it,"  says  Mr.  Justice  Strong,  "a  mere  alliance  or  con- 
federation of  the  two.  If  it  had  been,  each  would  have  preserved  its 
separate  existence  as  well  as  its  corporate  name.  But  the  act  author- 
ized the  consolidation  of  the  stocks  of  the  two  companies,  thus  mak- 
ing one  capital  in  place  of  two.  It  contemplated,  therefore,  that  the 
separate  capital  of  each  company  should  go  out  of  existence  as  the 
capital  of  that  company."  In  St.  Louis,  Iron  Mountain,  etc..  Rail- 
way V.  Beny,  113  U.  S.  465,  a  like  effect  was  given  to  the  consolida- 
tion of  two  roads  by  an  agreement  which  provided  that  all  the  property- 
of  each  company  should  be  taken  and  deemed  to  be  transferred  to  the 
consolidated  company  "as  such  new  corporation  without  further  act 
or  deed."  It  was  held  that  this  created  a  new  corporation,  with  an 
existence  dating  from  the  time  the  consolidation  took  effect,  and  that 
it  was  subject  to  constitutional  provisions  with  reference  to  taxation 
in  force  at  that  time.      See,  also,  McMahan  v.  Morrison.  16  Ind.  172. 

Looking  at  the  act  in  question  in  this  case,  we  find  that,  by  section  i, 
any  Missouri  railroad  company  whose  tracks  should  connect  with  the 
road  of  an  adjoining  state  was  authorized  to  make  and  enter  into  an 
agreement  with  such  connecting  company  for  the  consolidation  of  the 
stock  of  the  respective  companies  who.se  tracks  should  be  so  con- 
nected, making  one  company  of  the  two,  whose  stock  should  be  so 
consolidated  upon  such  terms,  conditions,  and  stipulations  as  might  be 
mutually  agreed  between  them;  that,  by  section  2,  "such  consolida- 
tion shall  not  be  made,  unless  the  terms  and  provisions  thereof  shall 
be  approved  by  a  majoritv  of  the   stock,  or  the  holders  of  a  majority 


§  286  POWER   AS    TO    CONSOLIDATION.  993 

of  the  capital  stock  in  each  of  said  companies  whose  stock  shall  be 
consolidated;"  that,  by  section  3,  the  board  of  directors  were  author- 
ized to  adopt  by  resolution  a  new  corporate  name  for  the  consolidated 
company,  and  call  in  the  certificates  of  stock  then  outstanding  in  each 
company,  and  exchange  them  for  stock  in  the  new  company ;  and  pro- 
viding that  a  copy  of  the  consolidation  agreement,  and  the  name 
adopted  for  the  new  company,  "shall  be  filed  with  the  secretary  of 
state,  and  shall  be  conclusive  evidence  of  such  consolidation,  and  of 
the  corporate  name  of  the  consolidated  company."  It  is  difficult  to 
see  how  the  legislature  could  provide  more  clearl}'  for  the  extinguish- 
ment of  the  prior  companies,  and  the  formation  of  a  new  one,  than 
by  providing  that  the  two  companies  shall  become  one;  that  new  cer- 
tificates of  stock  shall  be  issued  in  exchange  for  the  stock  of  the  con- 
stituent companies ;  and  that  the  consolidation  agreement  shall  be 
recorded  with  the  secretary  of  state  as  the  charter  of  a  new  company. 
In  our  opinion  this  was  the  effect  of  the  act  in  question. 

It  is  impossible  to  conceive  of  a  coiporation  existing  without  stock, 
or  certificates  representing  the  interests  of  the  corporators  in  the  or- 
ganization. Now  if  the  act  provides  that  these  certificates  shall  be 
surrendered,  and  certificates  in  another  company  issued  in  their  place, 
what  becomes  of  the  prior  companies?  Who  are  their  stockholders, 
who  their  officers?  If  the  stock  in  the  new  company  is  sold,  what 
interest  in  the  prior  companies  passes  by  the  sale  ?  There  can  be  but 
one  answer  to  these  questions.  The  property  and  franchises  of  the 
prior  companies  are  gone  as  much  as  if  they  had  formally  surrendered 
their  charters.  The  new  company  may  doubtless  receive  by  trans- 
mission from  its  constituent  companies  their  property,  rights,  privi- 
leges and  franchises,  including  any  immunity  from  taxation,  but  it  re- 
ceives them  as  an  heir  receives  the  estate  of  his  ancestor,  or  as  a 
grantee  receives  the  estate  of  his  grantor,  by  inheritance,  succession, 
or  purchase.  The  result  is  not  a  mere  union  or  partnership  of  two 
companies,  nor  the  merger  of  the  franchises  of  one  in  another,  but 
the  extinguishment  of  one  and  the  creation  of  another  in  its  place. 
Speaking  of  a  similar  act  of  Ohio,  which  declared  that  the  consoli- 
dated companies  "shall  be  deemed  and  taken  to  be  one  corporation, 
possessing  within  the  state  all  the  rights,  privileges  and  franchises, 
and  subject  to  all  the  restrictions,  liabilities  and  duties  of  such  corpo- 
rations of  this  state  so  consolidated,"  Mr.  Justice  Swayne  observed 
in  Shields  v.  Ohio,  95  U.  S.  319,  322,323:  "It  (the  consolidation), 
could  not  occur  without  their  consent.  The  consolidated  company 
had  then  no  existence.  It  could  have  none  while  the  original  corpo- 
rations subsisted.  All — the  old  and  the  new — could  not  co-exist.  It 
was  a  condition  precedent  to  the  existence  of  the  new  corporation  that 
the  old  ones  should  first  surrender  their  vitality  and  submit  to  dissolu- 
.  tion.  This  being  done,  eo  instanti  the  new  corporation  came  into 
existence." 

It  follows  from  this  that  when  the  new  corj^oration  came  into  exist- 
ence, it  came  precisely  as  if  it  had  been  organized  under  a  chjirter 
granted  at  the  date  of  the  consolidation,  and  subject  to  the  constitu- 

66 — WIL.  CAS. 


994  KEOKUK   AND    WESTERN    R.    CO.    V.    MISSOURI.         §  286 

tional  provisions  then  existing,  which  required  (art.  11,  §  16)  that  no 
property,  real  or  personal,  should  be  exempted  from  taxation,  except 
such  as  was  used  exclusively  for  public  purposes;  in  other  words, 
that  the  exemption  from  taxation  contained  in  section  9  of  the  orig- 
inal charter  of  the  Alexandria  and  Bloomfield  Railway  Company  did 
not  pass  to  the  Missouri,  Iowa  and  Nebraska  Company.  As  was 
said  of  an  Arkansas  corporation,  in  St.  Louis,  Iron  Mountain,  etc., 
Railway  v.  Berry,  113  U.  S.  465,  4755  "it  came  into  existence  as  a 
corporation  of  the  state  of  Arkansas,  in  pursuance  of  its  constitution 
and  laws,  and  subject  in  all  respects  to  their  restrictions  and  limita- 
tions. Among  these  was  that  one  which  declared  that  'the  property 
of  corporations  now  existing,  or  hereafter  created,  shall  be  forever 
subject  to  taxation  the  same  as  property  of  individuals.'  This  ren- 
dered it  impossible  in  law  for  the  consolidated  corporation  to  receive 
by  transfer  from  the  Cairo  and  Fulton  Railroad  Company,  or  other- 
wise, the  exemption  sought  to  be  enforced  in  this  suit."  See  also, 
Memphis  and  Little  Rock  Railroad  v.  Commissioners,  112  U.  S.  609; 
Shields  V.  Ohio,  95  U.  S.  319;  Louisville  and  Nashville  Railroad  v. 
Palmes,  109  U.  S.  244. 

Nor  was  the  exemption  saved  by  section  3  of  article  11,  providing 
that  "all  statute  laws  of  this  state  now  in  force,  not  inconsistent  with 
this  constitution,  shall  continue  in  force  until  they  shall  expire  by 
their  own  limitation,  or  be  amended  or  repealed  by  the  general  as- 
sembly." This  referred  to  statutes  in  force  at  the  time  the  constitu- 
tion was  adopted,  the  operation  of  which  continued,  notwithstanding 
the  constitution.  In  this  case,  however,  the  exemption  contained 
in  section  9  of  the  charter  of  the  Alexandria  and  Bloomfield  Railway 
Company  ceased  to  exist,  not  by  the  operation  of  the  constitution, 
but  by  the  dissolution  of  the  corporation  to  which  it  was  attached. 

It  is  further  insisted,  however,  that  under  section  4  of  the  act  of 
March  2,  1869,  there  was  a  further  provision  that  the  consolidated 
company  should  be  "subject  to  all  the  liabilities,  and  bound  by  all 
the  obligations  of  the  company  within  this  state,"  and  "be  entitled 
to  the  same  franchises  and  privileges  under  the  laws  of  this  state  as  if 
the  consolidation  had  not  taken  place."  Whether,  under  the  name 
^'franchises  and  privileges,"  an  immunity  from  taxation  would  pass 
to  the  new  company  inay  admit  of  some  doubt,  in  view  of  the  decis- 
ions of  this  court,  which,  upon  this  point,  are  not  easy  to  be  recon- 
ciled. In  the  Chesapeake  and  Ohio  Railway  v.  Miller,  114  U.  S. 
176,  it  was  held  that  an  immunity  from  taxation  enjoyed  by  the  Cov- 
ington and  Ohio  Railway  Company  did  not  pass  to  a  purchaser  of 
such  road  under  foreclosure  of  a  moitgage,  although  the  act  provided 
that  "said  purchaser  shall  forthwith  be  a  corporation,"  and  "shall 
succeed  to  all  such  franchises,  rights  and  privileges  *  *  *  as 
would  have  been  had  *  *  *  by  the  first  company  but  for  such 
sale  and  conveyance."  It  was  held,  following  in  this  particular, 
Morgan  v.  Louisiana,  93  U.  S.  217.  that  the  words  "franchises, 
rights  and  privileges"  did  not  necessarily  embrace  a  grant  of  an  ex- 


§  287  POWER   AS   TO    CONSOLIDATION.  995 

emption  or  immunity.  See  also  Picard  v.  Tennessee,  etc.,  Railroad, 
130  U.  S.  637. 

Upon  the  other  hand,  it  was  held  in  Tennessee  v.  Whitworth,  117 
U.  S.  139,  that  the  right  to  have  shares  in  its  capital  stock,  exempted 
from  taxation  within  the  state  is  conferred  upon  a  railroad  corpora- 
tion by  state  statutes  granting  to  it  "all  the  rights,  powers  and  privi- 
leges" conferred  upon  another  corporation  named,  if  the  latter  cor- 
poration possesses  by  law  such  right  of  exemption,  citing  in  support 
of  this  principle  a  number  of  prior  cases.  See  also  Wilmington  and 
Weldon  Railroad  v.  Alsbrook,  146  U.  S.  279,  297. 

But  the  decisive  answer  to  this  objection  is  that  the  legislature  had 
no  power,  in  1869,  to  extend  to  a  new  corporation  created  by  the 
consolidation  an  exemption  contained  in  an  act  passed  in  1857,  before 
the  constitution  was  adopted,  and  hence  that,  under  the  terms  of  this 
act,  we  can  not  hold  that  immunity  from  taxation  passed  as  a  fran- 
chise or  privilege  to  the  consolidated  corporation.  The  construction 
claimed  by  the  defendant  would  be  directly  in  the  teeth  of  th^  consti- 
tutional provision  that  no  property  shall  be  exempted  from  taxation. 
While,  as  heretofore  observed,  an  exemption  from  taxation  contained 
in  a  charter  previously  granted  could  not  be  taken  away  by  this  con- 
stitutional provision  without  the  impairment  of  the  obligation  of  a 
contract,  it  doubtless  applies  to  all  corporations  thereafter  formed 
either  by  original  charter  or  by  the  consolidation  of  prior  corporations 
under  the  act  of  1869.     »     *     * 

Affirmed.     Harlan  and  Brewer,  JJ. ,  dissent. 

Note.    See  note  at  end  of  section  288,  infra,  Nos.  1,  4  and  5. 


See.  287.     (^)    Effect  of  consolidation  upon  creditor's  rights. 
COMPTON  V.  RAILWAY  COMPANY. ' 

1888.     In  the  Supreme  Court  of  Ohio.     45  Ohio  State  Reports 

592-625. 

[In  1862  the  Toledo  and  Wabash  Railway  Company,  formed  by  the 
consolidation  of  a  road  in  this  state  with  one  in  the  state  of  Indiana, 
issued  $600,000  of  what  were  termed  convertible  equipment  bonds, 
payable  in  1883,  and  bearing  interest  at  the  rate  of  seven  per  cent., 
payable  annually.  It  operated  its  road  until  1865,  when  it  was  con- 
solidated with  certain  roads  in  the  state  of  Illinois,  the  new  company 
being  called  the  Toledo,  Wabash  and  Western  Railway  Company.  It 
was  stipulated  in  the  agreement  forming  the  basis  of  the  consolida- 
tion that  these  equipment  bonds  should  be  "protected"  by  the  new 
company  at  their  maturity.  In  1873  the  last-named  company,  con- 
tinuing to  own  and  operate  its  road,  issued  certain  bonds  amounting 
to  $5,000,000,  and  secured  the  same  by  a  mortgage  upon  all  its 
*  Statement  of  facts  abridged,  arguments  and  part  of  opinion  omitted. 


996  COMPTON   V.    RAILWAY   COMPANY.  §  287 

property.  Under  proceedings  begun  in  1875  for  the  foreclosure  of 
this  mortgage  in  the  courts  of  Ohio,  Indiana  and  Illinois,  the  road 
was  sold  in  1877  to  one  Ellis  and  two  others  associated  with  him,  it 
being  specially  provided  in  the  decree  rendered  in  the  court  of  this 
state,  the  common  pleas  of  Lucas  county,  that  the  sale  should  be 
made  "without  prejudice  to  any  claim  which  may  be  made  by  the 
holders"  of  the  above-named  equipment  bonds.  The  owner  of  the 
road  at  the  commencement  of  this  suit.  The  Wabash,  St.  Louis  and 
Pacific  Railway  Company,  derives  its  title  from  Ellis  and  his  associ- 
ates. 

The  case,  after  judgment  for  plaintiff  in  the  common  pleas  court, 
was  appealed  by  the  defendants  to  the  district  court,  where  it  was 
reserved  for  decision  to  the  supreme  court  upon  an  agreed  statement 
of  facts.] 

MiNSHALL,  J.  The  principal  grounds  upon  which  the  plaintiff  as- 
serts his  right  to  relief  are  (i)  the  provisions  of  the  statute  under 
which  the  proceedings  in  consolidation  were  had;  (2)  the  stipulation 
in  the  agreement  forming  the  basis  of  the  consolidation;  and  (3)  the 
mortgage  executed  by  the  new  compan)'^  in  1867,  known  as  the  con- 
solidated mortgage. 

(i)  The  bonds  owned  by  the  plaintiff,  amounting  at  their  face 
value  to  $150,000,  were  issued  by  the  Toledo  and  Wabash  Railway 
Company  in  1862,  were  unsecured  by  mortgage  on  the  property  of 
the  company,  and  the  entire  series,  of  which  they  were  part,  were 
denominated  convertible  equipment  bonds,  and  amounted  to  $600,000, 
payable  in  1883,  bearing  interest  at  the  rate  of  7  per  cent.,  payable 
semi-annually,  with  the  usual  coupons  attached.  The  company  had 
been  formed  by  the  consolidation  of  the  road  of  a  company  in  Ohio 
with  one  of  a  company  in  Indiana,  under  the  laws  of  these  states, 
and  its  road  extended  from  Toledo  in  the  former,  to  State  Line  city 
in  the  latter,  state.  It  operated  its  road  until  in  1865,  when  it  was 
consolidated  with  certain  other  roads  in  the  state  of  Illinois,  the  new 
company  thus  formed  taking  the  name  of  the  Toledo,  Wabash  and 
Western  Railway  Company. 

The  consolidation  was  had  under  the  laws  of  the  several  states  in 
which  the  constituent  roads  were  located,  the  statute  in  this  state  ap- 
plicable to , the  transaction  being  the  act  of  April  10,  1856  (i  S.  & 
C.  327).  The  act  required  that  an  agreement  forming  the  basis  of 
the  consolidation  should  be  presented  to  the  stockholders  of  the  re- 
spective companies  at  separate  meetings  called  for  that  purpose  upon 
due  notice  ;  and  then  provided  that  upon  its  adoption  by  a  vote  of  two- 
thirds  of  the  stockholders,  the  filing  of  the  agreement  with  the  requi- 
site certificate  of  its  adoption,  by  the  secretary  of  each  company,  in 
the  office  of  the  secretary  of  state,  and  the  election  of  directors  by  the 
stockholders  of  the  new  company,  the  consolidation  should  be  deemed 
complete,  and  that  all  the  rights,  privileges  and  franchises  and  all  the 
property  of  every  description  "of  each  of  the  corporations,  parties  to 
the  same  *  *  *  shall  be  deemed  to  be  transferred  and  vested  in 
such  new  corporation  without  further  act  or  deed,"  with  this  express 


§  28/  FOWEK   AS   TO    CONSOLIDATION  99/ 

proviso,  "that  all  rights  of  creditors,  and  all  liens  upon  the  property 
of  either  of  said  corporations,  shall  be  preserved  unimpaired,  and  the 
respective  corporations  may  be  deemed  to  be  in  existence  to  preserve 
the  same;  and  all  debts,  liabilities  and  duties  of  either  of  said  com- 
panies shall  thenceforth  attach  to  said  new  corporation  and  be  en- 
forced against  it  to  the  same  extent  as  if  said  debts,  liabilities  and 
duties,  had  been  contracted  by  it."  Whilst  the  Indiana  statute  is  not 
so  definite  in  its  provisions  as  to  the  rights  of  creditors  of  the  constitu- 
ent companies  as  our  own,  yet  an  effect  has  been  given  it  by  the  con- 
struction of  its  courts  that  is  substantially  the  same.  McMahan  v. 
Morrison,  i6  Ind.  172;  Indianapolis,  C.  &  L.  R.  Co.  v.  Jones,  29 
Ind.  465. 

What,  then,  is  the  sum  of  the  rights  of  creditors  that,  as  against 
proceedings  had  under  it,  are  to  be  presei^ved  unimpaired?  It  is  true 
that,  ordinarily,  a  creditor  has  no  right  that  will  interfere  with  that  of 
his  debtor  to  sell  and  dispose  of  his  property  for  a  valuable  consider- 
ation, unless  he  has  taken  the  precaution  to  acquire  some  lien  upon 
it,  by  mortgage  or  otherwise,  as  a  security  in  his  own  behalf.  As  a 
rule  the  right  of  an  unsecured  creditor  is  confined  to  the  personal  ob- 
ligation and  the  undisposed  of  property  of  his  debtor ;  still  it  is  not 
strictly  accurate  to  say  that  such  creditor  has  no  claim  upon  the  prop- 
erty of  his  debtor,  for  in  one  sense  all  the  property  owned  by  a  debtor, 
unless  exempt  by  statute  from  sale  on  execution,  is  subject  to  the 
claims  of  his  creditors,  and  he  can  not  dispose  of  it,  unless  for  a 
valuable  consideration,  so  as  to  defeat  this  right.  It  is  upon  this 
principle  that  relief  is  constantly  afforded  creditors  in  equity  against 
conveyances  in  fraud  of  their  rights.  Hence  the  right  of  a  creditor, 
though  unsecured,  to  maintain  an  action  for  a  personal  judgment,  is 
not  the  sum  of  his  rights.  These  may  arise  from  a  variety  of  cir- 
cumstances, conferring  not  merely  a  right  to  a  personal  judgment  for 
money,  but  to  have  it  satisfied  from  certain  specific  property  formerly 
owned  by  the  debtor,  irrespective  of  its  acquisition  by  others.  The 
decease  of  the  debtor,  assignments  made  by  him,  his  bankruptcy,  loss 
of  the  power  to  own  and  acquire  property,  as,  for  example,  the  dis- 
solution of  a  corporation,  or  the  civil  death  of  the  debtor,  are  some 
of  the  most  frequent  instances  in  which  this  right  of  the  creditor  has 
been  recognized. 

But  the  question  presented  here  is  not  general,  but  special:  It  is, 
what  are  the  rights  of  unsecured  creditors  of  an  incorporated  railway 
company  whose  entire  road  and  property  have  been  transferred  to  a 
new  company,  formed  by  its  consolidation  with  other  roads,  under  the 
laws  of  this  state.''  The  general  doctrine  that  all  the  property  of  a 
corporation  is  a  trust  fund  for  its  creditors,  and  that  upon  its  dissolu- 
tion they  have  the  right  to  require  that  it  be  applied  in  payment  of 
their  claims,  is  not  controverted  by  the  defendants.  There  seems  to 
be  no  conflict  in  the  authorities  as  to  this,  and  that  the  right  gives  rise 
to  an  equitable  lien  upon  the  property  in  favor  of  the  creditor  that  is 
superior  to  the  claims  of  every  one  but  purchasers  for  value  without 
notice.  Story  Eq.  Juris.,  §  1252  ;  2  Kent  Com.,  307,  and  note  <5;  Mor. 


998  .  COMPTON   V.    RAILWAY   COMPANY,  §   28/ 

Priv.  Cor.,  §§  780,  1035;  Mont,  and  West  Point  R.  Co.  v.  Branch, 
59  Ala.  153. 

Nor  can  there  be  much  question  but  that  by  consolidation  the  prior 
companies  are  extinguished  for  all  purposes  except  to  preserve  the 
rights  of  their  creditors,  for  which  purpose  they  "may,"  in  the  lan- 
guage of  the  law,  "be  deemed  to  be  in  existence."  The  observa- 
tion of  Mr.  Justice  Swayne,  in  construing  this  statute  in  Shields  v. 
Ohio,  95  U.  S.  319,  that  "it  was  a  condition  precedent  to  the  exist- 
ence of  the  new  corporation  that  the  old  ones  should  first  surrender 
their  vitality  and  submit  to  dissolution"  is  quite  accurate. 

It  is,  however,  claimed  by  the  defendants  that  no  new  rights  are 
conferred  by  the  statute  upon  creditors;  that  if  they  were  unsecured 
before,  they  remain  such  after,  the  consolidation ;  and  that  the  new- 
company  may  deal  with  the  property — may  sell  or  mortgage  it — as 
could  have  been  done,  and  with  like  effect,  by  the  former  company 
had  it  continued  the  owner  thereof.  This  argument  is  placed  upon 
two  grounds,  (i)  the  assumption  that  the  transaction  is  analogous  to 
a  sale,  and  (2)  that  such  is  the  effect  of  the  statute  upon  all  con- 
tracts made  subsequent  to  its  passage.  We  will  consider  them  seria- 
tim. 

I.  The  first  is,  as  we  think,  certainly  erroneous.  Whilst  the 
transaction  has  some  of  the  features,  it  is  wanting  in  the  essential  ele- 
ments of  a  sale.  A  sale  implies  a  vendor  and  a  vendee,  and  by  it  the 
former  sells  and  transfers  a  thing'  that  he  owns  to  the  latter  for  a  price 
paid  or  to  be  paid  to  himself.  The  vendor  parts  with  nothing  but  his 
property,  and  for  it  receives  a  quid  pro  quo.  Such  is  not  the  case 
where  companies  are  consolidated  under  this  statute.  It  is  true  that 
the  owner  of  each  constituent  road  parts  with  its  property.  But  it 
does  much  more ;  it  not  only  parts  with  its  property,  but  ceases  to  be 
a  juristical  entity,  capable  of  owning  or  acquiring  property.  It  does 
not,  and  could  not,  receive  any  consideration  for  the  transfer,  because 
it  is  extinguished  and  dissolved  by  the  act  of  its  stockholders  in  assent- 
ing to  the  proposed  agreement.  It  is  futile  to  urge  that  the  consider- 
ation is  received  by  the  stockholders.  They  are  not  the  corporation, 
nor  do  they  represent  it  in  its  relation  to  its  creditors.  "An  essential 
incident  of  corporations  is  that  their  rights  are  not  vested  in  the  ag- 
gregate of  individuals,  but  in  the  ideal  whole,  regarded  as  distinct 
from  the  members  of  which  it  is  composed."  Per  Mr.  Poste  in  his 
edition  of  Gains,  154.  And  see  Bank  of  Augusta  v.  Earle,  13  Pet. 
519,  587.  There  has  been  no  relaxation  of  this  principle  in  its  appli- 
cation to  the  relation  of  an  incorporated  company  to  its  creditors.  It 
is  the  owner  in  law  and  equity  of  all  its  corporate  property,  and  it, 
and  not  the  stockholders,  is  the  debtor  in  all  coi*porate  obligations. 
Mor.  Priv.  Corp.,  2  ed.,  §  227.  Moreover,  in  a  consolidation  of 
companies,  the  stockholders  receive  no  part  of  the  property  or  assets 
of  their  respective  companies ;  these  pass  to  the  ownership  of  the  new 
company.  All  that  the  stockholders  of  either  of  the  old  companies 
receive  is  stock  in  the  new  company  in  exchange  for  what  thev  held 
in  the  former  company.     We  must  look  elsewhere  for  the  analogies 


§  28/  POWER   AS   TO    CONSOLIDATION.  999 

to  the  transactions  whereby,  through  consolidation,  a  new  company 
acquires  the  property  of  certain  old  ones.  We  are  not  without  such 
analogies.  They  are  to  be  found  in  the  numerous  instances  in  ancient 
and  modem  law,  where,  to  use  the  terminology  of  the  Roman  civil 
law,  a  universitas  juris  is  transferred.  The  term  expresses  the  legal 
conception  of  a  university  or  bundle  of  rights  and  liabilities,  belonging 
to  one  person  and  constituting,  as  it  were,  his  legal  personality ;  and 
where  these  are  transferred  by  one  and  the  same  act  to  another,  the 
latter  is  said  to  acquire  fcr  univcrsitatem^  that  is,  he  becomes  clothed 
with  the  rights  and  legal  duties  of  the  individual  to  whose  personality 
he  succeeds.  Among  some  of  the  leading  instances  of  such  acquisi- 
tion are — (i)  a  succession  to  an  inheritance  by  an  heir — somewhat 
obscured  in  the  common  law  by  its  division  between  the  heir  and  the 
personal  representative  of  the  deceased  (Maine  Anc.  Law,  i8o) ; 
(2)  where,  by  adrogation,  one  not  under  power  became  the  son  of 
another,  and  the  adrogator  by  the  diminution  of  the  status  of  the 
adrogatus^  or  adopted  son,  acquired  his  property  and,  by  praetorian 
law,  became  liable  for  his  debts  to  the  extent  of  the  property  so  ac- 
quired; ^3)  co-emption,  where  the  husband  acquired,  by  the  mar- 
riage, the  property  of  the  wife,  and  by  a  remedy  furnished  by  the 
praetor,  was  made  liable  for  her  debts  in  the  same  manner  as  in  the 
case  of  adrogation.  And  in  the  common  law  may  be  suggested,  not 
merely  the  case  of  an  inheritance  transmitted  by  the  death  of  the  an- 
cestor, but  also  the  estate  of  one  regarded  as  civiliter  mortus^  which 
was  transmitted  and  administered  upon  as  that  of  a  person  in  fact  de- 
ceased. And  the  succession  of  an  assignee  in  bankruptcy  to  the  en- 
tire property  of  a  bankrupt  is,  as  observed  by  Sir  Henry  Sumner 
Maine,  a  modified  form  of  a  universal  succession.  And,  he  says: 
"Were  it  common  among  us  for  persons  to  take  assignments  of  all  a 
man's  property  on  condition  of  paying  all  his  debts,  such  examples 
would  exactly  resemble  the  universal  successions  known  to  the  oldest 
Roman  law."     Maine  Anc.  Law,  180. 

In  all  these  cases  the  point  most  to  be  observed,  is  the  extreme  care 
of  the  law  to  secure  the  rights  of  creditors.  The  case  of  an  inheri- 
tance is  familiar  and  needs  little  or  no  comment — the  creditors  of  the 
deceased  are  regarded  as  having  a  lien  upon  the  property  of  the  de- 
ceased, and  this  is  secured  to  them  through  the  methods  of  administra- 
tion, and  so  in  the  case  of  those  regarded  as  being  civilly  dead,  for 
example  in  the  case  of  a  monk,  the  individual,  in  anticipation  of  be- 
coming a  "monk  professed,"  could  make  a  will  and  appoint  his  own 
executor,  but  if  he  did  not,  administration  was  awarded  by  the  ordi- 
nai"y  as  upon  the  estate  of  one  in  fact  deceased,  i  Bl.  Com.,  132. 
For  some  reason,  not  well  understood,  neither  the  adrogator  nor  the 
husband  in  a  marriage  by  co-emption  was,  by  the  ancient  civil  law, 
liable  to  creditors  for  the  debts  of  the  person  thus  reduced  to  his 
power.  But  a  remedy  was  provided  at  an  early  period  through  an 
action  given  by  the  praetor,  in  which,  by  a  fiction,  the  former  status 
of  the  debtor  was  deemed  to  continue,  and  this,  like  all  fictions  intro- 
duced to  favor  the  remedy,  could  not  be  disputed,  and  preserved  the 


lOOO  COMPTON    V.    RAILWAY    COMPANY.  §  287 

rights  of  the  creditor  as  against  the  property  of  his  debtor.  Poste's 
Gaius  Inst.,  bk.  3,  §  84;  Poste's  Gaius  Inst.,  bk.  4,  §  38,  and  com- 
ments by  Poste,  p.  521  ;  Just.  Inst.,  bk.  3,  tit.  10,  §§  1-3  ;  and 
Hunter  Rom.  Law  (2d  ed.),  741.  And  it  is  worthy  of  note  in  this 
connection  that  our  statute  regulating  proceedings  in  consolidation, 
provides  that,  to  preserve  the  rights  of  creditors,  "the  respective  cor- 
porations may  be  deemed  to  be  in  existence."  It  thus  appears  to  be 
a  principle  of  universal  law  that  the  death,  real  or  supposed,  of  an 
individual,  possessed  of  property  and  owing  debts,  gives  to  his  cred- 
itors a  right  to  have  his  property  applied  to  the  satisfaction  of  their 
claims.  It  is  a  misapprehension  of  the  doctrine  to  say  that  its  appli- 
cation to  the  consolidation  of  railway  companies  would  make  every 
consolidation  an  assignment  for  the  benefit  of  creditors.  The  new 
company  does  not  take  the  property  as  assignee,  but  in  its  own  right, 
subject  only  to  the  payment  of  the  debts  of  the  constituent  compa- 
nies. This  liability  is  created  by  statute  and  the  lien  results  as  a  con- 
sequence. It  is  not  a  jus  in  re,  nor  a  jus  ad  rem,  but  a  charge  in 
the  nature  of  an  equitable  lien  upon  the  property  available  against  all 
purchasers  with  notice.  3  Pom.  Eq.  Jur.,  §  1233,  and  note  3.  The 
reason  underlying  the  principle  upon  which  the  law  proceeds  in  all 
this  class  of  cases  is,  that  the  debtor  does  not  merely  part  with  his 
property  and  rights,  but  also  loses  his  capacity  to  own  and  acquire 
property ;  and  all  that  is  left  the  creditor  upon  which  he  trusted  his 
debtor — property  constituting  the  principal  ground  of  credit  in  all 
cases — is  the  property  that  his  debtor  owned,  and  to  that  he  has  the 
right  to  look  for  the  satisfaction  of  his  claim,  the  person  whom  he 
trusted  having  ceased  to  be.  It  is  no  answer  to  this  to  say  that  the 
new  company  is  required  to  assume  the  payment  of  the  debts  of  the 
old  companies.  I  am  aware  that  the  convenience  of  trade  and  com- 
merce has  so  changed  the  ancient  doctrines  of  the  common  law  that  a 
debtor  may  be  required  in  a  variety  of  instances  to  accept  as  a  creditor 
one  with  whom  he  did  not  in  fact  contract ;  but  I  know  of  no  in- 
stance in  which  it  can  be  said  that  a  creditor  can  be  compelled  to  ac- 
cept a  new  debtor  in  the  place  of  the  one  to  tvhom  he  extended 
credit.  It  is  impossible  to  perceive  how  this  could  be  done  without 
impairing  the  obligation  of  the  contract.  The  company  with  which 
he  dealt  may  have  possessed  ample  means  to  discharge  all  its  debts; 
the  new  one  may,  by  reason  of  the  debts  of  the  other  companies,  be 
hopelessly  insolvent,  and  to  compel  him  to  accept  it  as  a  general 
creditor,  might  be  but  another  mode  of  robbing  him  of  his  credits. 

2.  The  claim  is,  however,  that  such  is  the  effect  of  the  statute 
under  which  the  consolidation  was  had,  and  having  been  in  force  at 
the  time  the  equipment  bonds  were  issued,  entered  into  the  contract 
and  became  a  part  of  it.  It  is  difficult  to  perceive  how  this  claim  can 
be  maintained  in  the  face  of  the  language  of  the  statute  heretofore 
quoted,  "that  all  rights  of  creditors  *  *  *  of  either  of  said  cor- 
porations shall  be  preserved  unimpaired."  There  is  no  question  but 
that  every  statute  enters  into  and  forms  part  of  any  contract  to  which 
it  is  applicable  as  a  part  of  the  law  of  the  land,  but  it  is  not  perceived 


§  28;  POWER   AS   TO    CONSOLIDATION.  lOOI 

how,  in  the  application  of  this  rule,  a  contract  may  be  impaired  or  in 
any  way  affected  by  proceedings  had  under  a  statute  which  by  its 
terms  excludes  any  such  effect.  The  proposition  involves  a  contradic- 
tion in  terms.  The  only  question  that  can  be  raised  in  such  a  case  is, 
whether  a  particular  effect  claimed  for  a  proceeding  had  under  the 
statute  will  or  will  not  impair  the  contract  of  a  creditor,  and  an 
answer  to  the  question  in  the  affirmative  must  be  fatal  to  the  claim. 
No  reason  is  perceived  why  a  different  intention  should  be  imputed 
to  the  legislature  in  the  enactment  of  this  law.  The  object  of  the 
legislature  in  authorizing  the  consolidation  of  railway  companies  was, 
as  we  apprehend,  not  to  enable  the  new  company  to  obtain  credit  by 
impairing  the  security  of  existing  creditors  of  either  of  the  former 
roads,  but  to  enable  existing  companies  to  unite  and  form  a  continu- 
ous line  of  railway  under  one  corporate  management  between  widely 
separated  points  of  trade  and  commerce;  and  as  this  may  be  attained 
without  impairing  the  rights  of  creditors  of  the  constituent  roads,  a 
court  might  well  hesitate  to  so  construe  the  statute  if  its  provisions 
were  silent  on  the  subject.  It  would  seein  to  be  quite  as  consistent 
with  a  wise  public  policy  to  preserve  the  foundations  of  commercial 
credit  as  to  promote  the  formation  of  great  lines  of  interstate  com- 
merce;  both  may  be  necessary  to  the  interests  of  commerce,  but  the 
one  not  more  than  the  other. 

This  view  is  much  strengthened  by  the  further  provision  as  to  the 
rights  of  creditors,  that  "the  respective  corporations  shall  be  deemed  to 
be  in  existence  to  preserve  the  same."  How,  for  this  purpose,  shall  they 
be  deemed  to  be  in  existence — as  legal  entities  with  or  without  prop- 
erty? Manifestly  in  the  former  sense,  for  the  existence  of  a  corporate 
entity  without  property  wherewith  to  answer  claims  against  it  would  be 
of  no  avail  to  a  creditor;  a  judgment  against  it  would  be  without 
fruit.  The  clause  was  inserted  in  the  interest  of  creditors,  and  the 
only  interpretation  that  can  be  of  any  avail  to  them  can  not  be  rejected 
w^ithout  doing  violence  to  well  settled  rules  of  construction.  The 
statute  introduces  a  fiction  much  as  the  praetor  did  in  favor  of  the 
creditors  of  an  adrogatus^  and  we  see  no  reason  why  it  was  not  in- 
tended to  answer  substantially  the  same  purpose.  In  a  suit  by  a 
creditor,  the  company,  though  in  fact  dissolved,  is  to  be  deemed  in 
existence,  and  a  judgment  in  his  favor,  whether  against  it  or  the  new 
company,  is  to  be  satisfied  from  the  property  owned  by  the  old  company 
at  the  time  of  consolidation  as  if  such  proceedings  had  never  been 
had;  the  fact  of  consolidation  is  pushed  aside,  and  no  one  will  be 
permitted  to  question  the  fiction  until  his  rights  have  been  satisfied. 
Of  this  no  one  as  a  creditor  of  the  new  company  can  in  justice  com- 
plain. The  lien  is  a  result  of  the  proceedings  under  which  the  new 
company  acquired  its  title  to  the  property,  and  of  it  creditors  of  the 
new  company  have,  in  law,  the  same  notice  they  have  of  prior  mort- 
gages upon  the  same  property. 

The  former  decisions  of  this  court  do  not  affect  the  question  as  to 
the  rights  of  creditors.  They  are  simply  to  the  effect  that  the  statute 
becomes  a  part  of  all  subscriptions  to  the  capital  stock  of  a  company 


I002  COMPTON    V.    RAILWAY    COMPANY.  §  28/ 

made  subsequent  to  its  passage,  so  that  the  same  may  be  recovered  in 
a  suit  by  the  consolidated  company  brought  for  that  purpose.  Mans- 
field, Coldvv.  &  L.  M.  R.  Co.  V.  Brown,  26  Ohio  St.  223.  The 
rights  of  a  stockholder  are  preserved  by  giving  him  an  election  to  be- 
come one  in  the  nevs^  company,  or  of  declining,  and  being  paid  the 
highest  market  value  of  his  stock  at  any  time  within  the  six  months 
next  preceding  the  making  of  the  agreement,  but  imless  he  does  so 
previous  to  the  consolidation,  he  is  treated  as  a  stockholder  in  the  new 
company;  and  this  fact  accentuates  the  construction  claimed  for  cred- 
itors ;  as  no  voice  is  given  them  in  the  transaction,  it  is  but  reasonable 
that  their  rights  should  be  in  no  way  affected  by  it. 

II.  The  plaintiff  does  not,  however,  base  his  claim  to  relief  solely 
upon  the  provisions  of  the  statute,  but  likewise  upon  the  effect  of  the 
stipulation  in  the  agreement  forming  the  basis  upon  which  the  consol- 
idation was  had,  that  the  class  of  bonds  owned  by  him  should  be  pro- 
tected, both  as  to  interest  and  principal,  as  the  same  should  mature, 
by  the  new  company.  The  principle  upon  which  this  claim  is  based 
is,  that  where  property  is  transferred  upon  the  condition  that  the 
grantee  shall  pay  some  third  person  a  debt  or  sum  of  money,  the  lat- 
ter acquires  an  equitable  lien  on  the  property  to  the  extent  of  the  debt 
or  sum  of  money  to  be  paid  him.  This  principle  is  well  recognized 
and  has  been  applied  in  a  great  variety  of  cases.  A  masterly  treat- 
ment of  the  doctrine  by  Ranney,  J.,  will  be  found  in  Clyde  v.  Simp- 
son, 4  Ohio  St.  445.  See,  also.  Story  Eq.  Juris.,  §§  1244-6;  Pom. 
Eq.  Juris.,  §  166  and  §  1234;  Montgomery  and  West  Point  R.  Co. 
V.  Branch,  59  Ala.  139;  Hamilton  v.  Gilbert,  2  Hiesk.  680;  Van- 
meter  v.  Vanmeter,  3  Grat.  148. 

It  is  true  that  most  of  the  instances  in  which  this  lien  has  been  rec- 
ognized is  where  property  had  been  devised  charged  with  the  pay- 
ment of  debts  or  legacies  to  others,  and  for  the  plain  reason  that  the 
most  frequent  occasions  for  its  application  will  ari«e  in  such  instances, 
and  not  because  the  principle  is  in  its  nature  inapplicable  to  other 
transfers  of  property;  for,  as  is  said  by  Ranney,  J.,  in  Clyde  v.  Simp- 
son, sufra^  a  "doctrine  resting  upon  the  broad  foundations  of  justice 
and  conscience"  can  not  be  made  "to  depend  upon  the  manner  in 
which  the  title  is  derived."  No  such  limitation  has  been  placed  upon 
the  doctrine  by  the  courts  or  text-writers.  Story  Eq.  Juris.,  §  1746. 
In  Vanmeter  v.  Vanmeter,  supra,  it  appears  that  a  grantor  had 
made  a  conveyance  of  all  his  real  estate  in  consideration  of  $1  and 
the  agreement  of  the  grantees  to  pay  his  debts  and  a  certain  leg- 
acy ;  this  was  held  by  the  court  to  constitute  a  lien  upon  the  property 
in  favor  of  the  creditors.  Many  similar  instances  will  be  found  among 
the  cases  cited;  and,  independent  of  the  provisions  of  the  statute,  we 
are  unable  to  see  why  the  principle,  when  applied  to  the  facts  of  this 
case,  does  not  create  a  similar  lien  in  favor  of  the  holders  of  these 
equipment  bonds.  It  would  seem  to  follow  as  a  corollary  from  what 
has  been  said  as  to  the  lien  based  upon  the  provisions  of  the  statute. 
Whatever  may  be  urged  against  the  claim  that  the  agreement  to  pro- 
tect these  bonds  imposed  the  duty  of  securing  them  by  mortgage  or 


§  287  POWER   AS   TO    CONSOLIDATION.  lOO^ 

Otherwise,  the  least  that  can  be  claimed  for  such  agreement  is,  that  it 
imposed  the  duty  of  paying  them,  interest  and  principal,  at  maturity. 
And,  as  all  the  property  of  the  company  issuing  them  was  transferred 
upon  the  basis  of  this  agreement,  the  transfer  was,  at  least,  upon  the 
stipulation  to  pay  his  claim  as  a  part  of  the  consideration  thereof.  If, 
for  the  purpose  of  withdrawing  from  the  cares  of  business,  or  any 
other  reason,  a  private  person  w-ere  to  make  a  conveyance  of  all  his 
property  to  another  upon  the  agreement  of  the  latter  to  pay  his  debts, 
it  will  not  be  questioned  but  that  such  transfer  would  create  an  equi- 
table lien  upon  the  property  in  favor  of  creditors,  that  would  avail 
against  all  persons  with  notice.  This  case  is  every  way  analogous  to 
such  a  transfer,  and  no  reason  exists  why  it  should  not  be  governed 
by  the  same  principle  so  far  as  the  rights  of  creditors  are  con- 
cerned. The  only  difference  between  the  real  and  the  supposed  case 
strengthens  the  reason  of  its  application  to  the  real  one.  In  the  sup- 
posed case  the  person  making  the  transfer  may  still  own  and  acquire 
property,  but  in  the  real  one,  as  heretofore  shown,  the  debtor  termi- 
nates its  personality,  and  can  no  longer  own  or  acquire  anything;  all 
that  is  left  the  creditor  is  the  property  that  it  owned;  and,  unless  we 
disregard  all  the  analogies  of  the  law,  this  property  must  be  charged 
with  its  debts  in  the  hands  of  one  that  succeeded  to  its  place  in  con- 
sideration of  the  agreement  to  pay  them,  and  the  lien  so  created  must 
be  superior  to  the  title  of  all  purchasers  with  notice.  «  *  * 
Judgment  for  plaintiff,  finding  the  amount  due  and  order  of  sale. 

Note.    This  case  was  affirmed  by  the  United  States  Supreme  Court.    1897,. 
Compton  v.  Jessup,  167  U.  S.  1. 
Note.    Consolidation. 

1.  Meaning  of:  A  late  case  defines  consolidation  ^o  be  "a  merger,  a  union^ 
or  amalgamation,  by  which  the  stock  of  the  two  is  made  one,  their  pmperty 
and  franchises  combined  into  one,  their  powers  become  the  powers  of  one, 
their  names  merged  into  one,  and  the  identity  of  the  two  praeticnlly,  if  not 
actually,  runs  into  one," — Hunt,  J.,  in  State  v.  Montana  R.,  21  Mont.  221,  45 
L.  R.  A  271  (1898).  Tlie  fullest  discussion  of  themeaningof  consolidation  is 
in,  1879,  Meyer  v.  Johnson  &  Stewart,  64  Ala.  603,  on  650-669;  see  also,  1898, 
Adams  v.  Yazoo  &  M.  V.  R.  Co.  (Miss.),  24  So.  Rep.  200,  not  officially  reported ; 
1899,  Rafferty  v.  Buffalo  City  Gas  Co.,  37  App.  Div,  (N.  Y.)  618. 

In  England  the  term  used  is  amnlgamation,  and  it  there  has  as  uncertain 
and  undefined  a  meaning  as  consolidation  here.  See  Mever  v.  John.ston,  64- 
Ala.  603,  651,  et  seq.,  and  1898,  Wall  v.  London  &  N.  W.  Assetts  Corp.,  79  L.T. 
R.  249. 

Illustrations :  Power  to  connect  or  unite  does  not  permit  consolidation  :  1895, 
Louisville  &  N.  R.  Co.  v.  Kentucky,  161  U.  S.  677;  exchange  of  stock  by  one 
corporation  for  that  of  another  does  not  effect  consolidation  :  1899,  Rafferty  v. 
Buffalo  Citv  Gas  Co.,  37  App.  Div.  (N.  Y. )  618  ;  a  short  lease  is  not  a  consoli- 
dation :  State  V.  Montana  R.,  21  Mont.  221,  45  L.  R.  A.  271  ;  but  a  long  lease 
is  practically  a  consolidation:  1888,  State  v.  Atchison,  etc.,  R.,  24  Neb.  113; 
power  to  consolidate  does  not  include  a  power  to  sell  or  lease:  1875,  Tippe- 
canoe County  V.  Lafayette,  etc.,  Co.,  50  Ind.  s'5;  1882,  State  v.  Vanderbilt,  37 
Ohio  St.  690;  1882,  Archer  v.  Terre  Haute  R.  Co.,  102  111.  493;  1886, 
Mills  V.  Central  R.,  41  N.  J.  Eq.  1  ;  1889,  East  L.  &  R.  R.  Co.  v.  Texas,  75  Tex. 
434;  1892,  St.  L.,  etc.,  R.  Co.  v  Terre  Haute,  etc.,  R.  Co.,  145  IT.  S.  .393.  But 
see,  contra,  1875,  Williamson  v.  N.  J.  So.  R.,  26  N  J.  Eq.  398;  1882,  Branch  v. 
Jesup,  106  U.  S.  468;  1895,  Chicago,  S.  E.,  etc.,  Co.  v.  Ashling,  160  III.  373. 

2.  Consent  of  the  state  is  essential ;  but  ratification  by  the  legislature  after 


I004  COMPTON    \'.    RAILWAY   COMPANY.  §  28/ 

an  attempt  at  consolidation  will  be  sufficient:  1856,  Fisher  v.  Evansville, 
etc.,  R.  Co.,  7  Ind.  407;  1858,  Lauman  v.  Lebanon  Valley  R.  Co.,  30  Pa.  St. 
42,  72  Am.  Dec.  685;  1858,  Pearce  v.  Madison,  etc.,  P.  R.  Co.,  21  How.  (62 
U.  S.)  441;  1859,  Bishop  v.  Brainerd,  28  Conn.  289  (ratification);  1861,  State 
V.  Bailey,  16  Ind.  46,  79  Am.  Dec.  405;  1875,  Warrener  v.  Kankakee  County, 
Fed.  Cas.  17205;  1876,  In  re  Prospect  Park,  C.  I.  R.  Co.,  67  N.  Y.  371,  supra; 
18/7,  Mead  v.  New  York,  H.  &  M.  R.  Co.,  45  Conn.  199  (ratification);  1883, 
Missouri  Pac.  R.  Co.  v.  Owens,  1  W.  &  W.  Civ.  Cas.  (Tex.  Ct.  App.),  §  385; 
1885;  Crawfordsville  &  D.  T.  Co.  v.  State,  102  Ind.  435;  1891,  Home  Friendly 
Soc.  V.  Tyler.  9  Pa.  Co.  Ct.  R.  617;  1892,  Cameron  v.  N.  Y.  &  Mt.  V.  W.  W., 
133  N.  Y.  336,  31  N.  E.  Rep.  104;  1893,  People  v.  Rice,  138  N.  Y.  151,  33  N. 
E.  Rep.  846;  1893,  Greenville  Compress  Co.  v.  Planters',  etc.,  Co.,  70  Miss. 
669,  35  Am.  St.  Rep.  681 ;  1895,  Louisville  &  N.  R.  v.  Kentucky,  161  U.  S.  677 ; 
1895,  American  L.  &  T.  Co.  v.  Minn.  &  N.  W.  R.  Co.,  157  111.  641,  42  N.  E. 
Rep.  153;  1898,  Topeka  Paper  Co.  v.  Oklahoma  P.  Co.,  7  Okla.  220,  54  Pac. 
Rep.  455;  1900,  Wood  v.  Seattle,  —  Wash.  — ,  52  L.  R.  A.  369,  note. 

The  state's  permission  to  consolidate  is  a  license  and  not  the  grant  of  a 
franchise:  1895,  Pearsall  v.  Great  N.  R.  Co.,  161  U.  S.  646;  1898,  Adams  v. 
Yazoo  &  M.  V.  R.  Co.,  24  So.  Rep.  200. 

3.  Consent  of  shareholders: 

(«)  In  the  absence  of  a  reserved  power  to  amend  or  repeal,  or  a  charter  or 
statutory  provision  allowing  consolidation  when  the  corporation  is  organized, 
the  unanimous  consent  of  shareholders  is  essential :  1853,  Kean  v.  Johnson, 
9  N.  J.  Eq.  401;  1856,  Chapman  v.  Mad  River,  etc.,  R.  Co..  6  Ohio  St.  119; 
1858,  Lauman  v.  Lebanon  Valley  R.,  30  Pa.  St.  42,  72  Am.' Dec.  685;  1863, 
Clearwater  v.  Meredith,  1  Wall.  (68  U.  S.)  25,  8upra,  p.  984;  1866,  Mowrey  v. 
Ind.  &  C.  R.  Co.,  4  Biss.  78,  Fed.  Cas.  9891 ;  1867,"Zabriskie  v.  Hackensack, 
etc.,  R.,  18  N.  J.  Eq.  178;  1S73,  Black  v.  Del.  &  R.  Canal  Co.,  24  N.  J.  Eq. 
455 ;  1882,  N.  O.  G.  L.  Co.  v.  Louisiana  L.  Co.,  11  Fed.  Rep.  277  ;  1886,  Mills  v. 
Central  R.  Co.,  41  N.  J.  Eq.  1 ;  1888,  Botts  v.  Simpsonville  &  B.  Co.,  88  Ky. 
54,  2  L.  R.  A.  594 ;  1890,  Deposit  Bank  of  Owensboro  v.  Barrett,  11  Kv.  L.  Rep. 
910,  13  S.  W.  Rep.  337;  1891,  Home  Friendly  Soc.  v.  Tyler,  9  Pa.  Co.  Ct.  617. 

Long  acquiescence  is  sufficient  evidence  of  consent:  1894,  Phinizy  v.  Au- 
gusta, K.  R.  Co.,  62  Fed.  Rep.  678. 

(6)  Under  a  reserved  ^lower  to  alter  or  amend  a  charter,  a  majority  may 
be  authorized  to  consent  to  a  consolidation  against  the  wishes  of  the  minority : 
1856,  Railroad  Co.  v.  Dudlev,  14  N.  Y.  336;  1856,  Sparrow  v.  Evansville, 
etc.,  R.,  7  Ind.  369;  1857,  McCray  v.  Junction  R.  Co.,  9  Ind.  358;  1859, 
Bishop  v.  Brainerd,  28  Conn.  289;  1862,  Durfee  v.  Old  Colony  R.  Co.,  5 
Allen  (Mass.)  230;  1865,  Gardner  v.  Hamilton  Ins.  Co.,  33  N.  Y.  421;  1873. 
Nugent  V.  Supervisors,  19  Wall  (U.  S.)  241;  1875,  Mansfield,  etc.,  R.  Co.  v. 
Brown,  26  Oliio  St.  223;  1877,  State  v.  Maine  Cent.  R.  Co.,  66  Me.  488;  1878, 
Wilson  V.  Salamanca,  99  U.  S.  499;  1885,  Middletown  v.  Boston,  etc.,  R.,  53 
Conn.  351 ;  1894,  Hale  v.  Cheshire  R.  Co.,  161  Mass.  443,  37  N.  E.  Rep.  307; 
1895,  Market  St.  R.  Co.  v.  Hellman,  109  Cal.  571,  42  Pac.  Rep.  225. 

But  there  are  decisions  holding  that  unanimous  consent  is  required  under 
the  reserved  power  to  amend  :  1867,  Zabriskie  v.  Hackensack  R.,  18  N.  J.  Eq. 
178;  1893,  Earle  v.  Seattle,  etc.,  R.,  56  Fed.  Rep.  909. 

4.  Effect  of  consolidation  upon  former  companies: 

The  intent  of  the  consolidation  statute  and  agreement  controls,  but  the  va- 
rious views  are,  as  to: 

(a)  Their  existence:  Theories:  (1)  Old  companies  are  dissolved  and  go  out 
of  existence,  there  being  a  new  company  only  after  consolidation:  1861,  State 
V.  Bailey,  16  Ind.  46,  79  Am.  Dec.  405;  1863,  Clearwater  v.  Meredith,  1  Wall. 
25, SMi)m, p. 984;  1868,  Indianapolis  C.  &  L.  Co.  v.  Jones,  29  Ind.  465.  95  D. 
654;  1868,  Tagart  v.  N.  C.  R.,  29  Md.  657;  1875,  Shields  v.  State,  26  Ohio  St. 
86;  1877,  Shields  v.  Ohio,  95  II.  S.  319;  1878,  Railroad  Co.  v.  Georgia,  98  U. 
S.  359;  1882,  N.  O.  Gas  Lieht  &  H.  Co.  v.  L.  L.  &  H.  Co.,  11  Fed.  Rep.  277; 
1888,  St.  Lonis.J.  M.  &  S.  R.  v.  Berry,  41  Ark.  509;  1888,  Kansas,  0.  &  T.  R. 
Co.  v.  Smith,  40  Kan.  192;  18^4,  Keokuk  &  W.  R.  Co.  v.  State,  152  U.  S.  301. 
supra,  p.  96t»;  l»yo.  Council  G.  O.  C,  etc.,  R.  Co.  v.  Lawrence,  3  Kan.  Ap^,. 


§  28/  POWER    AS   TO    CONSOLIDATICX.  IOO5 

274;  1897,  Rio  Gramle  \V.  R.  Co.  v.  Tellumle,  etc.,  Co.,  16  Utah  125,  51  Pac. 
Kep.  146;  1899,  Wagner  v.  Atchison,  T.  &  S.  F.  R.  Co.,  9  Kan.  App.  661,  68 
Pac.  Rep.  1018;  1901,  Yazoo  &  Mins.  \'.  Ry.  Co.  v.  Adams,  180  U.  S.  1. 

(2)  The  old  companies  are  not  dissolved,  the  consolidated  company  h'eing 
a  7«a.s»-partner8hip  among  the  old  companies  and  continuing  their  existence: 
1830,  Farnura  v.  Blackstone  Canal  Co.,  1  Sumner  46;  1871,  Pennsylvania 
College  Cases,  13  Wall.  (U.  S.)  190;  1873,  Columbus,  C.  &  I.  C.  R.  v.  Skid- 
more,  69  111.  566;  1875,  Central  R.,  etc.,  Co.  v.  Georgia.  92  U.  S.  665;  1876, 
Shackelford  v.  Mississippi  C.  R.  Co.,  52  Miss.  169;  1879,  Meyer  v.  Johnson, 
64  Ala.  603;  1880,  Newport  &  Cin.  Bridge  Co.  v.  Wooley,  78  Kv.  623;  1888, 
Edison  Elec.  L.  Co.  v.  N.  H.  El.  Co.,  35  Fed.  Rep.  233;  1889,  Hancock  M.L. 
I.  Co.  V.  Worcester,  etc.,  R.,  149  Mass.  214;  1890,  United  States  v.  So.  Pac. 
R.  Co.,  45  Fed.  Rep.  596;  1890,  Day  v.  Worcester,  N.,  etc.,  R.  Co.,  151  Mass. 
302;  1896,  Louisville  Trust  Co.  v.  L.,  N.  A.,  etc.,  R.,  75  Fed.  Rep.  433. 

(ft)  Their  property :  Becomes  that  of  the  succeeding  company.  See  infra, 
this  note,  5  (ft),  (3). 

(c)  Their  rights  generally:  These  become  those  of  the  successor  company. 
See  infra,  this  note  5  (a),  (6). 

(d)  Their  liabilities:  These  continue  against  the  old  company,  although 
they  are  usually  enforcible  against  the  consolidated  company:  1873,  Prouty 
V.  Lake  S.,  etc.,  R.  Co.,  52  N.  Y.  363;  1874,  Montgomery  &  W.  P.  R.  Co.  v. 
Boring,  51  Ga.  582;  1876,  Shackelford  v.  Miss.,  etc.,  R.  Co.,  52  Miss.  159; 
1877,  Montgomery,  etc.,  R.  v.  Branch,  59  Ala.  139;  1888,  Louisville,  etc.,  R. 
V.  Boney,  117  Ind.  501;  1888,  Corapton  v.  R.  Co.,  45  Ohio  St.  692;  1895,  Mar- 
ket St.  R.  v.  Hellman,  109  Cal.  571;  1897,  Compton  v.  Jesup,  167  U.  S.  1; 
1897,  Santa  Fe  Elec.  Co.  v.  Hitchcock,  9  N.  M.  156,  50  Pac.  Rep.  332;  1897, 
In  re  Utica  Nat.  Bank  Co.,  154  N.  Y.  268.     See,  infra,  this  note. 

5.   Effect  as  to  the  consolidated  company : 

(a)  A  new  corporation,  or  at  least  a  somewhat  different  corporation,  comes 
into  existence  which,  for  most  business  purposes,  is  a  distinct  entity  from  the 
constituent  corporations:  1868,  Racine,  etc.,  R.  Co.  v.  F.  L.  &  T.  Co.,  49  111. 
331;  1875,  Wilmerv.  The  Atlantic,  etc,  R.  Co.,  2  Woods  409;  1884,  Burger  v. 
Grand  Rapids  &  I.  R.,  22  Fed.  Rep.  561 ;  1885,  Pullman  Palace  Car  Co.  v.  Mo. 
Pac,  etc.,  Co.,  115  U.  S.  587;  1886,  Graham  v.  R.  Co.,  118  U.  S.  161;  1888,  O. 
&  M.  R.  Co.  v.  People,  123  111.  467;  1890,  Fitzgerald  v.  Mo.  Pac.  R.,  45  Fed. 
Rep.  812;  1895,  Market  St.  R.  Co.  v.  Hellman,  109  Cal.  571. 

However,  as  to  interstate  consolidations  the  new  company  is  a  new  company 
existing  in  each  state  with  the  powers,  rights  and  franchises  that  the  constit- 
uent companies  in  that  state  had,  but  not  those  that  one  or  more  of  the  con- 
stituent companies  created  in  another  state  had.  And  for  jurisdictional  pur- 
poses in  the  United  States  courts,  there  are  as  many  new  companies  {with  the 
name  of  th6  consolidated  company^  as  there  are  states  authorizing  the  consol- 
idation :  1861,  O.  &  M.  R.  Co.  v.  Wheeler,  1  Black  (66  U.  S.)  286 ;  1865,  County 
of  Allegheny  v.  C.  &  P.  R.  Co.,  51  Pa.  St.  228;  1876,  Muller  v.  Dows,  94  U.  S'. 
444;  1886,  St.  Paul  &  N.  P.  R.  Co.  v.  Minn.,  36  Minn.  85;  1890,  Nashua  &  L. 
R.  Co.  v.  B.  &  L.  R.  Co.,  136  U.  S.  356;  1896,  St.  Louis,  etc.,  R.  Co.  v.  James, 
161  U.  S.  646;  1899,  Louisville,  N.  A.,  etc.,  R.  Co.  v.  Louisville  Trust  Co.,  174 
U.  S.  552. 

The  new  company  dates  its  existence  from  the  consolidation:  1875,  Shields 
v.  The  State.  26  Ohio  St.  86;  1875,  Central  R.  &  Banking  Co.  v.  State,  64  Ga. 
401 ;  1876,  State  v.  Northern  Cent.  R.  Co.,  44  Md.  131 ;  1898,  Adams  v.  Yazoo 
&  M.  V.  R.  Co.  (Miss.),  24  So.  Rep.  200. 

(6)   Rights  and  privileges  of  the  consolidated  company : 

(1)  Special  privileges  and  immunities :  As  the  consolidated  company  is  a  new 
company  dating  from  the  consolidation,  as  against  the  state,  it  is  subject  to 
all  the  laws  existing  at  the  date  of  consolidation,  such  as  the  right  to  repeal 
or  amend,  notwithstanding  the  fact  that  the  charters  of  the  constituent  com- 
panies were  not  subject  to  repeal  or  amendment:  1875,  Shields  v.  State,  26 
Ohio  St.  86;  1895,  Mercantile  Bank  v.  Tennessee,  161  U.  S.  161;  1897,  Smith 
v.  Lake  Shore  &  Mich.  So.  R.,  114  Mich.  460. 

Rights  to  use  streets  pass :  1896,  Africa  v.  Knoxville,  70  Fed.  Rep.  729;  right 


I006  COMPTON   V.    RAILWAY    COMPANY.  §  28/ 

to  take  property  under  eminent  domain  pass  also:  1882, Toledo,  etc.,  R.  Co. 
V.  Dunlap,  47  Mich.  456;  1888,  Abbott  v.  N.  Y.,  etc.,  R.  Co.,  145  Mass.  450; 
so  also  an  exclasive  right  to  furnish  gas:  1885,  New  Orleans  Gas  Co.  v.  Louisi- 
ana, ;i5  U.  S.  650. 

An  unexecuted  power  to  consolidate  is  not  a  vested  right,  and  hence  would 
not  pass  to  a  consolidated  company:  1895,  Pearsall  v.  Great  Northern  R.,  161 
TJ.  S.  646;  1896,  Morrill  v.  Smith  Co.,  89  Tex.  529,  551 ;  nor  does  the  right  to 
fix  railroad  rates:  1895,  St.  Louis  &  S.  F.  R.  Co.  v.  Gill,  156  U.  S.  667. 

As  to  exemptions  from  taxation,  if  the  language  of  the  consolidation  statute 
is  ample  to  incfcde  such  privileges,  and  there  is  nothing  to  indicate  a  con- 
trary intent,  the  tax  exemption  inures  to  the  benefit  of  the  new  company,  so 
far  as,  but  no  farther  than,  the  property  a<*quired  was  exempt.  1850,  Phila- 
delphia, etc.,  R.  Co.  V.  Maryland,  10  How.  (51  U.  S.i  376;  ]872,Tomlinson  v. 
Branch,  15  Wall.  (82  U.  S.)  4t)0;  1873,  Delaware  R.  Tax,  16  Wall.  (85  U.  S.) 
206;  1875,  Central,  etc.,  R.  v.  Georgia,  92  U.  S,  665;  1876,  Chesapeake  &  O. 
R.  Co.  V.  Virginia,  94  U.  S.  718. 

The  later  cases  apply  even  a  stricter  rule,  and  the  tax-exemption  does  not 
pass  unless  the  intention  to  do  so  is  clearly  expressed — all  presumptions  be- 
ing against  it;  1894,  Keokuk  &  W.  R.  v.  Missouri,  152  U.S.  301,  supra,  p.  989; 
1895,  Norfolk  &  W.  R.  Co.  v.  Pendleton,  156  U.  S.  667;  1895,  Mercantile  Bank 
V.  Tennessee,  161  U.  8.  161;  1898,  Aflams  v.  Yazoo  &  M.  V.  R.  Co.,  24  So. 
Rep.  200  (Miss.) ;  1898,  Citizens'  Sav.  Bk.  v.  Owensboro,  173  U.  S.636;  1899, 
The  Kentucky  Bank  Cases,  174  U.  S.  408,  et  seq. 

(2)  Contract  rights,  such  as  stock  subscriptions,  subscriptions  in  aid  of  the 
purposes,  rights  to  use  patents,  copyrights,  etc.,  rights  under  indemnity  bonds, 
etc.,  held  by  constituent  companies  pass  to  the  consolidated  company : 

Stock  subscriptions:  1856,  Sparrow  v.  E.  &  C.  R.,  7  Ind.  369;  1863,  Bish 
V.  Johnson,  21  Ind.  299;  1875,  Mansfield,  etc.,  R.  Co.  v.  Stout,  26  Ohio  St. 
241 ;  1891,  Hamilton  v.  Clarion,  etc.,  R.  Co.,  144  Pa.  St.  34. 

Patent  rights:     1869,  Lightner  v.  B  &  A.  R.,  1  Ix)w.  338,  Fed.  Cas.  8343. 

Subscriptions  in  aid  of  undertaking:  1876,  Scotland  Co.  v.  Thomas,  94  D. 
8.  6s2;  1878,  Edwards  v.  People,  88  111.  340;  1879,  Empire  Tp.  v.  Dariington, 
101  U.  S.  87;  1883,  Scott  v.  Hausheer,  94  Ind.  1 ;  1885,  Marion  Co.  v.  Center 
Tp.,  105  Ind. 422;  1888,  Livingston  Co.  v.  First  Nat'l  Bank,  128  U.  S.  102,  with 
cases  cited  there;  bnt  see  contra,  1872,  New  Jersey  M.  R.  Co.  v.  Strait,  36  N. 
J.  L.  322;  1875,  Harshman  v.  Bates  Co.,  92  U.  S.  569;  1877,  County  of  Bates 
V.  Winter,  97  U.  8.  88;  1878,  Wagner  v.  Meety,  69  Mo.  150. 

Indemnity  bonds :     1892,  Pennsylvania,  etc.,  R.  v.  Harkins,  149  Pa.  St.  121. 

(3)  Property  rights: 

Lands  vest,  by  virtue  of  the  act  of  consolidation,  in  the  new  company  with- 
out further  conveyance:  1861,  N.  Y.  Cent.  R.  Co.  v.  Saratoga,  etc.,  Co..  39 
Barb.  (N.  Y.)  289;  1888,  Georgia  Pac.  R.  Co.  v.  Wilks,  86  Ala.  478;  1888,  Tar- 
pey  V.  Deseret  SaltCo.,5  Utah  494;  1891,  Cashman  v,  Brownlee,  128  Ind. 
266;  1896,  Dav  v.  N.  Y.  S.  &  W.  R.  Co.,  58  N.  J.  L.  677 ;  1900,  Greene  v.  Wood- 
land, etx;.,  R.  'Co.,  62  Ohio  St.  67,  .56  N.  E.  Rep.  642. 

Chores  in  action  do  also:  1863,  Cumberland  College  v.  Ish,  22  Cal.  641 ; 
1865,  State  University  of  Vermont  v.  Baxter,  42  Vt.  99;  1868,  Miller  v.  Lan- 
caster, 45  Tenn.  (5  Cold.)  614. 

(4)  Liabilities: 

Contracts — New  company  must  perform  those  of  old:  1868,  Racine  &  M.  R. 
Co.  v.  Farmers'  L.  &  T.  Co.,  49  111.  331,  95  Am.  Dec.  695;  1874,  Western  Union 
R.  Co.  V.  Smith,  75  111.  496;  1881,  Sapping  v.  Little  Rock,  etc.,  Co.,  37  Ark. 
23;  1889,  Union  Pac.  R.  v.  McAlpine,  129  U.  S.  .305;  1890,  Day  v.  Worcester, 
etc.,  R.  Co.,  151  Mass.  302;  1890,  Jones  v.  Fitchburg  R.  Co.,  123  N.  Y.  502; 
1890,  Jov  V.  St.  Ix)ui8,  1.38  U.  8.  1  ;  1892,  Chicago  &  Ind.  Coal  Co.  v.  Hall,  135 
Ind.  91,  23  L.  R.  A.  231 ;  1896,  Cumberiand  Valley  R.  Co.  v.  Gettysburg,  etc., 
Co.,  177  Pa.  St.  519. 

Bnt  see:  1868,  Tagart  v.  Northern  Cent.  R.  Co.,  29  Md.  557;  1873,  Prouty 
V,  L.  S.  etc.,  R.  Co.,  52  N.  Y.  .363;  1874,  City  and  County  of  San  Francisco  v. 
Water- Works,  48  Cal.  493;  1899,  Chase  v.  Mich.  Tel.  Co.,  121  Mich.  631,  80 
N.  W.  Rep.  717;  ISKX),  Capital  Traction  Co.  v.  Offutt,  17  App.  D.  C.  292,  53 
L.  R.  A.  390. 


§  288        POWER  TO  ACQUIRE  REAL  PROPERTY.        lOO/ 

Debts — New  company  are  liable  for,  to  the  extent  of  property  received,  and 
where  expressly  assumed,  are  liable  beyond  the  property  received :  1863, 
Eaton,  etc.,  R.  Co.  v.  Hunt,  20  Ind.  457;  1868,  Indianapolis.  C.  &  St.  L.  E.  Co. 
V.  Jones,  29  Ind.  4<>o,  95  Am.  Dec.  654;  1869,  Wright  v.  Milwaukee,  etc.,  R. 
Co.,  25  Wis,  46;  1874,  Bailev  v.  N.  Y.  C.  R  Co..  89  U.  8.  (22  Wall.  1 604;  1875, 
Meyer  v.  Johnson,  53  Ala.  237 ;  1881,  Boardman  v.  L.  8.  &  M.  S.  R.,  84  N.  Y. 
157 ;  1885,  lirown  v.  Susquehanna  Boom  Co.,  109  Pa.  St.  57,  58  Am.  Rep.  709; 
1889,  Louisville,  N.  A.,  etc.,  R.  v.  Snider,  117  Ind.  501,  3  L.  R.  A.  434;  1894, 
Berrv  v.  Kansas,  etc.,  R.  Co.,  52  Kan.  774,  39  Am.  St.  R.  381;  1895,  Lang- 
home  V.  Richmond  R.  Co.,  91  Va.  369;  1897,  In  re  Utica,  etc..  Co.,  154  N.  Y. 
268;  1S97,  Tompkins  v.  Augusta  So.  R.  Co.,  102  Ga.  436;  1899,  U.  S.  Capeule 
Co.  V.  Isaacs.  23  Ind.  App.  533,  55  N.  E.  Rep.  832;  1899,  Copp  v.  Colorado  C. 
&  I.  Co.,  60  N.  Y.  Supp.  293,  29  Miscl.  R.  109. 

Turts:  New  company  is  liable  for  the  torts  of  the  former  constituent  com- 
panies: 1860,  Bissell  v.  Michigan  So.  R,2-'  N.  Y.  258;  1873,  Warren  v. 
Mobile,  etc.,  R.,  49  Ala.  582;  1874,  Chicago,  etc.,  R.  v.  Moffatt,  75  Dl.  524; 
1883,  St.  Lonis,  etc.,  R.  Co.  v.  Marker,  41  Ark.  542;  1892,  Louisville,  etc.,  R, 
Co.  v.  Summers,  131  Ind.  241 ;  1893,  Berry  v.  Kansas  C.  F.  &  S.  R.,  52  Kan. 
759,  39  Am.  St.  R.  371 ;  1895,  Southern,  etc.,  R.  Co.  v.  Bourkright,  70  Fed. 
Rep.  442,  30  L.  R.  A.  823;  1895,  Langhorne  v.  Richmond  R.  Co.,  91  Va.  369. 

But  see  contra,  189-<,  Von  Cotzhausen  v.  Johns  Mfg.  Co.,  100  Wig.  473,  76 
N.  W.  Rep.  622;  1899.  Chase  v.  Mich.  Tel.  Co.,  121  Mich.  631,  SON.  W. 
Rep.  717. 


ARTICLE     IV.       ACQUIRE,    HOLD    AXD    ALIENATE    PROPERTY. 

Sec  288.     ( I  )  Acquire  and  hold  real  property. 
(A)  By  purchase: 
(a)  Presumptions. 

STOCKTON  SAVINGS  BANK  v.  STAPLES.* 

1893.     In  the  Supreme    Court   of    California.     98  Cal.  Rep. 

189-193. 

[Action  by  the  bank  to  quiet  title  to  land.  Judgment  was  in  favor 
of  the  plaintiff,  and  defendants  appealed  therefrom.  The  bank 
traced  title  through  conveyances  from  one  C. ,  and  alleged  that  C. 
had  ousted  the  defendant,  and  he  and  his  subsequent  grantees  l»ad 
maintained  an  open  and  notorious  possession  for  the  statutorj-  period. 
The  immediate  grantor  of  the  bank  was  Mrs.  Hudson.] 

Vaxclief,  C.  *  *  *  Appellants  contend  that  the  court  erred 
in  overruling  their  objections  to  the  introduction  in  evidence  of  the 
deed  from  Mrs.  Hudson  to  plaintiff.  The  ground  of  the  objection 
was  that  the  plaintiff  "was  not  shown  to  have  the  power  to  purcha.se, 
hold,  or  receive  said  land,  nor  that  said  land  was  conveyed  to  it  for 
any  of  the  purposes  of  the  corporation."  There  was  no  evidence  to 
show  for  what  purpose  the  corporation  had  been  organized,  or  what 
business  it  was  conducting.  The  court  found  according  to  the  alle- 
gation of  the  complaint,  not  denied  in  the  answer,  that  at  all  the  times 

■  Statement  abridged,  only  part  of  opinion  given. 


I008  LEAZURE   V.    HILLEGAS.  §  289 

stated  the  plaintiff  "was  a  corporation  duly  organized  and  incorporated 
under  and  by  virtue  of  the  laws  of  the  state  of  California,  and  having- 
its  office  and  principal  place  of  business  in  the  city  of  Stockton,  county 
of  San  Joaquin,  state  of  California." 

Under  these  circumstances  I  think  it  must  be  presumed  (as  against 
the  defendants,  at  least)  that  the  corporation  had  power  to  purchase 
and  hold  the  land.  (Natoma  Water  &  M.  Co.  v.  Clarkin,  14  Cal. 
544;  Evans  v.  Bailey,  66  Cal.  112;  Hagar  v.  Board  of  Supervisors,. 
47  Cal.  222;  People  v.  La  Rue,  67  Cal.  526;  Spelling  on  Private 
Corporation,  §§  203,  206.)  It  does  not  appear  under  what  statute  or 
for  what  purpose  the  plaintiff  was  incorporated,  nor  what  business  it 
was  engaged  in,  nor  for  what  purpose  the  property  was  purchased  or 
used.  In  answer  to  a  similar  objection  in  People  v.  La  Rue,  67  Cal. 
526,  it  was  said:  "If  there  was  anything  in  its  charter  or  the  business 
in  which  it  was  engaged,  or  in  the  law  under  which  it  was  organized, 
in  any  manner  abridging  its  right  to  hold  land,  it  does  not  appear  of 
record,  hence  we  deem  the  objection  untenable."     *     *     * 

Affirmed. 

Note:  In  the  absence  of  any  showing  of  any  kind  to  the  contrary  there  is  a 
presumption  that  purchases  of  land  by  a  corporation  are  for  a  valid  purpose, 
and  the  contrary  must  be  shown  by  the  one  alleging  it.  1827,  Ex  parte  Peru 
Iron  Co.,  7  Conn.  (N.  Y.)  540;  1859,  Chautauqua  Co.  Bank  v.  Risley,  19  N. 
Y.  369,  75  Am.  Dec.  347;  1863,  Regents  of  Univ.  v.  Detroit  Y.  M.  Soc,  12 
Mich.  1.38;  1871,  M vers  v.  Croft,  13  Wall.  (80  11.  S.)  291;  1874,  Hagar  v.  Yolo 
Co.,  47  Cal.  222;  1874,  Yates  v.  Van  De  Bogert,  56  N.  Y.  526;  1885,  People  v. 
La  Rue,  67  Cal.  526 ;  1893,  Connecticut,  etc.,  Ins.  Co.  v.  Smith,  117  Mo.  261, 
38  Am.  St.  Rep.  656. 


Sec.  289.    Same. 

{d)    Extent  of  power  to  purchase  and  hold. 

LEAZURE  V.  HILLEGAS. 

182 1.    In  the  Supreme  Court  of  Pennsylvania.     7  Serg.  &  R. 

(Pa-)  313-323- 

Error  to  the  common  pleas  of  Bedford  county. 

Frederick  Hillegas,  the  plaintiff  below  (the  defendant  in  error),, 
claimed  the  land  in  dispute,  under  a  warrant  and  survey  to  Thomas 
Holt,  who  conveyed  to  George  Armstrong,  who  conveyed  to  William 
Henry,  who  conveyed  to  the  Bank  of  North  America,  who  conveyed 
to  the  plaintiff.  On  the  trial  of  the  cause,  four  bills  of  exceptions  to 
evidence  were  taken  by  the  defendant  below.      *     *     * 

The  third  exception  was  to  the  admission  of  a  deed  from  the  Bank 
of  North  America  to  James  Ross,  to  which  there  were  two  objections : 
1st.  That  there  was  no  evidence  of  the  seal  of  the  corporation.  2d. 
That  the  corporation  was  incapable  of  receiving  a  conveyance  of  land 
otherwise  than  by  mortgage,  and  therefore  had  no  estate  which  could 
be  conv*eved. 


§  289  POWER    TO    ACQUIRE    REAL    PROPERTY.  IOO9 

[After  holding  the  seal  of  the  coiporation  had  not  been  proved  and 
for  that  reason  the  deed  should  not  have  been  admitted,  proceeds:] 

TiLGHMAN,  C.J.  *  *  *  But  the  great  points  in  this  cause  are, 
the  capacity  of  the  bank  to  take  the  land  conveyed  by  William  Henry's 
deed,  and  afterwards  to  convey  the  same  to  James  Ross.  There  is  no 
doubt  that  a  corporation  must  be  governed  by  the  charter  from  which 
it  derives  its  existence.  It  can  do  no  act  nor  take  any  estate  contrary 
to  its  charter.  If,  therefore,  it  can  be  shown,  that  the  Bank  of  North 
America  is  forbidden  by  its  charter,  either  to  take  or  to  cotzvcy,  the 
land  contained  in  William  Henry's  deed,  the  plaintiff's  action  can  not 
be  supported.  By  the  third  section  of  the  act  of  incorporation  (17th 
of  March,  1787,  2  Sm.  L.  399),  the  bank  is  made  capable  "to  have, 
hold,  purchase,  receive,  possess,  enjoy  and  retain  lands,  rents,  tene- 
ments, goods,  chattels  and  effects  of  whatsoever  kind,  nature  or  qual- 
ity, to  the  amount  of  two  millions  of  dollars  and  no  more,  and  also  to 
sell,  grant,  etc.,  the  same  lands,  etc.  Provided,  nevertheless,  that 
such  lands  and  tenements,  which  the  said  corporation  are  hereby  en- 
abled to  purchase  and  hold^  shall  only  extend  to  such  lot  and  lots  o£ 
ground,  and  convenient  buildings,  and  improvements  thereon  erected 
or  to  be  erected,  which  they  may  find  necessary  and  proper  for  carry- 
ing on  the  business  of  the  said  bank,  and  shall  actually  occupy  for 
that  purpose,  and  to  such  lands  and  tenements  which  are  or  may  be 
bona  fide  mortgaged  to  them  as  securities  for  their  debts. ^^  It  is  re- 
markable that  with  regard  to  the  holding  of  lands,  the  charter  of  this 
bank  is  more  restricted  than  that  of  any  other  bank  in  the  state,  for  all 
the  others  are  enabled  to  hold,  not  only  the  lands  which  have  been 
bona  fide  mortgaged  to  them  by  way  of  security  for  debts,  but  also 
those  "which  may  be  conveyed  to  them  in  satisfaction  of  debts  pre- 
viously contracted  in  the  course  of  their  business,  or  purchased  at  sales 
upon  judgments  which  shall  have  been  obtained  for  such  debts." 
This  difference  of  restriction  must  have  arisen  from  the  extreme  jeal- 
ousy of  monied  corporations  which  pervaded  the  mind  of  the  legisla- 
ture when  the  Bank  of  North  America  was  incorporated.  It  never 
could  have  been  intended  to  place  that  bank  on  a  worse  footing  than 
others,  for  it  was  the  only  one  which  risked  its  capital  on  a  field  alto- 
gether untried  in  America,  and  which  had  the  merit  of  rendering  es- 
sential service  to  the  United  States  during  the  war  of  the  revolution. 
It  would  be  improper,  therefore,  to  carry  the  restriction,  by  construe^ 
tion^  farther  than  the  words  of  the  law  plainly  import.  The  restric- 
tion is,  that  the  bank  shall  not  purchase  and  hold.  Purchasing  and 
holding  are  veiy  different  things,  and  the  consequences  of  each  are 
very  different.  If  the  words  had  been  that  the  bank  should  neither 
purchase  nor  hold,  then  it  could  have  done  neither  one  nor  the  other. 
But,  although  purchasing  and  holding  might  have  been  thought 
dangerous,  iDecause  of  the  power  which  it  would  have  given  the  bank 
to  bring  too  much  land  into  mortmain,  yet  to  purchase^  subject  to  the 
statutes  of  mortmain,  which  authorized  the  commonwealth  to  appro- 
priate the  land  to  its  own  use,  could  be  attended  with  no  danger. 
64— WiL.  Cases. 


lOIO  LEAZURE   V.    HILLEGAS.  §  289 

This  construction  would  satisfy  the  jealous  policy  of  the  legislature, 
preserve  the  community  from  the  danger  of  too  great  a  mass  of  real 
property  held  in  mortmain,  and  at  the  same  time  put  in  the  power  of 
the  commonwealth  to  act  towards  the  bank  as  justice  might  seem  to 
require.  This  is  a  consideration  of  no  small  importance ;  for  when 
the  directors  of  the  bank  accepted  from  William  Henry  a  conveyance 
of  his  land  at  a  fair  price  in  payment  of  a  debt  bonajide  due,  it  would 
be  hard  to  presume  that  they  knew  they  were  acting  in  violation  of 
their  charter.  But  granting  that  the  restriction  in  the  charter  did  not 
extend  to  the  simple  act  oi  purchasing ^  it  may  be  asked,  whence  did 
the  corporation  derive  the  right  to  purchase^  and  what  would  be  the 
situation  of  land  purchased  without  a  capacity  of  holding?  The  an- 
swer is,  that  a  coi-poration  has,  from  its  nature^  a  right  to  purchase 
lands,  though  the  charter  contains  no  license  to  that  purpose.  And 
in  this  respect  the  statutes  of  mortmain  have  not  altered  the  law,  ex- 
cept in  case  of  superstitious  uses.  But  since  those  statutes,  it  is  nec- 
essary^, in  order  to  enable  a  corporation  to  retain  lands  which  it  has 
purchased,  to  have  a  license  for  that  purpose;  otherwise,  in  England, 
the  next  lord  of  the  fee  may  enter  within  a  year  after  the  alienation, 
and  if  he  do  not,  then  the  next  immediate  lord,  from  time  to  time, 
has  half  a  year  to  enter,  and  for  default  of  all  the  mesne  lords, 
the  king  takes  the  land  so  aliened,  forever.  That  this  is  the  law  ap- 
pears from  the  following  authorities:  2  Black.  Comm.,  268,  269; 
Co.  Lit.,  2;  6  Vin.  Ab.,  265(6.  pi.  2.);  6Vin.  Ab.,  266,  pi.  8;  Jenk. 
Cent.,  270;  3  Com.  Dig.,  399  (F.  10);  3  Com.  Dig.,  401  (F.  15); 
I  Rol.  Ab.,  513;  I,  35;  10  Co.  30.  But  in  Pennsylvania,  where 
thei'e  are  no  mesne  lords,  the  right  would  accrue  immediately  to  the 
commonwealth.  It  has  been  objected,  however,  that  according  to 
the  report  of  the  judges  of  this  court,  made  on  the  14th  of  December, 
1808,  in  pursuance  of  an  act  of  assembly  requiring  them  to  make  a 
report  of  the  English  statutes  which  are  in  force  in  the  common- 
wealth, etc.,  it  appears  that  all  conveyances  of  land  to  a  corporation, 
without  license,  are  absolutely  void.  I  will  consider  this  objection. 
The  judges  reported  the  following  statutes  of  mortmain,  "7  Ed.  I. 
(Stat.  2);  13  Ed.  I,  ch.  32;  15  Rich.  II,  ch.  5,  and  23  Hen.  VIII, 
ch.  10;  which  are  in  part  inapplicable  to  this  country,  and  in  part  ap- 
plicable and  in  force.  They  are  so  far  in  force,  that  all  conveyances 
by  deed  or  will,  of  lands,  tenements  or  hereditaments,  made  to  a  body 
corporate,  are  void  unless  sanctioned  by  charter  or  act  of  assembly. 
So,  also,  are  all  such  conveyances  void,  made  either  to  an  individual 
or  to  any  number  of  persons  associated,  but  not  incorporated,  if  the 
said  conveyances  are  for  uses  or  purposes  of  a  superstitious  nature., 
and  not  calculated  to  promote  objects  of  charity  or  utility." 

I  have  quoted  the  words  of  the  report,  and  it  is  evident  that  the 
judges  could  have  no  intent,  nor  had  they  power  to  make  any  addi- 
tion to  the  statutes,  or  in  any  manner  to  alter  them.  Now  by  reference 
to  the  statutes  it  will  appear  that  in  all  of  them  except  the  23  Hen. 
VIII,  ch.  10,  the  conveyance  is  not  absolutely  void,  but  the  estate 
passes  to  the  corporation,  subject,  as  before  mentioned,  to  the  right 


§289  POWER  TO   ACQUIRE   REAL   PROPERTY.  lOII 

of  the  several  mesne  lords,  and  in  their  default,  of  the  king,  to  enter 
and  hold  in  fee.  But  by  the  statute  of  23  Hen.  VIII,  ch.  10  (which 
has  been  determined  to  extend  to  superstitious  uses  only:  see  2  Black 
Com.,  273;  I  Co.  Rep.,  24),  uses  and  trusts  made  and  contrived  in 
favor  of  religious  persons,  or  any  bodies  corporate,  for  more  than 
twenty  years,  shall  be  utterly  void.  Now  the  meaning  of  the  report 
of  the  judges  is,  that,  according  to  the  statute  cited  by  them,  convey- 
ances to  superstitious  uses  are  absolutely  void,  and  conveyances  to 
corporations,  to  uses  not  superstitious^  are  so  far  void  that  those  cor- 
porations shall  have  no  capacity  to  hold  the  estates  for  their  own  ben- 
efit, but  subject  to  the  right  of  the  commonwealth,  who  may  appro- 
priate them  to  its  own  use  at  pleasure ;  in  other  words,  that  such  con- 
veyances have  no  validity  for  the  purpose  of  enabling  the  corporation 
to  hold  in  mortmain.  But  to  support  the  plaintiff's  title,  it  must  be 
shown  that  the  corporation  had  power,  not  only  to  take  by  purchase, 
but  to  aliene.  In  this  respect  I  consider  a  corporation  in  the  situation 
of  an  alien  who  has  power  to  take  but  not  to  hold.  That  an  alien 
may  take  by  purchase  (though  not  by  descent),  has  been  settled  from 
the  earliest  times.  It  is  so  laid  down  in  Co.  Lit.  2,  and  I  believe  has 
never  been  questioned.  Neither  has  it  been  questioned  that  the  land  is 
subject  to  forfeiture,  and  may  be  seized  for  the  king  after  office  found. 
But  it  has  been  questioned  what  is  the  right  of  the  alien  before  office 
found  for  the  king.  Without  reference  to  English  cases,  which  leave 
the  matter  in  doubt,  we  have  the  highest  authority  in  our  ow^n  coun- 
try for  saying  that  until  some  act  done  by  the  commonwealth  accord- 
ing to  its  own  laws,  to  vest  the  estate  in  itself,  it  remains  in  the  alien, 
who  may  convey  it  to  a  purchaser,  but  he  can  convey  no  estate  which 
is  not  defeasible  by  the  commonwealth.  This  principle  was  asserted 
by  Judge  Story,  who  delivered  the  opinion  of  the  supreme  court  of 
the  United  States  in  the  case  of  Fairfax's  Devisee  v.  Hunter's  Lessee, 
7  Cranch  603 ;  and  this  was  the  opinion  of  the  supreme  court  of  Mas- 
sachusetts, in  the  case  of  Sheaffe  v.  O'Neil,  i  Mass.  Rep.  256,  cited 
by  Judge  Story. 

It  is  reasonable  in  theory,  and  can  have  no  ill  effect  in  practice, 
that  he  who  has  a  defeasible  estate  may  convey  a  defeasible  estate. 
Provided  the  right  of  the  commonwealth  to  defeat  the  estate  granted 
by  the  alien  remains  entire,  it  is  immaterial  who  holds  the  land  until 
that  right  be  prosecuted.  Supposing,  then,  that  the  cases  of  the  alien 
and  the  corporation  be  similar  (and  I  see  not  how  they  can  be  dis- 
tinguished), it  follows  that  the  deed  from  the  Bank  of  North  Amer- 
ica to  James  Ross  conveyed  a  fee-simple,  defeasible  by  the  common- 
wealth.    ♦     *     * 

[Reversed  on  the  ground  that  the  deed  was  admitted  without  proof 
of  the  corporate  seal.] 

Note.    See  note,  §  291.- 


I0I2  CASE   V.    KELLY    ET   AL.  §290 

Sec.  290.    Same. 

CASE  V.  KELLY  Et  Al.- 

1890.     In  the  Supreme   Court    of    the    United    States.     133 

U.  S.  Rep.  21. 

[The  Green  Bay  and  Minnesota  Railroad  Company  being  in  the 
hands  of  a  receiver,  namely,  Timothy  Case,  in  the  circuit  court  of 
the  United  States,  in  a  suit  by  the  Farmers'  Loan  and  Trust  Company 
to  foreclose  a  mortgage  on  said  railroad,  said  receiver  was  directed 
by  the  court  to  take  possession  of  all  the  property,  real  and  personal, 
of  said  company,  with  authority  to  bring  suits,  in  the  name  of  the 
railroad  company.  Under  this  order,  Mr.  Case,  as  receiver,  brought 
the  present  suit,  stating  that  he  sues  in  behalf  of  said  railroad  com- 
pany, and  as  receiver,  the  defendants  Kelly,  Ketchum,  and  Hiles, 
who  were  officers  of  the  railroad  company  during  its  period  of  con- 
struction, and  who  as  alleged  had  procured  numerous  donations  of 
land  from  citizens  who  were  interested  in  the  constiiiction  of  the  road, 
along  its  line,  intended  to  be  for  the  use  and  benefit  of  the  railroad 
company,  and  to  assist  it  in  such  construction.  The  fundamental  alle- 
gation of  the  bill  is  that  these  defendants,  representing  to  the  persons 
who  made  the  donations  that  they  were  officers  of  the  road,  and  solic- 
iting these  grants  for  the  benefit  of  the  road,  took  the  conveyances  to 
themselves  individually ;  that  they  did  this  in  a  fraudulent  manner,  by 
making  the  grantors  in  the  conveyances  believe  that  they,  as  officers 
of  the  company,  could  receive  the  conveyances  for  the  benefit  of  the 
road,  and  that  either  the  grantors  did  not  really  know  to  whom  the 
conveyances  were  made,  or  were  induced  to  believe  that  when  made 
the  grantees  held  the  lands  as  a  trust  for  the  benefit  of  the  road. 
These  defendants  not  recognizing  this  trust,  and  the  conveyances  on 
their  faces  being  merely  conveyances  to  the  individuals,  Ketchum, 
Kelly,  and  Hiles,  who  now  refuse  to  convey  to  the  company,  or  to 
admit  its  right  to  the  lands,  this  suit  is  brought  to  have  a  declaration 
of  the  trust  made  by  the  court,  and  a  decree  ordering  conveyances  by 
the  defendants  of  the  land  to  the  corporation.  It  is  further  alleged 
that  the  mortgage  in  process  of  foreclosure  in  the  court  under  which 
Case  is  acting  as  receiver  covered  all  the  lands  of  the  corporation, 
and  would  cover  these  lands,  if  the  title  of  the  corporation  in  them 
was  established.  The  defendants,  Kelly,  Ketchum,  and  Hiles,  filed 
answers,  in  which  they  denied  all  fraud  or  deception,  denied  that  they 
held  the  lands  in  trust  for  the  railroad  company,  and  denied  the  right 
of  plaintiff  to  any  relief.  Replications  were  filed  to  the  answers. 
The  case  was  put  at  issue.  The  circuit  court  held  that  only  such 
lands  as  were  necessary  and  proper  for  the  immediate  use  of  the  road 
could  be  recovered  in  this  suit.] 

Miller,  j.  *  *  *  The  principal  question  suggested  by  this 
appeal  is  whether  the  complainant,  as  representing  the  railroad  com- 

'  Statement  abridged,  only  part  of  opinion  given. 


§  290  POWER   TO   ACQUIRE    REAL    PROPERTY.  101 3 

pany,  can  maintain  a  suit  for  these  lands;  that  is  to  say,  whether  the 
company  was  endowed  by  the  legislature  of  Wisconsin  with  a  capac- 
ity to  receive  an  indefinite  quantity  of  lands,  with  no  limitation  upon 
their  use,  or  upon  their  sale,  or  whether  they  were  limited  to  the  lands 
necessary  to  such  uses  as  were  appropriate  to  the  operations  of  a  rail- 
road. It  is  not  pretended  that  there  is  any  general  statute  of  the  state 
of  Wisconsin  which  authorizes  either  this  company  or  any  other  cor- 
poration to  purchase  and  hold  lands  indefinitely,  as  an  individual 
could  do,  without  regard  to  the  uses  to  be  made  of  such  real  estate. 
The  charter  of  the  company,  approved  April  12,  1866  (chapter  540), 
authorizes  it  to  acquire  real  estate,  namely,  the  fee-simple  in  lands, 
tenements,  and  easements,  for  their  legitimate  use  for  railroad  pur- 
poses. It  is  thus  authorized  to  take  lands  100  feet  in  width  for  right 
of  way,  and  also  such  as  is  needed  for  depot  buildings,  stopping- 
stages,  station-houses,  freight-houses,  v^'arehouses,  engine-houses,  ma- 
chine-shops, factories,  and  for  purposes  connected  with  the  use  and 
management  of  the  railroad.  This  enumeration  of  the  purposes  for 
which  the  corporation  could  acquire  title  to  real  estate  must  neces- 
sarily be  held  exclusive  of  all  other  purposes,  and,  as  the  court  said 
at  the  time  of  making  its  interlocutory  decree,  "it  was  not  authorized 
by  its  charter  to  take  lands  for  speculative  or  farming  purposes."  It 
must  be  held,  therefore,  that  there  was  no  authority,  under  the  laws 
of  Wisconsin,  for  this  corporation  to  receive  an  indefinite  quantity  of 
lands,  whether  by  purchase  or  gift,  to  be  converted  into  money  or 
held  for  any  other  purpose  than  those^  mentioned  in  its  act  of  incorpo- 
ration. 

To  this  view  of  the  subject,  counsel  urges  several  objections.  The 
first  of  these  which  we  will  notice  is  that  the  charter  of  the  corporation 
is  a  private  act,  of  which  the  court  can  not  take  judicial  notice,  and 
that,  as  it  was  not  pleaded  nor  offered  in  evidence,  nor  otherwise 
brought  to  the  attention  of  the  court,  it  could  not  be  the  foundation  of 
its  judgment.  To  this  there  are  two  sufficient  answers.  The  first  of 
which  is  that,  if  the  statute  creating  this  corporation  gave  it  no  power 
to  receive  and  hold  lands  in  the  manner  we  have  mentioned,  then  it 
had  no  such  power  by  virtue  of  any  law  of  the  state  of  Wisconsin; 
for  a  corporation,  in  order  to  be  entitled  to  buy  and  sell,  to  receive 
and  hold,  the  title  to  real  estate,  must  have  some  statutoiy  authority 
of  the  state  in  which  such  lands  lie  to  enable  it  to  do  so,  and  the  ab- 
sence of  such  provision  in  the  law  of  its  incorporation  does  not  create 
any  general  statute  which  authorizes  any  such  right. 

Another  answer  is  that  in  the  charter  of  the  railroad  company  itself 
(Laws  Wis.  1866,  ch.  540,  §  14)  it  is  express^  enacted  that  "this 
act  is  hereby  declared  to  be  a  public  act,  and  shall  take  effect,  and  be 
in  force,  from  and  after  its  passage  and  publication."  To  this  it  is 
replied  by  counsel  for  appellant  that  the  statute  of  Wisconsin  can  not 
make  that  a  public  law  which,  in  its  essential  nature,  is  a  private  law. 
However  this  may  be,  we  do  not  doubt  the  authority  of  the  legislature 
of  a  state  to  enact  that  after  the  passage  and  publication  of  one  of  its 
statutes  the  courts  of  the  state  shall  be  bound  to  take  judicial  notice 


IOI4  COMMONWEALTH  V.  N.  Y.,  ETC.,  R.  CO.  ET  AL.  §  29  I 

of  it,  without  its  being  pleaded  or  proven  before  them.  This  rule, 
thus  prescribed  for  the  government  of  the  courts  of  the  states,  must  be 
binding  in  proceedings  in  federal  courts  in  the  same  state.      *      *      * 

It  is  next  objected  to  the  principle  adopted  by  the  court  that  the 
limitation  upon  the  power  of  the  corporation  to  receive  land  is  one 
which  concerns  the  state  alone,  and  the  title  to  such  lands  in  a  corpo- 
ration can  only  be  defeated  by  a  proceeding,  in  the  nature  of  a  quo 
•warranto^  on  behalf  of  the  state.  The  case  of  Bank  v.  Matthews,  98 
U.  S.  631,  is  strenuously  relied  on  to  support  this  view.  We  need 
not  stop  here  to  inquire  whether  this  company  can  hold  title  to  lands, 
which  it  is  impliedly  forbidden  to  do  by  its  charter,  because  the  case 
before  us  is  not  one  in  which  the  title  to  the  lands  in  question  has  ever 
been  vested  in  the  railroad  company,  or  attempted  to  be  so  vested. 
The  railroad  company  is  plaintiff  in  this  action,  and  is  seeking  to  ob- 
tain the  title  to  such  lands.  It  has  no  authority  by  the  statute  to  receive 
such  title,  and  to  own  svich  lands;  and  the  question  here  is,  not  whether 
the  courts  would  deprive  it  of  such  lands,  if  they  had  been  conveyed 
to  it,  but  whether  they  will  aid  it  to  violate  the  law,  and  obtain  a  title 
which  it  has  no  power  to  hold.  We  think  the  questions  are  very  dif- 
ferent ones,  and  that,  while  a  court  might  hesitate  to  declare  the  title 
to  lands  received  already,  and  in  the  possession  and  ownership  of  the 
company,  void,  on  the  principle  that  they  had  no  authority  to  take 
such  lands,  it  is  very  clear  that  it  will  not  make  itself  the  active  agent, 
in  behalf  of  the  company,  in  violating  the  law,  and  enabling  the  com- 
pany to  do  that  which  the  law  forbids.      «     *     * 

We  are  urged  to  consider  that  if  this  decree  is  affirmed,  dismissing 
the  bill  of  the  railroad  company,  the  defendants  will  be  left  in  the 
possession  of  property  fraudulently  acquired,  of  considerable  value, 
for  which  they  gave  no  consideration.  The  answer  to  this  is  that 
such  question  can  not  be  raised  by  the  plaintiff  in  this  case,  because, 
having  no  right  to  take  the  property,  it  is  not  injured  by  a  decree  of 
the  court  which  fails  to  grant  such  right.  The  other  questions  must 
be  between  the  defendants  in  this  case  and  those  from  whom  they  took 
deeds  of  conveyance,  or  such  other  parties,  public  or  private,  as  may 
show  that  they  have  an  interest  in  the  controversy.  The  decree  of  the 
circuit  court  is  affirmed. 

Note..    See  note,  §  291. 


Sec.  291.      (c)    Consequences  of  ultra  vires  purchase. 

COMMONWEALTH  v.  NEW  YORK,  ETC.,  RAILROAD  CO.  Et  Al.» 

1890.     In  the  Supreme  Court  of  Pennsylvania.      132  Pa.  St. 

Rep.  591-61 1. 

Paxson,  C.  J.      This  was  an  information  in   the  nature  of  a  quo 
"warranto^  filed  by  the   attorney-general,  the  object  of  which  was  to 

*  Statement  abridged;  only  that  part  of  the  opinion  relating  to  the  single 
point  is  given. 


§291  POWER   TO   ACQUIRE   REAL   PROPERTY.  IOI5 

escheat  to  the  commonwealth  certain  lands  in  Elk  county,  alleged  to 
be  held  by  or  for  the  defendant  railroad  comj^any.     ♦     *     * 

It  was  alleged,  in  the  first  place,  by  the  commonwealth  that  the 
railroad  company  had  violated  section  5,  article  xvii  of  the  constitu- 
tion of  this  state.     The  said  section  is  as  follows: 

"No  incorporated  company  doing  the  business  of  a  common  carrier 
shall  directly  or  indirectly  prosecute  or  engage  in  mining  or  manu- 
facturing articles  for  transportation  over  its  works;  nor  shall  such 
company,  directly  or  indirectly,  engage  in  any  other  business  than  that 
of  common  carriers,  or  hold  or  acquire  lands,  freehold  or  leasehold, 
directly  or  indirectly,  except  such  as  shall  be  necessary  for  carrying 
on  its  business;  but  any  mining  or  manufacturing  company  may  carry 
the  products  of  its  mines  and  manufactories  on  its  railroad  or  canal, 
not  exceeding  fifty  miles  in  length." 

It  will  be  noticed  that  this  clause  in  the  constitution  affixes  no  pen- 
alty for  its  violation.  It  is  conceded  that,  for  a  violation  of  the  or- 
ganic law,  a  Pennsylvania  corporation,  or  a  foreign  corporation  having 
or  exercising  corporate  franchises  within  this  commonwealth,  would 
forfeit  such  franchises.  This,  however,  would  not  involve  an  escheat 
or  confiscation  of  its  property,     ♦     *     * 

[Holding  also  that  under  a  statute  prohibiting  "the  acquisition  or 
holding  by  a  corporation  of  any  real  estate,  either  directly  or  through 
a  trustee  or  other  device  whatsoever,"  under  penalty  of  escheat  to  the 
state,  lands  held  by  a  mining  company  authorized  to  hold,  were  not 
subject  to  escheat  because  an  unlicensed  railroad  company  had  pur- 
chased and  owned  the  stock  of  the  mining  company.] 

Note.    Acquisition  of  property  by  corporation : 

1.  Common  laio:  "To  enable  it  to  answer  the  purposes  of  its  creation 
every  corporation  aggregate  has  incidentally,  at  common  law,  a  riglit  to  take, 
hold  and  transmit  in  succession,  property,  real  and  personal,  to  an  unlimited 
extent  or  amount."  Angell  and  Ames  Corporations,  §  145;  or  "at  common 
law  corporations  had  the  same  capacity  to  take  and  hold  lands  as  a  private 
person  prior  to  Magna  Charta  (1215).  1  Kyd  Corp.,  79,  citing  19  Hen.  VI, 
44;  see  note  2,  Elliott  Corporations,  §  160.  See  also  Littleton's  Reports,  49, 
112,  114;  Coke's  Littleton,  2a,  44a,  3006;  10  Coke's  Reports,  306;  Comyns' 
Digest,  Franchise  F.,  11,  15,  16  and  17;  First  Parish  in  Sutton  v.  Cole,  3  Pick. 
(Mass.),  282,  239;  2  Kent's  Comm.,  *281 ;  1  Kyd  Corp.,  76,  78,108,  115; 
Lathrop  v.  Commercial  Bank,  8  Dana  (Ky.)  114,  .33  Am.  Dec.  481. 

2.  Statutes  of  mortmain:  "But  a  corporation,  sole  or  aggregate,  ecclesiastical 
or  lay,  can  not  purchase  or  take  lands  and  tenements,  without  license  to  take 
in  mortmain."  Comvns'  Digest,  Franchises  F.,  17.  These  were  9  Hen.  Ill, 
c.  36  (Magna  Charta)";  7  Ed.  I,  c.  13;  ]3Ed.l,c.  32;  15  Rich.  II,  c.  5;  23  Hen. 
VIII,  c.  10,  and  9  Geo.  II,  c.  36.  "By  these,  alienation  to  corporations  with- 
out license  in  mortmain  from  the  crown,  and  a  license  also  from  the  lord,  if 
any,  from  whom  the  land  was  held,  was  made  a  cause  of  forfeiture.  *  * 
Alienation  in  mortmain  was  not  void,  but  voidable,"  and  was  good  if  the 
right  of  the  crown  or  lord  to  re-enter  was  not  exercised.  The  present  law  of 
England  is  contained  in  51  and  52  Vict.,  c.  42,  and  54  and  55  Vict.,  c.  73,  and 

grovides  that  "land  shall  not  be  assured  to,  or  for  the  benefit  of,  or  acquired 
y,  or  on  behalf  of,  any  corporation  in  mortmain  otherwise  than  under  the  au- 
thority of  a  license  from  the  crown,  or  of  a  statute  for  the  time  being  in  force ; 
and  if  any  land  is  so  assured  the  land  shall  be  forfeited  to  the  crown,  who 
may  enter  and  hold  the  land."  9  Eng.  Encyc.  of  Law,  pp.  1-2.  But  these 
provisions  do  not  apply  to  joint  stock  companies  incorporated  under  the  com- 


IOl6         COMMONWEALTH    V.    NEW   YORK,    ETC.,    R.    CO.         §  29 1 

panics  acts  of  1862-1890,  nor  to  the  trades-union  acts  of  1861.  1  Chitty's 
Stat.  Charities,  p.  61,  note  (a). 

Tliese  statutes  are  not  generally  in  force  in  the  United  States :  1839,  Lath- 
rop  V.  Com.  Bank,  8  Dana  (Ky.')  114,  33  Am.  Dec.  481;  1846,  Rivanna  Nav. 
Co.  V.  Dawson's,  3  Gratt.  (Va.)  19,46  Am.  Dec.  183;  1868,  Page  v.  Heineberg, 
40  Vt.  81,  94  Am.  Dec.  378;  1886,  Mallett  v.  Simpson,  94  N.  C.  37,  55  Am. 
Rep.  594;  1896,  Fayette  Land  Co.  v.  L.  &  N.  R.  Co.,  93  Va.  274.  But  they 
are  partially  so  in  Pennsylvania,  1821,  Leazure  v.  Hillegas,  7  S.  &  R.  (Pa.) 
313,  320. 

But  many  states  have  statutes  forbidding  religious  and  charitable  corpora- 
tions from  holding  more  than  a  certain  amount  of  land.  See  1  Stimson's  Stat- 
ute Law,  §§  403,  1446,  2618. 

3.  But  in  the  absence  of  statutory  provisions,  it  is  now  generally  held  that 
corporations  have  the  right  to  purchase  and  hold  such  property ,  and  such  only,  both 
in  kind  and  amount,  as  is  necessary  or  convenient  to  carry  out  their  legitimate 
corporate  purposes. 

Beal  property:  1825,  First  Parish  in  Sutton  v.  Cole,  20  Mass.  (3  Pick.)  232; 
1842,  Bank  of  Mich.  v.  Niles,  Walk.  (Mich.)  99;  1844,  Bank  of  Mich.  v.  Niles, 
1  Doug.  (Mich.)  401 ;  1847,  Chautauqua  Co.  Bank  v.  Risley,  4  Denio  (N.  Y.) 
480;  1846,  Rivanna  Nav.  Co.  v.  Dawson's,  3  Gratt.  (Va.)  19,  46  Am.  Dec.  183; 
1852,  State  (C.  &  A.  R.,  etc.,  Co.)  v.  Commrs.,  23  N.  J.  L.  510,  57  Am.  Dec. 
409;  1855,  New  Jersey  R.  &  T.  Co.  v.  Newark,  25  N.  J.  L.  315;  1868,  Occum. 
Co.  v.  A.  &  W.,  etc.,  Co.,  34  Conn.  529;  1870,  Pac.  R.  v.  Seelev,  45  Mo.  212, 
100  Am.  Dec.  369;  1872,  Thompson  v.  Waters,  25  Mich.  214,  12  Am.  Rep.  243; 
1873,  Carroll  v.  Citv  of  E.  St.  Louis,  67  111.  568;  1885,  Wilks  v.  Georgia  P.  R. 
Co.,  79  Ala.  180;  18^90,  Case  v.  Kelly,  133  U.  S.  21,  swpra.p.  1012;  1898,  People 
V.  Pullman  Car  Co.,  175  111.  125,  supra,  p.  926;  1899,  First  M.  E.  Church  v. 
Dixon,  178  111.  260. 

In  most  of  the  states  there  are  statutory  provisions  to  the  effect  that  corpo- 
rations may  own  such  real  estate  as  sliall  be  necessary,  proper,  convenient, 
or  required.  Others  make  no  qualification,  while  still  others  say  to  any 
amount  (Miss.),  or  as  an  individual  (Iowa,  Ky.).  See  2  Stimson's  Stat.  Law, 
§  8204. 

In  Hayward  v.  Davidson,  41  Ind.  212  (1872),  it  is  said:  "With  reference  to 
their  power  to  take  and  hold  real  estate,  corporations  may  be  classified  as 
follows: 

"First.  Those  whose  charters  or  laws  of  creation  forbid  that  they  should 
acquire  and  hold  real  estate.  Such  corporations  can  not  take  and  hold  real 
estate ;  and  a  deed  or  devise  to  such  corporation  can  pass  no  title.  (But  see 
infra,  4  (e).) 

"Second.  Those  whose  charters,  or  laws  of  creation,  are  silent  as  to  whether 
they  may  or  may  not  acquire  and  hold  real  estate.  In  such  a  case,  if  the  ob- 
jects for  which  the  corporation  is  formed  can  not  be  accomplished  without 
acquiring  and  holding  real  estate,  the  power  so  to  do  will  be  implied. 

"Third.  Those  whose  charters,  or  laws  of  creation,  authorize  them,  in  some 
cases,  and  for  some  purpose,  to  take  and  hold  the  title  to  real  estate. 

"Fourth.  Those  whose  charters,  or  laws  of  creation,  confer  upon  them  a  gen- 
eral power  to  acquire  and  hold  real  estate.  Corporations  thus  empowered 
may  take  and  hold  real  estate,  as  freely,  and  fully,  and  perfectly  as  natural 
persons  mav  take  and  hold.  As  to  this  point  see,  1895,  Market  St.  R.  v.  Hell- 
man,  109  Cal.  571." 

Personal  property,  see  note  §298,  infra. 

4.  Who  can  complain  of  an  ultra  vires  holding?  (a)  General  rule,  only 
the  state  can  complain  after  the  conveyance  is  executed:  1820,  Silver  Lake 
Bank  v.  North,  4  Johns.  Ch.  (N.  Y.)  370;  1825,  Banks  v.  Poitiaux,  3  Rand. 
(Va.)  136  (purchaser  from  corporation) ;  1840,  Runyan  v.  Coster,  14  Pet.  (39 
IJ.  S.)  122  (ejectment  by  party  tracing  title  through  corporation)  ;  1848,  Bar- 
row V.  Turnpike  Co.,  9  Humph.  (28  Tenn.)  304  (vendor  to  corporation) ;  1853, 
Riley  v.  Rochester,  9  N.  Y.  64  (trespass  upon  land  held  by  corporation) ;  1860, 
Natoma,  etc.,  Co.  v.  darken,  14  Cal.  544  (suit  for  possession  by  corporation); 
1860,  Blunt  V,  Walker,  11  Wis.  334  (vendee  of  corp.  gets  good  title) ;  1873, 


§  291        POWER  TO  ACQUIRE  REAL  PROPERTY.        IOI7 

Wash  V,  Barton,  24  Ohio  St.  28  (vendee  of  corp.  gets  good  title) ;  1874,  Hough 
V.  Cook  Co.  L.,  etc.,  Co..  73  111.  23,  24  Am.  Rep.  230  (grantor  to  corporation 
can  not  complain);  1878,  National  Bank  v.  Matthews,  98  U.  S.  621;  1880, 
Bank  v.  AVhitney,  103  U.  S.  99;  1881,  Davis  v.  Old  Colony  R.,  131  Mass.  258, 
273;  1882,  Jones  v.  Habersham,  107  U.  S.  174;  1884,  Alexander  v.  Tolleston 
Club,  110  111.  Go;  1886,  Mallett  v.  Simpson,  94  N.  C.  37;  1889,  Fritts  v.  Pal- 
mer, 132  U.  S.  282  (vendee  of  corp.  gets  good  title) ;  1889,  Ragan  v.  McP'lroy, 
98  Mo.  349  (grantor  to  corp.  or  his  heirs  can  not  complain);  1890,  Long  v. 
Georgia  P.  R.  Co.,  91  Ala.  619  (grantor  to  corporation  can  not  complain); 
1891,  Holmes  &  G.  Mfg.  Co.  v.  H.  &  W.  M.  Co.,  127  N.  Y.  252;  1891,  Gilbert 
v.  Hole,  2  So.  Dak.  164;  1892,  Shelby  v.  Chicago,  etc.,  R.  Co.,  143  111.  385 
(grantor  to  corporation  cannot  complain);  1892,  Willoughby  v.  Chicago  J., 
etc.,  Co.,  50  N.  J.  Eq.  656;  1893,  Connecticut,  etc.,  Ins.  Co.  v.  Smith,  117  Mo. 
261,  38  Am.  St.  Rep.  656;  1894,  Hanson  v.  Little  Sisters,  etc.,  79  Md.  434,  32 
L.  R.  A.  293;  1897,  Farwell  Co.  v.  Wolf,  96  Wis.  10,  65  Am.  St.  Rep.  22,  37  L. 
R.  A.  138;  1897,  Henderson  v.  Virden  Coal  Co.,  78  111.  App.  437;  1897.  In  re 
Stickneys'  Will,  80  Md.  79,  60  Am.  St.  Rep.  308,  35  L.  R.  A.  693;  1897,  Wa- 
ter, etc.,  Co.  V.  Tennev,  24  Colo.  344;  1897,  Coonev  v.  Booth,  169  111.  370;  1898, 
South  &  N.  A.  R.  Co.  V.  Highland  Ave.,  etc.,  Co.',  119  Ala.  105;  1898,  State  v. 
Elizabeth,  61  N.  J.  L.  411,  693;  39  Atl.  Rep.  683,  906;  1898,  Rogers  v.  Nash- 
ville, etc.,  R.  Co.,  91  Fed.  Rep.  299  (stockholder  can  not  complain  after  con- 
veyance executed) ;  1899,  Ray  v.  Foster,  —  Texas  Civ.  App.  — ,  53  S.  W.  Rep. 
54;  1900,  Chicago  &  A.  R.  Co.  v.  Keegan.  185  III.  70,  56  N.  E.  Rep.  1088. 

(6)  But  if  the  contract  or  conveyance  is  not  completed,  an  interested  party 
mav  object,  in  any  suit  bv  the  corporation  to  perfect  its  title:  1870,  Pacific  R. 
Co."  V.  Seelev,  45  Mo.  212",  100  Am.  Dec.  369;  1874,  United  States  Trust  Co.  v. 
Lee,  73  111.  i42;  1875,  Coleman  v.  San  Rafael  T.  C,  49  Cal.  517;  1883,  Thweatt 
V.  Bank,  81  Ky.  1;  1890,  Case  v.  Kelly,  133  U.  S.  21,  supra,  p.  1012;  1890, 
Mitchell  V.  Cline,  84  Cal.  409;  1890,  Houston  Elec.  Co.  v.  Simon,  20  Ore.  60, 
10  L.  R.  A.  251;  1898,  South  &  N.  R.  Co.  v.  Highland  Ave.,  etc.,  119  Ala. 
105. 

The  courts  are  in  conflict  as  to  whether  a  corporation  can  maintain  eject- 
ment for  lands  which  it  is  nlt7-a  vires  for  it  to  hold. 

That  it  may,  see  1860,  Natoma,  etc.,  Co.  v.  Clarkin,  14  Cal.  544;  1874, 
Shewalter  v.  Pirner,  55  Mo.  218;  1886,  Bone  v.  Del.  &  H.  Canal  Co.,  18  W.  N. 
C.  (Pa.)  125,  5  Atl.  Rep.  751;  1887,  East  N.  L.,  etc.,  Church  v.  Froislie,  37 
Minn.  447. 

That  it  can  not,  see:  1827,  Quaker  Soc.  v.  Dickenson,  1  Dev.  L,  (N,  C.) 
189;  1873,  Carroll  v.  E.  S.  &  L.,  67  111.  668;  1879,  Leasurev.  Un.  M.  Co.,  91 
Pa.  St.  491 ;  1882,  St.  Peters'  Cath.  C.  v.  German,  104  111.  440. 

But  the  purchaser  from  the  corporation  can  not  raise  the  question  in  a  suit 
by  the  corporation  vender  for  the  specific  performance  by  the  purchaser: 
1825,  Banks  v.  Poitiaux,  3  Rand.  (Va.)  136,  15  Am.  D.  706;  1856,  Old  Colony 
R.  Co.  V.  Evans,  6  Gray  (Mass.)  25,  66  Am.  Dec.  394. 

(c)  A  non-consenting  shareholder  who  acts  promptly  may  enjoin  the  con- 
summation of  the  unexecuted  ultra  vires  transaction:  i826,  Gray  v.  Chaplin, 
2  Russ.  (3  Eng.  Ch.)  126;  1850,  Bagshaw  v.  Eastern,  etc.,  Rv.,  19  L.  J.  Ch. 
410;  1860,  Simpson  V.  Westminster,  etc.,  Co.,  8  H.  L.  Cas.  712;  1869,  Cen- 
tral R.  Co.  v.  Collins,  40  Ga.  682;  1871,  Stewart  v.  Erie,  etc.,  Co.,  17  Minn. 
372;  1877,  Watson  v.  Harlem,  etc.,  Co.,  62  How.  Pr.  348;  1882,  Elkins  v. 
Camden  and  A.  R.  Co.,  36  N.  .1.  Eq.  5;  1890,  Carson  v.  Iowa  City  G.  L.  C, 
80  Iowa  638;  1891,  Shaw  v.  Campbell  Tp.  Co.,  12  Ky.  L.  Rep.  799,  15  S.  W. 
Rep.  245;  1895,  Byrne  v.  Schuyler,  65  Conn.  336,  28  L.  R.  A.  304;  1895,  Pol- 
lock V.  Farmers'  L.  &  T.  Co.,  157  U.  S.  429. 

Although  it  is  sometimes  said  that  if  the  ultra  vires  transaction  is  com- 
pletely executed,  the  non-consenting  shareholder  can  not  complain  (and 
especially  if  he  fails  to  act  proinptlv):  1879,  Terry  v.  Eiigle  Lock  Co.,  47 
Conn.  141,  161;  1892,  Willoughhv  v.  Chicago  J.,  etc.,  Co..  50  N.  J.  Eq.  565; 
1896,  Jefferson  Co.  Sav.  Bank  v.  Francis,  115  Ala.  317;  1898,  Rogers  v.  Nash- 
ville, etc.,  R.  Co.,  91  Fed.  Rep  299  on  317;  1900,  City  of  Spokane  v.  Amster- 
damsch  (Wash.),  60  Pac.  Rep.  141.    Yet  the  better  statement  is  that  equity 


IOl8         COJMMONWEALTH    V.    NEW    YORK,    ETC.,    R.    CO.         §  292 

will  relieve  an  injured  stockholder  who  acts  promptly,  from  the  effects  of  an 
executed  ultra  vires  transaction,  even  to  the  extent  of  setting  it  aside,  if  in  the 
meantime  no  superior  equity  has  intervened,  nor  the  rights  of  innocent  third 
parties  attached:  18o2,  March  v.  Eastern  R.  Co.,  43  N.  H.  515;  1874,  Hough 
V.  Cook  Co.  L.  Co.,  73  111.  23,  24  Am.  R.  230;  1887,  Chicago  v.  Cameron,  120 
111.  447,  458;  1890,  Ashton  v.  Dashawav  Assn.,  84  Cal.  6J  ;  1899,  Harding  v. 
Glucose  Co.,  182  111.  551,  55  N.  E.  Rep."577. 

(d)  Unless  there  is  a  statute  making  the  conveyance  void,  and  providing 
for  an  escheat  to  the  state,  or  unless  the  mortmain  statutes  are  in  force,  the 
state's  complaint  is  limited  to  a  forfeiture  of  the  charter  of  the  corporation, 
and  not  a  forfeiture  of  the  property  obtained  by  the  ultra  vires  transaction 
1825,  The  Banks  v.  Poitiaux,  3  Rand.  iVa.)  136,  142,  15  Am.  Dec.  706,  707 
1873,  Walsh  v.  Barton,  24  Ohio  St.  28,  42;  1875,  Edwards  v.  Fairbanks,  etc. 
27  La.  Ann.  449,  450;  1878,  National  Bank  v.  Matthews,  98  U.  S.  621,  on  629 
1880,  Bank  v.  Whitney,  103  U.  S.  99;  1888,  In  re  McGraw,  111  N.  Y.  66,  96 

1890,  Comw.  V.  N.  Y.,  etc.,  R.,  132  Pa.  St.  591,  svpra;  1894,  Lancaster  v.  A. 
I.  Co.,  140  N.  Y.  676,  586;  1896,  Fayette  Land  Co.  v.  Louisville,  etc.,  Co.,  93 
Va.  274,  291,  24  S.  E.  Rep.  1016. 

It  is  often  said,  however  {obiter  dictum,  we  think),  that  the  conveyance  is 
"valid  until  assailed  by  the  state  in  a  direct  proceeding  for  that  purpose" 
(1886,  Mallet  v.  Simpson,  94  N.  C.  37;  1899,  Burden  v.  Burden,  159  N.  Y.  287, 
304),  or  until  office  found  (1821,  Leazure  v.  Hillegas,  7  S.  &  R.  313;  Runyan 
V.  Coster,  14  Pet.  (U.  S.)  122,  131 ;  1887,  Russell  v.  Texas,  etc.,  R.  Co.,  68  Tex. 
646;  1890,  Long  v.  Georgia  Pac.  R.,  91  Ala.  519,  522),  or  the  corporation  may 
hold  subject  to  the  state's  right  of  escheat  (1887,  Hickory  F.  O.  Co.  v.  Buffalo, 
etc.,  Co.,  32  Fed.  Rep.  22). 

(e)  A  prohibited  purchase  is  sometimes  said  to  be  void,  and  no  title  passes: 
1844,  Bank  v.  Niles,  1  Doug.  (Mich.)  401  ;  1873,  Carroll  v.  E.,  St.  L.,  etc.,  Co., 
67  111.  568;  1882,  St.  Peter's  Roman  Cath.  Cong.  v.  Germain,  104  111.440; 
1898,  State  v.  Hudson  Land  Co.,  18  Wash.  664,52  Pac.  674;  yet  there  seems  to 
be  no  good  reason  why  the  rule  above,  that  only  the  state  could  complain  as 
for  a  forfeiture  of  the  charter,  should  not  applv :  1875,  Edwards  v.  Fairbanks, 
27  La.  Ann.  449,  450 ;  1890,  Carlow  v.  Aultman,'28  Neb.  672, 44  N.  W.  Rep.  873 ; 

1891,  Fisk  v.  Patten,  7  Utah  399;  1892,  St.  Louis  R.  v.  Terre  H.  R.,  145  U.  S. 
393. 

See  particularly  upon  this  topic,  article  in  8  Harv.  L.  R.  15  (1894-5)  by  A. 
M.  Alger,  upon  consequences  of  illegal  or  ultra  vires  acquisition  of  real  estate 
by  a  corporation. 

Minnesota  (2  G.  S.  769,  770,  §  41^^  Pennsylvania  (after  five  years,  G.  L, 
1894,  §§  42-53,  Escheats),  Wisconsin  (Stat.  1889,  ch.  96,§§  2200«),  Illinois  (after 
five  years,  R.  S.  1895,  ch.  32,  §  5,  5),  Texas  (R.  S.  1895,  art.  749d,e),  North  Car- 
olina (after  thirty  years,  Code  1883,  §  690)  and  perhaps  others,  provide  for  for- 
feitures or  escheats  to  the  state,  but  Texas  and  Illinois  provide  for  the  sale  of 
land  so  escheated,  and  payment  of  the  proceeds  to  the  shareholders.  Michi- 
gan Const.,  Art.  XV,  §  12,  provides  "No  corporation  shall  hold  any  real  estate, 
for  a  longer  period  than  ten  years,  except  such  as  shall  be  actually  occupied 
by  such  corporation  in  the  exercise  of  its  franchise." 


Sec.  292.    Same. 

{d)  Estates  that  may  be  acquired. 

(i)   Fee  simple.      See  Wilson  v.  Leary,  120  N.  C.  90,  supra, 
P-  903. 

Note.     See  note,  supra,  p.  911. 

1 .  The  common  law  rule  was  that  land  reverted  to  the  grantor  upon  disso- 
lution of  the  corporation:  1848,  Bingham  v.  Weiderwax,  1  N.  Y.  509;  1875, 
Mercer  Acad.  v.  Rusk,  8  W.  Va.  373.     See,  supra,  p.  891. 


§  293  POWER   TO   ACQUIRE    REAL   PROPERTY.  IOI9 

2  But  at  common  law  the  corporation  took  a  fee  for  purposes  of  aliena- 
tion, though  only  an  estate  for  the  life  of  the  corporation  for  purposes  of  en- 
joyment: 1848,  JPeople  v.  Mauran,  o  Denio  389;  1852,  Nicoll  v.  New  York, 
etc.,  R.  Co.,  12  Barb.  460;  and  this  was  true,  though  the  corporation  had 
only  a  limited  duration;  1^54,  Nicoll  v.  N.  Y.,  etc.,  R.  Co.,  12  N.  Y.  121. 

3.  Finally  it  has  been  settled  that  a  business  corporation,  though  of  limited 
duration,  takes  a  fee  for  enjoyment,  or  rather  for  disposition  as  a  part  of  the 
assets  at  dissolution,  without  reverter:  1872,  Heath  v.  Barmore,  50  N.  Y.  302; 
1888,  People  V.  O'Brien,  111  N.Y.I,  7  Am.  St.  Rep.  684,  and  note,  infra, 'p.  1426; 
but  the  common  law  rule  yet  obtains  as  to  mutual  issurance  and  charitable  or 
non-stock  corporations.     See,  supra,  §§  256,  257,  and  note. 

4.  A  grant  of  a  freehold  without  words  of  inheritance,  perpetuity  or  suc- 
cession will  pass  a  fee:  1836,  Union  Canal  Co.  v.  Young,  1  Whart.  iPa.)  410, 
30  Am.  Dec.  212;  1839,  Trustees  of  Caledonia,  etc.,  v.  Burt,  11  Vt.  632;  1861, 
Cone.  Soc.  V.  Stark,  34  Vt.  243;  1864,  Erie  R.  Co.  v.  State,  31  N.  J.  L.  531,  86 
Am.^Dec.  226;  1867,  Wilcox  v.  Wheeler,  47  N.  H.  488;  1868,  Page  v.  Heine- 
berg,  40  Vt.  81,  94  Am.  Dec.  378;  1885,  Asherille  Div.  v.  Aston,  92  N.  C.578. 


Sec.  293.    Same,   f 

(2)    Estates  in  common  and  joint  tenancy. 

DE  WITT  Et  Al.  v.  THE  CITY  OF  SAN  FRANCISCO.* 

1852.     In  the  Supreme  Court  of  California.     2  California  Re- 
ports 289-304. 

[Appeal  from  district  court  denying  a  motion  to  dissolve  an  in- 
junction restraining  defendants  from  completing  a  contemplated  pur- 
chase of  certain  land  by  the  city  of  San  Francisco  and  the  county  of 
San  Francisco,  for  the  use  of  both  corporations.] 

Wells,  Justice.  *  *  *  The  next  objection  advanced,  and  which  is 
said  to  be  fatal  to  the  power  claimed  by  the  appellants,  is,  that  the  cor- 
poration of  the  county  of  San  Francisco  and  the  corporation  of  the 
city  of  San  Francisco  can  not  hold  lands  as  joint  tenants,  or  tenants 
in  common.  It  is  not  pretended  that  these  said  corporations  can  hold 
as  joint  tenants.  Joint  tenancy  is  a  technical  feudal  estate,  founded, 
like  the  laws  oi  primogeniture^  on  the  principle  of  the  aggregation  of 
landed  estates  in  the  hands  of  a  few,  and  opposed  to  their  division 
among  many  persons.  For  the  creation  of  a  joint  tenancy,  four  uni- 
ties are  required,  namely,  unity  of  interest^  unity  of  title^  unity  of 
time^  unity  of  ■possession.  i  Cruise's  Digest  (by  Greenleaf),  355, 
§  n  ;  2  Crabb's  Real  Prop.,  §  2303.  But  the  distinguishing  incident 
is  a  right  of  survivorship,  i  Cruise,  359,  §  27;  2  Crabb's  Real  Prop., 
§  2306. 

Two  corporations  can  not  hold  ?l%  joint  tenants .^  because  two  of  the 
essential  unities  are  wanting,  namely,  of  the  same  capacity  and  title. 
I  Cruise,  362,  §  39.  Nor  can  they  hold  as  joint  tenants  for  another 
reason:  Being  each  perpetual  there  can  be  no  sui"vivorship  between 
them ;  and  this,   as  we  have  just  seen,  is  the  distinguishing  incident  of 

*  Only  that  part  of  opinion  of  Wells,  J.,  relating  to  estates  in  common  and 
joint  tenancy  is  given. 


I020    DE   WITT    ET   AL   V.    THE   CITY    OF    SAN    FRANCISCO.    §  294 

this  estate.  Nor  can  a  corporation  hold  lands  as  joint  tenant  with  a 
natural  person,  for  there  is  no  reciprocity  of  survivorship  between 
them.      Angell  and  Ames  Corporations,  150;  i  Kyd  Corp.,  72. 

But  a  tenancy  in  common  requires  for  its  existence  but  one  unity, 
namely,  that  oi possession,  i  Cruise,  390,  §  2  ;  2  Crabb's  Real  Prop., 
627,  §  2316.  If,  therefore,  a  grant  should  be  made  to  two  persons, 
which  in  its  terms  should  imply  a  joint  tenancy,  but  such  an  estate 
could  not  vest,  for  the  reason  that  some  of  the  requisite  unities  were 
wanting,  the  result  would  be  the  creation  of  a  tenancy  in  common. 
The  rule  of  law  is,  that  a  grant  shall  not  fail  if  there  is  a  capacity  to 
take  under  it,  and  if  the  higher  estate  can  not  vest,  the  next  estate 
which  is  possible  shall  vest.  This  is  an  equitable  rule  which  is  made 
to  apply  to  all  grants  and  devises.  The  appellants  in  this  case  pro- 
pose to  purchase  the  undivided  one-half  of  the  property  known  as  the 
Jenny  Lind  and  Parker  House,  and  the  land  upon  which  the  same 
stands,  to  be  used  as  tenants  in  common  with  the  city  of  San  Fran- 
cisco. But  it  is  said  that  two  incorporations  can  not  hold  lands  as 
tenants  in  common  ;  and  the  case  of  the  New  York  and  Sharon  Canal 
Company  v.  The  Fulton  Bank,  7  Wendell  412,  is  cited  in  the  opinion 
delivered  by  the  district  judge,  and  is  the  only  authority  produced  to 
sustain  this  proposition.  From  an  examination  of  the  case,  we  think 
that  it  maintains  the  opposite  doctrine. 

The  eminent  counsel  on  the  part  of  the  plaintiff ,  arguendo^  asserted 
that  two  or  more  corporations  may  unite  in  the  purchase  of  property 
real  or  personal ;  they  may  take  a  deed  of  real  estate  for  the  estab- 
lishment of  their  houses  of  business.  Insurance  companies  may  own 
pilot  boats  in  common,  and  canal  companies  may  be  tenants  in  common 
of  locks,  canal  boats  and  other  property  subserving  their  mutual  interest ; 
I  Kyd,  108;  2  Kent's  Com.,  315;  and  the  counsel  for  the  defendant 
said,  "It  is  not  denied  that  distinct  corporations  may  own  property  in 
common,"  while  Savage,  the  chief  justice,  in  delivering  the  opinion 
of  the  court,  said,  "These  two  companies  had  certain  moneys  in  the 
hands  of  their  officer;  they  were  both  interested  in  those  moneys,  and 
pi'obably  in  equal  degree.  Not  being  partners,  they  were  tenants  in 
common;  in  that  character  they  made  the  deposit  of  the  money,  and 
in  that  character  I  can  see  no  objection  to  their  sustaining  an  action 
for  it;  thus  the  court  decides  that  they  may  be  tenants  in  common  in 
a  chattel,  but  does  not  decide  that  they  may  be  so  in  lands,  that  ques- 
tion not  being  before  the  court,"  and  yet  this  case  is  cited  to  maintain 
the  doctrine  that  two  coi"porations  can  not  hold  real  estate  as  tenants 
in  common. 

The  books  and  cases  do  not  afford  any  instance  in  which  this  right 
of  holding  lands  as  tenants  in  common,  either  with  each  other  or.  with 
natural  persons,  is  denied  to  corporations.  Not  one  of  the  reasons 
which  work  a  want  of  capacity  to  hold  2l&  joint  tenants  would  prevent 
their  holding  as  tenants  in  common,  for  this  estate  requires  but  one 
unity,  that  of  possession. 

So  far  from  corporations  not  being  able  to  hold  lands  in  common, 
the  original  condition  at  common  law  of  the  largest  class  of  corpora- 


§  294  POWER   TO    ACQUIRE    REAL   PROPERTY.  102  I 

tions  known  to  the  law,  was  that  of  holding  all  their  lands  in  common 
with  each  other;   and  they  were  never  separated  until  the  original 
position  produced  inconveniences,     i  Kyd  Corporations,  io8.     «     «     » 
Order  denying  motion  reversed. 

Note.  See  to  same  effect,  as  to  joint  tenancy :  1851,  Telfair  v.  Howe,  3  Rich. 
Eq.  (S.  C.)  235,  55  Am.  D.  637.  Also  to  same  effect,  as  to  tenancy  in  common  : 
1883,  Estell  v.  University  of  the  South,  80  Tenn.  (12  Lea)  476;  1885,  Hackett 
V.  Multnomah  R.  Co.,  12  Ore.  124,  53  Am.  Rep.  327;  1894,  Calvert  v.  Idaho 
Stage  Co.,  25  Ore.  412;  1895,  Bates  v.  Coronado  Beach  Co.,  109  Cal.160. 


Sec.  294.     (B)   By  devise. 

{a)  History  and  general  doctrines. 

McCARTEE  v.  ORPHAN  ASYLUM  SOCIETY  OF  NEW  YORK.* 

1827.     In  the  Court  for  the  Correction  of  Errors  of  New 
York.     9  Cowen  (N.  Y.)  Rep.  437-525,  18  Ahi.  Dec.  516. 

[J.,  being  seized  of  real  estate,  devised  that  if,  at  his  death,  he 
should  have  a  child  living,  the  rents  and  profits  should  be  received 
by  his  executors,  and  applied  for  the  support,  etc.,  of  the  child,  the 
surplus  to  be  invested  in  stock  to  accumulate  and  be  paid  over  to  the 
child  at  twenty-one,  or  marriage.  He  gave  all  the  residue  of  his  real  and 
personal  estate,  after  payment  of  all  legacies  and  other  bequests,  to 
a  corporate  company  (the  Orphan  Asylum  Society  in  the  city  of  New 
York),  the  bequest  to  take  effect  immediately  after  debts  and  lega- 
cies paid,  if  he  should  leave  no  child ;  or,  if  he  should  leave  a  child, 
then,  upon  the  child's  death,  inter-marriage  or  attaining  twenty-one. 
The  will  then  gave  to  his  executors  all  his  real  estate,  subject  to  the 
trusts  aforesaid,  and  declared  his  will  to  be  that  when  such  child 
should  attain  twenty-one,  or  marry,  his  real  estate  should  be  sold  by 
his  executors,  and  one-half  of  the  proceeds  paid  to  the  child,  if  it 
should  attain  twenty-one,  or  marry.  The  testator  died,  seized,  and 
a  posthumous  child  was  born  to  him,  which  died  before  twenty-one, 
and  unmarried. 

The  chancellor,  Jones,  upheld  the  devise  to  the  orphan  asylum, 
and  appeal  was  taken.] 

Stebbins,  Senator,  dissenting.     »     *     * 

The  questions  presented  by  the  case,  as  I  view  it,  arej^r^/,  whether 
the  testator  (Phillip  Jacobs)  devised  the  real  estate  in  question  to  the 
corporation  directly,  or  to  his  executors,  subject  to  the  trusts  mentioned 
in  the  will ;  second,  whether  the  devise  to  trustees  for  the  use  of  the 
respondents,  is  a  valid  devise,  under  which  they  can  take  as  cestuis 
qtieuse\  and  third.,  whether  the  use  is  executed  by  the  statute  of  uses, 
and  if  so,  the  effect. 

[After  holding  contrary  to  the  majority  opinion  that  the  devise  was 

'  Statement  abridged ;  Chancellor  Jones'  and  Senators  Woodworth's  and 
Crary's  opinions  omitted,  and  only  part  of  Senator  Stebbins's  opinion  given. 


I022  M'CARTEE   V.    ORPHAN   ASYLUM    SOCIETY.  §  294 

not  to  the  corporation  directly,  but  to  the  executors  in  trust — a  ques- 
tion of  construction,  proceeds:] 

The  next  and  more  important  question  is,  whether  the  corporation 
can  take  the  use  under  this  will,  notwithstanding  the  provisions  of 
our  statute  of  wills.  This  statute  enacts  that  any  person  having  any 
estate  of  inheritance  in  any  lands,  tenements  or  hereditaments,  may 
give  or  devise  the  same,  or  any  rent  or  profit  out  of  the  same,  to  any 
person  or  persons  {except  bodies  politic  and  corporate')  by  his  last 
will  and  testament,  or  by  any  other  act  by  him  lawfully  executed  ; 
and  it  is  contended  that  if  a  devise  to  a  corporation  directly  would  be 
void,  a  devise  of  the  use  is  also  void. 

Although  in  England,  under  the  Saxons,  lands  were  devisable  by 
will  at  common  law,  yet  at  the  conquest,  and  upon  the  introduc- 
tion of  the  feudal  system,  the  common  law  underwent  a  complete 
change  in  this  respect;  and  an  estate  in  fee-simple  in  lands  was  no 
longer  devisable.  It  became  inconsistent  with  the  nature  of  that  sys- 
tem, that  a  tenant  should  have  an  unlimited  power  to  devise  his  lands; 
for  the  reason  that  he  might  devise  to  persons  incapable  of  perform- 
ing feudal  services.  The  power  of  alienation  by  devise  (except  of  a 
chattel  interest)  is  in  England,  then,  to  be  traced  to  the  statutes  of 
wills  of  the  32  Hen.  VIII,  ch.  i,  and  34  Hen.  VIII,  ch.  5. 

Our  statute  of  wills  is  a  transcript  of  these,  with  the  additional 
enumeration  of  rents  and  profits.  It  is  contended  that  the  terms  rents 
and  profits,  mentioned  in  the  statute,  are  intended  to  describe  a  use, 
and  that,  as  the  lands  can  not,  so  the  use  also  can  not,  be  devised  to  a 
corporation  under  this  statute. 

I  apprehend,  however,  there  is  a  material  difference  between  rents 
and  profits,  and  that  which  has  long  been  known  under  the  denomina- 
tion of  a  use. 

Rents  and  profits  are  incorporeal  hereditaments ;  but  a  use  is  not. 
A  use  is  said  to  be  neither  jus  in  re  nor  ad  rem,  neither  right,  title 
nor  interest  in  law,  but  a  species  of  property  unknown  to  the  com- 
mon law,  and  owing  its  existence  to  the  equitable  jurisdiction  of 
chancery,  resting  upon  confidence  in  the  person  and  privity  of  estate, 
a  thing  collateral  to  the  land,  and  only  annexed  to  a  particular  estate 
in  it,  not  to  the  mere  possession ;  so  that  when  the  estate  to  which 
the  use  is  annexed  is  destroyed,  the  use  itself  is  destroyed,  as  by  dis- 
seisin, or  the  entry  of  tenant  by  the  curtesy  or  in  dower.  It  was 
rather  a  hold  upon  the  conscience  of  the  feoffee  to  uses,  than  a  lien 
upon,  or  interest  in,  the  land;  and  the  principle  upon  which  it  was 
founded  was  that  the  feoffee  was  bound  in  conscience  to  follow  the 
direction  of  the  feoffor.  (See  Cruis.  Dig.,  tit.  11,  ch.  2.)  A  thing 
so  subtle,  and  cognizable  only  in  courts  of  equity,  which  act  upon 
the  conscience,  differs  essentially  from  an  incorporeal  hereditamejit, 
which  is  of  legal  cognizance.  Indeed,  incorporeal  hereditaments, 
such  as  rents,  advowsons,  etc.,  were  the  subject  of  conveyance  to 
uses. 

If,  then,  a  use  is  not  comprehended  in  the  terms  of  the  statute    the 


§  294  POWER  TO   ACQUIRE  REAL   PROPERTY.  IO23 

argument  rests  upon  the  ground  that  if  a  Revise  of  land  to  the  cor- 
poration would  have  been  invalid,  the  devise  of  the  use  is  equally  so. 

It  might  perhaps  be  conceded  that  if  corporations  were  prohibited 
by  statute  from  taking  the  fee  by  devise  (which,  by  the  by,  is  not  the 
case),  the  law  would  not  allow  them  to  take  the  use.  But  the  his- 
tory of  the  English  law  furnishes  at  least  a  plausible  argument  against 
such  a  proposition. 

Corporations  were  prohibited  by  several  statutes  of  mortmain  from 
holding  lands;  yet  it  was  deemed  necessaiy  to  enact  the  statute  of  15 
Rich.  II,  ch.  5,  declaring  uses  subject  to  the  statutes  of  mortmain. 
(Chudleigh's  Case,  i  Rep.  120,) 

But  the  statute  of  wills  is  an  enabling  statute,  and  not  prohibitory. 
Before  this  statute  individuals  had  no  capacity  to  devise  lands;  but 
this  enabled  them  to  do  so,  except  to  corporations.  In  conferring  the 
capacity  to  devise  the  legislature  withheld  the  capacity  to  devise  to  a 
corporation,  and  for  what  reason  ? 

Before  the  statute  of  wills,  corporations  were  prohibited  by  the 
mortmain  acts  from  taking  or  holding  lands,  or  uses  arising  from  them. 
The  exception,  therefore,  in  the  statute  of  wills,  could  not  have  been 
introduced  for  the  purpose  of  prohibiting  corporations  from  taking  by 
devise,  for  they  were  already  prohibited  from  taking  in  any  mode ; 
but  was  to  guard  against  enabling  them  to  take  by  devise.  Without 
the  exception  in  the  statute  of  wills  in  England  they  would  have  been 
enabled  to  take  by  devise,  when  the  mortmain  acts  would  have  pro- 
hibited their  taking  in  any  other  way. 

The  history  of  the  statute,  I  think,  fortifies  this  view  of  it.  In  the  first 
statute  of  wills  (32  Hen.  VIII,  ch.  i)  corporations  were  not  excepted, 
and  were,  therefore,  enabled  to  take  by  devise  in  common  with  other 
persons,  contrary  to  the  policy  of  the  statutes  of  mortmain ;  but  two 
years  afterwards  the  parliament,  finding  the  mortmain  acts  so  far  re- 
pealed by  the  statute  of  wills,  passed  a  new  statute  (34  Hen.  VIII,  ch, 
5),  not  prohibiting  corporations  in  terms  from  taking  under  the  stat- 
ute of  wills,  but  entitled,  "an  act  for  the  explanation  of  the  statute  of 
wills,"  in  which  they  re-enact  the  provisions  of  the  first  statute  of 
wills,  and  introduce  the  exception  as  to  corporations ;  not,  therefore, 
expressly  prohibiting  corporations  from  taking,  but  qualifying  the  ca- 
pacity to  devise.  The  intention  seems  to  have  been  to  rely  upon  the 
mortmain  laws,  to  keep  property  from  corporations  and  to  qualify  the 
statute  of  wills  so  as  not  to  interfere  with  those  prohibitory  acts. 

The  distinction  is  a  wide  one  between  an  incapacity  to  devise  and 
a  prohibition  against  taking;  for,  although  there  may  be  an  incapac- 
ity to  devise  directly  to  a  corporation,  yet  such  incapacity  will  not  pre- 
vent the  corporation  from  taking  by  grant  from  the  devisee  in  trust,  if 
there  is  no  prohibition  against  their  taking.  So,  too,  there  may  be  an  in- 
capacity to  devise  lands  to  a  corporation,  and  yet  the  corporation  may 
take  a  use.  But  in  either  case,  if  prohibited  from  taking,  the  law 
would  not  probably  allow  that  to  be  indirectly  done  which  was  directly 
prohibited. 

If,  then,  there  is  no  other  reason  arising  from  the  statute  of  wills 


I024  m'cartee  v.  orphan  asylum  society.  §  294 

why  corporations  may  not  take  land  by  devise,  except  the  want  of 
capacity  in  the  devisor  to  convey,  there  would  seem  to  be  no  objec- 
tion in  this  case  against  the  corporation's  taking  as  cestui  que  use ;  for 
a  devisor  has  capacity  to  devise  a  use  ;  and  this  corporation  is  not  pro- 
hibited from  taking  and  holding  either  land  itself  or  a  use.  All  the 
English  mortmain  acts,  including  the  15th  Rich.  2,  are  repealed  by 
our  statutes. 

And  if  corporations  can  not  take  by  devise,  merely  for  want  of 
capacity  to  take  in  that  particular  way,  the  cases  of  a  conveyance 
from  a  wife  to  her  husband  through  the  intervention  of  a  trustee,  and 
of  a  tenant  in  tail  to  a  purchaser  by  means  of  a  common  recovery, 
seem  to  be  conclusive  to  show  that  an  indirect  mode  of  conveyance  is 
no  fraud  upon  the  law  when  resorted  to  only  to  remedy  a  want  of 
capacity  to  convey  directly. 

If  it  is  shown  that  the  exception  in  the  statute  of  wills  is  to  be  re- 
garded not  as  a  prohibition  against  the  taking  of  lands  by  a  corpora- 
tion, but  as  a  qualification  of  the  capacity  to  devise,  created  by  that 
statute,  the  opinion  pronounced  in  the  court  of  chanceiy  in  this  cause 
contains  another  view  of  the  subject  which  appears  to  my  mind  per- 
fectly conclusive.  It  is,  that  before  the  statute  of  wills,  when  persons 
were  not  capacitated  to  take  lands  by  devise,  they  might  nevertheless 
take  the  use  in  that  way  ;  and,  therefore,  that  since  the  statute  of  wills, 
although  corporations  can  not  take  lands  by  devise,  yet  they  may  take 
the  use,  there  being  no  prohibition. 

Corporations,  since  the  statute  of  wills,  stand  in  the  saine  situation 
as  to  taking  lands  by  devise  as  all  natural  persons  stood  in  before 
that  statute.  If,  therefore,  a  use  was  devisable  before  the  statute,  a 
corporation  may  take  a  use  by  devise  since  the  statute,  especially  if  it 
be  such  as  is  not  executed  by  the  statute  of  uses. 

It  is  said  by  Cruise  that  uses  were  devisable,  though  lands  were  not ; 
and  persons,  by  that  means,  acquired  a  disposition  of  property  for  the 
benefit  of  their  families,  which  they  had  not  otherwise.  They  were 
the  invention  of  ecclesiastics  to  evade  the  statutes  of  mortmain.  And 
after  the  15th  Rich.  2,  ch.  5,  which  subjected  them  to  the  statutes  of 
mortmain,  the  practice  of  conveying  to  uses  was  continued  as  the 
most  effectual  mode  of  evading  the  hardships  of  the  feudal  tenures, 
and  of  securing  estates  from  forfeiture  for  treason.  They  became 
general,  and  were  applied  to  purposes  inconsistent  with  the  policy  of 
the  government.      *      *     * 

Finally,  by  the  statute  of  uses,  27  Hen.  8,  ch.  10,  after  reciting  all 
these  mischiefs,  the  legislature  declared  that  possession  shall  be  an- 
nexed to  the  use. 

The  object  of  the  crown  was  to  reassert  its  rights  of  wardship  and 
other  feudal  profits  out  of  the  lands  of  the  nobility ;  and  the  intention 
of  parliament  was  to  abolish  uses  by  changing  them  into  legal  estates, 
and  subjecting  them  to  the  rules  of  common  law  tenures.     *     *     * 

Before  the  statute  of  uses  we  have  seen  they  were  devisable  to 
natural  persons,  although  there  was  then  no  statute  of  wills  nor  any 
common  law  capacity  to  devise.     The  operation  of  the  statute  upon 


^  294  POWER   TO    ACQUIRE   REAL   PROPERTY.  I02  5 

uses  is  said  to  have  been  by  turning  the  use  into  land,  to  render  it  not 
devisable   in   the  same  manner  as  the  land  itself.     (3  Black.  Com., 

375-)     *    *    * 

But  all  the  reasoning  arising  from  the  statute  of  uses  is  answered, 

if  the  use  in  this  case  is  such  as  could  not  be  executed  by  that  statute ; 

for  clearly,  in  such  case,  it  could  have  no  operation  to  destroy  the 

capacity  to  devise. 

The  question  then  arises,  whether  the  use  in  this  case  is  within  the 
statute ;  and  the  examination  of  it  necessarily  casts  us  back  upon  the 
will,  to  seek  for  the  intention  of  the  testator.  He  devises  the  estate 
to  trustees,  in  trust  for  the  Orphan  Asylum  Society,  to  be  applied  to 
the  charitable  purposes  for  which  the  association  was  established.  His 
object  was  not  to  benefit  the  society;  but  through  it,  to  apply  the 
estate  to  the  charitable  purposes  for  which  the  society  was  organized. 
The  society  itself  is  a  trustee;  and  has  a  trust  to  perform,  which  a 
court  of  equity  would  undoubtedly  enforce.  It  is  a  devise  to  trustees 
for  the  use  of  the  society,  as  trustees  for  certain  charitable  pur- 
poses.    ♦     »     * 

If  it  is  granted,  then,  that  the  corporation  itself  had  a  trust  to  exe- 
cute under  this  will,  it  is  a  case  not  within  the  statute  of  uses ;  for  that 
statute  can  only  execute  the  first  use,  which,  in  this  case,  would  vest 
the  estate  in  the  corporation,  unincumbered  by  any  trust  for  charitable 
purposes,. and  contrary  to  the  plain  intention  of  the  testator.  A  tmst 
is  a  use  not  executed  by  the  statute ;  and  the  author  of  the  Touchstone 
remarks  (p.  507,  n.  i)  that  "one  of  the  modes  of  creating  a  trust  is 
said  to  be  where  lands  are  limited  to  the  use  of  A.  in  trust  to  permit 
B.  to  receive  the  rents  and  profits  ;  for  the  statute  can  only  execute  the 
first  use." 

The  conclusions  which  follow  my  view  of  the  case  are,  that  the 
devise  of  the  real  estate  in  question  was  not  to  the  corporation  directly, 
but  to  the  executors  for  the  use  of  the  corporation  upon  the  con- 
tingency which  has  happened,  to  be  appropriated  to  certain  charitable 
purposes : 

That  under  the  statute  of  wills  there  is  a  mere  incapacity  in  cor- 
porations to  take  lands  by  devise,  and  not  a  prohibition  against  their 
taking: 

That  a  use  was  devisable  at  common  law  before  the  statute  of 
wills ;  and  therefore  that  this  corporation  may  take  a  use  by  devise, 
not  being  prohibited  by  statute  from  taking  either  a  use  or  the  land 
itself: 

That  the  use  in  this  case  is  not  such  as  could  be  executed  by  the 
statute  of  uses ;  or  if  it  is,  that  the  operation  of  the  statute  would  not 
invalidate  the  devise,  but  vest  the  estate  in  the  corporation. 

If  these  propositions  are  established,  it  follows  that  the  respondents 
are  entitled  to  the  estate  in  question,  and  that  the  decree  of  the  court 
of  chancery  is,  at  least,  substantially  correct.     *     ♦     * 

Reversed. 

Note.    See  following  cases. 
66— WiL.  Casbs. 


I026  WHITE   V.    HOWARD.  §  295 

Sec.  295.    Same. 

(6)    Restrictions  in  charters  and  restrictions  in  statutes  of  wills. 

WHITE  V.  HOWARD.i 

1871.     In  the  Supreme  Court  of  Errors  of  Connecticut.     38 
Conn.  Rep.  342-368. 

[Bill  in  equity  by  the  executors  of  William  Bostwick,  praying  for 
advice  in  the  construction  of  the  will.  Bostwick  devised  certain  prop- 
erty to  trustees  in  fee-simple  for  the  benefit  of  his  daughter  during 
life,  and  in  case  of  her  decease  without  issue  or  husband  surviving 
her,  the  trust  fund  was  to  be  divided  equally  among  six  benevolent 
societies,  one  of  which  was  the  American  Tract  Society,  incorporated 
in  New  York,  with  power  to  hold,  purchase  and  convey  real  and  per- 
sonal property,  provided  its  net  income  therefrom  should  not  exceed 
$10,000  annually.  The  New  York  statute  of  wills  provided  that  "no 
devise  to  a  corporation  shall  be  valid  unless  such  corporation  be 
expressly  authorized  by  its  charter,  or  by  statute,  to  take  by  devise." 
It  was  contended  by  the  heirs  at  law  that  this  prevented  the  society 
from  taking  a  devise  of  land  in  Connecticut,  and  that  the  residuary 
clause  failed  to  this  extent.  Case  was  reserved  by  the  superior  court 
for  advice  on  facts  found  by  a  committee.] 

Foster,  J.  *  *  *  It  is  asserted  that  the  American  Tract 
Society  can  take  neither  real  nor  personal  property  under  this  will. 
That  it  can  not  take  real,  because  its  charter  of  incorporation, 
granted  by  the  state  of  New  York,  does  not  confer  the  power  of  tak- 
ing by  devise;  that  it  can  not  take  personal,  because  the  charter  pro- 
vides that  the  net  income  of  said  societ}'^  arising  from  real  and  personal 
estate  shall  not  exceed  the  sum  of  $10,000  annually.  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  cor- 
poration shall  possess  the  general  powers,  and  be  subject  to  the  pro- 
visions contained  in  title  third  of  chapter  eighteen  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  pow- 
ers of  corporations,  and  the  clause  which  bears  directly  upon  this  sub- 
ject reads  thus:  "To  hold,  purchase  and  convey  such  real  and  per- 
sonal estate  as  the  purposes  of  the  corporation  shall  require,  not  ex- 
ceeding the  amount  limited  in  its  charter."  This  charter  was  amended 
by  the  legislature  of  New  York  on  the  31st  of  March,  1866;  but  as 
this  was  after  the  death  both  of  the  testator  and  of  his  daughter,  that 
amendment  need  not  be  particularly  considered,  as  it  can  not  materi- 
ally affect  the  question  involved.  Now  it  is  manifest  that  this  corpo- 
ration has  express  power  by  its  charter  to  hold,  purchase  and  convey 
^  Statement  abridged.     Arguments  and  part  of  opinion  omitted. 


§  295  POWER  TO   ACQUIRE   REAL  PROPERTY.  I027 

real  and  personal  estate,  for  specified  purposes  and  to  a  limited 
amount.  There  is  no  express  power  to  take  by  devise,  nor  is  the 
power  so  to  take  expressly  prohibited. 

We  suppose  there  could  be  no  doubt  that  this  corporation  could 
take  by  devise  in  New  York,  if  the  statute  of  wills  of  that  state  em- 
powered coi-porations  generally  to  take  in  that  manner.  The  English 
statute  of  wills,  passed  in  the  time  of  Henry  VIII,  authorized  every 
person  having  a  sole  estate  in  fee-simple  of  any  manors,  etc.,  ''to 
give,  dispose,  will  or  devise,  to  any  person  or  persons,  except  to  bod- 
ies politic  and  corporate,  by  his  last  will  and  testament  in  writing,  or 
otherwise  by  any  acts  lawfully  executed  in  his  lifetime,  all  his  manors, 
etc.,  at  his  own  will  and  pleasure,  any  law,  statute,  custom,  or  other 
thing  theretofore  had,  made,  or  used  to  the  contrary  notwithstanding." 
Thus  corporations,  by  express  exception  in  these  statutes,  were  not 
enabled  to  take  lands  directly  by  devise  in  England,  and  the  statute 
of  wills  of  the  state  of  New  York  makes  the  same  exception.  By 
that  statute  it  is  enacted,  that  all  persons,  except  idiots,  persons  of 
unsound  mind,  married  women,  and  infants,  may  devise  their  real 
estate  by  a  last  will  and  testament  duly  executed,  etc.  "Such  devise 
may  be  made  to  every  person  capable  by  law  of  holding  real  estate ; 
but  no  devise  to  a  corporation  shall  be  valid,  unless  such  corporation 
be  expressly  authorized  by  its  charter,  or  by  statute,  to  take  by  devise." 
3  N.  Y.  Rev.  Stat.,  138  (5th  ed.).  This  corporation,  therefore, 
prior  to  the  recent  amendment  of  its  charter,  could  not  take  by  de- 
vise in  New  York,  and  such  is  the  decision  of  their  supreme  court  and 
court  of  appeals  in  this  very  case.  And  so  it  is  earnestly  contended 
that  it  can  not  take  by  devise  in  Connecticut.  We  yield  readily  to 
the  doctrine  laid  down  in  this  connection  in  regard  to  corporations; 
indeed  it  is  too  thoroughly  established  to  be  doubted  or  questioned. 
That  doctrine  perhaps  is  nowhere  better  stated  than  in  the  case  of 
Head  v.  Providence  Ins.  Co.,  2  Cranch  127,  by  the  then  illustrious 
head  of  the  supreme  court  of  the  United  States,  the  late  Chief  Justice 
Marshall.  "It  [a  corporation]  may  correctly  be  said  to  be  precisely 
what  the  incorporating  act  has  made  it ;  to  derive  all  its  powers  from 
that  act,  and  to  be  capable  of  exerting  its  faculties  only  in  the  manner 
which  that  act  authorizes."  Now  this  corporation  stands  at  the  bar 
of  this  court  claiming  the  right  to  take  lands  within  our  territory  by 
devise.  It  is  clothed  with  such  powers  as  have  been  conferred  by  its 
charter.  Those,  a  portion  of  them,  as  we  have  seen,  are  to  hold, 
purchase,  and  convey  real  estate.  It  is  not  expressly  authorized  to 
take  by  devise,  nor  is  it  prohibited  from  so  taking.  Can  it  then  take 
by  devise?  Not  in  New  York,  as  we  have  seen.  Therefore  not  in 
Connecticut,  say  the  counsel  for  the  heirs  at  law,  for  being  a  New 
York  corporation,  and  by  the  law  of  that  state  devoid  of  power  to 
take  by  devise,  no  argument  is  needed  to  show  its  inability  to  take  by 
devise  in  Connecticut. 

This  conclusion  is  too  hastily  drawn.  If  the  inability  to  take  by 
devise  arose  out  of  a  prohibitory  clause  in  the  charter,  the  conclusion 
would  be   legal  and   logical.     But  the   inability   does   not   so  arise. 


I028  WHITE    V.    HOWARD,  §  295 

There  is  no  prohibition  in  the  charter ;  the  inability  is  created  by  the 
New  York  statute  of  wills,  expressly  excepting  corporations  from 
taking  by  devise.  Now  this  corporation  brings  with  it  from  New 
York  its  charter,  but  it  does  not  bring  with  it  the  New  York  statute 
of  wills  and  can  not  bring  it  to  be  recognized  as  law  within  this 
jurisdiction.  There  is  an  obvious  distinction  between  an  incapacity 
to  take  created  by  the  statute  of  a  state,  which  is  local,  and  a  pro- 
hibitory clause  in  the  charter,  which  everywhere  cleaves  to  the  cor- 
poration. The  reasoning  is  fallacious,  not  recognizing  this  distinc- 
tion. There  being  no  prohibition  in  the  charter,  and  the  power  to 
hold  and  convey  real  estate  being  expressly  given,  we  must  look  to 
our  own  statutes  and  laws,  and  not  to  those  of  New  York,  to  deter- 
mine whether  or  not  this  corporation  can  take  by  devise  in  Connec- 
ticut. 

The  state  of  New  York  has  partially  adopted  the  policy  of  Eng- 
land in  regard  to  devises  to  corporations,  though  the  English  statutes, 
usually  called  the  statutes  of  mortmain,  have  not  been  re-enacted  in 
that  state.  Those  statutes  began  with  Magna  Charta,  in  9  Henry 
III,  and  embrace  a  succession  of  acts  down  to  and  including  9  George 
II.  They  were  intended  to  check  the  ecclesiastics  of  the  Roman 
church  from  absorbing  in  perpetuity,  in  dead  clutch,  all  the  lands  of 
the  kingdom,  and  so  withdrawing  them  from  public  and  feudal 
charges.  Shelford  Mortmain,  2.  By  the  statute  of  43  Eliz., 
ch.  4,  known  as  the  statute  of  charitable  uses,  lands  may  be  de- 
vised to  a  corporation  for  a  charitable  use,  and  the  court  of  chancery 
will  support  and  enforce  such  devises. 

Whether  a  court  of  equity  has  power  to  execute  and  enforce  such 
trusts,  as  charities,  independent  of  any  statute,  is  a  question  which 
has  been  much  discussed,  and  very  high  authorities  can  be  quoted 
both  in  favor  and  against  the  exercise  of  such  a  power.  We  think 
the  latter  and  better  opinion  to  be  in  favor  of  an  original  and  neces- ' 
sary  jurisdiction  in  courts  of  equity  as  to  devises  in  trust  for  charita- 
ble purposes,  when  the  general  object  is  sufficiently  certain  and  not 
contraiy  to  any  positive  rule  of  law.  It  is  unnecessary,  however,  to 
decide  this  question,  for  in  this  state  we  have  no  statutes  of  mortmain ; 
no  exception  in  our  statute  of  wills  prohibiting  corporations  from  tak- 
ing by  devise ;  aliens,  resident  in  this  state  or  in  any  of  the  United 
States,  may  purchase,  hold,  inherit,  or  transmit  real  estate  in  as  full 
and  ample  a  manner  as  native  born  citizens;  their  wives  are  entitled 
to  dower;  their  children  and  other  lineal  descendants  may  inherit; 
and  we  have  besides  a  statute,  passed  in  our  colonial  days  in  1702, 
in  effect  re-enacting  the  statute  of  43  Elizabeth,  and  containing  indeed 
more  liberal  and  comprehensive  provisions  to  sustain  devises  of  this 
description  than  are  contained  in  the  43  Elizabeth.  That  act  pro- 
vides that  "all  lands,  tenements,  or  other  estates  that  have  been  or 
shall  be  given  or  granted  by  the  general  assembly,  or  any  town  or 
particular  person,  for  the  maintenance  of  the  ministry  of  the  gospel, 
or  of  schools  of  learning,  or  for  the  relief  of  the  poor,  or  for  any  other 
public  and  charitable  use,  shall  forever  remain  to  the  uses  to  which 


•§  296        POWER  TO  ACQUIRE  REAL  PROPERTY.        IO29 

they  have  been  or  shall  be  given  or  granted,  according  to  the  true 
intent  and  meaning  of  the  grantor,  and  to  no  other  use  whatever." 

We  therefore  entertain  no  doubt  that  the  American  Tract  Society 
can  take  by  devise  in  this  state.  As  to  the  other  objection,  that  hav- 
ing an  income  greater  in  amount  than  is  allowed  by  its  charter  it  has 
exhausted  its  power  to  take,  it  suffices  to  say  that  no  such  fact  is  found 
by  the  very  competent  committee  whose  report  is  on  the  record.   *  *  * 

Superior  court  advised  accordingly. 

Note.  A  statnte  of  wills  operates  only  within  the  state  enacting  it,  and 
upon  land  lying  therein,  and  hence  does  not  prevent  devises  to  corporations 
having  power  to  take,  of  land  lying  in  foreign  states:  1855,  Thompson  v. 
Swoope,  24  Pa.  St.  474;  1864,  American  Bible  Societv  v.  Marshall,  15  Ohio 
St.  537;  1871,  Chamberlain  v.  Chamberlain,  43  N.  Y.  424;  1871,  White  v. 
Howard,  38  Conn.  342,  supra;  1876,  United  States  v.  Fox,  94  U.  S.  315;  1880, 
Cram  v.  Bliss,  47  Conn.  592. 

A  charter  provision,  or  a  provision  in  the  general  corporation  law  (but  not 
one  in  the  general  law  of  persons  or  property),  limiting  the  corporation's  right 
to  take  and  hold  property,  cleaves  to  it  every  where,  both  at  home  and  abroad, 
and  makes  a  taking  of  such  property  in  violation  thereof  ultra  vires:  1859, 
Bovce  V.  St.  Louis,  29  Barb.  650;  1871,  White  v.  Howard,  38  Conn.  342, 8upra; 
1874,  Starkweather  v  Am.  Bib.  Soc,  72  111.  50. 

But  a  statute  of  wills  may  be  so  worded  as  to  be  considered  a  part  of 
the  general  corporation  law  of  the  state,  and  therefore  amount  to  a  charter 
limitation:  1874,  Starkweather  v.  Am.  Bib.  Soc,  72  111.  50,  22  Am.  Rep.  133; 
1874,  U.  S.  Trust  Co.  v.  Lee,  73  111.  142,  24  Am.  Rep.  236. 

A  state  statute  or  policy  clearly  meant  to  exclude  corporations  from  hold- 
ing real  estate  within  the  state  would  prevent  a  foreign  corporation  from  so 
holding.  1893,  In  re  Prime's  Estate,  136  N.  Y.  347,  362;  1897,  Amherst  Col- 
lege V.  Rich,  151  N.  Y.  282. 

So,  too,  a  corporation  with  power  to  take  land  can  not  take  land  left  to  it 
by  a  foreign  testator  when  the  devise  is  not  in  accordance  with  the  law  where 
the  land  lies.     1871,  White  v.  Howard,  46  N.  Y.  144. 

The  capacity  to  bequeath  personal  property  generally  depends  upon  the  law 
of  the  domicile  of  the  owner,  rather  than  the  law  of  the  situs  of  the  property, 
and  with  that  modification,  the  rules  above  as  to  the  corporation's  right  to 
take  and  hold  a  bequest  would  apply.  Jarman  Wills  (6th  ed.),  p.  1,  et  seq. 
1871,  Chamberlain  v.  Chamberlain,  43  N.  Y.  424;  1880,  Crum  v.  Bhss,  47 
Conn.  592;  1892,  Cross  v.  U.  S.  Trust  Co.,  131  N.  Y.  330,  27  Am.  St.  Rep.  597; 
1893,  Dammert  v.  Osborn,  140  N.  Y.  30. 


Sec.  296.    Same. 

(c)    Who   may   object  when  limit   is  exceeded. 

FARRINGTON  Et  Al.  v.  PUTNAM  Et  Al.^ 

1897.     In    the  Supreme  Judicial  Court  of  Maine.     90   Maine 
Rep.  405-447'  37  Atl.  Rep.  652. 

[Bill  in  equity  brought  by  the  heirs  at  law  of  Ira  P.  Farrington 
against  his  executors  and  the  Maine  Eye  and  Ear  Infirmary  to  enjoin 
the  executors  from  paying  over  and  the  infirmary  from  receiving  gifts 

*  Statement  abridged.    Only  part  of  opinion  given. 


I030      FARRINGTON  ET  AL.  V.  PUTNAM  ET  AL.       §  296 

of  real  and  personal  property  as  residuary  legatee.  The  bill  alleged 
that  the  law  under  which  the  infirmary  was  incorporated  provided : 
"Such  corporations  may  take  and  hold,  by  purchase,  gift,  devise  or 
bequest,  personal  or  real  estate,  in  all  not  exceeding  $ioo,cxx),  owned 
at  any  one  time;"  also  that  the  infirmary  had  at  the  death  of  the  tes- 
tator property  to  the  full  amount  of  $100,000;  that  any  additional 
amount  would  be  in  excess  of  the  limit,  violate  the  statutes,  be  invalid 
and  void,  and  revert  to  the  heirs.  General  demurrers  were  filed  and 
sustained  by  the  court  below,  and  final  decree  rendered  in  favor  of 
respondents ;  exceptions  were  taken  and  appeal  made  to  the  supreme 
court.] 

Peters,  C.  J.  *  *  *  The  question  on  the  first  branch  of  the 
case,  therefore,  is  whether  these  devises  and  bequests  are  absolutely 
void  as  the  complainants  contend,  or  whether  they  are  merely  voida- 
ble according  to  the  view  of  the  question  taken  by  the  respondents. 
After  very  much  examination  of  the  authorities  pro  and  con,  and 
careful  consideration  of  the  principles  which  affect  the  respective  po- 
sitions of  the  parties,  we  feel  forced  to  the  conclusion  that  the  position 
advocated  by  the  complainants  ought  not  to  be  sustained.  We  feel 
very  much  impressed  with  the  theory,  stated  in  many  of  the  cases, 
that  a  charter  is  a  contract  between  the  state  and  the  corporation ;  and 
that  for  any  misuse  or  abuse  of  its  privileges  or  powers  the  corpora- 
tion is  amenable  to  the  state  onlv,  no  individual  having  anything  to  do 
with  the  question.  As  applicable  to  the  present  case,  the  principle  is 
that,  if  the  infirmary,  by  accepting  these  bequests  and  devises,  in- 
creases its  property  ever  so  much  in  excess  of  the  amount  in  value 
which  the  statute  allows  it  to  possess,  it  would  be  a  transgression  of 
the  law  which  the  state  can  prosecute  or  not  as  it  pleases,  and  the 
heirs  of  the  testator  have  no  interest  therein.  As  long  as  the  state 
does  not  interfere  for  the  violation,  it  waives  it  and  permits  the  in- 
firmary to  retain  the  property. 

The  general  statute  under  which  this  infirmary  was  organized  is  not 
expressly  prohibitory,  but  rather  regulative  and  directory.  No  pen- 
alties are  attached  and  none  intended  more  than  a  possible  forfeiture 
of  the  excessive  property  received,  or  of  the  charter,  or  of  one  or  both. 
This  interpretation  of  the  statute  can  not  by  any  possibility  be  harm- 
ful to  the  community,  as  the  state  can  make  it  as  stringent  as  it  pleases 
at  any  time.  But  thus  far  the  state  has  had  no  motive  either  to  amend 
the  statute  or  to  enforce  forfeitures  for  violation  of  its  provisions.   *  * 

It  will  be  noticed  that  most  of  the  authorities,  on  which  the  com- 
plainants rely,  concede  that  the  rule  which  we  would  apply  to  devises 
is  at  all  events  applicable  to  gifts  by  deed,  the  argument  being  that  in 
sach  a  case  as  this  a  deed  would  be  valid  and  a  devise  void.  It 
seems  inconsistent  that  such  potential  consequences  should  attach  to 
the  mere  form  of  transmitting  the  property.  We  do  not  appreciate 
the  justice  of  saying  that  a  deed  of  property  delivered  by  a  donor  on 
the  day  of  his  death  to  a  corporation  would  be  good,  and  a  devise  of 
the  same  property  made  on  the  same  day  would  be  bad.  But  the  ar- 
gument by  the  complainants  is  that,  in  the  one  case,  the  transaction  is 


§296  POWER   TO   ACQUIRE   REAL   PROPERTY.  1031 

executed  and,  in  the  other  case,  that  it  can  not  be  considered  as  exe- 
cuted without  a  resort  to  the  forms  and  assistance  of  the  courts.  We 
think  the  whole  thing  involves  a  distinction  without  a  difference,  a 
formal  but  not  substantial  distinction.  Each  mode  of  transfer  needs 
the  protection  and  aid  of  the  law  to  render  it  operative.  In  the  first 
place,  the  will  must  be  probated,  it  is  said.  But  on  that  question  no 
inquiry  can  be  instituted  to  see  if  there  be  any  impropriety  in  any  par- 
ticular devise  or  bequest.  The  residuary  bequest  in  this  will  is  fair 
and  proper  on  its  face,  and  that  is  all  that  is  required.  The  act  of 
probating  the  will  is  the  probating  of  all  its  parts.  A  devise  of  real 
estate  vests  such  estate  at  once  in  the  devisee,  the  title  of  such  devisee 
being  liable  to  be  defeated  if  the  estate  be  necessaiy  for  the  payment 
of  debts  or  the  expenses  of  administration.     *     *     *  , 

The  foregoing  reasoning  only  serves  to  illustrate  the  unsubstantial 
foundation  upon  which  it  is  endeavored  to  raise  a  technical  excuse  for 
pronouncing  a  deed  voidable  and  a  devise  absolutely  void. 

The  tnae  and  conclusive  answer,  however,  to  this  indefensible  posi- 
tion of  the  complainants  is,  that  it  is  utter  assumption  on  their  part  in 
declaring  a  devise  like  this  to  be  void  when  it  is  voidable  merely,  and 
can  be  rendered  void  in  no  way  other  than  by  the  act  of  the  govern- 
ment itself.  No  wrongful  act  by  a  corporation  renders  its  charter 
void  or  creates  any  forfeiture  without  proceeding  by  which  such  for- 
feiture shall  be  established.  A  cause  for  forfeiture  is  not  itself  for- 
feiture. The  same  section  which  prescribes- the  amount  of  property 
which  this  corporation  may  hold,  also  declares  that  it  may  use  and 
dispose  of  the  same  for  the  puiposes  for  which  it  was  organized. 
Suppose  the  corporation  wrongfully  uses  or  disposes  of  its  property, 
could  any  party  but  the  state  intervene  to  punish  the  corporation  for 
such  transgression  ? 

Now  what  is  there  illegal,  let  us  ask,  in  this  court  or  in  the  probate 
court  below  acting  in  the  furtherance  of  bequests  that  are  simply  void- 
able and  consequently  valid  until  they  have  been  declared  to  be  other- 
wise upon  the  intervention  of  the  state  ?  If  the  state  has  the  exclusive 
privilege,  as  it  has,  of  rendering  the  voidable  bequest  void,  what  is 
there  wrongful  in  our  regarding  it  as  sound  and  sufficient  while  the 
question  of  its  validity  is  not  acted  upon  by  the  state,  or  the  error  is 
waived  or  permitted  by  the  state.?  What  right  has  the  judicial  branch 
of  the  government  to  dictate  what  the  state  should  do  against  its  will 
or  its  policy,  and  decide  a  question  for  the  state  which  the  state  can 
better  decide  for  itself?  What  right  has  the  court  to  deprive  the  state 
of  all  opportunity  to  determine  whether  it  will  thus  severely  punish 
this  corporation  for  the  mistake  of  the  testator  or  will  waive  or  over- 
look it?  Certainly  the  state  should  not  be  prevented  from  making 
such  election.  If  courts  at  the  instigation  of  heirs  can  refuse  to  act 
upon  voidable  bequests  as  valid  until  avoided  by  the  state,  then,  as  a 
matter  of  course,  the  state  can  practically  never  have  any  opportunity 
to  exercise  its  discretion  in  such  a  case  any  more  than  as  if  such  right 
never  existed,  and  the  court  would  be  assuming  the  prerogative  of 
really  acting  in  opposition  to  the  state.     The  court  could  not  exercise 


I032       FARRINGTON  ET  AL.  V.  PUTNAM  ET  AL.       §  296 

any  broad  discretion  in  the  solution  of  the  question,  while  the  state 
could.  It  certainly  is  an  excellent  policy  to  refer  such  questions  to 
the  discretionary  power  of  the  state,  which  can  determine  them,  ac- 
cording to  the  circumstance,  upon  the  great  principles  of  justice  and 
generosity,  and  in  conformity  with  the  wishes  and  welfare  of  the  whole 
community.      *     *     » 

There  is  but  little  authority,  either  English  or  American,  favoring 
the  conclusion  that  bequests  or  devises  not  strictly  authorized  by  law 
are  to  be  considered  void  instead  of  voidable.  This  will  be  seen  in 
the  examination  of  cases  in  this  country  to  be  made  in  the  progress  of 
this  discussion.  But  it  may  also  be  worth  the  while  to  notice  what 
application  has  been  made  of  the  principle  by  the  English  courts  in 
view  of  the  statutes  of  mortmain  as  existing  in  that  country.  In  Grant 
on  Corporations,  a  reputable  English  work  on  the  subject,  at  page 
loi,  the  author  states  the  doctrine  as  follows: 

"It  is  clear,  however,  that  if  a  corporation  have  exhausted  their 
license  to  hold  in  mortmain,  the  fact  does  not  make  a  devise  or  con- 
veyance to  them  void.  The  only  result  is,  that  they  may  take,  though, 
unless  they  can  obtain  an  extension  by  the  crown  of  their  license, 
they  can  not  hold  the  lands,  unless  the  mesne  lords  and  the  crown 
choose  to  sleep  upon  their  respective  titles. "      *     *     ♦ 

The  cases  in  this  country,  most  of  them  which  favor  the  principle 
that  an  estate  in  the  condition  this  is  goes  to  the  heirs  of  a  testator  rather 
than  to  the  devisee,  seem  to  inculcate  the  idea  that  the  heirs  may  waive 
their  right  so  as  to  allow  the  estate  to  pass  to  the  devisee.  And  we 
have  not  the  slightest  doubt  that,  but  for  the  interference  of  the  heirs 
in  the  present  case  by  this  bill  in  equity,  no  obstacle  would  have  stood 
in  the  way  of  a  complete  administration  of  the  testator's  estate  accord- 
ing to  his  clearly  expressed  intention.  No  court  would  have  had  the 
least  hesitation  in  following  the  ordinary  course  of  procedure,  or 
would  have  entertained  the  thought  suo  inoto^  of  instituting  inquiry  to 
see  whether  the  bequests  in  question  were  valid  or  not.  But  why 
should  a  bequest,  invalid  when  not  consented  to  by  the  heirs,  become 
unobjectionable  when  such  consent  is  obtained?  If  illegal  as  coming 
from  the  testator,  why  not  just  as  illegal  when  coming  from  the  testa- 
tor and  his  heirs  ?  Such  considerations  as  these  go  to  show  how  illogical 
and  untenable  a  position  it  is  to  denominate  the  devises  and  bequests 
in  the  present  will  absolutely  void.     *     *     « 

[After  citing  and  reviewing  numerous  authorities  upon  both  sides, 
and  particularly  Trustees  of  Davidson  College  v.  Chamber's  Execu- 
tors, 3  Jones  Eq.  (N.  C.)  253  ;  Heirs  v.  Louisville  Orphan's  Home, 
3  Bush  (Ky.)  365;  Chamberlain  v.  Chamberlain,  43  N.  Y.  424; 
Matter  of  McGraw,  11 1  N.  Y.  66;  Wood  v.  Hammond,  16  R.  I.  98; 
and  De  Camp  v.  Dobbins,  31  N.  J.  Eq.  671,  specially  relied  upon  by 
counsel  for  plaintiff,  proceeds:] 

Upon  closing  his  discussion  of  the  direct  cases  cited  on  his  opening 
brief,  the  learned  counsel  for  the  complainants  says:  "But  if  the 
decisions  of  New  York  are  claimed  to  rest  upon  the  provisions  of 
special  New  York  statutes,  what  has  the  counsel  to  say  as  to  all  the 


§  296        POWER  TO  ACQUIRE  REAL  PROPERTY.        IO33 

other  cases  cited  by  the  plaintiffs  from  North  Carolina,  from  Ken- 
tucky, from  New  Jersey  and  from  Rhode  Island?"  We  have  sub- 
stantially, according  to  our  view,  answered  the  question  ourselves  by 
saying  that  the  force  of  the  opinion  of  the  two  judges  in  the  North 
Carolina  case  is  much  lessened  by  the  able  minority  opinion  of  the 
chief  justice  in  the  case,  and  by  the  fact  that  the  majority  opinion 
yields  the  question  as  to  devises  of  real  estate ;  that  the  Kentucky 
case  is  a  better  authority  for  the  respondents  than  for  the  complain- 
ants; that  it  is  not  sure  that  the  complainants  have  any  support  in  the 
New  Jersey  case  outside  of  that  contributed  by  the  chief  justice  in  his 
opinion ;  and  that  the  Rhode  Island  case  evidently  follows  the  decis- 
ions in  New  York.  How  little  authority  then  have  the  complainants 
to  rely  on  outside  of  the  McGraw  case  in  New  York?  We  have  no 
reason  to  doubt  the  correctness  of  the  result  of  the  decision  in  that 
case  as  based  upon  exceptional  statutes  in  that  state  not  existing  else- 
where.    *     *     * 

From  the  foregoing  propositions  it  is  clearly  deducible  that  bequests 
like  the  present  are  voidable  only,  and  may  be  avoided  by  the  state 
alone,  and  are  in  no  sense  to  be  regarded  as  void;  that  a  policy  arose 
as  to  what  better  be  done  in  the  circumstances  of  each  particular 
case,  and  that  that  policy  belongs  to  the  state  and  not  to  the  court  and 
is  an  executive  and  not  a  judicial  right,  for  the  court  would  decide 
the  question  in  the  case  for  all  cases  and  all  time,  while  the  state  may 
decide  the  question  differently  at  different  times  according  to  its  dis- 
cretion and  the  public  good.  This  right  the  state  has  never  surren- 
dered and  the  court  can  not  take  it  from  the  state.  But  it  would 
surely  deprive  the  state  of  its  privilege  if  the  court  fails  to  act  upon 
these  bequests  as  valid  bequests  until,  in  proper  and  independent  pro- 
ceedings, such  bequests  are  declared  to  be  void. 

This  conclusion  renders  it  unnecessary  and  inexpedient  to  discuss 
the  further  contention  of  the  respondents  that  the  bequests  are  valid 
in  equity  if  not  at  law,  upon  the  maxim  that  no  legal  trust  of  a  char- 
itable nature  shall  fail  for  want  of  a  competent  trustee,  and  that  if 
this  corporation  can  not  act  some  other  party  may  be  appointed  by 
the  court  that  can. 

Exceptions  overruled. 

Appeal  dismissed,  and  decree  below  affirmed. 

Note.  Accord:  1844,Vidal  v.  Girard's  Executors,  2  How.  (43  U.  S.)  127 ;  1846, 
Wade  v.  Am.,  etc.,  Soc,  7  Sm.  &  M.  (Miss.)  663,  45  Am.  Dec.  324;  1847,  Bo- 
gardus  v.  Trinity  Church,  4  Sandf.  Ch.  (N.  Y.)  633,  758;  1860,  Chambers  v. 
St.  Louis,  29  Mo.  543;  1870,  Smith  v.  Sheeley,  12  Wall.  358,  361 ;  1871,  Rainey 
V.  Laing,  58  Barb.  (N.  Y.)  453;  1872,  Hay  ward  v.  Davidson,  41  Ind.  212;  1878, 
De  Camp  v.  Dobbins,  29  N.  J.  Eq.  36;  1879,  Jones  v.  Habersham,  3  Woods 
443,  476;  1880,  National  Bank  v.  Whitney,  103  U.  S.  99;  1882,  Jones  v.  Hab- 
ersham, 107  U.  S.  174;  1884,  Alexander  v.  Tolleston  Club,  110  111.  65;  1889, 
Fritts  V.  Palmer,  132  U.  S.  282;  1889,  Heiskell  v.  Chickasaw  Lodge,  87  Tenn. 
668;  1890,  Hamsher  v.  Hamfher,  132  HI.  273;  1894,  Hanson  v.  Little  Sisters, 
etc.,  79  Md.  434;  1897,  In  re  Stickney's  Will,  85  Md.  79,  60  Am.  St.  K.  308. 

See  next  case  and  note,  contra. 


I034     i>^  RE  m'graw's  estate — IN  RE  fiske's  estate.    §  297 
Sec.  297.    Same. 

In  Re  McGRAW'S  ESTATE.^ 

In  Re  FISKE'S  ESTATE. 

1888.      In  the  Court  of  Appeals  op  New  York.      hi  N.  Y. 
66-137,  ^9  ■^-  ■^-  Rsp-  233. 

[Appeal  from  judgment  of  the  general   term  of  the  supreme  court. 

The  will  of  Mrs.  Fiske  directed  that  her  estate  "be  converted  into 
money,"  and  after  numerous  bequests  contained  the  following  resid- 
uary clause:  "I  give,  devise,  and  bequeath  all  the  rest,  residue  and 
remainder  of  my  property  (if  any  there  shall  be)  to  Cornell  Univer- 
sity, aforesaid,  to  be  added  to  the  'McGraw  Library  Fund'  aforesaid, 
and  subject  to  the  trusts,  purposes,  uses  and  conditions  hereinbefore 
prescribed  for  said  fund."  The  amount  of  Jennie  McGraw  Fiske's 
estate  at  the  time  of  her  death,  as  found  by  the  surrogate,  was  $2,275,- 
933.46;  legacies  to  other  than  Cornell  University,  $1,121,570;  be- 
quests to  said  university,  $1,154,363.46.  The  university  already  had 
property  valued  at  more  than  $3,000,000.  the  amount  limited  by  the 
charter.      The  judgment  below  was  against  Cornell  University.] 

Feckham,  J.  The  question  to  be  decided  in  this  case  is  whether 
Cornell  University,  or  some  other  parties,  being  the  residuary  lega- 
tees, or  else  the  heirs  at  law  or  next  of  kin  of  John  McGraw,  de- 
ceased, or  of  Jennie  McGraw  Fiske,  deceased,  or  her  husband,  shall 
have  the  property,  or  any  portion  of  it,  bequeathed  to  the  university 
by  the  will  of  Mrs.  Fiske.     *     *     «  , 

Our  revised  statutes  provided  that  every  corporation,  as  such,  has 
power,  among  other  things  (§  i,  subd.  4),  to  hold,  purchase  and  con- 
vey such  real  and  personal  estate  as  the  purposes  of  the  corporation 
shall  require,  not  exceeding  the  amount  limited  in  its  charter.    *    *    * 

Under  this  power  to  hold,  purchase  and  convey,  *  *  *  the 
corporation  could  take  the  property  by  devise.  ♦  ♦  *  The  same 
revised  statutes,  in  providing  for  the  transmission  of  real  property  by 
will,  stated  that  "every  estate  and  interest  in  real  property  descendible 
to  heirs"  might  be  devised.  .  "Such  devise  maybe  made  to  every  per- 
son capable  by  law  of  holding  real  estate ;  but  no  devise  to  a  corpora- 
tion shall  be  valid  unless  such  corporation  be  expressly  authorized  by 
its  charter  or  by  statute  to  take  by  devise."     *     *     * 

[The  revised  statutes  provided  that  the  trustees  of  every  such  college 
shall  have  power]  *  *  *  to  take  and  hold,  by  gift,  grant  or  de- 
vise, any  real  or  personal  property,  the  yearly  income  or  revenue  of 
which  shall  not  exceed  the  value  of  $25,000.      *     *     * 

Section  5  of  the  charter  of  the  Cornell  University  reads  as  follows: 
"Sec.  5.    The  corporation  hereby  created  may  hold  real  and  personal 

property  not  exceeding  three  millions  of  dollars  in   the  aggregate." 

«     *     * 

Looking  for  a  moment  outside   of  and  beyond  the  statute  laws  of 
*  Statement  abridged.     Arguments  and  much  of  opinion  omitted. 


§  297  POWER  TO   ACQUIRE    REAL   PROPERTY.  IO35 

the  state,  and  in  order  to  strengthen  his  position  regarding  the  true 
construction  to  be  given  that  law  as  to  the  material  distinction,  in  the 
case  at  least  of  a  corporation,  between  the  power  to  take  and  the 
power  to  hold  property,  the  counsel  for  the  appellant  has  made  a  most 
able  and  learned  argument.  Its  outlines  are,  in  substance,  as  follows: 
A  corporation,  at  common  law,  could  take  and  hold  property  by  de- 
vise. At  an  early  stage  in  the  history  of  the  law  of  England,  relating 
to  the  power  of  corporations  to  hold  real  property,  and  while  the  feu- 
dal system  still  prevailed,  it  was  enacted  that  no  man  should  alien  his 
feud  to  a  corporation  under  penalty  of  a  forfeiture  thereof  to  his  next 
superior,  of  whom  he  held  the  land,  and,  in  default  of  such  superior 
insisting  upon  the  forfeiture,  then  his  superior  might  do  so,  and  thus 
on  until  the  king,  as  the  general  superior  and  lord  of  all,  was  reached. 
But,  in  case  the  forfeiture  was  not  insisted  upon,  the  coi"poration, 
which  had  taken  a  defeasible  title  to  the  land,  could  hold  it  as  against 
all  the  world. 

He,  therefore,  insists  that  this  distinction  between  taking  and  hold- 
ing strengthens  his  claim  that  the  use  of  the  word  "hold"  in  the  char- 
ter was  intentional  and  for  the  specific  purpose  of  permitting  the  cor- 
poration to  "take"  an  unlimited  amount  of  property  and  to  hold  only 
the  amount  specified.  No  sound  reason  for  giving  such  unlimited 
power  to  take,  while  limiting  the  power  to  hold,  can,  as  it  seems  to 
me,  be  stated ;  and,  if  such  were  the  intent,  I  think  it  would  have 
been  plainly  stated  in  the  charter,  instead  of  trusting  to  such  a  con- 
jectural application  to  be  given  to  another  statute. 

The  counsel  cites  about  all  the  writers  upon  the  subject  of  corpora- 
tions, and  they  have  all  adverted  to  this  distinction  as  existing  in  re- 
lation to  the  English  corporations  subject  to  the  mortmain  statutes, 
and  they  state  that  licenses  to  hold  in  mortmain  were  granted  to  such 
bodies,  but  without  such  licenses  they  took  the  title  to  the  real  prop- 
erty aliened,  subject  only  to  the  right  of  the  superior  lord  to  enter 
and  take  the  land  under  the  power  of  forfeiture.  The  only  penalty, 
therefore,  which  a  corporation  risked  when  it  took  lands  without  a 
license  in  mortmain  was  that  of  a  forfeiture  of  the  land  to  the  next 
superior  of  the  grantor,  and  so  on  up  to  the  king;  and  the  counsel 
claims  that  in  this  state,  in  the  case  of  a  corporation  with  unlimited 
power  to  take,  but  not  to  hold  more  than  a  certain  amount,  the  pen- 
alty for  holding  more  is  that  the  state,  representing  the  whole  people, 
and  standing  in  this  respect  in  lieu  of  the  king  (there  being  no  mesne 
lords),  can  forfeit  the  charter  of  the  corporation,  and  thus  prevent 
the  further  holding.  And,  assuming  this  to  be  the  fact,  he  uses  it  as 
strengthening  his  argument  as  to  the  existence  of  this  clear  and  mate- 
rial distinction  between  taking  and  holding  property. 

The  further  claim  is  then  made  that,  as  title  to  the  property  has 
vested  in  the  corporation,  which,  in  holding  it,  has  become  subject  to 
the  forfeiture  of  its  charter,  the  heirs  or  next  of  kin  of  the  testator  have 
no  more  right  to  raise  the  question  than  any  other  third  parties  who 
have  no  interest  therein.  It  is  said  that  it  is  a  matter  for  the  state 
alone  to  take  cognizance  of,  and  until  it  does  the  corporation  holds  the 


1036        IN  RE  M'GRAW'S  estate IN  RE  FISKE'S  ESTATE.      §  297 

property,  however  much  it  may  transcend  the  limitation  prescribed  in 
its  charter. 

The  counsel  states  accurately  the  law  of  mortmain  in  England,  and 
its  consequences  of  possible  forfeiture  of  the  estate  granted,  and,  un- 
til forfeiture,  the  vesting  of  the  title  in  the  corporation  indefeasible, 
except  by  the  re-entry  of  the  person  entitled  to  take  it  by  reason  of 
the  forfeiture.  But  the  circumstances  under  which  lands  are  held  by 
citizens  of  New  York,  where  their  tenure  is  so  wholly  different  from 
that  which  prevailed  in  England  when  the  early  mortmain  acts  w^ere 
enacted,  render  any  argument  in  regard  to  those  acts  and  their  effect 
totally  inapplicable  to  the  case  of  a  corporation  of  this  state.  Tak- 
ing the  law  as  it  exists  in  our  statutes,  including  the  special  provision 
upon  the  subject  in  the  charter  of  the  university,  it  seems  to  me  that 
the  provision  therein  limiting  the  holding  of  property  is,  as  I  have 
said,  a  restriction  also  upon  the  power  to  take  in  excess  of  the  speci- 
fied amount.  As,  at  common  law,  a  corporation  could  take  real 
property  in  the  same  way  as  an  individual,  the  consequence  was  that, 
in  England,  large  landed  possessions  were  held  by  religious  corpora- 
tions, and,  by  reason  of  alienations  of  real  estate  to  them,  the  services 
due  by  the  vassal  to  the  lord  were  partially,  if  not  totally,  paralyzed, 
and  the  chief  lords  lost  their  escheats.>*^This  was  a  constantly  grow- 
ing and  alarming  evil.  To  remedy  the  difficulty,  the  first  mortmain 
act  was  placed  in  Magna  Charta,  which  declared  all  such  alienations 
to  corporations  entirely  void,  and  that  the  lands  should  revert  to  the 
lord  of  the  fee.  It  was  held,  however,  that  the  reversion  must  be  ac- 
complished by  an  entry,  and  then  and  from  that  time  there  was  a  for- 
feiture, the  corporation  having  taken  the  title  and  held  the  property 
until  such  forfeiture  by  re-entry.  Shelf.  Mortm.  8,  34;  i  KydCorp., 
81;    Grant  Corp.,  106.      »     *     * 

The  nature  of  the  tenure  of  real  property  at  the  time  of  the  pas- 
sage of  the  early  mortmain  acts  in  England  bears  no  resemblance  to 
the  tenure  by  which  a  citizen  of  this  state  holds  lands.  Here  there 
is  no  vassal  and  superior,  but  the  title  is  absolute  in  the  owner,  and 
subject  only  to  the  liability  to  escheat.  Const.  N.  Y.,  art.  i,  §  13. 
The  escheat  takes  place  when  the  title  to  lands  fails  through  defect  of 
heirs.     Const.  N.  Y. ,  art.  i,  §  11. 

A  devise  to  a  corporation  which  is  forbidden  to  take  (or  forbidden 
to  hold,  if  the  word,  under  the  circumstances  of  the  case,  is  construed 
to  include  a  taking  also)  does  not,  therefore,  give  a  title  subject  to  the 
right  of  some  superior  to  claim  a  forfeiture  of  the  land;  but,  if  it 
be  in  violation  of  a  statute,  I  think  the  devise  is  void,  and  the  land 
descends  to  the  heir  or  residuary  devisee. 

We  have  not,  in  this  state,  re-enacted  the  statutes  of  mortmain,  or 
generally  assumed  them  to  be  in  force,  and  the  only  legal  check  to 
the  acquisition  of  lands  by  corporations  consists  in  those  special  re- 
strictions contained  in  the  acts  by  which  they  are  incorporated,  and 
which  usually  confine  the  capacity  to  purchase  real  estate  to  specified 
and  necessary  objects.     2  Kent  Comm.,    282.     Of  course,   the  re- 


§  297  POWER   TO    ACQUIRE   REAL    PROPERTY.  IO37 

strictions  contained  in  any  general  law,  if  applicable,  must  also  be  re- 
ferred to. 

There  is,  by  reference  to  our  laws,  no  such  necessary  and  univer- 
sal distinction  between  taking  and  holding  property  by  corporations 
as  is  seen  in  the  laws  of  England  relating  to  alienations  in  mortmain. 
Whether  the  legislature,  when  using  language  providing  for  a  limita- 
tion upon  holding  property,  meant  to  permit  an  unlimited  taking,  is  a 
question  of  legislative  intent ;  and  I  think  the  general  inference  would 
be,  in  the  absence  of  some  plain  and  controlling  circumstance  to  the 
contrary,  that  the  legislative  body  meant  to  limit  a  taking  as  well  as  a 
holding  beyond  the  specified  amount.     *     *     * 

The  counsel  for  the  appellant  does  not  claim  that  this  property  was 
itself  forfeited  to  the  state,  if  the  state  should  choose  to  enforce  the 
forfeiture.  His  claim  is,  as  I  understand  it,  that  if  the  university  ex- 
ceeded its  limitation  by  holding  more  property  than  it  was  allowed  by 
law  to  hold,  a  cause  of  forfeiture  of  the  charter  was  thereby  created, 
and  that  in  enforcing  such  forfeiture  after  the  payment  of  the  debts 
of  the  corporation  the  rest  of  the  property  would  (as  he  insists)  prob- 
ably go  to  the  state,  because  there  would  be  no  living  claimant  to  it 
who  would  have  any  right  to  acquire  it.  A  forfeiture  the  state  may 
claim  and  may  enforce  at  pleasure,  when  the  occasion  arises,  but  it  is 
a  forfeiture  of  the  charter,  and  not  a  forfeiture  of  the  property  held 
by  the  corporation.  It  is  further  claimed  that  this  distinction  between 
the  right  to  take  and  the  power  to  hold  property  is  one  which  has  been 
admitted  and  enforced  in  the  courts  of  England,  of  this  state,  and  of 
the  other  states  of  the  Union  for  a  long  number  of  years,  and  that 
there  is  no  reason  why  effect  to  such  a  distinction  should  not  be  given 
in  this  case ;  the  result  being,  as  is  stated,  that  the  corporation  has  an 
unlimited  right  to  take  property,  and  also  an  unlimited  right  to  hold 
it  as  against  any  one  but  the  state  in  its  capacity  of  sovereign.  There 
is  undoubtedly  a  distinction  between  the  right  to  take  and  the  power 
to  hold  property  under  some  circumstances,  the  only  question  being 
whether  the  legislature  had  such  distinction  in  mind,  and  meant  to 
provide  for  it  in  the  case  in  hand.  It  is  said  that  an  alien  has  the 
right  to  take  property  by  purchase,  but  he  can  not  hold  it  as  against 
the  state.  That  is  so.  He  takes,  however,  a  defeasible  title,  good 
as  to  all  but  the  sovereign  power,  which  must  take  it  upon  office 
found  or  by  escheat.     Wright  v.  Saddler,  20  N.  Y.  320. 

In  such  case  it  is  not  exactly  an  accurate  description  of  the  alien's 
title  to  simply  say  that  he  can  take  but  can  not  hold..  That  is  a  con- 
tradiction in  terms.  If  he  take,  he  must  hold,  if  for  but  a  fractional 
part  of  a  second  of  time.  The  expression  is  but  a  short  one  for  the 
statement  that  he  can  not  hold,  as  against  the  claim  of  the  state,  where 
properly  made  and  enforced.  The  same  expression  is  used  in  the 
case  of  a  corporation  under  the  mortmain  laws,  that  it  can  take  but 
not  hold ;  the  meaning  being  that  it  can  not  hold  as  against  the  claim 
for  forfeiture  when  made  by  the  next  superior  lord  of  the  grantor  of 
the  lands.  That  the  words  lose  all  their  meaning  when  wrenched 
from  the  circumstances  under  which  they  were  used,  and  applied  to 


1038        IN  RE  M'GRAWS  estate — IN  RE  FISKE'S    ESTATE.       §  297 

corporations  existing  by  virtue  of  the  laws  of  this  state,  seems  to  me 
a  plain  proposition. 

The  counsel  has,  however,  with  great  industry  and  research,  cited 
a  number  of  cases  from  our  own  courts  and  those  in  other  states, 
where  this  distinction,  he  claims,  has  been  admitted,  and  in  cases, 
too,  where  the  principles  involved  were  similar  to  the  case  at  bar  (one 
or  two  being,  he  says,  precisely  like  it),  and  where  it  has  been  held 
that  in  such  cases,  although  the  corporation  was  violating  the  law  of 
its  being,  yet  no  one  but  the  state  could  take  advantage  thereof. 

I  think  that,  with  the  exception  of  one  case,  they  were  all  entirely 
different  from  this  one,  and  the  decisions  w^ere  based  upon  a  totally  dif- 
ferent, and  probably  a  perfectly  unassailable,  ground.  [Citing  and 
discussing  Leazure  v.  Hillegas,  7  Serg.  &  R.  313;  Baird  v.  Bank, 
II  Serg.  &R.  411;  Runyan  V.  Coster,  14  Pet.  122;  Jones  v.  Haber- 
sham, 107  U.  S.  174;  Smith  V.  Shelley,  12  Wall.  358-361 ;  Bogardus 
V.  Trinity  Church,  4  Sand.  Ch.  633;  De  Camp  v.  Dobbins,  29  N. 
J.  Eq.  36;  Davis  v.  Railroad  Co.,  131  Mass.  258-273;  Hayward  v. 
Davidson,  41  Ind.  212;  Vidal  v.  Girard's  Ex'rs,  2  How.  127;  Bank 
v.  Whitney,  103  U.  S.  99;   Fortier  v.  Bank,  112  U.  S.  439.]    *   *   * 

Although  we  never  adopted  or  enacted  the  English  statutes  of  mort- 
main, yet  in  this,  as  in  other  states,  we  have  a  decided  mortmain  pol- 
icy. It  is  found  in  our  statute  in  relation  to  wills,  prohibiting  a  devise 
to  a  corporation  unless  specially  permitted  by  its  charter  or  by  some 
statute  to  take  property  by  devise. 

"It  is  a  statute  of  mortmain,  resting  on  a  mortmain  policy  as  dis- 
tinctly as  any  act  of  the  British  parliament.  *  *  *  The  necessity 
is  recognized  of  forbidding  the  acquisition  by  will,  unless  the  legisla- 
ture, in  granting  the  charter,  and  in  full  view  of  the  reasons  for  so 
doing,  think  proper  to  confer  the  power  in  express  terms,"     *     *     * 

The  counsel  claims,  however,  that  a  devise  to  a  corporation  vests 
the  title  in  it,  so  far  as  the  question  of  capacity  is  concerned,  whenever 
it  would  in  the  case  of  a  sale  for  a  valuable  consideration.  Hence  he 
says  that  the  cases  of  sales  above  cited  are  decisive  of  this,  if  they  be 
admitted  as  well  decided.  In  the  case  of  an  executed  sale,  however, 
the  question  of  ultra  vires^  as  set  forth  in  the  modern  cases,  comes  in 
play,  and  the  question  of  a  want  of  title  in  the  corporation  in  such 
case  would  not  be  permitted  to  be  raised  by  the  grantor,  or  his  heirs, 
because  it  would  be  against  justice  and  would  accomplish  a  legal 
wrong.     Whitney  Arms  Co.  v.  Barlow,  63  N.  Y.  62. 

The  question  of  an  executed  gift  without  consideration  by  a  donor, 
by  an  absolute  delivery  to  a  corporation  without  power  to  take,  is  also 
instanced,  and  the  question  is  asked  whether  the  title  vests  in  such  a 
case  in  the  corporation  so  that  the  donor  or  his  heirs  could  not  recover 
it  back,  and  if  it  do,  the  counsel  asks  where  is  the  difference  in  the 
two  cases?  It  is  time  enough  to  decide  such  a  case  when  it  arises. 
But  it  seems  to  me  there  is  a  decided  difference.  In  the  one  case  the 
gift  is  made  inter  vivos  by  the  absolute  owner,  and  it  is  made  effect- 
ual as  to  him  by  a  delivery.  In  such  case  it  would  seem  that  he 
stands  in  no  position  to  ask  the  aid  of  the  court  to   get  him  out  of  a 


§  297  POWER   TO    ACQUIRE   REAL   PROPERTY.  IO39 

situation  into  which  he  voluntarily  entered  with  his  eyes  open,  and 
the  court  might  well  say  to  him  that  he  stood  in  no  position  to  attack 
the  right  of  his  donee  to  property  which  he  freely  and  absolutely  gave 
it.  As  to  his  heirs,  it  could  be  said  that  their  ancestor  had  made  a  dis- 
position of  property  which  was  absolutely  his  own  in  his  lifetime,  and 
in  such  a  way  that  he  could  not  question  its  validity,  and  that  as  he 
could  not,  they  succeeding  only  to  his  rights,  were  alike  disabled. 

In  the  case  of  a  devise,  however,  the  case  is  essentially  different. 
The  will  does  not  take  effect  until  the  testator's  death,  and  then,  if 
his  property  is  not  legally  devised  or  bequeathed,  no  title  vests  for  a 
single  moment  in  the  devisee  or  legatee,  but  it  vests  instantly  in  the 
heir  or  next  of  kin ;  and  the  corporation  claiming  under  the  will  asks 
the  aid  of  the  law  to  give  the  property  to  it,  and  in  so  doing  it  must 
show  the  authority  it  has  to  take.  And  if  there  were  only  a  prohibi- 
tion in  words  against  holding  the  property,  would  the  law  not  be  do- 
ing a  vain  thing  in  handing  it  over  to  a  corporation  which  by  the  very 
fact  of  holding  would  render  itself  liable  to  have  its  charter  forfeited 
on  that  account?  Would  not  the  prohibition  against  holding  be  prop- 
erly and  necessarily  construed  as  a  prohibition  against  taking  also? 

Is  not  this  an  argument  against  the  right  of  the  corporation  to  take,  if 
by  holding  it  is  thus  rendered  liable  to  such  a  penalty?  And  is  it  not 
an  argument  in  favor  of  the  construction  of  the  language  in  the  charter 
that  the  limitation  upon  the  power  to  hold  property  is,  under  all  the 
circumstances,  a  limitation  upon  the  power  to  take  any  more  than  it 
can  legally  and  properly  hold  ?     «     *     « 

Upon  a  review  of  the  whole  question  as  to  the  proper  construction 
of  the  legislation,  general  and  special,  affecting  this  university,  I  am 
of  the  opinion  that  it  had  no  power  to  take  or  hold  any  more  real  and 
personal  property  than  $3,000,000,  in  the  aggregate. 

Second.  Coming  to  the  conclusion  I  have,  on  the  first  branch  of 
the  case,  it  becomes  necessary  to  examine  the  second  and  only  re- 
maining question,  viz. :  Does  this  property,  if  taken  and  held  by  the 
university,  exceed  the  amount  which  bylaw  it  can  hold?'  «  *  « 
This  brings  the  property  of  the  university,  above  set  forth,  up  to  more 
than  its  permitted  aggregate  at  the  time  of  the  decease  of  Mrs.  Fiske, 
and  no  debts  to  be  deducted  therefrom.  Under  such  circumstances, 
the  university  could  not  take  the  various  legacies  bequeathed  to  it  by 
her  will.     *     ♦     ♦ 

Affirmed. 


Part  of  the  opinion  relating  to  this  question  is  oiiutted. 


Note,.  Accord:  1857,  Trustees  v.  Chamber's  Ex.,  3  Jones  Eq.  (N.  C.)  253; 
1867,  Cromie  v.  Louisville,  etc.,  Soc,  3  Bush  (Ky.)  365;  1871,  Chamberlain 
V.  Chamberlain,  43  N.  Y.  424;  1879,  De  Camp  v.  Dobbins,  31  N.  J.  Eq.  671, 
690;  1889,  Wood  v.  Hammond,  16  R.  I.  98;  1890,  Cornell  Univ.  v.  Fiske,  136 
U.  S.  152;  1894,  Coggeshall  v.  Home  for  Children,  etc.,  18  E.  I.  696. 

See  preceding  case  and  note,  contra. 


I040     THE  NORTHWESTERN  UNION  PACKET  CO.  V.  SHAW.      §  298 

Sec.  298.     (2)  To  acquire  personal  property 

(l)    In  general. 

THE  NORTHWESTERN  UNION  PACKET  COMPANY  v.  SHAW.  > 

1875.     In    the    Supreme    Court    of    Wisconsin.     37  Wis.  Rep. 

655-662. 

[Appeal  by  plaintiff  from  judgment  in  a  suit  to  recover  $1,000  paid 
upon  a  contract  and  damages  for  its  breach.  The  packet  company 
was  organized  in  1870,  and  from  that  time  had  been  engaged  in  the 
business  of  a  common  carrier  upon  the  Mississippi,  and  also  in  buying, 
selling  and  dealing  in  wheat,  grain  and  produce  generally;  it  con- 
tracted to  purchase  4,000  bushels  of  wheat  from  Shaw  and  paid  him 
$1,000  on  account,  the  wheat  to  be  delivered  at  a  certain  time  and 
place,  but  Shaw  failed  to  deliver  as  agreed.  The  corporate  charter 
provided  for  owning  and  controlling  vessels  of  various  kinds  for  trans- 
portation on  the  Mississippi  river,  etc.,  to  own  warehouses,  depots,  etc., 
necessary  for  freighting,  storing  and  forwarding  property  and  persons, 
with  power  to  sell  any  of  its  property  of  every  description,  and  to  do  any 
and  all  acts  and  things  necessary  to  an  economical  and  successful 
prosecution  of  said  business,  to  borrow  money  for  all  its  purposes,  to 
contract  with  any  person  in  reference  to  the  storing,  forwarding  or 
freighting  of  any  kind  of  property,  or  "to  any  and  all  business  inci- 
dental to,  or  arising  from,  the  transportation  of  persons  and  property."] 

Lyon,  j.  *  *  *  The  question  to  be  determined  is,  whether 
the  plaintiff  can  lawfully  buy  and  sell  the  produce  of  the  country  in 
the  same  manner  and  to  the  same  extent  that  a  natural  person  may. 

We  think  this  question  must  be  answered  in  the  negative.  There 
is  no  necessary  connection  between  the  business  of  a  common  carrier 
and  that  of  buying  and  selling  the  commodities  which  the  carrier 
transports.  Neither  is  the  latter  business  necessarily  or  usually  de- 
pendent upon  the  former.  The  two  are  as  essentially  distinct  as  the 
business  of  the  earner  and  that  of  the  producer.  It  will  scarcely  be 
claimed  that  the  plaintiff  is  authorized,  under  its  articles  of  incorpora- 
tion, to  purchase  large  tracts  of  land  on  which  to  raise  grain  and 
other  produce  to  be  stored  in  its  warehouses  and  shipped  over  its 
lines.  If  it  may  not  do  this,  it  is  not  perceived  on  what  principle  it 
may  purchase  the  commodities  instead  of  raising  them.  We  think 
the  principle  is  the  same  in  both  cases.  Moreover,  in  view  of  the 
fact  that  the  transportation  of  the  products  of  the  country  is  mainly 
controlled  by  powerful  corporations  representing  immense  aggrega- 
tions of  capital,  there  are  reasons,  if  not  of  public  policy,  certainly 
reasons  which  should  have  much  weight  with  the  legislature,  for  con- 
fining common  carriers  to  their  legitimate  business  as  carriers.  At 
least  no  forced  construction  of  their  charters  should  be  sanctioned  to 
enable  them   to  become  producers  or  purchasers  of  such  products. 

*  Statement  abridged,  part  of  the  opinion  omitted. 


§  298     POWER  TO  ACQUIRE  PERSONAL  PROPERTY.      IO4I 

By  confining  them  to  the  proper  business  of  common  carriers,  the 
temptation  to  make  unjust  discriminations  in  the  transportation  of 
their  own  property  to  the  manifest  injury  and  oppression  of  persons 
having  like  property  for  transportation,  can  only  be  avoided.  Hence, 
while  it  is  conceded  that  the  legislature  may  confer  upon  a  corpora- 
tion common  carrier  the  right  of  a  natural  person  to  buy  and  sell  the 
commodities  which  it  transports,  it  must  be  held  that  until  so  con- 
ferred the  right  does  not  exist. 

We  conclude  that  the  contract  set  forth  in  the  pleadings  as  to  the 
plaintiff,  is  ultra  vires,  and  that  no  claim  for  damages  resulting  from 
a  breach  thereof  can  be  successfully  asserted  by  either  party.  This 
disposes  of  the  counter-claim  of  the  defendant,  and  of  all  claims  of 
the  plaintiff  except  the  claim  to  recover  the  $1,000  paid  on  account 
of  the  attempted  'purchase  of  the  wheat.     *     *     * 

[After  holding  that  the  $1,000  might  be  recovered  in  an  action  for 
money  had  and  received,  and  that  the  complaint  stated  facts  justify- 
ing this:] 

Reversed  and  remanded. 

Note.  Personal  property:  Such  personal  property,  but  such  only  both  as  to 
kind  and  amount,  as  is  reasonably  necessary  for  the  corporate  purposes,  may 
be  lawfully  acquired:  ia58,  Pearce  v.  R.  Co.,  21  How.  (62  U.  S.)  441;  1860 
Downing  v.  Road  Co.,  40  N.  H.  230;  1875,  Northwestern  Packet  Co.  v.  Shaw 
37  Wis.  655;  1876,  Farmers',  etc.,  Bank  v.  Baldwin,  23  Minn.  198,  23  Am 
Rep.  683;  1877,  Morgan  v.  Donovan,  58  Ala.  241;  1877,  Franklin  Co.  v.  Lew 
iston  Sav.  Inst.,  68  Maine  43,  28  Am.  Rep.  9;  1884,  Central  R.  Co.  v.  Smith 
76  Ala.  572,  52  Am.  Rep.  353;  1885,  Day  v.  Buggy  Co.,  57  Mich.  146,  58  Am 
Rep.  352 ;  1888,  Chewackla  Lime- Works  v.  Dismukes,  87  Ala.  344;  1890,  Jemi 
son  y.  Citizens'  Sav.  Bank,  122  N.  Y.  lS5,  19  Am.  St.'  Rep.  482;  1895,  Boss- 
hardt  &  W.  Co.  v.  Crescent  Oil  Co.,  171  Pa.  St.  109;  1897,  Farwell  v.  Wolf,  96 
Wis.  10,  65  Am.  St.  Rep.  22,  37  L.  R.  A.  138;  1897,  Mahoney  y.  Butte  Hard- 
ware Co.,  19  Mont.  377;  1897,  Malone  v.  Lancaster  Gas  L.,  etc.,  Co.,  182  Pa. 
St.  309;  1899,  Central  Ohio  Nat'l  Gas,  etc.,  Co.  y.  Cap.  City  Dairy  Co.,  60 
Ohio  St.  96,  53  N.  E.  Rep.  711;  1899,  State  v.  Debenture  G.  &  L.  Co.,  51  La. 
Ann.  1874,  26  So.  Rep.  600;  1899,  Herring  v.  Ruskin  Co-op  Assn.,  —  Tenn. 
Ch.  App.  — ,  52  S.  W\  Rep.  327. 

There,  however,  is  no  limit  upon  the  amount  of  personal  property  that  a 
corporation  may  acquire  or  hold  arising  from  the  profits  of  carrying  on  prop- 
erly its  legitimate  business. 


Sec.  299.     (2)    Power  to  acquire  its  own  shares. 
( I )    The  English  rule. 

In   Re  DRONFIELD  SILKSTONE  COAL  COMPANY.* 

1880.     In  the  High  Court  of  Justice,  Chancery  Division.  L. 
R.    17  Chancery  Division  76-97. 

Jessel,  M.  R.  The  memorandum  of  association  of  a  limited  col- 
liery company  gave  the  company  power  to  do  all  things  which  it  should 
consider  conducive  to  the  attainment  of  its  objects,  but  did  not  in  terms 

^  Only  the  opinion  of  the  master  of  the  rolls  is  given.  The  statement  of 
facts  is  that  given  in  the  syllabus  to  the  case. 

63 — WIL.  CAS. 


I04.2         IN    RE   DRONFIELD    SILKSTONE   COAL   COMPANY.         §  299 

give  any  power  to  purchase  its  own  shares.  The  tenth  clause  of  the 
articles  empowered  the  directors  to  purchase  for  the  company  any  shares 
in  the  company,  and  directed  that  the  shares  so  purchased  should  be 
dealt  with  as  if  they  had  never  been  issued,  and  that  any  profit  aris- 
ing on  the  reissuing  or  subsequent  sale  of  such  shares  should  be 
deemed  profits  of  the  year  in  w^hich  they  were  reissued  or  sold.  In 
1873,  disputes  having  arisen  as  to  the  conduct  of  the  business,  the  di- 
rectors agreed  with  W.,  the  largest  shareholder,  who  was  also  one  of 
the  directors,  to  purchase  for  the  company  his  shares,  and  also  his  in- 
terest as  landlord  of  the  mines  worked  by  the  company.  This  ar- 
rangement was  confirmed  by  an  extraordinary  general  meeting  of  the 
company,  and  was  carried  into  effect  by  an  assignment  of  his  interest 
in  the  mines  to  the  company  for  a  specific  sum,  and  by  a  transfer  to 
the  company  of  his  shares  for  another  specific  sum.  The  company 
was  entered  in  the  share  register  as  holder  of  these  shares,  and  in  all 
the  subsequent  returns  to  the  registrar  of  joint  stock  companies  the 
company  was  entered  as  such  holder.  The  company  for  some  time 
was  prosperous,  but  afterwards  fell  into  difficulties,  and  in  1879  an 
order  was  made  for  winding  it  up.      *     *     * 

I  now  come  to  the  point  as  to  the  surrender  of  shares — a  point 
upon  which  I  feel  much  more  difficulty.  It  is  not  for  me  to  say  what 
the  limits  of  surrender  are  which  are  allowable  by  the  act.  As  I  read 
this  same  judgment  of  Lord  Justice  James,  ^  certain  surrenders  are 
allowable. 

I  can  imagine  one  where  the  shares  would  be  liable  to  forfeiture, 
and  it  is  the  shortest  way  to  surrender  them ;  then  the  same  result 
would  follow.  But  I  am  by  no  means  prepared  to  say  that  there  is  a 
right  under  the  term  "surrender"  to  buy  up  the  shares,  and  to  have 
them  surrendered  to  the  company  as  on  an  ordinary  purchase  for 
money.  That,  I  think,  is  clearly  beyond  the  limit;  but  it  is  not  nec- 
essary for  me  to  say  what  is  exactly  within  the  limit,  because  each 
case  as  it  arises  must  be  decided  on  its  own  merits.  I  can  well  imag- 
ine that  certain  cases  are  clearly  within  the  limit,  and  ought  not  to  be 
treated  as  a  diminution  of  capital,  and  that  other  cases  are  clearly 
beyond  the  limit — such  as  the  cases  I  have  put  of  an  ordinary  pur- 
chase or  ordinary  traffic  in  shares,  although  the  term  "surrender" 
may  be  employed  instead  of  the  transaction  taking  the  form  it  does 
here,  of  an  actual  transfer  to  the  company. 

Having  dealt  with  the  case  so  far,  let  us  see  what  the  twelfth  sec- 
tion of  the  companies  act,  1862,  must,  as  I  think,  mean.  The  sug- 
gestion made  on  the  part  of  Mr.  Ward  is  this,  that  all  the  act  of 
parliament  means  is  that  the  company  must  not  alter  the  terms  of  the 
memorandum  as  to  the  nominal  amount  of  the  capital.  It  would  be 
a  very  singular  result  if  that  were  so,  because  it  would  come  to  this — 
the  company  may  destroy  the  whole  of  its  real  capital  without  altering 
its  nominal  amount.  I  will  put  the  case  in  this  way:  The  company 
has  a  million  of  capital  in  ;^io  shares,  and  has  ;^ioo,ooo  paid  upon 
the  shares,  leaving  ;^9oo,C)00  remaining  to  be  paid ;   there  is  a  power 

^  Hope  V.  International  Finan.  Soe.,  4  Ch.  D.   327,  336. 


§  299  POWER   TO   ACQUIRE   PERSONAL   PROPERTY.  IO43 

to  accept  a  surrender  of  shares ;  the  company  resolve  at  a  general 
meeting  to  retain  one  share  for  each  of  the  seven  directors,  and  to  ac- 
cept a  surrender  of  all  the  other  shares.  I  am  putting  an  extreme  case 
to  try  the  question.  According  to  the  argument  of  Mr.  Ward,  that  is 
perfectly  valid ;  so  that  the  result  is  that  the  primary  capital  of  the 
company  is  reduced  from  _;^900,ooo,  remaining  to  be  called  up,  to 
;;^70,  if  there  are  seven  directors.  That  is  an  extreme  case,  no  doubt, 
but  it  shows  to  what  an  absurdity  you  would  reduce  the  provisions  of 
the  act  of  parliament  if  that  were  allowed.  It  can  not  be  said  that 
the  conditions  of  the  memorandum  mean  that  the  company  may  in 
effect  destroy  the  nominal  capital ;  that  it  can  not  so  rpean  is,  I  think, 
clear  from  the  words  of  the  section.  The  company  may  increase  its 
capital  by  the  issue  of  new  shares  to  such  an  amount  as  it  thinks  ex- 
pedient, or  it  may  consolidate  and  divide  its  capital  to  a  larger  amount 
than  the  existing  shares,  or  it  may  convert  the  paid-up  shares  into 
stock.  If  the  section  were  only  to  apply  to  nominal  capital,  what  is 
the  meaning  of  the  power  for  the  company  "to  convert  its  paid-up 
shares  into  stock"  .»*  What  the  section  means  is  that  the  company 
shall  not  convert  the  unpaid-up  shares  into  stock.  That  implies,  as  it 
has  always  been  held  to  imply,  that  the  company  can  not  turn  the  un- 
paid-up shares  into  stock,  so  as  to  exclude  the  right  of  making  further 
calls.  Therefore,  the  section  must  apply  to  the  issued  capital,  and 
not  merely  to  the  nominal  capital ;  and  it  has  always  been  so  treated, 
as  far  as  I  know. 

There  is  the  additional  observation  to  be  made  that  the  subsequent 
acts  of  parliament,  namely,  the  acts  of  1867  and  1877,  would  have 
singularly  little  meaning  if  it  were  not  so,  for  they  contain  most  elab- 
orate provisions  as  regards  the  mode  of  increasing  the  capital,  and  re- 
ducing the  capital,  and  as  regards  the  trading  capital  and  the  issued 
capital.  The  provisions  of  the  section,  I  admit,  are  difficult  to  con- 
strue if  you  read  them  word  by  word,  but  I  do  not  think  they  are  so 
difficult  to  construe  if  you  look  at  the  meaning  of  the  whole  of  the  acts 
as  to  the  formation  of  these  companies.  If  they  are  to  be  taken  to  apply 
only  to  the  amount  of  the  nominal  capital,  I  must  say  that  the  acts  of 
1867  and  1877  are  the  most  extraordinary  legislative  productions  I  ever 
saw.  But  if  you  read  the  section  the  other  way,  and  say  that  it  means 
that  the  conditions  in  the  memorandum  relate  to  the  issued  capital, 
then  the  subsequent  acts  are  perfectly  intelligible.  Let  us  now  look 
at  the  ninth  section  of  the  act  of  1867:  "Any  company  limited  by 
shares  may,  by  special  resolution,  so  far  modify" — what? — "the  con- 
ditions contained  in  its  memorandum  of  association,  if  authorized  so 
to  do  by  its  regulations  as  originally  framed  or  as  altered  by  special 
resolution,  as  to  reduce  its  capital."  What  capital?  Does  that  mean 
nominal  capital?  It  is  plain  that  it  means  the  trading  capital.  There- 
fore when  you  look  at  the  ninth  section  it  is  clear  that  the  legislature 
considered  the  twelfth  section  of  the  original  act  somehow  or  other 
prohibitive,  and  that  a  new  act  was  required  to  authorize  a  company 
to  reduce  its  capital.     Then  there  are  provisions  which  the  legislature 


I044  1^  RE  DRONFIELD  SILKSTONE  COAL  COMPANY.  §  299 

considered  necessary  for  the  protection  of  creditors  in  case  of  a  reduc- 
tion of  capital. 

But  it  is  said  a  surrender  is  no  more  a  diminution  of  capital  than  is 
a  forfeiture,  and  the  creditors  are  not  injured  by  a  surrender.  That, 
however,  is  not  so.  If  the  company  could,  either  by  taking  a  surren- 
der or  by  a  purchase  of  shares,  actually  diminish  the  capital,  not  in 
the  shape  of  dealing  with  a  solitary  individual  shareholder  w^ho  can 
not  pay,  but  to  a  greater  extent,  what  would  be  the  result.?  I  am  not 
now  speaking  of  future  creditors,  who  must  be  held  to  take  with  notice 
of  what  was  on  the  register.  What  would  be  the  result.''  Every 
creditor  who  could  not  enforce  his  demand  would  lose  it.  Suppose, 
for  instance,  the  vendor,  having  sold  the  mine  to  the  companv,  were 
to  take  a  mortgage  of  it  not  to  be  called  in  for  five  years  if  the  interest 
were  duly  paid,  and  the  directors  then  found  that  they  were  carrying 
on  business  at  a  loss  and  could  take  a  surrender  of  all  the  shares  ex- 
cept seven,  then  the  mortgagee-creditor  would  be  actually  without 
remedy,  because  he  could  not  apply  to  have  the  company  wound  up 
until  the  mortgage  debt  was  due.  That  would  not  be  until  the  end  of 
five  years,  by  which  time  all  the  shareholders  would  have  been  off  as 
past  shareholders  for  probably  four  years.  So  that  it  is  not  correct  to 
say  that  in  case  of  surrender  the  creditors  are  protected,  because  they 
may  all  lose  all  remedy  whatsoever,  unless  indeed  their  money  becomes 
payable  within  a  twelve  month  after  the  transaction  takes  place. 

It  seems  to  me  that  when  you  look  at  what  I  may  call  the  pui"view 
of  the  act,  it  caii  not  be  possible  that  the  company  can  buy  up  its  own 
shares  in  this  way  so  as  to  destroy  the  shares  in  every  sense  and  for 
every  purpose  and  intent,  except  that  they  may,  if-  they  can,  reissue 
or  transfer  the  shares  to  new  shareholders  during  the  intervening  period 
that  the  capital  is  diminished,  if  not  absolutely  extinguished.  That  be- 
ing my  view  of  the  whole  of  the  act,  and  I  may  say  of  the  result  of 
the  decisions,  which  really  have  any  bearing  on  the  subject-matter  I 
have  to  consider,  I  think  the  present  transaction  was  a  diminution  of 
the  capital  of  the  company  which  is  prohibited  by  the  companies  act, 
1862,  and  the  transaction  is,  therefore,  void  on  that  ground  also. 

The  transfer  being  void,  and,  if  I  may  say  so,  void  at  law,  although 
that  expression  has  no  longer  the  meaning  that  it  formerly  had,  the 
result  is  that  Mr.  Ward  remains  a  contributory;  and  that  is  the  only 
point  I  have  now  to  decide.      *     *     * 

[This  decision  of  the  master  of  rolls  was  appealed  from  and  over- 
ruled^ on  the  appeal.  But  the  views  of  Jessel,  M.  R.,  of  the  general 
doctrine  of  the  company's  capacity  to  purchase  its  own  shares,  given 
here,  were  taken  and  applied  in  the  later  case  of  Trevor  v.  Whit- 
worth,  in  the  house  of  lords,  L.  R.  12  Appeal  Cases,  409,  holding 
that  a  limited  "company  has  no  power  under  the  companies  acts  to 
purchase  its  own  shares."  See  particularly  the  opinion  of  Lord  Mac- 
naghten,  in  Trevor  v.  Whitworth,  L.  R.  12  App.  Cas.  432-438.] 

Note:  (1)  An  English  company  has  no  right  to  purchase  its  shares  unless 
specially  authorized:  1870,  In  re  London,  Hamburg,  etc..  Bank,  L.  R.  5 
Oh.  App.  Cas.  444,  39  L.  J.  Ch.  598 ;  1870,  In  re  United  Service  Co.,  L.  R.  5 


§  300  POWER   TO    ACQUIRE   PERSONAL    PROPERTY.  IO45 

Ch.  App.  Cas.  707,  39  L.  J.  Cli.  730,  23  L.  T.  331 ;  1876,  Hope  v.  International 
F.  Soc,  35  L.  T.  623;  1887,  Trevor  v.  Whitworth,  12  App.  Cas.  409,  57  L.  J. 
Ch.  28,  57  L.  T.  457 ;  1888,  In  re  Walker  &  Hacking,  57  L.  T.  763. 

(2)  But  may  if  specially  authorized.  1874,  In  re  County  Palatine,  L.  &  D. 
Co.,  App.  Cas.  L.  R.,  9  Ch.  54,  43  L.  J.  Ch.  578,  29  L.  T.  707 ;  1886,  In  re  Bal- 
gooley  Distillery  Co.,  17  L.  R.  Ir.  239;  1889,  In  re  General  Finance  Co.,  23  L. 
R.  Ir.  173;  1892,  In  re  Sovereign,  L.  A.  Co.,  3  Ch.  279,  62  L.  J.  Ch.  36,  67  L. 
T.  336. 

(3)  As  to  what  is  such  a  purchase,  see  1871,  Phosphate  Lime  Co.  v.  Green, 
L.  R.,  7  C.  P.  43,  25  L.  T.  636;  1874,  In  re  County  Palatine,  L.  &  D.  Co.,  L.  R., 
9  Ch.  54,  43  L.  J.  Ch.  578,  29  L.  T.  707;  1893,  In  re  Denver  Hotel  Co.,  1  Ch. 
495,  62  L.  J.  Ch.  450,  68  L.  T.  8. 


Sec.  300.     ( 2  )    American  rule :      Theories, 

(a)    May  (with  certain  exceptions)  acquire  its  own  shares,  un- 
less expressly  or  impliedly  restrained. 

CHAPMAN  V.  IRON  CLAD  RHEOSTAT  COMPANY. 

1898.     In  the  Supreme  Court  of  New  Jersey,  62  N.  J.  Law  497, 
41   Atl.  Rep.  690,  9  A.  &  E.  C.  C.  (N.  S.)  769. 

Dixon,  J.  The  declaration  alleges  that  it  was  agreed  between  the 
plaintiff  and  the  defendant,  the  latter  being  a  corporation  organized 
under  the  laws  of  this  state,  that  the  defendant  should  employ  the 
plaintiff  at  a  regular  weekly  salary;  that  the  plaintiff  should  purchase 
and  hold  during  his  employment  eighty  shares  of  stock  in  the  defend- 
ant company;  and  that  if  the  defendant  should  discharge  the  plaintiff 
from  its  employ,  it  would  purchase  said  stock  from  the  plaintiff  at  par. 
The  declaration  further  alleges  that  in  pursuance  of  said  agreement, 
the  plaintiff  entered  into  the  employ  of  the  defendant  at  a  weekly  sal- 
ary; that  he  purchased  said  stock,  and  held  it  during  his  en:ployment, 
and  that  the  defendant  discharged  him  from  the  emplo3'ment  against 
his  will ;  that  thereupon  the  plaintiff  demanded  of  the  defendant  that 
it  should  purchase  the  said  stock  from  him  at  par,  and  the  defendant 
refused  to  do  so.  To  this  the  defendant  demurs,  insisting  that  the  de- 
fendant's contract  for  the  purchase  of  stock  was,  on  its  face,  u/ira 
vires  and,  therefore,  not  eifforcible  against  it. 

In  England  the  general  rule  seems  to  be  that  corporations  can  not 
purchase  their  own  stock  without  express  authority  from  the  statute, 
though  perhaps  even  there  this  rule  would  not  be  applied  if  it  appeared 
that  the  object  of  the  purchase  was  not  merely  to  traffic  in  the  stock 
or  to  diminish  the  amount  of  the  capital,  but  to  accomplish  some  legit- 
imate corporate  purpose.  Hope  v.  Society,  4  Ch,  Div.  327.  But  in 
the  United  States  the  weight  of  autliority  seems  to  be  in  favor  of  the 
view  that  corporations  have  an  implied  power  to  purchase  shares  in 
their  own  capital  stock,  provided,  of  course,  no  illegitimate  design  ap- 
pears.    Many  of  the  cases  are  cited  in  the  notes  of  23  Am,   &  Eng. 


1046         IN    RE   DRONFIELD    SILKSTONE   COAL    COMPANY.        §  30O 

Enc.  Law,  676.  This  question,  as  it  turns  on  common-law  principles, 
seems  not  to  have  been  judicially  decided  in  New  Jersey,  nor  need  it 
now  be ;  for  the  provisions  of  our  corporation  act  (P.  L.  1896,  p. 
277),  by  which  (section  20)  the  shares  of  stock  in  every  corporation 
are  declared  to  be  personal  property,  and  (section  i)  every  corpora- 
tion is  vested  with  power  to  purchase  such  personal  estate  as  the  pur- 
poses of  the  corporation  shall  require,  except  (section  3)  certain  desig- 
nated sorts  of  personal  property,  which  do  not  embrace  shares  of  its 
own  capital  stock,  coupled  with  those  provisions  which  recognize  the 
power  of  corporations  to  own  capital  stock  (sections  29,  38),  plainly 
imply  a  legislative  grant  of  the  necessary  power  in  all  cases  where  the 
purposes  of  the  corporation  require  it.  In  tKe  present  case  the  fact 
that  the  coi-poration  exerted  the  power  in  order  to  secure  the  services 
of  the  plaintiff  is  prima  facie  sufficient  indication  that  the  purpose  of 
the  corporation  required  it. 

There  is  also  another  principle  standing  in  the  defendant's  way. 
The  plaintiff  has  fully  performed  the  contract  on  his  part,  and  can  not 
be  restored  to  his  former  status,  nor  be  honestly  dealt  with  otherwise 
than  by  holding  the  defendant  to  performance  of  its  share  of  the  bar- 
gain. Under  these  circumstances  the  plea  of  ultra  vires  is  inadmissi- 
ble. Camden  &  A.  R.  Co.  v.  May's  Landing  &  E.  H.  C.  R.  Co., 
48  N.  J.  Law  530,  7  Atl.  523.  The  plaintiff  is  entitled  to  judgment 
on  the  demuiTer. 

Note.  Accord:  1828,  Hartridge  v.  Rockwell,  1  R.  M.  Charlt.  (Ga.)  260; 
1831,  Verplanckv.  Mercantile  Ins.  Co.,  1  Edw.  Ch.  (N.  Y.)  84;  1846,  Bank 
V.  Champlain  Trans.  Co.,  18  Vt.  131,  139;  1858,  City  Bank  v.  Bruce,  17  N.  Y. 
507;  1873,  Dupee  v.  Boston  Water  Power  Co.,  114  Mass.  37;  1877,  Chicago  P.  & 
S.  W.  R.  Co.  V.  Marseilles,  84  111.  643;  1877,  Cbetlain  v.  Repub.  L.  I.  Co.,  86 
111.  220;  1878,  Iowa  Lumber  Co.  v.  Foster,  49  Iowa  25,  31  Am.  Rep.  140;  1881, 
Fraser  v.  Ritchie,  8  111.  App.  554;  1882,  Clapp  v.  Peterson,  104  111.  26;  1888, 
Morgan  v.  Lewis,  46  Ohio  St.  1,  8;  1889,  First  National  Bank  v.  Salem,  etc., 
Co.,  39  Fed.  Rep.  89;  1889,  State  v.  Minnesota,  etc.,  Co.,  40  Minn.  213;  1890, 
Rollins  V.  Shaver  W.  Co.,  80  Iowa  380,  20  Am.  St.  Rep.  427  ;  1890,  Eggman  v. 
Blanke,  40  Mo.  App.  318;  1890,  Thompson  v.  Moxey,  47  N.  J.  Eq.  538;  1890, 
Republic  L.  Ins.  Co.  v.  Swigert,  135  111.  150;  1892,  Yeaton  v.  Eagle,  etc.,  Co., 
4  Wash.  St.  183;  1894,  N.  E.  Trust  Co.  v.  Abbott,  162  Mass.  148,  27  L.  R.  A. 
271 ;  1895,  Lowe  v.  Pioneer  Threshing  Co.,  70  Fed.  Rep.  646;  1895,  Browne  v. 
St.  Paul,  etc.,  62  Minn.  90;  1895,  Dock  v.  Cordage  Co.,  167  Pa.  St.  370;  1896, 
Vent  V.  Coffee  Co.,  64  Minn.  307;  1897,  Vercoutere  v.  Golden  S.  L.  Co..  1 16 
Cal.  410;  1897,  Shoemaker  v.  Washburn,  etc.,  Co.,  97  Wis.  585;  1899,  West 
v.  Averill  Grocery  Co.,  109  Iowa  488,  80  N.  W.  Rep.  555.  See  following  cases 
and  notes. 

Shares  of  its  own  stock,  held  bv  the  corporation,  or  in  trust  for  it,  can  not 
be  voted-:  1821,  United  States  v.  Columbia,  etc.,  Ins.  Co.,  2  Cr.  C.  C.  266,  Fed. 
Cas.  14,  840;  1826,  Ex  Parte  Holmes,  5  Cow.  (N.  Y.)  426;  1869,  Am.  Railway 
Frog  Co.  v.  Haven,  101  Mass.  398,  3  Am.  Rep.  377 ;  1869,  Brewster  v.  Hartley, 
37  Cal.  15,  99  Am.  Dec.  237;  1876,  State  v.  Smith,  48  Vt.  266;  1881,  Vail  v. 
Hamilton,  85  N.  Y.  453;  1888,  Allen  v.  De  Lagerberger,  20  W.  L.  B.  (Ohio) 
368. 


§  30I      POWER  TO  ACQUIRE  PERSONAL  PROPERTY.      IO47 

Sec.  301.     Same.    Exceptions  to  rule   allowing  acquisition  of  its 
own  shares. 

PRICE  V.  PINE  MOUNTAIN  IRON  AND  COAL  COMPANY. » 

1895.     In  the  Court  of  Appeals  of  Kentucky.     32  S.  W.  Rep. 

267-268. 

[Price  sued  the  company  on  a. note  given  by  it  for  $8,500  in  pay- 
ment of  179  shares  at  $50  each,  of  the  stock  of  the  company.  The 
company  had  concluded  to  sell  out  its  property;  propositions  were 
submitted  by  Churchill,  and  by  Calhoun  respectively,  the  former  be- 
ing much  the  more  advantageous  to  shareholders,  but  the  latter  claimed 
to  have  an  option  on  the  property.  Perhaps  this  was  not  well  for- 
warded, but  it  was,  nevertheless,  thought  best  to  have  him  withdraw 
his  claim,  and  in  order  to  do  so,  the  company  agreed  to  sell  him  within 
ten  days  2,500  shares  of  its  stock  at  $25  ;  the  company  sought  to  pur- 
chase shares  in  the  market,  but  failed  to  get  enough  ;  a  meeting  was 
held  at  which  plaintiff  was  present,  and  at  which  it  was  proposed  that 
the  directors  and  such  shareholders  as  would  should  sell  to  the  com- 
pany enough  to  have  the  deal  go  through.  This  was  objected  to  by 
the  president  as  being  illegal,  and  the  opinion  was  given  by  a  lawyer 
present  that  the  giving  of  notes  for  the  purchase  of  its  shares  by  the 
company  itself  would  be  illegal,  and  would  not  be  upheld,  unless  the 
deal  was  successful. 

The  company  had  no  money  to  invest  in  its  shares,  yet  it  was  rea- 
sonably certain  that  if  the  sale  was  made  to  Churchill  as  proposed,  it 
would  be  beneficial  to  all  concerned,  even  if  the  company  had  to  pur- 
chase 2,500  shares  in  order  to  complete  the  sale.  The  scheme  of  sale 
to  Churchill  was  not  consummated.  The  lower  court  found  for  the 
defendant,  and  plaintiff  appeals.] 

Hazelrigg,  J.  *  *  *  It  is  insisted  by  the  appellant — and  we 
are  not  unmindful  of  the  strength  of  his  contention — that  as  he  was 
not  a  director  or  officer  of  the  company,  as  the  note  was  executed  in 
good  faith  by  the  corporation  in  an  effort  to  benefit  all  its  stockhold- 
ers, and  is  unconditional  in  its  terms,  and  as  he  was  an  outsider,  and 
wholly  without  notice  of  the  existence  of  any  contingency  upon  which 
the  validity  of  the  note  depended,  not  being  present  at  any  meeting 
or  discussion  of  this  matter,  as  he  testifies,  therefore  the  company, 
not  being  prohibited  by  its  charter  from  buying  its  own  stock,  is 
bound  by  its  purchase  from  him,  whatever  may  be  said  by  its  dealings 
with  its  directors.  We  are  not  satisfied,  however,  even  regarding 
the  appellant  as  ignorant  of  the  terms  on  which  the  notes  were  exe- 
cuted, and  the  officers  as  attempting  in  the  best  of  faith  to  forward 
the  interests  of  all  stockholders  alike,  that  the  company  may  not  elect 
not  to  be  bound  by  the  contract.  Corporations  ought  not  to  be  ailaived 
to  speculate  in  their  own  stocks;  and,  ivhile  they  may  not  ahvays  do 
an  illegal  thing  in   buying  in  their  own  stock,  such  a  transaction 

'  Statement  abridged ;  part  of  opinion  omitted. 


1048  PRICE  V.  PINE  MOUNTAIN  IRON  AND  COAL  CO,  §  302 

must  be  not  only  in  entire  good  faith ,  but  the  exchange  must  be  oj 
equal  value  ^  and  the  transaction  free  from  all  fraud  ^  actual  or  con- 
structive^ and  when  the  corporation  is  neither  insolvent  nor  in  pro- 
cess of  dissolution  ;  and,  further,  the  rights  of  creditors  are  7iot  to 
be  injuriously  affected.  Such  is  the  principle  laid  down  in  Clapp  v. 
Peterson,  104  111.  30,  a  case  cited  by  this  court  with  approval  in  Jef- 
ferson V.  Burford,  17  S.  W.  Rep.  855.  We  may  add  to  these  quali- 
fications that  the  contract  of  exchange  ought  not  to  be  to  the  advan- 
tage of  a  few  favored  stockholders ,  to. the  injury  of  the  great  body  of 
them.  In  this  case  how  much  soever  the  apparent  intention  was  to 
benefit  all,  the  result  of  the  contracts,  if  enforced,  is  disastrous  to  the 
last  degree  to  the  main  body  of  the  stockholders.  Under  this  state 
of  case,  the  contracts  are,  at  least,  voidable  at  the  option  of  the  com- 
pany if  repudiated  within  a  reasonable  time.  See  i  Beach  Priv. 
Corp.,  §  242. 
Affirmed. 

Note.  Corporation  can  not  purchase  its  own  stock  to  the  injury  of  cred- 
itors' security:  1879,  State  v.  Oberlin,  etc.,  Assn.,  35  Ohio  St,  258,  263;  1880, 
Peterson  v.  111.  L.  &  L,  Co.,  6  111.  App.  257;  1887,  St,  Louis  C.  Mfg.  Co.  v. 
Hilbert,  24  Mo.  App.  338;  1887,  Farnsworth  v.  Robbins,  36  Minn.  369;  1890, 
Commercial  Natl.  Bank  v.  Burch,  40  111.  App.  505;  1892,  Blalock  v,  Kerners- 
ville  Mfg.  Co.,  110  N.  C.  99;  1892,  In  re  Columbian  Bank,  147  Pa,  St.  422;  1892, 
Commercial  Bank  v,  Burch,  141  111,  519. 

Or  to  the  injury  of  shareholders:  1895,  Price  v.  Pine,  etc.,  Co.,  32  S,  W. 
Rep.  267,  supra;  1897,  Augsburg,  etc.,  Co.  v.  Pepper,  95  Va.  92. 

But  a  purchase  of  stock  in  itself  bv  a  corporation  is  not  necessarily  a  reduc- 
tion of  its  capital :  1858,  City  Bank  v.  Bruce,  17  N.  Y.  507;  1891,  Jefferson  v. 
Burford,  17  S.  W.  Rep,  (Ky.)  855;  1897,  Western,  etc.,  Co.  v.  Des  Moines, 
etc..  Bank,  103  Iowa  455;  1899,  Howe  G.  &  M.  Co.  v.  Jones,  21  Tex,  Civ.  App. 
198,  51  S.  W.  Rep.  24. 

But  see  1892,  In  re  Sovereign  L.  A.  Co.,  3  Ch,  279,  62  L.  J.  Ch.  36,  67  L.  T. 
336,  contra. 

See  case  preceding,  and  case  following,  with  notes. 


Sec.  302.    Same. 

(b)    May  not,  unless  necessary  to  prevent  loss  to  the  company. 

COPPIN  V,  GREENLEES  &  RANSOM  COMPANY.^ 

1882.     In  the  Supreme  Court  of  Ohio.     38  Ohio  St.  Rep.  275- 
281,  43  Am.  Rep.  425. 

[Suit  by  Coppin  for  specific  performance  or  for  damages  for  non- 
performance of  a  contract  between  him  and  the  company  whereby  it 
agreed  to  convey  to  him  two  lots  at  $1,800,  and  do  manufacturing 
work  to  the  extent  of  $1,500  in  consideration  of  the  transfer  by  Cop- 
pin  of  33  shares  of  $100  each  of  the  company's  stock  to  the  com- 
pany.    It  was  alleged  that  the  plaintiff  had  for  a  time  been  employed 

^•Statement  abridged;  arguments  omitted. 


§  302      POWER  TO  ACQUIRE  PERSONAL  PROPERTY.      IO49 

by  the  company,  and  while  so  employed  had  acquired  the  stock; 
that  it  had  been  a  custom  of  the  company  to  buy  back  the  stock  of 
those  of  its  servants  when  they  ceased  to  work  for  the  company,  and 
that  the  foregoing'  contract  was  made  in  accordance  with  that  custom. 
The  trial  court  found  for  plaintiff,  but  this  was  reversed  by  the  dis- 
trict court,  on  the  ground  that  the  facts  did  not  show  a  sufficient  cause 
of  action.     To  reverse  this  the  case  was  taken  to  the  supreme  court.] 

McIlvaine,  J.  Whether  the  defendant  corporation  was  bound  by 
its  executory  agreement  with  the  plaintiff  to  purchase  shares  of  its  own 
stock,  imder  the  circumstances  detailed  in  the  petition,  was,  undoubt- 
edly, the  question  upon  which  the  case  turned  in  the  district  court. 

The  power  of  a  trading  coi-poration  to  traffic  in  its  own  stock,  where 
no  authority  to  do  so  is  conferred  upon  it  by  the  terms  of  its  charter, 
has  been  a  subject  of  much  discussion  in  the  courts;  and  the  conclu- 
sions reached  by  different  courts  have  been  conflicting.  Of  course, 
cases  wherein  the  power  is  found  to  exist  by  express  or  implied  grant 
in  the  charter,  furnish  no  aid  in  the  solution  of  the  question  before  us; 
unless  the  claim  of  the  plaintiff  can  be  sustained,  that  such  power  was 
conferred  on  the  defendant  by  section  63  of  the  corporation  act  of  1852 
(Swan  &  C.  St.  301),  as  amended,  which  confers  on  manufacturing 
corporations  the  powers  enumerated  in  section  3  of  the  act,  and  among 
others,  the  power  "to  acquire  and  convey  at  pleasure,  all  such  real 
and  personal  estate  as  may  be  necessary  or  convenient  to  carry  into 
effect  the  objects  of  the  corporation."  We  think,  however,  that  this 
claim  can  not  be  maintained.  The  sole  object  of  the  defendant  organ- 
ization was  "for  manufacturing  purposes;"  and  it  can  not  be  said,  in 
any  just  sense,  that  the  power  to  acquire  or  convey  its  own  stock  was 
either  necessary  or  convenient  "for  manufacturing  purposes." 

The  doctrine  that  corporations,  when  not  prohibited  by  their  char- 
ters, may  buy  and  sell  their  own  stocks,  is  supported  by  a  line  of 
authorities;  and  prominent  among  them  may  be  mentioned  the  cases 
of  Dupee  v.  Boston  Water  Power  Co.,  114  Mass.  37,  and  Chicago, 
P.  &  S.  W.  R.  Co.  V.  Town  of  Marseilles,  84  111.  145.  But  never- 
theless, we  think  the  decided  weight  of  authority^  both  in  Etigland 
and  in  the  United  States^  is  against  the  existence  of  the  ■power  unless 
conferred  by  express  grant  or  clear  implication.  The  foundation 
principle  upon  which  these  latter  cases  rest  is  that  a  corporation  pos- 
sesses no  powers  except  such  as  are  conferred  upon  it  by  its  charter, 
either  by  express  grant  or  necessary  implication ;  and  this  principle 
has  been  frequently  declared  by  the  supreme  court  of  this  state ;  and 
by  no  court  more  emphatically  than  by  this  court.  It  is  true,  how- 
ever, that  in  most  jurisdictions,  where  the  right  of  a  corporation  to 
traffic  in  its  own  stock  has  been  denied,  an  exception  to  the  rule  has 
been  admitted  to  exist,  whereby  a  corporation  has  been  allowed  to  take 
its  own  stock  in  satisfaction  of  a  debt  due  to  it.  This  exception  is 
supposed  to  rest  on  a  necessity  which  arises  in  order  to  avoid  loss ; 
and  was  recognized  in  this  state  as  early  as  Taylor  v.  Miami  Export- 
ing Co.,  6  Ohio  176,  and  has  been  incidentally  referred  to  as  an  ex- 


I0  50   COPPIN  V.  GREENLEES  AND  RANSOM  COMPANY.    §  302 

isting  right  since  the  adoption  of  our  present  constitution.  State  v. 
Building  Ass'n,  35  Ohio  St.  258. 

But,  however  that  may  be,  the  right  of  a  corporation  to  traffic  in 
its  own  stock,  at  pleasure,  appears  to  us  to  be  inconsistent  with  the 
principle  of  the  provisions  of  the  present  constitution  (article  13,  §  3), 
which  reads  as  follows:  "Dues  from  corporations  shall  be  secured 
by  such  individual  liability  of  stockholders,  and  other  means,  as  may 
be  prescribed  by  law;  but,  in  all  cases,  each  stockholder  shall  be  lia- 
ble, over  and  above  the  stock  by  him  or  her  owned,  and  any  amount 
unpaid  thereon,  to  a  further  sum,  at  least  equal  in  amount  to  such 
stock."  Now,  it  is  just  as  plain,  that  a  business  or  trading  corpora- 
tion can  not  exist  without  stock  and  stockholders,  as  it  is  that  the  cred- 
itors of  such  corporations  are  entitled  to  the  security  named  in  the 
constitution.  State  v.  Sherman,  22  Ohio  St.  411.  The  corporation 
itself  can  not  be  a  stockholder  of  its  own  stock  within  the  meaning  of 
this  provision  of  the  constitution.  Nobody  will  deny  this  proposition. 
And  if  a  corporation  can  buy  one  share  of  its  stock  at  pleasure,  why 
may  it  not  buy  every  share?  If  the  right  of  a  corporation  to  purchase 
its  own  stock  at  pleasure  exists  and  is  unlimited,  where  is  the  provis- 
ion intended  for  the  benefit  of  creditors.?  This  is  not  the  security  to 
which  the  constitution  invites  the  creditors  of  corporations.  I  am 
aware,  that  the  amount  of  stock  required  to  be  issued  is  not  fixed  by 
the  constitution  or  by  statute,  and  also  that  provision  is  made  by  stat- 
ute for  the  reduction  of  the  capital  stock  of  corporations;-  but  of  these 
matters,  creditors  are  bound  to  take  notice.  They  have  a  right,  how- 
ever, to  assume  that  stock  once  issued,  and  not  called  back  in  the 
manner  provided  by  law,  remains  outstanding  in  the  hands  of  stock- 
holders liable  to  respond  to  creditors  to  the  extent  of  the  individual  lia- 
bility prescribed.  In  this  view  it  matters  not  whether  the  stock  pur- 
chased by  the  corporation  that  issued  it  becomes  extinct,  or  is  held 
subject  to  be  reissued.  It  is  enough  to  know  that  the  corporation,  as 
purchaser  of  its  own  stock,  does  not  afford  to  creditors  the  security 
intended.  And  surely,  if  the  law  forbids  the  organization  of  a  corpo- 
ration w^ithout  stock,  because  the  required  secuiity  is  not  furnished,  it 
can  not  be  that,  having  brought  the  corporation  into  existence,  it  in- 
vests it  with  power  to  assume,  at  pleasure,  the  identical  character  or 
relation  to  the  public  that  was  an  insurmountable  objection  to  the 
giving  of  corporate  existence  in  the  first  place. 

Plaintiff  in  error  lays  much  stress  on  the  averments  in  the  petition, 
that  it  had  been  the  custom  of  the  corporation  that  its  officers  and 
others,  actively  engaged  in  its  service,  should  be  holders  of  shares  of 
its  stock,  and  upon  ceasing  to  be  connected  with  the  company  such 
persons  had  been  accustomed  to  sell,  and  the  company  to  buy,  such 
stock;  and  that  the  plaintiff  had  purchased  the  stock  for  the  price  of 
which  suit  was  brought  while  in  the  employment  of  defendant. 

We  can  not  see  why  these  averments  should  take  the  case  out  of  the 
general  rule. 

If  it  were  averred  that  the  plaintiff  had  purchased  this  stock  from 
the  defendant,  or  from  others,  under  an  agreement  with  the  company 


§303  POWER   TO   ACQUIRE   PERSONAL    PROPERTY.  IO51 

that  it  would  buy  the  same  from  him  when  he  quit  its  employment,  or 
if  the  contract  of  purchase  by  the  defendant  had  been  executed,  very 
different  questions  would  arise. 

It  is  not  even  averred  that  the  plaintiff  relied  upon  such  custom, 
either  in  making  the  purchase  or  the  sale  of  the  stock;  so  that,  in  fact, 
he  is  unaffected  by  the  alleged  custom.  But  if  such  custom  had  been 
relied  on  by  the  plaintiff  when  he  purchased  the  stock,  it  would  not 
have  made  the  executory  contract  of  the  defendant  to  buy  the  stock 
binding,  which,  without  such  custom,  would  be  void.  The  usage  of 
a  corporation  does  not  become  the  law  of  its  existence,  or  the  meas- 
ure of  its  powers.  The  general  law  of  the  state,  of  which  all  persons 
are  presumed  to  have  knowledge,  is  the  source  and  limit  of  all  its 
powers  and  duties ;  and  these  can  not  be  varied  either  by  usage  or  con- 
tract. The  doctrine  of  estoppel  has  no  application  in  the  case.  Nor 
is  there  any  such  equity  in  the  case  as  w'ould  have  arisen  between  the 
parties  in  case  the  contract  had  been  executed. 

Judgment  affirmed. 

Note.  Accord:  1833,  Taylor  v.  Miami  Ex.  Co.,  6  Ohio  176,  218;  1854,  Bar- 
ton V.  Port  Jackson,  etc.,  Co.,  17  Barb.  397;  1875,  Currier  v.  Lebanon  State 
Co.,  66  N.  H.  262;  1875,  First  Natl.  Bank  v.  Exchange,  etc..  Bank,  92  U.  S. 
122;  1877,  German  Sav.  Bank  v.  Wulfekuhler,  19  Kan.  60;  1878,  Hubbard 
V.  Riley,  3  W.  L.  B.  (Ohio)  434;  1879,  Abeles  v.  Cochran,  22  Kan.  405;  1882, 
Coppin  v.  (jrreenlees,  etc.,  Co.,  38  Ohio  St.  275,  43  Am.  R.  425,  svpra;  1884, 
Crandall  v.  Lincoln,  52  Conn.  73;  1887,  St.  Louis  C.  M.  Co.  v.  Hilbert,  24  Mo. 
App.  388;  1888,  Shaw  v.  Ohio  Edison,  etc.,  Co.,  19  W.  L.  B.  (Ohio)  292; 
1895,  Adams,  etc.,  W.  Co.  v.  Deyette,  8  S.  D.  119;  1896,  Barto  v.  Nix,  15 
Wash.  563,  46  Pac.  Rep.  1033;  1897,  Hamor  v.  Tavlor-Rice,  etc.,  Co.,  84  Fed. 
Rep.  392;  1897,  St.  Louis  Rawhide  Co.  v.  Hill,  72  Mo.  App.  142;  1898,  Mer- 
chants' Natl.  Bank  v.  Overman,  17  Ohio  C.  C.  253;  1899,  Herring  v.  Ruskin 
Co-op.  Assn.,  —  Tenn.  Ch.  App.  — ,  62  S.  W.  Rep.  327. 

See  preceding  cases  and  notes. 


Sec.  303.     ( 3  )    Power  to  acquire  shares  of  stock  in  other  corpo- 
rations. 

I.    The  English  rule. 

In  Re  BARNED'S  BANKING  COMPANY.* 

Ex  Parte  THE  CONTRACT  CORPORATION. 

1867.     In  English  Chancery  Appeals.     L.  R.  3  Ch.  App.  Cas. 

105-1 18. 

[Appeal  by  the  official  liquidator  of  The  Contract  Corporation  from 
the  decision  of  the  master  of  the  rolls,  who  had  placed  its  name  on  the 
list  of  contributories  to  the  banking  company,  as  a  contributory  upon 
368  shares  owned  by  it.] 

Lord  Cairns,  L.  J.     The  first  objection  taken  to  the  order  under 

*  Statement  abridged ;  only  part  of  opinion  given ;  arguments  omitted. 


1052  IN    RE    BARNED'S    BANKING    COMPANY.  §  303 

appeal  was  that  it  was  ultra  vires  The  Contract  Corporation  to 
take  shares  in  any  other  trading  coi-poration,  and  to  apply  its  funds  in 
payment  for  those  shares.  Generally  speaking,  this  would  be  so.  It 
is  at  first  sight  beyond  the  province  of  one  trading  corporation  to  be- 
come a  shareholder  in  another,  and  to  apply  its  funds  for  that  pur- 
pose. But  here  one  of  the  objects  of  The  Contract  Corporation,  as 
defined  by  its  memorandum  of  association,  was  "to  purchase  or  ac- 
cept any  obligations,  bonds,  debentures,  notes  and  shares  in  any  for- 
eign or  English  company,  and  to  negotiate  the  sale  of  any  such  secu- 
rities." It  appears  to  me,  that  in  applying  for  and  accepting  shares 
in  Earned 's  Banking  Company,  The  Contract  Corporation,  Limited, 
was  strictly  and  to  the  letter  complying  with  and  acting  within 
these  terms.  If  it  were  necessary  to  make  this  power  still  clearer,  the 
forty-seventh  clause  of  the  articles  of  association  provides  that  the 
directors  may  invest  any  of  the  money  of  the  corporation  on  such  se- 
curities (other  than  the  corporation's  own  shares)  as  they,  the  direc- 
tors, may  think  desirable,  plainly  implying  that,  although  they  might 
not  invest  their  money  upon  the  purchase  or  allotment  of  their  own 
shares,  they  might  -invest  them  upon  the  allotment  or  purchase  of 
shares  ejusdetn  generis  in  other  companies. 

The  second  argument  was,  that  even  assuming  that,  according  to 
the  constitution  of  the  contract  corporation,  it  was  not  ultra  vires  to 
invest  their  money  in  shares  of  another  trading  company ;  yet  that 
under  the  act  of  1862  one  trading  corporation  could  not  become  a 
member  of  another  trading  corporation.  Now,  if  that  argument  is 
to  prevail,  it  must  be  upon  the  words  of  the  act  of  parliament  of 
1862,  because  there  is  no  apparent  or  prima  facie  objection  to  a 
corporation  so  joining  with  another  corporation  in  trade.  A  trading 
corporation,  as  we  all  well  know,  may  enter  into  trade  or  partnership 
along  with  an  individual.  There  is  no  reason  at  common  law,  so  far 
as  I  know,  why  one  corporate  body  should  not  become  a  member  of 
another  corporate  body.  Other  acts  of  parliament  relating  to  com- 
panies appear  to  assume  that  corporations  may  become  members  of 
and  shareholders  in  companies.  For  example,  the  general  act,  the 
companies  clauses  consolidation  act  of  1845,  pi'ovides,  in  the  inter- 
pretation clause,  that  "shareholder"  in  that  act  shall  include  a  cor- 
poration;  and  the  chartered  companies  act,  i  Vict.,  c.  73,  expressly 
points  out  that  the  crown  may  grant  a  charter  to  a  trading  corpora- 
tion, the  shareholders  in  which  may  themselves  be  corporate  bodies, 
and  whose  liability  under  that  charter  may  be  limited.  Now,  looking 
to  the  words  of  the  act  of  1862,  it  is  said,  no  doubt  justly,  that  they 
appear  throughout  to  point  to  person,  and  to  the  executors  and  ad- 
ministrators of  persons,  as  if  the  shareholders  were  all  to  be  persons 
in  their  natural  capacity.  But  even  in  this  act  there  are  traces  that  the 
term  "shareholder"  and  the  word  "persons"  must  have  been  in- 
tended to  be  used  in  a  larger  sense,  for  in  the  fiftieth  and  fifty-first 
clauses  provision  is  made  for  the  determination  of  questions  of  con- 
siderable importance  by  general  meetings,  and  by  votes  to  be  given 
at  those   meetings,  either  in  person  or  by  proxy,  in  cases  where,  by 


§  303     roWKR  TO  ACQUIRE  PERSONAL  PROPERTY.      IO53 

the  regulations  of  the  company,  proxies  are  allowed,  and  on  turning 
to  the  forms  in  the  schedule,  which  may  be  adopted  by  any  company 
for  its  regidation,  we  find,  in  the  forty-ninth  clause  of  table  A.  a  pro- 
vision that  the  instnament  appointing  a  proxy  shall  be  in  writing  un- 
der the  hand  of  the  appointer ;  "or  if  such  appointer  is  a  corpora- 
tion, under  their  common  seal."  Form  B  contains  a  similar  clause 
(clause  22),  as  do  also  the  forms  in  the  schedule  to  the  act  of  1865. 
It  would,  therefore,  appear  to  have  been  in  the  contemplation  of  the 
legislature  that  the  appointer  of  a  proxy  might  be  a  corporation ;  and 
inasmuch  as  the  appointer  was  to  be  a  shareholder,  that  a  share- 
holder might  be  a  corporate  body. 

The  case,  however,  does  not  rest  there.  The  act  of  1862  is  an  act 
amending  and  consolidating  the  whole  of  the  prior  laws  with  regard 
to  the  joint  stock  companies.  Among  other  acts  of  parliament  re- 
pealed by  the  act  of  1862  are  7  and  8  Vict.,  ch.  no  (the  joint  stock 
companies  act  of  1844),  and  11  and  12  Vict.,ch.  45  (the  winding-up 
act  of  1848).  The  interpretation  clause  in  each  of  those  acts  pro- 
vided that  the  word  "person"  throughout  the  act  should  include  bodies 
politic  or  corporate,  whether  sole  or  aggregate.  In  the  present  act  of 
1862  there  is  no  interpretation  clause,  but  section  180  and  the  follow- 
ing sections  provide  that  companies  formed  under  the  repealed  act  of 
the  7  and  8  Vict.,  ch.  no,  and  under  the  chartered  companies  act,  i 
Vict.,  ch.  73,  may  be  registered  vinder  this  act  of  1862,  and  that  before 
registration  they  must  send  in  a  list  showing  the  names,  addresses  and 
occupations  of  all  persons  who  on  a  certain  day  were  members  of  the 
company,  and  when  so  registered  they  are  to  become  subject  in  every 
respect  to  the  act  of  1862.  But  the  company  which  was  thus  to  regis- 
ter itself,  and  thus  to  send  in  a  list  of  its  shareholders  to  the  registrar 
imder  the  act  of  1862,  might  be  a  company  entitled  to  have  and  hav- 
ing among  its  shareholders  corporate  bodies,  whether  sole  or  aggre- 
gate, and  they  would  become  members  of  the  company  registered 
under  that  act  of  1862.  It  would,  therefore,  be  necessary,  in  reading 
the  act  of  1862,  with  regard  to  a  company  of  that  kind,  to  read  the 
word  "person"  as  including  bodies  politic. 

So  also,  on  turning  to  section  199,  and  the  following  sections,  we 
find  provisions  for  the  winding  up  of  joint  stock  companies  formed  un- 
der 7  and  8  Vict.,  c.  i  ro,  and  provisions  which,  as  regards  the  process 
of  winding  up,  are  identical  with  provisions  applicable  to  companies 
formed  for  the  first  time  under  the  act  of  1862.  There  again  the 
whole  of  those  provisions,  though  apparently  pointing  to  persons  and 
individuals,  must,  of  necessity  be  read  as  applying  to  corporate  bodies 
which  should  be  shareholders  under  the  former  act  of  parliament. 
Now,  I  think  the  conclusion  irresistible,  that  if  in  all  these  sections 
to  which  I  have  referred,  beginning  with  section  180,  and  ending 
with  section  200,  the  general  words  used  must  be  read  as  comprising 
bodies  corporate  which  are  shareholders,  there  is  no  reason  why, 
throughout  the  whole  of  the  act,  from  the  beginning  to  the  end,  the 
same  words  should  not  be  read  in  the  same  way,  and  be  held  to  in- 
clude bodies  corporate.     It  is  satisfactory  to  find  that  the  conclusion 


I054      PEABODY  V.  THE   CHICAGO  GAS   TRUST   COMPANY.       §  304 

at  which  I  have  arrived  tallies  with  the  conclusion  which  has  been  ar- 
rived at  in  several  cases,  because  instances  were  mentioned,  and  do 
not  appear  to  have  been  disputed,  in  which  limited  companies  have 
been  registered  as  shareholders  in  other  companies,  and  have  been 
fixed  as  contributories  in  the  course  of  the  winding  up  of  those  other 
companies.  It  is  true  the  objection  does  not  seem  in  any  of  those  cases 
to  have  been  taken,  or  the  point  to  have  been  argued,  and  if  the  matter 
rested  upon  practice  alone,  probably  there  would  not  have  been 
enough  in  the  practice  by  itself  to  have  led  to  the  conclusion  at  which 
I  have  arrived.  But  it  appears  to  me,  upon  the  proper  construction 
of  the  act,  that  the  practice  is  entirely  warranted  by  the  act  of  parlia- 
ment. The  second  argument,  therefore,  of  the  official  liquidator 
seems  to  me  to  fall  to  the  ground. 
Order  of  master  of  rolls  affir77ied. 

Note.  Accord:  1863,  Great  AVestern  Ry.  Co.  v.  Met.  Ry.,  32  L.  J.  Ch.  382 ; 
1869,  Royal  Bank  of  Indiana,  4  Ch.  App.  252. 

But  see  1851,  East  Anglican  Rv.  Co.  v.  Eastern  Counties  Ry.,  7  Eng.  L.  & 
Eq.  505;  1878,  Ex  Parte  Liquidators  B.  N.  L.  I.  Assn  ,  L.  E.  8  Ch.  679,  contra. 


Sec.  304.    Same. 

2.    General  rule  in  the  United  States. 

THE  PEOPLE,  Ex  Rel.  PEABODY,  v.  THE  CHICAGO  GAS  TRUST 

COMPANY.! 

1889.     In  the  Supreme  Court  of  Illinois.      130  111.  Rep.   268— 
303,  17  Am.  St.  Rep.  319,  8  L.  R.  A.  497. 

[.^ao  warranto  as  to  the  authority  of  the  Gas  Trust  Company  to 
exercise  certain  powers.  The  company  pleaded  that  its  charter  per- 
mitted the  exercise  of  the  powers  in  question.  The  error  assigned 
was  the  overruling  of  demurrers  to  the  plea's.] 

Magruder,  J.  The  Chicago  Gas  Trust  Company,  appellee 
herein,  was  organized  imder  the  general  incorporation  law  of  this 
state.  The  statement  filed  by  the  original  incorporators  with  the 
secretary  of  state  sets  forth  that  the  Trust  Company  was  formed 
for  two  objects,  or  for  one  object  of  a  twofold  character.  The  object, 
named  in  the  first  clause  of  the  second  specification  of  the  "state- 
ment" is,  in  brief,  the  erection  and  operation  of  works  in  Chicago 
and  other  places  in  Illinois,  for  the  manufacture,  sale  and  distribution 
of  gas  and  electricity. 

The  object  named  in  the  second  clause  of  the  second  specification 
of  the  "statement,"  is,  in  brief,  "to  purchase  and  hold  or  sell  the 
capital  stock"  of  any  gas  or  electric  company  or  companies  in  Chi- 
cago or  elsewhere  in  Illinois. 

In  this  proceeding  no  attack  is  made  upon  the  validity  of  the  organ- 
ization of  the  Gas  Trust  Company  as  a  corporation. 

*  Statement,  except  as  in  opinion,  arguments  and  part  of  opinion  omitted. 


§  304  POWER   TO   ACQUIRE   PERSONAL   PROPERTY.  IO55 

The  controversy  presented  by  the  record  relates  solely  to  the  au- 
thority of  the  appellee  to  carry  out  the  object  designated  in  the  second 
clause  above  mentioned.  It  is  claimed,  on  the  part  of  the  people, 
that  the  charter  or  articles  of  association  of  the  Gas  Trust  Company 
did  not  and  could  not  confer  upon  it  the  power  "to  purchase  and  hold 
*  *  *  'the  capital  stock"  of  other  gas  companies.  It  is  averred  in 
the  information,  and  admitted  in  eight  of  the  eleven  pleas,  that  ap- 
pellee has  purchased  and  now  holds  a  majority  of  the  shares  of  the 
capital  stock  of  four  gas  companies. 

There  are  two  views  which  may  be  taken  of  the  power  to  purchase 
and  hold  the  capital  stock  of  other  gas  companies  as  designated  in 
said  second  clause.  Must  it  be  regarded  as  an  original,  independent 
power  intended  to  exist  exclusively  of  and  in  addition  to  the  power 
named  in  the  first  clause,  or  may  it  be  considered  as  merely  ancillaiy 
to  the  other  power  of  maintaining  and  operating  works  for  the  manu- 
facture and  sale  of  gas?  If  the  latter  view  be  correct,  the  main  object 
for  which  the  Gas  Trust  Company  was  formed  would  be  that  it 
might  itself  maintain  and  operate  works  for  the  manufacture  and  sale 
of  gas,  while  the  purchase  of  shares  of  stock  in  other  companies  would 
be  merely  a  subordinate  object,  incidental  only  to  the  main  purpose  of 
the  corporate  formation.  An  illustration  of  this  idea  may  be  found 
in  the  general  law  of  this  state  in  regard  to  the  life  insurance  com- 
panies, which  makes  it  lawful  for  a  life  insurance  company  organized 
in  the  state  to  "invest  its  funds  or  accumulations  in  the  stocks  of  the 
United  States  *  *  *  or  in  such  other  stocks  and  securities  as  may 
be  approved  by  the  auditor."  The  main  object  of  forming  such  a 
company  is  to  engage  in  the  business  of  life  insurance,  but  the  power 
to  invest  surplus  funds  in  certain  stocks  is  given  as  an  incident  to  such 
business. 

Can  the  power  to  purchase  and  hold  the  stock  of  other  gas  com- 
panies be  lawfully  exercised  by  the  appellee  as  incidental  to  the  main 
purpose  of  maintaining  and  operating  works  for  the  manufacture  and 
sale  of  gas.? 

Coi-porations  can  only  exercise  such  powers  as  rnay  be  conferred 
by  the  legislative  body  creating  them,  either  in  express  terms,  or  by 
necessary  implication;  and  the  implied  powers  are  presumed  to  exist 
to  .enable  such  bodies  to  carry  out  the  express  powers  granted,  and  to 
accomplish  the  purposes  of  their  creation.  (C.  P.  &  S.  W.  R.  Co. 
V.  Marseilles,  84  111.  643 ;  Chicago  Gas  Light  Co.  v.  People's  Gas 
Light  Co.,  121  111.  530.)  An  incidental  power  is  one  that  is  directly 
and  immediately  appropriate  to  the  execution  of  the  specific  power 
granted,  and  not  one  that  has  a  slight  or  remote  relation  to  it.  (Hood 
V,  N.  Y.  &  N.  H.  R.,  22  Conn,  i;  Franklin  Co.  v.  Lewiston  Sav- 
ings Institution,  68  Maine  43.) 

Where  a  charter  in  express  terms  confers  upon  a  corporation  the 
power  to  maintain  and  operate  works  for  the  manufacture  and  sale  of 
gas,  it  is  not  a  necessary  implication  therefrom  that  the  power  to  pur- 
chase stock  in  other  gas  companies  should  also  exist.  There  is  no 
necessary  connection  between  manufacturing  gas  and  buying  stocks. 


1056  PEABODY   V.  THE   CHICAGO    GAS   TRUST   CO.  §  304 

If  the  purpose  for  which  a  gas  company  has  been  created  is  to  make 
and  sell  gas  and  operate  gas  works,  the  purchase  of  stock  in  other  gas 
companies  is  not  necessary  to  accomplish  such  purpose.  "The  right 
of  a  corporation  to  invest  in  shares  of  another  company  can  not  be 
implied  because  both  companies  are  engaged  in  a  similar  kind  of  busi- 
ness."     (i  Morawetz  on  Priv.  Corp.,  §  431.) 

It  is  true  that  a  gas  company  might  take  the  stock  of  another  cor- 
poration in  payment  of  a  debt,  or  perhaps  as  security  for  a.  debt,  but 
the  actual  purchase  of  such  stock  is  not  directly  and  immediately  ap- 
propriate to  the  execution  of  a  specifically  granted  power  to  operate 
gas  works  and  manufacture  gas.  Some  corporations,  like  insurance 
companies,  may  find  it  necessaiy  to  keep  funds  on  hand  for  the  pay- 
ment of  losses  by  death  or  fire,  or  to  meet  other  necessary  demands, 
but  it  is  questionable  whether  even  these  can  invest  their  surplus  funds 
in  the  stocks  of  other  corporations  without  special  legislative  author- 
ity. But  there  is  nothing  in  the  nature  of  a  gas  company  which 
renders  it  proper  for  such  a  company  to  accumulate  funds  for  outside 
investment ;  its  surplus  profits  belong  to  the  stockholders,  and,  when 
distributed  among  them,  can  be  used  by  them  as  they  see  fit. 

If,  then,  the  power  to  purchase  outside  stocks  can  not  be  implied 
from  the  power  to  operate  gas  works  and  make  and  sell  gas,  a  com- 
pany to  whom  the  latter  power  has  been  expressly  granted  can  not 
exercise  the  former  without  legislative  authority  to  do  so.  This  is 
the  law  as  settled  by  the  great  weight  of  authority. 

Boone  on  the  Law  of  Corporations  says:  '-Without  a  power  spe- 
cifically granted,  or  necessarily  implied,  a  corporation  can  not  become 
a  stockholder  in  another  corporation,  and  especially  where  the  object 
is  to  obtain  the  control  or  affect  the  management  of  the  latter."  In 
Green's  Brice's  Ultra  Vires  (page  91,  note  3)  it  is  said:  "In  the 
United  States  a  corporation  can  not  become  a  stockholder  in  another 
corporation  unless  by  power  specifically  granted  by  its  charter,  or 
necessarily  implied  in  it."  So  also  Morawetz  on  Private  Corpora- 
tions (sees.  431-433)  says:  "A  corporation  has  no  implied  right  to 
purchase  shares  in  another  company  for  the  purpose  of  controlling  its 
management.  *  *  *  A  corporation  can  not,  in  the  absence  of 
express  statutoiy  authority,  become  an  incoiporator  by  subscribing 
for  shares  in  a  new  corporation,  nor  can  it  do  this  indirectly  through 
persons  acting  as  its  agents  or  tools."  The  authorities  referred  to  by 
these  text  writers  sustain  the  conclusions  annoimced  b}^  them.  It  has 
been  held  in  many  cases,  that,  "in  the  United  States,  corporations  can 
not  purchase,  or  hold,  or  deal  in  the  stocks  of  other  corporations,  un- 
less expressly  authorized  to  do  so  by  law,"  and  that  "one  coiporation 
can  not  become  the  owuier  of  any  portion  of  the  capital  stock  of 
another  corporation,  unless  authority  to  become  such  is  clearly  con- 
ferred by  statute."  (Franklin  Co.  v.  Lewiston  Sav.  Ins.,  supra; 
Franklin  Bank  v.  Commercial  Bank,  36  Ohio  St.  350 ;  Milbank  v. 
N.  Y.,  L.  E.  &  W.  R.  Co.,  64  How.  (N.  Y.)'3o;  Sumner  v. 
Marcy,  3  W.  &  M.  105  ;  Mut.  Savings  Bank  v.  Meriden  Agency,  24 
Conn.  159 ;  Central  R.   Co.  v.  Collins,  40  Ga.   582 ;   Hazelhurst  v. 


§  304     POWER  TO  ACQUIRE  PERSONAL  PROPERTY.      IO57 

Savannah  R.  Co.,  43  Ga.  13;   Berry  v.  Yates,  24  Barb.  199.) 

The  special  charters  of  the  Chicago  Gas  Light  and  Coke  Campany 
and  of  the  People's  Gas  Light  and  Coke  Company,  which  are  set  out 
in  full  in  the  information  and  not  called  in  question  in  any  of  the 
pleas,  confer  by  express  grant  the  power  to  erect  gas  works  and  man- 
ufacture and  sell  gas,  etc.,  but  do  not  confer  the  power  to  buy  shares 
of  stock  in  other  companies ;  upon  the  latter  subject  they  are  silent. 
It  will  not  be  denied,  that,  under  the  authorities  already  cited,  these  two 
companies  can  not  buy  and  hold  stock  in  other  gas  companies.  The 
same  would  undoubtedly  be  admitted  to  be  true  of  the  Chicago  Gas 
Trust  Company,  if  it  held  under  a  special  charter  of  like  tenor  and 
effect  granted  before  the  adoption  of  the  constitution  of  1870.  Does 
it  make  any  difference  that  the  appellee  was  organized  under  the  gen- 
eral incorporation  act? 

The  general  incorporation  act  of  this  state  does  not,  in  express 
terms,  confer  upon  the  corporations  organized  under  it  the  power  to 
purchase  and  hold  shares  of  stock  in  other  corporations.  It  is  silent 
upon  that  subject.  The  only  powers  granted  by  it  are  the  ordinary 
corporate  powers,  such  as  the  rights  to  be  bodies  corporate  and  politic, 
to  sue  and  be  sued,  to  have  a  common  seal,  etc.  The  charter  of  a 
corporation  formed  under  such  a  general  law  does  not  consist  of  the 
articles  of  association  alone,  but  of  such  articles  taken  in  connection 
with  the  law  under  which  the  organization  takes  place,  (i  Morawetz 
on  Priv.  Corp.,  §  318.)  The  provisions  of  the  law  enter  into  and 
form  a  part  of  the  charter.  It  certainly  can  not  be  true,  that  a  corpo- 
ration, formed  under  the  general  incorporation  act  for  a  purpose  other 
than  that  of  dealing  in  stocks,  can  exercise  the  power  of  purchasing 
and  holding  stock  in  other  corporations,  where  such  power  can  not  be 
necessarily  implied  from  the  nature  of  the  power  specifically  granted, 
and  is  not  necessary  to  carry  the  latter  into  effect. 

The  power  to  purchase  and  hold  stock  in  other  companies  must  be 
the  subject  of  legislative  grant,  if  not  in  all  cases,  at  least  in  cases 
where  it  can  not  be  implied  from  the  powers  expressly  granted.  The 
general  incorporation  law  contains  no  grant  of  such  power  by  the 
legislature.  Can  a  corporation  organized  under  that  law  be  clothed 
with  such  a  power  by  merely  naming  it  in  the  statement  filed  with 
the  secretary  of  state?  We  think  not.  The  action  of  the  secretary 
of  state  in  issuing  the  license  and  the  certificate  of  organization  is 
necessarily,  to  a  large  extent,  merely  ministerial.  (Oregon  Ry.  Co. 
V.  Oregonian  Ry.  Co.,  130  U.  S.  i* ;  4  Am.  &  Eng.  Ency.  of  Law, 
Tit.  Corporations,  page  192,  note  i.)  Whether  the  articles  of  asso- 
ciation, consisting  of  the  statement,  the  license,  the  report  of  the 
commissioners,  the  certificate  of  organization,  etc.,  do  or  do  not  confer 
such  rights  and  powers  as  are  authorized  by  the  law,  is  a  matter  for 
judicial  determination.  Counsel  for  appellee  say:  "We  do  not  claim, 
of  course,  that  the  action  of  the  secretary  of  state  is  conclusive  and 
not  subject  to  review  by  this  court."     *     *     * 

When  a  corporation  is  formed  under  the  general  incorporation  act 
^  Supra,  p.  429. 
67— WiL.  Cas. 


1058  PEOPLE   V.    THE   CHICAGO    GAS   TRUST   CO.  '  §  304 

for  the  purpose  of  cai-rying  on  a  lawful  business,  the  law,  and  not  the 
statement,  or  the  license,  or  the  certificate,  must  determine  what 
powers  can  be  exercised  as  incidents  to  such  business.  Even  if  shares 
of  stock  be  regarded  as  personal  property,  as  claimed  by  counsel  for 
appellee,  section  five  of  the  general  law  provides,  that  corporations 
formed  under  it  "may  own  *  *  *  so  much  *  *  *  per- 
sonal estate  as  shall  be  necessary  for  the  transaction  of  their  business, 
and  may  sell  and  dispose  of  the  same  when  not  required  for  the  uses 
of  the  corporation,  *  *  *  and  may  have  and  exercise  all  the 
powers  necessary  and  requisite  to  cany  into  effect  the  objects  for  which 
they  may  be  formed."  This  language  negatives  the  idea  that  a  cor- 
poration formed  under  the  general  law  can  exercise  the  power  of  buy- 
ing and  holding  the  stock  of  other  companies.  A  company  engaged 
on  its  own  account  in  manufactui'ing  and  selling  gas  does  not  need 
the  stock  of  other  gas  companies  in  order  to  transact  its  business. 
Hence,  it  is  forbidden  to  own  such  stock,  the  same  being  "personal 
estate."     *     «     ♦ 

The  second  of  the  two  objects  is  stated  as  follows:  '^^ And  to  pur- 
chase and  hold  or  sell  the  capital  stock,  or  purchase,  or  lease,  or 
operate  the  property,  plant,  good  will,  rights  and  franchises  of  any 
gas  works,  or  gas  company  or  companies,  or  any  electric  company  or 
electric  companies  jn  *  *  *  Chicago  *  *  «  qj-  elsewhere 
jjj  *  #  *  Illinois,  as  said  corporation  may,  by  vote  of  the  ma- 
jority of  the  stockholders,  elect,"  etc.  Manufacturing  and  selling 
gas  is  one  kind  of  business ;  dealing  in  stocks  is  another  and  different 
kind  of  business.  If  it  appeared  that  the  appellee  was  engaged  in 
both  under  its  present  charter,  a  serious  question  might  arise  as  to  the 
power  to  organize  one  corporation  for  two  distinct  purposes  under 
the  general  incorporation  act  of  this  state.  This  record,  however, 
only  shows  that  the  appellee  is  exercising  the  power  designated  by  the 
declaration  of  the  second  object  of  its  formation.  What  is  the  power 
which  it  is  so  exercising?       *     *     * 

The  fact  that  the  appellee  almost  immediately  after  its  organiza- 
tion bought  up  a  majority  of  the  shares  of  stock  of  each  of  these 
companies,  shows  that  it  was  not  making  a  mere  investment  of  sur- 
plus funds,  but  that  it  designed  and  intended  to  bring  the  four  com- 
panies under  its  control,  and,  by  crushing  out  competition,  to  monop- 
olize the  gas  business  in  Chicago. 

The  general  incorporation  act  provides,  "that  corporations  may  be 
formed  in  the  manner  provided  by  this  act  Jhr  any  lawful  purpose 
except  banking,  insurance,  real  estate  brokerage,  the  operation  of 
railroads  and  the  business  of  loaning  money."  The  purpose  for 
which  a  corporation  is  formed  under  the  act  must  be  a  lawful  pur- 
pose. .  So  far  as  appellee  was  organized  with  the  object  of  purchas- 
ing and  holding  all  the  shares  of  the  capital  stock  of  any  gas  com- 
pany in  Chicago  or  Illinois,  it  was  not  organized  for  a  lawful  purpose, 
and  all  acts  done  by  it  towards  the  accomplishment  of  such  object  are 
illegal  and  void.      *     *     « 

The  common  law  will  not  permit  individuals  to  oblige  themselves 


§  304  POWER   TO   ACQUIRE   PERSONAL   PROPERTY.  1059 

by  a  contract  either  to  do  or  not  to  do  anything  when  the  thing  to  be 
done  or  omitted  is  in  any  degree  clearly  injurious  to  the  public. 
(Chappel  V.  Brockway,  21  Wend.  157;  Transportation  Co.  v.  Pipe 
Line  Co.,  22  W.  Va.  600.)  In  Stanton  v.  Allen,  5  Denio  434,  an 
agreement,  whose  tendency  was  to  prevent  competition,  was  held  to 
be  void  by  the  principles  of  the  common  law,  because  it  was  against 
public  policy  and  injurious  to  the  interests  of  the  state. 

''Contracts  creating  monopolies  are  null  and  void  as  being  con- 
trary to  public  policy."  (2  Addison  on  Cont.,  743.)  All  grants 
creating  monopolies  are  made  void  by  the  common  law.  (7  Bacon's 
Abridgment,  page  22.)  In  The  Case  of  the  Monopolies  (Coke's  Re- 
ports. Vol.  6,  part  XI,  page  84),  it  was  decided  as  long  ago  as  the 
forty-fourth  year  of  the  reign  of  Queen  Elizabeth,  that  a  "grant  to 
the  plaintiff  of  the  sole  making  of  cards  within  the  realm  was  utterly 
void,  and  that  for  two  reasons:  i.  That  it  is  a  monopoly  and  against 
the  common  law.  2.  That  it  is  against  divers  acts  of  parliament," 
etc.      (Bell  V.  Leggett,  7  N.  Y.  176;   Trist  v.  Child,  21  Wall.  441.) 

If  contracts  and  grants,  whose  tendency  is  to  create  monopolies,  are 
void  at  common  law,  then  where  a  corporation  is  organized  under  a 
general  statute  a  provision  in  the  declaration  of  its  corporate  pur- 
poses, the  necessary  effect  of  which  is  the  creation  of  a  monopoly, 
will  also  be  void.     •     »     ♦ 

That  the  exercise  of  the  power  attempted  to  be  conferred  upon  the 
appellee  company  must  result  in  the  creation  of  a  monopoly  results 
from  the  very  nature  of  the  power  itself.  If  the  privilege  of  purchasing 
and  holding  all  the  shares  of  stock  in  all  the  gas  companies  of  Chi- 
cago can  be  lawfully  conferred  upon  appellee  under  the  general 
incorporation  act,  it  can  be  lawfully  conferred  upon  any  other  corpo- 
ration formed  for  the  purpose  of  buying  and  holding  all  the  shares  of 
stock  of  said  gas  companies.  The  design  of  that  act  was  that  any 
number  of  corporations  might  be  organized  to  engage  in  the  same 
business  if  it  should  be  deemed  desirable.  But  the  business  now  un- 
der consideration  could  hardly  be  exercised  by  two  or  three  corpora- 
tions. Suppose  that  after  appellee  had  purchased  and  become  the 
holder  of  the  majority  of  shares  of  stock  of  the  four  companies  in 
Chicago,  another  corporation  had  been  organized  with  the  same  ob- 
ject in  view,  that  is  to  say,  for  the  purpose  of  purchasing  and  holding 
a  majority  of  the  shares  of  stock  of  the  gas  companies  in  Chicago. 
There  being  only  four  of  such  companies,  what  would  there  be  for 
the  corporation  last  formed  to  do.?  It  could  not  carry  out  the  object 
of  its  creation,  because  the  stock  it  was  formed  to  buy  was  already 
owned  by  an  existing  corporation.  Hence  to  grant  to  the  appellee  the 
privilege  of  purchasing  and  holding  the  capital  stock  of  any  gas  com- 
pany in  Chicago  is  to  grant  to  it  a  privilege  which  is  exclusive  in  its 
character.  It  is  making  use  of  the  general  incorporation  law  to  secure 
a  special  "privilege,  immunity  or  franchise;"  it  is  obtaining  a  special 
charter,  under  the  cover  and  through  the  machinery  of  that  law,  for 
a  purpose  forbidden  by  the  constitution.     To  create  one  corporation 


I060      PEARSON   V.  CONCORD    RAILROAD    CORPORATION.       §   305 

that  it  may  destroy  the  energies  of  all  other  corporations  of  a  given 
kind,  and  suck  their  life  blood  out  of  them,  is  not  a  "lawful  purpose,'* 

*     *     * 

The  privileges  awarded  to  the  four  gas  companies  under  their  re- 
spective charters  were  given  them  in  return  for,  and  in  consideration 
of,  services  to  be  rendered  by  them  to  the  public.  When  they  en- 
tered the  streets  of  Chicago,  they  assumed  the  performance  of  the 
public  duty  of  furnishing  light  to  the  inhabitants.  That  they  should 
be  permitted,  or  required,  or  forced,  to  abandon  the  performance  of 
such  public  duty  is  against  the  policy  of  the  law.  The  public  duty 
is  imposed  upon  each  company  separately,  and  not  upon  the  four 
when  combined  together.  Each  for  itself,  when  it  accepted  its  arti- 
cles of  association,  assumed  an  obligation  to  perform  the  objects  of 
its  incorporation.  But  the  appellee,  through  the  control  which  it 
does  or  may  exercise  over  the  four  companies  by  reason  of  its  own- 
ership of  a  majority  of  their  stock,  renders  it  impossible  for  them  to 
discharge  their  public  duties  except  at  the  dictation  of  an  outside 
force,  and  in  the  manner  prescribed  by  a  corporation  operating  inde- 
pendently of  them.  They  are  thus  virtually  forced  to  abandon  the 
performance  of  their  duty  to  the  public.  The  freedom  and  effective- 
ness of  their  action  in  carrying  out  the  purposes  of  their  creation  are 
seriously  interfered  with,  if  not  actually  destroyed.  A  power,  whose 
exercise  leads  to  such  a  result  can  not  be  lawfully  entrusted  to  any  cor- 
porate body.   *     *     * 

The  court  below  erred  in  oyerruling  the  demurrers.     Reversed. 

Note.    See  note  at  end  of  next  case. 


Sec.  305.    Same. 

3.    Exceptions  to  general  rule. 

PEARSON  v.  CONCORD  RAILROAD  CORPORATION,  Ex.  al.» 

1883.     In  the    Supreme  Court  of    New   Hampshire.     62    New 
Hampshire  Reports  537-551,  13  Am.  St.  Rep.  590. 

[Bill  in  equity  by  certain  stockholders  to  set  aside  certain  contracts 
of  the  directors  of  one  railroad  company  whereby  they  purchased  for 
it  a  controlling  interest  in  the  stock  of  a  connecting  road  for  the  pur- 
pose of  controlling  the  latter  in  the  interests  of  the  former.] 

Smith,  J.  *  *  *  The  case  finds  that  the  Northern  railroad  is 
the  owner  of  1,290  shares  of  Concord  railroad  stock,  purchased  in 
1873,  upon  which  it  has  since  voted  at  the  meetings  of  the  Concord 
railroad.  A  corporation  can  not  become  a  stockholder  in  another 
corporation,  unless  such  power  is  given  it  by  its  charter  or  is  neces- 
sarily implied  in  it  (Franklin  Co.  v.  Bank,  68  Maine  43 ;  Bank  v. 
Agency  Co.,  24  Conn.  159;  Green  Bri.  Ult.  V.  91,  and  cases  cited; 
Mor.  Corp.,  section  229  and  cases  cited);   especially  if  the  purchase 

I     ^  Only  so  much  of  the  opinion  as  relates  to  the  single  point  is  here  given. 


§  305      POWER  TO  ACQUIRE  PERSONAL  PROPERTY.      IO61 

be  for  the  purpose  of  controlling  or  affecting  the  management  of 
the  other  corporation.  Sumner  v.  Marcy,  3  W.  &  M.  105  ;  Central 
R.  R.  Co.  V.  Collins,  40  Ga.  582;  Hazlehurst  v.  Savannah,  etc., 
R.  R.  Co.,  43  Ga.  13;  G.  N.  Ry.  Co.  v.  Eastern,  etc.,  Ry.  Co., 
21  L.  J.  Ch.  837;  Booth  V.  Robinson,  55  Md.  419,  439.  Dealing  in 
stocks  is  not  expressly  prohibited  in  the  act  of  congress  providing  for 
the  organization  of  national  banks  (U.  S.  Rev.  St.,  section  5136,  par. 
7),  but  such  prohibition  is  implied  from  the  failure  to  grant  the  power. 
Bank  v.  Bank,  92  U.  S.  122,  128.  Corporations  are  creatures  of  the 
legislature,  having  no  other  powers  than  such  as  are  given  to  them  by 
their  charters,  or  such  as  are  incidental  or  necessary  to  carry  into  ef- 
fect the  purposes  for  which  they  were  established.  Downing  v.  Mt. 
W.  Road  Co.,  40  N.  H.  230,  232;  Trustees  v.  Peaslee,  15  N.  H. 
317,  330;  Beaty  V.  Knowler's  Lessee,  4  Pet.  152;  Perrine  v.  Com- 
pany, 9  How.  172;  Bank  v.  Earle,  13  Pet.  519;  Trustees  Dart- 
mouth College  V.  Woodward,  4  Wheat.  518,  636. 

Certain  classes  of  corporations,  such  as  religious  and  charitable 
corporations,  and  corporations  for  literary  purposes,  may  rightfully  in- 
vest their  moneys  in  the  stock  of  other  corporations.  The  power,  if 
not  expressly  mentioned  in  their  charters,  is  necessarily  implied,  for 
the  preservation  of  the  funds  with  which  such  institutions  are  en- 
dowed, and  to  render  their  funds  productive.  So  an  insurance  com- 
pany or  savings  bank  may  rightfully  invest  its  capital  or  deposits  in 
the  stocks  of  railroad  companies,  banks,  manufacturing  companies, 
and  similar  corporations.  The  power  is  necessary  to  enable  them  to 
engage  in  the  business  for  which  they  are  organized,  and  hence  is  im- 
plied, if  not  expressly  granted,  in  their  charters.  Such  investments 
are  in  the  line  of  their  business.  On  the  other  hand,  a  manufacturing 
or  railroad  corporation  is  incorporated  to  do  the  business  of  manu- 
facturing or  transporting  passengers  and  merchandise.  Investing 
their  funds  in  that  of  other  corporations  is  not  in  the  line  of  their  busi- 
ness. Under  extraordinary  circumstances  it  may  become  necessary 
for  a  national  bank,  or  a  manufacturing  corporation,  or  a  railroad  cor- 
poration, to  acquire  stock  in  another  corporation,  as  in  satisfaction  of 
a  valid  debt,  or  by  way  of  security,  but  with  a  view  to  its  subsequent 
sale  or  conversion  into  money  so  as  to  make  good  or  redeem  an  an- 
ticipated loss.  Bank  V.  Bank,  92  U.  S.  128;  Fleckner  v.  Bank,  8 
Wheat.  338. 

In  Hodges  v.  N.  E.  Screw  Co.,  i  R.  I.  312,  the  court  said  there 
was  no  doubt  the  defendant  company  might  have  taken  the  stock  in 
the  iron  company  in  payment  for  its  rolling-mill,  if  it  had  been  taken 
with  a  view  to  sell  again,  and  not  permanently  to  hold  it. 

The  Northern  Railroad  by  its  charter  was  vested  with  all  the  pow- 
ers necessary  to  carry  into  effect  the  purposes  and  objects  of  its  incor- 
poration, subject  to  the  laws  in  relation  to  corporations  and  railroads 
contained  in  the  Revised  Statutes.  The  objects  of  its  incorporation  are 
declared  to  be  the  accommodation  of  the  public  travel  and  the  trans- 
portation of  goods  and  merchandise.  Laws  1844,  ch.  190.  It  was 
not  contemplated  that  more  funds  would  be  raised  by  the  issue  of 
stock  than  was  necessary  to  construct  and  equip  its  road.     The  pro- 


1062      PEARSON    V.  CONCORD    RAILROAD    CORPORATION.        §   305 

vision  that  when  the  net  receipts  shall  amount  to  a  sum  making,  with 
the  prior  net  receipts  of  the  corporation,  more  than  an  avei-age  of  10 
per  cent,  per  annum  from  the  commencement  of  its  operations,  the 
excess  shall  be  paid  into  the  treasury  of  the  state,  is  evidence  that  the 
legislature  never  contemplated  the  accumulation  of  a  fund  from  its 
earnings,  or  from  loans,  or  from  the  issue  of  stock,  to  be  invested  in 
the  stock  of  another  railroad  corporation.  It  can  no  more  make  a 
permanent  investment  of  funds  in  the  stock  of  another  road  than  it 
can  engage  in  a  general  banking,  manufacturing  or  steamboat  busi- 
ness. It  is  neither  incidental  to  the  purposes  of  its  incorporation,  nor 
necessary  in  the  exercise  of  the  powers  conferred  by  its  charter.  If  it 
can  purchase  any  portion  of  the  capital  stock  of  the  Concord  com- 
pany it  may  buy  up  the  whole,  and  thus  engage  in  a  business  for 
which  its  charter  gives  it  no  authority.  And  what  would  hinder  a 
banking  corporation  from  becoming  a  manufacturing  company,  or  a 
manufacturing  company  from  becoming  a  railroad  common  carrier.? 

But  the  facts  in  this  case  go  further.  The  stock  was  bought  at 
$105  or  $106  per  share  (par  value,  $50),  a  price  largely  in  excess  of 
its  market  value,  and  for  the  purpose  of  obtaining  control  of  the  Con- 
cord and  securing  more  favorable  contracts  to  itself.  In  Sumner  v. 
Marcy,  3  W.  &  M.  105,  the  corporation  was  chartered  to  deal  in 
lumber,  with  a  capital  of  $150,000,  of  which  only  $75,000  could  be 
invested  in  personal  property,  and  took  stock  in  a  bank  to  the  value 
of  $168,000,  for  the  purpose  of  getting  control  of  the  bank — a  clear 
violation  of  its  charter,  but  no  more  so  than  in  this  case.  The  pur- 
chase by  a  corporation  of  stock  in  another  corporation  will  be  en- 
joined at  the  instance  of  stockholders,  when  it  involves  a  misapplica- 
tion of  corporate  funds,  or  is  a  mere  speculation,  or  is  induced  by  a 
vicious  purpose.  Pierce  R.  R.,  505.  If  the  investment  by  one  rail- 
road corporation  of  more  than  $135,000  in  stock  of  another  at  prices 
exceeding  its  market  value,  for  the  purpose  of  controlling  such  corpo- 
ration for  its  own  benefit,  is  not  a  misapplication  of  corporate  funds, 
it  would  be  difficult  to  find  a  case  where  such  investment  would  be. 

[Contracts  set  aside  and  a  trustee  appointed  to  manage  the  affairs 
of  the  Concord  company.] 

Note.    Acquiring-  stock  in  other  corporations. 

1.  General  rule:  In  the  absence  of  particular  charter  or  statutory  provisions, 
or  circumstances  (indicated  below),  one  business  corporation  has  no  general 
implied  authority  to  acquire  or  hold  stock  in  another  such  corporation  (or- 
ganized either  for  a  similar  or  for  a  different  purpose),  as  an  investment  for 
speculation,  or  for  purpose  of  controlling  or  managing  such  corporation.  This 
rule  is  applied  in  cases  of: 

(a)  Banks:  1852,  Talmage  v.  Pell,  7  N.  Y.  328;  1877,  FrankUn  Co.  v.  Lewis- 
ton  Sav.  Inst.,  68  Maine  43  (in  manufacturing) ;  1884,  Franklin  Bank  v.  Com- 
mercial Bank,  36  Ohio  St.  350  (in  banks) ;  1884,  Nassau  Bank  v.  Jones,  95  N.  Y. 
115,  infra,  p.  1205  (in  railroad);  1893,  Bank  of  Commerce  v.  Hart, 37  Neb.  1^'/ 
(in  insurance) ;  1897,  California  Bank  v.  Kennedy,  167  U.  S.  362  (in  banks)  ; 
1899,  First  National  Bank  v.  Hawkins,  174  U.  S.  364  (in  banks).  But  compare, 

1897,  Latimer  v.  Qtizens'  S.  B.,  102  Iowa  162.     See  infra  (i). 

(b)  Furniture  companies:  1893,  Denny  Hotel  Co.  v.  Schram,  6  Wash.  134, 
supra,  p.  553  (in  hotel);    1895,  Knowles  v.  Sandercock,  107  Cal.  629  (same); 

1898,  Newland  Hotel  Co.  v.  Furniture  Co.,  73  Mo.  App.  135  (same). 


§  305  POWER   TO   ACQUIRE    PERSONAL   PROPERTY.  IO63 

(c)  Insurance  companies:  1855,  Mechanics'  and  W.  M.  Sav.  B.,  etc.,  v. 
Meriden  Agency,  24  Conn.  159  (in  bank) ;  1857,  Berry  v.  Yates,  24  Barb.  (N. 
Y.)  199  ( in  insurance) ;  1878,  Ex  parte  Liquidators  L.  R.,  8  Ch.  D.  679  (same) ; 
1884,  Pierson  v.  McCurdy,  33  Hun  (N.  Y.)  520  (same);  1891,  Commw.  Fire 
Ins.  Co.  V.  Board  of  Rev.,  99  Ala.  1,  supra,  p.  773  (in  bank).     See  infra  (i). 

(d)  Land  company:  1893,  Pauly  v.  Coronado  Beach  Co.,  56  Fed.  Rep.  428  (in 
manufacturing) ; 

(e)  Lumber  company:  1893,  Lanier  Lumber  Co.  v.  Rees,  103  Ala.  622  (in 
lumber  company)  ; 

{V)  Manufacturing  company:  1847,  Sumner  v.  Marcy,  3  Woodb.  &  M.  105, 
Fed.  Cas.  13609  (in  bank) ;  1888,  Lake  Erie,  etc.,  R.  Co.  v.  Iron  Co.,  46  Ohio 
St.  44  (in  railway) ; 

In  other  manufacturing:  1892,  Easun  v.  Buckeye  B.  Co.,  61  Fed.  Rep.  156; 
1892,  Buckeye  Marble  Co.  .v.  Harvey,  92  Tenn.  115;  1895,  Merz  Capsule  Co. 
V.  U.  S.  Capsule  Co.,  67  Fed.  Rep.  414;  1897,  People  v.  Chicago  Gas  Co.,  130 
111.  268;  1898,  Martin  v.  Stove  Co.,  78  111.  App.  105;  1898,  People  v.  Pull- 
man's P.  C.  Co.,  175  111.  125;  1899,  De  La  Vergne  R.  M.  Co.  v.  German  Sav. 
Inst.,  175  U.  S.  40.  But  compare,  1897,  White  v.  Marquardt,  105  Iowa  146. 
See  infra  (i). 

(g)  Baihoay  companies:  In  other  railway  companies:  1861,  East  Anglican 
R.  Co.  V.  Eastern  Counties  R.,  7  Eng.  L.  &  Eq.  505;  1863,  Maunsell  v. 
Midland  R.,  1  Hem.  &  M.  130;  1869,  Central  R.  Co.  v.  Collins,  40  Ga.  582; 
1871,  Hazelhnrst  v.  Savannah,  etc.,  R.  Co.,  43  Ga.  13;  1875,  Central  R.  Co. 
V.  Pennsylvania  R.  Co.,  31  N.  J.  Eq.  475;  1882,  Milbank  v.  N.  Y.,  L. 
E.  &  W.,  64  How.  Pr.  20;  1882,  Elkius  v.  Camden  &  A.  R.  36  N.  J.  Eq.  5; 
1883,  Pearson  v.  Concord  Ry.  Co.,  62  N.  H.  537;  1888,  Mackintosh  v.  Flint, 
etc.,  R.,  34  Fed.  Rep.  682;  1888,  Langdon  v.  Branch,  37  Fed.  Rep.  449;  1892; 
Hamilton  v.  Savannah,  etc.,  R.,  49  Fed.  Rep.  412;  1896,  Farmers  L.  &  T. 
Co.  V.  Railroad  Co.,  150  N.  Y.  410;  1898,  Military  Interstate  Assoc,  v.  Rail- 
way Co.,  105  Ga.  420  (in  an  advertising  company). 

See  infra  (i)  and, 

(h)  The  general  rule  is  applied  with  vigor  where  the  object  is  to  obtain  con- 
trol in  order  to  prevent  competition :  1869,  Central  R.  Co.  v.  Collins,  40  Ga. 
582;  1879,  Central  R.  v.  Penn.  R.,  31  N.  J.  Eq.  475;  1882,  Elkins  v.  C.  &  A. 
R.,  36  N.  J.  Eq.  5;  1889,  People  v.  Chicago  G.  T.  Co.,  130  111.  268,  17  Am.  St. 
R.  319,8  L.  R.A.497,  supra,  p.  1054;  1892,  Clarke  v.  R.  Co.,  50  Fed.  Rep.  338; 
1895,  Louisville,  etc.,  R.  v.  Ky.,  161  U.  S.  677  ;  1898,  Martin  v.  Stove  Co.,  78 
111.  App.  105 ;  1899,  De  La  Vergne  R.  M.  Co.  v.  German  Sav.  Inst.,  175  U.  S.  40. 

(i)  But  the  following  cases  hold  contra  the  general  rule  above  given:  1849, 
Elysville  Mfg.  Co.  v.  Okisko  Co.,  IMd.  Ch.  392;  1850,  Hodges  v.  Screw  Com- 
pany, 1  R.  I.  312,  53  Am.  Dec.  624;  1853,  Elysville  Mfg.  Co.  v.  Okisko  Co.,  5 
Md.  152;  1879,  Terry  v.  Eagle  Lock  Co.,  47  Conn.  141;  1880,  Booth  v.  Robin- 
son, 55  Md.  419;  1883,  Pearson  v.  Railroad  Co.,  62  N.  H.  637  (as  to  some  cor- 
porations) ;  1894,  Smith  v.  Newark,  etc.,  R.,  8  Ohio  C.  C.  683;  1895,  Calumet 
Paper  Co.  v.  S.  I.  Co.,  96  Iowa  147;  1897,  White  v.  Marquardt,  105  Iowa  146, 
74  N.  W.  Rep.  930. 

See,  also,  English  rule,  supra,  p.  1051,  and  exceptions  noted  below. 

2.   Exceptions  to  the  general  rule. 

(a)  Express  or  implied  authority ;  special  authority.  1869,  Miners' Ditch 
Co.  V.  Zellerbach,  37  Cal.  543;  1884,  Evans  v.  Bailey,  66  Cal.  112;  1899,  Tren- 
ton Potteries  Co.  v.  Oliphant,  68  N.  J.  Eq.  607,  43  Atl.  Rep.  723. 

Authority  to  consolidate  implies  power  to  purchase'  stock :  1863,  Mayor  of 
Baltimore  V.  B.  &  O.  R.,  21  Md.  60;  1879,  Ryan  v.  Leavenworth,  21  Kan. 
365;  1885,  Terhune  v.  Potts,  47  N.  J.  L.  218;  1886,  Hill  v.  Nisbet,  100  Ind. 
341  ;  1892,  Dewey  v.  Toledo  R.,  91  Mich.  351;  189?,  Tod  v.  Ky.  Union  Land 
Co.,  57  Fed.  Rep.  47,  supra,  p.  952;  1894,  Marburv  v.  Land  Co.,  62  Fed.  Rep. 
335;  1896,  Louisville  T.  Co.  v.  Louisville,  etc.,  R.,  76  Fed.  Rep.  433;  1898, 
Rogers  v.  Nashville,  etc.,  Co.,  91  Fed.  Rep.  299;  1900,  Trust  Co.  v.  State,  109 
Ga.  736,  .36  S.  E.  Rep.  323. 

In  1896,  Calumet  Paper  Co.  v.  South  Invest.  Co.,  96  Iowa  147,  power  to  ac- 
quire stock  in  other  companies  is  implied  from  a  grant  "to  contract,  acquire 
and  transfer  property  as  a  private  person" ;  so  too,  in  1897,  White  v.  Mar- 


1064      PEARSON    V.  CONCORD    RAILROAD    CORPORATION.       §   305 

quardt,  105  Iowa  145,  74  N.  W.  Eep.  930,  it  was  held  that  a  corporation  might 
exchange  its  goods  for  stock  in  other  corporations. 

In  many  states  the  subject  is  regulated  by  statutory  or  other  provision — e. 
g.,  Georgia  forbids  her  legislature  authorizing  one  corporation  purchasing 
the  shares  of  another  corporation.  Const.  1877,  art.  iv,  §  2,  par.  4.  See, 
1900,  Trust  Co.  v.  State,  109  Ga.  736,  35  S.  E.  Rep.  323.  On  the  other  hand, 
several  states  authorize  corporations  to  purchase  and  deal  in  such  stocks,  as 
Minn.  G.  S.  1891,  §  2680;  New  Jersey,  Acts  1896,  §  51;  New  York,  G.  L.  C. 
36,  art.  iii,  §  40. 

(b)  When  necessary  to  prevent  loss,  or  secure  the  payment  of  a  debt,  stock 
may  be  taken  in  other  corporations:  1847,  Sumner  v.  Marcy,  3  Woodb.  &  M. 
105,  Fed.  Cas.  13609;  1852,  Talmage  v.  Pell,  7  N.  Y.  328;  1860,  Howe  v.  Bos- 
ton Carpet  Co.,  82  Mass.  (16  Gray)  493 ;  1875,  First  National  Bank  v.  National 
Ex.  Bk.,  92  U.  S.  122 ;  1888,  Railway  Co.  v.  Iron  Co.,  46  Ohio  St.  44 ;  1889,  Na- 
tional Bank  v.  Case.  99  U.  S.  628;  1891,  Holmes  &  Griggs  Mfg.  Co.  v.  H.  & 
W.  M.  Co.,  127  N.  Y.  252;  1893,  Bank  of  Commerce  v.  Hart,  37  Neb.  197; 
1895,  Byrne  v.  Schuyler  Elec.  Mfg.  Co.,  65  Conn.  336;  1895,  Calumet  Paper 
Co.  v.  Invest.  Co.,  96  Iowa  147;  1897,  California  Bank  v.  Kennedy,  167  U. 
S.  362. 

(c)  But  it  seems  a  failing  corporation  may  dispose  of  its  property  in  ex- 
change for  the  stock  of  another  corporation,  for  the  purpose  of  winding  up  its 
affairs,  but  not  for  holding  permanently,  and  if  creditors  are  protected:  1856, 
Treadwell  v.  Salisbury  M.  Co.,  7  Gray  (Mass.)  393;  1876,  Buford  v.  Keokuk 
N.  P.  Co.,  3  Mo.  App.  159;  1895,  Holmes  &  G.  Mfg.  Co.  v.  H.  &  W.  M.  Co., 
127  N.  Y.  252;  1895,  Byrne  v.  Elec.  Co.,  65  Conn.  336;  1896,  Pinkus  v.  Minn. 
L.  M.  Co.,  65  Minn.  40. 

•  But  not  if  solvent,  against  the  protest  of  shareholders :  1892,  People  v.  Bal- 
lard, 134  N.  Y.  269,  infra,  p.  1066;  1895,  Bjrne  v.  Elec.  Co.,  65  Conn.  336;  1896, 
Elyton  Land  Co.  v.  Dowdell,  113  Ala.  177,  59  Am.  St.  Rep.  105. 

(d)  A  pai'ent  company  may  acquire  the  stock  of  a  branch  company :  1889, 
People  V.  Bell  Tel.  Co.,  117  N.  Y.  241. 

3.  Where  stock  of  a  corporation  is  held  without  authority  by  another  cor- 
poration, the  latter  may  collect  dividends  upon,  or  sell  it,  but  can  not  vote 
upon  it:  1872,  State  v.  McDaniel,  22  Ohio  St.  354,  368;  1882,  Milbank  v.  N. 
Y.,  etc.,  R.,  64  How.  Pr.  20,  30;  1889,  Memphis,  etc.,  R.  Co.  v.  Woods,  88 
Ala.  630;  1899,  Bigbee  &  W.  R.  Co.  v.  Moore,  121  Ala.  379,  25  So.  Rep.  602; 
1899,  State  v.  Newman,  51  La.  Ann.  833. 

But  if  the  holding  is  authorized,  the  stock  so  held  may  be  voted:  1890, 
State  V.  Rohlffs,  —  N.  J.  — ,  19  Atl.  Rep.  1099;  1894,  Oelbermann  v.  N.  Y., 
etc.,  R.,  77  Hun  (N.  Y.)  332. 

As  to  liability  of  a  corporation  upon  an  ultra  vires  holding  of  stock  in  an- 
other corporation,  see,  1894,  Kennedy  v.  Cal.  Sav.  Bk.,  101  Cal.  495;  1896, 
Citizens',  etc.,  Bk.  v.  Hawkins,  71  Fed.  Rep.  369;  1897,  California  Bk.  v. 
Kennedy,  167  U.  S.  362. 

The  ultra  vires  exclusive  holding,  however,  does  not  merge  the  companies, 
and  the  one  owning  the  stock  of  the  other  does  not  make  the  former  liable 
for  the  debts  of  the  latter:  1895,  Einstein  v.  Rochester  Gas,  etc.,  Co.,  146  N. 
Y.  46;  1898,  National  Bank  of  Commerce  v.  Allen,  90  Fed.  Rep.  545;  1898, 
Louisville  Gas  Co.  v.  Kaufman,  20  Ky.  L.  Rep.  1069,  48  S.  W.  Rep.  434. 

4.  Who  may  object. 

(a)  A  shareholder  can,  if  the  contract  is  executory,  or  if  he  acts  promptly: 
1849,  Salomons  v.  Laing,  12  Beav.  339;  1853,  Kean  v.  .Johnson,  9  N.  J.  Eq. 
401;  1885,  Holt  v.  Winfield  Bank,  25  Fed.  Rep.  812;  1895,  Byrne  v.  Elec.  Co., 
65  Conn.  336;  1899,  Harding  v.  Am.  Glucose  Co.,  182  111.  551,  74  Am.  St.  Rep. 
190.     See  note,  supra,  §  291 ;  infra,  §§  583-585. 

But  not  if  completely  executed  or  if  guilty  of  laches :  1882,  Wright  v.  Pipe 
Line,  101  Pa.  St.  204;  1885,  Holt  v.  Winfield  Bank,  25  Fed.  Rep.  812;  1892, 
Willoughby  v.  Chicago  Jet.,  50  N.  J.  Eq.  656.     See  note,  supra,  §  291. 

(b)  The  state  can  complain :  1889,  People  v.  Chicago  Gas  Trust,  130  111. 
268;  1892,  People  v.  Ballard,  134  N.  Y.  269;  1892,  State  v.  Standard  Oil  Co., 
49  Ohio  St.  137.     See  note,  stipra,  §  291,  infra,  §§  583-585. 


§   306  POWER   TO    ALIENATE    PROPERTY.  IO65 

Sec.  306.     3.    Power  to  alienate  property, 
(a)   General  doctrine. 

THE   AURORA  AGRICULTURAL  AND  HORTICULTURAL   SOCIETY 
OF  AURORA  V.  PADDOCK  Et  al. 

1875.     In  the  Supreme  Court  of  Illinois.     80  111.  263-274. 

Craig,  J.  This  was  a  bill  in  equity,  brought  by  appellees,  to  fore- 
close a  mortgage  executed  by  the  Aurora  Agricultural  and  Horti- 
cultural Society  of  Aurora,  on  the  28th  day  of  December,  1870,  to 
secure  the  payment  of  $6,000  loaned  by  John  R.  Coulter  to  the 
society.  The  court,  on  a  hearing  of  the  cause,  rendered  a  decree 
directing  a  sale  of  the  mortgaged  premises  in  satisfaction  of  the  mort- 
gage debt. 

The  society  has  prosecuted  this  appeal,  and,  in  order  to  obtain  a 
reversal  of  the  decree,  it  is  insisted  by  the  counsel  for  appellant: 

First,     That  the  society  had  no  power  whatever  to  mortgage. 

Second.     That  the  mortgage  in  question  was  wholly  unauthorized. 

The  appellant  was  organized  on  the  6th  day  of  March,  1869,  under 
an  act  approved  February  15,  1855,  which  authorized  the  incorpora- 
tion of  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 
exceeding  five  hundred  acres,  to  constmct  the  necessary  improvements 
and  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  confei's  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  power 
to  mortgage,  when  not  expressly  given  or  denied,  must  be  regarded 
as  an  incident  to  the  power  to  acquire  and  hold  real  estate  and  make 
contracts. 

We  understand  it  to  be  the  common  law  rule  that  corporations  have 
an  incidental  right  to  alien  or  dispose  of  their  lands  and  personal  prop- 
erty unless  specially  restrained  by  the  act  under  which  they  are  organ- 
ized or  by  statute. 

It  is  said  in  Angell  &  Ames  on  Corporations,  p.  153:  "Independ- 
ent of  positive  law,  all  corporations  have  the  ahsoXuiG  jus  disponendt, 
neither  limited  as  to  objects  nor  circumscribed  as  to  quantity."  The 
same  doctrine  fs  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  as  an  in- 
cident to  the  power  to  purchase  and  hold  real  estate  and  make  con- 
tracts. 

In  regard  to  the  second  point  relied  on  by  appellant  that  the  direc- 
tors of  the  society  had  no  power  to  authorize  its  president  and  secre- 
tary to  mortgage  the  premises,  such  power,  if  it  existed  at  all,  being 


I066  PEOPLE  V.  BALLARD.  §  30/ 

in  the  stockholders — a   complete  answer  to  this  position  is  that  the 
action  of  the  directors  was  ratified  by  the  stockholders. 
Decree  affirmed. 

Note.     Corporations  have  the  power  to  alienate  property,  generally  without 
special  authority,  and  to  any  extent,  if  creditors,  or  dissenting  shareholders,  are 
not  injuriously  affected:  1838,  Ref.  Prot.  Dutch  Church  v.  Mott,  7  Paige  Ch. 
(N.  Y)  77,  32  Am.  Dec.  613;  1840,  Burrill  v.  Nahant  Bank,  2  Mete.  (Mass.)  163, 
35  Am.  Dec.  395;  1856,  Old  Colony  R.  Co.  v.  Evans,  6  Gray  (Mass.)  25,  66  Am. 
Dec.  394;  1856,  Treadwell  v.  Sahsbury  Mfg.  Co.,  7  Gray  (Mass.^  393,  66  Am. 
Dec.  490,  infra,  p.  1787 ;  1869,  Miners  Ditch  Co.  v.  Zellerbach,  37  Cal.  543, 99  Am 
Dec.  300;  1888,  State  v.  Western,  etc.,  Co.,  40  Kan.  96, 10  Am.  St.  R.  166;  1891, 
Finch  V.  Ullman,  105  Mo.  255,  24  Am.  St.  R.  383;  1891,  Holmes  Mfg.  Co.  v. 
Holmes  Metal,  etc.,  Co.,  127  N.  Y.  252,  24  Am.  St.  R.  448;  1892,  Union  Pacific 
R.  Co.  V.  C.,  R.  L  &  P.  R.,  51  Fed.  Rep.  309;  1894,  Benbow  v.  Cook,  115  N.  C 
324,  44  Am.  St.  R.  454;  1897,  Bartholomew  v.  Derby  Rubber  Co.,  69  Conn 
521,  61  Am.  St.  R.  57;  1898,  Central  Trust  Co.  v.  W.  N.  C.  R.  Co.,  89  Fed 
Rep.  24 ;  1898,  Risdon  Iron  &  L.  W.  v.  Citizens'  Traction  Co.,  122  Cal.  94, 54  Pac 
Rfep.  529  (roHing  stock)  ;  1899,  Stockton  v.  Am.  Tobacco  Co.,  55  N.  J.  Eq.  352 

1899,  Michigan  Tel.  Co.  v.  City  of  St.  Joseph,  121  Mich.  502,  80  N.  W.  Rep.  383 

1900,  City  of  Spokane  v.  Amsterdamsch,  etc.,  —  Wash.  — ,  60  Pac.  Rep.  141 
1900,  Hamilton  v.  Menominee  Falls  Quarry  Co.,  —  Wis.  — ,  81  N.  W.  Rep 
876;  1900,  Advance  Benev.  Order  v.  Penn.  Safe  D.  &    T.  Co.,  —  Pa.  — ,  46 
Atl.  Rep.  102.     But  see,  infra,  §  619,  as  to  power  of  majority  to  sell  without 
consent  of  minority  of  shareholders.     Also  infra,  §  639,  as  creditors'  rights  to 
(romplain. 


Sec.  307.  (b)  Limits. 

PEOPLE  V.  BALLARD  Et  ai-.» 

1892.     In  the  Court  of  Appeals  of   New  York.     134  N.   Y. 

Rep.  269—305. 

Vann,  J.  In  1880  the  Spring  Valley  Hydraulic  Gold  Company 
was  organized  as  a  corporation  under  the  general  manufacturing  act 
of  this  state,  and  shortly  thereafter  it  invested  substantially  all  its  cap- 
ital in  certain  mines  in  the  state  of  California,  and  until  the  year  1886 
operated  the  same  as  its  sole  business.  The  object  for  which  it  was 
formed,  as  stated  in  the  certificate  of  incorporation,  was  to  carry  on 
the  business  of  mining  various  precious  ores,  and  to  smelt,  refine  and 
sell  the  product. 

In  July,  1886,  the  defendant  trustees  transferred  all  its  property, 
both  real  and  personal,  including  said  mines,  to  a  corporation  organ- 
ized at  the  time  under  the  laws  of  the  state  of  California,  for  the 
purpose  of  carrying  on  the  business  theretofore  condCicted  by  the  de- 
fendant company  and  of  taking  title  to  its  assets.  This  was  done  with 
the  approval  of  stockholders  holding  a  majoi'ity  of  the  stock,  in  good 
faith,  to  save  the  property  from  sacrifice,  but  without  the  consent  of 
the  holders  of  a  large  number  of  shares  and  against  the  protest  of 
some  of  the  stockholders.     The  sole   consideration  for  such  transfer 

*Part  of  opinion  of  Vann,  J.,  and  all  of  dissenting  opinion  of  Landon,  J. 
(with  whom  Brown,  J.,  concurred),  omitted. 


§  307  POWER   TO    ALIENATE.  I067 

was  an  agreement  by  the  California  company  to  pay  the  debts  of  the 
New  York  company  and  to  issue  to  it  certain  shares  of  its  capital 
stock.  A  majority  of  the  directors  of  the  former  company  were,  and 
still  are,  residents  of  California,  and  the  only  object  of  the  transaction 
was,  without  a  dissolution,  to  reorganize  the  defendant  company  un- 
der the  laws  of  another  state  in  order  to  obtain  some  real  or  supposed 
advantage  afforded  thereby.  The  attorney-general  commenced  this 
action  to  remove  the  trustees  and  to  compel  them  to  account  for  the 
property  thus  transferred,  but  the  special  term  dismissed  the  complaint 
because  no  one  was  joined  as  a  relator  and  the  general  term  affirmed 
the  judgment,  one  of  its  learned  justices  dissenting. 

This  appeal  presents  two  questions  of  grave  importance: 

1,  Whether  an  action  for  the  judicial  supervision  of  a  business  cor- 
poration, its  officers  and  members  can  be  maintained  by  the  attorney- 
general  in  the  name  of  the  people  without  a  relator?  (People  v. 
Lowe,  47  Hun  577;   People  v.  Bruff,  9  Abb.  [N.  C]  153.) 

2.  Whether  a  corporation  created  by  the  laws  of  this  state  can  be 
reorganized  under  the  laws  of  another  state  without  the  process  of  law- 
ful dissolution.      «     »     * 

(After  holding  that  the  New  York  statutes  allowed  the  proceeding 
by  the  attorney-general  alone,  proceeds:) 

A  corporation  is  purely  artificial,  having  no  natural  or  inherent 
power,  but  only  such  as  its  charter  confers.  The  charter  of  the  cor- 
poration in  question  was  the  statute  under  which  it  was  organized. 
Upon  filing  the  certificate  of  incorporation  it  came  into  existence  with 
power  to  do  only  that  which  is  expressly  or  impliedly  authorized  by 
the  statute.  It  had  no  power  to  act,  except  through  its  trustees,  who 
were  authorized  to  manage  its  "stock,  property  and  concerns,"  and 
a  majority  of  whom  were  required  to  be  citizens  of  this  state.  (Laws 
of  1848,  ch.  40,  as  amended  by  Laws  of  1869,  ch.  269.)  While  they 
were  authorized  to  conduct  its  affairs,  they  were  not  authorized  to 
terminate  its  existence,  although,  under  special  circumstances,  the 
courts  could  dissolve  it  upon  their  application.  (Code  of  Civ.  Pro., 
§  2419.)  A  corporation  can  not  cease  to  exist  of  its  own  will.  Its 
life  continues  until  either  the  charter  period  has  expired  or  the  court 
has  decreed  a  dissolution.  The  law  made  it,  and  the  law  only  can 
put  an  end  to  it.  As  it  can  not  take  its  own  life  directly,  it  can  not 
do  so  indirectly,  for  that  would  be  a  fraud  upon  the  law  and  against 
public  policy.  By  the  transaction  complained  of  the  defendant  com- 
pany was  stripped  of  all  its  property,  and  thus  prevented  from  going 
on  in  business  and  deprived  of  all  means  of  carrying  into  effect  the 
object  of  its  existence.  While  a  corporation  may  sell  its  property  to 
pay  debts,  or  to  carry  on  its  business,  it  can  not  sell  its  property  in 
order  to  deprive  itself  of  existence.  It  can  not  sell  all  its  property  to 
a  foreign  corporation  organized  through  its  procurement,  with  a  ma- 
jority of  non-resident  trustees,  for  the  express  purpose  of  stepping  into 
its  shoes,  taking  all  its  assets  and  carrying  on  its  business.  That 
would  be  the  practical  destruction  of  the  corporation  by  its  own  act, 
which  the   law  will   not  tolerate.     Whether  the  process  by  which  it 


I068  PEOPLE  V.  BALLARD.  §  307 

was  sought  to  convert  the  New  York  corporation  into  a  California 
corporation  is  called  reorganization,  consolidation  or  amalgamation, 
it  was  the  exercise  of  a  power  not  delegated,  and  was  void.  It  was 
corporate  burial  in  New  York  for  resurrection  in  California.  While 
the  stockholders  who  consented  may  be  estopped  by  their  acts,  those 
who  did  not  consent  can  take  advantage  of  this  violation  of  their 
rights,  and  in  the  state  of  New  York  can  demand  that  those  who  did 
the  wrong  shall  make  restitution. 

The  case  of  Abbott  v.  American  Hard  Rubber  Company  (33  Barb. 
578),  is  the  leading  authority  upon  the  subject  in  this  state,  and  it  is 
also  recognized  as  the  leading  authority  in  most  of  the  states.  In 
that  case  a  majority  of  the  trustees  of  a  business  corporation,  without 
the  consent  of  some  of  the  stockholders,  transferred  all  its  personal 
property,  which  was  especially  adapted  to  its  business,  to  two  persons, 
who  forthwith  caused  another  corporation  to  be  formed,  and  trans- 
ferred such  property  to  it.  It  was  held  that,  as  such  transfer  practically 
terminated  the  corporation  by  taking  from  it  the  power  to  fulfill  the 
object  of  its  organization,  it  was  a  violation  of  that  object,  was  not 
within  the  power  of  the  trustees,  and  was  hence  void  as  ulta  vires. 
The  case  was  elaborately  considered  both  at  general  and  special  term, 
and  we  regard  it  as  a  sound  and  valuable  authority. 

A  somewhat  similar  question  was  under  consideration  in  Frothing- 
hamv.  Barney  (6  Hun  366),  where  the  court  said:  "This,  as  a  business 
arrangement,  was  wise,  discreet  and  sagacious.  As  such  it  should  be 
sustained  if  it  legally  is  possible.  The  interests  of  one  or  two  small 
stockholders  should  not  enable  them  to  work  the  destruction  of  the 
interests  of  co-owners,  or  compel  the  purchase  of  their  stock  at  ficti- 
tious or  unreal  prices,  if  it  can  be  avoided.  *  *  *  Upon  the  dis- 
solution of  the  association,  it  became  the  duty  of  the  trustees  to  con- 
vert the  assets  into  money  and  distribute  the  proceeds  among  the 
stockholders.  To  a  certain  extent  this  has  been  done.  A  portion  of 
such  assets  has  not  been  distributed,  and  another  portion,  including 
the  good  will  of  the  old  association,  has  been  exchanged  by  the  trus- 
tees for  the  corporate  stock  of  a  new  Wells,  Fargo  &  Co.  This,  as  I 
understand,  the  trustees  had  no  right  to  do.  They  had  no  right  to 
exchange  the  assets  of  the  old  association  for  the  corporate  stock  of 
any  corporation  without  the  consent  of  all  the  stockholders.  (Mann 
v.  Butler,  2  Barb.  Ch.  362.)  Equally  were  they  without  authority 
in  making  this  partial  exchange  without  such  consent.  Stockholders 
of  the  old  association  could  not  thus,  against  their  will,  be  forced  into 
relations  with  the  new  company.  (Blatchford  v.  Ross,  54  Barb.  42; 
H.  &  N.  H.  R.  Co.  v.  Croswell,  5  Hill  383,  386.)" 

In  Taylor  v.  Earle  (8  Hun  i),  a  New  York  corporation,  by  the 
vote  of  a  large  majority  of  its  stockholders,  sold  all  its  property,  ex- 
cept cash  on  hand,  mills  and  franchises,  to  a  Vermont  corporation 
and  took  in  payment  shares  of  stock  in  the  latter  company.  The 
court  said:  "The  whole  scheme  of  the  transfer  and  its  execution  was 
illegal.  There  is  no  power  given  by  the  acts  under  which  the  Bur- 
lington cotton  mills  (the  New  York  corporation)  was  incorporated 


§  30/  POWER   TO   ALIENATE.  I069 

to  transfer  all  its  property  and  thus  terminate  its  existence,  and  take 
in  payment  stock  in  a  company  carrying  on  the  same  business  with  a 
different  name,  charter  and  stockholders,  and  being  a  foreign  corpo- 
ration. The  corporation,  by  the  New  York  law,  could  increase  or 
diminsh  its  stock,  or  extend  its  business  to  other  objects,  but  that  falls 
far  short,  I  think,  of  the  sweeping  power  exercised  on  this  occasion. 
The  sale  was  not  real.  It  was  a  mere  form  to  turn  a  New  York  cor- 
poration into  a  Vermont  one,  and  thus  escape  the  scrutiny  into  the 
affairs  of  the  company  permitted  by  the  New  York  law  to  the  stock- 
holders." 

All  the  authorities  in  this  state  are  uniform  in  holding  that  the  trus- 
tees of  a  corporation  can  not  so  dispose  of  its  property  as  to  virtually 
end  its  existence  and  prevent  it  from  carrying  on  the  business  for 
which  it  was  incorporated.  (Blatchford  v.  Ross,  54  Barb.  42  ;  Cope- 
land  V.  Citizens'  Gas  Light  Co.,  61  Barb.  60;  Smith  v.  New  York 
Consolidated  Stage  Co.,  18  Abb.  Pr.  419;  Metropolitan  El.  Ry.  Co. 
V.  Manhattan  El.  Ry.  Co.,  14  Abb.  [N.  C]  303;  Hartford,  etc., 
R.  R.  Co.  V.  Croswell,  5  Hill  383.) 

Other  courts  of  the  highest  standing  have  laid  down  the  same  rule. 
(Railway  Co.  v.  Allerton,  85  U.  S.  233;  Stevens  v.  Rutland,  etc., 
R.  R.  Co.,  29  Vt.  545;  New  Orleans,  etc.,  R.  R.  Co.  v.  Harris,  27 
Miss.  517;  see,  also,  Morawetz  on  Corporations,  §  413;  Spelling  on 
Corporations,  §  1012;  Cook  on  Stock  and  Corporation  Law,  §  667; 
Beach  on  Corporations,  §§  358,  430). 

The  fact  that  the  trustees  acted  in  good  faith  did  not  empower 
them  to  do  an  illegal  act ;  and  the  fact  that  there  may  be  some  diffi- 
culty in  the  final  adjustment  of  rights,  because  some  of  the  stock- 
holders consented,  while  others  did  not,  constitutes  no  defense  to  the 
action.  We  see  no  greater  difficulty,  however,  than  would  exist  if 
the  action  were  brought  by  a  trustee  who  had  not  consented  to  the  act 
complained  of,  and  no  reason  why  "the  liability  of  the  trustees  to  ac- 
count" should  not  be  "limited  to  those  stockholders  who  have  not 
assented  to  the  transfer." 

We  think  that  the  transfer  was  unauthorized  and  void  as  to  the 
non-assenting  stockholders,  and  as  to  the  state,  and  that  the  people 
can  maintain  the  action  in  the  name  of  sovereignty. 

The  judgment  should,  therefore,  be  reversed  and  a  new  trial 
granted,  with  costs  to  abide  event. 

Note.  Compare,  1889,  People  v.  Chicago  Gas  Trust  Co.,  130  111.  268,  17  Am. 
St.  R.  319,  8  L.  R.  A.  497,  supra,  p.  1054;  1895,  Coleman  v.  Howe,  154  111.  458, 
45  Am.  St.  R.  133;  1896,  Buck  v.  Ross,  68  Conn.  29,  57  Am.  St.  R.  61,  infra,  p. 
1977  ;  1898,  Sprague  v.  National  Bank,  172  111.  149,  64  Am.  St.  R.  17 ;  1899,  Hani- 
ing  V.  Am.  Glucose  Co.,  182  111.  551,  74  Am.  St.  R.  190;  1899,  De  La  Vergna 
Refrigerating  Match  Co.  v.  German  Sav.  Inst.,  175  U.  S.  40,  20  Sup.  Ct.  Rep.  20. 


lO/O  COMMONWEALTH    V.   SMITH.  §  308 

Sec.  308.     (c)  Same.     Property   charged  with  public  trust  can 
not  be  sold  without  special  authority. 

HOAR,  J.,  IN  COMMONWEALTH  v.  SMITH. 

1865.     In  the  Supreme  Judicial  Court  of  Massachusetts.      10 
Allen  (Mass.)  448,  on  455-6,  87  Am.  Dec.  672,  on  674-5. 

[Bill  in  equity  by  the  state  as  the  owner  of  prior  mortgage  on  the 
property  of  the  Troy  and  Greenfield  Railroad  Company,  to  impeach 
the  validity  of  a  mortgage  executed  by  that  company  to  Smith  as 
trustee,  covering  the  franchise  and  property  of  the  railroad  company 
then  owned,  or  afterward  acquired,  to  secure  bonds  to  the  amount  of 
$900,000  to  be  issued  to  the  contractor  as  part  compensation  for  the 
construction  of  the  road.] 

There  seems  to  be  no  reason  why  a  railroad  corporation  should  not 
be  considered  as  having  power  to  make  a  bond  for  any  purpose  for 
which  it  may  lawfully  contract  a  debt,  without  any  special  authority 
to  that  effect,  unless  restrained  by  some  restriction,  express  or  im- 
plied, in  its  charter,  or  in  some  other  legislative  act.  A  bond  is 
merely  an  obligation  under  seal.  A  corporation  having  the  capacity 
to  sue  and  be  sued,  the  right  to  make  contracts,  imder  which  it  may 
incur  debts,  and  the  right  to  make  and  use  a  common  seal,  a  contract 
vmder  seal  is  not  only  within  the  scope  of  its  powers,  but  was  orig- 
inally the  usual  and  peculiarly  appropriate  form  of  corporate  agree- 
ment. The  general  power  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."  Tread- 
well  V.  Salisbury  Manufacturing  Co.,  7  Gray  404. 

But  in  the  case  of  a  railroad  company,  created  for  the  express  and 
sole  purpose  of  constructing,  owning  and  managing  a  railroad ;  au- 
thorized to  take  land  for  this  public  purpose  under  the  right  of  emi- 
nent domain ;  whose  powers  are  to  be  exercised  by  officers  expressly 
designated  by  statute ;  having  public  duties,  the  discharge  of  which 
is  the  leading  object  of  its  creation;  required  to  make  returns  to  the 
legislature;  there  are  certainly  great,  and,  in  our  opinion,  insuperable 
objections  to  the  doctrine  that  its  franchise  can  be  alienated,  and  its 
powers  and  privileges  conferred  by  its  own  act  upon  another  person 
or  body,  without  authority  other  than  that  derived  from  the  fact 
of  its  own  incorporation.  The  franchise  to  be  a  corporation  clearly 
can  not  be  transferred  by  any  corporate  body,  of  its  own  will.  Such, 
a  franchise  is  not,  in  its  own  nature,  transmissible.  The  power  to 
mortgage  can  only  be  coextensive  with  the  power  to  alienate  abso- 
lutely, because  every  mortgage  may  become  an  absolute  conveyance 
by  foreclosure.     And  although  the  franchise  to  exist  as  a  corporation 


§  309  POWER   TO   ALIENATE.  lO/I 

is  distinguishable  from  the  franchises  to  be  enjoyed  and  used  by  the 
corporation  after  its  creation,  yet  the  transfer  of  the  latter  differs  es- 
sentially from  the  mere  alienation  of  ordinary  corporate  property. 
The  right  of  a  railroad  company  to  continue  in  being  depends  upon 
the  performance  of  its  public  duties.  Having  once  established  its 
road,  if  that  and  its  franchise  of  managing,  using  and  taking  tolls  or 
fares  upon  the  same  are  alienated,  its  whole  power  to  perform  its  most 
important  functions  is  at  an  end.  A  manufacturing  company  may 
sell  its  mill  and  buy  another;  but  a  railroad  company  can  not  make  a 
new  railroad  at  its  pleasure. 
See  note  at  end  of  next  case. 


Sec.  309.     Same. 

BRUNSWICK  GAS  LIGHT  COMPANY  v.  UNITED  GAS,  FUEL  AND 
LIGHT  COMPANY.! 

1893.     In  the  Supreme  Judicial  Court  of  Maine.     85  Maine 
Rep.  532-541,  35  Am.  St.  Rep.  385. 

[Action  to  recover  damages  for  breach  of  the  covenants  in  a  lease. 
The  defense  was  that  the  plaintiff,  being  a  corporation  that  owed  a 
duty  to  the  public,  had  no  legal  right  to  lease  such  property  as  dis- 
abled it  from  performing  this  duty.] 

Walton,  J.  The  question  is  whether  a  gas  company,  which  pos- 
sesses and  exercises  the  right  to  lay  its  pipes  in  the  public  streets,  can 
sell,  lease  or  assign  its  corporate  rights  and  privileges  to  another  gas 
company  without  the  consent  of  the  legislature. 

We  think  the  question  must  be  answered  in  the  negative.  Cor- 
porations possessing  and  exercising  the  right  of  eminent  domain,  owe 
duties  to  the  public  from  the  performance  of  which  they  are  not  al- 
lowed to  escape  by  a  sale  or  lease  of  their  franchises,  without  first 
obtaining  the  consent  of  the  legislature.  The  franchise  of  a  corpora- 
tion having  the  right  to  receive  tolls  may  be  levied  on  to  satisfy  an 
execution  against  the  corporation,  and  in  this  way  it  may  be  deprived 
of  its  corporate  powers  and  privileges.  And  they  may  be  lost  by  the 
foreclosure  of  a  legally  executed  mortgage.  And  they  may  also  be 
lost  by  laches  in  reclaiming  them  when  they  have  been  illegally  sold, 
leased  or  assigned.  But  subject  to  these  well-defined  exceptions,  it  is 
now  settled  by  an  overwhelming  weight  of  authority  that  public  or 
^uast-puhVic  corporations,  which  possess  and  exercise  the  right  of 
eminent  domain,  or  its  equivalent,  owe  duties  to  the  public,  as  well 
as  to  their  stockholders ;  and  that  they  can  not  sell  or  lease  their  cor- 
porate powers  and  privileges,  and  thereby  disable  themselves  from 
performing  their  public  duties,  without  legislative  authority.  It  is  the 
duty  of  gas   companies,  water  companies,  electric  light  companies, 

*  Statement  abridged.    Part  of  opinion  omitted. 


10/2      BRUNSWICK  G.  L.  CO.  V.  UNITED  G.,  F.  AND  L.  CO.       §  309 

telegraph  and  telephone  companies,  street  railway  companies,  and  all 
similar  corporations,  which  have  obtained  the  right  to  use  the  public 
streets  for  the  erection  or  extension  of  their  works,  to  serve  the  public 
faithfully  and  impartially,  and  at  reasonable  rates.  And  this  is  a  duty 
the  performance  of  which  may  be  enforced  by  the  courts.  And  one 
reason  why  these  corporations  are  not  allowed  to  sell  or  lease  their 
corporate  powers  and  franchises,  without  legislative  authority,  is  that 
if  they  were  able  to  do  so,  they  might  thereby  disable  themselves 
from  the  performance  of  their  public  duties,  and  thus  escape  from  the 
power  of  the  courts  and  of  the  legislature  to  enforce  their  perform- 
ance. 

But  a  still  more  serious  objection  to  the  traffic  in  corporate  fran- 
chises is  the  ease  with  which  such  a  power  could  be  used  to  create 
monopolies.  By  its  exercise,  a  single  corporation  could  easily  be- 
come possessed  of  the  corporate  powers  and  privileges  of  all  its  rivals, 
and  thereby  annihilate  competition  and  obtain  a  complete  control  of 
the  markets.  Such  combinations  are  usually  hurtful,  and  sound  pub- 
lic policy  requires  that  they  be  kept  under  legislative  supervision  and 
restraint. 

To  the  argument  that  similar  combinations  may  be  made  by  indi- 
viduals, it  has  been  aptly  replied  that  men  are  mortal,  and  their  com- 
binations short-lived,  but  corporations  are  immortal,  and  their  com- 
binations and  acquisitions  may  go  on  forever;  that  they  may  add  field 
to  field,  wealth  to  wealth,  and  power  to  power,  till  they  become  too 
strong  for  the  government  itself ;  that  all  experience  shows  that  such 
accumulations  of  wealth  and  power  are  dangerous  to  the  public  wel- 
fare; and  that  while  society  can  endure  the  accumulations  and  com- 
binations of  mortals,  which  must  end  at  the  grave,  it  can  not  endure 
similar  accumulations  and  combinations  of  power  by  corporations, 
which  may  continue  forever.      *      *     * 

(Citingf  and  commenting  upon  as  supporting  this  view  Stockton  v. 
Central  Railroad,  50  N.  J.  Eq.  52;  Feitsam  v.  Hay,  122  III.  293;* 
People  v.  Chicago  Gas  Trust,  130  111.  268;^  People  v.  Sugar  Re- 
fining Co.,  121  N.  Y.  582*.) 

The  law  does  not  assume  that  all  combinations  of  corporate  pow- 
ers and  franchises  are  necessarily  hurtful.  It  recognizes  the  fact  that 
they  are  sometimes  beneficial,  and  provides  a  way  by  which  they  may 
be  lawfully  made.  But  as  such  combinations  are  liable  to  be  made 
for  improper  purposes  and  with  conditions  annexed  to  them  which 
are  inadmissible,  sound  public  policy  requires  that  they  be  made  un- 
der legislative  supervision  and  restraint. 

In  the  present  case  the  Brunswick  Gas  Light  Company  undertook 
to  lease  all  its  property,  and  all  its  corporate  rights  and  privileges,  to 
the  United  Gas,  Fuel  and  Light  Company  for  twenty-five  years.  The 
latter  company  took  possession  of  the  works  and  held  them  for  sev- 
enteen and  a  half  months,  making  improvements  upon  them  and  pay- 

*  Supra,  p.  141.    '  Supra,  p.  1054.    *  Supra,  p.  100. 


§   309  POWER   TO    ALIENATE.  IO73 

ing  a  portion  of  the  agreed  rent.  It  then  abandoned  the  works,  and 
possession  was  resumed  by  the  lessors. 

This  is  a  suit  by  the  lessors  against  the  lessees  for  a  breach  of  the 
covenants  contained  in  the  lease.  It  was  contended  in  defense  that 
the  lease  was  illegal  and  void,  and  that  no  recovery  could  be  had 
upon  it.  The  presiding  justice  ruled,  as  a  matter  of  law,  that  the 
plaintiff  company  and  the  defendant  company  had  power  to  execute 
the  lease,  and  that  a  recovery  could  be  had  for  a  breach  of  the  cove- 
nants contained  in  h.  We  think  the  ruling  was  erroneous.  No  legis- 
lative authority  for  making  the  lease  was  shown,  and,  without  such 
authority,  we  think  the  lease  must  be  regarded  as  u/ira  vires  and 
void.  The  authorities  bearing  upon  the  question  are  not  in  entire  har- 
mony ;  but  the  weight  of  authority  seems  to  us  to  be  overwhelm- 
ingly in  favor  of  this  conclusion.  See  2  Beach  on  Corporations, 
sections  831  to  856,  inclusive,  and  the  six  pages  of  authorities,  ^ro 
and  ct>«,  cited  under  the  section  last  cited.  The  cases  are  too  numer- 
ous for  citation  here,  and  the  few  cases  to  which  we  have  referred 
will  furnish  a  key  to  all  of  them. 

But  it  is  claimed  that,  inasmuch  as  the  defendant  company  took 
and  held  possession  of  the  plaintiff  company's  works  by  virtue  of  the 
lease,  ultra  vires  is  no  defense  to  an  action  to  recover  the  agreed 
rent.  We  do  not  doubt  that  the  plaintiff  company  is  entitled  to  re- 
cover a  reasonable  rent  for  the  time  the  defendant  company  actually 
occupied  the  works ;  but  do  not  think  the  amount  can  be  measured 
by  the  ultra  vires  agreement.  We  think  that  in  such  cases  the  recov- 
ery must  be  had  upon  an  implied  agreement  to  pay  a  reasonable  rent ; 
and  that  while  the  ultra  vires  agreement  may  be  used  as  evidence,  in 
the  nature  of  an  admission,  of  what  is  a  reasonable  rent,  it  can  not 
be  allowed  to  govern  or  control  the  amount.  It  seems  to  us  that  it 
would  be  absurd  to  hold  that  the  ulta  vires  lease  is  void  and  at  the 
same  time  hold  that  it  governs  the  rights  of  the  parties  with  respect 
to  the  amount  of  rent  to  be  recovered.  A  void  instrument  governs 
nothing.  We  think  the  correct  rule  is  the  one  stated  by  Mr.  Justice 
Gray,  in  a  recent  case  in  the  United  States  Supreme  Court.  He  said 
that  a  contract  made  by  a  corporation  which  is  unlawful  and  void,  be- 
cause beyond  the  scope  of  its  corporate  powers,  does  not  by  being 
carried  into  execution  become  lawful  and  valid ;  and  that  the  proper 
remedy  of  the  aggrieved  party  is  to  disaffirm  the  contract  and  sue  to 
recover  as  on  a  quantum  meruit  the  value  of  what  the  defendant  has 
actually  received  the  benefit  of.  Pittsburgh,  etc,  v.  Keokuk,  etc., 
131  U.  S.  371.  We  think  this  is  the  correct  rule.  2  Beach  on  Corp., 
§  423,  and  cases  there  cited. 

Exceptions  sustained. 

Note.  See,  also,  1825,  Ammant  v.  New  Alex.  Tp.  R.,  13  Serg.  &  R.  (Pa.) 
210,  15  Am.  Dec.  593;  1846,  Susquehanna  Canal  Co.  v.  Bonham,  9  Watts  <fe 
S.  27,  42  Am.  Dec.  315;  1859,  Coe  v.  C.  P.  &  I.  R.,  10  Ohio  St.  372,  75  Am. 
Dec.  518;  1880,  Gooch  v.  McGee,  83  N.  C.  59,  35  Am.  Rep.  558;  1887,  Chicago 
Gas  L.  Co.  v.  People  G.  L.  Co.,  121  111.  530,  19  Am.  St.  R.  663;  1892,  Overton 
Bridge  Co.  v.  Means,  33  Neb.  867,  29  Am.  St.  R.  614 ;  1892,  Union  Pacific  R. 
68— WiL.  Cas. 


1074  B-  AND    L.  R.  CO.  V.  METCALFE.  §   310 

Co.  V.  C,  R.  I.  &  P.  R.,  61  Fed.  Rep.  309;  1893,  Gardner  v.  Mobile,  etc.,  R. 
Co.,  102  Ala.  635,  48  Am.  St.  R.  84;  1895,  Reynolds  v.  Reynolds  Lumber  Co., 
169  Pa.  St.  626,  47  Am.  St.  R.  935;  1895,  Bank  v.  Tanning  Co.,  170  Pa.  St.  1; 
1896,  Johnson  Co.  v.  Miller,  174  Pa.  St.  605,  52  Am.  St.  R.  833;  1897,  Smith 
V.  R.  Co.,  182  Pa.  St.  139;  1898,  Risdon  Iron  &  Locomotive  Works  v.  Citi- 
zens' Traction  Co.,  122  Cal.  94,  64  Pac,  Rep.  629 ;  1899,  Harding  v.  Am.  Glucose 
Co.,  182  111.  551,  74  Am.  St.  R.  189. 


Sec.  310.    Same,    (d)  Contra. 

BULLITT,  J.,   IN    BARDSTOWN  and  LOUISVILLE   RAILROAD  COM- 
PANY V.  METCALFE. 

1862.    In  the  Court  of  Appeals  of  Kentucky.    4  Metcalfe  (Ky.) 
Rep.  199,  on  pp.  206-210,    81  Am.  Dec.  541,  on  546—550. 

("The  charter  of  the  railroad  company  authorized  its  directors  to 
borrow  money  not  exceeding  $50,000;  the  board  of  directors  author- 
ized the  president  to  borrow  $30,000  from  Metcalfe,  and  execute  a 
mortgage  upon  the  road  and  its  property.  This  was  done,  default  in 
payment  made,  foreclosure  suit  brought,  and  judgment  that  the  road 
be  leased  for  eight  years  to  the  highest  bidder,  the  rent  to  go  to  pay 
the  debt,  and  if  no  one  would  lease,  that  the  road  be  sold  to  the 
highest  bidder.     Appeal  was  taken  from  this  judgment.] 

4.  It  is  contended  that  the  appellant  had  no  power  to  mortgage  its 
road  or  franchises.  This  question,  and  the  next  one  that  we  shall 
consider,  were  raised  by  a  general  demurrer  to  the  petition.  Gener- 
ally, a  private  corporation  has  an  implied  power  to  do  whatever  may 
be  necessary  to  execute  its  express  powers,  and  to  accomplish  the 
purposes  for  which  it  was  formed.  The  appellant  was  expressly  au- 
thorized to  borrow  this  money,  but  was  not  expressly  authorized  to 
make  a  mortgage.  Had  it  not  an  implied  power  to  do  so?  It  can 
not  be  doubted  that  a  manufacturing  corporation  having  power,  ex- 
press or  implied,  to  borrow  money,  might,  unless  expressly  prohibited, 
mortgage  its  property  to  secure  the  debt.  But  it  is  contended  that  a 
railroad  corporation  stands  upon  a  different  footing,  because  its  road 
is  built  for  public  use  as  well  as  for  the  profit  of  its  stockholders  ;  that 
it  is  under  a  duty  to  the  public  to  keep  its  road  in  repair,  and  carry  on 
its  business  for  the  transportation  of  freight  and  passengers ;  and  that 
it  can  not  relieve  itself  from  those  duties  by  conveying  its  road  away. 

These  views  seem  to  be  sustained  by  several  English  decisions.  At 
any  rate,  it  seems  to  be  settled  in  England  that  a  railway  company 
can  not,  without  express  authority  from  parliament,  assign  or  mort- 
gage or  lease  its  road,  upon  the  ground  that  it  is  against  public  policy. 
An  examination  of  several  of  those  cases  does  not  enable  us  to  state 
the  precise  views  of  public  policy  out  of  which  that  doctrine  sprung. 
It  probably  arose  in  part  of  a  general  statute  which  is  not  in  force 
here.  Judge  Redfield,  however,  says:  "The  ground  upon  which 
the  decisions  in  England  and  America,  which  hold  the  franchises  of 


§  3IO  POWER  TO   ALIENATE.  IO75 

corporations  not  to  be  assignable,  except  by  consent  of  the  legislature, 
rest  is  mainly  the  same  as  that  upon  which  it  has  been  held  in  this 
country,  that  such  franchises  are  beyond  the  legislative  control ;  namely, 
that  the  charter  constitutes  a  contract  between  the  sovereignty  and  the 
corporation,  on  the  one  part,  for  the  grant  of  certain  privileges  and  im- 
munities, and  upon  the  other,  for  the  performance  of  certain  duties 
and  functions  which  are  deemed  an  equivalent  or  consideration.  *  *  ♦ 
The  state  confers  upon  railways  some  of  its  most  essential  powers 
of  sovereignty,  that  of  eminent  domain,  and  of  a  virtual  monopoly, 
in  the  transportation  of  freight  and  passengers,  and  in  return  therefor 
stipulates  for  the  performance  of  those  duties  by  the  corporation. 
The  corporation  have  no  more  right  in  equity  and  justice  to  transfer 
their  obligations  to  other  companies,  or  to  natural  persons,  than  the 
state  has  to  withdraw  them  altogether."  Redfield  on  Railways,  422, 
note  14. 

The  doctrine,  according  to  Judge  Redfield,  rests  upon  the  ground 
that  the  corporation  is  under  an  obligation  to  the  state  to  build  and 
operate  its  road.  Such  was  formerly  the  rule  in  England,  even  as  to 
a  railway  corporation  that  had  not  made  any  express  undertaking  to 
that  effect,  and  to  which  no  exclusive  privileges  had  been  granted. 
Redfield  on  Railways,  section  192.  But  concerning  that  class  of 
cases,  the  doctrine  seems  to  have  been  overruled  in  England,  and  has 
never  prevailed  in  America.  Redfield  on  Railways,  section  192,  and 
notes.  The  appellant  did  not  expressly  undertake  to  build  the  road 
authorized  by  its  charter;  nor  did  its  charter  expressly  declare  that  it 
should  do  so ;  nor  was  any  exclusive  right  to  do  so  conferred  upon  it. 
In  our  opinion,  the  appellant  was  not  bound  to  commence  the  I'oad, 
nor  to  complete  it  after  commencing,  nor  to  put  it  in  operation  after 
completion,  nor  to  continue  it  in  operation.  It  might  have  forfeited 
its  charter  by  non-user,  but  was  not  bound  to  use  it.  So  long  as  it 
shall  avail  itself  of  the  privileges  conferred  by  its  charter,  it  will  be 
liable  to  the  burdens  thereby  imposed.  But,  in  our  opinion,  neither 
the  public  nor  any  individual  not  connected  with  it  can  compel  it  to 
exercise  its  corporate  franchises,  or  make  it  pay  damages  for  failing 
to  do  so.  The  doctrine  under  consideration  has,  therefore,  no  founda- 
tion in  this  case,  if  the  ground  on  which  it  rests  is  earnestly  stated  by 
Judge  Redfield.  Nor  do  we  perceive  any  other  solid  ground  on 
which  to  pl^ce  it. 

We  do  not  suppose  that  the  appellant  could  mortgage  its  corporate 
existence,  or  any  prerogative  franchise  conferred  upon  it.  But  the 
right  to  build  and  use  a  railroad  is  not  a  prerogative  franchise.  It 
has,  indeed,  been  said  that  "both  currency  and  internal  communica- 
tion between  different  portions  of  the  state  are  exclusively  the  pre- 
rogatives of  sovereignty";  Redfield  on  Railways,  23;  and  that  "the 
right  to  build  and  use  a  railroad,  and  take  tolls  or  fares,  is  a  franchise 
of  the  prerogative  character,  which  no  person  can  legally  exercise 
without  some  special  grant  of  the  legislature";  Redfield  on  Rail- 
ways, 23,  note  I.  Possibly  these  passages  were  not  designed  to 
mean  more  than  this :   A  road  can  not  be  made  over  the  lands  of  un- 


10/6  B.   AND    L.  R.'CO.   V.  METCALFE.  §   310 

willing  proprietors  except  under  authority  from  the  state ;  and  the 
state,  in  order  to  encourage  internal  improvements,  may  grant  to  a 
corporation  or  individual  the  exclusive  right  to  build  a  road  between 
two  points.  In  the  absence  of  any  positive  law  upon  the  subject,  our 
opinion  is  that  an  individual  has  as  much  right  to  build  a  railroad 
over  his  own  land,  or  the  land  of  others  with  their  consent,  as  he  has 
to  build  a  stage  or  a  wagon ;  and  as  much  right  to  use  the  former  as  the 
latter  in  carrying  freight  and  passengers  for  pay. 

The  denial  of  the  right  of  a  railroad  corporation  to  transfer  its 
road  has  sometimes  been  based  upon  considerations  of  general  con- 
venience and  public  interest,  and  upon  the  ground  that  the  corpora- 
tion, having  been  chosen  by  the  legislature  as  the  fit  depositary  of  the 
right  to  construct  and  operate  the  road,  should  not  be  permitted  to- 
transfer  it  to  irresponsible  parties.  To  this  argument  several  objec- 
tions present  themselves.  The  appellant's  directors,  in  authorizing 
this  mortgage  to  Metcalfe,  declared  themselves  "satisfied  that  to 
furnish  and  complete  the  road  they  will  require  the  sum  of  thirty 
thousand  dollars  in  addition  to  the  means  at  their  command."  As- 
suming, as  we  must  do,  that  the  loan  was  necessary  to  complete  the 
road,  and  assuming  it  to  be  probable,  as  we  may  do,  that  the  loan 
could  not  have  been  effected  without  a  mortgage,  considerations  of 
general  convenience  seem  to  be  on  the  side  of  the  power  to  make  the 
mortgage  rather  than  against  it. 

The  public  had  an  interest  in  seeing  the  road  constructed  and  op- 
erated according  to  the  terms  of  the  charter.  But  whether  it  shall  be 
thus  operated  by  A  or  B,  by  an  individual  or  corporation,  does  not 
seem  to  be  a  matter  of  any  interest  whatever  to  the  public.  Under 
the  charter  of  the  appellant,  its  road,  while  held  by  it,  is  under  the 
control  of  its  stockholders.  A  single  person,  by  purchasing  all  the 
stock,  can  control  the  road  as  completely  as  if  he  owned  it  individu- 
ally. A  purchaser,  under  its  mortgage,  would  take  the  road  subject 
to  the  terms  of  the  charter  designed  to  protect  the  public,  and  would 
be  bound  thereby  as  fully  as  the  corporation  is. 

We  perceive  no  reason  to  suppose  that  a  purchaser  of  all  the  prop- 
erty of  appellant  would  be  less  responsible  in  a  pecuniary  point  of 
view  than  the  appellant.  Nor  do  we  perceive  any  other  reason  to 
suppose  that  the  individual  responsibility  of  the  purchaser  would  not 
be  quite  as  beneficial  to  the  public  as  the  coi-porate  responsibility  of 
the  appellant.  General  convenience  requires  that  the  appellant  shall 
in  some  manner  be  compelled  to  pay  the  money  it  borrowed.  But  it  is 
contended  that  this  should  be  done  by  merely  subjecting  the  accruing 
profits.  To  do  that  effectually  it  might  be  necessary  to  appoint  a  re- 
ceiver to  take  charge  of  the  road,  because  under  the  management  of 
the  directors  it  is  possible  that  no  profits  might  accrue,  while  under  a 
different  management  the  road  might  be  profitable.  Yet  every  argu- 
ment against  allowing  the  appellant  to  mortgage  its  road  applies  with 
equal  force  against  the  appointment  of  a  receiver  to  control  it,  with 
perhaps  the  additional  argument  that  a  receiver  would  not  be  person- 
ally liable,  like  a  purchaser,  as  a  common  carrier. 


§   3IO  POWER   TO   ALIENATE.  lO// 

That  a  mortgage  by  a  railway  company  to  secure  money  borrowed 
for  the  construction  of  its  road  is  not  opposed  to  the  public  policy  of 
this  state  is  indicated  by  the  general  course  of  legislation  upon  the 
subject.  We  believe  that  all  the  railroads  in  the  state,  except  that  of 
the  appellant,  were  constructed  under  charters  authorizing  such  mort- 
gages ;  and  mortgages  made  by  the  Covington  and  Lexington  Com- 
pany and  by  the  Lexington  and  Big  Sandy  Company,  without  express 
authority  either  to  make  a  mortgage  or  to  borrow  money,  were  after- 
ward ratified  by  the  legislature.  And  we  are  not  aware  of  an  instance 
in  which  the  legislature,  when  applied  to,  has  refused  to  confer  such 
power  or  to  ratify  the  exercise  of  it. 

The  facts  that  the  appellant  voluntarily  mortgaged  its  property  to 
secure  the  money  which  it  was  expressly  authorized  to  borrow,  and 
that  the  bondholders  invested  their  money  upon  the  faith  of  the  mort- 
gage, furnish,  in  our  opinion,  a  sufficient  distinction  to  relieve  this 
case  from  the  operation  of  the  distinction  in  the  case  of  Winchester 
and  Lexington  Turnpike  Co.  v.  Vimont,  5  B.  Monroe  i,  in  which  it 
was  held  that  a  turnpike  road  could  not  be  sold  for  a  general  debt  of 
the  corporation.  If  the  decision  in  that  case  could  be  regarded  as 
denying  that  property  or  franchises,  in  the  use  of  which  the  public 
have  an  interest,  can  be  assigned,  we  might  perhaps  hesitate  to  follow 
it,  in  view  of  several  other  decisions  of  this  court.  In  Jouitt  v.  Lewis, 
4  Litt.  1 60,  the  vendee  of  a  turnpike  road  was  held  liable  upon  his 
covenant  to  keep  it  in  repair  without  any  question  being  made  as  to 
the  validity  of  the  sale.  In  Trustees  of  Maysville  v.  Boon,  2  J.  J. 
Marsh.  227,  a  ferry  franchise  was  held  to  be  alienable.  And  in  Mc- 
CaulQy  V.  Givens,  i  Dana  261,  a  lease  of  a  ferry  under  an  order  of 
court  was  held  to  be  valid.  Our  decision  rests  upon  the  ground  that 
the  appellant,  having  been  authorized  to  borrow  this  money,  had  im- 
plied power  to  execute  a  mortgage  to  secure  its  payment.  The  Amer- 
ican decisions  cited  in  Pierce  on  Railroad  Law,  chapter  20,  and  Redfield 
on  Railways,  section  235,  note  19,  present  such  a  conflict  of  opinion 
that  we  have  felt  free  to  consider  the  question  as  an  open  one,  and 
have  not  deemed  it  advisable  to  attempt  to  sustain  our  opinion  by  re- 
ferring to  cases  which  are  perhaps  counterbalanced  by  opposing  au- 
thorities.    *     *     * 

Reversed  on  another  ground. 

Compare,  1869,  Miners'  Ditch  Co.  v.  Zellerbach,  37  Cal.  543,  99  Am.  Dec. 
300;  1888,  State  v.  Western,  etc.,  Co.,  40  Kan.  96,  10  Am.  St.  Rep.  166;  1899, 
Michigan  Telephone  Co.  v.  St.  Joseph,  121  Mich.  502,  80  Am.  St.  Rep.  520, 
80  N.  W.  383. 


10/8       JONES   V.    GUARANTY   AND   INDEMNITY   COMPANY.       §311 
Sec.  311.     (e)     Power  to  mortgage. 

JONES  V.  GUARANTY  AND  INDEMNITY  COMPANY.* 

1879.     In    the   Supreme   Court  of   the   United   States,     ioi 
U.  S.  Rep.  622-633. 

[Appeal  from  United  States  Circuit  Court,  E.  D.  New  York.  The 
New  York  Kerosene  Oil  Co.,  and  the  New  York  Guaranty  and  In- 
demnity Company  were  both  New  York  corporations.  In  1867,  Coz- 
zens,  president  of  the  oil  company,  applied  to  the  guaranty  company 
for  a  loan  for  $100,000;  this  was  agreed  to,  and  $50,000  advanced; 
and  to  secure  the  same,  by  agreement  with  Cozzens,  a  bond  and  mort- 
gage were  directed  to  be  executed,  after  the  written  consent  of  the 
holders  of  more  than  two-thirds  of  the  stock  of  the  oil  company  had 
been  obtained.  The  mortgage  was  duly  executed  to  secure  a  loan  of 
$100,000,  and  was  stated  to  be  given  to  cover  any  advances  then 
made,  or  thereafter  to  be  made  by  the  guaranty  company,  to  Cozzens 
to  the  amount  of  $100,000,  on  condition  that  whenever  any  sum  was 
so  advanced  the  amount  and  date  should  be  indorsed  and  signed  by 
Cozzens  on  the  bond — and  whenever  he  made  any  payment  such  sum 
should  also  be  indorsed  on  the  bond.  No  dishonesty  was  alleged  or 
shown  in  the  transactions,  and  the  company  had  express  authority  to 
secure  its  debts  "contracted  by  it  in  the  business  for  which  it  was  in- 
corporated, by  mortgaging  any  or  all  of  its  real  estate."  The  unse- 
cured creditors,  after  the  corporation  became  insolvent,  attacked  the 
validity  of  the  mortgage.  The  circuit  court  sustained  it,  and  this  de- 
cision is  brought  here  for  review.] 

Mr.  Justice  Swayne.  *  *  ♦  xhe  central  and  controlling 
questions  to  be  determined  are : 

Whether  the  oil  company  had  the  power  to  give  a  mortgage  for 
future  advances;   and, 

Whether  the  mortgage  here  in  question  is,  in  the  view  of  a  court  of 
equity,  for  the  debt  of  the  oil  company  or  for  the  debt  of  Abraham 
M.  Cozzens. 

The  oral  arguments  of  the  eminent  counsel  who  appeared  before  us 
were  addressed  principally  to  these  subjects.  Numerous  other  points 
are  made  by  the  counsel  for  the  appellant  in  his  brief,  and  have  been 
fully  discussed  in  the  printed  arguments  upon  both  sides.  They  are 
minor  in  their  character,  and  we  think  involve  no  proposition  that  ad- 
mits of  doubt  as  to  its  proper  solution.  We  are  satisfied  with  the 
disposition  made  of  them  by  the  circuit  court,  and  shall  pass  them  by 
without  further  remark. 

At  the  common  law,  every  corporation  had,  as  incident  to  its  ex- 
istence, the  power  to  acquire,  hold  and  convey  real  estate,  except  so 
far  as  it  was  restrained  by  its  charter  or  by  act  of  parliament.  This 
comprehensive  capacity  included  also  personal  effects  of  every  kind. 

'  Statement  abridged.     Part  of  opinion  omitted. 


§311  POWER   TO   ALIENATE.  IO79 

The  Jus  disponendi  was  without  limit  or  qualification.  It  extended 
to  mortgages  given  to  secure  the  payment  of  debts,  i  Kyd  Corp., 
69,  76,  78,  108;  Angell  &  Ames,  §  145;  2  Kent  Com.,  282;  Rey- 
nolds V,  Commissioners  of  Stark  County,  5  Ohio  204;  White- 
water Valley  Canal  Co.  v.  Valette,  21  How.  414. 

A  mortgage  for  future  advances  was  recognized  as  valid  by  the 
common  law.  Gardner  v.  Graham,  7  Vin.  Abr.  22,  pi.  3.  See 
also,  Brinkerhoff  v.  Marvin,  5  Johns.  (N.  Y.)  Ch.  320;  Lawrence  v. 
Tucker,  23  How.  14. 

It  is  believed  that  they  are  held  valid  throughout  the  United  States, 
except  where  forbidden  by  the  local  law. 

The  statute  under  which  the  oil  company  came  into  existence  made 
it  "capable  in  law  of  purchasing,  holding  and  conveying  any  real  and 
personal  estate,  whenever  necessary  to  enable"  it  to  carry  on  its  busi- 
ness: but  it  was  forbidden  to  "mortgage  the  same,  or  give  any  lien 
thereon."  This  disability  was  removed  by  the  later  act  of  1864, 
which  expressly  confeiTed  the  power  before  withheld.  This  change 
was  remedial,  and  the  clause  which  gave  it  is,  therefore,  to  be  construed 
liberally  with  reference  to  the  ends  in  view. 

The  learned  counsel  for  the  appellant  insisted  that  a  mortgage  could 
be  competently  given  by  the  oil  company  only  to  secure  a  debt  in- 
curred in  its  business  and  already  subsisting.  This,  we  think,  is  too 
narrow  a  construction  of  the  language  of  the  law.  A  thing  may  be 
within  a  statute  but  not  within  its  letter,  or  within  the  letter  and  yet 
not  within  the  statute.  The  intent  of  the  lawmaker  is  the  law.  The 
People  V.  Utica  Insurance  Co.,  15  Johns.  (N.  Y.)  358;  United  States 
v.  Babbit,  i  Black  55. 

The  view  of  the  court  in  Thompson  v.  New  York  and  Hudson 
River  Railroad  Co.,  3  Sandf.  (N.  Y.)  Ch.  625,  was  sounder  and 
better  law.  There  the  charter  authorized  the  corporation  to  build  a 
bridge.  It  found  one  already  built  that  answered  every  purpose,  and 
bought  it.  The  purchase  was  held  to  be  intra  vires  and  valid.  Here 
the  object  of  the  authorization  is  to  enable  the  company  to  procure 
the  means  to  carry  on  its  business.  Why  should  it  be  required  to  go 
into  debt,  and  then  borrow,  if  it  could,  instead  of  borrowing  in  ad- 
vance and  shaping  its  affairs  accordingly?  No  sensible  reason  to  the 
contrary  can  be  given.  If  it  may  borrow  and  give  a  mortgage  for  a 
debt  antecedently  or  contemporaneously  created,  why  may  it  not  thus 
provide  for  future  advances  as  it  may  need  them?  This  may  be  more 
economical  and  more  beneficial  than  any  other  arrangement  involving 
the  security  authorized  to  be  given.  In  both  these  latter  cases  the 
ultimate  result  with  respect  to  the  security  would  be  just  the  same  as 
if  the  mortgage  were  given  for  a  pre-existing  debt  in  literal  compli- 
ance with  the  statute.  No  one  could  be  wronged  or  injured,  while 
the  corporation,  whom  it  was  the  purpose  of  the  law  to  aid,  might  be 
materially  benefited.  Is  not  such  a  departure  within  the  meaning,  if 
hot  the  letter,  of  the  statute?  There  would  be  no  more  danger  of 
the  abuse  of  the  power  conferred  than  if  it  were  exercised  in  the  man- 
ner insisted  upon.     The  safeguard  provided  in  the  required  assent  of 


1080      JONES   V.    GUARANTY   AND    INDEMNITY   COMPANY.       §311 

stockholders  would  apply  with  the  same  efficacy  in  all  the  cases.  The 
object  of  the  loan,  the  application  of  the  money,  and  the  restraints 
imposed  by  the  charter  in  those  particulars,  would  be  the  same 
whether  the  transaction  took  one  form  or  the  other.  According  to 
our  construction  the  company  could  give  no  mortgage  but  one  grow- 
ing out  of  their  business,  and  intended  to  aid  them  in  carrying  it  on. 
In  legal  effect  the  difference  between  the  two  constructions  is  one 
merely  of  mode  and  manner,  and  not  of  substance. 

Such  securities  are  not  contrary  to  the  law  or  public  policy  of  the 
state.  Many  cases  are  found  in  her  reported  adjudications  where 
both  judgments  and  mortgages  for  future  advances  have  been  sus- 
tained. 

Our  view  is  not  without  support  from  the  language  of  the  statute, 
that  "every  mortgage  so  made  shall  be  as  valid  to  all  intents  and  pur- 
poses as  if  executed  by  an  individual  owning  such  real  estate."  If 
this  mortgage  had  been  given  by  individuals,  the  question  we  are  ex- 
amining doubtless  would  not  have  been  brought  before  us  for  consid- 
eration. 

When  a  deed  is  fatally  defective  for  the  want  of  a  sufficient  consider- 
ation to  support  it,  such  a  consideration  subsequently  arising  may  cure 
the  defect  and  give  the  instrument  validity.  Sumner  v.  Hicks,  2 
Black  532.  It  is  not  necessary  to  go  through  the  form  of  executing  a 
second  deed  to  take  the  place  of  the  first  one.  This  principle  applies 
to  the  mortgage  after  all  the  advances  had  been  made,  conceding  that 
it  had  before  been  invalid  for  the  reason  insisted  upon. 

The  statute  of  1864  neither  expressly  forbids  nor  declares  void  mort- 
gages for  future  advances. 

If  the  one  here  in  question  be  ultra  vires,  no  one  can  take  advan- 
tage of  the  defect  of  power  involved  but  the  state.  As  to  all  other 
parties  it  must  be  held  valid,  and  may  be  enforced  accordingly.  Sil- 
ver Lake  Bank  v.  North,  4  Johns.  (N.  Y.)  Ch.  370;  National  Bank 
v.  Mathews,  98  U.  S.  621.  In  the  latter  case  this  subject  was  fully 
examined. 

A  corporation  can  act  only  by  its  agents  If  there  were  any  such 
technical  defect  as  is  claimed  touching  the  execution  of  this  mort- 
gage, it  has  been  cured  by  acquiescence  and  ratification  by  the  mort- 
gagor. 

No  one  else  can  raise  the  question.  All  other  parties  are  concluded. 
Gordon  v.  Preston,  i  Watts  (Pa.)  385. 

Where  money  had  been  obtained  by  a  corporation  upon  its  securi- 
ties, which  were  irregular  and  ult?'a  vires,  but  the  money  was  applied 
for  the  benefit  of  the  company,  with  the  knowledge  and  acquiescence 
of  the  shareholders,  the  company  and  the  shareholders  were  estopped 
from  denying  the  liability  of  the  company  to  repay  it.  And  the  same 
result  follows  where  such  securities  are  issued  with  the  knowledge  of 
the  shareholders,  so  far  as  the  money  thus  raised  is  applied  for  the 
benefit  of  the  company.  In  re  Cork  &  Youghal  Railway  Co.,  Law 
Rep.  4  Ch.  748. 

A  court  of  equity  abhors  forfeitures,   and  will  not  lend  its  aid  to 


§  312  POWER  TO   ALIENATE,  IO81 

enforce  them.  Marshall  v.  Vicksburg,  15  Wall.  146.  Nor  will  it 
give  its  aid  in  the  assertion  of  a  mere  legal  right  contrary  to  the  clear 
equity  and  justice  of  the  case.     Lewis  v.  Lyons,  13  111.  117. 

The  second  point  to  be  considered  is  whether  the  mortgage  was  for 
the  debt  of  Cozzens  or  for  the  debt  of  the  oil  company.     ♦     ♦     ♦ 

We  are  satisfied  beyond  a  doubt  that  it  was  the  debt  of  the  oil 
company  and  not  his  debt  that  was  intended  to  be  secured  and  was 
secured  by  the  mortgage.     *     *     ♦ 

Decree  affirmed. 

Note.  As  to  power  to  mortgage  property :  1830,  Jackson  v.  Brown,  5  Wend. 
590 ;  1832,  Leggett  v.  N.  J.  M.  &  B.  Co.,  1  Saxt.  Ch.  (N.  J.)  541, 23  Am.  Dec.  728 ; 
1833,  Gordon  v.  Preston,  1  Watts  (Pa.)  385,  26  Am.  Dec.  75;  1852,  Susque- 
hanna, etc.,  Go.  V.  Gen'l  Ins.  Co.,  3  Md.  305,  56  Am.  Dec.  740;  1867,  Hendee 
V.  Pinkerton,  14  Allen  (Mass.)  381;  1887,  Warfield  v.  Marshall  Co.,  72  Iowa 
666,  20  Am.  St.  Rep.  263;  1892,  Evans  v.  Boston  Heating  Co.,  157  Mass.  37; 
1894,  Benbow  v.  Cook,  115  N.  C.  324,  44  Am.  St.  Rep.  464;  1896,  Ashley  Wire 
Co.  V.  Illinois  Steel  Co.,  164  111.  149,  56  Am.  St.  Rep.  187;  1898,  First  Nat'l 
Bank  v.  Winchester,  119  Ala.  168,  72  Am.  St.  Rep.  904;  1899,  New  Britain 
Nat'l  Bank  v.  Cleveland  Co.,  158  N.  Y.  722,  53  N.  E.  Rep.  1128;  1899,  G.  V.  B. 
Mining  Co.  v.  First  Nat'l  Bank,  9S  Fed.  Rep.  (C.  C.  A.)  23;  1899,  Rutherford, 
etc.,  Elec.  Co.  v.  Frankhn  Trust  Co.,  58  N.  J.  Eq.  584,  43  Atl.  Rep.  1098;  1900, 
Citizens'  State  Bank  v.  McGraft  Lumber  Co.,  122  Mich.  573,  81  N.  W.  Rep. 
567. 


Sec.  312.     (f)   Franchise. 

I .    Not  without  special  authority. 

1302.  "Royal  franchises  never  pass  by  assignment,  without  special 
■words  in  the  Kings'  grant" — ^uo  warranto  against  John  Arundel,  and 
asked  him  by  what  warrant  he  held  a  market  once  a  week  and  a  fair 
twice  a  year  in  his  manor  of  C.  Answer — held  by  descent  from  our 
father  who  was  enfeoffed  by  Walter  de  Ralegh  of  the  manor  of  C. 
with  appurtenances,  to  whom  King  John  granted  the  franchises: 
Held  as  above. — Y.  B.  30  Ed.  I,  220,  Cornish  Iter. 

See  Fietsam  v.  Hay,  122  111.  293,*  3  Am.  St.  Rep.  492,  jat^ra, 
p.  141,  §  25,  and  note;  Memphis  &  L.  R.  R.  Co.  v.  R.  Commrs.,  112 
U.  S.  609,  supra,  p.  143,  §  26. 

Note.  See  note,  supra,  p.  157 ;  also,  1895,  Bank  v.  Fanning,  170  Pa.  St.  1 ; 
1897,  State  v.  Anderson,  97  Wis.  114 ;  1898,  Central  Trust  Co.  v.  W.  N.  C.  R 
Co.,  89  Fed.  Rep.  24;  1899,  Michigan  Telephone  Co.  v.  St.  Joseph,  121  Mich. 
602,  80  N.  W.  383,  80  Am.  St.  Rep.  520,  contra. 


) 

I082  STATE   V.    JOHN    SHERMAN.  c     :  -  - 

Sec.  313.      2.    Theory  of  a  sale,  when  authority  to  convey  fran- 
chise is  given. 

THE  STATE  OF  OHIO,  Ex  rel.  ATTORNEY-GENERAL,  v.  JOHN 
SHERMAN  Et  al.^ 

1872.     In   the    Supreme    Court    of    Ohio.     22    Ohio   St.    Rep. 

411-435- 

[^^uo  warranto  against  defendants,  as  claiming  to  be  the  P.,  F.  W. 
&  C.  Railway  Co.  in  Ohio,  without  authority.  The  O.  &  P.  Co., 
by  proper  authority  from  Pennsylvania  and  Ohio,  had  built  a  railroad 
from  Pittsburg  to  Crestline,  Ohio;  the  O.  &  I.,  hy  authority  of  Ohio 
and  Indiana,  from  Crestline,  Ohio,  to  Ft.  Wayne,  Ind. ;  and  the  F. 
W.  &  C,  by  authority  of  Indiana  and  Illinois,  from  Ft.  Wayne  to 
Chicago.  These  three  roads,  by  proper  authority  from  each  of  the 
states,  were  duly  consolidated  into  the  P.,  F.  W.  &  C.  Railroad  Co., 
and  a  certificate  of  its  organization,  according  to  the  laws  of  Ohio 
filed  with  secretaiy  of  state  of  Ohio,  as  required.  This  company 
issued  its  bonds  as  authorized,  but  made  default  in  payment  of  interest 
thereon,  whereupon  proceedings  to  foreclose  the  mortgages  securing 
the  bonds  were  had  in  the  proper  courts,  and  a  sale  made  in  1861  to 
Lanier  et  al.,  as  trustees  for  the  creditors,  "of  said  railroad  and  the 
property  and  franchises  connected  therewith."  Lanier  and  his  asso- 
ciates became  duly  incorporated  under  the  laws  of  Pennsylvania,  In- 
diana and  Illinois,  as  the  P.,  F.  W.  &  C.  Railway  Co.,  and  Lanier 
et  al.  conveyed  by  deed  all  the  property  and  franchises  pertaining  to 
the  P.,  F.  W.  &  C.  Railroad  Co.  Afterward,  in  1863,  this  P.,  F. 
W.  &  C.  Railroad  Co.  conveyed  by  deed  properly  executed  its  "fran- 
chise to  be. a  corporation,"  in  conformity  with  the  law  of  Ohio,  to 
the  P.,  F.  W.  &  C.  Railway  Co.,  and,  under  this  conveyance,  the 
latter  company  claimed  to  have  become  a  legal  and  valid  corporation 
in  Ohio.] 

Welch,  C.  J.   *  *  *   The  cjuestions  to  be  decided,  therefore,  are: 

I.  Is  the  Pittsburg,  Fort  Wayne  and  Chicago  Railway  Company 
a  corporation  of  Ohio.?  2.  If  not  such  corporation,  has  it  the  right 
and  power,  as  a  foreign  corporation,  to  own,  operate  and  maintain  its 
road  in  Ohio,  and  for  that  purpose  to  use  and  enjoy  the  privileges 
and  franchises  specified  in  the  information?  We  will  consider  these 
two  questions  in  their  order. 

I.    Are  the  defendants  an  Ohio  corporation? 

Their  claim  is,  that  the  consolidated, company,  the  Pittsburg,  Fort 
Wayne  and  Chicago  Railroad  Company,  was  an  Ohio  corporation, 
and  that  its  charter,  "its  franchise  to  be,"  or  right  of  existence,  has 
passed  to,  or  become  vested  in  the  defendants,  by  virtue  of  the  deed 
made  under  the  act  of  April  4,  1863.     Unless  this  act,  and  the  deed 

'  Statement  of  facts  abridged.  Arguments  omitted.  Only  part  of  opinion 
given. 


§  313  POWER  TO   ALIENATE.  IO83 

made  under  it,  are  sufficient  and  effectual  so  to  transfer  or  vest  the 
charter  of  the  consolidated  company,  it  is  quite  unnecessary  to  in- 
quire whether  that  company  was,  or  is,  a  legal  corporation  of  Ohio, 
and  we  are  saved  the  necessity  of  considering  the  various  questions 
made  and  argued  by  counsel,  touching  the  legality  of  the  consolida- 
tion, and  of  the  proceedings  preliminary  and  antecedent  thereto. 

Assuming,  then,  for  the  present,  what  I  believe  to  be  the  fact,  that 
the  Pittsburg,  Fort  Wayne  and  Chicago  Railroad  Company  was  an 
Ohio  corporation,  did  its  charter  pass  to  or  vest  in  the  defendants,  by 
virtue  of  the  deed  and  act  of  1863,  and  thus  constitute  the  defend- 
ants, or  rather  thus  constitute  the  Pittsburg,  Fort  Wayne  and  Chicago 
Railway  Company,  an  Ohio  corporation  ? 

That  a  corporation  can,  when  authorized  by  law  so  to  do,  transfer, 
sell,  or  convey  its  charter  or  franchise  to  be  a  corporation,  and  thus 
vest  it  in  others,  seems  to  be  quite  well  settled  by  judicial  decisions. 
And  we  have  no  objections  to  make  to  this  proposition  of  law,  except 
it  may  be  to  the  form  of  stating  it.  The  real  transaction  in  all  such 
cases  of  transfer,  sale,  or  conveyance,  in  legal  effect,  is  nothing  more 
or  less,  and  nothing  other,  than  a  surrender  or  abandonment  of  the 
old  charter  by  the  corporators,  and  a  grant  de  novo  of  a  similar  char- 
ter to  the  so-called  transferees  or  purchasers.  To  look  upon  it  in 
any  other  light,  and  to  regard  the  transaction  as  a  literal  transfer  or 
sale  of  the  charter,  is  to  be  deceived,  we  think,  by  a  mere  figure  or 
form  of  speech.  The  vital  part  of  the  transaction,  and  that  without 
which  it  would  be  a  nullity,  is  the  law  under  which  the  transfer  is 
made.  The  statute  authorizing  the  transfer  and  declaring  its  effect, 
is  the  grant  of  a  new  charter,  couched  in  few  words,  and  to  take  ef- 
fect upon  condition  of  the  surrender  or  abandonment  of  the  old  char- 
ter; and  the  deed  of  transfer  is  to  be  regarded  as  mere  evidence  of 
the  surrender  or  abandonment.  According  to  our  understanding  of 
the  cases  cited  by  counsel  for  the  defendants'in  support  of  the  doc- 
trine of  the  transferability  of  such  charters,  this  is  the  view  enter- 
tained wherever  the  courts  have  spoken  directly  of  the  legal  effect 
of  such  conveyances.  And  such  seems  to  be  the  view  taken  by  coun- 
sel themselves.  For  they  say,  among  other  things:.  "If  the  corpora- 
tors ('of  the  old  company')  saw  fit,  nobody  would  question  their 
right  to  dissolve  the  old  corporation  and  surrender  their  franchise  to 
the  state,  and  no  question  could  be  made  of  the  right  of  the  state,  by 
a  general  law,  to  provide  for  conferring  it  upon  the  purchasers  of  their 
property."  And  the  counsel  add:  '•'•That  is  what,  in  effect,  is  done 
by  this  act,^^  the  act  of  1863.  We  agree  to  this  proposition  of  coun- 
sel, with  a  single  proviso.  We  think,  with  them,  that  '•'•that  is  what, 
in  effect,  is  done,"  provided  anything  is  constitutionally  and  effectu- 
ally done. 

In  other  words,  the  legislature  of  Ohio,  by  the  act  of  1863,  have 
granted  to  the  defendants  a  charter  of  incorporation  similar  to  that 
held  by  the  Pittsburg,  Fort  Wayne  and  Chicago  Railroad  Company, 
provided  the  legislature,  at  the  date  of  the  act,  had  constitutional 
power  to  grant  such  a  charter,  and  -provided  the  requirements  of  the 


I084  STATE   V.    JOHN   SHERMAN.  §  313 

act  have  been  complied  with  by  the  parties.  It  matters  not  if  we  re- 
gard the  charter  granted  as  identical  with  the  one  surrendered — a 
something  which  really  passes  from  the  old  or  defunct  corporation 
into  the  hands  of  the  legislature,  and  thence  to  the  new  organization. 
There  must  be  at  the  time  constitutional  power  in  the  legislature,  not 
only  to  receive  but  also  to  reissue  the  charter.  It  must  pass  through 
legislative  hands  before  it  can  take  life  in  a  new  organization.  It 
comes  into  their  hands  the  work  and  offspring  of  the  old  constitution, 
but  it  goes  out  again,  if  at  all,  as  the  work  and  offspring  of  the  new 
one,  and  subject  to  all  its  requirements  and  limitations. 

By  the  present  constitution  of  Ohio,  the  power  of  the  legislature 
to  grant  charters  of  incorporation  is  subjected  to  important  limitations, 
which  did  not  exist  under  the  constitution  of  1802.  One  of  these  is, 
that  the  grant  must  be  made  by  a  general  law ;  another  is  that  the 
charter  must  be  subject  to  alteration  and  revocation  by  the  legislature ; 
and  a  third  is,  that  the  grant  must  be  made  in  some  such  form  as  will 
subject  the  stockholders  to  individual  liability,  to  at  least  a  certain 
extent,  for  the  debts  of  the  corporation.  The  claim  upon  the  part 
of  the  state  is  that  the  act  of  April  4,  1863,  is  in  violation  of  these 
several  provisions  of  the  constitution ;  or,  if  the  act  will  admit  of  a 
construction  consistent  with  these  provisions,  then  the  claim  is  that 
the  provisions  and  requirements  of  the  act,  taken  in  their  proper  and 
constitutional  sense,  have  not  been  conformed  to  by  the  parties. 

We  have  no  hesitation  in  holding  that  the  act  of  1863  is  not  liable 
to  the  objection  that  it  is  a  "special  act."  It  is  a  "general  law,"  in 
our  judgment,  within  the  meaning  of  article  i,  section  2,  of  the  con- 
stitution. In  so  holding  we  merely  repeat,  in  substance,  what  has 
been  heretofore  decided  by  this  court  in  Cricket  v.  The  State,  18 
Ohio  St.  9;   Welker  v.  Potter,  18  Ohio  St.  87. 

The  objection,  that  if  the  defendants  did  thus  acquire  a  charter  un- 
der the  act  of  1863,  that  charter  would  not  be  subject  to  alteration  or 
repeal,  has,  in  effect,  been  answered  in  what  is  said  above.  If  the 
charter  thus  acquired  is  to  be  regarded  in  law  as  identical  with  the 
charter  of  the  reorganized  company,  and  not  as  a  new  charter  issuing 
directly  from  th^  legislature ;  and  if,  in  like  manner,  the  charter  of 
the  reorganized  company  is  to  be  regarded  not  as  a  legislative  grant 
made  to  it,  but  as  a  grant  directly  from  the  original  companies  so  con- 
solidated, then  it  may  be  time  that  the  charter  would  be  unalterable 
and  irrevocable,  and  the  act  of  1863  be  unconstitutional  on  that 
ground.  But,  as  we  have  already  said,  such  is  not  the  law  of  the 
case,  and  the  charter,  if  so  vested,  would  remain,  as  other  charters 
granted  under  the  present  constitution,  liable  to  amendment  and  re- 
peal by  the  legislature. 

But  the  trouble  in  defendants'  case  arises  when  we  attempt  to  rec- 
oncile their  claim  that  they  are  an  Ohio  corporation  under  the  act  of 
1863,  with  the  third-named  limitation  in  the  constitution — the  limita- 
tion in  regard  to  individual  liability.  Under  the  present  constitution 
the  legislature  are  powerless  to  grant  a  charter  to  any  such  corpora- 
tion, unless  the  grant  is  made  in  a  form  that  will  secure  the  individual 


§313  POWER   TO   ALIENATE.  IO85 

liability  of  its  stockholders  for  the  debts  of  the  corporation,  at  least 
to  the  amount  of  their  stock  over  and  above  their  subscription.  This 
liability  may  be  secured  by  an  express  provision  in  the  act  of  incor- 
poration. Where  it  is  to  exceed  the  amount  of  the  stock,  it  must  be 
secured  in  that  form.  In  the  absence  of  any  such  provision  in  the 
act  of  incorporation,  I  presume  this  provision  of  the  constitution  would 
enter  into  and  form  part  of  the  act  of  incorporation,  and  to  that  ex- 
tent execute  itself.  In  either  case,  however,  the  act  of  incorporation, 
the  grant  of  the  charter,  must  be  in  some  such  form  as  will  secure 
this  liability.  It  must  require  of  the  individuals  availing  themselves 
of  its  provisions  some  acts  as  such,  under  and  in  pursuance  of  it,  as 
will  subject  them  individually  to  its  provisions,  or  to  this  provision  of 
the  constitution  in  regard  to  liability.  If  it  fails  to  do  this,  it  is  simply 
unconstitutional  and  void. 

The  act  of  1863,  under  which  the  defendants  claim  title,  contains 
no  provision  imposing  liability  upon  individuals  who  may  become 
stockholders  under  it.  Whether  the  act,  properly  interpreted,  does  or 
does  not  require  of  the  persons  becoming  incorporated  under  its  pro- 
visions, acts  or  proceedings  which  will  secure  their  individual  liability 
as  stockholders,  is  totally  immaterial  to  the  present  case.  Because,  if 
it  is  to  be  interpreted  as  requiring  such  acts — namely,  an  organization 
of  individuals  under  the  act,  such  as  is  required  by  the  act  of  April 
II,  1861  ;  a  deed  to  be  made  to,  and  accepted  by  them,  or  a  taking  of 
stock  by  them  in  the  company  thus  organized — then  the  defendants 
have  put  a  wrong  interpretation  upon  the  act,  and  have  failed  to  com- 
ply with  its  provisions.  On  the  other  hand,  if  they  have  rightly  in- 
terpreted the  act,  then  the  act  itself  is  unconstitutional  and  void,  for  the 
want  of  adequate  provisions  to  secure  the  individual  liability  of  stock- 
holders becoming  incorporated  under  its  provisions.  I  presume  it  is 
not  claimed  on  behalf  of  defendants  that  they  have  done  any  act,  by 
way  of  organization,  the  taking  of  stock,  or  the  acceptance  of  the  deed 
made  under  the  act  of  1863,  which  subjects  them,  as  individuals,  to 
any  liability  whatever  beyond  that  incurred  by  becoming  members  of 
the  foreign  company.  They  never  organized  under  the-  Ohio  act ; 
their  organization  was  complete  before  it  was  passed.  They  took  no 
stock  under  the  Ohio  act ;  their  stock  had  already  been  taken  under 
the  Pennsylvania  act.  Nor  was  the  deed  made  to,  or  accepted  by 
them ;  it  was  made  to,  and  accepted  by  the  corporation,  of  which  they 
were  members.  As  such  corporation  it  had  no  power,  by  any  act 
whatever,  to  pledge  the  individual  liability  of  its  stockholders.  The 
powers  of  a  corporation  are  limited  to  the  common  property  and  com- 
mon interests  of  the  organization.  Over  these,  and  within  the  scope 
and  purpose  of  its  organization,  a  majority  of  its  members,  acting 
through  and  by  its  officers  and  agents,  can  exercise  dominion  and  con- 
trol, and  bind  its  individual  members.  Beyond  this  common  fund 
and  outside  this  scope,  the  corporation,  as  such,  is  powerless  to  bind 
its  individual  members.  In  some  cases  it  has  been  found  very  diffi- 
cult to  determine  the  exact  line  between  what  may  be  done  by  a  ma- 
jority of  the  corporators,  thus  acting  by  and  through  common  agents, 


I086  STATE   V.    JOHN    SHERMAN.  §313 

and  what  can  only  be  effected  by  the  individual  consent  of  each  and 
all ;  but  no  difficulty  of  the  kind  can  occur  in  solving  questions  of  in- 
dividual liability.  There  the  line  is  distinctly  draw^n  and  marked. 
The  contract  by  which  he  becomes  such  member  fixes  the  boundary 
between  the  interests  of  the  stockholder  and  those  which  are  embarked 
in  the  common  enterprise,  and  thus  subjected  to  the  common  control. 
And  this  contract,  be  it  express  or  implied,  must  be  interpreted  in  the 
light  of  the  law  as  it  existed  at  the  time,  and  under  which  the  organ- 
ization is  had.  The  private  interests  and  rights  of  the  stockholder, 
not  by  this  contract,  or  some  subsequent  individual  act  of  his,  placed 
in  the  common  fund,  or  subjected  to  the  corporate  control,  are  as 
completely  outside  the  reach  and  power  of  the  corporation  as  are  the 
property  and  rights  of  strangers. 

The  element  of  individual  liability  must  be  ingrafted  upon  the 
stock  by  the  law  under  which  the  organization  is  had,  or  the  stock  is 
taken,  and  by  virtue  of  that  organization  or  taking,  or  else  by  some 
subsequent  individual  assent  of  the  stockholder ;  otherwise  he  stands 
liable  for  no  more  than  the  amount  which,  by  his  contract  with  the 
company,  he  has  agreed  to  contribute  to  the  common  fund. 

In  this  view  of  the  case,  it  plainly  follows,  that  the  defendants  have 
not  become  members  of  an  Ohio  corporation,  created  under  the  pres- 
ent constitution  of  the  state,  for  the  reason  that  they  have  never  sub- 
jected themselves  to  the  individual  liability  which  it  imposes  on  stock- 
holders, and  which  it  makes  an  indispensable  element  in  the  creation 
of  all  such  corporations.  Either  the  defendants  have  misinterpreted 
the  act  of  1863,  and  wholly  failed  to  conform  to  its  provisions,  or,  if 
they  have  rightly  interpreted  it,  as  authorizing  the  bestowment  of  a 
charter  upon  a  foreign  corporation,  without  securing  any  individual 
liability  of  its  stockholders,  then  the  act  itself  is  unconstitutional  and 
void.  In  either  alternative  the  defendants  are  no  legal  corporation  of 
Ohio.  It  is  unnecessary,  therefore,  to  inquire  whether  their  charter 
as  a  corporation  of  Pennsylvania,  gives  them  authority,  as  such  cor- 
poration, to  accept  an  additional  charter  from  another  state ;  or 
whether,  if  they  have  such  authority,  it  is  competent  for  another 
state,  not  having  a  constitution  like  ours,  thus  to  grant  them  a  second 
charter — that  is,  to  make  the  grant  directly  to  the  corporation,  eo 
nomine^  and  not  to  the  individuals  composing  it.  If  we  concede  both 
the  authority  to  accept  a  second  and  foreign  charter,  and  the  genera'l 
power  of  another  state  in  this  manner  to  make  the  grant,  it  is  enough 
for  the  present  case  to  say,  that  the  power  in  question  has  been  de- 
nied to  the  legislature  of  Ohio  by  her  present  constitution. 

[On  the  second  question  the  court  held  that  the  company,  as  a  for- 
eign corporation,  had  a  right  under  the  Ohio  laws  to  maintain  and 
operate  its  road  in  Ohio.] 

Judgment  of  ouster  as  to  being  an  Ohio  corporation. 

Note.  See,  1845,  Babcock  v.  "Western  R.  Corp.,  9  Mete.  (Mass.)  553,  43 
Am.  Dec.  411;  1857.  Phillips  v.  Winslow,  etc.,  Co.,  18  B.  Mon.  (Kv.)  431,  68 
Am.  Dec.  729;  1864,  Shamokin  Valley  R.  Co.  v.  Lawrence,  47  Pa.  St.  465,  86 
Am.  Dec.  552;  1874,  Metz  v.  Buffalo,  etc.,  R.  Co.,  58  N.  Y.  61, 17  Am.  R.  201 ; 


§314  POWER   TO   ACT   IN    A   PERSONAL   RELATION.  IO87 

1876,  Morgan  v.  Louisiana,  9317.  S.  217;  1884,  Memphis,  etc.,  R.  Co.  v.  R. 
Commrs.,  112  U.  S.  609,  supra,  p.  143;  1885,  Chesapeake,  etc.,  R.  Co.  v.  Miller. 
114  U.  S.  176;  1887,  Lawrence  v.  Morgans'  L.  &  T.  R.,  etc.,  Co.,  39  La.  Ann. 
427,  4  Am.  St.  R.  266;  1889,  Gulf,  etc.,  R.  Co.  v.  Newell,  73  Texas  334,  15  Am. 
St.  788. 


?  ARTICLE    V.       POWER    TO    ACT    IN    A    PERSONAL   RELATION. 

Sec.  314.      I.    Power  to  take  as  trustee. 

MR.  JUSTICE  STORY  in  VIDAL  Et  al.  v.  GIRARD'S  EXECUTORS.* 

1844.    In  the  Supreme  Court  of  the  United  States.    2  How- 
ard (43  U.  S.)  126-201,  on  pp.  187,  188. 

[Stephen  Girard,  in  his  will,  bequeathed  to  the  city  of  Philadelphia 
certain  real  and  personal  estate  for  the  erection  and  support  of  a 
college,  upon  the  trusts,  and  for  the  uses  designated  in  the  will.  The 
city,  by  its  charter,  was  capable  in  law  to  have,  purchase,  take,  re- 
ceive, possess  and  enjoy  lands,  tenements  and  hereditaments,  liberties, 
franchises  and  jurisdictions,  goods,  chattels  and  effects  to  them  and 
their  successors  forever,  or  for  any  other  or  less  estate,  without  any 
limitation  as  to  value,  amount  or  purpose.  The  heirs  objected  to  the 
will,  and  claimed,  among  other  things,  that  the  corporation  could  not 
take  as  trustee.] 

Pari  of  Mr.  Binney^ s  argument^  p.  148. 

The  old  doctrine  was  that  a  corporation  could  not  be  seized  to  a 
use.     Sugden  on  Uses,  10. 

But  it  has  been  since  settled  that  a  corporation  may  be  a  trustee.  If 
it  receives  a  deed,  the  legal  estate  will  pass,  provided  the  statutes  of 
mortmain  do  not  prohibit  it.  If  the  trust  is  void,  equity  will  decree 
a  reconveyance;  but  this  can  not  be  necessary,  unless  the  legal  estate 
had  passed.  And  if  a  corporation  is  incapable  of  executing  the  trust, 
equity  will  appoint  some  person  who  is  not.  i  Saunders  on  Uses, 
346,  349;  Willes  on  Trustees,  31;  Levin  on  Trusts,  10,  11;  2 
Thomas's  Co.  Litt.,  706,  note;  i  Cruise  Dig.,  403,  tit.  12,  Trust., 
ch.  I,  §  89. 

Also,  that  a  corporation  may  be  a  trustee.  2  Vern.,  411 ;  2  Bro. 
P.  C,  370;   7  Bro.  P.  C,  235. 

Where  a  corporation  abused  a  trust  and  was  dismissed;  see  3  Bro. 
Ch.  Cas.,  171,  371;  4  Ves.,  453;  2  Bro.  Ch.  Cas.,  46;  i  Bro.  Ch. 
Cas.,467;  14  Bro.  Ch.  Cas.,  253;  12  Mass.  547;  17  Serg.  &  R. 
(Pa.)  89;   3  Rawle  (Pa.)  170. 

The  cases  in  12  Mass.  547  and  17  Serg.  &  R.  (Pa.)  89  may  not 
appear  at  first  to  sustain  the  doctrine,  but  the  cases  are  right.  That 
of  3  Rawle  (Pa.)  170  is  very  much  like  the  present,  and  establishes 
the  doctrine,  that  if  the  trust  is  for  the  welfare  of  the  corporation,  it 
may  take  it. 

*  Only  that  part  of  the  opinion  relating  to  a  corporation's  power  to  take  as 
trustee  is  given. 


I088  FEDELITY   INS.    &    T.    CO.    V.    NIVEN.  §  315 

Story,  Justice.  Now,  although  it  was  in  early  times  held  that  a 
corporation  could  not  take  and  hold  real  or  personal  estate  in  trust 
upon  the  ground  that  there  was  a  defect  of  one  of  the  requisites  to 
create  a  good  trustee,  viz.,  the  want  of  confidence  in  the  person; 
yet  that  doctrine  has  been  long  since  exploded  as  unsound,  and  too 
artificial ;  and  it  is  now  held,  that  where  the  coi-poration  has  a  legal 
capacity  to  take  real  or  personal  estate,  there  it  may  take  and  hold  it 
upon  trust,  in  the  same  manner  and  to  the  same  extent  as  a  private 
person  may  do.  It  is  true  that  if  the  trust  be  repugnant  to,  or  incon- 
sistent with  the  proper  purposes  for  which  the  corporation  was  created, 
that  may  furnish  a  ground  why  it  may  not  be  compellable  to  execute 
it.  But  that  will  furnish  no  ground  to  declare  the  trust  itself  void,  if 
otherw'ise  unexceptionable ;  but  it  will  simply  require  a  new  trustee 
to  be  substituted  by  the  proper  court,  possessing  equity  jurisdiction  to 
enforce  and  perfect  the  objects  of  the  tiiist. 

Note.  See,  1826,  Greene  v.  Dennis,  6  Conn.  293,  16  Am.  Dec.  58  (requires 
special  charter  authority  to  be  trustee) ;  1842,  Commissioners  v.  Walker,  6 
Howard  (Miss.)  143,  38  Am.  Dec.  433;  1858,  Bell  County  v.  Alexander,  22 
Texas  351,  73  Am.  Dec.  268;  1889,  Minnesota  Loan  &  Trust  Co.  v.  Beebe,  4a 
Minn.  7 ;  1897,  White  v.  Rice,  112  Mich.  403. 


Sec.  315.     2.  Power  to  act  as  administrator  or  executor. 

FIDELITY  INSURANCE,  TRUST,  Etc.,  CO.  v.  D.  G.  NIVEN.> 

1878.     In  the  Court  of  Errors  and  Appeals  of  Delaware. 
5  Houston's  (Delaware)  Reports,  416-432,    i  Am.  St.  150. 

The  ruling  of  the  court  below  in  the  case  and  now  assigned  for 
error  in  this  court  was  that  by  the  laws  of  this  state  no  corporation 
aggregate,  whether  incorporated  by  the  legislature  of  this  state  or  of 
any  other  state,  can  be  appointed  an  administrator  in  this  state  or  can 
sue  as  an  administrator  in  the  courts  of  this  state. 

Wales,  J.  *  *  *  Secondly,  it  is  objected  that  by  the  common 
law  the  plaintiff  is  not  capable  of  being  an  administrator.  Blackstone, 
among  the  disabilities  of  a  corporation,  includes  its  inability  to  be  an 
executor  or  administrator,  "for  it  can  not  take  an  oath  for  the  due  execu- 
tion of  the  office."  I  Bl.  Com.,  477.  In  Bacon's  Ab.,  Tit.  Executors 
and  Administrators,  2,  the  same  doctrine  is  laid  down  on  the  same 
ground,  but  under  a  semble.,  and  with  these  additional  reasons :  First, 
because  corporations  can  not  be  feoffees  in  trust  for  the  use  of  others ; 
and,  second,  because  they  are  a  body  framed  for  a  special  purpose. 
When  the  reason  of  a  rule  ceases,  so  does  the  rule  itself.  The  plaint- 
iff is  not  required  to  take  an  oath.  It  has  been  incorporated  or 
"framed    for  the    special    purpose"    of  acting  in  the    character  and 

'  Arguments  omitted.  Only  part  of  opinion  relating  to  capacity  of  corpora- 
tion is  given. 


§315  POWER  TO   ACT   IN   A    PERSONAL   RELATION.  I089 

capacity  in  which  it  has  come  into  court;  and  it  is  now  well  and  long 
established  that  a  corporation  may  be  a  trustee  in  the  same  manner  as 
an  individual,  not  only  of  real  estate,  but  of  personal  property,  to  the 
same  extent  as  private  persons.  Hill  on  Trustees,  48  (and  cases  cited 
in  the  note).  Says  Toller:  "It  now  seems  settled  that  corporations 
can  be  executors,  and  that  on  their  being  so  named  they  may  appoint 
f>ersons  styled  syndics  to  receive  administration  with  the  will  an- 
nexed, who  are  sworn  like  all  other  administrators.  Such  corpora- 
tions as  can  take  the  oath  of  an  executor  are  clearly  competent,"  as, 
for  instance,  a  corporation  sole.  Toller  on  Exes.,  30.  There  is,  then, 
no  inherent  disability  or  disqualification  belonging  to  a  corporation  as 
such  which  excludes  it  from  acting  as  an  administrator,  and  it  may 
accept  the  office  if  not  prohibited  by  its  charter,  or  forbidden  by 
statute,  whenever  from  the  objects  of  its  incorporation  and  the  nature 
of  its  business  it  may  become  necessary  and  proper,  and  it  is  able  to 
comply  with  the  conditions  prescribed  by  law  as  to  giving  bond,  etc. 

Practically,  the  position  of  the  plaintiff  is  meritorious  and  unob- 
jectionable. With  the  express  power  contained  in  its  charter  to  re- 
ceive the  appointment  of  administrator,  and  with  its  capital  stock 
pledged  as  the  security  required  for  the  faithful  performance  of  its 
duties,  it  brings  an  action  in  its  representative  capacity  for  the  recovl 
ery  of  a  debt  due  to  its  intestate,  and  is  met  at  the  outset  by  technica- 
rules,  which,  whatever  may  have  been  the  reason  of  their  origin  and 
adoption,  have  either  become  obsolete  or  have  been  so  modified  and 
relaxed  as  to  be  no  longer  of  general  application.  The  execution  of 
the  bond  would,  at  the  best,  amount  to  little  more  than  a  form,  and 
be  without  substantial  benefit  or  necessity ;  but  still  the  defendant  is 
entitled  to  it,  if  it  is  insisted  upon,  and  the  plaintiff  has  a  full  and 
lawful  power  to  execute  it  as  it  would  have  to  make  or  indorse  a 
promissory  note,  or  accept  a  bill  of  exchange,  or  to  execute  any  other 
description  of  bond  which  may  be  fairly  and  legitimately  considered 
as  necessary  and  proper  in  the  usual  course  of  its  business.  It  has 
not  been  made  to  appear  in  what  manner  the  interests  of  this  state  or 
of  its  citizens  would  be  impaired,  or  in  what  way  its  policy  would  be 
invaded  or  subverted,  by  sustaining  the  plaintiff's  action.  Admitting 
that  a  corporation  may  be  unable  to  act  as  an  original  administrator 
under  the  provisions  of  the  general  statute,  it  does  not  follow  that  it 
may  not  be  recognized  as  a  foreign  administrator  on  the  production  of 
letters  duly  authenticated  and  giving  bond.  The  word  "persons" 
may  extend  to  and  include  bodies  corporate  and  politic  as  well  as  in- 
dividuals. Amend.  Code,  ch.  5.  If  the  plaintiff  can  give  the  bond, 
it  does  all  that  the  law  requires.  The  rights  of  our  citizens  will  not 
be  endangered,  their  property  rendered  less  secure,  or  the  dignity  of 
the  state  be  diminished.  If  the  policy  of  the  state  is  to  be  inferred 
from  the  history  of  its  legislation,  the  act  of  the  general  assembly  of 
Delaware  of  April  9,  1873,  incorporating  a  company  for  the  special 
purpose,  among  others,  of  acting  as  administrator  would  be  conclusive 
of  that  question.      14  Del.  Laws,  714.     *     *     * 

Reversed. 

6&— WiL.  Cas. 


I090  KILLINGSWORTH   V.    PORTLAND   TRUST   CO.  §  3l6 

See,  to  same  effect,  1885,  Camden  S.  D.  &  T.  Co.  v.  Ingham,  40  N.  J.  Eq.  3; 

1889,  Minnesota  Loan  &  Trust  Co.  v.  Beebe  et  al.,  40  Minn.  7,  holding  that  a 
law  authorizing  corporations  to  be  guardians,  was  valid  and  they  could  so  act; 

1890,  Coleman's  Admr.  v.  Parrott,  17  Ky.  L.  Rep.  814,  37  A.  &  E.  C.  C.  1. 
See  note,  32  A.  &  E.  C.  C,  p.  2. 


Sec.  316.     3.   Power  to  act  as  agent,  or  attorney  in  fact. 

W.  M.  KILLINGSWORTH,  Appellant,  v.  THE  PORTLAND  TRUST  CO., 
OF  OREGON,  Respondent.! 

1890.     In  the  Supreme  Court  of  Oregon.      18  Oregon  Reports 
351-356,  17  Am.  St.  Rep.  737,  32  A.  &  E.  C.  C.  33. 

Lord,  J.  This  is  an  action  to  recover  damages  for  failure  of  the 
defendant  to  execute  and  deliver  to  the  plaintiff  a  conveyance  of  cer- 
tain premises,  pursuant  to  an  agreement  to  that  effect.  The  defendant 
denies  this,  and  alleges  as  the  attorney  in  fact  of  one  Deborah  H.  In- 
gersoll,  in  compliance  with  said  agreement,  that  it  did  execute  and 
tender  to  the  plaintiff  a  conveyance  of  said  premises,  etc.,  and  now 
brings  it  into  court  and  deposits  it  for  the  plaintiff,  and  that  plaintiff 
refuses  to  accept  the  same.  To  this  the  plaintiff  demurred  on  the 
ground  that  the  same  does  not  state  facts  sufficient  to  constitute  a 
cause  of  defense  to  the  cause  of  action  alleged.  The  point  raised  by 
the  demurrer  is:  Can  the  defendant,  a  corporation,  execute  a  deed  of 
conveyance  of  real  property  as  the  attorney  in  fact  of  another  ?  *  *  * 

It  is  provided  by  our  statute  that  a  corporation  may  engage  in  any 
lawful  enterprise,  business  pursuit  or  occupation  (Code,  section  3217), 
so  that,  unless  corporations  are  affected  with  some  disability,  when 
the  articles  of  incorporation  are  sufficient  for  the  purpose,  there  is  no 
lawful  occupation  or  business  in  which  it  may  not  engage  in  this  state 
exactly  as  individuals.  By  its  articles  of  incorporation  the  defendant 
corporation  is  expressly  authorized  and  empowered  "to  act  as  the 
general  or  special  agent,  or  attorney  in  fact,  for  any  public  or  private 
corporation  or  person  in  the  management  and  control  of  real  estate  or 
other  property,  its  purchase,  sale  or  conveyance,  etc."  No  question 
is  made  but  what  the  defendant,  by  its  articles  of  incorporation,  has 
conferred  upon  it  the  power  to  do  the  act  for  which  there  is  claimed 
to  be  an  alleged  failure ;  but  the  contention  is  that  a  corporation,  from 
the  nature  of  the  organization  as  an  artificial  body,  necessitated  to  act 
through  agents,  is  incapable  of  executing  a  deed  as  an  attorney  in 
fact.  This  argument  is  based  on  the  assumption  that  there  are  some 
things,  from  the  inherent  nature  of  the  case,  that  a  corporation  is  in- 
capable of  doing,  and  seeks  its  illustrations  in  the  common  law,  as 
that  a  corporation  can  not  be  an  administrator  or  executor,  because  its 
duties  are  of  a  personal  nature  and  can  not  be  delegated,  or  to  take 
an  oath,  when  so  required  by  law,  before  proceeding  to  execute  some 

*  Only  so  much  of  the  opinion  as  relates  to  the  single  point  is  given. 


§3l6  POWER  TO   ACT   IN  A  PERSONAL   RELATION.  I09I 

duty  or  trust.  But  this  argument  overlooks  the  fact  that  a  corporation 
may  be  empowered  to  do  by  statute  what  it  was  incapable  of  doing 
under  its  common  law  powers,  and  when  thus  created,  its  powers, 
capacities  and  modes  of  exercising  them  depend  upon  the  statute. 

Having  the  power  conferred  upon  it  to  act  as  an  attorney  in  fact, 
is  it  not  endowed  with  all  the  faculties  or  capacities  essential  to  exe- 
cute it  and  carry  out  the  business  projects  of  its  creation?  Why  may 
not  a  corporation  act  as  an  agent  for  an  individual  or  another  corpo- 
ration }  As  the  owner  of  real  property,  it  can,  by  its  authorized 
agents,  execute  a  conveyance,  or  it  may  authorize  another,  by  power 
of  attorney  in  writing,  to  convey  such  property  for  it.  Why,  then, 
may  it  not  act  as  the  agent  or  attorney  in  fact  of  another  for  a  like 
purpose,  when  it  is  so  authorized,  and  to  thus  act  is  one  of  the  chief 
powers  conferred  to  effect  the  object  of  its  creation  and  to  carry  on 
the  business  in  which  it  is  engaged.'' 

"Within  the  scope  of  its  corporate  powers,"  says  Mr.  Mechem, 
"unless  there  are  express  provisions  in  its  charter,  or  constating  in- 
struments to  the  contrary,  a  corporation  may  act  as  agent,  either  for 
an  .individual,  a  partnership  or  another  corporation.  Many  of  the 
great  corporations  of  the  country  are  organized  for  this  express  pur- 
pose under  statute  or  charters  conferring  and  defining  their  powers 
and  the  methods  of  executing  them ;  but  even  in  other  cases,  the  au- 
thority so  to  act  might  be  implied  as  auxiliary  to  their  main  purpose." 
Mechem  on  Agency,  §  64.  It  is  clear,  then,  that  a  corporation  may 
act  as  the  agent  of  another,  and  if  so,  it  must  be  endued  with  the 
faculties  or  instrumentalities  to  perform  the  office  it  is  authorized  to 
undertake,  and  carry  out  the  purposes  of  its  creation. 

When  a  corporation  engages  in  a  legitimate  business  and  is  author- 
ized by  its  incorporation  to  do  the  things  necessary  to  carry  on  such 
business,  it  is  an  express  grant  of  power  to  enable  it  to  effect  that  ob- 
ject. If  it  is  to  be  excluded  from  doing  such  things  because,  from 
the  nature  of  its  organization,  it  can  not  act  personally,  but  only 
through  agents,  there  would  be  little  left  in  the  domain  of  business  it 
could  do.  As  was  said  by  the  court  in  Hopkins  v.  Gallaton  Turn- 
pike Co.,  4  Humph.  412,  "the  common  law  rule  with  regard  to 
natural  persons,  that  an  agent,  to  bind  his  principal  by  deed,  can  not 
in  the  nature  of  things  be  applied  to  corporations  aggregate,  these  be- 
ing of  mere  legal  existence,  and  their  board,  as  such,  literally  speak- 
ing, are  incapable  of  a  personal  act.  They  direct  or  assent  by  vote, 
but  their  most  immediate  mode  of  action  must  be  by  agent."  Being 
a  creation  of  the  law — an  artificial  person — it  can  only  act  by  agents 
who  are  its  limbs  or  instrumentalities  to  effect  the  purpose  for  which 
it  was  organized  and  to  act  for  it,  their  act  being  the  act  of  the  cor- 
poration, exactly  as  the  act  of  an  individual  is  his  act.  As  such, 
upon  the  principle  of  the  objection  raised,  it  could  not  make  an  ac- 
knowledgment in  person,  but  it  may  by  its  officers,  and  in  such  cases, 
its  officer  affixing  the  seal  is  the  party  executing  the  deed  within  the 
meaning  of  the  statute  requiring  deeds  to  be  acknowledged  by  the 
grantor.     Kelly  v.  Calhoun,  95  U.  S.  711;   Frostberg  M.  B.  Ass. 


I092  SILVER    LAKE   BANK   V.    NORTH.  §  31? 

V.  Brace  et  al.,  51  Md.  508;  Am.  &  Eng.  Enc,  "Acknowledg- 
ments," "Corporations." 

In  fact,  within  the  same  principle  of  reasoning,  it  may  be  said  that 
a  corporation  can  not  make  a  deed  of  its  own  property ;  but  we  know 
it  can,  and  that  the  act  of  its  officers  in  so  doing  is  the  act  of  the  cor- 
poration. When  a  corporation  is  made  the  agent  of  another  to  sell 
and  convey  property,  it  acts  through  the  same  instrumentalities  as 
when  acting  for  itself,  and  the  relation  between  it* and  its  instrumentali- 
ties is  as  one  being,  or  artificial  person,  in  the  performance  of  its 
engagement,  and  involves  no  delegation  of  powers.  So  that  when  a 
corporation  is  invested  with  a  power  of  attorney  to  sell  and  convey 
real  property,  the  person  conferring  the  power  knows  that  the  corpo- 
ration can  not  act  personally  in  the  matter,  but  that  in  performing  the 
engagement  it  will  act  through  its  agents,  who  for  that  purpose  are  its 
faculties,  and  whose  acts  in  the  discharge  of  that  duty  are  the  acts  of 
the.  corporation,  and  as  such  must  be  considered  to  be  included  in  the 
artificial  person  as  instrumentalities  authorized  by  him  to  do  the  act 
conferred  upon  it  by  his  power  of  attorney.  In  this  view,  the  argu- 
ment that  the  corporation  can  not  do  such  act  under  the  power  of  at- 
torney without  a  delegation  of  authority  to  its  agents,  and  that  the 
grantor  of  the  power  has  given  no  such  power  of  substitution,  can  not 
be  sustained. 

There  was  no  error,  and  the  judgment  must  be  affirmed. 

Note.  See,  1875,  McWilliams  v.  Detroit  Co.,  31  Mich.  275;  1890,  Jemison 
v.  Bank,  122  N.  Y.  136;  1891,  Van  Dresser  v.  Ore.  R.  Co.,  48  Fed.  Rep.  202; 
1896,  Anderson  v.  Bank,  5  N.  D.  451;  1897,  Snow-Church  Co.  v.  Hall,  19 
Miscl.  (N.  Y.)  655. 

Compare,  1885,  Westinghouse,  etc.,  Co.  v.  Wilkinson,  79  Ala.  312. 


ARTICLE   VI.     POWER   TO    SUE    AND    BE    SUED. 

Sec.  317,     Right  to  sue,  at  common  law,  anywhere. 

THE  SILVER  LAKE  BANK  (in  Pennsylvania)  v.  G.  NORTH.* 

1820.     In  the  Court  of    Chancery    of   New  York.     4  Johns. 
Ch.  (N.  Y.)  Rep.  370-374. 

[Bill  to  foreclose  a  mortgage,  given  upon  land  in  New  York,  to 
secure  a  claim  of  the  bank  against  the  defendant  for  money  loaned.] 

The  Chancellor  (Kent).  There  are  several  objections  raised 
by  the  answer,  and  by  the  counsel,  at  the  hearing,  to  the  right  of  the 
plaintiffs  to  a  foreclosure  or  sale  of  the  mortgaged  premises. 

I.  It  is  objected,  that  a  foreign  corporation  can  not  be  recognized 
as  such  and  entitled  to  sue  in  our  courts. 

It  appears  by  the  pleadings  and  proofs  that  the  plaintiffs  are  a  bank- 
ing corporation,  created  by  an  act  of  the  legislature  of  Pennsylvania, 
and  that  they  took  the  mortgage  in  question  to  secure  a  loan  of  money 

^  Arguments  and  opinion  on  other  points  omitted. 


^3^8  POWER  TO   SUE   AND   BE   SUED.  IO93 

made  at  their  banking  house  in  that  state.  There  is  perfect  justice 
and  equity  in  their  demand,  and  I  can  not  see  that  the  objection  is 
even  plausible.  It  is  well  settled  that  foreign  corporations  may  sue 
here  in  their  corporate  name,  and  may  prove,  as  a  matter  of  fact,  if 
the  same  were  denied,  that  they  were  lawfully  incorporated.  The 
Bank  of  the  United  States  has  sued  in  our  courts,  (i  Johns.  Cas. 
132.)  In  Henriques  v.  Dutch  West  India  Company  (3  Ld.  Raym. 
1532,  I  Str.  612),  a  suit  was  brought  by  a  Dutch  corporation  and 
sustained,  both  in  the  K.  B.  and  in  the  House  of  Lords,  though  it  was 
objected  in  that  case  that  a  foreign  corporation  could  not  maintain  a 
suit.  This  court  ought  to  be  as  freely  open  to  such  suitors  as  a  court 
of  law,  and  it  would  be  most  unreasonable  and  unjust  to  deny  them 
that  privilege.     They  might  well  exclaim: 

^uod  genus  hoc  hominum?     *     *     * 
*     *     *     hospitio  prohibetnur  arence. 

See,  1896,  T^ational  Tel.  Mfg.  Co.  v.  Dubois,  165  Mass.  117,  52  Am.  St.  Rep.. 
503,  infra,  p.  1490;    1899,  Alliance  Trust  Co.  v.  Wilson,  9  Kan.  App.  891,  59 
Pac.  Rep.  177;    1899,  Ware  Cattle  Co.  v.  Anderson,  107  Iowa  231,  77  N.  W. 
Rep.  1026;  1900,  Texas  &  P.  R.  Co.  v.  Davis,  93  Texas  378,  55  S.  W.  Rep.  562; 
1900,  Schmidt  <fe  Bro.  v.  Mahoney,  60  Neb.  20,  82  N.  W.  Rep.  99. 


Sec.  318.     Under  statutes,  conditions  imposed  do  not  generally 
prevent  suing. 

GARRATT  FORD  CO.  v.  VERMONT  MANUFACTURING  CO.  Ex  al. 

1897.      In    the    Supreme  Court   of    Rhode  Island.      20  R.  I. 
Rep.  187-90,  7  Am.  &  Eng.  Corp.  Cas.  (N.  S.)  171-174. 

Assumpsit  for  goods  sold  and  delivered  by  a  foreign  corporation 
■which  had  not  appointed  an  attorney  in  this  state  on  whom  process 
against  it  might  be  served.  Heard  on  defendant's  petition  for  a  new- 
trial . 

Stiness,  J.  The  plaintiff,  a  corporation  located  in  Boston,  Mass., 
sold  to  the  defendant  a  tank,  through  a  salesman  who  took  the  order 
in  Providence,  and  it  now  seeks  to  recover  the  price  in  this  suit.  The 
defendant  asked  the  judge  presiding  at  the  trial  to  charge  that  the 
plaintiff,  being  a  foreign  corporation,  which  had  not  complied  with 
the  law  of  this  state  in  appointing  a  resident  of  this  state  as  its  attor- 
ney (Gen.  Laws,  cap.  253,  §§  36  to  41),  was  not  entitled  to  main- 
tain this  action.  To  the  refusal  of  the  judge  so  to  charge,  the  de- 
fendant asks  for  a  new  trial  on  the  ground  of  erroneous  ruling. 

The  question,  whether  a  corporation  of  one  state  can  do  business  in 
another  state  without  complying  with  the  laws  of  such  state,  is  one  which 
has  frequently  arisen,  and  upon  which  decisions  are  conflicting,  al- 
though many  decisions  turn  upon  the  language  of  a  statute.  Thus  it 
is  held  that  a  statute   prohibiting  a  foreign   corporation   from  doing 


1094  FORD    CO.    V.    VERMONT   MFG.    CO.  §  3l8 

business  in  a  state  without  complying  with  its  terms  makes  such  busi- 
ness illegal  and  void,  and  that  no  such  corporation  can  maintain  an 
action  to  enforce  its  illegal  contracts.  And  where  the  statute  does 
not  provide  for  the  consequences  of  non-compliance,  the  argument  is 
that  the  acts  of  the  corporation  must  be  void,  or  else  the  statute  would 
be  nugatory.  In  Massachusetts  a  penalty  is  imposed  upon  the  agent 
doing  business,  but  the  statute  (Laws  of  1884,  cap.  330,  §  3)  says 
that  a  failure  to  comply  with  the  conditions  shall  not  affect  the  validity 
of  an  act  of  the  corporation.  Rogers  v.  Simmons,  155  Mass.  259. 
Some  statutes  declare  the  acts  to  be  void.  In  such  cases  there  can  be 
no  question  of  validity.  Some  cases  hold  that  where  the  statute  im- 
poses a  penalty  upon  the  agent  but  is  silent  as  to  the  validity  of  the 
act,  it  is  to  be  presumed  that  the  legislature  intended  the  penalty  as  a 
sufficient  safeguard  for  compliance,  and  that  to  declare  the  acts  of  the 
corporation  void  would  go  further  than  the  statute  and  impose  an  ad- 
ditional   penalty,   by   constfuction,    which    should   not   be    done.      A 

'  notable  case  of  this  kind  is  Fritts  v.  Palmer,  132  U.  S.  282,  in  which 
the  court  says:  "The  fair  implication  is  that,  in  the  judgment  of  the 
legislature  of  Colorado,  this  penalty  was  ample  to  effect  the  object  of 
the  statutes  prescribing  the  terms  upon  which  foreign  corporations 
might  do  business  in  that  state.  It  is  not  for  the  judiciary,  at  the  in- 
stance or  for  the  benefit  of  private  parties  claiming  under  deeds  ex- 
ecuted by  the  person  who  had  previously  conveyed  to  the  corporation, 
according  to  the  forms  prescribed  for  passing  title  to  real  estate,  to 
inflict  the  additional  and  harsh  penalty  of  forfeiting,  for  the  benefit  of 
such  parties,  the  estate  thus  conveyed  to  the  corporation  and  by  it 
conveyed  to  others.  *  ♦  *  jf  ^hg  legislature  had  intended  to  de- 
clare that  no  title  should  pass  under  conveyance  to  a  foreign  corporation 
purchasing  real  estate  before  it  acquires  the  right  to  engage  in  business 
in  the  state,  and  that  such  a  conveyance  should  be  an  absolute  nullity 
as  between  the  grantor  and  grantee,  leaving  the  grantor  to  deal  with 
the  property  as  if  he  had  never  sold  it,  that  intention  would  have  been 
clearly  manifested."  To  the  same  effect  are  Dearborn  F.  Co.  v.  Au- 
gustine, 31  Pac.  Rep.  (Wash.)  327;  Edison,  etc.,  Co.  v.  Canadian 
Co.,  8  Wash.  370,  24  L.  R.  A.  315,  with  a  note  which  holds  the 
contrary  view.  See,  also,  an  instructive  article  by  Mr.  Gunn  in  Am. 
Law  Reg.,  January,  1897,  p.  19.  Without  multiplying  authorities, 
we  think  that  the  reasoning  which  we  have  quoted  is  conclusive, 
although  we  concede  that  the  greater  number  of  authorities  are  prob- 
ably the  other  way.  We  think,  moreover,  that  we  find  support  for 
this  view  in  similar  legislation  in  this  state. 

In  Gen.  Laws  R.  I.,  cap.  182,  §  17,  it  is  declared,  in  the  case  of  a 
foreign  insurance  company,  that  the  contract  shall  be  valid,  and  the 
same  declaration  is  made  as  to  resident  insurance  companies  which 
fail  to  comply  with  the  law.  The  argument  is  pressed  that  because 
this  declaration  of  validity  is  made  in  these  cases,  its  omission  in  the 
statute  before  us  leads  to  the  inference  of  the  invalidity  of  other  con- 
tracts. We  do  not  think  that  the  legislature  intended  to  make  one 
class  of  contracts  valid  and  other  contracts,  under  similar  conditions, 
invalid.     If  the  legislature  intends  to  make  such  contracts  as  the  one 


§319  POWER    TO    SUE  AND  BE  SUED.  I095 

in  suit  invalid,  it  is  easy  to  say  so ;  but,  in  the  absence  of  such  a  pro- 
vision, it  is  a  wide  stretch  of  judicial  construction  for  the  court  to  hold 
that  such  a  result  was  intended.  The  purpose  of  the  statute  is  not  to 
invalidate  contracts,  but  to  require  foreign  corporations  to  appoint  an 
attorney  in  this  state  upon  whom  service  of  process  may  be  made. 
This  purpose  seems  to  be  adequately  served  by  imposing  a  penalty 
upon  the  agent  who  ventures  to  do  business  for  the  company  without 
complying  with  the  law.  While  we  do  not  question  the  right  of  the 
state  to  impose  such  conditions  and  penalties  upon  foreign  companies 
doing  business  here  as  it  may  deem  proper,  subject  to  the  provisions 
of  the  federal  constitution  as  to  the  regulation  of  commerce  among 
the  states,  yet,  in  view  of  the  vast  amount  of  business  now  done  by 
such  corporations,  we  think  it  is  a  conservative  position  to  hold  that 
the  legislature  did  not  intend  to  exempt  our  citizens  from  paying  just 
debts,  upon  grounds  of  non-compliance  with  our  statutes,  which  may 
have  been  fully  known  to  the  debtors,  when  the  general  assembly  has 
not  clearly  expressed  that  intention,  and  the  inference  of  it  is  not 
necessary  to  the  object  of  the  statute. 

We  are  referred  to  Electric  News  Co.  v.  Perry,  75  Fed.  Rep.  898, 
in  which  it  is  claimed  that  our  statute  was  construed  to  preclude  a 
foreign  corporation,  which  had  pot  complied  with  it,  from  maintain- 
ing a  suit.  That  case,  however,  was  a  bill  in  equity  for  an  injunc- 
tion to  restrain  police  officers  of  Pawtucket,  who  had  seized  the  prop- 
erty of  the  complainant  for  a  violation  of  our  statute  against  pool 
selling,  from  interfering  with  their  business.  Judge  Colt,  in  the 
opinion,  very  properly  said  that  a  foreign  corporation,  which  has  not 
complied  with  statutory  provisions,  "can  not  invoke  the  aid  of  this 
court  to  prohibit  the  defendants  from  interfering  with  a  business 
which  it  has  no  legal  right  to  carry  on."  That  is  a  very  different 
thing  from  holding  that  a  contract  is  void,  which,  in  its  nature,  is  not 
contrary  to  public  policy. 

Our  decision  is  that  the  court  did  not  err  in  refusing  the  instruction 
asked  for,  and  that  the  petition  for  a  new  trial  must  be  dismissed. 

See,  1899,  Alliance  Trust  Co.  v.  Wilson  (Kan.  App.),59Pac.  Rep.  177;  1899, 
Morse  v.  Holland  Trust  Co.,  84  111.  App.  84,  66  N.  E.  Rep.  369 ;  1899,  National 
Cash  Register  v.  Wilson,  9  N.  D.  112,  81  N.  W.  Rep.  286. 


Sec.  319.     But  statutes  may  exclude  from  suing,  except  as  to  in- 
terstate or  foreign  commerce, 

TABER  v.  INTERSTATE  BUILDING  AND  LOAN  ASSOCIATION.* 

1897.     In  the  Supreme  Court  of  Texas.     91  Texas  Rep.  92-95, 
7  Am.  &  Eng.  Corp.  Cas.  (N.  S.>  168. 

[Action  brought  by  the  loan  association,  a  Georgia  corporation,  to 
foreclose   a   mortgage  upon   a   lot  in  Austin,  Texas,  given  by  Kate 
'  Statement  abridged.     Arguments  omitted. 


1096         TABER   V.    BUILDING   AND    LOAN   ASSOCIATION.  §  319 

Taber  to  secure  a  loan  from  the  company  to  her.  The  petition  al- 
leged that  it  had  a  branch  office  in  Texas,  and  had  a  permit,  under 
the  Texas  law,  to  do  business  in  the  state.  This  was  met  by  a  gen- 
eral denial;  the  question  was  raised  as  to  whether,  under  these 
circumstances,  the  corporation  must  prove  it  had  such  a  permit. 
Judgment  was  rendered  for  the  corporation,  but  this  question  was 
certified  for  answer  by  the  supreme  court.] 

Brown,  Associate  Justice.  *  *  *  To  the  question  propounded 
we  answer  that  it  was  necessary  for  the  corporation  (plaintiff  below) 
to  prove  that  it  had  a  permit  to  do  business  in  Texas  at  the  time  that 
the  contract  sued  upon  was  made  in  order  that  the  court  might  enter 
judgment  in  its  favor.  Article  745,  Rev.  Civ.  St.  1895,  provides,  in 
substance,  that  every  corporation  for  pecuniary  profit  organized  or 
created  under  the  laws  of  another  state  which  desires  to  transact  busi- 
ness in  this  state,  or  to  solicit  business  in  this  state,  or  which  desires 
to  establish  a  general  or  special  office  in  this  state,  shall  be  required 
to  file  with  the  secretary  of  state  a  duly-certified  copy  of  its  articles 
of  incorporation.  Article  746,  Rev.  Civ.  St.  1895,  reads  as  follows: 
"No  such  corporation  can  maintain  any  suit  or  action,  either  legal  or 
equitable,  in  any  of  the  courts  of  this  state  upon  any  demand,  whether 
arising  out  of  contract  or  tort,  unless  at  the  time  such  contract  was 
made  or  tort  committed  the  corporation  had  filed  its  articles  of  incor- 
poration under  the  provisions  of  this  chapter  in  the  office  of  the  secre- 
tary of  state  for  the  purpose  of  procuring  its  permit."  Every  state 
has  the  right  to  prescribe  the  terms  upon  which  any  corporation  cre- 
ated in  another  state  or  foreign  country  may  do  business  within  its 
limits,  and  may  exclude  such  corporations  entirely,  with  the  exception 
of  corporations  engaged  in  interstate  commerce,  or  such  as  are  em- 
ployed by  the  United  States  in  the  transaction  of  its  business.  Under 
this  rule  of  law,  about  which  there  is  no  controversy,  this  state  had 
the  right  to  adopt  such  measures  as  it  thought  fit  to  enforce  the  pro- 
visions of  its  law,  which  required  foreign  corporations  to  deposit  the 
articles  of  their  incorporation  with  the  secretary  of  state ;  and,  the 
legislature  having  seen  fit  to  prescribe  as  a  condition  to  the  main- 
tenance of  suits  in  its  courts  that  such  compliance  should  precede  the 
transaction  of  business  in  the  state,  it  follows  that  the  filing  of  its  articles 
of  incorporation  with  the  secretary  of  state  is  a  condition  precedent  to 
the  maintenance  of  suit  upon  any  contract  or  right  of  action  accruing 
to  such  foreign  corporation ;  and,  it  being  a  condition  precedent,  the 
fact  must  be  both  alleged  and  proved  to  entitle  the  corporation  to 
judgment  in  such  case.  Cumberland  Land  Co.  v.  Canter  Lumber 
Co.  (Tenn.  Ch.  App.),  35  S.  W.  Rep.  886;  Mullens  v.  Mortgage 
Co.,  88  Ala.  280,  7  So.  Rep.  201  ;  Thorne  v.  Insurance  Co.,  80  Pa. 
St.  15;  Paul  V.  Virginia,  8  Wall.  168;  Holloway  v.  Railway  Co., 
23  Texas  465.      *     *     * 

Note.  See,  1899,  Texas  Pac.  Ry.  Co.  v.  Davis,  55  S.  W.  Rep.  562;  1900, 
Thompson  Company  v.  Whitehed,  185  III.  454,  76  Am.  St.  Rep.  51;  1901, 
Helman  Brewing  Co.  v.  Remeise,  —  Minn.  — ,  88  N.  W.  441. 


^  320  POWER    TO    SUE   AND    BE   SUED.  IO97 

Sec.  320.     But  such  statutes  can  not  exclude  from  suing  in  the 
United  States  courts. 

MR.  JUSTICE  HUNT  in  INSURANCE  COMPANY  v.  MORSE.* 

1874.     In  the  Supreme  Court  of  the  United  States.     87  U.  S. 
(20  Wall.)  445,  on  454-5-6. 

[The  Wisconsin  statutes  of  1870  provided  that  it  shall  not  be  law- 
ful for  any  fire  insurance  company,  incorporated  in  any  other  state, 
directly  or  indirectly  to  take  risks  or  transact  any  business  in  this  state, 
without  first  appointing  an  attorney  upon  whom  process  may  be 
served,  and  containing  an  agreement  that  such  company  will  not  re- 
move the  suit  for  trial  into  the  United  States  courts.  The  Home 
Insurance  Company,  a  New  York  corporation,  began  business  in  Wis- 
consin, and  appointed  such  an  agent,  the  power  of  attorney  containing 
a  provision  not  to  remove  suits  to  the  United  States  courts.  It  insured 
Morse,  and  a  loss  occurred,  for  which  he  sued  in  the  state  court,  and 
the  company  petitioned  for  removal.  This  was  denied,  error  assigned 
and  taken  to  the  supreme  court  of  Wisconsin ;  this  court  affirmed  the 
decision,  and  the  company  brought  the  case  here.  After  quoting  the 
provision  of  the  constitution  of  the  United  States  as  to  the  jurisdiction 
of  the  United  States  courts,  and  saying  that  jurisdiction  depends  on 
the  laws  of  the  United  States,  that  the  states  can  not  limit  it,  and  that 
for  purposes  of  such  jurisdiction  corporations  are  citizens  of  the  state 
creating  them,  proceeds:] 

The  Home  Insurance  Company  is  a  citizen  of  New  York,  within 
this  provision  of  the  constitution.  As  such  citizen  of  another  state, 
it  sought  to  exercise  this  right  to  remove  to  a  federal  tribunal  a  suit 
commenced  against  itself  in  the  state  court  of  Wisconsin,  where  the 
amount  involved  exceeded  the  sum  of  $500.  This  right  was  denied 
to  it  by  the  state  court  on  the  ground  that  it  had  made  the  agreement 
referred  to,  and  that  the  statute  of  the  state  authorized  and  required 
the  making  of  the  agreement. 

We  are  not  able  to  distinguish  this  agreement  and  this  requisition, 
in  principle,  from  a  similar  one  made  in  the  case  of  an  individual 
citizen  of  New  York.  A  corporation  has  the  same  right  to  the  pro- 
tection of  the  laws  as  a  natural  citizen,  and  the  same  right  to  appeal 
to  all  the  courts  of  the  country.  The  rights  of  an  individual  are  not 
superior  in  this  respect  to  that  of  a  corporation. 

The  state  of  Wisconsin  can  regulate  its  own  corporations  and  the 
affairs  of  its  own  citizens,  in  subordination,  however,  to  the  constitu- 
tion of  the  United  States.  The  requirement  of  an  agreement  like 
this  from  their  own  corporations  would  be  brutum  fulmen,  because 
they  possess  no  such  right  under  the  constitution  of  the  United  States. 
A  foreign  citizen,  whether  natural  or  corporate,  in  this  respect  pos- 

*  Much  of  opinion  containing  citations  from  cases  as  to  the  general  power 
of  a  state  to  exclude  foreign  corporations  is  omitted. 


t 
1098  KNIGHTS   OF    PYTHIAS   V.    HILL.  §   321 

sesses  a  right  not  pertaining  to  one  of  her  own  citizens.  There  must 
necessarily  be  a  difference  between  the  status  of  the  two  in  this  re- 
spect. 

We  do  not  consider  the  question  whether  the  state  of  Wisconsin 
can  entirely  exclude  such  corporations  from  its  limits,  nor  what  rea- 
sonable terms  they  may  impose  as  a  condition  of  their  transacting 
business  within  the  state.  These  questions  have  been  before  the 
court  in  other  cases,  but  they  do  not  arise  here.     *     *     * 

(Citing  and  quoting  Paul  v.  Virginia,  8  Wall.  168;  Bank  of  Au- 
gusta V.  Earle,  13  Pet.  519;  Lafayette  Ins.  Co.  v.  French,  18  How. 
407;  Ducat  V.  City  of  Chicago,  10  Wall.  410;  Bank  of  Columbia  v. 
Okely,  4  Wheat.  235.) 

On  this  branch  of  the  case  the  conclusion  is  this : 

1.  The  constitution  of  the  United  States  secures  to  citizens  of  an- 
other state  than  that  in  which  suit  is  brought  an  absolute  right  to  re- 
move their  cases  into  the  federal  court,  upon  compliance  with  the 
terms  of  the  act  of  1789. 

2.  The  statute  of  Wisconsin  is  an  obstruction  to  this  right,  is  repug- 
nant to  the  constitution  of  the  United  States  and  the  laws  in  pursuance 
thereof,  and  is  illegal  and  void. 

3.  The  agreement  of  the  insurance  company  derives  no  support 
from  an  unconstitutional  statute  and  is  void,  as  it  would  be  had  no 
such  statute  been  passed. 

We  are  of  opinion,  for  the  reasons  given,  that  the  Winnebago 
County  Court  erred  in  proceeding  in  the  case  after  the  filing  the  peti- 
tion and  the  giving  the  security  required  by  the  act  of  1789,  and  that 
all  subsequent  proceedings  in  the  state  court  are  illegal  and  should  be 
vacated.  The  judgment  in  that  court,  and  the  judgment  in  the  su- 
preme court  of  Wisconsin,  should  be  reversed,  and  the  prayer  of  the 
petition  for  removal  should  be  granted. 

Mr.  Chief  Justice  Waite  and  Mr.  Justice  Davis  dissenting. 

Note.  See,  1857,  Shelby  v.  Hoffman,  7  Ohio  St.  450;  1872,  Morse  v.  Home 
Ins.  Co.,  30  Wis.  496, 11  Am.  Rep.  580 ;  1875,  Hartford  Fire  Ins.  Co.  v.  Doyle,  6 
Biss.  461 ;  1876,  State,  ex  rel.  Drake,  v.  Doyle,  40  Wis.  175,  22  Am.  Rep.  692 ;  1876, 
Doyle  v.  Insurance  Co.,  94  U.  S.  535,  infrm  1887,  Barron  v.  Burnside,  121  U. 
S.  186;  1889,  Rece  v.  N.  N.  &  M.  V.  Co.,  32  W.  Va.  164,  3  L.  R.  A.  572;  1890, 
Texas  v.  Worsham,  76  Texas  556 ;  1892,  Southern  Pac.  Rv.  Co.  v.  Denton,  146 
U.  S.  202;  1894,  Martin  v.  Bait.  &  Ohio  R.  Co.,  151  U^  S.  673,  684;  1895, 
Commw.  V.  East  Tenn.  C,  Co.,  97  Ky.  238. 


Sec.  321.     Federal  corporations  can  sue  in  the  federal  courts. 

SUPREME  LODGE  OF  KNIGHTS   OF  PYTHIAS  OF  THE  WORLD  v. 

HILL.i 

1896.     In  the  United  States  Circuit  Court  of  Appeals.     (W. 
Va.)  76  Fed.  Rep.  468-472. 

[Action  on  the  case  in  assumpsit,  brought  in  courts  of  West  Vir- 
ginia by  Ellen  Hill,  against  the  lodge,  to  enforce  the  payment  of  a 

'  Statement  abridged ;  only  the  part  of  the  opinion  relating  to  the  one  point 
is  given. 


§  322  POWER   TO  SUE   AND    BE   SUED.  I099 

policy  of  insurance  on  the  life  of  Arthur  Hill,  in  favor  of  the  plaintiff. 
By  petition  of  the  lodge,  a  corporation  created  under  the  laws  of  the 
United  States,  the  suit  was  removed  to  the  United  States  Circuit  Court, 
district  of  West  Virginia.  From  a  judgment  in  favor  of  Ellen  Hill  the 
.lodge  appealed.] 

GoFF,  Circuit  Judge.  *  *  *  The  first  error  assigned  is  to  the  action 
of  the  court  in  overruling  the  demurrer  to  the  plaintiff's  declaration. 
The  grounds  of  the  demurrer  were  that  the  circuit  court  of  the  United 
States  had  no  jurisdiction  of  this  case,  that  it  did  not  properly  present 
a  federal  question,  and  that  'the  same  was  shown  by  the  declaration 
itself,  and  also  that  there  was  no  cause  of  action  set  forth  in  either 
count  thereof.  It  should  be  remembered,  in  this  connection,  that  this 
cause  was  removed  from  the  state  court  on  the  petition  of  the  defend- 
ant, in  which  it  was  alleged  that  said  defendant  was  a  corporation 
duly  formed,  organized  and  created  by  and  under  the  laws  of  the 
United  States,  and  also  that  the  declaration  as  filed  in  the  state  court 
reciteS  that  the  defendant  was  duly  incorporated  under  an  act  of  con- 
gress. This  assignment  of  error  is  without  merit,  as  it  is  plain  that 
the  demurrer  was  properly  overruled  by  the  court  below.  The  su- 
preme court  of  the  United  States  has  decided  that  corporations  of 
the  United  States,  created  by  and  organized  under  acts  of  congress, 
are  entitled  to  remove  into  the  circuit  court  of  the  United  States  suits 
brought  against  them  in  the  state  courts,  on  the  ground  that  such  suits 
are  suits  "arising  under  the  laws  of  the  United  States."  Pacific  Rail- 
road Removal  Cases,  115  U.  S.  i,  5  Sup.  Ct.  Rep.  11 13;  Butler  v. 
National  Home,  144  U.  S.  64,  12  Sup.  Ct.  Rep.  581.  That  court 
also  entertained  and  decided  a  writ  of  error  in  the  case  of  Knights  of 
Pythias  v.  Kalinski,  163  U.  S.  289,  16  Sup.  Ct.  Rep.  1047,  which 
had  been  removed  from  a  state  court,  in  the  eastern  district  of  Lou- 
isiana, to  the  circuit  court  of  the  United  States  for  that  district,  upon 
the  petition  of  the  said  Knights  of  Pythias,  in  which  it  was  alleged 
that  it  was  a  corporation  created  by  and  organized  under  an  act  of 
congress.     *     *     « 

Affirmed. 

Note.    See,  1899,  Supreme  Lodge  K*.  of  P.  v.  England,  94  Fed.  Rep.  369. 


Sec.  322.     Liability  to  be  sued. 

In  the  United  States  courts,  citizenship. 

ST.  LOUIS  AND  SAN  FRANCISCO  RAILWAY  CO.  v.  JAMES.* 

1896.     In  the  Supreme  Court  of  the  United  States.     161  U.  S. 

Rep.  545-572- 

[In  1892  Etta  James  brought  this  action  in  the  United  States  Cir- 
cuit Court,  western  district  of  Arkansas,  against  the  railway  company, 

'  Statement  much  abridged ;   arguments,  part  of  opinion  and  dissenting 
opinion  of  Mr.  Justice  Harlan  omitted. 


IIOO      ST.  LOUIS  AND  SAN  FRANCISCO  RY.   CO.  V.  JAMES.       §   322 

tor  negligence  in  maintaining  a  switch  target  so  near  its  tracks,  in  the 
state  of  Missouri,  that  her  husband,  a  fireman  on  the  company's  en- 
gine, was  killed.  Mrs.  James  resided  in  Monett,  Mo.,  where  the 
accident  took  place.  The  railway  company  was  incorporated  in  Mis- 
souri in  1876,  and  soon  thereafter  became  the  owner  of  a  road  ex- 
tending southerly  from  Monett,  to  the  state  line,  and  on  to  Fort 
Smith  in  Arkansas ;  the  latter  part  of  this  line  had  been  purchased  in 
1882  by  the  St.  L.  &  S.  F.  Co. ;  in  1889  Arkansas  changed  her 
former  law  relating  to  foreign  railway  companies  owning  or  opei'ating 
railways  in  that  state  by  enacting  that  such  company  before  having 
the  benefit  of  such  act  shall  within  sixty  days  file  with  the  secretary 
of  state  a  certified  copy  of  its  articles  of  incoiporation  or  charter, 
"and  shall  thereupon  become  a  corporation  of  this  state,  anything  in 
its  articles  of  incorporation  or  charter  to  the  contraiy  notwithstanding, 
and  in  all  suits  and  proceedings  instituted  against  such  corporation 
process  may  be  sei-\'ed"  as  in  case  of  "corporations  in  this  state  or- 
ganized and  existing  under  the  laws  of  this  state."  The  railway 
company  filed  its  copy  of  its  articles  of  incorporation  as  required  by 
the  act  of  1889,  but  was  never  otherwise  incorporated  in  Arkansas. 
The  railway  company  duly  objected  to  the  jurisdiction  of  the  court, 
on  the  ground  that  the  plaintiff  and  defendant  were  both  citizens  of 
Missouri,  and  that  the  requisite  diversity  of  citizenship  did  not  exist 
so  as  to  give  jurisdiction  to  the  United  States  courts ;  the  question  was 
so  raised,  by  exceptions  to  the  ruling  of  the  trial  court,  and  assign- 
ments of  error,  as  to  be  presented  to  the  circuit  court  of  appeals,  by 
which  four  questions  were  certified  to  this  court:  i.  Under  the  act  of 
1889,  by  filing  its  articles  of  incorporation,  and  continuing  to  operate 
its  road,  did  the  railway  company  "become  a  corporation  and  citizen 
of  Arkansas?"  2.  Did  it  thus  become  a  citizen  of  Arkansas  so  as  to 
give  to  the  United  States  Circuit  Court,  western  district  of  Arkansas,  ju- 
risdiction of  this  action,  in  which  complainant  was  a  citizen  of  Missouri  ? 
3.  Did  it  so  become  a  citizen  of  Arkansas  as  to  give  such  court  juris- 
diction of  such  action,  when  complainant  was  a  citizen  of  Missouri, 
and  when  the  cause  of  action  accrued  there  ?  4.  Under  all  the  cir- 
cumstances, did  the  said  court  have  jurisdiction  of  the  action  ?"] 

Mr.  Justice  Shiras.  Etta  James,  as  a  citizen  of  the  state  of  Mis- 
souri, and  having  a  cause  of  action  against  the  St.  Louis  and  San 
Francisco  Railway  Company,  a  corporation  of  the  state  of  Missouri, 
could,  of  course,  sue  the  latter  in  the  courts  of  that  state,  but  equally, 
of  course,  could  not  sue  such  state  corporation  in  the  circuit  court  of 
the  United  States  for  the  district  of  Missouri.  Can  she,  as  such  citizen 
of  the  state  of  Missouri,  lawfully  assert  her  cause  of  action  in  the  cir- 
cuit court  of  the  United  States  for  the  district  of  Arkansas  against  the 
St.  Louis  and  San  Francisco  Railway  Company  by  showing  that  the 
latter  had  availed  itself  of  the  rights  and  privileges  conferred  by  the 
state  of  Arkansas  on  railroad  corporations  of  other  states  coming 
within  her  borders  and  complying  with  the  terms  and  conditions  of 
her  statutes.? 

Before  addressing  ourselves  directly  to  this  question,  it  must  be  con- 


§   322  POWER    TO    SUE   AND    BE   SUED.  IIOI 

ceded  that  the  plaintiff's  cause  of  action,  though  arising  in  Missouri, 
is  transitory  in  its  nature,  and  that  the  St.  Louis  and  San  Francisco 
Railway  Company,  though  denying  the  plaintiff's  right  to  sue  it  in 
the  circuit  court  of  Arkansas,  waives  its  statutory  privilege  of  being 
sued  only  in  the  district  in  which  it  has  its  habitat- 
It  must  be  regarded,  to  begin  with,  as  finally  settled,  by  repeated 
decisions  of  this  court,  that,  for  the  puipose  of  jurisdiction  in  the  fed- 
eral courts,  a  state  corporation  is  deemed  to  be  indisputably  composed" 
of  citizens  of  such  state.  It  is  equally  true  that,  without  objection  so 
far  from  the  federal  authority,  whether  legislative  or  judicial,  it  has 
become  customary  for  a  state,  adjacent  to  the  state  creating  a  railroad 
corporation,  to  legislatively  grant  authority  to  such  foreign  corpora- 
tion to  enter  its  territory  with  its  road — to  make  running  arrangements 
with  its  own  railroads — to  buy  or  lease  them,  or  to  consolidate  with 
the  companies  owning  them.  Sometimes,  as  in  the  present  case,  such 
foreign  corporation  is  declared,  upon  its  acceptance  of  prescribed 
terms  and  conditions,  to  become  a  domestic  corporation  of  such  ad- 
jacent state,  and  to  be  endowed  with  all  the  ri*ghts  and  privileges  en- 
joyed by  similar  corporations  created  by  such  state. 

We  have  already  said  that  the  rule  that  state  corporations  are  in- 
disputably composed  of  citizens  of  the  states  creating  them  is  finally 
settled.  But,  in  view  of  the  question  now  before  us,  it  may  be  well 
to  briefly  review  some  of  the  cases. 

In  the  case  of  Bank  of  the  United  States  v.  Deveaux,  5  Cranch  61, 
87,  88,  where  an  action  had  been  brought  against  citizens  of  the  state 
of  Georgia  in  the  circuit  court  of  the  United  States  for  the  district  of 
Georgia,  by  a  petition  of  "the  president,  directors  and  company  of 
the  Bank  of  the  United  States,"  wherein  it  was  alleged  that  the  peti- 
tioners were  citizens  of  the  state  of  Pennsylvania,  it  was  held  that  a 
corporation  aggregate,  composed  of  citizens  of  one  state,  may  sue  a 
citizen  of  another  state  in  the  circuit  court  of  the  United  States,  and 
Chief  Justice  Marshall,  in  giving  the  opinion  of  the  court,  said :  "Sub- 
stantially and  essentially,  the  parties  in  such  a  case,  where  the  mem- 
bers of  the  coi-poration  are  aliens  or  citizens  of  a  different  state  from 
the  opposite  party,  come  within  the  spirit  and  terms  of  the  jurisdiction 
conferred  by  the  constitution  on  the  national  tribunals." 

Before  leaving  this  case  it  should  be  noted  that  the  United  States 
Bank  was  not  a  corporation  of  the  state  of  Pennsylvania,  but  of  the 
United  States.  The  decision,  therefore,  was  to  the  effect  that  where 
it  appeared  that  a  corporation  plaintiff,  regardless  of  its  origin,  was 
composed  of  aliens  or  of  citizens  of  a  different  state  from  the  defend- 
ant, the  plaintiff,  through  suing  in  its  corporate  name,  could  make  the 
averment  that  the  individuals  who  composed  the  corporation  were 
such  aliens  or  citizens  of  a  different  state,  and  such  averment,  if  not 
traversed,  would  sustain  the  jurisdiction.  The  principle  of  the  case 
makes  the  individual  corporators  the  real  parties  to  the  suit. 

In  Louisville,  Cincinnati,  etc.,  Railroad  v.  Letson,  2  How.  497, 
555,  an  action  was  brought,  in  the  circuit  court  of  the  United  States 
for  the  district  of  South  Carolina,  by  a  citizen  of  the  state  of  New 


II02      ST.   LOUIS  AND  SAN  FRANCISCO  RY.  CO.  V.  JAMES.       §  322 

York  against  a  corporation  whose  members  were  alleged  to  be  citi- 
zens of  South  Carolina.  A  plea  to  the  jurisdiction  was  set  up  that 
there  were  members  of  the  defendant  company  who  were  not  citizens 
of  the  state  of  South  Carolina,  but  of  another  state  than  New  York 
or  South  Carolina.  In  the  opinion  in  this  case,  Bank  of  the  United 
States  V.  Deveaux  was  said  to  have  gone  too  far,  and  that  consequences 
and  inferences  had  been  argumentatively  drawn  from  it  which  ought 
hot  to  be  followed,  and  it  was  said  that  "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  artificial  one,  inhabiting  and  belong- 
ing to  that  state,  and,  therefore,  entitled,  for  the  purpose  of  suing  and 
being  sued,  to  be  deemed  a  citizen  of  that  state,"  and  accordingly  the 
judgment  of  the  circuit  court,  overruling  the  plea  to  its  jurisdiction, 
was  sustained.      *     *     * 

(Citing,  and  quoting  from,  as  following  the  Letson  case,  Marshall 
V.  B.  &  O.  R.  R.,  i6  How.  314,  329;  Covington  .Drawbridge  Co.  v. 
Shepherd,  20  How.  227,  233.) 

The  previous  cases  were  reviewed  in  Ohio  and  Mississippi  Railroad 
v.  Wheeler,  i  Black  286,  297.  That  was  the  case  of  an  action 
brought  in  the  circuit  court  of  the  United  States  for  the  district  of  In- 
diana against  Wheeler,  a  citizen  of  that  state,  to  recover  the  amount 
due  on  his  subscription  to  stock  of  the  Ohio  and  Mississippi  Railroad 
Company.  The  declaration  described  the  plaintiffs  as  the  "president 
and  directors  of  the  Ohio  and  Mississippi  Railroad  Company,  a  cor- 
poration created  by  the  laws  of  the  states  of  Indiana  and  Ohio,  and 
having  its  principal  place  of  business  in  Cincinnati,  in  the  state  of 
Ohio,  a  citizen  of  the  state  of  Ohio."  The  defendant  pleaded  to  the 
jurisdiction  by  alleging  that  the  plaintiff  company,  although  a  corpo- 
ration of  the  state  of  Ohio  in  the  first  instance,  had  been  incorporated 
by  an  act  of  assembly  of  the  state  of  Indiana,  and  thus  had  become 
a  body  corporate  of  the  same  state  whereof  he  was  a  citizen. 

The  question  thus  raised  was  on  a  certificate  of  a  division  of  opinion 
between  the  judges  of  the  circuit  court,  brought  to  this  court,  and  was 
answered  as  follows:  "This  suit  in  the  corporate  name  is,  in  con- 
templation of  law,  the  suit  of  the  individual  persons  who  compose  it, 
and  must,  therefore,  be  regarded  and  treated  as  a  suit  in  which  citi- 
zens of  Ohio  and  Indiana  are  joined  as  plaintiffs  in  an  action  against 
a  citizen  of  the  last  mentioned  state.  Such  an  action  can  not  be  main- 
tained in  a  court  of  the  United  States,  where  jurisdiction  of  the  case 
depends  altogether  on  the  citizenship  of  the  parties.  And,  in  such  a 
suit,  it  can  make  no  difference  whether  the  plaintiffs  sue  in  their  own 
proper  names  or  by  the  corporate  name  and  style  by  which  they  are 
described.  The  averments  in  the  declaration  would  seem  to  imply 
that  the  plaintiffs  claim  to  have  been  created  a  corporate  body,  and  to 
have  been  endued  with  the  capacities  and  faculties  it  possesses  by  the 
co-operating  legislation  of  the  two  states,  and  to  be  one  and  the  same 
legal  being  in  both  states.  If  this  were  the  case  it  would  not  affect 
the  question   of  jurisdiction  in  this  suit.     But  such  a  corporation  can 


§  322  POWER   TO    SUE   AND    BE    SUED.  IIO3 

have  no  legal  existence  upon  the  principles  of  the  common  law  or 
under  the  decision  of  this  court  in  the  case  of  the  Bank  of  Augusta  v. 
Earle.^  It  is  true  that  a  corporation  by  the  name  and  style  of  the 
plaintiffs  appears  to  have  been  chartered  by  the  states  of  Indiana  and 
Ohio,  clothed  with  the  same  capacities  and  powers,  and  intended  to 
accomplish  the  same  objects,  and  it  is  spoken  of  in  the  laws  of  those 
states  as  one  corporate  body,  exercising  the  same  powers  and  fulfilling 
the  same  duties  in  both  states.  Yet  it  has  no  legal  existence  in  either 
state,  except  by  the  law  of  the  state.  And  neither  state  could  confer 
on  it  a  corporate  existence  in  the  other,  nor  add  to  or  diminish  the 
powers  to  be  there  exercised.  It  may,  indeed,  be  composed  of  and 
represent,  under  the  corporate  name,  the  same  natural  persons.  But 
the  legal  entity  or  person,  which  exists  by  force  of  law,  can  have  no 
existence  beyond  the  limits  of  the  state  or  sovereignty  which  brings  it 
into  life  and  endues  it  with  its  faculties  and  powers.  The  president 
and  directors  of  the  Ohio  and  Mississippi  Railroad  Company  are, 
therefore,  a  distinct  and  separate  corporate  body  in  Indiana  from  the 
corporate  body  of  the  same  name  in  Ohio,  and  they  can  not  be  joined 
in  a  suit  as  one  and  the  same  plaintiff,  nor  maintain  a  suit  in  that 
character  against  a  citizen  of  Ohio  or  Indiana  in  a  circuit  court  of  the 
United  States.  «  *  »  And  we  shall  certify  to  the  circuit  court 
that  it  has  no  jurisdiction  of  the  case  on  the  facts  presented  by  the 
pleadings."      «     *     * 

(Citing  and  quoting  from  Memphis  &  Charleston  R.  R.  v.  Ala- 
bama, 107  U.  S.  581,  585,  and  Railway  Company  v.  Whitton,  13 
Wall.  270.) 

One  phase  of  the  subject  was  before  the  court  in  the  case  of  the 
Pennsylvania  Co.  v.  St.  Louis,  etc.,  Railroad,  118  U.  S.  290,  295. 
A  suit  had  been  brought  in  the  circuit  court  of  the  United  States  for 
the  district  of  Indiana  by  the  St.  Louis,  Alton  and  Terre  Haute  Rail- 
road Company,  alleging  that  it  was  a  corporation  organized  under  the 
laws  of  the  state  of  Illinois,  and  a  citizen  of  that  state,  against  the  In- 
dianapolis and  St.  Louis  Company,  a  corporation  organized  under 
the  laws  of  the  state  of  Indiana,  and  a  citizen  of  that  state,  and  against 
other  corporations  mentioned  in  the  bill  as  citizens  of  Indiana,  or  of 
other  states  than  Illinois.  An  objection  to  the  jurisdiction  was  made 
on  the  ground  that  the  St.  Louis,  Alton  and  Terre  Haute  Railroad 
Company  was  organized  under  laws  of  both  Illinois  and  Indiana, 
and  was,  therefore,  a  citizen  of  the  latter  state.  In  treating  this  ques- 
tion this  court  said,  by  Mr.  Justice  Miller:  "It  does  not  seem  to  ad- 
mit of  question  that  a  corporation  of  one  state,  owning  property  and 
business  in  another  state  by  permission  of  the  latter,  does  not  be- 
come a  citizen  of  this  state  also.  And  so  a  corporation  of  Illinois, 
authorized  by  its  laws  to  build  a  railroad  across  the  state  from  the 
Mississippi  River  to  its  eastern  boundary,  may  by  permission  of  the 
state  of  Indiana  extend  its  road  a  few  miles  within  the  limits  of  the 
latter,  or,  indeed,  through  the  entire  state,  *  *  *  without  thereby 
becoming  a  corporation  or  a  citizen  of  the  state  of  Indiana.  Nor 
does  it  seem  to  us  that  an  act  of  the  legislature  conferring  upon  this 

» 13  Pet.  519. 


ri04      ST.  LOUIS  AND  SAN  FRANCISCO  RY.  CO.  V.  JAMES.       §   322 

corporation  of  Illinois,  by  its  Illinois  corporate  name,  such  powers  to 
enable  it  to  use  and  control  that  part  of  the  road  within  the  state  of 
Indiana  as  have  been  conferred  on  it  by  the  state  which  created  it, 
constitutes  it  a  corporation  of  the  state  of  Indiana.  It  may  not  be 
easy  in  all  such  cases  to  distinguish  between  the  purpose  to  create  a 
new  corporation  which  shall  owe  its  existence  to  the  law  or  statute 
under  consideration,  and  the  intent  to  enable  the  corporation  already 
in  existence  under  laws  of  another  state  to  exercise  its  functions  in  the 
state  where  it  is  so  received.  The  latter  class  of  laws  are  common  in 
authorizing  insurance  companies,  banking  companies  and  others  to  da 
business  in  other  states  than  those  which  have  chartered  them.  To 
make  such  a  company  a  corporation  of  another  state,  the  language 
must  imply  creation  or  adoption  in  such  form  as  to  confer  the  power 
usually  exercised  over  corporations  by  the  state,  or  by  the  legislature, 
and  such  allegiance  as  a  state  corporation  owes  to  its  creator.  The 
mere  grant  of  privileges  or  powers  to  it  as  an  existing  corporation, 
without  more,  does  not  do  this,  and  does  not  make  it  a  citizen  of  the 
state  conferring  such  powers." 

So  in  Nashua  Railroad  v.  Lowell  Railroad,  136  U.  S.  356,  it  was 
held  that  railroad  corporations,  created  by  two  or  more  states,  though 
joined  in  their  interests,  in  the  operation  of  their  roads,  in  the  issue 
of  their  stock  and  in  the  division  of  their  profits,  so  as  practically  to 
be  a  single  corporation,  do  not  lose  their  identity;  but  each  has  its 
existence  and  its  standing  in  the  courts  of  the  country  only  by  virtue 
of  the  legislation  of  the  state  by  which  it  was  created,  and  the  union 
of  name,  of  officers,  of  business  and  property,  does  not  change  their 
distinctive  character  as  separate  corporations. 

To  fully  reconcile  all  the  expressions  used  in  these  cases  would  be 
no  easy  task,  but  we  think  the  following  propositions  may  be  fairly 
deduced  from  them:  There  is  an  indisputable  legal  presumption  that 
a  state  corporation,  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  constitution  of  the  United  States  which  confei's  jurisdiction  upon 
the  federal  courts  in  "controversies  between  citizens  of  different 
states." 

It  is  competent  for  a  railroad  corporation  organized  under  the  laws 
of  one  state,  when  authorized  so  to  do  by  the  consent  of  the  state 
which  created  it,  to  accept  authority  from  another  state  to  extend  its 
railroad  into  such  state,  and  to  receive  a  grant  of  powers  to  own  and 
control,  by  lease  or  purchase,  railroads  therein,  and  to  subject  itself 
to  such  rules  and  regulations  as  may  be  prescribed  by  the  second  state. 
Such  legislation  on  the  part  of  two  or  more  states  is  not,  in  the  ab- 
sence of  inhibitory  legislation  by  congress,  regarded  as  within  the 
constitutional  prohibition  of  agreements  or  compacts  between  states. 

Such  corporations  may  be  treated  by  each  of  the  states  whose  legis- 
lative grants  they  accept  as  domestic  corporations. 

The  presumption  that  a  corporation  is  composed  of  citizens  of  the 
state  which  created  it  accompanies  such  corporation  when  it  does  busi- 


§   322  POWER    TO    SUE   AND    BE   SUED.  •    I  IO5 

ness  in  another  state,  and  it  may  sue  or  be  sued  in  the  federal  courts 
in  such  other  state  as  a  citizen  of  the  state  of  its  original  creation. 

We  are  now  asked  to  extend  the  doctrine  of  indisputable  citizen- 
ship, so  that  if  a  corporation  of  one  state,  indisputably  taken,  for  the 
purpose  of  federal  jurisdiction,  to  be  composed  of  citizens  of  such 
state,  is  authorized  by  the  law  of  another  state  to  do  business  therein, 
and  to  be  endowed,  for  local  purposes,  with  all  the  powers  and  privi- 
leges of  a  domestic  corporation,  such  adopted  corporation  shall  be 
deemed  to  be  composed  of  citizens  of  the  second  state  in  such  a  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  such  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.      *     *     * 

(After  reviewing  the  former  Arkansas  legislation  relative  to  foreign 
corporations  acquiring  and  operating  railroads  in  the  state,  under 
which  the  road  in  question  was  acquired,  and  showing  such  former 
legislation  did  not  attempt  to  make  the  foreign  corporation  an  Ar- 
kansas corporation.) 

It  is  true  that  by  the  subsequent  act  of  1889,  by  the  proviso  to  the  sec- 
ond 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  of  the  passage  of  the  act,  file  a 
certified  copy  of  its  articles  of  incorporation  or  charter  with  the  secre- 
tary of  state,  and  shall  thereupon  become  a  corporation  of  Arkansas, 
anything  in  its  articles  of  incorporation  or  charter  to  the  contrary  not- 
withstanding; and  it  appears  that  the  defendant  company  did  accord- 
ingly 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  regula- 
tion by  the  local  laws  of  Arkansas,  we  can  not  concede  that  it  availed 
to  create  an  Arkansas  corporation  out  of  a  foreign  corporation  in  such 
a  sense  as  to  make  it  a  citizen  of  Ai'kansas  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  an  artificial  body  as  a 
corporation  within  the  spirit  and  letter  of  that  constitution,  as  con- 
strued by  the  decisions  of  this  court,  it  would  be  necessary  to  create 
it  out  of  natural  persons,  whose  citizenship  of  the  state  creating  it 
could  be  imputed  to  the  corporation  itself.  But  it  is  not  pretended  in 
the  present  case  that  natural  persons,  resident  in  and  citizens  of  Ar- 
kansas, were  by  the  legislation  in  question  created  a  corporation,  and 

70 — WIL.  CASES 


I  I06  SHAW   V.    QUINCY   MIN.    CO.  §   323 

that,  therefore,  the  citizenship  of  the  individual  corporators  is  im- 
putable to  the  corporation.      *     *     * 

The  result  of  these  views  is  that  we  answer  the  second  question  put 
to  us  by  the  circuit  court  of  appeals  in  the  negative^  and  this  renders 
it  unnecessary  to  answer  the  other  questions. 

Mr.  Justice  Harlan  dissents. 

Note.     See  note  at  end  of  next  case. 


Sec.  323;     Same.     In  what  district. 

SHAW  V.  QUINCY  MIN.  C0.» 

1892.     In  THE  Supreme  Court  of  the  United  States.     145  U.  S. 
444,  12  Sup.  Ct.  Rep.  935. 

[This  was  a  petition  for  a  writ  of  mandamus  to  the  judges  of  the 
circuit  court  of  the  United  States  for  the  southern  district  of  New  York 
to  command  them  to  take  jurisdiction  against  the  Quincy  Mining 
Company  upon  a  bill  in  equity  filed  in  that  court  on  September  3, 
1891,  by  the  petitioner,  described  in  the  bill  as  a  citizen  of  Massa- 
chusetts, in  behalf  of  himself  and  other  stockholders  of  the  Quincy 
Mining  Company,  against  "the  Quincy  Mining  Company,  a  corpora- 
tion duly  organized  under  the  laws  of  the  state  of  Michigan,  and  hav- 
ing a  usual  place  of  business  in  the  city,  county  and  state  of  New 
York."  Upon  that  bill  a  subpena  was  issued,  directed  to  the  Quincy 
Mining  Company,  and  was  served  upon  it  within  the  southern  district 
of  New  York.  The  Quincy  Mining  Company  appeared  specially, 
and  moved  for  an  order  to  set  aside  the  service. 

At  the  hearing  of  the  motion  it  appeared  that  the  law  of  Michigan 
allowed,  and  its  articles  of  association  provided:  "The  business  office 
of  the  company  shall  be  in  the  city,  county  and  state  of  New  York, 
and  another  business  office  at  the  Quincy  mine,  in  the  county  of 
Houghton  and  state  of  Michigan." 

The  order  to  set  aside  the  service  was  granted  by  the  court,  upon 
the  ground  "that  said  Quincy  Mining  Company  is  a  corporation  cre- 
ated and  existing  inider  the  laws  of  the  state  of  Michigan,  and  is  an 
inhabitant  of  the  western  district  of  Michigan,  and  not  an  inhabitant 
of  the  southern  district  of  New  York."] 

Mr.  Justice  Gray.  The  single  question  in  this  case  is  whether 
under  the  act  of  March  3,  1887,  ch.  373,  §  i,  as  corrected  by  the  act 
of  August  13,  1888,  ch.  866  (the  material  parts  of  which  are  copied 
in  the  margin^),  a  corporation  incorporated  in  one  state  of  the  union, 

*  Statement  abridged  and  part  of  opinion  omitted. 

^  "The  circuit  courts  of  the  United  States  shall  have  original  cognizance, 
concurrent  with  the  courts  of  the  several  states,  of  all  suits  of  a  civil  nature, 
at  common  law  or  in  equity,  where  the  matter  in  dispute  exceeds,  exclusive 
of  interest  and  costs,  the  sum  or  value  of  two  thousand  dollars,  and  arising 

under  the  constitution  or  laws  of  the  United  States,  or  treaties  made,  or  which 


§   323  POWER   TO    SUE   AND    BE   SUED.  1 107 

and  having  a  usual  place  of  business  in  another  state  in  which  it  has 
not  been  incorporated,  may  be  sued,  in  a  circuit  court  of  the  United 
States  held  in  the  latter  state,  by  a  citizen  of  a  different  state. 

This  question,  upon  which  there  has  been  a  diversity  of  opinion  in 
the  circuit  courts,  can  be  best  determined  by  a  review  of  the  acts  of 
congress,  and  of  the  decisions  of  this  court,  regarding  the  original 
jurisdiction  of  the  circuit  courts  of  the  United  vStates  over  suits  be- 
tween citizens  of  different  states. 

In  carrying  out  the  provision  of  the  constitution  which  declares  that 
the  judicial  power  of  the  United  States  shall  extend  to  controversies 
* 'between  citizens  of  different  states,"  congress,  by  the  judiciary  act 
of  September  24,  1789,  ch.  20,  §  11,  conferred  jurisdiction  on  the 
circuit  court  of  suits  of  a  civil  nature,  at  common  law  or  in  equity, 
* 'between  a  citizen  of  the  state  where  the  suit  is  brought  and  a  citizen 
of  another  state,"  and  provided  that  "no  civil  suit  shall  be  brought" 
"against  an  inhabitant  of  the  United  States,"  "in  any  other  district 
than  that  whereof  he  is  an  inhabitant,  or  in  which  he  shall  be  found 
at  the  time  of  serving  the  writ."      i  St.,  pp.  78,  79. 

The  word  "inhabitant,"  in  that  act,  was  apparently  used,  not  in 
any  larger  meaning  than  "citizen,"  but  to  avoid  the  incongmity  of 
speaking  of  a  citizen  of  anjrthing  less  than  a  state,  when  the  intention 
was  to  cover  not  only  a  district  which  included  a  whole  state,  but  also 
two  districts  in  one  state,  like  the  districts  of  Maine  and  Massachusetts 
in  the  state  of  Massachusetts,  and  the  districts  of  Virginia  and  Ken- 
tucky in  the  state  of  Virginia,  established  by  section  2  of  the  same 
act.  I  St.,  p.  73.  It  was  held  by  this  court  from  the  beginning  that 
an  averment  that  a  party  resided  within  the  state  or  the  district  in 
which  the  suit  was  brought  was  not  sufficient  to  support  the  jurisdic- 
tion, because  in  the  common  use  of  words  a  resident  might  not  be  a 
citizen,  and,  therefore,  it  was  not  stated  expressly  and  beyond  am- 
biguity that  he  was  a  citizen  of  the  state,  which  was  the  fact  on  which 
the  jurisdiction  depended  under  the  provisions  of  the  constitution  and 
of  the  judiciary  act.  Bingham  v.  Cabot,  3  Dall.  382;  Turner  v. 
Bank,  4  Dall.  8 ;  Abercrombie  v.  Dupuis,  i  Cranch  343 ;  Hodgson 
V.  Bowerbank,  5  Cranch  303;  Brown  v.  Keene,  8  Pet.  112,  115. 
The  same  rule  has  been  maintained  to  the  present  day,  and  has  been 

shall  be  made,  under  their  authority,  or  in  which  controversy  the  United 
States  are  plaintiffs  or  petitioners,  or  in  which  there  shall  be  a  controversy  be- 
tween citizens  of  different  states,  in  which  the  matter  in  dispute  exceeds,  ex- 
clusive of  interest  and  costs,  the  sum  or  value  aforesaid,  or  a  controversy 
between  citizens  of  the  same  state  claiming  lands  under  grants  of  different 
states,  or  a  controversy  between  citizens  of  a  state  and  foreign  states,  citizens 
or  subjects,  in  which  the  matter  in  dispute  exceeds,  exclusive  of  interest  and 
costs,  the  sum  or  value  aforesaid."  "But  no  person  shall  be  arrested  in  one 
district  for  trial  in  another  in  any  civil  action  before  a  circuit  or  district  court. ; 
and  no  civil  suit  shall  be  brought  before  either  of  said  courts  against  any  per- 
son by  any  original  process  or  proceeding  in  anv  other  district  than  that 
whereof  he  is  an  inhalsitant;  but  where  the  jurisdiction  is  founded  only  on 
the  fact  that  the  action  is  between  citizens  of  different  states,  suit  shall  be 
brought  onlv  in  the  district  of  the  residence  of  either  the  plaintiff  or  the  de- 
fendant."   25  St.,  p.  434. 


II08  SHAW   V.    QUINCY   MIN.    CO.  §   323 

held  to  be  unaffected  by  the  fourteenth  amendment  of  the  constitu- 
tion, declaring  that  "all  persons  born  or  naturalized  in  the  United 
States,  and  subject  to  the  jurisdiction  thereof,  are  citizens  of  the 
United  States  and  of  the  state  wherein  they  reside."  Robertson  v. 
Cease,  97  U.  S.  646;  Grace  v.  American  Ins.  Co.,  109  U.  S.  278,  5 
Sup.  Ct.  Rep.  207;  Timmons  v.  Land  Co.,  139  U.  S.  378,  11  Sup. 
Ct.  Rep.  585  ;  Denny  v.  Pironi,  141  U.  S.  121,  11  Sup.  Ct.  Rep.  966. 

By  the  act  of  May  4,  1858,  ch.  27,  §  i,  it  was  enacted  that,  in  a 
state  containing  more  than  one  district,  actions  not  local  should  "be 
brought  in  the  district  in  which  the  defendant  resides,"  or,  "if  there 
be  two  or  more  defendants  residing  in  different  districts  in  the  same 
state,"  then  in  either  district.  11  St.,  p.  272.  The  whole  purport 
and  effect  of  that  act  was  not  to  enlarge,  but  to  restrict  and  distribute, 
jurisdiction.  It  applied  only  to  a  state  containing  two  or  more  dis- 
tricts, and  directed  suits  against  citizens  of  such  a  state  to  be  brought 
in  that  district  theiieof  in  which  they  or  either  of  them  resided.  It 
did  not  subject  defendants  to  any  new  liability  to  be  sued  out  of  the 
state  of  which  they  were  citizens,  but  simply  prescribed  in  which  dis- 
trict of  that  state  they  might  be  sued. 

These  provisions  of  the  acts  of  1789  and  1858  were  substantially 
re-enacted  in  sections  739  and  740  of  the  Revised  Statutes. 

The  act  of  March  3,  1875,  ch.  137,  §  i,  after  giving  the  circuit 
courts  jurisdiction  of  suits  "in  which  there  shall  be  a  controversy  be- 
tween citizens  of  different  states,"  and  enlarging  their  jurisdiction  in 
other  respects,  substantially  re-enacted  the  corresponding  provision  of 
the  act  of  1789,  by  providing  that  no  civil  suit  should  be  brought 
"against  any  person"  "in  any  other  district  than  that  whereof  he  is 
an  inhabitant,  or  in  which  he  shall  be  found"  at  the  time  of  service, 
with  certain  exceptions,  not  affecting  the  matter  now  under  consid- 
eration.     18  St.,  p.  470. 

The  act  of  1887,  both  in  its  original  form  and  as  corrected  in  1888, 
re-enacts  the  rule  that  no  civil  suit  shall  be  brought  against  any  person 
in  any  other  district  than  that  whereof  he  is  an  inhabitant,  but  omits 
the  clause  allowing  a  defendant  to  be  sued  in  the  district  where  he  is 
found,  and  adds  this  clause:  "But  where  the  jurisdiction  is  founded 
only  on  the  fact  that  the  action  is  between  citizens  of  different  states, 
suit  shall  be  brought  only  in  the  district  of  the  residence  of  either  the 
plaintiff  or  the  defendant."  24  St.,  p.  552;  25  St.,  p.  434.  As  has 
been  adjudged  by  this  court,  the  last  clause  is  by  way  of  proviso  to 
the  next  preceding  clause,  which  forbids  any  suit  to  be  brought  in 
any  other  district  than  that  whereof  the  defendant  is  an  inhabitant; 
and  the  effect  is  that,  "where  the  jurisdiction  is  founded  upon  any  of 
the  causes  mentioned  in  this  section,  except  the  citizenship  of  the  par- 
ties, it  must  be  brought  in  the  district  of  which  the  defendant  is  an 
inhabitant;  but  where  the  jurisdiction  is  founded  solely  upon  the 
fact  that  the  parties  are  citizens  of  different  states,  the  suit  may  be 
brought  in  the  district  in  which  either  the  plaintiff  or  the  defendant 
resides."  McCormick  Co.  v.  Walthers,  134  U.  S.  41,  43,  10  Sup. 
Ct.  Rep.  485.    And  the  general  object  of  this  act,  as  appears  upon  its 


§  323  POWER  TO   SUE   AND   BE   SUED.  IIO9 

face,  and  as  has  been  often  declared  by  this  court,  is  to  contract,  not 
to  enlarge,  the  jurisdiction  of  the  circuit  courts  of  the  United  States. 
Smith  V.  Lyon,  133  U.  S.  315,  320,  10  Sup.  Ct.  Rep.  303;  In  re 
Pennsylvania  Co.,  137  U.  S.  451,  454,  11  Sup.  Ct.  Rep.  141  ;  Fisk 
V.  Henarie,  143  U.  S.  459,  467,  12  Sup.  Ct.  Rep.  207. 

As  to  natural  persons,  therefore,  it  can  not  be  doubted  that  the 
effect  of  this  act,  read  in  the  light  of  earlier  acts  upon  the  same  sub- 
ject and  of  the  judicial  construction  thereof,  is  that  the  phrase  "dis- 
trict of  the  residence  of"  a  person  is  equivalent  to  "district  whereof 
he  is  an  inhabitant,"  and  can  not  be  construed  as  giving  jurisdiction, 
by  reason  of  citizenship,  to  a  circuit  court  held  in  a  state  of  which 
neither  party  is  a  citizen,  but,  on  the  contrary,  restricts  the  jurisdic- 
tion to  the  district  in  which  one  of  the  parties  resides  within  the  state 
of  which  he  is  a  citizen ;  and  that  this  act,  therefore,  having  taken 
away  the  alternative,  permitted  in  the  earlier  acts,  of  suing  a  person 
in  the  district  "in  which  he  shall  be  found,"  requires  any  suit,  the 
jurisdiction  of  which  is  founded  only  on  its  being  between  citizens  of 
different  states,  to  be  brought  in  the  state  of  which  one  is  a  citizen, 
and  in  the  district  therein  of  which  he   is  an  inhabitant  and  resident. 

In  the  case  of  a  corporation,  the  reasons  are,  to  say  the  least,  quite 
as  strong  for  holding  that  it  can  sue  and  be  sued  only  in  the  state  and 
district  in  which  it  has  been  incorporated,  or  in  the  state  of  which  the 
other  party  is  a  citizen. 

In  Bank  v.  Earle,  13  Pet.  519,  588,  Chief  Justice  Taney  said:  "It 
is  very  true  that  a  corporation  can  have  no  legal  existence  out  of  the 
boundaries  of  the  sovereignty  by  which  it  is  created.  It  exists  only 
in  contemplation  of  law,  and  by  force  of  the  law;  and  where  that  law 
ceases  to  operate,  and  is  no  longer  obligatory,  the  corporation  can 
have  no  existence.  It  must  dwell  in  the  place  of  its  creation,  and  can 
not  migrate  to  another  sovereignty.  But,  although  it  must  live  and 
have  its  being  in  that  state  only,  yet  it  does  not  by  any  means  follow 
that  its  existence  there  will  not  be  recognized  in  other  places;  and  its 
residence  in  one  state  creates  no  insuperable  objection  to  its  power  of 
contracting  in  another." 

This  statement  has  been  often  reaffirmed  by  this  court,  with  some 
change  of  phrase,  but  always  retaining  the  idea  that  the  legal  exist- 
ence, the  home,  the  domicile,  the  habitat,  the  residence,  the  citizen- 
ship of  the  corporation  can  only  be  in  the  state  by  which  it  was 
created,  although  it  may  do  business  in  other  states  whose  laws  per- 
mit it.     *     *     * 

(Citing  and  quoting  Insurance  Co.  v.  French,  18  How.  404;  Rail- 
road Co.  v.  Koontz,  104  U.  S.  5,  n,  12.  See,  also,  Paul  v.  Virginia, 
8  Wall.  168,  i8r  ;  Railroad  Company  v.  Harris,  12  Wall.  65,  81  ;  St. 
Clair  v.  Cox,  106  U.  S.  350,  354,  356;  Railway  Co.  v.  Gebhard,  109 
U.  S.  527,  537;  Bank  v.  Deveaux,  5  Cranch  61  ;  Insurance  Co.  v. 
Boardman,  5  Cranch  57;  Sullivan  v.  Steamboat  Co.,  6  Wheat.  450; 
Breithaupt  v.  Bank,  i  Pet.  238;  Bank  v.  Slocomb,  14  Pet.  60;  Rail- 
road Co.  v.  Letson,  2  How.  497,  558;  Marshall  v.  Railroad  Co.,  16 
How.  314,  328;    Drawbridge  Co.  v.  Shepherd,  20  How.   227,  233; 


1110  SHAW    V.    QUINCY   MIN.    CO.  §  323 

Railroad  Co.  v.  Wheeler,  i  Black  286,  296;  Muller  v.  Dows,  94  U. 
S.  444;  Steamship  Co.  v.  Tugman,  106  U.  S.  118,  121  ;  Railroad 
Co.  V.  Alabama,  107  U.  S.  581,  585;  Insurance  Co.  v.  Francis,  11 
Wall.  210,  216.) 

In  Ex  farte  Schollenberger,  96  U.  S.  369,  377,  Chief  Justice 
Waite  said:  "A  corporation  can  not  change  its  residence  or  its  citi- 
zenship. It  can  have  its  legal  home  only  at  the  place  where  it  is 
located  by  or  under  the  authority  of  its  charter;  but  it  may  by  its 
agents  transact  business  anywhere,  unless  prohibited  by  its  charter,  or 
excluded  by  local  laws."  The  jurisdiction  of  the  circuit  court  in  that 
case,  as  well  as  in  Insurance  Co.  v.  Woodworth,  1 1 1  U.  S.  138,  146^ 
4  Sup.  Ct.  Rep.  364,  was  maintained  upon  the  ground  that  the  de- 
fendant corporation,  though  incorporated  in  another  state,  yet,  by  rea- 
son of  doing  business  in  the  state  in  which  the  suit  was  brought,  and 
having  appointed  an  agent  there  as  required  by  its  laws,  upon  whom 
process  against  the  company  might  be  served,  was  found  in  that  state, 
within  the  meaning  of  tJbe  act  of  March  3,  1875,  ch.  137,  §  i,  then  in 
force,  and  hereinbefore  cited. 

The  statute  now  in  question,  as  already  obser\^ed,  has  repealed  the 
permission  to  sue  a  defendant  in  a  district  in  which  he  is  found,  and 
has  peremptorily  enacted  that,  "where  the  jurisdiction  is  founded 
only  on  the  fact  that  the  action  is  between  citizens  of  different  states, 
suit  shall  be  brought  only  in  the  district  of  the  residence  of  either  the 
plaintiff  or  the  defendant."  In  a  case  between  natural  persons,  as 
has  been  seen,  this  clause  does  not  allow  the  suit  to  be  brought  in  a 
state  of  which  neither  is  a  citizen.  If  congress,  in  framing  this  clause, 
did  not  have  corporations  in  mind,  there  is  no  reason  for  giving  the 
clause  a  looser  and  broader  construction  as  to  artificial  persons  who 
were  not  contemplated  than  as  to  natural  persons  who  were.  If,  as 
it  is  more  reasonable  to  suppose,  congress  did  have  corporations  in 
mind,  it  must  be  presumed  also  to  have  had  in  mind  the  law,  as  long 
and  uniformly  declared  by  this  court,  that,  within  the  meaning  of  the 
previous  acts  of  congress  giving  jurisdiction  of  suits  betw'een  citizens 
of  different  states,  a  corporation  could  not  be  considered  a  citizen  or 
a  resident  of  a  state  in  which  it  had  not  been  incorporated.      *      *      * 

Under  the  existing  act  of  congress  a  corporation  incorporated  in  one 
state  only,  can  not  be  compelled  to  answer,  in  a  circuit  court  of  the 
United  States  held  in  another  state  in  which  it  has  a  usual  place  of 
business,  to  a  civil  suit,  at  law  or  in  equity,  brought  by  a  citizen  of  a 
different  state. 

Writ  of  mandamus  denied. 

Mr.  Justice  Harlan  dissented. 

Note.  Residence  of  corporations  for  purposes  of  suits  against  them.  The- 
ories : 

(a)  In  the  state,  county  or  district  where  the  principal  office  is :  1850,  Clarke 
v.  Bank  of  Misssisippi,  lOArk.  516,  52  Am.  Dec.  248;  1852,  Central  Bank  v. 
Gibson,  11  Ga.  453;  1855,  Conroe  v.  National  Protec.  Ins.  Co.,  10  How.  Pr.  403; 
1856,  Thorn  v.  Central  R.,  2  Dutch.  (N.  J.)  121 ;  1858,  Connecticut  &  P.  R.  Co. 
v.  Cooper,  30  Vt.476,  73  Am.  Dec.  319;  1859,  Crowley  v.  Panama  R.,  30  Barb. 
99;   1861,  Adams  v.  Great  West.  R.  Co.,  6  Hurls.  &  N.  404,  30  L.  J.  (N.  S.) 


§  324  POWER   TO    SUE   AND    BE    SUED.  II  I  I 

Eq.  124;  1863,  Jenkins  v.  California  Stage  Co.,  22  Cal.  537;  1888,  Holgate 
V.  Oregon  Pac.  R.  Co  ,  116  Ore.  12H,  20  A.  &  E.  Corp.  Cas.  o27 ;  1894,  Galveston, 
H.  &  «.  A.  R.  Co.  V.  Gonzales,  161  U.  S  496;  1895,  Ireland  v.  Globe  Milling 
Co.,  19  R.  I.  180,  61  Am.  St.  Rep.  756;  1895,  In  reKeasbey,  etc.,  160  U.  S.  221 ; 
1896,  Duke  v.  Taylor,  37  Fia.  64,  53  Am.  St.  Rep.  232;  1896,  Crookston  v.  Cen- 
tennial En  M.  Co..  13  Utah  117.  4  A.  &  E.  Corp.  Cas.  N.  S.  30;  1898,  Hergner, 
etc.,  Brewing  Co.  v.  Dreyfus,  172  Mass.  154,  70  Am.  St.  Rep.  251  ;  1898,  Tur- 
cott  V.  R.,  101  Tenn.  102,  70  Am.  St.  Rep.  661 ;  1899,  Louisville,  N.  A.  &  C. 
R.  V.  La.  T.  Co.,  174  U.  S.  552,  19  S.  C.  819.     See,  also,  note,  p.  56,  supra. 

(b)  Railroad  and  otiier  companies,  having  improvements  located  in  various 
counties,  may  be  sued  in  any  county  in  wliich  their  lines  are,  and  where  they 
do  business:  18-54,  Bristol  v.  Chicago  &  Aurora  R.Co.,  15  III.  436;  1857,  Bald- 
win V.  Mississippi  R.  Co.,  5  Clarke  (Iowa)  518;  1857,  Belden  v.  N.  Y.  &  Har- 
lem R.  Co.,  15  How.  Pr.  (N.  Y.)  17;  1858,  Connecticut  &  P.  R.  Co.  v.  Cooper, 
30  Vt.  476,  73  Am.  Dec.  319,  contra;  1859,  Richardson  v.  Burlington,  etc.,  R. 
Co.,  8  Clarke  (Iowa)  260. 

(c)  Some  cases  hold  that  jurisdiction  is  not  confined  to  locality  of  principal 
office,  but  extends  throughout  the  territory  of  the  state  granting  the  charter: 
1845,  Cromwell  v.  Insurance,  2  Rich.  Law  (S.  C.)  512;  1846,  Glaize  v.  South 
Car.  R.  Co.,  1  Strobh.  Law  (S.  C.)  70;  1855,  B.  &  O.  R.  Co.  v.  Gallahue's 
Admr.,  12  Gratt.  (Va.)  655,65  Am.  Dec.  254. 

(d)  A  few  cases  held  that  corporations  had  no  residence,  but  must  be  sued 
where  one  or  more  corporators  reside:  1839,  Wood  v.  Hartford  Fire  Ins.  Co., 
13  Conn.  202,  33  Am.  Dec.  395;  Bank  of  U.  S.  v.  Deveaux,  5  Cranch  (U.  S.) 
61 ;  Cooper's  Lessee  v.  Galbraith,  3  Wash.  (C.  C.)  546;  1867,  City  of  St.  Louis 
V.  Wiggins  Ferry  Co.,  40  Mo.  580,  contra,  and  the  many  recent  cases  given  in 
(a)  above. 


Sec.  324.     Same.     Alien  corporation. 

BARROW  STEAMSHIP  COMPANY  v.  KANE.* 

1898.      In  the   Supreme  Court   of  the  United    States.      170 
U.  S.  Rep.  100-113. 

Mr.  Justice  Gray.  This  action  was  brought  in  the  circuit  court 
of  the  United  States  for  the  southern  district  of  New  York  against 
the  Barrow  Steamship  Company,  by  a  passenger  on  one  of  its  steam- 
ships on  a  voyage  from  Londonderry,  in  Ireland,  to  the  city  of  New 
York,  for  an  assault  upon  him  by  its  agents  in  the  port  of  London- 
derry. The  certificate  of  the  circuit  court  of  appeals  shows  that  the 
plaintiff  is  a  citizen  and  resident  of  the  state  of  New  Jersey;  that  the 
defendant  is  a  corporation,  organized  and  incorporated  under  the  laws 
of  the  United  Kingdom  of  Great  Britain  and  Ireland,  and  a  common 
carrier  running  a  line  of  steamships  from  ports  in  that  kingdom  to  the 
port  of  New  York,  and  does  business  in  the  state  of  New  York, 
through  a  mercantile  firm,  its  regularly  appointed  agents,  and  upon 
whom  the  summons  in  this  action  was  served. 

It  was  contended,  in  behalf  of  the  steamship  company,  that,  being 
a  foreign  corporation,  no  suit  could  be  maintained  against  it  in  per- 
sonam in  this  countiy  without  its  consent,  express  or  implied  ;  that 
by  doing  business  in  the  state  of  New  York  it  consented  to  be  sued 
only  as  authorized  by  the  statutes  of  the  state ;   that  the  jurisdiction 

'  Statement  except  as  given  in  the  opinion  omitted. 


I  I  12  BARROW   STEAMSHIP   COMPANY   V.    KANE.  §324 

o±  the  courts  of  the  United  States  held  within  the  state  depended  on 
the  authority  given  by  those  statutes ;  that  the  statutes  of  New  York 
conferred  no  authority  upon  any  court  to  issue  process  against  a  for- 
eign corporation  in  an  action  by  a  non-resident,  and  for  a  cause  not 
arising  within  the  state,  and,  therefore,  that  the  circuit  court  acquired 
no  jurisdiction  of  this  action  brought  against  a  British  corporation  by 
a  citizen  and  resident  of  New  Jersey. 

The  constant  tendency  of  judicial  decisions  in  modem  times  has 
been  in  the  direction  of  putting  corporations  upon  the  same  footing 
as  natural  persons  in  regard  to  the  jurisdiction  of  suits  by  or  against 
them. 

By  the  constitution  of  the  United  States  the  judicial  power,  so  far 
as  depending  upon  citizenship  of  parties,  was  declared  to  extend  to 
controversies  "between  citizens  of  different  states,"  and  to  those  be- 
tween "citizens"  of  a  state  and  foreign  "citizens  or  subjects."  And 
congress,  by  the  judiciary  act  of  1789,  in  defining  the  original  juris- 
diction of  the  circuit  courts  of  the  United  States,  described  each  party 
to  such  a  controversy,  either  as  "a  citizen"  of  a  state,  or  as  "an 
alien."  Act  of  September  24,  1789,  §  11;  i  Stat.,  78;  Rev.  Stat., 
§  629.  Yet  the  words  "citizens"  and  "aliens,"  in  these  provisions 
of  the  constitution  and  of  the  judiciary  act,  have  always  been  held  by 
this  court  to  include  corporations. 

The  jurisdiction  of  the  circuit  courts  over  suits  between  a  citizen 
of  one  state  and  a  corporation  of  another  state  was  at  first  maintained 
upon  the  theory  that  the  persons  composing  the  corporation  were 
suing  or  being  sued  in  its  name,  and  upon  the  presumption  of  fact 
that  all  those  persons  were  citizens  of  the  state  by  which  the  corpora- 
tion had  been  created,  but  that  this  presumption  might  be  rebutted, 
by  plea  and  proof,  and  the  jurisdiction  thereby  defeated.  Bank  of 
United  States  v.  Deveaux,  5  Cranch  61,  87,  88;  Hope  Ins.  Co.  v. 
Boardman,  5  Cranch  57;   Commercial  Bank  v.  Slocomb,  14  Pet.  60. 

But  the  earlier  cases  were  afterwards  overruled,  and  it  has  become 
the  settled  law  of  this  court  that,  for  the  purposes  of  suing  and  being 
sued  in  the  courts  of  the  United  States,  a  corporation  created  by  and 
doing  business  in  a  state  is,  although  an  artificial  person,  to  be  con- 
sidered as  a  citizen  of  the  state  as  much  as  a  natural  person,  and  there 
is  a  conclusive  presumption  of  law  that  the  persons  composing  the 
corporation  are  citizens  of  the  same  state  with  the  corporation.  Louis- 
ville, etc..  Railroad  v.  Letson,  2  How.  497,  558;  Marshall  v.  Balti- 
more &  Ohio  Railroad,  16  How.  314,  329;  Muller  v.  Dows,  94  U. 
S.  444;  Steamship  Co.  v.  Tugman,  106  U.  S.  118;  St.  Louis  &  San 
Francisco  Railway  v.  James,  161  U.  S.  545,  555-559-     *     *     * 

(Quoting  from  Bank  of  Augusta  v.  Earle,  13  Pet.  519.) 

The  manifest  injustice  which  would  ensue,  if  a  foreign  corporation, 
permitted  by  a  state  to  do  business  therein,  and  to  bring  suits  in  its 
courts,  could  not  be  sued  in  those  courts,  and  thus,  while  allowed  the 
benefits,  be  exempt  from  the  burdens  of  the  laws  of  the  state,  has 
induced  many  states  to  provide  by  statute  that  a  foreign  corporation 
making  contracts  within   the   state   shall   appoint   an  agent  residing 


§324  POWER  TO   SUE  AND   BE   SUED.  III3 

therein,  upon  whom  process  may  be  served  in  actions  upon  such  con- 
tracts. This  court  has  often  held  that  wherever  such  a  statute  exists 
service  upon  an  agent  so  appointed  is  sufficient  to  support  jurisdiction 
of  an  action  against  the  foreign  corporation,  either  in  the  courts  of 
the  state,  or,  when  consistent  with  the  acts  of  congress,  in  the  courts 
of  the  United  States  held  within  the  state,  but  it  has  never  held  the 
existence  of  such  a  statute  to  be  essential  to  the  jurisdiction  of  the 
circuit  courts  of  the  United  States.  Lafayette  Ins.  Go.  v.  French,  18 
How.  404 ;  Ex  parte  SchoUenberger,  96  U.  S.  369 ;  New  England 
Ins.  Co.  V.  Woodworth,  iii  U.  S.  138,  146;  Shaw  v.  Quincy  Mining 
Co.,  145  U.  S.  444,  452.     «     *     ♦ 

(Citing  and  quoting  from  Lafayette  Ins.  Co.  v.  French,  18  How. 
408,  409;    Railroad  Co.  v,  Harris,  12  Wall.  65,  83,  84.) 

In  England  the  right  of  a  foreign  corporation  doing  business  in 
England  to  sue  in  the  English  courts  was  long  ago  recognized,  and 
its  liability  to  be  subjected  to  suit  in  those  courts,  by  service  made 
upon  one  of  its  principal  officers  residing  and  representing  it  within 
the  realm,  has  been  fully  established  by  recent  decisions.  Newby  v. 
Von  Oppen,  L.  R.  7  Q.  B.  293  ;  Haggin  v.  Comptoir  d'Escompte 
de  Paris,  23  Q.  B.  D.  519. 

In  the  courts  of  several  states  of  the  union  the  like  view  has  pre- 
vailed. Libbey  v.  Hodgdon,  9  N.  H.  394;  March  v.  Eastern  Rail- 
road Co.,  40  N.  H.  548,  579;  Day  v.  Essex  County  Bank,  13  Vt. 
97;  Moulin  V.  Trenton  Ins.  Co.,  i  Dutcher  (25  N.  J.  Law)  57; 
Bushel  V.  Commonwealth  Ins.  Co.,  15  S.  &  R.  173;  North  Mis- 
souri Railroad  v.  Akers,  4  Kan.  453,  469;  Council  Bluffs  Co.  v. 
Omaha  Co.,  49  Neb.  537.  The  courts  of  New  York  and  Massachu- 
setts, indeed,  have  declined  to  take  jurisdiction  of  suits  against  for- 
eign corporations,  except  so  far  as  it  has  been  expressly  conferred  by 
statutes  of  the  state.  McQueen  v.  Middletown  Manuf.  Co.,  16  Johns. 
5;  Robinson  v.  Oceanic  Steam  Navigation  Co.,  112  N.  Y.  315; 
Desper  v.  Continental  Water  Meter  Co.,  137  Mass.  252.  But  the 
jurisdiction  of  the  circuit  courts  of  the  United  States  is  not  created  by, 
and  does  not  depend  upon,  the  statutes  of  the  several  states. 

In  the  circuit  courts  of  the  United  States  there  have  been  conflicting 
opinions,  but  the  most  satisfactory  ones  are  those  of  Judge  Drum- 
mond  and  Judge  Lowell  in  favor  of  the  liability  of  foreign  corpora- 
tions to  be  sued.  Wilson  Packing  Co.  v.  Hunter,  8  Bissell  429; 
Hayden  v.  Androscoggin  Mills,  i  Fed.  Rep.  93.      «     *     « 

(Citing  and  quoting  from  Lafayette  Ins.  Co.  v.  French,  18  How. 
407.) 

The  object  of  the  provisions  of  the  constitution  and  statutes  of  the 
United  States,  in  conferring  upon  the  circuit  courts  of  the  United 
States  jurisdiction  of  controversies  between  citizens  of  different  states 
of  the  union,  or  between  citizens  of  one  of  the  states  and  aliens,  was 
to  secure  a  tribunal  presumed  to  be  more  impartial  than  a  court  of  the 
state  in  which  one  of  the  litigants  resides. 

The  jurisdiction  so  conferred  upon  the  national  courts  can  not  be 
abridged  or  impaired  by  any  statute  of  a  state.     Hyde  v.  Stone,  20 


II  14  BARROW    STEAMSHIP   COMPANY   V.    KANE.  §   324 

How.  170,  175;  Smyth  v.  Ames,  169  U.  S.  466,  516.  It  has,  there- 
fore, been  decided  that  a  statute,  which  requires  all  actions  against  a 
county  to  be  brought  in  the  county  court,  does  not  prevent  the  circuit 
court  of  the  United  States  from  taking  jurisdiction  of  such  an  action, 
Chief  Justice  Chase  saying  that  "no  statute  limitation  of  suability 
can  defeat  a  jurisdiction  given  by  the  constitution."  Covvles  v. 
Mercer  County,  7  Wall.  118,  122;  Lincoln  County  v.  Luning,  133 
U.  S.  529;  Chicot  County  v.  Sherwood,  148  U.  S.  529.  So  statutes 
requiring  foreign  corporations,  as  a  condition  of  being  permitted  to 
do  business  within  the  state,  to  stipulate  not  to  remove  into  the  courts 
of  the  United  States  suits  brought  against  them  in  the  courts  of  the 
state,  have  been  adjudged  to  be  unconstitutional  and  void.  Home 
Ins.  Co.  V.  Morse,  20  Wall.  445  ;  Barron  v.  Burnside,  121  U.  S.  186; 
Southern  Pacific  Co.  v.  Denton,  146  U.  S.  202. 

On  the  other  hand,  upon  the  fundamental  principle  that  no  one 
shall  be  condemned  unheard,  it  is  well  settled  that  in  a  suit  against  a 
corporation  of  one  state,  brought  in  a  court  of  the  United  States  held 
within  another  state,  in  which  the  corporation  neither  does  business, 
nor  has  authorized  any  person  to  represent  it,  service  upon  one  of  its 
officers  or  employes  found  within  the  state  will  not  support  the  juris- 
diction, notwithstanding  that  such  service  is  recognized  as  sufficient 
by  the  statutes  or  the  judicial  decisions  of  the  state.  St.  Clair  v.  Cox, 
106  U.  S.  350;  Fitzgerald  Co.  v.  Fitzgerald,  137  U.  S.  98,  106; 
Goldey  v.  Morning  News,  156  U.  S.  518.  See,  also,  Mexican  Cen- 
tral Railway  v.  Finkney,  149  U.  S.  194. 

By  the  existing  act  of  congress  defining  the  general  jurisdiction  of 
the  circuit  courts  of  the  United  States,  those  courts  "shall  have  orig- 
inal cognizance,  concurrent  with  the  courts  of  the  several  states,  of  all 
suits  of  a  civil  nature,  at  common  law  or  in  equity,  when  the  matter 
in  dispute  exceeds,  exclusive  of  interest  and  costs,  the  sum  or  value  of 
two  thousand  dollars,"  "in  which  there  shall  be  a  controversy  be- 
tween citizens  of  different  states,"  "or  a  controversy  between  citizens 
of  a  state  and  foreign  states,  citizens  or  subjects,"  and,  as  has  been 
adjudged  by  this  court,  the  subsequent  provisions  of  the  act,  as  to  the 
district  in  which  suits  must  be  brought,  have  no  application  to  a  suit 
against  an  alien  or  a  foreign  corporation,  but  such  a  person  or  corpo- 
ration may  be  sued  by  a  citizen  of  a  state  of  the  union  in  any  district 
in  which  valid  sei-vice  can  be  made  upon  the  defendant.  Act  of 
March  3,  1887,  ch.  373,  §  i,  as  corrected  by  the  act  of  August  13, 
1888,  ch.  866,  §1;  24  Stat.,  552;  25  Stat.,  434;  Shaw  v.  Quincy 
Mining  Co.,  145  U.  S.  444,  453;  In  re  Hohorst,  150  U.  S.  653; 
Galveston,  etc.,  Railway  v.  Gonzales,  151  U.  S.  496,  503;  In  re 
Keasbey  &  Mattison  Co.,  160  U.  S.  221,  229,  230. 

The  present  action  was  brought  by  a  citizen  and  resident  of  the 
state  of  New  Jersey,  in  a  circuit  court  of  the  United  States  held 
within  the  state  of  New  York,  against  a  foreign  corporation  doing 
business  in  the  latter  state.  It  was  for  a  personal  tort  committed 
abroad,  such  as  would  have  been  actionable  if  committed  in  the  state 
of  New  York  or  elsewhere  in   this  country,  and  an  action  for  which 


§   325  POWER  TO    SUE   AND   BE   SUED.    *  III5 

might  be  maintained  in  any  circuit  court  of  the  United  States  which 
acquired  jurisdiction  of  the  defendant.  Railroad  Co.  v.  Han-is, 
above  cited;  Dennick  v.  Railroad  Co.,  103  U.  S.  11;  Huntington 
V.  Attrill,  146  U.  S.  657,  670,675;  Stewart  v.  Baltimore  &  Ohio 
Railroad,  168  U.  S.  445.  The  summons  was  duly  served  upon  the 
regularly  appointed  agents  of  the  corporation  in  New  York.  In  re 
Hohorst,  above  cited.  The  action  was  within  the  general  jurisdiction 
conferred  by  congress  upon  the  circuit  courts  of  the  United  States. 
The  fact  that  the  legislature  of  the  state  of  New  York  has  not  seen  fit 
to  authorize  like  suits  to  be  brought  in  its  own  courts  by  citizens  and 
residents  of  other  states  can  not  deprive  such  citizens  of  their  right  to 
invoke  the  jurisdiction  of  the  national  courts  under  the  constitution 
and  laws  of  the  United  States. 

The  necessary  conclusion  is  that  the  circuit  court  had  jurisdiction 
to  try  the  action  and  to  render  judgment  therein  against  the  defend- 
ant, and  that  the 

Question  certified  must  be  answered  in  the  affirmative. 

Note.  See,  1893,  In  re  Hohorst,  150  U.  S.  653;  1899,  In  re  La  Bourgoyne^ 
79  L.  T.  Rep.  (N.  S.)  331. 


Sec.  325.     In  the  state  courts, — where  found  doing  business. 
ST.  CLAIR  V.  COX.» 

1882.    In  the  Supreme  Court  of  the  United  States.     106  U.  S. 

Rep.  350-360. 

[Error  to  United  States  Circuit  Court,  eastern  district  of  Michigan. 
Action  by  Cox  v.  St.  Clair  to  recover  $5,000  on  two  notes  made  by 
St.  Clair  to  the  Winthrop  Mining  Company,  an  Illinois  corporation, 
payable  in  Chicago,  for  ore  and  property  sold  by  the  mining  company 
to  the  defendant.  The  defense  was  that  plaintiff  purchased  the  note 
after  maturity,  and  after  notice  that  defendant  had  obtained  a  judg- 
ment in  the  Michigan  courts  against  the  mining  company  to  the  amount 
of  $10,000,  which  should  properly  be  offset  against  the  note.  At 
the  trial  a  certified  copy  of  the  judgment  was  offered  in  evidence,  but 
on  objection  it  was  excluded,  because  it  was  not  shown  the  state  court 
had  obtained  jurisdiction  of  the  parties.  Exception  was  taken,  but 
judgment  was  rendered  for  plaintiff  for  full  amount.  The  exclusion 
of  the  judgment  is  assigned  as  error.] 

Mr.  Justice  Field.  ♦  *  ♦  The  judgment  of  the  circuit  court 
in  Michigan  was  rendered  in  an  action  commenced  by  attachment.  If 
the  plaintiffs  in  that  action  were,  at- its  commencement,  residents  of 
the  state,  of  which  some  doubt  is  expressed  by  counsel,  the  jurisdic- 
tion of  the  court,  under  the  writ,  to  dispose  of  the  property  attached^ 

'  Statement  abridged ;  part  of  opinion  omitted. 


IIl6  *'  ST.    CLAIR   V.    COX.  §    32  5 

can  not  be  doubted,  so  far  as  was  necessary  to  satisfy  their  demand. 
No  question  was  raised  as  to  the  validity  of  the  judgment  to  that  ex- 
tent. The  objection  to  it  was  as  evidence  that  the  amount  rendered 
was  an  existing  obligation  or  debt  against  the  company.  If  the  court 
had  not  acquired  jurisdiction  over  the  company,  the  judgment  estab- 
lished nothing  as  to  its  liability,  beyond  the  amount  which  the  pro- 
ceeds of  the  property  discharged.  There  was  no  appearance  of  the 
company  in  the  action,  and  judgment  against  it  was  rendered  for 
$6,450  by  default.  The  officer,  to  whom  the  writ  of  attachment  was 
issued,  returned  that,  by  virtue  of  it,  he  had  seized  and  attached  cer- 
tain specified  personal  property  of  the  defendant,  and  had  also  served 
a  copy  of  the  writ,  with  a  copy  of  the  inventory  of  the  property  at- 
tached, on  the  defendant,  "by  delivering  the  same  to  Henry  J.  Col- 
well,  Esq.,  agent  of  the  said  Winthrop  Mining  Company,  personally, 
in  said  county." 

The  laws  of  Michigan  provide  for  attaching  property  of  abscond- 
ing, fraudulent  and  non-resident  debtors  and  of  foreign  corporations. 
They  require  that  the  writ  issued  to  the  sheriff,  or  other  officer  by 
whom  it  is  to  be  served,  shall  direct  him  to  attach  the  property  of  the 
defendant,  and  to  summon  him  if  he  be  found  within  the  county,  and 
also  to  serve  on  him  a  copy  of  the  attachment  and  of  the  inventory  of 
the  property  attached.  They  also  declare  that  where  a  copy  of  the 
writ  of  attachment  has  been  personally  served  on  the  defendant,  the 
same  proceedings  may  be  had  thereon  in  the  suit  in  all  respects  as 
upon  the  return  of  an  original  writ  of  summons  personally  served 
where  suit  is  commenced  by  such  summons.  2  Comp.  Laws,  1871, 
sections  6397  and  6413. 

They  also  provide,  in  the  chapter  regulating  proceedings  by  and 
against  corporations,  that  "suits  against  corporations  may  be  com- 
menced by  original  writ  of  summons,  or  by  declaration,  in  the  same 
manner  that  personal  actions  may  be  commenced  against  individuals, 
and  such  writ,  or  a  copy  of  such  declaration,  in  any  suit  against  a  cor- 
poration, may  be  sei-ved  on  the  presiding  officer,  the  cashier,  the  sec- 
retary or  the  treasurer  thereof ;  or,  if  there  be  no  such  officer,  or  none 
can  be  found,  such  service  may  be  made  on  such  other  officer  or  member 
of  such  corporation,  or  in  such  other  manner  as  the  court  in  which 
such  suit  is  biought  may  direct ;"  and  that  "in  suits  commenced  by 
attachment  in  favor  of  a  resident  of  this  state  against  any  corporation 
created  by  or  under  the  laws  of  any  other  state,  government  or  coun- 
try, if  a  copy  of  such  attachment  and  of  the  inventory  of  property 
attached  shall  have  been  personally  served  on  any  officer,  member, 
clerk  or  agent  of  such  corporation  within  this  state,  the  same  proceed- 
ings shall  be  thereupon  had,  and  with  like  effect,  as  in  case  of  an  at- 
tachment against  a  natural  person,  which  shall  have  been  returned 
served  in  like  manner  upon  the  defendant."  2  Comp,  Laws,  1871, 
sections  6544  and  6550. 

The  courts  of  the  United  States  only  regard  judgments  of  the  state 
courts  establishing  personal  demands  as  having  validity  or  as  im- 
porting verity  where  they  have  been  rendered  upon  personal  citation 


§  3^5  POWER   TO    SUE   AND    BE   SUED.  Ill/ 

of  the  party,  or.  what  is  the  same  thing,  of  those  empowered  to  re- 
ceive process  for  him,  or  upon  his  voluntary  appearance. 

In  Pennoyer  v.  Neff  we  had  occasion  to  consider  at  length  the  man- 
ner in  which  state  courts  can  acquire  jurisdiction  to  render  a  personal 
judgment  against  non-residents  which  would  be  received  as  evidence 
in  the  federal  courts ;  and  we  held  that  personal  service  of  citation  on 
the  party  or  his  voluntary  appearance  was,  with  some  exceptions, 
essential  to  the  jurisdiction  of  the  court.  The  exceptions  related  to 
those  cases  where  proceedings  are  taken  in  a  state  to  determine  the 
status  of  one  of  its  citizens  toward  a  non-resident,  or  where  a  party 
has  agreed  to  accept  a  notification  to  others  or  service  on  them  as 
citation  to  himself.     95  U.  S.  714. 

The  doctrine  of  that  case  applies,  in  all  its  force,  to  personal  judg- 
ments of  state  courts  against  foreign  corporations.  The  courts  render- 
ing them  must  have  acquired  jurisdiction  over  the  party  by  personal 
service  or  voluntary  appearance,  whether  the  party  be  a  coi-poration 
or  a  natural  person.  There  is  only  this  difference:  A  corporation, 
being  an  artificial  being,  can  act  only  through  agents,  and  only  through 
them  can  be  reached,  and  process  must,  therefore,  be  served  upon 
them.  In  the  state  where  a  corporation  is  formed  it  is  not  difficult  to 
ascertain  who  are  authorized  to  represent  and  act  for  it.  Its  charter 
or  the  statutes  of  the  state  will  indicate  in  whose  hands  the  control 
and  management  of  its  affairs  are  placed.  Directors  are  readily  found, 
as  also  the  officers  appointed  by  them  to  manage  its  business.  But 
the  moment  the  boundary  of  the  state  is  passed  difficulties  arise ;  it  is 
not  so  easy  to  determine  who  represent  the  corporation  there,  and  un- 
der what  circumstances  service  on  them  will  bind  it. 

Formerly  it  was  held  that  a  foreign  corporation  could  not  be  sued 
in  an  action  for  the  recovery  of  a  personal  demand  outside  of  the  state 
by  which  it  was  chartered.     *     ♦     * 

(Quoting  and  citing  McQueen  v.  Middleton  Mfg.  Co.,  16  Johns. 
(N.  Y.)  5;  Peckham  v.  North  Parish,  16  Pick.  274;  Libbey  v. 
Hodgdon,  9  N.  H.  394;  Moulin  v.  Trenton  Ins.  Co.,  24  N.  J.  Law 
222.) 

This  doctrine  of  the  exemption  of  a  corporation  from  suit  in  a  state 
other  than  that  of  its  creation  was  the  cause  of  much  inconvenience, 
and  often  of  manifest  injustice.  The  great  increase  in  the  number  of 
corporations  of  late  years,  and  the  immense  extent  of  their  business, 
only  made  this  inconvenience  and  injustice  more  frequent  and  marked. 
Corporations  now  enter  into  all  the  industries  of  the  country.  The 
business  of  banking,  mining,  manufacturing,  transportation  and  in- 
surance is  almost  entirely  carried  on  by  them,  and  a  large  portion  of 
the  wealth  of  the  country  is  in  their  hands.  Incorporated  imder  the 
laws  of  one  state,  they  carrry  on  the  most  extensive  operations  in 
other  states.  To  meet  and  obviate  this  inconvenience  and  injustice, 
the  legislatures  of  several  states  interposed,  and  provided  for  service 
of  process  on  officers  and  agents  of  foreign  corporations  doing  busi- 
ness therein.  Whilst  the  theoretical  and  legal  view,  that  the  domicile 
of  a  corporation  is  only  in  the  state  where  it  is  created,  was  admitted. 


IIl8  ST.    CLAIR    V.    COX.  §   325 

it  was  perceived  that  when  a  foreign  corporation  sent  its  officers  and 
agents  into  other  states  and  opened  offices,  and  carried  on  its  business 
there,  it  was,  in  effect,  as  much  represented  by  them  there  as  in  the  state 
of  its  creation.  As  it  was  protected  by  the  laws  of  those  states,  allowed 
to  carry  on  its  business  within  their  borders,  and  to  sue  in  their  courts, 
it  seemed  only  right  that  it  should  be  held  responsible  in  those  courts 
to  obligations  and  liabilities  there  incurred. 

All  that  there  is  in  the  legal  residence  of  a  corporation  in  the  state 
of  its  creation  consists  in  the  fact  that  by  its  laws  the  corporators  are 
associated  together  and  allowed  to  exercise  as  a  body  certain  func- 
tions, with  a  right  of  succession  in  its  members.  Its  officers  and 
agents  constitute  all  that  is  visible  of  its  existence ;  and  they  may  be 
authorized  to  act  for  it  without  as  well  as  within  the  state.  There 
would  seem,  therefore,  to  be  no  sound  reason  why,  to  the  extent  of 
their  agency,  they  should  not  be  equally  deemed  to  represent  it  in  the 
states  for  which  they  are  respectively  appointed  when  it  is  called  to 
legal  responsibility  for  their  transactions. 

The  case  is  unlike  that  of  suits  against  individuals.  They  can  -act 
by  themselves,  and  upon  them  process  can  be  directly  served,  but  a 
corporation  can  only  act  and  be  reached  through  agents.  Serving 
process  on  its  agents  in  other  states,  for  matters  within  the  sphere  of 
their  agency,  is,  in  effect,  serving  process  on  it  as  much  so  as  if  such 
agents  resided  in  the  state  where  it  was  created. 

A  corporation  of  one  state  can  not  do  business  in  another  state 
without  the  latter's  consent,  express  or  implied,  and  that  consent  may 
be  accompanied  with  such  conditions  as  it  may  think  proper  to  im- 
pose. As  said  by  this  court  in  Lafayette  Insurance  Co.  v.  French: 
"These  conditions  must  be  deemed  valid  and  effectual  by  other 
states  and  by  this  court,  provided  they  are  not  repugnant  to  the  con- 
stitution or  laws  of  the  United  States,  or  inconsistent  with  those 
rules  of  public  law  which  secure  the  jurisdiction  and  authority  of  each 
state  from  encroachment  by  all  others,  or  that  principle  of  natural  jus- 
tice which  forbids  condemnation  without  opportunity  for  defense." 
18  How.  404,  407;   Paul  V.  Virginia,  8  Wall.  168. 

The  state  may,  therefore,  impose  as  a  condition  upon  which  a  for- 
eign corporation  shall  be  permitted  to  do  business  within  her  limits, 
that  it  shall  stipulate  that  in  any  litigation  arising  out  of  its  transac- 
tions in  the  state,  it  will  accept  as  sufficient  the  service  of  process  on 
its  agents  or  persons  especially  designated  ;  and  the  condition  would 
be  eminently  fit  and  just.  And  such  condition  and  stipulation  may 
be  implied  as  well  as  expressed.  If  a  state  permits  a  foreign  corpo- 
ration to  do  business  within  her  limits,  and  at  the  same  time  provides 
that  in  suits  against  it  for  business  there  done,  process  shall  be  sei^ved 
upon  its  agents,  the  provision  is  to  be  deemed  a  condition  of  the  per- 
mission, and  the  corporations  that  subsequently  do  business  in  the 
state  are -to  be  deemed  to  assent  to  such  condition  as  fully  as  though 
they  had  specially  authorized  their  agents  to  receive  service  of  the 
process.  Such  condition  must  not,  however,  encroach  upon  that  prin- 
ciple of  natural  justice  which  requires  notice  of  a  suit  to  a  party  before 


§   325  POWER    TO    SUE   AND    BE   SUED.  1 1 19 

he  can  be  bound  by  it.  It  must  be  reasonable,  and  the  service  pro- 
vided for  should  be  only  upon  such  agents  as  may  be  properly  deemed 
representatives  of  the  foreign  corporation.  The  decision  of  this  court 
in  Lafayette  Insurance  Co.  v.  French,  to  which  we  have  already  re- 
ferred, sustains  these  views.     ♦     *     * 

We  do  not,  however,  understand  the  laws  of  Michigan  as  authoriz- 
ing the  service  of  a  copy  of  the  writ,  as  a  summons,  upon  an  agent  of 
a  foreign  corporation,  unless  the  corporation  be  engaged  in  business 
in  the  state,  and  the  agent  be  appointed  to  act  there.  We  so  construe 
the  words  "  agent  of  such  corporation  within  this  state."  They  do 
not  sanction  service  upon  an  officer  or  agent  of  the  corporation  who 
resides  in  another  state,  and  is  only  casually  in  the  state,  and  not 
charged  with  any  business  of  the  corporation  there.      *     ♦     » 

(Citing  and  quoting  to  this  effect  Newell  v.  Great  Western  Ry. 
Co.,  19  Mich.  344;   Moulin  v.  Trenton  Ins.  Co.,  24  N.  J.  Law  222, 

234-) 

Without  considering  whether  authorizing  service  of  a  copy  of  a  writ 
of  attachment  as  a  summons  on  some  of  the  persons  named  in  the 
statute — a  member,  for  instance,  of  the  foreign  corporation,  that  is,  a 
mere  stockholder — is  not  a  departure  from  the  principle  of  natural 
justice  mentioned  in  Lafayette  Insurance  Co.  v.  French,  which  forbids 
condemnation  without  citation,  it  is  sufficient  to  observe  that  we  are 
of  opinion  that  when  service  is  made  within  the  state  upon  an  agent 
of  a  foreign  corporation,  it  is  essential,  in  order  to  support  the  juris- 
diction of  the  court  to  render  a  personal  judgment,  that  it  should  ap- 
pear somewhere  in  the  record — either  in  the  application  for  the  writ, 
or  accompanying  its  service,  or  in  the  pleadings  or  the  finding  of  the 
court — that  the  corporation  was  engaged  in  business  in  the  state.  The 
transaction  of  business  by  the  corporation  in  the  state,  general  or 
special,  appearing,  a  certificate  of  service  by  the  proper  officer  on  a 
person  who  is  its  agent  there  would,  in  our  opinion,  be  sufficient 
■prima  facie  evidence  that  the  agent  represented  the  company  in  the 
business.  It  would  then  be  open,  when  the  record  is  offered  as  evi- 
dence in  another  state,  to  show  that  the  agent  stood  in  no  representa- 
tive character  to  the  company,  that  his  duties  were  limited  to  those  of 
a  subordinate  employe,  or  to  a  particular  transaction,  or  that  his  agency 
had  ceased  when  the  matter  in  suit  arose. 

In  the  record,  a  copy  of  which  was  offered  in  evidence  in  this  case, 
there  was  nothing  to  show,  so  far  as  we  can  see,  that  the  Winthrop 
Mining  Company  was  engaged  in  business  in  the  state  when  service 
was  made  on  Col  well.  The  return  of  the  officer,  on  which  alone  re- 
liance was  placed  to  sustain  the  jurisdiction  of  the  state  court,  gave  no 
information  on  the  subject.  It  did  not,  therefore,  appear  even  -prima 
facie  that  Colwell  stood  in  any  such  representative  character  to  the 
company  as  would  justify  the  service  of  a  copy  of  the  writ  on  him. 
The  certificate  of  the  sheriff,  in  the  absence  of  this  fact  in  the  record, 
was  insufficient  to  give  the  court  jurisdiction  to  render  a  personal  judg- 
ment against  the  foreign  corporation.  The  record  was,  therefore, 
properly  excluded. 

fudgm^ent  affirmed. 


I  120  ST.    CLAIR    V.    COX.  §325 

Note.    Service  of  process. 

1.  Domestic  corporations: 

(a)  At  common  law,  on  officers,  was  sufficient:  1819,  McQueen  v.  Middle- 
ton  Mfg.  Co.,  16  Johns.  5;  1837,  Meriwether  v.  Bank  of  Hamburg,  Dud. 
(S.  C.)  36;  1846,  Glaize  v.  South  Car.  E.  Co.,  1  Strobh.  L.  (S.  C.)  70;  1869, 
Newell  V.  Great  Western  R.  Co.,  19  Mich.  336;  1871,  Hartford  City  Fire  Ins. 
Co.  V.  Carrugi,  41  Ga.  660;  1875,  Bar nett  v.  Chicago  &  L.  H.  R.  Co.,  4 
Hun  114. 

(b)  By  statutes,  service  may  be  made  on  general  officers,  such  as  president, 
secretary,  cashier,  general  superintendent,  managing  officers,  etc. :  1854, 
Chamberlin  v.  Mammoth  Mining  Co.,  20  Mo.  96  (president)  ;  1854,  Willamette 
Falls  Co.  V.  Williams,  1  Ore.  112;  1854,  Commerce  Bank  v.  Rutland  &  W.  R., 
10  How.  Pr.  1  (general  manager) ;  1865,  Carr  v.  Commercial  Bank  of  Racine, 
19  Wis.  272;  1865,  Gillig  v.  Independent  G.  &  S.  M.  Co.,  1  Nev.  247  (secre- 
tary);  1867,  Adams  Express  Co.  v.  St.  John,  17  Ohio  St.  641  (general  super- 
intendent); 1872,  Newby  &  Colts  Pat.  Fa.  Co.,  L.  R.  7  Ct.  Q.  B.  293;  1882, 
McMurtry  V.  Tuttle,  13  Neb.  232  (treasurer);  1893,  Taylor  v.  Granite  State, 
etc.,  Assn.,  136  N.  Y.  343,  32  Am.  St.  Rep.  749  (an  attorney  is  not  such  of- 
ficer). 

But  a  ticket  seller  (1859,  Doty  v.  Mich.  C.  R.  Co.,  8  Abb.  Pr.  427;  1900, 
Denver,  etc.,  R.  Co.  v.  Roller,  100  Fed.  Rep.  738);  baggage  master  (1851, 
Flvnn  V.  Hudson  Riv.  R.  Co.,  6  How.  Pr.  308);  ship  captain  (1862,  Upper 
Miss.  Trans.  Co.  v.  Whittaker,  16  AVis.  220) ;  or  an  attornev  ( 1893,  Tavlor  v. 
Granite  State  Assn.,  136  N.  Y.  343,  32  Am.  St.  Rep.  749),  are  not  such  officers 
as  justify  service  unless  specially  provided  for. 

Yet  generally  it  is  now  held  that  any  agent  authorized  to  contract  the  debt, 
or  represent  the  corporation  in  the  particular  transaction,  sufficiently  repre- 
sents the  corporation  in  accepting  service  of  summons  in  a  mattter  arising 
from  such  transaction:  1892,  Klopp  v.  Creston  City  W.  W.  Co.,  34  Neb.  808, 
33  Am.  St.  Rep.  666;  Am.  Bell  Tel.  Co.,  29  Fed.  Rep.  17,  34;  1892,  Reyer  v. 
Odd  Fellows',  etc..  Assn.,  157  Mass.  367,  34  Am.  St.  Rep.  288;  1894,  Foster  v. 
Betcher  Lumber  Co.,  5  S.  D.  57,  49  Am.  St.  Rep.  859,  23  L.  R.  A.  490;  1895, 
Gude  v.  Dakota  F.  &  M.  Ins.  Co.,  7  S.  D.  644,  58  Am.  St.  Rep.  860;  1896,  Pol- 
lock V.  Building  &  L.  Assn.,  48  S.  C.  65,  59  Am.  St.  Rep.  695;  1898,  Turcott 
V.  Railroad  Co.,  101  Tenn.  102,  70  Am.  St.  Rep.  661;  1898,  Conn.  Mut.  Ins. 
.Co.  V.  Spratley,  172  U.  S.  602. 

2.  Foreign  corporations. 

(a)  At  common  law,  not  on  an  officer  outside  of  the  state  creating  the  cor- 
poration: 1819,  McQueen  v.  Middleton  Mfg.  Co.,  16  Johns.  5;  1834,  Peckham 
V.  North  Parish,  16  Pick.  (Mass.)  274;  1875,  Barnett  v.  Chicago  &  L.  H.  R. 
Co.,  4  Hun  114. 

But  see,  contra,  1871,  Hartford  Ins.  Co.  v.  Carrugi.  41  Ga.  660;  1875,  Bawk- 
night  v.  Liverpool  L.  &  G.  Ins.  Co.,  65  Ga.  195. 

(b)  Under  statutes,  only  when  the  statute  allows,  i.  e.,  by  express  statutory 
authority,  and  then  generally  only  such  as  are  doing  business  and  have  agents 
in  the  state:  1861,  0.&  M.  R.Co.  v.  Wheeler,  1  Black  (U.S.)  286,  on  297;  1866, 
Camden  Rolling  M.  Co.  v.  Swede  Iron  Co.,  32  N.  J.  Law  15;  1868,  Howell  v. 
Chicago  &  N.  W.  R.  Co.,  51  Barb.  (N.  Y.)  378;  1873,  Lathrop  v.  Union  Pac. 
R.  Co.,  1  McAr.  (D.  C.)  234;  1875,  Dallas  v.  Atlantic  &  M.  R.  Co.,  2  McAr. 
(D.  C.)  146;  1893,  Aldrich  v.  Anchor  Coal  Co.,  24  Ore.  32,  41  Am.  St.  Rep. 
831 ;  1894,  Foster  v.  Betcher  Lumber  Co.,  5  S.  D.  57,  49  Am.  St.  Rep.  859,  23 
L.  R.  A.  490,  note;  1898,  Crook  v.  Girard  Iron  Co.,  87  Md.  138,  67  Am.  St. 
Rep.  325;  1898,  Carstens  v.  Leidigh  &  L.  Co.,  18  Wash.  450,  63  Am.  St.  Rep. 
906,  39  L.  R.  A.  548;  1898,  Conn.  Mut.  Ins.  Co.  v.  Spratley,  172  U.  S.  602; 
1899,  Mecke  v.  Vallevtown  M.  Co.,  93  Fed.  Rep.  697 ;  1900,  Denver  &  R.  G.  R. 
Co.  V.  Roller,  100  Fed.  Rep.  738;  1900,  J.  W.  Thompson  v.  Whitehead,  185 
111.  454. 

While  it  is  held  that  only  an  officer  named  in  the  statute  can  accept  service, 
1895,  First  Nat'l  Bk.  v.  Huntington  Dis.  Co.,  41  W.  Va.  530,  56  Am.  St.  Rep. 
878,  yet  it  would  seem  that  any  agent  that  is  authorized  to  do  the  business  is 
sufficient  if  he  regularly  represents  the  company  in  such  business.  See  supra. 
Domestic  corporations  (b). 


§  326  POWER   TO    SUE   AND    BE   SUED.  *      1 121 

But  service  on  agent  temporarily  in  the  state,  is  not  generally  sufficient 
'see  cases  above),  though  there  are  a  few  cases  to  the  contrary :  1877,  Hiller 
V.  B.  &  M.  R.  Co.,  70  N.  Y.  223;  1887,  Childs  v.  Harris  Mfg.  Co.,  104  N. 
Y.  477. 


Sec.  326.     What  is  doing  business  so  as  to  authorize  service. 

RYERSON  V.  WAYNE  CIRCUIT  JUDGE.* 

1897.     In  the  Supreme  Court  of   Michigan.     114  Mich.  Rep. 

352-354- 

[Mandamus  by  Ryerson  to  compel  the  circuit  judge  of  "Wayne 
county  to  vacate  an  order  setting  aside  the  service  of  summons  against 
a  foreign  corporation.] 

MooRE,  J.  March  11,  1897,  lelator,  a  resident  of  Detroit,  com- 
menced a  suit  by  summons  in  the  Wayne  Circuit  Court  against  the 
Beach  &  Clarridge  Company,  a  Massachusetts  corporation,  for  a 
cause  of  action  accruing  in  Wayne  county.  The  service  was  made 
upon  H.  L.  Baker,  who  is  said  by  relator  to  be  the  traveling  agent  of 
said  corporation.  Motion  was  made  to  set  aside  the  service,  because 
unauthorized.  The  service  was  set  aside  and  the  proceedings  dis- 
missed.    It  is  sought  to  review  that  action  here. 

It  is  claimed  the  sei-vice  was  authorized  by  Act  No.  61  of  the  Pub- 
lic Acts  of  1895,  which  reads: 

"Suits  may  be  commenced  at  law  or  in  equity  in  the  circuit  court 
for  any  county  of  this  state  where  the  plaintiff  resides  *  *  * 
against  any  corporation  not  organized  under  the  laws  of  this  state,  in 
all  cases  where  the  cause  of  action  accrues  within  the  state  of  Michi- 
gan, by  service  ♦  *  *  upon  any  officer  or  agent  of  the  corpora- 
tion," etc. 

The  record  shows  that  Mr.  Baker  was  a  traveling  salesman  of  the 
Massachusetts  corporation.  His  business  was  the  taking  of  orders 
for  goods  in  this  and  a  number  of  other  states.  He  had  no  office  in 
this  state.  He  did  not  have  charge  of  any  men  under  him.  His 
duties  were  those  of  the  ordinary  traveling  agent,  selling  goods  to 
retail  dealers.     *     «     * 

It  is  the  claim  of  the  respondent  that  Mr.  Baker  was  not  such  an 
agent  as  is  meant  by  the  statute,  where  it  authorizes  service  upon  an 
agent;  citing  Newell  v.  Railway  Co.,  19  Mich.  336;  Watson  v. 
Wayne  Circuit  Judge,  24  Mich.  38;  Lake  Shore,  etc.,  R.  Co.  v. 
Hunt,  39  Mich.  469;  Pettit  v.  Booming  Co.,  74  Mich.  214;  Kirby 
Carpenter  Co.  v.  Trombley,  loi  Mich.  447.  These  cases  do  not 
throw  much  light  upon  the  discussion,  as  the  statute  construed  by 
them  is  quite  different  from  the  one  to  be  construed  here.  In  the  last 
three  cases  the  statute  reads  that  service  might  be  made  on  certain  of- 
ficers, and  the  "general  or  special  agent,  superintendent  or  other  prin- 
cipal officer." 

*  Part  of  opinion  omitted. 
71— WiL.  Cas. 


I  122     *  EXCHANGE    BANK    V.    CAPPS.  §   327 

Counsel  also  cites  Maxwell  v.  Railroad  Co.,  34  Fed  Rep.  286.  In 
this  case  Justice  Brown  held:  "It  does  not  appear  to  me  that  the  law 
of  this  state  with  respect  to  suits  against  foreign  corporations  (3  How^ 
Stat.,  §  8145)  '-"^^  ^'^y  fig"i"^  i"  the  case,  since  it  provides  for  service 
of  process  upon  the  agent  of  a  foreign  corporation  only  where  the 
cause  of  action  arises  within  this  state,"  and  he  held  that  the  cause  of 
action  did  not  arise  in  this  state,  and  for  that  reason  the  court  did  not 
get  jurisdiction.  In  the  case  of  Fairbank  &  Co.  v.  Cincinnati,  etc., 
R.  Co.,  4  C.  C.  A.  403,  54  Fed.  Rep.  430,  thei-e  was  a  dissenting 
opinion,  which  we  think  is  more  in  harmony  with  the  later  decisions 
of  this  court,  which  we  shall  hereafter  cite,  than  the  prevailing  opinion. 
In  Gottschalk  Co.  v.  Distilling,  etc.,  Co.,  50  Fed.  Rep.  681,  it  was 
held  that  the  person  called  a  "distributing  agent"  was  not  an  agent, 
but  was  a  purchaser  of  the  goods  of  defendant. 

We  think  the  record  fairly  discloses  that  the  Massachusetts  corpora- 
tion was  doing  business  in  this  state,  and  that  it  was  done  through  the 
agency  of  Mr.  Baker,  its  traveling  agent,  and  that  the  case  comes 
within  the  provisions  of  the  statute.  There  can  be  no  doubt  of  the 
right  of  this  corporation  to  do  business  in  this  state,  and  of  its  right  to 
sue  its  debtors  in  the  courts  of  this  state.  When  it  undertakes  to  do 
business  here,  it  must  do  so  in  compliance  with  our  laws,  which  pro- 
vide for  the  bringing  of  suits  and  the  method  of  service.  Vorheis  v. 
People's  Mut.  Ben.  Soc. ,  86  Mich.  31  ;  Shafer  Iron  Co.  v.  Iron  Cir- 
cuit Judge,  88  Mich.  464;   Turner  v.  Tunnel  Co.,  102  Mich.  574. 

We  think  the  service  of  process  was  good.  The  writ  will  issue  as 
prayed. 

The  other  justices  concurred. 

Note.  See,  1894,  Foster  v.  Betcher  Lumber  Co.,  5  S.  D.  57,  23  L.  R.  A. 
490,  note;  1895,  Florsheim,  etc.,  Dry  Goods  Co.  v.  Lester,  60  Ark.  120,  46  St. 
Rep.  162;  1896,  Comm.  Bank  v.  Sherman,  28  Ore.  573,  52  Am.  St.  Rep.  811; 
1898,  Crook  v.  Girard  Iron  Co.,  87  Md.  138,  67  Am.  St.  Rep  325;  1898,  Conn. 
Mut.  L.  Ins.  Co.  V.  Spratley,  172  U.  S.  602;  1898,  Mearshon  v.  Pottsville  L. 
Co.,  187  Pa.  St.  12,  67  Am.  St.  Rep.  560;  1899,  Wall  v.  Ches.  &  O.  R.  Co.,  95 
Fed.  Rep.  398;  1899,  In  re  La  Bourgogne,  79  L.  T.  (N.  S.)  331. 

But  see,  1895,  State  v.  Bristol  Sav.  Bk.,  108  Ala.  3,  54  Am.  St.  Rep.  141. 


Sec.  327.     Pleading. 

Corporation  plaintiff — need  not  allege  corporate  existence, 

EXCHANGE  NATIONAL  BANK  v.  L.  J.  CAPPS  Et  al.» 

1891.     In  the  Supreme  Court  of  Nebraska.     32  Nebraska  Rep. 
242-245,  29  Am.  St.  Rep.  433. 

[Suit  by  the  bank  upon  a  promissory  note  made  payable  to  the  order 
of  the  Exchange  National  Bank.  The  petition  read  simply  that 
"Plaintiff  complains,"  etc.,  without  alleging  it  was  a  corporation,  or 
stating  under  what  law  it  was  organized.  A  demurrer  to  the  petition 
was  sustained,  and  this  is  the  error  assigned.] 

'  Statement  abridged. 


§   32/  POWER  TO    SUE   AND   BE    SUED.  II23 

Maxwell,  J.  *  *  •In  Platte  Valley  Bank  v.  Harding,  i 
Neb.  461,  it  was  held  that  the  maker  of  a  note  payable  to  a  bank,  in 
an  action  on  the  note,  can  not  raise  the  question  of  the  bank's  incor- 
poration. In  Angell  &  Ames  on  Corporations,  section  633,  it  is 
said:  "It  is,  however,  generally  admitted  that  a  corporation  may  de- 
clare in  its  corporate  name,  without  setting  forth  in  the  declaration 
the  act  of  incorporation  or  averring  that  it  is  a  corporation  if  the  act 
be  private." 

At  common  law  it  is  not  necessary  to  set  forth  in  the  declaration 
the  act  of  incorporation  when  an  action  is  brought  in  the  corporate 
name.  The  code  was  designed  to  simplify  procedure.  There  is  no 
requirement  of  the  statute  that  the  act  of  incorporation  shall  be 
averred,  and  it  seems  to  be  sufficient  to  bring  the  action  in  the  cor- 
porate name. 

In  Stanley  v.  R.  &  D.  R.  Co.,  89  N.  C.  331,  it  is  said:  "It  is  dif- 
ficult to  assign  any  sufficient  reason  why  a  corporation  suing  or  sued 
should  be  designated  by  any  further  description  than  its  corporate 
name,  which  does  not  apply  with  equal  force  to  a  natural  person,  the 
only  purpose  in  either  case  being  to  point  out  the  party  to  the  action. 
The  appearance  and  plea  to  the  merits  or  answer  is  a  concession  of 
the  sufficiency  of  the  designation  of  the  person,  natural  or  artificial, 
and,  if  intended  to  be  disputed,  it  should  be  under  the  present  prac- 
tice by  answer." 

So  under  the  section  of  the  Iowa  code  in  regard  to  actions  on  writ- 
ten instruments,  when  "suit  may  be  brought  by  or  against  any  of  the 
parties  thereto,  by  the  same  name  and  description  as  those  by  which 
they  are  designated  in  such  instrument."  (Harris  Mfg.  Co.  v.  Marsh, 
49  Iowa  11,4  Am.  &  Eng.  Ency.  of  Law  285.)  TJiere  is  no  require- 
ment of  the  code  that  authorizes  a  court  to  insist  upon  setting  out  the 
act  of  incorporation  in  an  action  brought  in  the  corporate  name.  The 
common  law  prevails  in  this  state  in  all  matters  where  there  is  no 
statute  to  the  contrary.  The  code  has  not  changed  the  common  law 
in  this  respect.  It  was,  therefore,  unnecessary  to  aver  the  act  of  in- 
corporation. 

The  judgment  of  the  district  court  is  reversed,  and  the  cause  re- 
manded for  further  proceedings. 

Reversed  and  remanded. 

The  other  judges  concur. 

Note.  See.  also,  18fi0,  Central  Bank  v.  Knowlton,  12  Wis.  624,  78  Am.  Dec. 
769;  1867,  Stein  v.  Ind.  BIdg.  &  L.  Assn.,  18  Ind.  237,  81  Am.  Dec.  353;  1894, 
Norfolk,  etc.,  R.  Co.  v.  Hoover,  79  Md.  253,  47  Am.  St.  Rep.  392;  1896,  Shick 
v.  Citizens'  Enterprize  Co.,  15  Ind.  App.  329,57  Am.  St.  Rep.  230;  1897, 
Holden  v.  Great  W.  El.  Co..  69  Minn.  527,  65  Am.  St.  Rep.  685;  1898,  Emer- 
son v.  Nimocks,  88  Fed.  Rep.  iJ80;  1898,  Parker  v.  Carolina  Sav  Bk.,  53  S.  C. 
583,  69  Am.  St.  Rep.  888;  1899,  Wood  v.  Friendship  Lodge,  20  Ky.  L.  Rep. 
2002,  50  S.  W.  Rep.  836;  1899,  Moynihan  v.  Drobaz,  124  Cal.  212,  71  Am.  bt. 
Rep.  46;  1901,  Brady  v.  National  Supply  Co.,  64  O.  S.  267,  83  Am.  St.  Rep. 
753.  60  N.  E.  218. 

See  following  case,  contra. 


1  124       HOLLOWAY    V.   THE    MEMPHIS    PACIFIC    R.    R.    CO.       §    328 

Sec.  328.     Same.      Contra, — must  allege  corporate  existence. 

R.  W.  HOLLOWAY  v.  THE   MEMPHIS,  EL  PASO   AND    PACIFIC  R. 

R.  CO.i 

1859.    In  the  Supreme  Court  of  Texas.    23  Texas  Rep.  465-468, 

76  Am.  De(;.  68. 

[Suit  by  the  corporation  (without  alleging  its  corporate  existence) 
against  Holloway  upon  a  written  contract  of  subscription  to  the  stock 
of  the  railroad  company.  The  defendant  demurred,  the  court  over- 
ruled the  demurrer,  and  this  is  the  error  assigned.] 

Wheeler,  C.  J.  It  is  the  settled  rule  of  the  English  law,  and  it 
is  the  rule  in  New  York,  Virginia  and  some  of  the  other  states,  that 
where  a  body  politic  institutes  legal  proceedings,  either  on  a  contract 
or  to  recover  property,  it  must,  at  the  trial,  under  the  general  issue, 
prove  the  fact  of  incorporation.  (Angell  &  Ames  on  Corp.,  §  632, 
4th  edit.,  and  cases  cited.)     In  the   case   of  The  Bank  v.  Simonton, 

2  Texas  Rep.  531,  this  court  held  that  the  plaintiffs  must  aver  and 
prove  that  they  were  a  body  corporate,  duly  constituted  by  competent 
authority,  to  enable  them  to  maintain  this  action.  That  was  the  case 
of  a  foreign  corporation.  But  the  principle  of  the  decision  applies 
equally  to  a  domestic  corporation,  created  by  private  act,  of  which  the 
court  can  not  judicially  take  notice. 

In  some  of  the  states  a  different  rule  obtains,  and  it  is  held  that,  if 
in  a  suit  by  a  corporation  the  defendant  plead  the  general  issue,  it  is 
an  admission  of  the  corporate  existence  of  the  plaintiffs,  on  the  prin- 
ciple, it  seems,  th^t  by  pleading  to  the  merits,  the  defendant  admits 
the  capacity  of  the  plaintiffs  to  sue.  (Angell  &  Ames  on  Corp., 
§  633.)  Those  courts,  however,  make  an  exception  in  the  case  of 
foreign  corporations.  (Angell  &  Ames  on  Corp.,  §  633.)  But  the 
reason  for  a  distinction  in  this  respect  is  not  very  clearly  discoverable. 
A  foreign  corporation  is  required  to  prove  its  corporate  legal  exist- 
ence, because  the  court  can  not  judicially  know  the  legal  being  of 
such  a  corporation.  The  court  can  not  take  notice,  ex  officio^  of  the 
foreign  law,  by  which  it  is  created  a  body  corporate.  The  same  rea- 
son applies  to  a  domestic  corporation,  created  by  a  private  act.  The 
court  can  not  judicially  take  notice  of  a  private  statute,  and  there 
would  seem  to  be  the  same  reason  for  requiring  the  proof  to  be  made 
in  the  one  case  as  in  the  other. 

The  English  rule  seems  most  in  consonance  with  principle.  The 
merely  naming  themselves  a  company  shows  the  fact  of  an  associa- 
tion acting  under  a  particular  name,  but  not  that  they  have  the  legal 
capacity  to  act,  and  prosecute-  suits  by  that  name;  nor  can  the  court 
know  that  they  have  such  capacity,  unless  they  are  constituted  a  body 
corporate  by  public  law,  or  are  recognized  as  such  by  a  law,  of  which 
the  court  can  judicially  take   notice.     It  would   seem,  therefore,  on 

^  Statement  abridged ;  arguments  omitted. 


§   329  POWER    TO    SUE   AND    BE   SUED.  I  12$ 

principle,  that  a  private  domestic  corporation,  equally  with  a  foreign 
corporation,  must  aver  and  pi'ove  the  fact  of  incorporation. 

The  question  raised  by  the  demurrer  is,  whether  it  was  necessary 
for  the  plaintiffs  to  aver  that  they  are  a  corporation.  In  The  Bank  v. 
Simontoii,  it  was  held  to  be  a  necessary  averment  to  enable  the  plaintiffs 
to  maintain  the  action.  We  are  of  opinion  that  the  present  is  not  dis- 
tinguishable from  that  case  in  principle,  and  that  the  petition  want- 
ing the  averment  is  insufficient. 

It  is  insisted  that  the  defendant,  by  contracting  with  the  plaintiffs 
in  their  corporate  name,  has  admitted  that  they  are  duly  constituted 
a  body  corporate  under  that  name.  This  question  was  also  consid- 
ered in  the  case  of  The  Bank  v.  Simonton,  in  reference  to  the  authori- 
ties now  cited  by  the  plaintiffs'  counsel,  and  the  contrary  was  decided. 
The  mere  fact  that  in  a  contract  with  the  company  the  defendant  has 
designated  it  by  a  name  which  is  appropriate  to  a  corporate  body, 
does  not  admit  its  corporate  legal  existence,  unless  it  be  distinctly 
stated  in  the  contract  that  the  company  is  an  incorporated  company. 
(7  Wend.  540;  8  Wend.  480;  15  Wend.  316.)  It  admits  only  the 
existence  of  an  association  acting  under  that  name. 

If  it  be  an  inconvenience  and  hardship  to  require  a  private  corpora- 
tion to  prove  its  corporate  existence  in  actions  brought  by  it,  it  can 
easily  be  obviated  b}'  an  act  of  the  legislature  declaring  the  act  of 
incorporation  a  public  law,  or  dispensing  with  the  necessity  of  plead- 
ing the  act  in  suits  by  the  corporation. 

We  are  of  opinion  that  the  court  erred  in  overruling  the  exceptions 
to  the  petition,  and  that  the  judgment  be  reversed  and  the  cause  re- 
manded for  further  proceedings. 

Reversed  and  remanded. 

Note.  See,  1897,  Citizens'  Bank  v.  Corkings,  9  S.  D.  614,  62  Am.  St.  Rep. 
891;  1899,  Pryse  v.  Three  Forks,  etc..  Bank,  20  Ky.  L.  Rep.  1057,  48  S.  W. 
Rep.  415. 

See  preceding  case,  contra. 


Sec.  329.     Pleading, — plaintiff  need  not  allege  that  defendant  is  a 
corporation,  if  name  implies  it  is  not  a  natural  person. 

WOOLF  V.  THE  CITY  STEAMBOAT  COMPANY. 

.1849.     In  the  English  Court  of  Common  Pleas.     7  Man.,  Gr. 
&  S.  (62  Eng.  C.  L.)  *i03,  «io4. 

Assutnpsit.  The  declaration  commenced  thus:  "The  plaintiff 
complains  of  The  City  Steamboat  Company,  who  have  been  sum- 
moned to  answer  the  plaintiff,"  etc. 

Special  demurrer — assigning  for  causes,  that  the  names  of  the  de- 
fendants were  not  stated,  that  it  did  not  appear  whether  they  were 
sued  as  a  corporation  or  a  company  completely  registered,  or  by  virtue 
of  what  act  of  Parliament  they  were  entitled  to  be  sued  by  the  name 
of  a  company. 


I  126     STATE  V.  CHICAGO,  MILWAUKEE   &  ST.  PAUL  R.  CO.      §  33O 

Hugh  Hill^  in  support  of  the  demurrer.  The  question  in  this  case 
is,  whether  the  plaintiff  may,  in  his  declaration,  describe  the  defend- 
ants as  a  company,  without  showing  whether  or  not  they  are  a  corpo- 
ration or  a  registered  company.  In  the  doubtful  state  of  the  allegation 
the  defendants  could  not  safely  plead  nul  tie!  corporation.  (Cress- 
well,  J.  Is  not  this  the  usual  form  of  declaring  against  a  corpora- 
tion.? It  may  be  that  the  defendants  are  a  chartered  company  ;  how 
does  it  appear  that  they  aie  not?)  In  Thompson  v.  The  Universal 
Salvage  Company,  i  Exch.  694 — which  was  an  action  against  a  regis- 
tered company  upon  a  promissory  note — the  declaration  stated  that 
the  company  had  been  duly  registered  under  the  statute  7  &  8  Vict., 
c.  no.  (Maule,  J.  If  the  defendants  in  fact  are  a  corporation,  the 
declaration  is  correct;  if  they  ai'e  not,  they  may  traverse  it.)  In  The 
Queen  v.  West,  i  Q.  B.  826,  a  coroner's  inquisition  stating  that  cer- 
tain goods  and  chattels  were  the  goods  and  chattels  of  the  proprietors 
of  the  Hull  and  Selby  Railway,  was  held  bad,  because  it  did  not  show 
that  there  was  any  corporation  so  intituled.  (Cresswell,  J.  That 
case  would  have  been  more  to  the  purpose  if  the  defendants  here  had 
been  described  as  "the  proprietors  of  the  City  Steamboats.")  Since 
the  statutes  creating  these  registered  corporations,  it  is  essential  that 
they  should  in  all  proceedings  be  described  according  to  the  truth. 
(Cresswell,  J.  How  can  the  mode  of  describing  them  in  pleading 
be  affected  by  the  statutes.?)  It  is  important  that  the  true  character 
in  which  a  party  sues  or  is  sued  should  appear  upon  the  record. 

Hawkins^  contra^  was  not  called  upon. 

Maule,  J.  The  mode  of  pleading  is  governed  either  by  positive 
rules  or  by  a  known  course  of  precedents.  There  is  no  positive  rule 
that  I  am  aware  of  which  requires  such  a  mode  of  description  as  the 
defendant's  counsel  insists  upon  in  this  case,  nor  is  the  description 
which  is  given  at  all  out  of  the  usual  form  ;  it  impliedly  amounts  to 
an  allegation  that  the  defendants  are  a  corporate  body.  I  think  the 
plaintiff  is  entitled  to  judgment. 

The  rest  of  the  court  concurring.     Judgment  for  the  plaintiff. 

Note.  See  to  same  effect,  notes  29  Am.  Dec.  375;  76  Am.  Dec.  68;  35  Am. 
St.  Rep.  291 ;  1893,  Lake  Erie  &  W.  R.  Co.  v.  Griffin,  8  Ind.  App.  47,  62  Am. 
St.  Rep.  463;  1897,  Holden  v.  Great  W.  El.  Co.,  69  Minn.  527,  65  Am.  St.  Rep. 
585;  1899,  Moynihan  v.  Drobaz,  124  Cal.  212,  71  Am.  St.  Rep.  46. 

See  following  case,  contra. 

Sec.  330.     Same.     Plaintiff  suing  a  corporation  should  allege  it  is 
such. 

STATE  V.  CHICAGO,  MILWAUKEE  &  ST.  PAUL  RAILWAY  CO.^ 

1893.      In    the    Supreme  Court  of    South    Dakota.      4  S.  D. 
Rep.  261-264,  46  Am.  St.  Rep.  783. 

Corson,  J.  This  was  an  action  by  the  state  to  enjoin  the  defend- 
ant from  continuing  an  alleged  nuisance.      The  defendant  demurred 

'  Statement,  except  as  in  the  opinion  of  the  court,  and  part  of  the  opinioa 
omitted. 


§  330  POWER  TO   SUE  AND   BE  SUED.  112/ 

to  the  complaint  on  the  ground  that  it  did  not  state  facts  sufficient  to 
constitute  a  cause  of  action,  and  the  same  was  sustained  by  the  court. 
From  the  order  sustaining  the  demurrer  the  phiintiff  appeals.  The 
defendant  specifies  as  the  particular  ground  of  objection,  in  the  brief 
filed  in  this  court,  that  there  is  no  allegation  in  the  complaint  that  the 
defendant  is  a  corporation.  The  only  indication  of  the  character  in 
which  the  defendant  is  sued  is  in  the  title.  The  learned  counsel  for 
the  respondent  contend  that  the  defendant  is  sued  by  a  name  indicat- 
ing that  it  is  not  a  natural  person,  but  a  company  of  some  kind,  and 
that  no  facts  are  stated  to  show  that  it  is  an  artificial  being,  capable 
of  being  sued. 

It  is  true  that  by  section  2908,  Comp.  Laws,  it  is  provided  that  "in 
all  civil  actions  brought  by  or  against  a  corporation  it  shall  not  be 
necessary  to  prove  on  the  trial  of  the  cause  the  existence  of  such  cor- 
poration, unless  tlie  defendant  shall,  in  the  answer,  expressly  aver  that 
the  plaintiff  or  defendant  is  not  a  corporation."  But  an  allegation 
that  the  defendant  is  a  corporation  is,  we  think,  still  necessary,  and 
the  language  of  the  section  presupposes  that  the  defendant  is  sued  as 
a  corporation.  In  what  manner  cat^  a  court  be  advised  that  the  de- 
fendant is  sued  as  a  corporation,  unless  it  is  so  alleged  in  the  com- 
plaint.'' In  the  recent  case  of  People  v.  Cent.  Pac.  R.  Co.,  83  Cal. 
393'  23  Pac.  Rep.  303  (decided  in  1890),  the  supreme  court  of  that 
state,  in  passing  upon  this  question,  says:  "The  defendant  is  sued  by 
a  name  indicating  that  it  is  not  a  natural  person,  but  a  company  of 
some  kind  ;  but  there  is  no  averment  of  the  fact  of  incorporation,  or 
of  any  fact  to  show  that  itjs  an  artificial  being,  capable  of  being  sued. 
Nor,  if  incorporated,  is  there  any  averment  to  show  where,  or  under 
what  law,  so  that  the  court  may  determine  where  the  jurisdiction  of 
its  person  lies.  An  averment  of  defendant's  corporate  existence  is 
necessary  in  every  count  of  a  complaint  against  a  corporation.  Loup 
v.  Railroad  Co.,  63  Cal.  97."  Mechanics'  Banking  Association  v. 
Spring  Valley  Shot  and  Lead  Co.,  13  How.  Pr.  227.  Judge  Bliss, 
in  his  work  on  Code  Pleading  (section  258),  says:  "But  a  corporation 
is  an  artificial  personality,  not  presumed  to  exist  even,  and  the  phrase 
may  stand  for  such  personality,  or  for  a  joint  stock  company,  or  for  a 
partnership,  or  for  a  private  person,  or  for  nothing  at  all.  The  allega- 
tion, then,  that  the  plaintiff  is  a  corporation,  even  if  permitted  to  be 
made  in  general  terms,  would  seem  to  be  essential  to  show  its  right  to 
bring  the  suit."  And  in  section  360  he  says:  "In  regard  to  actions 
against  corporations,  the  same  general  rule  should  prevail."  We  are 
of  the  opinion  that  the  inile  laid  down  by  Judge  Bliss  and  the  supreme 
court  of  California  is  the  safer  and  better  rule,  though  there  are  courts 
holding  a  contrary  rule.  In  the  case  of  Express  Co.  v.  Harris,  120 
Tnd.  73,  16  Am  St.  Rep.  315,  21  N.  E.  Rep.  340.  decided  by  the  su- 
preme court  of  Indiana  in  1889,  that  court  says:  '  The  name  of  the 
defendant  (Adams  Express  Company)  imports  that  it  is  a  corporation, 
and  it  was,  therefore,  not  necessary  to  specifically  aver  that  it  was  a 
corporation."  But,  with  great  respect  for  that  court,  we  can  not 
agree  with   its  conclusions.     As  was  said  in  the  California  case,  the 


I  128  BANK    OF   JAMAICA   V.    JEFFERSON,  §   33 1 

name  indicates  "that  it  is  not  a  natural  person,  but  a  company  of 
some  kind,"  but  whether  a  corporation  or  an  unincorporated  associ- 
ation does  not  appear.  We  are  not  aware  of  any  principle  of  law 
that  will  authorize  a  court  to  presume  that  it  is  a  corporation  any  more 
than  it  would  presume  that  it  was  an  unincorporated  association.  A 
similar  view  as  to  the  necessity  of  alleging  in  the  complaint  that  the 
defendant  is  a  corporation  was  taken  by  the  supreme  court  of  North 
Carolina  in  Stanley  v.  Railroad  Co.,  89  N.  C.  331.  *  *  * 
Affirmed.  , 

Note.     See,  1892,  Miller  v.  Pine  M.  Co.,  2  Idaho  1206,  35  Am.  St.  Eep.  289  n. 
291,  41  Am.  &  Eng.  Corp.  Cas,,  p.  1,  and  note  p.  3. 
See  preceding  case,  contra. 


Sec.  331.     Pleading — general  issue  at  law  does  not  raise  question 
of  corporate  existence;    the  rule  is  otherwise  in  equity. 

BANK  OF  JAMAICA  v.  JEFFERSON.» 

1893.     In  the  Supreme  Court  of  Tennessee.     92  Tenn.   Rep. 
537-542,  36  Am.  St.  Rep.  100. 

[Suit  in  equity  by  the  bank,  alleging  itself  to  be  a  corporation  un- 
der the  laws  of  New  York,  to  recover  upon  a  note.] 

Wilkes,  J.  *  «  *  Again  it  is  assigned  as  error  that  complain- 
ant sues  as  a  foreign  corporation,  and  it  is  insisted  that  no  recovery 
can  be  had  unless  that  allegation  is  sustained  by  proof,  and  that  no 
proof  was  offered  on  this  point  in  the  court  below. 

On  the  other  hand,  it  is  insisted  that  this  allegation  of  the  bill  is  not 
denied  in  the  answer,  that  the  character  in  which  plaintiff  sues  is  not 
put  in  issue  by  the  answer,  and  that,  under  a  general  denial,  or  the 
general  issue,  proof  of  the  character  in  which  the  suit  is  brought  is 
not  necessary  to  be  made. 

This  latter  contention  is  unquestionably  coirect  in  actions  at  law,  in 
which  actions,  if  the  plaintiff  alleges  that  it  is  a  corporation,  even 
though  it  be  a  foreign  corporation,  that  fact  need  not  be  proven  unless 
it  is  put  in  issue  by  a  specific  denial,  and  the  general  issue  would  not 
be  sufficient,  and  pleading  to  the  merits  would  be  an  admission  of  the 
character  in  which  the  j^laintiff  sues.  2  Beach  on  Private  Corpora- 
tions, 867-869;  4  Am.  &  Eng.  Enc.  of  Law,  285—6,  and  notes; 
Union  Cement  Co.  v.  Noble,  15  Fed.  Rep.  502  ;  Harrison  v.  Mar- 
tinsville Railroad  Co.,  16  Ind.  505,  79  Am.  Dec.  447;  Orono  v. 
Wedgewood,  44  Me.  49,  69  Am.  Dec.  81  ;  West  Winstead  Asso.  v. 
Ford,  27  Conn.  282,  71  Am.  Dec.  66;  Marble  Co.  v.  Black,  89 
Tenn.  118,  120,  121. 

We  do  not  think  the  cases  of  Jones  v.  State,  5  Sneed  346,  348; 
Owen  V.  State,  5  Sneed  493,  495,  and  Augusta  Mfg.  Co,  v.  Vertrees, 
4  Lea  75,  78,  are  in  conflict  with  this  ruling.      The  cases  of  Jones  v. 

*  Statement  abridged,  and  part  of  opinion  and  other  points  omitted. 


4  332  POWER  TO   SUE  AND   BE   SUED.  1 129 

The  State  and  Owen  v.  The  State  are  criminal  prosecutions,  in  which 
greater  strictness  of  proof  is  required,  and  the  case  of  Augusta  Mfg. 
Co.  V.  Vertrees,  was  an  action  of  ejectment,  in  which  by  statute  (M. 
&  V.  Comp.,  3963)  it  is  provided  that  under  the  general  plea  of  not 
guilty  the  defendant  may  avail  himself  of  all  legal  defenses. 

The  rule  is  different  in  chancery  cases.  At  law  every  fact  alleged 
in  the  declaration,  and  not  denied  in  the  plea,  is  taken  as  true.  Code, 
§  2910;  M.  &  v.,  §  3630.  But  in  chancery  every  allegation  of  fact 
jiot  admitted,  whether  denied  or  not,  must  be  proved,  the  failure  to 
admit  or  deny  being  equivalent  to  a  denial.  Hill  v.  Walker,  6  Cold. 
429,  98  Am.  Dec.  465;  Hardeman  v.  Burge,  10  Yer.  202  ;  Smith  v. 
St.  Louis  Ins.  Co.,  2  Tenn.  Ch.  602;  Gibson's  Suits  in  Chancery, 
section  457. 

The  fact  that  complainant  is  a  foreign  corporation  is  alleged  in  the 
bill,  and  it  is  a  fact  material  to  the  right  to  recover.  It  is  not  ad- 
mitted in  the  answer,  and  there  is  a  general  denial  of  all  matters  not 
admitted.  It  should,  therefore,  have  been  proven,  and,  for  the  fail- 
ure to  prove  this,  we  are  constrained  to  reverse  the  decree  of  the  court 
below,  and  remand  the  cause  for  proof  of  the  corporation  and  for 
further  proceedings  under  the  statute.     Code,  §  3170. 

Note.  See  note,  41  Am.  &  Eng.  Corp.  Cas.,  p.  3;  1861,  Harrison  v.  Rail- 
road Co.,  16  Ind.  505,  79  Am.  Dec.  447,  note  449;  1899,  Wood  v.  Friendship 
Lodge,  20  Ky.  L.  Rep.  2002,  50  S.  W.  Rep.  836 ;  1899,  Ludington  v.  Luding- 
ton,  119  Mich.  480,  78  N.  W.  Rep.  558;  1899,  Moynihan  v.  Drobaz,  124  Cal. 
212,  71  Am.  St.  Rep.  46. 

Sec.  332.     Same.     Contra, — under  general  issue  corporate  exist- 
ence must  be  proved. 

SUTHERLAND,  J.,  in  BANK  OF  UTICA  v.  SMALLEY. 

1824.     In  the    Supreme  Court   of   New  York.     2  Cowen  (N. 
Y.)  Rep.  770,  on  778,  14  Am.  Dec.  526. 

[Suit  by  the  bank  in  its  corporate  name  to  recover  of  defendants  as 
indorsers  upon  a  note  payable  at  the  bank.] 

It  is  contended  that  the  judge  erred  in  deciding  that  the  plaintiffs 
were  not  bound  to  prove  themselves  a  corporation  upon  the  general 
issue  pleaded. 

This  objection  is  well  taken.  When  a  corporation  sues  they  need 
not  sef  forth,  by  averment,  in  the  declaration,  how  they  were  incor- 
porated, but  upon  the  general  issue  pleaded  they  must  prove  that  they 
are  a  corporation.  (Kyd  on  Corp.,  292;  Norris  v.  Staps,  Hob.  211, 
Jackson,  ex  dem.  Trustees  of  Union  Academy,  v.  Plumbe,  8  Johns. 
378 ;  Dutchess  Cotton  Manufacturing  Company  v.  Davis,  14  Johns. 
238  on  245,  opinion  of  Thompson,  Ch.  J. ;  Bank  of  Auburn  v.  Weed, 
19  Johns.  300.) 

Note.  1832,  Welland  Canal  Co.  v.  Hathaway,  8  Wend.  480,  24  Am.  Dec.  51, 
note  58;  1836,  Harris  v.  Muskingum  Mfg.  Co.,  4  Blackf.  267,  29  Am.  Dec.  372 
and  note. 


1I30  DAVIS    V.    NEBRASKA    NAT'L    BANK.  §   333 

Sec.  383.     Pleading — general  denial  under  the  code. 

S.  K.  DAVIS  ET  AL.  V.  NEBRASKA  NATIONAL  BANK  OF  OMAHA. 

1897.     In  the    Supreme  Court  of  Nebraska.      51  N.  E.  Rep. 
401-402,  6  Am.  &  Eng.  Corp.  Cas.  (N.  S.)  593. 

Irvine,  C.  The  Nebraska  National  Bank  of  Omaha  sued  the 
plaintiffs  in  error  on  a  promissory  note  alleged  by  the  petition  to  have 
been  made  by  the  defendants  below  to  the  order  of  the  Nebraska  Na- 
tional Bank  of  Beatrice,  and  by  the  latter  bank  indorsed  and  trans- 
ferred to  the  plaintiff.  The  plaintiff  recovered  judgment  for  the 
amount  of  the  note.  The  petition  alleged  that  the  plaintiff  w^as  a 
corporation  organized  under  the  laws  of  the  United  States.  The 
answer  specifically  denied  plaintiff's  corporate  existence.  No  evi- 
dence was  introduced  on  the  subject.  The  instructions  of  the  court 
entirely  ignored  the  issue,  and  the  court  refused  a  peremptory  instruc- 
tion to  find  for  the  defendants,  as  well  as  a  special  instruction  sub- 
mitting to  the  jury  for  determination  the  corporate  existence  of  the 
plaintiff. 

It  will  be  observed  that  there  existed  no  privity  of  contract  between 
the  defendants  and  the  plaintiff  bank  whereby  the  defendants  were  es- 
topped to  deny  the  corporate  capacity  of  the  plaintiff,  nor  are  any  other 
grounds  of  estoppel  pleaded.  The  defense  interposed  was,  therefore, 
a  valid  defense  in  this  action.  It  has  been  several  times  held  that  a 
general  denial  does  not  present  the  issue,  but  that  it  must  be  raised  by 
a  specific  denial  in  the  nature  of  a  plea  in  abatement.  Insurance  Co. 
V.  Robinson,  8  Neb.  452;  Dietrichs  v.  Railroad  Co.,  13  Neb.  43,  13 
N.  W.  Rep.  3;  Herron  v.  Cole  Bros.,  25  Neb.  692,  41  N.  W.  Rep. 
765;  Swift  &  Co.  V.  Crawford,  34  Neb.  450,  51  N.  W.  Rep.  1034. 
But  a  special  denial  of  the  character  indicated  is  sufficient  to  present 
the  defense  (Sunapee  v.  Eastman,  32  N.  H.  470;  Greenwood  v.  Rail- 
road Co.,  10  Gray  375),  and  such  a  plea  casts  the  burden  of  proof  of 
corporate  existence  upon  the  plaintiff  (see  cases  cited  in  5  Enc.  PI.  & 
Prac.  82).  At  the  common  law  there  existed  some  controversy  as  to 
whether  nul  tiel  corporation  should  be  pleaded  in  abatement  or 
whether  it  might  be  pleaded  in  bar.  The  Nebraska  cases  cited  in- 
timate that  this  court  has  considered  it  to  be  in  the  nature  of  a  plea  in 
abatement.  But  this  is  immaterial,  because  under  our  code  defenses 
of  both  characters  may  be  presented  in  one  answer.  Hurlburt  v. 
Palmer,  39  Neb.  158,  57  N.  W.  Rep.  1019;  Association  v.  Peter- 
son, 41  Neb.  897,  60  N.  W.  Rep.  373;  Herbert  v.  Wortendyke 
(Neb.),  68  N.  W.  Rep.  350.  It  is  probable,  as  suggested  in  the 
bank's  brief,  that  this  and  other  defenses  were  purely  technical  and 
devoid  of  merit.  The  plea  was,  however,  one  of  which  the  defend- 
ants might  legally  avail  themselves.  The  bank  was  notified  by  the 
special  plea  that  it  would  be  called  upon  to  establish  its  corporate  ex- 
istence. It  entirely  failed  to  do  so,  and  the  judgment  must  for  that 
reason  be  reversed. 

Reversed  and  remanded. 


§  334  POWER  TO  SUE  AND  BE  SUED.  II31 

Sec.  334.     Proof  of  corporate  existence — special  charter. 

UNITED  STATES  BANK  v.  STEARNS.* 

1836.     In  thb  Supreme  Court  of  New  York.     15  Wend.  (N. 

Y.)  314-317- 

[Assumpsit  by  the  bank  to  recover  overpaid  money.] 

The  cashier  of  the  Buffalo  Branch  Bank  testified  that  the  phiintiffs 
had  a  banking  house  in  Philadelphia,  where  they  had  carried  on  bank- 
ing business  for  many  years,  under  their  charter.  The  defendant  in- 
sisted that  the  plaintiffs  w^ere  bound  to  prove  themselves  a  corporation 
by  the  production  of  their  charter.  The  judge  decided  that  the  char- 
ter need  not  be  produced,  because  the  act  of  incorporation  of  the 
Bank  of  the  United  States  was  a  public  act,  which,  for  certain  pur- 
poses, constituted  the  bank  the  financial  agent  of  the  general  govern- 
ment, and  gave  the  United  States  an  interest  in  the  stock,  and  because 
the  presentation  of  the  checks  and  the  receipt  of  the  money  was  an 
implied  admission  of  the  existence  of  the  corporation.  The  jury 
found  for  the  plaintiffs.      The  defendant  asks  for  a  new  trial. 

Savage,  C.  J.  *  *  *  The  least  proof  which  has  been  held 
sufficient  is  the  production  of  an  exemplification  of  the  act  incorpo- 
rating the  plaintiffs,  and  evidence  of  user,  under  their  charter,  i 
Wendell  555.  In  one  case  it  was  held  that  the  act  of  incorporation 
might  be  read  from  the  statute  book,  printed  by  the  printer  to  the 
state.  9  Cowen  205—6.  The  evidence  of  user  in  this  case  was 
enough,  but  there  was  no  evidence  at  all  of  the  act  of  incorporation. 
No  exemplification  was  produced,  nor  even  the  act  read  or  produced 
in  the  statute  book.  One  or  the  other  is  indispensable  when  the  suit 
is  brought  by  corporations  created  by  our  own  statutes  But  when  a 
suit  is  brought  by  a  foreign  corporation,  as  the  plaintiffs  must  be  con- 
sidered in  this  court,  I  apprehend  an  exemplification  should  be  pro- 
duced, if  required.  The  courts  of  the  state  of  New  York  have  no 
judicial  knowledge  of  acts  of  congress  creating  corporations.  When 
tliey  are  necessary,  as  evidence,  they  must  be  proved  as  the  acts  of 
our  sister  states  must  be  proved.  In  my  opinion  the  proof  of  the  ex- 
istence of  the  corporation  was  insufficient.  The  transaction  of  busi- 
ness by  the  defendant  with  the  plaintiffs  was  probably  an  admission 
that  they  had  capacity  to  transact  business  as  a  company,  but  not  that 
they  were  an  incorporated  company.  Many  commercial  companies 
not  incorporated  do  business  by  oflScers  and  agents,  and  are  capable 
of  suing,  but  not  otherwise  than  in  their  individual  capacities.   *  *  * 

New  trial  granted. 

N'te,.  See  next  case,  and  Packard  v.  Old  Colony  R.  Co.,  168  Mass.  92; 
supra,  §  142;  also.  President,  Directors,  etc.,  of  Bank  of  U.  S.  v.  Dandridge^ 
12  Wheat  (U.  S.),  64;  snpra,  §  237. 

*  Statement  abridged ;  only  part  of  opinion  given. 


I  132        BALTIMORE,    ETC.,  R.  R.  CO.  V.  BAPTIST    CHURCH.    §   335 

Sec.  335.     Proof  of  corporate  existence  under  general  incorporation 
laws. 

BALTIMORE  AND  POTOMAC  R.  R.  CO.  v.  FIFTH  BAPTIST  CHURCH.' 

1 89 1.     In  the  Supreme  Court  of  the  United  States.      137  U. 

S.  Rep.  568-576. 

[Action  on  the  case  by  the  church  against  the  railroad  company  for 
damages  for  maintaining  a  continuous  nuisance  by  noise  and  smoke  to 
plaintiff's  enjoyment  of  its  property.   Judgment  below  for  the  church.] 

Mr.  Justice  Gray.  *  *  *  The  declaration  was  headed  "The 
Fifth  Baptist  Church  of  Washington,  D.  C,  by  its  Trustees,  v.  The 
Baltimore  and  Potomac  Railroad  Company,"  and  alleged  that  the 
plaintiff  was  a  body  corporate  in  the  District  of  Columbia,  under 
and  by  virtue  of  the  general  corporation  act  of  May  5,  1870,  ch.  80, 
§  2;    16  Stat.  99,  100;   Rev.  Stat.  D.  C,  §§  533-544. 

The  defendant  pleaded  in  bar:  i.  "That  the  said  plaintiff  was  not 
at  the  time  of  commencement  of  this  suit,  and  never  was,  a  body  cor- 
porate or  politic,  as  set  forth  and  alleged  in  and  by  said  declaration." 
2.   Not  guilty.      The  plaintiff  joined  issue  on  these  pleas. 

The  plaintiff,  upon  the  issue  presented  by  the  first  plea,  and  to 
prove  its  user  of  corporate  rights,  offered  the  following  evidence, 
which  was  admitted   against  the  defendant's  objection  and  exception: 

I.  The  original  of  the  following  certificate  of  incorporation,  signed 
and  sealed  by  the  six  persons  named  therein: 

"We,  C.  C.  Meador,  George  M.  Kendall,  John  N.  Henderson, 
Samuel  M.  Yeatman,  James  C.  Deatley  and  Samuel  S.  Taylor,  of 
Washington  City,  in  the  District  of  Columbia,  do  hereby  certify 
that  we  have  been  duly  elected  'Trustees  of  the  Fifth  Baptist  Church 
of  Washington  City,  D.  C  (commonly  called  'the  Island  Baptist 
Church'),  and  that  this  certificate  is  made,  feigned  and  sealed  for  the 
purpose  of  obtaining  corporate  rights  and  privileges  for  the  said  'Fifth 
Baptist  Church,'  a  religious  society  woi'shipping  at  present  in  their 
church  edifice  on  D  street,  south,  between  Four-and-a-half  and  Sixth 
Streets,  in  said  City  of  Washington,  under  the  provisions  of  an  act  of 
congress  approved  May  5,  1870,  entitled  'An  act  to  provide  for  the 
creation  of  corporations  in  the  District  of  Columbia  by  general  law.' 

"In  testimony  whereof,  we  hereunto  set  our  hands  and  affix  our  seals 
this  twenty-fourth  day  of  August,  in  the  year  of  our  Lord  one  thou- 
sand eight  hundred  and  seventy-one." 

Annexed  to  this  paper  were  a  notary  public's  certificate  of  its 
acknowledgment  on  the  same  day  by  these  six  persons,  an  affidavit  of 
one  of  them,  dated  May  i,  18S5,  that  the  statements  in  the  certificate 
of  incorporation  were  true,  a  memorandum  of  the  recorder  that  the 
paper  was  recorded  September  5,  187 1,  and  another  memorandum 
that  it  was  recorded  May  i,  1885. 

^  Statement  abridged.  Only  the  part  of  the  opinion  relating  to  proof  of  cor- 
porate existence  is  given. 


§   335  POWER   TO   SUE   AND   BE   SUED.  II33 

2.  A  recorder's  copy  of  the  certificate  of  incorporation,  acknowl- 
edgment and  affidavit,  as  recorded  May  i,  1885. 

3.  That  in  the  year  187 1  it  became  necessary  for  the  plaintiff,  in 
order  to  complete  its  church  edifice,  to  borrow  money  upon  a  mort- 
gage of  its  land,  and  that  to  promote  this  object,  and  upon  the  recom- 
mendation of  its  finance  committee,  a  special  meeting  was  called,  and 
was  held  on  July  3,  187 1,  at  which  the  church  (which  had  been  known 
as  the  Island  Baptist  Church)  resolved  to  become  incorpoi-ated  under 
the  name  stated  in  the  above  certificate  of  incorporation,  and  elected 
as  its  trustees  the  six  persons  named  therein,  and  fixed  their  term  of 
office  at  three  years,  and  thereupon  that  certificate  was  prepared  and 
signed  by  the  trustees  and  recorded. 

4.  Three  deeds,  respectively  dated  September  26,  1871,  Septem- 
ber 18,  1872,  and  November  10,  1874,  from  the  six  persons  named 
in  the  above  certificate  of  incorporation,  describing  themselves  as 
"trustees  of  the  Fifth  Baptist  Church  of  Washington  City,  D.  C," 
reciting  its  incorporation  under  the  general  corporation  act,  and  its 
resolution  authorizing  them  to  execute  the  deeds,  and  conveying  the 
church  building  and  land,  in  trust  and  by  way  of  mortgage,  to  secure 
the  payment  of  various  sums  of  money. 

5.  Two  deeds  of  release  of  the  same  building  and  land,  dated  No- 
vember 9,  1874,  from  the  grantees  to  the  grantors  in  the  first  two  of 
the  trust  deeds  aforesaid. 

6.  The  record  of  the  judgment  in  the  former  action  between  these 
parties. 

The  plaintiff  also  introduced,  without  objection,  evidence  tending 
to  show  "that  its  present  church  edifice  was  begun  about  the  year 
1866,  and  was  completed  at  a  cost  of  about  $22,000,  exclusive  of  the 
ground ;  that  the  property  is  worth  about  $30,000,  and  has  been  occu- 
pied and  used  by  the  plaintiff's  society  or  congregation  since  the  year 
1867  as  its  place  of  religious  worship,  and  that  during  the  period  cov- 
ered by  this  suit  its  actual  church  membership,  consisting,  as  in  all 
Baptist  churches,  of  persons  who  have  been  baptized  after  a  pro- 
fession of  faith,  numbered  about  four  hundred  persons,  exclusive  of 
the  persons  attending  services  there  as  members  of  the  congrega- 
tion who  were  not  members  of  the  church." 

It  may  be  that,  as  held  by  the  court  below  in  4  Mackey  43,  at  a 
former  stage  of  one  of  these  cases,  the  original  certificate  of  incor- 
poration, not  stating  the  date  of  election  or  the  term  of  office  of  the 
trustees,  nor  supported  by  affidavit,  as  required  by  statute,  was  not 
sufficient  of  itself  to  prove  the  plaintiff's  existence  as  a  corporation, 
either  de  jure  or  de  facto;  and  that  the  adding  of  an  affidavit  to  the 
certificate,  and  recording  it  anew,  since  the  commencement  of  these 
actions,  could  not  avail  the  plaintiff. 

But  the  certificate  of  incorporation,  as  originally  drawn  up,  taken 
in  connection  with  the  other  evidence  now  introduced,  and  especially 
the  record  of  the  former  action  in  which  this  plaintiff  as  a  corporation 
recovered  judgment  against  this  defendant  without  any  objection  being 
taken  to  the  plaintiff's  capacity  to  sue,  is  clearly  competent  and  suf- 


I  134  SHUTE   V.    KEYSER.  §   336 

ficient,  as  between  these  parties,  to  prove  that  the  plaintiff  had  in  good 
faith  attempted  to  legally  organize  as  a  corporation,  and  had  long  acted 
as  such,  and  was  at  least  a  corporation  de  facto,  which  is  all  that  is 
necessaiy  to  enable  it  to  maintain  an  action  against  any  one,  other  than 
the  state,  who  has  contracted  with  the  corporation,  or  who  has  done 
it  a  wrong.  Bank  of  United  States  v.  Dandridge,  12  Wheat.  64,  72  ; 
Conard  v.  Atlantic  Ins.  Co.,  i  Pet.  386,  450;  Chubb  v.  Upton.  95 
U.  S.  665;  Williamsburg  Ins.  Co.  v,  Frothingham,  122  Mass.  391  ; 
Searsburgh  Turnpike  Co.  v.  Cutler,  6  Vt.  315;  Cincinnati,  etc.. 
Railroad  v.  Danville  &  Vincennes  Railroad,  75  111.  113;  Stockton  & 
Linden  Co.  v.  Stockton  &  Copperopolis  Railroad,  45  Cal.  680. 

It  is  objected  that  the  evidence  admitted,  if  sufficient  to  prove  that 
the  plaintiff  was  a  corporation,  did  not  prove  that  it  was  the  corpora- 
tion which  brought  this  action,  because  the  evidence  was  that  the  cor- 
porate name  was  "The  Fifth  Baptist  Church  of  Washington,  D.  C," 
whereas  the  action,  as  stated  in  the  declaration,  was  brought  by  "The 
Fifth  Baptist  Church  of  Washington,  D    C,  by  its  Tnistees." 

It  may  well  be  doubted  whether  the  words  "by  its  trustees,"  as 
here  used,  are  part  of  the  name  of  the  plaintiff.  They  may  have  been 
inserted,  like  "by  attorney"  or  "by  next  friend,"  to  indicate  by  whose 
agency,  and  not  in  whose  behalf,  the  action  is  brought.  By  the  gen- 
eral corporation  act,  both  the  title  in  real  estate,  and  the  right  to  sue, 
are  vested  in  the  trustees  "by  the  name  and  style  assumed  as  afore- 
said," that  is  to  say,  in  the  name  and  behalf  of  the  corporation.  Act 
of  May  5,  1870,  ch.   80,  §  2;     16  Stat.,  99,  100;  Rev.  Stat.  D.  C, 

§§53.4..  539,  540- 

But  if  these  words  in  the  declaration  can  be  taken  as  part  of  the 
plaintiff's  name,  the  most  that  is  shown  is  a  mistake  in  that  name. 
While  nul  tiel  corporation,  or  that  the  plaintiff  is  not  and  never  was 
a  corporation,  is  a  good  plea  in  bar,  because  it  goes  to  show  that  the 
plaintiff  can  never  maintain  any  action  whatever ;  yet  misnovier ,  or 
mere  mistake  in  the  name  of  a  corporation  plaintiff,  which  does  not 
affect  its  capacity  to  sue  in  the  right  name  is  pleadable  in  abatement 
only,  and  is  waived  by  pleading  to  the  merits.  Bro.  Ab.  Misnomer, 
73;  Society  for  Propagating  the  Gospel  v.  Pawlet,  4  Pet.  480,  501  ; 
Christian  Society  v.  Macomber,  3  Met.  235,  237;  Gould  PI.,  ch.  5, 
§79.     *     *     * 

Ajffirmed. 
Note.    See  note  preceding  case. 


Sec.  336.     Power  to  confess  judgment. 

SHUTE  V.  KEYSER. 

1892.     In  the  Arizona  Supreme  Court.     37  Am.  &  Eng.  Corp. 

Cas.  61—63. 

KiBBEY,  J.  *  *  *  Appellants  vei-y  earnestly  contend  that  a  corpora- 
tion has  no  power  to  confess  a  valid  judgment;  that,  therefore,  the  pre- 
tended judgment  against  the  Old  Dominion  Copper  Mining  Company 


§33^  POWER  TO  SUE  AND  BE  SUED.  I  135 

is  void,  and  plaintiff's  title  thereunder,  and,  consequently,  his  cause  of 
action  in  this  case  must  fail.  Counsel  do  not  cite  us  a  case  wherein  the 
power  of  the  corporation  to  confess  a  judgment  is  denied.  We  do  not 
know,  and  are  not  informed  by  the  record  what  were  the  powers  of 
the  Old  Dominion  Copper  Mining  Company.  It  was  a  corporation 
organized  under  the  laws  of  the  state  of  New  York,  whether  by  special 
charter  or  under  general  incorporation  laws  does  not  appear.  That 
it  is  a  private  corporation  fairly  appears,  for  it  is  hardly  conceivable 
that  a  public  corporation,  organized  under  the  laws  of  New  York, 
should  be  engaged  in  business  in  Arizona.  It  is  admitted  by  the  de- 
murrer that  it  was  engaged  in  transacting  business  in  Arizona,  neces- 
sarily, then,  entering  into  contracts. 

A  domestic  private  corporation  has  the  power  to  sue,  is  liable  to  be 
sued,  and  niay  appear  in  court  and  defend  when  it  is  sued;  may,  we 
suppose,  of  course,  suffer  default  and  judgment  hereby ;  and  we  see 
no  reason,  in  absence  of  proof  to  the  contrary,  to  presume  that  the 
same  attributes  do  not  attach  to  a  foreign  private  corporation.  '  There 
are  attributes  so  universally  incident  to  private  corporations  in  modern 
times  that  it  would  be  totally  at  variance  with  the  probabilities  to  pre- 
sume otherwise.  Indeed,  it  is  said  by  the  text  writers  that  it  is  neces- 
sarily implied  that  a  corporation,  from  the  mere  fact  of  its  incorpora- 
tion, may  sue  and  be  sued.  Field  Corp.,  §  360 ;  Mor.  Priv.  Corp.,  §  356. 
Incident  to  the  right  to  sue,  and  the  liability  to  be  sued,  we  think  is 
unquestionably  the  right  to  confess  judgment.  In  no  case  to  which 
our  attention  has  been  called  has  the  power  of  a  coi*poration  to  con- 
fess judgment  been  doubted  or  called  in  question.  In  12  How.  Pr. 
,  a  case  cited  by  appellant,  a  doubt  of  such  power  was  not  sug- 
gested. Black,  in  his  recent  work  on  Judgments,  discusses  the  power 
of  agents  of  a  corporation  to  confess  a  judgment,  but  does  not  even 
intimate  that  to  confess  a  judgment  is  u/ira  vires  of  a  corporation. 
Indeed,  while  he  does  not  in  terms  assert  that  power  to  exist,  yet  the 
inference  is  necessary  from  his  statement  that  the  corporation  is  bound 
by  a  confession  of  a  judgment  by  its  officer  upon  whom  summons 
might  have  been  served  in  a  contested  action,  i  Black  Judgm.,  §  59 ; 
and  see  Freem.  Judgm.,  §545.  Morawetz  lays  down  the  broad  rule 
that  the  managing  agents  of  a  corporation  have  authority  to  confess 
judgment  whenever  they  deem  it  to  be  to  the  interest  of  the  corpora- 
tion. Mor.  Priv.  Corp.,  §  430.  In  Miller  v.  Bank  of  British  Colum- 
bia, 2  Ore.  291,  wherein  a  judgment  by  confession  against  a  corpora- 
tion was  under  discussion,  the  question  was  whether  the  president  had 
virtute  officii  the  power  to  confess  for  his  principal ;  that  the  confes- 
sion was  ultra  vires  the  corporation  was  not  even  suggested.  In 
McMurray  v.  St.  Louis  Oil  Manufacturing  Co.,  33  Mo.  377,  the  ques- 
tions were  as  to  the  power,  virtute  officii^  of  the  president  of  a 
corporation  to  confess  judgment,  the  sufficiency  of  the  statutory  state- 
ment required  to  accompany  such  confession,  and  the  power  of  the 
corporation  to  create  a  lien  by  such  a  judgiuent,  the  statute  prohibit- 
ing it  from  mortgaging  their  property  or  giving  any  lien  thereon.  In 
Joliet,  etc.,  Co.  v.  Ingalls,  23  111.  App.  45,  a  judgment  against  a  cor- 


I  136  HORNE    V.    IVY.  §   337 

poration  by  confession  was  under  consideration.  The  question  whether 
the  corporation  had  the  power  to  confess  a  judgment  was  not  sug- 
gested. The  matter  considered  was  the  authority  of  the  particular 
officer  who  did  confess  the  judgment  to  do  so.  And  so  in  Stokes  v. 
New  Jersey  Pottery  Co.,  46  N.  J.  Law  237,  6  Am.  &  Eng.  Corp. 
Cas.  240;  Thew  v.  Porcelain  Manufacturing  Co.,  5  S.  C.  415  ;  White 
V.  Crow,  17  Fed.  Rep.  98.  And  in  all  these  cases  there  was  a  direct 
attack  upon  the  judgment,  and  not  a  collateral  one,  as  in  this  case. 
We  do  not  entertain  a  doubt  of  the  general  right  of  a  private  corpo- 
ration to  confess  a  judgment.  *  *  * 
Afirmed. 

Note.  See  Stokes  v.  New  Jersey  Potterv  Co.,  46  N.  J.  Law  237,  6  A.  &  E. 
Corp.  Cas.  240,  note  246;  1898  Solomon  v.  C.  M.  Schneider  &  Co.,  56  Neb.  680, 
77  N.  W.  Rep.  65;  1898,  Chicago  Tp.  &  T.  Co.  v.  Chicago  Nat'l  Bank,  176 
111.  224. 


Sec.  337.     What  may  be  taken  on  execution. 

See  The  Louisville,  N.  A.  &  C.  Ry.  Co.  v.  Boney,  117  Ind.  501, 
infra,  p.  1842. 

ARTICLE  VII.       RIGHT    TO    HAVE    AND    USE    A    SEAL. 

Sec.  338.     I.    Necessity  of  a  seaL 
(a)    At  common  law. 

HORNE  V.  IVY.» 

In  the  King's  Bench.      20  Caj-.  2  (1668),  i  Mod.  18. 

Trespass  for  taking  away  a  ship.  The  defendant  justifies  as  serv-- 
ant  under  the  patent  whereby  The  Canary  Company  is  incorporated, 
and  whereby  it  is  granted,  "That  none  but  such  and  such  should  trade 
thither,  on  pain  of  forfeiting  their  ships  and  goods,"  etc.,  and  says, 
that  the  defendant  did  trade  thither,  etc.      The  plaintiff  demurs. 

Pollexfen,  for  the  plaintiff ,  contended  that  the  defendant  ought  to 
have  shown  the  deed  whereby  he  was  authorized  by  the  company  to 
seize  the  goods;  though  he  agreed,  that  for  ordinary  employments 
and  services  a  corporation  may  appoint  a  servant  without  deed,  as  a 
cook,  a  butler,  etc.  A  corporation  can  not  license  a  stranger  to  fell 
trees  without  deed.  Nor  can  they  make  a  disseisor  without  deed, 
nor  deliver  a  letter  of  attorney  without  deed. 

TwiSDEN,  Justice.  For  the  first  point,  I  think,  they  can  not  seize 
without  deed,  no  more  than  they  can  enter  for  a  condition  broken 
without  deed. 

See  note,  50  Am.  St.  R.,  p.  150. 

^Part  of  argument  and  opinion  of  Kelynge,  C.  J.,  omitted. 


§  339  RIGHT   TO    HAVE   AND    USE   A    SEAL.  1 1 37 

Sec.  339.    Same. 

See  President,  etc.,  of  Bank  of  the  United  States  v.  Dandridge, 
12  Wheat.  (25  U.  S.)  64,  supra,  p.  854. 

See  notes  to  following  cases. 

Sec.  340.    Same. 

(b)  Now  generally  unnecessary,  except   where    required 
of  a  natural  person  also. 

MUSCATINE  WATER  COMPANY,  Appellee,  v.  MUSCATINE  LUMBER 

COMPANY.^ 

1892.  In  the  Supreme  Court  of  Iowa.    85  Iowa  Rep.  1 12-1 19, 
39  Am.  St.  Rep.  284. 

[Action  to  recover  damages  for  loss  of  a  mill  by  fire  alleged  to  be 
due  to  the  failure  of  the  water  company  to  extend  its  water  system  to 
place  where  water  could  be  had,  in  accordance  with  a  contract  entered 
into  between  the  lumber  and  the  water  company,  whereby  the  latter 
agreed  to  so  extend  its  water  system.  Judgment  for  plaintiff,  and  de- 
fendant appeals.] 

Robinson,  C  J.  *  *  *  The  appellant  contends  that  the  con- 
tract in  suit  is  invalid  for  the  reason  that  no  seal  of  either  corporation 
is  attached  to  it.  Section  21 12  of  the  code  contains  the  following: 
"The  use  of  private  seals  in  written  contracts,  except  the  seals  of 
corporations,  is  abolished."  It  is  argued  from  this  that  the  use  of 
private  seals  by  corporations  is  governed  by  the  rules  of  the  common 
law,  and  that  such  seals  must  be  affixed  to  all  contracts  not  covering 
the  scope  of  the  ordinary,  every-day  functions  of  the  corporations. 
That  is  not  the  law  of  this  state.  On  the  contrary,  it  was  said  in 
Merrick  v.  Plank  Road  Co.,  11  Iowa  76,  that  "the  doctrine  is  now 
well  settled  that  corporations  of  all  kinds  may  be  bound  by  contracts 
not  under  their  seal.  They  may  make  a  binding  contract  in  writing 
without  using  the  seal,  and  so  they  may  be  held  liable  on  verbal  con- 
tracts ;  and  as  they  may  make,  so  they  may  ratify  and  adopt  as  their 
own,  without  the  use  of  the  seal,  that  which  has  been  done  by  an- 
other or  an  officer  out  of  the  usual  line  of  his  duties."  In  i  Mora- 
wetz  on  Private  Corporations,  section  338,  this  language  is  used:  "It 
is  now  a  rule  well  settled  throughout  the  United  States  that  a  corpo- 
ration may  make  a  contract  without  the  use  of  a  seal  in  all  cases  in 
which  this  may  be  done  by  an  individual."  A  corporation  organized 
under  the  laws  of  this  state  may  have  a  common  seal,  but  it  is  not 
required  to  have  one  ;  and  it  is  a  matter  of  common  knowledge  that 
corporations  in  large  numbers  organize  and  do  business  in  the  state, 
making  contracts  and  conveying  property,  without  using  or  having  a 
seal.     There  is  nothing  in  this  case  to  show  any  requirement  on  the 

'  Only  the  part  of  opinion  relating  to  seal  is  given. 

72— WiL.  Cas. 


I  138        GARRETT  V.  BELMONT  LAND  COMPfNY.      §  341 

part  of  either  party  to  the  agreement  in  question  that  its  contracts 
should  be  under  seal,  nor  that  either  had  a  seal.  There  is  no  pre- 
sumption, in  the  absence  of  evidence  to  that  effect,  that  the  agreement 
was  invalid  for  want  of  a  seal;  and  no  presumption  of  that  kind  is 
raised  by  anything  contained  in  the  record.  *  *  * 
Affirmed. 

Note.  Seal  is  unnecessary,  where  not  necessary  in  case  of  a  natural  person : 
1813,  Bank  of  Col.  v.  Patterson's  Admr.,  7  Cr.  299;  1823,  Mott  v.  Hicks,  1 
Cow.  (N.  Y.)  513,13  Am.  Dec.  550;  1825,  The  Banks  v.Poitianx,3  Rand  (Va.) 
136,  15  Am.  Dec.  706:  1825,  Fitzhugh  v.  Bank  of  Shepherdsville,  3  T.  B.  Mon. 
(Ky.)  126,  16  Am.  Dec.  90;  1829,  Barker  v.  Mechanics,  etc.,  Co.,  3  Wend.  iN. 
Y.)  94,  20  Am.  Dec.  664;  1831,  Garrison  v.  Combs,  7  J.  J.  Marshall  (Ky.)  84. 
22  Am.  Dec.  120;  1837,  Everett  v.  United  States,  6  Porter  (Ala.)  166,  30  Am. 
Dec.  584;  1839,  Lathrop  v.  Commercial  Bank,  8  Dana  (Ky.)  114,  33  Am.  Dec. 
481;  1840,  Commercial  Bank  v.  Newport  Co.,  1  B.  Mon.  (Ky.)  13,  35  Am. 
Dec.  171  ;  1848,  Ross  v.  City  of  Madison,  1  Ind.  281,  48  Am.  Dec.  361  ;  1857, 
Goodwin  v.  Union  Screw  Co.,  34  N.  H.  378;  1862,  Topping  v.  Bickford,  4  Al- 
len 120;  1867,  Pixlev  v.  R.  Co.,  33  Cal.  183;  1867,  Sherman  v.  Fitch,  98  Mass. 
59;  1868,  Racine,  etc.,  R.  Co.  v.  Farmers'  L.,  etc.,  Co.,  49  111.  331,  95  Am. 
Dec.  595;  1890,  Duke  v.  Markham,  105  N.  C.  131,  18  Am.  St.  R  889;  1892, 
Roberts  v.  Deming  Wood  Working  Co..  Ill  N.  C.  432;  1895.  Sarmiento  v. 
Davis  Boat,  etc.,  Co.,  105  Mich.  300.  55  Am.  St.  R.  446;  1895,  B.  S.  Green  Co. 
V.  Blodgett,  159  111.  169,  60  Am.  St.  R.  146;  1896,  Ford  v.  Hill,  92  Wis.  188,  53 
Am.  St.'R.  902;  1899,  Speirs  v.  Drop-Forge  Co.,  174  Mass.  175,  54  N.  E.  Rep. 
497 ;  1899.  State,  ex  rel.  Grimm,  v.  Manhattan  Rubber  Co.,  149  Mo.  181  ;  1900, 
Pullis  v.  iPullis  Bros.  Iron  Co.,  157  Mo.  565,  57  S.  W.  Rep.  1095.  If  seal  is 
not  present  officer's  authority  must  be  shown:  1900,  Fontana  v.  Pacific  Can. 
Co.,  129  Cal.  51,  61  Pac.  Rep.  580. 

See  note  next  case.  Also,  notes  50  Am.  St.  R.  150,  and  64  Am.  St.  R.  260; 
1900,  Garland  Mfg.  Co.  v.  Northumb.  Paper  Co.,  31  Ont.  40. 


Sec.  341.    Same. 

(c)   In  deeds  conveying  land,  the  corporate  seal  is  re- 
quired in  some  states. 

GARRETT  v.  BELMONT  LAND  COMPANY.^ 

1895.     ^^  '^^^  Supreme  Court  of  Tennessee.     94  Tenn.   Rep. 

459-485- 

[Action  of  ejectment  by  Garrett  against  the  land  company.  Both 
parties  trace  title  to  a  common  source,  but  the  complainant's  title  was 
through  a  deed  in  which  the  ''Second  National  Bank  conveys,  remises, 
and  releases"  and  concludes  "In  testimony  whereof,  the  Second  Na- 
tional Bank  hath  hereunto  set  its  hand,  by  its  president,  James  Mc- 
Laughlin, this  13th  day,"  etc.  "(Signed)  James  McLaughlin,  pres- 
ident Second  National  Bank." 

No  seal,  or  any  impression  of  one,  though  the  bank  had  one,  was 

'  Statement  abridged ;  only  that  part  of  the  opinion  relating  to  the  necessity 
of  the  seal  to  make  a  valid  conveyance  is  given. 


§  341  RIGHT   TO    HAVE   AND    USE   A    SEAL.  1 139 

affixed  to  the  instrument.  It  was  shown  that  it  was  not  the  custom  of 
the  bank  to  seal  deeds,  or  other  instruments,  except  stock  certificates. 
The  defendant  contends  that  this  deed  was  insufficient  to  pass  title  to 
complainants.  The  court  below  held  the  deed  sufficient,  and  this  is 
one  of  the  errors  assigned.] 

Wilkes,  J.  *  *  *  (After  stating  the  facts,  and  holding  with 
Combe's  Case,  9  Co.  75,  after  an  excellent  review  of  the  cases,  that 
"When  any  one  has  authority  as  attorney  to  do  any  act,  he  ought  to 
do  it  in  his  name  who  gives  the  authority ;  for  he  appoints  the  attorney 
to  be  in  his  place  and  to  represent  his  person;  and,  therefore,  tlie 
attorney  can  not  do  it  in  his  own  name,  nor  as  his  proper  act,  but  in 
the  name  and  as  the  act  of  him  who  gives  the  authority," — and 
hence  this  was  not  the  deed  of  the  bank,  proceeds  as  to  the  want  of 
seal  as  follows : ) 

Prior  to  the  adoption  of  the  code  of  1858,  the  seal  of  the  grantor 
was  necessary  to  the  validity  of  any  deed  made  by  an  individual  or  a 
corporation.  The  use  of  seals  by  individuals  arose  out  of  necessity, 
as,  in  former  days,  many  persons  of  extensive  estates  were  too  illiter- 
ate to  make  their  manual  signatures.  Its  adoption  and  use  by  cor- 
porations, however,  arose  out  of  their  nature  and  constitution,  being 
invisible,  intangible  bodies,  composed  of  an  aggregation  of  individ- 
uals, who  must  speak,  at  least  in  weighty  matters,  through  a  common 
seal.  It  was  accordingly  held  that  the  affixing  of  the  seal,  and  that 
alone,  united  the  several  assents  of  the  individuals  who  composed  the 
corporation,  and  gave  expression  to  the  act  as  the  assent  of  the  whole, 
and  that  a  corporation  could  enter  into  no  contract  of  importance  ex- 
cept under  seal.  The  tendency  of  modern  legislation  and  the  trend  of 
more  recent  decisions  is  toward  the  abolition  of  the  strict  rules  for- 
merly prevailing  as  to  sealed  instruments,  and  in  many  states  statutes 
have  been  passed  doing  away,  in  whole  or  in  part,  with  the  distinction 
between  sealed  and  unsealed  instruments,  and  in  most  of  the  states 
the  use  of  the  seal  is  now  regulated  by  statute.  There  is  a  difference 
kept  up,  however,  in  many  of  the  states  between  the  use  of  seals  by 
corporations  and  by  individuals.  While  it  is  laid  down  broadly  that 
corporations  may  enter  into  contracts  to  the  same  extent  as  individuals 
without  using  a  seal,  this  clearly  has  reference  to  other  contracts  than 
the  conveyance  of  lands,  and  none  of  the  cases  to  which  we  have 
been  cited  hold  that  the  use  of  a  seal  is  not  required  in  conveyances 
of  land.  See  Taylor  on  Corporations,  section  248;  Morawetz  on 
Corporations  (2d  ed.),  section  338;  Waterman  on  Corporations, 
sections  89,  90;  Mus.  W.  Co.  v.  Mus.  L.  Co.,  37  Am.  &  Eng.  Corp. 
Cases  119;  Gottfield  v.  Miller,  104  U.  S.  527;  Merrick  v.  Burling- 
ton Plank-Road  Co.,  11  Iowa  74-76;  Cary  Holliday  Lumber  Co.  v. 
Cain  et  al.,  13  So.  Rep.  239. 

These  conveyances  did  not  involve  conveyances  of  real  estate,  and 
none  of  the  citations  are  authority  for  the  proposition  that  a  corpora- 
tion can  execute  a  deed  without  usine  a  seal.  But  we  think  the  con- 
trary is  held,  more  or  less  directly,  in  the  following,  as  well  as  other 
authorities:   Spelling  on  Private  Corporations,  section  195;   Beach  on 


II40  GARRETT    V.    BELMONT   LAND    COMPANY.  §  341 

Private  Corporations,  376,  and  section  742  as  to  mortgages ;  Jones  on 
Mortgages,  section  128;  i  Waterman  on  Corporations,  section  95, 
p.  303 ;  Boone  on  Corporations,  section  54 ;  3  Washburn  on  Real 
Estate,  p.  288,  section  7;  Leggett  v.  N.  J.  M.  &  B.  Co.,  23 
Am.  Dec.  746,  note;  4  Am.  &  Eng.  Ency.  of  Law,  p.  240;  2 
Am.  &  Eng.  Ency.  of  Law,  p.  910;  Osborne  v.  Temis,  23  N. 
J.  Law  633,  658;  Duke  V.  Markam.  18  Am.  St.  Rep.  889,  note; 
Miner's  Ditch  Co.  v.  Zellerbach,  37  Cal.  543  ;  Hutchins  v.  Byrnes,  9 
Gray  367  ;  Flint  v.  Clinton  Co.,  12  N.  H.  430;  Tenney  v.  East  War- 
ren Lumber  Co.,  43  N.  H.  343;  Hatch  v.  Barr,  i  Ohio  390;  Savings 
Bank  v.  Davis,  8  Conn.  191 ;  Isham  v.  Bennington  Iron  Co.,  19  Vt. 
230;  Zollerv.  Ide,  i  Neb.  439;  Brinley  v.  Mann,  2  Cush.  337;  Koch- 
ler  V.  Iron  Co.,  2  Black  715,  721. 

By  the  code  of  Tennessee  of  1858,  it  is  provided  (M.  &  V.,  §  2478) 
that  "the  use  of  private  seals  in  written  contracts,  except  the  seals  of 
corporations  is  abolished,  and  the  addition  of  a  private  seal  to  an  in- 
strument of  writing  hereafter  made  shall  not  affect  its  character  in  any 
respect  whatever." 

Did  the  act  change  the  rule  as  to  conveyances  by  corporations  in 
Tennessee  so  as  to  dispense  with  the  necessity  of  a  seal  ?  There  is 
certainly  nothing  in  the  act  to  so  indicate,  but  the  fact  that  seals  of 
corporations  are  excepted  by  its  provisions  is  an  indication  that  the 
seal  was  to  be  used  by  corporations  after  the  act  was  passed,  as  had 
been  done  before  its  passage,  at  least  in  some  cases.  Statutes  similar 
to  this  have  been  passed  in  Alabama,  Arkansas,  Delaware,  Florida, 
Kentucky,  Iowa,  Kansas,  Maryland,  Minnesota,  Mississippi,  Nebraska, 
North  Carolina,  Ohio,  Indiana,  Texas,  Pennsylvania  and  West  Vir- 
ginia. Nevertheless,  in  most  of  these  States  corporations  are  still  re- 
quired to  use  their  seals  in  making  conveyances,  as  in  Ohio,  Indiana, 
Kentucky,  Maryland,  Minnesota,  Mississippi,  Pennsylvania,  Ne- 
braska, Kansas  and  Texas.  See  3  Wash,  on  Real  Prop.,  p.  288. 
And  not  only  must  the  deed  be  sealed,  but  the  seal  must  be  affixed  by 
some  one  authorized  to  affix  it.      3  Wash,  on  Real  Prop.,  p.  289. 

The  conveyance  of  real  estate  is  one  of  the  most  solemn  and  im- 
portant acts  a  corporation  is  called  upon  to  perform,  and  if  the  seal 
is  required  for  any  purpose,  it  is  difficult  to  conceive  of  any  other  act 
for  which  its  use  is  more  necessary.  If  it  was  intended  to  abolish  the 
use  of  seals  bv  corporations  altogether,  why  was  the  saving  or  except- 
ing clause  inserted  in  the  act?  And  if  the  seal  is  to  be  required  in 
any  case,  in  what  case  is  it  more  important  than  in  a  conveyance  of 
real  estate,  either  absolutely  or  under  mortgage? 

Pi'ior  to  the  code,  the  use  of  an  individual  or  private  seal  worked 
various  effects,  as  for  example;  If  not  under  seal,  it  was  necessary  to 
aver  and  prove  a  consideration  in  all  contracts,  oral  or  written,  except 
in  cases  of  bills  and  notes.  Roper  v.  Stone,  Cooke  499;  Shelton  v. 
Bruce,  9  Yer.  26;  Read  v.  Wheeler,  2  Yer.  50;  Brown  v.  Parks,  8 
Hum.  297.  The  consideration  of  a  sealed  instrument  could  not  be 
inquired  into  in  an  action  of  law.  Nivens  v.  Men"ick,  i  Tenn.  314; 
Coleman  v.  Sanderlin,  5   Hum.  563.      And  the  statute  of  limitations 


§   341  RIGHT   TO    HAVE   AND    USE   A    SEAL.  II41 

was  different  in  cases  of  sealed  and  unsealed  instruments.  Anderson 
V.  Settle,  5  Sneed  203  ;  Thompson  v.  Thompson,  2  Head  407,  and 
other  cases.  A  release  was  required  to  be  under  seal.  Evans  v. 
Pigg,  3  Cold.  397,  398;  Simpson  v.  Moore,  6  Bax.  373.  A  sealed 
contract  merged  one  not  under  seal.  Nunnelly  v.  Dunn,  i  Yer.  31; 
Bishop  on  Contracts,  section  31.  A  person  could  not  bind  another  by 
seal  unless  authorized  by  seal.  Nunnelly  v.  Dougherty,  i  Yer.  27; 
Turbeville  v.  Ryan,  i  Hum.  113.  Creditors  under  scaled  instru- 
ments had  certain  preferences  at  common  law  in  estates  of  deceased 
persons. ,    Anson  on  Contracts,  p.  48. 

The  application  of  this  section  of  the  code,  No.  2478,  finds  ample 
scope  in  altering  these  rules  derived  from  the  common  law  in  regard 
to  contracts  and  conveyances  by  individuals,  without  extending  it  to 
the  deeds  and  other  solemn  instruments  to  be  executed  by  corpora- 
tions, and,  in  view  of  the  saving  clause  excepting  corporation  seals, 
we  can  not  infer  that  the  legislature  intended  to  abolish  the  use  and 
necessity  for  corporate  seals  altogether. 

We  are  of  opinion  that  this  act,  2478  M.  &  V.  Code,  does  not 
change  the  rule  of  the  common  law  requiring  corporations  to  use  their 
seals  in  all  conveyances  of  real  estate,  and  a  conveyance  not  under 
seal,  made  by  a  corporation,  does  not  vest  a  legal  title  in  the  grantee, 
except,  it  may  be,  cases  of  corporations  created  under  the  act  of  1875, 
and  which  have  no  common  seal,  in  which  case  that  act  provides  that, 
in  such  corporations,  having  no  common  seal,  the  signing  of  the  name 
of  the  corporation,  by  any  duly  authorized  agent,  shall  be  legal  and 
binding.     See  act  1875,  ch.  142,  section  5;   M.  &  V.,  §  1704. 

The  corporation  now  in  question  was  not  created  under  the  act  of 
1875,  but  under  the  acts  of  congress  providing  for  national  banks, 
and  we  are  not  called  upon  to  say  whether,  under  this  act  of  1875,  a 
corporation  may  convey  without  seal  in  any  case.  That  question  is 
in  no  way  involved  in  this  case.  We  are  of  opinion  that  the  deed  in 
question  in  this  case  was  not  properly  signed  nor  sealed,  and  hence 
did  not  vest  the  legal  title  to  the  lots  in  controversy  in  complainants, 
but  only  operated  to  create  in  them  an  equitable  interest  and  title. 
Pomeroy's  Eq.  Juris.,  section  418;  Devlin  on  Deeds,  section  246; 
Beardsley  v.  Knight,  33  Am.  Dec.  193;  Frost  v.  Wolf,  19  Am.  State 
Rep.  761,  764;  Allis  V.  Jones,  45  Fed.  Rep.  148;  Brinkley  v.  Bethel, 
9  Heis.  786.      *     *     * 

Reversed. 

Note.  See  Accord:  1839,  Kinzie  v.  Chicago,  2  Scammon  (111.)  187,  33  Am. 
Dec.  443;  1855,  Baltimore,  etc.,  R.  Co.  v.  Gallahue,  12  Gratt.  (Va.)  655.  65 
Am.  Dec.  254;  1867,  Gashwiler  v.  Willis,  33  Cal.  11,  91  Am.  Dec.  607;  1885, 
City  of  Tiffin  v.  Shawhan,  43  Ohio  St.  178,  184;  1890.  Shropshire  v.  Behrons 
&  Castles  et  al.,  77  Texas  275;  1891.  Danville  Seminary  v.  Mott  et  al.,  136  111. 
289;  1893,  Brown  v.  Supply  Co.,  23  Ore.  541;  1897,  Allen  v.  Brown,  6  Kan. 
App.  704,  50  Pac.  Rep.  505. 

But  see,  contra,  1868,  Sandford  v.  Tremlett,  42  Mo.  384;  1900,  Pullis  v.  Pullis 
Bros.  Iron  Co.,  157  Mo  56.5,  57  S.  W.  Rej;.  1095. 

An  equitable  title  will  pass  if  the  corporate  seal  is  not  present:  1899, 
Precious  Blood  Society  v.  Elsythe,  102  Tenn.  40,  50  S.  W.  Rep.  759. 


1 142  GLOBE   ACCIDENT   INSURANCE   CO.    V.    REID.  §   342 

Sec.  342.    Same. 

(d)  Signing  in  some  way  is  now  generally  of  more  im- 
portance than  sealing. 

GLOBE  ACCIDENT  INSURANCE  COMPANY  v.  REID.i 

1898.     In  the  Appellate  Court  of  Indiana.     19  Ind.  App.  Rep. 

203-222. 

[Action  by  the  widow  of  John  Reid  to  recover  on  a  poHcy  of  insur- 
ance on  his  Hfe.  There  was  a  judgment  by  default;  defendant 
claimed  there  was  error  by  the  court,  upon  application,  in  not  setting 
aside  service  of  summons,  and  also  that  the  complaint  was  insufficient 
on  its  face,  for  the  reason  that  it  showed  the  policy  was  not  signed  by 
the  insurance  company.] 

Black,  j.  *  *  *  The  objection  urged  against  the  complaint 
is,  that  the  policy,  as  shown  by  the  copy  thereof  made  an  exhibit,  is 
not  signed  by  the  insurance  company  or  by  any  person. 

The  policy  so  set  forth  commences  as  follows:  "Globe  Accident 
Insurance  Company,  Indianapolis,  Indiana.  *  *  *  insures  John 
A.  Reid,"  etc.     And  the  exhibit  concludes  as  follows: 

"In  witness  the  Globe  Accident  Insurance  Company  affixes  its  cor- 
porate seal  and  signature  of  its  president  and  secretary,  23  January, 
1894." 

[L.   S.] 

Thus  the  policy  appears  to  have  been  sealed,  the  lettering  or  de- 
vice of  the  seal  not  being  indicated  except  as  above,  but  the  policy, 
as  shown  by  the  complaint,  was  not  signed.  The  exhibit  must  be 
regarded  as  controlling  the  averments  of  the  pleading.  Something 
has  been  said  in  argument  to  the  effect  that  parol  contracts  of  insur- 
ance may  be  made  when  not  prohibited  by  the  charter  of  the  insurance 
company,  and  that  no  special  form  of  words  is  necessary ;  but  the 
complaint  before  us  is  so  plainly  founded  upon  the  written  instrument, 
not  embodied  in  the  pleading,  but  filed  with  it  as  an  exhibit,  that  no 
pretense  to  the  contrary  could  have  any  plausible  support.  It  is  only 
as  the  foundation  of  the  action  that  the  court  can  take  notice  of  the 
exhibit.  Unless  the  policy  has  been  executed  in  some  valid  manner, 
it  can  not  be  regarded  as  a  written  contract.  By  its  language,  in  pre- 
scribing the  form  in  which  it  is  to  be  executed,  it  provides  not  only 
for  the  affixing  of  the  corporate  seal,  but  also  for  the  signature  of  the 
president  and  secretary  of  the  corporation.  It  can  not  be  said  to  have 
been  completely  executed  according  to  its  own  provisions.  At  com- 
mon law,  as  is  well  known,  a  corporation  spoke  only  by  its  common 
seal.  Its  contracts  were  valid  only  when  its  seal  was  affixed  by  a  duly 
authorized  agent,  and  a  sealing  was  a  sufficient  execution  of  its  deed 
without  signing.      Where  a  statute  expressly  provides  that  a  corpora- 

*Only  that  part  of  opinion  relating  to  signing  the  policy  is  given. 


§342  RIGHT   TO    HAVE   AND    USE  -A    SEAL.  I  I43 

tion  may  have  and  use  a  common  seal,  it  is  but  declaratory  of  an  in- 
cidental power  which  a  duly  organized  corporation  possessed  formerly 
at  common  law  and  still  possesses.  But  the  old  common  law  require- 
ment of  the  use  of  a  seal  by  a  corporation  has  been  discarded,  and 
where  a  corporation  is  merely  authorized  by  statute  to  have  and  use  a 
common  seal,  it  need  not  use  it  in  the  execution  of  its  ordinary  con- 
tracts. Unless  its  charter  or  some  statute  requires  it,  a  corporation 
need  not  use  a  seal  except  where  a  natural  person  would  be  required 
to  use  one ;  and  no  particular  efficacy  attaches  now  to  a  seal  affixed 
to  a  contract  merely  because  it  is  the  seal  of  a  corporation.  Where 
it  is  used  it  must  be  affixed  by  an  authorized  officer  or  agent,  but  it 
has  no  greater  effect  or  higher  virtue  upon  the  contract  of  the  corpo- 
ration than  has  the  seal  of  a  natural  person  affixed  to  his  contract. 

Our  statute,  section  454,  Burns'  R.  S.  1894  (450,  Horner's  R.  S. 
1897),  provides  that  "there .shall  be  no  difference  in  evidence  between 
sealed  and  imsealed  writings;  and  every  writing  not  sealed  shall  have 
the  same  force  and  effect  that  it  would  have  if  sealed." 

The  next  section  provides:  "The  execution  of  an  instrument  is  the 
subscribing  and  delivering  it,  with  or  without  affixing  a  seal." 

In  this  state  it  is  not  required  by  any  statute  that  a  policy  of  insur- 
ance issued  by  a  domestic  corporation  shall  be  sealed.  The  provis- 
ions of  sections  454,  455?  Bums'  R.  S.  1894,  above  quoted,  are  ap- 
plicable to  such  a  written  instrument. 

In  Peoria,  etc.,  Ins.  Co.  v.  Walser,  22  Ind.  73,  the  action  was 
founded  on  a  policy  of  insurance  which  was  exhibited  with  the  com- 
plaint. The  policy  commenced  thus:  "The  Peoria  Marine  and  Fire 
Insurance  Company  do  insure,"  etc. ;  and  it  concluded  thus:  "In 
witness  whereof,  the  president  of  said  insurance  company  has  hereunto 
subscribed  his  name  and  caused  the  same  to  be  attested  by  their  secre- 
tary, at,"  etc.  "But  the  same  shall  not  be  valid  until  countersigned 
by  A.  Andrews,  agent  at,"  etc.  It  was  countersigned  by  said  agent, 
but  it  was  not  signed  by  the  president  or  attested  by  the  secretary. 
The  complaint  was  held  insufficient  on  demurrer,  because  the  policy 
was  but  partially  executed,  and  was  therefore  invalid.  In  McMillen 
V.  Terrell,  23  Ind.  163,  it  was  said:  "Ordinarily,  written  obligations 
are  executed  by  signing  the  names  of  the  parties  to  be  bound  thereby 
at  the  bottom  or  close  of  the  instruments.  But  this  mode  of  execu- 
tion is  not  essential  to  the  validity  of  the  instrument.  The  law  does 
not  prescribe  the  particular  place  where  the  obligor's  name  must  be 
placed  ;  it  may  be  at  the  beginning  or  in  the  body,  at  the  close"  or 
perhaps  on  the  margin  of  the  instrument:  but  wherever  placed,  it 
must  be  done  with  the  intention  of  thereby  executing  it  as  the  obliga- 
tion of  the  party  so  signing  it.  If  the  signature  is  placed  at  the  close, 
at  the  ordinary  place  of  signature,  the  inference  is  that  it  was  so  placed 
as  the  final  execution  of  the  instrument.  This  inference,  however, 
does  not  necessarily  arise  when  the  name  is  found  at  the  commence- 
ment or  in  the  body.  In  such  case  there  should  be  some  evidence, 
either  in  the  form  of  the   instrument  or  the  circumstances  attending 


I  144  GLOBE   ACC.IDENT    INSURANCE   CO.    V.    REID.  §  342 

the  signature,  showing  that  it  was  the  intention  of  the  party  thereby 
to  execute  it." 

In  the  Wild  Cat  Branch  v.  Ball,  45  Ind.  213,  the  action  was  upon 
a  bond  exhibited  with  the  complaint,  not  sealed,  containing  the  name 
of  the  principal  in  the  body,  and  signed  by  the  sureties,  but  not  signed 
by  the  principal.  It  was  held  that  the  complaint  was  insufficient  as 
against  the  principal  on  demurrer.  The  coui't  held  that  under  our 
statute  a  seal  was  not  necessary  to  the  execution  or  validity  of  the 
bond ;  and  referring  to  the  section  of  the  statute  quoted  above  as  sec- 
tion 555  [455],  Burns'  R.  S.  1894,  said  that  this  section  answered  the 
question  as  to  what  was  necessary  to  the  valid  execution  of  the  instru- 
ment,— that  it  is  the  subscribing  and  delivering  it.  The  court  was  of 
the  opinion  that  in  construing  the  statute  (which  does  not  prescribe  a 
signing,  but  requires  a  subscribing)  it  should  be  regarded  as  intending 
a  writing  under,  at  the  bottom  or  at  the  end  of  the  instrument,  and 
that  though  the  name  of  the  principal  iii  the  beginning  of  the  bond 
were  written  there  by  himself,  this  could  not  be  regarded  as  a  sub- 
scribing, and  that  he  could  not  be  held  liable  upon  any  supposition 
that  he  adopted  the  name  at  the  beginning;  that  whatever  may  have 
been  the  rule  previously,  he  was  not,  according  to  the  statute,  bound 
by  the  bond,  because  he  did  not  subscribe  it. 

Without  regard  to  this  strict  construction  ^f  the  statute,  we  could 
not  consider  the  name  of  the  appellant  in  the  beginning  of  the  policy 
as  the  signature  of  the  insurer.  Aside  from  the  fact  that  a  corpora- 
tion can  not  sign  its  own  name,  which  can  only  be  signed  by  an  au- 
thorized agent,  and  aside  from  all  other  considerations  pertinent  to 
the  subject,  the  policy  at  its  conclusion  indicates  that  its  contemplated 
execution  was  to  include  signing  by  the  president  and  secretary  at  the 
end  of  the  instrument,  and  therefore  the  name  at  the  beginning  was 
not  intended  as  the  subscribing  of  the  policy. 

The  statute  prescribing  what  constitutes  execution  of  an  instrument 
can  not  be  ignored.  The  seal,  if  not  required  by  some  other  statute, 
is  wholly  immaterial.  It  does  not  constitute  a  subscribing,  and  with- 
out subscribing  as  well  as  delivery,  the  instrument  is  not  fully  executed. 
Prather  v.  Ross,  17  Ind.  495;  Nicholson  v.  Combs,  90  Ind.  515; 
Crumrine  v.  Estate  of  Crumrine,  14  Ind.  App.  641.     *     *     * 

Reversed . 

Note.  See,  1808,  Jackson  v.  Walsh,  3  Johns.  (N.  Y.)  226;  1825,  Decker  v. 
Freeman,  3  Maine  338;  1836,  Lovett  v.  Steam  Saw  Mill  Ass'n,  6  Paige  (N.  Y.) 
54;  1847,  Isham  v.  Bennington  Iron  Co.,  19  Vt.  230;  1857,  Hutchins  v.  Byrnes, 
9  Gray  (Mass.)  367;  1862,  Haven  v.  Adams,  4  Allen  (Mass.)  80;  1873,  N.  W. 
Distilling  Co.  v.  Brant,  69  111.  658,  18  Am.  Rep.  631. 

But  if  seal  is  not  present  officer's  authority  must  be  shown  :  1900,  Fontana 
V.  Pacific  Can.  Co.,  129  Cal.  51,  61  Pac.  Rep.  580;  and  at  common  law  sealing 
alone  was  sufficient  without. signing;  1858,  Johnston  v.  Crawley,  25  Ga.  316, 
71  Am.  Dec.  173;  and  Cook,  Corp.,  §  722,  says  the  Equitable  Life  Insurance 
Co.  now  discharges  mortgages  by  attaching  its  seal  to  the  discharge  without 
other  signature. 

As  to  the  proper  method  of  signing,  see  supra,  p.  862,  and  IV  Thoni[). 
Corp.,  §  5090. 


^  343        RIGHT  TO  HAVE  AND  USE  A  SEAL.         I  145 

Sec.  343.     2.    Sufficiency  and  effect  of  a  seal, 
(a)   Presumptions. 

JACKSONVILLE,  MAYPORT,  PABLO  RY.  &  NAV.  CO.  v.  HOOPER.» 

1896.    In  the  Supreme  Court  of  the  United  States.     160  U. 

S.  Rep.  514-530. 

[Action  by  Hooper  to  enforce  covenants  under  a  lease  of  a  hotel 
to  the  railway  company  by  plaintiffs.     The  declaration  was  in  cove- 
nant, and  an   exhibit  was  attached  purporting  to  be  the   lease  sued 
upon,  to  which  the  signature  of  the  company  was  as  follows: 
"Jacksonville,  Mayport,  Pablo  Railway  and  Navigation 

"Company.  [Seal] 

"By  Alex.  Wallace,  President." 

The  defendant  denied  it  had  executed  the  lease,  or  that  Wallace 
had  authority  to  execute  it.  Decision  below  for  the  plaintiff,  oven'ul- 
ing  defendant's  demurrer.     Error  brought.] 

Mr.  Justice  Shiras.  ♦  *  ♦  The  defendant  demurred  on  sev- 
eral grounds,  one  of  which  was  as  follows: 

"That  attached  to  the  said  declaration  is  a  paper  puiporting  to  be 
the  contract  which  is  the  basis  of  this  suit,  which  paper  is  alleged  to 
be  a  lease  between  the  defendant  company  and  the  plaintiffs,  and 
which  paper  is  referred  to  in  each  and  every  count  of  said  declaration, 
and  asked  and  prayed  and  made  a  part  of  said  declaration;  that  each 
and  every  count  of  same  declares  in  covenant,  and  yet  the  same  con- 
tains on  the  face  thereof  and  the  face  of  the  paper  made  part  thereof 
that  the  said  cause  of  action  will  not  lie  because  the  said  paper  is  not 
under  seal ;  that  there  is  no  seal  of  the  defendant  company  to  said 
paper." 

The  theory  of  this  demurrer  appears  to  be  that  there  should  have 
been  an  averment  on  the  face  of  the  instrument  that  the  seal  attached, 
on  behalf  of  the  company,  was  its  common  or  corporate  seal.  How- 
ever, there  was  an  averment  that  the  parties  had  set  their  hands  and 
seals  to  the  paper,  and  the  attesting  clause  alleged  that  the  railroad 
company  had  signed,  sealed  and  delivered  in  the  presence  of  two 
viritnesses,  who  signed  their  names  thereto.  On  demurrer  this  was 
plainly  sufficient. 

But  it  is  urged  in  the  third  and  fourth  assignments  that  it  was  error 
to  permit  to  be  put  in  evidence  the  certified  copy  of  the  lease,  as  like- 
wise the  duplicate  lease,  because  they  were  not  shown  to  be  under  the 
seal  of  the  company,  but  appeared  to  be  under  the  private  seal  of  Al- 
exander Wallace,  the  president  of  the  company.  But,  in  the  absence 
of  evidence  to  the  contrary,  the  scroll  or  rectangle  containing  the  word 
"seal"  will  be  deemed  to  be  the  proper  -and  common  seal  of  the 
company,      A  seal  is  not  necessarily  of  any  particular  form  or  figure. 

^  Only  that  part  of  opinion  relating  to  seal  is  given. 


I  146      JACKSONVILLE,    MAYPORT,    ETC.,    CO.    V.    HOOPER.    §   343 

In  Pillow  V.  Roberts,  13  How.  472,  474,  this  court  said,  through 
Mr.  Justice  Grier,  when  discussing  an  objection  that  an  instrument 
read  was  improperly  admitted  in  evidence  because  the  seal  of  the  cir- 
cuit court  authenticating  the  acknowledgment  was  an  impression 
stamped  on  paper  and  not  "on  wax,  wafer,  or  any  other  adhesive  or 
tenacious  substance,"  said:  "It  is  the  seal  which  authenticates,  and 
not  the  substance  on  which  it  is  impressed ;  and  where  the  court  can 
recognize  its  identity,  they  should  not  be  called  upon  to  analyze  the 
material  which  exhibits  it.  In  Arkansas  the  presence  of  wax  is  not 
necessary  to  give  validity  to  a  seal ;  and  the  fact  that  the  public  officer 
in  Wisconsin  had  not  thought  proper  to  use  it,  was  sufficient  to  raise 
the  presumption  that  such  was  the  law  or  custom  in  Wisconsin,  till 
the  contrary  was  proved.  It  is  time  that  such  objections  to  the  valid- 
ity of  seals  should  cease.  The  court  did  not  err  in  overruling  the 
objections  to  the  deed  offered  by  the  plaintiff."  Price  v.  Indseth, 
106  U.  S.  546,  is  to  the  same  effect. 

Whether  an  instrument  is  under  seal  or  not  is  a  question  for  the 
court  upon  inspection ;  whether  a  mark  or  character  shall  be  held  to 
be  a  seal  depends  upon  the  intention  of  the  executant,  as  shown  by 
the  paper.  Hacker's  Appeal,  I2i  Pa.  St.  192;  Pillow  v.  Roberts, 
ub.  supra. 

The  defendant  did  not  produce  the  original  in  order  that  it  might 
be  compared  in  the  particular  objected  to  with  the  copy  and  duplicate 
offered.  The  defendant's  attorney,  Mr.  Buckman,  was  called,  and 
testified  that  he  was  one  of  the  attesting  witnesses  to  the  instrument 
offered,  and  that  he,  as  a  notaiy  public,  took  the  acknowledgment 
thereto  of  Alexander  Wallace,  that  he  executed  the  same  for  and  in 
behalf  of  the  company,  and  that  the  said  lease  was  the  act  and  deed 
of  the  defendant  company  for  the  uses  and  purposes  therein  expressed. 

Whether,  therefore,  the  instrument  put  in  evidence  was  merely  a 
copy,  in  which  event  it  would  not  be  expected  that  a  wax  or  stamped 
seal  of  the  company  would  appear  upon  it,  but  merely  a  scroll,  repre- 
senting the  original  seal,  or  whether  the  so-called  copy  was  really  the 
original  paper,  as  certified  by  one  of  defendant's  witnesses,  would 
not,  in  our  opinion,  be  material.  The  presumption  would  be,  if  the 
paper  were  a  copy,  that  the  original  was  duly  sealed,  or,  if  it  were 
the  original,  that  the  scroll  was  adopted  and  used  by  the  company  as 
its  seal,  for  the  purpose  of  executing  the  contract  in  question.    *    *    ♦ 

Affirmed. 

Note.  As  to  the  sufficiency  of  the  seal,  it  seems  that  any  device  adopted 
by  the  corporation  for  the  purpose  will  be  sufficient:  1826,  Perry  v.  Price,  1 
Mo.  664,  14  Am.  Dec.  316;  1839,  Kinzie  v.  Chicago,  2  Scam.  (111.)  187,  33  Am. 
Dec.  443;  1848,  Brinlev  v.  Mann,  2  Cush.  (Mass.)  337,48  Am.  Dec.  669; 
1858,  Johnson  v.  Crawley,  25  Ga.  316,  71  Am.  Dec.  173;  1868,  Royal  Bank  v. 
Grand  June,  etc.,  Co.,  100  Mass.  444,97  Am.  Dec.  115;  1889,  Penn.  Nat.  Gaa 
Co.  v.  Cook,  123  Pa.  St.  170;  1895,  Sarmiento  v.  Davis  Boat  Co.,  105  Mich. 
300,  55  Am.  St.  Rep.  446;  1897,  Thaver  v.  Nehalem  Mill  Co.,  31  Ore.  437,  51 
Pac.  Rep.  202;    1899,  Ellison  v.  Branstrator,  153  Ind.  146,  54  N.  E.  Rep.  433. 

If  the  seal  alone  is  present,  it  must  be  proved  to  be  the  corporate  seal — 
it  does  not  prove  itself:  1800,  Den  v.  Vreeland,  2  Halst.  (N.  J.)  352,  11  Am. 


§  344  RIGHT  TO    HAVE  AND   USE   A   SEAL.  1 147 

Dec.  5")1 ;  1820,  Berks  Turnpike  Road  v.  Myers,  6  S.  &  R.  12,9  Am.  Dec. 
402;   1826,  Perry  v.  Price,  1  Mo.  664,  14  Am.  Dec.  316. 

But  if  the  contract  is  shown  to  have  been  executed  by  the  proper  officers 
with  autiiority,  any  seal  present  will  be  presumed  to  be  the  corporate  seal: 
1852,  Susquehanna,  etc.,  Co.  v.  General  Co.,  3  Md.  305,  56  Am.  Dec.  740; 
1855,  Phillips  V.  Coffee.  17  111.  154,  63  Am.  Dec.  357;  1867,  Musser  v.  John- 
son, 42  Mo.  74,  97  Am.  Dec.  316;  1894,  Benbow  v.  Cook,  115  N.  C.  324,  44  Am. 
St.  Rep.  454. 

See  next  case  and  note. 


Sec.  344.      (b)  As  evidence  of  agents'  or  officers'  authority. 

LITTLE  SA77  MILL  VALLEY  TURNPIKE  or  PLANK  ROAD  COM- 
PANY V.  FEDERAL  STREET  and  PLEASANT  VALLEY  PASSEN- 
GER RAILWAY  C0.» 

1899.     In  the  Supreme  Court  of  Pennsylvania.     194  Pa.  St. 
Rep.  144,  75  Am.  St.  R.  690. 

[Action  by  road  company  upon  a  contract  made  with  it  by  the 
president  of  the  railway  company,  whereby  the  latter  guaranteed  to 
pay  annually  to  the  road  company  any  deficiency  in  its  tolls,  due  to 
the  change  of  the  motive  power  of  the  railway  company  using  the 
road,  from  horse  power  to  electricity.] 

Brown,  J.  *  *  *  It  is  insisted,  however,  that  the  railroad 
company  was  not  bound  by  the  contract,  because  it  was  made  by  the 
president  without  authority  from  the  corporation  or  its  board  of  di- 
rectors. It  is  signed  by  the  president.  The  corporate  name  attached 
was  apparently  in  the  handwriting  of  the  secretary,  and  the  common 
seal  was  affixed.  Neither  officer  was  called  to  deny  authority  to  act, 
and  the  presumption  was  that  it  had  been  given.  The  maxim.  Omnia 
fraesumuntur  rite  esse  acta,  applies  to  acts  done  on  behalf  of  cor- 
porations, and  it  can  never  be  presumed  that  a  corporate  agent  is  act- 
ing wrongfully;  or  that  an  act  which  might  have  been  a  proper  act  to 
d  )  on  behalf  of  the  corporation  was  done  under  circumstances  render- 
ing it  improper:  Taylor  on  Private  Corporations,  section  204. 
"Where  a  party  deals  with  a  corporation  in  good  faith — the  transac- 
tion is  not  ultra  vires — and  he  is  unaware  of  any  defect  of  authority 
or  other  irregularity  on  the  part  of  those  acting  for  the  corporation, 
and  there  is  nothing  to  excite  suspicion  of  such  defect  or  irregularity, 
the  corporation  is  bound  by  the  contract,  althDugh  such  defect  or 
irregularity  in  fact  exists.  If  the  contract  can  be  valid  under  any  cir- 
cumstances, an  innocent  party  in  such  a  case  has  a  right  to  presume 
their  existence,  and  the  corporation  is  estopped  to  deny  them."  Mer- 
chants' Bank  V.  State  Bank,  10  Wall.  644.  "When  the  common 
seal  of  a  corporation  appears  to  be  affixed  to  an  instrument,  and  the 
signatures  of  the  proper  officers  are  proved,  the  courts  are  to  presume 
that  the  officers  did  not  exceed  their  authority,  and  the  seal  itself  is 
prima  ^acee  evidence  that  it  was  affixed  by  proper  authority."  Angell 
and  Ames  on  Corporations,  section  224.     The  second  point  submitted 

•  Statement  abridged.    Only  the  part  relating  to  the  effect  of  the  corporate 
Beal  is  given. 


1 148        MAYOR   V.   THE   NORFOLK  RAILWAY  COMPANY.  §  345 

by  defendant  was  properly  refused.     The  second   and   third   assign- 
ments of  error  are  overruled  and  the  judgment  affirmed. 

Note.  The  presence  of  the  corporate  seal  is  prima  facie  evidence  of  the 
agent's  authority  to  act  for  tlie  corporation,  and  to  affix  the  seal,  and  also 
that  the  corporation  has  taken  the  necessary  steps  to  authorize  the  contract 
to  be  entered  into:  1820,  Berlc's  Turnpike  Road  v.  Myers,  6  Serg.  &  R.  12,  9 
Am.  Dec.  402;  1832,  Leggett  v.  New  Jersey,  etc.,  Co.,  1  Saxton  Ch.  (N.  J.) 
541,  23  Am.  Dec.  728;  1833,  Gordon  v.  Preston,  1  Watts  (Pa.)  385,  26  Am. 
Dec.  75;  1839,  Kinzie  v.  Chicago,  etc.,  2  Scam.  (111.)  187,  33  Am.  Dec.  443; 
1840,  Burrill  v.  Nahant  Bank,  2  Met.  163,  35  Am.  Dec.  395;  1859,  St.  Louis 
Pub.  Schools  V.  Risley,  28  Mo.  415,  75  Am.  Dec.  131 ;  1863,  Koehler  v.  Black 
River  Falls,  etc.,  Co.,  2  Black  715;  ]867,  Musser  v.  Johnson,  42  Mo.  74,  97 
Am.  Dec.  316;  1867,  Sheehan  v.  Davis.  17  Ohio  St.  571;  1869,  Miner's  Ditch 
Co.  V.  Zellerbach,  37  Cal.  543,  99  Am.  Dec.  300;  1874,  Central  Nat'l  Bank  v. 
Charlotte,  etc.,  R.,  5  S.  C.  156,  22  Am.  Rep.  12;  1890,  Sherman,  etc.,  Co.  v. 
Swigart,  43  Kan.  292,  19  Am.  St.  Rep.  137;  1891,  Mullanpliv  Sav.  Bank  v. 
Schott,  135  111.  655,  25  Am.  St.  Rep.  401 ;  1894,  Benbow  v.  Cook,  115  N.  C.  324, 
44  Am.  St.  Rep.  454;  1895,  B.  S.  Green  Co.  v.  Blodgett,  159  111.  169,  50  Am. 
St.  Rep.  146,  note  150;  1899.  Ellison  v.  Branstrator,  153  Ind.  146;  1900,  In  re 
West  Jersey  Tract.  Co.,  59  N.  J.  Eq.  63,  45  Atl.  Rep.  282;  Contra,  1898,  Mor- 
rison V.  Wilder  Gas  Co.,  91  Maine  492,  64  Am.  St.  Rep.  257 — but  see  note 
here,  p.  260. 

The  corporation  can  be  shown  to  have  no  authority  to  make  the  contract : 
1832,  Leggett  v.  New  Jersey,  etc.,  Co.,  1  Saxton  Ch.  (N.  J.)  541,  23  Am.  Dec. 
728;  1866,  Conine  v.  Junction  R.  Co.,  3  Houst.  288,  89  Am.  Dec.  230. 

So,  too,  the  agent's  authority  mav  be  questioned :  1845,  Gibson  v.  Gold- 
thwaite,  7  Ala.  281,  42  Am.  Dec.  592;  1876,  Luse  v.  Isthmus,  etc.,  Co.,  6  Ore. 
25  Am.  Rep.  506. 


See.  345.     (c)  As  evidence  of  a  consideration. 

LORD  CAMPBELL,  C.  J.,  IN  THE  MAYOR,  Etc.,  OF  NORWICH  v.  THE 
NORFOLK  RAILWAY  COMPANY. 

1855.     In  the  Queen's  Bench.     82   Eng.    C.   L.    (4   El.   &  Bl.) 
Rep.  *367,  on  *443-6. 

[Action  against  the  railway  company  on  a  covenant  under  their 
seal  to  pay;^i,ooo  in  case  certain  works  were  not  completed,  whether 
a  certain  act  of  parliament  should  be  obtained  or  not,  as  agreed  under 
seal.  It  was  averred  that  the  works  were  not  completed,  though 
plaintiff  had  performed  all  conditions  precedent.] 

Although  the  agreement  be  under  seal,  we  may  examine  to  see 
whether  there  was  any,  and  what  consideration  for  the  contr^.ct  to  pay 
money,  when  we  are  to  determine  whether  the  contract  was  or  was 
not  ultra  vires.  The  mere  circumstance  of  a  covenant  by  directors 
in  the  name  of  the  company  being  ultra  vires,  as  between  them  and 
the  shareholders,  does  not  necessarily  disentitle  the  covenantee  to  sue 
upon  it.  For  example,  if  the  directors  of  a  railway  company  were 
to  enter  into  a  contract  under  the  seal  of  the  company  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  supposing  that  the  rails  were 
wanted  for  the  purpose  of  the  railroad,  it  would  be  no  defense  to  an 


§   345  RIGHT   TO    HAVE   AND    USE   A    SEAL.  I  I49 

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  com- 
pany should  purchase  a  thousand  gross  of  green  spectacles,  as  a  specu- 
lation, and  should  put  the  seal  of  the  company  to  a  deed  covenanting 
to  pay  for  these  goods,  here  would  be  a  clear  excess  of  authority  on 
the  part  of  the  directors ;  this  excess  of  authority  would  necessarily 
be  known  to  the  covenantee ;  and,  he  being  in  pari  delicto^  I  conceive 
that  the  maxim  would  apply  potior  est  conditio  possidentis.  This 
would  be  an  illegal  contract  to  misapply  the  funds  of  the  company; 
and  the  illegality  might  be  set  up  as  a  defense.  So,  if,  without  any 
consideration  whatever,  the  directors  of  a  railway  company  were  to 
put  the  company's  seal  to  a  deed  covenanting  to  pay  a  mere  stranger 
_;^i,ooo,  this  would  be  ultra  vires,  to  the  knowledge  of  the  covenan- 
tee, and  he  could  not  maintain  an  action  to  recover  the  ;^i,ooo  from 
the  funds  of  the  company  in  fraud  of  the  shareholders.  When  the 
excess  of  authority,  with  the  knowledge  of  both  parties,  is  shown 
by  plea,  this  joint  violation  of  the  law,  I  apprehend,  is  a  bar  to  the 
action. 

It  has  been  contended,  I  am  aware,  that  the  deeds  of  such  com- 
panies are  to  be  treated  like  the  deeds  of  individuals  or  of  common 
partnerships.  But  there  seems  to  be  an  essential  distinction  between 
them.  The  individual  may  do  what  he  likes  with  his  own,  and  he 
may  bind  himself  by  a  deed  disposing  of  his  property,  however 
capriciously,  and  without  any  consideration,  so  that  no  fraud  has  been 
practiced  upon  him.  In  such  a  case,  want  of  consideration  is  imma- 
terial ;  no  one  is  injured,  and  there  is  no  illegality  to  be  pleaded.  "To 
look  upon  a  railway  company,"  says  I^ord  Langdale,  in  Coleman  v. 
Eastern  Counties  Railway  Company,  10  Beav.  i,  14,  "in  the  light  of 
a  common  partnership,  and  as  subject  to  no  greater  vigilance  than 
common  partnerships  are,  would,  I  think,  be  greatly  to  mistake  the 
functions  which  they  perform,  and  the  powers  which  they  exercise. of 
interference,  not  only  with  the  public,  but  with  the  private  rights  of 
all  individuals  in  this  realm.  We  are  to  look  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  ob- 
tained by  the  public;"  "and  I  am  clearly  of  opinion,  that  the  powers 
which  are  given  by  an  act  of  parliament  like  that  now  in  question, 
extend  no  farther  than  is  expressly  stated  in  the  act,  or  is  necessarily 
and  properly  required  for  carrying  into  effect  the  undertaking  and 
works  which  the  act  has  expressly  sanctioned."  The  same  learned 
judge,  in  answer  to  an  argument  that  the  directors  may  apply  the 
funds  of  the  company  as  they  please,  so  that  their  object  is  to  increase 
the  traflSc  upon  the  railway,  and  thereby  to  increase  the  profits  of  the 
shareholders,  exclaims,  "surely  that  has  nowhere  been  stated;  there 
is  no  authority  for  saying  anything  of  that  kind."  "Unless  acts  so 
done  can  be  proved  to  be  in  conformity  with  the  powers  given  by  the 
statutes  under  which  those  acts  are  done,  they  furnish  no  authority 
whatever." 


1 1 50  CHASE   NATIONAL    BANK   V.    B.    C.    FAUROT.  §   346 

The  equity  reports  abound  with  cases  in  which  injunctions  have 
been  granted  against  the  application  of  the  funds  of  such  companies 
to  purposes  not  authorized  by  the  acts  of  parliament  creating  them, 
although  professedly  for  the  benefit  of  the  shareholders:  and  I  appre- 
hend 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  directors,  and  leads  to  a  misapplication  of  the  funds 
of  the  company.  On  this  principle  proceeded  the  solemn  decision  of 
the  court  of  common  pleas  in  The  East  Anglian  Railways  Company 
V.  The  Eastern  Counties  Railway  Company,  11  Com.  B.  775  (E.  C. 
L.  R. ,  vol.  73),  where  a  railway  company  having,  by  a  deed  under 
their  seal,  covenanted  with  another  railway  company  to  take  a  lease 
of  their  railway,  and  to  pay  the  expenses  incurred  by  them  in  solicit- 
ing certain  bills  in  parliament,  which  were  then  pending,  whether 
these  bills  should  pass  into  law  or  not,  and  the  bills  not  having 
been  obtained,  the  covenantees  sought  to  recover  the  amount  of  these 
costs.  It  was  decided  that  the  covenantors  had  a  limited  authority, 
and  were  a  corporation  only  for  making  and  maintaining  the  railway 
sanctioned  by  their  act,  and  that  the  funds  of  the  company  could  only 
be  applied  to  these  purposes;  so  that,  as  the  contract  sued  upon  was 
not  justified  by  the  act  of  parliament,  it  was  consequently  void,  and 
could  not  be  made  the  foundation  of  an  action. 

Note.  See  contra,  1868,  Royal  Bank  of  Liverpool  v.  Grand  June,  etc.,  Co., 
100  Mass.  444,97  Am.  Dec.  115;  and  compare,  1879,  Best  v.Thiel,  79  N.  Y.  15; 
1895,  Taft  v.  Church,  162  Mass.  527. 


Sec.  346.     (d)  Upon  a  negotiable  instrument. 

CHASE  NATIONAL  BANK,  Respondbnt,  v.  B.  C.  FAUROT,  Appellant.  » 

1896.      In  the  Court  of  Appeals  of  New  York.      149  N.  Y. 
Rep.  532-539.  35  L.  R.  A.  605. 

Bartlett,  J.  The  plaintiff  seeks  to  recover  of  defendant  as  in- 
dorser  of  a  promissory  note  for  $16,787.02,  signed  "New  York  Con- 
struction Company,  by  T.  P.  Graf,  secretary." 

Impressed  upon  the  face  of  the  note  were  the  words  "New  York 
Construction  Company,  seal."  The  note  did  not  recite  a  seal  and  no 
effort  was  made  at  the  trial  to  prove  the  seal,  or  that  it  was  affixed  by 
authority  of  the  "New  York  Construction  Company,"  save  reading 
the  note  in  evidence.  The  note  was  executed  and  payable  in  the 
state  of  Ohio  and  the  contract  of  indorsement  was  made  in  the  state 
of  New  York.  The  facts  upon  this  appeal  are  undisputed,  and  the 
plaintiff's  counsel  insists  that  the  seal  on  the  note  in  suit  was  not 
proved  within  the   rule  laid  down   by  this  court  in  Weeks  v.    Esler 

^  Part  of  opinion  on  another  point  omitted. 


§346  RIGHT   TO    HAVE    AND    USE   A   SEAL.  II5I 

(143  N.  Y.  374);  that  a  note  is  negotiable,  and  having  been  pur- 
chased in  good  faith  and  before  maturity,  as  found  by  the  jury,  the 
recovery  below  must  be  sustained. 

The  defendant's  counsel,  while  admitting  that  the  rule  in  Weeks  v. 
Esler  is  opposed  to  certain  of  his  contentions  on  this  appeal,  urges 
with  much  earnestness  and  ability  that  this  court  should  reconsider 
the  doctrines  of  that  case ;  he  also  argues  that  even  assuming  the  note 
to  be  negotiable  in  form,  it  never  had  a  legal  inception,  and  defend- 
ant is  not  liable  as  indorser. 

We  held  in  Weeks  v.  Esler  that  the  presumption  attaching  ordi- 
narily to  seals  of  corporations  when  affixed  to  deeds,  or  other  instru- 
ments did  not  exist  as  to  the  promissory  notes  of  a  corporation,  and  that 
in  the  absence  of  any  recital  that  the  seal  of  the  corporation  was  af- 
fixed and  of  any  evidence  to  show  the  fact  of  sealing,  or  that  the 
corporate  seal  was  impressed,  or  that  it  was  the  corporate  seal,  the 
notes  could  not  be  regarded  as  sealed  instilments. 

We  think  this  rule  a  reasonable  one  in  view  of  the  vast  business 
transactions  of  corporations,  and  see  no  occasion  to  recon^der  it. 

In  the  case  at  bar  we  shall  assume  for  the  purposes  of  this  appeal 
that  the  note  in  suit  was  a  sealed  instrument,  and  will  place  our  de- 
cision on  broader  grounds  than  those  laid  down  in  Weeks  v.  Esler. 

In  view  of  the  law  as  settled  by  this  court  and  the  courts  of  other 
jurisdictions  as  to  what  instruments  are  negotiable,  we  hold  that  the 
commercial  paper  of  a  corporation  negotiable  in  form  does  not  lose 
the  quality  of  negotiability  by  having  attached  thereto  the  corporate 
seal. 

The  following  are  a  few  of  the  cases  showing  the  evolution  of  the 
modern  doctrine  that  a  seal  does  not  deprive  corporate  obligations  of 
negotiability : 

Bank  of  Rome  v.  Village  of  Rome  (19  N.  Y.  20).  The  village 
had  issued  bonds  under  its  corporate  seal  in  aid  of  a  railroad  com- 
pany, and  the  latter  sold  certain  of  them  to  a  bona  Jide  holder,  and 
the  question  was  whether  the  purchaser  was  subject  to  a  defense  avail- 
able against  the  railroad  company. 

Comstock,  J.,  said:  "The  bonds  were  payable  to  bearer,  and 
although  under  the  corporate  seal  of  the  village,  they  were  negotiable 
instruments  in  such  a  sense  as  would  exempt  them,  in  the  hands  of  a 
bona  fide  holder,  from  a  defense  which  might  be  available  against 
the  railroad  company."  (Citing  State  of  Illinois  v.  Delafield,  8 
Paige  527;  State  of  Illinois  v.  Delafield  on  appeal,  2  Hill  159,  177; 
Mechanics'  Bank  v.  N.  Y.  &  N.  H.  R.  R.  Co.,  13  N.  Y.  625,  627; 
Morris  Canal  &  B.  Co.  v.  Fisher,  3  Am.  L.  Reg.  423.) 

Brainerd  v.  New  York  &  Harlem  Railroad  Company  (25  N.  Y. 
496).  It  was  held  that  the  bond  of  a  railroad  corporation,  payable 
to  an  individual  or  his  assigns,  is  in  the  nature  of  commercial  paper, 
negotiable  by  delivery  under  an  assignment  in  blank,  and  not  a 
specialty  subject  to  equities  between  the  corporation  and  the  person 
named  in  the  bond  as  the  primary  payee. 

Denio,  Ch.  J.,  said:     "The   questions  of  law  which    the    appeal 


I  1 52  CHASE   NATIONAL   BANK   V.    B.    C.    FAUROT.  §  346 

presents  are,  whether  these  instruments  are  commercial  paper,  so  as 
to  be  negotiable,  and  whether  they  were  legally  negotiated  by  deliv- 
ery under  the  blank  assignment.  These  might  have  been  very  grave 
questions  in  this  state  a  few  years  ago.  But  they  have  been 
settled  against  the  defendant  in  this  state  by  a  series  of  decisions 
which  it  is  impossible  at  this  day  to  depart  from.  «  *  «  The 
point  of  objection,  when  it  is  sought  to  bring  such  securities  within 
the  law  of  commercial  paper,  is  that,  being  under  seal,  they  are  deeds, 
and  commercial  instruments  are  simple  contracts.  But  when  such 
obligations  are  issued  to  secure  the  payment  of  money  upon  time,  and 
contain  on  their  face  an  expression  showing  that  they  are  expected  to 
pass  from  one  person  to  another,  and  thus  to  perform  the  office  of  bills 
and  notes  or  of  money,  as  the  words  'bearer,'  or  'assigns.'  or  'holder.' 
or  the  like,  the  courts  of  this  countiy,  with  a  single  exception,  and  those 
of  this  state,  without  any  exception,  have  concurred  in  attaching  to  them 
the  attributes  of  commercial  paper."   (See  cases  cited  in  this  opinion.) 

This  case  also  laid  down  the  rule  that  no  distinction  could  be  made 
between  priv'ate  corporations  and  those  which  are  created  for  govern- 
mental or  municipal  purposes. 

Dinsmore  v.  Duncan  (57  N.  Y.  573).  It  was  held  that  the  nego- 
tiability of  a  United  States  treasuiy  note  is  not  strained  or  affected  ])\- 
the  fact  that  it  is  under  the  treasury  seal. 

Dwight,  C,  said:  "There  are  several  objections  urged  to  the 
negotiability  of  this  instrument.  One  is,  that  it  is  under  the  seal  of 
the  United  States  treasury.  There  are,  no  doubt,  decisions  that  an 
instrument  under  seal  is  not  negotiable.  These  cases  refer  to  private 
obligations  between  individuals.  (Clark  v.  Farmers'  Woolen  Manu- 
facturing Co.,  15  Wend.  256;  Steele  v.  Oswego  Cotton  Manufactur- 
ing Company,  15  Wend.  265.)  They  are  not  to  be  extended  to  the 
case  of  public  securities  like  those  issued  by  the  government,  and  in- 
tended to  seek  for  a  market  throughout  the  civilized  world.  The 
seal  was  not  placed  there  to  restrain  their  negotiability,  but  rather  to 
stamp  them  as  genuine,  wherever  they  might  be  in  circulation." 

Evertson  v.  National  Bank  of  Newport  {66  N.  Y.  14)  holds  in- 
terest coupons  of  railroad  bonds  payable  to  bearer  at  a  specified  time 
and  place  are  negotiable  promises  for  the  payment  of  money.  (See 
cases  there  cited.) 

Marine,  etc.,  Mfg.  Co.  v.  Bradley  (105  U.  S.  175)  was  the  case  of 
an  instrument  issued  by  a  South  Carolina  corporation  under  seal  agree- 
ing to  pay  a  certain  sum  of  money,  and  by  an  indorsement  under  seal 
the  company  agreed,  in  consideration  of  forbearance,  to  pay  a  higher 
rate  of  interest  on  the  money  to  bearer. 

Mr.  Justice  Matthews,  passing  upon  the  validity  of  the  indorsement, 
said:  "It  is  a  negotiable  note  within  the  meaning  of  the  law  mer- 
chant, according  to  the  law  of  the  place  of  the  contract,  notwithstand- 
ing it  is  an  instrument  under  seal"  (p.  180). 

In  Mercer  County  v.  Racket  (i  Wall.  83),  the  United  States 
supreme  court  held  county  bonds  under  seal  to  be  negotiable  instru- 


§  347  POWER   TO    MAKE  BY-LAWS.  1 1 53 

ments.  Mr.  Justice  Grier  said,  in  speaking  of  the  bonds  issued  un- 
der seal:  ''But  there  is  nothing  immoral  or  contrary  to  good  policy 
in  making  them  negotiable  if  the  necessities  of  commerce  require 
that  they  should  be  so.  A  mere  technical  dogma  of  the  courts  or  the 
common  law  can  not  prohibit  the  commercial  world  from  inventing  or 
issuing  any  species  of  security  not  known  in  the  last  century." 

The  following  authorities  further  illustrate  the  point  under  discus- 
sion: Mason  v.  Frick  (105  Pa.  St.  162  and  cases  cited);  Barrett  v. 
Schuyler  Co.  (44  Mo.  197)  ;  Morris  Canal,  etc.,  Co.  v.  Fisher  (9  N. 
J.  Eq.  699)  ;  Haven  v.  Grand  June.  R.  R.  &  D.  Co.  (  109  Mass.  88)  ; 
Murray  v.  Lardner  (2  Wall,  no);  National  Exchange  Bank  v. 
Hartford,  P.  &  F.  R.  R.  Co.  (8  R.  I.  375);  Daniel  on  Neg.  Inst., 
§§  1500  and  1501  and  cases  cited;  Morawetz  on  Corp.,  §  341; 
Tiedman  on  Com.  Pap.,  §  117. 

In  Blewitt  v.  Boorum  (142  N.  Y.  357)  Judge  Peckham,  in  a 
learned  and  interesting  opinion,  reviews  the  histoiy  of  seals  upon  in- 
struments and  points  out  their  immateriality  on  contracts  which  do 
not  require  them  in  order  to  be  valid. 

The  note  in  suit  being  negotiable  under  the  law  of  this  state,  and 
the  contract  of  indorsement  having  been  made  here,  it  is  unnecessary 
to  consider  many  of  the  points  argued  by  appellant  under  the  as- 
sumption that  the  defendant  had  indorsed  a  non-negotiable  instru- 
ment.    *     *     * 

Affirmed. 

Note.  See  cases  cited  in  note  to  §  238,  supra,  p.  864 ;  and  1895,  Am.  Nat'l 
Bank  v.  Am.  Wood  Paper  Co.,  19  R.  I.  149. 


ARTICLE    VIII.       POWER    TO    MAKE    BY-LAWS. 

Sec.  347.      I.    Definition  and  purpose,  differs  from  regulation. 
STATE  v.  ISAAC  S.  OVERTON.^ 

1854.     In  the  Supreme  Court  of  Judicature  of  New  Jersey. 
24  N.  J.  Law  (4  Zabriskie)  Rep.  435-443,  61  Am.  Dec.  671. 

Overton,  a  conductor  on  the  Morris  &  Essex  R.  R.,  forcibly  ejected 
a  passenger  from  one  of  the  trains,  and  was  convicted  of  an  assaul:^ 
and  battery  therefor.  A  motion  for  new  trial  on  account  of  misdirec- 
tion of  the  court  was  overruled.  This  was  assigned  as  error.  The 
passenger  had  purchased  a  ticket  from  N.  to  M.  At  a  way  station 
between  these  stations  he  left  the  train,  having  first  obtained  a  con- 
ductor's check  printed  "Conductor's  check  to  M."  About  an  hour 
afterward  he  took  the  train  of  Overton,  to  complete  his  journey  to  M. 

*  Statement  abridged.    Only  that  part  of  opinion  relating  to  one  point  is 
given. 

73— WiL.  Cas. 


1 154  STATE   V.    ISAAC    S.    OVERTON.  §   347 

Overton  refused  to  recognize  the  conductor's  check,  demanded  the 
fare,  and  upon  refusal  to  pay,  put  the  passenger  off  without  unneces- 
sary violence.  Some  years  before  the  company  had  adopted  a  rule, 
and  given  public  notice  of  it  that  conductor's  checks  were  not  trans- 
ferrable  from  one  train  to  another.  This  action  of  the  company  was 
submitted  to  the  jury  as  if  it  were  a  by-law  or  regulation  of  the  com- 
pany affecting  the  rights  of  passengers,  upon  the  reasonableness  and 
validity  of  which  the  jury  were  to  decide.  This  was  assigned  as 
error. 

Green,  C.J.  *  *  *  In  this  the  court  erred.  Here  was  no  evidence 
of  any  by-law,  or  of  any  regulation  made  by  the  company  affecting  the 
rights  of  passengers  upon  the  reasonableness,  or  validity  of  which 
either  court  or  jury  were  called  upon  to  decide.  The  right  of  the 
passenger  rested  upon  his  contract.  The  notice  given  by  the  com- 
pany was  in  strict  conformity  with  his  rights  under  the  contract.  Upon 
the  evidence  in  the  cause,  if  no  proof  had  been  offered  of  the  notice 
given  by  the  company,  that  conductors'  checks  were  not  transferable, 
the  defendant  would  have  been  entitled  to  a  verdict.  Proof  of  that 
notice  certainly  placed  him  in  no  worse  position.  The  company  have 
an  unquestionable  right,  under  their  chaiter,  independent  of  any  by- 
law or  regulation,  to  charge  different  rates  by  different  trains,  or  a 
higher  price  for  traveling  over  the  road  as  a  way-passenger,  by  dif- 
ferent journeys,  than  for  a  through  passenger.  This  was  in  reality 
all  that  was  involved  in  the  evidence  of  the  action  by  the  company, 
as  proved  upon  the  trial.  The  case  does  not  fall  within  the  opera- 
tion of  the  principle,  by  which  it  was  held  to  be  controlled. 

Assuming  at  the  bar,  as  was  done  upon  the  trial,  that  the  guilt  or 
innocence  of  the  defendant  depended  upon  the  validity  of  a  regulation 
made  by  the  company,  affecting  the  rights  of  passengers,  the  question 
was  elaborately  argued  whether  the  validity  of  such  regulation  can  in 
any  case  be  submitted  as  a  question  of  fact  to  be  decided  by  a  jury, 
and  the  broad  principle  was  assumed  that  the  validity  of  ever}-  regu- 
lation made  by  a  railroad  company,  regulating  the  concerns  and  af- 
fecting the  rights  of  the  road,  is  a  question  of  law,  to  be  decided  by 
the  court,  and  never  can  be  submitted  to  a  jury;  that  the  company  is 
bound  to  make  regulations  for  the  comfort  and  convenience  of  pas- 
sengers ;  that  the  power  is  regulated  by  their  charter ;  that  what  is 
lawful  is  reasonable,  and  that,  therefore,  every  regulation  is  reason- 
able which  is  not  unlawful. 

The  validity  of  the  by-law  of  a  corporation  is  purely  a  question  of 
law.  Whether  the  by-law  be  in  conflict  with  the  law  or  with  the  char- 
ter of  the  company,  or  be  in  a  legal  sense  unreasonable,  and  therefore 
unlawful,  is  a  question  for  the  court  and  not  for  the  jury.  Common- 
wealth V.  Worcester,  3  Pickering  462 ;  Paxon  v.  Sweet,  i  Green  196; 
Ang.  and  Ames  on  Corps.,  357.  But  the  by-laws  of  a  private  corpo- 
ration bind  the  members  only  by  virtue  of  their  assent,  and  do  not 
affect  third  persons.  All  regulations  of  a  company  affecting  its  busi- 
ness, which  do  not  operate  upon  third  persons,  nor  in  any  way  affect 
their  rights,  are  properly  denominated  by-laws  of  the  company,  and 


§   347  POWER   TO   MAKE    BY-LAWS,  1 1  55 

may  come  within  the  operation  of  the  principle.  Within  this  limit  it  is 
the  peculiar  and  exclusive  office  of  the  court  to  decide  upon  the  validity 
of  the  regulation. 

But  there  is  another  class  of  regulations,  made  by  corporations,  as 
well  as  by  individuals,  who  are  common  carriers  of  passengers,  which 
operate  upon,  and  affect  the  rights  of  others  which  are  not,  properly 
speaking,  by-laws  of  the  corporation,  and  which  do  not  fall  within 
the  operation  of  the  principle.  Of  this  character  are  all  regulations 
touching  the  comfort  and  convenience  of  travelers,  or  prescribing 
rules  for  their  conduct  to  secure  the  just  rights  of  the  company.  It  is 
not  perceivable  of  this  class  of  regulations,  that  they  are  never  un- 
reasonable unless  they  are  unlawful.  On  the  contrary,  they  are  un- 
lawful because  they  are  unreasonable,  or  an  unnecessaiy  infringement 
of  the  rights  and  liberty  of  the  passengers.  The  reasonableness  and 
validity  of  a  regulation,  that  passengers  by  railroad  or  steamboat 
should  exhibit  their  tickets  when  reasonably  requested ;  that  they 
should  not  smoke  or  indulge  in  other  filthy,  or  offensive  practices ; 
that  male  passengers  should  not  enter  a  car  or  a  saloon,  especially  ap- 
propriated to  females,  might  be  conceded,  and  the  right  of  the  com- 
pany to  enforce  them,  even  by  excluding,  in  case  of  necessity,  the  of- 
fending passenger  from  the  train.  But  it  would  scarcely  be  contended 
that  a  regulation  requiring  passengers  continually,  or  as  often  as 
the  caprice  or  malice  of  a  conductor  might  require  it,  to  exhibit 
their  tickets;  forbidding  them  to  speak,  or  change  their  seats  from 
one  part  of  a  car  or  saloon  to  another,  when  the  right  of  no  other 
passenger  was  affected,  was  a  regulation  lawful  in  itself  or  which 
might  safely  be  enforced.  This  latter  class  of  regulations  are  no 
more  in  violation  of  the  charter  of  the  company,  or  of  any  particular 
statute,  than  the  former.  But  they  would  be  held  unlawful,  because 
they  are  unreasonable,  and  an  unnecessary  infringement  of  the  rights 
and  liberty  of  travelers.  The  distinction  between  such  regulations  as 
are  necessary,  and  conducive  to  the  comfort  and  convenience  of  trav- 
elers, or  to  protect  the  rights  of  the  company,  must  from  its  very 
nature  be  a  question  of  fact  rather  than  of  law.  The  reasonableness 
and  unreasonableness  of  the  regulation  is  properly  for  the  considera- 
tion, not  of  the  court,  but  of  the  jury.     ♦     *     « 

But  there  was  in  reality  no  such  question  involved  in  the  present 
case.  The  right  to  transfer  conductors'  checks,  resulted  upon  a  con- 
tract which  the  company  had  a  clear  and  unquestionable  legal  right  to 
enforce.  The  question  was  improperly  submitted  to  the  jury,  and 
the  verdict  is  against  law,  and  contrary  to  the  evidence.     «     *     * 

New  trial  granted. 

Note.  See  note  85  Am.  Dec.  617,  et  seq ;  1886,  L.  S.  &  M.  R.  R.  Co.  v.  Rosen- 
zoweis,  113  Pa.  St.  519;  1892,  Am.  Liv.  St.  Co.  v.  Chicago  L.  S.  Ex.,  143  III. 
210,  36  Am.  St,  Rep.  385;  1899,  Northport,  etc.,  Aes'n  v.  Perkins,  93  Maine 
236,  74  Am.  St.  Rep.  342, 


1 1 56  NORRIS    V.    STAPS.  §  348 

See.  348.     2.   Power  to  make, 
(a)    Incidental. 

HOBART,  J.,  IN  NORRIS  v.  STAPS. 
c.  1625,  Hobart's  Rep.  211  a. 

"I  am  of  the  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,  as  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." 

Note.  See  1613,  Sutton's  Hospital,  10  Co.  23a.,  supra,  264,  on  266;  1815,  St. 
Luke's  Church  v.  Mathews,  4  Dessaus.  (S.  C.)  578,  6  Am.  Dec.  619;  1819, 
Commw.v.  Woelper,  3  Serg.  &  R.  (Pa.)  29,  8  Am.  Dec.  628;  1832,  Leggett  v. 
N.  J.  M.  &  B.  Co.,  1  Saxton  Ch.  (N.  J.)  541,  23  Am.  Dec.  728;  1834,  Taylor  v. 
Griswold,  2  Green  Law  (N.  J.)  222, 27  Am.  Dec.  33;  1895,  Engelhardt  v.  Fifth 
Ward,  etc.,  Ass'n,  148  N.  Y.  281,  35  L.  R.  A.  289;  1899,  Bailey  v.  Association 
of  Master  Plumbers,  103  Tenn.  99,  46  L.  R.  A.  561. 

Note,  85  Am.  Dec.  618. 


Sec.  349.    Same. 

(b)  This  power  resides  in  the  shareholders  or  members, 
unless  otherwise  provided. 

THE  MORTON  GRAVEL  ROAD  CO.  v.  WYSONG.» 
1875.     In  the  Supreme  Court  of  Indiana.     51  Ind.  Rep.  4. 

[Action  to  recover  a  penalty  for  violating  a  by-law  regulating  tolls. 
Judgment  below  for  plaintiff.  The  by-law  was  adopted  by  the  direct- 
ors, and  not  by  the  corporation  at  large.  The  statute  provided  :  "Such 
company  may  *  *  *  make,  enact,  and  publish  any  and  all  ordi- 
nances and  by-laws,"  etc.] 

Downey,  J.  This  is  in  conformity  to  the  statute  on  the  subject,  en- 
entitled  "An  act  establishing  general  provisions  respecting  corpora- 
tions," I  G.  &  H.  267,  section  2  of  which  provides  that  "corporations 
shall,  where  no  other  provision  is  specially  made,  be  capable,  in  their 
corporate  name,     *     *     *     ^q  make  necessary  by-laws,"  etc. 

The  power  to  make  by-laws  resides  in  the  members  of  the  corpora- 
tion at  large,  where  there  is  no  law  or  valid  usage  to  the  contrary. 

*  Statement  abridged.  Only  that  part  of  opinion  relating  to  the  one  point 
is  given. 


§   350  RIGHT   TO   MAKE    BY-LAWS.  1157 

In  Angell  &  Ames  on  Corp.,  section  327,  it  is  said:  "Unless  by 
the  charter,  or  some  general  statute  to  which  the  charter  is  made  sub- 
ject, or  by  immemorial  usage,  this  power  is  delegated  to  particular 
officers  or  members  of  the  corporation,  like  every  other  incidental 
power,  it  resides  in  the  members  of  the  coi-poration  at  large,  to  be 
exercised  by  them  in  the  same  manner  in  which  the  charter  may  direct 
them  to  exercise  other  powers  or  transact  their  general  business,  and 
if  the  charter  contain  no  such  direction,  to  be  exercised  accqrding 
to  the  rules  of  the  common  law,"  etc.  We  must,  therefore,  treat  the 
by-law  in  question  as  invalid,  and  as  having  nothing  to  do  with  fhe 
question  to  be  decided.     *     *     » 

Judgment  reversed. 

Note.  See,  also,  1827,  Union  Bank  v.  Ridglev,  1  Har.  &  G.  (Md.)  324;  1868, 
Stevens  v.  Davison,  18  Gratt.  (Va.)  819,  98  Am.  Dec.  692;  1873,  People  v. 
Crossley,  69  111.  195;  1880,  Carroll  v.  MuUanphy  Sav.  Bank,  8  Mo.  App.  249; 
1887,  State  Savings  Assn.  v.  N.  J.  P.  Co.,  25  Mo.  App.  642;  1893,  Brinker- 
hoff-Farris,  etc.,  Co.  v.  Lumber  Co.,  118  Mo.  447,  infra,  p.  1162;  1899,  North 
Milwaukee  T.  S.  Co.  v.  Bishop,  103  Wis.  492,  45  L.  R.  A.  174;  note  85  Am. 
Dee.  618. 

But  the  shareholders  may  delegate  authority  to  make  by-laws  to  the  direct- 
ors, or  the  statute  or  charter  may  authorize  them  to  do  so:  1845,  Cahill  v.  K. 
M.  I.  Co.,  2  Douglass  (Miss.)  124,  43  Am.  Dee.  457;  1875,  Spurlock  v.  Pacific 
R.,  61  Mo.  326. 


Sec.  350.      (c)  Limits  on  power  to  make. 

I .    Forfeitures. 

In  the  Matter  of  the  Election  op  DIRECTORS  OF  THE  LONG  ISLAND 

R.  R.  CO.i 

1837.      In  the    Supreme  Court  of   New  York.      19  Wendell's 
(N.  Y.)  Rep.  37-45,  32  Am.  D.  429. 

[Motion  to  set  aside  an  election,  for  refusing  to  permit  Edwin  Lord 
vote  1200  shares  of  stock,  for  the  reason  "that  the  stock  had  already 
been  declared  forfeited  for  default  in  payment  of  the  calls."  If  these 
shares  had  been  voted  the  result  of  the  election  might  have  been 
changed.  The  forfeiture  was  declared  under  a  by-latv  enacted  for  that 
purpose.] 

Nelson,  C.  J.  *  *  *  The  corporation  possess  the  power  to  make 
by-laws  not  inconsistent  with  any  existing  law .,  for  the  management  of 
its  property,  the  regulation  of  its  affairs,  and  for  the  transfer  of  stock. 
(2  R.  S.  603,  §  I,  sub.  6.  This  is  the  broadest  general  power  con- 
ferred upon  it;  but  it  is  not  new,  and  would  have  existed  as  inci- 
dental. When  taken  as  incidental  it  must  be  exercised  in  conformity 
to  the  general  law  of  the  land,  that  being  the  rule  to  regulate  the  pro- 
ceedings of  artificial  bodies.,  as  well  as  the  conduct  of  natural  per- 
sons., independently  of  express   provisions   of  the  charters  of  those 

*Only  80  much  of  opinion  as  relates  to  the  one  point  is  given. 


1 1 58  DIRECTORS   OF   THE   LONG   ISLAND    R.    R.    CO.  §  3  SO 

companies  to  the  contrary.  This  general  law  has  ascertained  the 
rights  of  person  and  of  property  of  the  citizen,  and  established  modes 
of  proceeding  in  case  of  a  violation  of  them  ;  and  corporate  bodies 
must  conform  to  them,  in  seeking  redress,  the  same  as  individuals. 
The  former  can  no  more  take  the  remedy  into  their  own  hands  than 
can  the  latter.  So  strict  has  this  salutary  principle  of  subjection  been 
held  in  England,  that  even  a  by-law  in  pursuance  of  an  express  power 
in  a  charter  granted  by  the  king,  is  void,  if  contrary  to  the  common 
law  or  act  of  parliament,  (i  Kyd  on  Corp.,  109  ;  Willcock  on  Corp., 
95;  Angel  &  Ames,  186;  8  Co.  125,  a,  127,  <5 ;  2  Inst.  47 ;  i  T.  R. 
118.)  Thus  a  by-law  imposing  a  forfeiture  of  goods  is  void,  though 
the  letters  patent  authorized  it ;  and  a  power  granted  to  a  corporation 
of  dyei's  to  search,  and  if  thev  found  cloth  dyed  with  logwood,  to 
seize  it  as  forfeited,  was  adjudged  void   as  contrary  to  magna  charta. 

On  the  same  principle,  by-laws  in  restraint  of  trade  are  adjudged 
void.  (11  Co.  53;  I  Burr.  12;  4  Burr.  195 1;  7  Dowl.  &  Ryl.  601; 
I  Bacon's  Abr.  547;  Angel  &  Ames,  184;  Willcock,  142.)  So  a 
by-law  that  may  be  lawful  can  not  be  enforced  by  an  extraordinary 
penalty,  such  as  imprisonment  or  forfeiture  of  goods,  or  b}'  distress 
and  sale  of  goods,  for,  by  the  general  law  of  the  kingdom,  no  man  is 
to  be  imprisoned,  or  dispossessed  of  his  goods  and  chattels  nisi  per 
legale  judicium  parium  suorum,  vel  per  legem  ierrce :  and  if  such 
penalties  were  allowed,  corporations  would  be  enabled  to  set  up  pri- 
vate particular  laws  in  contradiction  to  the  laws  of  the  land,  which  is 
against  the  nature  and  essence  of  a  by-law.  (Clark's  Case,  5  Co. 
64;  3  Salk.  76;  Willcock,  98;  i  Bacon's  Abr.  551.)  Even  an  act 
of  parliament  does  not  by  implication  invest  the  corporation  with  any 
extraordinary  authority;  and  if  it  is  intended  to  be  given,  it  must  be 
hy  express  words  to  that  effect.  In  Kirk  v.  Nowill  (i  T.  R.  118)^ 
which  was  an  action  of  trespass  for  seizing  and  taking  a  quantity  of 
forks,  the  defendant  justified  under  an  act  of  parliament  incorporating 
the  inhabitants  of  the  Liberty  of  H.  into  a  company  of  cutlers,  and 
under  a  by-law  of  the  company.  The  act  authorized  the  adoption  of 
such  by-laws  as  appertained  to  good  regulation  and  workmanship  in 
the  manufacturing  of  cutlery  wares,  with  power  to  impose  reasonable 
pains,  penalties  and  punishment,  by  fine  or  amercement,  in  case  of 
violation,  and  which  was  to  be  levied  to  the  use  of  the  corporation 
for  the  benefit  of  the  poor.  The  company  ordained  that  the  search- 
ers (officers  recognized  in  the  act)  should  search  for  unworkmanlike 
wares,  and  seize,  carry  away  and  destroy  the  same.  The  property 
was  seized  under  and  by  virtue  of  this  by-law. 

Lord  Mansfield  observed  that  a  corporation  in  the  definition  of  it, 
is  a  creature  of  the  crown,  created  by  letters  patent;  that  such  a  cor- 
poration, with  the  power  of  making  by-laws,  can  not  make  any  such 
law  to  incur  a  forfeiture ;  that  those  corporations  which  are  created 
by  act  of  parliament  have  no  other  additional  powers  incident  to  them 
than  those  have  which  are  created  b}'  charters,  unless  they  be  expressly 
given,  and  that  no  such  extraordinary  power  of  making  by-laws  to  in- 
cur a  forfeitbre,  appearing  upon  the  plea  to  have  been  conferred,  it 


§351  RIGHT   TO   MAKE   BY-LAWS.  1 1  59 

was  impossible  for  the  court  to  say  that  the  by-law  in  that  case  could 
be  supported  by  the  act.  Duller,  J.,  remarked,  that  taking  it  gen- 
erally as  a  by-law  creating  a  forfeiture,  the  act  of  parliament  not  hav- 
ing given  the  corporation  the  power  to  make  such  a  by-law,  it  was 
bad  on  that  ground.  In  all  the  cases  where  his  power  to  declare  a 
forfeiture  of  stock  as  expressly  given  by  the  charter  has  been  inci- 
dentally noticed  by  the  courts,  it  has  been  regarded  as  a  new  and 
cumulative  remedy  to  the  one  existing  at  common  law.  (i  Caines' 
Cas.  in  Error,  83;  i  Caines,  389,  Radcliff,  J.;  9  Johns.  R.  218;  6 
Mass.  R.  40;  2  Bibb,  576.)  This  has  also  been  the  understanding 
of  the  legislature,  for,  on  examination,  it  will  be  found  that  the  power 
has  been  usually  conferred  by  an  express  provision  in  the  charters, 
from  the  earliest  period  down  to  the  present  time.  Upon  the  whole, 
I  am  entirely  satisfied  the  directors  possessed  no  authority  under  the 
charter  to  declare  a  forfeiture  of  the  stock;  that  their  acts  in  this  re- 
spect were  wholly  void,  and  left  the  rights  of  the  stockholders  in  full 
force,  and  that  the  sales  which  were  made,  and  attempted  transfers  of 
the  supposed  forfeited  shares,  passed  no  title  to  or  interest  in  them  to 
the  purchasers.      *     *     * 

Election  set  aside.  ' 

Note.  1887,  Budd  v.  Maltnomah  St.  R.  Co.,  15  Ore.  413,  3  Am.  St.  Rep. 
169,  infra,  p.  1669;  1892,  Gemmel  v.  Davis,  75  Md.  546,  32  Am.  St.  Rep.  412; 
1894,  Morris  v.  Mettalline  L.  Co.,  164  Pa.  St.  326,  44  Am.  St.  Rep.  614;  1897, 
Elizabeth  City  Cotton  Mills  v.  Dunstan,  121  N.  C.  12,  61  Am.  St.  Rep.  654, 
holding  that  "a  corporation  may  be  empowered  to  provide  by  its  by-laws  for 
forfeiture  of  shares  for  non-pavment,  and  if  reasonable,  it  will  be  enforced." 

See  notes,  68  Am.  Dec.  88;  43  Am.  St.  Rep.  156;  61  Am.  St.  Rep.  656. 

On  the  general  subject  of  forfeiture,  and  sale  of  stock  for  non-payment, 
see,  1821,  Franklin  Glass  Co.  v.  Alexander,  2  N.  H.  380,  9  Am.  Dec.  92,  note 
97;  1843,  Selma  &  Tenn.  R.  Co.  v.  Tipton,  5  Ala.  787,  39  Am.  Dec.  344;  1850, 
Hightower  v.  Thornton,  8  Ga.  486,  52  Am.  Dec.  412;  1855,  New  Hampshire 
R.  V.  Johnson,  30  N.  H.  390,  64  Am.  Dec.  300,  n.  308;  1860,  Leevey's  Island 
R.  Co.  V.  Bolton,  48  Maine  451,  77  Am.  Dec.  236;  ^869,  Gerraantown,  etc.,  R. 
Co.  V.  Fitler,  60  Pa.  St.  Rep.  124,  100  Am.  Dec.  546,  and  note;  1893,  Carpen- 
ter v.  Am.  Bldg.  Ass'n,  54  Minn.  403,  40  Am.  St.  Rep.  345,  note  348. 


Sec.  851.    Same. 

2.    Transfers. 

THE  VICTOR  G.  BLOEDE  CO  v.  VICTOR  G.  BLOEDE.» 

1896.     In  the  Court  of  Appeals  of  Maryland.     84  Md.  Rep. 
129-142,  57  Am.  St.  R.  373. 

Appeal  by  the  company  from  a  decree  ordering  it  to  transfer  nine 
shares  of  stock  to  appellee,  plaintiff  below,  standing  in  name  of  Y. 

A  by-law  of  the  defendant  corporation  provided  that  if  any  stock- 
holder should  desire  to  dispose  of  his  stock,  he  shall,  before  a  trans- 

1  Statement  of  facts  taken  from  syllabus.  Only  that  part  of  opinion  given 
relating  to  validity  of  by-law. 


Il6o        VICTOR   G.    BLOEUE    CO.    V.    VICTOR    G.    BLOEDE.       §   35 1 

fer,  notify  the  president  of  his  intention  to  sell  and  of  the  price  he  can 
obtain,  which  notice  shall  be  communicated  to  the  other  stockholders, 
who  shall  have  the  option  to  purchase  the  stock  at  the  price  named, 
in  pro  rata  amounts,  and  the  corporation  shall  have  the  right  to  take 
any  such  stock  not  taken  by  the  shareholders.  A  large  number  of 
shares  were  originally  issued  to  plaintiff  for  value.  He  afterwards 
caused  some  of  the  shares  to  be  transferred  to  other  parties,  including 
a  certificate  for  nine  shares  made  out  in  the  name  of  Y.  Plaintiff  al- 
leged that  the  certificate  was  so  made  out  in  order  to  give  Y.  an  op- 
portunity to  purchase  them  if  he  wished,  while  defendant  alleged  that  it 
was  done  in  pursuance  of  an  agreement  betw^een  plaintiff  and  the 
other  chief  owner  of  the  stock  that  neither  of  them  should  own  a  ma- 
jority of  the  shares.  This  allegation  of  the  defendant  was  held  not  to 
be  established  by  proof.  Y.  refused  to  accept  or  pay  for  the  shares 
made  out  in  his  name,  and  assigned  the  certificate  to  the  plaintiff,  who 
demanded  a  transfer  of  the  same  back  to  himself.  The  defendant  re- 
fused to  make  the  transfer. 

McSherry,  C.  J.  *  *  *  But  the  by-law  itself  can,  when  invoked  by 
the  company,  interpose  no  obstacle  to  the  transfer  of  these  shares  for 
the  reas'on  that  it  is  invalid.  It  is  an  unreasonable  and  a  palpable  re- 
straint upon  the  alienation  of  property.  As  a  general  rule  stockhold- 
ers indisputably  have  the  right  to  sell  their  shares  at  pleasure.  Tris- 
coni  V.  Winship,  43  La.  Ann.  45.  That  the  power  to  regulate 
transfers  of  stock  does  not  include  authority  to  control  its  transfera- 
bility by  prescribing  to  whom  the  owner  may  sell  and  to  whom  not, 
or  upon  what  terms ;  and  that  the  mere  power  to  regidate  transfers 
does  not  authorize  a  refusal  to  allow  a  transfer  of  shares  to  even  an 
insolvent  is  decided  in  Chouteau  Spring  Co.  v.  Harris,  20  Mo.  383. 
And  so  a  by-law  prohibiting  the  alienation  of  shares  of  stock  or  im- 
posing any  restrictions  on  its  exercise  is  declared  to  be  in  restraint  of 
trade  and  against  public  policy  and  void  in  Moore  v.  Bank  of  Com- 
merce, 52  Mo.  377;  Re  Klaus,  67  Wis.  401;  Brinkerhoff  Farris 
Trust  &  Sav.  Co.  v.  Home  Lumber  Co.,  118  Mo.  447;  Feckheimer 
V.  Nat.  Ex.  Bk.  of  Norfolk,  79  Va.  80.  And  in  Am.  Nat.  Bk. 
V.  Oriental  Mills,  17  R.  I.  551,  in  considering  a  similar  by-law  it  was 
held,  without  passing  on  its  validity,  that  no  one  but  the  stockholders 
could  take  advantage  of  the  non-compliance  with  the  by-law,  and 
that  they  had  the  power  to  waive  it.  And  in  Ireland  v.  Globe  Milling 
and  Reducing  Co.,  19  R.  I.  100,  29  L.  R.  A.  429,  it  was  decided 
that  a  by-law  giving  the  corporation  the  first  right  to  purchase  stock 
which  is  for  sale  by  any  of  its  members,  is  not  valid  under  a  statute 
specifying  several  subjects  upon  which  by-laws  may  be  enacted,  but 
making  no  reference  to  the  question  of  stock-transfers.  See,  also, 
Farmers'  Bk.  v.  Wasson,  48  Iowa  339;  Sargent  v.  Franklin  Ins.  Co., 
8  Pick.  90. 

The  cases  in  36  Md.  491,  and  48  Md.  473,  and  others  cited  are 
distinguishable,  for  there  the  invalidity  relied  on  by  the  stockholders 
was  invoked  to  defeat  the  claim  of  a  creditor. 


§352  RIGHT  TO   MAKE   BY-LAWS.  I  l6l 

As  we  shall  affirm  the  decree  appealed  from,  we  have  not  thought 
it  worth  while  to  consider  the  motion  made  to  dismiss  the  appeal. 
Decree  affirmed  xvith  costs  above  and  be/ozv. 

Note.  See,  1829.  Sargent  v.  Franklin  Ins.  Co.,  8  Pick.  90,  19  Am.  Dec.  306; 
1878,  Farmers',  et<;.,  Bank  v.  Wasson,  48  Iowa  336,  30  Am.  Rep.  398;  1893, 
Bank  of  Atchison  v.  Durfee,  118  Mo.  431.  40  Am.  St.  Rep.  396;  1893,  Trust 
and  Savings  Co.  v.  Home  Lumber  Co.,  118  Mo.  447  ;  1894,  New  England  Trust 
Co.  V.  Abbott,  162  Mass.  148,  27  L.  R.  A.  271,  and  note;  1895,  Ireland  v.  Globe 
Milling,  etc.,  Co.,  19  R.  I.  180,  61  Am.  St.  Rep.  756,  29  L.R.  A.  429;  1897, 
McNulta  V.  Com  Belt  Bank,  164  111.  427,  56  Am.  St.  Rep.  203;  1898,  Ireland 
V.  Globe  Milling  Co.,  20  R.  I.  192,  38  L.  R.  A.  299,  8  A.  &  E.  C.  C.  N.  S.  136, 
n.  p.  141. 

See  note  to  Brinkerhoff-Farris  Trust,  etc.,  Co.  v.  Lumber  Co.,  118  Mo.  447, 
infra,  p.  1162,  and  note,  57  Am.  St.  Rep.  379,  384. 


Sec.  352.    Same. 

3.   Liens. 

CHILD  VBBSUS  HUDSON'S  BAY  COMPANY.* 

1723.     In  the  High  Court  of  Chancery.     2  Peere  Williams  Re- 
ports 207-209. 

Sir  Stephen  Evans  was  one  of  the  proprietors  of  the  stock  of  the 
Hudson's  Bay  Company,  which  company  are  made  a  corporation  by 
charter,  and  are  thereby  empowered  to  make  by-laws  for  the  better 
government  of  the  company,  and  for  the  management  and  direction 
of  their  trade  to  Hudson's  Bay. 

Accordingly  they  made  a  by-law,  that  if  any  of  their  members 
should  be  indebted  to  the  company,  his  stock  in  the. company  should 
be  in  the  first  place  liable  to  the  debts  which  such  member  should  owe 
the  company,  and  that  the  company  might  seize  and  detain  the  said 
stock  for  the  debts  due  to  them. 

[Evans  became  bankrupt,  and  his  assignees  brought  a  bill  against 
the  company  asking  for  an  accounting  of  the  profits  and  dividends  on 
Evans's  stock ;  the  company  insisted  that  Evans  was  indebted  to  them, 
and  that  his  stock  ought  to  be  liable  to  pay  the  debt.  It  was  argued 
for  the  plaintiffs  that  the  stock  or  its  proceeds  should  not  be  made 
specially  liable  to  pay  any  one  debt,  but  should  be  applied  to  all,  and 
that  no  by-law  could  be  made  in  this  way  to  the  prejudice  of  any  third 
person.  The  debt  of  Evans  was  not  direct  to  the  company,  but  to 
J.  S.  in  trust  for  the  company,  upon  an  insurance  project  of  that  com- 
pany.] 

Macclesfield,  L.  C.  This  is  a  good  by-law,  for  the  legal  interest 
of  all  the  stock  is  in  the  company,  who  are  trustees  for  the  .'several 
members,  and  may  order  that  the  dividends  to  be  made  shall  be  under 
particular  restrictions,  or  terms;  and  by  the  same  reason  that  this  by- 
law is  objected  to,  the  common  by-laws  of  companies,  to  deduct  the 

*  Statement  of  facts  abridged. 


Il62        BRINKERHOFF-FARRIS    CO.    V.    HOME,    ETC.,    CO.         §353 

calls  out  of  the  stocks  of  the  members  refusing  to  pay  their  calls,  may 
be  said  to  be  void. 

As  to  the  other  part  of  the  by-law,  empowering  the  company  to  de- 
tain and  seize  the  stock  of  such  member,  that  is  also  good;  but  then 
there  ought  to  be  some  acts  done  by  the  company,  to  order  or  declare, 
that  the  stock  of  such  member  is  seized  for  the  debt  due  to  the  said 
company;  but  this  being  a  by-law,  to  the  prejudice  of  other  ci-editors, 
it  shall  be  taken  strictly,  and  not  to  extend  to  such  debt  as  the  mem- 
ber does  not  owe  in  law,  but  only  in  equity,  and  in  the  present  case 
this  is  in  law  a  debt  due  toy^.  6". 

A  corporation  has  an  implied  power  to  inake  by-laws ;  but  where 
the  charter  gives  the  company  a  power  to  make  by-laws,  they  can  only 
make  them  in  such  cases  as  they  are  enabled  to  do  by  the  charter,  for 
such  power  given  by  the  charter  implies  a  negative,  that  they  shall 
not  make  by-laws  in  any  other  cases. 

Thus,  where  the  company,  in  the  principal  case,  have  a  power  given 
them  b}^  the  charter  to  make  by-laws  for  the  management  of  their 
trade  to  Hudson's  Bay^  this  power  implies  a  negative,  that  they  can 
not  make  any  other  by-laws;  a  _/br/Z(?rz' they  can  not  make  by-laws 
in  relation  to  projects  and  insurances,  which  by  act  of  parliament  are 
declared  to  be  illegal. 

Note.     See  note  next  case. 


Sec.  353.    Same. 

BRINKERHOFF-FARRIS  TRUST  and  SAVINGS  CO.  v.  HOME  LUMBER 
COMPANY,  Appellant.i 

1893.     In  THE  Supreme  Court  OF  Missouri.      118  Missouri  Rep. 

•447-463- 

[In  18S8  the  Trust  Company  loaned  Cleland  $13,000,  and  accepted 
as  collateral  security  two  certificates  of  stock  of  par  value  of  $5,000 
each  in  the  lumber  company,  transferable  only  on  the  books  of  the  com- 
pany upon  surrender  of  the  certificates.  Cleland  having  made  default, 
the  trust  company  sold  the  stock,  and  through  its  president  became 
purchaser,  and  afterward  presented  the  certificates  for  transfer  on  the 
books  of  the  lumber  company;  this  was  refused  because  Cleland  was 
indebted  to  the  lumber  company  and  it,  by  virtue  of  its  by-laws,  claimed 
a  lien  on  the  stock.  The  tnist  company  claimed  it  had  no  notice  of 
such  by-law,  and  it  was  therefore  void  as  to  it.  The  by-law  pro- 
vided "any  transfer  of  stock  shall  be  subject  to  the  lien  of  the  com- 
pany thereon  for  any  indebtedness  due  the  company  from  the  holder."] 

Gantt,  p.  J.  *  *  *  The  court  found  the  issue  in  favor  of  the 
plaintiff  and  assessed  the  damages  at  the  par  value  of  the  stock  and 
interest  from  date  of  demand.  Motions  for  a  new  trial  and  in  arrest 
were  duly  made  and  overruled  and  exceptions  were  duly  taken  to  the 
admission  and  exclusion  of  evidence  and  giving  and  refusing  instruc- 
tions, and  the  case  is  brought  to  this  court  by  appeal. 

*  Statement  abridged.     Arguments  omitted.     Only  part  of  opinion  given. 


§   353  RIGHT   TO    MAKE    BY-LAWS.  II63 

I.  The  defendant  is  a  business  corporation  organized  and  existing 
under  the  provisions  of  article  8,  chapter  21,  of  Revised  Statutes  of 
1879,  and  the  general  provision  of  article  i,  of  said  chapter  21,  so 
far  as  applicable. 

By  section  709,  Revised  Statutes  1879,  the  directors  of  a  corpora- 
tion like  this  are  only  empowered  to  make  "by-laws  to  direct  the 
manner  of  taking  the  votes  of  stockholders  on  the  question  of  increas- 
ing or  diminishing  the  number  of  directors  or  trustees,  or  of  changing 
the  corporate  name."  The  power  to  make  all  other  needful  or  neces- 
sary by-laws  is  conferred  upon  the  corporation  itself,  and  can  only  be 
exercised  by  the  stockholders.  Rex  v.  Westwood,  7  Bing.  i ;  Bank 
V.  Bank,  17  Mass.  33;  Carroll  v.  Bank,  8  Mo.  App.  249;  State 
Savings  Association  v.  Printing  Co.,  25  Mo.  App.  642;  Albers  v. 
Merchants'  Exchange,  39  Mo.  App.  583. 

It  was  very  clearly  pointed  out  by  Judge  Hayden  in  Carroll  v.  Bank, 
supra^  that  in  the  cases  of  Mechanics'  Bank  v.  Merchants'  Bank,  45 
Mo.  513,  and  Ins.  Co.  v.  Goodfellow,  9  Mo.  149,  and  Spurlock  v. 
Railroad,  61  Mo.  326,  the  directors  in  each  case  received  their  au- 
thority to  make  the  by-laws  in  question  in  those  cases  directly  from 
the  legislature. 

It  is  very  clear  that  the  attempt  of  the  directors  of  the  defendant 
company  to  adopt  the  by-laws,  restricting  the  rights  of  its  stockhold- 
ers to  convey  their  stock  to  any  one  until  the  said  directors  had  re- 
fused to  purchase  it  or  while  indebted  to  the  corporation,  was  without 
warrant  or  authority  of  law,  and  as  such  is  not  binding,  either  on  the 
stockholders  or  those  purchasing  from  them.  The  company  itself 
had  no  right  to  pass  such  a  by-law.     Moore  v.  Bank,  52  Mo.  377. 

But  it  is  claimed  by  appellant  that  the  so-called  by-law  and  the 
resolution,  although  not  valid  as  a  by-law,  is  nevertheless  binding  as 
a  valid  agreement  on  all  who  were  parties  to  it,  and  that,  as  Mr.  Cle- 
land  was  then  the  president  of  defendant  and  a  director,  he  was  bound 
by  it,  and  that  plaintiff,  as  a  purchaser  from  Cleland,  took  only  an 
equity,  and  was  chargeable  with  notice  of  this  lien,  asserted  by  de- 
fendant, and  that  all  [as]  the  certificates  of  stock  are  not  negotiable 
papers,  plaintiff  can  not  occupy  the  position  of  an  innocent  purchaser 
for  value  and  without  notice.     «     *     * 

The  spirit  of  all  modern  legislation  is  opposed  to  secret  liens.  At 
common  law  a  corporation  has  no  lien  on  the  stock  of  its  stockholders 
for  any  indebtedness  to  it.  Accordingly,  when  such  a  lien  is  asserted, 
it  should  clearly  appear  to  be  authorized  by  public  law,  or  by  a  duly 
adopted  by-law,  or  valid  agreement,  of  which  the  purchasers  of  the 
stock  have  notice.  None  of  these  conditions  existed  as  to  the  stock 
in  suit  when  it  was  transferred  as  security  for  plaintiff's  loan,  and ' 
consequently  plaintiff  took  it  without  being  bound  by  so-called  by-law 
and  resolution. 

By  section  739,  Revised  Statutes  1879,  this  stock  was  expressly  de- 
clared to  be  personal  estate  and  transferable  in  the  manner  pre- 
scribed by  the  by-laws,  and  no  shares  should  be  transfered  until  all 
previous  calls  thereon  should  be  fully  paid.     The  only  restriction  on 


Il64        BRINKERHOFF-FARRIS    CO.    V.    HOME,    ETC.,    CO.        §  353 

the  transfer  by  this  section  is  upon  the  stock  which  was  not  fully  paid 
up ;  a  restriction  not  applicable  here,  because  this  stock  was  fully 
paid  up  in  the  beginning.  The  pui^pose  of  permitting  the  company 
to  require  a  transfer  on  the  books  was  clearly  to  advise  the  company 
of  the  change  of  ownership  in  order  that  only  the  owners  of  the  stock 
should  participate  in  the  corporate  election,  and  to  enable  the  corpo- 
ration to  pay  dividends  without  risk,  or  make  assessments  upon  the 
holders  of  its  stock,  but  certainly  it  was  not  intended  that  under  this 
power  to  regulate  transfers,  the  company  should  create  or  reserve  a 
secret  lien  upon  the  stock.  Without  reference  to  its  ^z^a^z'-negotiable 
character,  the  pledge  or  sale  of  this  stock  was  simply  a  pledge  or  sale 
of  personal  property,  and  the  pledgee  or  vendee,  without  notice  of 
the  lien,  took  it  discharged  therefrom.  He  did.  not  purchase  a  mere 
equity  in  paper,  but  he  purchased  personal  property.  If  that  property 
was  bound  by  a  lien  of  which  he  had  lawful  notice,  he  took  subject 
to  it,  and  if  he  had  no  such  notice  he  took  it  discharged  therefrom. 
The  mere  recital  that  "it  was  only  transferable  on  the  books  of  the 
company"  was  not  notice,  either  of  a  restriction  on  sale,  or  of  a  lien 
thereon.       «     *     * 

[Upon  the  question  of  value,  the  court  held  the  measure  of  damages 
for  conversion  is  its  actual  value,  which,  if  it  has  no  market  value,  is 
presumptively  its  face  value,  but  may  be  established  by  proof  of  its 
dividend-earning  capacity  (though  an  expert's  opinion  on  this  point 
is  not  competent),  or  by  value  of  corporate  assets,  or  by  individual 
sales  not  under  compulsion.] 

A  firmed. 

Note.  By  the  weight  of  authority  valid  liens  upon  shares  can  not  be  created 
by  by-law  alone,  so  as  to  prevent  the  transfer  of  the  shares,  divested  of  the  lien, 
to  persons  having  no  notice  of  such  lien :  1825,  Fitzhugh  v.  Bank,  3  T.  B.  Mon. 
(Kv.)  126,  16  Am.  Dec.  90,  note:  1829,  Sargent  v.  Franklin  Ins.  Co.,  8  Pick. 
90,"l9  Am.  Dec.  306;  1878,  Farmers',  etc..  Bank  v.  Wasson,  48  Iowa  336,  30 
Am.  R.  398;  1880,  Bank  of  Hollv  Springs  v.  Pinson,  58  Miss.  421,  38  Am.  R. 
330;  1892,  Gemmel  v.  Davis,  75  Md.  546,  32  Am.  St.  R.  412,  note;  1893,  Bank 
of  Atchison  Co.  v.  Durfee,  118  Mo.  431,  40  Am.  St.  R.  396;  1896,  Bloede  Co. 
v.  Bloede,  84  Md.  129.  57  Am.  St.  R.  373,  note  379,  supra,  p.  1159;  1897,  Boyd 
V.  Redd,  120  N.  C.  335,  58  Am.  St.  R.  792;  1898,  Dorr  v.  Life,  71  Minn.  38,  70 
Am.  St.  R.  309.  See  also  notes  11  Am.  Dec.  581,  85  Am.  Dec.  619,  57  Am. 
St.  R.  379. 

Contra,  1822,  Morgan  v.  Bank,  8  Serg.  &  R.  73,  11  Am.  Dec.  575;  1870, 
Mechanics'  Bank  v.  Merchants'  Bank,  45  Mo.  513,  100  Am.  Dec.  388.  See 
also  cases  given  in  notes  11  Am.  Dec.  581,  and  85  Am.  Dec.  619. 

Such  valid  lien,  however,  may  be  created  by  express  statutory  or  charter 
provision  or  authority.  1859,  Reese  v.  Bank,  14  Md.  271,  74  Am.  Dec.  536; 
1896,  Bloede  Co.  v.  Bloede,  84  Md.  129,  57  Am.  St.  R.  373,  note  379;  1898. 
Dorr  V.  Life,  71  Minn.  38,  70  Am.  St.  R.  309. 

Or  by  contract  contained  in  the  certificate  of  stock:  1899,  Stafford  v.  Pro- 
duce Exchange  Banking  Co.,  61  O.  S.  160,  76  Am.  St.  Rep.  371. 


§  354  RIGHT  TO  MAKE   BY-LAWS.  II65 

Sec.  354.    Same. 

4.   Expulsion  of  members. 

EVANS  V.  THE  PHILADELPHIA  CLUB.» 

1865.      In  the   Supreme  Court  of    Pennsylvania.     50  Pa.  St. 

Rep.  107-127. 

Certificate  from  the  court  at  AHsi  Prius.  Evans  petitioned  for 
mandamus  to  be  restored  to  membership  in  the  club,  claiming  to  have 
been  expelled  for  an  insufficient  cause.  The  decision  of  the  court  at 
Nisi  Prius  was  delivered  by  Woodward,  C.  J.,  as  follows: 

"This  case  touches  the  power  of  a  private  corporation  to  disfran- 
chise one  of  its  members,  and  it  will  be  necessary  and  proper  to  ex- 
amine, somewhat  minutely,  the  authorities  of  the  law  bearing  upon 
the  point. 

"The  leading  case  upon  this  branch  of  law  is  that  of  James  Bagg, 
decided  in  the  reign  of  James  I  (A.  D.  1616),  and  reported  in  Coke's 
Reports,  part  xi,  p.  93.  Bagg  was  one  of  twelve  chief  burgesses 
of  the  borough  of  Plymouth,  in  England,  and  having  been  guilty  of 
the  most  scandalous  and  disorderly  speeches  to  the  mayor  and  his  fel- 
low burgesses,  was  expelled,  but  the  King's  Bench  restored  him  by 
mandamus.  Among  other  things  it  was  resolved,  'That  no  freeman 
of  any  corporation  can  be  disfranchised  by  the  corporation,  unless  they 
have  authority  to  do  it,  either  by  the  express  words  of  the  charter  or 
by  prescription ;  but  if  they  have  not  authority,  neither  by  charter  nor 
prescription,  then  he  ought  to  be  convicted  by  course  of  law  before  he 
can  be  removed.'  And  in  support  of  this.  Lord  Coke  quotes  that 
famous  clause  of  Magna  Charta,  beginning  '■Nulhis  liber  kot?io,^  etc. 

"Though  much  was  said  about  disfranchisement  in  Bagg's  case,  it 
was  really  a  case  of  amotion,  and  not  of  disfranchisement.  Bagg 
was  removed  from  the  office  of  burgess,  and  not  expelled  from  the 
borough  by  the  action  of  the  corporation.  Mr.  Willcock,  in  his  ex- 
cellent treatise  on  Corporations,  page  270,  defines  amotion  as  applica- 
ble only  to  officers,  and  says  it  cause.s  a  cessation  of  the  particular  of- 
fices from  which  they  are  amoved,  but  in  no  manner  affects  their 
right  to  the  freedom  of  the  municipality;  whilst  disfranchisement  is 
applicable  only  to  the  freedom,  and  cuts  off  the  coi-porator  from  all 
rights  and  privileges  of  the  corporation.  It  appears,  he  says,  that 
there  is  not  an  incidental  right  in  corporations  to  disfranchise  their 
members,  but  it  must  be  claimed  by  prescription  or  express  grant  of 
the  charter.  For  this  he  refers  himself  to  Bagg's  case,  which,  he  says, 
has  never  been  expressly  overruled ;  the  cases  in  which  it  has  been 
questioned  having  been  cases  of  amotion.  He  then  goes  on  to  make 
some  general  observations  on  the  subject,  all  of  which  are  so  excel- 
lent, and  some  of  which  are  so  pertinent  to  the  case  in  hand,  that  I 
am  tempted  to  transcribe  them.     He  says:    'At  the  time  when  James 

*  Statement  of  facts  abridged.    Arguments  and  part  of  opinion  omitted. 


Il66  EVANS   V.    THE   PHILADELPHIA   CLUB.  §   354 

Bagg's  case  was  before  the  court,  their  attention  had  been  rarely  at- 
tracted to  the  consideration  of  corporate  causes,  and  the  distinction 
between  the  right  to  the  offices  and  the  right  to  the  freedom  of  a 
municipality  had  been  little  considered.  The  particular  case  was  of 
amotion  from  office ;  the  arguments  were  in  general  more  applicable 
to  disfranchisement.  But  there  is  a  material  difference  in  principle. 
The  enjoyment  of  office  is  not  for  the  private  benefit  of  the  corpora- 
tor, but  an  honorable  distinction  which  he  holds  for  the  welfare  of 
the  corporation,  and  therefore,  though  it  be  an  office  of  a  freehold 
nature,  it  is  entirely  conditional.  «  *  *  g^t  the  franchise  of  a 
freeman  is  wholly  for  his  own  benefit,  and  a  private  right;  a  right  in 
the  municipality  similar  to  that  of  a  natural  subject  in  the  state,  of 
which  he  ought  not  to  be  deprived  for  any  minor  offense  against  his 
corporate  fealty,  any  more  than  that  for  which,  as  a  subject,  he  ought 
to  be  deprived  of  his  franchise  as  a  liegeman.  For  this  reason,  all 
minor  corporate  offenses,  suc/i  as  improper  behavior  to  his  fellow- 
corporators^  where  not  punishable  by  the  general  law  of  the  land,  as 
well  as  violations  of  his  corporate  duties,  ought  to  be  punished  by 
penalties  imposed  by  the  ordinances  of  the  municipality,  and  not  by 
disfranchisement.  But  such  offenses  against  the  general  law  as  occa- 
sion a  forfeiture  of  all  civil  rights,  import  in  themselves  a  forfeiture 
of  the  corporate  franchise ;  and  offenses  against  the  corporation  which 
tend  to  its  destnaction,  such  as  defacing  the  charters,  altering  the  cor- 
porate records  so  as  to  destroy  the  evidence  of  their  title  to  privileges, 
or  that  of  the  title  of  his  fellow-corporators  to  their  franchises,  are  of 
course  causes  of  disfranchisement.' 

"These  observations  relate  to  municipal  corporations;  but  why  are 
they  not  equally  applicable  to  private  corporations  ?  The  interest  or 
'freedom'  which  a  member  has  in  a  private  corporation  is  as  tinily  a 
'franchise'  as  that  which  any  of  the  burgesses  mentioned  in  Bagg's 
case  had  in  the  borough  of  Plymouth,  and  may  often  be  a  much  more 
valuable  franchise.  Where  it  has  been  obtained  by  the  payment  of  a 
pecuniary  consideration,  and  property  is  held  in  connection  with  it,  it 
is  a  vested  estate,  and  certainly  ought  not  to  be  sacrificed  on  account 
of  minor  offenses,  which  would  not  be  permitted  to  forfeit  individual 
interests  in  a  municipal  corporation.  And  if  a  power  to  disfranchise 
in  a  municipal  corporation  does  not  exist  unless  expressly  granted,  it 
is  very  safe  to  conclude  that  it  is  not  inherent  in  a  private  corporation, 
and  must  have  an  express  grant  to  support  it. 

"The  extent  to  which  Bagg's  case  has  been  overruled  is  clearly  in- 
dicated in  Lord  Brace's  Case,  2  Strange  819,  which  was  a  case  of 
amotion,  not  disfranchisement,  and  where  it  was  said  'the  modern 
opinion  has  been  that  a  power  of  amotion  is  incident  to  the  corpora- 
tion, though  Bagg's  case  seems  contrary.'  Richardson's  Case,  i  Burr. 
517,  was  amotion  from  a  municipal  office — that  of  portman  of  the 
borough  of  Ipswich.  Lord  Mansfield  went  very  fully  into  the  law  of 
corporations,  and  whilst  the  amotion  was  not  sustained,  he  sanctioned, 
very  distinctly,  the  'modem  opinion'  referred  to  in  Lord  Bruce's  case, 


§   354  RIGHT   TO    MAKE    BY-LAWS.  II67 

and  stated  three  sorts  of  offenses  for  which  an  officer  or  a  corporator 
may  be  discharged: 

"  'I.  Such  as  have  no  immediate  relation  to  his  office;  but  are  in 
themselves  of  so  infamous  a  nature  as  to  render  the  offender  unfit  to 
execute  any  public  franchise. 

"  '2.  Such  as  are  only  against  his  oath  and  the  duty  of  his  office  as 
a  corporator,  and  amount  to  breaches  of  the  tacit  condition  annexed  to 
his  franchise  or  office. 

"  '3.  Such  as  are  of  a  mixed  nature,  as  being  an  offense  not  only 
against  the  duty  of  his  office,  but  also  a  matter  indictable  at  common 
law.' 

"Of  these  distinctions,  limited  originally  to  municipal  corporations, 
I  shall  have  something  to  say  hereafter,  when  I  come  to  speak  of  them 
in  connection  with  private  corporations. 

"In  Earle's  Case,  Carthew  173,  it  was  held  that  a  member  of  a 
corporation  can  not  be  disfranchised  except  for  that  which  works  to 
the  destruction  of  the  body  corporate,  or  of  the  liberties  and  privileges 
thereof,  and  not  for  any  personal  offe7ise  of  one  member  to  another. 

"Tidderly's  Case,  i  Siderfin  14,  was  a  question  of  restoring  a  mu- 
nicipal officer  who  had  voluntarily  resigned,  and  Chief  Justice  Hale 
held  that  every  corporation  had  power  to  receive  a  resignation,  and 
might,  for  good  cause,  amove. 

"These  cases  are  sufficient  to  reflect  the  opinion  of  the  English 
courts  on  Bagg's  case.  A  more  full  reference  to  the  authorities  will 
be  found  in  the  notes  to  Willcock's  chapter  on  disfranchisement,  in 
his  work  on  Coi-porations.  The  result  seems  to  be  that  the  resolu- 
tion I  quoted  from  Bagg's  case  has  been  so  far  modified  that  the 
power  of  amotion  is  inherent  in  the  nature  of  corporations  and  not 
dependent  upon  prescription  or  charter,  but  the  authorities  do  not 
establish  the  point  that  corporations  have  inherent  power  to  disfran- 
chise a  private  member.  But  Bagg's  case  is  an  authority  against  the 
power  of  disfranchisement  no  farther  than  the  reasonings  therein  are 
entitled  to  respect,  for  the  point  of  the  case  had  not  reference  either 
to  private  corporations  or  the  power  of  disfranchisement.  Whilst, 
therefore,  the  very  point  of  the  case  may  be  regarded  as  overruled, 
the  reasonings,  as  expounded  by  Mr.  Willcock,  are  such  as  to  com- 
mend them  to  universal  acceptance.  Where  corporations  are  founded 
upon  private  capital,  the  modern  English  cases  are  very  unanimous 
in  holding  that  no  stockholder  can  be  disfranchised,  and  thereby  de- 
prived of  his  interest  in  the  property  of  the  corporation,  without  an 
express  authority  for  the  purpose  in  the  charter. 

"In  Pennsylvania,  The  Commonwealth,  ex  rcL  John  Binns,  v. 
The  St.  Patrick  Benevolent  Society,  2  Binn.  441,  is  the  leading  case. 
The  society,  under  a  power  conferred  by  its  charter,  made  a  by-law 
that  vilifying  a  member  by  another  member  should  be  punished  as  a 
crime  against  the  society,  by  removal  from  office,  fine,  or  expulsion. 
Binns  having  been  convicted  of  grossly  vilifying  a  fellow-member, 
was  expelled  therefor  under  this  by-law.  The  supreme  court  restored 
him  upon  mandamus ^  mainly  on  the  ground  that  the  by-law  was  not 


Il68        EVANS  V.  THE  PHILADELPHIA  CLUB.        §  354 

necessary  for  the  good  government  and  support  of  the  affairs  of  the 
corporation — that  it  subjected  the  rights  of  membership  to  the  uncer- 
tain will  of  a  majority — that  'the  offense  of  vilifying  a  member,  on  a 
private  quarrel,  is  totally  unconnected  with  the  affairs  of  the  society, 
and  therefore  its  punishment  can  not  be  necessary  for  the  good  gov- 
ernment of  the  corporation.'  Chief  Justice  Tilghmah,  delivering  the 
opinion  of  the  court,  quoted  Lord  Mansfield's  three  sorts  of  offenses 
as  laid  down  in  Richardson's  case,  and  said  Binn's  offense  did  not 
come  within  either  of  them,  and  he  concluded  by  declaring  that 
'without  an  express  power  in  the  charter,  no  man  can  be  disfranchised 
unless  he  has  been  guilty  of  some  offense  which  either  affects  the  in- 
terest or  good  government  of  the  corporation,  or  is  indictable  by  the 
law  of  the  land.' 

"In  Fuller  v.  The  Trustees  of  the  Plainfield  Academy,  6  Conn. 
532,  Judge  Dagget  alluded  to  the  doctrine  that  a  power  of  amotion 
is  incidental  to  .coi"porations,  but  seemed  to  doubt  whether  it  was  ap- 
plicable to  any  but  municipal  corporations,  and  quoted  Judge  Story 
as  saying  in  the  Dartmouth  College  case  that  there  could  be  no  amo- 
tion of  the  trustees  of  that  institution,  and  he  restored  the  trustee  of 
the  Plainfield  Academy,  who  had  been  expelled  for  disrespectful  and 
contemptuous  language  towards  his  associates,  and  for  neglect  of  duty 
as  a  trustee.  'The  court,'  he  said,  'can  not  justify  expulsion  froin 
office  on  such  charges.  What  the  trustee  might  have  done  to  one  of 
their  number  who  had  committed  a  crime  which  would  banish  him 
from  society,  it  is  not  necessaiy  to  decide.'  Another  principle  was 
asserted  in  this  case,  that  the  place  of  a  trustee  in  an  eleemosynary 
corporation,  though  no  emoluments  are  attached  to  it,  is  a  franchise 
of  such  a  nature  that  a  person  improperly  dispossessed  of  it  is  enti- 
tled to  redress  by  mandatnus.  See  also  Dartmouth  College  v.  Wood- 
ward, 4  Wheat.  676. 

"In  the  case  of  Gray  v.  The  Medical  Society  of  Erie,  24  Barb. 
570,  a  physician  was  asking  to  be  restored  to  a  society  from  which  he 
had  been  expelled  for  violating  a  by-law  that  prescribed  a  tariff  of 
fees  for  medical  services.  The  supreme  court  of  New  York  went 
very  fully  into  the  authorities  upon  corporate  powers,  and  held  that 
the  power  given  to  medical  societies  by  statute  to  make  by-laws  and 
regulations  relative  to  the  admission  and  expulsion  of  members,  was 
not  an  arbitrary  or  unlimited  power,  and  that  a  by-law  must  be  reason- 
able, and  adapted  to  the  purposes  of  the  corporation. 

"In  the  case  of  The  Commonwealth  v.  Philanthropic  Society,  5 
Binn.  486,  we  have  in  our  own  courts  what  is  very  rare  in  the  author- 
ities, an  instance  of  expulsion  that  was  sustained.  A  member  made 
a  demand  upon  the  society  for  relief  agreeably  to  the  rules  of  the  in- 
stitution, and  presented  a  physician's  bill  which  he  iiad  altered  from 
$4  to  $40,  and  which  he  claimed  to  have  paid.  Upon  the  ground 
that  this  was  a  scandalous  crime,  amounting  almost,  if  not  quite,  to 
technical  forgery,  and  that  it  was  directly  injurious  to  the  society,  his 
expulsion  was  supported. 

"In  The  Commonwealth  v.  The  Franklin  Beneficial  Association, 


§  354  RIGHT   TO    MAKE   BY-LAWS.  I^^ 

lo  Barr  357,  a  member  was  restored  who  had  been  expelled  for  enlist- 
ing in  a  violation  of  a  by-law  of  the  society. 

"In  The  Commonwealth  v.  The  German  Society,  3  Harris  251,  a 
society  for  'mutual  support  and  assistance,'  the  cause  of  disfranchise- 
ment was  that  the  member  had  assisted,  as  president  of  the  society, 
in  defrauding  it  out  of  fifty  cents,  and  had  defamed  and  injured  the 
society  in  public  taverns.  It  was  held  not  to  be  a  sufficient  cause, 
and  he  was  restored. 

"When  the  charter  of  the  Butchers*  Beneficial  Association  was 
presented  to  our  supreme  court,  it  was  rejected  on  the  ground,  among 
others,  that  it  allowed  the  association  to  expel  members  who  should 
be  'guilty  of  actions  which  may  injure  the  association.'  This,  said 
the  chief  justice,  we  can  not  approve ;  for  it  gives  the  association  an 
entirely  indefinite  power  over  its  members.  For  any  action  which 
may  injure  them  they  may  expel,  and  therefore  they  may  expel  a 
member  for  becoming  insolvent.  It  is  totally  incompatible  with  the 
whole  spirit  of  our  institutions,  to  clothe  anybody  with  such  indefinite 
power  over  its  members;  for  it  is  equivalent  to  socialism,  and  is  a  re- 
jection of  all  individual  rights  within  the  association.  It  is  common 
in  such  charters  to  found  the  right  of  expulsion  on  the  fact  that  the 
member  has  been  found  guilty  of  some  crime  on  a  trial  in  court,  and 
this  is  quite  proper.      11  Harris  151. 

"In  the  case  of  The  Beneficial  Association  of  Brotherly  Unity,  2 
Wright  299,  a  charter  was  rejected  because  it  gave  a  majority  the 
power  to  expel  any  member  'guilty  of  an  offense  against  the  law' — 
the  court  holding  that  a  constitution  that  puts  all  power  over  rights  in 
the  hands  of  a  majority  is  no  constitution  at  all. 

"Gathering  now,  into  one  group,  the  principles  of  decision  that  lie 
scattered  through  the  authorities,  they  may  be  stated  thus : 

"i.  That  the  power  of  amotion  for  adequate  cause,  is  an  inherent 
incident  of  all  corporations,  whether  municipal  or  private,  except, 
perhaps,  such  as  are  literary  or  eleemosynary,  but  the  exercise  of  this 
power  does  not  affect  the  private  rights  of  the  corporator  in  the  fran- 
chise. 

"2.  That  the  power  of  disfranchisement  which  does  destroy  the 
member's  franchise,  must,  in  general,  be  conferred  by  statute,  and  is 
never  sustained  as  an  incidental  power,  without  statute  grant,  except 
in  two  cases — first,  on  conviction  of  the  member  in  a  court  of  justice 
of  an  infamous  offense;  and  second,  where  he  has  committed  some 
act  against  the  ^oce'e/y  which  tends  to  its  destruction  or  injury. 

"3.  That  the  power  to  make  by-laws  is  incidental  to  corporations, 
and  generally  expressly  conferred  by  statute ;  but  by-laws  which  vest 
in  a  majority  the  power  of  expulsion  for  minor  offenses,  are,  in  so  far, 
void,  and  courts  of  justice  will  not  sustain  expulsion  made  under 
them. 

"4.  In  joint  stock  companies,  'or,  indeed,  in  any  corporation  own- 
ing property'  (Angell  &  Ames  on  Corporations,  §  410),  no  power 

74 — WIL.  CAB. 


il/O        EVANS  V.  THE  PHILADELPHIA  CLUB.        §  354 

of  expulsion  can  be  exercised  unless  expressly  conferred  by  the  char- 
ter.    *     *     * 

"The  65th,  66th  and  67th  by-laws  enact  that  'if  the  conduct  of  a 
member  be  disorderly,  or  injurious  to  the  interest  of  the  club,  or  con- 
trary to  its  by-laws,  he  shall  be  requested  to  resign,  and  if  the  request 
be  disregarded,  the  board  shall  refer  the  matter  to  the  next  stated 
meeting  of  the  club,  and  at  such  meeting  the  circumstances  of  the 
case  shall  be  considered,  and  the  member  may  be  expelled.' 

"The  relator  became  a  member  of  the  club  in  1848,  and  it  is  not 
alleged  that  he  has  failed  to  pay  any  of  his  dues,  or  perform  any  of 
his  duties  to  the  club,  but  the  return  alleges  that  on  'the  evening  of 
the  24th  of  February,  1863,  the  defendant  was  guilty  of  breaking  the 
65th  by-law  by  having  an  altercation  within  the  walls  of  the  club- 
house with  Samuel  B.  Thomas,  and  by  striking  him  a  blow.'  For 
this  he  was  expelled.     *     *     * 

"It  is  not  alleged  that  the  relator  is  a  quarrelsome  person  or  habitu- 
ally disorderly.  On  the  contrary,  it  was  admitted  in  argument  that 
he  is  a  respectable  gentleman,  and  it  is  shown  that  when  the  offense 
occurred  he  was  sitting  in  the  bar-room  of  the  club-house  in  quiet  and 
friendly  conversation  with  another  person,  when  Thomas  entered  and 
uttered  defamatory  words  which  the  relator  understood  to  be  applied 
to  himself.  It  was  therefore  an  assault  upon  Thomas,  provoked  by 
himself.  It  was  not  an  interruption  of  any  deliberations  or  proceed- 
ings of  the  club  in  a  state  of  organization — it  occurred  not  in  a  reading- 
room,  or  an  eating-room,  nor  at  a  card  or  billiard  table,  but  in  vs'hat 
is  called  the  office  or  bar-room  of  the  house. 

"I  look  upon  the  occurrence  as  disorderly  and  injurious  to  the  in- 
terest of  the  club,  within  the  meaning  of  the  65th  by-law,  but  as  one 
of  those  'minor  offenses,'  of  which  Mr.  Willcock  speaks,  and  for 
which  a  majority  have  no  power,  even  under  the  by-laws,  to  disfran- 
chise a  member.  And  upon  the  doctrine  of  the  cases  I  have  referred 
to,  I  hold  the  by-law  void  so  far  as  it  inflicts  this  extreme  penalty  for 
such  an  offense.  I  would  be  very  sorry  to  say  that  anything  short  of 
a  statute  could  confer  on  a  majority  of  the  members  of  any  corpora- 
tion power  to  expel  a  fellow-member  for  merely  disorderly  con- 
duct.    ^'     *     * 

"But  what  is  conclusive  of  this  case  is,  that  the  coiporation  pos- 
sesses property,  real  and  personal,  and  is  at  liberty  to  accumulate 
more,  until  an  annual  revenue  of  $3,000  comes  to  be  enjoyed;  and 
the  relator  has  purchased  and  paid  for  the  right  to  participate  in  that 
franchise.  It  is  not  a  joint  stock  company  at  present,  for  under  its 
by-laws  no  pecuniary  profits  are  divisible  among  the  members,  but  it 
may  become  so,  and  whether  it  does  or  not,  the  relator  has  a  vested 
interest  in  its  estate,  and  can  not  be  deprived  of  it  by  the  proceedings 
that  were  had  against  him.  On  this  point  the  authorities  are  clear, 
and  without  conflict.  Nothing  but  an  express  power  in  the  charter 
can  authorize  a  money  corporation  to  throw  overboard  one  of  its 
members.  I  have  shown  that  the  act  of  incorporation  contained  no 
such  power.  On  the  contrarv,  it  excluded  it,  for  the  proviso  reads 
'that  nothing  herein  contained  shall  be  so  construed   as  to  authorize 


§  355  RIGHT  TO   MAKE   BY-LAWS.  II71 

said  Philadelphia  Association  and  Reading-Room  to  do  any  other  act 
or  acts  in  their  corporate  capacity  than  are  herein  expressed.' 
"For  these  reasons  a  peremptory  ;«a«t/a;««5'  must  be  awarded." 
Affirmed  by  an  equal  division  of  the  court  in  banc. 

Note.  As  to  right  to  provide  by  by-laws  for  expulsion  of  members,  see, 
1810,  Commonwealth  V.St.  Patrick's  Sue,  2  Binney  (Pa.)  441,  4  Am.  Dec.  453; 
1821,  Deiacy  v.  Neuse  River  Nav.  Co.,  1  Hawks  (N.  C.)  274,  9  Am.  Dec.  636; 
1836,  In  re  Phil.  Sav.  lust.,  1  Whart.  1  Pa. .  461,  30  Am.  Dec.  226;  1836.  Black, 
etc.,  Soc.  V.  Vandyke,  2  Whart.  312,30  Am.  Dec.  263;  1857,  Austin  v.Searin<r, 
16N.  Y.  112,69  Am  Dec.  66.5,  no<r 671  ;  1866,  Society,  etc.,  v.  Commonwealth,  52 
Pa.  St.  125,  91  Am.  Dec.  139;  1869,  State  v.  Georgia  Med.  Soc,  38  Ga.  608,  95 
Am.  Dec.  408,  supra,  p.  136,  note  140;  1871,  Dickenson  v.  Cliamber  of  Com., 
29  Wis.  45,  9  Am.  Rep.  544;  1872,  Gresjg  v.  Massachusetts  M.  Soc,  111  Mass. 
185,  15  Am.  Rep.  24,  note  27;  1888,  Otto  v.  Journeyman,  etc,  Union,  75  Cal. 
308.  7  Am.  St.  Rep.  156,  note  160;  1890,  Connelly  v.'Masonic,  etc.,  Ben.  Ass'n, 
68  Conn.  552,  18  Am.  St.  Rep.  296;  1890,  Commonwealtii  v.  Union  League,  135 
Pa.  St.  301,  20  Am.  St.  Rep.  870;  1891,  Huston  v.  ReutHnger,  91  Ky.  333,  34 
Am.  St.  Rep.  225;  1892,  Am.  Live  Stock  Co.  v.  Chicago  L.  S.  Ex.,  143  111.  210, 
36  Am.  St.  Rep.  3^5,  s?<pm,  p.  682;  1895,  Ryan  v.  Cudahy,  157'I11.  108,  48  Am. 
St.  Rep.  3a5;  1896,  Jackson  v.  South  "Omaha  L.  S.  Ex.,"  49  Neb.  687;  18t}6, 
Board  of  Trade  of  Chicago  v.  Nelson,  162  111.  431,  53  Am.  St.  Rep.  312;  1897,: 
Robinson  v.  Templar  Lodge,  117  Cal.  370,  59  Am.  St.  Rep.  193,  nofe  201;  1899, 
Weiss  V.  Musical,  etc..  Union,  189  Pa.  St.  446,  69  Am.  St.  Rep.  820. 

Mandamus  is  the  proper  remedy  to  reinstate:  1821,  Deiacy  v.  Neuse  Riv. 
Nav.  Co.,  1  Hawks  (N.  C.)  274,  9  Am.  Dec.  636;  1836,  Black,  etc.,  Soc  v.  Van- 
dyke, 2  Whart.  (Pa.)  312,  30  Am.  Dec  263;  1869,  State  v.  Georgia  Med.  Soc, 
38  Ga.  608,  95  Am.  Dec.  408,  supra,  136;  1888,  Otto  v.  Journeyman  Tailors', 
etc,  Union,  75  Cal.  308,  7  Am.  St.  Rep.  156;  1897,  Robinson  v.  Templar  Lodge, 
117  Cal.  370,  59  Am.  St.  Rep.  193,  note  201 ;  1899,  Weiss  v.  Musical,  etc..  Union, 
189  Pa.  St.  446,  69  Am.  St.  Rep.  820. 

The  courts,  however,  will  not  generally  interfere,  unless  there  are  property 
rights  involved,  or  for  the  purpose,  and  to  the  extent  only,  of  ascertaining 
that  the  proceedings  were  according  to  the  rules  and  regulations,  carried  on 
in  good  faith,  and  not  in  violation  of  the  law  of  the  land :  1857,  Austin  v. 
Searing,  16  N.  Y.  112,  69  Am.  Dec.  665,  note  671 ;  1877,  lUinois.  etc.,  Soc  v. 
Baldwin,  86  111.  479;  1888,  Otto  v.  Journeyman  Tailors'  Union,  75  Cal.  308,  7 
Am.  St.  Rep.  156,  note  160;  1890,  Lewis  v.  Wilson,  121  N.  Y.  284;  1890,  Con- 
nelly v.  Masonic  M.  B.  Ass'n,  58  Conn.  552,  18  Am.  St.  Rep.  296,  note  201 ; 
1895,  Ryan  v.  Cudahy,  157  111.  108,  48  Am.  St.  Rep.  305;  1896,  People  v.  N. 
Y.,  etc.,  Exch.,  149  N.  Y.  401. 


Sec.  355.     3.  Validity  of  by-laws  in  general. 

THE  PEOPLE  V.  THE  CHICAGO  LIVE  STOCK  EXCHANGE.* 

1897.     In  the  Supreme  Court  of  Illinois.     170  III.  556-571,  62 
Am.  St.  Rep.  404. 

[Petition  for  leave  to  file  information  in  nature  of  quo  warranto 
against  the  Live  Stock  Exchange,  for  assuming  to  enact  and  attempt- 
ing to  enforce  without  authority,  a  by-law  prohibiting  members  from 
employing  trade .  solicitors  not  members  of  the  association,  limiting 

'  Statement  of  facts  abridged.     Arguments  and  part  of  opinion  omitted. 


11/2         THE   PEOPLE   V.    THE    LIVE    STOCK   EXCHANGE.  §   355 

the  number  of  solicitors  which  may  be  employed  by  members  in  cer- 
tain states,  and  providing  that  such  solicitors  must  be  paid  a  fixed 
salary,  and  not  allowed  to  work  on  commission.  It  was  claimed  the 
by-law  was  in  restraint  of  trade,  and  interfered  with  the  legal  rights 
of  the  members.  The  lower  court  held  it  valid,  and  denied  the  ap- 
plication.     Appeal  was  taken  from  this  judgment.] 

Phillips,  C.  J.  *  *  *  The  common  law  refused  to  recognize  restric- 
tions upon  trade  and  business  among  the  citizens  of  a  common  country. 
Under  this  rule  of  the  common  law  the  right  of  the  laborer  to  dispose 
of  his  skill  and  industry,  and  to  contract  in  reference  to  the  same  with 
whom  he  pleased  and  at  such  contract  rates  as  might  be  agreed  on, 
was  recognized  and  not  allowed  to  be  trammeled  with  restrictions 
which  interfered  with  individual  action  and  liberty.  Combinations 
and  associations  of  men  have  no  right  to  place  restrictions  upon  the 
right  of  an  individual  to  contract  and  engage  in  business,  employing 
such  means  and  agencies  as  are  not  prohibited  by  law.  The  natural  flow 
of  trade  and  commerce  must  be  unrestricted,  and  men  engaged  therein 
may  accelerate  its  current  by  all  means  not  unlawful.  To  this  end 
men  engaged  in  trade  and  commerce  may  advertise,  employ  men  to 
solicit  business  and  offer  rewards  and  inducements  to  secure  trade 
without  violating  the  law  of  the  land,  and  in  so  doing  are  exercising 
a  right  which  is  in  the  interest  of  the  public,  because  competition  can 
not  be  hostile  to  public  interests.  Efforts  to  prevent  competition  and 
to  restrict  individual  efforts  and  freedom  of  action  in  trade  and  com- 
merce are  restrictions  hostile  to  the  public  welfare,  not  consonant  with 
the  spirit  of  our  institutions  and  in  violation  of  law.     *     ♦     * 

In  Rex  v.  Wardens  of  the  Coopers'  Co.,  7  T.  R.  543,  it  was  held 
that  a  by-law  limiting  the  number  of  apprentices  which  any  member 
of  the  company  might  take  was  void.  In  the  case  of  Tailors  of 
Ipswich,  II  Coke  53,  a  corporation  known  as  the  Tailors  of  Ipswich 
enacted  a  by-law  to  prohibit  any  tailor  from  exercising  his  trade  until 
he  had  presented  himself  before  the  corporation  and  proved  that  he 
had  served  seven  years  as  an  apprentice.  This  by-law  was  held  void, 
as  being  in  restraint  of  trade.  See,  also,  Gunmakers'  Society  v.  Fell, 
Willes  384.  Sustaining  the  same  propositions  are  Stanton  v.  Allen, 
5  Denio  434 ;  People  v.  Fisher,  14  Wend.  9 ;  Morris  Run  Coal  Co. 
V.  Barclay  Coal  Co.,  68  Pa.  St.  173;  People,  ex  rel.,  v.  Medical 
Society  of  Erie,  24  Barb.  570. 

A  case  similar  to  that  now  under  consideration  was  before  the  court 
of  appeals  of  Kentucky  in  Huston  v.  Reutlinger,  15  S.  W.  Rep. 
857.  There  the  Louisville  Board  of  Undei-writers  passed  a  by-law 
which,  among  other  things,  prohibited  local  companies  from  employ- 
ing more  than  one  solicitor,  and  regulated  the  manner  in  which  the 
salary  of  such  solicitor  was  to  be  paid.  For  a  violation  of  this  by- 
law the  offending  member  of  the  board  would  forfeit  all  rights  as  a 
member  of  the  association.  A  local  company  which  had  employed 
more  than  one  solicitor  sought  to  enjoin  the  enforcement  of  the  for- 
feiture on  the  ground  that  the  association  had  no  authority  to  control 
the  members  in  the  employment  of  solicitors,  etc.     A  decree  was  en- 


§  355  RIGHT  TO   MAKE   BY-LAWS.  1 173 

tered  in  accordance  with  the  prayer  of  the  bill,  which,  on  appeal,  was 
affirmed,  the  court  saying:  "The  majority  of  the  members,  under  the 
guise  of  producing  harmony  in  this  business  association,  have  taken 
from  their  individual  members  the  right  to  determine  how  many  men 
they  shall  employ  in  their  private  business,  and  then  only  such  as  the 
association  may  think  fit  for  the  position.  Nor  can  they  employ  a 
solicitor  for  a  less  period  than  six  months,  or  offer  a  solicitor  employ- 
ment within  twelve  months  after  the  solicitor  has  severed  his  connec- 
tion with  any  member ;  ai^e  compelled  to  discharge  those  in  their  em- 
ploy if  they  have  more  than  one;  and,  if  these  by-laws  are  enforced, 
have  placed  their  business  under  the  control  of  the  majority  vote  of 
the  association — a  power  the  exercise  of  which  was  not  given  by  the 
fundamental  law  of  the  order,  and  doubtless  not  contemplated  when 
the  association  was  formed.  *  *  ♦  The  common  law  rule,  recog- 
nized and  adopted  when  business  relations  were  not  so  multiplied  and 
extensive  as  now  and  when  less  necessity  existed  for  enforcing  it,  con- 
demned all  such  restrictions  upon  trade  and  business  intercourse  with 
men  as  is  found  to  exist  in  this  case.  The  right  of  one  to  control  his 
own  property  as  he  pleases,  and  to  employ  those  necessary  to  aid  him 
in  his  business  upon  such  terms  as  may  be  agreed  upon,  when  not  in 
violation  of  the  law  of  the  land,  is  the  rule  of  the  common  law,  and 
the  right  of  the  laborer  to  dispose  of  his  skill  and  industry  to  whom 
he  pleases  and  for  the  price  agreed  on  is  embraced  within  the  same 
rule.  In  all  classes  of  business  the  employer  and  employee  should  be 
allowed  to  contract  with  each  other  unrestrained  by  others  who  may 
demand  that  the  one  shall  give  more  or  the  other  receive  less,  and,  as 
a  general  rule,  when  restrictions  are  placed  upon  their  rights  by  com- 
binations or  associations  of  men,  they  will  be  regarded  as  in  violation 
of  law,  and  void." 

When  a  corporation  is  created  there  goes  with  it  the  power  to  enact 
by-laws  for  its  government  and  guidance  as  well  as  for  the  guidance 
and  government  of  its  members.  This  power  is  necessary  to  enable 
a  corpoi'ation  to  accomplish  the  purpose  of  its  creation.  But  by-laws 
must  be  reasonable  and  for  a  corporate  purpose^  and  always  within 
charter  limits.  They  must  always  be  strictly  subordinate  to  the  con- 
stitution and  the  general  law  of  the  land.  They  must  not  infringe 
the  policy  of  the  state  nor  be  hostile  to  public  welfare.  The  by-law 
in  this  case  is  a  restriction  on  freedom  of  trade  and  business.  It 
trammels  competition  and  prohibits  an  individual  from  contracting 
and  engaging  in  business,  and  from  using  such  agencies  and  means 
he  may  desire  not  hostile  to  general  law.  It  is  not  required  for  cor- 
porate purposes,  nor  is  it  included  within  the  purposes  declared  in  the 
certificate  of  incorporation.  It  is,  therefore,  unlawful,  as  this  cor- 
poration had  no  right  to  exercise  this  power  of  enacting  it  under  its 
franchise.     ♦     *     ♦ 

Petition  should  have  been  granted. 

Reversed  and  remanded. 

Note.  Validity  of  by-lmca  in  general:  They  must  be  reasonable,  not  violate 
charter,  statute  or  common  law  rules,  operate  uniformly  and  not  be  in  re- 


I  174  ■  SAMUEL    FLINT   V.    JAMES    PIERCE.  §   356 

straint  of  trade:  1837,  Matter  of  L.  I.  R.,  19  Wend.  37,  32  Am.  Dec.  429;  1848, 
Palmetto  Lodge  v.  Hubbell,  2  Strob.  (S.  C. )  457,  49  Am.  Dec.  604;  1854,  State 
V.  Overton,  4  Zabr.  (N.  J.)  435,  61  Am.  Dec.  671;  1863,  Sayre  v.  Louisville 
Benev.  Assn.,  1  Duvall  (Kv.)  143,  85  Am.  Dec.  613,  note  617 ;  1887,  Budd  v. 
Mnltnomah  St.  R.  Co.,  15  Ore.  413,  3  Am.  St.  Rep.  169,  infra,  p.  1669;  1892 
Am.  Live  Stock  Co.  v.  Chicago  L.  S.  Ex.,  143  111.  210,  36  Am.  St.  Rep.  385; 
1895,  Diirkee  v.  People,  155  111.  354,  46  Am.  St.  Rep.  340;  1897,  McNulta  v. 
Corn  Belt  Bank,  164  111.  427,  56  Am.  St.  Rep.  203;  1897,  People  v.  Chicago, 
etc.,  Exchange,  170  111.556,62  Am.  St.  Rep. 404,  supra,  p.  1171 ;  1897,  Wells  v. 
Black,  117  Cal.  157,59  Am.  St.  Rep.  162;  1897,  King  v.  Internat'l  Bldg. 
Union,  170  111.  135,  7  Am.  &  E.  C.  C.  (N.  S.)  626;  1899,  Northport,  etc.,  Assn. 
V.  Perkins,  93  Maine  235.  74  Am.  St.  Rep.  342;  1899,  Herring  v.  Ruskin  Co-op. 

Assn., Tenn.  Ch.  App.: ,52  S.  W.  Rep.  327;    1899,  Bailey  v.  Assn.  of 

Master  Plumbers,  103  Tenn.  99,  46  L.  R.  A.  561. 

But  if  they  are  authorized  by  the  charter,  the  courts  can  not  set  them  aside 
as  unreasonable:  1899,  Burden  v.  Burden,  159  N.  Y.  287. 

By-laws  can  not  modify  vested  rights  arising  under  contracts,  change  terms 
as  to  dividends,  increase  or  decrease  liability  of  shareholders,  or  enlarge  cor- 
porate powers:  IJ'68,  Flint  v.  Pierce,  99  Mass.  68,  96  Am.  Dec.  691,  iw/ra, 
p.  1174;  1887,  Hazeltine  v.  Belfast  R.  Co.,  79  Maine  411,  1  Am.  St.  Rep.  330; 
1897,  Wells  V.  Black,  117  Cal.  157,59  Am.  St.  Rep.  162;  1899,  Steiner  v. 
Steiner  L.  &  L.  Co.,  120  Ala.  128,  26  So.  Rep.  494;  1899,  State  v.  Citizens'  Bank, 
61  La.  Ann.  426,  25  So.  Rep.  318. 


Sec.  356.     4.   Effect  of  by-laws. 

SAMUEL  FLINT  v.  JAMES  PIERCE.» 

1868.    In  the  Supreme  Judicial  Court  of  Massachusetts.    99 
Mass.  Rep.  68-71,  96  Am.  Dec.  691. 

[Suit  by  Flint  against  Pierce  for  balance  of  a  loan  due  on  a  note 
given  in  1862  by  a  corporation  of  which  Pierce  was  a  member,  and  had 
signed  a  by-law  providing  that  "The  members  of  this  association 
pledge  themselves,  in  their  individual  as  well  as  collective  capacity,  to 
be  responsible  for  all  moneys  loaned  to  this  association."] 

Wells,  J.  The  note  upon  which  this  action  is  based  is  the  con- 
tract of  the  corporation.  The  defendant  is  not  a  party  to  that  con- 
tract ;  and  the  plaintiff  does  not  seek,  by  this  suit,  to  charge  him  upon 
any  statute  liability  as  a  stockholder.  Responsibility  for  the  amount 
of  the  note  is  sought  to  be  established  through  a  by-law  of  the  corpo- 
ration, to  which  the  defendant  had  attached  his  signature.  This  by-, 
law,  with  others,  was  adopted  in  183 1.  To  become  a  member  of  the 
association  it  was  requisite  to  subscribe  the  by-laws.  It  does  not  ap- 
pear that  the  defendant's  signature  was  attached  for  any  other  purpose 
than  to  constitute  him  a  member  of  the  corporation.  It  does  not  ap- 
pear, and  is  not  alleged,  that  the  plaintiff  lent  his  money  upon  the 
faith  or  credit  of  the  individual  pledge  contained  in  the  by-law;  nor 
that  the  by-law  was  in  any  manner  made  known  to  him,  or  to  the 
public,  as  the  basis  of  such  credit. 

^  Statement  abridged.     Arguments  and  part  of  opinion  omitted. 


§  356  IIGHT   TO   MAKE   BY-LAWS.  I  1/5 

The  office  of  a  by-law  is  to  reg^ilate  the  conduct  and  define  the 
duties  of  the  members  towards  the  corporation  and  between  them- 
selves. So  far  as  its  provisions  are  in  the  nature  of  contract,  the 
parties  thereto  are  the  members  of  the  association,  as  between  them- 
selves; or  the  corporation  upon  the  one  side  and  its  individual  mem- 
bers upon  the  other.  The  right  of  any  third  party,  stranger  to  the 
association,  to  establish  a  legal  claim  through  such  a  by-law,  must 
depend  upon  the  general  principles  applicable  to  express  contracts,  as 
laid  down  in  Mellen  v.  Whipple,  i  Gray  317,  and  the  subsequent 
decisions  in  Field  v.  Crawford,  6  Gray  1 16,  and  Dow  v.  Clark,  7 
Gray  198.  No  action  can  be  maintained  by  such  third  party  unless 
he  can  bring  his  case  within  some  of  the  recognized  exceptions  to 
that  general  rule.  A  pledge  like  the  one  in  question,  if  made  for  the 
purpose  of  enabling  the  corporation  to  obtain  a  loan  upon  the  faith  of 
it,  and  used  for  that  purpose,  may  perhaps  give  a  right  of  action 
against  the  subscribers  in  favor  of  a  party  who  has  been  induced  to 
advance  money  upon  its  credit.  This  seems  to  be  implied  strongly 
by  the  decision  in  the  case  of  Trustees  of  Free  Schools  in  Andover 
v.  Flint,  13  Met.  543',  inasmuch  as  the  plaintiff  in  that  case  appears 
to  have  failed  to  recover  upon  a  similar  claim  merely  for  the  reason 
that  the  defendant  had  not  signed  the  by-law.  But  no  such  facts  are 
shown  to  exist  in  the  present  case.  The  plaintiff  not  only  is  no  partv 
to  the  contract  contained  in  the  by-law,  but'he  fails  to  show  any  priv- 
ity between  himself  and  the  defendant  in  relation  to  the  subject-matter, 
or  to  the  consideration,  of  his  demand.  Judgment  must  be  rendered 
accordingly  for  the  defendant. 

Note.     Effect  of  by-laws. 

(al  As  to  members,  they  are  generally  held  to  be  charged  with  notice 
of  the  provisions  of  the  by-laws,  and  be  bound  by  them,  if  valid :  1854, 
Came  v.  Brigham,  39  Maine  35;  1859,  Anacosta  Tribe  v.  Murbach,  13  Md. 
91,  71  Am.  Dec.  625;  1884,  Wetherlv  v.  Med.  &  Sur.  See.,  76  Ala.  667; 
1887,  Mutual  Life  Ins.  Co.  v.  McSherrv,  68  Md.  41;  1888,  Supreme  Lodge 
K.  of  P.  v.  Knight,  117  Ind.  489,  3  L.  R.  A.  409;  1888,  Miller  v.  Hillehoro 
Mut.  F.  Assn.,  44  N.  J.  Eq.  224;  1889,  Pfister  v.  Gerwig,  122  Ind.  567; 
1893,  Matthews  v.  Assoc.  Press,  136  N.  Y.  333;  1894,  Mandel  v.  Swan,  L.  & 
C.  Co.,  51  111.  App.  204. 

But  see,  1891,  Pearsall  v.  W.  U.  Tel.  Co.,  124  N.  Y.  256,  21  Am.  St.  Rep.  662; 
1891,  Ruddv.  Robinson,  126  N.  Y.  113,22  Am.  St.  Rep.  816;  1894,  People's 
Home  Sav.  Bk.  v.  Sup.  Ct.,  104 Cal.  649,  43  Am.  St.  Rep.  147,  note  152. 

(b)  As  to  third  parties,  those  having  no  notice  of  by-laws  are  not  affected  by 
their  provision^:  1856,  Worcester  v.  Essex  Merrimac  B.  Co.,  7  Grav  (Mass.) 
457;  1869,  Samuel  v.  Holladay,  Fed.  Cas.  12288;  1892,  Am.  Li  v.  St.  Co.  v. 
Chicago  L.S.  Ex.,  143111.  210,36  Am.  St.  Rep.  3^5;  1893,  Metropole  B.&T.  B. 
Co.  v.  Garden  Citv,  etc.,  50  111'.  App.  681  ;  1898,  Barnes  v.  Black  D.  Coal  Co., 
101  Tenn.  354.  47  S.  W.  Rep.  498;  1898,  Ireland  v.  Globe  Milling  Co..  21  R. 
1.9,41  Atl.  Rep.  258;  1899,  North  port,  etc.,  Assn.  v.  Perkins,  93  Maine  236, 
Rep.  74  Am.  St.  Rep.  342. 

But  see,  contra,  1857,  Cummings  v.  Webster,  43  Maine  192;  1886,  Haden  v. 
Farmers'  &  M.  F.  Assn.,  80  Va.  683. 


1175a  DISFRANCHISEMENT   OF   MEMBERS. 

ARTICLE    IX.      DISFRANCHISEMENT    OF    MEMBERS. 

See  State  v.  Georgia  Med.  Soc,  38  Ga.  608,  95  Am.  Dec.  408, 
supra,  p.  136,  note  140;  White  v.  Brownell,  2  Daly  329,  supray 
p.  187;  Belton  V.  Hatch,  109  N.  Y.  593,  4  Am.  St.  Rep.  495,  supra, 
p.  178;  American  Live  Stock  Co.  v.  Chicago  L.  S.  Ex.,  143  III.  210, 
36  Am.  St.  Rep.  241,  supra,  p.  682;  Evans  v.  The  Philadelphia 
Club,  50  Pa.  St.  107,  supra,  p.  1165,  and  note,  p.  1171. 


LAW  UBRART 

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hOiA  ANG£L£8 


UC  SOUT>eM  REGIONAL  LSnARY  FAOUTY 

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A    000  703  076    0 


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